Quintiles Transnational Holdings Inc. — Q1 2015 Form 10-Q
Entity note: The supplied filing is for Quintiles Transnational Holdings Inc., not an entity named IQVIA Holdings Inc. It covers the quarter ended March 31, 2015; financial statements are unaudited and in U.S. dollars.
Business context and results
Quintiles reported two segments: Product Development, which provides clinical development services, and Integrated Healthcare Services, which provides commercialization, research and other healthcare services. Total revenue includes reimbursed expenses passed through to customers; service revenue is the more informative operating measure.
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Service revenue | $1,030.0 million | $1,005.3 million | +2.5%; +8.4% at constant currency |
| Total revenue | $1,347.6 million | $1,307.8 million | +3.0% |
| Operating income | $143.2 million | $141.3 million | +1.3% |
| Net income attributable to Quintiles | $86.4 million | $90.2 million | −4.2% |
| Diluted EPS | $0.68 | $0.68 | No change |
| Operating margin on service revenue | 13.9% | 14.1% | Down about 0.2 percentage points |
Foreign exchange reduced reported service revenue by approximately $59.0 million. Product Development service revenue declined 2.8% reported, but grew 1.9% at constant currency; segment operating income was $157.0 million and margin 20.9%. Integrated Healthcare Services revenue rose 19.6% reported (29.3% constant currency), partly reflecting the Encore acquisition; operating income more than doubled to $18.1 million, with margin rising to 6.5% from 3.8%. Total segment operating margin was 17.0%, versus 16.9%.
Cash flow, balance sheet and liquidity
| Metric | March 31, 2015 / Q1 2015 | Comparable figure |
|---|---|---|
| Cash and cash equivalents | $779.1 million | $867.4 million at December 31, 2014 |
| Operating cash flow | $(64.3) million | $(28.4) million in Q1 2014 |
| Investing cash flow | $(18.3) million | $(14.0) million in Q1 2014 |
| Financing cash flow | $26.3 million | $3.0 million in Q1 2014 |
| Long-term debt and capital lease obligations | $2.294 billion | $2.293 billion at December 31, 2014 |
| Current assets / current liabilities | $2.099 billion / $1.321 billion | Current ratio approximately 1.6 |
| Shareholders’ deficit | $(612.3) million | $(704.0) million at December 31, 2014 |
Cash decreased $88.3 million during the quarter, including a $32.0 million adverse foreign-exchange effect. Management attributed the greater operating cash use year over year mainly to lower net income, higher income-tax payments and increased cash use related to days sales outstanding. The company had a $400 million revolving credit facility with no amount drawn in Q1 and stated that available cash, operating cash flow and access to its revolving and receivables financing facilities should cover operating needs, capital expenditures and debt obligations for at least 12 months. It reported compliance with debt covenants.
Material changes, outlook and risks
- Backlog was $11.064 billion at March 31, down from $11.244 billion at year-end; $7.534 billion was not expected to convert to revenue within 12 months. Q1 net new business increased 5.6% to $1.346 billion, led by Product Development; Integrated Healthcare Services net new business fell 3.5%.
- In February, the board approved a restructuring plan of approximately $30 million, with actions expected through 2015 and 2016. The company recorded $5.3 million of restructuring costs in Q1 and projected annualized savings of approximately $50–$60 million. Most of the quarter-end restructuring accrual was expected to be paid in 2015.
- On March 30, Quintiles agreed to combine its global central laboratories business with Quest Diagnostics’ central laboratory testing business. Closing was expected in 2015, subject to regulatory approval and customary conditions.
- In April, the board increased the share repurchase authorization by $300 million, leaving approximately $360 million available. The program is discretionary and has no end date.
- Management cited cancellations from 2014 as a drag on Product Development growth, expected to continue into Q2 and ease in the second half as newer projects ramp. It also noted foreign-exchange exposure: approximately 34% of Q1 service revenue was denominated in currencies other than the U.S. dollar.
- Key disclosed risks include short-notice contract termination, pricing and cost overruns, backlog conversion uncertainty, international and currency exposure, regulatory and patient-liability risks, and substantial indebtedness. The company said risk factors were not significantly changed from its 2014 Form 10-K. Routine legal proceedings were not considered reasonably likely to have a material adverse effect.
- Other notable items: Q1 included a $4.1 million foreign-currency net gain, partly offset by $1.3 million of contingent-consideration expense; equity earnings from unconsolidated affiliates fell to $0.9 million from $4.9 million. A collaboration agreement with HUYA was terminated in February, with a $5 million payment to Quintiles. No specific full-year revenue or earnings guidance is provided in the supplied filing text.
Important facts for investors to verify
- Confirm the filing entity and its relationship, if any, to the IQVIA Holdings Inc. named in the request; this filing identifies Quintiles Transnational Holdings Inc.
- Track backlog conversion, net new business and the timing of project ramps, particularly after the cited cancellations.
- Assess whether restructuring delivers the stated $50–$60 million annualized savings and how much additional cost is incurred through 2016.
- Monitor operating cash conversion, receivables/DSO, foreign-exchange effects, debt and access to financing.
- Verify regulatory approval, closing and integration outcomes for the Quest laboratory transaction, and any actual repurchases under the expanded authorization.