IMS Health, Inc. Q4 2007 Earnings Call Transcript

| About: IMS Health (RX)
This article is now exclusive for PRO subscribers.

IMS Health, Inc. (RX) Q4 FY07 Earnings Call January 31, 2008 8:00 AM ET

Executives

Darcie Peck - IR

David R. Carlucci - Chairman and CEO

Leslye G. Katz - Sr. VP and CFO

Gilles V.J. Pajot - EVP and President, Global Business Management

Analysts

Larry Marsh - Lehman Brothers

John Kreger - William Blair

Glen Santangelo - Credit Suisse First Boston

Robert Willoughby - Banc of America

Alex Alvarez - Goldman Sachs

Alan Fishman - Thomas Weisel Partners

Sandy Draper - Raymond James

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the IMS Health Fourth Quarter 2007 and Year End 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, January 31, 2008.

I would now like to turn the conference over to Darcie Peck, Vice President, Investor Relations. Please go ahead.

Darcie Peck - Investor Relations

Thank you operator. Good morning and welcome to the IMS fourth quarter and full year 2007 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 fourth quarter and full year 2007 results and discuss our guidance for the full year 2008, then we will open it up for your questions. As in the past, we posted slides on our websites and I would encourage you to review these during our remarks this morning.

Certain statements we make today are forward-looking within the meeting 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 fourth quarter 2007 earnings release which we issued earlier today, and our third quarter 2007 report on Form 10-Q 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 will talk about today are on an adjusted non-GAAP basis. These include for example, operating income, net income, earnings per share and free cash flow for 2007. Detailed reconciliation to results on a U.S. GAAP reported basis are in our press release and I encourage you to review the notes in our press release further describing adjusted non-GAAP measures.

Now, let me turn the call over to Dave Carlucci, our Chairman and Chief Executive Officer.

David R. Carlucci - Chairman and Chief Executive Officer

Thanks, Darcie. Good morning everyone and thanks for joining us to review our performance in 2007 and outlook for 2008. As you've seen in our press release, we closed out the year with a solid fourth quarter performance, turning in double-digit revenue gains, and our earnings per share is consistent with the expectations we laid out on our third quarter call. We had an exceptional free cash flow in the quarter, our strongest performance in five years.

For the full year, revenue growth was 12% and 8% constant dollar. Excluding our restructuring charge, we delivered 7% growth in operating income for the year, 6% constant dollar. Our operating margin was 22%. Earnings per share on a comparable basis grew 9% to $1.53, a penny above consensus estimates. And preliminary free cash flow was 283 million and reflects our intensified focus in the quarter.

In 2007, we were able to return over $472 million of cash to shareholders through our share repurchase program. Our 2007 results reflect the changing demands from our clients as well as some of our own execution issues. In addition to the immediate actions we took in the second half of the year to reduce cost and expense, we announced our restructuring actions in anticipation of the environment going forward. This enables us to accelerate our operational efficiencies and achieve four main objectives.

First, we are realigning about 20% of our client-facing teams in order to strengthen our account management and business development capabilities. Second, we are consolidating from five to three consulting practice areas to better match clients' decision-making processes. Third, we are accelerating the implementation of business process outsourcing capabilities for clients. And fourth, we are driving additional cost reductions by integrating our production operations and improving the productivity of our statistics and data management operations worldwide.

We're also exiting some smaller areas of the business in EMEA that aren't strategic to our long-term plans and that are adversely impacting our operating performance. Those include mass market information in the U.K, associated with our consumer health business and non-core components of two acquisitions.

Our restructuring actions signal our determination to adjust our cost structure from better than balanced growth. We'll reduce cost and expense and achieve 55 to 60 million of savings in 2009 and realize nearly half of that this year. That's reflected in our guidance for 2008, which we outlined in this morning's press release. Leslye is going to take you through that and the details of our financials results in a few minutes. But let me first share with you some perspective on the industry and what it means to us.

Clearly the magnitude and speed of marketplace changes last year surprised our clients and we were impacted by the almost immediate slowdown in spending as they reevaluated their options relative to their sales and marketing models in several large markets. We see some of those dynamics continuing in 2008. We expect global market growth in 5 to 6% range, another $20 billion in patent expiries, fewer products launched and more not less scrutiny on safety. While we can't control what happens in the market, the fundamentals of our business are very strong. We are the only global player. We have excellent cash flow and a strong balance sheet, and that give us flexibility to continue to invest.

With patent expiries on the rise, our generics clients have a greater need to understand market opportunities. And for our traditional pharma clients, they are responding with productivity initiatives around their mature products. With fewer launches in a more regulated environment, they are placing more value on health economics, contracting and optimizing their portfolio strategy. This is evidenced in our consulting growth, which has accelerated across the board in all practice areas and in all geographies. And it's been a significant factor over the past two years in our outstanding growth, particularly in the area of MIDAS and portfolio strategy offerings in our portfolio optimization business line.

In this environment our clients need to reduce cost. They are consolidating vendors, which is a driving factor behind several recent competitive wins for us and they are steadily moving to outsourcing areas like market research, compensation and sales reporting, all designed at lowering the cost structure. As I mentioned, we are taking steps to be a part of that. Our recent IHS acquisition gives us a leadership position in managed markets business process outsourcing and increasingly important in emerging area in the U.S, and more focusing on commercial implementation services by providing a cost efficient outsourcing alternative for incentive compensation programs.

In this market environment, our clients are telling us they need new insights faster and they are placing a higher value on patient-centered analytics, specialty products in emerging markets where we are making a significant investment. And while they become more selective in their overall spending, we are starting to see stronger acceptance of our new offerings in all these areas. So you can see that we are ideally positioned. We've built the right capabilities and are reallocating investments and that's enabling us to sustain high single-digit growth in this environment.

I hope that gives you some perspective on the marketplace and our response. So now, let's shift to our results and outlook relative to our business lines. In sales force effectiveness, we grew 8% reported and 5% constant dollar for 2007. SFE growth for the fourth quarter and full year moderated, as clients continued to reevaluate their sales approaches. That let to slower growth in our information and analytics offerings, particularly in our large markets. And this year, there are number of factors that give us confidence we can return to higher growth in SFE.

What we saw towards the end of 2007 and will continue to see this year is more clients moving from evaluating restructuring actions to implementing new sales models. This trend drives demand and is fueling more engagements for us in our precision sales force consulting offerings. It will also drive growth for our next-generation prescription services offerings in the U.S and our newly launched SFE offerings in Asia Pacific, in Japan. In addition, the rollout of the new offerings in 2007 in response to the structural market changes in the U.K and Germany is gathering pace and will lead to better year-over-year compares starting in the second half.

Portfolio optimization was up 13% reported and 9% constant dollar for the year. We exceeded our expectations again in the fourth quarter for this business line which outperformed in 2007. Last year, clients were evaluating their options in response to rapid changes in the marketplace and that led to strong growth in our MIDAS and portfolio strategy offerings. We've had a very successful record over the past two years in PO [portfolio optimization] and have more opportunities in front of us with emerging pharma and generics companies. However, coming off a strong performance in 2007, we will expect a more moderate growth rate this year.

Launch, brand and other grew 18% reported and 13% constant dollar in 2007. In the fourth quarter, demand was strong for our anonymized patient-level data pricing and market access and promotion management consulting offerings. And we don't expect that to change this year. Our consumer health and managed markets businesses including our new business process outsourcing capabilities will continue to deliver robust growth in 2008 and remain key differentiators for us with our largest clients. And we are increasing our global coverage of our promotional and oncology information offerings, expanding in the new markets this year and putting us well ahead of niche players. All of these will factor into our sustained double-digit revenue growth in the Launch and brand area for 2008.

And in consulting and services, growth was impressive at 34% reported and 29% constant dollar in 2007. And client satisfaction is stronger than it's ever been. Our C&S business is now 22% of total revenue, up from just 9% four years ago. We will continue to see healthy revenue growth throughout 2008 and win new businesses as we rollout Promo.360 and precision sales force offerings to more markets. We will improve margins through streamlining actions, more integrated engagements in our major markets and scale improvements in our emerging markets.

So that's the perspective by our business areas. Let me give you a view of how this is all plays out in the regions. In our Americas region, we grew 11% and 10% constant dollar for the year, led by the U.S with 12% growth. While our U.S growth moderated in fourth quarter, we were pleased to deliver highest single-digits growth in line with our expectations against the tough compare. In 2008, we'll continue to build on our consulting and services momentum, particularly in pricing and market access and portfolio development. And our Xponent Weekly services, patient-based insights and managed markets offerings will all contribute to our performance this year. Coming off a strong year, we expect growth in the Americas to moderate to high-single digits.

The EMEA region grew 14% and 6% constant dollar in 2007. In the fourth quarter, growth improved over the third, fuelled by consulting and midsized markets. But we need to accelerate our operating income growth in the region. A significant portion of the cost efficiencies from our restructuring will come from the actions we take across EMEA. We'll see that benefit in the second half of the year, along with the steady top line progress we're making in the U.K and Germany. Our midsized markets have delivered double-digit growth for the past three years and this will continue in 2008.

In Asia Pacific, revenue growth was 10% reported and 8% constant dollar for the year. Fourth quarter performance accelerated driven by Japan. Recently launched I&A offerings will contribute to our momentum in 2008, specifically our enhanced DDD offerings in Japan, DDD in China and India, and oncology in Promo.360 offerings. Asia Pacific has the highest growth rate for consulting and services of any region and we will capitalize on that significant opportunity, as we continue to build scale.

So we had a good performance across our geographies, with strength in the U.S. and key emerging markets. So now let me turn the call over to Leslye to take you through the details of our financial results and our guidance for 2008. Leslye?

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

Thank you, Dave. Let me get right to our Q4 2007 results, starting with our cash performance. We had an outstanding quarter from a cash perspective, generating $173 million free cash flow on a preliminary basis. This is the highest quarterly free cash flow we have achieved in the last five years. More importantly, it reflects a significant turnaround from the very disappointing performance in Q3.

I told you on the call in October and in any subsequent meetings with investors, that I was focused intensely on driving down DSO. In the Q4, we significantly sharpened accountability for cash collection at the local level, engaging finance, sales and general management. We established aggressive account-by-account correction targets and managed the process weekly. The results were Q4 DSO of 62 days, 9 days better than Q3 and only 1 day worse than Q4 06. I am very pleased that how quickly we turned DSO around and I assure you that this program and focus, we will continue throughout 2008.

The other elements of our financial performance were in line with what I laid out on our Q3 call. Revenue was $606 million, up 11% reported and 6% on a constant-dollar basis. Operating income included the $89 million pretax restructuring charge we recorded in Q4. Excluding this charge, operating income was $136 million, up 8% reported and 3% constant dollar.

Operating margins were 22.4%. The strongest margin of any quarter this year were down 70 basis points from Q4 06. On a GAAP basis which includes the restructuring charge, net income was $18 million and EPS was $0.09. After adjusting for the restructuring charge and phasing of tax and foreign exchange hedging, net income was $83 million, up 3%.

Adjusted EPS was $0.43, up $0.03 or 8%. The difference between GAAP and adjusted EPS consists of the restructuring charge impact of $0.32 and $0.02 for the impact of tax and foreign exchange hedge phasing.

For the full year, let me start again with cash; preliminary free cash flow for the year was $283 million, down 25 million from 2006. 93% of adjusted net income flowed through the free cash flow, an important metric for our business.

Full year DSO was 67 days, reflecting a significant improvement over the third quarter, were 6 days higher than full year 06. The cash generating ability of IMS remains an outstanding attribute of our financial model and a priority for me. To ensure continued focus for 2008, we have modified our incentive compensation plan to add a cash flow measure to our current metrics of revenue and operating income.

Revenue for 2007 reached $2.2 billion or 12% reported and 8% constant dollar and in line with our October guidance. Consulting and services revenue was $482 million, up 34% reported and 29% constant dollar. Operating income before the restructuring charge was 482 million, up 7% reported, 6% constant dollar and again in line with our updated guidance.

Operating margins were 22%, down 70 basis points from last year. We did not achieve our goal of driving operating income growth in balance with revenue growth. Foreign exchange cut 50 basis points from our margin, as the weaker dollar made our pound denominated expense base in London much more costly. We gained 30 basis points from the absence of a Q2, 06 merger-related charge. The remaining 50 basis points were due to the revenue slowdown, particularly in EMEA.

The fixed cost base of our business primarily in data and people costs, made it difficult to reduce cost at a pace that could fully offset the close down in revenue growth. As a result we have acted quickly and aggressively to address that cost situation with our restructuring plan, more on that shortly.

Adjusted EPS before the restructuring charge and a Q3 charge for a change in the German tax rate was $1.53, up 9% versus $1.41 adjusted EPS in 06. GAAP EPS was $1.18, reflecting the $0.32 cost from the restructuring charge and $0.04 for the German tax rate change.

In terms of capital deployment, we spent $101 million on seven acquisitions and $165 million on deferred software and capital expenditures. We repurchased 16.4 million shares in 07 at a cost of $472 million, including 3.3 million shares purchased in Q4 at a cost of 80 million.

We ended the year with $218 million in cash on the balance sheet, an increase of 22 million over Q3. Debt totaled 1.2 billion, up 6 million over Q3. We ended the year with a two times debt-to-EBITDA ratio, excluding the impact of the restructuring charge. For the full year, our GAAP tax rate was 33%, which included the impact of the German tax rate change. Excluding this item, our tax rate for the year was 31%.

Looking back at 2007, we had a strong start in Q1 but the year did not turn out as planned. In the face of slowing revenues, we acted very quickly to reduce cost and expense in those areas we could affect in the short-time period and these yielded some impact, but this was not enough to maintain profit margins flat with 06.

Looking ahead, we knew we had to accelerate the rate of change in our business. We'd to be able to get in front of clients with our offerings more efficiently and we had to adjust our infrastructure to better support that effort. This was behind our restructuring decision in the fourth quarter.

I believe we have put in place a very comprehensive plan, resetting our cost and expense structure to ensure that at the low end of our revenue guidance range, 6% constant dollar, we can deliver balanced operating income growth and better than balanced revenue growth rates towards the high end of the range.

As you know, we incurred an $89 million pretax charge in Q4 07 for the restructuring plan. Most of this charge, $75 million is a cash charge primarily for employee severance. The plan has about 1070 positions eliminated and about 260 replaced into new GR replacement [ph] positions, thereby reducing our total workforce by 10% by the end of 08. The remainder of the charge, $14 million is the non-cash component. We wrote-off two assets in EMEA related to businesses we are exiting there.

Our restructuring plans will be implemented throughout 08, and when they are completed, I expect 2009 full year savings of 55 to $60 million. In 08 this will generate an operating income benefit of about 45% of that amount, based primarily into the second half of the year. There are three primary elements for the restructuring plan; strengthening client-facing operations worldwide, increasing the company's operating efficiencies and streamlining our cost structure for better than balanced growth in response to the rapidly changing marketplace. Dave commented briefly on each of these and I would like to elaborate a bit as well.

First, we'll substantially improve our sales execution and our consulting and services profitability. We have already announced the consolidation of three consulting practice areas; sales and account management, promotion management and performance management, into one practice called commercial effectiveness. This not only streamlined our practice management and support, but also provides the opportunity to deliver broader engagements. We're reducing non-available resources and accelerating our business process outsourcing offerings.

Second, we'll capitalize on the significant quality and efficiency plans already identified across our global customer delivery and development functions. This includes consolidating select production operations, moving to common production platforms in several geographies and improving productivity of our statistics and data management operations worldwide, partially through off-shoring. We are also increasing the variable cost component of our production development and C&S costs through enhancing the use of outsourcing and off-shoring. These actions accelerate plans we would have executed over a longer period of time.

Third, we will reduce our support functions across business lines, including marketing, finance and administration. This streamlines organizational layers particularly at the regional headquarters level and accelerates our progress towards more globally-integrated operations. As I said, implementation of these actions has already begun and will continue through out 08. This plan reflects our determination to reduce costs, drive execution improvement and better meet client priorities, given market conditions over the next few years.

Turning to our guidance for 2008, on the top line we expect 6 to 9% constant dollar revenue growth. Revenue growth assumes an expected level of spending for acquisitions of about 70 to $100 million. Revenue growth will be driven by new offerings, most of which were launched by the end of last year. Dave described several of these across our regions and business lines. In addition, consulting and services will continue to grow at a strong rate. We expect continued strong in emerging markets and moderate growth in large markets.

For operating income, we expect constant dollar growth from 6 to 11%. At the low end of our revenue guidance range, we will manage the business to deliver balanced growth and hold constant dollar margins steady. For the top end of revenue growth, operating income growth will exceed revenue growth and constant dollar operating margins will expand. From a cost and expense perspective, we will see benefits from our restructuring actions particularly in the second half of the year. We have timed our severance actions to ensure that we are well prepared to implement the changes in production, client-facing and support areas.

As many of the actions will be implemented in EMEA, we must also consider statutory requirements in the timing of implementation. In addition to benefiting from our restructuring actions, there are other key components that will help drive operating income growth in 08. Data cost growth will be at least 1 percentage point below last year. Consulting and services margins will improve to higher utilization, better project profitability, increased productivity of billable consultants and the benefits of our growing scale in emerging markets.

As we did last year, our EPS guidance is on a GAAP basis and is $1.70 to $1.76. With this range, we expect to achieve double-digit EPS growth of the adjusted $1.53 in 2007. Our EPS guidance assumes a tax rate of approximately 32% in 08 with no unforeseen statutory tax rate changes. And on a GAAP basis, our tax rate will likely vary quite a bit quarter-to-quarter. Over the last three years our tax rate has been trending upward, and from what we can currently see, it appears that trend may continue.

As you know, in December of 2007 our Board of Directors authorized a new $20 million share repurchase. Our EPS guidance assumes that we will repurchase approximately 10 million shares this year. However, as you have seen over the last several years, we have strong cash flow access to credit and the financial flexibility to purchase substantial additional shares.

The final component of our 2008 guidance is free cash flow, which we expect to be 300 to $325 million. This incorporates the cash cost of severance for the restructuring plans, about half of which will be spent in 08 and the remainder in 09. Free cash flow guidance also assumes our continued intensive focus on cash collections will yield DSO at or slightly better than 07.

As you put together quarterly models for 2008, bear in mind that the phasing of our revenue and operating income growth in 08 will be very different than last year. Our performance in the first quarter of 07 was very strong and overall growth in the first half of 07 was stronger than in the second half. Naturally, that will generate more difficult year-to-year comparison in the first half of 2008 than in the second half. Coupled with the phasing of the benefits of the restructuring plan into second half of 08, we anticipate lower revenue growth in the first half than the second half and most, if not all, of our operating income and EPS growth in the second half.

We've established our guidance ranges for 08 to reflect the realities of our challenging market environment, the potential variability in client uptake of the new offerings and the implementation of our restructuring plans. The guidance also evidences our determination to grow operating income at or above revenue growth and deliver continued excellent free cash flow.

Now, let me turn the call back to Dave.

David R. Carlucci - Chairman and Chief Executive Officer

Thanks Leslye. I think you can see from our results that the fundamentals of the business remain strong. In the last seven months of 2007, our growth moderated and while we took immediate steps to reduce our cost and expense, we didn't deliver on our original growth objectives. That said, this is a company with strong finance characteristics that delivered double-digit reported revenue growth last year, generated exceptional cash flow and is investing for the future.

Let me reinforce that the challenges our clients are going through and undoubtedly will go through over the next couple of years, continue to translate into opportunities for us. Of course, the timing of those opportunities varies by client and as you have seen in recent reports, some of them are already making progress on their productivity improvements and that bodes well for what we are doing. The actions we're taking are the right things to do for the health of our business now and for the long term.

Through our restructuring, we took an aggressive approach to accelerate the significant productivity initiatives, we already have in place and to quickly adjust our cost and expense structure. It also enables us to secure improved top line growth through better alignment of our client-facing teams. In addition, we have given ourselves the flexibility to make the right investments in a dynamic market environment for our clients.

So thanks very much for your time this morning and Leslye, Gilles and I, are happy to take your questions.

Question And Answer

Operator

Thank you. [Operator Instructions]. Our first question is coming from the line of Larry Marsh from Lehman Brothers. Please proceed with your question.

Larry Marsh - Lehman Brothers

Thanks and good morning. And certainly, Dave, a much better message today and appreciate your views of your productivity on the restructuring. I guess maybe if you can elaborate, you spoke at some length with us really in the second and more in the third quarter call, about that lengthening sales cycle particularly in EMEA with certain large global customers. It seems like the message today is certainly a bit different, but I'm just curious if you could elaborate a little bit about sort of logic [ph] in the market, because it sounds like you're saying the growth still in EMEA is going to be from consulting in midsized. And just in general, how do you think about that sales cycle in the delay of decision making versus what you'd communicated back in October?

David R. Carlucci - Chairman and Chief Executive Officer

Thanks Larry for your comments. I think we're looking at kind of the realities at the marketplace now and we haven't seen a significant change in sales cycles, a degree of coordination we need to be able to maximize our portfolio. So, that's one of the reasons we're accelerating some of the integration and deployment of our go-to-market strategy. But underneath that, we also have the opportunity now, especially in the back half of the year, to see the UK and Germany successes that we began to see in the second half of the year, come to fruition from a compare point of view. So that's a factor.

Mid-markets remain strong and we will also have real traction with our offerings, from a new offerings perspective. DDD in Asia-Pac, Promo in oncology we see a higher ramp-on, our Xponent Weekly in APLD in the U.S. So if you look at it from an offerings point of view, we've got some significant opportunities there. Also the trajectory and the pipe line in C&S remains very, very strong. So that is encouraging. In that trend, we are not seeing a really elongated sales cycles on. So it's a little bit of two worlds as we look at it.

So overall, I think we've got a very realistic handle on what we see happening in the marketplace. We are very well prepared going into this year around that and we will see this Germany and UK uptick help us, which really put a hole in our sites [ph] in the second and third quarter.

Larry Marsh - Lehman Brothers

Okay, and just an elaboration, you had mentioned I think some success in recent competitive wins with more evidence that some of your customers are taking this issue of consolidating vendors more seriously; anyway to elaborate this all in this call?

David R. Carlucci - Chairman and Chief Executive Officer

Sure. Particularly, I'd say three major three countries and three major areas; Xponent Weekly in APLD, we continue to build traction and differentiation. In the UK, it's the sales territory offerings that we initiated, have yielded competitive win backs. And in France, we've had some significantly wins in Xponent. Those are probably three major areas. The other areas where we've had successful traction have not related to competitive wins, but in those three geographies in particular, we are seeing a very, very good record.

Larry Marsh - Lehman Brothers

Okay, great. I have just a quick question then for Leslye to follow-up. I know you'd communicated some concern around cash collections in the third quarter, but as you pointed out with a strong fourth quarter, cash flow is actually stronger, as I look at relative to EBIT or such versus last year. As you look back, would you assign this significant improvement to your own business processes? Was it a smoothing or improvement of some of the issues you faced with some of your customers, or really a combination both sort of 50-50 better market and better processes?

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

I would say, it was heavily leaning towards better processes and focus on our part, Larry.

Larry Marsh - Lehman Brothers

Okay.

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

The plans we put in place had a very detailed level and the attention we put to it really paid off.

Larry Marsh - Lehman Brothers

Okay. So really are tractions you described and I guess, are you thinking when you give your free cash flow guidance for 08, should we think about any big differences in CapEx or capitalized software versus what you showed for this year steady growth or do we see some of that come down in any other category?

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

The combined CapEx and software, we expect to come down versus 07. We had a number of real estate relocations that all came together in 07.Its unusual of having a year with so many large facilities. So we don't see that happening again in 08.

Larry Marsh - Lehman Brothers

So I think if you combined the two it's about a 165 million or so. Any sense of magnitude of how much of a reduction we would expect?

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

Yes, We are estimating around somewhere between 130 and 155 million combined for 08.

Larry Marsh - Lehman Brothers

Okay. And then finally in the guidance for this year and in Q4, how much of an impact with the acquisitions, especially since you closed the IHS this quarter?

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

In 07 we got about 2 points of revenue growth from acquisitions comparable in the fourth quarter as well. As we look ahead to 08, little harder to answer that question, as I said we are looking at about 70 to $100 million of acquisition spend in 08. But obviously, it's going to depend upon the rate of that acquisition spend. It's going to depend upon the profile of the companies we buy and at the low end of our guidance range, I would not expect much contribution to growth from acquisitions.

Larry Marsh - Lehman Brothers

Okay, very good. That was great, thanks so much.

David R. Carlucci - Chairman and Chief Executive Officer

Thanks Larry.

Operator

Thank you. Our next question is coming from the line of John Kreger from William Blair. Please proceed with your question.

John Kreger - William Blair

Thanks very much. First question is related to data follow through from your consulting business. Does that continues to become a bigger percent of the total, what sort of success rate have you had in kind of the ending projects with a boost to data sales for the other part of your business?

David R. Carlucci - Chairman and Chief Executive Officer

I don't -- I have not seen a great change in trajectory on that. I think it varies dramatically by practice area. Obviously, one of our hottest practice areas is pricing and market access and we don't see a lot of pull through on that. The one we have seen the most success in is the portfolio practice area, where we have had a lot of pull through as it relates to MIDAS in different markets. So it varies a bit John, but I think it will be pretty much steady state and we don't -- as you know we run our consulting business such that we don't incent our consultants to sell our data. They work freely with the client using our data and using some momentum [ph] of primary market research. But it's kind of a natural evolution. And one of the reasons we are changing the client focus model as it relates to our go-to-market is to give our BD teams -- business development teams, in consulting and services much more tightly linked to our client and specialist teams, and we may see some uptick as a result of that.

John Kreger - William Blair

Okay, thanks. And then Dave, could you just expand a bit on two of the comments you made about how clients are changing their behavior. It sounds like you are starting to have some success in doing more outsourcing work for them. Could you just expand a little bit on what specific functions that would entail and then, you also talked about some new client sales models that are emerging. Curious, how that is affecting or how you expect it to affect your sales force effectiveness business?

David R. Carlucci - Chairman and Chief Executive Officer

Let me take the first one on outsourcing. I'll let Gilles take the client sales force focus. One of the things that we've spotted obviously is, you are seeing much, much more off-shoring activity on a spot basis by our clients. So, in other words, they are taking certain reporting and certain analysis they do and they are off-shoring that. What they are just beginning to do is look at some of these processes in their totality in terms of how do I actually do it differently and then is it core to my business and can I trust a partner to do it.

We are a natural in three key areas; one is market research, where obviously a big piece of what happens in market research departments is the manipulation and analysis of our data. And certainly from a business process outsourcing point of view, we have an opportunity to go all the way back into the factory, as it relates to how a client wants to look at analysis at the end user base. So we're seeing more and more interest in how can I lower my cost and the analysis of our market research data.

The second piece is in the whole area of commission reporting -- in commission management and reporting in sales operations. We've entered into an agreement with an application company to give us the ability to have and end-to-end solution for commission management and of course the reporting piece is very natural for us to be able to do. So that's the key area.

And then the third area is the whole area of managed markets, which is where our IHS acquisitions comes in as well as the Envision acquisition we did a few years ago and our DNA acquisition, which is a Medicaid at the state level. We have the opportunity now to go in and kind of manage end-to-end for the client, the contracting and formulary management as it relates to government and private payers. So I think there's three key areas that we think play to our strengths and are very much centered around the data assets that we've, where we think we can differentiate ourselves from the typical large scale business process outsourcing company. Gilles, you might want to comment on our clients sales force deployment in that changing environment.

Gilles V.J. Pajot - Executive Vice President and President, Global Business Management

The sales models of our clients are changing for basically three reasons. Number one, they have new portfolio. This is not anymore driven by primary care, but mainly by specialty areas. So those much more niche business and basically you have to redesign completely your sales force in order to be able to address this segment. And actually here you have to articulate the value in a much more obvious way that you do in the primary care.

The second reason why they are changing is the decision-making process is -- in the market is changing. Yesterday the only decision maker was a provider, was a doctor, was a physician. Today it's a combination of the physician and the payer and obviously, you got to be able to factor that in. The extreme example is Germany, wherein today the pharma company has the choice to continue to promote their products the traditional way or contract with someone [ph]. So this is why we have redesigned our entire sales organization and sales capability in Germany. You'll see some big results out of that.

The third reason why they are changing is -- the reason is productivity. Yesterday they were looking at results, today they are looking at performance; which market share, which province [ph], how do you development the market. A lot of areas like oncology, you'll actually deal the market and gain market share as the margin. So that -- we have addressed that by coming with a set of new capabilities when we see a lot of traction to that.

John Kreger - William Blair

Thanks very much.

Operator

Thank you. Our next question is coming from the line of Glen Santangelo from Credit Suisse. Please proceed with your question.

Glen Santangelo - Credit Suisse First Boston

Yes Dave, I just wanted to discuss the EMEA market in a little bit more detail. On the past couple of calls you discussed the regulatory changes there and the fact that several of the major European players are being hit pretty hard with some patent expirations and they are implementing cost control measures. This is the third quarter in a row we've seen mid single-digit growth. How confident are you that those companies kind of have their arms around in new environment they are operating in over there, and the growth should stabilize at this level? Do you have any visibility on that or --

David R. Carlucci - Chairman and Chief Executive Officer

Sure. First of all we have all spent a lot of time in the European market and talked to a lot of senior executives there. One of the things I called out was not only generic events, which again we know they can plan for generic events, but they have gotten hit pretty heavily on the regulatory and the drug safety side. And quite frankly that's not predictable and that's going to be kind of a fact of life.

But as you look at the environment there beyond the major five countries, we have certainly seen a significant performance record and continued success in the midsized markets, and all of our clients are doing a lot of work with us in portfolio analysis in figuring out which countries they want to make the investment and some very significant work on how do you manage mature products. So I think from that perspective, we did see an uptick from the third to the fourth in EMEA on our performance. And as we go forward, as I mentioned repeatedly, we have got Germany and UK performance in the second half of the year.

The last element of it is we had a very strong consulting business and continues to remain strong. So I think it's healthy as it stands, but I think we have the opportunity with the new offerings I discussed in the traction in Germany and the UK, in the competitive win backs and plans to continue some momentum there.

Glen Santangelo - Credit Suisse First Boston

Certainly encouraging, but just shifting the focus just for a second to the Americas region; obviously, the revenue growth which had been turning into double digits kind of came down to the mid single digits this quarter, and if I heard Leslye correctly, it sounds like you're forecasting highest single digits for the full year. So you don't anticipate any drastic behavioral changes in terms of purchasing patterns from the U.S-based customers.

David R. Carlucci - Chairman and Chief Executive Officer

Yes as we said, of the Americas results we saw highest single digits from the U.S. So it did moderate a bit, but yes very strong, especially in light with tapping in the industry in the U.S market, which continues to come down fairly steadily. Clients are dealing in the United States with similar issues, but they are not at all comparable to what we've seen in Germany and the UK. And they are continuing to adopt innovative offerings, particularly Xponent Weekly, our next-generation prescription services. We've seen a very, very nice uptick in APLD around being able to track the patient and get a better understanding there, and opportunity in traction in our oncology offerings. So consulting and services continues strong. It's the country where we have the first rating in client satisfaction and we're seeing a lot more in implementation services. This trend I discussed with John's question, the desire to want to get out in front of things in the United States as that market changes. So, again it will moderate a bit, but still very strong growth in the U.S market.

Glen Santangelo - Credit Suisse First Boston

Okay. Thank you very much.

Operator

Thank you. Our next question is coming from the line of Robert Willoughby from Banc of America Securities. Please proceed with your question.

Robert Willoughby - Banc of America

You may have touched on this somewhere in the discussion, but just if you look at the 08 revenues, what exactly is formally under contract here and what do you really have to go out and find at this point?

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

I didn't touch on it Bob. We have got a little bit over 50% of revenue under contracts. So, obviously the to-go is the rest of that as our consulting business grows, that obviously represents a larger percent of our revenue. We are very comfortable with that starting point, fitting into our 6 and 9% revenue guidance range for the year.

Robert Willoughby - Banc of America

Would you have any recollection from last year, what the number would have been, same kind of position or as consulting grows does that percentage come down?

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

That percentage comes down. Last year it was around 60%.

Robert Willoughby - Banc of America

Okay. Thank you.

Operator

Thank you. Our next question is coming from the line of Alex Alvarez from Goldman Sachs. Please proceed with your question.

Alex Alvarez - Goldman Sachs

Good morning. Following up on some of the earlier acquisition questions, how does the vendor consolidation that you have discussed in the current market environment impact your appetite in the strategy around acquisitions. Do the current trends reduce your willingness to pay for some niche businesses that might be have sort of competitive disadvantage or does this is actually provide you with an opportunity to become an even stronger vendor by going out there and making more niche acquisitions?

David R. Carlucci - Chairman and Chief Executive Officer

Well I think it depends greatly Alex on what geographies we are talking about, right? We certainly have opportunity in emerging markets and in Latin America to look at opportunities, where in our -- pretty much in our base business, there maybe opportunities to expand. We have a pretty rich set of data assets on a very granular basis in the major markets in the United States. But once you go past that, you've still got plenty of opportunity there. But the strategy you have seen us on predominantly is focused on future growth areas, areas that will give us capabilities in things like health economics and outcomes research and things like portfolio strategy, in areas where we see the need to have a stronger set of clinical skills around specialty areas. So, I think it's a combination of both. It doesn't dramatically shift our strategy, but obviously where we have a much stronger position that's not where we are spending the bulk of our time focused on acquisitions.

Alex Alvarez - Goldman Sachs

Alright. Thank you. And is that related to the price concessions that you highlighted in the last quarter. I think there was -- there have been a big topic and perhaps there has been some concern that, that could just be the beginning of more to come, given some of the market conditions. As you have talked with customers and as you've reviewed those market conditions, what's the possibility here that you might have to give some more on pricing or on terms and also your willingness to negotiate with customers on price for the potential to gain some additional business from them?

David R. Carlucci - Chairman and Chief Executive Officer

Yes, I think the thing we've talked about is that, we were very focused on the opportunity we see around vendor consolidation, to look at global and regional level agreements. All of those have thin win-win aspect of giving the client the ability to achieve some economies around consolidating with less vendors. That said, there is an onus on us to be able to go and sell into those contracts very aggressively with our broader portfolio. And that's one of the key things Gilles has been focused on, in our realignment of our client-facing organization is to make sure we are in a position to capitalize on that.

What I also mentioned is that guided by, is that a successful strategy for us and is it yielding? And we have the ability to moderate, whether we think these global and regional-type agreements are healthy for us long term. What I didn't say is that we've got individual point offering negotiations that are heavily based on price discussions. We are not seeing that phenomenon and we are seeing it more as something where we are trying to approach it with our large global clients as a win-win.

Alex Alvarez - Goldman Sachs

Okay. Thank you.

Operator

Thank you. Our next question is coming from the line of Alan Fishman from Thomas Weisel Partners. Please proceed with your question.

Alan Fishman - Thomas Weisel Partners

Hi. Thank you. Good morning. I just had a quick question around the recoveries in UK and Germany. If you could go into those more specifically on each, I am just asking about the kind of the timing of the recovery and how pharmaceutical manufacturers are looking at purchasing services going forward?

David R. Carlucci - Chairman and Chief Executive Officer

Sure I will let Gilles take that.

Gilles V.J. Pajot - Executive Vice President and President, Global Business Management

If you start with the UK; in the UK we are -- we have had a lot of win backs in our sales force effectiveness arena during the fourth quarter. Then you will see the impact of those win backs starting with first quarter, second quarter and we continue to -- we are expecting to launch a new product for the third part of the year. So we see a very positive trend coming from our UK business.

When it comes to Germany, as you know that due to the market condition, we had to redesign our entire portfolio again when it comes to sales force effectiveness. We have launched it during the second part of the year. We see traction of that. But due to the compares, you will see the major improvement during the second part of the year. But we are extremely positive about what we have done in Germany. We have -- actually to tell you about Germany, we have acted as really a thought leader [ph] helping the clients to navigate some impossible environment for a while and today the rate of adoption of our data business and of our consulting is higher than ever.

Alan Fishman - Thomas Weisel Partners

All right, great. Thank you.

Darcie Peck - Investor Relations

Operator, I think we have time for just two more folks to ask questions, please.

Operator

Perfect, thank you. Our next question is coming from the line of Sandy Draper from Raymond James. Please proceed with your question.

Sandy Draper - Raymond James

Great, thank you very much and congratulations on stabilizing the business and a better outlook for 08. The question is really, Dave you have made some comments sort in your prepared remarks about each of the business lines. I know your right now, at least not giving specific guidance by the three different business segments, but could you just sort of review again what your sort of general expectations are in terms of growth in higher, lower by the business units relative to 2007? Thanks.

David R. Carlucci - Chairman and Chief Executive Officer

Sure we are expecting to see some improvement in SFE. As you know that's our largest business line. We have a very good pipeline on the consulting side. We are adding capabilities in implementation services and we continue to see opportunities around Weekly Xponent and DDD in Japan, China and India. So I see the opportunity for uptick there and the way we're kind of looking at it in a little bit of Gilles, described is there was a lot of reevaluation going on last year that actually was extremely helpful to our portfolio business. And we think now we are going to -- we'll see more of an uptick in SFE.

I expect after probably three years of very strong performance in portfolio optimization and the addition of SPG Life Sciences [ph] that we'll see a bit of moderation in growth in our portfolio optimization business that was helped significantly in 07 by acquisition. So I'd see a moderation there and we see launch in brand continuing to do very well with double-digit growth including our consumer health and our managed markets business.

Sandy Draper - Raymond James

Great thank you.

Operator

Thank you. And our last question is coming from the line of Ashwood Youhurst [ph] from FBR. Please proceed with your question.

Unidentified Analyst

Good morning. Congratulations on the quarter.

David R. Carlucci - Chairman and Chief Executive Officer

thank you.

Unidentified Analyst

Looking at the current valuation and the rebound in free cash flow trends, what are your thoughts regarding an accelerated share buyback that you guys have placed in the last two years?

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

As I mentioned our guidance systems will buy back 10 million shares this year. We are intending to do that at a very rapid pace. But we've indicated and shown in past years the willingness to do further share repurchases and we continue to have flexibility and willingness to consider that as well. But the guidance assumes we will do 10 million and we'll do it very quickly in 08.

Unidentified Analyst

Sounds great. Thank you very much.

David R. Carlucci - Chairman and Chief Executive Officer

Thank you all. We appreciate your time and we'll speak to you at the end of the first quarter.

Operator

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. Have a great day.

Copyright policy: All transcripts on this site are the copyright of 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.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!