Healthcare IT services : Analysis of major firms

HEALTHCARE IT SERVICES:
Q1 2016 IN REVIEW
Email: info@damoconsulting.net
Website: www.damoconsulting.net

2 of 17
All Rights Reservedwww.damoconsulting.net info@damoconsulting.net
CEO, Damo Consulting Inc
May 17, 2016
E a r n i n g s A n a l y s i s A n d M a r k e t U p d a t e s
Fo r M a j o r F i r m s
Paddy Padmanabhan
CEO, Damo Consulting Inc
Follow me @paddypadmanabha
This quarterly report from the research team at Damo Consulting looks at the IT
services industry in the healthcare sector. The primary audience is CIO’s and IT
services sourcing professionals in healthcare enterprises, and senior tech industry
professionals in IT services companies with a focus on healthcare. The goal of this
report is to inform audiences about the healthcare footprint of major tech services
firms, specifically “offshore IT” companies.
This report analyzes the most recent financials of 5 major IT services firms (
sometimes referred to as the WITCH group ), along with their market
announcements during the quarter. We chose these firms primarily because they
are public companies who are mainly in the IT services business. The report
focuses on growth metrics, including comparisons of QoQ, annualized, and
healthcare to overall company revenues. It is important to note the following:
The definition of what constitutes healthcare varies somewhat among the
companies covered.
IT services firms reclassify their portfolios from time to time which makes
comparisons difficult.
The annual financial reporting cycles are not the same for the companies covered
This report relies only on public information.
The updates include announcements on customer wins, M & A, strategic alliances,
and leadership changes.
We hope you find this report useful and informative. Please write to
info@damoconsulting.net if you have questions or comments.
You can also download our quarterly market update report for a more broad-based
view of firms that have a focus on healthcare, including smaller companies as well
as privately held firms.
All information from publicly available resources. Proprietary & Conﬁdential Damo Consulting Inc. 2016. Not to be considered investment advice.
HEALTHCARE IT SERVICES: Q1 2016
HEALTHCARE IT SERVICES: Q1 2016 IN REVIEWM AY 2016

Earnings Analysis And Market Updates For Major Firms
HLS Revenue Growth And Contribution Across 5 Major IT Services Firms
Q1 2016 in Review
3 of 17
TABLE OF CONTENTS
2
6
8
HLS Revenue As % Of Total Revenue 8
All Rights Reservedwww.damoconsulting.net
HLS % Growth YOY 8
HLS % Growth QoQ 8
YoY Revenue Comparisons For The Last 5 years 9
Annualized OM Comparison For Last 5 Years 1 1
MARKET UPDATES - COGNIZANT (CTS) 1 3
MARKET UPDATES - HCL TECHNOLOGIES 1 4
MARKET UPDATES - INFOSYS 1 4
MARKET UPDATES - TATA CONSULTANCY SERVICES 1 5
MARKET UPDATES - WIPRO 1 5
Healthcare IT Services : Q1 2016 2
Definitions & Abbreviations 4
Revenue Profile Of 5 Major IT Services Companies:
Wipro, Infosys, TCS, HCL, CTS 5
info@damoconsulting.net

D e f i n i t i o n s & A b b r e v i a t i o n s
4 of 17
TermS.No Meaning
1
2
3
4
5
6
CTS Cognizant Technology Solutions
TCS Tata Consultancy Services
QoQ Quarter on Quarter
YoY Year on Year
HLS Healthcare & Life Sciences
Operating Margin EBIT/Revenue

R e v e n u e P r o f i l e O f 5 M a j o r I T
S e r v i c e s C o m p a n i e s : W i p r o , I n f o s y s ,
T C S , H C L , C T S
5 of 17
Company Revenue
(in USD MM)
2012 2013 2014 2015 2016 1Q2016
Infosys
Wipro
TCS
CTS
HCL
HLS Revenue
(in USD MM)
2012 2013 2014 2015 2016 Q12016
Infosys
Wipro
TCS
CTS
HCL
N.A
522
431
1622
383
6041
5221
8187
6121
3545
6994
5921
10171
7346
4152
7398
6217
11568
8843
5180
8711
7081
13442
10263
5822
9501
7346
15454
12707
6234
2446
1882
4207
3202
1587
411
586
535
1935
482
504
640
604
2265
554
584
807
782
2689
652
732
882
989
3703
798
194
226
269
914
203
Infosys, Wipro and TCS annual revenues are for the period April 2015-March 2016.
HCL fiscal year ends on June 30, however numbers shown are published figures for 12 month
period ending March 2016
CTS fiscal year is Jan-Dec 2015 ( adjusted here to show 12 month to March 2016 for comparison)
All numbers rounded
Q1 numbers derived from published information

HLS YoY revenue comparisons do not indicate a clear
pattern. In Q1 2016, CTS has indicated a 4% sequential
decline (attributable partly to the seasonality in the
Trizetto business which tends to have a strong Q4) while
growing by 4% YOY. Infosys has reclassified the HLS
portfolio to include insurance which seems to have
contributed to a spike in revenues for HLS. HCL appears
to have grown, however there is not much commentary
on the same. The margins for 2016 and beyond are likely
to be influenced by M & A activity, such as the Trizetto
acquisition’s impact on Cognizant, and Wipro’s recent
purchase of HPS.
The 5 major IT firms (Wipro, Infosys, TCS, HCL, and CTS)
had a combined revenue of over $ 7 Bn from healthcare
for the 12-month period ended March 31. CTS had more
than a 50% share of this, with around 3.7 Bn.
The overall growth rate of HLS market for IT firms has
been rising in the past few years. In the wake of
Obamacare-driven healthcare IT transformation, the U.S
Healthcare sector’s focus on operational efficiencies and a
shift to value-based care present significant opportunities
for IT services firms. This has had a beneficial effect on
operating margin for companies who caught the wave
early, with CTS having a headstart (37% operating margin
in 2012). However, the overall picture for OM’s is a mixed
bag, with M & A appearing to have an impact more
recently ( e.g Trizetto with Cognizant). The numbers seem
to reflect a level of maturing of demand for traditional IT
services and pricing pressure due to increased
competition, especially for large outsourcing deals.
6 of 17
Q1 2016 In Review: Demand Has Softened In
Q1 2016, Margins Are Getting Compressed
0.00%
2012 20162013 2014 2015
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
0.00%
2012 20162013 2014 2015
05.00%
20.00%
15.00%
10.00%
30.00%
25.00%
40.00%
35.00%
The ongoing M & A activity across the healthcare sector as a whole is leading to industry consolidation
which has direct implications for IT services firms, as different parts of the market jockey for negotiating
power against one another and against vendors.
Figure 1:Overall YoY Growth For
5 Years
Figure 2: OM Comparisons Over
5 years
Healthcare Average Company Average
Infosys Wipro TCS HCL CTS

CTS explicitly acknowledges this as a reason for softness in growth in healthcare during Q1 2016, citing
the payer sector consolidation in particular.
While the five companies covered in this report are representative of the market for IT services in
healthcare, we recognize there are large incumbents such as IBM, Accenture, and Deloitte with
significant market shares. Privately held Dell’s spinoff of Dell Services to publicly held NTT will provide
us a glimpse into the financials of Dell’s Healthcare services business in the coming quarters.
Non-traditional players, notably Amazon with its blockbuster AWS business, could be dominant players
in future that threaten the remote infrastructure management business that IT services firms have
relied on for growth in the past few years. There is also a burgeoning ecosystem of startups, many of
which are focusing on niches that could eat into the traditional services business.
Due to the current election year in the U.S, IT services firms are in the spotlight whenever a deal is
announced that results in significant job losses to offshoring. The industry has seen wake-up calls
around IP protection, information privacy, and security. The Epic lawsuit and subsequent punitive
damages on TCS for nearly 1 Bn for alleged IP violation, as well as the stories of job losses related to IT
outsourcing at Emblem Health and Abbott, are significant developments for the IT services sector.
However, healthcare is in the early stage of a digital transformation, and we believe there are
significant new opportunities for companies that build capabilities to help healthcare enterprises
navigate this transformation.
Our research also indicates several smaller and mid-tier companies are now beginning to take a
strategic approach to healthcare. Many of them are developing specializations that make them
attractive to clients as niche and nimble providers. We have covered some of these firms in our Q1 2016
market report.
IT services firms, engaged in brutal competition in the market, are vulnerable to pricing pressure in the
absence of consolidation within their industry. Other forces such as automation and cloud computing
will likely increase this pressure, in response to which many IT services firms are acquiring or
aggressively building out capabilities to become a part of the change and evade marginalization.
7 of 17
2016

HLS Revenue Growth And Contribution Across
5 Major IT Services Firms
CTS remains the dominant leader in the HLS sector among the big offshore IT services firms. Healthcare
and Life Sciences (HLS) revenue as a percentage of total revenue is highest for CTS (nearly 30%) and
lowest for TCS (6%). CTS has expressed some cautiousness in the outlook for 2016 and has also
indicated that the current pipeline is
weighted towards Trizetto deals.
(CTS’s cautiousness on the outlook from
the pending M & A in the payer segment
may be partly due to a $ 2.7 Bn deal with
Healthnet which unraveled in Q3 2015
when Healthnet merged with Centene.)
Infosys seems to have had a strong YoY
growth for HLS. A significant factor for this
is the inclusion of Insurance within HLS
numbers.
HealthPlan Services (HPS) acquisition announced earlier this year for $460 million.
Wipro’s overall growth and margins in
healthcare are likely to change with the
8 of 17
0.00%
2012 20162013 2014 2015
05.00%
20.00%
15.00%
10.00%
30.00%
25.00%
35.00%
HLS Revenue As % Of Total Revenue
0.00%
2012 20162013 2014 2015
20.00%
80.00%
60.00%
40.00%
120.00%
100.00%
140.00%
HLS % Growth YOY
0.00%
-5.00%
1QFY16 2QFY16 3QFY16 4QFY16
5.00%
15.00%
10.00%
Wipro TCS HCL CTS
HLS % Growth QoQ

9 of 17
YoY Revenue Comparisons For The Last 5
Years
HLS revenue growth for CTS, as indicated earlier, saw a dip in Q1, however the annualized growth
seems to be higher than that for the company. Wipro HLS growth stands out for the sharp contrast to
the overall growth rate of the enterprise.
2012 2013 2014 2015 2016
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
TCS TCS HEALTHCARE
TCSINFOSYS
INFOSYS INFOSYS HEALTHCARE
WIPRO
0.00%
2012 20162013 2014 2015
5.00%
20.00%
15.00%
10.00%
25.00%
WIPRO WIPRO HEALTHCARE
0.00%
2012 20162013 2014 2015
20.00%
80.00%
60.00%
40.00%
120.00%
100.00%
140.00%
CTS
CTS CTS HEALTHCARE
0.00%
2012 2013 2014 2015
5.00%
20.00%
15.00%
10.00%
30.00%
25.00%
35.00%
40.00%

10 of 17
The relative importance of HLS for TCS in the
overall scheme of things seems small. However,
the growth of HLS has been in line with growth
rate of the company as a whole.
The overall growth in HLS for Infosys had a dip in
2015 and a sharp spike in 2016. As mentioned
earlier, Infosys HLS revenues were reclassified to
include Insurance in 2016.
HCL
0.00%
2012 20162013 2014 2015
10.00%
40.00%
30.00%
20.00%
50.00%
60.00%
HCL HCL HEALTHCARE

Annualized OM Comparison For Last 5 Years
Operating margins indicate a mixed trend, attributable partly to M & A and portfolio reclassification.
CTS enjoys the highest operating margin in HLS followed by TCS. CTS operating margins have been
declining in line with overall operating margins of the company. However the drop in margin in CTS-
HLS is more than for CTS as a whole. This may reflect pricing pressure as well as the full impact of the
Trizetto acquisition from 2014.
11 of 17
CTS
0.00%
2012 20162013 2014 2015
10.00%
40.00%
30.00%
20.00%
50.00%
60.00%
CTS CTS HEALTHCARE
HLS Operating Margin – All Companies
0.00%
2012 2013 2014 2015
5.00%
20.00%
15.00%
10.00%
30.00%
25.00%
35.00%
40.00%
2016
Wipro TCS INFOSYS CTS
TCS
0.00%
2012 2013 2014 2015
5.00%
20.00%
15.00%
10.00%
30.00%
25.00%
35.00%
40.00%
2016
TCS TCS HEALTHCARE
INFOSYS
0.00%
2012 2013 2014 2015
5.00%
20.00%
15.00%
10.00%
30.00%
25.00%
35.00%
40.00%
2016
INFOSYS INFOSYS HEALTHCARE

The margins for Infosys show an increasing trend
while that of Wipro are going down which may
suggest differences in the portfolio mix of services
( and also perhaps the impact of reclassification in
the case of Infosys).
Wipro HLS operating margins are in line with the
company’s overall operating margin. This may
change once the HPS acquisition is fully baked
into the financials. HPS financials will be
consolidated for full three months during
calendar Q2 (fiscal Q1). Out of the $460 million
purchase price, close to 70% of the deal went
towards ‘goodwill’ and the amortization impact
will be shown separately in coming quarters.
12 of 17
WIPRO
17.00%
2012 2013 2014 2015
17.50%
19.00%
18.50%
18.00%
20.00%
19.50%
20.50%
21.00%
21.50%
22.00%
2016
WIPRO WIPRO HEALTHCARE

M A R K E T U P D AT E S
13 of 17
C O G N I Z A N T ( C T S )
CTS is developing a technology solution named CTS Health TranZform, which aggregates data
from multiple systems, including CTS’s TriZetto payer core administration platforms, physician
practice management systems, EHRs and other healthcare databases. The solution is being
developed with technology from Orion Healthcare, and it can provide consumers with
information – such as costs for procedures, ratings of doctors, locations of health clinics, and
data that is relevant to their specific conditions or care regimens.
CTS announced an exclusive strategic partnership and the acquisition of an ownership interest
of 49 percent in ReD Associates, a leading strategic consulting firm specializing in the use of
human sciences to help business leaders better understand customer behavior
Box and CTS announced a collaboration that will help enterprises transform the way they
work with Box Platform. The companies will build and deliver custom solutions for vertical
industries that modernize business processes, drive productivity, and replace legacy
infrastructure by developing industry-specific solutions for customers in a variety of markets,
including healthcare, life sciences, financial services, insurance, media and entertainment,
manufacturing and logistics, and retail.
1
2
3
EmblemHealth issued layoff notices to 250 staff members part of their IT and operations
department and are hiring TriZetto, a subsidiary of CTS, to save money by automating
processes and upgrading technology. Many employees are opposing this move.
4
Jonathan Chadwick has been elected to CTS’s Board of Directors. As Executive Vice
President, Chief Financial Officer and Chief Operating Officer of VMware, Inc. he brings with
him a wide range of expertise as a technology, finance, and operations executive.
5
CTS is helping a leading life sciences company to improve diabetic care by implementing an
Internet of Things, or IoT, infrastructure that enables remote upgrades to home-based
glucose meters and insulin pumps.
6

H C L T E C H N O L O G I E S
CTS has been engaged by a division of a major healthcare player as their strategic partner in
their digital business transformation. This client is experiencing rapid growth and has process
systems and technology that cannot keep pace with their growth and strategic vision. CTS is
helping them to re-imagine their customer experience, re-platform their operational backbone
and redesign their operating model, ultimately resulting in an increased customer retention and
operational effectiveness, improved customer insights and experience and lower cost of
operations.
14 of 17
2016
I N F O S Y S
2016
2016
7
HCL announced its launch of IoT Incubation Center in Redmond, Washington where they will
build vertical solutions focused on two key growth areas – Industrial & Manufacturing, and Life
Sciences & Healthcare (Remote patient monitoring)
2016
1
HCL’s acquisition of Geometric is not only expected to strengthen the HCL's already strong
engineering practice but also trigger a wave of consolidation in a segment, which is considered to
be the fastest growing area for the Indian IT services in the last two years
2
Infosys Ltd will collaborate with Microsoft Corp to deploy advanced analytics solutions to
support healthcare organizations in their digital transformation. Microsoft analytics offerings
such as Cortana Analytics Suite and SQL Server 2016, will be used to give solutions ability to
integrate databases and publish layers with enterprise-grade security and move away from niche
analytical solutions.
2016
1
Infosys invests in Trifacta, a data analytics provider whose software enables non-technical users
to easily transform data for analysis. With Trifacta, a broad continuum of users, from business
analysts to data scientists, are finally empowered discover, cleanse and blend information
themselves. As part of this investment, Trifacta will provide a data wrangling solution for the
Infosys Information Platform (IIP) as well as others
2

TATA C O N S U LTA N C Y S E R V I C E S
2016
TCS named GE Health Cloud Partner. TCS and GE will work together to create an innovative
“Industry Solutions Ecosystem” leveraging TCS business and digital expertise to enrich GE’s
Predix platform
2016
1
TCS has been fined $940Million by U.S Federal jury in the Epic Systems Corporation case for
infringement of Intellectual property. Epic had filed a lawsuit in 2014 for unauthorized
downloading of confidential data from its web portal which could have aided TCS in developing
their Med Mantra product. TCS stated there is no IP infringement in Epic Systems case, and it
will defend its position.
2
Infosys announced a global strategic initiative with Amazon Web Services (AWS) to make
transitioning to the cloud easier and faster. Infosys will use AWS to host a suite of Infosys
technologies that will help enterprise customers securely adopt cloud-based systems swiftly.
Infosys will also leverage AWS’s analytics offerings to provide deep, actionable insights and
enable enterprises to gain competitive advantage in their industries
15 of 17
W I P R O
2016
Signed an agreement to acquire 100% of shares in Tampa, Fla. based HealthPlan Services from
Water Street Healthcare Partners. This deal is worth $460 million. HealthPlan services offer
technology platforms and fully integrated BPSaaS solution to health insurance companies in
international, group and ancillary markets. Wipro expects to be a leader in administrative
services in US Healthcare Insurance with this deal
2016
1
Wipro appoints Patrick Dupuis to its board of directors - he brings with him a valuable
experience of being a leader of BJC Healthcare apart from other industries where he has proven
financial and business strategies acumen.
2
2016
3

2016
Dr. Patrick J. Ennis, a widely respected technologist and venture capitalist is appointed to
Wipro’s Board of Directors, effective, April 1
16 of 17
2016
3
TK Kurien was appointed as the Executive Vice Chairman and Abidali Z Neemuchwala as the
Chief Executive Officer and Member of the Board of WIPRO
2016
4
Jeff Heenan-Jalil appointed as the Sr. Vice President & Global Head, Healthcare, Life Sciences &
Services. He will be responsible for the business unit's P&L, strategy, and operations.
5
Wipro Ventures has invested an undisclosed amount for a minority stake in a silicon valley cyber
security start-up Vectra Networks. Vectra focuses on Advanced Persistent threat domain and has
built the next generation platform to prevent cyber attacks.
6
Abbot Labs laid off more than 150 employees outsourcing the jobs to Wipro in a growing trend
where large U.S corporations are using foreign workers to get better value in the business.
7
Wipro’s Board of directors have approved a buyback proposal for the purchase by the company
of up to 40 million shares from the shareholders of the company.
8

A b o u t D a m o C o n s u l t i n g
USA
One Lincoln Center, 18W140 Butterfield Road
Oakbrook Terrace Suite 1500
Oak Brook, Illinois, 60181
603/11/A, 19th Main Road,
2nd Floor, Sector 2, HSR Layout,
Bangalore 560 102 (India)
Phone: (630) 613-7200
INDIA
Email: info@damoconsulting.net | Website: www.damoconsulting.net
Damo Consulting is a Chicago-based management consulting firm that works exclusively in
healthcare. Our clients include healthcare enterprises and technology firms. We provide global
sourcing advisory, growth strategy consulting, market intelligence and digital marketing
solutions.

Healthcare IT services : Analysis of major firms

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (8)

Similar to Healthcare IT services : Analysis of major firms

Similar to Healthcare IT services : Analysis of major firms (20)

More from Damo Consulting Inc.

More from Damo Consulting Inc. (15)

Recently uploaded

Recently uploaded (20)

Healthcare IT services : Analysis of major firms