IQVIA Holdings Inc. — Q2 2021 Form 10-Q
Business context and reporting period. IQVIA provides analytics, technology solutions and clinical research services to the life sciences industry. This unaudited report covers the quarter and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods. Results are not necessarily indicative of full-year performance.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $3.438B | $2.521B | $6.847B | $5.275B |
| Operating income | $286M | $62M | $628M | $255M |
| Net income attributable to IQVIA | $175M | $(23)M | $387M | $59M |
| Diluted EPS | $0.90 | $(0.12) | $1.99 | $0.30 |
| Operating margin | 8.3% | 2.5% | 9.2% | 4.8% |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $1.406B | $635M |
Costs of revenue, excluding depreciation and amortization, were 67.6% of revenue in Q2 and 67.4% for the first six months, versus 67.6% and 66.9%, respectively, in 2020. SG&A as a share of revenue declined to 14.0% in Q2 and 13.5% year to date, from 17.1% and 15.9%.
- Segments: Q2 revenue was $1.353B for Technology & Analytics Solutions, $1.891B for Research & Development Solutions, and $194M for Contract Sales & Medical Solutions. Research & Development Solutions was the largest growth contributor.
- Cash and liquidity: Cash and equivalents were $1.807B at June 30, 2021. Management said available cash, expected operating cash flow and credit-facility access should fund operating needs, capital expenditures and debt obligations for at least 12 months.
- Debt: Total debt was approximately $12.4B, excluding $1.5B of available revolving-credit capacity. Cash less debt implies approximate net debt of $10.6B. The company reported compliance in all material respects with debt covenants.
Material changes and notable items
- Q2 revenue rose 36.4% reported and approximately 33.2% in constant currency; six-month revenue rose 29.8% reported and approximately 27.0% in constant currency. Growth was led by Research & Development Solutions, including clinical services, lab testing and large COVID-19 vaccine trials. Technology & Analytics growth also included COVID-19-related work.
- Operating cash flow increased to $1.406B from $635M for the first six months. Management attributed the increase mainly to higher cash-related net income and increased cash collections from unearned income.
- On April 1, IQVIA acquired Quest Diagnostics’ 40% non-controlling interest in Q² Solutions for approximately $756M in cash, bringing ownership to 100%. The acquisition also reduced income attributable to non-controlling interests.
- IQVIA issued €1.45B of notes in March 2021 at 1.750% due 2026 and 2.250% due 2029, using proceeds to redeem its 3.250% notes due 2025 and pay related costs. Six-month loss on extinguishment of debt was $24M.
- Research & Development Solutions backlog rose from $22.6B at year-end 2020 to $23.9B at June 30, with approximately $6.6B expected to convert to revenue over the next 12 months. Separately, remaining performance obligations were approximately $26.2B; about 35% is expected to be recognized in the next 12 months.
Outlook, risks and contingencies
- The filing provides no specific revenue or earnings guidance. Management expects restructuring actions to continue through 2021 and into 2022; most of the $40M restructuring accrual at June 30 was expected to be paid in 2021 and 2022.
- Management cited risks including COVID-19 and other disruptions, contract termination or delay, backlog conversion, data privacy and security, access to licensed data, foreign exchange, regulation, and acquisition integration. Approximately 35% of first-half revenue was denominated in non-U.S. currencies.
- Legal matters include the Veeva litigation and counterclaims, in which Veeva seeks damages exceeding $200M. The court imposed sanctions against Veeva in May 2021, which Veeva is appealing. IQVIA also described South Korean privacy-related proceedings; an appeal remains pending in one criminal matter and a separate civil appeal has not resulted in damages to plaintiffs to date. Management does not expect pending matters, individually or in aggregate, to have a material adverse effect, but notes outcomes could differ.
- Other notable exposures include $86M of contingent consideration measured using significant unobservable inputs. No customer represented 10% or more of revenue in the reported periods.
Important facts for investors to verify
- How much of the unusually strong clinical-trial and COVID-19-related revenue growth is recurring, and how backlog converts to revenue.
- Cash-flow quality, particularly the contribution from unearned-income collections and working-capital timing.
- Debt maturity and refinancing profile, floating-rate exposure, and the cash impact of the Q² Solutions acquisition.
- Potential outcomes and financial exposure from the Veeva and South Korean legal proceedings.
- Future restructuring costs and the degree to which margin improvement is sustained as revenue growth normalizes.