IQVIA HOLDINGS INC. quarterly report, Q3 FY2013

Business context and reporting period

Quintiles Transnational Holdings Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2013. The company provided biopharmaceutical development and commercial outsourcing services through Product Development and Integrated Healthcare Services (IHS), operating in approximately 100 countries.

Issuer check: The request identifies IQVIA Holdings Inc., but the filing itself names Quintiles Transnational Holdings Inc. Investors should verify the intended issuer and historical context.

Key financial metrics

Amounts below are in millions of dollars except per-share data and percentages. Quarterly and nine-month comparisons are with the corresponding 2012 periods.

At September 30, 2013, cash and cash equivalents were $609.7 million, total current assets were $1,717.2 million, and current liabilities were $1,334.4 million. Long-term debt and capital lease obligations totaled approximately $2,046.1 million, with $300 million available under the revolving credit facility. Management said it expected available cash, operating cash flow, and revolver access to meet operating needs, capital expenditures, and debt obligations for at least 12 months. The company reported compliance with debt covenants.

Changes versus prior comparable periods

• Q3 service revenue grew 2.1% reported and approximately 4.0% at constant currency; nine-month service revenue grew 2.1% reported and approximately 4.2% at constant currency. Foreign exchange reduced reported growth in both periods.
• Product Development service revenue increased 5.5% in Q3 and 5.9% for the nine months. IHS revenue declined 7.6% and 8.5%, respectively; management cited prior-period scope reductions and cancellations, and the completion of a major Japan contract.
• Q3 operating income rose 14.8%; nine-month operating income rose 11.0%. Net income attributable to Quintiles increased approximately 28% in Q3 and 8% year to date. Diluted EPS was up in both comparisons.
• Net cash from operations increased $6.2 million year to date. Investing cash outflow rose to $228.0 million, primarily reflecting acquisitions and capital spending. Financing cash flow was $104.3 million provided, versus $66.9 million used in 2012, largely due to IPO proceeds.
• Cash rose from $567.7 million at year-end 2012 to $609.7 million. Long-term debt and lease obligations declined from $2,366.3 million to $2,042.0 million; shareholders’ deficit narrowed from $1,359.0 million to $712.0 million.

Outlook, commentary, risks and unusual items

• Backlog was $9.583 billion at September 30, compared with $8.704 billion at December 31, 2012. Net new business was $1.341 billion in Q3, up 29%, and $3.600 billion for nine months, up 20%. The company cautioned backlog is not a direct predictor of revenue; $6.289 billion was not expected to generate revenue within the next 12 months.
• No formal revenue or earnings guidance was provided. Management expected restructuring actions to continue through 2013, affect approximately 400 positions, and produce annualized savings of approximately $15 million to $20 million.
• The September acquisition of Novella Clinical cost approximately $146.5 million net of acquired cash, plus potential earn-outs of up to $21 million. The preliminary purchase accounting included $116.2 million of goodwill; the allocation remained subject to adjustment.
• Year-to-date results included a $16.5 million debt-extinguishment loss and costs including a $25.0 million fee to terminate the management agreement and a $1.5 million airplane-use agreement modification fee. Restructuring charges were $11.9 million for nine months. The effective tax rate benefited from discrete tax items, including an $8.1 million benefit from the foreign-earnings reinvestment assertion; a separate $11.2 million discrete tax expense was also recorded.
• Following the IPO, the company used proceeds to repay debt, pay the management agreement termination fee, and fund the Novella acquisition. It said it did not intend to pay dividends in the foreseeable future. On October 30, 2013, the board authorized repurchases of up to $125 million of common stock and/or vested in-the-money employee options; the program had no end date and did not require repurchases.
• Risks cited include short-notice contract termination, backlog conversion and cancellations, pricing and cost overruns, customer or therapeutic concentration, international and foreign-exchange exposure, regulatory and patient-liability risks, acquisition integration, and substantial indebtedness. The filing reported no significant changes to previously disclosed risk factors, and no legal matters expected to have a material adverse effect.

Most important facts for investors to verify

• Confirm that this Quintiles 2013 filing is the intended filing for the IQVIA Holdings request.
• Assess whether improving Product Development results and backlog can offset continuing IHS revenue and operating-income declines, and track actual backlog conversion.
• Verify the sustainability of margins and earnings after excluding discrete tax benefits, restructuring, debt-extinguishment costs, and other unusual fees.
• Review debt maturities, covenant terms, the availability of the revolving facility, and the cash location and restrictions associated with foreign subsidiaries.
• Monitor Novella integration, final purchase accounting, and the contingent earn-out, as well as the execution and funding of the subsequent repurchase authorization.