IQVIA HOLDINGS INC. - Quarter Report: 2020 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________
FORM 10-Q
_________________________________________________________
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended September 30, 2020
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the transition period from to .
Commission File Number: 001-35907
_________________________________________________________
IQVIA HOLDINGS INC.
(Exact name of registrant as specified in its charter)
_________________________________________________________
| Delaware | 27-1341991 | |||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||
4820 Emperor Blvd., Durham, North Carolina 27703
and
83 Wooster Heights Road, Danbury, Connecticut 06810
(Address of principal executive offices and Zip Code)
(919) 998-2000 and (203) 448-4600
(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 x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | x | Accelerated filer | ☐ | ||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||
Emerging growth company | ☐ | ||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol | Name of Each Exchange on which Registered | ||||||||||||
Common Stock, par value $0.01 per share | IQV | New York Stock Exchange | ||||||||||||
Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.
Class | Number of Shares Outstanding | |||||||||||||
| Common Stock $0.01 par value | 191,725,778 | shares outstanding | as of October 16, 2020 | |||||||||||
IQVIA HOLDINGS INC.
FORM 10-Q
TABLE OF CONTENTS
Page | ||||||||
2
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
IQVIA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
(in millions, except per share data) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
| Revenues | $ | 2,786 | $ | 2,769 | $ | 8,061 | $ | 8,193 | ||||||||||||||||||
| Costs of revenue, exclusive of depreciation and amortization | 1,800 | 1,852 | 5,328 | 5,399 | ||||||||||||||||||||||
| Selling, general and administrative expenses | 460 | 395 | 1,298 | 1,250 | ||||||||||||||||||||||
| Depreciation and amortization | 319 | 299 | 943 | 888 | ||||||||||||||||||||||
| Restructuring costs | 20 | 19 | 50 | 45 | ||||||||||||||||||||||
| Income from operations | 187 | 204 | 442 | 611 | ||||||||||||||||||||||
| Interest income | (1) | (3) | (4) | (7) | ||||||||||||||||||||||
| Interest expense | 100 | 114 | 314 | 338 | ||||||||||||||||||||||
| Loss on extinguishment of debt | — | 24 | 12 | 24 | ||||||||||||||||||||||
| Other income, net | (14) | — | (59) | — | ||||||||||||||||||||||
| Income before income taxes and equity in earnings of unconsolidated affiliates | 102 | 69 | 179 | 256 | ||||||||||||||||||||||
| Income tax (benefit) expense | (3) | (1) | 9 | 48 | ||||||||||||||||||||||
| Income before equity in earnings of unconsolidated affiliates | 105 | 70 | 170 | 208 | ||||||||||||||||||||||
| Equity in earnings (loss) of unconsolidated affiliates | 3 | (1) | 8 | (1) | ||||||||||||||||||||||
| Net income | 108 | 69 | 178 | 207 | ||||||||||||||||||||||
| Net income attributable to non-controlling interests | (7) | (12) | (18) | (32) | ||||||||||||||||||||||
| Net income attributable to IQVIA Holdings Inc. | $ | 101 | $ | 57 | $ | 160 | $ | 175 | ||||||||||||||||||
| Earnings per share attributable to common stockholders: | ||||||||||||||||||||||||||
| Basic | $ | 0.53 | $ | 0.29 | $ | 0.84 | $ | 0.89 | ||||||||||||||||||
| Diluted | $ | 0.52 | $ | 0.29 | $ | 0.82 | $ | 0.87 | ||||||||||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||||||||||||
| Basic | 191.3 | 194.5 | 191.3 | 195.9 | ||||||||||||||||||||||
| Diluted | 194.9 | 199.0 | 194.9 | 200.5 | ||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
IQVIA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
| Net income | $ | 108 | $ | 69 | $ | 178 | $ | 207 | ||||||||||||||||||
Comprehensive income (loss) adjustments: | ||||||||||||||||||||||||||
Unrealized (losses) gains on derivative instruments, net of income tax (benefit) expense of $(8), $(2), $(11), $(7) | (1) | (5) | (33) | (23) | ||||||||||||||||||||||
Foreign currency translation, net of income tax expense (benefit) of $(54), $57, $(83), $65 | 130 | (162) | 20 | (131) | ||||||||||||||||||||||
Reclassification adjustments: | ||||||||||||||||||||||||||
Losses (gains) on derivative instruments included in net income, net of income tax expense (benefit) of $1, $—, $2, $(1) | 2 | 2 | 6 | (2) | ||||||||||||||||||||||
Comprehensive income (loss) | 239 | (96) | 171 | 51 | ||||||||||||||||||||||
Comprehensive income attributable to non-controlling interests | (11) | (9) | (17) | (29) | ||||||||||||||||||||||
Comprehensive income (loss) attributable to IQVIA Holdings Inc. | $ | 228 | $ | (105) | $ | 154 | $ | 22 | ||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
IQVIA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
| (in millions, except per share data) | September 30, 2020 | December 31, 2019 | ||||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | 1,464 | $ | 837 | ||||||||||
| Trade accounts receivable and unbilled services, net | 2,414 | 2,582 | ||||||||||||
| Prepaid expenses | 165 | 138 | ||||||||||||
| Income taxes receivable | 78 | 56 | ||||||||||||
| Investments in debt, equity and other securities | 79 | 62 | ||||||||||||
| Other current assets and receivables | 445 | 451 | ||||||||||||
| Total current assets | 4,645 | 4,126 | ||||||||||||
| Property and equipment, net | 452 | 458 | ||||||||||||
| Operating lease right-of-use assets | 490 | 496 | ||||||||||||
| Investments in debt, equity and other securities | 78 | 65 | ||||||||||||
| Investments in unconsolidated affiliates | 85 | 87 | ||||||||||||
| Goodwill | 12,363 | 12,159 | ||||||||||||
| Other identifiable intangibles, net | 5,222 | 5,514 | ||||||||||||
| Deferred income taxes | 125 | 119 | ||||||||||||
| Deposits and other assets | 377 | 227 | ||||||||||||
| Total assets | $ | 23,837 | $ | 23,251 | ||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable and accrued expenses | $ | 2,461 | $ | 2,512 | ||||||||||
| Unearned income | 1,188 | 1,014 | ||||||||||||
| Income taxes payable | 101 | 108 | ||||||||||||
| Current portion of long-term debt | 144 | 100 | ||||||||||||
| Other current liabilities | 245 | 211 | ||||||||||||
| Total current liabilities | 4,139 | 3,945 | ||||||||||||
| Long-term debt | 12,195 | 11,545 | ||||||||||||
| Deferred income taxes | 429 | 646 | ||||||||||||
| Operating lease liabilities | 387 | 396 | ||||||||||||
| Other liabilities | 580 | 456 | ||||||||||||
| Total liabilities | 17,730 | 16,988 | ||||||||||||
| Commitments and contingencies | ||||||||||||||
| Stockholders’ equity: | ||||||||||||||
Common stock and additional paid-in capital, 400.0 shares authorized at September 30, 2020 and December 31, 2019, $0.01 par value, 254.5 shares issued and 191.7 shares outstanding at September 30, 2020; 253.0 shares issued and 192.3 shares outstanding at December 31, 2019 | 11,070 | 11,049 | ||||||||||||
| Retained earnings | 1,158 | 998 | ||||||||||||
Treasury stock, at cost, 62.8 and 60.7 shares at September 30, 2020 and December 31, 2019, respectively | (6,065) | (5,733) | ||||||||||||
| Accumulated other comprehensive loss | (317) | (311) | ||||||||||||
| Equity attributable to IQVIA Holdings Inc.’s stockholders | 5,846 | 6,003 | ||||||||||||
| Non-controlling interests | 261 | 260 | ||||||||||||
| Total stockholders’ equity | 6,107 | 6,263 | ||||||||||||
| Total liabilities and stockholders’ equity | $ | 23,837 | $ | 23,251 | ||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
IQVIA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Nine Months Ended September 30, | ||||||||||||||
(in millions) | 2020 | 2019 | ||||||||||||
Operating activities: | ||||||||||||||
Net income | $ | 178 | $ | 207 | ||||||||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||||||||
Depreciation and amortization | 943 | 888 | ||||||||||||
Amortization of debt issuance costs and discount | 13 | 10 | ||||||||||||
Stock-based compensation | 69 | 87 | ||||||||||||
| (Earnings) loss from unconsolidated affiliates | (8) | 1 | ||||||||||||
| Gain on investments, net | (17) | — | ||||||||||||
Benefit from deferred income taxes | (160) | (154) | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||
Change in accounts receivable, unbilled services and unearned income | 328 | (167) | ||||||||||||
Change in other operating assets and liabilities | (137) | (38) | ||||||||||||
Net cash provided by operating activities | 1,209 | 834 | ||||||||||||
Investing activities: | ||||||||||||||
Acquisition of property, equipment and software | (440) | (445) | ||||||||||||
Acquisition of businesses, net of cash acquired | (118) | (461) | ||||||||||||
Purchases of marketable securities, net | (8) | (2) | ||||||||||||
Investments in unconsolidated affiliates, net of payments received | 8 | 3 | ||||||||||||
Investments in equity securities | (2) | (10) | ||||||||||||
Other | — | 5 | ||||||||||||
Net cash used in investing activities | (560) | (910) | ||||||||||||
Financing activities: | ||||||||||||||
Proceeds from issuance of debt | 1,591 | 1,900 | ||||||||||||
Payment of debt issuance costs | (33) | (47) | ||||||||||||
Repayment of debt and principal payments on capital lease obligations | (792) | (875) | ||||||||||||
Proceeds from revolving credit facility | 1,250 | 1,710 | ||||||||||||
Repayment of revolving credit facility | (1,610) | (1,930) | ||||||||||||
| (Payments) proceeds related to employee stock option plans | (43) | 15 | ||||||||||||
Repurchase of common stock | (346) | (679) | ||||||||||||
| Distributions to non-controlling interests, net | (16) | (6) | ||||||||||||
Contingent consideration and deferred purchase price payments | (20) | (21) | ||||||||||||
| Net cash (used in) provided by financing activities | (19) | 67 | ||||||||||||
Effect of foreign currency exchange rate changes on cash | (3) | (19) | ||||||||||||
| Increase (decrease) in cash and cash equivalents | 627 | (28) | ||||||||||||
Cash and cash equivalents at beginning of period | 837 | 891 | ||||||||||||
Cash and cash equivalents at end of period | $ | 1,464 | $ | 863 | ||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
IQVIA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
| (in millions) | Common Stock Shares | Treasury Stock Shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive (Loss) Income | Non- controlling Interests | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | 253.0 | (60.7) | $ | 3 | $ | 11,046 | $ | 998 | $ | (5,733) | $ | (311) | $ | 260 | $ | 6,263 | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | 0.8 | — | — | (44) | — | — | — | — | (44) | |||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | (2.1) | — | — | — | (332) | — | — | (332) | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | 7 | — | — | — | — | 7 | |||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interests, net | — | — | — | — | — | — | — | (5) | (5) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 82 | — | — | 9 | 91 | |||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized losses on derivative instruments, net of tax | — | — | — | — | — | — | (39) | — | (39) | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation, net of tax | — | — | — | — | — | — | (151) | (4) | (155) | |||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification adjustments, net of tax | — | — | — | — | — | — | 16 | — | 16 | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2020 | 253.8 | (62.8) | 3 | 11,009 | 1,080 | (6,065) | (485) | 260 | 5,802 | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | 0.3 | — | — | 1 | — | — | — | — | 1 | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | 30 | — | — | — | — | 30 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net (loss) income | — | — | — | — | (23) | — | — | 2 | (21) | |||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized losses on derivative instruments, net of tax | — | — | — | — | — | — | 7 | — | 7 | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation, net of tax | — | — | — | — | — | — | 46 | (1) | 45 | |||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification adjustments, net of tax | — | — | — | — | — | — | (12) | — | (12) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2020 | 254.1 | (62.8) | $ | 3 | $ | 11,040 | $ | 1,057 | $ | (6,065) | $ | (444) | $ | 261 | $ | 5,852 | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | 0.4 | — | — | (3) | — | — | — | — | (3) | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | 30 | — | — | — | — | 30 | |||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interests, net | — | — | — | — | — | — | — | (11) | (11) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 101 | — | — | 7 | 108 | |||||||||||||||||||||||||||||||||||||||||||||||
Unrealized losses on derivative instruments, net of tax | — | — | — | — | — | — | (1) | — | (1) | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation, net of tax | — | — | — | — | — | — | 126 | 4 | 130 | |||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification adjustments, net of tax | — | — | — | — | — | — | 2 | — | 2 | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2020 | $ | 254.5 | $ | (62.8) | $ | 3 | $ | 11,067 | $ | 1,158 | $ | (6,065) | $ | (317) | $ | 261 | $ | 6,107 | ||||||||||||||||||||||||||||||||||||||
7
IQVIA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
(in millions) | Common Stock Shares | Treasury Stock Shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Non- controlling Interests | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2018 | 251.5 | (54) | $ | 3 | $ | 10,898 | $ | 807 | $ | (4,770) | $ | (224) | $ | 240 | $ | 6,954 | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | 0.7 | — | — | 5 | — | — | — | — | 5 | |||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | (1) | — | — | — | (145) | — | — | (145) | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | 21 | — | — | — | — | 21 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 58 | — | — | 9 | 67 | |||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized losses on derivative instruments, net of tax | — | — | — | — | — | — | (5) | — | (5) | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation, net of tax | — | — | — | — | — | — | (32) | 1 | (31) | |||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification adjustments, net of tax | — | — | — | — | — | — | (1) | — | (1) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2019 | 252.2 | (55.0) | $ | 3 | $ | 10,924 | $ | 865 | $ | (4,915) | $ | (262) | $ | 250 | $ | 6,865 | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | 0.4 | — | — | 8 | — | — | — | — | 8 | |||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | (1.8) | — | — | — | (236) | — | — | (236) | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | 29 | — | — | — | — | 29 | |||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interests | — | — | — | — | — | — | — | (2) | (2) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 60 | — | — | 11 | 71 | |||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized losses on derivative instruments, net of tax | — | — | — | — | — | — | (13) | — | (13) | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation, net of tax | — | — | — | — | — | — | 63 | (1) | 62 | |||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification adjustments, net of tax | — | — | — | — | — | — | (3) | — | (3) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2019 | 252.6 | (56.8) | $ | 3 | $ | 10,961 | $ | 925 | $ | (5,151) | $ | (215) | $ | 258 | $ | 6,781 | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | 0.2 | — | — | (4) | — | — | — | — | (4) | |||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | (2) | — | — | — | (313) | — | — | (313) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, Stock-based compensation | — | — | — | 30 | — | — | — | — | 30 | |||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interests | — | — | — | — | — | — | — | (4) | (4) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 57 | — | — | 12 | 69 | |||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized losses on derivative instruments, net of tax | — | — | — | — | — | — | (5) | — | (5) | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation, net of tax | — | — | — | — | — | — | (159) | (3) | (162) | |||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification adjustments, net of tax | — | — | — | — | — | — | 2 | — | 2 | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2019 | 252.8 | (58.8) | 3 | 10,987 | 982 | (5,464) | (377) | 263 | 6,394 | |||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
IQVIA HOLDINGS INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Summary of Significant Accounting Policies
The Company
IQVIA Holdings Inc. (together with its subsidiaries, the “Company” or “IQVIA”) is a leading global provider of advanced analytics, technology solutions and clinical research services to the life sciences industry. With approximately 68,000 employees, IQVIA conducts business in more than 100 countries.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated financial statements of the Company 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 periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2019. The balance sheet at December 31, 2019 has been derived from the audited consolidated financial statements of the Company but does not include all the disclosures required by GAAP.
Additionally, the outbreak of the novel coronavirus, or COVID-19, and the various governmental, industry and consumer actions related thereto, could have a material and adverse effect on our business, financial condition and results of operations. These effects, which largely depend on future developments that cannot be accurately predicted and are uncertain, could include a negative impact on the availability of our key personnel, temporary closures of our facilities or the facilities of our business partners, customers, suppliers, third party service providers or other vendors, an increased risk of customer defaults or delays in payments or purchasing decisions, and the interruption of domestic and global supply chains, distribution channels, liquidity and capital or financial markets. As COVID-19 continues to spread, we have and may continue to experience disruptions that could severely impact our business. As such, the results for the three and nine months ended September 30, 2020 may not be indicative of results for the full year.
Recently Issued Accounting Standards
Accounting pronouncements adopted
In August 2018, the FASB issued new accounting guidance that clarifies and aligns the accounting for implementation costs for hosting arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted this new accounting guidance on January 1, 2020. The adoption of this new accounting guidance did not have a material effect on the Company’s consolidated financial statements.
In August 2018, the FASB issued new accounting guidance that modifies the disclosure requirements in Topic 820, Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This new accounting guidance also modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The Company adopted this new accounting guidance on January 1, 2020. The adoption of this new accounting guidance did not have a material effect on the Company’s consolidated financial statements.
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In January 2017, the FASB issued new accounting guidance that simplifies the measurement of goodwill by eliminating the step two impairment test. Step two measures a goodwill impairment loss by comparing the implied fair value of goodwill with the carrying amount of that goodwill. The new guidance requires a comparison of the Company’s fair value of a reporting unit with the carrying amount and the Company is required to recognize an impairment charge for the amount by which the carrying amount exceeds the fair value. The Company adopted this new accounting guidance on January 1, 2020. The adoption of this new accounting guidance did not have a material effect on the Company’s consolidated financial statements.
In June 2016, the FASB issued a new accounting standard intended to provide financial statement users with more decision-useful information about expected credit losses and other commitments to extend credit held by the reporting entity. The standard replaces the incurred loss impairment methodology in current GAAP with one that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company adopted this new accounting guidance on January 1, 2020. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements. This is based on factors including the Company's assessment of historical losses, client's creditworthiness and the fact that the Company's trade receivables are short term in duration.
Accounting pronouncements being evaluated
In March 2020, the FASB issued new accounting guidance that provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected to be discontinued. The new accounting guidance is effective for the Company as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of this new accounting guidance on its credit arrangements and derivatives that reference LIBOR. The Company does not expect the new accounting guidance to have a material effect on the Company’s consolidated financial statements.
In January 2020, the FASB issued new accounting guidance that states any equity security transitioning from the alternative method of accounting to the equity method, or vice versa, due to an observable transaction, will be remeasured immediately before the transition. In addition, the new accounting guidance clarifies the accounting for certain non-derivative forward contracts or purchased call options to acquire equity securities stating such instruments will be measured using the fair value principles before settlement or exercise. The new accounting guidance will be effective for the Company on January 1, 2021 on a prospective basis. Early adoption is permitted. The Company is currently evaluating the impact of this new accounting guidance on its consolidated financial statements.
In December 2019, the FASB issued new accounting guidance to clarify and simplify the accounting for income taxes. Changes under the new guidance includes eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new accounting guidance will be effective for the Company on January 1, 2021. Early adoption is permitted. The Company is currently evaluating the impact of this new accounting guidance on its consolidated financial statements.
2. Revenues by Geography, Concentration of Credit Risk and Remaining Performance Obligations
The following tables represent revenues by geographic region and reportable segment for the three and nine months ended September 30, 2020 and 2019:
| Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||
(in millions) | Technology & Analytics Solutions | Research & Development Solutions | Contract Sales & Medical Solutions | Total | ||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||
Americas | $ | 599 | $ | 628 | $ | 76 | $ | 1,303 | ||||||||||||||||||
Europe and Africa | 457 | 411 | 44 | 912 | ||||||||||||||||||||||
Asia-Pacific | 151 | 361 | 59 | 571 | ||||||||||||||||||||||
Total revenues | $ | 1,207 | $ | 1,400 | $ | 179 | $ | 2,786 | ||||||||||||||||||
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| Three Months Ended September 30, 2019 | ||||||||||||||||||||||||||
(in millions) | Technology & Analytics Solutions | Research & Development Solutions | Contract Sales & Medical Solutions | Total | ||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||
Americas | $ | 580 | $ | 726 | $ | 104 | $ | 1,410 | ||||||||||||||||||
Europe and Africa | 369 | 394 | 48 | 811 | ||||||||||||||||||||||
Asia-Pacific | 146 | 346 | 56 | 548 | ||||||||||||||||||||||
Total revenues | $ | 1,095 | $ | 1,466 | $ | 208 | $ | 2,769 | ||||||||||||||||||
| Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||
| (in millions) | Technology & Analytics Solutions | Research & Development Solutions | Contract Sales & Medical Solutions | Total | ||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||
| Americas | $ | 1,747 | $ | 1,826 | $ | 247 | $ | 3,820 | ||||||||||||||||||
| Europe and Africa | 1,254 | 1,214 | 134 | 2,602 | ||||||||||||||||||||||
| Asia-Pacific | 432 | 1,036 | 171 | 1,639 | ||||||||||||||||||||||
| Total revenues | $ | 3,433 | $ | 4,076 | $ | 552 | $ | 8,061 | ||||||||||||||||||
| Nine Months Ended September 30, 2019 | ||||||||||||||||||||||||||
| (in millions) | Technology & Analytics Solutions | Research & Development Solutions | Contract Sales & Medical Solutions | Total | ||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||
| Americas | $ | 1,722 | $ | 2,009 | $ | 298 | $ | 4,029 | ||||||||||||||||||
| Europe and Africa | 1,128 | 1,298 | 148 | 2,574 | ||||||||||||||||||||||
| Asia-Pacific | 422 | 1,010 | 158 | 1,590 | ||||||||||||||||||||||
| Total revenues | $ | 3,272 | $ | 4,317 | $ | 604 | $ | 8,193 | ||||||||||||||||||
No customer accounted for 10% or more of consolidated revenues for the three and nine months ended September 30, 2020 or 2019.
Transaction Price Allocated to the Remaining Performance Obligations
As of September 30, 2020, approximately $23.6 billion of revenue is expected to be recognized in the future from remaining performance obligations. The Company expects to recognize revenue on approximately 30% of these remaining performance obligations over the next 12 months, with the balance recognized thereafter. The customer contract transaction price allocated to the remaining performance obligations differs from backlog in that it does not include wholly unperformed contracts under which the customer has a unilateral right to cancel the arrangement.
3. Trade Accounts Receivable, Unbilled Services and Unearned Income
Trade accounts receivables and unbilled services consist of the following:
(in millions) | September 30, 2020 | December 31, 2019 | ||||||||||||
Trade accounts receivable: | ||||||||||||||
Billed | $ | 1,152 | $ | 1,312 | ||||||||||
Unbilled services | 1,292 | 1,286 | ||||||||||||
Trade accounts receivable and unbilled services | 2,444 | 2,598 | ||||||||||||
Allowance for doubtful accounts | (30) | (16) | ||||||||||||
Trade accounts receivable and unbilled services, net | $ | 2,414 | $ | 2,582 | ||||||||||
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Unbilled services and unearned income were as follows:
| (in millions) | September 30, 2020 | December 31, 2019 | Change | |||||||||||||||||
Unbilled services | $ | 1,292 | $ | 1,286 | $ | 6 | ||||||||||||||
Unearned income | (1,188) | (1,014) | (174) | |||||||||||||||||
Net balance | $ | 104 | $ | 272 | $ | (168) | ||||||||||||||
Unbilled services, which is comprised of approximately 60% of unbilled receivables and 40% of contract assets as of September 30, 2020, increased by $6 million as compared to December 31, 2019. Contract assets are unbilled services for which invoicing is based on the timing of certain milestones related to service contracts for clinical research whereas unbilled receivables are billable upon the passage of time. Unearned income increased by $174 million over the same period resulting in a decrease of $168 million in the net balance of unbilled services and unearned income between December 31, 2019 and September 30, 2020. The change in the net balance is driven by the difference in timing of revenue recognition in accordance with ASC 606, Revenue from Contracts with Customers, related to the Company’s Research & Development Solutions contracts (which is based on the percentage of costs incurred) versus the timing of invoicing, which is based on certain milestones.
Bad debt expense recognized on the Company’s receivables and unbilled services was not material for the three and nine months ended September 30, 2020 and 2019.
4. Leases
The Company has operating leases for corporate offices, datacenters, motor vehicles and certain equipment, many of which contain renewal and escalation clauses. These operating leases expire at various dates through 2029 with options to cancel certain leases at various intervals. The Company also has finance leases for office and lab spaces that expire in 2044. Based on the timing of payments on the finance leases the cash flow impact is not material for the three and nine months ended September 30, 2020. In determining the lease term at lease commencement, the Company includes the noncancellable term and the periods which the Company deems it is reasonably certain to exercise or not to exercise a renewal or cancellation option.
The components of lease expense were as follows:
| (in millions) | Classification | Three Months Ended September 30, 2020 | Three Months Ended September 30, 2019 | |||||||||||||||||
Operating lease cost (1) | Selling, general and administrative expenses | $ | 49 | $ | 48 | |||||||||||||||
Finance lease cost (1) | Depreciation and amortization, and Interest expense | 3 | — | |||||||||||||||||
| Total lease cost | $ | 52 | $ | 48 | ||||||||||||||||
| (in millions) | Classification | Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2019 | |||||||||||||||||
Operating lease cost (1) | Selling, general and administrative expenses | $ | 151 | $ | 143 | |||||||||||||||
Finance lease cost (1) | Depreciation and amortization, and Interest expense | 4 | — | |||||||||||||||||
| Total lease cost | $ | 155 | $ | 143 | ||||||||||||||||
(1)Includes variable lease costs, which are immaterial.
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Other information related to leases was as follows:
| (in millions) | Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2019 | ||||||||||||
| Supplemental Cash Flow: | ||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||
| Operating cash flows from operating leases | $ | 147 | $ | 147 | ||||||||||
| Right-of-use assets obtained in exchange for lease obligations: | ||||||||||||||
| Operating leases | $ | 92 | $ | 62 | ||||||||||
| Finance leases | $ | 119 | $ | — | ||||||||||
| Weighted Average Remaining Lease Term: | ||||||||||||||
| Operating leases | 4.65 years | 4.90 years | ||||||||||||
| Finance leases | 24.25 years | — | ||||||||||||
| Weighted Average Discount Rate: | ||||||||||||||
| Operating leases | 4.04 | % | 4.26 | % | ||||||||||
| Finance leases | 3.18 | % | — | |||||||||||
Future minimum lease payments under non-cancellable leases as of September 30, 2020 were as follows:
| (in millions) | Operating Leases | Finance Leases | ||||||||||||
| Remainder of 2020 | $ | 44 | $ | — | ||||||||||
| 2021 | 153 | — | ||||||||||||
| 2022 | 128 | 6 | ||||||||||||
| 2023 | 100 | 6 | ||||||||||||
| 2024 | 70 | 6 | ||||||||||||
| 2025 | 56 | 6 | ||||||||||||
| Thereafter | 44 | 159 | ||||||||||||
| Total future minimum lease payments | 595 | 183 | ||||||||||||
| Less imputed interest | (54) | (63) | ||||||||||||
| Total | $ | 541 | $ | 120 | ||||||||||
| Reported as of September 30, 2020: | ||||||||||||||
| Other current liabilities | $ | 154 | $ | — | ||||||||||
| Operating lease liabilities | 387 | — | ||||||||||||
| Other liabilities | — | 120 | ||||||||||||
| Total | $ | 541 | $ | 120 | ||||||||||
5. Goodwill
The following is a summary of goodwill by reportable segment for the nine months ended September 30, 2020:
(in millions) | Technology & Analytics Solutions | Research & Development Solutions | Contract Sales & Medical Solutions | Consolidated | ||||||||||||||||||||||
| Balance as of December 31, 2019 | $ | 10,374 | $ | 1,646 | $ | 139 | $ | 12,159 | ||||||||||||||||||
Business combinations | 84 | — | — | 84 | ||||||||||||||||||||||
Impact of foreign currency fluctuations and other | 155 | (39) | 4 | 120 | ||||||||||||||||||||||
| Balance as of September 30, 2020 | $ | 10,613 | $ | 1,607 | $ | 143 | $ | 12,363 | ||||||||||||||||||
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6. Derivatives
The fair values of the Company’s derivative instruments and the line items on the accompanying condensed consolidated balance sheets to which they were recorded are summarized in the following table:
(in millions) | Balance Sheet Classification | September 30, 2020 | December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||
Assets | Liabilities | Notional | Assets | Liabilities | Notional | |||||||||||||||||||||||||||||||||||||||
Derivatives designated as hedging instruments: | ||||||||||||||||||||||||||||||||||||||||||||
Foreign exchange forward contracts | Other current assets and liabilities | $ | 1 | $ | 1 | $ | 93 | $ | 4 | $ | — | $ | 148 | |||||||||||||||||||||||||||||||
Interest rate swaps | Other assets and liabilities | — | 59 | 1,800 | — | 27 | 875 | |||||||||||||||||||||||||||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||||||||||||||||||||||||||||
Interest rate swaps | Other liabilities | — | 1 | 340 | — | 3 | 325 | |||||||||||||||||||||||||||||||||||||
Total derivatives | $ | 1 | $ | 61 | $ | 4 | $ | 30 | ||||||||||||||||||||||||||||||||||||
The effect of the Company’s cash flow hedging instruments on other comprehensive income is summarized in the following table:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
(in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
Foreign exchange forward contracts | $ | 2 | $ | (1) | $ | (4) | $ | (5) | ||||||||||||||||||
Interest rate derivatives | 1 | (3) | (32) | (27) | ||||||||||||||||||||||
Total | $ | 3 | $ | (4) | $ | (36) | $ | (32) | ||||||||||||||||||
The amount of foreign exchange losses related to the net investment hedge included in the cumulative translation adjustment component of accumulated other comprehensive loss (“AOCI”) for the nine months ended September 30, 2020 was $273 million.
7. Fair Value Measurements
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:
•Level 1 — Quoted prices in active markets for identical assets or liabilities.
•Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
•Level 3 — Unobservable inputs that are supported by little or no market activity. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
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The carrying values of cash, cash equivalents, accounts receivable and accounts payable approximated their fair values at September 30, 2020 and December 31, 2019 due to their short-term nature. At September 30, 2020 and December 31, 2019, the fair value of total debt approximated $12,443 million and $11,925 million, respectively, as determined under Level 1 and Level 2 measurements for these financial instruments.
Recurring Fair Value Measurements
The following table summarizes the fair value of the Company’s financial assets and liabilities that are measured and reported at fair value on a recurring basis as of September 30, 2020:
| (in millions) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Marketable securities | 105 | $ | — | $ | — | $ | 105 | |||||||||||||||||||
| Derivatives | — | $ | 1 | — | 1 | |||||||||||||||||||||
| Total | $ | 105 | $ | 1 | $ | — | $ | 106 | ||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Derivatives | $ | — | $ | 61 | $ | — | $ | 61 | ||||||||||||||||||
| Contingent consideration | — | — | 108 | 108 | ||||||||||||||||||||||
| Total | $ | — | $ | 61 | $ | 108 | $ | 169 | ||||||||||||||||||
Below is a summary of the valuation techniques used in determining fair value:
Marketable securities — The Company values trading and available-for-sale securities using the quoted market value of the securities held.
Derivatives — Derivatives consist of foreign exchange contracts and interest rate swaps. The fair value of foreign exchange contracts is based on observable market inputs of spot and forward rates or using other observable inputs. The fair value of the interest rate swaps is the estimated amount that the Company would receive or pay to terminate such agreements, taking into account market interest rates and the remaining time to maturities or 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 calculation of potential payment scenarios discounted at rates reflective of the risks associated with the expected future cash flows. Key assumptions used to estimate the fair value of contingent consideration include various financial metrics (revenue performance targets and operating forecasts) and the probability of achieving the specific targets.
The following table summarizes the changes in Level 3 financial assets and liabilities measured on a recurring basis for the nine months ended September 30:
Contingent Consideration | ||||||||||||||
(in millions) | 2020 | 2019 | ||||||||||||
Balance as of January 1 | $ | 113 | $ | 123 | ||||||||||
Business combinations | 32 | 41 | ||||||||||||
Contingent consideration paid | (22) | (44) | ||||||||||||
Revaluations included in earnings and foreign currency translation adjustments | (15) | (7) | ||||||||||||
| Balance as of September 30 | $ | 108 | $ | 113 | ||||||||||
The Company used the following key assumptions when estimating the fair value of contingent considerations:
| Unobservable Input | Weighted average probability of target achievement | Range of potential payment | ||||||||||||
| Revenue target | 89% | 0%-100% | ||||||||||||
| EBITDA target | 96% | 0%-100% | ||||||||||||
| Operational target | 95% | 0%-100% | ||||||||||||
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The current portion of contingent consideration is included within accrued expenses and the long-term portion is included within other liabilities on the accompanying condensed consolidated balance sheets. Revaluations of the contingent consideration are recognized in other expense (income), net on the accompanying condensed consolidated statements of income. A change in significant unobservable inputs above could result in a significantly higher or lower fair value measurement of contingent consideration.
8. Credit Arrangements
The following is a summary of the Company’s revolving credit facilities at September 30, 2020:
Facility | Interest Rates | |||||||
$1,500 million (revolving credit facility) | LIBOR in the relevant currency borrowed plus a margin of 1.50% at September 30, 2020 | |||||||
$25 million (receivables financing facility) | LIBOR Market Index Rate (0.15% at September 30, 2020) plus 0.90% | |||||||
£10 million (approximately $13 million) (general banking facility) | Bank’s base rate of 0.10% at September 30, 2020 plus 1% | |||||||
The following table summarizes the Company’s debt at the dates indicated:
| (in millions) | September 30, 2020 | December 31, 2019 | ||||||||||||
| Senior Secured Credit Facilities: | ||||||||||||||
Term A Loan due 2023—U.S. Dollar LIBOR at average floating rates of 1.72% | $ | 739 | $ | 770 | ||||||||||
Term A Loan due 2023—U.S. Dollar LIBOR at average floating rates of 2.75% | 778 | — | ||||||||||||
Term A Loan due 2023—Euro LIBOR at average floating rates of 1.50% | 388 | 387 | ||||||||||||
Term B Loan due 2024—U.S. Dollar LIBOR at average floating rates of 1.90% | 535 | 535 | ||||||||||||
Term B Loan due 2024—Euro LIBOR at average floating rates of 2.00% | 1,354 | 1,306 | ||||||||||||
Term B Loan due 2025—U.S. Dollar LIBOR at average floating rates of 1.90% | 728 | 733 | ||||||||||||
Term B Loan due 2025—U.S. Dollar LIBOR at average floating rates of 1.97% | 929 | 936 | ||||||||||||
Term B Loan due 2025—Euro LIBOR at average floating rates of 2.00% | 668 | 644 | ||||||||||||
| Revolving Credit Facility due 2023: | ||||||||||||||
U.S. Dollar denominated borrowings—U.S. Dollar LIBOR at average floating rates of 1.65% | — | 154 | ||||||||||||
Japanese Yen denominated borrowings—Japanese Yen LIBOR at average floating rates of 1.50% | — | 212 | ||||||||||||
5.0% Senior Notes due 2027—U.S. Dollar denominated | 1,100 | 1,100 | ||||||||||||
5.0% Senior Notes due 2026—U.S. Dollar denominated | 1,050 | 1,050 | ||||||||||||
2.875% Senior Notes due 2025—Euro denominated | 492 | 471 | ||||||||||||
3.25% Senior Notes due 2025—Euro denominated | 1,671 | 1,598 | ||||||||||||
3.5% Senior Notes due 2024—Euro denominated | — | 701 | ||||||||||||
2.25% Senior Notes due 2028—Euro denominated | 844 | 808 | ||||||||||||
2.875% Senior Notes due 2028—Euro denominated | 834 | — | ||||||||||||
Receivables financing facility due 2022—U.S. Dollar LIBOR at average floating rates of 1.05% | 300 | 300 | ||||||||||||
| Principal amount of debt | 12,410 | 11,705 | ||||||||||||
| Less: unamortized discount and debt issuance costs | (71) | (60) | ||||||||||||
| Less: current portion | (144) | (100) | ||||||||||||
| Long-term debt | $ | 12,195 | $ | 11,545 | ||||||||||
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Contractual maturities of long-term debt are as follows at September 30, 2020:
(in millions) | ||||||||
| Remainder of 2020 | 36 | |||||||
| 2021 | 146 | |||||||
| 2022 | 446 | |||||||
| 2023 | 1,699 | |||||||
| 2024 | 1,867 | |||||||
| Thereafter | 8,216 | |||||||
| 12,410 | ||||||||
At September 30, 2020, there were bank guarantees totaling approximately £0.9 million (approximately $1.1 million) issued against the availability of the general banking facility.
Senior Secured Credit Facilities
At September 30, 2020, the Company’s Fourth Amended and Restated Credit Agreement, as amended (the “Credit Agreement”) provided financing through several senior secured credit facilities (collectively, the “senior secured credit facilities”) of up to approximately $7.6 billion, which consisted of $6.1 billion principal amounts of debt outstanding (as detailed in the table above), $1.5 billion of available borrowing capacity on the revolving credit facility and standby letters of credit.
On March 11, 2020, the Company entered into Amendment No. 7 to the Credit Agreement to borrow $900 million in additional U.S. Dollar denominated term A loans due 2023 (the “TLA-2 Loans”) and, on March 30, 2020, entered into Amendment No. 8 to the Credit Agreement to amend certain terms of the TLA-2 Loans. The TLA-2 Loans bear interest based on the U.S. Dollar LIBOR plus a margin ranging from 1.50% to 2.25%, with a U.S. Dollar LIBOR floor of 1.00% per annum. The proceeds from the TLA-2 Loans were used to repay outstanding revolving credit loans under the Company's senior secured credit facilities. On March 30, 2020, the Company prepaid $100 million of the TLA-2 loans.
Senior Notes
On June 24, 2020, IQVIA Inc. (the “Issuer”), a wholly owned subsidiary of the Company, completed the issuance and sale of €711,000,000 in gross proceeds of the Issuer’s 2.875% senior notes due 2028 (the “2.875% Notes”). The 2.875% Notes were issued pursuant to an Indenture, dated June 24, 2020, among the Issuer, U.S. Bank National Association, as trustee of the Notes, and certain subsidiaries of the Issuer as guarantors. The 2.875% Notes are unsecured obligations of the Issuer, will mature on June 15, 2028 and bear interest at the rate of 2.875% per year, with interest payable semiannually on June 15 and December 15 of each year, beginning on December 15, 2020. The Issuer may redeem the 2.875% Notes prior to their final stated maturity, subject to a customary make-whole premium, at any time prior to June 15, 2023 (subject to a customary “equity claw” redemption right) and thereafter subject to a redemption premium declining from 1.438% to 0.000%. The proceeds from the 2.875% Notes offering were used to redeem all of the Issuer’s outstanding 3.500% senior notes due 2024 (the “3.500% Notes”), including the payment of premiums in respect thereof, to repay a portion of the existing borrowings under the Issuer’s revolving credit facility and to pay fees and expenses related to the offering. The Issuer’s obligations with respect to the 3.500% Notes were discharged on the same day as the Issuer completed the issuance of the 3.500% Notes, and the 3.500% Notes were redeemed on July 9, 2020.
Restrictive Covenants
The Company’s debt agreements provide for certain covenants and events of default customary for similar instruments, including a covenant not to exceed a specified ratio of consolidated senior secured net indebtedness to Consolidated EBITDA, as defined in the senior secured credit facility agreement and a covenant to maintain a specified minimum interest coverage ratio. If an event of default occurs under any of the Company’s or the Company’s subsidiaries’ financing arrangements, the creditors under such financing arrangements will be entitled to take various actions, including the acceleration of amounts due under such arrangements, and in the case of the lenders under the revolving credit facility and term loans, other actions permitted to be taken by a secured creditor. The Company’s long-term debt arrangements contain other usual and customary restrictive covenants that, among other things, place limitations on the Company’s ability to declare dividends. At September 30, 2020, the Company was in compliance with the financial covenants under its debt agreements in all material respects and does not have material uncertainty about ongoing ability to meet the covenants of the Company’s credit arrangements.
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Based on our current operating plan, and after considering the likely future impacts of COVID-19, we believe that our available cash and cash equivalents, future cash flows from operations and our ability to access funds under our revolving and other credit facilities will enable us to fund our operating requirements and capital expenditures and meet debt obligations for at least the next 12 months.
9. Stockholders’ Equity
Preferred Stock
The Company is authorized to issue 1.0 million shares of preferred stock, $0.01 per share par value. No shares of preferred stock were issued or outstanding as of September 30, 2020 or December 31, 2019.
Equity Repurchase Program
During the nine months ended September 30, 2020, the Company repurchased 2,106,403 shares of its common stock for approximately $321.4 million under the Repurchase Program. These amounts include 1,000,000 shares of our common stock repurchased from certain of the Company’s stockholders (the “Selling Stockholders”) in a private transaction for an aggregate purchase price of approximately $164.3 million. As of September 30, 2020, the Company has remaining authorization to repurchase up to approximately $1.0 billion of its common stock under the Repurchase Program. In addition, from time to time, the Company has repurchased and may continue to repurchase common stock through private or other transactions outside of the Repurchase Program.
10. Restructuring
The Company has continued to take restructuring actions in 2020 to align its resources and reduce overcapacity to adapt to changing market conditions and integrate acquisitions. These actions include consolidating functional activities, eliminating redundant positions, and aligning resources with customer requirements. These restructuring actions are expected to continue into 2021.
The following amounts were recorded for the restructuring plans:
(in millions) | Severance and Related Costs | Facility Exit Costs | Total | |||||||||||||||||
| Balance at December 31, 2019 | $ | 64 | $ | 3 | $ | 67 | ||||||||||||||
Expense, net of reversals | 50 | — | 50 | |||||||||||||||||
Payments | (51) | (1) | (52) | |||||||||||||||||
Foreign currency translation and other | — | — | — | |||||||||||||||||
| Balance at September 30, 2020 | $ | 63 | $ | 2 | $ | 65 | ||||||||||||||
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. The Company expects that the majority of the restructuring accruals at September 30, 2020 will be paid in 2020 and 2021.
11. Income Taxes
The effective income tax rate was (2.9)% and (1.4)% in the third quarter of 2020 and 2019, respectively, and 5.0% and 18.8% in the first nine months of 2020 and 2019, respectively. In the third quarter 2020, the U.S. Treasury Department issued final regulations regarding Foreign Derived Intangible Income (“FDII”) and Global Intangible Low-Taxed Income (“GILTI”). The Company has determined it will elect the GILTI high tax exception as allowed by the final regulations and will amend its 2018 and 2019 US Federal consolidated income tax returns resulting in a favorable impact of $24 million. The Company recorded this impact in the third quarter of 2020. The effective income tax rate in the third quarter and first nine months of 2020 and 2019 was also favorably impacted as a result of excess tax benefits recognized upon settlement of share-based compensation awards. For the third quarter of 2020 and 2019 this impact was $9 million and $3 million, respectively, and for the first nine months of 2020 and 2019 this impact was $35 million and $20 million, respectively. Additionally, the effective income tax rate in the first nine months of 2020 was unfavorably impacted by a $10 million discrete tax expense related to change in the measurement of the U.S. tax on undistributed foreign earnings.
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In the first nine months of 2019 the U.S. Treasury Department issued final regulations on the transition tax and proposed regulations on FDII. While the final regulations related to the transition tax did not have a material impact on the Company, the proposed guidance on FDII had an unfavorable impact. Although the proposed guidance for FDII was not authoritative and subject to change in the regulatory review process, the Company reversed a portion of the tax benefit related to 2018 and recorded a tax expense of $20 million for this impact in the first nine months of 2019.
12. Comprehensive Income (Loss)
Below is a summary of the components of AOCI:
(in millions) | Foreign Currency Translation | Derivative Instruments | Defined Benefit Plans | Income Taxes | Total | |||||||||||||||||||||||||||
| Balance at December 31, 2019 | $ | (430) | $ | (21) | $ | (16) | $ | 156 | $ | (311) | ||||||||||||||||||||||
Other comprehensive income (loss) before reclassifications | (62) | (44) | — | 94 | (12) | |||||||||||||||||||||||||||
Reclassification adjustments | — | 8 | — | (2) | 6 | |||||||||||||||||||||||||||
| Balance at September 30, 2020 | $ | (492) | $ | (57) | $ | (16) | $ | 248 | $ | (317) | ||||||||||||||||||||||
Below is a summary of the adjustments for (gains) losses reclassified from AOCI into the condensed consolidated statements of income and the affected financial statement line item:
(in millions) | Affected Financial Statement Line Item | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||
Derivative instruments: | ||||||||||||||||||||||||||||||||
Foreign exchange forward contracts | Revenues | $ | 4 | $ | 2 | $ | 9 | $ | 3 | |||||||||||||||||||||||
Foreign exchange forward contracts | Other expense (income), net | (1) | — | (1) | (6) | |||||||||||||||||||||||||||
Total before income taxes | 3 | 2 | 8 | (3) | ||||||||||||||||||||||||||||
Income tax (benefit) expense | 1 | — | 2 | (1) | ||||||||||||||||||||||||||||
Total net of income taxes | $ | 2 | $ | 2 | $ | 6 | $ | (2) | ||||||||||||||||||||||||
13. Segments
The following table presents the Company’s operations by reportable segment. The Company is managed through three reportable segments, Technology & Analytics Solutions, Research & Development Solutions and Contract Sales & Medical Solutions. Technology & Analytics Solutions provides mission-critical information, technology solutions and real-world insights and services to the Company’s life sciences customers. Research & Development Solutions, which primarily serves biopharmaceutical customers, provides outsourced clinical research and clinical trial related services. Contract Sales & Medical Solutions provides health care provider (including contract sales) and patient engagement 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 stock-based compensation and expenses related to integration activities and acquisitions. The Company also does not allocate depreciation and amortization or impairment charges to its segments. Asset information by segment is not presented, as this measure is not used by the chief operating decision maker to assess the Company’s performance. The Company’s reportable segment information is presented below:
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| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
(in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||
Technology & Analytics Solutions | $ | 1,207 | $ | 1,095 | $ | 3,433 | $ | 3,272 | ||||||||||||||||||
Research & Development Solutions | 1,400 | 1,466 | 4,076 | 4,317 | ||||||||||||||||||||||
Contract Sales & Medical Solutions | 179 | 208 | 552 | 604 | ||||||||||||||||||||||
Total revenues | 2,786 | 2,769 | 8,061 | 8,193 | ||||||||||||||||||||||
Costs of revenue, exclusive of depreciation and amortization | ||||||||||||||||||||||||||
Technology & Analytics Solutions | 727 | 667 | 2,048 | 1,956 | ||||||||||||||||||||||
Research & Development Solutions | 925 | 1,007 | 2,811 | 2,924 | ||||||||||||||||||||||
Contract Sales & Medical Solutions | 148 | 178 | 469 | 519 | ||||||||||||||||||||||
Total costs of revenue | 1,800 | 1,852 | 5,328 | 5,399 | ||||||||||||||||||||||
Selling, general and administrative expenses | ||||||||||||||||||||||||||
Technology & Analytics Solutions | 188 | 167 | 549 | 539 | ||||||||||||||||||||||
Research & Development Solutions | 184 | 172 | 544 | 529 | ||||||||||||||||||||||
Contract Sales & Medical Solutions | 14 | 15 | 44 | 45 | ||||||||||||||||||||||
General corporate and unallocated | 74 | 41 | 161 | 137 | ||||||||||||||||||||||
Total selling, general and administrative expenses | 460 | 395 | 1,298 | 1,250 | ||||||||||||||||||||||
Segment profit | ||||||||||||||||||||||||||
Technology & Analytics Solutions | 292 | 261 | 836 | 777 | ||||||||||||||||||||||
Research & Development Solutions | 291 | 287 | 721 | 864 | ||||||||||||||||||||||
Contract Sales & Medical Solutions | 17 | 15 | 39 | 40 | ||||||||||||||||||||||
Total segment profit | 600 | 563 | 1,596 | 1,681 | ||||||||||||||||||||||
General corporate and unallocated | (74) | (41) | (161) | (137) | ||||||||||||||||||||||
Depreciation and amortization | (319) | (299) | (943) | (888) | ||||||||||||||||||||||
Restructuring costs | (20) | (19) | (50) | (45) | ||||||||||||||||||||||
Total income from operations | $ | 187 | $ | 204 | $ | 442 | $ | 611 | ||||||||||||||||||
14. Earnings Per Share
The following table presents the weighted average number of outstanding stock-based awards not included in the computation of diluted earnings per share because they are subject to performance conditions or the effect of including such stock-based awards in the computation would be anti-dilutive:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
(in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
| Shares subject to performance conditions | 1.1 | 1.3 | 1.2 | 1.3 | ||||||||||||||||||||||
| Shares subject to anti-dilutive stock-based awards | 1.1 | 0.4 | 1.3 | 0.7 | ||||||||||||||||||||||
| Total shares excluded from diluted earnings per share | 2.2 | 1.7 | 2.5 | 2.0 | ||||||||||||||||||||||
The vesting of performance awards is contingent upon the achievement of certain performance targets. The performance awards are not included in diluted earnings per share until the performance targets have been met. Stock-based awards will have a dilutive effect under the treasury method when the respective period’s average market value of the Company’s common stock exceeds the exercise proceeds.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement for Forward-Looking Information
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (our “2019 Form 10-K”).
In addition to historical condensed consolidated financial information, the following discussion contains or incorporates by reference forward-looking statements within the meaning of the federal securities laws that are not historical facts but 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,” “forecasts,” “projects,” “should,” “targets,” “will” and the negative thereof and similar words and expressions are intended to identify forward-looking statements. We assume no obligation to update any such forward-looking information to reflect actual results or changes in our outlook or 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, business disruptions caused by natural disasters, pandemics such as the COVID-19 (coronavirus) outbreak or international conflict or other disruptions outside of our control; our ability to accurately model or forecast the impact of the spread and/or containment of COVID-19, among other sources of business interruption, on our operations and financial results; most of our contracts may be terminated on short notice, and we may lose or experience delays with large client contracts or be unable to enter into new contracts; the market for our services may not grow as we expect; we may be unable to successfully develop and market new services or enter new markets; imposition of restrictions on our use of data by data suppliers or their refusal to license data to us; any failure by us to comply with contractual, regulatory or ethical requirements under our contracts, including current or changes to data protection and privacy laws; breaches or misuse of our or our outsourcing partners’ security or communications systems; failure to meet our productivity or business transformation objectives; failure to successfully invest in growth opportunities; our ability to protect our intellectual property rights and our susceptibility to claims by others that we are infringing on their intellectual property rights; the expiration or inability to acquire third party licenses for technology or intellectual property; any failure by us to accurately and timely price and formulate cost estimates for contracts, or to document change orders; hardware and software failures, delays in the operation of our computer and communications systems or the failure to implement system enhancements; the rate at which our backlog converts to revenue; our ability to acquire, develop and implement technology necessary for our business; consolidation in the industries in which our clients operate; risks related to client or therapeutic concentration; 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; the risks associated with operating on a global basis, including currency or exchange rate fluctuations and legal compliance, including anti-corruption laws; risks related to changes in accounting standards; general economic conditions in the markets in which we operate, including financial market conditions and risks related to sales to government entities; the impact of changes in tax laws and regulations; and our ability to successfully integrate, and achieve expected benefits from, our acquired businesses. For a further discussion of the risks relating to our business, see Part I—Item 1A—“Risk Factors” in our 2019 Form 10-K, as updated in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the “1Q 2020 Form 10-Q”).
Overview
IQVIA Holdings Inc. (“IQVIA,” the “Company,” “we,” “our” and/or “us”) is a leading global provider of advanced analytics, technology solutions and clinical research services to the life sciences industry. IQVIA applies human data science – leveraging the analytic rigor and clarity of data science to the ever-expanding scope of human science – to enable companies to reimagine and develop new approaches to clinical development and commercialization, speed innovation, and accelerate improvements in healthcare outcomes. Powered by the IQVIA CORE™, we deliver unique and actionable insights at the intersection of large scale analytics, transformative technology and extensive domain expertise as well as execution capabilities. With approximately 68,000 employees, we conduct operations in more than 100 countries.
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We manage our business through three reportable segments, Technology & Analytics Solutions, Research & Development Solutions and Contract Sales & Medical Solutions. Technology & Analytics Solutions provides critical information, technology solutions and real-world insights and services to our life science customers. Research & Development Solutions, which primarily serves biopharmaceutical customers, is engaged in research and development and provides clinical research and clinical trial services. Contract Sales & Medical Solutions provides contract sales to both biopharmaceutical customers and the broader healthcare market.
Recent Developments
As a result of the global spread of COVID-19 beginning in early March, we began to experience general business disruptions that impeded normal business activity including our ability to perform on-site monitoring and deliver offerings that rely on face-to-face interaction or in-person gatherings.
These disruptions have impacted all three of our reportable segments. We continue to see gradual improvement in the accessibility of clinical research sites in the Research & Development Solutions business. We are seeing a return to on-site monitoring visits and similar to last quarter, on-site visits exceeded the number of remote visits. In instances where sites remain physically inaccessible for clinical monitoring, remote monitoring and virtual solutions continue to be effective alternatives. Site start-up activities have increased during the quarter along with patient recruitment trends. Similarly, in our Technology & Analytics Solutions segment, the portion of our Real-World business that requires site monitoring activity also experienced limitations on site accessibility, which led to a reduction in the associated revenue. Within our Technology & Analytics Solutions segment, we have had very little interruption in data supply and demand. Our analytics and consulting businesses have performed well despite business development being hampered by lack of in-person interactions. Our Technology & Analytics solutions offerings that rely on face-to-face interactions or are dependent on in-person gatherings, events or conferences continue to experience disruption, and where we were unable to execute on our commitments due to COVID-19, we were not able to recognize the associated revenue in the period. Activity within the Contract Sales and Medical Solutions business continues to be more challenging due to a decline in sales rep visits, and physician attention diverted to the COVID-19 crisis.
We have accelerated and expanded a variety of cost containment actions to reduce the impact to profitability. We have activated business continuity plans, including remote delivery capabilities in technology and analytics, remote monitoring and virtual trials in Research & Development Solutions and virtual commercial activity with clients wherever possible. We anticipate an acceleration of business momentum when the crisis subsides as delayed trial activities will still need to be performed.
The Company continues to maintain strong liquidity. We do not expect COVID-19 to have a significant impact on our overall liquidity position and outlook. As of September 30, 2020, cash and cash equivalents were $1,464 million and the Company had no amounts drawn under its $1.5 billion revolving credit facility. At September 30, 2020, the Company was in compliance with the financial covenants under its debt agreements in all material respects and does not have material uncertainty about ongoing ability to meet the covenants of our credit arrangements. Based on the company's performance during the pandemic, continued robust demand for its offerings, solid liquidity, and strong free cash flow performance, the Company is lifting the temporary suspension of its share repurchase program.
To help ensure the safety and well-being of our employees, customers, partners and the broader community and continuity of our business operations, we continue to monitor health authority guidance on mitigating the spread of COVID-19 and managing positive cases. We manage our response to the pandemic through a combination of enterprise-wide and regional governance teams, with particular focus on the medical and scientific, information technology, human capital and financial impacts of the pandemic on our business. These teams met, and continue to meet, regularly as necessary based on the status of the pandemic. We closely monitor the impact of COVID-19 on our operations and report to our Board regularly on the progress of our response to the COVID-19 outbreak. We have established global workplace protocols that govern the return of our employees to our offices.
Sources of Revenue
Total revenues are comprised of revenues from the provision of our services. We do not have material product revenues.
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Costs and Expenses
Our costs and expenses are comprised primarily of our costs of revenue, which include reimbursed expenses, and selling, general and administrative expenses. Costs of revenue include compensation and benefits for billable employees and personnel involved in production, data management and delivery, and the costs of acquiring and processing data for our information offerings; costs of staff directly involved with delivering technology-related services offerings and engagements, related accommodations and the costs of data purchased specifically for technology services engagements; costs related to facilities; costs related to training and expenses for information technology (“IT”), reimbursed expenses that are comprised principally of payments to investigators who oversee clinical trials and travel expenses for our clinical monitors and sales representatives; and other expenses directly related to service contracts such as courier fees, laboratory supplies, professional services and travel expenses. Selling, general and administrative expenses include costs related to sales, marketing, and administrative functions (including human resources, legal, finance and general management) for compensation and benefits, travel, professional services, facilities and training and expenses for IT.
Foreign Currency Translation
In the first nine months of 2020, approximately 35% of our revenues were denominated in currencies other than the United States dollar, which represents approximately 60 currencies. Because a large portion of our revenues and expenses are denominated in foreign currencies and our financial statements are reported in United States dollars, changes in foreign currency exchange rates can significantly affect our results of operations. The revenue and expenses of our foreign operations are generally denominated in local currencies and translated into United States dollars for financial reporting purposes. Accordingly, exchange rate fluctuations will affect the translation of foreign results into United States dollars for purposes of reporting our condensed consolidated results. As a result, we believe that reporting results of operations that exclude the effects of foreign currency rate fluctuations on certain financial results can facilitate analysis of period-to-period comparisons. This constant currency information assumes the same foreign currency exchange rates that were in effect for the comparable prior-year period were used in translation of the current period results.
Consolidated Results of Operations
For information regarding our results of operations for Technology & Analytics Solutions, Research & Development Solutions and Contract Sales & Medical Solutions, refer to “Segment Results of Operations” later in this section.
Revenues
| Three Months Ended September 30, | Change | |||||||||||||||||||||||||
(in millions) | 2020 | 2019 | $ | % | ||||||||||||||||||||||
Revenues | $ | 2,786 | $ | 2,769 | $ | 17 | 0.6 | % | ||||||||||||||||||
For the third quarter of 2020, our revenues increased $17 million, or 0.6%, as compared to the same period in 2019. This increase was comprised of constant currency revenue decline of approximately $4 million, or 0.1%. The constant currency revenue decline was comprised of a $75 million decrease in Research & Development Solutions and a $30 million decrease in Contract Sales & Medical Solutions, offset by a $101 million increase in Technology & Analytics Solutions.
| Nine Months Ended September 30, | Change | |||||||||||||||||||||||||
(in millions) | 2020 | 2019 | $ | % | ||||||||||||||||||||||
Revenues | $ | 8,061 | $ | 8,193 | $ | (132) | (1.6) | % | ||||||||||||||||||
For the first nine months of 2020, our revenues decreased $132 million, or 1.6%, as compared to the same period in 2019. This decrease was comprised of constant currency revenue decline of approximately $100 million, or 1.2%. The constant currency revenue decline was comprised of a $232 million decrease in Research & Development Solutions and a $50 million decrease in Contract Sales & Medical Solutions, offset by a $182 million increase in Technology & Analytics Solutions.
See Part I—Item 2—“Recent Developments" in this Quarterly Report on Form 10-Q for a discussion of the impact from COVID-19 on our business activity.
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Costs of Revenue, exclusive of Depreciation and Amortization
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
(in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
Costs of revenue, exclusive of depreciation and amortization | $ | 1,800 | $ | 1,852 | $ | 5,328 | $ | 5,399 | ||||||||||||||||||
% of revenues | 64.6 | % | 66.9 | % | 66.1 | % | 65.9 | % | ||||||||||||||||||
The $52 million decrease in costs of revenues, exclusive of depreciation and amortization, for the three months ended September 30, 2020 as compared to the same period in 2019 included a constant currency decrease of approximately $62 million, or 3.3%. The constant currency decrease consisted of a $82 million decrease in Research & Development Solutions and a $32 million decrease in Contract Sales & Medical Solutions, offset by a $52 million increase in Technology & Analytics Solutions.
The $71 million decrease in costs of revenues, exclusive of depreciation and amortization, for the nine months ended September 30, 2020 as compared to the same period in 2019 included a constant currency decrease of approximately $19 million, or 0.4%. The constant currency decrease consisted of a $73 million decrease in Research & Development Solutions, a $49 million decrease in Contract Sales & Medical Solutions, offset by a $103 million increase in Technology & Analytics Solutions.
Selling, General and Administrative Expenses
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
(in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
Selling, general and administrative expenses | $ | 460 | $ | 395 | $ | 1,298 | $ | 1,250 | ||||||||||||||||||
% of revenues | 16.5 | % | 14.3 | % | 16.1 | % | 15.3 | % | ||||||||||||||||||
The $65 million increase in selling, general and administrative expenses for the three months ended September 30, 2020 as compared to the same period in 2019 included a constant currency increase of approximately $64 million, or 16.2%. The constant currency increase primarily consisted of a $32 million increase in general corporate and unallocated expenses, a $13 million increase in Research & Development Solutions, a $20 million increase in Technology & Analytics Solutions, offset by a $1 million decrease in Contract Sales & Medical Solutions.
The $48 million increase in selling, general and administrative expenses for the nine months ended September 30, 2020 as compared to the same period in 2019 included a constant currency increase of approximately $62 million, or 5.0%. The constant currency increase primarily consisted of a $25 million increase in general corporate and unallocated expenses, a $17 million increase in Technology & Analytics Solutions, a $21 million increase in Research & Development Solutions, offset by a $1 million decrease in Contract Sales & Medical Solutions.
Depreciation and Amortization
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
(in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
| Depreciation and amortization | 319 | 299 | 943 | 888 | ||||||||||||||||||||||
% of revenues | 11.5 | % | 10.8 | % | 11.7 | % | 10.8 | % | ||||||||||||||||||
The $20 million and $55 million increases in depreciation and amortization in the three and nine months ended September 30, 2020, respectively, as compared to the same periods in 2019 was primarily due to higher intangible asset balances as a result of acquisitions occurring in 2019, increased amortization due to higher capitalized software balances, and accelerated depreciation on an internal-use software asset in the first quarter of 2020.
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Restructuring Costs
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
| Restructuring costs | $ | 20 | $ | 19 | $ | 50 | $ | 45 | ||||||||||||||||||
The restructuring costs incurred during 2020 were due to ongoing efforts to streamline our global operations. The remaining actions under these plans are expected to occur throughout 2020 and into 2021 and are expected to consist of consolidating functional activities, eliminating redundant positions, and aligning resources with customer requirements.
Interest Income and Interest Expense
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
| Interest income | $ | (1) | $ | (3) | $ | (4) | $ | (7) | ||||||||||||||||||
| Interest expense | $ | 100 | $ | 114 | $ | 314 | $ | 338 | ||||||||||||||||||
Interest income includes interest received primarily from bank balances and investments.
Interest expense during the three and nine months ended September 30, 2020 was lower than the same periods in 2019 due to lower interest rates attributed to lower LIBOR rates and the redemption of the $800 million of 4.875% senior notes due 2023, partially offset by an increase in the average debt outstanding.
Loss on Extinguishment of Debt
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
| Loss on extinguishment of debt | $ | — | $ | 24 | $ | 12 | $ | 24 | ||||||||||||||||||
During the second quarter of 2020, we recognized loss on extinguishment of debt for fees and expenses incurred related to the refinancing of our 3.500% senior notes due 2024.
Other Income, Net
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
| Other income, net | $ | (14) | $ | — | $ | (59) | $ | — | ||||||||||||||||||
Other income, net for the three months ended September 30, 2020 increased as compared to the same period in the prior year, primarily due to a gain on investments in mutual funds.
Other income, net for the nine months ended September 30, 2020 increased as compared to the same periods in the prior year, primarily due to a decrease in fair value of acquisition-related contingent consideration, mark-to-market gains on equity securities, a decrease in foreign currency losses, and a gain on investments in mutual funds.
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Income Tax Expense
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
| Income tax (benefit) expense | $ | (3) | $ | (1) | $ | 9 | $ | 48 | ||||||||||||||||||
Our effective income tax rate was (2.9)% and (1.4)% in the third quarter of 2020 and 2019, respectively, and 5.0% and 18.8% in the first nine months of 2020 and 2019, respectively. In the third quarter 2020, the U.S. Treasury Department issued final regulations regarding Foreign Derived Intangible Income (“FDII”) and Global Intangible Low-Taxed Income (“GILTI”). We have determined we will elect the GILTI high tax exception as allowed by the final regulations and will amend its 2018 and 2019 US Federal consolidated income tax returns resulting in a favorable impact of $24 million. We recorded this impact in the third quarter of 2020. Our effective income tax rate in the third quarter and first nine months of 2020 and 2019 was also favorably impacted as a result of excess tax benefits recognized upon settlement of share-based compensation awards. For the third quarter of 2020 and 2019 this impact was $9 million and $3 million, respectively, and for the first nine months of 2020 and 2019 this impact was $35 million and $20 million, respectively. Additionally, our effective income tax rate in the first nine months of 2020 was unfavorably impacted by a $10 million discrete tax expense related to change in the measurement of the U.S. tax on undistributed foreign earnings.
In the first nine months of 2019, the U.S. Treasury Department issued final regulations on the transition tax and proposed regulations on FDII. While the final regulations related to the transition tax did not have a material impact on us, the proposed guidance on FDII had an unfavorable impact. Although the proposed guidance for FDII was not authoritative and subject to change in the regulatory review process, we reversed a portion of the tax benefit related to 2018 and recorded a tax expense of $20 million for this impact in the first nine months of 2019.
Equity in Earnings of Unconsolidated Affiliates
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
| Equity in earnings (loss) of unconsolidated affiliates | $ | 3 | $ | (1) | $ | 8 | $ | (1) | ||||||||||||||||||
Equity in earnings of unconsolidated affiliates for the three and nine months ended September 30, 2020 increased as compared to the same period in the prior year, primarily related to higher earnings from our investment in NovaQuest Pharma Opportunities Fund III.
Net Income Attributable to Non-controlling Interests
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
| Net income attributable to non-controlling interests | $ | (7) | $ | (12) | $ | (18) | $ | (32) | ||||||||||||||||||
Net income attributable to non-controlling interests primarily included Quest Diagnostics Incorporated’s interest in Q2 Solutions.
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Segment Results of Operations
The Company’s revenues and profit by segment are as follows:
| Three Months Ended September 30, 2020 and 2019 | ||||||||||||||||||||||||||
| Segment Revenues | Segment Profit | |||||||||||||||||||||||||
| (in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
| Technology & Analytics Solutions | $ | 1,207 | $ | 1,095 | $ | 292 | $ | 261 | ||||||||||||||||||
| Research & Development Solutions | 1,400 | 1,466 | 291 | 287 | ||||||||||||||||||||||
| Contract Sales & Medical Solutions | 179 | 208 | 17 | 15 | ||||||||||||||||||||||
| Total | 2,786 | 2,769 | 600 | 563 | ||||||||||||||||||||||
| General corporate and unallocated | (74) | (41) | ||||||||||||||||||||||||
| Depreciation and amortization | (319) | (299) | ||||||||||||||||||||||||
| Restructuring costs | (20) | (19) | ||||||||||||||||||||||||
| Consolidated | $ | 2,786 | $ | 2,769 | $ | 187 | $ | 204 | ||||||||||||||||||
| Nine Months Ended September 30, 2020 and 2019 | ||||||||||||||||||||||||||
| Segment Revenues | Segment Profit | |||||||||||||||||||||||||
| (in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
| Technology & Analytics Solutions | $ | 3,433 | $ | 3,272 | $ | 836 | $ | 777 | ||||||||||||||||||
| Research & Development Solutions | 4,076 | 4,317 | 721 | 864 | ||||||||||||||||||||||
| Contract Sales & Medical Solutions | 552 | 604 | 39 | 40 | ||||||||||||||||||||||
| Total | 8,061 | 8,193 | 1,596 | 1,681 | ||||||||||||||||||||||
| General corporate and unallocated | (161) | (137) | ||||||||||||||||||||||||
| Depreciation and amortization | (943) | (888) | ||||||||||||||||||||||||
| Restructuring costs | (50) | (45) | ||||||||||||||||||||||||
| Consolidated | $ | 8,061 | $ | 8,193 | $ | 442 | $ | 611 | ||||||||||||||||||
Certain costs are not allocated to our segments and are reported as general corporate and unallocated expenses. These costs primarily consist of stock-based compensation and expenses related to integration activities and acquisitions. We also do not allocate depreciation and amortization or impairment charges to our segments.
Technology & Analytics Solutions
| Three Months Ended September 30, | Change | |||||||||||||||||||||||||
| (in millions) | 2020 | 2019 | $ | % | ||||||||||||||||||||||
| Revenues | $ | 1,207 | $ | 1,095 | $ | 112 | 10.2 | |||||||||||||||||||
| Costs of revenue, exclusive of depreciation and amortization | 727 | 667 | 60 | 9.0 | ||||||||||||||||||||||
| Selling, general and administrative | 188 | 167 | 21 | 12.6 | ||||||||||||||||||||||
| Segment profit | $ | 292 | $ | 261 | $ | 31 | 11.9 | |||||||||||||||||||
| Nine Months Ended September 30, | Change | |||||||||||||||||||||||||
| (in millions) | 2020 | 2019 | $ | % | ||||||||||||||||||||||
| Revenues | $ | 3,433 | $ | 3,272 | $ | 161 | 4.9 | |||||||||||||||||||
| Costs of revenue, exclusive of depreciation and amortization | 2,048 | 1,956 | 92 | 4.7 | ||||||||||||||||||||||
| Selling, general and administrative | 549 | 539 | 10 | 1.9 | ||||||||||||||||||||||
| Segment profit | $ | 836 | $ | 777 | $ | 59 | 7.6 | |||||||||||||||||||
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Revenues
Technology & Analytics Solutions’ revenues were $1,207 million for the third quarter of 2020, an increase of $112 million, or 10.2%, over the same period in 2019. This increase was comprised of constant currency revenue growth of approximately $101 million, or 9.2%.
Technology & Analytics Solutions’ revenues were $3,433 million for the first nine months of 2020, an increase of $161 million, or 4.9%, over the same period in 2019. This increase was comprised of constant currency revenue growth of approximately $182 million, or 5.6%.
The constant currency growth for the three and nine months ended September 30, 2020 resulted primarily from revenue growth in the Americas and Europe and Africa region. The revenue growth in these regions was driven by higher real-world and analytical services. See Part I—Item 2—“Recent Developments" in this Quarterly Report on Form 10-Q for a discussion of the impact from COVID-19 on Technology & Analytics Solutions business activity.
Costs of Revenue, exclusive of Depreciation and Amortization
Technology & Analytics Solutions’ costs of revenue increased $60 million, or 9.0%, in the third quarter of 2020 over the same period in 2019. This increase included a constant currency increase of approximately $52 million, or 7.8%.
Technology & Analytics Solutions’ costs of revenue increased $92 million, or 4.7%, in the first nine months of 2020 over the same period in 2019. This increase included a constant currency increase of approximately $103 million, or 5.3%.
The constant currency increase for the three and nine months ended September 30, 2020 was primarily due to an increase in compensation and related expenses to support revenue growth.
Selling, General and Administrative Expenses
Technology & Analytics Solutions’ selling, general and administrative expenses increased $21 million, or 12.6%, in the third quarter of 2020 as compared to the same period in 2019, which included a constant currency increase of approximately $20 million, or 12.0%.
Technology & Analytics Solutions’ selling, general and administrative expenses increased $10 million, or 1.9%, in the first nine months of 2020 as compared to the same period in 2019, which included a constant currency increase of approximately $17 million, or 3.2%.
The constant currency increase for the three and nine months ended September 30, 2020 was primarily related to an increase in compensation and related expenses.
Research & Development Solutions
| Three Months Ended September 30, | Change | |||||||||||||||||||||||||
(in millions) | 2020 | 2019 | $ | % | ||||||||||||||||||||||
Revenues | $ | 1,400 | $ | 1,466 | $ | (66) | (4.5) | % | ||||||||||||||||||
Costs of revenue, exclusive of depreciation and amortization | 925 | 1,007 | (82) | (8.1) | % | |||||||||||||||||||||
Selling, general and administrative expenses | 184 | 172 | 12 | 7.0 | % | |||||||||||||||||||||
Segment profit | $ | 291 | $ | 287 | $ | 4 | 1.4 | % | ||||||||||||||||||
| Nine Months Ended September 30, | Change | |||||||||||||||||||||||||
(in millions) | 2020 | 2019 | $ | % | ||||||||||||||||||||||
Revenues | $ | 4,076 | $ | 4,317 | $ | (241) | (5.6) | % | ||||||||||||||||||
Costs of revenue, exclusive of depreciation and amortization | 2,811 | 2,924 | (113) | (3.9) | % | |||||||||||||||||||||
Selling, general and administrative expenses | 544 | 529 | 15 | 2.8 | % | |||||||||||||||||||||
Segment profit | $ | 721 | $ | 864 | $ | (143) | (16.6) | % | ||||||||||||||||||
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Backlog
Research & Development Solutions’ contracted backlog increased from $19.0 billion at December 31, 2019 to $21.7 billion at September 30, 2020 and we expect approximately $5.8 billion of this backlog to convert to revenue in the next twelve months.
Revenues
Research & Development Solutions’ revenues were $1,400 million in the third quarter of 2020, a decrease of $66 million, or 4.5%, over the same period in 2019. This decrease was comprised of constant currency revenue decline of approximately $75 million, or 5.1%.
Research & Development Solutions’ revenues were $4,076 million in the first nine months of 2020, a decrease of $241 million, or 5.6%, over the same period in 2019. This decrease was comprised of constant currency revenue decline of approximately $232 million, or 5.4%.
The constant currency decline for the three and nine months ended September 30, 2020 primarily included volume-related decreases in clinical services and lab testing. See Part I—Item 2—“Recent Developments" in this Quarterly Report on Form 10-Q for a discussion of the impact from COVID-19 on Research & Development Solutions business activity.
Costs of Revenue, exclusive of Depreciation and Amortization
Research & Development Solutions’ costs of revenue decreased $82 million, or 8.1%, in the third quarter of 2020 over the same period in 2019. This decrease included a constant currency decrease of approximately $82 million, or 8.1%.
Research & Development Solutions’ costs of revenue decreased $113 million, or 3.9%, in the first nine months of 2020 over the same period in 2019. This decrease included a constant currency decrease of approximately $73 million, or 2.5%.
The constant currency decrease for the three and nine months ended September 30, 2020 was primarily related to a decrease in compensation and related expenses as a result of reduced volume in clinical services and lab testing impacted by COVID-19.
Selling, General and Administrative Expenses
Research & Development Solutions’ selling, general and administrative expenses increased $12 million, or 7.0%, in the third quarter of 2020 as compared to the same period in 2019, which included a constant currency increase of approximately $13 million, or 7.6%.
Research & Development Solutions’ selling, general and administrative expenses increased $15 million, or 2.8%, in the first nine months of 2020 as compared to the same period in 2019, which included a constant currency increase of approximately $21 million, or 4.0%.
The constant currency increase for the three and nine months ended September 30, 2020 was primarily related to an increase in compensation and related expenses.
Contract Sales & Medical Solutions
| Three Months Ended September 30, | Change | |||||||||||||||||||||||||
(in millions) | 2020 | 2019 | $ | % | ||||||||||||||||||||||
Revenues | $ | 179 | $ | 208 | $ | (29) | (13.9) | % | ||||||||||||||||||
Costs of revenue, exclusive of depreciation and amortization | 148 | 178 | (30) | (16.9) | % | |||||||||||||||||||||
Selling, general and administrative expenses | 14 | 15 | (1) | (6.7) | ||||||||||||||||||||||
Segment profit | $ | 17 | $ | 15 | $ | 2 | 13.3 | % | ||||||||||||||||||
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| Nine Months Ended September 30, | Change | |||||||||||||||||||||||||
(in millions) | 2020 | 2019 | $ | % | ||||||||||||||||||||||
| Revenues | $ | 552 | $ | 604 | $ | (52) | (8.6) | % | ||||||||||||||||||
Costs of revenue, exclusive of depreciation and amortization | 469 | 519 | (50) | (9.6) | % | |||||||||||||||||||||
| Selling, general and administrative expenses | 44 | 45 | (1) | (2.2) | % | |||||||||||||||||||||
| Segment profit | $ | 39 | $ | 40 | $ | (1) | (2.5) | % | ||||||||||||||||||
Revenues
Contract Sales & Medical Solutions’ revenues were $179 million in the third quarter of 2020, a decrease of $29 million, or 13.9%, over the same period in 2019. This decrease included a constant currency revenue decline of approximately $30 million, or 14.4%.
Contract Sales & Medical Solutions’ revenues were $552 million in the first nine months of 2020, a decrease of $52 million, or 8.6%, over the same period in 2019. This decrease included a constant currency revenue decline of approximately $50 million, or 8.3%.
The constant currency decline for three and nine months ended September 30, 2020 was largely due to a volume decrease in the Americas region, partially offset by a volume increase in the Asia-Pacific regions. See Part I—Item 2—“Recent Developments" in this Quarterly Report on Form 10-Q for a discussion of the impact from COVID-19 on Contract Sales & Medical Solutions business activity.
Costs of Revenue, exclusive of Depreciation and Amortization
Contract Sales & Medical Solutions’ costs of revenue decreased $30 million, or 16.9%, in the third quarter of 2020 as compared to the same period in 2019. This decrease included a constant currency decrease of approximately $32 million, or 18.0%.
Contract Sales & Medical Solutions’ costs of revenue decreased $50 million, or 9.6%, in the first nine months of 2020 as compared to the same period in 2019. This decrease included a constant currency decline of approximately $49 million, or 9.4%.
The constant currency decrease for the three and nine months ended September 30, 2020 was due to a decrease in compensation and related expenses as a result of reduced volume in the Americas region.
Selling, General and Administrative Expenses
Contract Sales & Medical Solutions’ selling, general and administrative expenses remained flat for the three and nine months ended September 30, 2020 as compared to the same period in 2019.
Liquidity and Capital Resources
Overview
We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Our principal source of liquidity is operating cash flows. In addition to operating cash flows, other significant factors that affect our overall management of liquidity include: capital expenditures, acquisitions, investments, debt service requirements, dividends, equity repurchases, adequacy of our revolving and other credit facilities and access to the capital markets. We do not expect to have a significant impact on our overall liquidity position and outlook as a result of COVID-19.
We manage our worldwide cash requirements by monitoring the funds available among our subsidiaries and determining the extent to which those funds can be accessed on a cost-effective basis. The repatriation of cash balances from certain of our subsidiaries could have adverse tax consequences; however, those balances are generally available without legal
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restrictions to fund ordinary business operations. We have and expect to transfer cash from those subsidiaries to the United States and to other international subsidiaries when it is cost effective to do so.
We had a cash balance of $1,464 million at September 30, 2020 ($780 million of which was in the United States), an increase from $837 million at December 31, 2019. We also had $1.5 billion of additional available borrowings under our revolving credit facility at September 30, 2020.
Based on our current operating plan, and after considering the likely future impacts of COVID-19, we believe that our available cash and cash equivalents, future cash flows from operations and our ability to access funds under our revolving and other credit facilities will enable us to fund our operating requirements and capital expenditures and meet debt obligations for at least the next 12 months. We regularly evaluate our debt arrangements, as well as market conditions, and from time to time we may explore opportunities to modify our existing debt arrangements or pursue additional financing arrangements that could result in the issuance of new debt securities by us or our affiliates. We may use our existing cash, cash generated from operations or dispositions of assets or businesses and/or proceeds from any new financing arrangements or issuances of debt or equity securities to repay or reduce some of our outstanding obligations, to repurchase shares from our stockholders or for other purposes. As part of our ongoing business strategy, we also continually evaluate new acquisition, expansion and investment possibilities or other strategic growth opportunities, as well as potential dispositions of assets or businesses, as appropriate, including dispositions that may cause us to recognize a loss on certain assets. Should we elect to pursue any such transaction, we may seek to obtain debt or equity financing to facilitate those activities. Our ability to enter into any such potential transactions and our use of cash or proceeds is limited to varying degrees by the terms and restrictions contained in our existing debt arrangements. We cannot provide assurances that we will be able to complete any such financing arrangements or other transactions on favorable terms or at all.
Equity Repurchase Program
When the COVID-19 outbreak became a pandemic in March, the Company temporarily suspended share repurchase activity. Based on the Company's performance during the pandemic, continued robust demand for its offerings, solid liquidity, and strong free cash flow performance, the Company is lifting the temporary suspension of its share repurchase program. During the nine months ended September 30, 2020, we repurchased 2,106,403 shares of our common stock for approximately $321.4 million under the Repurchase Program. These amounts include 1,000,000 shares of our common stock repurchased from certain Selling Stockholders in a private transaction for an aggregate purchase price of approximately $164.3 million. See Note 9 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional details regarding the Repurchase Program.
As of September 30, 2020, we have remaining authorization to repurchase up to approximately $1.0 billion of our common stock under the Repurchase Program. In addition, from time to time, we have repurchased and may continue to repurchase common stock through private or other transactions outside of the Repurchase Program.
Debt
Senior Secured Facilities
On March 11, 2020, we entered into an amendment to the Credit Agreement to borrow $900 million in additional U.S. Dollar denominated term A loans due 2023. The proceeds from the additional term A loans were used to repay outstanding revolving credit loans under our senior secured credit facilities. On March 30, 2020, we prepaid $100 million of the additional term A loans. See Note 8 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional details regarding our credit arrangements.
Senior Notes
On June 24, 2020, we completed the issuance and sale of €711,000,000 in gross proceeds of the Issuer’s 2.875% senior notes due 2028 (the “2.875% Notes”). The proceeds from the 2.875% Notes offering were used to redeem all of the Issuer’s outstanding 3.500% senior notes due 2024 (the “3.500% Notes”), including the payment of premiums in respect thereof, to repay a portion of the existing borrowings under the Issuer’s revolving credit facility and to pay fees and expenses related to the Notes offering. See Note 8 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional details regarding our credit arrangements.
As of September 30, 2020, we had $12.4 billion of total indebtedness, excluding $1.5 billion of additional available borrowings under our revolving credit facility.
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Our long-term debt arrangements contain customary restrictive covenants and, as of September 30, 2020, we believe we were in compliance with our restrictive covenants in all material respects. We do not have material uncertainty about ongoing ability to meet the covenants of our credit arrangements.
Nine months ended September 30, 2020 and 2019
Cash Flow from Operating Activities
| Nine Months Ended September 30, | ||||||||||||||
| (in millions) | 2020 | 2019 | ||||||||||||
| Net cash provided by operating activities | $ | 1,209 | $ | 834 | ||||||||||
Cash provided by operating activities increased $375 million during the first nine months of 2020 as compared to the same period in 2019. The increase was primarily due to an increase in cash collections from clients and the impact of COVID-19 resulting in a decrease in accounts receivable and unbilled services compared to an increase in the prior period ($495 million), offset by less cash from other operating assets and liabilities ($99 million) and lower cash-related net income ($21 million).
Cash Flow from Investing Activities
| Nine Months Ended September 30, | ||||||||||||||
| (in millions) | 2020 | 2019 | ||||||||||||
| Net cash used in investing activities | $ | (560) | $ | (910) | ||||||||||
Cash used in investing activities decreased $350 million during the first nine months of 2020 as compared to the same period in 2019. This decrease was primarily driven by lower cash used for the acquisition of businesses, net of cash acquired ($343 million).
Cash Flow from Financing Activities
| Nine Months Ended September 30, | ||||||||||||||
| (in millions) | 2020 | 2019 | ||||||||||||
| Net cash (used in) provided by financing activities | $ | (19) | $ | 67 | ||||||||||
Cash provided by financing activities decreased $86 million during the first nine months of 2020 as compared to the same period in 2019. The decrease in cash provided by financing activities was primarily due to a decrease in cash provided by proceeds from revolving credit facilities, net of repayments ($140 million), a decrease in cash provided by proceeds from debt issuances, net of repayments and debt issuance costs ($212 million), less cash proceeds from employee stock option plans ($58 million), offset by less cash used to repurchase common stock ($333 million).
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Contractual Obligations and Commitments
We have various contractual obligations, which are recorded as liabilities in our consolidated financial statements.
With the exception of new senior secured credit facilities and senior note disclosed in Note 8 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, there have been no material changes, outside of the ordinary course of business, to our contractual obligations as previously disclosed in our 2019 Form 10-K.
Application of Critical Accounting Policies
There have been no material changes to our critical accounting policies as previously disclosed in our 2019 Form 10-K.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to our quantitative and qualitative disclosures about market risk as compared to the quantitative and qualitative disclosures about market risk described in our 2019 Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our CEO and CFO have concluded that as of such date, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings
We are party to legal proceedings incidental to our business. While the outcome of these matters could differ from management’s expectations, we do not believe that the resolution of these matters is reasonably likely to have a material adverse effect to our financial statements.
Item 1A. Risk Factors
For a discussion of the risks relating to our business, see Part I—Item 1A—“Risk Factors” of our 2019 Form 10-K, as updated in our 1Q 2020 Form 10-Q. There have been no material changes from the risk factors previously disclosed in our 1Q 2020 Form 10-Q.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Securities
Not applicable.
Use of Proceeds from Registered Securities
Not applicable.
Purchases of Equity Securities by the Issuer
On October 30, 2013, our Board approved the Repurchase Program authorizing the repurchase of up to $125.0 million of either our common stock or vested in-the-money employee stock options, or a combination thereof. Our Board increased the stock repurchase authorization under the Repurchase Program with respect to the repurchase of our common stock by $600 million, $1.5 billion, $2.0 billion, $1.5 billion and $2.0 billion in 2015, 2016, 2017, 2018 and 2019, respectively, which increased the total amount that has been authorized under the Repurchase Program to $7.725 billion. The Repurchase Program does not obligate us to repurchase any particular amount of common stock or vested in-the-money employee stock options, and it may be modified, suspended or discontinued at any time. The timing and amount of repurchases are determined by our management based on a variety of factors such as the market price of our common stock, our corporate requirements, and overall market conditions. Purchases of our common stock may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or in privately negotiated transactions. The Repurchase Program for common stock does not have an expiration date.
From inception of the Repurchase Program through September 30, 2020, we have repurchased a total of $6.7 billion of our securities under the Repurchase Program.
During the nine months ended September 30, 2020, we repurchased 2,106,403 shares of our common stock for approximately $321.4 million under the Repurchase Program. These amounts include 1,000,000 shares of our common stock repurchased from certain Selling Stockholders in a private transaction for an aggregate purchase price of approximately $164.3 million. See Note 9 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional details regarding the Repurchase Program.
As of September 30, 2020, we have remaining authorization to repurchase up to approximately $1.0 billion of our common stock under the Repurchase Program. In addition, from time to time, we have repurchased and may continue to repurchase common stock through private or other transactions outside of the Repurchase Program.
Since the merger between Quintiles and IMS Health, we have repurchased 65.0 million shares of our common stock at an average market price per share of $96.64 for an aggregate purchase price of $6.3 billion both under and outside of the Repurchase Program. This includes shares withheld from employees to satisfy certain tax obligations due in connection with grants of stock under the Quintiles IMS Holdings, Inc. 2017 Incentive and Stock Award Plan (the “Plan”). The Plan provides for the withholding of shares to satisfy tax obligations. It does not specify a maximum number of shares that can be withheld for this purpose. The shares of common stock withheld to satisfy tax withholding obligations may be deemed to be “issuer purchases” of shares that are required to be disclosed pursuant to this Item.
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The following table summarizes the monthly equity repurchase program activity for the three months ended September 30, 2020 and the approximate dollar value of shares that may yet be purchased pursuant to the Repurchase Program.
| (in millions, except per share data) | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||||||
| July 1, 2020 — July 31, 2020 | — | — | — | $ | 1,019 | |||||||||||||||||||||
| August 1, 2020 — August 30, 2020 | — | — | — | $ | 1,019 | |||||||||||||||||||||
| September 1, 2020 — September 30, 2020 | — | — | — | $ | 1,019 | |||||||||||||||||||||
| — | — | |||||||||||||||||||||||||
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Item 6. Exhibits
The exhibits below are filed or furnished as a part of this report and are incorporated herein by reference.
| Incorporated by Reference | ||||||||||||||||||||||||||||||||||||||
| Exhibit Number | Exhibit Description | Filed Herewith | Form | File No. | Exhibit | Filing Date | ||||||||||||||||||||||||||||||||
| 10.1 | X | |||||||||||||||||||||||||||||||||||||
| 31.1 | X | |||||||||||||||||||||||||||||||||||||
| 31.2 | X | |||||||||||||||||||||||||||||||||||||
| 32.1 | X | |||||||||||||||||||||||||||||||||||||
| 32.2 | X | |||||||||||||||||||||||||||||||||||||
| 101 | Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Statements of Income (unaudited), (ii) Condensed Consolidated Statements of Comprehensive Income (unaudited), (iii) Condensed Consolidated Balance Sheets (unaudited), (iv) Condensed Consolidated Statements of Cash Flows (unaudited), (v) Condensed Consolidated Statements of Stockholders’ Equity and (vi) Notes to Condensed Consolidated Financial Statements (unaudited). The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | X | ||||||||||||||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | X | ||||||||||||||||||||||||||||||||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized on October 22, 2020.
| IQVIA HOLDINGS INC. | |||||
| /s/ Ronald E. Bruehlman | |||||
Ronald E. Bruehlman Executive Vice President and Interim Chief Financial Officer (On behalf of the Registrant and as Principal Financial Officer) | |||||
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