IQVIA Holdings Inc. — Q3 2021 Form 10-Q
Business context and period. IQVIA provides analytics, technology and clinical research services to the life sciences industry. This unaudited filing covers the quarter and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. Amounts are in millions of dollars unless stated otherwise.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $3,391 | $2,786 | $10,238 | $8,061 |
| Income from operations | $302 | $187 | $930 | $442 |
| Net income attributable to IQVIA | $261 | $101 | $648 | $160 |
| Diluted EPS | $1.34 | $0.52 | $3.32 | $0.82 |
| Operating margin | 8.9% | 6.7% | 9.1% | 5.5% |
| Costs of revenue, excluding D&A, as % of revenue | 66.4% | 64.6% | 67.1% | 66.1% |
| SG&A as % of revenue | 14.7% | 16.5% | 13.9% | 16.1% |
- Revenue and segments: Q3 revenue grew 21.7% (21.1% constant currency); nine-month revenue grew 27.0% (25.0% constant currency). Q3 segment revenue was Technology & Analytics Solutions $1,337, Research & Development Solutions $1,853, and Contract Sales & Medical Solutions $201. R&D Solutions drove most of the increase, reflecting clinical services and lab testing volumes, including large COVID-19 vaccine trials.
- Cash flow: Nine-month operating cash flow was $2,250, versus $1,209 in 2020. Investing cash outflow was $1,456, including $994 for business acquisitions; financing cash outflow was $1,097. Cash and equivalents ended at $1,470, down from $1,814 at December 31, 2020.
- Liquidity and debt: Total debt principal was $12,236; balance-sheet current and long-term debt totaled $12,172, net of discounts and current classification. Cash was $1,470. The company reported $1.5 billion of revolving-credit capacity, while the receivables facility had no additional revolving availability. Management said available cash, operating cash flows and credit access should fund operations, capital spending and debt obligations for at least 12 months. The company was in material compliance with debt covenants.
- Other balance-sheet items: Current assets were $4,534 and current liabilities $4,847. Unearned income increased $574 since year-end to $1,826. Goodwill was $13,124.
Material changes and notable items
- Q3 operating income rose to $302 from $187; nine-month operating income more than doubled to $930 from $442. Revenue growth exceeded growth in SG&A, while costs of revenue increased as a share of revenue.
- Other income, net was $62 in Q3 and $128 for nine months, primarily reflecting foreign currency gains. The Q3 effective tax rate was 4.4%, including a $29 tax benefit related to a 2020 U.S. tax return position; nine-month effective tax rate was 13.8%.
- On April 1, IQVIA acquired Quest Diagnostics’ 40% non-controlling interest in Q² Solutions for approximately $758, funded with cash, bringing its ownership to 100%. Nine-month financing cash flows include the acquisition payment.
- The company issued €1.45 billion of senior notes in March and used proceeds to redeem its 3.25% notes due 2025. In August it refinanced Term A loans and extended its revolving-credit facility maturity to 2026. The receivables financing facility was extended to 2024 and increased to $550.
- IQVIA repurchased 973,313 shares for $221 during the first nine months; approximately $0.7 billion remained authorized at quarter-end.
Outlook, risks and contingencies
- No full-year revenue or earnings guidance is provided in the supplied filing text. R&D Solutions backlog was $24.4 billion at September 30, up from $22.6 billion at year-end; approximately $6.9 billion was expected to convert to revenue over the next 12 months. Across the company, approximately $25.5 billion of remaining performance obligations was expected to be recognized, with about 35% over the next 12 months. These measures have different definitions and should not be treated as interchangeable.
- Management said restructuring actions to streamline operations and integrate acquisitions are expected to continue into 2022; most of the $30 restructuring accrual was expected to be paid in 2021 and 2022.
- Key disclosed risks include COVID-19 and other disruptions, contract termination or delays, backlog conversion, data privacy and security, access to licensed data, foreign-exchange exposure, client and industry concentration, regulatory changes, and integration of acquisitions. Approximately 35% of nine-month revenue was denominated in currencies other than the U.S. dollar.
- Legal matters include Korean privacy-related proceedings and litigation between IQVIA and Veeva. Veeva claims damages exceeding $200 million; IQVIA disputes the counterclaims. The filing describes a May 2021 court order imposing sanctions against Veeva, which Veeva was appealing. Management did not expect pending proceedings, individually or together, to have a material adverse effect, but noted an unfavorable outcome could be material in the period resolved.
Important facts for investors to verify
- How much of the strong R&D growth and backlog conversion depends on COVID-19-related trial and laboratory work, and how sustainable that growth is.
- Whether operating-margin improvement can continue as service-delivery costs rise and restructuring and acquisition integration proceed.
- Debt repayment needs, floating-rate exposure, facility availability, and the effect of refinancing and the Q² Solutions purchase on leverage and liquidity.
- How reported earnings and cash generation are affected by foreign-exchange gains, discrete tax benefits, and timing differences between revenue recognition and customer invoicing.
- Developments and potential financial exposure in the Veeva and Korean legal matters, as well as acquisition purchase-price allocation and restructuring costs.