IQVIA Holdings Inc. — 2018 Form 10-K Summary
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2018; the filing also provides unaudited fourth-quarter results. IQVIA is a global provider of analytics, technology and contract research services to life sciences and healthcare customers. Its three segments are Technology & Analytics Solutions, Research & Development Solutions, and Contract Sales & Medical Solutions. The company reported more than 58,000 employees and operations in over 100 countries.
Key financial metrics
Amounts are in U.S. dollars; financial statement amounts are in millions unless noted.
| Metric | FY 2018 | FY 2017 | Change / context |
|---|---|---|---|
| Revenue | $10,412 | $9,702 | Up 7.3%; constant-currency growth was 6.8%. |
| Operating income | $741 | $665 | Up 11.4%; operating margin was approximately 7.1%, versus 6.9%. |
| Net income attributable to IQVIA | $259 | $1,277 | Down substantially; 2017 included a $966 million tax benefit from the Tax Act. |
| Diluted EPS | $1.24 | $5.74 | 2017 was significantly elevated by tax effects. |
| Net cash from operating activities | $1,254 | $970 | Up $284 million. |
| Capital expenditures | $459 | $369 | Cash-flow statement amount. |
| Operating cash flow less capital expenditures | $795 | $601 | Derived measure; not a company-reported GAAP metric. |
| Interest expense | $414 | $346 | Increase primarily reflected higher average debt. |
Fourth-quarter performance
| Metric | Q4 2018 | Q4 2017 |
|---|---|---|
| Revenue | $2,688 | $2,521 |
| Operating income | $207 | $142 |
| Net income attributable to IQVIA | $69 | $1,027 |
| Diluted EPS | $0.34 | $4.79 |
The Q4 2017 earnings comparison is distorted by the Tax Act benefit. IQVIA also recorded a $22 million pre-tax increase to Q4 2018 income ($15 million after tax) for prior-period adjustments; management concluded these adjustments were not material to Q4 or previously reported periods.
Segments and margins
| Segment | 2018 revenue | 2017 revenue | 2018 segment profit | Change in revenue |
|---|---|---|---|---|
| Technology & Analytics Solutions | $4,137 | $3,682 | $1,023 | Up 12.4% |
| Research & Development Solutions | $5,465 | $5,105 | $1,128 | Up 7.1% |
| Contract Sales & Medical Solutions | $810 | $915 | $59 | Down 11.5% |
Segment profit is a company-defined measure before corporate/unallocated costs, depreciation and amortization, restructuring and other listed items; it is not directly comparable to consolidated operating income. Research & Development Solutions backlog was $17.13 billion at year-end, with approximately $4.8 billion expected to convert to revenue in the next 12 months. The company separately reported $18.6 billion of remaining performance obligations, about 35% expected to be recognized over the next 12 months.
Financial position and liquidity
- Cash and cash equivalents were $891 million at December 31, 2018, down from $959 million; $212 million was held in the United States.
- Total debt was $11.056 billion, compared with $10.269 billion a year earlier. The company reported $880 million of available revolving-credit capacity. Debt covenants were met at year-end.
- Current assets were $3.874 billion and current liabilities were $3.534 billion, implying a current ratio of approximately 1.10. Accounts receivable and unbilled services, net, totaled $2.394 billion.
- Management said cash, expected operating cash flows and access to revolving and receivables facilities were expected to fund operating needs, capital expenditures and debt obligations for at least the following 12 months.
- IQVIA repurchased 12.6 million shares for $1.396 billion in 2018. It declared and paid no common-stock dividends.
Material changes, outlook, risks and unusual items
- Revenue growth was led by Technology & Analytics Solutions and Research & Development Solutions. Contract Sales & Medical Solutions contracted, with management citing prior-year cancellations in the Americas and lower Asia-Pacific volumes.
- Costs of revenue were 64.8% of revenue, little changed from 64.9% in 2017. Depreciation and amortization increased to $1.141 billion from $1.011 billion, principally reflecting acquired intangible assets and capitalized software. Restructuring costs were $68 million, versus $63 million.
- The 2018 effective tax rate was 18.0%. Results included a $35 million benefit from finalizing Tax Act accounting, a $25 million FDII benefit and $35 million of GILTI expense. The prior-year 2017 tax benefit was unusually large.
- IQVIA adopted ASC 606 retrospectively from January 1, 2018. Clinical research revenue recognition relies on estimates of total project costs; changes in estimates can create period-to-period variability. Management also described change orders and work performed before amendments are finalized as potential sources of margin risk.
- The filing gives industry forecasts, not company-specific revenue or earnings guidance: it cites expected global life-sciences revenue growth of 3%–6% annually from 2019 through 2023 and approximately 270 new molecular entity approvals over that period. Management emphasized data, analytics, technology, clinical-development capabilities, acquisitions and broader healthcare-market penetration as growth priorities.
- Principal risks include clinical-trial delays, cancellations and cost overruns; reliance on third-party data suppliers; cybersecurity and privacy regulation; competition and technology change; foreign-exchange exposure; and substantial debt, variable interest rates and restrictive covenants.
- Notable legal matters include the unresolved U.S. government-contract voluntary disclosure process, South Korean privacy-related litigation and indictments, and Veeva Systems’ counterclaims seeking more than $200 million in damages. Management said it could not determine the ultimate liability in the government matter; it did not expect pending matters overall to have a material adverse effect, while noting an unfavorable outcome could be material in the period resolved.
- Management and the auditor reported effective internal control over financial reporting. The auditor issued unqualified opinions on the financial statements and internal control.
Most important facts for investors to verify
- Whether revenue growth and segment profitability continue, particularly in Technology & Analytics and Research & Development, and whether Contract Sales & Medical stabilizes.
- How backlog and remaining performance obligations convert to recognized revenue, given cancellation, delay and project-cost estimation risks.
- Debt maturities, interest-rate exposure, covenant headroom, refinancing needs and the effect of continued share repurchases on liquidity.
- The normalized earnings and tax profile excluding the unusually large 2017 Tax Act benefit and other discrete tax items.
- Developments and potential financial exposure in the government-contract, South Korean privacy and Veeva litigation matters.