IQVIA Holdings Inc. — Q3 2020 Form 10-Q
Business and period: IQVIA provides analytics, technology and clinical research services to the life sciences industry. This unaudited report covers the quarter and nine months ended September 30, 2020; amounts below are in U.S. dollars unless noted.
Financial results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $2.786bn | $2.769bn | $8.061bn | $8.193bn |
| Operating income | $187m | $204m | $442m | $611m |
| Net income attributable to IQVIA | $101m | $57m | $160m | $175m |
| Diluted EPS | $0.52 | $0.29 | $0.82 | $0.87 |
| Operating margin | 6.7% | 7.4% | 5.5% | 7.5% |
- Revenue trends: Q3 reported revenue grew 0.6%; on a constant-currency basis it declined approximately 0.1%. Nine-month reported revenue fell 1.6% (constant-currency decline approximately 1.2%).
- Segment performance, Q3: Technology & Analytics Solutions revenue rose 10.2% to $1.207bn, and segment profit increased 11.9% to $292m. Research & Development Solutions revenue fell 4.5% to $1.400bn, while segment profit edged up to $291m. Contract Sales & Medical Solutions revenue fell 13.9% to $179m; segment profit was $17m.
- Cash flow, nine months: Operating cash flow was $1.209bn, versus $834m. Capital spending on property, equipment and software was $440m; operating cash flow less this spending was $769m, versus $389m. Investing cash outflow was $560m and financing cash outflow was $19m.
- Liquidity and debt: Cash and equivalents were $1.464bn at September 30, up from $837m at year-end 2019. Debt principal was $12.410bn; the company reported no borrowings under its $1.5bn revolving facility and said the full capacity was available. It reported compliance with material debt covenants and expects liquidity and operating cash flows to fund requirements and debt obligations for at least 12 months.
Material changes and notable items
- COVID-19 disrupted all three segments. Clinical-site access and clinical services improved gradually in Q3, with more on-site monitoring and increased site start-ups and patient recruitment; some sites remained inaccessible. Face-to-face analytics activities and in-person events remained affected, while contract sales continued to face reduced sales-representative visits and physician availability.
- Technology & Analytics growth partly offset declines in Research & Development and Contract Sales & Medical. Nine-month R&D revenue declined 5.6%, primarily from lower clinical-services and lab-testing volumes; Contract Sales & Medical revenue declined 8.6%.
- Operating income declined despite lower costs of revenue, as SG&A and depreciation and amortization increased. Q3 SG&A was $460m versus $395m; nine-month depreciation and amortization was $943m versus $888m.
- Nine-month net income attributable to IQVIA declined to $160m from $175m, while Q3 increased to $101m from $57m. Q3 and nine-month 2020 results included a $24m favorable tax impact from the company’s planned GILTI high-tax exception election and amended returns. Other income also included investment gains and, for the nine months, lower acquisition-related contingent consideration fair value and other items.
- Debt transactions included $900m of additional term loans in March and a June euro-denominated 2.875% senior-note issuance due 2028, used in part to redeem 3.5% notes due 2024 and repay revolver borrowings. Total debt principal rose from $11.705bn at December 31, 2019.
- The company repurchased approximately $321m of shares in the first nine months, including a private purchase of 1m shares for approximately $164m. Management lifted the temporary pandemic-related suspension of the repurchase program; approximately $1.0bn of authorization remained at quarter-end.
Outlook, risks and contingencies
- No specific revenue or earnings guidance is provided in the supplied filing text. Management anticipated improved business momentum as the pandemic subsides, including delayed trial activity still needing to be performed, but cautioned that COVID-19 impacts remain uncertain.
- Research & Development Solutions contracted backlog increased to $21.7bn from $19.0bn at year-end 2019; management expected approximately $5.8bn to convert to revenue over the next 12 months. Separately, remaining performance obligations were approximately $23.6bn, with about 30% expected to be recognized within 12 months. These measures have different definitions.
- Management cited risks from pandemic-related disruption, contract termination or delays, data access and privacy, cybersecurity, foreign currency, customer and industry concentration, acquisitions and integration, and changes in regulation or economic conditions. COVID-19 could adversely affect personnel availability, customer payments and decisions, sites and supply chains.
- The company reported ordinary-course legal proceedings and did not believe their resolution was reasonably likely to materially adversely affect its financial statements. No material changes to previously disclosed risk factors were reported.
Investor facts to verify
- Whether clinical-site access, trial activity and patient recruitment continued to recover after quarter-end, and how that affected R&D revenue and margins.
- How backlog and remaining performance obligations convert to revenue, including the timing and cancellation terms of contracts.
- Debt levels, refinancing terms, variable-rate exposure, covenant headroom and the availability of the revolving facility.
- Whether operating cash flow remains strong after considering receivables, unearned income and capital spending, and whether share repurchases remain consistent with liquidity priorities.
- The sustainability of segment trends and reported earnings, including the effects of currency, discrete tax benefits, investment gains and restructuring costs.