IQVIA Holdings Inc. — Q2 2020 Form 10-Q
Business context and reporting period. IQVIA provides analytics, technology solutions and contract research services to the life sciences industry. This unaudited filing covers the quarter and six months ended June 30, 2020; financial amounts are in millions of dollars unless stated otherwise. COVID-19 materially disrupted business activity, particularly clinical research and trial services.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $2,521 | $2,740 | $5,275 | $5,424 |
| Operating income | $62 | $197 | $255 | $407 |
| Net income (loss) attributable to IQVIA | $(23) | $60 | $59 | $118 |
| Diluted EPS | $(0.12) | $0.30 | $0.30 | $0.59 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $635 | $504 |
- Q2 revenue fell 8.0% year over year; the constant-currency decline was approximately 7.1%. First-half revenue fell 2.7%, or approximately 1.8% in constant currency.
- Q2 operating margin was approximately 2.5%, versus 7.2% a year earlier; first-half operating margin was approximately 4.8%, versus 7.5%. Costs of revenue excluding depreciation and amortization were 67.6% of Q2 revenue, compared with 65.7% in Q2 2019.
- Segment results in Q2: Technology & Analytics Solutions revenue rose 0.6% to $1,109 and segment profit rose 7.0% to $276; Research & Development Solutions revenue fell 13.9% to $1,235 and segment profit fell 43.8% to $162; Contract Sales & Medical Solutions revenue fell 12.8% to $177 and segment profit fell 31.3% to $11.
- At June 30, cash and cash equivalents were $1,109, versus $837 at year-end 2019. Six-month operating cash flow was $635; investing cash use was $369 and financing cash provided was $34.
- Total debt principal was $12,181, including $142 current and $11,965 long-term net of discount and issuance costs. The company also had $1.5 billion available on its revolving facility, with no borrowings outstanding at quarter-end. Total debt principal increased from $11,705 at December 31, 2019.
- Total assets were $23,183 and stockholders’ equity was $5,852 at June 30, 2020. Remaining performance obligations were approximately $22.6 billion; about 35% was expected to be recognized over the next 12 months. R&D Solutions backlog was $20.5 billion, with approximately $5.4 billion expected to convert in the next 12 months.
Material changes and notable items
- COVID-related site access constraints, delayed trial starts, lower clinical-service and laboratory volumes, fewer sales-representative visits, and disruptions to in-person offerings reduced revenue. Average global clinical site accessibility was approximately 30% in Q2, improving from about 20% in April to 40% at June-end. IQVIA reported no material COVID-related trial cancellations.
- Management said remote and risk-based monitoring, virtual delivery, cost-containment measures, and resumed virtual client activity partially mitigated disruption. It anticipated a pickup in business momentum when the crisis subsided, as delayed trial work would still need to be performed.
- Q2 results included a $12 loss on extinguishment of debt related to refinancing, while other income was $32, mainly reflecting lower acquisition-related contingent consideration fair value, investment gains and reduced foreign-exchange losses. Lower interest rates contributed to lower interest expense year over year.
- In June, IQVIA issued €711 million of 2.875% senior notes due 2028 to refinance 3.5% notes due 2024, repay some revolving borrowings and cover related costs. The 2024 notes were redeemed July 9, 2020.
- Share repurchases were temporarily suspended after the pandemic began. First-half repurchases totaled approximately $321 million, including a private purchase of $164 million; approximately $1.0 billion of authorization remained at quarter-end. Restructuring costs were $30 in the first half, and actions were expected to continue into 2021.
Outlook, liquidity and risks
- No formal full-year revenue or earnings guidance is provided in the supplied filing text. Management cautioned that first-half results may not indicate full-year results, given uncertainty around COVID-19.
- Management stated that cash, expected operating cash flows and access to credit facilities should fund operating needs, capital expenditures and debt obligations for at least 12 months. It said COVID-19 was not expected to significantly affect overall liquidity. The company was in material compliance with debt covenants at June 30.
- Key risks include continued pandemic-related disruption; short-notice termination or delay of client contracts; backlog conversion; data access, privacy and cybersecurity; pricing and contract execution; foreign-exchange fluctuations; regulation and tax changes; and acquisition integration. Legal proceedings were described as incidental, with no expected material adverse effect; the filing reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether clinical site access and patient recruitment continue to recover, and how quickly delayed trials convert into revenue.
- Whether the $20.5 billion R&D backlog and $22.6 billion remaining performance obligations convert on expected timing and margins.
- Cash collection trends and receivables quality, including the contribution of working-capital changes to first-half operating cash flow.
- Debt, refinancing costs, interest-rate exposure, covenant compliance and the availability of revolving credit.
- The pace and cost of restructuring, and whether share repurchases remain suspended or resume.