IQVIA Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 22, 2024

There are 15 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the IQVIA Second Quarter 20 24 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer As a reminder, this call is being recorded. Thank you.

Operator

I would now like to turn the call over to Kerry Joseph, Senior Vice President, Investor Relations and Treasury. Mr. Joseph, please begin your conference.

Speaker 1

Thank you, operator. Good morning, everyone. Thank you joining our Q2 2024 earnings call. With me today are R. Bousby, Chairman Treasurer Rob Broman, Executive Vice President and Chief Financial Officer Mike Fedop, Senior Vice President, Financial Planning and Analysis and Gustavo Peroni, Senior Director, Investor Relations.

Speaker 1

Today, we will be referencing a presentation that will be visible during this call for those of you on our webcast. This presentation will also be available following this call in the Events and Presentations section of our IQVIA Investor Relations website at ir. IQVIA dot com. Before we begin, I would like to caution listeners that certain information discussed by management during this conference call will include forward looking statements. Actual results could differ materially from those stated or implied by forward looking statements due to risks and uncertainties associated with the company's business, which are discussed in the company's filings with the Securities and Exchange Commission, including our annual report on Form 10 ks and subsequent SEC filings.

Speaker 1

In addition, we will discuss certain non GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non GAAP measures to the comparable GAAP measures is included in the press release and conference call presentation. I would now like to turn the call over to our Chairman and CEO, Ari Bouzbee.

Speaker 2

Thank you, Gary, and good morning, everyone. Thanks for joining us today to discuss our 2nd quarter results. IQVIA delivered another quarter of strong operational results with 5% revenue growth excluding the impact of foreign exchange and COVID related work and 8.6% growth in adjusted diluted earnings per share. The fundamentals of the industry remain healthy, which supports our confidence in the outlook for our business. On the commercial side, things are starting to gradually improve.

Speaker 2

And while customers continue to exercise budgetary cautiousness, we see faster decisions and more focus on carrying out mission critical projects, such as those associated with launching new drugs. As you recall, new FDA approvals for 2023 were 55, which was the 2nd largest year since 2017. And in fact, year to date approvals are at 21,

Speaker 3

which is

Speaker 2

in line with the average for the last 5 years. In the quarter, TAS came in a little better than our expectations, consistent with the improving leading indicators that we cited earlier this year. Both consulting and analytics and real world revenue improved sequentially in the Q2. We said TAS revenue growth for 2024 was going to be the mirror image of 2023. And in fact, TAS revenue growth was about 3% in the 1st quarter and it was 4% in the 2nd quarter, excluding COVID and foreign exchange.

Speaker 2

At constant currency and based on forward looking indicators, we remain confident in our full year forecast for TAS. This implies 6% to 7% growth for the balance of the year, resulting in full year mid single digit growth, again, consistent with the target we established for TAS at the beginning of the year. On the clinical side, while we continue to see the trend we have observed over the past year with large pharma reprioritizing their portfolios or programs and reallocating money to the most attractive ones in response largely to the IRA, demand from our large pharma clients in R and Ds remains solid. We are also encouraged by the continued acceleration of EBP funding. In fact, BioWorld reports emerging biotech funding for the 2nd quarter was $22,900,000,000 which is up 32% versus prior year.

Speaker 2

For the first half, biotech funding is about $70,000,000,000 essentially equal to the entire year of 2023. Obviously, it does take time for funding to translate into RFP flows, but certainly, it bodes well for mid long term prospects in our EBP segment. In the quarter, RDS recorded good net new bookings of approximately $2,700,000,000 representing a book to bill of $127,000,000 backlog reached a new record of $30,600,000,000 which is growth of 7.7% versus prior year. And in fact, that's actually 8.1% when you remove the impact of foreign exchange. And of course, all of our usual forward looking indicators, RFP flows, overall pipeline and qualified pipeline are up.

Speaker 2

Turning now to the results for the quarter. Revenue for the Q2 grew 2.3% on a reported basis and 3.5% at constant currency. Compared to last year and excluding COVID related work from both periods, we grew the top line 5% at currency, including approximately 1.5% from acquisitions. 2nd quarter adjusted EBITDA increased 2.7%, driven by revenue growth and ongoing cost management discipline. 2nd quarter adjusted diluted EPS of $2.64 increased 8.6% year over year.

Speaker 2

Now I'd like to spend a bit of time on highlighting some of our business activity, starting with DAS. IQVIA contracted with the top 20 client to expand implementation of our commercial technology ecosystem. IQVIA's AIML offerings, including analytics and OCE, integrate seamlessly into the client's technology infrastructure and allow our client to manage their data more effectively and to optimize their customer engagements. In the quarter, IQVIA won a multiyear contract with the top 5 clients to increase the effectiveness of the digital communication strategy. Here, our innovative solution enables targeted audience selection and custom content delivery.

Speaker 2

In our Q1 call, we shared the preview of a large deal awarded in April for our current OCE offering. This is a multiyear global implementation for a major division of a top 5 pharma client with 1,000 users and it's displacing the incumbent.

Speaker 4

As you

Speaker 2

know, IQVIA has a rich history of developing AI for healthcare. For the last 10 years, we've invested heavily in artificial intelligence and machine learning algorithms that support our clients from clinical development through commercialization. Our AI offerings are specifically engineered to meet the demanding standards of precision, speed, privacy and trust that are required in healthcare, Whether it's in patient support services or analytics or pharmacovigilance, our proprietary AI software solutions have become market leading. Let me share a few examples of AI wins and awards in TAS this last quarter. We launched a GenAI solution, which collects structured and unstructured survey inputs from over 30,000 HCPs across 36 countries in multiple languages and in minutes delivers analytics and insights to our clients on how their interactions and messages about their brand resonated.

Speaker 2

This work would normally take a week at least for human analysts using existing tools. The top 10 clients awarded IQ via a contract to implement our centralized GNAI reporting and analytics solution across their entire U. S. Sales force, consolidating different legacy tools. IQVIA's comprehensive gen AI solution enables users to ask questions and get contextual responses in the form of charts, graphs and KPIs.

Speaker 2

This AI solution also proactively alerts the user of key trends, anomalies and the changes that would be required. In another example, a U. S. Medtech client selected IQVIA to implement IQVIA's AI solution to onboard and train patients to utilize their medical device for diabetes. IQVIA's AI solution incorporates real time sentiment analysis, provides automated transcription and smart engagement recommendations.

Speaker 2

It empowers patients to take more control of their treatment, which of course promotes better adherence to treatment protocols. Lastly, for AI in TAS, IQVIA won the award of Best Use of Artificial Intelligence in Healthcare out of 4,500 nominations in the 8th Annual MedTech Breakthrough Awards. IQVIA's winning AI solution here is called SmartSol Enterprise Quality Management System, EQMS, which simplifies quality compliance and connects regulatory and quality processes for life sciences customers. Moving to real world. IQVIA won an effectiveness study with a midsized pharma client focusing on patients who have not responded well to their previous migraine treatments.

Speaker 2

We were selected due to our strong therapeutic expertise combined with our direct to patient approach to accelerate recruitment and reduce site burden. A U. S. EBP client awarded IQVIA a real world post approval safety and efficacy study in Japan for their coronary intravascular therapy. The aim of the project is to demonstrate the safety and effectiveness of their device, which could potentially increase the client's market share in Japan as well as help the client register the device in other regions.

Speaker 2

Within the quarter, a top 15 pharma client awarded IQVIA a significant contract to study the effectiveness of a therapy for schizophrenia. The study will use data tokenization to link multiple data sources and then apply AI to provide a comprehensive view of patients pre and post therapy in real world settings to physicians, patients and caretakers. Finally, you may have seen that IQVIA was recognized by a respected independent third party research organization as a leader in medical affairs and life sciences regulatory operations. IQVIA's global end to end solutions enable medical affairs customers to manage and curate the richness of data coming into the organization, transforming evidence into insights that can enable actionable initiatives. Let me now move to RMBS.

Speaker 2

Let's start with the trending therapeutic area, obesity treatment. A top 15 pharma clients selected IQVIA Labs to conduct globally harmonized high volume testing to ensure accelerated enrollments. It's expected this will result in a significant reduction of study timelines for this therapeutic area, where speed to market is key. Our strength

Operator

Our strength in the

Speaker 2

vaccine development area led to another major award to conduct a Phase III trial for a new influenza vaccine that will enroll approximately 50,000 volunteers. Turning to oncology, which represents once again our largest therapeutic area in R and D's bookings this quarter. I'll offer a few examples. A top twenty client selected IQVIA to conduct a large Phase III oncology focusing on small cell lung cancer, a disease with a high need for effective treatments. We won this study due to our strong therapeutic expertise, data and analytics capabilities, as well as our proven delivery approach, which includes a dedicated delivery unit project staffing that is exclusively focused on the client's study.

Speaker 2

By the way, for some time now, we've been deploying this unique delivery approach for large customers who have an especially complex study portfolio across multiple therapeutic areas. A biotech client selected IQVIA to support a large scale global complex Phase 3 program to test and validate their innovative cell and gene therapy vaccine for colorectal cancer. Lastly, in oncology, a top 25 pharma client awarded IQVIA a contract to develop an optimum clinical strategy and to execute a bladder cancer study in the U. S. We were awarded this engagement based on IQVIA's AI enabled site selection and feasibility solutions that will help the client meet aggressive timelines.

Speaker 2

I will discuss AI initiatives in TAZ, and in fact, AI enablement is also pervasive in RDS. Couple of other such examples. A U. S. Biotech client awarded IQVIA 4 full service clinical trials, which are supported by IQVIA's AI enabled data and analytics, increasing the likelihood of success for each trial, reducing the risk of protocol amendments, as well as the need to add countries and sites after the trial starts.

Speaker 2

In another example, we were awarded a pharma co vigilance project by a large biotech client to manage all case processing work worldwide using our AI capabilities. The IQVIA AI enabled solution is designed to dramatically improve productivity, reduce cost and enhance data quality and accuracy. We will continue to share more exciting AI initiatives across the businesses, hopefully at future investor forums. I'll now turn it over to Ron for more details on our financial performance.

Speaker 5

Thanks, Zari, and good morning, everyone. Let's start by reviewing revenue. 2nd quarter revenue of $3,814,000,000 grew 2.3% on a reported basis and 3.5% at constant currency. In the quarter, COVID related revenues were approximately $45,000,000 which is down about $70,000,000 versus the Q2 of 2023. Excluding all COVID related work from both this year and last, constant currency growth was 5%.

Speaker 5

Technology and Analytics Solutions revenue was $1,495,000,000 which was up 2.7% reported and 3.8% at constant currency. And if we exclude COVID work from both years, it was exactly 4% growth. As you may recall, Q1 2023 was the last quarter with meaningful COVID activity in TAS. R and D Solutions revenue of $2,147,000,000 was up 2.4% reported and 3.3% constant currency. Excluding all COVID related work growth at constant currency and R and Ds was 6%.

Speaker 5

And lastly, contract sales and medical solutions revenue of $172,000,000 declined 2.3% reported, but grew 2.8% at constant currency. For the first half, total company revenues were $7,551,000,000 up 2.3% reported and 3.2% at constant currency. Excluding all COVID related work, growth at constant currency was 5.5%. Technology and Analytics Solutions revenue for the first half was $2,948,000,000 up 1.7% reported and 2.4% in constant currency and excluding all COVID related work growth at constant currency in TAS in the first half was 3.5%. R and D Solutions first half revenue of $4,242,000,000 was up 2.9% at actual FX rates and 3.6% at constant currency.

Speaker 5

Excluding all COVID related work growth at constant currency in RMBS was 7% for the half. And lastly, CSMS first half revenue of $361,000,000 increased 0.8% reported and 5% at constant currency. Let's move down the P and L now. Adjusted EBITDA was $887,000,000 for the 2nd quarter, representing growth of 2.7%, while first half adjusted EBITDA was $1,749,000,000 up 2% year over year. 2nd quarter GAAP net income was $363,000,000 and GAAP diluted earnings per share was $1.97 For the first half, we had GAAP net income of $651,000,000 or $3.53 of earnings per diluted share.

Speaker 5

Adjusted net income was $487,000,000 for the Q2 and adjusted diluted earnings per share were $2.64 For the first half, adjusted net income was $955,000,000 or $5.18 per share. Now as already reviewed R and D Solutions bookings were again strong in the quarter. Our backlog at June 30 was $30,600,000,000 up 7.7 percent at actual currency and 8.1% at constant currency. Next 12 month revenue from backlog increased to $7,800,000,000 growing 6.9% year over year. Let's turn now to the balance sheet.

Speaker 5

As of June 30, cash and cash equivalents totaled $1,545,000,000 and gross debt was $13,258,000,000 that results in net debt of $11,713,000,000 our net leverage ratio ending the quarter was 3.25 times trailing 12 month adjusted EBITDA. 2nd floor to cash flow from operations was $588,000,000 and capital expenditures were $143,000,000 and that resulted in free cash flow of $445,000,000 Okay, turning to guidance. With the first half of the year now behind us and better forward visibility, we're refining our financial guidance for the balance of the year. For the year, we now expect revenue to be between $15,425,000,000 and $15,525,000,000 Adjusted EBITDA should be between $3,705,000,000 $3,765,000,000 and adjusted diluted earnings per share between $11.10 $11.30 There is no material change to our previous assumptions about COVID related step down acquisition impacts and foreign exchange impacts. By segment, at constant currency ex COVID, our full year guidance remains the same and it's unchanged versus what we gave you back in February, which is to say TAS will grow this year around 5% and R and D in the 7% range.

Speaker 5

Moving now to Q3 guidance, we expect revenue to be between $3,830,000,000 $3,880,000,000 Adjusted EBITDA is expected to be between $925,000,000 $950,000,000 and adjusted diluted EPS should be between $2.76 $2.86 Now all our guidance assumes that foreign exchange rates as of July 18th continue for the balance of the year. So to summarize, we delivered another solid quarter of financial performance. R and D asset bookings of $2,700,000,000 with a strong book to bill of 1.27 TAS performed well against our expectations. Adjusted diluted earnings per share increased 8.6% year over year. We're now leaving behind the interest expense headwinds and are moving back towards resuming double digit EPS growth.

Speaker 5

Free cash flow for the quarter and for the first half were strong driven by strong collections performance and we remain confident that both TAS and R and D S will achieve the full year target for revenue growth we provided at the beginning of the year. And with that, let me hand it back to the operator to open the session for Q and

Operator

A. Thank Your first question comes from the line of Shlomo Rosenbaum of Stifel. Your line is open.

Speaker 6

Hi, thank you very much for taking my questions. Looks like a very solid quarter and we're seeing the TAS improving, which is definitely heartening. A question I have, Ari and Ron, is just the guidance was raised for revenue and EPS at the midpoint, but if you look at the EBITDA guidance, it was lowered a little bit. Maybe you could talk about what's going on and the nature of the revenue that's coming through for the year? And maybe just a little bit also in terms of the kind of pacing, we got the Q3, so we could imply the Q4.

Speaker 6

And if you could talk a little bit about the ramp you expect in the Q4? Thank you.

Speaker 2

Yes. Thanks, Shlomo. Look, I wouldn't read much into the tweaks in the guidance. It's we review

Operator

all of

Speaker 2

our business unit forecasts and we build all that up and it falls wherever it falls. The FX is slightly more favorable than it was last time we reported. So that kind of is driving a little bit in aggregate the higher little bit higher on revenue. Again, I wouldn't read much there. EBITDA is whatever the mix of business fell, okay, when you have a little bit more of certain offerings than others.

Speaker 2

And as a result, you've got the margin fell, whatever it fell. But look, we're still delivering margin growth and even I mean, yes, I see what you mean. I mean, frankly, I didn't even we don't focus on that. These are small tweaks and I wouldn't it could vary again next quarter. So there's nothing other than wherever the mix of business fell, frankly.

Speaker 2

We're still delivering at this level, what's the margin expansion here, about 30 basis points at the midpoint and 50 at the high end. So that's very strong given the markets we've been navigating here from the for the first half. And on the EPS, I think it's largely better control of CapEx, which in turns more favorability on D and A. And so it's below the line basically that drives the EPS the higher points on EPS. Again, these are tweaks.

Speaker 2

I wouldn't say much I wouldn't draw much conclusion on that.

Operator

Thank you. Your next question comes from the line of David Windley of Jefferies. Your line is open.

Speaker 7

Hi, thanks for taking my question. Good morning. Ari, you've talked in some of your recent public commentary about price pressure or price kind of bring us up to current on your assessment of the market environment in terms of customers' willingness to kind of pay your asking price?

Speaker 2

Good question. I did talk about this and in the past, and there's no change there. It is true. Again, I mentioned in my introductory remarks, it's not like we've all of a sudden moved to a different bullish environment, clients, large pharma to focus on that segment first. It has announced, I mean, there is barely a large pharma company that has not announced a massive cost cutting program, multibillion dollars and often that comes first with review of their procurement practices and their vendors and we are a top vendor to pharma.

Speaker 2

So there's no surprise here. What I said before is still valid. Those budgetary constraints persist, the cautiousness persists. And of course, we it's not like we can price whatever we want. Now clients still need to do some projects.

Speaker 2

Many of them had been postponed and delayed. We see that improving. Decision timeline had started to improve and now they've improved more dramatically. They're not where they were before this whole cautiousness begun, but they have improved significantly, which is why we feel more confident with the forecast. Pricing, yes, I mean, look, large pharma clients are more disciplined in their spending, and therefore, it's a tougher fight out there in terms of negotiations.

Speaker 2

No question about that. And it's true in TAS and it's true in R and Ds, frankly. At the same time, you've got on the R and D side, on the CRO side, you get really an industry that has kind of segmented itself in a way with 3 large players and a bunch of smaller ones, including some who are sometimes desperate for business and becoming more undisciplined with respect to how they go about approaching their bids and so on and so forth. And obviously, clients fully take you can expect clients fully taking advantage of that. So again, the answer to your question is pricing continues to be tough for the reasons I just mentioned, both on the commercial and the R and D side.

Speaker 2

We, of course, respond with continued increase in our productivity programs, cost containment programs as well as a lot of deployment of AI within our own operations. Those things take time. Obviously, there is always a lag when we implement these solutions before we can get the full benefit. But that's what's happening on pricing. Thank you, Dave.

Speaker 8

Yes. Thank you.

Operator

Your next question comes from the line of Ann Samuel of JPMorgan. Your line is open.

Speaker 9

Hi. Thanks for taking the question. I was hoping perhaps you could speak a little bit more about the performance of your different business segments within TAS, and perhaps where you started to see some of that outperformance? Thank you.

Speaker 2

Yes. You mean within TAS, the different segments. Look, I mean, the data business continues the same. There's no news there. And the rest of the business has begun to improve.

Speaker 2

Sequentially, we've seen improvements everywhere year over year in aggregate, it's up. Again, excluding COVID and FX, the rest of the business, as you know, data is low single digits, flattish, and the rest of the business in aggregate has started to grow mid to high single digits overall. Real world, I would say in particular real world in particular has picked up significantly this past quarter.

Speaker 9

That's great to hear. Thank you.

Operator

Your next question comes from the line of Elizabeth Anderson of Evercore ISI. Your line is open.

Speaker 9

Hi, guys. Thanks so much for the question this morning. Can you tell me about the burn rate maybe in the back half of the year? Is that something you sort of see based on the mix of business at this point that you think could creep up sequentially? How do you kind of view that as we progress through the back half?

Speaker 2

On the clinical side, yes. Yes. Yes. I mean, look, this fluctuates. First of all, I mean, the reported revenue, even after excluding COVID and FX, sometimes it's hard to predict exactly where pass throughs are going to come in.

Speaker 2

And so some of that quarterly fluctuation, if you will, is pass through. The mix of pass throughs, that's essentially what we see this what we saw this quarter and probably next quarter and then rebounding for the Q4. But basically, RMBS, we see growth exactly where we forecasted it at the beginning of the year, which is in the after you adjust for COVID, then at constant currency in the 7 plus percent range. With respect to the mix of product of offerings, as you know, we do have a disproportionate share of the oncology programs out there. Again, not surprising, the critical decision factors here are therapeutic expertise and the ability to enroll patients, which is where our unique capabilities with data, analytics and AI solutions come in.

Speaker 2

And as a result, the mix of our bookings and in our backlog continues to increase towards those more complex studies in oncology as well as rare diseases. So the burn rate is largely influenced by that. You can see, by the way, that this is a trend in the industry. If you look at the burn rate for our competitors and they are also going down. Now in the Q1, the Q1 backlog burn was 7%.

Speaker 2

Is that what I recall, was 7%. And Q2 backlog burn was about the same, was a little bit higher, 7.1%. And for the balance of the year, we're expecting it to be very similar. We are encouraged that the next 12 months bookings are up. I think we say it's next 12 months revenue from backlog is $7,800,000,000 That's up from what we reported 1st quarter.

Speaker 2

My recollection is growing, was it 7.3 percent? Yes. It's up SEK 7,300,000,000. And then this quarter, SEK 7.8 percent, that's about 6.9% up. So we feel confident in our conversion and consequently on our burn of projects and revenue growth in the balance of the year and next year.

Speaker 9

Great. Thanks.

Speaker 2

Yes. Thank you.

Operator

Your next question comes from the line of Max Schlot of William Blair. Your line is open.

Speaker 8

Hi, good morning. Thanks for taking our questions. And apologies if I missed this. But within R and D, did you quantify how much RFP flows in the qualified pipeline were up at the end of the second quarter? And then how are you thinking about the timeline for those to convert to potential uptick in bookings?

Speaker 8

Could we see an acceleration in book to bill above 1.3 times before the end of the year here? Or given kind of where we are in the year, are we now at a point where think a more meaningful potential rebound in bookings is more of a 2025 event? Thank you.

Speaker 2

Thank you, Max. I'm just we are laughing here because when did 1.3 become the benchmark? I mean, I know we reported amazing over 1.3 book to bill ratios in the past couple of years, largely because the COVID studies and so on. But we're very happy with 1.27. We're happy with 1.2.

Speaker 2

We're happy with these bookings. They are very, very strong. And you're talking about rebound in bookings. We've had excellent bookings. I don't know what we are happy with this performance.

Speaker 2

There's no rebound. It's very good. I think the bookings we reported this quarter are the 3rd highest ever. Correct. So I'm not sure what the question is with respect to bookings.

Speaker 2

Did you ask about conversion as well or no? I'm sorry, I didn't

Speaker 8

Yes. I'm sorry. You just set such a high bar, Ari. But yes, in terms of the first part of the question.

Speaker 2

That's true. We've paid the price, but

Speaker 7

Yes, that's right.

Speaker 8

Victim of expectations. But my first part of the question was just around whether or not you can provide any sort of detail or more detail around just how much RFP flows in the qualified pipeline are

Speaker 2

up here. Yes. I'm sorry. Yes. So again, RFP flows, total pipeline and qualified pipeline in this are up basically all around.

Speaker 2

The qualified pipeline, I think, was up that was the number, 12% was up 12%. Total pipeline is up single digits. RFP flows as well, right? The mid teens. Mid teens, right.

Speaker 5

Yes. Our

Speaker 2

people except single digits. Yes.

Speaker 8

Got it. Thanks for taking the question.

Speaker 2

Yes.

Operator

Your next question comes from the line of Jaylendra Singh of Truist Securities. Your line is open.

Speaker 3

Thank you and thanks for taking my questions. I want to go back to the individual businesses you talked about in TAS, RWE and consulting both improving in 2nd quarter. Last quarter you called out RWE some recovery after some slowdown in Q4, Consulting taking a step down. How are you thinking about these individual businesses as you think about that expectations in second half considering that recovery in consulting remains relatively volatile? And is RWE back to mid to high teens growth rate or is there still room for recovery there?

Speaker 2

No, I mean we see overall TAS in the second half in the 6% to 7% range at constant currency, okay? That's what we see after obviously businesses are rolling up their forecasts and they are always higher than that, but we take some contingency, we evaluate the environment and we discount that and that's where we are now in the 6% to 7% range in aggregate. And you can make the assumptions yourself, you could see that in order to get to that, if 30% of the business is essentially flattish, that's the data. So the 70% has to grow in the high single digits in aggregate in order to get us to those numbers. So that's where we see the forecast.

Speaker 2

And we feel I should add very confident based on the leading indicators that we look at.

Speaker 5

But your real world numbers sound optimistic. Which one? Double digits? Yes. Well, maybe not.

Speaker 2

Down. No, not

Speaker 5

yet. Not

Speaker 2

like that. Not high teens. No, no. Maybe could be low teens, but the high single to low teens for real world.

Operator

Thank you. Your next question comes from the line of Justin Bowers of DB. Your line is open.

Speaker 10

Thank you and good morning everyone. So just in terms of the strength in TAS and the outlook for the rest of the year, how much of that is in your sense the underlying market improving versus IQVIA winning its fair share of business with some of the tools that you have? And then part 2 of that would be, what are some of the changes that you've made to manage the part of the business this year versus, let's say, last year at this time?

Speaker 2

Well, thank you. First of all, it's not like the market is rebounding. I mentioned before that client cautiousness and budgetary discipline continues, especially at large pharma. It's not didn't go away. But what we did say before was that within the portfolio of offerings that we have, there are certain things that are mission critical for our clients.

Speaker 2

And what happened last time at last year at this time is that we expected those things to happen and they were pushed to the right. Okay, they were delayed. We said all along that at some point those things have to be done. And that is what is happening now and what we see happening in the second half. So it's not like the market overall has grown, is that the segments of the market that are a must do for our clients are finally happening and they will be happening in the second half.

Speaker 2

So that's number 1 for the market. So from that sense, you could say that the market is a little better in the sense that the clients are willing to spend that money. But again, I mentioned before, the negotiations are tougher. So to answer the second part of your question, what we are doing differently here is obviously being more responsive to our client needs. We are being more accommodating with their terms and we are commercially being more aggressive to make sure that we actually do win those projects that the markets are putting out there, the clients are putting out there for a bit.

Speaker 10

Understood. One quick follow-up. In terms of the improving decision making timelines that you referenced earlier too, is that for is that around some of the stuff that was pushed out to the right or is that for some new opportunities as well or just something you're seeing more broadly? Thank you.

Speaker 2

It's true broadly. Obviously, the mission critical stuff is mission critical and needs to be done. So yes, that is improving the overall average. But even I would say even for the rest, I think we've seen improved decision making, faster timelines. Thank you.

Operator

Your next question comes from the line of Tejas Savant of Morgan Stanley. Your line is open.

Speaker 11

Hey, guys. Good morning and thanks for the time here. Ari, just following up on that line of questioning on TAS. I guess, could you share a little bit of color around what gives you confidence to this improved decision making timeline sort of dynamic continues here, particularly given the election cycle that's sort of heating up as we speak? And then on the analytics and consulting piece within TAS, are you starting to see the work related to those new drug approvals you talked about both year to date and last year starting to show up in the project backlog?

Speaker 11

Or is that still upside to come heading into year end in 2025? Thank you.

Speaker 2

Thank you. Well, look, I don't think the election has much influence on the day to day decision making with respect to launching of drugs. And to response to the second part of your question, the answer is yes. Those approvals, obviously, it's not common for a client to decide that they're not going to launch a drug that's been approved. So and there is usually a 6 months to 6 to 9 months time lag before that leads to between the approval and the time at which the drug is actually launched and the work associated with it comes to us.

Speaker 2

So not much this was delayed a little bit longer versus what it should have been. And some of these projects that should have happened earlier this year are happening in the second half of the year. Again, no surprises here. Thank you.

Operator

Your next question comes from the line of Dan Leonard of UBS. Your line is open.

Speaker 6

Thank you. So I have a question on the guidance. It seems that the inferred Q4 sales ramp compared to Q3 is a bit greater than typical. Can you talk about the drivers of that and perhaps even elaborate further on your conviction in the recovery in TAS in the back half? Thank you.

Speaker 2

Yes. You want to answer that, anyone? I mean, look, first of all, there is recovery in TAS. We just talked about it at length in the past few questions. So that's understandable.

Speaker 2

Secondly, the compare is more favorable. We had the deterioration in the Q4 last year, was the lowest quarter of the year, last year. And we said all along that there would be a mirror image in 2024 versus 2023. That is the Q1 would resemble the Q4, the Q2 will resemble the Q3, etcetera. So we do see 4th quarter up.

Speaker 2

But and it's not unusual, by the way. There is a seasonality in Q4 that you can go back many years. It's always the case that Q4 is much stronger. So these are the three reasons. 1, recovery in TAS accelerating 2, compares and 3, seasonality, which is not surprising.

Speaker 2

Anything else, guys, you want to

Speaker 5

No, I think that covers it. Yes, of course. Yes.

Operator

Thank you. Your next question comes from the line of Charles Rhyee of TD Cowen. Your line is open.

Speaker 12

Yes. Thanks, Ari. I want to ask about M and A. I think so far you've spent maybe it was at $220 odd 1,000,000 of in terms of acquisitions so far in the first half. Can you talk about sort of what the revenue contribution has been?

Speaker 12

Because I think in the guide it was about 150 basis points of revenue growth. And just curious, has that been in TAS or in RDS or both? And how much do you still need to maybe do for the back half of the year? Thanks.

Speaker 2

Yes. Thank you so much. Yes. So look, we said all along that it will be the acquisition would contribute to about a point to our growth this year. And we're wishing we do more acquisitions, but valuations continue to be high and we are we have a big pipeline, but it's not always the case that we are able to close.

Speaker 2

So far for the year, it's a little bit more than a point. And it's a little bit more in tires than in RBS, but that's it. And look, we haven't spent much so far, but we hope to spend more in the second half, and we'll see what happens. Yes.

Operator

Your next question comes from the line of Michael Ryskin of Bank of America. Your line is open.

Speaker 13

Great. Thanks for taking the question. Not sure you addressed this before, but there have been a couple of prominent cancellations of clinical trials in the industry in the last couple of months. You called out one specifically on 1Q that impacted your performance then and your book to bill then. Just wondering if cancellations have trended any better recently.

Speaker 13

I know that the prominent ones always make the news, but just wondering what's happening behind below the surface on that trend.

Speaker 2

Yes. No, I mean, look, I mentioned in my commentary and we've said this every quarter in the past few quarters, and it's just not a secret. The world knows that large pharma, largely in response to the IRA and hypothetical impacts down the line, large pharma has been repriorit sizing their programs. And they've taken off the shelf some programs that they felt were either too competitive with other existing drugs or that didn't have the same risk return profiles that they had assumed pre IRA when those programs were launched. So as a result of that, there have been a little bit more cancellations than usual really for the past few quarters.

Speaker 2

I think in general, look, we don't tell you what the cancellations are. We report the net bookings. Our average quarterly cancellations are in the $500,000,000 range. That has been the case for a long time. And that's kind of $500,000,000 plus or minus, whatever $100,000,000 to $200,000,000 So some quarters is less.

Speaker 2

It could be $300,000,000 or $400,000,000 Some quarters could be more $600,000,000 to $700,000,000 or more. Most of these cancellations are $10,000,000 $15,000,000 $20,000,000 $25,000,000 programs. That last quarter, because it was well publicized and because it was a huge one time number, we chose to let you know about it. We had had questions. Everyone knew that we were the ones doing that program.

Speaker 2

And pre call, we had had questions, so we decided to let you know about it. Yes, that's what it was. It was I don't remember the exact number in the quarter $1,000,000,000 in one shot. But that could happen. We have no companies announce usually when they terminate a program.

Speaker 2

It's partly this reprioritization that I just discussed. And sometimes it's simply because of the data. And in the case of the program that we disclosed last quarter, it wasn't a reprioritization. It was simply that the data wasn't supporting a continuation of the program and essentially the program failed as it often happens in this industry.

Operator

Your next question comes from the line of Jack Wallace of Guggenheim Securities. Your line is open.

Speaker 13

Hey, thanks for taking my questions. Just wanted to go back and ask a follow-up to the EBITDA guidance questions from earlier. Ara, you called out that there was some mix shift impacting margins, the back half of the year and with the TAS guidance largely reiterated and strong second quarter. So if you can help us get a better understanding for the mix shift, which sounds like it's intra segment. Thank you.

Speaker 13

Yes. I don't think I

Speaker 2

can give you much more color than that. It's just where the chips fell, okay. So as I know that this would have attracted 2 questions, we would have to look at it again at this range, It's just we just build up our forecast and that's where the most appropriate range fell. It could be also we did a little bit more acquisitions this quarter. And generally, acquisitions come in at very low margin the 1st year.

Speaker 2

So that could have impacted it's not a big different number, frankly, so in the grand scheme of things. So I can't give you much more color than that.

Speaker 13

Fair enough. And then on the positive side here, right, in OCE, you want a sizable chunk of a top 5 client. Can you just give us a better understanding for the 1 or handful of reasons that led that client to switch from the long term incumbent? Thank you.

Speaker 2

Yes, I think they liked our solution better. I think it gave them more ability to achieve their goals. I can't go into the details of the program. That's yes, they just like it better. Thank you.

Operator

Your next question comes from the line of Patrick Donnelly of Citi. Your line is open.

Speaker 4

Hey guys, thanks for taking the questions. Ari, you talked a little bit on the capital deployment side about wanting to do more

Speaker 2

in M and A.

Speaker 4

Maybe the environment is just not too friendly at the moment. But how are you thinking about the priorities there? I know you guys have bought back some stock. You seem pretty comfortable with leverage ratio. But maybe just talk to the priority and the landscape.

Speaker 4

And then again, any targets on leverage signed with the debt would be helpful.

Speaker 2

Yes. I you came the line came across not a little bit blurry, but if I understand, you asked about capital deployment and acquisitions. Look, you saw that our cash flow performance was actually very strong in the quarter, and that obviously helped continue to reduce our leverage. I think we have on a 12 month trailing basis, we ended the quarter at 3.25 times EBITDA, which is very good. I remind you, we were not too long ago in the high 4s, and we said that we will continue to deliver naturally as EBITDA grows.

Speaker 2

Acquisitions, yes, we would look, our long term guidance always contemplates a couple of points of contribution from acquisitions to continue to boost our top line. So far, we've been able to do just over a point. Obviously, we have a rich pipeline, and it's hard for me to predict what acquisition will be in the second half or in the years to come. It's a binary outcome. So I don't know.

Speaker 2

I'm not sure if that was your question, but that's what I heard.

Operator

Your next question Okay.

Speaker 5

This will be the last question,

Operator

Understood. Your last question comes from the line of Matt Schuchat of Goldman Sachs. Your line is open.

Speaker 4

Hi, good morning. Thanks for

Speaker 14

taking my questions. Ari, you mentioned the strong funding trends in EBP segment at the same time. You're still seeing some cautious in large pharma. How should we think about the potential revenue mix shift of EBP versus large pharma? And would there be any implications for FSP versus full service mix in that?

Speaker 14

Thank you.

Speaker 2

Thank you. Well, look, first of all, when there's a timeline between funding and on RFP and then the timeline between an RFP and a booking. So this is a business that has long cycles. So it's good that we have just as we were cautioning you not to panic when funding decline, and we said it's not going to affect us for a while. Let we don't get excited because the funding this quarter was very strong.

Speaker 2

Yes, it's good for our mid term and long term prospects, but it's not like it's going to affect the mix. Also, we have a very large backlog, the largest in the industry. And it's not going to meaningfully change the mix of what we do in the next few quarters. And what's large pharma, what's EBP, what's full service versus what FSP. But you are correct that the more EBP, the more full service and that certainly helps mitigate the recent trend we've seen where, as we discussed in the past, large pharma have been swinging the pendulum a little bit more towards FSP as it has happened many times in the history of this industry.

Speaker 2

So you are correct from that standpoint that as more EBP funding is there, there'll be more EBP work in quarters to come. And therefore, when that backlog converts into revenue, there'll be a higher mix of full service versus FSP relative to what it is now. Thank you.

Operator

With no further time for questions, I now turn the call back over to Mr. Joseph.

Speaker 1

Thank you. Thank you for taking the time to join us today, and we look forward to speaking with you again in our Q3 2024 earnings call. The team will be available for the rest of the day to take any follow-up questions you might have. Thank you and have a good day.

Operator

This concludes today's conference call. You may now disconnect.

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Earnings Conference Call
IQVIA Q2 2024
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