IQVIA Holdings Inc

NYSE:IQV

Earnings Call Transcript 2019-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the IQVIA First Quarter 2019 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. As a reminder, this conference will be recorded, Wednesday, May 1, 2019.

I would now like to turn the conference over to Andrew Markwick, Senior Vice President, Investor Relations and Treasury. Please go ahead.

[Andrew Markwick]

Good morning, everyone. Thank you for joining our first quarter 2019 earnings call. With me today are Ari Bousbib, Chairman and Chief Executive Officer; Michael McDonnell, Executive Vice President and Chief Financial Officer; Eric Sherbet, Executive Vice President and General Counsel; Nick Childs, Senior Vice President, Financial Planning and Analysis; and Jen Halchak, Senior Director, Investor Relations.

Today, we will be referencing a presentation that will be visible during this call for those of you on our webcast. This presentation will also be available following this call on the Events and Presentations section of our IQVIA Investor Relations website at ir.iqvia.com.

Before we begin, I would like to caution listeners that certain information discussed by management during this conference call will include forward-looking statements. Actual results could differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with company’s business, which are discussed in the company’s filings with the Securities and Exchange Commission, including our annual report on Form 10-K and subsequent SEC filings.

In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered a supplement to, and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in the press release and conference call presentation.

I would now like to turn the call over to our Chairman and CEO, Ari Bousbib.

[Ari Bousbib, Chairman and Chief Executive Officer]

Thank you, Andrew, and good morning, everyone. Thank you for joining our first quarter 2019 earnings call. I’m pleased to report that the first quarter was another quarter of strong performance at IQVIA. We again reported results towards the high-end of our guidance range or above our guidance range for revenue, adjusted EBITDA and adjusted diluted EPS.

Let’s review the numbers. First quarter revenue of $2,684 million, came in above our guidance range, resulting in constant currency revenue growth of 7.2%. On a segment perspective, Technology & Analytics Solutions revenue grew 12.9% at constant currency, of which about 7% was organic. Strong performance was driven by solid double-digit growth in our real-world and technology businesses.

R&D Solutions revenue grew 5.3% at constant currency, including over 300 basis points of headwind from pass-throughs. In the first quarter, we had a higher proportion of projects in the start-up phase, which typically have lower pass-throughs. Excluding pass-throughs, organic constant-currency growth was about 7.5%.

Our Contract Sales & Medical Solutions revenue was, as we had expected, down 7% at constant currency. We anticipate that this business will transition to growth in the second-half of the year. First quarter adjusted EBITDA of $587 million was towards the high-end of our guidance range and adjusted diluted EPS of $1.53 was at the high-end of our guidance range and grew 14.2%.

Let me provide an update on our businesses. Our tech team hosted over 300 clients IQVIA Technology Conference in Frankfurt a few weeks ago. The conference brought CIOs and technology leaders from across the industry together to network and experience the software innovations IQVIA is driving for life sciences in both the clinical and the commercial areas.

We were pleased to welcome, Steve Guise, the CIO of Roche Pharma, who compellingly described why Roche made the decision to standardize on the IQVIA platform and how our solutions will help drive results. We are proud to partner with Roche in what so far has been a very smooth deployment.

Our customers also heard from Theramex, a leading women’s health company that is growing rapidly and shows the IQVIA commercial suite in the mid-summer of 2018. Theramex’s continued growth was reliant on an efficient and successful implementation, and we were very pleased that they reported at the conference that the IQVIA solution is already operational in 20 countries, again, a smooth and efficient deployment in the field, led by IQVIA teams entirely.

In addition to many other presentations from clients, the conference attendees also heard from our partners at Salesforce about the vision of building best-in-breed technology that spans the entire product life cycle and is tailored specifically to our life sciences clients needs.

Our clients saw demonstrations of eTMF, RIM Smart, adverse events tracker, safety and pharmacovigilance, OCE analytics, and much more. They also witnessed firsthand the power of IQVIA AI and machine-learning capabilities fully integrated into this technology suite.

Turning into real-world. The team continues to scale our capabilities in supporting single-arm trials. During the quarter, a top 10 pharma client obtained an FDA-approved license expansion for an oncology product. This was made possible through the use of our rich patient level analytical assets to form a real-world comparator arm in combination with our advanced AI capabilities. In fact, we now have over 150 studies in more than 20 countries, which utilize AI and machine-learning to drive better insights.

During the quarter, we also announced the launch of E360 Genomics, our new patented technology platform, which will help advance research in the real-world space through the use of non-identified genomic data linked to rich patients analytics. This is a scalable, privacy preserving database solution, which provides an efficient way to conduct genomic research for the first time ever on the world’s largest pool of linked clinical whole genome sequence data.

The R&D team had another strong quarter of net new business wins, continuing the momentum we saw accelerating through 2018. Bookings growth remains robust and our LTM net new business growth continues to hover around 30%, excluding pass-throughs.

Our LTM contracted net book-to-bill ratio, again, excluding pass-throughs was 1.51. This is inclusive of the adjustment we made to our backlog. You should note, this is a record for the R&D team and the first time ever that the LTM net book-to-bill ratio, excluding pass-throughs, has exceeded 1.5, as we again had another quarter of very strong bookings.

Now let me go off my prepared remarks here, because I heard, we had a couple of inbound this morning about our old good friend, the quarterly book-to-bill. So it was basically in the same range as the 1.5, we just talked about. And after the booking adjustment, it’s not that far behind, you can do the math. Now, sorry, it wasn’t 1.7 as the last two quarters, but it was well over the old 1.2 threshold that you guys like a lot before or after the adjustment.

Now back to my prepared notes here, about the adjustment to backlog that we noted in our press release, we normally wouldn’t have removed the trial until the contractual arrangements have been finalized. Similarly, we don’t include, as you know, any award until contractual arrangements are finalized and report things on a contracted basis.

However, we felt it appropriate to make an adjustment to backlog since the termination of this trial has been widely and publicly discussed. Due to the nature of the therapy area for this trial, the majority of revenue removed from backlog was pass-throughs, which as you know, has no impact whatsoever on adjusted EBITDA or adjusted diluted EPS. And by the way, the estimated impact of this adjustment is already reflected again in the record LTM book-to-bill number that I mentioned earlier.

I’d like to further highlight that even net of this removal, the next 12 months revenue that we expect to convert from backlog actually further increased by over $100 million and currently stands at $4.9 billion. It is also noteworthy that we were able to fully absorb the backlog adjustment within our original 2019 revenue and profit guidance, which I think illustrates very well how the scale of our business, the breadth of our offerings and the continued momentum of our R&D business helps mitigate unexpected events such as a client ending a significant project.

Now before I turn it over to Mike, I’d like to announce that we are scheduling an Analyst and Investor Day in New York City on June 18. We are planning a morning event running from 9:00 AM to 1:00 PM. The focus will be on the long-term strategy of the business, in particular, we really looking forward to showcasing some of our technology.

We want to make sure we convey the truly disruptive nature of the innovative solutions we are investing in and we are bringing to the marketplace and how that will be driving our growth well into the future. Please save the date, June 18. We hope you will be able to join us for this event.

And now, I will hand it over to Mike.

[Michael McDonnell]

Thank you, Ari, and good morning, everyone. As you’ve seen, we had another solid quarter. Let’s review some of the details.

First quarter revenue of $2,684 million grew 4.7% reported and 7.2% at constant currency. First quarter Technology & Analytics Solutions revenue of $1,075 million grew 9.1% reported and 12.9% at constant currency.

R&D Solutions revenue of $1,416 million grew 3.7% at actual FX rates and 5.3% at constant currency. R&D Services growth would be in the high-single digits, excluding the headwind from pass-throughs. As expected Contract Sales & Medical Solutions revenue of $193 million declined 9.4% reported and 7% at constant currency.

Now, turning to profit. First quarter adjusted EBITDA was $587 million. First quarter GAAP net income was $58 million and GAAP diluted earnings per share was $0.29. Adjusted net income was $309 million. First quarter adjusted diluted earnings per share was $1.53. The improvement year-over-year was comprised of $0.15 from operating performance, plus $0.04 net from various puts and takes, including below the line items such as interest, operating D&A and taxes, as well as share buybacks.

Let’s now turn to R&D Solutions backlog. As Ari mentioned, we continue to see strong bookings growth even after the adjustment to backlog. We also expect strong revenue conversion over the next 12 months from this backlog. And as we said before, we are fully absorbing the backlog adjustment in our 2019 guidance.

Let’s review the balance sheet. At March 31, cash and cash equivalents totaled $936 million and debt was $11.3 billion, resulting in net debt of $10.4 billion. Our net leverage ratio was 4.6 times our trailing 12-month adjusted EBITDA.

Cash flow from operating activities was $113 million in the first quarter and free cash flow was negative $28 million. As is usual, during the first quarter, our free cash flow is lighter due to annual incentive payments to employees.

Additionally, cash flow this quarter was affected by the timing of various receipts and other disbursements, including our loyalty program business, which you may recall is our business that manages copay reimbursements on behalf of our pharma customers. Differences in the timing of payments we make to pharmacies as consumers use the programs versus reimbursement that we received from our pharma customers can cause meaningful swings in cash flow in any given quarter.

CapEx was $141 million in the first quarter. This was somewhat higher than we have been accustomed to, as we continue to make investments in innovation to drive growth. We repurchased $141 million of our stock during the first quarter from certain of our remaining private equity sponsors.

Let’s now turn to 2019 guidance. We are reaffirming our full-year 2019 revenue guidance of $10,900 million to $11,125 million. We are also affirming our adjusted EBITDA guidance of $2,375 million to $2,425 million and our adjusted diluted EPS guidance of $6.20 to $6.40.

Tax rates are still expected to be approximately 22% for the adjusted book tax rate and approximately 15% for the adjusted cash tax rate. This guidance assumes that foreign currency rate at March 31 remain in effect for the rest of the year.

And by the way, I want to remind you that from the time we last provided guidance using January 1 FX rates until March 31, rates have actually moved against us. This has generated a revenue headwind for the company, but we are absorbing it within our revenue guidance range and our guidance remains unchanged.

As in prior quarters, we are also providing guidance for the coming quarter. Again, assuming foreign currency remain – foreign currency remains at March 31 rate through the end of the second quarter, we expect revenues to be between $2,660 million and $2,710 million, adjusted EBITDA to be between $565 million and $580 million and adjusted diluted EPS to be between $1.46 and $1.51. This adjusted diluted EPS guidance represents year-over-year growth of 13.2% to 17.1%.

In summary, we delivered first quarter results toward the high-end or above our guidance ranges. Total company revenue growth continued to accelerate. Organic revenue growth for the Technology & Analytics Solutions business continued to accelerate. Organic revenue growth for R&D Solutions continued to sustain high single-digit growth rates, excluding pass-throughs.

R&D Solutions posted a record LTM contracted services net book-to-bill ratio of 1.51 times and NTM revenue from backlog conversion increased to $4.9 billion. We completed $141 million of share repurchases in the quarter, and we reaffirmed full-year revenue and profit guidance.

And with that, let me hand it back to the operator for Q&A.

[Operator]

Thank you. [Operator Instructions] One moment please for our first question. And our first question comes from the line of Erin Wright with Credit Suisse. Please proceed with your question.

[Erin Wright, Credit Suisse]

Great, thanks. Can you speak a little bit more about the nature of some of the new business wins in the quarter, the traction with large pharma versus biotech? And can you quantify how the NextGen is resonating with customers or translating into those new business wins we saw in the quarter, excluding, obviously, the cancellation and adjustment? Thanks.

[Ari Bousbib, Chairman and Chief Executive Officer]

Yes. Hi, Erin, thanks for the question. Well, look, the – I know there has been some talks, maybe from others about what’s going on in the market. We see – we had very strong bookings growth across the Board. I’m looking here for the actual number, large pharma versus small pharma or biotech. We had bookings – overall gross awards were – gross bookings were 30% LTM. Can I have the large pharma and biotech numbers, so I can give some colors to Erin here?

Okay, yes. Basically, strong growth across the Board. I do my – from memory here, because I don’t have the numbers probably LTM bookings growth, again 30%, large pharma bookings growth, which still represent the majority of our bookings Erin. The gross bookings in large pharma were up 30% and the EBP business wins grew over 20%. Our lot business was also strong. It was well over 20%.

The pipeline is stronger this year than it was last year. The – we’re forecasting double-digit increase in RFP value here this year versus last year. We have, at the moment, the strongest pre-RFP qualified leads pipeline we ever had. It’s up double digits over this time last year. So we really see strength, frankly, across the Board.

With respect to NextGen, we’ve not highlighted, because basically it continues to be as strong as it was. We had well over $600 million of, what we call now core enabled smart trial new business in the quarter. We now have somewhere around $4.5 billion of awards for our core enabled smart trials. We had actually some very nice awards in the quarter.

We won a Phase III trial for diabetes, which was essentially driven by our ability to identify high-density patient sides. As you know, it’s a very researched area, diabetes and a lot of competition for patients. And we won on the basis of our ability to identifying target with a high degree of precision where those patients are in high-density sites.

We also won a Phase II, Phase III trial for psoriasis. Again, entirely on the back of our ability to provide patient recruitment solutions that drove a reduction in the number of site required by 50% in this particular case. Again, our ability to target high-density of patient populations. So again, these awards always a good leading indicator for future contracted N&B. We continue to see very good strength and are happy with our quarter really across the segments.

[Erin Wright, Credit Suisse]

That’s very helpful. Thanks. And can you comment a little bit on the traction you’re seeing for the OCE offering? And is there a way you can kind of quantify how significant that is or will be to financials? Did it help to drive that strength in the technology segment in the quarter? And if there was any sort of more meaningful contribution from acquisitions within the technology segment, if you could break that out, that would be great? Thanks.

[Ari Bousbib, Chairman and Chief Executive Officer]

Yes. So we – I think I said in my remarks that we had revenue growth of 12.9% in our Technology & Analytics Solutions segment and 7% of that was organic. That’s a very big number for us. You will remember that for the longest time, our underlying growth rates in that segment was 4%, which we’re happy with, but it accelerated to over 5%.

Again, I’m talking about organic growth there in the fourth quarter and it was 7% this quarter. I’m not promising, it will continue to be at 7%, but certainly it has disconnected from the historic long time 4% level. Bear in mind, that about a third of our revenues in that business is data, is the old IMS data business and that business grows at 0%.

So you really are talking about double-digit revenue growth for our real-world and technology itself, and it is driven by our new suite of products. We had a lot of success in the marketplace last year, since we launched OCE, and we also launched a number of other products, which we announced RIM Smart for regulatory and compliance [Multiple Speakers] to safety and covigilance. We launched OCE analytics, as an added functionality on OCE, which includes essentially a layer of artificial intelligence to add. We are more prescribe – prescribing insights to the users. Hopefully, you’ll get a chance to see all of that at our Investor Day on June 18.

[Michael McDonnell]

And I think on the OCE side, Erin, I think, we said last quarter, the team are actively engaged in over 100 active sales lead to still checking those down. So good market and compiling is very robust there and we’re seeing good traction in the marketplace.

[Erin Wright, Credit Suisse]

Okay, great. Thank you.

[Andrew Markwick]

Operator, can we take the next question, please?

[Operator]

Thank you. And our next question comes from the line of Ross Muken from Evercore ISI. Please proceed.

[Ross Muken, Evercore ISI]

Good morning, guys, and congrats. So maybe just sticking, Ari, I appreciate all the commentary on new bookings, but I’m just going to try to drive a point home here. I mean, it feels like from what we’ve seen from your peers so far, bookings have been, I don’t know, 1.15, 1.2 somewhere in that range from the peer group. The market – the investor base is sort of debating whether the market slowed down or not. It doesn’t feel that way to us.

I guess, when I look at sort of your result, it feels like share is clearly changing hands in your favor. And it almost feels like on a sequential basis even with the cancellation and certainly, if you adjust for that, that pace is kind of accelerating. And so if you give us a feel – do you feel like the win rate is moving more in your direction?

Do you feel like, particularly on the NextGen offering, that’s sort of reverberating even more exponentially within certain parts of the customer base, and just give us a feel for like the – that cadence that’s been now working for the last 18 months. It feels like that snowball just keeps growing more exponentially than literally, I guess, in terms of the your performance relative to the peer group?

[Ari Bousbib, Chairman and Chief Executive Officer]

Yes. Well, thanks – Ross, thanks for all those nice comments. I’d say, you’re right on your analysis here. The environment, I want to stress, continues to be very strong. We don’t see any slowdown. You’re actually – I’ll tell you, we are seeing an increase in the average value of our wins year-over-year. We see larger trials, bigger commitments. I mentioned to Erin earlier that the value of our RFP status trials in aggregate is up year-over-year double-digits. Again, strongest pre-RFP qualified leads pipeline, again, up double digits this time versus last time – last year this time.

The future of clinical trials to the NextGen point and that is where the transformation is around digital health technologies use of real world data and application of AI. Now, all of these things can happen in a vacuum. You need the raw ingredients, which is the deep granular patient level analytics assets that we’ve spent decades building, and we’ve invested a lot in. And that was again to take you back 2.5 years ago the entire rationale for why we decided to do the merger at the time.

We believe that as a result of all these investments, we are at the forefront of all of these and really leading the industry to change. Again, we hope to highlight how we’re doing these on June 18.

With respect to the market itself, investment in medical innovation grew in 2018. We still see a lot of investment money flowing into the space. The value of the venture capital deals has more than doubled from the deal value in the last five years. If we took the top 15 largest pharmaceutical companies in aggregate, and by the way, this data is available in our IQVIA Institute Report, which was recently published analyzing in-depth the landscape of R&D, core innovation, drivers of change and evolution of clinical trial productivity.

And if you don’t have that report, I strongly encourage. I’m sure it’s available on our website, or you can have Investor Relations. But the top 15 largest pharmaceutical companies in aggregate together upped their R&D spend by 30% in the last five years.

In 2018, there was a record number of approvals and launches of innovative medicines. Biopharma is healthy. Of the 59 new drug launches in 2018, 38 were patented by EBP companies. Of the 26 new drugs registered with large pharma, half of them originated through the emerging biopharma.

If you look at the number of molecules in late-stage development pipeline, it’s increased by 11%, which is almost 40% in the last five years. So we see a very strong environment. Obviously, quarter-to-quarter, you have ups and downs, and the numbers we posted reflect the strength of the environment, I just described and perhaps you were – perhaps, yes, some gains in share on the back of our more innovative solutions.

Again we didn’t post 1.7 as we did the last two quarters, but it’s still very, very strong and certainly much higher than the numbers you reported the 1.15 to 1.20, you just quoted from competitors. Again, much higher than that pre or post adjustment.

[Ross Muken, Evercore ISI]

Perfect.

[Ari Bousbib, Chairman and Chief Executive Officer]

Thank you.

[Ross Muken, Evercore ISI]

And maybe a quick one for Mike. Can you just walk through kind of some of the noise in free cash in the quarter? It seemed like there were some disbursements here on loyalty and a few other pieces and just sort of how that will unwind over the balance of the year?

[Michael McDonnell]

So, Ross, happy to comment on that. So as I mentioned in the prepared remarks, we pay our first quarter incentives or pay our annual incentives in the first quarter. So that always is a drag on cash flow and our first quarter is always our weakest cash flow quarter. So that was as expected.

I think, in addition to that, I’d point you two things. One is, as I mentioned, the loyalty card program, which is one where there is just the timing between reimbursements that came in from our pharma clients versus when we have to pay those as coupons are presented. And so that, it’s just timing, but it can create a meaningful headwind or a tailwind to free cash flow. In this particular quarter, it was a bit of a – it was a meaningful headwind.

And then lastly, our CapEx is a bit higher than what we’ve been accustomed to and we’re making some very good investments and some very attractive investments that we’re really happy with and we think we’re going to bear fruit longer-term. And those are really the key points.

I’d remind you that we continue to benefit from a very low-cost of debt. Continue to be very tax-efficient. We’re pleased with our share buyback program and we continue to expect that over time, our free cash flow should be kind of a $900 million to $1 billion a year sort of number.

[Ross Muken, Evercore ISI]

Helpful. Thanks, Mike.

[Michael McDonnell]

Thank you, Ross.

[Operator]

Thank you. And our next question comes from the line of Tycho Peterson with JPMorgan. Please proceed with your question.

[Tycho Peterson, JPMorgan]

Hey, thanks. Ari, maybe just starting with the pass-throughs, can you maybe comment on how much of that was related to BIB [ph] and why is it generally higher for Alzheimer’s and other areas? And then as we think about the revenue dynamics associated with the Biogen wind down, can you maybe just talk about how you think about it impacting R&D Solutions for the remainder of the year?

[Ari Bousbib, Chairman and Chief Executive Officer]

Okay. So pass-throughs in general is, we are a year into this new standard. We’re still trying to – we – hopefully, we’re getting a better handle on it, but it’s just much harder to predict the timing of pass-throughs by definition just at the booking stage already. It’s – you can have very strong, it’s a very precise analysis of what the bookings number is for service revenue, but the pass-through is more of an estimate.

So not saying that there’s going to be a big variation, but it’s not as precise as service – as expected service revenues already at the booking stage. Then the – this time that we recognize revenue on an estimate of completion basis, again, it’s complex exercise to estimate what remains to be done on a project and evaluate the timing on how that’s going to be done in relationship to what has already accomplished.

But that’s a complex exercise for the actual work, for the labor that goes into the work, but the pass-throughs, it’s even harder, right? And so that causes some lumpiness into when they come in quarter-in, quarter-out.

Bear in mind that to make things even more complicated, depending on the mix of projects, you could have business lines and therapy areas that have varying levels of pass-throughs.

In this particular – in the case of the project that we just highlighted that was terminated, it’s in the therapy area that happens to require an enormous amount of, how do I say it without saying word therapy, but all of them arise, a lot of scans, PET scans, a lot of very expensive procedures in the course of the trial. That’s very highly specific to this therapy area. And as a result, it ends up being a huge amount in relationship to the service revenue, in fact, the majority. That’s highly unusual.

If you look at our backlog, it’s actually more, 70%, 30%, right? 70% services, 30% pass-through and that’s much more representative of what a typical clinical trial will look like 70%, 30%. This is highly, highly unusual to our disproportionate philosophies.

Also bear in mind, the nature of the work, if it is functional, if it’s FSP work, then there is no pass-throughs, virtually no pass-throughs, lab work has little pass-throughs, data safety science and regulatory have really good pass-throughs, but other full clinical work does have a lot of pass-throughs.

And finally, depending on where are you in your -- you could show very high revenue in a quarter driven almost entirely by pass-through as you can see from maybe other reporting peers and that’s because it means that they are arriving towards the end or they closing out projects. If on the other hand, you stand at the cusp of executing a very large backlog as is the case for us, because we have a lot of wins over the past few quarters, then in early stages of a project, you have much less pass-through.

So that’s kind of – to give you some color on this pass-through thing, which again, I think, it’s not an easy piece of the business to understand. We’re becoming more – we’re trying to become more precise about it. And we’ve highlighted whenever that lumpiness causes some unusual swings in our revenues and that’s what we try to do this call.

[Tycho Peterson, JPMorgan]

And in terms of the revenue dynamics associated with the Biogen wind down, I know in the past you’ve talked about there is a long process here that can take sometime. Was there any kind of one-off revenue recognition benefits related to this in 1Q within R&D Solutions?

[Ari Bousbib, Chairman and Chief Executive Officer]

No.

[Tycho Peterson, JPMorgan]

…and how should we think about this for the remaining of the year?

[Ari Bousbib, Chairman and Chief Executive Officer]

No, no, no. The answer is no. There was nothing – first of all, it happened towards the end of the quarter. There was nothing and we’re still figuring – we’re still working with them with that client on the wind down. But we figure to be conservative and just make an estimate and just take it out entirely of the backlog and just to reset.

Frankly, when it was announced and we thought – we kind of focused internally, and so should we just take it out of the back of – right now, we issued a press release. But frankly, it’s immaterial when – to our numbers. That was our conclusion and we were told, there’s no reason to do anything until. And so we waited for the first opportunity, which is the earnings release.

And despite all of that, again, I just want to point out that in the next 12 months, revenue expected from the existing backlog that – which I think, we think is the most indicative metric is up $100 million versus sequentially. I think it’s up $300 million or more than $300 million year-over-year and continues to grow. So to us, that’s the most significant – and that’s again, after we removed that trial.

We – again we – of that trial, what we’ve moved essentially was going to come into revenue over the next two, three years, right? It’s about two, three years of revenue for the vast majority of that – of that dollar number. I mean, if you go back two years to – and you’re right. If you go back to Q4 of 2017, end of 2017, we were at NTM revenue from backlog of 4.5. So we have $400 million versus that. And we were at 4.6 for a while throughout 2018, we jumped to 4.8 last quarter, and we now at 4.9. Again, after the reduction – the elimination of that trial. Thank you.

[Tycho Peterson, JPMorgan]

Okay. And then – okay, thank you.

[Andrew Markwick]

Thanks, operator. Can we take our next question, please?

[Operator]

Of course. We’ll go to the next question from the line of John Kreger with William Blair. Please proceed with your question.

[John Kreger, William Blair]

Hi, thanks. Two quick ones. Ari, you’ve mentioned AI and machine learning a few times on the call. Can you just maybe elaborate a little bit on how you’re using that technology for clinical trials? And then the second, given the low unemployment rates, particularly in the US, are you having any issues staffing up to manage the growth you’ve been reporting? Thanks.

[Ari Bousbib, Chairman and Chief Executive Officer]

Yes. So on clinical trials, obviously, we’ll be talking about NextGen for a while, but the idea here is to do simulation and to model out. What this trial really look like based on the data assets, on the analytics, the technology and the vast amount of computing capabilities that we brought together.

So the objective is to eliminate or reduce protocol amendments, accelerate the by patient recruitment, targeting the right size, including size that we’re not previously necessarily known as research size, developing new investigation – investigators. Automation, in general, has been key to gaining scale to our core enabled next generation smart trials. We can generate predictive analytics in minutes, as opposed to weeks, if you are doing it by trial and error as it’s used to be done in the past.

We now have analytical libraries that drive these automated analytics and that can be used essentially off the shelf. I think we have over 1,000 automated analytics. It covers like over a – about 100 indications. And this year, I think, we plan to essentially cover 25 countries.

So, today, we have more than 500 smart trials already in operation, and that represents about a third of the total trials that we are conducting. And we expect that within the next two, three years, the vast majority of the trials will be using these capabilities. So again, it’s all about speed to market for our clients, accelerating the trials, eliminating efficiency, rework, waste, and our technology capabilities enable that.

[John Kreger, William Blair]

Great, thank you. And then the other question was about labor. Are you seeing any cost pressures and hiring difficulties? Thanks.

[Ari Bousbib, Chairman and Chief Executive Officer]

Well, look, we have a large backlog to execute. And so, naturally, we are cognizant of the fact that the – we need those talented resources, but we do have 58 people and we work very hard on increasing productivity. You heard us before talk about mobiles, mobile solutions for CRAs, more automated capabilities for pieces of the world that can be automated. A lot of the solutions we talk about for our clients, we also are working to apply them internally.

Now there are areas, I agree with you, where, for example, data scientists and the technology, the deployment of our OCE wins, which for the most part, we do ourselves contrary to other competitors. We have great talent and so far, the large ones that we’ve done, as I mentioned in my prepared remarks, have been very, very successful. We – that’s expensive resources and you’re right. There is some level of waste deflation, no question about that.

[John Kreger, William Blair]

Thanks very much.

[Operator]

Thank you. And our next question comes from the line of Robert Jones from Goldman Sachs. Please proceed with your question.

[Robert Jones, Goldman Sachs]

Great. Thanks for the question. Just looking at the conversion, pretty steady quarter-over-quarter in this quarter. But based on your prepared remarks, it sounds like you guys expect strong revenue conversion over the next 12 months. So just curious I know there’s a lot of dynamics at play there. But just curious, how much line of sight, what the driving factors are that give you confidence that the conversion should pick up as we move over the next year?

[Ari Bousbib, Chairman and Chief Executive Officer]

Well, I think, you’re correct. The math in the quarter, that’s what, if you look – that’s what it is pretty stable. Our bookings have been fairly outsized compared to recent history. And so obviously, the burn rate, it causes the burn rate. In individual projects, especially the ones using our new smart innovations and technology, we see an acceleration of the burn.

Without that, you might have seen a decline in the burn rate, simply because of how much stronger the bookings have been. They want – when you add, especially when you add a lot of bookings, they’re not going to convert to revenue in the quarter following contracting. It’s going to take sometime. And so and hopefully, we will continue to add more and more.

So you will always have that kind of a headwind, if you will, which is important, a good one in this case. We do want to add stronger and stronger bookings every quarter. But the fact is, when you do that and they don’t convert, so you cannot create in aggregate a headwind to conversion. And it masks the actual increase in burn rate that we see in the projects that we are executing.

So now, we build our revenue forecast project by project and calculate total cost incurred as a percentage of the total estimated cost, and that’s the basis for revenue recognition. And, of course, we update this calculation forecast on a monthly basis, that’s the new 606 standard.

So to help you with the modeling, we provide you, as you just quoted, the closing backlog, the next 12 months revenue from backlog, and we also provide you with quarterly and annual guidance. So again, as I tried to explain before, the backlog includes pass-throughs and at times the burn on the pass-through can actually be slower than the burn on the service revenue.

So it is possible you will see a slower burn on pass-through backlog following a period of stronger net new business, because again, pass-through are usually incurred at later stages in the product life cycle. So on a very, very large backlog over $17 billion like ours, it’s hard to see the – all the puts and takes inside. So we feel actually very good that the burn rate remains where it is given everything I just told you.

[Robert Jones, Goldman Sachs]

That’s helpful, Ari. If I could just ask one on TAS as well. Obviously, you highlighted the strong organic growth in that segment. But obviously, quite a bit of growth from M&A also helping out that segment. But just curious if you could talk a little bit about what types of deals you guys are executing in the TAS segment, how big and small are these assets? And then how does the M&A landscape look going forward as far as other bolt-ons and tuck-ins you can do in that business?

[Ari Bousbib, Chairman and Chief Executive Officer]

Right. Well, again, TAS was 12.9% all-in 7% means no acquisition in the 7%. That’s – so the acquisitions were essentially as always small bolt-on technology applications that we like that complement our suite, that help us bring capability. Sometimes honestly, we buy companies for the pool of talents.

We just bring them in and they help us change the culture, they bring in capabilities that we don’t have. It would be very, very hard to go out and recruit people from like that individually. We bring in teams. We’ve done acquisitions recently included in these 4.9 points of the [indiscernible], those include some in the safety space, regulatory space. These are areas where we’re not present.

So we are expanding the suite of capabilities that we are offering our clients. Again, we recall our strategy there. We will say more about that on June 18, but our strategy is to build a fully integrated suite of applications that are seamlessly integrated in our all leverage the same analytics and information assets across the Board. Thank you. We can take another…

[Andrew Markwick]

I think we have time for probably three more questions, operator.

[Operator]

Thank you. And our next question comes from the line of David Windley from Jefferies. Please proceed with your question.

[David Windley, Jefferies]

Hi, good morning. Thanks so much for taking my questions. Ari, I wanted to use your discussion. I appreciate your discussion about your management of the client relationship in the cancellation and use that as a way to explore your kind of walking into guidance for this year. It was my sense that in the second-half of 2018, you were quite careful about getting too aggressive about 2019. And only after the second quarter of really large bookings, did you kind of step up the expected growth rate, which I thought, it seemed was prudently cautious.

And I’m wondering if you kind of knew that this study was in a risky therapeutic area, had a protocol written to have an interim look and was something that you wanted to be certain you could absorb as you moved into 2019, if, in fact, this were the outcome. Can I give you that much credit?

[Ari Bousbib, Chairman and Chief Executive Officer]

I wish you were right. I – no one, no one, absolutely any idea that this study will be terminated. I might eventually tell you that the client themselves had no idea the day before, okay? So this is not the way it happens. You don’t – you probably don’t need me to tell you how these things happen. They have independent third-party reviewers. It’s a very scientifically sound process, the company itself does not make that decision.

So no one knew. I mean, this is – look, this is – we all know, which trial we’re talking about. This is – this was devastating news for the industry, for the people, who have been dedicated their lives to try to find a solution to this terrible disease and most of all for the patients that’ll have very high hopes. I mean, you’re talking about real serious traumatized employees certainly at the client, but – and then even for us with need for a strong emotional support. So no one expected any of this.

Now were we conservative – more conservative in early 2018? Yes, because, look, we tried to be – we’ve said it before, we try to under promise and over deliver and we hope that we will always be in that position.

And I think I did say last quarter that my inclination normally would be to – we tried every possible way, not to be as excited as perhaps we were on our calls, but, look, we continue to be to feel very good. Environment again is strong. We were able to fully absorb this, because we looked at the numbers and looked where we are and we looked at this when that termination was announced, not we didn’t know before at all.

As I said before, we actually had several meetings here internally. I can’t reveal up to you by asking all the right – all the questions, I think, I’m supposed to ask from our experts, legal, financial, control, audit, no is there a material event here? Do we need to do anything? Is there anything to change? We did all the reviews internally that you would expect us to do and we concluded? No. There is nothing happened. Nothing happened. We’re okay. I think, again, is we are a large company. We have scale. We have wide diversity of offerings. We have a lot of clients across the Board, nothing here.

So, again, another company that would probably be smaller, even marginally smaller that will be less diversified, that will be perhaps more concentrated from a client standpoint, would have a very, very hard time overcoming such a large termination. But for us, we feel comfortable that this is within our range of guidance and that’s okay, things happen.

[David Windley, Jefferies]

And would it be – sorry.

[Andrew Markwick]

I want to try and squeeze in one more question if possible from another analyst, if possible. Thank you, Dave.

[David Windley, Jefferies]

Sure. If I could just ask a numerical one, would it be possible to give the trailing 12-month bookings dollars number as you have in the prior press releases, that would be great? I’d appreciate it. Thanks.

[Ari Bousbib, Chairman and Chief Executive Officer]

We’ll have that from the follow-up.

[Andrew Markwick]

Yes, I think, we – let’s follow-up on that offline. I’d like to try and jump to another question, if we can.

[David Windley, Jefferies]

Okay. Yes, sure. Thank you.

[Andrew Markwick]

Okay. Next question.

[Operator]

Thank you. And our next question comes from the line of Eric Coldwell with Baird. Please proceed with your question.

[Eric Coldwell, Robert W. Baird & Co.]

Hey, thanks very much. I actually like Dave’s question. So I’ll ask that one too and we’ll do it offline. So on this – on this $390 million cancel admittedly, I think, bigger than a lot of us thought, largely because of the pass-through side of it. But did you specifically say, and I’ve been on and off with other things this morning, did you specifically say how much of that will impact your revenue in 2019 and 2020? It’s the first component of my question. The second component…

[Ari Bousbib, Chairman and Chief Executive Officer]

Yes.

[Eric Coldwell, Robert W. Baird & Co.]

Go ahead.

[Ari Bousbib, Chairman and Chief Executive Officer]

No, go ahead.

[Eric Coldwell, Robert W. Baird & Co.]

Okay. Second component and this all sort of ties together. In your prepared remarks, you mentioned that your overall study mix, I think, skews to earlier stage projects, which, of course, in the new 606 world means lower percentage of completion, because reimbursables pass-throughs are later stage in trials. You’re actually probably under representing in your numbers today what your revenue growth could be or would be in a more normal world.

When do you think these early stage project start to – when will they mature? When will you be coming back to us and saying, now we’re hitting the sweet spot of revenue recognition on that book of business? So I’m just – I’m trying to triangulate when we’re going to see overall revenue growth in R&D as frankly, I think, it’s going to be pretty high in the next year or two, but I’m just trying to get a sense on when the timing of all of this plays out?

[Ari Bousbib, Chairman and Chief Executive Officer]

Okay. On the first part of your question, I did not say how much revenue either in 2019 or 2020 or 2021 is – will be taken out from our internal forecasts as a result of that termination, because we feel that they are not material. That change is not material to the guidance ranges that we provided, it’s within our ranges.

This is why we decided that it does not – we are not making any changes whatsoever to any of the numbers we provided to you before we knew of this cancellation. So the answer is no, there’s no – nothing. It’s behind us and we are moving on.

Second, following question is, yes, you are right. It typically tends to ramp up and accelerate in terms of revenue recognition as the project goes on. The start-up phase can be – it does not bring in as much revenue. And the sweet spot is generally in the one, two, three years after – one, two, three years after the project – the trial started. But I mean, you’re familiar with those dynamics as well. And you’re right also on the pass-throughs that’s typically, they tend to come in later on in the second-half of the trial. Okay.

[Eric Coldwell, Robert W. Baird & Co.]

Maybe I didn’t ask it specifically enough. I’m curious if you can tell us based on the aging of your overall book when you would say, you’re at a quote normal level of aging. Is that one year out, six quarters out, two quarters out, I’m just not sure if you have that kind of visibility, if you can share that with us, but…

[Ari Bousbib, Chairman and Chief Executive Officer]

Yes. I can tell you. Look, first of all in second-half of 2017 and first-half of 2018, we had very strong bookings. In the second-half of 2018 and the first quarter of 2019, we had hugely strong books. So we’re still – we are – I can’t give you a precise number when there is a sweet spot. And there is – my sweet spot keeps going further and further.

In other words, I’m not looking at this as a curve that speaking at some point in time, then going down. I’m looking at it as a curve that’s going up well into the future and accelerating in terms of the slope of that curve, okay, if I’ve been clear. So I don’t have a peak here in front of me, okay?

So that’s my – I think you asked about the LTM, N&B. It’s kind of – I did mention. I don’t know if I answered your question correctly. But I did mention in my prepared remarks, it’s up 30% in terms of the growth. And basically, it’s – you wanted the number, right? What was the question [Multiple Speakers]

[Michael McDonnell]

$6 billion.

[Ari Bousbib, Chairman and Chief Executive Officer]

Yes, it’s around $6 billion or a little bit over that. I mean, that’s where the number is and we will clarify that in post-call conversations. Thank you very much.

[Eric Coldwell, Robert W. Baird & Co.]

Thank you very much, Ari.

[Andrew Markwick]

Thanks very much, Ari. Thanks, everyone, for taking the time to join us today, and we look forward to speaking with you again on our second quarter 2019 earnings call. And as always, Jen and I will be available to take any follow-up questions you might have for the rest of the day. Thank you.

[Operator]

Thank you, 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.