What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-15 compared with 2022-02-16 · 104 added, 106 removed, 281 unchanged (43% of the section changed)

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With approximately 86,000 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 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.

We are 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 our life science clients.

Research & Development Solutions, which primarily serves biopharmaceutical clients, provides outsourced clinical research and clinical trial services.

Contract Sales & Medical Solutions provides health care provider (including contract sales) and patient engagement services 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 Opportunity”.

Overview of the Impact of COVID-19

During 2020, the COVID-19 pandemic disrupted the pace of our clinical trials and offerings that rely on face-to-face interactions, but, at the same time, it accelerated change in the industry and created demand for new services.

The pandemic resulted in the delay but not cancellation of a number of existing and planned clinical trials, both because many clinical trials were slowed or temporarily paused and because many planned clinical trials did not begin as scheduled as they were crowded out by clinical trials for COVID-19 vaccines and other therapies.

During 2021, we experienced an acceleration in business momentum as these delayed clinical trial activities began or restarted, which contributed to our financial results for the year.

Throughout the past year and into 2022, we have worked on a substantial number of COVID-related projects.

COVID-specific work currently does not represent a material amount of our backlog and is executed over shorter timelines than other therapeutic work, though we do anticipate that this work will continue through 2022 and potentially into 2023 and beyond.

There will be a need for vaccines for multiple manufacturers to meet global demand, new vaccines for emerging variants of the virus, alternative vaccines needed as a result of adverse safety events, quality issues, or manufacturing delays, novel treatment programs that are targeted at specific populations and conditions, and vaccine safety monitoring studies.

The pandemic has also affected our business strategy in a number of ways.

One of the most significant impacts on our Research & Development Solutions business, has been the acceleration of decentralized clinical trials.

Decentralized clinical trials combine the use of remote technologies and field-based services to enable portions of a clinical trial to be conducted away from an investigator site.

This approach reduces the burden on patients of having to travel to and from investigator sites frequently and allows trials to continue to be conducted even during periods of limited access to investigator sites.

While the decentralized clinical trial opportunity was identified before COVID-19, we saw how critical those capabilities were during the pandemic and accelerated their development accordingly.

We invested in the use of remote technologies, expanded our relationships with local laboratories and healthcare providers, and established a virtual network of investigators and care professionals.

We also took the opportunity presented by the pandemic to completely rethink and revolutionize our workplace and in 2021 we implemented the IQVIA Future of Work program.

This program was designed to address employee feedback for more flexibility, and it will facilitate approximately 80% of our employees working in flexible arrangements, reducing our physical footprint and the employee commute impact on the environment.

To facilitate this transition, we made investments in real estate to reconfigure our office space to install the most efficient work arrangements and in technology to support our employees and ensure that we can innovate, collaborate and grow successfully.

Throughout 2022 we experienced broad, robust demand for all our offerings as demonstrated by our results for the year ended December 31, 2022, and our remaining performance obligations of approximately $ 29.2 billion as of December 31, 2022.

We produced these results in the face of significant unforeseen challenges presented by the global macro environment including wage inflation and attrition, general inflation, staff shortages affecting investigator sites, along with the slow recovery of patient visits.

As a response to these challenges, we have decided to accelerate targeted productivity initiatives so we can mitigate the impact in 2023.

Overall, the life sciences industry that we serve is a long-cycle business and is well placed to weather uncertainties.

The COVID-19 pandemic continued to impact operations in 2022.

While we expanded our decentralized clinical trials capabilities and other more remote and technology-based offerings throughout 2022, due to the progression of the world’s overall response to the pandemic and specifically work related to clinical development of COVID-19 vaccines, we experienced a decline in revenues in 2022 from COVID-19 related work.

If current trends for the pandemic continue, we expect to see a continued decline in COVID-19 related work in 2023 compared to 2022.

As of December 31, 2022 COVID-19 related work did not represent a material amount of our remaining performance obligations.

The Company continues to maintain strong liquidity.

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As of December 31, 2022, 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.

Industry Outlook

For information about the industry outlook and markets that we operate in, refer to Part I, Item I, “Our Market Opportunity”.

Business Combinations

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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

Sources of Revenues

Total revenues are comprised of revenues from the provision of our services.

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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;

Our costs and expenses are comprised primarily of our cost of revenues including reimbursed expenses and selling, general and administrative expenses.

Cost of revenues includes 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.

Reimbursed expenses, which are included in cost of revenues, 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 and facilities.

We also incur costs and expenses associated with depreciation and amortization.

Foreign Currency Translation

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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.

The revenues and expenses of our foreign operations are generally denominated in local currencies and translated into United States dollars for financial reporting purposes.

Accordingly, exchange rate fluctuations will affect the translation of foreign results into United States dollars for purposes of reporting our consolidated results.

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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.

As such, the differences noted below between reported results of operations and constant currency information is wholly attributable to the effects of foreign currency rate fluctuations.

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 information regarding our results of operations for our Technology & Analytics Solutions, Research & Development Solutions and Contract Sales & Medical Solutions segments, refer to “Segment Results of Operations” later in this section.

For a discussion of our results of operations comparison for 2021 and 2020, refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed on February 16, 2022.

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This increase was comprised of constant currency revenue growth of approximately $1,084 million, or 7.8%, reflecting a $483 million increase in Technology & Analytics Solutions, a $580 million increase in Research & Development Solutions, and a $21 million increase in Contract Sales & Medical Solutions.

Costs of Revenue, exclusive of Depreciation and Amortization

Cost of Revenues, exclusive of Depreciation and Amortization

Year Ended December 31,

(dollars in millions) 2022 2021 2020

Costs of revenue, exclusive of depreciation and amortization $ 9,233 $ 7,500 $ 7,300

Cost of revenues, exclusive of depreciation and amortization $ 9,382 $ 9,233 $ 7,500

% of revenues 65.1 % 66.5 % 66.0 %

2022 compared to 2021

When compared to 2020, costs of revenue, exclusive of depreciation and amortization, in 2021 increased $1,733 million, or 23.1%.

When compared to 2021, cost of revenues, exclusive of depreciation and amortization increased $149 million in 2022, or 1.6%.

This increase included a constant currency increase of approximately $674 million, or 7.3%, comprised of a $228 million increase in Technology & Analytics Solutions, a $408 million increase in Research & Development Solutions, and a $38 million increase in Contract Sales & Medical Solutions.

As a percent of revenues, costs of revenue, exclusive of depreciation and amortization in 2021 increased compared to 2020.

As a percent of revenues, cost of revenues, exclusive of depreciation and amortization in 2022 decreased compared to 2021.

Selling, General and Administrative Expenses

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2022 compared to 2021

The $175 million increase in selling, general and administrative expenses in 2021 as compared to 2020 included a constant currency increase of approximately $151 million, or 8.4%, comprised of a $42 million increase in Technology & Analytics Solutions, a $32 million increase in Research & Development Solutions, a $(1) million decrease in Contract Sales & Medical Solutions, and a $78 million increase in general corporate and unallocated expenses.

The $107 million increase in selling, general and administrative expenses in 2022 as compared to 2021 included a constant currency increase of approximately $211 million, or 10.7%, comprised of a $107 million increase in Technology & Analytics Solutions, a $81 million increase in Research & Development Solutions, a $8 million increase in Contract Sales & Medical Solutions, and a $15 million increase in general corporate and unallocated expenses.

Depreciation and Amortization

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% of revenues 7.8 % 9.1 % 11.3 %

The $(23) million decrease in depreciation and amortization in 2021 as compared to 2020 was primarily due to certain intangible assets from the merger between Quintiles and IMS Health becoming fully amortized in 2021, offset by higher intangible asset balances as a result of acquisitions occurring in 2020 and 2021, increased amortization due to higher capitalized software balances, and accelerated amortization related to intangibles impacted by the Company's acquisition of Quest's non-controlling interest in Q 2 Solutions.

The $134 million decrease in depreciation and amortization in 2022 as compared to 2021 was primarily due to certain intangible assets from the merger between Quintiles and IMS Health becoming fully amortized in 2021, offset by higher intangible asset balances as a result of acquisitions occurring in 2021 and 2022, increased amortization due to higher capitalized software balances and accelerated amortization related to the abandonment of certain internally developed software assets.

Restructuring Costs

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Restructuring costs $ 28 $ 20 $ 52

The restructuring costs incurred were due to ongoing efforts to streamline our global operations.

The restructuring costs incurred were due to ongoing efforts to streamline our global operations and reduce overcapacity to adapt to changing market conditions and integrate acquisitions.

The remaining actions under these plans are expected to occur throughout 2023 and are expected to consist of consolidating functional activities, eliminating redundant positions, and aligning resources with customer requirements.

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Interest income included interest received primarily from bank balances and investments.

Interest expense during 2021 was lower than 2020 due to lower interest rates attributed to lower LIBOR rates, the refinancing of our existing term A loans and the redemption of our 3.250% senior notes due 2025, which was offset by the interest expense on the issuance of our 1.750% senior notes due 2026 and 2.250% senior notes due 2029.

See Note 10 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information on these transactions.

The increase is primarily a result of higher deposit rates.

Interest expense during 2022 was higher than 2021 due primarily to higher base rate interest costs across the floating rate debt portfolio as well as from an increase in our net debt.

Loss on Extinguishment of Debt

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Loss on extinguishment of debt $ — $ 26 $ 13

During 2021, we recognized loss on extinguishment of debt of $26 million for fees and expenses incurred related to the refinancing of our 3.250% senior notes due 2025 and Prior Credit Agreement as discussed further in Note 10 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

During 2020, we recognized loss on extinguishment of debt of $13 million for fees and expenses incurred 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.

Other Income, Net

During 2021, we recognized a loss on extinguishment of debt of $26 million for fees and expenses incurred related to the refinancing of our 3.250% Senior Notes due 2025 and Prior Credit Agreement as discussed further in Note 10 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Other expense (income), net

Year Ended December 31,

(in millions) 2022 2021 2020

Other income, net $ (130) $ (65) $ (37)

Other income, net for 2021 increased compared to 2020 primarily due to foreign currency gain.

Other expense (income), net $ 33 $ (130) $ (65)

Other expense (income), net for 2022 increased compared to 2021 primarily due to foreign currency losses and losses on investments.

Income Tax Expense

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Federal tax return position associated with Foreign Derived Intangible Income (“FDII”) and Global Intangible Low-Taxed Income (“GILTI”) tax credits.

In addition, our effective tax rate was impacted by changes in the geographical mix of earnings amongst foreign tax jurisdictions as well as state and local tax rates.

In 2021, we recorded a benefit of $29 million related to a 2020 U.S.

Federal tax return position associated with FDII and GILTI tax credits.

Also in 2021, we recorded a $9 million tax expense as a result of the U.S.

Treasury Department issuing final regulations on foreign tax credits.

In 2020, the U.S.

Treasury Department issued final regulations regarding FDII and GILTI.

We have determined we will elect the GILTI high tax exception as allowed by the final regulations and have amended our 2018 U.S.

Federal consolidated income tax returns and plan to amend our 2019 US Federal consolidated income tax returns resulting in a favorable impact of $26 million, which we recorded in 2020.

In 2019 the U.S.

Treasury Department issued final regulations on the transition tax and proposed regulations on FDII, which was introduced by the Tax Act enacted by the U.S.

government on December 22, 2017.

The Tax Act is comprehensive legislation that includes provisions that lower the federal corporate income tax rate from 35% to 21% beginning in 2018 and imposes a one-time transition tax on undistributed foreign earnings.

The final regulations related to the transition tax did not have a material impact.

As a result of the proposed FDII guidance, which was subsequently finalized in 2020, we reversed the tax benefit originally recorded in 2018 by recording a tax expense of $25 million for this impact in 2019.

Equity in Earnings (Losses) of Unconsolidated Affiliates

Equity in (Losses) Earnings of Unconsolidated Affiliates

Year Ended December 31,

(in millions) 2022 2021 2020

Equity in earnings (losses) of unconsolidated affiliates $ 6 $ 7 $ (9)

Equity in earnings (losses) of unconsolidated affiliates remained relatively consistent in 2021 compared to 2020.

Equity in (losses) earnings of unconsolidated affiliates $ (12) $ 6 $ 7

Equity in (losses) earnings of unconsolidated affiliates decreased in 2022 compared to 2021 due to the losses in the operations of our unconsolidated affiliates.

Net Income Attributable to Non-controlling Interests

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Net income attributable to non-controlling interests $ — $ (5) $ (29)

Net income attributable to non-controlling interests included Quest’s interest in Q 2 Solutions.

Net income attributable to non-controlling interests included Quest Diagnostics Incorporated's ("Quest") interest in Q 2 Solutions.

On April 1, 2021 the Company acquired the 40% non-controlling interest in Q 2 Solutions from Quest which resulted in a decrease in the net income attributable to non-controlling interests in 2022 compared to 2021.

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Revenues $ 5,746 $ 5,534 $ 4,858 $ 212 3.8% $ 676 13.9%

Costs of revenue, exclusive of depreciation and amortization 3,278 2,900 2,663 378 13.0 237 8.9

Cost of revenues, exclusive of depreciation

and amortization 3,348 3,278 2,900 70 2.1 378 13.0

Selling, general and administrative expenses 848 798 742 50 6.3 56 7.5

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This increase was comprised of constant currency revenue growth of approximately $483 million, or 8.7%, reflecting revenue growth across all regions.

The revenue growth was driven by higher technology, real-world and analytical services and COVID-19 related work.

Costs of Revenue, exclusive of Depreciation and Amortization

The constant currency revenue growth was primarily driven by an increase in real world services, and to a lesser extent by increases in consulting and analytical services and information and technology services.

Cost of Revenues, exclusive of Depreciation and Amortization

2022 compared to 2021

Technology & Analytics Solutions’ costs of revenue, exclusive of depreciation and amortization, were $3,278 million in 2021, an increase of $378 million over 2020.

Technology & Analytics Solutions’ cost of revenues, exclusive of depreciation and amortization, was $3,348 million in 2022, an increase of $70 million over 2021.

This increase was comprised of constant currency increase of approximately $228 million, or 7.0%, reflecting an increase in compensation and related expenses to support revenue growth.

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Revenues $ 7,921 $ 7,556 $ 5,760 $ 365 4.8% $ 1,796 31.2%

Costs of revenue, exclusive of depreciation and amortization 5,303 3,974 3,936 1,329 33.4 38 1.0

Cost of revenues, exclusive of depreciation

and amortization 5,395 5,303 3,974 92 1.7 1,329 33.4

Selling, general and administrative expenses 831 777 738 54 6.9 39 5.3

Segment profit $ 1,695 $ 1,476 $ 1,048 $ 219 14.8% $ 428 40.8%

Research & Development Solutions contracted backlog increased from $22.6 billion as of December 31, 2020 to $24.8 billion as of December 31, 2021 and we expect approximately $7.0 billion of this backlog to convert to revenue in the next 12 months.

Research & Development Solutions' contracted backlog increased from $24.8 billion as of December 31, 2021 to $27.2 billion as of December 31, 2022 and we expect approximately $7.3 billion of this backlog to convert to revenues in the next 12 months.

Contracted backlog was $22.6 billion as of December 31, 2020.

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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.

We believe that backlog is an indicator of future revenues but the timing of revenues 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 revenues generated may differ from the timing originally expected.

Additionally, projects may be terminated or delayed by the customer or delayed by regulatory authorities.

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Research & Development Solutions’ revenues were $7,921 million in 2022, an increase of $365 million, or 4.8%, over 2021.

This increase was comprised of constant currency revenue growth of approximately $1,752 million, or 30.4%, reflecting revenue growth across all regions.

The revenue growth was primarily the result of volume-related increases in clinical services and lab testing, including incremental revenue from large COVID-19 vaccine clinical trials.

Costs of Revenue, exclusive of Depreciation and Amortization

This increase was comprised of constant currency revenue growth of approximately $580 million, or 7.7%, reflecting revenue growth in the Europe and Africa and Asia-Pacific regions, partially offset by a decrease in COVID-19 related work in the Americas region.

The constant currency revenue growth was primarily the result of volume-related increases in clinical services and to a lesser extent from volume-related increases in lab testing.

Cost of Revenues, exclusive of Depreciation and Amortization

2022 compared to 2021

Research & Development Solutions’ costs of revenue, exclusive of depreciation and amortization, increased $1,329 million, or 33.4%, in 2021 as compared to 2020.

Research & Development Solutions’ cost of revenues, exclusive of depreciation and amortization, increased $92 million, or 1.7%, in 2022 as compared to 2021.

This increase included a constant currency increase of approximately $408 million, or 7.7%, reflecting an increase in compensation and related expenses as a result of volume-related increases in clinical services and lab testing.

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Revenues $ 743 $ 784 $ 741 $ (41) (5.2)% $ 43 5.8%

Costs of revenue, exclusive of depreciation and amortization 652 626 701 26 4.2 (75) (10.7)

Cost of revenues, exclusive of depreciation

and amortization 639 652 626 (13) (2.0) 26 4.2

Selling, general and administrative expenses 62 57 58 5 8.8 (1) (1.7)

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2022 compared to 2021

Contract Sales & Medical Solutions’ revenues were $784 million in 2021, an increase of $43 million, or 5.8%, over 2020.

This increase was comprised of a constant currency revenue growth of approximately $42 million, or 5.7%, reflecting a volume increase primarily in the Americas and Asia-Pacific regions.

Costs of Revenue, exclusive of Depreciation and Amortization

Contract Sales & Medical Solutions’ revenues were $743 million in 2022, a decrease of $41 million, or 5.2%, over 2021.

This decrease included constant currency revenue growth of approximately $21 million, or 2.7%, reflecting revenue growth primarily in the Europe and Africa region.

The constant currency revenue growth was largely due to a volume-related increase in services performed.

Cost of Revenues, exclusive of Depreciation and Amortization

2022 compared to 2021

Contract Sales & Medical Solutions’ costs of revenue, exclusive of depreciation and amortization, increased $26 million, or 4.2%, in 2021 as compared to 2020.

This increase included a constant currency increase of approximately $25 million, or 4.0%, reflecting an increase in compensation and related expenses.

Contract Sales & Medical Solutions’ cost of revenues, exclusive of depreciation and amortization, decreased $13 million, or 2.0%, in 2022 as compared to 2021.

This decrease included a constant currency increase of approximately $38 million, or 5.8%, reflecting an increase in compensation and related expenses and reimbursed expenses.

Selling, General and Administrative Expenses

2022 compared to 2021

Contract Sales & Medical Solutions’ selling, general and administrative expenses decreased $(1) million, or (1.7)%, in 2021 as compared to 2020.

This decrease included a constant currency decrease of approximately $(1) million, or (1.7)%, reflecting a decrease in compensation and related expenses.

Contract Sales & Medical Solutions’ selling, general and administrative expenses increased $5 million, or 8.8%, in 2022 as compared to 2021.

This increase included a constant currency increase of approximately $8 million, or 14.0%, reflecting an increase in compensation and related expenses and IT-related expenses.

Liquidity and Capital Resources

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Equity Repurchase Program

On February 10, 2022 the Board increased the stock repurchase authorization under the Repurchase Program with respect to the repurchase of the Company's common stock by an additional $2.0 billion, which increased the total amount that has been authorized under the Repurchase Program to $9.725 billion since the plan’s inception in October 2013.

On February 10, 2022 the Board increased the stock repurchase authorization under the Company's equity repurchase program (the “Repurchase Program”) with respect to the repurchase of the Company's common stock by an additional $2.0 billion, which increased the total amount that has been authorized under the Repurchase Program to $9.725 billion since the program'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, 2022, the Company had remaining authorization to repurchase up to approximately $1.36 billion of its common stock under the Repurchase Program.

The February 10, 2022 $2.0 billion increase in the stock repurchase authorization, increased the remaining authorization to repurchase common stock under the Repurchase Program up to approximately $2.5 billion.

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.

As of December 31, 2021, we had $12.2 billion of total indebtedness, excluding $1.4 billion of available borrowings under our revolving credit facilities.

As of December 31, 2022, we had $12.8 billion of total indebtedness, excluding $1.1 billion of additional available borrowings under our revolving credit facility.

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.

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Senior Secured Credit Facilities

As of December 31, 2021, the Fifth Amended and Restated Credit Agreement, as amended (the “Fifth Amended and Restated Credit Agreement”) provided financing through several senior secured credit facilities (collectively, the “senior secured credit facilities”) of up to approximately $7,140 million, which consisted of $5,740 million principal amounts of debt outstanding and $1,400 million of available borrowing capacity on the revolving credit facility and standby letters of credit, with a total capacity of $1,500 million.

On June 16, 2022, the Company entered into Amendment No.

1 to the Company’s Fifth Amended and Restated Credit Agreement (as amended, the “Fifth Amended and Restated Credit Agreement”) to borrow $1,250 million in Additional Term A Loans.

The proceeds from the Additional Term A Loans were used to repay approximately $950 million of outstanding revolving credit loans under the Company's senior secured credit facilities and for general corporate purposes.

On October 13, 2022, the Company elected to prepay $510 million, the entire outstanding balance, of its U.S.

Dollar Term B Loan due 2024.

As of December 31, 2022, the Fifth Amended and Restated Credit Agreement provided financing through several senior secured credit facilities (collectively, the “senior secured credit facilities”) of up to approximately $7,637 million, which consisted of $6,562 million principal amounts of debt outstanding and $1,070 million of available borrowing capacity on the revolving credit facility and standby letters of credit, with a total capacity of $1,500 million.

The revolving credit facility is comprised of a $675 million senior secured revolving facility available in U.S.

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dollars and Yen.

The term A loans and revolving credit facility under the Fifth Amended and Restated Credit Agreement mature in August 2026, while the term B loans under the Fifth Amended and Restated 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.

The term A loans and revolving credit facility under the Fifth Amended and Restated Credit Agreement mature in August 2026, the Additional Term A Loans mature June 2027, while the term B loans under the Fifth Amended and Restated Credit Agreement mature in 2024 and 2025.

We are required to make scheduled quarterly payments on the term A loans and the Additional Term A Loans equal to 1.25% 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 Fifth Amended and Restated 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.

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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, 2021, no additional amounts of revolving loans were available under the receivables financing facility.

For information regarding the 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, 2022, no additional amounts of revolving loan commitments were available under the receivables financing facility.

Years ended December 31, 2022, 2021 and 2020

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2022 compared to 2021

Cash provided by operating activities increased $983 million in 2021 as compared to 2020.

The increase is primarily due to an increase in cash-related net income ($762 million), an increase in advanced billings ($411 million), a decrease in prepaid expenses and other assets ($131 million) and the timing of income tax and other payables ($81 million), offset by a decrease in accounts receivable and unbilled services ($393 million) and the timing of accounts payable and accrued expenses ($9 million).

Cash provided by operating activities decreased $682 million in 2022 as compared to 2021.

The decrease is primarily due to a decrease in cash from unearned income ($560 million) and accounts receivable and unbilled services ($283 million) and an increase in cash used for income tax and other payables ($126 million), offset by a decrease in cash for accounts payable and accrued expenses ($183 million), an increase in cash-related net income ($82 million) and less cash used for prepaid expenses and other assets ($22 million).

Cash Flow from Investing Activities

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2022 compared to 2021

Cash used in investing activities increased $1,307 million in 2021 as compared to 2020.

The increase was primarily driven by more cash used for the acquisition of businesses, net of cash acquired ($1,281 million), acquisitions of property, equipment, and software ($24 million), lower net payments received from unconsolidated affiliates ($15 million) and an increase in purchase of marketable securities ($1 million), offset by an increase in net proceeds from sale of equity securities ($7 million), and other ($7 million).

Cash used in investing activities decreased $97 million in 2022 as compared to 2021.

The decrease was primarily driven by less cash used for the acquisition of businesses, net of cash acquired ($143 million), a decrease in purchase of marketable securities ($5 million) and an increase in cash from other sources ($3 million), offset by an increase in acquisitions of property, equipment, and software ($34 million), an increase in investments in unconsolidated affiliates ($15 million) and a decrease in net proceeds from the sale of equity securities ($5 million).

Cash Flow from Financing Activities

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2022 compared to 2021

Cash used in financing activities increased $1,018 million in 2021 as compared to 2020, primarily due to an increase in debt payments ($1,227 million), cash payments for the Company's acquisition of Quest's non-controlling interest in Q 2 Solutions ($758 million), an increase in cash payments on contingent consideration and deferred purchase price accruals ($20 million) and an increase in cash payments related to employee stock option plans ($15 million), offset by a decrease in cash used in repayments of revolving credit facilities, net of proceeds ($595 million), a decrease in cash used to repurchase common stock ($41 million), an increase in cash provided by proceeds from debt issuances, net of payment of debt issuance costs ($353 million) and a decrease in cash distributions to non-controlling interests ($13 million).

Cash used in financing activities decreased $906 million in 2022 as compared to 2021, primarily due to a decrease in debt payments ($1,457 million), the absence of cash payments for the Company's acquisition of Quest's non-controlling interest in Q2 Solutions ($758 million), a decrease in cash used in repayments of revolving credit facilities, net of proceeds ($115 million), a decrease in cash payments on contingent consideration and deferred purchase price accruals ($16 million), offset by an increase in cash used to repurchase common stock ($762 million), a decrease in cash provided by proceeds from debt issuances, net of payment of debt issuance costs ($666 million) and an increase in cash payments related to employee stock option plans ($12 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.

The facts and circumstances surrounding these contingencies and a discussion of their effect on us are included 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.

In addition, even where our accruals 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.

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Operating leases

123 173 66 38 400

Finance leases

11 25 26 295 357

Data acquisition

609 518 204 6 1,337

Purchase obligations (2)

79 24 9 11 123

Commitments to unconsolidated affiliates (3)

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22 20 15 — 57

Total $ 1,271 $ 3,953 $ 6,643 $ 4,218 $ 16,085

(1) Interest payments on our debt are based on the interest rates in effect on December 31, 2021.

$ 1,599 $ 6,302 $ 6,377 $ 3,027 $ 17,305

(1) Interest payments on our debt are based on the interest rates in effect as of December 31, 2022.

(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.

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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.

The Company recognizes revenues 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).

Costs included in the measure of progress include direct labor and third-party costs (such as payments to investigators and other reimbursed 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.

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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.

A hypothetical increase of one percent in the estimated costs to complete these service contracts as of December 31, 2022 could have resulted in approximately a one percent reduction in total revenues for the year ended December 31, 2022, whereas, a hypothetical decrease of one percent could have resulted in a one percent increase in total revenues.

The provision for income taxes includes federal, state, local and foreign taxes.

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deferred taxes based on the Federal corporate income tax rate of 21%, We account for tax related to GILTI as a period cost when incurred.

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, 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.

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Business Combinations and Goodwill

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 and discount rates that reflect the risk associated with the expected future cash flows and estimated useful lives.

We use the acquisition method to account for business combinations, and accordingly, the identifiable assets acquired, the liabilities assumed and any non-controlling interests 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 interests including expected future cash flows and 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 purchase price over the fair value of the net assets acquired, known as goodwill.

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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 calculate expected volatility based on an analysis of the historical volatility of the Company's stock since the Merger in October 2016 and reported data for selected reasonably similar publicly traded companies for which the historical information is available.

We plan to continue to use an analysis that incorporates the selected reasonably similar publicly traded companies volatility information and the historical volatility of our common shares 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;

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• We estimate forfeitures based on our historical analysis of actual forfeitures.

The Company accounts for its stock-based compensation for performance awards based on the closing market price of the Company's common stock on the date of grant, and for performance awards that include market conditions based upon the Monte Carlo simulation model.

The Company records the expense amount of these awards based on its estimates of the likelihood that the various performance targets will be achieved.

The Company accounts for its stock-based compensation for performance awards related to compound annual earnings per share (“EPS”) growth over a three year period based on the closing market price of the Company’s common stock on the date of grant, and for performance awards related to relative total shareholder return (“TSR”) based on a Monte Carlo simulation model.

The Company records the expense amount of the EPS awards based on its estimates of the likelihood that the various performance targets will be achieved.

The estimates are assessed on a quarterly basis.

For the TSR awards the Company records the expense amount evenly over the service period.

Pensions and Other Postretirement Benefits

6 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis