IQVIA [IQV] Conference call transcript for 2023 q1
2023-04-27 12:25:11
Fiscal: 2023 q1
Operator: Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the IQVIA First Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Thank you. I would now like to turn the call over to Nick Childs, Senior Vice President, Investor Relations and Treasury. Mr. Childs, please begin your conference.
Nick Childs: Thank you, Mike, and good morning, everyone. Thank you for joining our first quarter 2023 earnings call. With me today are Ari Bousbib, Chairman and Chief Executive Officer; Ron Bruehlman, Executive Vice President and Chief Financial Officer; Eric Sherbet, Executive Vice President and General Counsel; Mike Fedock, Senior Vice President, Financial Planning and Analysis; and Gustavo Param, Senior Director, Investor Relations. Today, we will be referencing a presentation that will be visible during this call for those of you on our webcast. This presentation will also be available following this call in the Events and Presentations section of our IQVIA Investor Relations website at ir.iqvia.com. Before we begin, I would like to caution listeners that certain information discussed by management during this conference call will include forward-looking statements. Actual results could differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company's business which are discussed in the company's filings with the Securities and Exchange Commission, including our annual report on Form 10-K and subsequent SEC filings. In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in the press release and conference call presentation. I would now like to turn the call over to our Chairman and CEO.
Ari Bousbib: Thank you very much, Nick, and good morning, everyone. Thank you for joining us today to discuss our first quarter results. This was another quarter where we delivered again on all our financial targets. Our revenue grew 11% organic, excluding the impact of foreign exchange and COVID-related work. The diversification of our short and long-cycle businesses allowed us to perform well in the quarter despite the broader macroeconomic dynamics. The demand environment for our industry continues to be healthy. Global clinical trial activity remains resilient and the prospects for our commercial business remain favorable. A few encouraging signs I'd like to share with you this morning, the 15 largest pharmaceutical companies together spent a record setting $138 billion on research and development in 2022. According to BioWorld, the Q1 EBT [ph] funding was $15.6 billion. That was up double digit versus prior year and up sequentially versus Q4. March was a particularly strong month for EBT funding despite concerns about the impact from the banking crisis. FDA approvals are off to a strong start in 2023. There were 13 approvals in the first quarter. That's up from an average of 9 over the prior 5 years. And that's a positive indicator for our commercial business. There was a significant M&A activity in Q1, which primarily is large pharma acquiring smaller companies and the industry expects 2023 M&A spend to be one of the largest years in the last decade. This highlights the ongoing demand for molecules by large pharma. Internally, our Q1 demand metrics show continued healthy growth. I'll share a couple with you this morning. Net new bookings were $2.6 billion. That represented a quarterly book-to-bill of 1.28. As a result, our backlog reached a new record and grew 10.1% versus prior year on a reported basis and 11.3%, excluding the impact of foreign exchange. Our RFP flow set a new quarterly record. It was up sequentially 15%, versus Q4 2022. Operationally, attrition levels have continued to decline, and they are now, in fact, back to pre-pandemic levels or slightly below that. Site selection was up double digits year-over-year. This increased productivity helped mitigate the unfavorable impact of the staff's proteges [ph] that investigator site that we spoke about in prior calls. R&DS organic revenue growth at constant currency, excluding COVID-related work, was 17% in the quarter. That was well above the upper end of our expectations. Within TAS, we continue to see some client cautiousness related to discretionary spending. TAS growth for the quarter was 6% organic at constant currency, excluding COVID-related work, and that was within our expectations, but towards the lower end. In summary, industry demand remains healthy despite some cautiousness in discretionary spending, mostly in the short-cycle businesses. The diversification of our businesses allows us to balance the current slower short-cycle growth with the resilience of our long-cycle businesses, demonstrating that IQVIA is a company that can operate effectively under different macro environments. And with that, as context, let me review the first quarter results. Revenue for the first quarter grew 2.4% on a reported basis, 4.7% at constant currency and compared to last year and excluding COVID-related work from both periods, we grew the top line as a company, 11% at constant currency on an organic basis. First quarter adjusted EBITDA increased 4.8%, driven by revenue growth and ongoing cost management discipline. First quarter adjusted diluted EPS of $2.45 declined slightly as expected driven by the onetime step-up in interest rates. Excluding interest expense and the U.K. tax rate headwinds that we discussed in the prior call, our adjusted diluted EPS growth exceeded 9%. I'd like to share a few highlights of business activity in the quarter. Within TAS, a top 10 pharma awarded IQVIA, our first omnichannel marketing deal in the Asia Pacific region. IQVIA's omnichannel marketing program provides client teams with AI ML powered insights and recommendations to deliver effective personalized digital engagements with ACP [ph] In the quarter, IQVIA won an award for our in-home patient services offering. This biotech client is launching a new MS treatment and selected IQVIA based on our ability to deliver testing and monitoring to the patient's home. These differentiated capabilities ease the burden for patients with limited mobility. Moving to the real-world part of our TAS business. IQVIA was awarded a major post authorization safety study to assess the impact and outcomes of prescribing a certain asthma drug to pregnant women with severe asthma. We won this large contract with a top 10 pharma client due to the breadth of our capabilities, including our relevant experience in the safety trials, our strong data and analytics capabilities and increased delivery efficiency with faster patient enrollment. Also in the quarter, we were awarded a large global intervention study with a top 10 pharma to identify high-risk cardiovascular patients by measuring the prevalence of high-sensitivity C-reactive protein. This protein is produced by the liver in response to inflammation in the body. Elevated levels of this protein in the blood are associated with an increased risk of cardiovascular disease, including heart attack and stroke. IQVIA was selected based on our ability to connect lab and clinical capabilities with therapeutic and real-world expertise in a cost-efficient manner. This study will have a significant impact on the future management of cardiovascular patients. Moving to R&DS. Continued strong momentum with our $2.6 billion of net new bookings in the quarter, translating into a book-to-bill of 1.28 in quarter, which brings our LTM book-to-bill to 1.35 in. A few highlights in the quarter. Oncology continues to be our largest therapeutic area. And in the quarter, a high-profile cutting-edge biotech company entered into a strategic partnership with IQVIA. This is a big deal. In fact, we were already awarded our first trial, which is for a novel bispecific antibody with potential development opportunities across several tumor types. Bispecific antibodies are designed to bind 2 different target molecules simultaneously. This project will leverage our end-to-end clinical trial solution, including protocol design, specialized medical and regulatory expertise, biomarker development and our integrated clinical operations, analytics and technology. We really are the only company with the ability to bring together these capabilities which, in turn, helped the client optimize trial design and reduce time to market. Importantly, going forward, this partnership creates multiple opportunities within this client's large oncology portfolio. We continue to have strong success with our clinical FSP [ph] trials business with several recent notable wins, including a significant preferred provider award with a major pharma. This was a competitive win against two incumbents and it further diversifies our portfolio of FSP clients and increases our share in that segment. We continue to deploy innovations in our clinical technology suite. Most recently, we introduced a new cloud-based platform within our research site network that will streamline document workflows and allow real-time collaboration among study teams. We already deployed this new technology to approximately 15% of IQVIA network sites across 28 countries, and we expect to deploy it to 40% of our sites in the next 12 months. The goal of deploying this technology at the site is to increase site productivity, which frees up more time for site support, compliance reviews and continuous monitoring of patient safety and study quality all of which are very important, especially in an environment where we experienced staff shortages at the site. Finally, a couple of nice accolades for our global IQVIA team. First, I am proud to share that our lab business received the prestigious Singaporean President Certificate of commendation, which is awarded to organizations that had a significant impact in the fight against COVID-19. In fact, five of our employees in Singapore received a Public Service Medal Award for their outstanding contributions to manage the impact of the pandemic. This is a nice recognition of the unique role we play in supporting public health. Second, our Scotland-based lab business recently achieved a global green lab certification for its commitment to practicing sustainable science. This certification is recognized by the United Nation's "Race to Zero" global campaign as the international gold standard for lab sustainability best practices towards a zero carbon future. I will now turn it over to Ron for more details on our financial performance.
Ron Bruehlman: Thanks, Ari, and good morning, everyone. Let's start by reviewing revenue. First quarter revenue of $3.652 billion grew 2.4% on a reported basis and 4.7% at constant currencies. In the quarter, COVID-related revenues were approximately $150 million, which was down about $230 million versus the first quarter of 2022. In our base business, that is excluding all COVID-related work from both this year and last, organic growth at constant currency was 11%. Technology & Analytics Solutions revenue was $1.444 billion, up 0.3% reported and 2.9% at constant currency. Excluding all COVID-related work, organic growth at constant currency in TAS was 6%. R&D Solutions revenue of $2.026 billion [ph] was up 4.8% reported and 6.5% at constant currency and excluding all COVID-related work, organic growth at constant currency in R&DS was 17%. Finally, Contract Sales and Medical Solutions or CSMS revenue of $182 million declined 6.7% reported and 1% at constant currency. And excluding all COVID-related work, the organic growth decline at constant currency was also 1% in CSMS. Let's move down to P&L. Adjusted EBITDA was $851 million for the first quarter, that's growth of 4.8%. GAAP net income was $289 million, and GAAP diluted earnings per share was $1.53. Adjusted net income was $462 million in adjusted earnings per share diluted was $2.45. So as already highlighted, R&D Solutions continues its strong momentum. This graph shows the growth of our backlog over the past 3 years, which demonstrates the sustained growth of our clinical business. Our backlog at March 31 stood at a record $27.9 billion which was up over 40% over the last 3 years and growing 10% year-over-year. Reviewing the balance sheet. At March 31, cash and cash equivalents totaled $1.494 billion. Gross debt was $13.176 billion, and that resulted in net debt of $11.682 billion. Our net leverage ratio ended the quarter at 3.4 times trailing 12-month adjusted EBITDA. First quarter cash flow from operations was strong at $417 million, and CapEx was $164 million, resulting in free cash flow of $253 million. In the quarter, we repurchased $129 million of shares, and that leaves us with slightly over $1.2 billion remaining under the current program. Let's go now to the guidance. Guidance for the full year 2023 remains unchanged. We continue to expect revenue excluding COVID-related work to grow organically at constant currency between 9% and 11%. And this revenue guidance continues to assume about 100 basis points of contribution from acquisitions and approximately $600 million of COVID-related revenue step down versus 2022. We're also reaffirming our guidance on adjusted EBITDA of $3.625 billion to $3.695 billion, and that represents year-over-year growth of 8.3% to 10.4%. Lastly, we're reaffirming our guidance on adjusted diluted EPS of $10.26 to $10.56. And this adjusted diluted earnings per share guidance includes a year-over-year impact of the step-up in interest rates and the increase in the U.K. corporate tax rate. And together, these nonoperational items impact the year-over-year growth rate by approximately 10 percentage points. Excluding these items, adjusted diluted earnings per share is expected to grow 11% to 14%. Let's move to our second quarter guidance. In Q2, we expect revenue to be between $3.675 billion and $3.750 billion. That's growth of 3.7% to 5.8% on a constant currency basis and 3.8% to 5.9% on a reported basis. Adjusted EBITDA is expected to be between $850 million and $875 million, which would be up 6.3% to 9.4%, and adjusted diluted EPS is expected to be between $2.30 and $2.44, declining 5.7% to flat on a year-over-year basis. And keep in mind that the second quarter is the toughest compare for interest expense because we had a very favorable $1 billion swap roll off on March 31. It was also a year ago that rates started rising. So excluding the step-up of an interest expense and the increased U.K. tax rate, we expect adjusted diluted EPS to grow between 8% and 13% in the second quarter. Now all of our guidance assumes that foreign currency rates as of April 25 continue for the balance of the year. So to summarize, Q1 was another solid quarter of financial performance. We delivered revenue growth of 11% organic, excluding the impact of foreign exchange and COVID-related work. Underlying demand in the industry and in our business remains healthy with our RFPs accelerating in Q1 up 15% sequentially versus Q4 2022. And quarterly net new bookings were $2.6 billion, and our industry-leading backlog reached a new record of $27.9 billion, representing growth of over 10% year-over-year. We've been navigating well through the choppy macro environment and delivering on our numbers. Despite some of the cautiousness we've observed in the short-cycle discretionary spend, thanks to the resilience and the rest of the portfolio, which is mostly the long cycle and thus less affected by macro turbulent. Therefore, we are reaffirming our full year guidance of 9% to 11% organic revenue growth at constant currency, excluding COVID-related work and 11% to 14% adjusted EPS growth, excluding nonoperational items. And with that, let me hand it back over to the operator for Q&A.
Operator: Thank you [Operator Instructions] Your first question comes from the line of Shlomo Rosenbaum at Stifel. Your line is open.
Operator: Thank you. Your next question comes from the line of Anne Samuel of JPMorgan. Your line is open.
Operator: Your next question comes from the line of David Windley at Jefferies. Your line is open.
Operator: Your next question comes from the line of Eric Coldwell at Baird. Your line is open.
Operator: Your next question comes from the line of Max Smock at William Blair. Your line is now open.
Operator: Your next question comes from the line of Sandy Draper at Guggenheim Securities. Your line is now open.
Operator: Your next question comes from the line of Charles Rhyee from TD Cowen. Your line is now open.
Operator: Your next question comes from the line of Derik De Bruin of Bank of America. Your line is now open.
Operator: Your next question comes from the line of Dan Leonard at Credit Suisse. Your line is now open.
Operator: Your next question comes from the line of Elizabeth Anderson at Evercore ISI. Your line is now open.
Operator: Thank you. Your final question comes from the line of Justin Bowers at Deutsche Bank. Please go ahead.
Operator: At this time, there are no further questions. Mr. Childs, I'll turn the call back over to you.
Nick Childs: Thank you, everyone, for joining us today, and we look forward to speaking to you again on our second quarter earnings call. Myself and the team will be available the rest of the day to take any other follow-up questions you might have. Thanks, everyone.
Operator: Thank you. This concludes today's conference call. You may now disconnect.
