IQVIA HOLDINGS INC. - Quarter Report: 2013 March (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2013

or

For the transition period from                      to                     .

Commission File Number: 001-35907

QUINTILES TRANSNATIONAL HOLDINGS INC.

(Exact name of registrant as specified in its charter)

4820 Emperor Blvd., Durham, North Carolina 27703

(Address of principal executive offices and Zip Code)

(919) 998-2000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ¨    No  x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.

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QUINTILES TRANSNATIONAL HOLDINGS INC.

FORM 10-Q

TABLE OF CONTENTS

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

QUINTILES TRANSNATIONAL HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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QUINTILES TRANSNATIONAL HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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QUINTILES TRANSNATIONAL HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these condensed consolidated financial statements.

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QUINTILES TRANSNATIONAL HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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QUINTILES TRANSNATIONAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

The accompanying unaudited condensed consolidated financial statements of Quintiles Transnational Holdings Inc. (the “Company”) and its subsidiaries have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the Company’s financial condition and results of operations have been included. Operating results for the period presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s prospectus filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”), with the Securities and Exchange Commission (the “SEC”) on May 9, 2013 (the “Prospectus”). The balance sheet at December 31, 2012 has been derived from the audited consolidated financial statements of the Company but does not include all disclosures required by GAAP.

Reclassifications and Classification of Depreciation and Amortization

The Company revised its previously reported costs of revenues and selling, general and administrative expenses for the three months ended March 31, 2012 to correctly present depreciation and amortization expense associated with selling, general and administrative expenses. This resulted in a decrease in costs of revenues and a corresponding increase in selling, general and administrative expenses of $19.7 million. This revision was more than offset by certain other reclassifications between costs of revenues and selling, general and administrative expenses to conform to the current period presentation. These changes had no effect on previously reported total revenues, net income, shareholders’ deficit or cash flows.

The below table summarizes the impact of the revisions for depreciation and amortization expenses and reclassifications for certain other costs on the three months ended March 31, 2012 (in thousands):

The Company granted options to purchase 75,000 shares of its common stock during the three months ended March 31, 2013, and granted none during the three months ended March 31, 2012. As of March 31, 2013, there were options outstanding to acquire 11,079,690 shares of the Company’s common stock.

The Company recognized share-based compensation expense of $4.5 million and $7.4 million for the three months ended March 31, 2013 and 2012, respectively. The Company used the following assumptions when estimating the value of the share-based awards issued during the three months ended March 31, 2013:

As of March 31, 2013, there were 94,250 cash-settled stock appreciation rights outstanding. The stock appreciation rights require the Company to settle in cash an amount equal to the difference between the fair value of the Company’s common stock on the date of the exercise and the grant price, multiplied by the number of stock appreciation rights being exercised.

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No customer accounted for 10% or more of consolidated service revenues for the three months ended March 31, 2013 or 2012.

Accounts receivable and unbilled services consist of the following (in thousands):

The following is a summary of goodwill by segment for the three months ended March 31, 2013 (in thousands):

In December 2011, the Company and Intarcia Therapeutics (“Intarcia”) entered into an alliance to develop a new therapy for type 2 diabetes whereby Intarcia will use the Company to conduct Phase III pivotal trials and a cardiovascular outcomes trial. Under the alliance, the Company provided Intarcia a customer incentive of $12.5 million and acquired $5.0 million of preferred stock of Intarcia. As of March 31, 2013 and December 31, 2012, the total customer incentive of $11.8 million and $11.9 million, respectively, has been recorded in deposits and other assets on the accompanying condensed consolidated balance sheets. The $5.0 million investment in preferred stock of Intarcia is recorded in “investments — debt, equity and other securities” on the accompanying condensed consolidated balance sheets as of March 31, 2013 and December 31, 2012. The customer incentive is being amortized in proportion to the revenues earned as a reduction of revenue recorded under the service arrangements.

As of March 31, 2013, the Company held the following derivative positions: (i) a freestanding warrant to purchase shares of common stock of a third party, (ii) forward exchange contracts to protect against foreign exchange movements for certain forecasted foreign currency cash flows related to service contracts and (iii) interest rate swaps to hedge the exposure to variability in interest payments on variable interest rate debt. The Company does not use derivative financial instruments for speculative or trading purposes.

On June 30, 2011, in connection with a financial arrangement with a third party, the Company acquired a freestanding warrant to purchase shares of the third party’s common stock. No quoted price is available for the warrant. Accordingly, the Company uses various valuation techniques to value the warrant including the present value of estimated expected future cash flows, option-pricing models and fundamental analysis. Factors affecting the valuation include the current price of the underlying common stock, the exercise price of the warrant, the expected time to exercise the warrant, the estimated price volatility of the underlying common stock over the life of the warrant and the restrictions on the transferability of or ability to exercise the warrant. The Company recognized investment losses of approximately $11,000 and $4,000 during the three months ended March 31, 2013 and 2012, respectively, related to the warrant. The Company did not sell derivative instruments during the three months ended March 31, 2013 or 2012.

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As of March 31, 2013, the Company had 15 open foreign exchange forward contracts to hedge certain forecasted foreign currency cash flow transactions occurring in 2013. As these contracts were entered into to hedge the risk of the potential volatility in the cash flows resulting from fluctuations in currency exchange rates during the last nine months of 2013, these transactions are accounted for as cash flow hedges. As such, the effective portion of the gain or loss on the contracts is recorded as unrealized gains (losses) on derivatives included in the accumulated other comprehensive income component of shareholders’ deficit. These hedges are highly effective. As of March 31, 2013, the Company had recorded gross unrealized losses related to foreign exchange forward contacts of approximately $1.9 million. No such gross unrealized losses were recorded as of December 31, 2012. As of December 31, 2012, the Company had recorded gross unrealized gains of approximately $465,000 related to foreign exchange forward contracts. No such unrealized gains were recorded as of March 31, 2013. Upon expiration of the hedge instruments during 2013, the Company will reclassify the unrealized holding gains and losses on the derivative instruments included in the accumulated other comprehensive income component of shareholders’ deficit into income. The unrealized gains are included in other current assets and the unrealized losses are included in other current liabilities on the accompanying condensed consolidated balance sheets as of March 31, 2013 and December 31, 2012.

During 2012, the Company, through its acquired subsidiary, Outcome Sciences, Inc., had open foreign exchange forward contracts to protect against the effects of foreign currency fluctuations on certain foreign currency cash flow transactions occurring in 2012. The derivative instruments that matured in 2012 had not been designated as hedges and, as a result, changes in the fair value were recorded as other (income) expense, net. The Company recognized $263,000 of losses related to these foreign exchange forward contracts as other (income) expense, net on the accompanying condensed consolidated statement of income for the three months ended March 31, 2012. All of these contracts matured during 2012.

On June 9, 2011, the Company entered into six interest rate swaps effective September 28, 2012 and expiring between September 30, 2013 and March 31, 2016 in an effort to limit its exposure to changes in the variable interest rate on its senior secured credit facilities. At March 31, 2013, the interest rate swaps effectively converted approximately 46.2%, or $975.0 million of the Company’s borrowings under its secured credit facilities, which are variable rate debt, to a fixed rate of approximately 2.53% plus the applicable margin of 3.25%. The critical terms of the interest rate swaps were substantially the same as those of the Company’s senior secured credit facilities, including quarterly interest settlements. These interest rate swaps are being accounted for as cash flow hedges as these transactions were entered into to hedge the Company’s interest payments. As such, the effective portion of the gains or losses on the derivative instruments are recorded as unrealized gains (losses) on derivatives included in the accumulated other comprehensive income component of shareholders’ deficit. The Company includes the impact from these hedges in the same line item as the hedged item on the accompanying condensed consolidated statements of cash flows. These hedges are deemed to be highly effective. As of March 31, 2013 and December 31, 2012, the Company had recorded gross unrealized losses of approximately $32.1 million and $34.0 million, respectively, related to interest rate swaps which are included in other current liabilities on the accompanying condensed consolidated balance sheet. The Company does not expect to recognize any of the unrealized losses in its income during the next 12 months.

The fair values of the Company’s derivative instruments designated as hedging instruments and the line items on the accompanying condensed consolidated balance sheets to which they were recorded are summarized in the following table (in thousands):

The fair values of the Company’s derivative instruments not designated as hedging instruments and the line items on the accompanying condensed consolidated balance sheets to which they were recorded are summarized in the following table (in thousands):

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The effect of the Company’s cash flow hedging instruments on other comprehensive income (loss) is summarized in the following table (in thousands):

Losses from derivative instruments not designated as hedges impacting the Company’s condensed consolidated statements of income are summarized below (in thousands):

The Company records certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy that prioritizes the inputs used to measure fair value is described below. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Recurring Fair Value Measurements

The following table summarizes the fair value of the Company’s financial assets and liabilities that are measured on a recurring basis as of March 31, 2013 (in thousands):

Below is a summary of the valuation techniques used in determining fair value:

Marketable equity securities — The Company values marketable equity securities utilizing quoted market prices for these securities.

Warrants — The Company values warrants utilizing the Black-Scholes-Merton model.

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Foreign exchange forward contracts — The Company values foreign exchange forward contracts using quoted market prices for identical instruments in less active markets or using other observable inputs.

Interest rate swaps — The Company values interest rate swaps using market inputs with mid-market pricing as a practical expedient for bid-ask spread.

Contingent consideration — The Company values contingent consideration, related to business combinations, using a weighted probability of potential payment scenarios discounted at rates reflective of the weighted average cost of capital for the businesses acquired.

The following table summarizes the changes in Level 3 financial assets and liabilities measured on a recurring basis for the three months ended March 31 (in thousands):

The revaluations for the warrants and the contingent consideration are recognized in other (income) expense, net on the accompanying condensed consolidated statements of income.

Non-recurring Fair Value Measurements

Certain assets are carried on the accompanying condensed balance sheets at cost and are not remeasured to fair value on a recurring basis. These assets include cost and equity method investments and loans that are written down to fair value for declines which are deemed to be other-than-temporary, definite-lived intangible assets which are tested when a triggering event occurs, and goodwill and identifiable indefinite-lived intangible assets which are tested for impairment annually and when a triggering event occurs.

As of March 31, 2013, assets carried on the balance sheet and not remeasured to fair value on a recurring basis totaling approximately $626.7 million were identified as Level 3. These assets are comprised of cost and equity method investments of $55.1 million, goodwill of $297.6 million and identifiable intangible assets of $274.0 million. During the three months ended March 31, 2013, there were no changes in the valuation techniques used to determine the fair values of the Company’s assets not remeasured on a recurring basis.

The Company has unfunded cash commitments totaling approximately $45.1 million related to its cost and equity method investments as of March 31, 2013.

Other

The estimated fair value of the Company’s long-term debt was $2.5 billion at March 31, 2013 and December 31, 2012 compared to carrying amounts aggregating $2.4 billion at each of these periods. The estimates of fair value are primarily based on rates in which the debt is traded among banks.

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Below is a summary of noncontrolling interests (in thousands):

In February 2013, the Company’s Board of Directors approved a restructuring plan of up to $15.0 million to migrate the delivery of services, primarily in the Product Development segment, and to reduce anticipated overcapacity in selected areas, primarily in the Integrated Healthcare Services segment. These actions are expected to occur throughout 2013 and are expected to result in severance for approximately 400 positions. The Company recognized approximately $2.0 million of total restructuring costs related to this plan during the three months ended March 31, 2013. All of the restructuring costs are related to severance costs, with approximately $788,000 and $1.1 million related to activities in the Product Development segment and the Integrated Healthcare Services segment, respectively. The remaining charge of approximately $97,000 is related to corporate activities. Restructuring costs are not allocated to the Company’s reportable segments as they are not part of the segment performance measures regularly reviewed by management.

As of March 31, 2013, the following amounts were recorded for the restructuring plans (in thousands):

The following table summarizes the components of pension expense related to the Company’s defined benefit plans (in thousands):

The Company conducts business globally and, as a result, files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The following table summarizes the tax years that remain open for examination by tax authorities in the most significant jurisdictions in which the Company operates:

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In certain of the jurisdictions noted above, the Company operates through more than one legal entity, each of which has different open years subject to examination. The table above presents the open years subject to examination for the most material of the legal entities in each jurisdiction. Additionally, it is important to note that tax years are technically not closed until the statute of limitations in each jurisdiction expires. In the jurisdictions noted above, the statute of limitations can extend beyond the open years subject to examination.

Due to the geographic breadth of the Company’s operations, numerous tax audits may be ongoing throughout the world at any point in time. Income tax liabilities are recorded based on estimates of additional income taxes which will be due upon the conclusion of these audits. Estimates of these income tax liabilities are made based upon prior experience and are updated in light of changes in facts and circumstances. However, due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of audits may result in liabilities which could be materially different from these estimates. In such an event, the Company will record additional income tax expense or income tax benefit in the period in which such resolution occurs.

Below is a summary of the components of accumulated other comprehensive income (in thousands):

The following table presents the Company’s operations by reportable segment. The Company is managed through two reportable segments, Product Development and Integrated Healthcare Services. Product Development, which primarily serves biopharmaceutical customers engaged in research and development, provides clinical research and clinical trial services. Integrated Healthcare Services provides commercialization services to biopharmaceutical customers and research, analytics, outcomes research consulting, and other services to both biopharmaceutical customers and the broader healthcare market.

Certain costs are not allocated to the Company’s segments and are reported as general corporate and unallocated expenses. These costs primarily consist of share-based compensation and expenses for corporate overhead functions such as finance, human resources, information technology, facilities and legal. The Company does not allocate restructuring or impairment charges to its segments. Information presented below is in thousands:

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Anti-dilutive weighted-average outstanding stock options of approximately 1.6 million and 2.2 million were not included in the diluted earnings per share calculations for the three months ended March 31, 2013 and 2012, respectively, because their inclusion would have the effect of increasing the earnings per share. Stock options will have a dilutive effect under the treasury method only when the respective period’s average market value of the Company’s common stock exceeds the exercise proceeds.

On May 8, 2013, the Company’s registration statement on Form S-1, filed with the SEC under the Securities Act on February 15, 2013, as amended, and the Company’s registration statement on Form 8-A, filed with the SEC under the Exchange Act on May 2, 2013, each in connection with the Company’s expected initial public offering (“IPO”), became effective. In addition, the Company increased the number of shares of its common stock authorized for issuance to 300 million from 150 million on May 8, 2013. Also on May 8, 2013, the Company’s Board and shareholders adopted a new equity incentive plan, the 2013 Stock Incentive Plan, pursuant to which a total of 11 million shares of common stock were reserved for issuance. Effective immediately following the pricing of the Company’s IPO, the Company granted options to purchase 2,025,500 shares and 152,600 cash-settled stock appreciation rights under the 2013 Stock Incentive Plan. On May 9, 2013, the Company filed the Prospectus. Also on May 9, 2013, the Company’s common stock began trading on the New York Stock Exchange, LLC.

The Company expects to complete its IPO of 23,684,210 shares of the Company’s common stock at an initial offering price of $40.00 per share on May 14, 2013. The Company expects its IPO will consist of 13,125,000 shares to be issued by the Company and 10,559,210 shares to be sold by selling shareholders. In addition, the selling shareholders have granted the underwriters a 30-day option to purchase up to an additional 3,552,631 shares of common stock. The Company will not receive any proceeds from the sale of shares by the selling shareholders. The Company anticipates its IPO to result in net proceeds of approximately $489.8 million after deducting underwriting discounts and offering expenses.

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Cautionary Statement for Forward-Looking Information

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and the notes thereto included in our prospectus filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended, with the Securities and Exchange Commission on May 9, 2013, or the Prospectus.

In addition to historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect, among other things, our current expectations and anticipated results of operations, all of which are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, market trends, or industry results to differ materially from those expressed or implied by such forward-looking statements. Therefore, any statements contained herein that are not statements of historical fact may be forward-looking statements and should be evaluated as such. Without limiting the foregoing, the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “should,” “targets,” “will” and the negative thereof and similar words and expressions are intended to identify forward-looking statements. Unless legally required, we assume no obligation to update any such forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information.

We caution you that any such forward-looking statements are further qualified by important factors that could cause our actual operating results to differ materially from those in the forward-looking statements, including without limitation, that most of our contracts may be terminated on short notice, and we may be unable to maintain large customer contracts or to enter into new contracts; the historical indications of the relationship of our backlog to revenues may not be indicative of their future relationship; the market for our services may not grow as we expect; we may underprice our contracts or overrun our cost estimates, and if we are unable to achieve operating efficiencies or grow our revenues faster than our expenses, our operating margins will be adversely affected; we may be unable to maintain our information systems or effectively update them; customer or therapeutic concentration could harm our business; our business is subject to risks associated with international operations, including economic, political and other risks, such as compliance with a myriad of foreign laws and regulations, complications from conducting clinical trials in multiple countries simultaneously and changes in exchange rates; government regulators or our customers may limit the scope of prescription or withdraw products from the market, and government regulators may impose new regulatory requirements or may adopt new regulations affecting the biopharmaceutical industry; we may be unable to successfully develop and market new services or enter new markets; our failure to perform services in accordance with contractual requirements, regulatory standards and ethical considerations may subject us to significant costs or liability, which could also damage our reputation and cause us to lose existing business or not receive new business; our services are related to treatment of human patients, and we could face liability if a patient is harmed; and we have substantial indebtedness and may incur additional indebtedness in the future, which could adversely affect our financial condition. For a further discussion of the risks relating to our business, see “Risk Factors” in the Prospectus.

Overview

We are the world’s largest provider of biopharmaceutical development services and commercial outsourcing services. We are positioned at the intersection of business services and healthcare and generated $927.4 million of service revenues in the first quarter of 2013, conduct business in approximately 100 countries and have approximately 27,000 employees. We use the breadth and depth of our service offerings, our global footprint and our therapeutic, scientific and analytics expertise to help our biopharmaceutical customers, as well as other healthcare customers, navigate the increasingly complex healthcare environment to improve efficiency and to deliver better healthcare outcomes. Our business is currently organized in two reportable segments, Product Development and Integrated Healthcare Services.

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Product Development

Product Development provides services and expertise that allow biopharmaceutical companies to outsource the clinical development process from first in man trials to post-launch monitoring. Our comprehensive service offering provides the support and functional expertise necessary at each stage of development, as well as the systems and analytical capabilities to help our customers improve product development efficiency and effectiveness. Product Development is comprised of clinical solutions and services and consulting. Clinical solutions and services provides services necessary to develop biopharmaceutical products. These services include project management and clinical monitoring functions for conducting multi-site trials (generally Phase II-IV) (collectively “core clinical”). These also include clinical trial support services that improve clinical trial decision-making, such as global laboratories, data management, biostatistical, safety and pharmacovigilance, and early clinical development trials, and strategic planning and design services, which help improve decisions and performance. Consulting provides strategy and management consulting services based on life science expertise and advanced analytics, as well as regulatory and compliance consulting services.

Integrated Healthcare Services

Integrated Healthcare Services provides commercial capabilities with a broad geographic presence to the healthcare industry. Our customized commercialization services are designed to accelerate the commercial success of biopharmaceutical and other health-related products. Integrated Healthcare Services provides a broad array of services including commercial services, such as providing contract pharmaceutical sales forces in key geographic markets, as well as a growing number of healthcare business services for the broader healthcare sector. Service offerings include commercial services (sales representatives, strategy, marketing communications and other areas related to commercialization), outcome research (drug therapy analysis, real-world research and evidence-based medicine, including research studies to prove a drug’s value) and payer and provider services (comparative and cost-effectiveness research capabilities, clinical management analytics, decision support services, medication adherence and health outcome optimization services, and web-based systems for measuring quality improvement).

Foreign Currency Fluctuations

The impact from foreign currency fluctuations and constant currency information assumes constant foreign currency exchange rates based on the rates in effect for the comparable prior-year period were used in translation. We believe that providing the impact of fluctuations in foreign currency rates on certain financial results can facilitate analysis of period-to-period comparisons of business performance.

Results of Operations

Backlog

We began 2013 with backlog in place at the beginning of the year of $8.7 billion, which was 9% higher as compared to the beginning of 2012. Net new business grew 18% in the first three months of 2013 to $1.2 billion from $1.0 billion in the first three months of 2012, which was driven by growth in Product Development. Backlog represents the value of awards as of a particular date, and net new business represents the value (adjusted for modified or canceled contracts during the period) of awards received during a particular period, in each case for services to be performed in the future that are evidenced by signed contracts, letters of intent and, in some cases, pre-contract commitments that were supported by written communications. Product Development’s net new business increased 27% to $1.1 billion for the first three months in 2013 as compared to $846.6 million for the same period in 2012, led by increases in core clinical in Europe and Latin America and increases in our clinical functional resourcing and global laboratory service offerings, partially offset by lower net new business in Asia-Pacific. Net new business growth in our core clinical service offerings in Europe and Latin America resulted from overall growth in those markets. Net new business growth in clinical functional resourcing was primarily due to contract extensions on existing projects. Net new business growth in global laboratories resulted primarily from our ability to leverage our expanding breadth of service offerings due in part to acquisitions made in 2012 and 2011. The decline in net new business in the Asia-Pacific was a result of the competitive market and higher cancellations and contract modifications. Integrated Healthcare Services’ net new business was $170.4 million for the first three months of 2013 compared to $205.1 million for the same period in 2012. This decline was primarily market driven and concentrated in Japan and North America, and was partially offset by an increase in Europe resulting from the signing of a multi-year contract in Spain, and an agreement to distribute pharmaceutical products in Italy which began in the second quarter of 2012.

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Our backlog at March 31, 2013 was $9.0 billion compared to backlog of $8.7 billion at December 31, 2012. Although an increase in backlog will generally result in an increase in revenues to be recognized over time (depending on the level of cancellations), an increase in backlog at a particular point in time does not necessarily correspond directly to an increase in revenues during a particular period. The extent to which contracts in backlog will result in revenue depends on many factors, including but not limited to delivery against projected schedules, the need for scope changes (change orders), contract cancellations and the nature, duration, size, complexity and phase of the contracts, each of which factors can vary significantly from time to time. Our ability to continue to grow revenues in the near term at rates comparable to our recent historical results will depend on many factors, including but not limited to the factors affecting the rate at which revenues are derived from backlog, continued growth in net new business that will generate revenue and factors not within our control such as economic conditions and trends in the industry in which we do business.

Revenues

Overall, our service revenues increased $39.4 million, or 4.4%, for the first three months of 2013 as compared to the same period in 2012. This increase is comprised of constant currency revenue growth of approximately $50.3 million, or 5.7%, and $5.6 million, or 0.6%, from businesses acquired in the third quarter of 2012, partially offset by a negative impact of approximately $16.5 million from the effects of foreign currency fluctuations. The constant currency revenue growth resulted from a $51.0 million increase in Product Development partially offset by a slight decrease of $712,000 in Integrated Healthcare Services. The increase in revenue in Product Development was primarily related to delivery on greater backlog coverage in place as we entered the year and the growth in net new business during the first three months of 2013, as described above under “—Backlog.”

Costs of Revenues