IQVIA HOLDINGS INC. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should read the “Risk Factors” section of this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. 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 70,000 employees, we conduct operations in more than 100 countries. 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 45 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. For a description of our service offerings within our segments, refer to Part I, Item 1, “Business”. Industry Outlook For information about the industry outlook and markets that we operate in, refer to Part I, Item I, “Our Market Outlook”. Overview of the Impact of COVID-19 As a result of the global spread of COVID-19 beginning in early March, we began to experience general business disruptions that impeded normal business activity including our ability to perform on-site monitoring and deliver offerings that rely on face-to-face interaction or in-person gatherings. These disruptions have impacted all three of our reportable segments. The Research & Development Solutions business responded quickly to support our clients with the development of vaccines and therapies for COVID-19. We have been involved in clinical trials and studies for the virus, as well as patient recruitment for COVID-19 trials. The pandemic has accelerated the need for remote and risk-based monitoring in clinical research, which in turn has accelerated the adoption of our virtual trial technology. This technology was deployed to speed vaccine development and helped secure full-service COVID trials and new studies with top pharmaceutical clients. We continue to see gradual improvement in the accessibility of clinical research sites in the Research & Development Solutions business. We are seeing a return to on-site monitoring visits which exceeded the number of remote visits during the second half of the year. In instances where sites remain physically inaccessible for clinical monitoring, remote monitoring and virtual solutions continue to be effective alternatives. Site start-up activities continued to increase along with patient recruitment trends. In our Technology & Analytics Solutions segment, our Real-World business has been relatively well insulated from the impacts of the virus and it had strong growth for the year. The Real-World business is advanced in the use of secondary data, remote monitoring and virtual research approaches, which helped us pivot quickly to working in the new remote world at the onset of the pandemic. However, the portion of our Real-World business that requires site monitoring activity also experienced limitations on site accessibility, which led to a reduction in the associated revenue. Within our Technology & Analytics Solutions segment, we have had very little interruption in data supply and demand. Our analytics and consulting businesses have performed well despite business development being hampered by lack of in-person interactions. Our Technology & Analytics solutions offerings that rely on face-to-face interactions or are dependent on in-person gatherings, events or conferences continue to experience disruption, and where we were unable to execute on our commitments due to COVID-19, we were not able to recognize the associated revenue in the period. Activity within the Contract Sales and Medical Solutions business continues to be more challenging due to a decline in sales rep visits, and physician attention diverted to the COVID-19 crisis. We have accelerated and expanded a variety of cost containment actions to reduce the impact to profitability. We have activated business continuity plans, including remote delivery capabilities in technology and analytics, remote monitoring and virtual trials in Research & Development Solutions and virtual commercial activity with clients wherever possible. We anticipate an acceleration of business momentum when the crisis subsides as delayed trial activities will still need to be performed. The Company continues to maintain strong liquidity. As of December 31, 2020, cash and cash equivalents were $1,814 million and the Company had no amounts drawn under its $1.5 billion revolving credit facility. At December 31, 2020, the Company was in compliance with the financial covenants under its debt agreements in all material respects and does not have material uncertainty about ongoing ability to meet the covenants of our credit arrangements. To help ensure the safety and well-being of our employees, customers, partners and the broader community and continuity of our business operations, we continue to monitor health authority guidance on mitigating the spread of COVID-19 and managing positive cases. We manage our response to the pandemic through a combination of enterprise-wide and regional governance teams, with particular focus on the medical and scientific, information technology, human capital and financial impacts of the pandemic on our business. These teams met, and continue to meet, regularly as necessary based on the status of the pandemic. We closely monitor the impact of COVID-19 on our operations and report to our Board regularly on the progress of our response to the COVID-19 outbreak. We have established global workplace protocols that govern the return of our employees to our offices. 46 Business Combinations We have completed and will continue to consider strategic business combinations to enhance our capabilities and offerings in certain areas, including various individually immaterial acquisitions during the years ended December 31, 2020 and 2019. These transactions were accounted for as business combinations and the acquired results of operations are included in our consolidated financial information since the acquisition date. See Note 14 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information with respect to these business combinations. Sources of Revenue Total revenues are comprised of revenues from the provision of our services. We do not have any material product revenues. Costs and Expenses Our costs and expenses are comprised primarily of our costs of revenue, reimbursed expenses and selling, general and administrative expenses. Costs of revenue include compensation and benefits for billable employees and personnel involved in production, trial monitoring, 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; and other expenses directly related to service contracts such as courier fees, laboratory supplies, professional services and travel expenses. As noted above, reimbursed expenses are comprised principally of payments to investigators who oversee clinical trials and travel expenses for our clinical monitors and sales representatives. Selling, general and administrative expenses include costs related to sales, marketing, and administrative functions (including human resources, legal, finance, quality assurance, compliance and general management) for compensation and benefits, travel, professional services, training and expenses for information technology, facilities and depreciation and amortization. Foreign Currency Translation In 2020, approximately 35% of our revenues were denominated in currencies other than the United States dollar, which represents approximately 60 currencies. Because a large portion of our revenues and expenses are denominated in foreign currencies and our financial statements are reported in United States dollars, changes in foreign currency exchange rates can significantly affect our results of operations. The revenue and expenses of our foreign operations are generally denominated in local currencies and translated into United States dollars for financial reporting purposes. Accordingly, exchange rate fluctuations will affect the translation of foreign results into United States dollars for purposes of reporting our condensed consolidated results. As a result, we believe that reporting results of operations that exclude the effects of foreign currency rate fluctuations on certain financial results can facilitate analysis of period to period comparisons. This constant currency information assumes the same foreign currency exchange rates that were in effect for the comparable prior-year period were used in translation of the current period results. Consolidated Results of Operations For information regarding our results of operations for Technology & Analytics Solutions, Research & Development Solutions and Contract Sales & Medical Solutions, refer to “Segment Results of Operations” later in this section. For a discussion of our results of operations comparison for 2019 and 2018, refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed on February 18, 2020. Our reportable segment results of operations comparison for 2018 included below within this Annual Report on Form 10-K reflects the change in segment presentation that occurred during the first quarter of 2019. Revenues Year Ended December 31, Change 2020 vs. 2019 2019 vs. 2018 (dollars in millions) 2020 2019 2018 $ % $ % Revenues $ 11,359 $ 11,088 $ 10,412 $ 271 2.4 % $ 676 6.5 % 47 2020 compared to 2019 In 2020, our revenues increased $271 million, or 2.4%, as compared to 2019. This increase was comprised of constant currency revenue growth of approximately $252 million, or 2.3%, reflecting a $365 million increase in Technology & Analytics Solutions, offset by a $38 million decrease in Research & Development Solutions and a $75 million decrease in Contract Sales & Medical Solutions. Costs of Revenue, exclusive of Depreciation and Amortization Year Ended December 31, (dollars in millions) 2020 2019 2018 Costs of revenue, exclusive of depreciation and amortization $ 7,500 $ 7,300 $ 6,746 % of revenues 66.0 % 65.8 % 64.8 % 2020 compared to 2019 When compared to 2019, costs of revenue, exclusive of depreciation and amortization, in 2020 increased $200 million, or 2.7%. This increase included a constant currency increase of approximately $223 million, or 3.1%, comprised of a $232 million increase in Technology & Analytics Solutions, a $67 million increase in Research & Development Solutions, offset by a $76 million decrease in Contract Sales & Medical Solutions. As a percent of revenues, costs of revenue remained flat compared to 2019. Selling, General and Administrative Expenses Year Ended December 31, (dollars in millions) 2020 2019 2018 Selling, general and administrative expenses $ 1,789 $ 1,734 $ 1,716 % of revenues 15.7 % 15.6 % 16.5 % 2020 compared to 2019 The $55 million increase in selling, general and administrative expenses in 2020 as compared to 2019 included a constant currency increase of approximately $62 million, or 3.6%, comprised of a $23 million increase in Technology & Analytics Solutions, a $31 million increase in Research & Development Solutions, and a $12 million increase in general corporate and unallocated expenses. These increases were partially offset by a $4 million decrease in Contract Sales & Medical Solutions. Depreciation and Amortization Year Ended December 31, (dollars in millions) 2020 2019 2018 Depreciation and amortization $ 1,287 $ 1,202 $ 1,141 % of revenues 11.3 % 10.8 % 11.0 % The $85 million increase in depreciation and amortization in 2020 as compared to 2019 was primarily due to higher intangible asset balances as a result of acquisitions occurring in 2019, increased amortization due to higher capitalized software balances, and accelerated depreciation on an internal-use software asset in the first quarter of 2020. Restructuring Costs Year Ended December 31, (in millions) 2020 2019 2018 Restructuring costs $ 52 $ 75 $ 68 48 The restructuring costs incurred were due to ongoing efforts to streamline our global operations. The remaining actions under these plans are expected to occur throughout 2021 and are expected to consist of consolidating functional activities, eliminating redundant positions, and aligning resources with customer requirements. Interest Income and Interest Expense Year Ended December 31, (in millions) 2020 2019 2018 Interest income $ (6) $ (9) $ (8) Interest expense $ 416 $ 447 $ 414 Interest income included interest received primarily from bank balances and investments. Interest expense during 2020 was lower than 2019 due to lower interest rates attributed to lower LIBOR rates and the redemption of the $800 million of 4.875% senior notes due 2023, partially offset by an increase in the average debt outstanding. Loss on Extinguishment of Debt Year Ended December 31, (in millions) 2020 2019 2018 Loss on extinguishment of debt $ 13 $ 24 $ 2 During 2020, we recognized loss on extinguishment of debt of $13 million for fees and expenses related to the refinancing of our 3.500% senior notes due 2024 as discussed further in Note 10 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. During 2019, we recognized loss on extinguishment of debt of $24 million for fees and expenses related to the redemption of our 4.875% senior notes due 2023 in aggregate principal amount of $800 million as discussed further in Note 10 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. See “—Liquidity and Capital Resources” for more information on these transactions. Other Expense (Income), Net Year Ended December 31, (in millions) 2020 2019 2018 Other (income) expense, net $ (65) $ (37) $ 5 Other income, net for 2020 primarily consisted of a decrease in fair value of acquisition-related contingent consideration, mark-to-market gains on equity securities, a decrease in foreign currency losses, and a gain on investments in mutual funds. Other income, net for 2019 primarily consisted of a gain related to the remeasurement of a previously held equity interest of an equity method investment upon acquiring the remaining interest as a result of a business combination. Income Tax Expense (Benefit) Year Ended December 31, (dollars in millions) 2020 2019 2018 Income tax expense (benefit) $ 72 $ 116 $ 59 Effective income tax rate 19.3 % 33.0 % 18.0 % In 2020, the U.S. Treasury Department issued final regulations regarding Foreign Derived Intangible Income (“FDII”) and Global Intangible Low-Taxed Income (“GILTI”). We have determined we will elect the GILTI high tax exception as allowed by the final regulations and we will amend our 2018 and 2019 US Federal consolidated income tax returns resulting in a favorable impact of $26 million, which we recorded in 2020. 49 In 2019 the U.S. Treasury Department issued final regulations on the transition tax and proposed regulations on Foreign Derived Intangible Income (“FDII") which we analyzed. While the final regulations related to the transition tax did not have a material impact on us, the proposed guidance for FDII had an unfavorable impact. Although the proposed guidance for FDII is not authoritative and subject to change in the regulatory review process, we reversed the tax benefit recorded in 2018 by recording a tax expense of $25 million for this impact. Equity in Earnings (Losses) of Unconsolidated Affiliates Year Ended December 31, (in millions) 2020 2019 2018 Equity in (losses) earnings of unconsolidated affiliates $ 7 $ (9) $ 15 Equity in earnings (losses) of unconsolidated affiliates increased in 2020 compared to 2019 primarily due to higher earnings from our investment in NovaQuest Pharma Opportunities Fund III. Net Income Attributable to Non-controlling Interests Year Ended December 31, (in millions) 2020 2019 2018 Net income attributable to non-controlling interests $ (29) $ (36) $ (25) Net income attributable to non-controlling interests primarily consists of Quest’s interest in Q 2 Solutions. Segment Results of Operations Revenues and profit by segment are as follows: Segment Revenues Segment Profit (in millions) 2020 2019 2018 2020 2019 2018 Technology & Analytics Solutions $ 4,858 $ 4,486 $ 4,137 $ 1,216 $ 1,101 $ 1,041 Research & Development Solutions 5,760 5,788 5,465 1,048 1,141 1,055 Contract Sales & Medical Solutions 741 814 810 57 52 61 Total 11,359 11,088 10,412 2,321 2,294 2,157 General corporate and unallocated (251) (240) (207) Depreciation and amortization (1,287) (1,202) (1,141) Restructuring costs (52) (75) (68) Consolidated $ 11,359 $ 11,088 $ 10,412 $ 731 $ 777 $ 741 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 to integration activities and acquisitions. We also do not allocate depreciation and amortization or impairment charges to our segments. Prior period segment results have been recast to conform to changes to management reporting in 2019. The recast impacts the allocation of selling, general and administrative expenses for 2018. 50 Technology & Analytics Solutions Year Ended December 31, Change (dollars in millions) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018 Revenues $ 4,858 $ 4,486 $ 4,137 $ 372 8.3 % $ 349 8.4 % Cost of revenue, exclusive of depreciation and amortization 2,900 2,663 2,343 237 8.9 320 13.7 Selling, general and administrative expenses 742 722 753 20 2.8 (31) -4.1 Segment profit $ 1,216 $ 1,101 $ 1,041 $ 115 10.4 % $ 60 5.8 % Revenues 2020 compared to 2019 Technology & Analytics Solutions’ revenues were $4,858 million in 2020, an increase of $372 million, or 8.3%, over 2019. This increase was comprised of constant currency revenue growth of approximately $365 million, or 8.1%, reflecting revenue growth in the Europe and Africa region as well as the Americas region. The revenue growth in these regions was driven by higher real-world and analytical services. See Part II—Item 7—“Overview of the Impact of COVID-19" included elsewhere in this Annual Report on Form 10-K for a discussion of the impact from COVID-19 on Technology & Analytics Solutions business activity. Costs of Revenue, exclusive of Depreciation and Amortization 2020 compared to 2019 Technology & Analytics Solutions’ costs of revenue, exclusive of depreciation and amortization, were $2,900 million in 2020, an increase of $237 million over 2019. This increase was comprised of constant currency increase of approximately $232 million, or 8.7%, reflecting an increase in compensation and related expenses to support revenue growth. Selling, General and Administrative Expenses 2 020 compared to 2019 Technology & Analytics Solutions’ selling, general and administrative expenses increased $20 million in 2020 as compared to 2019. This increase was comprised of a constant currency increase of approximately $23 million, or 3.2%, reflecting an increase in compensation and related expenses. Research & Development Solutions Year Ended December 31, Change (dollars in millions) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018 Revenues $ 5,760 $ 5,788 $ 5,465 $ (28) (0.5) % $ 323 5.9 % Cost of revenue, exclusive of depreciation and amortization 3,974 3,936 3,721 38 1.0 215 5.8 Selling, general and administrative expenses 738 711 689 27 3.8 22 3.2 Segment profit $ 1,048 $ 1,141 $ 1,055 $ (93) (8.2) % $ 86 8.2 % Backlog Research & Development Solutions contracted backlog increased from $19.0 billion at December 31, 2019 to $22.6 billion at December 31, 2020 and we expect approximately $5.9 billion of this backlog to convert to revenue in the next 12 months. Contracted backlog was $17.1 billion at December 31, 2018. 51 Backlog represents, at a particular point in time, future revenues from work not yet completed or performed under signed contracts. Once work begins on a project, revenues are recognized over the duration of the project. We believe that backlog is an indicator of future revenues but the timing of revenue will be affected by a number of factors, including the variable size and duration of projects, many of which are performed over several years, cancellations, and changes to the scope of work during the course of projects. Projects that have been delayed remain in backlog, but the timing of the revenue generated may differ from the timing originally expected. Additionally, projects may be terminated or delayed by the customer or delayed by regulatory authorities. In the event that a client cancels a contract, we typically would be entitled to receive payment for all services performed up to the cancellation date and subsequent client-authorized services related to winding down the canceled project. For more details regarding risks related to our backlog, see Part I, Item IA, “Risk Factors—Risks Related to our Business—The relationship of backlog to revenues varies over time.” Revenues 2020 compared to 2019 Research & Development Solutions’ revenues were $5,760 million in 2020, a decrease of $28 million, or 0.5%, over 2019. This decrease was comprised of constant currency revenue decline of approximately $38 million, or 0.7%, reflecting volume-related decreases in clinical services and lab testing impacted by COVID-19, largely offset by the incremental revenue from the clinical trials and studies to support the development of vaccines and therapies for COVID-19. See Part II—Item 7—“Overview of the Impact of COVID-19" included elsewhere in this Annual Report on Form 10-K for a discussion of the impact from COVID-19 on Research & Development Solutions business activity. Costs of Revenue, exclusive of Depreciation and Amortization 2020 compared to 2019 Research & Development Solutions’ costs of revenue, exclusive of depreciation and amortization, increased $38 million, or 1.0%, in 2020 as compared to 2019. This increase included a constant currency increase of approximately $67 million, or 1.7%, reflecting an increase in compensation and related expenses. Selling, General and Administrative Expenses 2020 compared to 2019 Research & Development Solutions’ selling, general and administrative expenses increased $27 million, or 3.8%, in 2020 as compared to 2019, which included a constant currency increase of approximately $31 million, or 4.4%, reflecting an increase in compensation and related expenses. Contract Sales & Medical Solutions Year Ended December 31, Change (dollars in millions) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018 Revenues $ 741 $ 814 $ 810 $ (73) (9.0) % $ 4 0.5 % Cost of revenue, exclusive of depreciation and amortization 626 701 682 (75) (10.7) 19 2.8 Selling, general and administrative expenses 58 61 67 (3) (4.9) (6) (9.0) Segment profit $ 57 $ 52 $ 61 $ 5 9.6 % $ (9) (14.8) % 52 Revenues 2020 compared to 2019 Contract Sales & Medical Solutions’ revenues were $741 million in 2020, a decrease of $73 million, or 9.0%, over 2019. This decrease was comprised of a constant currency revenue decline of approximately $75 million, or 9.2%, reflecting a volume decrease in the Americas region. See Part II—Item 7—“Overview of the Impact of COVID-19" included elsewhere in this Annual Report on Form 10-K for a discussion of the impact from COVID-19 on Contract Sales & Medical Solutions business activity. Costs of Revenue, exclusive of Depreciation and Amortization 2020 compared to 2019 Contract Sales & Medical Solutions’ costs of revenue, exclusive of depreciation and amortization, decreased $75 million, or 10.7%, in 2020 as compared to 2019. This decrease included a constant currency decrease of approximately $76 million, or 10.8%, reflecting a decrease in compensation and related expenses as a result of reduced volume in the Americas region. Selling, General and Administrative Expenses 2020 compared to 2019 Contract Sales & Medical Solutions’ selling, general and administrative expenses decreased $3 million, or 4.9%, in 2020 as compared to 2019. This decrease included a constant currency decrease of approximately $4 million, or 6.6%, reflecting 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 credit and receivables financing 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 $1,814 million at December 31, 2020 ($1,065 million of which was in the United States), an increase from $837 million at December 31, 2019. 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 credit and receivables financing facilities will enable us to fund our operating requirements, capital expenditures, contractual obligations, 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 53 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 On February 13, 2019, the Board increased the stock repurchase authorization under the “Repurchase Program by $2.0 billion, which increased the total amount that has been authorized under the Repurchase Program to $7.725 billion since the plan’s inception in October 2013. The Repurchase Program does not obligate the Company to repurchase any particular amount of common stock, and it may be modified, extended, suspended or discontinued at any time. As of December 31, 2020, the Company has remaining authorization to repurchase up to $0.9 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. Additional information regarding the Repurchase Program is presented in Part II, Item 5 “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” and Note 13 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Debt As of December 31, 2020, we had $12.6 billion of total indebtedness, excluding $1.5 billion of available borrowings under our revolving credit facilities. See Note 10 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional details regarding our credit arrangements. Our long-term debt arrangements contain customary restrictive covenants and, as of December 31, 2020, we believe we were in compliance with our restrictive covenants in all material respects. Senior Secured Credit Facilities and Senior Notes At December 31, 2020, our 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 $7,692 million, which consisted of $6,192 million principal amounts of debt outstanding (as detailed in the table above), $4 million of issued standby letters of credit and $1,496 million of available borrowing capacity on the revolving credit facility. The revolving credit facility is comprised of a $675 million senior secured revolving facility available in U.S. dollars, a $600 million senior secured revolving facility available in U.S. dollars, Euros, Swiss Francs and other foreign currencies, and a $225 million senior secured revolving facility available in U.S. dollars and Yen. The term A loans and revolving credit facility under the Credit Agreement mature in June 2023, while the term B loans under the Credit Agreement mature in 2024 and 2025. We are required to make scheduled quarterly payments on the term A loans equal to 1.25% of the original principal amount, with the remaining balance paid at maturity. We are required to make scheduled quarterly payments on the term B loans equal to approximately 0.25% of the original principal amount, with the remaining balance paid at maturity. In addition, beginning with fiscal year ending December 31, 2017, we were required to apply 50% of excess cash flow (as defined in the Credit Agreement), subject to a reduction to 25% or 0% depending upon our senior secured first lien net leverage ratio, for prepayment of the term loans, with any such prepayment to be applied toward principal payments due in subsequent quarters. We are also required to pay an annual commitment fee that ranges from 0.20% to 0.35% in respect of any unused commitments under the revolving credit facility. The Senior Secured Credit Facilities are collateralized by substantially all of our assets and the assets of our material domestic subsidiaries including 100% of the equity interests of substantially all of our material domestic subsidiaries and 66% of the equity interests of substantially all of our first-tier material foreign subsidiaries and their domestic subsidiaries. For information regarding the Senior Secured Credit Facilities and senior notes, see Note 10 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. 54 Receivables Financing Facility For information regarding receivables financing facility, see Note 10 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. As of December 31, 2020, there were $60 million of revolving loans available under the receivables financing facility. Years ended December 31, 2020, 2019 and 2018 Cash Flow from Operating Activities Year Ended December 31, (in millions) 2020 2019 2018 Net cash provided by operating activities $ 1,959 $ 1,417 $ 1,254 2020 compared to 2019 Cash provided by operating activities increased $542 million in 2020 as compared to 2019. The increase is primarily due to improved collections from clients resulting in a decrease in accounts receivable and unbilled services ($377 million), an increase in advanced billings ($182 million), an increase in cash-related net income ($102 million), and the timing of income tax and other payables ($78 million), partially offset by a decrease in customer prepayments ($54 million). Cash Flow from Investing Activities Year Ended December 31, (in millions) 2020 2019 2018 Net cash used in investing activities $ (796) $ (1,190) $ (810) 2020 compared to 2019 Cash used in investing activities decreased $394 million in 2020 as compared to 2019. The decrease was primarily driven by lower cash used for the acquisition of businesses, net of cash acquired ($411 million). Cash Flow from Financing Activities Year Ended December 31, (in millions) 2020 2019 2018 Net cash used in financing activities $ (217) $ (276) $ (452) 2020 compared to 2019 Cash used in financing activities decreased $59 million in 2020 as compared to 2019. The decrease in cash used in financing activities was primarily due to less cash used to repurchase common stock ($502 million), offset by a decrease in cash provided by proceeds from debt issuances ($309 million) and a decrease in cash proceeds from revolving credit facilities, net of repayments ($131 million). Contingencies We are exposed to certain known contingencies that are material to our investors. The facts and circumstances surrounding these contingencies and a discussion of their effect on us are in Note 12 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. These contingencies may have a material effect on our liquidity, capital resources or results of operations. In addition, even where our reserves are adequate, the incurrence of any of these liabilities may have a material effect on our liquidity and the amount of cash available to us for other purposes. We believe that we have made appropriate arrangements in respect of the future effect on us of these known contingencies. We also believe that the amount of cash available to us from our operations, together with cash from financing, will be sufficient for us 55 to pay any known contingencies as they become due without materially affecting our ability to conduct our operations and invest in the growth of our business. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements except for operating leases entered into in the normal course of business. Contractual Obligations and Commitments Below is a summary of our future payment commitments by year under contractual obligations as of December 31, 2020: (in millions) 2021 2022 - 2023 2024 - 2025 Thereafter Total Long-term debt, including interest (1) $ 498 $ 2,758 $ 6,875 $ 4,088 $ 14,219 Operating leases 159 236 131 52 578 Finance leases — 12 12 159 183 Data acquisition 344 339 82 2 767 Purchase obligations (2) 10 7 2 2 21 Commitments to unconsolidated affiliates (3) — — — — — Benefit obligations (4) 32 33 34 90 191 Uncertain income tax positions (5) 21 37 9 4 71 Total $ 1,064 $ 3,422 $ 7,145 $ 4,397 $ 16,030 (1) Interest payments on our debt are based on the interest rates in effect on December 31, 2020. (2) Purchase obligations are defined as agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable pricing provisions and the approximate timing of the transactions. (3) We are currently committed to invest $130 million in private equity funds. As of December 31, 2020, we have funded approximately $80.2 million of these commitments and we have approximately $49.8 million remaining to be funded which has not been included in the above table as we are unable to predict when these commitments will be paid. (4) Amounts represent expected future benefit payments for our pension and postretirement benefit plans, as well as expected contributions for 2021 for our funded pension benefit plans. We made cash contributions totaling approximately $30 million to our defined benefit plans in 2020, and we estimate that we will make contributions totaling approximately $32 million to our defined benefit plans in 2021. Due to the potential impact of future plan investment performance, changes in interest rates, changes in other economic and demographic assumptions and changes in legislation in foreign jurisdictions, we are not able to reasonably estimate the timing and amount of contributions that may be required to fund our defined benefit plans for periods beyond 2021. (5) As of December 31, 2020, our liability related to uncertain income tax positions was approximately $129 million, $58 million of which has not been included in the above table as we are unable to predict when these liabilities will be paid due to the uncertainties in the timing of the settlement of the income tax positions. Application of Critical Accounting Policies Note 1 to the audited consolidated financial statements provided elsewhere in this Annual Report on Form 10-K describes the significant accounting policies used in the preparation of the consolidated financial statements. The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the period. Our estimates are based on historical experience and various other assumptions we believe are reasonable under the circumstances. We evaluate our estimates on an ongoing basis and make changes to the estimates and related disclosures as experience develops or new information becomes known. Actual results may differ from those estimates. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. Revenue Recognition The majority of the Company’s contracts within the Research & Development Solutions segment are service contracts for clinical research that represent a single performance obligation. The Company provides a significant integration service resulting in a 56 combined output, which is clinical trial data that meets the relevant regulatory standards and can be used by the customer to progress to the next phase of a clinical trial or solicit approval of a treatment by the applicable regulatory body. The performance obligation is satisfied over time as the output is captured in data and documentation that is available for the customer to consume over the course of the arrangement and furthers progress of the clinical trial. The Company recognizes revenue over time using a cost-based input method since there is no single output measure that would fairly depict the transfer of control over the life of the performance obligation. Progress on the performance obligation is measured by the proportion of actual costs incurred to the total costs expected to complete the contract. Costs included in the measure of progress include direct labor and third-party costs (such as payments to investigators and other pass through expenses for the Company’s clinical monitors). This cost-based method of revenue recognition requires the Company to make estimates of costs to complete its projects on an ongoing basis. Significant judgment is required to evaluate assumptions related to these estimates. The effect of revisions to estimates related to the transaction price or costs to complete a project are recorded in the period in which the estimate is revised. Most contracts may be terminated upon 30 to 90 days notice by the customer; however, in the event of termination, most contracts require payment for services rendered through the date of termination, as well as for subsequent services rendered to close out the contract. Income Taxes Certain items of income and expense are not recognized on our income tax returns and financial statements in the same year, which creates timing differences. The income tax effect of these timing differences results in (1) deferred income tax assets that create a reduction in future income taxes and (2) deferred income tax liabilities that create an increase in future income taxes. Recognition of deferred income tax assets is based on management’s belief that it is more likely than not that the income tax benefit associated with certain temporary differences, income tax operating loss and capital loss carryforwards and income tax credits, would be realized. We recorded a valuation allowance to reduce our deferred income tax assets for those deferred income tax items for which it was more likely than not that realization would not occur. We determined the amount of the valuation allowance based, in part, on our assessment of future taxable income and in light of our ongoing income tax strategies. If our estimate of future taxable income or tax strategies changes at any time in the future, we would record an adjustment to our valuation allowance. Recording such an adjustment could have a material effect on our financial condition or results of operations. Income tax expense is based on the distribution of profit before income tax among the various taxing jurisdictions in which we operate, adjusted as required by the income tax laws of each taxing jurisdiction. Changes in the distribution of profits and losses among taxing jurisdictions may have a significant impact on our effective income tax rate. We do not consider the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested outside of the United States. Business Combinations We use the acquisition method to account for business combinations, and accordingly, the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree are recorded at their estimated fair values on the date of the acquisition. We use significant judgments, estimates and assumptions in determining the estimated fair value of assets acquired, liabilities assumed and non-controlling interest including expected future cash flows, discount rates that reflect the risk associated with the expected future cash flows and estimated useful lives. We have recorded and allocated to our reporting units the excess of the cost over the fair value of the net assets acquired, known as goodwill. The recoverability of the goodwill and indefinite-lived intangible assets are evaluated annually for impairment, or if and when events or circumstances indicate a possible impairment. We review the carrying values of other identifiable intangible assets if the facts and circumstances indicate a possible impairment. Any future impairment could have a material adverse effect on our financial condition or results of operations. Stock-based Compensation We measure compensation cost for stock-based payment awards (stock options and stock appreciation rights) granted to employees and non-employee directors at fair value using the Black-Scholes-Merton option-pricing model and for performance awards using the Monte Carlo simulation model. Stock-based compensation expense includes stock-based awards granted to employees and non-employee directors and has been reported in selling, general and administrative expenses in our consolidated statements of income based upon the classification of the individuals who were granted stock-based awards. 57 The Black-Scholes-Merton option-pricing model requires the use of subjective assumptions, including share price volatility, the expected life of the award, risk-free interest rate and the fair value of the underlying common shares on the date of grant. In developing our assumptions, we take into account the following: • We calculate expected volatility based on reported data for selected reasonably similar publicly traded companies for which the historical information is available. We plan to continue to use the guideline peer group volatility information until the historical volatility of our common shares is relevant to measure expected volatility for future award grants; • We determine the risk-free interest rate by reference to implied yields available from United States Treasury securities with a remaining term equal to the expected life assumed at the date of grant; • We estimate the dividend yield to be zero as we do not currently anticipate paying any future dividends; • We estimate the average expected life of the award based on our historical experience; and • We estimate forfeitures based on our historical analysis of actual forfeitures. Pensions and Other Postretirement Benefits We provide retirement benefits to certain employees, including defined benefit pension plans and postretirement medical plans. The determination of benefit obligations and expense is based on actuarial models. In order to measure benefit costs and obligations using these models, critical assumptions are made with regard to the discount rate, expected return on plan assets, cash balance crediting rate, lump sum conversion rate and the assumed rate of compensation increases. In addition, retiree medical care cost trend rates are a key assumption used exclusively in determining costs for our postretirement health care and life insurance benefit plans. Recently Issued Accounting Standards Information relating to recently issued accounting standards is included in Note 1 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.