IMS Health Q2 2008 Earnings Call Transcript

IMS Health (RX)

Q2 FY08 Earnings Call

July 21, 2008, 8:00 AM ET

Executives

Darcie Peck - VP of IR

David R. Carlucci - Chairman and CEO

Leslye G. Katz - Sr. VP and CFO

Analysts

Larry Marsh - Lehman Brothers

John Kreger - William Blair

Sandy Draper - Raymond James

Glen Santangelo - Credit Suisse First Boston

Robert Willoughby - Banc of America

Randall Stanicky - Goldman Sachs

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the IMS Health Second 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, Monday, July 21, 2008. I would like now to turn the conference over to Darcie Peck, Vice President, Investor Relations. Please go ahead.

Darcie Peck - Vice President of Investor Relations

Thank you, operator. Good morning everyone and welcome to the IMS Second 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 second 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 view 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 second quarter 2008 earnings release, which we issued this morning 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, I'd like to 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 in our press release, we finished the first half of 2008 with a very good second quarter performance, putting us in a solid position to achieve our objectives for the full year. In the quarter, revenue was $601 million, up 12% reported. As you know, a significant share of our business comes from outside the U.S. and our reported growth continues to reflect the benefit of a weaker dollar.

Operating income rose 11% as reported. Adjusted earnings per share was $0.40, up a penny over last year's second quarter.

On our last call, we told you that we expected improved performance in our Consulting and Services business, and we delivered on that with 26% reported growth. And I am also very pleased with the progress we've made on our restructuring actions along with the overall management of our cost and expense.

Now let's get right to our regional results. In the Americas, we posted 7% reported revenue growth in the quarter and an 8% increase through the first half of the year. We sustained strong performance in the U.S., which delivered high single-digit growth. In Consulting and Services, particularly in our managed markets, pricing and market access and commercial effectiveness practices, growth also accelerated and our weekly Xponent and patient-centered offerings were key contributors in the region.

Looking at the second half, we expect additional wins with these information offerings, and we will build on our strong double-digit momentum in Consulting and Services.

The EMEA region grew 16% reported in the quarter and 15% through the first half. While growth in the major markets moderated somewhat in the second quarter, we did see a turnaround in Germany in the quarter and the UK delivered good growth year-to-date, providing a solid foundation for pick up in the second half. The mid-sized markets continue to perform well and we expect further strengthening there as we roll out new sales force effectiveness offerings.

I am pleased with the improving profit picture in Europe where our accelerated restructuring actions and tighter cost controls are starting to pay off with better sequential operating income performance. All these steps will lead to continued improvement through the end of the year.

In Asia Pacific, revenue rose 15% reported in the quarter and 16% year-to-date. This reflected both a pick up in C&S demand in the second quarter, offset by more moderate growth in Japan.

Our growth remained strong in China, where clients increasingly are looking to us for advice on their sales deployment and expansion strategies. We anticipate strong performance in Asia Pacific through the second half of the year with continued double-digit growth.

From a business line perspective, sales force effectiveness grew 12% as reported year-to-date. While growth in our SFE [Sales Force Effectiveness] business slowed somewhat in the second quarter, following a very good start to the year, our performance remains on track through the first half. Our SFE Consulting and Services offerings did well as we benefited from clients' implementation of their commercial model changes and an increased focus on emerging markets.

As we look to the second half, we expect continued strength in these areas. And overall, we'll have revenue growth in SFE through the end of the year similar to what we saw in the first half.

Our Portfolio Optimization business was up 6% reported year-to-date. As you're aware, we plan for more moderate growth in PO this year. Going into the second half, we have good momentum with our patient-centered information capabilities, portfolio strategy consulting engagements and offerings for our generics clients.

Launch, Brand and Other grew 19% reported through the first half with continued growth in our brand management, consumer health and managed markets offerings. IMS capabilities to help clients better understand payor and consumer trends are driving new business and that will continue into the second half.

Our revenue in the health economics and outcomes research space accelerated and will be a key contributor to growth going forward as clients increasingly need to demonstrate the value of their medicines.

And in Consulting and Services, growth through the first half of the year was 21% as reported. Our new practice area alignment is starting to pay dividends with cross-practice wins at a large number of clients both in EMEA and the U.S. Clients are recognizing the breadth of our commercial effectiveness offerings and new services capabilities. And we continue to execute well in helping them understand payor dynamics and the implication to their pricing strategies.

Overall, we are pleased with our C&S performance in the first half and we are going to continue to drive improving profitability and sustain double-digit growth through 2008.

So we delivered good top line growth and very good operating performance through the first half of the year. During that period, our revenue with our top 20 global clients grew 11% reported as did our top 8 countries, while our 7 emerging markets grew revenue at a 16% pace through the first half, led by China, Turkey and Brazil.

Also, we are ahead of plan on our implementation of our restructuring actions through 2008 and are on track to achieve annual savings of $55 million to $60 million in 2009. We had a much better DSO and cash performance in the second quarter and we are on track to deliver $300 million to $325 million of free cash flow this year.

Based on our performance for the first half, we are comfortable with our full year guidance. In light of a market environment that remains challenging for clients and a major restructuring of our company, I think our team is executing very well.

Now I will turn the call over to Leslye who will take you through the details of our quarter. Leslye?

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

Thank you, Dave, and good morning everyone. Dave took you through the dynamics behind our performance in the quarter and through the first half. I will provide you with some views of constant dollar revenue growth and describe the factors that contributed to our operating income growth and cash flow performance in the quarter. I will also provide an update on our restructuring program and close with guidance.

In the second quarter, revenue was $601 million, up 12%, including the benefit of a generally weaker dollar compared to Q2 2007. Revenue growth on a constant dollar basis was 4% in the quarter and 5% year-to-date.

From a regional perspective, revenue in the Americas grew 6% constant dollar in the quarter and year-to-date. In EMEA, revenue growth was 3% constant dollar in the quarter and first half. And Asia Pacific revenue was up 4% constant dollar in the quarter and 6% year-to-date.

Over the last five quarters, our Information & Analytics growth continued to be choppy. In the second quarter, I&A revenue grew 8% on a reported basis and was flat constant dollar. Year-to-date, I&A revenue increased 3% constant dollar.

Consulting and Services grew quite strongly in the quarter, 26% reported, 18% constant dollar. Year-to-date, C&S revenue grew 14% constant dollar. Our growth in C&S improved sequentially in the second quarter with double-digit constant dollar growth in all regions. In particular, C&S growth accelerated nicely in the Asia Pacific region outside of Japan. Across our service lines, revenue growth also increased this quarter with exceptional performance in information management and managed market services.

On a global basis, our pricing and market access and portfolio and product strategy practices were key drivers of the improved consulting performance. We expect double-digit constant dollar Consulting and Services revenue growth to continue for the remainder of this year.

From a business line perspective, year-to-date constant dollar growth for Sales Force Effectiveness was 5%, Portfolio Optimization was flat and Launch, Brand and Other was up 12%. Cost and expense in the quarter totaled $469 million, up 12% reported and 5% constant dollar. I&A operating cost grew in with I&A revenue growth, allowing us to maintain gross margin essentially flat for both the second quarter and year-to-date compared to last year. C&S operating cost grew faster than revenue in the quarter and year-to-date. Utilization improved from the mid-60s in Q1 to high-60s in Q2, which is more in line with our targeted levels.

SG&A growth slowed significantly in the quarter and was better than balanced with revenue growth. This is the result of an intense focus on the pace of hiring, discretionary expense control, improved consulting utilization and benefits from our restructuring program. Clearly, this year we are prepared for more variability in our revenue growth.

By tightly managing our restructuring, hiring and discretionary expense, we delivered operating income growth this quarter. The restructuring actions are well underway and on track to achieve the cost expense savings that we laid out for you in our guidance call in January. When the restructuring plan is completed, we expect 2009 full year savings of $55 million to $60 million.

As you may recall, there are three primary elements to the restructuring plan: One, strengthening our client facing operations worldwide; two, increasing the company's operating efficiencies and three, streamlining our cost structure for the better than balanced growth that we've set as our goal. We continue to be ahead of plan in streamlining our support functions across the region.

In the customer delivery and development function, we have completed actions as planned for the first half of the year. Significant reductions in this area are scheduled for the second half and we will see the benefit of those primarily in the fourth quarter. A large element 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.

Operating income in the second quarter was $131 million, up 11% reported and 1% constant dollar. Operating margin was 22% in the quarter, an improvement of 160 basis points from Q1 and essentially flat with the second quarter of last year.

Year-to-date, operating income was up 8% reported and down 1% on a constant dollar basis. This is consistent with how we expected operating income to flow in the first half versus second half of the year. Within the second half, we expect our growth to be skewed heavily to the fourth quarter, even more than in prior years, reflecting the fact that the benefits from restructuring are maximized in the fourth quarter.

Total interest expense net was $9 million, an increase of just over $1 million compared with second quarter 2007. This results from higher levels of debt, primarily due to our share repurchase in the first quarter. Other expense was $8 million, a year-to-year increase of $10 million, primarily driven by foreign exchange hedge losses. Second quarter 2008 included a foreign exchange hedge loss of $6 million compared to a two million gain last year.

On a GAAP basis, net income was $78 million, up 6%. After adjusting for the phasing of foreign exchanging hedge losses, Q2 net income was $73 million, down 7%.

GAAP EPS was $0.42, up $0.06 over Q2 '07. Adjusted EPS in the quarter was $0.40, up 3% over the second quarter of last year. The $0.02 difference between GAAP and adjusted EPS related to the $4 million after-tax impact of foreign exchange hedge loss phasing.

Preliminary free cash flow in the quarter was $86 million, up $131 million sequentially. Year-to-date, preliminary free cash flow was $41 million including the cash outlay of $28 million for severance under the restructuring plan.

DSO was 67 days in the second quarter, 10 days better than the first quarter and 1 day behind second quarter of last year. All of our regions made excellent progress from the first quarter. As you may recall, DSO in the U.S. was affected by some billing delays in the first quarter, the results of the implementation of our new global SAP system. As expected, U.S. DSO improved substantially in Q2. We also experienced minimal impact on DSO as we rolled out the new SAP system in EMEA and Latin America in the second quarter.

In terms of capital allocation, we did not repurchase any shares in the second quarter. Year-to-date, we repurchased 10 million shares at an average share price of $22.93 for a total cost of $229 million. 10 million shares remain authorized and available for repurchase under the December 2007 Board authorization.

During the second quarter, we spent $19 million on two acquisitions, bringing the total spent on acquisitions this year to $24 million. We also spent $35 million on deferred software and capital expenditures in the second quarter, essentially flat from the second quarter of last year. Year-to-date spending on software and CapEx was $59 million, down about $10 million from the first half of '07.

Cash and equivalents totaled $221 million at quarter end, an increase of $5 million compared with March 31, 2008. Debt as of June 30th totaled just under $1.5 billion, a decrease of $94 million compared with March 31st, primarily due to strong second quarter cash flows and the foreign exchange impact of a stronger dollar on our yen-denominated borrowings.

Turning to our guidance for the year. From a top line perspective, given our revenue growth performance through the first half and the limited number of acquisitions completed so far this year, we will likely end the year closer to the low end of our full year revenue guidance of 6% to 9% constant dollar growth.

Recapping the other elements of our full year guidance, we expect constant dollar operating income growth of 6% to 11%, GAAP EPS of $1.70 to $1.76 and free cash flow 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. To summarize, we had a very solid performance for the first two quarters of this year and our game plan for 2008 hasn't changed.

The marketplace dynamics are playing out as we expected. Clients are more focused than ever on managing their costs and expense. And to do that, they must deploy their resources more effectively. Our value proposition is focused on just that, by improving their commercial productivity.

Bottom line: we know the areas of opportunity in the marketplace and the adjustments we made to our offerings and to our client facing teams enable us to capture those opportunities. That puts us in a good position for the remainder of the year.

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. [Operator Instructions]. And our first question comes from the line of Larry Marsh with Lehman Brothers.

Larry Marsh - Lehman Brothers

Thanks, and good morning Dave and Leslye. I guess, I mean the first question, just two, three quick things is really on the piece of constant dollar revenue growth that you saw in the quarter. SFE, as you pointed out, was sort of flat on a constant dollar basis and it sounds like you are saying you anticipate the second half constant dollar revenue growth to be about 5%, which is consistent with what you saw in the first half. What else is going to be accelerating in the second half that would get you even to the low end of that 6% to 9% that you talk about? It is really more confident on the C&S business? Is that the big delta? And so let me start with that.

David R. Carlucci - Chairman and Chief Executive Officer

Okay. Well, Larry, we experienced a fair amount of volatility in quarterly I&A growth rates. I think if you look at Q2 '07, we were at about 5%; Q3, 3%; fourth quarter, flat; first quarter, plus 5; this quarter, flat. I think there are several factors behind the variability and we have a game plan to focus on those areas. But clients are making much broader assessments of their portfolio. We've had a lot of large engagements by country.

So if I look at the timing of transactions, there is much more variability in a given quarter. That combined with the uptake of our new products led to some slower growth and if I look at the particular areas, we have some win backs in small and medium-sized accounts in the U.S., we saw slower uptick in Promo.Track and oncology. But we continue to enjoy overall good growth in patient information in the U.S., but we need to accelerate that in EMEA.

I think the biggest single factor as I look at SFE in the quarter was Japan where we had an excellent quarter, a very tough compare and we saw weaker performance in our DDD A Plus [ph] in the second quarter. So I expect that to even out. And again, we said in the range of first half performance for SFE as you stated.

But there is plenty of areas of opportunity that we are focused on. We have several win backs that we are working on across the geography. We think we can accelerate the uptake of our weekly data in the U.S. We're looking at accelerating the growth of our patient-centered insights, particularly in EMEA but also we have very good momentum right now in the U.S. there and increased penetration of Oncology Analyzer; we now have it across 13 countries. And I think we're going to be able to capitalize on our new SFE offerings in the high growth markets such as China and India.

So I do think that it's been a bit unprecedented in terms of the choppiness, but we have confidence in the plans we have. Also, if you look at the bulk of what hit us last year, it was a situation in Germany and the UK and we expect to see some positive compares there.

Larry Marsh - Lehman Brothers

Okay. And just elaboration of that Dave, I know when I spoke to you, I guess in May, you've communicated some turnover in your Asia Pac region. Was that any factor in some of the sloppiness in Japan or is that exogenous from that? And it sounds like you do have confidence that you would see some pick up in the second half there.

David R. Carlucci - Chairman and Chief Executive Officer

Yes, no, not at all. All of those references were to Asia Pacific outside of Japan actually. Japan really had a very, very strong second quarter last year. And again, we saw a little choppiness in Japan all last year and we are seeing it based on the compares a bit this year.

Larry Marsh - Lehman Brothers

Okay. Second major question relates on [ph] Leslye, which is the cost expense opportunity, $55 million to $60 million by 2009. I know before you said, you had anticipated 45% of that roughly in the second half of 2008. Is that the case and would that maybe be more specific? You're saying today that the vast majority of that would show up in the fourth quarter, is that correct?

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

I think what I was saying Larry is... you're right... 45%, about 45%, but that was actually throughout '08. But it is heavily focused in the second half and specifically, the actions related to our production and development, which are second half focused, we're going to get the bulk of the impact from that in Q4. Because again, with those actions relating to moving production and data collection activities to lower cost geographies and to offshore, we have a gear up time to be ready for that. And the go-live on most of those activities will not occur until the fourth quarter. So that's what puts the skew into the fourth quarter. But overall, restructuring is tracking very, very well for the year. We are at or slightly ahead of where we expected to be on the full year. So I'm very pleased with the progress.

Larry Marsh - Lehman Brothers

Okay. And just, are you confirming this morning that the guidance range does not anticipate any additional share repurchase off the 10 million authorized or no?

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

Yes, that's right. I'm not anticipating any additional 10 million. Our guidance was based on the 10 million shares we repurchased in Q1.

Larry Marsh - Lehman Brothers

Right. And finally, the $19 million of acquisitions, do you have any more details of what those were in the quarter? And usually, they add about 200 basis points of growth in the quarter. Is that still... was that still the case in Q2?

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

Yes, we got again about a couple of points of constant dollar growth from acquisitions. We acquired two companies this quarter, on in the U.S., Health Benchmarks, which does a lot of benchmarking work focused on payors and then Fourth Hurdle which is a UK health economics and outcomes research company.

Larry Marsh - Lehman Brothers

Okay. Those two... those were the same two you mentioned in the first quarter, so...

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

Right. We acquired in early July. So I had mentioned them in the first release [ph] I'm sorry, early April. Right, we acquired them in early April. So I had... when we got on the call, we had already acquired them. I think I had mentioned that those acquisitions has already been done. So those are the second quarter acquisitions.

Larry Marsh - Lehman Brothers

So the year-to-date, you had said $24 million when the first... when you made the first quarter call. So year-to-date acquisition totals how much?

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

$24 million. So we haven't acquired anything since the call for the first quarter.

Larry Marsh - Lehman Brothers

Oh, I got it. Okay. And you are still saying [ph] saves you $100 million for the full year or is that maybe a little aggressive now [ph]

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

I think we could still be in that range.

Larry Marsh - Lehman Brothers

Okay. Very good, thank you.

David R. Carlucci - Chairman and Chief Executive Officer

Thanks Larry.

Operator

And our next question comes from the line of John Kreger with William Blair. Please proceed with your question.

John Kreger - William Blair

Great. Thanks very much. David, if you kind of take a step back and think about some of your larger clients, I'm guessing many of them are going through some budget cutbacks. Can you give us a sense about where that is impacting your portfolio?

David R. Carlucci - Chairman and Chief Executive Officer

It would be hard to pinpoint it exactly as it relates to cutbacks with the exception of as they slow down in a quarter in anticipation of trying... get to their objectives, we get hit harder in the ad hoc area. As you know, our business is driven by both subscription, but also a number of ad hocs as they are looking at new areas of opportunity. And sometimes, we'll see them slow down on those ad hocs, particularly in the last month of the quarter. But there isn't any one area that we're seeing any kind of across the board action on. So it would be hard on a global basis to say it's any one particular area.

John Kreger - William Blair

And ad hoc, does that generally hit the I&A or the C&S portion of your business?

David R. Carlucci - Chairman and Chief Executive Officer

Yes, it would all I&A. You have to consider our consulting and services businesses in most cases, especially the Consulting element of it, fairly short sell cycles, fairly short engagements. I was just refereeing to the areas pertaining to I&A.

John Kreger - William Blair

Got it, okay. And then a related question, I believe you said it in the second quarter, I&A was about flat constant dollar and Consulting and Services up about 18%. Can you just talk about that growth differential? Is that a difference that you think can be sustained longer term or would you expect those two growth rates to converge?

David R. Carlucci - Chairman and Chief Executive Officer

Well we've seen in the last five quarters I&A fluctuate between flat and 5%. As I look at the third quarter in particular, we have a higher percentage of revenue in hand as we enter the quarter versus the second quarter in I&A. And the value of that pipeline is about 8% higher. As you know, we had 15% growth in Consulting and Services in the first quarter, 9% constant dollar. So we saw a nice uptick in that growth and we have said we expect to see our Consulting and Services business grow in the double digits through the course of the year. But I don't see those two coming together in growth rates. We said we are probably going to be in the mid single-digit range for I&A over the longer term and we expect for the foreseeable future, although we are not giving guidance today that from what we see, we see double-digit growth in C&S.

John Kreger - William Blair

Great. And then one last question. Can you just give us an update on the regulatory front as regards to your ability to access physician level data, anything new with any of the states?

David R. Carlucci - Chairman and Chief Executive Officer

We are still waiting for an answer from the First Circuit in New Hampshire. We could get that answer any day now; that's a very important precedent for us going forward. The only new activity was last week an amendment was added to House legislation, including data restriction in Massachusetts. That legislation, by the way, wouldn't be effective until the end of November 2009. But right now, that bill is either going to be referred to Joint Committee to reconcile it with the Senate or restrictions will go through in that bill. But that's the latest one, and Massachusetts is a little over 2% of all prescriptions nationally.

John Kreger - William Blair

Thanks very much.

David R. Carlucci - Chairman and Chief Executive Officer

Thanks John.

Operator

And our next question comes from the line of Sandy Draper with Raymond James. Please proceed with your question.

Sandy Draper - Raymond James

Thank you very much. Just two questions. One, Leslye, on the share repurchase, I know it's not in your guidance, but just want to get any thoughts on... you obviously did accelerated repurchase in the beginning of the year. Any thoughts on capital deployment, ability to go back? Obviously, the stock is still... it's back down to levels where you did a big repurchase. Just get your thoughts on your appetite to continue repurchasing.

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

Yes, it's something we obviously can continually look at as we mentioned earlier in the call. Our pace on acquisitions has been low so far this year. But that may not be where we finish. So part of looking at that capital deployment is to continue to maintain the right level of flexibility as we look ahead in the latter part of the year. But certainly it's something, Sandy, we're going on continue to look at and look at very carefully and will make decisions on as we see the various alternatives unfold.

Sandy Draper - Raymond James

Okay. So there was nothing that changed in the second quarter that kept you from looking at that or anything about the business or cash flow, because obviously your cash flow is much stronger? I just want to make sure there is not some type of change in thought about why you didn't repurchase this quarter versus last?

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

No. No change in thought or philosophy. And, to your point, the cash flow in the second quarter was very strong. We are pleased with that.

Sandy Draper - Raymond James

Okay, great, and just one quick follow up and then I will jump back in. I just to make sure I am clear. On the guidance, $1.70 to $1.76 is for GAAP EPS. You've obviously had a difference with the adjusted. By the end of the year, do you expect those two numbers to come back together or where do you expect the adjusted EPS to be relative to GAAP by the end of the year?

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

Yes, I expect those numbers to come together because the only difference is this year between GAAP and adjusted, our timing on foreign exchange hedge losses, and by the time we get to the end of the year, those numbers match.

Sandy Draper - Raymond James

Okay, great. I just want to make sure there wasn't something else I was missing. Okay, great. Thanks.

Operator

And our next question comes from the line of Glen Santangelo with Credit Suisse. Please proceed with your question.

Glen Santangelo - Credit Suisse First Boston

Yes. Hey, Dave, I just had a quick question regarding the margins. I mean when we back out the currency impact, it seems like your same-store margins continue to deteriorate. And I am curious to see, is that more of a function of business mix or is there something else going on there that we should be aware of?

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

Well let me, if you don't mind, I'll take that one. Overall, the impact of foreign exchange on our margins this quarter was quite small. We saw some degradation in margin last year. This year, we see some very minor 20, 30 basis point improvement in margin. But overall, I think our margin's tracking exactly where we want it to be. We're getting some of the early benefits from the restructuring. But as we've talked about, those are small in the first half. We're seeing good I think performance in our overall cost expense management. So we're tracking margins right in line with our anticipated performance this year.

Glen Santangelo - Credit Suisse First Boston

Yes, Leslye, I appreciate that it may be where you were expecting it to be, but your constant dollar revenue growth so far year-to-date is up 5% and your constant dollar operating income is down negative one. And I'm just trying to understand exactly what explains the year-over-year margin degradation.

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

Well we talked about that I think early on with respect to our full year guidance that we anticipated that possibly all of our earnings growth this year could be in the second half. And it really has to do with: One, the year-to-year compares had a much stronger first half last year than second half; two, the phasing of our restructuring benefits which we're going to be very focused in the second half of the year and particularly in the fourth quarter. So that's why I'm very comfortable with it because it is what we anticipated and it does have to do with the year-over-year compares as well as the phasing on the restructuring.

Glen Santangelo - Credit Suisse First Boston

Got you. So to get to your range of 6% to 11% constant dollar operating profit growth, we'll likely see a pretty sizeable reduction in SG&A, particularly in the fourth quarter?

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

I think you'll see some impact on SG&A and impact on operating costs as well because the restructuring affects both components.

Glen Santangelo - Credit Suisse First Boston

Okay. Thanks for the comments.

Operator

And our next question comes from the line of Robert Willoughby from Banc of America Securities. Please proceed with your question.

Robert Willoughby - Banc of America

I hope we need you one [ph]. I'm struggling to get to the cash flow number. You sighted an $86 million number. I have you much higher cash from operations of $112 million year-to-date. If you consume something like $750 million or so in the first quarter, isn't that cash from operations number $113 million, number not an $86 million?

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

Well, the SEC cash from operations year-to-date is $113 million. So that's... you are right on with that. We have some slight adjustments that we make on free cash flow, Bob, to that number where we take some of the longer term movements in pension assets for example or tax lines out of that. And I think we provide that reconciliation. So overall in the quarter, that $113 million... year-to-date $113 million are the SEC numbers, but our free cash flow in the quarter is the $87 million and year-to-date $41 million. So hopefully, you can see that on the reconciliation.

Robert Willoughby - Banc of America

Okay. That's clear. And just the CapEx number was a bit higher than where we thought it would be for the quarter. Can you reiterate what the guidance for CapEx for the year would be?

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

I think we said for the year, we'd be at $130 million to $165 million for the combination of CapEx and software. We are going to have some variability quarter-to-quarter. Now we have talked about the fact that our new SAP systems, for example, we went live in the U.S. in the first quarter and then in EMEA and Latin America in the second quarter. So some of the CapEx from that flows in et cetera.

Robert Willoughby - Banc of America

Interms of the CapEx, it suffered [ph] from software. Is there any major build or anything going forward that we should expect?

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

No, I mean we have one facility this year in New Jersey that we were doing some sizable leaseholds on, and that probably had a bit of an impact in the second quarter. But overall, our facilities are much better. We have less facility moves this year than last year. Last year was an unusual year.

Robert Willoughby - Banc of America

Okay, thank you.

Operator

[Operator Instructions]. And our next question comes from the line of Randall Stanicky with Goldman Sachs. Please proceed.

Randall Stanicky - Goldman Sachs

Great. Thanks for the questions. I just have a follow up to a previous and then I have another question. Leslye, did you give us the percent of revenue for the current year 2008 that you guys currently have under contract?

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

No, I don't think I provided that. I think Dave did mention that as we head into the third quarter, we have slightly higher revenue in hand than we had in the second quarter. But I don't have an update on that.

Randall Stanicky - Goldman Sachs

How does your current positioning... and I guess this goes to visibility in light of the current market... how does your current levels compare to previous at this point in the year?

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

I think it's fair to say that the way the revenue is skewed this year, we're going to see more in the second half than we have in prior years, higher.

Randall Stanicky - Goldman Sachs

Okay. Let me just ask you a different question then. And I apologize if it's been asked, just in light of this morning's announcement, how do customer acquisitions and consolidations, can you just remind us how that impacts your business in the short and medium term?

David R. Carlucci - Chairman and Chief Executive Officer

Sure. We just saw a recent announcement of an acquisition and merger in the generic space. Generally, now that we have a much stronger mix of consulting and services, we are in very early in the merger activity with some upside on portfolio strategy pieces, forecasting et cetera. Our SFE business generally stays stable during that period and our PO business impacted by our global market intelligence offerings will take a hit in the short term relative to needing one copy of global data. But we've consistently had a path of being able to offset that. The question is timing, whether it's a couple of quarters or whether it's four quarters. But that's generally what we see in that environment. It may vary [ph] based on our competitive position in one versus another client.

Randall Stanicky - Goldman Sachs

Let me be more specific. Would a Roche and Genentech merger be good or bad for you? How would that impact you over the near term?

David R. Carlucci - Chairman and Chief Executive Officer

It's totally neutral. I mean they are still already considered a single enterprise even though they function as two independent operations.

Randall Stanicky - Goldman Sachs

Okay, got it. And then just finally and related on that, any color you can provide from the smaller biotechs? Anything that you are seeing there in terms of potential changes in demand for services?

David R. Carlucci - Chairman and Chief Executive Officer

No, our growth continues to be consistently strong in small biotech and generics and in some of those emerging strong areas even though we have seen somewhat of a modification in generics growth in the industry. But I still see it as a significant area of growth for us. It is off a relatively small base compared to large biotech, the Amgens of the world and the Genentechs of the world as well as our ethical pharma business.

Randall Stanicky - Goldman Sachs

Great, I'll leave it there. Thanks a lot.

David R. Carlucci - Chairman and Chief Executive Officer

All right.

Darcie Peck - Vice President of Investor Relations

John, I think that's it for questions. I think we are happy to wrap up.

David R. Carlucci - Chairman and Chief Executive Officer

All right, everyone. Thank you very much for your time and attention and we look forward to talking to you in October.

Operator

Ladies and gentlemen, that does conclude today's conference call. We thank you for your participation and ask that you please disconnect your lines.

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