IQVIA HOLDINGS INC. - Quarter Report: 2021 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, 2021
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
(Address of principal executive office and Zip Code)
(919) 998-2000
(Registrant’s telephone number, including area code)
_________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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 | 191,039,501 | shares outstanding | as of October 20, 2021 | |||||||||||
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) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Revenues | $ | 3,391 | $ | 2,786 | $ | 10,238 | $ | 8,061 | ||||||||||||||||||
| Costs of revenue, exclusive of depreciation and amortization | 2,253 | 1,800 | 6,869 | 5,328 | ||||||||||||||||||||||
| Selling, general and administrative expenses | 498 | 460 | 1,422 | 1,298 | ||||||||||||||||||||||
| Depreciation and amortization | 336 | 319 | 1,002 | 943 | ||||||||||||||||||||||
| Restructuring costs | 2 | 20 | 15 | 50 | ||||||||||||||||||||||
| Income from operations | 302 | 187 | 930 | 442 | ||||||||||||||||||||||
| Interest income | (2) | (1) | (4) | (4) | ||||||||||||||||||||||
| Interest expense | 92 | 100 | 285 | 314 | ||||||||||||||||||||||
| Loss on extinguishment of debt | 1 | — | 25 | 12 | ||||||||||||||||||||||
| Other income, net | (62) | (14) | (128) | (59) | ||||||||||||||||||||||
| Income before income taxes and equity in earnings of unconsolidated affiliates | 273 | 102 | 752 | 179 | ||||||||||||||||||||||
| Income tax expense (benefit) | 12 | (3) | 104 | 9 | ||||||||||||||||||||||
| Income before equity in earnings of unconsolidated affiliates | 261 | 105 | 648 | 170 | ||||||||||||||||||||||
| Equity in earnings of unconsolidated affiliates | — | 3 | 5 | 8 | ||||||||||||||||||||||
| Net income | 261 | 108 | 653 | 178 | ||||||||||||||||||||||
| Net income attributable to non-controlling interests | — | (7) | (5) | (18) | ||||||||||||||||||||||
| Net income attributable to IQVIA Holdings Inc. | $ | 261 | $ | 101 | $ | 648 | $ | 160 | ||||||||||||||||||
| Earnings per share attributable to common stockholders: | ||||||||||||||||||||||||||
| Basic | $ | 1.36 | $ | 0.53 | $ | 3.38 | $ | 0.84 | ||||||||||||||||||
| Diluted | $ | 1.34 | $ | 0.52 | $ | 3.32 | $ | 0.82 | ||||||||||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||||||||||||
| Basic | 191.5 | 191.3 | 191.5 | 191.3 | ||||||||||||||||||||||
| Diluted | 195.3 | 194.9 | 195.0 | 194.9 | ||||||||||||||||||||||
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
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Net income | $ | 261 | $ | 108 | $ | 653 | $ | 178 | ||||||||||||||||||
| Comprehensive income adjustments: | ||||||||||||||||||||||||||
Unrealized (losses) gains on derivative instruments, net of income tax expense (benefit) of $—, $(8), $—, $(11) | (4) | (1) | — | (33) | ||||||||||||||||||||||
Foreign currency translation, net of income tax (benefit) expense of $28, $(54), $66, $(83) | (117) | 130 | (237) | 20 | ||||||||||||||||||||||
| Reclassification adjustments: | ||||||||||||||||||||||||||
Losses on derivative instruments included in net income, net of income tax benefit of $1, $1, $2, $2 | 3 | 2 | 7 | 6 | ||||||||||||||||||||||
| Comprehensive income | 143 | 239 | 423 | 171 | ||||||||||||||||||||||
| Comprehensive income attributable to non-controlling interests | — | (11) | (5) | (17) | ||||||||||||||||||||||
| Comprehensive income attributable to IQVIA Holdings Inc. | $ | 143 | $ | 228 | $ | 418 | $ | 154 | ||||||||||||||||||
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, 2021 | December 31, 2020 | ||||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | 1,470 | $ | 1,814 | ||||||||||
| Trade accounts receivable and unbilled services, net | 2,330 | 2,410 | ||||||||||||
| Prepaid expenses | 164 | 159 | ||||||||||||
| Income taxes receivable | 56 | 56 | ||||||||||||
| Investments in debt, equity and other securities | 104 | 88 | ||||||||||||
| Other current assets and receivables | 410 | 563 | ||||||||||||
| Total current assets | 4,534 | 5,090 | ||||||||||||
| Property and equipment, net | 485 | 482 | ||||||||||||
| Operating lease right-of-use assets | 404 | 471 | ||||||||||||
| Investments in debt, equity and other securities | 74 | 78 | ||||||||||||
| Investments in unconsolidated affiliates | 84 | 84 | ||||||||||||
| Goodwill | 13,124 | 12,654 | ||||||||||||
| Other identifiable intangibles, net | 4,812 | 5,205 | ||||||||||||
| Deferred income taxes | 105 | 114 | ||||||||||||
| Deposits and other assets | 411 | 386 | ||||||||||||
| Total assets | $ | 24,033 | $ | 24,564 | ||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable and accrued expenses | $ | 2,663 | $ | 2,813 | ||||||||||
| Unearned income | 1,826 | 1,252 | ||||||||||||
| Income taxes payable | 53 | 102 | ||||||||||||
| Current portion of long-term debt | 91 | 149 | ||||||||||||
| Other current liabilities | 214 | 242 | ||||||||||||
| Total current liabilities | 4,847 | 4,558 | ||||||||||||
| Long-term debt, less current portion | 12,081 | 12,384 | ||||||||||||
| Deferred income taxes | 297 | 338 | ||||||||||||
| Operating lease liabilities | 323 | 371 | ||||||||||||
| Other liabilities | 656 | 633 | ||||||||||||
| Total liabilities | 18,204 | 18,284 | ||||||||||||
| Commitments and contingencies (Note 8) | ||||||||||||||
| Stockholders’ equity: | ||||||||||||||
Common stock and additional paid-in capital, 400.0 shares authorized as of September 30, 2021 and December 31, 2020, $0.01 par value, 255.6 shares issued and 191.1 shares outstanding as of September 30, 2021; 254.7 shares issued and 191.2 shares outstanding as of December 31, 2020 | 10,747 | 11,095 | ||||||||||||
| Retained earnings | 1,925 | 1,277 | ||||||||||||
Treasury stock, at cost, 64.5 and 63.5 shares as of September 30, 2021 and December 31, 2020, respectively | (6,398) | (6,166) | ||||||||||||
| Accumulated other comprehensive loss | (445) | (205) | ||||||||||||
| Equity attributable to IQVIA Holdings Inc.’s stockholders | 5,829 | 6,001 | ||||||||||||
| Non-controlling interests | — | 279 | ||||||||||||
| Total stockholders’ equity | 5,829 | 6,280 | ||||||||||||
| Total liabilities and stockholders’ equity | $ | 24,033 | $ | 24,564 | ||||||||||
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) | 2021 | 2020 | ||||||||||||
| Operating activities: | ||||||||||||||
| Net income | $ | 653 | $ | 178 | ||||||||||
| Adjustments to reconcile net income to cash provided by operating activities: | ||||||||||||||
| Depreciation and amortization | 1,002 | 943 | ||||||||||||
| Amortization of debt issuance costs and discount | 14 | 13 | ||||||||||||
| Stock-based compensation | 128 | 69 | ||||||||||||
| Earnings from unconsolidated affiliates | (5) | (8) | ||||||||||||
| Gain on investments, net | (9) | (17) | ||||||||||||
| Benefit from deferred income taxes | (83) | (160) | ||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||
| Change in accounts receivable, unbilled services and unearned income | 663 | 328 | ||||||||||||
| Change in other operating assets and liabilities | (113) | (137) | ||||||||||||
| Net cash provided by operating activities | 2,250 | 1,209 | ||||||||||||
| Investing activities: | ||||||||||||||
| Acquisition of property, equipment and software | (456) | (440) | ||||||||||||
| Acquisition of businesses, net of cash acquired | (994) | (118) | ||||||||||||
| Purchases of marketable securities, net | (9) | (8) | ||||||||||||
| Investments in unconsolidated affiliates, net of payments received | (3) | 8 | ||||||||||||
| Proceeds from sale of (investments in) equity securities | 5 | (2) | ||||||||||||
| Other | 1 | — | ||||||||||||
| Net cash used in investing activities | (1,456) | (560) | ||||||||||||
| Financing activities: | ||||||||||||||
| Proceeds from issuance of debt | 1,951 | 1,591 | ||||||||||||
| Payment of debt issuance costs | (40) | (33) | ||||||||||||
| Repayment of debt and principal payments on finance leases | (2,068) | (792) | ||||||||||||
| Proceeds from revolving credit facility | 410 | 1,250 | ||||||||||||
| Repayment of revolving credit facility | (300) | (1,610) | ||||||||||||
| (Payments) related to employee stock option plans | (51) | (43) | ||||||||||||
| Repurchase of common stock | (202) | (346) | ||||||||||||
| Distributions to non-controlling interest, net | — | (16) | ||||||||||||
| Acquisition of Quest's non-controlling interest | (758) | — | ||||||||||||
| Contingent consideration and deferred purchase price payments | (39) | (20) | ||||||||||||
| Net cash used in financing activities | (1,097) | (19) | ||||||||||||
| Effect of foreign currency exchange rate changes on cash | (41) | (3) | ||||||||||||
| (Decrease) increase in cash and cash equivalents | (344) | 627 | ||||||||||||
| Cash and cash equivalents at beginning of period | 1,814 | 837 | ||||||||||||
| Cash and cash equivalents at end of period | $ | 1,470 | $ | 1,464 | ||||||||||
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, 2020 | 254.7 | (63.5) | $ | 3 | $ | 11,092 | $ | 1,277 | $ | (6,166) | $ | (205) | $ | 279 | $ | 6,280 | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | 0.7 | — | — | (57) | — | — | — | — | (57) | |||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | (0.3) | — | — | — | (62) | — | — | (62) | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | 30 | — | — | — | — | 30 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 212 | — | — | 5 | 217 | |||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gains on derivative instruments, net of tax | — | — | — | — | — | — | 6 | — | 6 | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation, net of tax | — | — | — | — | — | — | (178) | — | (178) | |||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification adjustments, net of tax | — | — | — | — | — | — | 1 | — | 1 | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | 255.4 | (63.8) | $ | 3 | $ | 11,065 | $ | 1,489 | $ | (6,228) | $ | (376) | $ | 284 | $ | 6,237 | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | 0.2 | — | — | 1 | — | — | — | — | 1 | |||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | (0.2) | — | — | — | (45) | — | — | (45) | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | 42 | — | — | — | — | 42 | |||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of Quest's non-controlling interest, net of tax | — | — | — | (415) | — | — | (10) | (284) | (709) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 175 | — | — | — | 175 | |||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized losses on derivative instruments, net of tax | — | — | — | — | — | — | (2) | — | (2) | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation, net of tax | — | — | — | — | — | — | 58 | — | 58 | |||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification adjustments, net of tax | — | — | — | — | — | — | 3 | — | 3 | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | 255.6 | (64.0) | $ | 3 | $ | 10,693 | $ | 1,664 | $ | (6,273) | $ | (327) | $ | — | $ | 5,760 | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | — | — | — | 4 | — | — | — | — | 4 | |||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | (0.5) | — | — | — | (125) | — | — | (125) | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | 48 | — | — | — | — | 48 | |||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of Quest's non-controlling interest, net of tax | — | — | (1) | — | — | — | — | (1) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 261 | — | — | — | 261 | |||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized losses on derivative instruments, net of tax | — | — | — | — | — | — | (4) | — | (4) | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation, net of tax | — | — | — | — | — | — | (117) | — | (117) | |||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification adjustments, net of tax | — | — | — | — | — | — | 3 | — | 3 | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | 255.6 | (64.5) | $ | 3 | $ | 10,744 | $ | 1,925 | $ | (6,398) | $ | (445) | $ | — | $ | 5,829 | ||||||||||||||||||||||||||||||||||||||||
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, 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 | |||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | 30 | — | — | — | — | 30 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | (23) | — | — | 2 | (21) | |||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gains 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 interest, 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 | ||||||||||||||||||||||||||||||||||||||||
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 77,000 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, 2021. 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, 2020. The balance sheet as of December 31, 2020 has been derived from the audited consolidated financial statements of the Company, but does not include all the disclosures required by GAAP.
Recently Issued Accounting Standards
Accounting pronouncements adopted
In March 2020, the Financial Accounting Standards Board ("FASB") issued new accounting guidance that provides optional expedients and exceptions for applying 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 became effective for the Company as of March 12, 2020 through December 31, 2022. The Company adopted this new accounting guidance on January 1, 2021. The adoption of this new accounting guidance did not 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 Company adopted this new accounting guidance on January 1, 2021. The adoption of this new accounting guidance did not have a material effect on the Company’s 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 Company adopted this new accounting guidance on January 1, 2021. The adoption of this new accounting guidance did not have a material effect on the Company’s consolidated financial statements.
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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, 2021 and 2020:
| Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||
| (in millions) | Technology & Analytics Solutions | Research & Development Solutions | Contract Sales & Medical Solutions | Total | ||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||
| Americas | $ | 647 | $ | 942 | $ | 94 | $ | 1,683 | ||||||||||||||||||
| Europe and Africa | 529 | 448 | 42 | 1,019 | ||||||||||||||||||||||
| Asia-Pacific | 161 | 463 | 65 | 689 | ||||||||||||||||||||||
| Total revenues | $ | 1,337 | $ | 1,853 | $ | 201 | $ | 3,391 | ||||||||||||||||||
| 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 | ||||||||||||||||||
| Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||
| (in millions) | Technology & Analytics Solutions | Research & Development Solutions | Contract Sales & Medical Solutions | Total | ||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||
| Americas | $ | 1,882 | $ | 2,911 | $ | 258 | $ | 5,051 | ||||||||||||||||||
| Europe and Africa | 1,684 | 1,398 | 133 | 3,215 | ||||||||||||||||||||||
| Asia-Pacific | 472 | 1,303 | 197 | 1,972 | ||||||||||||||||||||||
| Total revenues | $ | 4,038 | $ | 5,612 | $ | 588 | $ | 10,238 | ||||||||||||||||||
| 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 | ||||||||||||||||||
No customer accounted for 10% or more of consolidated revenues for the three and nine months ended September 30, 2021 or 2020.
Transaction Price Allocated to the Remaining Performance Obligations
As of September 30, 2021, approximately $25.5 billion of revenue is expected to be recognized in the future from remaining performance obligations. The Company expects to recognize revenue on approximately 35% 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.
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3. Trade Accounts Receivable, Unbilled Services and Unearned Income
Trade accounts receivables and unbilled services consist of the following:
| (in millions) | September 30, 2021 | December 31, 2020 | ||||||||||||
| Trade accounts receivable: | ||||||||||||||
| Billed | $ | 1,141 | $ | 1,181 | ||||||||||
| Unbilled services | 1,219 | 1,263 | ||||||||||||
| Trade accounts receivable and unbilled services | 2,360 | 2,444 | ||||||||||||
| Allowance for doubtful accounts | (30) | (34) | ||||||||||||
| Trade accounts receivable and unbilled services, net | $ | 2,330 | $ | 2,410 | ||||||||||
Unbilled services and unearned income were as follows:
| (in millions, except percentages) | September 30, 2021 | December 31, 2020 | Change | |||||||||||||||||
| Unbilled services | $ | 1,219 | $ | 1,263 | $ | (44) | ||||||||||||||
| Unearned income | (1,826) | (1,252) | (574) | |||||||||||||||||
| Net balance | $ | (607) | $ | 11 | $ | (618) | ||||||||||||||
Unbilled services, which is comprised of approximately 63% of unbilled receivables and 37% of contract assets as of September 30, 2021, decreased by $44 million as compared to December 31, 2020. 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 $574 million over the same period resulting in a decrease of $618 million in the net balance of unbilled services and unearned income between December 31, 2020 and September 30, 2021. The change in the net balance is driven by the difference in timing of revenue recognition in accordance with Accounting Standards Codification ("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, 2021 and 2020.
4. Goodwill
The following is a summary of goodwill by reportable segment for the nine months ended September 30, 2021:
| (in millions) | Technology & Analytics Solutions | Research & Development Solutions | Contract Sales & Medical Solutions | Consolidated | ||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | 10,864 | $ | 1,646 | $ | 144 | $ | 12,654 | ||||||||||||||||||
| Business combinations | 587 | 160 | 25 | 772 | ||||||||||||||||||||||
| Impact of foreign currency fluctuations and other | (293) | (4) | (5) | (302) | ||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | 11,158 | $ | 1,802 | $ | 164 | $ | 13,124 | ||||||||||||||||||
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5. 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, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||
| Assets | Liabilities | Notional | Assets | Liabilities | Notional | |||||||||||||||||||||||||||||||||||||||
| Derivatives designated as hedging instruments: | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange forward contracts | Other current assets and liabilities | $ | — | $ | 4 | $ | 109 | $ | 5 | $ | — | $ | 70 | |||||||||||||||||||||||||||||||
| Interest rate swaps | Other assets and liabilities | — | 38 | 1,800 | — | 55 | 1,800 | |||||||||||||||||||||||||||||||||||||
| Derivatives not designated as hedging instruments: | ||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | Other liabilities | — | — | — | — | 1 | 356 | |||||||||||||||||||||||||||||||||||||
| Total derivatives | $ | — | $ | 42 | $ | 5 | $ | 56 | ||||||||||||||||||||||||||||||||||||
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) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Foreign exchange forward contracts | $ | (5) | $ | 2 | $ | (9) | $ | (4) | ||||||||||||||||||
| Interest rate derivatives | 4 | 1 | 17 | (32) | ||||||||||||||||||||||
| Total | $ | (1) | $ | 3 | $ | 8 | $ | (36) | ||||||||||||||||||
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, 2021 was $332 million.
6. 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.
The carrying values of cash, cash equivalents, accounts receivable and accounts payable approximated their fair values as of September 30, 2021 and December 31, 2020 due to their short-term nature. As of September 30, 2021 and December 31, 2020, the fair value of total debt approximated $12,333 million and $12,746 million, respectively, as determined under Level 1 and Level 2 measurements for these financial instruments.
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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, 2021:
| (in millions) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Marketable securities | $ | 137 | $ | — | $ | — | $ | 137 | ||||||||||||||||||
| Total | $ | 137 | $ | — | $ | — | $ | 137 | ||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Derivatives | $ | — | $ | 42 | $ | — | $ | 42 | ||||||||||||||||||
| Contingent consideration | — | — | 96 | 96 | ||||||||||||||||||||||
| Total | $ | — | $ | 42 | $ | 96 | $ | 138 | ||||||||||||||||||
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. 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. Based on the assessments of the probability of achieving specific targets, as of September 30, 2021 the Company has accrued approximately 66% of the maximum contingent consideration payments that could potentially become payable.
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) | 2021 | 2020 | ||||||||||||
| Balance as of January 1 | $ | 119 | $ | 113 | ||||||||||
| Business combinations | 39 | 32 | ||||||||||||
| Contingent consideration paid | (37) | (22) | ||||||||||||
| Revaluations included in earnings and foreign currency translation adjustments | (25) | (15) | ||||||||||||
| Balance as of September 30 | $ | 96 | $ | 108 | ||||||||||
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 income, net on the accompanying condensed consolidated statements of income. A change in significant unobservable inputs above could result in a higher or lower fair value measurement of contingent consideration.
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7. Credit Arrangements
The following is a summary of the Company’s revolving credit facilities as of September 30, 2021:
Facility | Interest Rates | |||||||
$1,500 million (revolving credit facility) | LIBOR in the relevant currency borrowed plus a margin of 1.25% as of September 30, 2021 | |||||||
$110 million (receivables financing facility) | LIBOR Market Index Rate (0.08% as of September 30, 2021) plus 0.90% | |||||||
£10 million (approximately $14 million) (general banking facility) | Bank’s base rate of 0.10% as of September 30, 2021 plus 1% | |||||||
The following table summarizes the Company’s debt at the dates indicated:
| (in millions) | September 30, 2021 | December 31, 2020 | ||||||||||||
| Senior Secured Credit Facilities: | ||||||||||||||
Term A Loan due 2023—U.S. Dollar | $ | — | $ | 728 | ||||||||||
Term A Loan due 2023—U.S. Dollar | — | 766 | ||||||||||||
Term A Loan due 2026—U.S. Dollar LIBOR at average floating rates of 1.33% | 1,433 | — | ||||||||||||
Term A Loan due 2023—Euro | — | 400 | ||||||||||||
Term A Loan due 2026—Euro LIBOR at average floating rates of 1.25% | 363 | — | ||||||||||||
Term B Loan due 2024—U.S. Dollar LIBOR at average floating rates of 1.85% | 510 | 535 | ||||||||||||
Term B Loan due 2024—Euro LIBOR at average floating rates of 2.00% | 1,269 | 1,413 | ||||||||||||
Term B Loan due 2025—U.S. Dollar LIBOR at average floating rates of 1.85% | 670 | 726 | ||||||||||||
Term B Loan due 2025—U.S. Dollar LIBOR at average floating rates of 1.90% | 860 | 926 | ||||||||||||
Term B Loan due 2025—Euro LIBOR at average floating rates of 2.00% | 605 | 697 | ||||||||||||
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 | 487 | 515 | ||||||||||||
3.25% Senior Notes due 2025—Euro denominated | — | 1,748 | ||||||||||||
2.25% Senior Notes due 2028—Euro denominated | 834 | 883 | ||||||||||||
2.875% Senior Notes due 2028—Euro denominated | 824 | 872 | ||||||||||||
1.750% Senior Notes due 2026—Euro denominated | 637 | — | ||||||||||||
2.250% Senior Notes due 2029—Euro denominated | 1,043 | — | ||||||||||||
Receivables financing facility due 2022—U.S. Dollar | — | 240 | ||||||||||||
Receivables financing facility due 2024—U.S. Dollar LIBOR at average floating rates of 0.98% | 550 | — | ||||||||||||
| Principal amount of debt | 12,236 | 12,600 | ||||||||||||
| Less: unamortized discount and debt issuance costs | (64) | (67) | ||||||||||||
| Less: current portion | (91) | (149) | ||||||||||||
| Long-term debt | $ | 12,081 | $ | 12,384 | ||||||||||
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Contractual maturities of long-term debt are as follows as of September 30, 2021:
| (in millions) | ||||||||
| Remainder of 2021 | $ | 23 | ||||||
| 2022 | 91 | |||||||
| 2023 | 91 | |||||||
| 2024 | 2,419 | |||||||
| 2025 | 2,714 | |||||||
| Thereafter | 6,898 | |||||||
| $ | 12,236 | |||||||
As of September 30, 2021, there were bank guarantees totaling approximately £0.8 million (approximately $1.0 million) issued against the availability of the general banking facility.
Senior Secured Credit Facilities
On August 25, 2021, we entered into Amendment No. 9 (the “Amendment”) to the Company’s Fourth Amended and Restated Credit Agreement (the “Prior Credit Agreement,” and together with the Amendment, the "Fifth Amended and Restated Credit Agreement") to (i) extend the maturity of our revolving credit facility to 2026, (ii) refinance our existing term A loans with a new class of term A loans that mature in 2026 and (iii) add IQVIA RDS Inc. as a borrower under the senior secured credit facilities. In connection with this Amendment, we recognized a $1 million loss on extinguishment of debt, which includes fees and related expenses.
As of September 30, 2021, the Fifth Amended and Restated Credit Agreement provided financing through several senior secured credit facilities (collectively, the “senior secured credit facilities”) of up to approximately $7.2 billion, which consisted of $5.7 billion principal amounts of debt outstanding (as detailed in the table above), and $1.5 billion of available borrowing capacity on the revolving credit facility and standby letters of credit.
On September 14, 2021, we repaid $250 million of our term B loans under the senior secured credit facilities using the proceeds from the increased loans under our receivables financing facility.
Receivables Financing Facility
On August 13, 2021, the Company amended its receivables financing facility (the “Receivables Amendment”) to extend the term of the facility to October 1, 2024 and to increase the size of the facility to $550 million from $300 million. Under the receivables financing facility, certain of our accounts receivable are sold on a non-recourse basis by certain of our consolidated subsidiaries (each, an “Originator”) to another of our consolidated subsidiaries, a bankruptcy-remote special purpose entity (the “SPE”). The SPE obtained a term loan and revolving loan commitment from a third-party lender, secured by liens on the assets of the SPE, to finance the purchase of the accounts receivable, which includes a $440 million term loan and a $110 million revolving loan commitment. Pursuant to the Receivables Amendment, we also added three additional subsidiaries as Originators. As of September 30, 2021, no additional amounts of revolving loans were available under the receivables financing facility.
Senior Notes
On March 3, 2021, IQVIA Inc. (the “Issuer”), a wholly owned subsidiary of the Company, completed the issuance and sale of €1,450,000,000 in gross proceeds of the Issuer's (i) €550,000,000 aggregate principal amount of its 1.750% Senior Notes due 2026 (the “2026 Notes”) and (ii) €900,000,000 aggregate principal amount of its 2.250% Senior Notes due 2029 (the “2029 Notes” and, together with the 2026 Notes, the “Notes”). The Notes were issued pursuant to an Indenture, dated March 3, 2021, among the Issuer, U.S. Bank National Association, as trustee of the Notes, and certain subsidiaries of the Issuer as guarantors. The 2026 Notes are unsecured obligations of the Issuer, will mature on March 15, 2026 and bear interest at the rate of 1.750% per year, with interest payable semi-annually on March 15 and September 15 of each year, beginning on September 15, 2021. The 2029 Notes are unsecured obligations of the Issuer, will mature on March 15, 2029 and bear interest at the rate of 2.250% per year, with interest payable semi-annually on March 15 and September 15 of each year, beginning on September 15, 2021. The Issuer may redeem (i) the 2026 Notes prior to their final stated maturity, subject to a customary make-whole premium, at any time prior to March 15, 2023 (subject to a customary “equity claw” redemption right) and thereafter subject to a redemption premium declining from 0.875% to 0.000% and (ii) the 2029 Notes prior to their final stated maturity, subject to a
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customary make-whole premium, at any time prior to March 15, 2024 (subject to a customary “equity claw” redemption right) and thereafter subject to a redemption premium declining from 1.125% to 0.000%. The Issuer may choose to redeem the 2026 Notes and the 2029 Notes, either together or separately, on a non-ratable basis. The proceeds from the Notes offering were used to redeem all of the Issuer’s outstanding 3.250% senior notes due 2025 (the “3.250% Notes”), including the payment of premiums in respect thereof and to pay fees and expenses related to the Notes offering. On February 16, 2021, the Issuer issued a conditional notice of redemption with respect to the 3.250% Notes, for a total redemption price equal to the sum of the principal amount of the 3.250% Notes, accrued and unpaid interest on the 3.250% Notes to the redemption date and the applicable redemption premium. The Issuer’s obligations with respect to the 3.250% Notes were discharged on the same day as the Issuer completed the issuance of the Notes.
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. As of September 30, 2021, the Company was in compliance in all material respects with the financial covenants under the Company’s financing arrangements.
8. Contingencies
The Company and its subsidiaries are involved in legal and tax proceedings, claims and litigation arising in the ordinary course of business. Management periodically assesses the Company’s liabilities and contingencies in connection with these matters based upon the latest information available. For those matters where management currently believes it is probable that the Company will incur a loss and that the probable loss or range of loss can be reasonably estimated, the Company has recorded reserves in the consolidated financial statements based on its best estimates of such loss. In other instances, because of the uncertainties related to either the probable outcome or the amount or range of loss, management is unable to make a reasonable estimate of a liability, if any.
However, even in many instances where the Company has recorded an estimated liability, the Company is unable to predict with certainty the final outcome of the matter or whether resolution of the matter will materially affect the Company’s results of operations, financial position or cash flows. As additional information becomes available, the Company adjusts its assessments and estimates of such liabilities accordingly.
The Company routinely enters into agreements with third parties, including our clients and suppliers, all in the normal course of business. In these agreements, the Company sometimes agrees to indemnify and hold harmless the other party for any damages such other party may suffer as a result of potential intellectual property infringement and other claims. The Company has not accrued a liability with respect to these matters generally, as the exposure is considered remote.
Based on its review of the latest information available, management does not expect the impact of pending legal and tax proceedings, claims and litigation, either individually or in the aggregate, to have a material adverse effect on the Company’s results of operations, cash flows or financial position. However, one or more unfavorable outcomes in any claim or litigation against the Company could have a material adverse effect for the period in which it is resolved. The following is a summary of certain legal matters involving the Company.
On February 13, 2014, a group of approximately 1,200 medical doctors and 900 private individuals filed a civil lawsuit with the Seoul Central District Court against IMS Korea and two other defendants, KPA and the Korean Pharmaceutical Information Center (“KPIC”). The civil lawsuit alleges KPA and KPIC collected their personal information in violation of applicable privacy laws without the necessary consent through a software system installed on pharmacy computer systems in Korea, and that personal information was transferred to IMS Korea and sold to pharmaceutical companies. On September 11, 2017, the District Court issued a final decision that the encryption in use by the defendants since June 2014 was adequate to meet the requirements of the Korean Personal Information Privacy Act (“PIPA”) and the sharing of non-identified information for market research purposes was allowed under PIPA. The District Court also found an earlier version of encryption was insufficient to meet PIPA requirements, but no personal data had been leaked or re-identified. The District Court did not award any damages to plaintiffs. Approximately 280 medical doctors and 200 private individuals appealed the District Court decision. On May 3,
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2019, the Appellate Court issued a final decision in which it concluded all of the non-identified information transferred by KPIC to IMS Korea for market research purposes violated PIPA, but did not award any damages to plaintiffs (affirming the District Court’s decision on this latter point). On May 24, 2019, approximately 247 plaintiffs appealed the Appellate Court’s decision to the Supreme Court. The Company believes the appeal is without merit and is vigorously defending its position.
On July 23, 2015, indictments were issued by the Seoul Central District Prosecutors’ Office in South Korea against 24 individuals and companies alleging improper handling of sensitive health information in violation of, among others, South Korea’s Personal Information Protection Act. IMS Korea and two of its employees were among the individuals and organizations indicted. Although there is no assertion that IMS Korea used patient identified health information in any of its offerings, prosecutors allege that certain of IMS Korea’s data suppliers should have obtained patient consent when they converted sensitive patient information into non-identified data and that IMS Korea had not taken adequate precautions to reduce the risk of re-identification. On February 14, 2020, the Seoul Central District Court acquitted IMS Korea and its two employees of the charges of improper handling of sensitive health information. The matter is now on appeal. The Company intends to vigorously defend its position on appeal.
On January 10, 2017, Quintiles IMS Health Incorporated and IMS Software Services Ltd. (collectively “IQVIA Parties”), filed a lawsuit in the U.S. District Court for the District of New Jersey against Veeva Systems, Inc. (“Veeva”) alleging Veeva unlawfully used IQVIA Parties intellectual property to improve Veeva data offerings, to promote and market Veeva data offerings and to improve Veeva technology offerings. IQVIA Parties seek injunctive relief, appointment of a monitor, the award of compensatory and punitive damages and reimbursement of all litigation expenses, including reasonable attorneys’ fees and costs. On March 13, 2017, Veeva filed counterclaims alleging anticompetitive business practices in violation of the Sherman Act and state laws. Veeva claims damages in excess of $200 million, and is seeking punitive damages and litigation costs, including attorneys’ fees. We believe the counterclaims are without merit, reject all counterclaims raised by Veeva and intend to vigorously defend IQVIA Parties’ position and pursue our claims against Veeva. Since the initial filings, the parties have filed additional litigations against each other, primarily concerning the use of IQVIA data with various other Veeva products. The parties are engaged in the discovery process in connection with these lawsuits.
On May 7, 2021, the Court issued a 115-page order and opinion (the “Order”) in which it found significant evidence that Veeva had (1) misappropriated IQVIA data and unlawfully used it to improve Veeva data offerings, (2) engaged in a cover-up by deleting significant evidence of its theft of IQVIA’s trade secrets, and (3) improperly withheld certain evidence in furtherance of a crime and/or fraud against IQVIA. The Court imposed five serious sanctions against Veeva, including ordering three separate adverse inference instructions be issued to the jury and that IQVIA be permitted to present evidence to the jury of Veeva’s destruction efforts. Veeva is currently appealing the Order.
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, 2021 or December 31, 2020.
Equity Repurchase Program
During the nine months ended September 30, 2021, the Company repurchased 973,313 shares of its common stock for $221 million under its equity repurchase program (the “Repurchase Program”). As of September 30, 2021, the Company has remaining authorization to repurchase up to approximately $0.7 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.
Non-controlling Interests
On April 1, 2021 the Company acquired the 40% non-controlling interest in Q2 Solutions from Quest Diagnostics Incorporated ("Quest") for approximately $758 million, financed with cash on hand. The $758 million reflects post-closing adjustments to date. The transaction resulted in the Company having 100% ownership in Q2 Solutions. As of September 30, 2021, the Company had no other material non-controlling interests.
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10. Business Combinations
The Company completed several individually immaterial acquisitions during the nine months ended September 30, 2021. The Company’s assessment of fair value and the purchase price allocation related to these acquisitions is preliminary and subject to change upon completion. Further adjustments may be necessary as additional information related to the fair values of assets acquired and liabilities assumed is assessed during the measurement period (up to one year from the acquisition date). The Company recorded goodwill from these acquisitions, primarily attributable to assembled workforce and expected synergies. The condensed consolidated financial statements include the results of the acquisitions subsequent to their respective closing dates. Pro forma information is not presented as pro forma results of operations would not be materially different to the actual results of operations of the Company.
The following table provides certain financial information for these acquisitions, including the preliminary allocation of the purchase price to certain intangible assets acquired and goodwill:
| (in millions) | 2021 | Amortization Period | ||||||||||||
| Assets acquired: | ||||||||||||||
| Cash and cash equivalents | $ | 7 | ||||||||||||
| Other assets | 40 | |||||||||||||
| Goodwill | 772 | |||||||||||||
| Other identifiable intangibles, net | ||||||||||||||
| Customer relationships | 208 | 16 years | ||||||||||||
| Non-compete agreements | 2 | 5 years | ||||||||||||
| Software and related assets | 72 | 8 years | ||||||||||||
| Trade names | 7 | 10 years | ||||||||||||
| Backlog | 17 | 2 years | ||||||||||||
| Liabilities assumed: | ||||||||||||||
| Other liabilities | (21) | |||||||||||||
| Deferred income taxes, long-term | (60) | |||||||||||||
| Net assets acquired | $ | 1,044 | ||||||||||||
The portion of goodwill deductible for income tax purposes was preliminarily assessed as $503 million.
11. Restructuring
The Company has continued to take restructuring actions in 2021 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 2022.
The following amounts were recorded for the restructuring plans:
| (in millions) | Severance and Related Costs | Facility Exit Costs | Total | |||||||||||||||||
| Balance as of December 31, 2020 | $ | 51 | $ | 2 | $ | 53 | ||||||||||||||
| Expense, net of reversals | 15 | — | 15 | |||||||||||||||||
| Payments | (35) | (1) | (36) | |||||||||||||||||
| Foreign currency translation and other | (2) | — | (2) | |||||||||||||||||
| Balance as of September 30, 2021 | $ | 29 | $ | 1 | $ | 30 | ||||||||||||||
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 as of September 30, 2021 will be paid in 2021 and 2022.
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12. Income Taxes
The effective income tax rate was 4.4% and (2.9)% in the third quarter of 2021 and 2020, respectively, and 13.8% and 5.0% in the first nine months of 2021 and 2020, respectively. In the third quarter of 2021 the Company recorded a benefit related to a 2020 U.S. Federal tax return position associated with Foreign Derived Intangible Income (“FDII”) and Global Intangible Low-Taxed Income (“GILTI”) tax credits of $29 million. In the third quarter of 2020, the U.S. Treasury Department issued final regulations regarding FDII and GILTI and the Company had determined it would elect the GILTI high tax exception as allowed by the final regulations. As a result, the Company amended its 2018 U.S. Federal consolidated income tax return and plans to amend its 2019 U.S. Federal consolidated income tax return. This resulted in a favorable impact of $24 million, which the Company recorded in the third quarter of 2020. Additionally, the effective income tax rate in the third quarter and first nine months of 2021 and 2020 was favorably impacted as a result of excess tax benefits recognized upon settlement of share-based compensation awards. For the third quarter of 2021 and 2020 this impact was $3 million and $9 million, respectively, and for the first nine months of 2021 and 2020 this impact was $26 million and $35 million, respectively. Also, 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 U.S. tax on undistributed foreign earnings.
13. Comprehensive Income
Below is a summary of the components of AOCI:
| (in millions) | Foreign Currency Translation | Derivative Instruments | Defined Benefit Plans | Income Taxes | Total | |||||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | (395) | $ | (48) | $ | (85) | $ | 323 | $ | (205) | ||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (170) | (1) | — | (66) | (237) | |||||||||||||||||||||||||||
| Reclassification adjustments | — | 9 | — | (2) | 7 | |||||||||||||||||||||||||||
| Acquisition of Quest's non-controlling interest | (10) | — | — | — | (10) | |||||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | (575) | $ | (40) | $ | (85) | $ | 255 | $ | (445) | ||||||||||||||||||||||
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, | |||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||
| Derivative instruments: | ||||||||||||||||||||||||||||||||
| Interest rate swaps and caps | Interest expense | $ | 5 | $ | — | $ | 14 | $ | — | |||||||||||||||||||||||
| Foreign exchange forward contracts | Revenues | (1) | 4 | (5) | 9 | |||||||||||||||||||||||||||
| Foreign exchange forward contracts | Other income, net | — | (1) | — | (1) | |||||||||||||||||||||||||||
| Total before income taxes | 4 | 3 | 9 | 8 | ||||||||||||||||||||||||||||
| Income tax benefit | 1 | 1 | 2 | 2 | ||||||||||||||||||||||||||||
| Total net of income taxes | $ | 3 | $ | 2 | $ | 7 | $ | 6 | ||||||||||||||||||||||||
14. 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 critical information, technology solutions and real world insights and services to our life science clients. Research & Development Solutions, which primarily serves biopharmaceutical clients, is engaged in research and development and provides clinical research and clinical trial services. Contract Sales & Medical Solutions provides contract sales to both biopharmaceutical clients 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) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||
| Technology & Analytics Solutions | $ | 1,337 | $ | 1,207 | $ | 4,038 | $ | 3,433 | ||||||||||||||||||
| Research & Development Solutions | 1,853 | 1,400 | 5,612 | 4,076 | ||||||||||||||||||||||
| Contract Sales & Medical Solutions | 201 | 179 | 588 | 552 | ||||||||||||||||||||||
| Total revenues | 3,391 | 2,786 | 10,238 | 8,061 | ||||||||||||||||||||||
| Costs of revenue, exclusive of depreciation and amortization | ||||||||||||||||||||||||||
| Technology & Analytics Solutions | 795 | 727 | 2,415 | 2,048 | ||||||||||||||||||||||
| Research & Development Solutions | 1,291 | 925 | 3,967 | 2,811 | ||||||||||||||||||||||
| Contract Sales & Medical Solutions | 167 | 148 | 487 | 469 | ||||||||||||||||||||||
| Total costs of revenue | 2,253 | 1,800 | 6,869 | 5,328 | ||||||||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||||||||||||
| Technology & Analytics Solutions | 199 | 188 | 579 | 549 | ||||||||||||||||||||||
| Research & Development Solutions | 198 | 184 | 576 | 544 | ||||||||||||||||||||||
| Contract Sales & Medical Solutions | 14 | 14 | 41 | 44 | ||||||||||||||||||||||
| General corporate and unallocated | 87 | 74 | 226 | 161 | ||||||||||||||||||||||
| Total selling, general and administrative expenses | 498 | 460 | 1,422 | 1,298 | ||||||||||||||||||||||
| Segment profit | ||||||||||||||||||||||||||
| Technology & Analytics Solutions | 343 | 292 | 1,044 | 836 | ||||||||||||||||||||||
| Research & Development Solutions | 364 | 291 | 1,069 | 721 | ||||||||||||||||||||||
| Contract Sales & Medical Solutions | 20 | 17 | 60 | 39 | ||||||||||||||||||||||
| Total segment profit | 727 | 600 | 2,173 | 1,596 | ||||||||||||||||||||||
| General corporate and unallocated | (87) | (74) | (226) | (161) | ||||||||||||||||||||||
| Depreciation and amortization | (336) | (319) | (1,002) | (943) | ||||||||||||||||||||||
| Restructuring costs | (2) | (20) | (15) | (50) | ||||||||||||||||||||||
| Total income from operations | $ | 302 | $ | 187 | $ | 930 | $ | 442 | ||||||||||||||||||
15. 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) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Shares subject to performance conditions | 0.9 | 1.1 | 0.8 | 1.2 | ||||||||||||||||||||||
| Shares subject to anti-dilutive stock-based awards | — | 1.1 | 0.1 | 1.3 | ||||||||||||||||||||||
| Total shares excluded from diluted earnings per share | 0.9 | 2.2 | 0.9 | 2.5 | ||||||||||||||||||||||
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, 2020 (our “2020 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 2020 Form 10-K, as updated in this Quarterly Report on Form 10-Q.
Overview
IQVIA is a leading global provider of advanced analytics, technology solutions, and clinical research services to the life sciences industry. IQVIA creates intelligent connections across all aspects of healthcare through its analytics, transformative technology, big data resources and extensive domain expertise. IQVIA Connected Intelligence™ delivers powerful insights with speed and agility — enabling customers to accelerate the clinical development and commercialization of innovative medical treatments that improve healthcare outcomes for patients. With approximately 77,000 employees, we conduct operations in more than 100 countries.
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We are a global leader in protecting individual patient privacy. We use a wide variety of privacy-enhancing technologies and safeguards to protect individual privacy while generating and analyzing information on a scale that helps healthcare stakeholders identify disease patterns and correlate with the precise treatment path and therapy needed for better outcomes. Our insights and execution capabilities help biotech, medical device and pharmaceutical companies, medical researchers, government agencies, payers and other healthcare stakeholders tap into a deeper understanding of diseases, human behaviors and scientific advances, in an effort to advance their path toward cures.
We are managed 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 clients. Research & Development Solutions, which primarily serves biopharmaceutical clients, is engaged in research and development and provides clinical research and clinical trial services. Contract Sales & Medical Solutions provides contract sales to both biopharmaceutical clients and the broader healthcare market.
Sources of Revenue
Total revenues are comprised of revenues from the provision of our services. We do not have material product revenues.
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 2021, 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 revenues 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) | 2021 | 2020 | $ | % | ||||||||||||||||||||||
| Revenues | $ | 3,391 | $ | 2,786 | $ | 605 | 21.7 | % | ||||||||||||||||||
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For the third quarter of 2021, our revenues increased $605 million, or 21.7%, as compared to the same period in 2020. This increase was comprised of constant currency revenue growth of approximately $589 million, or 21.1%, reflecting an $120 million increase in Technology & Analytics Solutions, a $446 million increase in Research & Development Solutions, and a $23 million increase in Contract Sales & Medical Solutions.
| Nine Months Ended September 30, | Change | |||||||||||||||||||||||||
(in millions) | 2021 | 2020 | $ | % | ||||||||||||||||||||||
| Revenues | $ | 10,238 | $ | 8,061 | $ | 2,177 | 27.0 | % | ||||||||||||||||||
For the first nine months of 2021, our revenues increased $2,177 million, or 27.0%, as compared to the same period in 2020. This increase was comprised of constant currency revenue growth of approximately $2,015 million, or 25.0%. The constant currency revenue growth was comprised of a $510 million increase in Technology & Analytics Solutions, an $1,477 million increase in Research & Development Solutions, and a $28 million increase in Contract Sales & Medical Solutions.
Costs of Revenue, exclusive of Depreciation and Amortization
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
(in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Costs of revenue, exclusive of depreciation and amortization | $ | 2,253 | $ | 1,800 | $ | 6,869 | $ | 5,328 | ||||||||||||||||||
% of revenues | 66.4 | % | 64.6 | % | 67.1 | % | 66.1 | % | ||||||||||||||||||
The $453 million increase in costs of revenue, exclusive of depreciation and amortization, for the three months ended September 30, 2021 as compared to the same period in 2020 included a constant currency growth of approximately $436 million, or 24.2%, reflecting a $56 million increase in Technology & Analytics Solutions, a $359 million increase in Research & Development Solutions, and a $21 million increase in Contract Sales & Medical Solutions.
The $1,541 million increase in costs of revenue, exclusive of depreciation and amortization, for the nine months ended September 30, 2021 as compared to the same period in 2020 included a constant currency growth of approximately $1,382 million, or 25.9%, reflecting a $294 million increase in Technology & Analytics Solutions, a $1,076 million increase in Research & Development Solutions, and a $12 million increase in Contract Sales & Medical Solutions.
Selling, General and Administrative Expenses
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
(in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Selling, general and administrative expenses | $ | 498 | $ | 460 | $ | 1,422 | $ | 1,298 | ||||||||||||||||||
% of revenues | 14.7 | % | 16.5 | % | 13.9 | % | 16.1 | % | ||||||||||||||||||
The $38 million increase in selling, general and administrative expenses for the three months ended September 30, 2021 as compared to the same period in 2020 included a constant currency growth of approximately $33 million, or 7.2%, reflecting a $9 million increase in Technology & Analytics Solutions, a $12 million increase in Research & Development Solutions, and a $12 million increase in general corporate and unallocated expenses, while Contract Sales & Medical Solutions remained consistent.
The $124 million increase in selling, general and administrative expenses for the nine months ended September 30, 2021 as compared to the same period in 2020 included a constant currency growth of approximately $94 million, or 7.2%, reflecting a $15 million increase in Technology & Analytics Solutions, a $23 million increase in Research & Development Solutions, and a $60 million increase in general corporate and unallocated expenses, offset by a $(4) million decrease in Contract Sales & Medical Solutions.
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Depreciation and Amortization
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
(in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Depreciation and amortization | $ | 336 | $ | 319 | $ | 1,002 | $ | 943 | ||||||||||||||||||
% of revenues | 9.9 | % | 11.5 | % | 9.8 | % | 11.7 | % | ||||||||||||||||||
The $17 million and $59 million increases in depreciation and amortization in the three and nine months ended September 30, 2021 as compared to the same periods in 2020 were primarily due to higher intangible asset balances as a result of acquisitions occurring in 2020 and 2021, increased amortization due to higher capitalized software balances, and accelerated amortization related to intangibles impacted by the Company's acquisition of Quest's non-controlling interest in Q2 Solutions.
Restructuring Costs
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Restructuring costs | $ | 2 | $ | 20 | $ | 15 | $ | 50 | ||||||||||||||||||
The restructuring costs incurred during 2021 and 2020 were due to ongoing efforts to streamline our global operations. The remaining actions under these plans are expected to occur throughout 2021 and into 2022 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) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Interest income | $ | (2) | $ | (1) | $ | (4) | $ | (4) | ||||||||||||||||||
| Interest expense | $ | 92 | $ | 100 | $ | 285 | $ | 314 | ||||||||||||||||||
Interest income includes interest received primarily from bank balances and investments.
Interest expense during the three and nine months ended September 30, 2021 was lower than the same periods in 2020 due to lower interest rates attributed to lower LIBOR rates, the refinancing of our existing term A loans and the redemption of the €1,425 million of 3.250% senior notes due 2025. See “Liquidity and Capital Resources” for more information on this transaction.
Loss on Extinguishment of Debt
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Loss on extinguishment of debt | $ | 1 | $ | — | $ | 25 | $ | 12 | ||||||||||||||||||
During the three months ended September 30, 2021, we recognized a loss on extinguishment of debt for fees and expenses incurred related to the refinancing of our Prior Credit Agreement.
During the nine months ended September 30, 2021, we recognized a loss on extinguishment of debt for fees and expenses incurred related to the refinancing of our 3.250% senior notes due 2025 and Prior Credit Agreement..
Other Income, Net
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Other income, net | $ | (62) | $ | (14) | $ | (128) | $ | (59) | ||||||||||||||||||
Other income, net for the three and nine months ended September 30, 2021 increased as compared to the same periods in the prior year, primarily due to foreign currency gain.
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Income Tax Expense (Benefit)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Income tax expense (benefit) | $ | 12 | $ | (3) | $ | 104 | $ | 9 | ||||||||||||||||||
Our effective income tax rate was 4.4% and (2.9)% in the third quarter of 2021 and 2020, respectively, and 13.8% and 5.0% in the first nine months of 2021 and 2020. In the third quarter of 2021, we recorded a benefit related to a 2020 U.S. Federal tax return position associated with Foreign Derived Intangible Income (“FDII”) and Global Intangible Low-Taxed Income (“GILTI”) tax credits of $29 million. In the third quarter of 2020, the U.S. Treasury Department issued final regulations regarding FDII and GILTI and we had determined we would elect the GILTI high tax exception as allowed by the final regulations. As a result, we amended our 2018 U.S. Federal consolidated income tax return and plan to amend our 2019 U.S. Federal consolidated income tax return. This resulted in a favorable impact of $24 million, which we recorded in the third quarter of 2020. Additionally, our effective income tax rate in the third quarter and in the first nine months of 2021 and 2020 was favorably impacted as a result of excess tax benefits recognized upon settlement of share-based compensation awards. For the third quarter of 2021 and 2020, this impact was $3 million and $9 million, respectively, and for the first nine months of 2021 and 2020, this impact was $26 million and $35 million, respectively. Also, 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 U.S. tax on undistributed foreign earnings.
Equity in Earnings of Unconsolidated Affiliates
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Equity in earnings of unconsolidated affiliates | $ | — | $ | 3 | $ | 5 | $ | 8 | ||||||||||||||||||
Equity in earnings of unconsolidated affiliates for the three months ended September 30, 2021 decreased as compared to the same period in the prior year primarily due to losses from our investments in the NovaQuest Pharma Opportunities Funds.
Equity in earnings of unconsolidated affiliates for the nine months ended September 30, 2021 decreased as compared to the same period in the prior year primarily due to losses from investments in some of our unconsolidated affiliates.
Net Income Attributable to Non-controlling Interests
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Net income attributable to non-controlling interests | $ | — | $ | (7) | $ | (5) | $ | (18) | ||||||||||||||||||
Net income attributable to non-controlling interests included Quest’s interest in Q2 Solutions. On April 1, 2021 the Company acquired the 40% non-controlling interest in Q2 Solutions from Quest which resulted in a decrease in the net income attributable to non-controlling interests for the three and nine months ended September 30, 2021 as compared to prior periods. See Note 9 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional details regarding this transaction.
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Segment Results of Operations
The Company’s revenues and profit by segment are as follows:
| Three Months Ended September 30, 2021 and 2020 | ||||||||||||||||||||||||||
| Segment Revenues | Segment Profit | |||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Technology & Analytics Solutions | $ | 1,337 | $ | 1,207 | $ | 343 | $ | 292 | ||||||||||||||||||
| Research & Development Solutions | 1,853 | 1,400 | 364 | 291 | ||||||||||||||||||||||
| Contract Sales & Medical Solutions | 201 | 179 | 20 | 17 | ||||||||||||||||||||||
| Total | 3,391 | 2,786 | 727 | 600 | ||||||||||||||||||||||
| General corporate and unallocated | (87) | (74) | ||||||||||||||||||||||||
| Depreciation and amortization | (336) | (319) | ||||||||||||||||||||||||
| Restructuring costs | (2) | (20) | ||||||||||||||||||||||||
| Consolidated | $ | 3,391 | $ | 2,786 | $ | 302 | $ | 187 | ||||||||||||||||||
| Nine Months Ended September 30, 2021 and 2020 | ||||||||||||||||||||||||||
| Segment Revenues | Segment Profit | |||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Technology & Analytics Solutions | $ | 4,038 | $ | 3,433 | $ | 1,044 | $ | 836 | ||||||||||||||||||
| Research & Development Solutions | 5,612 | 4,076 | 1,069 | 721 | ||||||||||||||||||||||
| Contract Sales & Medical Solutions | 588 | 552 | 60 | 39 | ||||||||||||||||||||||
| Total | 10,238 | 8,061 | 2,173 | 1,596 | ||||||||||||||||||||||
| General corporate and unallocated | (226) | (161) | ||||||||||||||||||||||||
| Depreciation and amortization | (1,002) | (943) | ||||||||||||||||||||||||
| Restructuring costs | (15) | (50) | ||||||||||||||||||||||||
| Consolidated | $ | 10,238 | $ | 8,061 | $ | 930 | $ | 442 | ||||||||||||||||||
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) | 2021 | 2020 | $ | % | ||||||||||||||||||||||
| Revenues | $ | 1,337 | $ | 1,207 | $ | 130 | 10.8 | % | ||||||||||||||||||
| Costs of revenue, exclusive of depreciation and amortization | 795 | 727 | 68 | 9.4 | ||||||||||||||||||||||
| Selling, general and administrative expenses | 199 | 188 | 11 | 5.9 | ||||||||||||||||||||||
| Segment profit | $ | 343 | $ | 292 | $ | 51 | 17.5 | % | ||||||||||||||||||
| Nine Months Ended September 30, | Change | |||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | $ | % | ||||||||||||||||||||||
| Revenues | $ | 4,038 | $ | 3,433 | $ | 605 | 17.6 | % | ||||||||||||||||||
| Costs of revenue, exclusive of depreciation and amortization | 2,415 | 2,048 | 367 | 17.9 | ||||||||||||||||||||||
| Selling, general and administrative | 579 | 549 | 30 | 5.5 | ||||||||||||||||||||||
| Segment profit | $ | 1,044 | $ | 836 | $ | 208 | 24.9 | % | ||||||||||||||||||
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Revenues
Technology & Analytics Solutions’ revenues were $1,337 million for the third quarter of 2021, an increase of $130 million, or 10.8%, over the same period in 2020. This increase was comprised of constant currency revenue growth of approximately $120 million, or 9.9%, reflecting revenue growth across all regions.
Technology & Analytics Solutions’ revenues were $4,038 million for the first nine months of 2021, an increase of $605 million, or 17.6%, over the same period in 2020. This increase was comprised of constant currency revenue growth of approximately $510 million, or 14.9%, reflecting revenue growth across all regions.
The revenue growth for the three and nine months ended September 30, 2021 was driven by higher technology, real-world and analytical services and COVID-19 related work.
Costs of Revenue, exclusive of Depreciation and Amortization
Technology & Analytics Solutions’ costs of revenue, exclusive of depreciation and amortization, increased $68 million, or 9.4%, in the third quarter of 2021 over the same period in 2020. This increase included a constant currency increase of approximately $56 million, or 7.7%.
Technology & Analytics Solutions’ costs of revenue, exclusive of depreciation and amortization, increased $367 million, or 17.9%, in the first nine months of 2021 over the same period in 2020. This increase included a constant currency increase of approximately $294 million, or 14.4%.
The constant currency increase for the three and nine months ended September 30, 2021 was primarily related 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 $11 million, or 5.9%, in the third quarter of 2021 as compared to the same period in 2020, which included a constant currency increase of approximately $9 million, or 4.8%.
Technology & Analytics Solutions’ selling, general and administrative expenses increased $30 million, or 5.5%, in the first nine months of 2021 as compared to the same period in 2020, which included a constant currency increase of approximately $15 million, or 2.7%.
The constant currency increase for the three and nine months ended September 30, 2021 was primarily related to an increase in compensation and related expenses.
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Research & Development Solutions
| Three Months Ended September 30, | Change | |||||||||||||||||||||||||
(in millions) | 2021 | 2020 | $ | % | ||||||||||||||||||||||
Revenues | $ | 1,853 | $ | 1,400 | $ | 453 | 32.4 | % | ||||||||||||||||||
Costs of revenue, exclusive of depreciation and amortization | 1,291 | 925 | 366 | 39.6 | ||||||||||||||||||||||
Selling, general and administrative expenses | 198 | 184 | 14 | 7.6 | ||||||||||||||||||||||
Segment profit | $ | 364 | $ | 291 | $ | 73 | 25.1 | % | ||||||||||||||||||
| Nine Months Ended September 30, | Change | |||||||||||||||||||||||||
(in millions) | 2021 | 2020 | $ | % | ||||||||||||||||||||||
Revenues | $ | 5,612 | $ | 4,076 | $ | 1,536 | 37.7 | % | ||||||||||||||||||
Costs of revenue, exclusive of depreciation and amortization | 3,967 | 2,811 | 1,156 | 41.1 | ||||||||||||||||||||||
Selling, general and administrative expenses | 576 | 544 | 32 | 5.9 | ||||||||||||||||||||||
Segment profit | $ | 1,069 | $ | 721 | $ | 348 | 48.3 | % | ||||||||||||||||||
Backlog
Research & Development Solutions’ contracted backlog increased from $22.6 billion as of December 31, 2020 to $24.4 billion as of September 30, 2021 and we expect approximately $6.9 billion of this backlog to convert to revenue in the next twelve months.
Revenues
Research & Development Solutions’ revenues were $1,853 million in the third quarter of 2021, an increase of $453 million, or 32.4%, over the same period in 2020. This increase was comprised of constant currency revenue increase of approximately $446 million, or 31.9%, reflecting revenue growth across all regions.
Research & Development Solutions’ revenues were $5,612 million in the first nine months of 2021, an increase of $1,536 million, or 37.7%, over the same period in 2020. This increase was comprised of constant currency revenue increase of approximately $1,477 million, or 36.2%, reflecting revenue growth across all regions.
The revenue growth for the three and nine months ended September 30, 2021 was primarily the result of volume-related increases in clinical services and lab testing, including incremental revenue from large COVID-19 vaccine clinical trials.
Costs of Revenue, exclusive of Depreciation and Amortization
Research & Development Solutions’ costs of revenue, exclusive of depreciation and amortization, increased $366 million, or 39.6%, in the third quarter of 2021 over the same period in 2020. This increase included a constant currency increase of approximately $359 million, or 38.8%.
Research & Development Solutions’ costs of revenue, exclusive of depreciation and amortization, increased $1,156 million, or 41.1%, in the first nine months of 2021 over the same period in 2020. This increase included a constant currency increase of approximately $1,076 million, or 38.3%.
The constant currency increase for the three and nine months ended September 30, 2021 was primarily related to an increase in compensation and related expenses as a result of volume-related increases in clinical services and lab testing.
Selling, General and Administrative Expenses
Research & Development Solutions’ selling, general and administrative expenses increased $14 million, or 7.6%, in the third quarter of 2021 as compared to the same period in 2020, and included a constant currency increase of approximately $12 million, or 6.5%.
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Research & Development Solutions’ selling, general and administrative expenses increased $32 million, or 5.9%, in the first nine months of 2021 as compared to the same period in 2020, and included a constant currency increase of approximately $23 million, or 4.2%.
The constant currency increase for the three and nine months ended September 30, 2021 was primarily related to an increase in compensation and related expenses.
Contract Sales & Medical Solutions
| Three Months Ended September 30, | Change | |||||||||||||||||||||||||
(in millions) | 2021 | 2020 | $ | % | ||||||||||||||||||||||
Revenues | $ | 201 | $ | 179 | $ | 22 | 12.3 | % | ||||||||||||||||||
Costs of revenue, exclusive of depreciation and amortization | 167 | 148 | 19 | 12.8 | ||||||||||||||||||||||
Selling, general and administrative expenses | 14 | 14 | — | — | ||||||||||||||||||||||
Segment profit | $ | 20 | $ | 17 | $ | 3 | 17.6 | % | ||||||||||||||||||
| Nine Months Ended September 30, | Change | |||||||||||||||||||||||||
(in millions) | 2021 | 2020 | $ | % | ||||||||||||||||||||||
| Revenues | $ | 588 | $ | 552 | $ | 36 | 6.5 | % | ||||||||||||||||||
Costs of revenue, exclusive of depreciation and amortization | 487 | 469 | 18 | 3.8 | ||||||||||||||||||||||
| Selling, general and administrative expenses | 41 | 44 | (3) | (6.8) | ||||||||||||||||||||||
| Segment profit | $ | 60 | $ | 39 | $ | 21 | 53.8 | % | ||||||||||||||||||
Revenues
Contract Sales & Medical Solutions’ revenues were $201 million in the third quarter of 2021, an increase of $22 million, or 12.3%, over the same period in 2020. This increase included a constant currency revenue increase of approximately $23 million, or 12.8%.
Contract Sales & Medical Solutions’ revenues were $588 million in the first nine months of 2021, an increase of $36 million, or 6.5%, over the same period in 2020. This increase included a constant currency revenue increase of approximately $28 million, or 5.1%.
The revenue growth for the three and nine months ended September 30, 2021 was largely due to a volume increase in the Americas and Asia-Pacific regions.
Costs of Revenue, exclusive of Depreciation and Amortization
Contract Sales & Medical Solutions’ costs of revenue, exclusive of depreciation and amortization, increased $19 million, or 12.8%, in the third quarter of 2021 as compared to the same period in 2020. This increase included a constant currency increase of approximately $21 million, or 14.2%.
Contract Sales & Medical Solutions’ costs of revenue, exclusive of depreciation and amortization, increased $18 million, or 3.8%, in the first nine months of 2021 as compared to the same period in 2020. This increase included a constant currency increase of approximately $12 million, or 2.6%.
The constant currency increase for the three and nine months ended September 30, 2021 was primarily related to an increase in compensation and related expenses.
Selling, General and Administrative Expenses
Contract Sales & Medical Solutions’ selling, general and administrative expenses remained consistent in the third quarter of 2021 as compared to the same period in 2020.
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Contract Sales & Medical Solutions’ selling, general and administrative expenses decreased $(3) million, or (6.8)%, in the first nine months of 2021 as compared to the same period in 2020. This decrease included a constant currency decrease of approximately $(4) million, or (9.1)%.
The constant currency decrease for the nine months ended September 30, 2021 was primarily related to a decrease in compensation and related expenses.
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 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 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 $1,470 million as of September 30, 2021 ($600 million of which was in the United States), a decrease from $1,814 million as of December 31, 2020.
Based on our current operating plan, 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
During the nine months ended September 30, 2021, we repurchased 973,313 shares of our common stock for $221 million under the Repurchase Program. 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, 2021, we have remaining authorization to repurchase up to approximately $0.7 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.
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Debt
Senior Secured Credit Facilities
On August 25, 2021, we entered into Amendment No. 9 (the “Amendment”) to the Company’s Fourth Amended and Restated Credit Agreement (the “Prior Credit Agreement,” and together with the Amendment, the "Fifth Amended and Restated Credit Agreement") to (i) extend the maturity of our revolving credit facility to 2026, (ii) refinance our existing term A loans with a new class of term A loans that mature in 2026 and (iii) add IQVIA RDS Inc. as a borrower under the senior secured credit facilities. In connection with this Amendment, we recognized a $1 million loss on extinguishment of debt, which includes fees and related expenses.
As of September 30, 2021, the Fifth Amended and Restated Credit Agreement provided financing through several senior secured credit facilities (collectively, the “senior secured credit facilities”) of up to approximately $7.2 billion, which consisted of $5.7 billion principal amounts of debt outstanding (as detailed in the table above), and $1.5 billion of available borrowing capacity on the revolving credit facility and standby letters of credit.
On September 14, 2021, we repaid $250 million of our term B loans under the senior secured credit facilities using the proceeds from the increased loans under our receivables financing facility.
Receivables Financing Facility
On August 13, 2021, the Company amended its receivables financing facility (the “Receivables Amendment”) to extend the term of the facility to October 1, 2024 and to increase the size of the facility to $550 million from $300 million. Under the receivables financing facility, certain of our accounts receivable are sold on a non-recourse basis by certain of our consolidated subsidiaries (each, an “Originator”) to another of our consolidated subsidiaries, a bankruptcy-remote special purpose entity (the “SPE”). The SPE obtained a term loan and revolving loan commitment from a third-party lender, secured by liens on the assets of the SPE, to finance the purchase of the accounts receivable, which includes a $440 million term loan and a $110 million revolving loan commitment. Pursuant to the Receivables Amendment, we also added three additional subsidiaries as Originators. As of September 30, 2021, no additional amounts of revolving loans were available under the receivables financing facility.
Senior Notes
On March 3, 2021, we completed the issuance and sale of €1,450,000,000 in gross proceeds of the Issuer's (i) €550,000,000 aggregate principal amount of its 1.750% Senior Notes due 2026 (the “2026 Notes”) and (ii) €900,000,000 aggregate principal amount of its 2.250% Senior Notes due 2029 (the “2029 Notes” and, together with the 2026 Notes, the “Notes”). The proceeds from the Notes offering were used to redeem all of the Issuer’s outstanding 3.250% senior notes due 2025 (the “3.250% Notes”), including the payment of premiums in respect thereof and to pay fees and expenses related to the Notes offering. See Note 7 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, 2021, we had $12.2 billion of total indebtedness, excluding $1.5 billion of additional available borrowings under our revolving credit facility.
Our long-term debt arrangements contain customary restrictive covenants and, as of September 30, 2021, we believe we were in compliance with our restrictive covenants in all material respects.
Nine months ended September 30, 2021 and 2020
Cash Flow from Operating Activities
| Nine Months Ended September 30, | ||||||||||||||
| (in millions) | 2021 | 2020 | ||||||||||||
| Net cash provided by operating activities | $ | 2,250 | $ | 1,209 | ||||||||||
Cash provided by operating activities increased $1,041 million during the first nine months of 2021 as compared to the same period in 2020. The increase was primarily due to higher cash related net income ($682 million), an increase in cash collections from unearned income ($445 million) and higher cash from other operating assets and liabilities ($24 million), offset by a decrease in cash from accounts receivable and unbilled services ($110 million).
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Cash Flow from Investing Activities
| Nine Months Ended September 30, | ||||||||||||||
| (in millions) | 2021 | 2020 | ||||||||||||
| Net cash used in investing activities | $ | (1,456) | $ | (560) | ||||||||||
Cash used in investing activities increased $896 million during the first nine months of 2021 as compared to the same period in 2020, primarily driven by more cash used for acquisitions of businesses ($876 million), acquisitions for property, equipment, and software ($16 million) and lower net payments received from unconsolidated affiliates ($11 million), offset by net proceeds from sale of equity securities ($7 million).
Cash Flow from Financing Activities
| Nine Months Ended September 30, | ||||||||||||||
| (in millions) | 2021 | 2020 | ||||||||||||
| Net cash used in financing activities | $ | (1,097) | $ | (19) | ||||||||||
Cash used in financing activities increased $1,078 million during the first nine months of 2021 as compared to the same period in 2020, primarily due to an increase in debt and principal payments ($1,276 million), cash payments for the Company's acquisition of Quest's non-controlling interest in Q2 Solutions ($758 million), an increase in cash payments on contingent consideration and deferred purchase price accruals ($19 million), and an increase in cash payments related to employee stock option plans ($8 million), offset by a decrease in cash used in repayments of revolving credit facilities, net of proceeds ($470 million), a decrease in cash used to repurchase common stock ($144 million), an increase in cash provided by proceeds from debt issuances, net of repayments and debt issuance costs ($353 million), and a decrease in cash distributions to non-controlling interests ($16 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 the financing transactions disclosed in Note 7 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 2020 Form 10-K.
Application of Critical Accounting Policies
There have been no material changes to our critical accounting policies as previously disclosed in our 2020 Form 10-K.
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 2020 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.
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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.
Information pertaining to legal proceedings can be found in Note 8 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and is incorporated by reference herein.
Item 1A. Risk Factors
For a discussion of the risks relating to our business, see Part I—Item 1A—“Risk Factors” of our 2020 Form 10-K. There have been no material changes from the risk factors previously disclosed in our 2020 Form 10-K.
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 of Directors (the “Board”) approved an equity repurchase program (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 billion, $1.5 billion, and $2 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, extended, 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. 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.
From inception of the Repurchase Program through September 30, 2021, we have repurchased a total of $6.6 billion of our securities under the Repurchase Program.
During the nine months ended September 30, 2021, we repurchased 973,313 shares of our common stock for $221 million under the Repurchase Program. 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, 2021, we have remaining authorization to repurchase up to approximately $0.7 billion of our common stock under the Repurchase Program.
Since the merger between Quintiles and IMS Health, we have repurchased 66.6 million shares of our common stock at an average market price per share of $99.19 for an aggregate purchase price of $6.6 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, 2021 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, 2021 — July 31, 2021 | 0.1 | $ | 244.30 | 0.1 | $ | 797 | ||||||||||||||||||||
| August 1, 2021 — August 31, 2021 | 0.1 | $ | 248.07 | 0.1 | $ | 762 | ||||||||||||||||||||
| September 1, 2021 — September 30, 2021 | 0.3 | $ | 242.04 | 0.3 | $ | 697 | ||||||||||||||||||||
| 0.5 | 0.5 | |||||||||||||||||||||||||
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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 | 8-K | 001-35907 | 10.1 | August 25, 2021 | ||||||||||||||||||||||||||||||||||
| 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 (unaudited) 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, 2021.
| IQVIA HOLDINGS INC. | |||||
| /s/ Ronald E. Bruehlman | |||||
Ronald E. Bruehlman Executive Vice President and Chief Financial Officer (On behalf of the Registrant and as Principal Financial Officer) | |||||
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