IQVIA Holdings Inc. — Q3 2022 Form 10-Q
Business and period: IQVIA provides analytics, technology and clinical research services to the life sciences industry. This unaudited quarterly report covers the three and nine months ended September 30, 2022; comparisons are with the same 2021 periods unless noted. Amounts are in millions of dollars, except per-share data.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $3,562 | $3,391 | $10,671 | $10,238 |
| Operating income | $472 | $302 | $1,420 | $930 |
| Net income attributable to IQVIA | $283 | $261 | $864 | $648 |
| Diluted EPS | $1.49 | $1.34 | $4.52 | $3.32 |
| Operating margin | 13.3% | 8.9% | 13.3% | 9.1% |
- Revenue grew 5.0% in Q3 and 4.2% year to date as reported; constant-currency growth was approximately 10.5% and 8.1%, respectively. Currency headwinds reduced reported growth.
- Q3 segment revenue: Technology & Analytics Solutions $1,400 (up 4.7% reported); Research & Development Solutions $1,979 (up 6.8%); Contract Sales & Medical Solutions $183 (down 9.0%). Research & Development segment profit increased to $445 from $364; Contract Sales & Medical segment profit declined to $8 from $20.
- Cost of revenue was 65.2% of revenue in Q3 versus 66.4%; SG&A was 14.5% versus 14.7%. Lower amortization also supported operating income: Q3 depreciation and amortization was $248 versus $336, primarily because certain merger-related intangibles became fully amortized in 2021.
- Cash from operations was $1,700 for the first nine months, down from $2,250. Investing used $1,529, including $1,012 for acquisitions and $503 for property, equipment and software. Financing used $136; cash declined $92 to $1,274.
- At September 30, cash was $1,274, current assets $4,752 and current liabilities $5,253. Debt was approximately $12.4 billion, excluding $1.5 billion of available revolving capacity; reported long-term debt was $12,243. Management reported compliance with material debt covenants. Net debt based on total debt less cash is approximately $11.2 billion.
Material changes and notable items
- Operating income rose substantially, reflecting revenue growth, improved cost ratios and lower amortization. Net income growth was more modest, with higher interest expense, other expense and income taxes partly offsetting operating improvement.
- Q3 interest expense increased to $108 from $92, primarily due to higher base rates on floating-rate debt. Other expense was $8 versus income of $62 in Q3 2021, mainly reflecting foreign-currency and investment losses.
- Effective tax rate was 19.4% in Q3 2022 versus 4.4% in Q3 2021; the prior-year comparison benefited from tax items. The company was assessing the Inflation Reduction Act, including its minimum tax and stock-repurchase excise tax.
- Share repurchases totaled $1,143 for the first nine months, and the company had approximately $1.4 billion of authorization remaining. Treasury shares increased, while weighted-average diluted shares declined to 189.4 million from 195.3 million in Q3 2021.
- Foreign-currency translation reduced comprehensive income; accumulated other comprehensive loss was $898 at September 30, compared with $406 at December 31, 2021.
Outlook, risks and contingencies
- The filing provides no specific full-year earnings or revenue guidance. Management said available cash, operating cash flows and access to credit facilities should fund operating needs, capital expenditures, contractual obligations and debt obligations for at least 12 months.
- Research & Development Solutions backlog increased to $25.8 billion from $24.8 billion at year-end; approximately $7.1 billion was expected to convert to revenue over the next 12 months. Remaining performance obligations were approximately $27.9 billion, with about 30% expected to be recognized in the next 12 months. These measures have different definitions and should not be treated as interchangeable.
- Management cited ongoing restructuring to streamline operations and integrate acquisitions, expected to continue into 2023. The company recorded $15 in restructuring costs in the first nine months; most of the $21 accrual at quarter-end was expected to be paid in 2022 and 2023.
- Risks discussed include contract termination or delay, backlog conversion, foreign exchange and floating interest rates, economic conditions, data privacy and cybersecurity, regulation, acquisition integration, and disruption from pandemics or international conflicts.
- Legal matters include appeals related to South Korean privacy cases, litigation with Veeva, and MedImpact claims. The company disputes the claims and does not expect pending proceedings to have a material adverse effect, but acknowledges unfavorable outcomes could be material. The MedImpact RICO claims and certain defendants were dismissed in October 2022; remaining claims were expected to proceed to trial in 2023.
- After quarter-end, IQVIA elected to prepay the entire $510 balance of its U.S. dollar Term B Loan due 2024 on October 13, 2022.
Important facts for investors to verify
- Whether constant-currency growth and R&D backlog conversion translate into reported revenue and cash generation.
- How higher floating-rate borrowing costs, scheduled debt maturities and the October loan prepayment affect interest expense and liquidity.
- Whether operating cash flow recovers from the year-over-year decline and whether acquisition and repurchase spending remains sustainable.
- Potential effects of the Inflation Reduction Act and other tax items on the effective tax rate and repurchases.
- Developments in the disclosed privacy and intellectual-property litigation, and the actual timing and costs of restructuring.