IQVIA Holdings Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless otherwise noted. IQVIA provides analytics, technology, and clinical research services to the life sciences industry, operating in more than 100 countries.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $3.568 billion | $3.409 billion | +4.7%; +6.8% at constant currency |
| Operating income | $495 million | $342 million | +44.7% |
| Net income attributable to IQVIA | $325 million | $212 million | +53.3% |
| Diluted EPS | $1.68 | $1.09 | +54.1% |
| Operating cash flow | $508 million | $867 million | Down $359 million |
| Capital expenditures for property, equipment and software | $177 million | $149 million | Up $28 million |
Margins: Costs of revenue excluding depreciation and amortization were 65.1% of revenue versus 67.3% a year earlier. Operating margin was approximately 13.9% versus 10.0%; net margin attributable to IQVIA was approximately 9.1% versus 6.2%. Depreciation and amortization fell to $255 million from $323 million, primarily because certain merger-related intangibles became fully amortized in 2021.
Segments: Technology & Analytics Solutions revenue was $1.439 billion (+6.8%) and segment profit was $386 million (+10.6%). Research & Development Solutions revenue was $1.934 billion (+3.5%) and segment profit was $401 million (+10.8%). Contract Sales & Medical Solutions revenue was $195 million (+1.0%), while segment profit fell to $12 million from $20 million.
Balance sheet, liquidity and cash flow
- Cash and cash equivalents were $1.387 billion at March 31, 2022, up from $1.366 billion at year-end; $334 million was held in the United States.
- Total debt principal was $12.693 billion, compared with $12.185 billion at December 31, 2021. Long-term debt on the balance sheet, net of discount, issuance costs and current portion, was $12.547 billion. The company reported $750 million of available capacity on its revolving credit facility; no additional revolving commitments were available under its receivables financing facility.
- Current assets were $4.772 billion and current liabilities were $5.157 billion. Management said cash, operating cash flows, and facility access should fund requirements and debt obligations for at least the next 12 months. IQVIA was in material compliance with debt covenants.
- Operating cash flow declined to $508 million from $867 million, mainly reflecting lower cash collections from unearned income and less favorable changes in other operating assets and liabilities and receivables/unbilled services.
- Investing cash outflow was $613 million, including $430 million for acquisitions and $177 million for property, equipment and software. Financing provided $144 million, including net revolving-credit borrowings, while the company repurchased $403 million of stock.
Material changes and outlook
- Revenue growth was broad-based in constant currency. Management attributed growth in Technology & Analytics to technology, real-world, consulting and analytical services, and R&D growth to higher clinical services and lab testing volumes.
- Research & Development contracted backlog increased to $25.3 billion from $24.8 billion at year-end; approximately $7.0 billion was expected to convert to revenue over the next 12 months. Separately, remaining performance obligations were approximately $28.1 billion, with about 35% expected to be recognized over the next 12 months. These measures have different definitions.
- The filing provides no specific full-year revenue or earnings guidance. Management’s liquidity assessment covers at least the next 12 months; operating results for the quarter are not necessarily indicative of full-year results.
- The board added $2.0 billion to the repurchase authorization in February. The company repurchased 1.7 million shares for $403 million during the quarter and had approximately $2.1 billion of authorization remaining at March 31.
- Several individually immaterial acquisitions were completed. Preliminary purchase accounting included $339 million of goodwill and $137 million of identifiable intangibles. Restructuring actions are expected to continue into 2023; the company recorded $7 million of quarterly expense and had $29 million accrued at quarter-end.
Risks, contingencies and unusual items
- Management highlighted exposure to pandemics and international disruptions, including the situation in Ukraine and Russia; customer contract termination or delay; data access, privacy, cybersecurity and regulatory risks; foreign exchange movements; and acquisition integration and backlog-conversion risks.
- Approximately 35% of Q1 revenue was denominated in currencies other than the U.S. dollar. Reported revenue growth of 4.7% was below constant-currency growth of 6.8%.
- Legal matters include Korean privacy-related proceedings and litigation with Veeva Systems, including Veeva counterclaims seeking damages in excess of $200 million. IQVIA disputes the claims and intends to defend its position. Management did not expect pending legal and tax matters, individually or in aggregate, to have a material adverse effect, while noting an unfavorable outcome could be material in the period resolved.
- Other expense was $10 million versus income of $37 million a year earlier, primarily due to reduced foreign-exchange gains and investment losses. Q1 2021 included a $24 million debt-extinguishment loss; there was none in Q1 2022.
Important facts for investors to verify
- Whether clinical-trial volume growth and the $25.3 billion R&D backlog convert to revenue as expected, and how much of the $28.1 billion of remaining performance obligations is cancellable or otherwise differs from backlog.
- Whether lower operating cash flow reflects timing that reverses in subsequent quarters, and the effects of acquisitions and working capital on cash generation.
- Debt balances, floating-rate exposure, borrowing capacity and covenant compliance, particularly as debt increased during the quarter.
- Segment profitability trends, especially the decline in Contract Sales & Medical Solutions profit despite modest revenue growth.
- Developments in the Veeva and Korean legal proceedings, and any changes in management’s assessment of potential outcomes.
- Execution and costs of restructuring and acquisitions, including final purchase-price allocations and expected integration benefits.