Item 1. Financial Statements
Item 1. Financial Statements
IQVIA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
(in millions, except per share data)
2020 2019 2020 2019
Revenues $ 2,786 $ 2,769 $ 8,061 $ 8,193
Costs of revenue, exclusive of depreciation and amortization 1,800 1,852 5,328 5,399
Selling, general and administrative expenses 460 395 1,298 1,250
Depreciation and amortization 319 299 943 888
Restructuring costs 20 19 50 45
Income from operations 187 204 442 611
Interest income ( 1 ) ( 3 ) ( 4 ) ( 7 )
Interest expense 100 114 314 338
Loss on extinguishment of debt — 24 12 24
Other income, net ( 14 ) — ( 59 ) —
Income before income taxes and equity in earnings of unconsolidated affiliates 102 69 179 256
Income tax (benefit) expense ( 3 ) ( 1 ) 9 48
Income before equity in earnings of unconsolidated affiliates 105 70 170 208
Equity in earnings (loss) of unconsolidated affiliates 3 ( 1 ) 8 ( 1 )
Net income 108 69 178 207
Net income attributable to non-controlling interests ( 7 ) ( 12 ) ( 18 ) ( 32 )
Net income attributable to IQVIA Holdings Inc. $ 101 $ 57 $ 160 $ 175
Earnings per share attributable to common stockholders:
Basic $ 0.53 $ 0.29 $ 0.84 $ 0.89
Diluted $ 0.52 $ 0.29 $ 0.82 $ 0.87
Weighted average common shares outstanding:
Basic 191.3 194.5 191.3 195.9
Diluted 194.9 199.0 194.9 200.5
The accompanying notes are an integral part of these condensed consolidated financial statements.
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IQVIA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
Three Months Ended
September 30, Nine Months Ended
September 30,
(in millions) 2020 2019 2020 2019
Net income $ 108 $ 69 $ 178 $ 207
Comprehensive income (loss) adjustments:
Unrealized (losses) gains on derivative instruments, net of income tax (benefit) expense of $( 8 ), $( 2 ), $( 11 ), $( 7 )
( 1 ) ( 5 ) ( 33 ) ( 23 )
Foreign currency translation, net of income tax expense (benefit) of $( 54 ), $ 57 , $( 83 ), $ 65
130 ( 162 ) 20 ( 131 )
Reclassification adjustments:
Losses (gains) on derivative instruments included in net income, net of income tax expense (benefit) of $ 1 , $ — , $ 2 , $( 1 )
2 2 6 ( 2 )
Comprehensive income (loss)
239 ( 96 ) 171 51
Comprehensive income attributable to non-controlling interests
( 11 ) ( 9 ) ( 17 ) ( 29 )
Comprehensive income (loss) attributable to IQVIA Holdings Inc.
$ 228 $ ( 105 ) $ 154 $ 22
The accompanying notes are an integral part of these condensed consolidated financial statements.
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IQVIA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in millions, except per share data) September 30, 2020 December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents $ 1,464 $ 837
Trade accounts receivable and unbilled services, net 2,414 2,582
Prepaid expenses 165 138
Income taxes receivable 78 56
Investments in debt, equity and other securities 79 62
Other current assets and receivables 445 451
Total current assets 4,645 4,126
Property and equipment, net 452 458
Operating lease right-of-use assets 490 496
Investments in debt, equity and other securities 78 65
Investments in unconsolidated affiliates 85 87
Goodwill 12,363 12,159
Other identifiable intangibles, net 5,222 5,514
Deferred income taxes 125 119
Deposits and other assets 377 227
Total assets $ 23,837 $ 23,251
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,461 $ 2,512
Unearned income 1,188 1,014
Income taxes payable 101 108
Current portion of long-term debt 144 100
Other current liabilities 245 211
Total current liabilities 4,139 3,945
Long-term debt 12,195 11,545
Deferred income taxes 429 646
Operating lease liabilities 387 396
Other liabilities 580 456
Total liabilities 17,730 16,988
Commitments and contingencies
Stockholders’ equity:
Common stock and additional paid-in capital, 400.0 shares authorized at September 30, 2020 and December 31, 2019, $ 0.01 par value, 254.5 shares issued and 191.7 shares outstanding at September 30, 2020; 253.0 shares issued and 192.3 shares outstanding at December 31, 2019
11,070 11,049
Retained earnings 1,158 998
Treasury stock, at cost, 62.8 and 60.7 shares at September 30, 2020 and December 31, 2019, respectively
( 6,065 ) ( 5,733 )
Accumulated other comprehensive loss ( 317 ) ( 311 )
Equity attributable to IQVIA Holdings Inc.’s stockholders 5,846 6,003
Non-controlling interests 261 260
Total stockholders’ equity 6,107 6,263
Total liabilities and stockholders’ equity $ 23,837 $ 23,251
The accompanying notes are an integral part of these condensed consolidated financial statements.
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IQVIA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended September 30,
(in millions)
2020 2019
Operating activities:
Net income
$ 178 $ 207
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization
943 888
Amortization of debt issuance costs and discount
13 10
Stock-based compensation
69 87
(Earnings) loss from unconsolidated affiliates ( 8 ) 1
Gain on investments, net ( 17 ) —
Benefit from deferred income taxes
( 160 ) ( 154 )
Changes in operating assets and liabilities:
Change in accounts receivable, unbilled services and unearned income
328 ( 167 )
Change in other operating assets and liabilities
( 137 ) ( 38 )
Net cash provided by operating activities
1,209 834
Investing activities:
Acquisition of property, equipment and software
( 440 ) ( 445 )
Acquisition of businesses, net of cash acquired
( 118 ) ( 461 )
Purchases of marketable securities, net
( 8 ) ( 2 )
Investments in unconsolidated affiliates, net of payments received
8 3
Investments in equity securities
( 2 ) ( 10 )
Other
— 5
Net cash used in investing activities
( 560 ) ( 910 )
Financing activities:
Proceeds from issuance of debt
1,591 1,900
Payment of debt issuance costs
( 33 ) ( 47 )
Repayment of debt and principal payments on capital lease obligations
( 792 ) ( 875 )
Proceeds from revolving credit facility
1,250 1,710
Repayment of revolving credit facility
( 1,610 ) ( 1,930 )
(Payments) proceeds related to employee stock option plans ( 43 ) 15
Repurchase of common stock
( 346 ) ( 679 )
Distributions to non-controlling interests, net ( 16 ) ( 6 )
Contingent consideration and deferred purchase price payments
( 20 ) ( 21 )
Net cash (used in) provided by financing activities ( 19 ) 67
Effect of foreign currency exchange rate changes on cash
( 3 ) ( 19 )
Increase (decrease) in cash and cash equivalents 627 ( 28 )
Cash and cash equivalents at beginning of period
837 891
Cash and cash equivalents at end of period
$ 1,464 $ 863
The accompanying notes are an integral part of these condensed consolidated financial statements.
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IQVIA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
(in millions) Common
Stock
Shares Treasury
Stock
Shares Common
Stock Additional
Paid-In
Capital Retained Earnings Treasury
Stock Accumulated
Other
Comprehensive
(Loss) Income Non-
controlling
Interests Total
Balance, December 31, 2019 253.0 ( 60.7 ) $ 3 $ 11,046 $ 998 $ ( 5,733 ) $ ( 311 ) $ 260 $ 6,263
Issuance of common stock 0.8 — — ( 44 ) — — — — ( 44 )
Repurchase of common stock — ( 2.1 ) — — — ( 332 ) — — ( 332 )
Stock-based compensation — — — 7 — — — — 7
Distributions to non-controlling interests, net — — — — — — — ( 5 ) ( 5 )
Net income — — — — 82 — — 9 91
Unrealized losses on derivative instruments, net of tax — — — — — — ( 39 ) — ( 39 )
Foreign currency translation, net of tax — — — — — — ( 151 ) ( 4 ) ( 155 )
Reclassification adjustments, net of tax — — — — — — 16 — 16
Balance, March 31, 2020 253.8 ( 62.8 ) 3 11,009 1,080 ( 6,065 ) ( 485 ) 260 5,802
Issuance of common stock 0.3 — — 1 — — — — 1
Stock-based compensation — — — 30 — — — — 30
Net (loss) income — — — — ( 23 ) — — 2 ( 21 )
Unrealized losses on derivative instruments, net of tax
— — — — — — 7 — 7
Foreign currency translation, net of tax — — — — — — 46 ( 1 ) 45
Reclassification adjustments, net of tax — — — — — — ( 12 ) — ( 12 )
Balance, June 30, 2020 254.1 ( 62.8 ) $ 3 $ 11,040 $ 1,057 $ ( 6,065 ) $ ( 444 ) $ 261 $ 5,852
Issuance of common stock 0.4 — — ( 3 ) — — — — ( 3 )
Stock-based compensation — — — 30 — — — — 30
Distributions to non-controlling interests, net — — — — — — — ( 11 ) ( 11 )
Net income — — — — 101 — — 7 108
Unrealized losses on derivative instruments, net of tax
— — — — — — ( 1 ) — ( 1 )
Foreign currency translation, net of tax — — — — — — 126 4 130
Reclassification adjustments, net of tax — — — — — — 2 — 2
Balance, September 30, 2020 $ 254.5 $ ( 62.8 ) $ 3 $ 11,067 $ 1,158 $ ( 6,065 ) $ ( 317 ) $ 261 $ 6,107
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IQVIA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
(in millions)
Common
Stock
Shares
Treasury
Stock
Shares
Common
Stock
Additional
Paid-In
Capital
Retained Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss)
Non-
controlling
Interests
Total
Balance, December 31, 2018 251.5 ( 54 ) $ 3 $ 10,898 $ 807 $ ( 4,770 ) $ ( 224 ) $ 240 $ 6,954
Issuance of common stock 0.7 — — 5 — — — — 5
Repurchase of common stock — ( 1 ) — — — ( 145 ) — — ( 145 )
Stock-based compensation — — — 21 — — — — 21
Net income — — — — 58 — — 9 67
Unrealized losses on derivative instruments, net of tax — — — — — — ( 5 ) — ( 5 )
Foreign currency translation, net of tax — — — — — — ( 32 ) 1 ( 31 )
Reclassification adjustments, net of tax — — — — — — ( 1 ) — ( 1 )
Balance, March 31, 2019 252.2 ( 55.0 ) $ 3 $ 10,924 $ 865 $ ( 4,915 ) $ ( 262 ) $ 250 $ 6,865
Issuance of common stock 0.4 — — 8 — — — — 8
Repurchase of common stock — ( 1.8 ) — — — ( 236 ) — — ( 236 )
Stock-based compensation — — — 29 — — — — 29
Distributions to non-controlling interests — — — — — — — ( 2 ) ( 2 )
Net income — — — — 60 — — 11 71
Unrealized losses on derivative instruments, net of tax — — — — — — ( 13 ) — ( 13 )
Foreign currency translation, net of tax — — — — — — 63 ( 1 ) 62
Reclassification adjustments, net of tax — — — — — — ( 3 ) — ( 3 )
Balance, June 30, 2019 252.6 ( 56.8 ) $ 3 $ 10,961 $ 925 $ ( 5,151 ) $ ( 215 ) $ 258 $ 6,781
Issuance of common stock 0.2 — — ( 4 ) — — — — ( 4 )
Repurchase of common stock — ( 2 ) — — — ( 313 ) — — ( 313 )
Balance, Stock-based compensation — — — 30 — — — — 30
Distributions to non-controlling interests — — — — — — — ( 4 ) ( 4 )
Net income — — — — 57 — — 12 69
Unrealized losses on derivative instruments, net of tax — — — — — — ( 5 ) — ( 5 )
Foreign currency translation, net of tax — — — — — — ( 159 ) ( 3 ) ( 162 )
Reclassification adjustments, net of tax — — — — — — 2 — 2
Balance, September 30, 2019 252.8 ( 58.8 ) 3 10,987 982 ( 5,464 ) ( 377 ) 263 6,394
The accompanying notes are an integral part of these condensed consolidated financial statements.
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IQVIA HOLDINGS INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Summary of Significant Accounting Policies
The Company
IQVIA Holdings Inc. (together with its subsidiaries, the “Company” or “IQVIA”) is a leading global provider of advanced analytics, technology solutions and clinical research services to the life sciences industry. With approximately 68,000 employees, IQVIA conducts business in more than 100 countries.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the Company’s financial condition and results of operations have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019. The balance sheet at December 31, 2019 has been derived from the audited consolidated financial statements of the Company but does not include all the disclosures required by GAAP.
Additionally, t he outbreak of the novel coronavirus, or COVID-19, and the various governmental, industry and consumer actions related thereto, could have a material and adverse effect on our business, financial condition and results of operations. These effects, which largely depend on future developments that cannot be accurately predicted and are uncertain, could include a negative impact on the availability of our key personnel, temporary closures of our facilities or the facilities of our business partners, customers, suppliers, third party service providers or other vendors, an increased risk of customer defaults or delays in payments or purchasing decisions, and the interruption of domestic and global supply chains, distribution channels, liquidity and capital or financial markets. As COVID-19 continues to spread, we have and may continue to experience disruptions that could severely impact our business. As such, the results for the three and nine months ended September 30, 2020 may not be indicative of results for the full year.
Recently Issued Accounting Standards
Accounting pronouncements adopted
In August 2018, the FASB issued new accounting guidance that clarifies and aligns the accounting for implementation costs for hosting arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted this new accounting guidance on January 1, 2020. The adoption of this new accounting guidance did not have a material effect on the Company’s consolidated financial statements.
In August 2018, the FASB issued new accounting guidance that modifies the disclosure requirements in Topic 820, Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This new accounting guidance also modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The Company adopted this new accounting guidance on January 1, 2020. The adoption of this new accounting guidance did not have a material effect on the Company’s consolidated financial statements.
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In January 2017, the FASB issued new accounting guidance that simplifies the measurement of goodwill by eliminating the step two impairment test. Step two measures a goodwill impairment loss by comparing the implied fair value of goodwill with the carrying amount of that goodwill. The new guidance requires a comparison of the Company’s fair value of a reporting unit with the carrying amount and the Company is required to recognize an impairment charge for the amount by which the carrying amount exceeds the fair value. The Company adopted this new accounting guidance on January 1, 2020. The adoption of this new accounting guidance did not have a material effect on the Company’s consolidated financial statements.
In June 2016, the FASB issued a new accounting standard intended to provide financial statement users with more decision-useful information about expected credit losses and other commitments to extend credit held by the reporting entity. The standard replaces the incurred loss impairment methodology in current GAAP with one that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company adopted this new accounting guidance on January 1, 2020. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements. This is based on factors including the Company's assessment of historical losses, client's creditworthiness and the fact that the Company's trade receivables are short term in duration.
Accounting pronouncements being evaluated
In March 2020, the FASB issued new accounting guidance that provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected to be discontinued. The new accounting guidance is effective for the Company as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of this new accounting guidance on its credit arrangements and derivatives that reference LIBOR. The Company does not expect the new accounting guidance to have a material effect on the Company’s consolidated financial statements.
In January 2020, the FASB issued new accounting guidance that states any equity security transitioning from the alternative method of accounting to the equity method, or vice versa, due to an observable transaction, will be remeasured immediately before the transition. In addition, the new accounting guidance clarifies the accounting for certain non-derivative forward contracts or purchased call options to acquire equity securities stating such instruments will be measured using the fair value principles before settlement or exercise. The new accounting guidance will be effective for the Company on January 1, 2021 on a prospective basis. Early adoption is permitted. The Company is currently evaluating the impact of this new accounting guidance on its consolidated financial statements.
In December 2019, the FASB issued new accounting guidance to clarify and simplify the accounting for income taxes. Changes under the new guidance includes eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new accounting guidance will be effective for the Company on January 1, 2021. Early adoption is permitted. The Company is currently evaluating the impact of this new accounting guidance on its consolidated financial statements.
2. Revenues by Geography, Concentration of Credit Risk and Remaining Performance Obligations
The following tables represent revenues by geographic region and reportable segment for the three and nine months ended September 30, 2020 and 2019:
Three Months Ended September 30, 2020
(in millions)
Technology &
Analytics Solutions
Research &
Development Solutions
Contract Sales &
Medical Solutions
Total
Revenues:
Americas
$ 599 $ 628 $ 76 $ 1,303
Europe and Africa
457 411 44 912
Asia-Pacific
151 361 59 571
Total revenues
$ 1,207 $ 1,400 $ 179 $ 2,786
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Three Months Ended September 30, 2019
(in millions)
Technology &
Analytics Solutions
Research &
Development Solutions
Contract Sales &
Medical Solutions
Total
Revenues:
Americas
$ 580 $ 726 $ 104 $ 1,410
Europe and Africa
369 394 48 811
Asia-Pacific
146 346 56 548
Total revenues
$ 1,095 $ 1,466 $ 208 $ 2,769
Nine Months Ended September 30, 2020
(in millions) Technology & Analytics Solutions Research & Development Solutions Contract Sales & Medical Solutions Total
Revenues:
Americas $ 1,747 $ 1,826 $ 247 $ 3,820
Europe and Africa 1,254 1,214 134 2,602
Asia-Pacific 432 1,036 171 1,639
Total revenues $ 3,433 $ 4,076 $ 552 $ 8,061
Nine Months Ended September 30, 2019
(in millions) Technology &
Analytics Solutions Research &
Development Solutions Contract Sales &
Medical Solutions Total
Revenues:
Americas $ 1,722 $ 2,009 $ 298 $ 4,029
Europe and Africa 1,128 1,298 148 2,574
Asia-Pacific 422 1,010 158 1,590
Total revenues $ 3,272 $ 4,317 $ 604 $ 8,193
No customer accounted for 10% or more of consolidated revenues for the three and nine months ended September 30, 2020 or 2019.
Transaction Price Allocated to the Remaining Performance Obligations
As of September 30, 2020, approximately $ 23.6 billion of revenue is expected to be recognized in the future from remaining performance obligations. The Company expects to recognize revenue on approximately 30 % of these remaining performance obligations over the next 12 months, with the balance recognized thereafter. The customer contract transaction price allocated to the remaining performance obligations differs from backlog in that it does not include wholly unperformed contracts under which the customer has a unilateral right to cancel the arrangement.
3. Trade Accounts Receivable, Unbilled Services and Unearned Income
Trade accounts receivables and unbilled services consist of the following:
(in millions)
September 30, 2020 December 31, 2019
Trade accounts receivable:
Billed
$ 1,152 $ 1,312
Unbilled services
1,292 1,286
Trade accounts receivable and unbilled services
2,444 2,598
Allowance for doubtful accounts
( 30 ) ( 16 )
Trade accounts receivable and unbilled services, net
$ 2,414 $ 2,582
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Unbilled services and unearned income were as follows:
(in millions) September 30, 2020 December 31, 2019 Change
Unbilled services
$ 1,292 $ 1,286 $ 6
Unearned income
( 1,188 ) ( 1,014 ) ( 174 )
Net balance
$ 104 $ 272 $ ( 168 )
Unbilled services, which is comprised of approximately 60 % of unbilled receivables and 40 % of contract assets as of September 30, 2020, increased by $ 6 million as compared to December 31, 2019. Contract assets are unbilled services for which invoicing is based on the timing of certain milestones related to service contracts for clinical research whereas unbilled receivables are billable upon the passage of time. Unearned income increased by $ 174 million over the same period resulting in a decrease of $ 168 million in the net balance of unbilled services and unearned income between December 31, 2019 and September 30, 2020. The change in the net balance is driven by the difference in timing of revenue recognition in accordance with ASC 606, Revenue from Contracts with Customers, related to the Company’s Research & Development Solutions contracts (which is based on the percentage of costs incurred) versus the timing of invoicing, which is based on certain milestones.
Bad debt expense recognized on the Company’s receivables and unbilled services was not material for the three and nine months ended September 30, 2020 and 2019.
4. Leases
The Company has operating leases for corporate offices, datacenters, motor vehicles and certain equipment, many of which contain renewal and escalation clauses. These operating leases expire at various dates through 2029 with options to cancel certain leases at various intervals. The Company also has finance leases for office and lab spaces that expire in 2044. Based on the timing of payments on the finance leases the cash flow impact is not material for the three and nine months ended September 30, 2020. In determining the lease term at lease commencement, the Company includes the noncancellable term and the periods which the Company deems it is reasonably certain to exercise or not to exercise a renewal or cancellation option.
The components of lease expense were as follows:
(in millions) Classification Three Months Ended September 30, 2020 Three Months Ended September 30, 2019
Operating lease cost (1)
Selling, general and administrative expenses $ 49 $ 48
Finance lease cost (1)
Depreciation and amortization, and Interest expense 3 —
Total lease cost $ 52 $ 48
(in millions) Classification Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019
Operating lease cost (1)
Selling, general and administrative expenses $ 151 $ 143
Finance lease cost (1)
Depreciation and amortization, and Interest expense 4 —
Total lease cost $ 155 $ 143
(1) Includes variable lease costs, which are immaterial.
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Other information related to leases was as follows:
(in millions) Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019
Supplemental Cash Flow:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 147 $ 147
Right-of-use assets obtained in exchange for lease obligations:
Operating leases $ 92 $ 62
Finance leases $ 119 $ —
Weighted Average Remaining Lease Term:
Operating leases 4.65 years 4.90 years
Finance leases 24.25 years —
Weighted Average Discount Rate:
Operating leases 4.04 % 4.26 %
Finance leases 3.18 % —
Future minimum lease payments under non-cancellable leases as of September 30, 2020 were as follows:
(in millions) Operating Leases Finance Leases
Remainder of 2020 $ 44 $ —
2021 153 —
2022 128 6
2023 100 6
2024 70 6
2025 56 6
Thereafter 44 159
Total future minimum lease payments 595 183
Less imputed interest ( 54 ) ( 63 )
Total $ 541 $ 120
Reported as of September 30, 2020:
Other current liabilities $ 154 $ —
Operating lease liabilities 387 —
Other liabilities — 120
Total $ 541 $ 120
5. Goodwill
The following is a summary of goodwill by reportable segment for the nine months ended September 30, 2020:
(in millions)
Technology & Analytics Solutions
Research & Development Solutions
Contract Sales & Medical Solutions
Consolidated
Balance as of December 31, 2019 $ 10,374 $ 1,646 $ 139 $ 12,159
Business combinations
84 — — 84
Impact of foreign currency fluctuations and other
155 ( 39 ) 4 120
Balance as of September 30, 2020 $ 10,613 $ 1,607 $ 143 $ 12,363
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6. Derivatives
The fair values of the Company’s derivative instruments and the line items on the accompanying condensed consolidated balance sheets to which they were recorded are summarized in the following table:
(in millions)
Balance Sheet Classification
September 30, 2020 December 31, 2019
Assets
Liabilities
Notional
Assets
Liabilities
Notional
Derivatives designated as hedging instruments:
Foreign exchange forward contracts
Other current assets and liabilities
$ 1 $ 1 $ 93 $ 4 $ — $ 148
Interest rate swaps
Other assets and liabilities
— 59 1,800 — 27 875
Derivatives not designated as hedging instruments:
Interest rate swaps
Other liabilities
— 1 340 — 3 325
Total derivatives
$ 1 $ 61 $ 4 $ 30
The effect of the Company’s cash flow hedging instruments on other comprehensive income is summarized in the following table:
Three Months Ended September 30, Nine Months Ended September 30,
(in millions)
2020 2019 2020 2019
Foreign exchange forward contracts
$ 2 $ ( 1 ) $ ( 4 ) $ ( 5 )
Interest rate derivatives
1 ( 3 ) ( 32 ) ( 27 )
Total
$ 3 $ ( 4 ) $ ( 36 ) $ ( 32 )
The amount of foreign exchange losses related to the net investment hedge included in the cumulative translation adjustment component of accumulated other comprehensive loss (“AOCI”) for the nine months ended September 30, 2020 was $ 273 million.
7. Fair Value Measurements
The Company records certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy that prioritizes the inputs used to measure fair value is described below. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
• Level 1 — Quoted prices in active markets for identical assets or liabilities.
• Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
• Level 3 — Unobservable inputs that are supported by little or no market activity. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
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The carrying values of cash, cash equivalents, accounts receivable and accounts payable approximated their fair values at September 30, 2020 and December 31, 2019 due to their short-term nature. At September 30, 2020 and December 31, 2019, the fair value of total debt approximated $ 12,443 million and $ 11,925 million, respectively, as determined under Level 1 and Level 2 measurements for these financial instruments.
Recurring Fair Value Measurements
The following table summarizes the fair value of the Company’s financial assets and liabilities that are measured and reported at fair value on a recurring basis as of September 30, 2020:
(in millions) Level 1 Level 2 Level 3 Total
Assets:
Marketable securities 105 $ — $ — $ 105
Derivatives — $ 1 — 1
Total $ 105 $ 1 $ — $ 106
Liabilities:
Derivatives $ — $ 61 $ — $ 61
Contingent consideration — — 108 108
Total $ — $ 61 $ 108 $ 169
Below is a summary of the valuation techniques used in determining fair value:
Marketable securities — The Company values trading and available-for-sale securities using the quoted market value of the securities held.
Derivatives — Derivatives consist of foreign exchange contracts and interest rate swaps. The fair value of foreign exchange contracts is based on observable market inputs of spot and forward rates or using other observable inputs. The fair value of the interest rate swaps is the estimated amount that the Company would receive or pay to terminate such agreements, taking into account market interest rates and the remaining time to maturities or using market inputs with mid-market pricing as a practical expedient for bid-ask spread.
Contingent consideration — The Company values contingent consideration related to business combinations using a weighted probability calculation of potential payment scenarios discounted at rates reflective of the risks associated with the expected future cash flows. Key assumptions used to estimate the fair value of contingent consideration include various financial metrics (revenue performance targets and operating forecasts) and the probability of achieving the specific targets.
The following table summarizes the changes in Level 3 financial assets and liabilities measured on a recurring basis for the nine months ended September 30:
Contingent Consideration
(in millions)
2020 2019
Balance as of January 1
$ 113 $ 123
Business combinations
32 41
Contingent consideration paid
( 22 ) ( 44 )
Revaluations included in earnings and foreign currency translation adjustments
( 15 ) ( 7 )
Balance as of September 30 $ 108 $ 113
The Company used the following key assumptions when estimating the fair value of contingent considerations:
Unobservable Input Weighted average probability of target achievement Range of potential payment
Revenue target 89 % 0 %- 100 %
EBITDA target 96 % 0 %- 100 %
Operational target 95 % 0 %- 100 %
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The current portion of contingent consideration is included within accrued expenses and the long-term portion is included within other liabilities on the accompanying condensed consolidated balance sheets. Revaluations of the contingent consideration are recognized in other expense (income), net on the accompanying condensed consolidated statements of income. A change in significant unobservable inputs above could result in a significantly higher or lower fair value measurement of contingent consideration.
8. Credit Arrangements
The following is a summary of the Company’s revolving credit facilities at September 30, 2020:
Facility
Interest Rates
$ 1,500 million (revolving credit facility)
LIBOR in the relevant currency borrowed plus a margin of 1.50 % at September 30, 2020
$ 25 million (receivables financing facility)
LIBOR Market Index Rate ( 0.15 % at September 30, 2020) plus 0.90 %
£ 10 million (approximately $ 13 million) (general banking facility)
Bank’s base rate of 0.10 % at September 30, 2020 plus 1 %
The following table summarizes the Company’s debt at the dates indicated:
(in millions) September 30, 2020 December 31, 2019
Senior Secured Credit Facilities:
Term A Loan due 2023—U.S. Dollar LIBOR at average floating rates of 1.72 %
$ 739 $ 770
Term A Loan due 2023—U.S. Dollar LIBOR at average floating rates of 2.75 %
778 —
Term A Loan due 2023—Euro LIBOR at average floating rates of 1.50 %
388 387
Term B Loan due 2024—U.S. Dollar LIBOR at average floating rates of 1.90 %
535 535
Term B Loan due 2024—Euro LIBOR at average floating rates of 2.00 %
1,354 1,306
Term B Loan due 2025—U.S. Dollar LIBOR at average floating rates of 1.90 %
728 733
Term B Loan due 2025—U.S. Dollar LIBOR at average floating rates of 1.97 %
929 936
Term B Loan due 2025—Euro LIBOR at average floating rates of 2.00 %
668 644
Revolving Credit Facility due 2023:
U.S. Dollar denominated borrowings—U.S. Dollar LIBOR at average floating rates of 1.65 %
— 154
Japanese Yen denominated borrowings—Japanese Yen LIBOR at average floating rates of 1.50 %
— 212
5.0 % Senior Notes due 2027—U.S. Dollar denominated
1,100 1,100
5.0 % Senior Notes due 2026—U.S. Dollar denominated
1,050 1,050
2.875 % Senior Notes due 2025—Euro denominated
492 471
3.25 % Senior Notes due 2025—Euro denominated
1,671 1,598
3.5 % Senior Notes due 2024—Euro denominated
— 701
2.25 % Senior Notes due 2028—Euro denominated
844 808
2.875 % Senior Notes due 2028—Euro denominated
834 —
Receivables financing facility due 2022—U.S. Dollar LIBOR at average floating rates of 1.05 %
300 300
Principal amount of debt 12,410 11,705
Less: unamortized discount and debt issuance costs ( 71 ) ( 60 )
Less: current portion ( 144 ) ( 100 )
Long-term debt $ 12,195 $ 11,545
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Contractual maturities of long-term debt are as follows at September 30, 2020:
(in millions)
Remainder of 2020 36
2021 146
2022 446
2023 1,699
2024 1,867
Thereafter 8,216
12,410
At September 30, 2020, there were bank guarantees totaling approximately £ 0.9 million (approximately $ 1.1 million) issued against the availability of the general banking facility.
Senior Secured Credit Facilities
At September 30, 2020, the Company’s Fourth Amended and Restated Credit Agreement, as amended (the “Credit Agreement”) provided financing through several senior secured credit facilities (collectively, the “senior secured credit facilities”) of up to approximately $ 7.6 billion, which consisted of $ 6.1 billion principal amounts of debt outstanding (as detailed in the table above), $ 1.5 billion of available borrowing capacity on the revolving credit facility and standby letters of credit.
On March 11, 2020, the Company entered into Amendment No. 7 to the Credit Agreement to borrow $ 900 million in additional U.S. Dollar denominated term A loans due 2023 (the “TLA-2 Loans”) and, on March 30, 2020, entered into Amendment No. 8 to the Credit Agreement to amend certain terms of the TLA-2 Loans. The TLA-2 Loans bear interest based on the U.S. Dollar LIBOR plus a margin ranging from 1.50 % to 2.25 %, with a U.S. Dollar LIBOR floor of 1.00 % per annum. The proceeds from the TLA-2 Loans were used to repay outstanding revolving credit loans under the Company's senior secured credit facilities. On March 30, 2020, the Company prepaid $ 100 million of the TLA-2 loans.
Senior Notes
On June 24, 2020, IQVIA Inc. (the “Issuer”), a wholly owned subsidiary of the Company, completed the issuance and sale of € 711,000,000 in gross proceeds of the Issuer’s 2.875 % senior notes due 2028 (the “ 2.875 % Notes”). The 2.875 % Notes were issued pursuant to an Indenture, dated June 24, 2020, among the Issuer, U.S. Bank National Association, as trustee of the Notes, and certain subsidiaries of the Issuer as guarantors. The 2.875 % Notes are unsecured obligations of the Issuer, will mature on June 15, 2028 and bear interest at the rate of 2.875 % per year, with interest payable semiannually on June 15 and December 15 of each year, beginning on December 15, 2020. The Issuer may redeem the 2.875 % Notes prior to their final stated maturity, subject to a customary make-whole premium, at any time prior to June 15, 2023 (subject to a customary “equity claw” redemption right) and thereafter subject to a redemption premium declining from 1.438 % to 0.000 %. The proceeds from the 2.875 % Notes offering were used to redeem all of the Issuer’s outstanding 3.500 % senior notes due 2024 (the “ 3.500 % Notes”), including the payment of premiums in respect thereof, to repay a portion of the existing borrowings under the Issuer’s revolving credit facility and to pay fees and expenses related to the offering. The Issuer’s obligations with respect to the 3.500 % Notes were discharged on the same day as the Issuer completed the issuance of the 3.500 % Notes, and the 3.500 % Notes were redeemed on July 9, 2020.
Restrictive Covenants
The Company’s debt agreements provide for certain covenants and events of default customary for similar instruments, including a covenant not to exceed a specified ratio of consolidated senior secured net indebtedness to Consolidated EBITDA, as defined in the senior secured credit facility agreement and a covenant to maintain a specified minimum interest coverage ratio. If an event of default occurs under any of the Company’s or the Company’s subsidiaries’ financing arrangements, the creditors under such financing arrangements will be entitled to take various actions, including the acceleration of amounts due under such arrangements, and in the case of the lenders under the revolving credit facility and term loans, other actions permitted to be taken by a secured creditor. The Company’s long-term debt arrangements contain other usual and customary restrictive covenants that, among other things, place limitations on the Company’s ability to declare dividends. At September 30, 2020, the Company was in compliance with the financial covenants under its debt agreements in all material respects and does not have material uncertainty about ongoing ability to meet the covenants of the Company’s credit arrangements.
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Based on our current operating plan, and after considering the likely future impacts of COVID-19, we believe that our available cash and cash equivalents, future cash flows from operations and our ability to access funds under our revolving and other credit facilities will enable us to fund our operating requirements and capital expenditures and meet debt obligations for at least the next 12 months.
9. Stockholders’ Equity
Preferred Stock
The Company is authorized to issue 1.0 million shares of preferred stock, $ 0.01 per share par value. No shares of preferred stock were issued or outstanding as of September 30, 2020 or December 31, 2019.
Equity Repurchase Program
During the nine months ended September 30, 2020, the Company repurchased 2,106,403 shares of its common stock for approximately $ 321.4 million under the Repurchase Program. These amounts include 1,000,000 shares of our common stock repurchased from certain of the Company’s stockholders (the “Selling Stockholders”) in a private transaction for an aggregate purchase price of approximately $ 164.3 million. As of September 30, 2020, the Company has remaining authorization to repurchase up to approximately $ 1.0 billion of its common stock under the Repurchase Program. In addition, from time to time, the Company has repurchased and may continue to repurchase common stock through private or other transactions outside of the Repurchase Program.
10. Restructuring
The Company has continued to take restructuring actions in 2020 to align its resources and reduce overcapacity to adapt to changing market conditions and integrate acquisitions. These actions include consolidating functional activities, eliminating redundant positions, and aligning resources with customer requirements. These restructuring actions are expected to continue into 2021.
The following amounts were recorded for the restructuring plans:
(in millions)
Severance and
Related Costs
Facility
Exit Costs
Total
Balance at December 31, 2019 $ 64 $ 3 $ 67
Expense, net of reversals
50 — 50
Payments
( 51 ) ( 1 ) ( 52 )
Foreign currency translation and other
— — —
Balance at September 30, 2020 $ 63 $ 2 $ 65
Restructuring costs are not allocated to the Company’s reportable segments as they are not part of the segment performance measures regularly reviewed by management. The Company expects that the majority of the restructuring accruals at September 30, 2020 will be paid in 2020 and 2021.
11. Income Taxes
The effective income tax rate was ( 2.9 )% and ( 1.4 )% in the third quarter of 2020 and 2019, respectively, and 5.0 % and 18.8 % in the first nine months of 2020 and 2019, respectively. In the third quarter 2020, the U.S. Treasury Department issued final regulations regarding Foreign Derived Intangible Income (“FDII”) and Global Intangible Low-Taxed Income (“GILTI”). The Company has determined it will elect the GILTI high tax exception as allowed by the final regulations and will amend its 2018 and 2019 US Federal consolidated income tax returns resulting in a favorable impact of $ 24 million. The Company recorded this impact in the third quarter of 2020. The effective income tax rate in the third quarter and first nine months of 2020 and 2019 was also favorably impacted as a result of excess tax benefits recognized upon settlement of share-based compensation awards. For the third quarter of 2020 and 2019 this impact was $ 9 million and $ 3 million, respectively, and for the first nine months of 2020 and 2019 this impact was $ 35 million and $ 20 million, respectively. Additionally, the effective income tax rate in the first nine months of 2020 was unfavorably impacted by a $ 10 million discrete tax expense related to change in the measurement of the U.S. tax on undistributed foreign earnings.
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In the first nine months of 2019 the U.S. Treasury Department issued final regulations on the transition tax and proposed regulations on FDII. While the final regulations related to the transition tax did not have a material impact on the Company, the proposed guidance on FDII had an unfavorable impact. Although the proposed guidance for FDII was not authoritative and subject to change in the regulatory review process, the Company reversed a portion of the tax benefit related to 2018 and recorded a tax expense of $ 20 million for this impact in the first nine months of 2019.
12. Comprehensive Income (Loss)
Below is a summary of the components of AOCI:
(in millions)
Foreign
Currency
Translation
Derivative
Instruments
Defined
Benefit
Plans
Income
Taxes
Total
Balance at December 31, 2019 $ ( 430 ) $ ( 21 ) $ ( 16 ) $ 156 $ ( 311 )
Other comprehensive income (loss) before reclassifications
( 62 ) ( 44 ) — 94 ( 12 )
Reclassification adjustments
— 8 — ( 2 ) 6
Balance at September 30, 2020 $ ( 492 ) $ ( 57 ) $ ( 16 ) $ 248 $ ( 317 )
Below is a summary of the adjustments for (gains) losses reclassified from AOCI into the condensed consolidated statements of income and the affected financial statement line item:
(in millions)
Affected Financial Statement
Line Item
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Derivative instruments:
Foreign exchange forward contracts
Revenues
$ 4 $ 2 $ 9 $ 3
Foreign exchange forward contracts
Other expense (income), net
( 1 ) — ( 1 ) ( 6 )
Total before income taxes
3 2 8 ( 3 )
Income tax (benefit) expense
1 — 2 ( 1 )
Total net of income taxes
$ 2 $ 2 $ 6 $ ( 2 )
13. Segments
The following table presents the Company’s operations by reportable segment. The Company is managed through three reportable segments, Technology & Analytics Solutions, Research & Development Solutions and Contract Sales & Medical Solutions. Technology & Analytics Solutions provides mission-critical information, technology solutions and real-world insights and services to the Company’s life sciences customers. Research & Development Solutions, which primarily serves biopharmaceutical customers, provides outsourced clinical research and clinical trial related services. Contract Sales & Medical Solutions provides health care provider (including contract sales) and patient engagement services to both biopharmaceutical customers and the broader healthcare market.
Certain costs are not allocated to the Company’s segments and are reported as general corporate and unallocated expenses. These costs primarily consist of stock-based compensation and expenses related to integration activities and acquisitions. The Company also does not allocate depreciation and amortization or impairment charges to its segments. Asset information by segment is not presented, as this measure is not used by the chief operating decision maker to assess the Company’s performance. The Company’s reportable segment information is presented below:
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Three Months Ended September 30, Nine Months Ended September 30,
(in millions)
2020 2019 2020 2019
Revenues
Technology & Analytics Solutions
$ 1,207 $ 1,095 $ 3,433 $ 3,272
Research & Development Solutions
1,400 1,466 4,076 4,317
Contract Sales & Medical Solutions
179 208 552 604
Total revenues
2,786 2,769 8,061 8,193
Costs of revenue, exclusive of depreciation and amortization
Technology & Analytics Solutions
727 667 2,048 1,956
Research & Development Solutions
925 1,007 2,811 2,924
Contract Sales & Medical Solutions
148 178 469 519
Total costs of revenue
1,800 1,852 5,328 5,399
Selling, general and administrative expenses
Technology & Analytics Solutions
188 167 549 539
Research & Development Solutions
184 172 544 529
Contract Sales & Medical Solutions
14 15 44 45
General corporate and unallocated
74 41 161 137
Total selling, general and administrative expenses
460 395 1,298 1,250
Segment profit
Technology & Analytics Solutions
292 261 836 777
Research & Development Solutions
291 287 721 864
Contract Sales & Medical Solutions
17 15 39 40
Total segment profit
600 563 1,596 1,681
General corporate and unallocated
( 74 ) ( 41 ) ( 161 ) ( 137 )
Depreciation and amortization
( 319 ) ( 299 ) ( 943 ) ( 888 )
Restructuring costs
( 20 ) ( 19 ) ( 50 ) ( 45 )
Total income from operations
$ 187 $ 204 $ 442 $ 611
14. Earnings Per Share
The following table presents the weighted average number of outstanding stock-based awards not included in the computation of diluted earnings per share because they are subject to performance conditions or the effect of including such stock-based awards in the computation would be anti-dilutive:
Three Months Ended September 30, Nine Months Ended September 30,
(in millions)
2020 2019 2020 2019
Shares subject to performance conditions 1.1 1.3 1.2 1.3
Shares subject to anti-dilutive stock-based awards 1.1 0.4 1.3 0.7
Total shares excluded from diluted earnings per share 2.2 1.7 2.5 2.0
The vesting of performance awards is contingent upon the achievement of certain performance targets. The performance awards are not included in diluted earnings per share until the performance targets have been met. Stock-based awards will have a dilutive effect under the treasury method when the respective period’s average market value of the Company’s common stock exceeds the exercise proceeds.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.