IQVIA Holdings Inc. (IQV) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the IQVIA Third Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Thank you. I would now like to turn the call over to Kerri Joseph, Senior Vice President, Investor Relations. Mr. Joseph, please begin your conference.

Thank you, Operator. Good morning, everyone. Thank you for joining our third quarter 2026 earnings call. With me today are Ari Bousbib, Chairman and Chief Executive Officer; Mike Fedock, Executive Vice President and Chief Financial Officer; Eric Sherbet, Executive Vice President and General Counsel; Clarissa Willett, Senior Vice President of Financial Planning and Analysis; and Katie Ward, Vice President, 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 in the Events & Presentations section of our IQVIA Investor Relations website at ir.iqvia.com. Before we begin, I'd 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 management 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. As previously disclosed, we implemented a new segment reporting structure effective January 1, 2026. In conjunction with this change, prior period amounts have been recast to conform to this reporting structure. I would now like to turn the call over to our Chairman and CEO, Ari Bousbib.

Thank you, Kerri, and good morning, everyone. Thank you for joining us today to discuss our third quarter results. The team delivered great numbers. The market environment has continued to improve, but our performance improved even more. Our organic growth rates year-over-year accelerated meaningfully, 2x for commercial and nearly 3x for clinical. Our margins expanded and free cash flow was very strong. Our win rates were higher in the quarter, which led to our strongest clinical bookings in 4 years. Our differentiated AI offerings are increasingly contributing to that momentum, with continued adoption of our agentic solutions. In fact, IQVIA has now deployed 415 agents to date. Earlier this month, we brought together more than 400 attendees at TechIQ to share our latest clinical and commercial AI capabilities. This event is our annual customer event focused on technology, which this year took place in Boston, and included our technology partners, NVIDIA, Microsoft, AWS, Snowflake and Veeva. Our AI leadership continues to earn industry recognition, including multiple industry awards for AI and technology innovation across life sciences and health care, while we continue to see more adoption of these capabilities across our customer base. Let me spend a couple of minutes on the results for the quarter. Total revenue for the quarter exceeded the high end of our guidance range, representing year-over-year growth of 8% on a reported basis at constant currency. Growth was even stronger at 8.6%. Organic revenue growth was approximately 6% year-over-year, well over 2x the rate we delivered a year ago. Third quarter adjusted EBITDA was above the high end of our guidance as well, representing year-over-year growth of 8.7%. Adjusted EBITDA margin, as a result, expanded by 20 basis points, the second consecutive quarter with margin expansion this year. Third quarter adjusted diluted EPS also exceeded the high end of our guidance range and increased 11.3% year-over-year. The beat was driven entirely by the stronger operational performance. Now on to segment performance. On the clinical side, revenue grew 8.7% reported, of which almost 7% was organic year-over-year, which is nearly 3x last year's organic growth rate. We delivered $3.2 billion of net new bookings, our highest in 4 years, and 15% above last year, with notable strength in full [ service ]. And yes, the book-to-bill was 1.2 in the quarter. But more importantly, this is a long-cycle business, and I'd like to highlight that our last 12-month net new bookings have now increased for 5 consecutive quarters, reaching $11.7 billion, which is up 14% year-over-year. Within this metric is one of the best forward-looking indicators we have in support of long-term growth. Looking ahead, demand indicators are encouraging. The EVP funding environment continues to be very strong. Funding has reached $90 billion year-to-date, up more than 85% year-over-year, and already above the total for all of last year, according to BioWorld. Similarly, clinical trial starts year-to-date are up high single digits. RFP flow continued to grow at a healthy rate at high single digits as well compared to last year. Our strong performance, of course, reflects an improving market environment, but we also had good operational execution with win rates that continue to pick up [ two, threefolds ]. In Commercial Solutions, revenue grew 6.9%, of which 4% was organic, which is double last year's organic growth rate. We had good growth across our 3 subsegments. Information offerings, which helps our clients understand the market; analytics and consulting offerings, which help our clients plan their go-to-market strategies; and our other commercial solutions that help them engage with patients, health care providers, payers and channels. We've now delivered 4 consecutive quarters of strong revenue growth in Commercial, and our pipelines remain at record levels. Looking forward, the demand outlook remains favorable, with new drug launches up more than 40% year-to-date. Our own pipeline showing healthy growth, and decision time lines continuing to shorten. I usually give you some color on the business activity in the quarter. And today, I'd like to do that, but focus on examples where AI was a clear differentiator. Let's start with clinical. Our predictive clinical development capabilities utilize AI to help sponsors design better studies, identify risks earlier and bring new therapies to patients faster. Here are a few examples of how this is playing out in some recent awards. [indiscernible] from our clients needed to deliver multiple Phase III studies in the same autoimmune indication across nearly 50 countries. Here, our AI-enabled country and site modeling solution optimizes patient identification and enrollment, shortening the overall program time line by 9 months. In another example, the [ EBP ] selected IQVIA for a Phase III oncology program. Critical to winning this award was our AI-enabled protocol and site optimization tools, which accelerate time lines and reduce operational risk. Finally, IQVIA selected by an EBP for a Phase III cardiovascular outcome study. This is exactly where our scale and integrated AI capabilities make a big difference. We are layering AI agents to bring together clinical delivery, laboratory services and electronic patient assessments under one model to identify issues earlier, reduce hand-offs, and proactively mitigate execution risk. Switching to examples in commercial. We continue to evolve the way we partner with clients. Successful adoption of our AI offerings in commercial organizations within our clients is deepening client trust in IQVIA. And as that trust grows, clients are increasingly looking to us to bring more of our AI-enabled capabilities to our organizations. For example, a top 5 pharma client selected IQVIA to build and maintain an agentic platform that provides on-demand insights from complex real-world health care data. This will help fund a faster market access decisions and adjust commercial models nearly real time as prescribing patterns and patient outcomes evolve. We are also seeing AI help expand our role in patient services. A top 10 pharma company selected IQVIA to deliver an integrated support program for its rare disease portfolio. Our AI-powered solutions adapt and shape interactions by factoring inpatient wound and sentiment. That allows in terms declined to automate tasks such as benefit verifications and case management. The program allows patients to gain access to the therapy, start treatment sooner and better adhere to the treatment [indiscernible]. Another example, a large pharma client deployed our recently launched IQVIA Explorer solution. Explorer users agentic AI workflows that integrate disparate data sources to answer complex questions, spanning areas such as which cohorts of patients are taking the therapy, how therapies are being utilized in patient treatment and help measure adherence by patient segment. The client can now execute commercial activities in minutes compared with weeks or months previously. Let me now turn it over to Mike for more detail on our financial performance. Mike?

Thank you, Ari, and good morning, everyone. As a reminder, we implemented the new segment reporting structure effective January 1, 2026. In conjunction with this change, prior period segment amounts have been recast to conform to this reporting structure. Now let's start by reviewing revenue. Third quarter revenue of $4.428 billion grew 8% on a reported basis and 8.6% at constant currency. Organic revenue growth within the quarter was strong at approximately 6%. Commercial Solutions revenue for the third quarter was $1.789 billion, up 6.9% on a reported basis and 7.9% at constant currency. R&D Solutions third quarter revenue was $2.639 billion, up 8.7% on a reported basis and 9.1% at constant currency. Year-to-date, total company revenue was $12.947 billion, up 8.4% on a reported basis and 7.7% at constant currency. Organic revenue growth was strong at over 5%. Commercial Solutions revenue was $5.336 billion, up 9% reported and 8.3% at constant currency. And R&D Solutions revenue was $7.611 billion, up 8% on a reported basis and 7.4% at constant currency. Now moving down to P&L. Third quarter adjusted EBITDA was $1.032 billion, representing growth of 8.7% year-over-year, while year-to-date adjusted EBITDA was $2.958 billion. And in the quarter, adjusted EBITDA margins expanded by 20 basis points. Third quarter GAAP net income was $350 million and GAAP diluted earnings per share was $2.10. Year-to-date, GAAP net income was $880 million or $5.24 of earnings per diluted share. Third quarter adjusted net income was $557 million and adjusted diluted earnings per share was $3.34, representing growth of 11.3% year-over-year. Year-to-date, adjusted net income was $1.576 billion or $9.38 per diluted share, up 10.4%. Now looking at R&DS bookings. The R&D Solutions' net new bookings in the quarter were $3.2 billion, a 15% increase year-over-year, resulting in a 1.2 book-to-bill. I should also note that cancellations remained in the historical range. And as we noted during the last earnings call, the company conducted a detailed review of inactive trials in our backlog, resulting in an adjustment to backlog of approximately $2.1 billion. This backlog adjustment has no impact on historical financial results, 2026 guidance, net new bookings for next 12 months revenue from backlog testing. Obviously, should any of these same trials resume, the value will be added back to backlog and will not be included in future bookings or book-to-bill metrics. As of September 30, 2026, R&DS contracted backlog was $32.6 billion and the next 12 months revenue from this backlog was $9.4 billion, which is up 10% versus prior year. And as discussed, given the long cycle nature of the business, it is more meaningful to focus on the longer-term booking trends. For the quarter, the last 12 months net new bookings were $11.7 billion, an increase of 14% year-over-year. Importantly, this metric has been steadily increasing each of the past 5 quarters and points to continued momentum in our business. Now turning to the balance sheet. As of September 30, cash and cash equivalents was $2.249 billion and gross debt was $16.67 billion, resulting in net debt of $13.818 billion. Our net leverage ratio ended the quarter at 3.45x trailing 12-month adjusted EBITDA. Third quarter cash flow from operations was $825 million and capital expenditures were [ $158 million ], resulting in free cash flow of $667 million, representing 120% of adjusted net income. Let's now turn to guidance. We are raising our full year '26 guidance for revenue, for adjusted EBITDA and for adjusted diluted earnings per share. We now expect revenue to be between $17,350 billion and $17,500 billion, representing year-over-year growth of 6.4% to 7.3%, and reflects over 1 point of constant currency organic revenue growth acceleration versus prior year. This revenue guidance now assumes approximately 200 basis -- 250 basis points of contribution from acquisitions based on acquisitions completed to date and acquisitions we expect to have completed by the end of the year. The guidance also assumes approximately 20 basis points of tailwind from foreign exchange, which is unchanged from our previous guidance. And by the way, this implies that there is an approximately 70 basis point headwind for foreign exchange to Q4 revenue. We are also raising adjusted EBITDA to be between $4.025 billion and $4.055 billion, growing 6.3% to 7% year-over-year, reaffirming flat margins year-over-year at approximately 23.2%. And given the mathematical distortion pass-through revenues have to reported margins, I would also want to take this opportunity to remind everyone to focus more on the EBITDA dollars as it is a more meaningful measure of operational performance. We are confident in our EBITDA dollar guidance irrespective of the pass-through contributions to our reported revenue. And finally, we are also raising adjusted diluted EPS to be between $12.90 and $13, up 8.2% to 9.1% versus prior year or 8.6% at the midpoint. And as we close out '26, I'm sure you want some insights into '27 expectations. So I want to take this opportunity to formally invite you to our upcoming Investor Day on December 1, whereas we normally do, we will share a rough framework of what we see shaping up for next year. And as always, we will provide detailed guidance for 2027, concurrent with the release of our full year 2026 and fourth quarter earnings in February 2027. But in the meantime, to help you with your models, I want to share the run rate assumptions we see exiting the fourth quarter for below the line items. We expect net interest expense for the fourth quarter to be around $210 million. We expect just over $160 million in depreciation and amortization for the quarter, and we are expecting our weighted average diluted share count to be approximately 169 million shares. And just as a reminder, Q4 compares are very difficult. So the implied growth rates should not be interpreted as a deceleration in our business, and we are confident in the momentum that the metrics that we highlighted previously, what implies for the future. In both this guidance -- this guidance assumes that foreign currency rates as of October '26 continue for the balance of the year. So to summarize, IQVIA delivered an outstanding financial results, with third quarter revenue, adjusted EBITDA and adjusted diluted EPS exceeding the high end of our guidance. Organic revenue growth rates accelerated year-over-year across both commercial and clinical segments. As demand continues to rise, AI continues to be a tailwind to our business and our win rates continue to improve. Adjusted EBITDA dollars grew 9%, and we expanded adjusted EBITDA margins 20 basis points in the quarter. We had strong free cash flow performance, representing 120% of adjusted net income. R&DS net new bookings were $3.2 billion, growing double digits year-over-year, with another quarter of very strong full service bookings. We raised our full year 2026 guidance for revenue, adjusted EBITDA and adjusted diluted earnings per share, and we look forward to seeing you in person on December 1 at our Investor Day. Now with all of that, let me hand it back to the operator for Q&A.

[Operator Instructions] Your first question comes from the line of Shlomo Rosenbaum with Stifel.

Ari, I wanted to ask you if you could go into a little bit more about the uniqueness of IQVIA's ability to deploy data and technology in an agentic world. And you touched on some of the examples, but can you just talk about things that just other competitors just can't do because they don't have the data, whereas IQVIA can do some of these things? And then also maybe discuss about how your clients view this and how they -- you think about this in terms of being able to charge for this differentiation?

Okay. Look, this is -- it will be the subject of a very long conversation. But look, how I can put it? AI is not just another technology. It's -- from our point of view, it's a new way of doing business. It's changing the way customers engage with the connectivity and how they engage with IQVIA. So stepping back, to successfully deploy AI, there is a free [indiscernible] in knowing the business. If you understand AI simply has an opportunity to do business in a different way, meaning, first, content is important. You need the proprietary information that powers AI. That means you need the globally sourced, the identified, curated, fit-for-purpose integrated, interoperable compliance with regulatory, privacy, et cetera, et cetera, et cetera. And we're ready for extraction data. Now we got all of that. Second, in addition to content, you need context. I think people are realizing that to deploy AI effectively, you need context, you need deep expertise in life sciences to understand that information. We've got that too. And thirdly, importantly, I'm looking for a word starting with [ con- ]. Content, context, what else here? Comprehend. You need to comprehend what you're looking at. That is you need to interpret what the information is telling you and know how to apply to make decisions faster and more accurately. So when you think about AI agents, they're not just -- it's not basically use an AI tool, whether it comes from Anthropic or OpenAI or anywhere. AI agents are constructs that operate a workflow in loop of humans. We build them using all these tools. We [indiscernible] with the tools that are available. We spend money with all of these massive AI companies, they just have generic tools that we utilize to construct agent depending on the usage, obviously. Again, the agent is only one part. You obviously need the content, you need the context and you need interpretation and insights that enable you to construct the agents and operate them. And very often, because of all the specific issues related to operating workflows in health care, the transparency, the traceability of the data, et cetera, et cetera, and the comprised aspect, usually human in the loop as you do many other industries, but in our industry in particular. So that I think is what makes -- and by the way, we've been at this for a while, as you know. So it's not that we're trying to catch up. We don't need headlines. We're working with our clients, and it's slowly but surely changing the way we do business and changing the relationship with our clients and making us even more integrated within our clients' workflows. Thank you.

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

I wanted to dig in a little bit to the gross margin improvement. Obviously, that was a highlight, particularly given the higher pass-through mix. So can you talk to us maybe in a little bit more detail about the pushes and pulls that -- how much is the pass-through mix sort of causing like degradation of that? And sort of what are the levers on the upside, so we make sure we understand that trajectory properly.

Yes. Thank you for the question, Elizabeth. Yes, you're absolutely right, and thank you for pointing out the improvement in gross margins. The pass-throughs across the enterprise were certainly a headwind on the gross margin line, probably about 70 basis points. So it really highlights the underlying strength in our operational execution.

Okay. And then just in terms of that, so we should just think of that as broad based...

Elizabeth, I just want to give you some -- I mean, I have here [indiscernible] detail of the -- you asked gross margins around adjusted EBITDA margin, which was also -- which expanded 20 bps. What the nonoperational items, which is the 70 bps that Mike highlighted, we also had, I guess, 10 bps of currency impact. So let's sort of say, 60-or-so bps of net nonoperational headwind to our margins was more than offset by 80 bps of operational improvement. So that's, again, the cost containments, the AI agentification of our own processes, productivity programs, et cetera, everything that we -- that contributed, in aggregate, 80 bps of [indiscernible]. So you see that underlying our margins, if you eliminate pass-through, then theoretically, we're looking at our margins without the pass-throughs, just on the old basis just on the service revenues, that margin would have improved 80 bps. That adjusted EBITDA margin would have improved 80 bps. And obviously, it's significantly higher than the delivered margin of [ 20.2% ] [indiscernible] be more in the high 20s, [ above ] 20%.

Your next question comes from the line of Jailendra Singh with Truist Securities.

Congrats on a strong quarter. I want to go back to bookings in the quarter, very strong bookings trend despite the normal seasonality you generally see in 3Q. Was there anything unusual in the timing or a mix of 3Q awards in 3Q? Or was just broad-based market strength or your win rate improving? Just trying to understand if we should expect a normal seasonal step-up in Q4 from a bookings point of view?

Yes. No. Thank you for the question. It really was broad-based. If you know that earlier this year, there were all these concerns that you guys all voiced out. Well, that's it. It's over. Full service is over. Everyone is going FSP. People are in-sourcing and so on and so forth. We warned you that, that is not the case, and that the pendulum swings back and forth. But long term, the outsourcing trend is absolutely intact. And this is, again, the second quarter in a row that we see very, very strong bookings in full service. In fact, year-over-year, they were up by a lot. I don't want to give you the numbers because it's so -- the -- now the flip side, obviously, from an optic standpoint, is full service comes with [ past-throughs ]. And so back to the Elizabeth question, we then have an impact on reported margins, and I caution you to make sure you look under the covers and you understand the operational improvements there. But yes, to your question, really good strength across the board and really, that was true for large pharma where we see a continued uptick in win rates and consequent on all the strategic partnerships that we have structured over the past 2 years, which we've talked about at length in prior calls, all of those are now starting to pay off as we continue to build on a growing stream of RFPs and continue to win more and more of those opportunities with large pharma. And again, we [indiscernible] similarly, we've talked about our strategy there. And are also -- is continue to grow the bookings in [ EBP ] were very strong. Again, if you look at -- I would point you to our LTM net new bookings which this -- at the end of this past quarter was $11.7 billion. And you look at that number, each of the past 5 quarters, that number has continued to grow consistently, and it was up 14% year-over-year. We think this is an excellent metric to focus on in terms of understanding sustainability of long-term growth in the business. And again, broad source, broad strength in FSO, FSP, strong outsourcing. Any other comments, Mike? Or no?

No. And just -- and no other changes are expected in Q4 seasonality...

Nothing unusual therapeutically or otherwise really a good, good excellent quarter from the bookings standpoint.

Your next question comes from the line of Eric Coldwell with Baird.

I think my only concern that I've had here recently is just the below the line items, and you gave us an insight into your view on the fourth quarter. Should we be taking that $210 million, I think you said, and just annualizing that into 2027 at this point? Or are there other parameters or dynamics to consider as we think about interest expense modeling for next year? And then just one other quick one. I am curious if you can give us the parameters for the backlog scrub? What exactly made the cut or didn't make the cut in terms of your review when you looked at what to remove for now? If you could give us those details, would be appreciated.