IMS Health, Inc. Q1 2008 Earnings Call Transcript

IMS Health Inc. (RX)

Q1 FY08 Earnings Call

April 17, 2008, 8:00 AM ET

Executives

Darcie Peck - VP, IR

David R. Carlucci - Chairman and CEO

Leslye G. Katz - Sr. VP and CFO

Gilles V.J. Pajot - COO

Analysts

Larry Marsh - Lehman Brothers

Randall Stanicky - Goldman Sachs

John Kreger - William Blair

Sandy Draper - Raymond James

Jim Kumpel - FBR Capital Markets

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the IMS Health First Quarter 2008 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, April 17, 2008. I would like now to turn the conference over to Darcie Peck, Vice President, Investor Relations. Please go ahead.

Darcie Peck - Vice President, Investor Relations

Thank you operator. Good morning and welcome to the IMS first quarter 2008 earnings conference call. With me today are Dave Carlucci, our Chairman and Chief Executive Officer; Leslye Katz, our Chief Financial Officer and Gilles Pajot, our Chief Operating Officer. Dave and Leslye will discuss highlights from our first quarter 2008 results and then we will open it up for your questions. As in the past, we've posted slides on our website and I would encourage you to review these during our prepared remarks this morning.

Certain statements we make today are forward-looking within the meaning of the U.S. federal securities laws. These statements include certain projections regarding the trends in our business, future events and future financial performance. We caution you that these statements are just predictions and the actual event or results may differ. They can be affected by inaccurate assumptions or by known or unknown risks or uncertainties. Consequently, no forward-looking statement can be guaranteed.

I call your attention to our first quarter 2008 earnings release, issued earlier today, and our full year 2007 report on Form 10-K which describe the factors that could cause actual results to differ materially from those contained in forward-looking statements. Forward-looking statements represent our views only as of the date they are made and the company undertakes no obligation to correct or update them, whether as a result of new information, future events or otherwise.

Certain of the financial measures we'll talk about today are on an adjusted non-GAAP basis. These may include, for example, operating income, net income, EPS and free cash flow. Detailed reconciliations to results on a U.S. GAAP reported basis is in our press release, and I encourage investors to review the notes in our press release further describing adjusted non-GAAP measures.

Now, let me turn the call over to Dave Carlucci. Dave?

David R. Carlucci - Chairman and Chief Executive Officer

Thank you, Darcie. Good morning everyone and thanks for joining us. As you've seen from our press release, we're off to a good start in 2008. For the first quarter, revenue was $574 million, up 13% reported. With a significant share of our business coming from outside the U.S., reported growth in the quarter reflects the benefit of a weaker dollar. Operating income rose 5% as reported. Earnings per share was up 6% to $0.37 compared with $0.35 in last year's first quarter.

Now, let's get right to our regional results. In the Americas, we started the year with 9% reported revenue growth in the quarter, driven by another strong performance in the U.S. Our commercial effectiveness offerings, which help our clients implement new sales models, performed well, as did our managed market services that help clients work more effectively with government and payers.

Another bright spot in the region was a strong Information and Analytics performance, led by our patient-level insights and weekly exponent prescription services. They measure new dynamics in the marketplace and help our clients move faster to improve sales productivity. We're executing well on these offerings, which will continue to drive growth for us throughout the year.

In EMEA new market measurement offerings across the region help drive 15% reported growth. We needed to deliver our new product initiatives in the major markets including Germany and the U.K. and we're doing that. These included our enhanced Sales Force Effectiveness, oncology and promotional information offerings. There were also a strong demand for our pricing and reimbursement and sales and account management offerings as clients looked to us for advice on their product launches and realign their country and regional sales structures.

We're pleased with our results in EMEA, where there are a lot of moving parts, about three-quarters of our restructuring actions in the quarter took place there. And that will lead to an improving operating performance in the region in the second half.

The Asia-Pacific region posted 18% reported revenue growth reflecting strong demand in Japan for our Sales Force Effectiveness and consulting offerings. Our growth was also driven by Japanese based clients who increasingly are turning to us for market information to evaluate their global opportunities. We're focused on continuing to build scale in the region and growth will accelerate in our emerging markets through improved traction of new offerings such as DDD, oncology and Promo.360.

From a business line perspective we have a strong start in Sales Force Effectiveness. Our largest business line grew 14% as reported. We said that we expected to see more clients implementing new sales models this year and we're benefiting from those initiatives. This was reflected in strong demand for Precision Sales Force in our large markets as well as enhanced information offerings we launched throughout 2007. In the first quarter Portfolio Optimization grew 6% reported in line with more moderate growth that we expected coming off of 2007 which was very strong. We are on track in PO and have more opportunities in front of us with small pharma, biotechs and generics companies.

Launch. Brand and Other was up 17% reported, driven by strong growth for our consumer help and managed markets businesses. We'll continue to benefit from accelerating adoption of our anonymized patient level data increasingly used by customers to demonstrate the value of medicines.

In the initiatives we've taken over the past year to improve coverage and drive global consistency of our promotional and oncology assets will continue to be contributors to our growth this year. Our Consulting & Services business grew 15% reported. Keep in mind that we had a very tough compare with exceptional 44% reported growth in the first quarter of last year. Our breadth of C&S capabilities is a strength for us in this marketplace, and as we roll out new offerings we are capturing opportunities in areas such as managed markets services, government solutions and sales account management.

During the quarter we took steps to better manage our portfolio and streamline our practice areas, going from 5 to 3 and that did lead to some execution challenges in the short term. Going forward we expect healthy double-digit growth in C&S throughout 2008.

Going into the year, we had a very specific plan to drive growth and accelerate operational efficiencies. We've moved out aggressively on our restructuring actions in the quarter and we are very pleased with how that's going. So all in all, a good start to 2008 as we delivered an operational and financial performance in line with what we told you in January. We said then that the growth of our Sales Force Effectiveness business would improve in 2008 and it has. We said that Portfolio Optimization would have a more moderate growth rate this year and that was the case in the quarter. And we will sustain double-digit growth in our Launch, Brand and Other business line.

We also told you at that time that we built our plan around the dynamics of the pharmaceutical market, and we don't see a change there. While the health of our clients is always important, there is still no direct correlation between the pharmaceutical industry's growth and ours. Witness our results in the U.S. and Japan this quarter where we had very strong performance in two relatively low growth markets. The market environment hasn't changed and neither has our game plan for 2008.

A good performance in the first quarter establishes a strong foundation for the year and gives us confidence in our full year guidance. Now I'll turn the call over to Leslye who will take you through the details of our first quarter. Leslye.

Leslye G. Katz - Senior Vice President and Chief Financial Officer

Thank you, Dave and good morning everyone. Dave took you through many of the drivers behind our solid performance in the quarter, so I'll touch on the few of the revenue highlights here and then cover the factors that contributed to our operating income, balance sheet and cash flow. And I'll give you an update on our progress implementing our restructuring plans.

Revenue was $574 million, up 13% including the benefit of a weaker dollar compared to Q1 2007. Revenue growth on a constant dollar basis was 6%. This performance puts us on track with our full year expectations at this point in the year. From a regional perspective the Americas grew 7%, EMEA 4% and Asia-Pacific 7% all on a constant dollar basis. We are off to a very good start in most of our top eight countries, led by excellent revenue growth in the U.S. and Japan. In the U.K., we achieved strong uptake of our information offerings from existing and new clients. And as we expected uptake of new information offerings in Germany was more moderate. Growth in the mid-size markets in Europe also continued at a solid pace.

Revenue growth for our Information and Analytics offerings improved compared to what we experienced in the second half of last year, driven by the new offerings that we launched into the market in '07. Consulting and Services' performance, which varies greatly by practice area and region was off to a slower start this year, particularly when compared to an extremely strong first quarter of '07.

IMS cost expense was $458 million and grew by 15% in the quarter on a reported basis. Eliminating the impact of foreign currency fluctuations, cost expense growth in the quarter was 8%. Operating cost of both I&A and C&S grew approximately inline with revenue, while selling and administrative expenses increased faster than revenue. One factor behind SG&A expense growth in Q1 was utilization rates in our C&S business, which came in several percentage points below our target due to the relatively slower start in C&S this quarter.

In our P&L model, this excess capacity shows up as an increase in SG&A expense. We also continue to invest in building out capabilities in C&S, across multiple geographies and practice areas. However the SG&A growth rate is higher than I would like and I am confident that through continued implementation of our restructuring plan, tight controls on hiring and discretionary spending and improved C&S utilization, this expense growth rate will slow.

Operating income in the first quarter was $116 million, up 5% reported and down 3% on a constant dollar basis. This is consistent with the dynamic I described to you on our year-end earnings call, given the strong performance in last year's first quarter and the phasing of the restructuring savings into the second half of this year, operating income in Q1 lagged revenue growth. Operating margins were 20.3%, slightly better than our expectations.

Total interest expense net was $9 million, an increase of just under $2 million compared with first quarter '07. This reflects the increase in debt primarily due to our share repurchases this year. Our full year guidance, anticipated higher interest expense in '08 because of this higher level of debt.

On a GAAP basis net income was $59 million and EPS was $0.32. After adjusting for the phasing of foreign exchange hedge losses, net income was $68 million, down 3%. Adjusted EPS was $0.37, up $0.02 or 6%. The $0.05 difference between GAAP and adjusted EPS related to the $9 million after tax impact of phasing foreign exchange hedge losses. Preliminary free cash flow for the quarter was negative $45 million. Typically cash flow for IMS in the first quarter is the low point of the year and in some years it has been negative. This year is no exception. On a year-to-year basis, free cash flow is down $29 million. The $14 million of cash payments for the restructuring plan were a driver of the decline.

DSO in the first quarter was 77 days. This was higher than Q1 2007, due to the implementation of a common SAP financial system that is being rolled out globally this year. The U.S. go-live was in Q1 and pushed back the timing of billings to later in the quarter than usual. Post go-live, the cash collections in March and early April were very strong and DSO will return to normal levels in the U.S. in Q2. This new systems implementation is under way in EMEA and Latin America right now. And similar to the U.S., we may see some variability in DSO in those geographies in Q2. However, by mid-year, we will have completed 85% of the new systems implementation. I expect these roll outs will neither impair our ability to deliver DSO by year-end that is either better than prior year levels, nor prevent us from delivering our full year free cash flow within our guidance range.

In terms of capital deployment, during the first quarter we repurchased 10 million shares at a total cost of $229 million. 10 million shares remain available for repurchase under our Board authorization.

Through mid-April, we spent about $24 million on three acquisitions. In February, we acquired Robinson & James, a primary market research consulting company in Australia that round out our capabilities across the Asia-Pac region. Then in early April, we acquired Fourth Hurdle a U.K. health economics and outcomes research company and HBI, a U.S. acquisition in the payer market that expands our benchmarking capabilities for health plans including pay for performance algorithms and tools to evaluate network providers.

We also spent $22 million on deferred software and capital expenditures in the quarter, down approximately $12 million from the first quarter of last year. Cash and cash equivalents totaled $216 million at the end of the quarter, a decrease of $2 million compared with December 31, 2007. Debt as of March 31 totaled $1.57 billion, an increase of $364 million, compared with year-end '07, primarily due to the Q1 share repurchases and the foreign exchange translation impact of a weaker dollar on our yen denominated borrowings.

I am pleased with our start to the year. The Q1 revenue and operating income growth performance put us right on track to achieve our full year guidance. As you know we are implementing a very comprehensive restructuring plan during 2008. This plan resets our costs and expense structure to ensure that operating income growth will be balanced should revenue growth be at the low end of our guidance range for the year and better than balanced with constant dollar margin expansion at higher revenue growth levels. As you may recall there are three primary elements to the restructuring plan, strengthening client facing operations worldwide, increasing the company's operating efficiencies and streamlining our cost structure for the better than balanced growth that we've set as our goal.

I am very happy with the progress of our implementation thus far in the year. We've substantially completed the realignment of our client facing operations in EMEA and the U.S. We've implemented the consolidation of our consulting practice areas from 5 to 3 and we've begun our skills upgrading and critical hires. Across the customer delivery and development functions, we have completed some early actions as planned, although the majority of the reductions in this area are scheduled for the second half of the year. A large part of this plan will include the migration of production and data collection work to lower cost locations in Europe and Latin America and to offshore service providers.

We are also slightly ahead of plan in the Americas and EMEA, in streamlining our support functions across those regions. The restructuring actions are well under way, tightly managed and on track to achieve the cost expense savings that we laid out for you in our guidance call in January. We still expect full year cost expense savings in 2009 of $55 million to $60 million and about 45% of those savings in 2008.

With the first quarter now behind us, the elements we built into our guidance for revenue, operating income, EPS and free cash flow are performing as expected. We remain confident in our constant dollar revenue growth guidance range of 6 to 9% and 6 to 11% constant dollar growth for operating income. As this guidance shows we are committed to improving the operating income growth profile of IMS. And we are maintaining our EPS guidance for double-digit growth this year, reaching $1.70 to $1.76, and our free cash flow guidance of $300 million to $325 million. Now, let me turn the call back to Dave.

David R. Carlucci - Chairman and Chief Executive Officer

Thanks, Leslye. So, we accomplished a lot in the first quarter and the fundamentals of our business remain strong. We're focused on our clients and continuous improvement, and that was recently recognized by Fortune Magazine, which named IMS one of America's most admired companies. And for the second year in the row, we were named in the BusinessWeek's list of the 50 best-performing U.S. companies.

In its profile of IMS, BusinessWeek commented that our information quote helps increase efficiency and is even more precious in tough times, end quote. I couldn't agree more with that perspective. So, thanks for your time this morning and Gilles, Leslye and I would be happy to take your questions.

Question And Answer

Operator

Thank you very much. [Operator Instructions] And our first question comes from the line of Larry Marsh of Lehman Brothers. Please go ahead with your question.

Larry Marsh - Lehman Brothers

Thanks and good morning everyone. Thanks for the update. Dave, I guess really questions on the C&S business. You're calling out some execution challenges. I believe as you talked about going from 5 practice areas to 3. Leslye also talked about some lower utilization there. Can you walk us through what's happening and what's caused this disruption and how short-term you think this disruption will be for you this year?

David R. Carlucci - Chairman and Chief Executive Officer

Sure. Well first of all I think we called those elements out only because we saw utilization drop a bit to the low 60s percent range. And as we look at our ability to adjust to the new organization, deal with the restructuring efforts, it's not surprising to us that we might see things slow down a little bit in our ability to execute. And so it really does start, Larry, with an incredibly tough compare. We had 44% as reported growth in C&S in the first quarter, 38.5% on the constant dollar side. So that's primarily it, we anticipated slower rates particularly out of the chutes in the year. So I'll ask Gilles to elaborate on some of the specifics. But frankly this was really a bit predictable. We focused I think on the right issues for pharma. Demand continues to be strong. Our pipeline continues to be good. And we expect double-digit growth for the rest of the year. So Gilles, you might want to add some particulars around your observations.

Gilles V.J. Pajot - Chief Operating Officer

Yes, Dave. I really think this has to do with the fact that, first of all, in our restructuring program, we did address some of the areas. When we had the low profitability, we don't see the result for the first quarter; you see the results further down the road. The second situation, we did reorganize or practice area on our service organizations in order to better align them to the clients. As you know last year we saw a number of major shifts in the marketplace. We wanted to be able to fully capture the value of those, so we organized these 3 practice areas, these 4 service areas to be able to fully capture that value. And honestly the good news on that is we have a strong breadth of capabilities in that. We had to pick and choose the best one, align them with our sales organizations and we still see a very strong demand.

Larry Marsh - Lehman Brothers

So, just to be clear, did this entail some consultants actually having to be moved physically or what was it that specifically caused the disruption in the utilization in the first quarter? Was it just physical movement?

David R. Carlucci - Chairman and Chief Executive Officer

Larry, it's really, as you begin the year, first of all, we came off of a heavy push in the fourth and very good results. This is just from my perspective ordinary organizational dynamics. There is a lot of getting, communicating the news out on the new structure, how we are going to approach the market. I really see this as a very basic, kind of expected in a people business reaction and again, we would have liked to have seen C&S a little stronger but it is not something as we move forward that I am concerned about.

Larry Marsh - Lehman Brothers

Okay. And then second question, if I could. It seems like one of the stories for last year was some unanticipated consequences of market changes both in Germany and the U.K. that you talked about. As you look out for '08, are there any particular countries that we should be paying attention to where there are potential changes in the market? And I guess along with that, Dave, just you reiterate this morning the fact that you are not directly tied to changes in growth in your customers and is that just because of the nature of the spend or are you taking share or again, is that just a function of the spend from your customers on informatics doesn't really change in a slower growth environment?

David R. Carlucci - Chairman and Chief Executive Officer

Yeah, Larry. I mean you have some good questions. First of all as you know as we hit the mid year mark last year, there really were a confluence of events that we thought created a slowdown for us in the marketplace. And so one of the things that I tried to address in my prepared comments was that the market is pretty much the way we thought the market would be. So we have accounted for the issues around drug safety and around regulatory and legislative issues. To answer your specific question on do we anticipate any problems in particular countries, we don't see them at this point.

Larry Marsh - Lehman Brothers

Okay.

David R. Carlucci - Chairman and Chief Executive Officer

On the issue of why do I make the statement I do about direct correlation. It's more of a general statement about we're tied inextricably to pharma's growth, and that has not been the case historically and we don't see that to be the case going forward. On a specific account basis, we normally don't see it when they launch a new product. We don't see it when they have a particularly difficult quarter. So there is a not a direct connection is the purpose of that comment.

Larry Marsh - Lehman Brothers

Okay fine. And just finally a clarification from Leslye. I just want to make sure the boost in period-end receivables, it sounded like some seasonality and I usually see that Q4 to end of March. But also I guess the timing of the implementation of that new system, so I guess your message is we should see that start to normalize back to the normal levels, maybe in the second half of the year. Is that right?

Leslye G. Katz - Senior Vice President and Chief Financial Officer

Yes absolutely Larry.

Larry Marsh - Lehman Brothers

Okay.

Leslye G. Katz - Senior Vice President and Chief Financial Officer

We've got the go-live in Europe and Latin America right now. That will normalize out in the second half. By mid-year it will be 85% done, and the U.S. is already well back on track. They will fine by the end of Q2. They are already tracking very well.

Larry Marsh - Lehman Brothers

Okay, very good. And obviously the 3 to 325 free cash flow, clearly obviously includes the anticipated cash payout on severance and others, things, about $60 million for this year. I guess what about $13 million or $14 million of which you recognized in the first quarter. Is that right?

Leslye G. Katz - Senior Vice President and Chief Financial Officer

Yes. Yes and yes.

Larry Marsh - Lehman Brothers

Okay. Thank you.

David R. Carlucci - Chairman and Chief Executive Officer

Thanks Larry.

Operator

Thank you very much. And we'll proceed to our next question from the line of Randall Stanicky of Goldman Sachs. Please proceed with your question.

Randall Stanicky - Goldman Sachs

Great. Thanks very much for the questions. Dave just first, a follow-up from some of the tone around the customers. Understanding that you are not tied to pharma growth but do you see, as some of these companies continue to come out and talk about restructurings, realignments, optimizations, a whole host of terms, do you see a rate of change around some of that decision making as some of that process takes place?

David R. Carlucci - Chairman and Chief Executive Officer

Yes, but pretty much right in line with what we saw in '07 and what we anticipated in '09, or in '08 and for that reason '09. Our plan was to take advantage of that. I think we told you last year that we saw a little bit of a slowdown in sales force effectiveness as they put their plans together. And then we thought we'd see them implementing those new sales models more aggressively in '08. And I think our results in SFE in the first quarter show that we're yielding some of that activity, particularly in this Precision Sales Force area that we have put together to help them manage that change. We're also seeing a tremendous amount of activity in the managed markets area. Helping pharma deal with payers and government and certainly in the area of pricing, market access, in terms of pricing and reimbursement as well as health economics. So it is a market that as you know is undergoing a lot of change and a lot of pressure in a number of areas and that's the way we geared our resource deployment and our business plan for '08. And my points were really, it's pretty much exactly what we saw as we spoke to you the end of January.

Randall Stanicky - Goldman Sachs

And then from the other customer side, the biotech side, clearly there is an economic backdrop that is very different than we had over the last, call it six to twelve months. Are you seeing any early signs of ebbs and flows in terms of decision-making, ability to purchase services from that customer set at this point?

David R. Carlucci - Chairman and Chief Executive Officer

Yes, actually biotech has been strong for us and, then, particularly we've seen strong growth in generics as you might imagine. So that business has grown in double digits for us, as has biotech and mid-size pharma has been very strong.

Randall Stanicky - Goldman Sachs

Okay, great. And then one question for Leslye and then I'll jump off. Just in terms of deals and acquisitions, I know you talked, you touched on that briefly. Given what's clearly been at least since the last time you guys talked publicly a pull back in both private and publicly equity valuations. Does that at all change I guess the view of the $70 million to $100 million in acquisitions that you had at least talked about last quarter doing in 2008?

Leslye G. Katz - Senior Vice President and Chief Financial Officer

No I don't see that changing, Randall. I think we're on track for that $70 million to $100 million and our acquisition strategy remains unchanged.

Randall Stanicky - Goldman Sachs

Okay. And what was the, and sorry, just one final clarification. In terms of what you built into guidance in terms of share buyback, can you just maybe if I missed that, can you update us on that?

Leslye G. Katz - Senior Vice President and Chief Financial Officer

Yes. We built in a 10 million share buyback into our guidance and we executed that in the first quarter. And we still have 10 million available to us going forward. But that's not, right now, we've not built that into our guidance.

Randall Stanicky - Goldman Sachs

So effectively what's in current guidance is so, additional buybacks would clearly be in addition to what is currently built into guidance?

Leslye G. Katz - Senior Vice President and Chief Financial Officer

Yes.

Randall Stanicky - Goldman Sachs

Okay great. Thanks very much.

Operator

Thank you very much. I will proceed to our next question from the line of John Kreger of William Blair. Please proceed with your question.

John Kreger - William Blair

Thanks very much. A quick question Leslye. Can you just update us, how high are you willing to go in terms of your debt levels, as you look out over the next one or two years?

Leslye G. Katz - Senior Vice President and Chief Financial Officer

Right now with the debt just under $1.6 billion, again I think, John, represents a reasonably comfortable place for us to be on a debt-to-EBITDA ratio. We're slightly under 3 the way our banks measure it. So, I'm comfortable with our capital structure where it is right now. I don't have a firm upward limit, but I think where we are now is a very good place to be.

John Kreger - William Blair

Okay, thanks. And then, Dave, perhaps a follow-up to Randall and Larry's question. I am guessing you're hearing from your larger clients that they've got a mandate to cut their own expense structure. When you get that call, what are the kind of services that you can point to that help them deliver that?

David R. Carlucci - Chairman and Chief Executive Officer

Well that's pretty much the total model, John, in terms of how we approach it. I think one of the things we're very pleased with in the first quarter is the completeness in which we had all of our contracts signing. And I think it was reflected a bit in the stronger Information & Analytics growth. So that's a very good sign for us. In each of the areas we tried to focus on capabilities that would have helped them maximize the return on their existing portfolios as well as a complete set of capabilities to help them optimize their sales forces of course, as well as their promotions, as well as their launches. And more recently, added capabilities and helping them with product and portfolio strategy.

So aside from the managed markets piece where we're helping them on managing both getting on formulary as well as complying. We pretty much surround them on the areas that are of greatest interest and are points of potential improvement. Recently we've been doing a lot work with a number of companies on helping them maximize their mature brands with less launches. There is an opportunity for us to go in and do a more in-depth analysis on how they could structure their sales and promotional resource around their mature brands. These are things that they hadn't looked at as closely in years where they were driving growth off of new launches. So it really is the whole model John.

John Kreger - William Blair

Great thanks. And then just one other question Dave. I think last fall you talked a bit about seeing a pattern of your clients starting to centralize their decision making process a bit. And if I recall correctly, you were saying that was holding back decision making on the part of your customers in the short-term but should be good for IMS longer-term. Can you give us an update about what you're seeing currently on that front?

David R. Carlucci - Chairman and Chief Executive Officer

Sure, we've talked in the past about global and regional level agreements. Since the last conversation we haven't entered into any additional global agreements. But we're seeing that trend continue significantly and the most productive aspects of that, I would say, still exists at this regional view, where in particular in areas like Europe and Asia-Pacific, they are trying to get to a much more common look at how they do business with their key suppliers as well as how they execute within their businesses. So I think that trend continues as a key area for them to do common promotional evaluation across multiple markets, those kinds of things and that's really the nature of a lot of these agreements. Can we help them to standardize on an approach and can we leverage the broader portfolio for us while looking at ways to make their business more efficient and more economical. I should also mention within that, this has led us also to looking at enhancing the services side of our Consulting & Services business to help them with the implementation of a lot of this standardization.

John Kreger - William Blair

Great thank you.

David R. Carlucci - Chairman and Chief Executive Officer

Thanks.

Operator

Thank you very much, proceed to our next question from the line of Sandy Draper of Raymond James. Please go ahead with your question.

Sandy Draper - Raymond James

Thanks and good morning. Just a couple of questions and I apologize, I jumped on a little late so you may have covered these in your opening remarks Dave. But one, can you talk a little bit more, obviously we didn't see a dramatic decrease in the EMEA business but constant dollar growth did drop a little bit. Would you generally say that was expected? What's your sort of confidence levels about stability around the overall EMEA business versus maybe where you were say six months ago relative to what was going on in the U.K. and Germany?

David R. Carlucci - Chairman and Chief Executive Officer

Sure, we did expect to finish about where we did. First quarter of '07 we were 20% reported growth and 11% constant dollar in EMEA. As you remember we began to fall off past the first quarter last year. So this is very much in line with what we saw in the fourth quarter and we actually saw excellent growth in the UK and we saw Germany on track. I would also say that you know a little bit analogous to the comments I made about C&S is that about three quarters of the actions related to restructuring took place in EMEA. So in light of all those moving pieces and what we saw, we feel good about EMEA. We also continued our positive performance in the mid-sized markets.

Sandy Draper - Raymond James

Great and then just one follow-up, looking at the different business units, based on the start of the year it looks to me like right now Sales Force Effectiveness is probably tracking to end up being a little bit better in terms of growth year-over-year. Portfolio Optimization down and Launch, Brand and Other about the same, maybe slightly lower in terms of growth rates. I know you aren't specific guidance per line but would you generally say, I am thinking about it the right way or I am off on any of those different units?

David R. Carlucci - Chairman and Chief Executive Officer

No you are thinking about it the right way.

Sandy Draper - Raymond James

Okay great, thanks a lot.

David R. Carlucci - Chairman and Chief Executive Officer

Thanks Sandy.

Operator

Thank you very much. I will proceed to our next question from the line of James Kumpel of FBR Capital Markets. Please go ahead with your question.

Jim Kumpel - FBR Capital Markets

Thank you. Leslye when you talked about the restructuring benefits being about 45% as big as this full annualized effect in 2009, can you talk about the specific areas where you are getting the most SG&A leverage and can you put in context the amount of SG&A that you expect to be pulling out by going more direct in the consulting side versus the uptake in SG&A that you are experiencing on the C&S side?

Leslye G. Katz - Senior Vice President and Chief Financial Officer

Well a fair amount of the restructuring as I think you know is around our customer delivery and development. So that's really going to have primarily an impact on the cost versus the SG&A side. But a large portion of it, as it relates to our client facing action and some of the streamlining that we have got planned across various regions is going to have an impact on SG&A. Not really breaking out individual elements of this restructuring along those lines, but we are about a little more than half way through on the client facing. We are running from a timing standpoint about where we expected to be on the streamlining aspect of it and we really aren't going to see the bulk of these benefits this year, Jim, until the second half. So there is a ramp throughout the year. So I know I'm not giving you the absolute specific dollars across the different elements of the savings, but we will definitely see benefits on that SG&A line in the second half of the year.

Jim Kumpel - FBR Capital Markets

Can you put in context the magnitude of the SG&A impact in the second half from the restructuring efforts versus the magnitude of the C&S uptick that you've been seeing due to the capacity under utilization?

Leslye G. Katz - Senior Vice President and Chief Financial Officer

I can't really do that specific quantification for you. I can tell you that both in terms of being on track on the implementation of the restructuring, and I think our expected double digit growth in the consulting business throughout the rest of the year, I expect to see improvements on both fronts.

Jim Kumpel - FBR Capital Markets

Now Dave, can you talk a little bit about whether or not the dynamics for the company have changed? You highlighted how consulting was going up against a tough comp, but do you see the nature of what's driving growth for the company, changing and skewing more towards new product launches of your own? Or do you continue to see consulting being by and large the biggest driver of your growth?

David R. Carlucci - Chairman and Chief Executive Officer

Well I think again the very good news is that we think I&A is sustainable. We are seeing the fruits of a number of announcements we made in the second half of the year of new offerings and those roll outs continue. As I look at C&S, we fully expect C&S to grow at higher levels than I&A. And we think there is opportunities there to look at the mix between pure consulting and services. So a third of revenue in Consulting & Services is services. And we saw services grow at a faster rate than consulting in the first quarter. So I like the mix and I like the breadth we have as we look across this.

I'd also like to remind you that we do have a unique model and the nature of the model is to keep Information & Analytics and Consulting & Services tightly linked. And so it may lend to the fact that you see in certain engagements a higher content of Information & Analytics and others of a much higher content of Consulting & Services. So I think the balance and breadth is going to be very important to us going forward.

Jim Kumpel - FBR Capital Markets

But I guess the nature of my question is the past couple of years, consulting has been clear and away the primary driver growth and I just wanted a sense from you if you think you have now reached that inflection point where bundling and the evolution of the company is such where consulting is now going to grow at more normalized levels and bundling and new product launches on the I&A and C&S side is really the primary driver of growth into the future?

David R. Carlucci - Chairman and Chief Executive Officer

Well I think two things. One is I wouldn't make judgments off a single quarter as being a trend or relating to a change in strategy at all. The year after the first quarter is playing out about where we thought it would play out. From a pure dollar contribution to growth, they have been about equal between I&A in Consulting & Services, so I expect that to also continue. But we've had amazing growth levels, a lot of it through acquisition in Consulting & Services. We said as we entered the year that we would continue to have a focus on profitability and that we thought we would drive a good double digit growth Consulting & Services business. That has not changed.

Jim Kumpel - FBR Capital Markets

Okay and then finally, Leslye can you comment on the DSO front and what gives you confidence about returning to normal levels? And if you could just remind us where you are targeting it to go in the second quarter, and maybe over the course of the year?

Leslye G. Katz - Senior Vice President and Chief Financial Officer

There are several things that give me confidence. One is that we demonstrated to ourselves and as a company that with the right focus on DSO, we get very good performance. And we saw that happen as we finished the fourth quarter and ended up with DSO in the fourth quarter at 62 days. So I think that focus continues and in fact as you may recall as I mentioned on our earnings call for the fourth quarter, we now have cash flow as a component, one of the elements in our incentive compensation. So that helps continue to maintain this strong focus on DSO. Thirdly, the fact that as we look at the U.S. and we saw yes in the quarter, with our systems implementation we had a billing delay. We focused heavily on collections in the last month. They were good. We didn't get back to Q1 of '07 levels in the U.S., but in the second quarter I fully expect we will and possibly even in the U.S. better than Q2 of '07. So again I'm very confident that as far as the systems implementation, that's purely a timing question. So together with all those elements I feel very comfortable that we'll end the year at a level that's at or better than where we were in Q4 of 2007.

Jim Kumpel - FBR Capital Markets

Okay thank you.

Operator

Thank you very much. [Operator Instructions] There are no further questions queued up at this time. Please continue with the presentation or closing remarks.

David R. Carlucci - Chairman and Chief Executive Officer

All right, well, thank you very much. I appreciate your time and look forward to getting back together and talking after the end of the first half. Thank you.

Operator

Thank you very much and ladies and gentlemen that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. And have a great day everyone.

Copyright policy: All transcripts on this site are copyright Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.