- Agreement to merge with IMS Health in all-stock transaction to create Quintiles IMS, an industry-leading information and technology-enabled healthcare services provider
- 8.4% constant currency service revenue growth compared to the first quarter of 2015
- $0.89 diluted adjusted EPS representing 23.6% growth compared to the first quarter of 2015
- Net new business of $1.03 billion in the first quarter of 2016, representing a 0.93 book-to-bill and resulting in backlog of $12 billion as of March 31, 2016
- Cash flow from operations of $112.1 million and free cash flow of $85.9 million in the three months ended March 31, 2016
- Reaffirming full year 2016 service revenue constant currency growth guidance of 7.0% to 8.5% compared to full year 2015 and diluted adjusted EPS guidance of $3.70 to $3.85 per share, representing growth of 11.1% to 15.6% compared to full year 2015
- First quarter 2016 earnings results conference call rescheduled to 9:00 a.m. EST today
Research Triangle Park, NC, May 3, 2016 – Quintiles Transnational Holdings Inc. (“Quintiles” or the “Company”) (NYSE: Q) today reported its financial results for the quarter ended March 31, 2016.
For the three months ended March 31, 2016, the Company’s service revenues were $1.11 billion which represents growth of 7.6%, or $78.0 million, including an unfavorable foreign currency impact of $8.1 million compared to the same period last year. The Company’s growth in service revenues, excluding the impact of foreign currency fluctuations (“constant currency”), was 8.4% with 12.6% growth in the Product Development segment and a decline of 3.1% in the Integrated Healthcare Services segment.
Adjusted income from operations was $181.9 million in the first quarter of 2016, representing growth of 22.5% compared to the same period last year. The adjusted income from operations margin was 16.4%, representing 200 basis points of expansion compared to the same period last year, including 60 basis points of benefit from revenue mix shift as a result of faster revenue growth in Product Development and further leveraging of the Company’s cost structure, with the remainder resulting from favorable currency fluctuations. Adjusted net income was $108.3 million in the first quarter of 2016, representing growth of 18.7% compared to the same period last year. Diluted adjusted earnings per share was $0.89 in the first quarter of 2016, representing growth of 23.6% compared to the same period last year.
Reported GAAP income from operations was $178.8 million, reported GAAP net income attributable to Quintiles was $106.7 million, and reported GAAP diluted earnings per share was $0.88 for the three months ended March 31, 2016. Reconciliations of the non-GAAP measures to the corresponding GAAP measures, including adjusted income from operations, adjusted net income, and diluted adjusted earnings per share, are attached to this press release.
Net new business of $1.03 billion was recorded for the first quarter, representing a book-to-bill ratio of 0.93. The first quarter net new business and book-to-bill ratio were negatively impacted by certain customer awards on large opportunities that were delayed into the second quarter of 2016. During April, the Company obtained awards resulting in stronger than usual net new business and recorded the largest dollar volume of new business in Product Development in the first month of any quarter since the Company’s initial public offering in 2013. Entering the second quarter of 2016 the Company also had its largest dollar value pipeline in Product Development since going public in 2013. Ending backlog was $12 billion at March 31, 2016.
“We are pleased with this quarter’s 23.6% diluted adjusted earnings per share growth and 8.4% constant currency revenue growth,” said Quintiles Chief Executive Officer Tom Pike. “Product Development revenue growth continued to accelerate, delivering 12.6% growth at constant currency in the first quarter. While our new business bookings were impacted by some customer decisions that were delayed into the second quarter, we had a strong April and our sales pipeline remains strong. We reaffirm our outlook for the year.”
“We are excited about the announcement we made earlier this morning about a definitive agreement to combine with IMS Health in an all-stock merger of equals transaction,” Pike continued. “The combined business will bring together the deep therapeutic, scientific, and domain expertise of Quintiles and the information-powered technology services of IMS Health to help power our customers through the entire product lifecycle.”
The Product Development segment net new business totaled $799 million in the quarter ended March 31, 2016, which translates to a book-to-bill ratio of 0.95. Product Development’s service revenues at constant currency grew 12.6%, or $94.9 million, during the first quarter of 2016 compared to the same period last year. At actual foreign exchange rates, Product Development service revenues were negatively impacted by $6.9 million of unfavorable foreign currency fluctuations, resulting in service revenue growth of 11.7% compared to the same period last year. The constant currency revenue growth resulted from Q2 Solutions and volume-related increases in core clinical services and clinical trial support services, offset by a decline in advisory services. Product Development’s income from operations margin was 22.6% for the first quarter, representing an improvement of 170 basis points compared to the same period last year, including a benefit of 180 basis points from favorable currency fluctuations, offset by an increase in compensation and related expenses and our investment in the growth of our Global Delivery Network.
The Integrated Healthcare Services segment net new business totaled $227 million in the quarter ended March 31, 2016, which translates to a book-to-bill ratio of 0.84. On a constant currency basis, Integrated Healthcare Services’ service revenues declined 3.1%, or $8.8 million, during the first quarter of 2016 compared to the same period last year. At actual foreign exchange rates, Integrated Healthcare Services’ service revenues declined 3.5% to $270.5 million, negatively impacted by $1.2 million from unfavorable foreign currency fluctuations. The constant currency revenue decline resulted from decreases in commercial services due to cancellations from 2015, partially offset by growth in real-world and late phase research services. Integrated Healthcare Services’ income from operations margin was 6.6% for the first quarter, representing an increase of 10 basis points compared to the same period last year, due to higher margins in real world and late phase research and the benefit of 40 basis points from favorable currency fluctuations, partially offset by lower margins in commercial services in North America and Japan and advisory services.
General corporate and unallocated expenses were $25.3 million during the quarter ended March 31, 2016 compared to $26.6 million for the same period last year. Interest expense was $26.0 million during the quarter ended March 31, 2016 compared to $25.3 million for the same period last year.
Other expense, net was $4.5 million during the quarter ended March 31, 2016 compared to other income, net of $2.9 million for the same period last year. Other expense, net for the first quarter of 2016 primarily consisted of $4.2 million of foreign currency net losses.
The GAAP effective income tax rate was 28.6% for the first quarter of 2016 compared to 29.7% for the same period in 2015.
Equity in earnings of unconsolidated affiliates was $2.6 million during the first quarter of 2016 compared to $0.9 million for the same period last year.
Net income attributable to noncontrolling interests was $2.4 million during the quarter ended March 31, 2016, primarily due to the minority interest partner’s share in Q2 Solutions. There was no material net income attributable to noncontrolling interests in the same period last year.
The Company is reaffirming its full year 2016 constant currency service revenue growth guidance of a range of between 7.0% and 8.5% compared to full year 2015, and diluted adjusted earnings per share of $3.70 to $3.85 per share, representing growth of 11.1% to 15.6% with diluted GAAP earnings per share between $3.52 and $3.70 per share, and an annual effective income tax rate estimated at approximately 29.0%. This financial guidance assumes March foreign currency exchange rates remain in effect for the remainder of the year and does not reflect the potential impact of any future equity repurchases or the announced merger agreement with IMS Health.
Webcast & Conference Call Details
Quintiles will host a conference call at 9:00 a.m. EST today to discuss its first quarter 2016 financial results. To participate, please dial +1 (855) 710-5091 or +1 (706) 902-0591 outside the United States approximately 15 minutes before the scheduled start of the call. The conference call will also be accessible live via webcast on the Investors section of the Quintiles website at www.quintiles.com/investors. An archived replay of the conference call will be available online at www.quintiles.com/investors after 1:00 p.m. EST today.
Quintiles (NYSE: Q) helps biopharma and other healthcare companies improve their probability of success by connecting insights from our deep scientific, therapeutic and analytics expertise with superior delivery for better outcomes. From advisory through operations, Quintiles is the world’s largest provider of product development and integrated healthcare services, including commercial and observational solutions. Conducting operations in approximately 100 countries, Quintiles is a member of the FORTUNE 500 and has been named to FORTUNE’s list of the “World’s Most Admired Companies.” To learn more, visit www.quintiles.com.
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements reflect, among other things, the Company’s current expectations and anticipated results of operations, all of which are subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements, market trends or industry results to differ materially from those expressed or implied by such forward-looking statements. Therefore, any statements contained herein that are not statements of historical fact may be forward-looking statements and should be evaluated as such. Without limiting the foregoing, the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “should,” “guidance,” “targets,” “will” and the negative thereof and similar words and expressions are intended to identify forward-looking statements. Actual results may differ materially from the Company’s expectations due to a number of factors, including, but not limited to, that most of the Company’s contracts may be terminated on short notice, and that the Company may be unable to maintain large customer contracts or to enter into new contracts; the Company may underprice its contracts, overrun its cost estimates, or fail to receive approval for or experience delays in documenting change orders; the historical indications of the relationship of backlog to revenues may not be indicative of their future relationship; the Company may be unable to maintain information systems or effectively update them; customer or therapeutic concentration could harm the Company’s business; the Company’s business is subject to risks associated with international operations, including economic, political and other risks such as compliance with a myriad of laws and regulations, complications from conducting clinical trials in multiple countries simultaneously and changes in exchange rates; the Company may be unable to successfully identify, acquire and integrate businesses, services and technologies; the Company’s effective income tax rate may fluctuate, which may adversely affect our operations, earnings, and earnings per share; certain of the Company’s corporate governance documents could make an acquisition of the Company more difficult; the Company has substantial indebtedness and may incur additional indebtedness in the future, which could adversely affect the Company’s financial condition; our investments in our customers’ businesses or drugs and our related commercial rights strategies could have a negative impact on our financial performance; we face risks arising from the restructuring of our operations, and risks related to the completion and effects of the announced merger with IMS Health, including, without limitation, the ability to obtain shareholder and regulatory approvals, or the possibility that they may delay the transaction or that such regulatory approval may result in the imposition of conditions that could cause the parties to abandon the transaction, the risk that a condition to closing of the merger may not be satisfied; the ability of IMS Health and Quintiles to integrate their businesses successfully and to achieve anticipated cost savings and other synergies, the possibility that other anticipated benefits of the proposed transaction will not be realized, including without limitation, anticipated revenues, expenses, earnings and other financial results, and growth and expansion of the new combined company’s operations, and the anticipated tax treatment. For a further discussion of the risks relating to the Company’s business, see the “Risk Factors” in Quintiles’ annual report on Form 10-K for the fiscal year ended December 31, 2015, filed with the SEC, as such factors may be amended or updated from time to time in Quintiles’ subsequent periodic and other filings with the SEC, which are accessible on the SEC's website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in Quintiles’ filings with the SEC. The Company assumes no obligation to update any such forward-looking statement after the date of this release, whether as a result of new information, future developments or otherwise.
Use of Non-GAAP Financial Measures
This press release includes adjusted EBITDA, adjusted income from operations, adjusted income from operations margin, adjusted net income and diluted adjusted earnings per share, each of which is a financial measure not prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). Management believes that these non-GAAP measures provide useful supplemental information to management and investors regarding the underlying performance of the Company’s business operations and are more indicative of core operating results as they exclude certain items whose fluctuations from period-to-period do not necessarily correspond to changes in the core operations of the business. These non-GAAP measures are performance measures only and are not measures of the Company’s cash flows or liquidity, nor are they alternatives for measures of financial performance prepared in accordance with GAAP and may be different from similarly titled non-GAAP measures used by other companies. Investors and potential investors are encouraged to review the reconciliations of the non-GAAP financial measures to their most directly comparable GAAP measures attached to this press release.
Internet Posting of Information: The Company routinely posts information that may be important to investors in the 'Investors' section of the Company’s website at www.quintiles.com. The Company encourages investors and potential investors to consult the Company’s website regularly for important information about the Company.
Important Information About the Transaction and Where to Find It
In connection with the proposed transaction, IMS Health and Quintiles will be filing documents with the Securities and Exchange Commission (“SEC”), including the filing by Quintiles of a registration statement on Form S-4, and Quintiles and IMS intend to mail a joint proxy statement regarding the proposed transaction to their respective shareholders that will also constitute a prospectus of Quintiles. After the registration statement is declared effective, IMS Health and Quintiles plan to mail to their respective shareholders the definitive joint proxy statement/prospectus and may also file other documents with the SEC regarding the proposed transaction. This document is not a substitute for the joint proxy statement/prospectus or registration statement or any other document which IMS Health or Quintiles may file with the SEC. Investors and security holders of IMS Health and Quintiles are urged to read the registration statement, the joint proxy statement/prospectus and any other relevant documents, as well as any amendments or supplements to these documents, carefully and in their entirety when they become available because they will contain important information. Investors and security holders may obtain free copies of the registration statement and the joint proxy statement/prospectus (when available) and other documents filed with the SEC by IMS Health and Quintiles through the web site maintained by the SEC at www.sec.gov or by contacting the investor relations department of IMS Health or Quintiles at the following:
83 Wooster Heights RD
Danbury, CT, 06810
4820 Emperor Boulevard
PO Box 13979
Durham, North Carolina 27703
Participants in the Solicitation
IMS Health, Quintiles and certain of their respective directors, executive officers and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction and related matters. Information regarding IMS Health’s directors and executive officers, including a description of their direct interests, by security holdings or otherwise, is contained in IMS Health’s Form 10-K for the year ended December 31, 2015 and its proxy statement filed on February 22, 2016, which are filed with the SEC. Information regarding Quintiles’s directors and executive officers, including a description of their direct interests, by security holdings or otherwise, is contained in Quintiles’s Form 10-K for the year ended December 31, 2015 and its proxy statement filed on March 21, 2016, which are filed with the SEC. Additional information will be available in the registration statement on Form S-4 and the joint proxy statement/prospectus when they become available.
No Offer or Solicitation
This communication is not intended to and shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote of approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.
Phil Bridges, Media Relations (firstname.lastname@example.org)
+ 1.919.998.1653 (office) +1.919.457.6347 (mobile)
Todd Kasper, Investor Relations (InvestorRelations@quintiles.com)