IQVIA Holdings, Inc.

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the IQVIA first quarter 2020 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's 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 the pound key. As a reminder, this call is being recorded. Thank you. I would now like to turn the call over to Andrew Markwick, Senior Vice President, Investor Relations and Treasury. Mr. Markwick, please begin your conference.

Thank you. Good morning, everyone. Thank you for joining our first quarter earnings call. With me on the call today are Ari Boothby, Chairman and Chief Executive Officer, Michael McDonnell, Executive Vice President and Chief Financial Officer, Eric Sherbert, Executive Vice President and General Counsel, Nick Charles, Senior Vice President, Financial Planning and Analysis, and Jen Halczak, Senior Director, Investor Relations. 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 on the events and presentation section of our IQVS Investor Relations website at ir.iqvs.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, including impacts from COVID-19, which are discussed in the company's filings with the Securities and Exchange Commission, including our annual reports 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. And finally, please bear with us as we're conducting this call from various remote locations. We will do our best to make sure the call goes smoothly. I would now like to turn it over to our chairman and CEO, Ari Busby.

Thank you, Andrew, and good morning, everyone. Hope everyone is safe and well. Thanks for joining us on our first quarter 2020 earnings call. I want to apologize in advance that given the crisis, I will be a little longer in my narrative today in an effort to provide you a good amount of color on what we're seeing on the ground. Of course, as always, if you don't have time to get your question in, our team is available to answer questions after the call. Today, we will review our first quarter performance. We will also provide guidance for the second quarter and update our full year guidance in light of COVID-19. First, let's review how we've been navigating the challenges over the last couple of months. We've instituted a crisis management structure to ensure that we are aligned on priorities across the organizations. I've been meeting every day with my senior leadership team, and this close communication has allowed us to be agile and decisive in our response to the crisis. And collectively, we are currently centered around four priorities. First, the safety of our employees, patients, healthcare professionals, customers, suppliers with whom we frequently interact. To limit exposure, of course, it's prohibited substantially all travel. supply PPE to field-based employees, close facilities, and ask most of our staff to work remotely. We've added bandwidth, VPN capacity to our advanced infrastructure to enable remote working and avoid service disruptions. Second, as clinics and hospitals have become inaccessible and as it has become unsafe or difficult for patients to travel, we've continued to do everything in our power to mitigate disruptions to clinical trials and ensure patient safety. Wherever possible, we have been transitioning to remote monitoring with the number of remote monitoring visits reaching five times the level they were prior to the crisis. We have leveraged our existing drug delivery and home health services for activities such as at-home lab drills. Perhaps we could, whatever we could, we've been enabling telehealth visits to ensure continuity of contact between investigator patients and CRA, and we've been transitioning portions of trials to StudyHub, our virtual trial platform. Third, to help our clients and other organizations manage and plan for the outbreak, we are deploying our unique capabilities. For example, we are applying our people, data, and technology to bring AI and insights to help our clients track the progression of the disease, manage capacity, and monitor supply chain. We are actively engaged with clients through regular executive briefings, three weekly market tracking reports, white papers, top leadership pieces, and webinars to help them understand the rapidly evolving dynamics of the outbreak and to predict how things will develop. Finally, we are joining the global response to the crisis and contributing our resources to its resolution. Last week, for example, in the UK, on behalf of the Department of Health, we joined with the Office of National Statistics Oxford University, and the UK BioCenter, we immediately commenced a countrywide testing program of UK households for COVID-19 infection and immunity. In Asia, we provided an IQVIA team to help develop two new treatments for COVID-19 using existing HIV and flu vaccines. In the U.S., we're partnering with the University of Texas to develop new lab tests to identify vaccine candidates quicker than currently available tests. In the U.S. and Europe, we are collaborating with governments and the industry to develop several experimental vaccine candidates using our prime site networks and data assets to accelerate timelines. We are, of course, involved in multiple trials for COVID-19 therapeutics and vaccines, which I will talk more about later. During this critical time, we continue to innovate. Two weeks ago, our R&D team launched the first technology-enabled COVID-19 trial matching solution at c19trials.com. This online platform will connect at-risk individuals and researchers to ongoing COVID-19 clinical research projects within the U.S. In addition, the real-world team launched the IQVIA Care Project Registry. The platform will apply our vast experience with registries and analytics to help connect stakeholders and advance information sharing to better understand how to treat and prevent the disease. If successful, all of these will bring much-needed treatment to patients. Now, before I review the results of the quarter, let's take a look at some of the operational impacts to our business caused by the virus. It is important to note, across all of our segments, we view the impact from the virus as temporary. Client demand and interest in our differentiated offerings remain strong, even if their own ability to move forward on projects is hampered or delayed. In our NDS, site startup patient recruitments are the most impacted part of the clinical trial lifecycle. Site monitoring visits have also been impacted. As of today, only 20% of our global sites are currently accessible to our CRAs for on-site monitoring visits. On the other hand, Data collection and regulatory reporting activities are more or less continuing with little interruption. For in-flight trials, we are coordinating closely with local health authorities and customers to deploy, when appropriate and feasible, our services and technologies to further increase remote-based CRA and centralized monitoring for trials and remote patient visits. As site access remains constrained, we are seeing an uptick in demand for e-consent, virtual trials, e-COA, and connected devices. When the crisis subsides, we anticipate that some trials will require minimal additional work to satisfy requirements over and above the remote visits, but the vast majority, substantially most of the other trials, will require CRAs to go on-site and perform the tasks of checking documentation, et cetera, that we would not have performed safely during the crisis. R&D business development activity has remained strong. We have not had a single COVID-related cancellation. RFPs are holding strong at levels that are in line with 2019, which was a record year, and our qualified pipeline remains at a record high. Face-to-face interactions with clients is the obvious challenge. Big defenses, for example, have been delayed with some new business activity getting pushed to the right. In technology and analytics, we've had no interruptions in data supply or demand. Our data production centers remain fully operational, and our technology and analytics deliveries continue in the ordinary course. Conversely, The parts of the business that rely on face-to-face interactions or are dependent on in-person gatherings, events, or conferences are experiencing disruption. The prospective portion of our real-world business that requires site monitoring activity has also been impacted. That said, given the higher proportion of recurring revenue in the CAS segment, it remains relatively well insulated. Business development activity, however, has been somewhat hampered as decisions are being delayed due to the situation. Finally, CSMS did not see much of an impact in the first quarter. And what's happening here is that clients are reluctant to alter their commercial footprint in anticipation that the crisis will subside in the near term. And as a result, We have not seen any significant cancellations at this stage. We are, of course, also trying to deliver services remotely through e-detailing and virtual meetings. However, activity has become much more challenging due to a decline in sales rep visits and, of course, physician attention being focused on the COVID-19 crisis. Business development has also become challenging in CSMS due to delayed decision making and reduced RFP flow. Now against this backdrop, let's review the first quarter results. Revenue for the first quarter came in at $2,754,000,000 and was slightly higher than our most recent guidance range. The revenue beat was mostly driven by pass-through, which came in a little higher than we had anticipated. From a segment perspective, technology analytics solutions revenue came in at $1,117,000,000. Constant currency growth was 5.5%. R&D solutions was $1,441,000,000, up 2.4% of constant currency, and excluding a pass-through headwind of approximately 300 basis points, services growth would have been over 5%. Contract sales and medical solutions revenue in the quarter was $196 million and grew 2.6% at constant currency, essentially as we originally expected. First quarter adjusted EBITDA was $562 million, and first quarter adjusted diluted EPS was $1.50. I want to highlight bookings growth in RMBS, which was impressive by any standard, but especially so given the broader backdrop. First quarter contracted backlog, including pass-throughs, grew 14% year-over-year to $19.6 billion at March 31, 2020. In the first quarter, awards and net business, net new business, were strong across the board. LTM contracted net new business, including pass-throughs, at March 31st was up 7.5% compared to LTM new business at the end of last year. The contracted book-to-bill ratio, including pass-throughs, was 1.42 for the first quarter of 2020, And excluding pass-throughs, the first quarter contracted book-to-bill was 135. The LTM contracted book-to-bill ratio at March 31st was 143, including pass-throughs, and 136, excluding pass-throughs. The team was, of course, awarded a number of COVID-19 treatment and vaccine trials during the first quarter, most of which are not in our contracted bookings or backlogs that I just mentioned. In fact, Between treatments and vaccines, we are currently working on 36 COVID-19 awards with a pipeline of 70 other potential projects. Of course, these projects are generally heavily discounted. We are contributing to the general effort against COVID-19, so they won't represent much of our bookings. Importantly, a significant number of these studies entail transformative trial design, including several with government sponsorship, and many using the real-world comparator arm, which IQVIA is uniquely positioned to deliver on behalf of our customers. As dramatic as this crisis is, it will eventually subside. It will not change our industry's fundamental dynamics, and in fact, I believe the prospects for our industry are better than ever. We all know some industries will experience a permanent loss of revenue due to their short cycle or consumer-oriented nature. However, We are a long cycle business serving the critical needs of the pharma industry. We've got good visibility into our long-term business due to our backlog and pipeline. In our case, work is just being pushed to the right. This crisis is a reminder of how critical the pharmaceutical industry is to society. Patients will continue to require innovative new medicines and is no viable substitution for drug discovery. We have an enormous role to play in helping our clients bring life-saving treatments to patients. For example, every year, 100 million patients are treated in oncology, 500 million patients for cardiovascular disease, and at any given time, more than 250 million people suffer from more than 6,000 rare diseases. The need for our customers to use real-world data, advanced analytics, and technology to combined with therapeutic expertise to accelerate clinical trial timelines and to launch new medicines has become even more evident during this crisis. It will be even more relevant to our customers than we were before the crisis started. While the course of the virus is uncertain, and no one knows for sure how the balance of the year will develop, one could, of course, step back and say, well, Let's suspend guidance and see what happens. But we believe it is incumbent on us to have a point of view and to make assumptions about what our business looks like as we navigate this disruption. And our current point of view is that the business will snap back as the crisis subsides, hopefully later this year and certainly into 2021. Given these assumptions about the future, we are focused on maintaining our operational capability as we navigate through the crisis. We are, of course, taking aggressive actions to manage our costs in line with revenue declines while also ensuring we are ready for a quick recovery. We've stopped renewing temporary employment contracts in the second quarter. We've renegotiated real estate leases and vendor contracts. We've deferred some of our projects. We've stopped much of our discretionary third party spend and many similar actions to control costs. However, for now, we will do our best to preserve employment and to the extent we can to not affect base compensation for our employees. We want to take care of our employees as much as possible, especially in these difficult times. They are our greatest asset and we need to stick together in anticipation of the strong rebound we are expecting in demand for our services. Many companies are announcing growth-based reductions in pay affecting significant proportions of their staff. We are taking a somewhat more nuanced approach. This, of course, offers some employees who need the time off during this difficult time the option of a reduced work week. In very small parts of our business, where utilization has dropped very significantly, we are implementing temporary partial work weeks with corresponding pay reductions. In total today, approximately 650 people, employees, have either requested time off or been asked to take time off. This represents less than 1% of our total workforce. Obviously, should the recovery be delayed and our assumptions prove to be materially different from our current From reality, we are of course prepared to make more drastic decisions if conditions on the ground differ. For now, the rest of our 67,000 plus employees will not see any broad mandatory base compensation reductions. Separately, and as an expression of solidarity with all those affected by the crisis, we are launching a temporary voluntary pay reduction program this quarter for the most senior executives across the company, ranging from 10% for SVPs to 20% for my direct reports and to 50% for the CEO. These executive pay cuts will be used entirely to fund Ithulia Cares, a new COVID-19 relief program we are launching this week. The proceeds from these executive pay cuts will be distributed to lower pay level colleagues who are facing family hardships as a result of the COVID-19 outbreak. Finally, I want to highlight to you that at the same time as we are focused on managing the crisis and helping our organization navigate through these difficult times, we have also, in parallel, started our annual planning process for next year much earlier than usual. This is normally an end-of-summer through end-of-year activity, though we have already started engaging our leadership team and our business units in planning for 2021, based on various scenarios of recovery. While we usually provide annual guidance at the beginning of the year, concurrent with the release of our fourth quarter earnings, we hope this year to provide 2021 guidance earlier than usual. Now, I will turn it over to Mike for some detail on the quarter and the assumptions we've laid out for the remainder of 2020. Mike?