IQVIA Holdings Inc. (NYSE:IQV) Q1 2024 Earnings Call Transcript May 2, 2024
IQVIA Holdings Inc. beats earnings expectations. Reported EPS is $2.54, expectations were $2.49. IQVIA Holdings Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the IQVIA First Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded. Thank you. I would now like to turn the call over to Kerri Joseph, Senior Vice President, Investor Relations and Treasury. Mr. Joseph, please begin your conference.
Kerri Joseph: Thank you, operator. Good morning, everyone. Thank you for joining our first quarter 2024 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 Perrone, 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 & 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.
Ari Bousbib: Thank you, Kerri, and good morning, everyone. Thank you for joining us today to discuss our first quarter results. We had a strong start to the year. We delivered top and bottom line numbers on or slightly above our expectations. Excluding the impact of foreign exchange and COVID-related work, our revenue grew 6%. We continue to see a favorable demand environment for our industry. On the clinical side, demand from our R&DS clients remain solid. Our backlog reached a new record and grew almost 8% versus prior year. Net new bookings for the quarter were approximately $2.6 billion, representing a quarterly book-to-bill of 1.23. This included a substantial cancellation in the CNS area that is in the public domain, and I’m sure many of you are aware of, excluding this large cancellation, which is well outside the typical cancellation size we see in a quarter, our first quarter book-to-bill ratio would have been over 1.3 actually closer to 135.
Our quarterly RFP flow was up 6% year-over-year, and that’s in value meaning in dollar terms, and it was driven by mid to high single-digit growth in all customer segments, again, in dollar terms. Our qualified pipeline grew double digits versus prior year, again, in value in dollar terms. Emerging biotech funding was very strong according to BioWorld, which we use consistently as a source. First quarter EBP funding was $47.1 billion, which is more than triple the funding of Q1 last year. Shifting to TAS, our commercial side of our business, revenue in the quarter grew as expected with the modest uptick in activity anticipated for later this year we continue to forecast an improvement in the back half of the year. We continue to see some favorable signs.
For example, our pipeline remains strong. In our conversations with clients, there is more clarity on budgets, and we are starting to see faster decision timing with some clients compared to the second half of 2023. As this said, the toll overall with our clients remains cautious. And the fact is that the uncertain macro environment persists as everyone can tell from the Fed remarks yesterday. Turning now to the results for this quarter. Revenue for the first quarter grew 2.3% on a reported basis and 2.9% at constant currency. Compared to last year, and excluding COVID-related work from both periods, we grew the top line approximately 6% on a constant currency basis, including just over a point of contribution from acquisitions. First quarter adjusted EBITDA came in at $862 million and first quarter adjusted diluted EPS was $2.54.
I’d like to share a few highlights of business activity. Let’s start with the TAS segment. You will have seen that we are expanding our global strategic partnership with Salesforce. The partnership will integrate innovation from IQVIA OCE with Salesforce’s Life Sciences cloud to provide customers with a new single end-to-end engagement platform, which is expected to be available late 2025. This is very exciting news for the industry as we expect to transform the engagement with HCPs and with patients with the next-generation CRM platform that’s built on OCE, and that’s powered by IQVIA data, domain expertise and advanced analytics. Separately, and as we discussed in the past, that continues to be an evolution on the way in how the industry manages HCP and patient engagement.
For example, there is an ongoing shift in HCP engagement from in-person to digital interactions. On the patient side, there is increased emphasis on direct-to-patient solutions through patient support and market access programs, including financial support, hub services, medical education. As you know, we’ve been investing in building out these digital capabilities, and we are getting good market traction. For example, in the quarter, the top three pharma client awarded IQVIA a contract for our smart engagement solution to understand the health care provider online journey across therapeutic areas and factor that in earlier into the drug development process. The top five pharma bought IQVIA’s Omnichannel Navigator solution to assess return on marketing investment, measure customer interactions and campaign performance and make data-driven decisions to optimize marketing strategies.
A global midsized pharma awarded IQVIA a multiyear contract to implement our commercial compliance solutions. These solutions will allow our clients’ interactions with health care professionals to be in compliance with transparency, regulatory obligations in over 30 countries. An EBP clients bought IQVIA’s patient relationship manager offering, which provides a comprehensive real-time view of the patient’s journey and helps maximize the impact of their patient support program. In general, the TAS segment is seeing more demand for our sophisticated technology-enabled analytics solutions. For example, in the quarter, a top 10 pharma client awarded IQVIA contract to streamline clinical operation data management processes. IQVIA’s technology provides real-time data sharing, eliminating unnecessary file processing and improving the speed of data updates.
Also in the quarter, a large med tech firm bought the IQVIA offering that enables better stakeholder targeting and go-to-market execution, ultimately enhancing the clients’ ROI. Moving to real world. A top 10 pharma company chose IQVIA to conduct a comparative study of the effectiveness of treatments against the standard of care in patients with a specific marker across 10 different cancers. The goal is to help the client gain market access and reimbursement for their treatment, which can be used for multiple types of cancer based on a single biomarker. IQVIA was awarded contract by the top 10 pharma to demonstrate the effectiveness of a novel eye movement technology addressing a common symptom in patients with multiple sclerosis. A top 10 pharma client awarded IQVIA, a large real-world respiratory infection vaccine effectiveness study.
We were selected based on our strong epidemiologic scientific and therapeutic expertise as well as our global footprint to augment site identification and operational execution. And finally, to conclude my commentary on the TAS segment, I’d like to highlight the work we’re doing in public health. It’s been an increased area of focus for governments looking to extend life expectancy reduce health inequalities and improve overall quality of and access to care. Some examples of IQVIA’s work in this area, one of the largest UN health agencies contracted IQVIA to help with a major initiative to eradicate all types of polyoviruses in Africa, focused on children. IQVIA is deploying personnel to improve outbreak response with vaccines and to strengthen polio surveillance and response in hard-to-reach areas.
So far, IQVIA’s team conducted visits to more than 12,000 sites and trained over 122,000 health workers across 26 African countries. Another example of our work in this area, IQVIA was selected to conduct a large EU-funded project to create a national oncology network and database for one of the European Ministry of Health to improve the country’s low cancer survival rates. A single IT platform will connect national hospitals and the reimbursement fund in that country. The platform will leverage curated oncology data and analytics to manage patient risk and improve treatments in a cost-efficient manner. Lastly, on public health, the global fund selected IQVIA to support 13 African countries to improve the visibility of their supply chain performance, ensure the availability of commodities and services, mitigate service disruptions and provide stronger assurance through more frequent on-site spot checks.
The project focuses on pharmaceutical and diagnostics analytics from over 2,800 facilities for tracer health products in HIV, tuberculosis and malaria. This work is very important to us in public health. It’s also extremely important to our global pharma clients who are extremely active in this area as well. Moving to R&DS. Let’s start by highlighting two more distinguished vaccine development awards. The top 10 pharmas selected IQVIA to support the development of a novel respiratory vaccine, which could represent a significant breakthrough as the only vaccine targeting multiple respiratory viruses simultaneously. IQVIA laboratory secured a preferred strategic partnership with a top 10 pharma based on IQVIA’s unique expertise, innovation and delivery model.
As we discussed in the past, there is stronger demand for FSP services, and we continue to win our fair share in this segment as well. For example, in the quarter, we secured an extension of FSP data management services with a leading midsized pharma known for their innovative rare blood disease therapies. In the EBP segment, we secured two large awards where we displaced incumbent CROs based on our global scale and AI-enabled capabilities. We were selected by the US West Coast EBP clients to conduct two large Phase III oncology studies simultaneously. This is a big deal as the client is new to IQVIA and selected us based on our differentiated AI-enabled capabilities as the trial protocol includes complex inclusion, exclusion criteria and usually large patient cohorts and aggressive enrollment time lines.
We also won another large EBP full-service Phase III trial displacing the incumbent again by leveraging our AI-enabled startup, site identification activation and enrollment capabilities. With that, I will 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 $3.737 billion, grew 2.3% on a reported basis and 2.9% at constant currency. COVID-related revenues were approximately $45 million, down about $105 million versus first quarter of 2023. Excluding all COVID-related work from both this year and last, constant currency growth was approximately 6%. As already mentioned, acquisitions contributed just over 100 basis points to this growth. Technology & Analytics Solutions revenue for the first quarter was $1.453 billion, up 0.6% reported in 1% at constant currency, excluding all COVID-related, where constant currency growth in TAS was 3%. R&D Solutions first quarter revenue was $2.095 billion, that was up 3.4% reported and 3.8% in constant currency and excluding all COVID-related work, constant currency growth in R&DS was 8%.
Finally, Contract Sales and Medical Solutions or CSMS first quarter revenue of $189 million was up 3.8% reported and 7.1% at constant currency. Let’s move down the P&L. Adjusted EBITDA was $862 million. That’s growth of 1.3%. Our first quarter GAAP net income was $288 million, down 0.3% year-over-year and GAAP diluted earnings per share were $1.56, up 2% year-over-year. Adjusted net income was $468 million for the quarter, up 1.3% year-over-year and adjusted diluted EPS grew 3.7% to $3.54. Now it’s already reviewed, R&D Solutions delivered another strong quarter of bookings. Our backlog at March 31 stood at a record $30.1 million, which was up year-over-year, and next 12 months revenue from backlog increased to $7.7 billion, growing 6.1% year-over-year.
Let’s turn to the balance sheet. As of March 31, cash and cash equivalents totaled $1.444 billion. Gross debt was $13.536 billion, and the result of those two is net debt of $12.092 million. Our net leverage ratio ended the quarter at 3.38 times trailing 12-month adjusted EBITDA. First quarter cash flow from operations was $522 million in capital expenditures were $145 million, resulting in free cash flow of $377 million. Turning now to guidance. We are reaffirming our full year revenue guidance on a constant currency basis or adjusting revenue at actual currency downward by $75 million to reflect the strengthening the US dollar since we last guided. We now expect revenue to be between $15.325 billion and $15.575 billion, representing year-over-year growth of 2.3% to 3.9% on a reported basis.
Now this guidance now includes a year-over-year FX headwind of approximately 100 basis points. And I’ll remind you that when we last guided, we were looking for about 50 basis points of FX headwind. We continue to assume approximately $300 million of step-down in COVID-related work and about 100 basis points of contribution to revenue from M&A activity. We’re reaffirming our adjusted EBITDA guidance of $3.7 billion to $3.8 billion, which represents year-over-year growth of 3.7% to 6.5%. The impact of FX changes to revenue had a negligible impact on EBITDA. We’re also reaffirming our adjusted diluted EPS guidance, which continues to be $10.95 to $11.25, up 7.4% to 10.3% versus the prior year. Okay. Let me conclude by providing second quarter guidance.
For the second quarter, we expect revenue to be between $3.740 billion and $3.815 billion. This includes a year-over-year FX headwind of approximately 150 basis points, and we anticipate the second quarter will be the toughest quarterly FX compare of the year. As a reminder, the step-down in COVID-related work is weighted towards the first half of the year. Also, we continue to expect gradual improvement in TAS revenue growth in the back half of the year. For the second quarter, adjusted EBITDA is expected to be between $870 million and $890 million and adjusted diluted EPS is expected to be between $2.54 and $2.64. And all of the guidance I provided assumes that foreign currency rates as of April 30 continue for the balance of the year. So to summarize, Q1 was a strong start to the year.
TAS revenue came in as expected, and we continue to look for improvement in the back end of the year. R&DS delivered $2.6 billion of net bookings, bringing backlog to over $30 billion for the first time in our history. We continue to see favorable forward-looking indicators in the clinical trial business, such as strong RFP flow, strong qualified pipeline growth and strong biotech funding, and finally, we’re reaffirming our earnings guidance for the year, including adjusted diluted EPS growth of 7.4% to 10.3%. With that, let me hand it back to the operator for Q&A.
Operator: Thank you. [Operator Instructions] We’ll take our first question from Elizabeth Anderson at Evercore ISI. Ms. Anderson, your line is open. You may have yourself muted.
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