IQVIA Q4 2025 Earnings Call Transcript

AlphaStreet
Provided by AlphaStreet
February 6, 2025
Skip to Questions & Answers
Operator

Ladies and gentlemen, thank you for standing-by. At this time, I would like to welcome everyone to the IQVIA 4th-Quarter 2024 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 session. If you would like to ask a question during this time, simply press star followed by the number-one on your telephone keypad. If you would like to withdraw your question, please press again. As a reminder, this conference is being recorded. I would now like to turn the call over to Kerri Joseph, Senior Vice-President, Investor Relations and Treasury. Mr. Joseph, you may now begin your conference.

Kerri Joseph
Senior Vice President. Investor Relations and Treasury. at IQVIA

Thank you, operator. Good morning, everyone. Thank you for joining our 4th-quarter 2024 earnings call. With me today are Ari, Chairman and Chief Executive Officer; Ron, Executive Vice-President and Chief Financial Officer; Eric Scherver, Executive Vice-President and General Counsel; Mike, Senior Vice-President, Financial Planning and Analysis; and Gustavo Peroni, Senior Director, Investor Relations. Today, we'll 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. 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-K and subsequent SEC filings.

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.

Ari Bousbib
chairman and chief executive officer at IQVIA

Thank you, Kerri and good morning, everyone. Thank you for joining us today to discuss our 4th-quarter and full-year 2024 results. It was great to see you -- many of you in-person at our December Investor Day at the Innovation Park headquarters. I hope this helps you appreciate the depth and breadth of our offerings as we showcased product demos and towards some of our industry-leading laboratories.

In fact, a number of you commented to me afterwards that they left with a deeper understanding of the breadth and depth of our capabilities and how our strategy to improve patient outcomes is being executed. As we closed 2024, we delivered solid full-year results with revenue growth of 5.5% at constant-currency, excluding the COVID revenue step-down, adjusted EBITDA earnings per share growing over 9% and free-cash flow of $2.1 billion, which represents growth of 41% versus last year as well as 104% of adjusted net income.

I'm very proud of the results the IQVIA team was able to deliver in an industry that faced significant challenges in 2024. We saw the consequences of the Inflation Reduction Act, which led to delayed customer decision-making, reduced discretionary spend and portfolio reprioritizations. Additionally, we had a challenging macro-environment that persisted with geopolitical unrest, continued high-interest rates and inflation, foreign currency headwinds and questions about the impact of Political elections in the US and around the world, all of which created tremendous amount of noise and incremental uncertainty. In fact, very few companies in our broader industry sector achieved positive growth and IQVIA really stood out as an outperformer. More specifically, in the 4th-quarter, you saw that we had strong operational results. Revenue came in above the high-end of our guidance range, representing about 4.5% growth excluding the impact of foreign-exchange and COVID-related work. We delivered just under 10% growth in adjusted diluted earnings per share and we achieved a record quarter of free-cash flow. On the clinical side, net-new bookings for the quarter were over $2.5 billion, and this all highlights the great work that was done by our RMBS team in securing new business contracts. This helped mitigate the outsized level of cancellations that did materialize in the quarter just as we had anticipated. Now despite the tough macro-environment, the R&DS business had some significant achievements in 2024. We successfully renewed all of our large pharma strategic partnerships this past year, even as many clients reevaluated and consolidated their alliances. In addition, we established new relationships, displaced incumbents and expanded the scope of work-in several partnerships, positively positioning our business for future growth. IQVIA now has partnerships with 22 of the top-25 pharma companies. We made significant advancements in our global health business. For example, we helped the World Health Organization control polio virus outbreaks in Africa. We collaborated with the Coalition for Epidemic Preparedness innovations, SEPI in Rwanda. So we were able to respond swiftly to a virus disease outbreak. Finally, we were selected by a large biotech client to expedite a vaccine trial for in sub-Saharan Africa addressing a critical outbreak and unmet medical needs. This all comes to show that whenever there is a crisis, IQVIA is a company public health officials turned. Now moving to. The growth trajectory materialized just the way we said it would, low-single digit growth in the first-half and gradually ramping-up each quarter. In fact, growth exceeded our expectations in the second-half. Obviously, this was helped by easier compares versus the second-half of 2023, but we also had stronger organic demand than expected across all sub-segments with real-world actually returning to double-digit growth. We finished the year with constant-currency growth of 5.7% and about 6.5% excluding the COVID step-down, which was at the high-end of our guidance. We expect to sustain this favorable trend into 2025. Reflecting on 2024, we're proud of what we achieved in past. A couple of business highlights. We introduced 60 innovations this past year, including 39 AI-enabled applications. For example, we introduced IQVIA AI Assistance, our first-ever Gen AI interface. It allows customers to interact with a growing number of our products and get answers to their questions almost instantly. We launched a number of AI-enabled patient offerings, including our patient relationship manager, which has already been deployed at eight clients, including three top-10 pharma. Our digital business, which up to now was largely US has begun expanding into Europe, but we've doubled the number of websites, publishers and partners that are now integrated into our visitor network. Now, looking at 2025, we are reaffirming the guidance we provided to you at the December investor desk. On the side, things have continued to recover as we anticipated. On the R&D side, we still have some volatility so we might see another quarter or two of fluctuating demand and elevated cancellations. But we think the bulk of the portfolio reprioritizations at large pharma has been completed. In fact, we feel-good about the R&DS demand environment because leading indicators continue to be favorable. For example, our Q4 RFP flow was up mid-single digits, a little higher actually in the EBP segment. Our qualified pipeline is also up with positive growth across all segments. EVP funding, as you noted, was strong through 2024. Full-year biotech funding was over $100 billion, which is 44% higher than it had been in 2023. Now, we did have much higher cancellations in 2024 than ever before. In fact, nearly 50% higher in 2024 than the average of the previous three years. But our gross new bookings before cancellations for 2024 were even stronger and up mid-single digits at constant-currency versus 2023, which led to an end of year backlog of $31.1 billion, which is again at constant-currency 5.5% higher than a year-ago. Now, turning to the results for the quarter. Revenue for the 4th-quarter grew 2.3% on a reported basis and 3% at constant-currency. Compared to last year and excluding COVID-related work from both periods, we grew the top-line about 4.5% on a constant-currency basis and that included in the quarter about 2 points of contribution from acquisitions, mostly on the side. 4th-quarter adjusted EBITDA increased 3.1%, driven by revenue growth and ongoing cost management discipline, which resulted in 20 bps of margin expansion. 4th-quarter adjusted diluted EPS of $3.12 increased 9.9% year-over-year. Let me now give you some color on business activity. IQVIA's success is achieved by continuing to raise the bar in innovation every year and investing in highly-differentiated capabilities. You saw the recent announcement of our collaboration with NVIDIA to transform healthcare and life sciences to advanced AI solutions. AI has the potential to transform our industry, for example, by addressing lengthy and complex processes in clinical trials or on the commercial side, by helping expedite diagnosis and improve treatment adherence by patients. Our collaboration with NVIDIA will help accelerate the introduction of AI agents within our workflows with AI agents essentially becoming digital companions to researchers, HCPs and patients. Let me give you some more examples of what was achieved in the quarter and let me start with TAS. The business is rapidly evolving as we see increasing demand for integrated solutions that combine information, analytics and services. This is enabling us to win much larger, larger longer-term deals with our clients because of our unique ability to deliver these combined offerings. I'll give you a few examples. IQVIA was awarded a strategic partnership to deliver omnichannel marketing solutions to promote a top-10 pharma client's established portfolio. At UVIA here, we utilize analytics, information, technology and commercial outsourcing capability. IQVA is also partnering with a biotech company to launch a new treatment for ovarian cancer, which will be our client's first product in-market. This large deal leverages IQVIA's comprehensive commercial capabilities and expertise to execute regulatory process, launch and commercial activities. Another EDP client asked IQVIA to support them in launching a new cell therapy for a severe pediatric condition by providing the full comprehensive commercial infrastructure and that includes field sales, medical and commercial communications, compliance and OCE. A large pharma client engage IQVIA to simplify data management by integrating diverse sources from all over three countries, reducing complexity and enhancing efficiency. IQVIA will support the clients' information strategy to streamline operations and centralize its global information into a single standardized system that we will be operating. Moving now to real-world. IQVIA is using advanced AI to support a top-10 pharma client to demonstrate efficacy for gastric cancer treatments and gain approval in new markets. The top-10 pharma clients chose IQVIA to help track disease and treatment efficacy in support of various regulatory submissions in Europe. Let me move now to RDS. I earlier noted the success of our RDS team and want to highlight some notable wins that represent our capabilities across segments, therapeutic areas and operational dynamics. Let me start with large pharma. The top-five pharma clients selected to conduct a complex full-service Phase-3 study addressing asthma and COPD patients. We won another full-service global Phase-3 breast cancer study for a top-30 pharma. Another top-10 pharma client awarded IQVIA large SP contract this award is notable because we displaced two large longtime incumbent CROs. MedTech, IQVIA was awarded a study to evaluate a novel medical device specifically targeting a cardiovascular condition. Biotech, few notable awards include a critical Phase-3 oncology study based on our strong data-driven approach and ability to manage global complex trials efficiently. Another global study -- full-service study for renown biotech clients for progressive pulmonary fibrosis disease, which involves nearly 1,000 patients in 26 countries. And again, we are able to win this based on our global footprint and therapeutic expertise. The Phase-2 trial for rare CNS conditions with limited previous research. Lots of success in the marketplace with large pharma, and EVP. Now before passing the call over to Ron for a more detailed review of our financial results, I'd like to take a minute to acknowledge and congratulate our employees around the world for their extraordinary work this past year. It was challenging, but we delivered a great team. We also received amazing recognitions throughout the year. I just want to highlight a few. Frast and Awards that IQVIA the 2024 Global Customer Value Leadership Award for excellence in AI quality and regulatory solutions in healthcare. Acuva -- smart Enterprise QMS was recognized for best use of AI in healthcare by the MedTech Breakthrough Awards. My Green Lab awarded IQVIA Laboratories the 2024 Race to Zero Leadership Award for certifying 100% of our laboratories. We received recognition as a leader in Forbes World's best healthcare and life sciences management. And lastly, for the eighth year in a row, IQVIA was named one of the world's most admired companies in Fortune's annual survey and importantly for the fourth year in a row, IQVIA was named the number-one most admired company in our category of healthcare, pharmacy and other services. In addition, IQVIA earned number-one ranking in the categories of innovation, global competitiveness, people management and use of corporate assets. Now, Ron will give you more details on our financial performance.

Ron Bruehlman
Chief Financial Officer & Executive Vice President at IQVIA

Thanks, Ari, and good morning, everyone. Let's start with revenue. 4th-quarter revenue of $3.958 million grew 2.3% on a reported basis and 3% at constant-currency. In the quarter, COVID-related revenues were approximately $10 million, which is down about $50 million versus the 4th-quarter of 2023. Excluding all COVID-related work, both from this year and from last, constant-currency growth was about 4.5%.

And as Ari mentioned, acquisitions contributed approximately 2 points of this growth. Technology and Analytics Solutions revenue for the 4th-quarter was $1.658 million, which was up 8.3% reported and 9.5% at constant-currency. R&D Solutions 4th-quarter revenue of $2,123 million was down 1.3% reported and 1% at constant-currency, but excluding all COVID-related work, R&DS revenue grew over 1% at constant-currency. And finally, contract sales and Medical Solutions 4th-quarter revenue of $177 million declined 4.8% reported and 3.2% at constant-currency.

Now for the full-year, revenue was $15,405 million, that's up 2.8% reported and 3.4% at constant-currency. COVID-related revenue totaled approximately $110 million for the year. Excluding all COVID-related work from this year and last, constant-currency growth in revenue was 5.5% for the year. Full-year technology and Analytics Solutions revenue of $6.160 million, that was up 5.1% reported 5.7% at constant-currency and 6.5% excluding all COVID-related work at constant currencies.

Full-year revenue in R&D Solutions was $8.527 million, up 1.6% on a reported basis, 2% at constant-currency, excluding all COVID-related work, growth in constant-currency in R&DS was over 5%. And finally, our full-year CSMS revenue was $718 million, down 1.2% reported, but up 1.4% at constant-currency. As Ari mentioned in his opening remarks, the 2024 growth trajectory in TaaS played out as we anticipated with improvements every quarter.

And we had -- we experienced a softening in growth rates throughout 2023 due to cautious customer discretionary spending. And we predicted that 2024 would be a turnaround year based on our forward-looking indicators in recent history. In fact, that's what happened. In 2024, cash growth picked-up significantly, finishing the second-half with high single-digit growth, driven by strong mid-single-digit organic growth. So as you know, TAS is a short-cycle part of our business.

And as we've seen, 2023 gave us early insight into customer spend behavior during the downturn. By the same token, we expect that the 2024 turnaround in serves as a good leading indicator of the industry's recovery for 2025. Let's move down to P&L. Adjusted EBITDA in the quarter was $996 million, representing growth of 3.1%. Full-year adjusted EBITDA was $3,684 million, that's up 3.2% year-over-year.

4th-quarter GAAP net income was $437 million and GAAP-diluted earnings per share was $2.42. For the full-year, GAAP net income was $1,373 million or $7.49 of earnings per diluted share. Adjusted net income was $564 million for the 4th-quarter and adjusted diluted earnings per share was $3.12, and that for the full-year brought adjusted net income to $2 billion 42 million and adjusted diluted earnings per share to $11.13. R&D's backlog at December 31 was $31.1 billion, an increase of 4.4% year-over-year and 5.5% at constant-currency.

And we anticipate the question that I think we'll get about why backlog was flat sequentially versus Q3. Recall that the dollar strengthened considerably during the 4th-quarter and we have to retranslate the backlog at the end of each quarter for reporting to you. And that knocked about $0.5 billion off the backlog, that retranslation alone. As of December 31, cash-and-cash equivalents totaled $1,702 million and gross debt was $13,983 million , resulting in net-debt of $12,281 million. Our net leverage ratio ended the year at 3.33 times trailing 12-month adjusted EBITDA. 4th-quarter cash-flow from operations was $885 million and CapEx was $164 million, resulting in free-cash flow of $721 million for the quarter, a record for quarterly free-cash flows. For the full-year, free-cash flow was $2,114 million, as Ari said, up 41% year-over-year. Now you note that in the quarter, we repurchased $1,150 million of our shares during our full-year share repurchase to $1,350 million. And on just yesterday, actually, the IQVIA Board of Directors replenished the share repurchase authorization by $2 billion, which increases the total remaining authorization to approximately $3 billion. Now let's turn to the guidance. For the full-year, we're reaffirming our 2025 outlook, which is for revenue growth at constant-currency ex-COVID of 4% to 7%, adjusted EBITDA margin expansion of up to 20 basis-points and adjusted diluted earnings per share growth of 5% to 9%. This translates into total revenue between $15 billion, $725 million and million, which includes just over a $100 million step-down in COVID-related work, which is entirely in R&DS and of which 75% will be in the first-half and 25% in the second-half. We expect 100 to 150 basis-points of contribution from M&A activity and an FX headwind should rates continue of approximately 150 basis-points versus 2024. Our adjusted EBITDA guidance is $3,765 million to $3,885 million and adjusted diluted EPS guidance is $11.70 to $12.10. This includes about $675 million of net interest expense, approximately $575 million of operational D&A, an effective income tax-rate of about 18.5% and an average diluted share count of approximately 178 million shares. The guidance also assumes $2 billion of cash deployment split between acquisitions and share repurchase. And finally, the guidance assumes that foreign currency rates as of February 5 continue for the balance of the year. Now at segment level, guidance is also unchanged for TAS, R&DS and CSMS. No changes in any of the segments. We expect TAS revenue to grow 5% to 7% at constant-currency, which translates into $6.3 billion to $6.5 billion. I note we'll have easier comps in the first-half than the second-half. R&DS revenue is expected to grow 4% to 6% at constant-currency ex-COVID, which translates into $8.7 billion to $8.9 billion of revenue. This guidance includes over $100 million of step-down in COVID-related revenue that represents about 100 basis-points of headwind to R&DS growth rate. We anticipate that R&DS growth rates will be lower in the first-half and improved sequentially thereafter. And finally, CSMS revenue is expected to be approximately $700 million and flattish year-over-year. Now let's look at first-quarter guidance. For the first-quarter, we expect revenue to be between million and $3.790 million. Note that Q1 has the largest impact in the year for both foreign-exchange and COVID revenue step-down for a total of approximately 300 basis-points of headwind. Adjusted EBITDA is expected to be between $870 million and $890 million in the quarter and adjusted diluted EPS is expected to be between $2.60 and $2.70. And as mentioned, our guidance assumes that foreign currency rates of February 5 continue for the balance of the year. So let's summarize, we delivered an excellent 4th-quarter, which closed out a strong year. For the full-year, revenue grew 5.5% at constant-currency, excluding COVID-related work, adjusted EBITDA margin continued to expand and adjusted diluted EPS was up 9.1%. Free-cash flow was a record in the quarter at $721 million, bringing the full-year to over $2.1 billion, up 41%. In the quarter, we repurchased $1,150 million of our shares. For the full-year, share repurchase was $1,350 million. Our Board of Directors increased our share repurchase authorization by $2 billion, which brings the remaining authorization to approximately $3 billion. During the year, we introduced 60 innovations, including 39 AI-enabled applications and the momentum continues to build with our recently-announced collaboration with NVIDIA. NVIDIA's iTunia was named a Fortune's list of World's Most Admired Companies for the eighth consecutive year and earned first-place ranking in our industry Group for the fourth consecutive year. And lastly, we reaffirmed our full-year 2025 revenue growth guidance at constant-currency of 4% to 7% adjusted EBITDA margin expansion of up to 20 basis-points and adjusted diluted earnings per share growth of 5% to 9%. And that concludes our formal remarks. Let me hand it back over to the operator to open up the call for Q&A. Thank you. At this time, I would like to remind everyone in order to ask a question, press star than number-one on your telephone keypad.

Operator

We request that you limit yourself to just one question so that others in the queue may participate as well. We'll pause for just a mile -- we'll pause for -- to compile the Q&A roster. Our first question comes from Shlomo Rosenbaum from Stifel. Please go-ahead, your line is open.

Shlomo Rosenbaum
Analyst at Stifel Nicolaus

Hi, thank you very much. Aria, I wanted to just ask you to dig back-in a little bit more on how the operating environment progressed through the quarter and relative to what you were expecting in 4Q. We had some discussion about reassessing of vendor relationships kind of ending or the expectation it would end in the 4th-quarter and some of that reprioritizing work ending. We're still talking about some potential volatility for the next one to two quarters. Is that kind of the way you were expecting it coming into the 4th-quarter or is there any change into about that? And as part of that, maybe you could talk about is there any change in your expectation in those divide contracts that you discussed last quarter? Thank you.

Ari Bousbib
chairman and chief executive officer at IQVIA

Okay. Thank you,. Well, no, look, we -- we spoke about that long ago in December in a rally and we shared there our sentiment with respect to the operating environment. Not much has changed versus what we told you then, that is it was a difficult operating environment for all the reasons we mentioned then and I reiterated in my introductory remarks, the macro-environment, consequences of the IRA, a bunch of the unexpected large cancellations due to fertility reasons we had last year. And then the two large fast-burning trials that we had just started that for reasons independent of were just delayed and because of the nature of these projects, they basically pushed back to the back-end of '25.

Nothing has changed here. We think the bulk of the cancellations and reprioritizations has occurred. And we said then I'll repeat now, we're still going to have 100 quarters of some volatility. And I sitting here, I can tell you what it's going to be first-quarter or second-quarter. In December, we were closer to the end-of-the quarter, so we had more visibility.

Frankly, after one month-in the quarter, you can never tell you what are we going to book, what are we going to sell? Which deals that are going to come in this quarter are going to be pushed up to the next quarter, which cancellations may or may not occur this quarter? We have no idea. I'm just always shocked when people are able to predict what their bookings -- the net bookings will be in a given quarter.

I have no idea as I stand here one month into the quarter, especially first month of the year, January, not much happens. So yeah, I mean, I would say what is it? Two-thirds, maybe 70%, 75% of the -- somewhere there only 2/35% of the reprioritization that we know of at large pharma essentially is our old. So there may still be a little bit of fluctuation here in the next quarter or two, but I can't tell for certain what may Have been going to happen. And with respect to these two trials that were delayed, which was your second question, you know, nothing changed. They're still on. The clients very much want to do that. It causes us to have to maintain some costs you know through the year and that's kind of affecting a little bit our gross margin because we have distracted cost, but that's okay. We will manage that and we feel-good about that. And those will happen, as we said, no change back-end of the year.

Shlomo Rosenbaum
Analyst at Stifel Nicolaus

Thank you.

Skip to Participants
Shlomo Rosenbaum
Analyst at Stifel Nicolaus

Our next question comes from Elizabeth Anderson from Evercore ISI. Please go-ahead, your line is open. Hi, Ari. Hi, Ron. Thanks so much for the question. I was wondering if you could give a little bit more color on two things. I think you've been giving some nice pharma color. I was wondering if you could talk a little bit more about the biotech environment, how that's going, how you're sort of seeing RFP flow? Are you seeing any kind of unlocking of some of the funds that were raised last year, but not spent?

And then also talk a little bit more about what you think the drivers on the real-world evidence acceleration are? Thank you.

Ari Bousbib
chairman and chief executive officer at IQVIA

Say. All right. So look, the biotech funding, which is sort of a leading indicator around of what is going to happen in terms of the booking environment for that segment has been strong, okay. We consistently use the same stats and according Google stats, it's over $100 billion for 2024. There has been fluctuation quarter in, quarter-out, but that's the number.

And that's a huge number. That's a record number ever if you exclude the two years of '20 and '21, which were, I think, $130 and $120 respectively. But I mean last year, what was the number last year guys for -- was like in the $70 million, $70 million, $71 billion last year. Okay. So significant growth in funding. Now as we said before, just because biotech gets funding today doesn't mean that it translates into a clinical trial awards the next day, okay?

It takes time and take six months, take a year, but it's a good strong leading indicator and we saw funding start to pick-up already a year-ago and therefore, we are -- we're starting to see this RFP flow, as I said, was up mid-single digit for us across the portfolio with which again in the current environment is very, very good. And but EBP was higher than that, okay, higher than the 5%.

And yeah, so that's about the environment. So I think we feel-good about the EVP segment, lots of opportunity and we're chasing all.

Operator

That our next question comes from Ann from Mizuho. Please go-ahead, your line is open.

Ann Hynes
Analyst at Mizuho Securities

Hi, good morning. Just on cancellations, I know going into Q4, you thought it would be $1 billion. Did it come in into that $1 billion? Or was it higher? And then I know you said that you successfully renewed all your RFP activity. Can you just talk about pricing on those renewals and how that's playing out from a competitive landscape? Thanks.

Ari Bousbib
chairman and chief executive officer at IQVIA

Right. Well, first of all, I never said the word $1 billion, I said that historically, the average quarterly cancellations is about $0.5 billion of quarter quarter-out. I mean, mean identify anyone to predict what the cancellations would be in a given quarter ever. So that's -- it's a flow. And there were quarters where we had $300 million where there were -- we had $600 million.

But on average, that's kind of the number, okay. And if you take -- if you take a look at the past, so what I said was given the amount of work that large pharma is doing and the scrutiny that they are placing on those programs and the increased level of cancer as we saw through the years, I was suggesting that it wouldn't be surprising the 4th-quarter was double that.

And it basically was that it wasn't billion, but it was way above the higher-end of what we could have imagined. So it was somewhere around not far $1 million, but not quite a billion. So it was very-high. In fact, for the year, and I think that's an interesting -- I think I mentioned it in my introductory remarks, if you look at the average cancellations in a given year, let's take the last three years, for example, it's just somewhere close to a couple of billion, a little bit under $2 billion, right, for the year, okay, consistent with what you've experienced.

This year, it was almost 50% higher, meaning this year 2024 was 50% higher than that. And despite that, we grew -- our backlog grew and that's because we were able on the gross level to book even more business than last year, offsetting -- more than offsetting the high-level of cancellation. So on the demand-side, things are good. The cancellations were very elevated. Surprises there. It came in essentially as we expected.

And you know, I think I just don't know what they are going to be next quarter or two, but we are going to navigate that environment. We feel-good that the bulk of that is behind us. Yeah. You asked about the pricing environment of it, right?

Ann Hynes
Analyst at Mizuho Securities

Yeah.

Ari Bousbib
chairman and chief executive officer at IQVIA

So yeah, I mean, yeah, I mean, look, look, this in the current environment, you would expect and anticipate that pricing is going to be more difficult because it's tough competition and there are lots of CROs out there. I mean, people tend to forget you know there are 4,000 CROs out there okay so you know they don't all participate in every single bit but it's not unusual that when EVPs go-around and shove their deal around, they talk to a lot of people. And on the large pharma side, as we mentioned, you know, they decided last year to reopen all their partnerships and thankfully, we won. We resigned with all these partners and in fact expanded our portfolio. Large pharma wanted to consolidate the spend and we were on the winning side of that exercise that was very good and it bodes well for the future.

Ann Hynes
Analyst at Mizuho Securities

Great. Thanks.

Operator

Our next question comes from David Windley from Jefferies. Please go-ahead, your line is open.

David Windley
Analyst at Jefferies.

Hi, good morning. Thanks for taking my questions and a good segue from the last. Ari, you've talked a fair amount about the push toward FSP. You've talked about pricing pressures you just kind of highlighted generally, but that pricing pressure also in FSP with these partnership reprocurements?

And then you've also talked about carrying costs for these mega trials. I was actually surprised at the Investor Day that you could expand margin at all. And so my question is, what are the cost levers that you're pulling on to be able to eke up your margin just a little bit in the face of all those pressures?

And then just more simply, in the navigation on gross margin versus SG&A and EBITDA, are we seeing some of that business mix-shift toward FSP and the P&L already like in the 4th-quarter? Thank you.

Ari Bousbib
chairman and chief executive officer at IQVIA

Thank you, Dave. Well, as always, you're right on the mark and you are highlighting essentially the task that we have day-in, day-out. How do we offsets all of those headwinds. Yes, you are absolutely correct. You express surprise how we're able to still grow margins. I mean, bear in mind, since the merger in end of '16, we've grown our margins. I mean, we added the quarter with over 25%, adjusted EBITDA margins.

In those days, you might recall, we were more in the 20% kind of range. So we expanded margins. Now, in the early years, we expanded margins a lot more. Now obviously it's harder, but that is what we do here. We try our best to grow our margins and try to grow our profits faster than our revenue. Revenue, that's our operating mode here. How do we do that? Yes, you're right, the mix of influences can influence the gross margin. I don't think that was the case in Q4. Yeah, I think we see -- you could see gross margin was a little impressed in Q4, but I don't think it is a reflection of the higher FSP mix. The higher FSP mix is in the bookings . It's going to take time, okay? It's not yet in the P&L to be precise and-answer your question. It's more quarter in, quarter-out, if you look at Q3, for example, of last year, we had gross margin expansion. So it's really the given mix of revenue that you recognize in a core. Plus, obviously the TAS business also influences that. And for example, within, I can tell you that real-world is a little lower-margin than the rest, right? Lower-margin than data, lower-margin and analytics and lower-margin than tech. And in the 4th-quarter, real-world was very strong, really strong. I mentioned it was back to double-digits. And so that of course affects the mix. And then I'll remind you that from the 4th-quarter, we had this high-level of stranded costs on those two mega trials and that also affected our gross margin. But we pull the usual levers and you've been covering us for a while, you know what we do. We constantly evaluate how to optimize the average labor rate across all of our geographies. We constantly we explore opportunities to increase our economies of scope, that is restructure, flatten the organization. We constantly lever IT infrastructure and for the past year, we've accelerated the deployment of AI tools within our own processes. I mentioned before that the next big thing certainly operationally within our own workloads is to leverage our AI tools as much as can be and we start to see some impact of that and we plan to continue use and deployment of those. And these are the levers that help us mitigate all the cost pressures that you just highlighted. So it's a day-in, day-out, deep in the tranches, strong operational discipline and a relentless focus on continuing to optimize our costs.

David Windley
Analyst at Jefferies.

Good for you for that. Thank you very much. It was very helpful.

Operator

Our next question comes from Charles from TD Cowen. Please go-ahead, your line is open.

Charles Rhyee
Analyst at TD Cowen.

Yeah. Thanks for taking the question., just wanted to go back maybe then to the TaaS segment. I think earlier you just mentioned and obviously real-world evidence had -- it sounded like you said double-digit growth in the quarter. Maybe can you give us a sense for sort of the trends you're seeing across between both RWE analytics and consulting and maybe technology platforms?

And give us a sense for within the '25 outlook, how you see those kind of separate parts of it and kind of the outlook for each of those relative as we think about the mix going-forward?

Ari Bousbib
chairman and chief executive officer at IQVIA

Yeah. Well, thank you for the question. Yeah. I mean, look, the TaaS business are should be, should have been and should remain a very resilient business with very consistent type of growth. So info, as you know is a low-single digit, right? It's about a 1% grower that did not change on through the period.

That's a very sticky subscription-based repetitive business. And the analytics and consulting is where we have seen a dramatic impact of the cautionary spending trends we saw end of '23 and early '24 because some of that, the significant part of that is discretionary spend and that essentially got shut-down. So we had negative orders in analytics and consulting earlier in the year. And it -- as we bought year, it went back towards these mid-single-digit kind of mark towards the end-of-the quarter here.

And then the higher-growth businesses, which had been higher-growth, real-world and tech are basically for the full-year, curve essentially went back to-high single-digits and in the quarter back into double-digits. So that's what we saw. Now because we anticipated this, why did this happen and why were we confident in the recoveries because a lot of the work-in real-world tech and also some in analytics and consulting are must do activities for our clients.

And when our clients get the drug approved and as you know, in 2023 was a record year. I think we have 55 approvals in 2023. And by the way, '24 was also good, I think it was about 50 approvals. These are very-high numbers. If you look-back historically. These approvals, typically within six to nine months, you've got to launch the product and that's where we come in. This is where our services play. It's in launching the drug, promoting the drug, commercializing the drug, pricing the drug, etc, etc. Supporting the efficacy demonstrations and safety demonstrations and supporting pricing for the drugs.

All of that is what's included in our analytics business and in our real-world business. And so those needed to be done and clients delayed that, but eventually they had to do it and that's why we saw a strong return of the business in the segments.

Charles Rhyee
Analyst at TD Cowen.

Great. Thank you. I appreciate it.

Operator

Our next question comes from Jack Meehan from Nephron Research. Please go-ahead. Your line is open.

Jack Meehan
Analyst at Nephron Research

Thank you and good morning. I had a couple of questions for Ron just on the income statement. First was the gross margins in the 4th-quarter. I was wondering if you could just walk us through the dynamics there. So they were down a little over 100 bps year-over-year, but you had lower pass-throughs.

So was this the trapped costs related to those two trials or just any other color would be great.

Ari Bousbib
chairman and chief executive officer at IQVIA

Well, the first thing I would caution is when you're looking at gross margins, you're looking at reported and not adjusted. So if you're trying to tie the gross margins and SG&A on our income statement back to our adjusted EBITDA, there's a difference right there because those are reported, not adjusted numbers.

But having said that, Ari did already give you some insight into that. We have stranded costs associated with those trials that got delayed. Certain of our businesses that had strong growth like the real-world business tend to be lower-margin businesses for us. So there's a mix impact in there certainly.

But again, anytime you're looking at the reported numbers, remember that things like restructuring or other adjustments that get added back can affect the percentages that you're calculating straight off the income stake.

Jack Meehan
Analyst at Nephron Research

Got it. Okay, that makes sense. And one for Ari, just on the policy front, we're in a couple of weeks into the new administration here. Just any thoughts on how -- just implications for pharma biotech customers? And then second, one question we get is just any exposure to NIH funding or anything related to that would be great. Thank you.

Ari Bousbib
chairman and chief executive officer at IQVIA

I mean the short answer to that question is zero. Zero impacts, zero NIH, nothing. The longer answer is I think overall it's going to be a more business-friendly environment that's clear the new administration apparently from what we've gathered is maybe open to adjust some of the aspects of the IRA, looking into differences between small and large molecules and a number of adjustments and we are in dialogue at the appropriate levels.

There could be some reforms are being discussed on the PDM side on reimbursement side and so on. But I mean again, all of that is net positive for us frankly. And yeah, I mean we don't -- sorry, I think there's a strong possibility the new administration will embrace a life sciences innovation sector more positively relative to other competing economies like China or Europe and support more ongoing investments of US-based research, manufacturing, etc. I think there are a lot of positives here and I don't see any of the noise around the specific nominations affecting us at all, frankly. I think that that's just basically noise. The -- what we see and our dialogue so-far has been actually very constructive and very positive. We're very pleased with the nominations and Head of the FDA and Head of NHS. All of those are very, very good. We have good relationships and they are also both strong evidence-based science, which is exactly the business we're in. And the M&A environment will be more favorable. I think all of that are net positives.

Jack Meehan
Analyst at Nephron Research

That all sounds good.

Operator

Thank you our next question comes from Michael from Bank of America. Please go-ahead, your line is open.

Michael Ryskin
Analyst at Bank of America Securities.

Great. Thanks for taking the question. Ari, I want to go back to something you touched on earlier. You made some comments in the prepared remarks in terms of pharma reprioritization sort of working through still expect maybe a couple of quarters of some volatility going-forward, but thinking you're mostly through it. I think you said something about 70% to 75% of the rate prioritization is done.

Just wondering sort of how you're arriving at that number, just put it. I mean, we've had some announcements just in the last 24 hours and we just seems like there's still you never know companies could come back and decide they're going to do more in a second cut and a third cut and the fourth cut.

So just what are the conversations you're having with the pharma companies, especially your top-20?

Ari Bousbib
chairman and chief executive officer at IQVIA

Yeah. I mean, you know, thank you. Thanks for the question. And when I said the earlier,, 70%, maybe 75%. So I saw Carey put his head in his hands because he told me for don't give them a number because someone is going to tell you what is in 70, in 71, maybe in 65, maybe 76. So look, we're trying to give you a sense, okay, how do I know because we speak to our clients, okay, day-in and day-out and we know what they're looking at.

So if they're done, they're done. It's not like they're going to go back, okay. So we know that there are still a few large programs that are kind of where they haven't made the decision and that's where I say maybe a quarter to a third of those or more to go. But that's an estimate. Again, I repeat, I have no idea what get canceled in-quarter, all of it will get booked.

I just don't know. Okay. I'm basing myself on conversations that we're having with clients at every level. We know what their pipe is, we know what the programs and they have are, we know what they're prioritizing and they tell us what they are looking at. In fact, in many cases, we help them review these programs and reanalyze them.

So that's how we know. But it's all best based on this analysis and that's my best guess for now. I mean, I would caution you always not to focus on a given quarter, okay. I mean I see someone reports that you've heard me before and all the tangent here, but why about this obsessive focus on what's the -- what are the bookings in the quarter, what's the book-to-bill of that infamous number? What is it? And then you derive implications for an entire industry from what one company reports.

You just can't do that. It's a long-cycle business. 1/4 is a window, there's been some volatility, there might be some volatility. I just don't know. Also, frankly, we have very little visibility on the sector. I said before, there are 4,000 CROs out there. You have no idea what their numbers are. Actually, our next best, largest competitor is part of a larger company and they report nothing about this competitor of ours. Nothing, no revenues, no margins, no bookings, no backlog, certainly no book-to-bill.

So we have no idea, you have no idea, we have no idea. There are only four publicly-traded CROs, each and every one of them is extremely different from the others. You cannot derive what we report from what we report, what's going to happen to them, we cannot derive when they report what's going to happen to us.

I saw that before earlier in a few past quarters just because one of our competitors say something, all of a sudden our stock goes up or down. It's ridiculous. It's everyone is extremely different. You just cannot extrapolate and for us frankly, it's causing issues with our customers. Someone was asking before about customers and pricing.

You know that obsessive quality focus on this book-to-mill ratio causes our clients know that Pharma, they love that. So at the end-of-the quarter, they handle another EUR10 million here, another $12 million there. That affects pricing, it affects our bottom-line long-term and is detrimental to investors. So there is a somewhat obsessive focus on this quarterly numbers in a long-cycle business that are not a great. Plus, again, I remind you, we are a large company. We're not just CRO, the CRO business is just over half of our business.

And to infer you know any thesis about what's going on in the industry for the quarter or two of cancellations or book-to-bills or what have you, is intellectual fraud, sorry if I can share my people here agitated. But okay, I'll end with that. I'm sorry for the answer. That's helpful to share my thought. Okay. All right. So we have another question or we're done here? We done. Okay, guys. Can we.

Kerri Joseph
Senior Vice President. Investor Relations and Treasury. at IQVIA

Thank you. Thank you guys. Thanks for taking the time to join us today and look-forward to speaking with you again on our first-quarter 2025 earnings call. The team will be available the rest of the day-to take any follow-up questions you might have. Thank you.

Operator

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

Corporate Executives
  • Kerri Joseph
    Senior Vice President. Investor Relations and Treasury.
  • Ari Bousbib
    chairman and chief executive officer
  • Ron Bruehlman
    Chief Financial Officer & Executive Vice President
Analysts
  • Shlomo Rosenbaum, Stifel Nicolaus
  • Ann Hynes, Mizuho Securities
  • David Windley, Jefferies.
  • Charles Rhyee, TD Cowen.
  • Jack Meehan, Nephron Research
  • Michael Ryskin, Bank of America Securities.

Alpha Street Logo

Powered by Quartr

Transcript Sections