The operator welcomes everyone to the IQVIA's Third Quarter 2023 Earnings Conference Call and introduces the speakers. The presentation will be available on the company's website. The speakers caution listeners about forward-looking statements and discuss non-GAAP financial measures. The call is then turned over to the company's Chairman and CEO.

Ari Bousbib, CEO of IQVIA, is pleased with the company's third quarter results. The R&DS segment is performing well, but the TAS segment fell short of revenue expectations due to foreign exchange headwinds and weak demand. However, productivity actions allowed them to meet profit guidance. Bousbib addresses concerns about industry and customer demand and reports that the clinical development side remains strong. Net new bookings and backlog are at historic highs, and RFP flow and emerging biotech funding are also positive indicators. Overall, the clinical trial industry appears to be healthy.

The company's R&DS business is expected to continue delivering above-market growth due to their strong market position and differentiated offerings. However, the commercial side of the business is facing challenges as clients are cautious with their spending and some large pharma companies have announced cost reduction programs. Despite slower-than-expected growth in some areas, the company remains confident in a rebound in demand in 2024 based on their strong pipeline of opportunities. In the third quarter, revenue grew 4.9% on a reported basis and 4.1% at constant currency. Excluding COVID-related work, the top line grew approximately 8.5% at constant currency, including contributions from acquisitions.

In the third quarter, adjusted EBITDA increased by 9.1%, driven by revenue growth and cost management. Adjusted diluted EPS also saw a 13% growth, excluding nonoperational items. IQVIA secured several significant contracts, including analytics for women's health products and a large U.S. data analytics contract with a top 10 pharma client. They also received an award to support the launch of a client's first branded product in the diabetes market and a contract with Sanofi to deploy their OCE platform in the Middle East and Africa. IQVIA has a strong partnership with Salesforce and plans to continue working together. In the Real-World sector, IQVIA has been awarded contracts for data analytics, commercial compliance, and co-pay card operations.

The company has been awarded multiple rare disease studies from large pharma and biotech clients, showcasing their expertise and unique offerings in this growing therapeutic area. They have also entered into collaborations with CEPI and Argenx to enhance clinical research for vaccines and accelerate the market launch of new rare disease therapies. Additionally, a top 10 pharma client has renewed their partnership with IQVIA for a new clinical monitoring model. IQVIA has also remained the sole global medical information center provider for one of their large pharma clients.

IQVIA has differentiated itself in the market by successfully utilizing AI and natural language processing for medical information. In the third quarter, the company has won several awards in the oncology sector, including a late-stage program with a biotech company and two large global trials from a midsized pharma client. Revenue for the quarter grew by 4.9%, with COVID-related revenues down by $125 million. Excluding COVID-related work, constant currency growth was approximately 8.5%. Acquisitions contributed 150 basis points to this growth. Technology & Analytics Solutions revenue was $1,431 million, up 2.2% on a reported basis and 0.9% at constant currency. Excluding COVID-related work, constant currency growth in TAS was 5%.

The R&D Solutions division of the company had a revenue increase of 7.2% in the quarter and 6.4% at constant currency. Excluding COVID-related work, the growth was 11%. The year-to-date revenue also grew by 4.2% on a reported basis and 4.8% at constant currency. The Technology & Analytics Solutions division had a revenue increase of 2% year-to-date and 7% excluding COVID-related work. The Contract Sales & Medical Solutions division had a flat revenue on a reported basis and 4.9% increase at constant currency. The adjusted EBITDA in the quarter grew by 9.1% and year-to-date by 7.3%. The GAAP net income for the quarter was $303 million and for the year-to-date was $889 million. The adjusted net income for the quarter was $462 million and for the year-to-date was $1,378 million. Excluding the impact of interest rates and tax rate, the adjusted diluted earnings per share grew by 13% in the quarter and 12% year-to-date. The R&D Solutions division had a strong quarter in terms of bookings.

At the end of the third quarter, the company's backlog had increased by 12% compared to the previous year and 33% in the last three years. The company had $1,224 million in cash and $13,631 million in debt, resulting in a net debt of $12,407 million. The net leverage ratio was 3.52x adjusted EBITDA. The company had a cash flow from operations of $583 million and free cash flow of $437 million after capital expenditures. They also repurchased $144 million of shares and have $2.6 billion remaining in their share repurchase program. The company updated their guidance to reflect slower growth in the TAS segment and foreign exchange rate headwinds, with expected revenue of $14,885 to $14,920 million, adjusted EBITDA of $3,560 to $3,570 million, and adjusted diluted EPS of $10.16 to $10.23, with a year-over-year growth of 11% to 12% if certain items are excluded.

The company's fourth quarter guidance includes expected growth in revenue, adjusted EBITDA, net yield margin, and adjusted diluted EPS. They also provide a preliminary view for 2024, with mid-single digit revenue growth and high single-digit adjusted diluted EPS growth. Despite lower spending levels from clients, the company's TAS business showed growth in the quarter. Detailed guidance for 2024 will be provided on the Q4 earnings call in February.

The growth outlook for TAS is below expectations, but there is confidence in the longer-term fundamentals of the business. R&DS had a strong performance with revenue growth and net new bookings. Backlog and clinical indicators also remain strong. There has been a pullback in pharma's commercial spend, but R&DS continues to show strength. The question asks for a comparison between the two.

The speaker clarifies that there has been no decrease in funding for R&D services. In fact, funding has been strong and there has been an increase in RFP flow and a record high in qualified and total pipeline. The book-to-bill ratio and services bookings are also at historic highs. The speaker acknowledges that there are different dynamics and that clients may be exploring new models, but overall, the outlook for R&D spend is strong.

The speaker discusses how large pharmaceutical companies are facing cost-cutting measures due to global challenges such as geopolitical issues and the impact of COVID. This is reflected in their reduction of spending on R&D, while there is still strong demand in this sector. The speaker also notes that these cost-cutting measures are mainly affecting the TAS segment, causing delays in project decisions and awards.

The company has experienced a decline in revenues in the TAS segment due to clients negotiating harder and longer timelines for projects. However, they are confident that this will rebound, as the industry is innovative and has bounced back from similar situations in the past. The decline is attributed to a combination of factors, including the current economic climate and pharma companies reviewing their pipelines. The company expects a reacceleration in the TAS segment sometime in 2024, but the process could take longer depending on the specific project and company.

The company is primarily focused on Phase III clinical trials and has not seen any impact on their pipeline due to the current economic climate. The number of molecules in the pipeline and FDA approvals are at a record high, and the company's clinical business metrics are strong. On the commercial side, clients are being more cautious and seeking price reductions, but the company's pipelines indicate that demand is still there. The only projects that have been affected are those with discretionary spending. The delay in decision-making is due to general economic and geopolitical concerns, as well as pressures from revenue declines. The company is a large vendor to pharma and has not seen any major changes in their business.

The speaker explains that when large pharmaceutical companies try to improve their margins, they often come to them for further cost reductions, which can delay timelines and decrease pricing. This, along with significant foreign exchange headwinds, has caused them to fall short on their revenues in the TAS segment. The speaker also clarifies that the IRA has not had a significant impact on the market yet, but the uncertainty surrounding it has caused management teams to focus on cost containment. When asked about their 2024 growth expectations, the speaker states that they are currently in the planning process and will provide more information as it becomes available.

The speaker cautions that their current guidance is preliminary and will be updated with more precise information in the future. They expect mid-single digit revenue growth, with an additional couple hundred basis points if COVID-related impacts are excluded. They anticipate high single digit growth once foreign exchange and COVID impacts are taken into account. It is too early to give specific segment growth numbers, but they expect similar growth across all segments. The speaker also mentions productivity initiatives and a shift towards service bookings that could lead to EBITDA margin expansion of 50 basis points next year.

The company has been successful in addressing the revenue shortfall by implementing cost reduction programs that have offset the impact on EBITDA. These initiatives take time to fully benefit the company, but they have already had a positive impact on margins this year. The company will continue to take actions such as restructuring overhead and reviewing their infrastructure to further improve margins in the future. They are confident in a 50 basis point margin expansion in 2024 due to the carryover effect of these actions. They also plan to continue these cost reduction efforts going forward.

Justin Bowers asks IQVIA about their involvement in cost-cutting programs with large pharma companies and how it will affect their revenue growth. CEO Ari Bousbib explains that they are actively engaged with their clients and hope to capture a larger share of their spend by offering more services. He also mentions that the assumption for M&A impact in 2024 is about 100 basis points.

The TAS segment has continued to grow in the quarter, despite a decline in growth for other companies in the same industry. This is due to the longer-term and mission-critical nature of their data, technology licenses, and recurring revenue. However, the discretionary parts of their business, such as consulting and analytics, have shown sharper declines than expected due to clients delaying or altering their plans.

The speaker discusses how some projects have been delayed, but there is still potential for a rebound in 2024. They attribute this delay to clients taking longer to make decisions and negotiating more aggressively. They mention a significant win in the TAS department, which involves helping clients launch products and develop go-to-market strategies. They also mention a large FSP win, which is a hybrid model that has lower margins and is cyclical in nature. The speaker acknowledges that this trend has been ongoing in the industry for the past 7 years.

Quintiles made a strategic mistake by pulling back from servicing clients who wanted FSP work due to its lower margins. They have since changed their approach and now offer a full range of services to their clients. They are focused on managing their cost structure to maintain margins despite any potential challenges, such as a tougher spending environment or a switch to FSP from some clients. They are a large and growing company with strong margins and are confident in their ability to continue this trend. In the last quarter, they had a record high in bookings, including some FSP wins, and are committed to offsetting any potential margin mix impacts with cost reductions.

The speaker thanks the questioner for their question and then hands it over to the technicians to answer. The questioner asks about the company's capital deployment strategy for the next 12 months, specifically in terms of paying down debt, share buybacks, and M&A. The speaker notes that investors have conflicting opinions on the company's leverage levels. They have historically had higher leverage but have been able to manage it due to their predictable business model. The company's strategy includes investing in the business, acquiring accretive companies, and returning money to shareholders through share repurchases. However, the recent rise in interest rates has impacted their leverage and cost them 10 points in earnings per share growth.

The speaker argues that while mid-single-digit treasury rates may seem high compared to 0, it is not a major concern. They believe that the increase in interest rates this year will stabilize and potentially decline, providing a tailwind for EPS growth. The company is working on refinancing and addressing short-term maturities to alleviate the impact of interest expenses. They plan to continue investing in the business and making acquisitions using their cash. The team also addresses a question about swaps, stating that $800 million will roll off in the second quarter of 2024 at an average rate of 2.5-3%. The team thanks everyone for joining the call and is available for follow-up questions.

This summary was generated with AI and may contain some inaccuracies.