Market Overview

IQVIA Reports Second-Quarter 2018 Results and Raises Full-Year 2018 Revenue and Profit Guidance

Share:
  • Revenue $2,567 million, up 9.0 percent reported and 7.7 percent at
    constant currency
  • Adjusted EBITDA $533 million, up 14.1 percent reported and 14.3
    percent at constant currency
  • GAAP Diluted Earnings per Share $0.29
  • Adjusted Diluted Earnings per Share $1.29, up 25.2 percent
  • Full-year guidance raised for revenue, Adjusted EBITDA and Adjusted
    Diluted EPS
  • $573 million of share repurchase completed during the second
    quarter; $659 million completed year-to-date

IQVIA Holdings Inc. ("IQVIA") (NYSE:IQV), a leading global provider of
advanced analytics, technology solutions, and contract research services
to the life sciences industry, today reported financial results for the
quarter ended June 30, 2018. On January 1, 2018, IQVIA adopted ASC 606
"Revenue from Contracts with Customers" as required by the Financial
Accounting Standards Board. Under this new standard, IQVIA recognizes
revenue in the Research & Development Solutions segment on a percentage
of completion basis. Additionally, ASC 606 requires that service revenue
and reimbursed expense revenue be consistently presented as one line on
the income statement. Unless stated otherwise, all financial information
that follows has been provided under ASC 606.

As of this earnings release, the company has renamed two of its
reporting segments. The reporting segment known as Commercial Solutions
is now called Technology & Analytics Solutions (TAS), and the reporting
segment known as Integrated Engagement Services is now called Contract
Sales & Medical Solutions (CSMS). This is a name change only and there
are no changes to the component parts of either segment.

Second-Quarter 2018 Operating Results

Revenue for the second quarter of $2,567 million increased 9.0 percent
on a reported basis, and 7.7 percent on a constant currency basis,
compared to the second quarter of 2017. Technology & Analytics Solutions
(formerly Commercial Solutions) revenue of $1,011 million grew 14.2
percent reported and 13.1 percent at constant currency, compared to the
second quarter of 2017. Research & Development Solutions revenue of
$1,350 million grew 9.6 percent reported and 8.3 percent on a constant
currency basis. Contract Sales & Medical Solutions (formerly Integrated
Engagement Services) revenue of $206 million declined 13.4 percent
reported and 15.1 percent at constant currency.

Second-quarter 2018 Adjusted EBITDA of $533 million increased 14.1
percent reported and 14.3 percent at constant currency. GAAP net income
was $61 million and GAAP diluted earnings per share was $0.29. Adjusted
Net Income of $270 million grew 17.9 percent, and Adjusted Diluted
Earnings per Share of $1.29 grew 25.2 percent.

"We delivered another quarter of strong operating and financial
performance, which included Adjusted Diluted EPS growth of over 25
percent year-over-year," said Ari Bousbib, chairman and CEO of IQVIA.
"The significant strategic investments we have been making in innovation
across our businesses over the past eighteen months are beginning to
build operating momentum. The team secured major wins for our tech
offerings during the quarter, and we had our largest ever R&D bookings
quarter, including record awards for our next generation clinical
development offering. Reflecting this strong operating performance, we
are pleased to raise our revenue and profit guidance for the year."

First-Half 2018 Operating Results

Revenue of $5,130 million for the first six months of 2018 increased 8.8
percent on a reported basis, and 6.5 percent on a constant currency
basis, compared to the first six months of 2017. Technology & Analytics
Solutions (formerly Commercial Solutions) revenue of $1,996 million grew
14.2 percent reported and 11.2 percent at constant currency, compared to
the first half of 2017. Research & Development Solutions revenue of
$2,715 million grew 8.8 percent reported and 7.0 percent on a constant
currency basis. Contract Sales & Medical Solutions (formerly Integrated
Engagement Services) revenue of $419 million declined 11.2 percent
reported and 14.0 percent at constant currency.

Research & Development Solutions contracted backlog including reimbursed
expenses was $15.73 billion at June 30, 2018. The company expects
approximately $4.6 billion of this backlog to convert to revenue in the
next twelve months. For comparability, the company is reporting Research
& Development Solutions last twelve months net new business on a
contracted basis excluding reimbursed expenses. Under this approach,
Research & Development Solutions contracted net new business of $4.88
billion for the twelve months ended June 30, 2018, grew 21.1 percent
compared to the twelve months ended June 30, 2017, representing a
contracted last twelve months book-to-bill ratio (excluding reimbursed
expenses) of 1.27.

Adjusted EBITDA of $1,080 million for the first six months of 2018
increased 11.2 percent reported and 10.8 percent at constant currency.
GAAP net income was $130 million and GAAP diluted earnings per share was
$0.62. Adjusted Net Income of $555 million for the first six months of
2018 grew 12.6 percent, and Adjusted Diluted Earnings per Share of $2.63
grew 21.8 percent compared to the first half of 2017.

Financial Position

As of June 30, 2018, cash and cash equivalents were $879 million and
debt was $10,728 million, resulting in net debt of $9,849 million. At
the end of the second quarter of 2018, IQVIA's Gross Leverage Ratio was
5.1 times, and Net Leverage Ratio was 4.6 times, trailing twelve month
Adjusted EBITDA.

Share Repurchase

On June 15, 2018, the company repurchased $412 million of common stock
from a majority of the company's private equity sponsors and the founder
of the legacy Quintiles organization. The company also repurchased $161
million of its common stock in the open market, for total repurchases of
$573 million during the second quarter, and a total of $659 million
during the first half of 2018. IQVIA had approximately $1 billion of
share repurchase authorization remaining as of June 30, 2018.

Full-Year 2018 and Third-Quarter 2018 Guidance

For the full-year, the company raises its revenue and profit guidance
ranges as follows:

   
($ millions, except per share data)   Updated   Prior (1)
Revenue $10,250 - $10,400 $10,050 - $10,250

VPY%

5.6% - 7.2%

3.6% - 5.6%

Adjusted EBITDA $2,170 - $2,230 $2,150 - $2,220

VPY%

8.0% - 10.9%

7.0% - 10.4%

Adjusted Diluted Earnings per Share $5.35 - $5.55 $5.20 - $5.45

VPY%

 

17.6% - 22.0%

 

14.3% - 19.9%

1. Provided on Q1 2018 earnings call and reaffirmed
on May 17, 2018

 

For the third quarter of 2018, IQVIA expects revenue between $2,550
million and $2,600 million, Adjusted EBITDA between $540 million and
$560 million and Adjusted Diluted Earnings per Share between $1.35 and
$1.42.

This financial guidance assumes current foreign currency exchange rates
remain in effect for the remainder of the year.

Webcast & Conference Call Details

IQVIA will host a conference call at 9:00 a.m. Eastern Time today to
discuss its second-quarter 2018 financial results. To participate,
please dial 1-800-931-4071 in the United States and Canada or
+1-212-231-2904 outside the United States approximately 15 minutes
before the scheduled start of the call. The conference call and a
presentation will be accessible live via webcast on the Investors
section of the IQVIA website at http://ir.iqvia.com.
An archived replay of the webcast will be available online at http://ir.iqvia.com
after 1:00 p.m. Eastern Time today.

About IQVIA

IQVIA (NYSE:IQV) is a leading global provider of advanced analytics,
technology solutions, and contract research services to the life
sciences industry. Formed through the merger of IMS Health and
Quintiles, IQVIA applies human data science — leveraging the analytic
rigor and clarity of data science to the ever-expanding scope of human
science — to enable companies to reimagine and develop new approaches to
clinical development and commercialization, speed innovation, and
accelerate improvements in healthcare outcomes. Powered by the IQVIA
CORE™, IQVIA delivers unique and actionable insights at the intersection
of large-scale analytics, transformative technology and extensive domain
expertise, as well as execution capabilities. With more than 55,000
employees, IQVIA conducts operations in more than 100 countries.

Cautionary Statements Regarding Forward Looking Statements

This press release contains "forward-looking statements" within the
meaning of the federal securities laws, including Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including, without limitation, our
2018 guidance. In this context, forward-looking statements often address
expected future business and financial performance and financial
condition, and often contain words such as "expect," "anticipate,"
"intend," "plan," "believe," "seek," "see," "will," "would," "target,"
similar expressions, and variations or negatives of these words. Actual
results may differ materially from our expectations due to a number of
factors, including, but not limited to, the following: most of our
contracts may be terminated on short notice, and we may lose or
experience delays with large client contracts or be unable to enter into
new contracts; imposition of restrictions on our use of data by data
suppliers or their refusal to license data to us; any failure by us to
comply with contractual, regulatory or ethical requirements under our
contracts, including current or changes to data protection and privacy
laws; breaches or misuse of our or our outsourcing partners' security or
communications systems; hardware and software failures, delays in the
operation of our computer and communications systems or the failure to
implement system enhancements; failure to meet our productivity or
business transformation objectives; failure to successfully invest in
growth opportunities; our ability to protect our intellectual property
rights and our susceptibility to claims by others that we are infringing
on their intellectual property rights; the expiration or inability to
acquire third party licenses for technology or intellectual property;
any failure by us to accurately and timely price and formulate cost
estimates for contracts, or to document change orders; the rate at which
our backlog converts to revenue; our ability to acquire, develop and
implement technology necessary for our business; consolidation in the
industries in which our clients operate; risks related to client or
therapeutic concentration; the risks associated with operating on a
global basis, including currency or exchange rate fluctuations and legal
compliance, including anti-corruption laws; risks related to changes in
accounting standards, including the impact of the changes to the revenue
recognition standards; general economic conditions in the markets in
which we operate, including financial market conditions and risks
related to sales to government entities; the impact of changes in tax
laws and regulations; and our ability to successfully integrate, and
achieve expected benefits from, our acquired businesses. For a further
discussion of the risks relating to the combined company's business, see
the "Risk Factors" in our annual report on Form 10-K for the fiscal year
ended December 31, 2017, filed with the SEC, as such factors may be
amended or updated from time to time in our subsequent periodic and
other filings with the SEC, which are accessible on the SEC's website at www.sec.gov.
These factors should not be construed as exhaustive and should be read
in conjunction with the other cautionary statements that are included in
this release and in our filings with the SEC. We assume no obligation to
update any such forward-looking statement after the date of this
release, whether as a result of new information, future developments or
otherwise.

Note on Non-GAAP Financial Measures

Non-GAAP results, such as Adjusted EBITDA, Adjusted Net Income, and
Adjusted Diluted EPS are presented only as a supplement to the company's
financial statements based on GAAP. Non-GAAP financial information is
provided to enhance understanding of the company's financial
performance, but none of these non-GAAP financial measures are
recognized terms under GAAP, and non-GAAP measures should not be
considered in isolation from, or as a substitute analysis for, the
company's results of operations as determined in accordance with GAAP.
Definitions and reconciliations of non-GAAP measures to the most
directly comparable GAAP measures are provided within the schedules
attached to this release. The company uses non-GAAP measures in its
operational and financial decision making, and believes that it is
useful to exclude certain items in order to focus on what it regards to
be a more meaningful indicator of the underlying operating performance
of the business. As a result, internal management reports feature
non-GAAP measures which are also used to prepare strategic plans and
annual budgets and review management compensation. The company also
believes that investors may find non-GAAP financial measures useful for
the same reasons, although investors are cautioned that non-GAAP
financial measures are not a substitute for GAAP disclosures.

Our 2018 guidance measures (other than revenue) are provided on a
non-GAAP basis because the company is unable to reasonably predict
certain items contained in the GAAP measures. Such items include, but
are not limited to, acquisition and integration related expenses,
restructuring and related charges, stock-based compensation and other
items not reflective of the company's ongoing operations.

Non-GAAP measures are frequently used by securities analysts, investors
and other interested parties in their evaluation of companies comparable
to the company, many of which present non-GAAP measures when reporting
their results. Non-GAAP measures have limitations as an analytical tool.
They are not presentations made in accordance with GAAP, are not
measures of financial condition or liquidity and should not be
considered as an alternative to profit or loss for the period determined
in accordance with GAAP or operating cash flows determined in accordance
with GAAP. Non-GAAP measures are not necessarily comparable to similarly
titled measures used by other companies. As a result, you should not
consider such performance measures in isolation from, or as a substitute
analysis for, the company's results of operations as determined in
accordance with GAAP.

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IQVIAFIN

       
Table 1
IQVIA HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share data)
(preliminary and unaudited)
 
 
Three Months Ended Six Months Ended
June 30, June 30,
  2018 2017 2018 2017
Revenues $ 2,567 $ 2,355 $ 5,130 $ 4,715
Costs of revenue, exclusive of depreciation and amortization 1,674 1,557 3,326 3,083
Selling, general and administrative expenses 424 378 844 759
Depreciation and amortization 282 245 564 477
Impairment charges 40 40

Restructuring costs

  17     9     43     28  
Income from operations 170 126 353 328
Interest income (1 ) (1 ) (3 ) (3 )
Interest expense 107 81 203 156
Loss on extinguishment of debt 2 2 3
Other income, net   (26 )   (2 )   (22 )   (3 )

Income before income taxes and equity in earnings of
unconsolidated affiliates

88 48 173 175
Income tax expense (benefit)   24     (14 )   43     10  

Income before equity in earnings of unconsolidated affiliates

64 62 130 165
Equity in earnings of unconsolidated affiliates   4     4     11     3  
Net income 68 66 141 168
Net income attributable to non-controlling interests   (7 )   (4 )   (11 )   (6 )
Net income attributable to IQVIA Holdings Inc. $ 61   $ 62   $ 130   $ 162  
Earnings per share attributable to common stockholders:
Basic $ 0.30 $ 0.28 $ 0.63 $ 0.72
Diluted $ 0.29 $ 0.28 $ 0.62 $ 0.71
Weighted average common shares outstanding:
Basic 205.7 217.6 206.6 223.8
Diluted 209.9 222.3 210.9 228.6
 

       
Table 2
IQVIA HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
(preliminary and unaudited)
 
 
June 30, December 31,
      2018 2017
ASSETS
Current assets:
Cash and cash equivalents $ 879 $ 959
Trade accounts receivable and unbilled services, net 2,172 2,097
Prepaid expenses 158 146
Income taxes receivable 52 47
Investments in debt, equity and other securities 49 46
Other current assets and receivables   277     259  
Total current assets   3,587     3,554  
Property and equipment, net 415 440
Investments in debt, equity and other securities 25 8
Investments in unconsolidated affiliates 85 70
Goodwill 11,844 11,850
Other identifiable intangibles, net 6,297 6,591
Deferred income taxes 108 109
Deposits and other assets   265     235  
Total assets $ 22,626   $ 22,857  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,997 $ 1,986
Unearned income 940 985
Income taxes payable 121 72
Current portion of long-term debt 101 103
Other current liabilities   7     10  
Total current liabilities 3,166 3,156
Long-term debt 10,627 10,122
Deferred income taxes 813 895
Other liabilities   406     440  
Total liabilities   15,012     14,613  
Commitments and contingencies
Stockholders' equity:

Common stock and additional paid-in capital,

400.0 shares authorized at June 30, 2018 and December 31, 2017,
$0.01
par value, 250.4 and 249.5 shares issued at June 30, 2018
and
December 31, 2017, respectively

10,836 10,782

Retained earnings

665 538

Treasury stock, at cost, 47.9 and 41.4 shares at June 30, 2018 and
December 31, 2017, respectively

(4,033 ) (3,374 )
Accumulated other comprehensive (loss) income   (104 )   49  
Equity attributable to IQVIA Holdings Inc.'s stockholders 7,364 7,995
Non-controlling interests   250     249  
Total stockholders' equity   7,614     8,244  
Total liabilities and stockholders' equity $ 22,626   $ 22,857  
 

                                         
Table 3
IQVIA HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(preliminary and unaudited)
 
 
Six Months Ended
June 30,
                                        2018 2017
Operating activities:
Net income $ 141 $ 168
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization 564 477
Amortization of debt issuance costs and discount 5 4

Amortization of accumulated other comprehensive loss on terminated
interest rate swaps

3
Stock-based compensation 47 53
Impairment of goodwill and identifiable intangible assets 40
(Earnings) loss from unconsolidated affiliates (11 ) 7
Gain on investments, net (3 )
Benefit from deferred income taxes (114 ) (198 )
Changes in operating assets and liabilities:
Change in accounts receivable, unbilled services and unearned income (114 ) (73 )
Change in other operating assets and liabilities   (22 )   (180 )
Net cash provided by operating activities 493 301
Investing activities:
Acquisition of property, equipment and software (198 ) (178 )
Acquisition of businesses, net of cash acquired (227 ) (268 )
Investments in unconsolidated affiliates, net of payments received (5 ) 6
Investments in equity securities   (20 )    
Net cash used in investing activities (450 ) (440 )
Financing activities:
Proceeds from issuance of debt 1,631 3,998
Payment of debt issuance costs (20 ) (23 )
Repayment of debt and principal payments on capital lease obligations (682 ) (2,515 )
Proceeds from revolving credit facility 1,460 853
Repayment of revolving credit facility (1,779 ) (890 )
(Payments) proceeds related to employee stock purchase and option
plans
(2 ) 69
Repurchase of common stock (668 ) (1,694 )
Distributions to non-controlling interests, net (9 ) (5 )
Contingent consideration and deferred purchase price payments   (24 )   (3 )
Net cash used in financing activities (93 ) (210 )
Effect of foreign currency exchange rate changes on cash   (30 )   53  
Decrease in cash and cash equivalents (80 ) (296 )
Cash and cash equivalents at beginning of period   959     1,198  
Cash and cash equivalents at end of period $ 879   $ 902  
 

                                                                                 
Table 4
IQVIA HOLDINGS INC. AND SUBSIDIARIES
NET INCOME TO ADJUSTED EBITDA RECONCILIATION
(in millions)
(preliminary and unaudited)
 
 
Three Months Ended Six Months Ended
June 30, June 30,
                                                                    2018 2017 2018 2017
Net Income $ 61 $ 62 $ 130 $ 162
Provision for income taxes 24 (14 ) 43 10
Depreciation and amortization 282 245 564 477
Interest expense, net 106 80 200 153
(Income) loss in unconsolidated affiliates (4 ) (4 ) (11 ) (3 )
Income from non-controlling interests 7 4 11 6
Deferred revenue purchasing accounting adjustments 2 2 3 8
Stock-based compensation 26 27 47 53
Other (income) expense, net (21 ) 5 (9 ) 10
Loss on extinguishment of debt 2 2 3
Impairment charges 40 40
Restructuring and related charges 17 9 43 28
Acquisition related charges 14 7 26 18
Integration related costs                                                                     17     3     31     5  
Adjusted EBITDA                                                                   $ 533   $ 467   $ 1,080   $ 971  
 

Note: Numbers may not add to total due to rounding.

 

                                       
Table 5
IQVIA HOLDINGS INC. AND SUBSIDIARIES
NET INCOME TO ADJUSTED NET INCOME RECONCILIATION
(in millions, except per share data)
(preliminary and unaudited)
 
Three Months Ended Six Months Ended
June 30, June 30,
                            2018 2017 2018 2017
Net Income $ 61 $ 62 $ 130 $ 162
Provision for income taxes 24 (14 ) 43 10
Purchase accounting amortization 217 183 435 360
(Income) loss in unconsolidated affiliates (4 ) (4 ) (11 ) (3 )
Income from non-controlling interests 7 4 11 6
Deferred revenue purchasing accounting adjustments 2 2 3 8
Stock-based compensation 26 27 47 53
Other (income) expense, net (21 ) 5 (9 ) 10
Loss on extinguishment of debt 2 2 3
Impairment charges 40 40
Royalty hedge (gain) loss (1 ) 3 (5 ) 7
Restructuring and related charges 17 9 43 28
Acquisition related charges 14 7 26 18
Integration related costs                             17     3     31     5  
Adjusted Pre Tax Income $ 361 $ 327 $ 746 $ 707
Adjusted tax expense (82 ) (92 ) (175 ) (203 )
Income from non-controlling interests (7 ) (4 ) (11 ) (6 )
Minority interest effect in non-GAAP adjustments (1)   (2 )   (2 )   (5 )   (5 )
Adjusted Net Income                           $ 270   $ 229   $ 555   $ 493  
 
Adjusted earnings per share attributable to common shareholders:
Basic $ 1.31 $ 1.05 $ 2.69 $ 2.20
Diluted $ 1.29 $ 1.03 $ 2.63 $ 2.16
Weighted-average common shares outstanding:
Basic 205.7 217.6 206.6 223.8
Diluted 209.9 222.3 210.9 228.6
 

(1) Reflects the portion of Q2 Solutions'
after-tax non-GAAP adjustments attributable to the minority
interest partner.

 

Note: Numbers may not add to total due to rounding.

 

                                                                                                                                 
Table 6
IQVIA HOLDINGS INC. AND SUBSIDIARIES
CALCULATION OF GROSS AND NET LEVERAGE RATIOS
AS OF JUNE 30, 2018
(in millions)
(preliminary and unaudited)
 
 
                                                                                                                               
Gross Debt, net of Original Issue Discount, as of June 30, 2018 $       10,728
Net Debt as of June 30, 2018                                                                                                                             $       9,849
Adjusted EBITDA for the twelve months ended June 30, 2018                                                                                                                             $       2,119
Gross Leverage Ratio (Gross Debt/LTM Adjusted EBITDA) 5.1x
Net Leverage Ratio (Net Debt/LTM Adjusted EBITDA)                                                                                                                             4.6x
 

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