IQVIA Holdings (IQV 0.93%), a leading provider of analytics and contract research services to the life sciences industry, reported its first quarter on Wednesday.
Revenue continues to push forward at a mid-single-digit rate on the back of contract wins and an expanding pipeline of projects. At the same time, expense control and a healthy stock repurchase program helped expand net income and adjusted earnings at a robust rate. The broad-based gains enabled management to reaffirm its guidance for 2019.
IQVIA Holdings Q1 results: The raw numbers
|
Metric |
Q1 2019 |
Q1 2018 |
Change (YOY) |
|---|---|---|---|
|
Revenue |
$2.68 billion |
$2.56 billion |
4.7% |
|
Adjusted earnings before interest, taxes, depreciation, and amortization |
$587 million |
$547 million |
7.5% |
|
Adjusted net income |
$309 million |
$285 million |
8.4% |
|
Adjusted earnings per share |
$1.53 |
$1.34 |
14% |
Data source: IQVIA Holdings. YOY = year over year.
What happened with IQVIA this quarter?
- Wall Street was expecting $2.66 billion in revenue and $1.51 in adjusted earnings, so the company exceeded expectations on both fronts.
- Technology and analytics solutions (TAS) revenue grew 9% to $1.08 billion. Research and development solutions (R&DS) revenue jumped 4% to $1.42 billion. Contract sales and medical solutions revenue dropped 9% to $193 million.
- R&DS backlog expanded 16% to $17.6 billion. However, after the quarter ended a significant customer announced the cancellation of a trial that would have generated $390 million in total revenue. The backlog will likely drop by that amount in the upcoming quarter.
- The book-to-bill ratio remained very strong at 1.51 times.
- Cash balance at quarter end was $936 million. Total debt was $11.3 billion.
- $141 million worth of stock was repurchased during the period. The fully diluted share count has fallen by nearly 5% over the past year thanks to the hefty repurchase program. Management still has the green light to buy back $2.1 billion in additional stock.
Image source: Getty Images.
What management had to say
CEO Ari Bousbib called the quarter "strong" and commented that the company is off to a great start for the year: "We are particularly pleased with the sustained acceleration of our top-line growth and the continued market penetration of our analytics and technology-enabled offerings across our TAS and R&DS businesses. The team is executing superbly for our clients and we are starting to realize the benefits of our continued investments in innovation."
Check out the latest IQVIA earnings call transcript.
Looking forward
Management expects that the upcoming quarter will also feature double growth on the bottom line:
| Metric | Q2 2019 Forecast | Implied Growth at Midpoint |
|---|---|---|
| Revenue | $2.66 billion to $2.71 billion | 4.2% |
| Adjusted EBITDA | $565 million to $580 million | 7.5% |
| Adjusted EPS | $1.46 to $1.51 | 14.7% |
Data source: IQVIA Holdings.
For context, Wall Street was predicting that IQVIA would produce $2.71 billion in revenue for the upcoming quarter and $1.50 in earnings, so the midpoint of this forecast is a bit lower than what analysts wanted to see.
Nonetheless, the generally strong first-quarter results put the company in a great position to meet its full-year targets. In response, management reaffirmed its guidance for 2019:
| Metric | 2019 Forecast | Implied Growth at Midpoint |
|---|---|---|
| Revenue | $10.9 billion to $11.1 billion | 6.9% |
| Adjusted EBITDA | $2.375 billion to $2.425 billion | 9% |
| Adjusted EPS | $6.20 to $6.40 | 13.5% |
Data source: IQVIA Holdings.
IQVIA's stock declined modestly after this report was released. That drop makes sense in light of the fact that the stock has enjoyed a strong rally since the start of 2019; the guidance for the upcoming quarter can be seen as disappointing.
The good news for investors is that the key numbers from this earnings report show that the company is doing everything right. Revenue is trending in the right direction and management is using the company's huge scale to drive operating leverage. When combined with the effects of a healthy stock buyback program, adjusted EPS is growing at a double-digit pace. Those are facts that should make every investor smile.
The modest decline has pulled IQVIA's valuation down to the point where shares are trading for less than 19 times next year's earnings estimates. For a company that dominates its industry and has a long growth runway ahead, that number makes this Fool think that IQVIA's stock is a bargain right now.
