Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the IQVIA Third Quarter 2022 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. [Operator instructions] As a reminder, this call is being recorded. Thank you. I’d now like to turn the call over to Nick Childs, Senior Vice President, Investor Relations and Treasurer. Mr. Childs, you may begin your conference.

Thank you. Good morning, everyone. Thank you for joining our third quarter 2022 earnings call. With me today are Ari Bousbib, Chairman and Chief Executive Officer; Ron Bruehlman, Executive Vice President and Chief Financial Officer; Eric Sherbet, Executive Vice President and General Counsel; Mike Fedock, Senior Vice President, Financial Planning and Analysis; and Gustavo Perrone, Senior Director, Investor Relations who has succeeded Brian [ph]. 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 and Presentations section of our IQVIA Investor Relations website at ir.iqvia.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, 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 Bousbib.

Thank you Nick, and good morning, everyone. Thank you for joining us today to discuss our third quarter results. IQVIA delivered another quarter of strong financial results despite market concerns about slowing demand, broader macroeconomic challenges and the various global geopolitical issues. In fact, indicators of demand both from customers and in the market generally remain healthy. Industry clinical trials starts continue to trend ahead of last year, rising almost 7% year-to-date. The pipeline of active early stage and late stage molecules are both up 8% from 2019 pre-pandemic levels. EBP funding, which has been a lingering concern since the beginning of the year when one of our smaller competitors raised alarms. EBP funding improved in fact, in the quarter, according to Bio World, third quarter funding was $18.7 billion, the highest of any quarter this year. Year to date, funding is running at about a $60 billion annual rate, which exceeds the average of the last five years pre-COVID. Our own RFP flow grew mid-teens in Q3 and RFP flow in both the large pharma and EBP segments are up double digits on a year-to-date basis. Our Q3 book-to-bill was 1.39 excluding pass throughs and 1.27 including pass throughs, continuing our strong results from the first half of the year. And as a result, as you saw, our backlog grew 5.4% versus prior year on a reported basis and 9.4% excluding the impact from foreign exchange. As you can tell, we are not experiencing any signs of slowdown in demand. It also helps that we are extremely diversified. Remember, we serve over 10,000 customers in more than a 100 countries, including all top 25 large pharma clients across the spectrum of therapeutic areas. Now, while demand remains very healthy, as you know, and as we have been saying throughout…

Okay. Thanks, Ari, and good morning, everyone. Let's start by reviewing revenue. Third quarter revenue of $3.562 billion grew 5% on a reported basis and 10.5% at constant currency. In the quarter, COVID-related revenues were approximately $220 million, down about $160 million versus the third quarter of 2021. In our base business, that is excluding all COVID-related work from both this year and last, organic growth at constant currency was 14%. Technology & Analytics Solutions revenue for the third quarter was $1.4 billion, up 4.7% reported and 11.6% at constant currency. Excluding all COVID-related work, organic growth at constant currency in TAS was 12%. R&D Solutions third quarter revenue of $1.979 billion was up 6.8% reported and 10.7% at constant currency. Excluding all COVID-related work, organic growth at constant currency in R&DS was 18%, as Ari mentioned. Finally, Contract Sales & Medical Solutions or CSMS third quarter revenue of $183 million declined 9% reported but grew 1% at constant currency. And excluding all COVID-related work, organic growth at constant currency in CSMS was 3%. Year-to-date revenue was $1.671 billion grew 4.2% on a reported basis and 8.1% at constant currency. COVID-related revenues were about $850 million year-to-date. In our base business, that is excluding all COVID-related work, organic growth at constant currency was 14%. Technology & Analytics Solutions revenue year-to-date was $4.247 billion, up 5.2% reported and 10.3% at constant currency. Excluding all COVID-related work, organic growth at constant currency in Tech & Analytics Solutions was 11%. R&D Solutions year-to-date revenue of $5.863 billion was up 4.5% at actual FX rates and 7.1% at constant currency. But excluding all COVID-related work, organic growth at constant currency in R&DS was 19% year-to-date. Finally, Contract Sales & Medical Solutions or CSMS year-to-date revenue of $561 million declined 4.6% reported and grew 2.9%…

[Operator instructions] Your first question comes from the line of Dave Windley with Jefferies.

Hi, good morning. Thanks for taking my question. I wanted to focus on kind of speed of throughput in RDS. I call it speed of studies and thinking about major buckets that could fall both on the accelerator side and the decelerator side. So you talked about your DCT capabilities, more remote activity that could spur along throughput or recruitment of patients, finding patients that are willing to participate in studies. Maybe, clients that post-COVID are kind of pushing hard to catch up for things that were pushed behind during COVID. And then on the other side, these things that you've highlighted around staff shortages at sites things like that, maybe therapeutic mix in your backlog might be lengthening. That's something that's a trend in the industry. So just seems like, relevant to how quickly you can convert your backlog into revenue or these factors and I wondered, Ari, if you could kind of help us understand the tug of war there and which one's winning?

Well good morning, David. Thank you for the question and there are many elements of response built in your question itself. You clearly know the industry and what's happening very well. Look as a context as you all know in the field, patient visits have not fully recovered to pre-pandemic levels. So that's point number one. I think it was presented at an industry conference recently. I think it was on October 7 Society for Clinical Research Sites Summit, this issue of staff shortages that are affecting investor side operations was flagged as a development industry-wide. So that, if you will, is on the negative now. You're correct to point to DCT has obviously -- the less we require the patient to actually visit the site, the better it is as a counter to this issue. Now we don't see this issue as a sort of permanent or ongoing thing. It happens to be that what we have been dealing with, and we've been talking about from the beginning of the year, which is very high levels of attrition, people have a hard time going back to work. We have a harder time recruiting the skill sets that we require plus the impact on cost of labor that all of that has, all of these factors in combination are a significant -- or the single most important operational challenge we have seen. And as we've mentioned many times, we've been dealing with that and offsetting the impact of these issues with our productivity initiatives and cost-reduction programs. Now we're not the only ones to experience these staff shortages. The sites also have staff shortages as a result of the same factors. And when they have to prioritize dealing with the incoming flow of patients versus dealing with clinical trials. And…

Your next question comes from the line of John Sourbeer with UBS.

I was just wondering if you could talk a little bit more on the inflation and hiring trends. And you also mentioned some attrition in the prepared remarks. Just how do you see this playing out into next year? I know you're not guiding on 2023, but do you see some easing on the trends there? And then on the other side, I guess, how is pricing looking? And are you able to offset any of these pricing -- these inflationary pressures on pricing?

Thank you, John, and a very good question. That is exactly the operational equation that we are dealing with. And again, there's no news here. We've been talking about this throughout the year. We've been saying this is a single most significant operational challenge we're dealing with is talent, talent, talent. And the cost of the talent, recruiting, training, retaining and compensating the talent that we need to execute our studies. The levels of attrition reached record highs. I mean, you're talking about almost 20% sometime in the first part of the year. We have seen those levels of attrition come down and stabilized. Now they're still very high. It's now more in the 16%, 17% type of range and is stabilized there. And we hope that they are going to continue to come down. Obviously, we put in place a very large number of measures to retain people. And those include, not only but they include the compensation -- upward compensation adjustments, which again, places more burden and more -- and create inflation that we have to deal with. This is, as I just mentioned before, the sales issue industry-wide and including at our partner sites where we execute the studies, which is creating the bottlenecks that we talked about for us to execute. So as far as our operations, we don't know how long this attrition issues and employee turnover and headwinds will last. We are dealing with them. I can tell you that many of the cost-cutting and productivity initiative programs that we were planning to launch in '23, we have decided to accelerate and we're starting many of them in this fourth quarter of 2022 in anticipation of potential continuation of some of these employee turnover and wage inflation issues. So we are going to address…

Your next question comes from Sandy Draper with Guggenheim.

Thanks very much. I guess, Ari, it'd be helpful to hear some commentary on the TAS side and thinking about the 3 broad buckets you look at TAS. In terms of the demand drivers there, are there -- what do you feel like is improving, staying the same, potentially weakening? Just thinking about some of the commentary or concerns out there around okay, what's happening with the sales force? Is that going to be accelerating in terms of cuts? Has that stabilized, thinking about overall marketing budgets how people are looking at using data and marketing. Just would love some commentary about how you see what's going on in terms of pros and cons and puts and takes on the TAS side as we head into next year?

Yes. Well, Sandy, and thank you for the question. Look, we are very pleased with the continued strong growth that we are seeing in TAS. You heard us, both Ron and myself, report organic constant currency revenue growth, excluding COVID from both years of 12%. That's really, really strong. And you know that the -- if we think about the business in three buckets and the high-growth bucket includes real world and commercial tech and they continue to be strong drivers of growth. We continue to find innovative ways to utilize real-world evidence for clients, as I described in my introductory remarks, and we care to deploy more of our technology solutions. You talked about digital marketing. So it's true that sales forces, sales reps as a demographic in general, are going down. And so any parts of any business that are reliant on physical interactions between sales reps and physicians, those businesses clearly have a downward long-term trends. So people who are dependent on CRM, for example, are going to experience headwinds. Now as I have mentioned many times before, we have been long ago at the forefront of the transition to digital marketing. Interactions with HCPs are now rapidly evolving towards digital interactions. And I mentioned in my introductory remarks, some examples, we made investments in this area. We bought DMD Marketing last year. We bought Lasso this past quarter. These are unique, this is kind of an operating system that enables pharma clients to buy and decide where to place promotional content. This is where the industry is going. We've made investments. We bought technology and companies that we feel are unique and will enable us to claim our fair share of that market. And we are here to support our clients in this transition. So you're absolutely correct. Overall, the traditional mode of going to market is going away. It's a slow trend downwards, but it is downward, but it is more than offset by growth in digital marketing, and that's what we've been investing in, and that's what's growing in our business. Thank you, Sandy.

Your next question comes from the line of Shlomo Rosenbaum with Stifel.

This one is actually for Ron. Given the rise in interest rates and your focus on retiring more debt, can you give us a little bit of color as to how we should be thinking of the blended interest rate that we should assume on debt? And are you targeting kind of a leverage ratio instead of the mid-3s, low-3s, like how should we be thinking about this just more of an ongoing basis?

Yes. Thanks for the question, Shlomo. And it's very topical given the interest rate environment these days. And we haven't provided comprehensive P&L guidance for 2023 at this point. But it's an important enough issue. I want to give you a little bit of color around that in addition to what our strategies are to deal with it. Let's start with the strategies. You saw that we paid down debt in the fourth quarter with a term loan that was coming to $510 million in -- early in 2024 and comparatively expensive, and we'll be looking to pay down some additional term loan debt that near term in maturity as we go through next year. So you'll see us talking about that. As far as our leverage ratio, we have -- that's been gradually trending downward. It was at 3.4 as we exited Q3. I would expect that as we go through next year, we'll hit that or get close to any way that 3 target that we set for the end of 2025. I think we're going to get down to that level sooner rather than later and possibly by the end of next year. Now as far as interest expense goes, look, we're not in the business of forecasting rates. So it's precisely forecasting interest expense depends on what you think is going to happen with rates, but we can give you some help. If we just look at where the market consensus for rates is and kind of project outward from that, we think that in Q4, interest expense will be about $130 million, give or take. And you see that's a fairly substantial step-up from where it has been. And actually, the run rate exiting the year at the very end of the quarter, will be about $140 million per quarter. And if you extend that out, you don't have to be a math major to say it's $560 million is kind of an annual rate exiting the year. And if there are further increases, modest increases in rates as we go into the first quarter, which was what the market is projecting, we'll see then -- then that number could go higher. We also have a swap rolling off at the end of Q3. So you could see interest expense next year getting higher than $560 million, maybe approaching $600 million. We'll see. But you have to keep in mind that this depends on a lot of things. It depends on central rate actions, our cash flow, how we choose to use our cash flow next year and so forth. But this should get you in the ballpark anyway for your models. I know some people have been struggling with that. So I wanted to be a little bit more explicit than we had been in the past when we said count on like $16 million for each 0.25 point of interest in drive, right?

Yes. So I mean, that's the item that we've been working on. And as Ron mentioned, we decided that it was time to retire some of the debt that matures in '24. So we took out 5 10 in just a few weeks ago, a couple of weeks ago. And we're probably going to retire what is maturing in '24. We will retire that in '23. And so we will begin addressing the issue of interest expense. Of course, it's a 1-year issue right? From a comparison standpoint, we likely will have a step-up in interest expense in aggregate for us in '23 versus '22. But from then on, hopefully, rates are going to either stabilize or decrease. If you look at the forecast by the individual governance of the Fed, and you've got these charts with every dots representing each governor's anticipation of rates and they are really all over the map. For 2024, ranging from 2.5% to 5%. So hopefully, at some point, the rates will go down and then it becomes a tailwind, so to speak. But certainly, going to '23, it will be a headwind that we have to address, and we're planning to address and take other actions on other fronts to mitigate that impact.

Your next question comes from the line of Justin Bowers with Deutsche Bank.

Just wanted to follow up on the comments around labor. And with -- we're seeing obviously some turnover in -- or some changes in the Bay Area and then some of your clients as well. So I wanted to get a sense of if the labor pressures that you're seeing are isolated in any specific pockets or geographies? And if some of the turnover we're seeing and those other areas provide you an opportunity to either hire talent, notably in TAS or just combat some of the inflation? And then the follow-up to that would be with some of the labor issues at the sites, is there a way to provide us some goal pulse on what the backlog conversion would be over the next 12 months in light of what you're seeing at the site level?

Yes. Thank you very much for your question. Look, given the strength of the industry backdrop, there's obviously competition for TAS. That's number one. That's in addition to the overall context of post-COVID resignations and the inflation that drives an additional component of wage inflation. Now we are actively recruiting and hiring, I mean, thousands of people, the numbers are staggering, the number of people we bring on board in order to meet the incremental demand. And of course, we've had this attrition issue that I mentioned earlier. We have approximately 83,000 employees. We recruit, as I said, thousands and thousands of employees a year. So we do have the capabilities we are focused on it. Now where? Which pockets? Obviously, it's CRAs, its operational people, it's project leadership. It's really front-line execution field skilled professionals. And that's where the issues are. Now because of that, we're seeing margin pressure from the labor cost increases. And -- but you've seen we've expanded our margins. So really, that's because of our productivity initiatives. We do intend to continue this trend. We are not just sitting here and watching the headwinds, we are countering them, and you know that we've done that throughout the year. Now we are -- we made a minus modest adjustment to reflect some labor cost increase that we're not able to offset entirely in the fourth quarter, again, very minor just because there is a lag. You recruit highly skilled and expensive people. It takes a little bit of time before they are actually deployed in the field and productive. And sometimes, you just don't have the time to catch up with the cost reduction programs to offset those increases in costs. Now with respect to the staff shortage at other sites, we don't manage those sites,…

Your next question comes from Patrick Donnelly with Citi.

Great. Ron, maybe one for you in a similar vein there. You talked about the interest expense, obviously, jumping up with the variable next year. I guess when you think about the different inputs, Ari, you touched on labor costs there as well. When you think about the ability to offset some of that down the P&L, can you just talk about, I guess, the margin structure for next year? Again, you have some of the inflationary pressures. You talked a little bit about pricing throughout the call. But I guess, how do you think about the P&L defensiveness, ability to insulate away from some of that interest expense jumping up on you guys as you get into next year?

Look, the interest expense is going to be pretty much what it is, and it's going to be based upon rate increases and so forth. And we'll do what we talked about in terms of debt reduction. And really what you're looking for is what can we do up above the EBITDA line and above to offset some of the items below, like interest spend, below the line that we have less control over in the short term. And we see our demand environment, as we laid out today, is fundamentally being very healthy. Yes, we highlighted a few executional challenges due to macro factors, but we don't see them as being permanent. And we see the outlook for next year without getting into guidance for 2023. Obviously, at this point, it's being fundamentally strong on an operating basis. Nothing has changed there. We're going to try to continue to drive cost reduction to offset not just what Ari said about the continued labor pressures, which hopefully will abate, but we can't count on that. But also to help offset some of what we see below the line in interest expense. And we'll be coming out with guidance in the February time frame and lay it all out for you then.

Yes. And again, that's absolutely -- you're absolutely correct, Patrick. We are exactly working on this. I mentioned earlier that we have plans. You will recall when we gave our 20 by '25 targets, which, by the way, are unchanged. Nothing here is, in the slightest, making us deviate from the goals we've set for 2025 for our company, at least with the exception perhaps of the leverage ratio we were targeting 2025 at a leverage ratio of 3. And as Ron mentioned, it's likely will be at 3 well before that. But other than that, our goals are the same. The road to those goals may not always necessarily be a straight line, but the growth haven't changed. Now in support of these goals, we had over the next 3 years, a series of programs and productivity initiatives internally, and we've decided in light of both the increased below-the-line headwinds for '23 and a continued labor inflation, which we are assuming as a given, we decided to accelerate the programs we were supposed to initiate in '23, and we are initiating them in the fourth quarter of '22. So the answer to your question is absolutely yes, and that's the plan.

Your final question comes from Elizabeth -- from Luke Sergott with Barclays.

So Ron, a quick one for you. You guys had a big cash quarter. Can you talk about the drivers here? You brought your conversion up to 85%, which is kind of where you guys were targeting, I guess, your long-term range. So is this a good spot to think about the jump off?

I'm not sure what you mean by the jump off, but...

For '23, sorry.

Well, look, I think in any given year, we targeted 80% to 90% of adjusted net income for cash flow. But cash flow is inherently volatile. So 1 year, it may be a lot better, 1 year it may be a little bit less. And certainly, from quarter-to-quarter, you see that to a much greater degree. And we had a not so great second quarter and a much better third quarter. And the reason is pretty simple, our collection -- timing of collections, it was just much better in the third quarter than it was in the second quarter. And nothing has fundamentally changed in terms of our cash flow. We're going to continue driving towards maximizing cash flow, trying to minimize our day sales outstanding and remain a strong cash generator. My only comment there is don't put too much weight on the quarter-to-quarter fluctuations because that's the nature of cash flow. It's not like earnings, it's not accrual-based. So it tends to be more volatile and more difficult to predict on a short-term basis.

All right. And then lastly here, I'll leave the staffing shortage question for offline. But can you talk a little bit more about the color of the bookings? Any change in the duration or the size of the average win that you guys are seeing? Anything that would portend on an acceleration or deceleration in an overall project quality and in size?

Absolutely nothing changed at all, okay? Overall, RFP flow is 10% up year-to-date, 15% in Q3. What we call the qualified pipeline, which means it's advanced, it's not early stage, it's not speculative, is up 19% year-over-year. Awards in Q3, the awards are -- should I mention the number? The awards in Q3 are 22% up, second highest quarter ever. Plus 10% sequential growth. I mean, I don't know what else to tell you. I'm looking at every number possible. On the demand side, we see no change. It's widespread, large pharma, EBP. We've been saying this for the -- from the beginning of the year. You guys are not believing us, but the numbers are showing, are -- and I guess everyone else is coming to the story as well.

And there are no further questions. Mr. Childs, I will turn the call back over to you.

Okay. Thank you, everyone, for joining us today. We look forward to speaking to all of you again soon. The team will be available rest of the day to take any follow-up questions you may have. Thanks, everyone.

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