IQVIA Holdings Inc. (NYSE:IQV) Q4 2023 Earnings Call Transcript
IQVIA Holdings Inc. (NYSE:IQV) Q4 2023 Earnings Call Transcript February 14, 2024
IQVIA Holdings Inc. beats earnings expectations. Reported EPS is $2.84, expectations were $2.82. IQV 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 Fourth Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's 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 Nick Childs, Senior Vice President, Investor Relations and Treasury. Mr. Childs, please begin your conference.
Nicholas Childs: Thank you very much. Good morning, everyone. Thank you for joining our fourth 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 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: Thank you, Nick, and good morning, everyone. Thank you for joining us today to discuss our 2023 results. You saw that we had a good quarter. Let me start the call by sharing the latest of what we are seeing in our end markets, along with our key accomplishments for 2023. On the clinical side, demand from our R&DS clients remained strong. Net new bookings for the quarter exceeded $2.8 billion, the second largest quarter in IQVIA history, representing a quarterly book-to-bill of 1.31. Our quarterly RFP flow was up 13% year-over-year, driven by EBP and large pharma. Our qualified pipeline grew double-digits versus prior year. Emerging biotech funding was strong. According to BioWorld, fourth quarter EBP funding was $21.6 billion, the highest quarter in the last two years continuing the sequential improvement we've seen throughout the year.
For the full year, EBP funding for 2023 was $70.9 billion, up 17% versus the prior year, and that represents the largest year on record, if we exclude the outlier years of 2020 and 2021, when there was dramatic outstanding due to COVID. As we close 2023, we're proud of what we have achieved in R&DS. The business booked $10.7 billion of net new business, including record high service bookings of $8.4 billion. Our backlog stands at $29.7 billion, and that's up 9% year-over-year. The business added nearly 400 net new customers in the year. We made great progress with our clinical research strategies. We significantly expanded our R&D site network and management organization through strategic acquisitions that offer clinical research coordination study feasibility and patient recruitment capability.
We further expanded the capabilities of the lab business through the launch of a new synthetic antibody discovery offering, which is differentiated from the traditional animal-derived antibodies that are used by our competitors. And we partnered with the Coalition for Epidemic Preparedness Innovations, CEPI, who enhance the world's ability to rapidly conduct clinical research for vaccines and other biological countermeasures against emerging infectious diseases in underdeveloped countries. Turning to TAS. The commercial side of our business continues, of course, to face the macro environment that we've described in the past as our clients remain cautious with their spending and their cost containment. Our results in the quarter were slightly better than what we had expected.
Although, discretionary spending has not yet rebounded to the levels that we expect, they will, and it continues to be a headwind. Fundamentally, leading market indicators do point to an upcoming improvement. For instance, the FDA approved 55 new molecules in 2023 and that's almost 50% more than the prior year and it is the highest level since 2018. The spend on new drug launches by our pharma clients is expected to be over $190 billion over the next five years. That's up over 25% compared to the prior five-year period. Frankly, in our own engagement with customers in the recent past, we noted an improved customer sentiment during the quarter. In fact, the pipeline of opportunities remains strong even as decision time lines remain elongated and negotiations more difficult similar to what we indicated last quarter.
Based on these dynamics, we continue to expect demand to pick up, but not before the second half of the year. And as a result, we may see the 2024 sequential short trend for TAS to be the inverse of what we experienced in 2023. We might see revenue growth in the first quarter that resembles the growth of the fourth quarter of 2023 and grow to gradually improve as we move to the back end of the year. Now despite more difficult macro environment, the TAS business had some significant achievements in 2023. We continued expanding our commercial technology and analytics offerings. We, in fact, added 33 new clients on our OCE technology platform. We successfully launched a new software platform, which tracks the performance of 1.6 million drugs covering 600 diseases across 93 countries.
We successfully introduced a first-in-kind med tech consumption offering that supports the complex journey that medical devices take as they travel from manufacturer to health care providers. And we acquired a quality metric to extend our suite of patient health measurement tools using clinical outcome assessments and patient reported outcomes. Let me now turn to the results for the quarter. Revenue for the fourth quarter grew 3.5% on a reported basis and 2.6% 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 approximately 1.5 points of contribution from acquisitions. Fourth quarter adjusted EBITDA increased 5%, reflecting our ongoing cost management discipline.
Fourth quarter adjusted diluted EPS of $2.84 faced the continuing headwind of the step-up in interest expense and the UK corporate tax rate increase. Excluding the impact of these items, our adjusted diluted EPS growth was 11%. Now, a few highlights of this business activity this quarter. Let's start with TAS. The midsized pharma client awarded IQVIA, a four-year outsourcing program to support their life cycle strategy of converting established brands to over-the-counter sales in more than 40 countries. Similarly, IQVIA won a four-year contract with a large pharma client to provide global market intelligence via a single globally accessible source of commercial data. In the quarter, we won a significant contract with a large pharma in the dermatology, rheumatology and oncology therapeutic areas.
This program will allow our clients to access detailed prescribing patterns in local markets, and enhanced HCP targeting in 18 countries. The CDC selected IQVIA to provide comprehensive monitoring services following the end of the COVID public health emergency status. IQVIA will support the CDC in analyzing data in near real time. On the respiratory virus response, including for influenza and RSV, identifying at-risk groups and improving overall population health. In the quarter, our Patient Services business, which is showing faster growth within our past segment, secured a significant contract with a large pharma that includes adherence monitoring, co-pay support and at-home treatment administration. In our real-world business, the National Health Service of England awarded IQVIA, a large contract to deploy our privacy technology and to enable the NHS efforts to ensure the highest standards of patient data governance and privacy controls.
Moving to RDS, a top 5 pharma client selected IQVIA as a key clinical FSP provider. Noteworthy here is that, a competitor of ours had been the 100% sole provider previously. This partnership will help the client improve clinical trial oversight and manage costs more effectively. In Q4, another top 5 clients awarded IQVIA a full-service Phase 2 study on ALS, also known as Lou Gehrig's disease. IQVIA was selected due to our vast expertise in ALS disease as well as our faster recruitment time lines. In the quarter, a biotech client selected IQVIA to conduct a complex trial for a promising cell and gene therapy targeting myositis, which is an autoimmune disease. We were selected due to our AI capabilities that allow us to identify sites and develop an innovative trial strategy.
Also in the quarter, IQVIA expanded its partnership with a major pharma company by securing six new global oncology trials, consisting of a mix of early and late-stage trials. We were chosen due to our expertise in oncology and our ability to efficiently manage large complex trials. A leading biotech firm, selected IQVIA to conduct a program comprised of three initial stage studies in cancer research. The client is expanding from local to global development and needed a large-scale partner like IQVIA. In Q4, IQVIA was awarded a major contract from a top 10 global pharma to become its primary pharmacovigilance platform provider. This multiyear program includes replacing their legacy systems with IQVIA's drug safety monitoring technology which uses generative AI capability to automatically extract adverse event information from unstructured data sources.
Finally, and before I turn it to Ron for a detailed financial review, I would like to take the opportunity to acknowledge and congratulate our employees around the world for the nice recognition the company just received. For the seventh consecutive year, IQVIA was named one of the world's most admired companies in Fortune's annual survey. And for the third year in a row, IQVIA was named the number one most admired company in our category. Lastly, before turning it over to Ron, I'd like to specifically mention the prestigious recognition received by Christina Mack one of IQVIA's senior leaders, who is the Chief Scientific Officer for our real-world business. Christina was named 2023 PharmaVoice 100 honorary, is a peer-recognized industry-wide honor.
We are very proud at IQVIA of Christina's work and our passion for accelerating innovation in health care through the use of evidence-based decision-making. Let me now turn it to Ron for our financial review.
Ronald Bruehlman: Okay. Thanks, Ari, and good morning, everyone. Let's start by reviewing revenue. Fourth quarter revenue of$3.868 billion grew 3.5% on a reported basis and 2.6% constant currency. In the quarter, COVID-related revenues were approximately $65 million, which was down about $125 million versus the fourth quarter of 2022. Now excluding all COVID related work from both this year and last, constant currency growth was approximately 6%. And as Ari mentioned, acquisitions contributed about 150 basis points of this growth. Technology & Analytics Solutions revenue for the fourth quarter was $1.531 billion, up 2.1% reported and 1.3% constant currency. Excluding all COVID-related work, constant currency growth in TAS was 4%.
R&D Solutions fourth quarter revenue of $2.151 billion was up 4.5% reported and 3.7% at constant currency and excluding all COVID related where constant currency growth and R&DS was 9% in the quarter. Finally, Contract Sales and Medical Solutions or CSMS fourth quarter revenue of $186 million grew 2.2% reported and 1.7% at constant currency. For the full year, revenue was $14.984 billion, growing at 4% on a reported basis and 4.1% at constant currency. COVID-related revenues totaled approximately $420 million for the year. Excluding all COVID-related work from both years, constant currency growth was 9%. Full year Technology & Analytics Solutions revenue was $5.862 billion, up 2% reported, 2.1% at constant currency and excluding all COVID-related work, growth at constant currency in TAS was 6%.
In R&D Solutions full year revenue was $8.395 billion, growing 6%, both on a reported and a constant currency basis, and excluding all COVID-related work, growth at constant currency in R&DS was 13%. Finally, in CSMS revenue for the full year was $727 million, which was down 2.2% reported and 0.3% at constant currency. Okay. Moving down to P&L. Adjusted EBITDA was $966 million for the fourth quarter. That represented 5% growth, while full year adjusted EBITDA was $3.569 billion, which was up 6.7% year-over-year. Fourth quarter GAAP net income was $469 million and GAAP diluted earnings per share was $2.54. For the full year, GAAP net income was $1.358 billion, or $7.29 of earnings per diluted share. Adjusted net income was $523 million for the fourth quarter and adjusted diluted earnings per share was $2.84.
For the full year, adjusted net income was $1.901 billion in adjusted diluted EPS was $10.20. Excluding the year-over-year impact of the step-up in interest rates and the increase in the UK corporate tax rate, adjusted diluted earnings per share grew 11% in the fourth quarter and 12% for the full year. Now it's already reviewed, R&D Solutions delivered another really strong quarter of bookings. Our backlog at December 31 stood at a record $29.7 billion. That's up 9.2% year-over-year and 31% over the last three years. Okay. Let's turn to the balance sheet. As of December 31, cash and cash equivalents totaled $1.376 billion and gross debt was $13.673 billion. And due to the math that results in net debt of $12.297 billion, our net leverage ratio at year-end was 3.45 times trailing 12-month adjusted EBITDA.
Fourth quarter cash flow from operations was $747 million and capital expenditures was $179 million, which resulted in free cash flow of $568 million for the quarter. Now in the quarter, we repurchased $229 million of our shares at an average price of $1.95 per share bringing our full year share repurchase activity to just slightly below $1 billion. This leaves us with just under $2.4 billion of share repurchase authorization remaining under the current program. Now as you know, coming out of the merger, we took advantage of the low interest rate environment and deployed a significant amount of capital for internal investments, acquisitions and share repurchases, which were quite accretive for our shareholders. Now, over that period, our net interest expense was relatively steady at around $400 million per year, but at the end of 2022 and through the middle of 2023, we experienced a rapid and unprecedented rise in interest rates, which drove annual interest expense, up by almost $0.25 billion causing our adjusted EPS to be just slightly over flat in 2023.
Now, as you saw in November, we successfully refinanced approximately $2.75 billion of our near-term debt maturities. The strong demand for IQVIA debt that we experienced allowed us to tighten pricing and lock in an average fixed rate below 4.9% for those issuances after swaps. This refinancing extended approximately $2.75 billion of maturities to 2029 and 2031 and we reduced our interest rate risk exposure by locking in over 80% of our debt at fixed rates. With this refinancing, we now expect net interest expense to be approximately $650 million in 2024. Now, the forward curves point to a reduction in rates in the future. We've included the current market consensus in our 2024 guidance. Further reductions would lower our net interest expense more on our variable rate debt and potentially open opportunities to refinance additional debt in the future.
Now let's go to our 2024 guidance, which I'll review in detail. For the full year, we expect total revenue to be between $15.400 billion and $15.650 billion, this includes approximately $300 million of a step-down in COVID-related work year-over-year and about 100 basis points of contribution from M&A activity and further FX headwind of approximately 50 basis points versus 2023. Our adjusted EBITDA guidance is $3.700 billion to $3.800 billion. Our adjusted diluted EPS guidance is $10.95 to $11.25. Now this guidance includes about $650 million of interest expense. Approximately $580 million of operational depreciation and amortization expense, an effective income tax rate, just under 20% and an average diluted share count of approximately 184 million shares.
This guidance also assumes about $2 billion deployment split evenly between acquisitions and share repurchase. Finally, our guidance assumes that foreign currency rates as of February 12 continue for the balance of the year. Now at the segment level, we expect TAS revenue to be between $6 billion and $6.2 billion. Q1 2023 was the last quarter that we had significant COVID-related revenues in TAS. So the COVID step down in TAS will be minimal for the balance of the year. As already mentioned, the guidance now anticipates an improvement in our commercial business towards the back end of the year, which will still result in a year-over-year growth of low to mid-single-digits. R&DS revenue is expected to be between $8.7 billion and $8.8 billion.
This guidance includes almost the entire $300 million step down in COVID-related revenue. And that represents approximately 350 basis points of headwind to the R&DS growth rate. The guidance also reflects the latest phasing of pass-through revenue which results in an additional headwind of approximately 100 basis points to R&DS year-over-year. Adjusting for the COVID step-down in the pass-through headwind, R&DS revenue growth in 2024 is expected to remain in the high single-digits. CSMS revenue is expected to be approximately $700 million, which is down slightly year-over-year. Now, let's review the first quarter guidance. For the first quarter, we expect revenue to be between $3.650 billion and $3.725 billion. The decline in COVID-related work is weighted towards the beginning of the year with the largest impact in Q1.
Also, we expect mark conditions and TAS to recover only in the back half of the year, as we've said. Adjusted EBITDA in the first quarter is expected to be between $850 million and $870 million, and adjusted diluted EPS is expected to be between $2.45 and $2.55. Now keep in mind that Q1 is the toughest comparison for adjusted diluted EPS due to the interest rate increases we saw throughout 2023. As we mentioned, our guidance assumes that foreign currency rates as of February 12 continue for the balance of the year. So let's summarize. Q4 was another strong quarter. R&DS delivered the second largest booking quarter in IQVIA history at over $2.8 billion, along with another quarter of double-digit RFC growth. For the full year of 2023, revenue grew 9% at constant currency, excluding COVID-related work.
Our EBITDA margin expanded by 60 basis points and adjusted diluted EPS was up 12% you exclude the year-over-year impact of interest rates and the increase in the UK tax rate. Free cash flow was strong in the quarter at $568 million, representing 109% of adjusted net income. IQVIA was named to Fortune's 2023 list of the World's most Admired Companies for the seventh consecutive year and earned the first place ranking within our industry group for the third consecutive year. And lastly, we issued full year 2024 guidance with underlying revenue growth of 5% to 7%, continued margin expansion and a resumption of EPS growth with adjusted diluted earnings per share expected to be up 7% to 10%. Now, before we open the call to Q&A, I'd like to make you aware of the leadership change within IQVIA's finance organization, Nick Childs, who has led our Investor Relations and treasury functions very ably for the past three years, is moving on to become CFO of our North American business.
He will be succeeded by Kerry Joseph, who has served as CFO of that business unit for the past five years. Kerry, who is a member of the global finance leadership team has had many finance roles of increasing responsibility during his 20-plus years with the company. Kerry and Nick have already been working together to transition responsibilities and Kerry will join Nick on our follow-up calls this quarter, so you all have a chance to meet them. Now, with that, let me hand it back over to the operator to begin our Q&A session.
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