IQVIA Holdings Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; comparisons are with Q1 2019 unless otherwise stated. IQVIA provides analytics, technology and contract research services to the life sciences industry through Technology & Analytics Solutions (TAS), Research & Development Solutions (R&D), and Contract Sales & Medical Solutions (CSMS).
Financial performance
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $2.754 billion | $2.684 billion |
| Operating income | $193 million | $210 million |
| Net income attributable to IQVIA | $82 million | $58 million |
| Diluted EPS | $0.42 | $0.29 |
| Operating cash flow | $163 million | $113 million |
- Revenue grew 2.6% reported and approximately 3.7% at constant currency. Reported growth was partly offset by about $28 million of foreign-exchange effects.
- Operating margin was approximately 7.0%, versus 7.8%; costs of revenue rose to 66.2% of revenue from 65.1%. SG&A declined to 14.8% of revenue from 15.6%.
- Income before taxes was $102 million versus $109 million. The effective tax rate fell to 16.7% from 37.6%, contributing to higher net income; Q1 2020 included $21 million of tax benefits from share-based awards and a $10 million discrete tax expense related to undistributed foreign earnings.
- Cash from operations less $141 million of property, equipment and software purchases was approximately $22 million, compared with negative $28 million in Q1 2019. Operating cash flow improvement reflected higher client-program receipts and normal accounts-payable fluctuations.
- Cash and equivalents were $927 million at March 31, up from $837 million at year-end. Total debt principal was $12.1 billion; reported current and long-term debt totaled approximately $12.0 billion. The company reported $1.4 billion of available capacity on its $1.5 billion revolving facility and compliance with material debt covenants.
- Comprehensive loss attributable to IQVIA was $92 million, versus comprehensive income of $20 million, principally reflecting foreign-currency translation losses and derivative-related losses.
Segments and changes versus prior period
- TAS: Revenue was $1.117 billion, up 3.9% reported and 5.5% constant currency; segment profit increased 3.9% to $268 million.
- R&D: Revenue was $1.441 billion, up 1.8% reported and 2.4% constant currency; segment profit declined 7.3% to $268 million. Costs grew faster than revenue.
- CSMS: Revenue was $196 million, up 1.6% reported and 2.6% constant currency; segment profit increased to $11 million from $9 million.
- Consolidated operating income declined despite revenue growth, reflecting higher costs of revenue and depreciation and amortization ($316 million versus $295 million). Net income attributable to IQVIA increased, aided by lower tax expense and higher equity earnings from unconsolidated affiliates.
- R&D contracted backlog increased to $19.6 billion from $19.0 billion at December 31, 2019; the company expected about $4.9 billion to convert to revenue over the next 12 months. Separately, remaining performance obligations were approximately $22.0 billion, with about 35% expected to be recognized in the next 12 months.
Outlook, risks and unusual items
- Management said all segments performed to expectations in January and February, but COVID-19 disruptions began in March. At quarter-end, approximately 70% of global clinical sites were temporarily inaccessible, reducing on-site monitoring, patient recruitment and participation, lab volumes, and delaying trial start-ups. The company reported no COVID-related trial cancellations by the filing date.
- COVID-19 also disrupted certain in-person TAS offerings and made CSMS sales-representative activity more difficult; Q1 CSMS revenue impact was described as immaterial. Remote monitoring, virtual trials, remote delivery and cost-containment actions were among the mitigations.
- Management anticipated business momentum could accelerate after the crisis as delayed trial activities still need to be performed. The filing provides no specific full-year revenue or earnings guidance and cautions that Q1 results may not indicate full-year performance.
- Management expected available cash, operating cash flows and credit access to fund operations, capital expenditures and debt obligations for at least 12 months, and did not expect a significant COVID-19 impact on overall liquidity. These statements depend on uncertain pandemic developments.
- In March, IQVIA borrowed $900 million of additional term A loans, used proceeds to repay revolving borrowings, and prepaid $100 million of the new loans. Q1 share repurchases totaled about $321 million, including a private purchase of 1 million shares for about $164 million; approximately $1.0 billion remained authorized.
- Restructuring expense was $14 million; actions are expected to continue into 2021, with most of the $63 million accrued balance expected to be paid in 2020 and 2021. Legal proceedings were described as incidental, with no expected material adverse effect. The filing identifies pandemic-related operational, customer-payment, cybersecurity, productivity and capital-market risks.
Important facts for investors to verify
- How COVID-19 affected clinical-site access, trial recruitment and start-ups, and whether delayed work converts into future revenue and cash flow.
- Whether R&D segment profitability and consolidated operating margins recover as revenue and costs normalize.
- Cash conversion and receivables/unbilled services: net receivables and unbilled services were $2.634 billion, while the net unbilled-services/unearned-income balance increased $33 million during the quarter.
- Debt levels, floating-rate exposure, covenant headroom and the company’s ability to maintain liquidity under adverse operating conditions.
- Execution of the $19.6 billion R&D backlog and $22.0 billion of remaining performance obligations; the measures have different definitions and are not interchangeable.
- Capital allocation, including continued share repurchases, alongside debt repayment and investment needs.