IQVIA HOLDINGS INC.
You should read the following discussion and analysis of our financial condition
and results of operations together with our consolidated financial statements
and the related notes included elsewhere in this Annual Report on Form 10-K.
Some of the information contained in this discussion and analysis or set forth
elsewhere in this Annual Report, including information with respect to our plans
and strategy for our business, includes forward-looking statements that involve
risks and uncertainties. You should read the "Risk Factors" section of this
Annual Report for a discussion of important factors that could cause actual
results to differ materially from the results described in or implied by the
forward-looking statements contained in the following discussion and analysis.
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--------------------------------------------------------------------------------Overview
IQVIA is a leading global provider of advanced analytics, technology solutions, and clinical research services to the life sciences industry. IQVIA creates intelligent connections across all aspects of healthcare through its analytics, transformative technology, big data resources and extensive domain expertise. IQVIA Connected Intelligence™ delivers powerful insights with speed and agility - enabling customers to accelerate the clinical development and commercialization of innovative medical treatments that improve healthcare outcomes for patients. With approximately 79,000 employees, we conduct operations in more than 100 countries. We are a global leader in protecting individual patient privacy. We use a wide variety of privacy-enhancing technologies and safeguards to protect individual privacy while generating and analyzing information on a scale that helps healthcare stakeholders identify disease patterns and correlate with the precise treatment path and therapy needed for better outcomes. Our insights and execution capabilities help biotech, medical device and pharmaceutical companies, medical researchers, government agencies, payers and other healthcare stakeholders tap into a deeper understanding of diseases, human behaviors and scientific advances, in an effort to advance their path toward cures. We are managed through three reportable segments, Technology & Analytics Solutions, Research & Development Solutions and Contract Sales & Medical Solutions. Technology & Analytics Solutions provides critical information, technology solutions and real world insights and services to our life science clients. Research & Development Solutions, which primarily serves biopharmaceutical clients, is engaged in research and development and provides clinical research and clinical trial services. Contract Sales & Medical Solutions provides contract sales to both biopharmaceutical clients and the broader healthcare market.
For a description of our service offerings within our segments, refer to Part I, Item 1, "Business".
Industry Outlook
For information about the industry outlook and markets that we operate in, refer to Part I, Item I, "Our Market Opportunity".
Overview of the Impact of COVID-19
During 2020, the COVID-19 pandemic disrupted the pace of our clinical trials and
offerings that rely on face-to-face interactions, but, at the same time, it
accelerated change in the industry and created demand for new services. The
pandemic resulted in the delay but not cancellation of a number of existing and
planned clinical trials, both because many clinical trials were slowed or
temporarily paused and because many planned clinical trials did not begin as
scheduled as they were crowded out by clinical trials for COVID-19 vaccines and
other therapies. During 2021, we experienced an acceleration in business
momentum as these delayed clinical trial activities began or restarted, which
contributed to our financial results for the year.
Throughout the past year and into 2022, we have worked on a substantial number
of COVID-related projects. COVID-specific work currently does not represent a
material amount of our backlog and is executed over shorter timelines than other
therapeutic work, though we do anticipate that this work will continue through
2022 and potentially into 2023 and beyond. There will be a need for vaccines for
multiple manufacturers to meet global demand, new vaccines for emerging variants
of the virus, alternative vaccines needed as a result of adverse safety events,
quality issues, or manufacturing delays, novel treatment programs that are
targeted at specific populations and conditions, and vaccine safety monitoring
studies.
The pandemic has also affected our business strategy in a number of ways. One of
the most significant impacts on our Research & Development Solutions business,
has been the acceleration of decentralized clinical trials. Decentralized
clinical trials combine the use of remote technologies and field-based services
to enable portions of a clinical trial to be conducted away from an investigator
site. This approach reduces the burden on patients of having to travel to and
from investigator sites frequently and allows trials to continue to be conducted
even during periods of limited access to investigator sites. While the
decentralized clinical trial opportunity was identified before COVID-19, we saw
how critical those capabilities were during the pandemic and accelerated their
development accordingly. We invested in the use of remote technologies, expanded
our relationships with local laboratories and healthcare providers, and
established a virtual network of investigators and care professionals.
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We also took the opportunity presented by the pandemic to completely rethink and
revolutionize our workplace and in 2021 we implemented the IQVIA Future of Work
program. This program was designed to address employee feedback for more
flexibility, and it will facilitate approximately 80% of our employees working
in flexible arrangements, reducing our physical footprint and the employee
commute impact on the environment. To facilitate this transition, we made
investments in real estate to reconfigure our office space to install the most
efficient work arrangements and in technology to support our employees and
ensure that we can innovate, collaborate and grow successfully.
The Company continues to maintain strong liquidity. As of December 31, 2021 ,
cash and cash equivalents were $1,366 million and the Company had $100 million
drawn under its $1.5 billion revolving credit facility. As of December 31, 2021 ,
the Company was in compliance with the financial covenants under its debt
agreements in all material respects and does not have material uncertainty about
ongoing ability to meet the covenants of our credit arrangements.
Business Combinations
We have completed and will continue to consider strategic business combinations to enhance our capabilities and offerings in certain areas, including various individually immaterial acquisitions during the years endedDecember 31, 2021 and 2020. These transactions were accounted for as business combinations and the acquired results of operations are included in our consolidated financial information since the acquisition date. See Note 14 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information with respect to these business combinations.
Sources of Revenue
Total revenues are comprised of revenues from the provision of our services. We do not have any material product revenues.
Costs and Expenses
Our costs and expenses are comprised primarily of our costs of revenue, reimbursed expenses and selling, general and administrative expenses. Costs of revenue include compensation and benefits for billable employees and personnel involved in production, trial monitoring, data management and delivery, and the costs of acquiring and processing data for our information offerings; costs of staff directly involved with delivering technology-related services offerings and engagements, related accommodations and the costs of data purchased specifically for technology services engagements; and other expenses directly related to service contracts such as courier fees, laboratory supplies, professional services and travel expenses. As noted above, reimbursed expenses are comprised principally of payments to investigators who oversee clinical trials and travel expenses for our clinical monitors and sales representatives. Selling, general and administrative expenses include costs related to sales, marketing, and administrative functions (including human resources, legal, finance, quality assurance, compliance and general management) for compensation and benefits, travel, professional services, training and expenses for information technology, facilities and depreciation and amortization.
Foreign Currency Translation
In 2021, approximately 35% of our revenues were denominated in currencies other thanthe United States dollar, which represents approximately 60 currencies. Because a large portion of our revenues and expenses are denominated in foreign currencies and our financial statements are reported inUnited States dollars, changes in foreign currency exchange rates can significantly affect our results of operations. The revenue and expenses of our foreign operations are generally denominated in local currencies and translated intoUnited States dollars for financial reporting purposes. Accordingly, exchange rate fluctuations will affect the translation of foreign results intoUnited States dollars for purposes of reporting our consolidated results. As a result, we believe that reporting results of operations that exclude the effects of foreign currency rate fluctuations on certain financial results can facilitate analysis of period to period comparisons. This constant currency information assumes the same foreign currency exchange rates that were in effect for the comparable prior-year period were used in translation of the current period results 49 --------------------------------------------------------------------------------
Consolidated Results of Operations
For information regarding our results of operations for Technology & Analytics Solutions, Research & Development Solutions and Contract Sales & Medical Solutions, refer to "Segment Results of Operations" later in this section.
For a discussion of our results of operations comparison for 2020 and 2019,
refer to our Annual Report on Form 10-K for the fiscal year ended
Revenues
Change
Year Ended December 31, 2021 vs. 2020 2020 vs. 2019
(dollars in millions) 2021 2020 2019 $ % $ %
Revenues $ 13,874 $ 11,359 $ 11,088 $ 2,515 22.1 % $ 271 2.4 %
2021 compared to 2020
In 2021, our revenues increased $2,515 million , or 22.1%, as compared to 2020.
This increase was comprised of constant currency revenue growth of approximately
$2,398 million , or 21.1%, reflecting a $604 million increase in Technology &
Analytics Solutions, a $1,752 million increase in Research & Development
Solutions, and a $42 million increase in Contract Sales & Medical Solutions.
Costs of Revenue, exclusive of Depreciation and Amortization
Year Ended December 31,
(dollars in millions) 2021 2020 2019
Costs of revenue, exclusive of depreciation and
amortization $ 9,233 $ 7,500 $ 7,300
% of revenues 66.5 % 66.0 % 65.8 %
2021 compared to 2020
When compared to 2020, costs of revenue, exclusive of depreciation and
amortization, in 2021 increased $1,733 million , or 23.1%. This increase included
a constant currency increase of approximately $1,606 million , or 21.4%,
comprised of a $314 million increase in Technology & Analytics Solutions, a
$1,267 million increase in Research & Development Solutions, and a $25 million
increase in Contract Sales & Medical Solutions.
As a percent of revenues, costs of revenue, exclusive of depreciation and amortization in 2021 increased compared to 2020.
Selling, General and Administrative Expenses
Year Ended
(dollars in millions) 2021 2020 2019
Selling, general and administrative expenses $ 1,964 $ 1,789 $ 1,734
% of revenues 14.2 % 15.7 % 15.6 %
2021 compared to 2020
The $175 million increase in selling, general and administrative expenses in
2021 as compared to 2020 included a constant currency increase of approximately
$151 million , or 8.4%, comprised of a $42 million increase in Technology &
Analytics Solutions, a $32 million increase in Research & Development Solutions,
a $(1) million decrease in Contract Sales & Medical Solutions, and a $78 million
increase in general corporate and unallocated expenses.
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--------------------------------------------------------------------------------Depreciation and Amortization
Year Ended December 31,
(dollars in millions) 2021 2020 2019
Depreciation and amortization $ 1,264 $ 1,287 $ 1,202
% of revenues 9.1 % 11.3 % 10.8 %
The $(23) million decrease in depreciation and amortization in 2021 as compared
to 2020 was primarily due to certain intangible assets from the merger between
Quintiles and IMS Health becoming fully amortized in 2021, offset by higher
intangible asset balances as a result of acquisitions occurring in 2020 and
2021, increased amortization due to higher capitalized software balances, and
accelerated amortization related to intangibles impacted by the Company's
acquisition of Quest's non-controlling interest in Q2 Solutions.
Restructuring Costs
Year Ended December 31,
(in millions) 2021 2020 2019
Restructuring costs $ 20 $ 52 $ 75
The restructuring costs incurred were due to ongoing efforts to streamline our
global operations. The remaining actions under these plans are expected to occur
throughout 2022 and are expected to consist of consolidating functional
activities, eliminating redundant positions, and aligning resources with
customer requirements.
Interest Income and Interest Expense
Year Ended December 31,
(in millions) 2021 2020 2019
Interest income $ (6) $ (6) $ (9)
Interest expense $ 375 $ 416 $ 447 Interest income included interest received primarily from bank balances and investments.
Interest expense during 2021 was lower than 2020 due to lower interest rates attributed to lower LIBOR rates, the refinancing of our existing term A loans and the redemption of our 3.250% senior notes due 2025, which was offset by the interest expense on the issuance of our 1.750% senior notes due 2026 and 2.250% senior notes due 2029. See Note 10 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information on these transactions.
Loss on Extinguishment of Debt
Year Ended December 31,
(in millions) 2021 2020 2019
Loss on extinguishment of debt $ 26 $ 13 $ 24
During 2021, we recognized loss on extinguishment of debt of $26 million for
fees and expenses incurred related to the refinancing of our 3.250% senior notes
due 2025 and Prior Credit Agreement as discussed further in Note 10 to our
audited consolidated financial statements included elsewhere in this Annual
Report on Form 10-K.
During 2020, we recognized loss on extinguishment of debt of $13 million for
fees and expenses incurred related to the refinancing of our 3.500% senior notes
due 2024 as discussed further in Note 10 to our audited consolidated financial
statements included elsewhere in this Annual Report on Form 10-K.
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--------------------------------------------------------------------------------Other Income, Net
Year Ended December 31,
(in millions) 2021 2020 2019
Other income, net $ (130) $ (65) $ (37)
Other income, net for 2021 increased compared to 2020 primarily due to foreign
currency gain.
Income Tax Expense
Year Ended December 31,
(dollars in millions) 2021 2020 2019
Income tax expense $ 163 $ 72 $ 116
Effective income tax rate 14.5 % 19.3 % 33.0 %
In 2021, we recorded a benefit of $29 million related to a 2020 U.S. Federal tax
return position associated with Foreign Derived Intangible Income ("FDII") and
Global Intangible Low-Taxed Income ("GILTI") tax credits. Also in 2021, we
recorded a $9 million tax expense as a result of the U.S. Treasury Department
issuing final regulations on Foreign Tax Credits.
In 2020, the U.S. Treasury Department issued final regulations regarding FDII
and GILTI. We have determined we will elect the GILTI high tax exception as
allowed by the final regulations and have amended our 2018 U.S. Federal
consolidated income tax returns and plan to amend our 2019 US Federal
consolidated income tax returns resulting in a favorable impact of $26 million ,
which we recorded in 2020.
In 2019 the U.S. Treasury Department issued final regulations on the transition
tax and proposed regulations on FDII, which was introduced by the Tax Act
enacted by the U.S. government on December 22, 2017 . The Tax Act is
comprehensive legislation that includes provisions that lower the federal
corporate income tax rate from 35% to 21% beginning in 2018 and imposes a
one-time transition tax on undistributed foreign earnings. The final regulations
related to the transition tax did not have a material impact. As a result of the
proposed FDII guidance, which was subsequently finalized in 2020, we reversed
the tax benefit originally recorded in 2018 by recording a tax expense of $25
million for this impact in 2019.
Equity in Earnings (Losses) of Unconsolidated Affiliates
Year Ended December 31,
(in millions) 2021 2020 2019
Equity in earnings (losses) of unconsolidated
affiliates $ 6 $ 7 $ (9) Equity in earnings (losses) of unconsolidated affiliates remained relatively consistent in 2021 compared to 2020.
Net Income Attributable to Non-controlling Interests
Year Ended December 31,
(in millions) 2021 2020 2019
Net income attributable to non-controlling interests
Net income attributable to non-controlling interests included Quest's interest in Q2 Solutions. OnApril 1, 2021 the Company acquired the 40% non-controlling interest in Q2 Solutions from Quest which resulted in a decrease in the net income attributable to non-controlling interests in 2021 compared to 2020. See Note 13 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional details regarding this transaction. 52 --------------------------------------------------------------------------------
Segment Results of Operations
Revenues and profit by segment are as follows:
Segment Revenues Segment Profit
(in millions) 2021 2020 2019 2021 2020 2019
Technology & Analytics Solutions $ 5,534 $ 4,858 $ 4,486 $ 1,458 $ 1,216 $ 1,101
Research & Development Solutions 7,556 5,760 5,788 1,476 1,048 1,141
Contract Sales & Medical Solutions 784 741 814 75 57 52
Total 13,874 11,359 11,088 3,009 2,321 2,294
General corporate and unallocated (332) (251) (240)
Depreciation and amortization (1,264) (1,287) (1,202)
Restructuring costs (20) (52) (75)
Consolidated $ 13,874 $ 11,359 $ 11,088 $ 1,393 $ 731 $ 777
Certain costs are not allocated to our segments and are reported as general
corporate and unallocated expenses. These costs primarily consist of stock-based
compensation and expenses related to integration activities and acquisitions. We
also do not allocate depreciation and amortization or impairment charges to our
segments.
Technology & Analytics Solutions
Year Ended December 31, Change
(dollars in millions) 2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Revenues $ 5,534 $ 4,858 $ 4,486 $ 676 13.9 % $ 372 8.3 %
Costs of revenue, exclusive of
depreciation and amortization 3,278 2,900 2,663 378 13.0 237 8.9
Selling, general and
administrative expenses 798 742 722 56 7.5 20 2.8
Segment profit $ 1,458 $ 1,216 $ 1,101 $ 242 19.9 % $ 115 10.4 %
Revenues
2021 compared to 2020
Technology & Analytics Solutions' revenues were $5,534 million in 2021, an
increase of $676 million , or 13.9%, over 2020. This increase was comprised of
constant currency revenue growth of approximately $604 million , or 12.4%,
reflecting revenue growth across all regions. The revenue growth was driven by
higher technology, real-world and analytical services and COVID-19 related work.
Costs of Revenue, exclusive of Depreciation and Amortization
2021 compared to 2020
Technology & Analytics Solutions' costs of revenue, exclusive of depreciation and amortization, were$3,278 million in 2021, an increase of$378 million over 2020. This increase was comprised of constant currency increase of approximately$314 million , or 10.8%, reflecting an increase in compensation and related expenses to support revenue growth. 53 --------------------------------------------------------------------------------
Selling, General and Administrative Expenses
2021 compared to 2020
Technology & Analytics Solutions' selling, general and administrative expenses increased$56 million in 2021 as compared to 2020. This increase was comprised of a constant currency increase of approximately$42 million , or 5.7%, reflecting an increase in compensation and related expenses.
Research & Development Solutions
Year Ended December 31, Change
(dollars in millions) 2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Revenues $ 7,556 $ 5,760 $ 5,788 $ 1,796 31.2 % $ (28) (0.5) %
Costs of revenue, exclusive of
depreciation and amortization 5,303 3,974 3,936 1,329 33.4 38 1.0
Selling, general and
administrative expenses 777 738 711 39 5.3 27 3.8
Segment profit $ 1,476 $ 1,048 $ 1,141 $ 428 40.8 % $ (93) (8.2) %
Backlog
Research & Development Solutions contracted backlog increased from $22.6 billion
as of December 31, 2020 to $24.8 billion as of December 31, 2021 and we expect
approximately $7.0 billion of this backlog to convert to revenue in the next 12
months. Contracted backlog was $19.0 billion as of December 31, 2019 .
Backlog represents, at a particular point in time, future revenues from work not yet completed or performed under signed contracts. Once work begins on a project, revenues are recognized over the duration of the project.
We believe that backlog is an indicator of future revenues but the timing of revenue will be affected by a number of factors, including the variable size and duration of projects, many of which are performed over several years, cancellations, and changes to the scope of work during the course of projects. Projects that have been delayed remain in backlog, but the timing of the revenue generated may differ from the timing originally expected. Additionally, projects may be terminated or delayed by the customer or delayed by regulatory authorities. In the event that a client cancels a contract, we typically would be entitled to receive payment for all services performed up to the cancellation date and subsequent client-authorized services related to winding down the canceled project. For more details regarding risks related to our backlog, see Part I, Item IA, "Risk Factors-Risks Related to our Business-The relationship of backlog to revenues varies over time."
Revenues
2021 compared to 2020
Research & Development Solutions' revenues were$7,556 million in 2021, an increase of$1,796 million , or 31.2%, over 2020. This increase was comprised of constant currency revenue growth of approximately$1,752 million , or 30.4%, reflecting revenue growth across all regions. The revenue growth was primarily the result of volume-related increases in clinical services and lab testing, including incremental revenue from large COVID-19 vaccine clinical trials. 54 --------------------------------------------------------------------------------
Costs of Revenue, exclusive of Depreciation and Amortization
2021 compared to 2020
Research & Development Solutions' costs of revenue, exclusive of depreciation and amortization, increased$1,329 million , or 33.4%, in 2021 as compared to 2020. This increase included a constant currency increase of approximately$1,267 million , or 31.9%, reflecting an increase in compensation and related expenses as a result of volume-related increases in clinical services and lab testing.
Selling, General and Administrative Expenses
2021 compared to 2020
Research & Development Solutions' selling, general and administrative expenses increased$39 million , or 5.3%, in 2021 as compared to 2020, which included a constant currency increase of approximately$32 million , or 4.3%, reflecting an increase in compensation and related expenses.
Contract Sales & Medical Solutions
Year Ended December 31, Change
(dollars in millions) 2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Revenues $ 784 $ 741 $ 814 $ 43 5.8 % $ (73) (9.0) %
Costs of revenue, exclusive of 652 626 701 26 4.2 (75) (10.7)
depreciation and amortization Selling, general and 57 58 61 (1) (1.7) (3) administrative expenses (4.9) Segment profit$ 75 $ 57 $ 52 $ 18 31.6 % $ 5 9.6 % Revenues 2021 compared to 2020
Contract Sales & Medical Solutions' revenues were
Costs of Revenue, exclusive of Depreciation and Amortization
2021 compared to 2020
Contract Sales & Medical Solutions' costs of revenue, exclusive of depreciation and amortization, increased$26 million , or 4.2%, in 2021 as compared to 2020. This increase included a constant currency increase of approximately$25 million , or 4.0%, reflecting an increase in compensation and related expenses.
Selling, General and Administrative Expenses
2021 compared to 2020
Contract Sales & Medical Solutions' selling, general and administrative expenses decreased$(1) million , or (1.7)%, in 2021 as compared to 2020. This decrease included a constant currency decrease of approximately$(1) million , or (1.7)%, reflecting a decrease in compensation and related expenses. 55 --------------------------------------------------------------------------------
Liquidity and Capital Resources
Overview
We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Our principal source of liquidity is operating cash flows. In addition to operating cash flows, other significant factors that affect our overall management of liquidity include: capital expenditures, acquisitions, investments, debt service requirements, equity repurchases, adequacy of our revolving credit and receivables financing facilities, and access to the capital markets. We manage our worldwide cash requirements by monitoring the funds available among our subsidiaries and determining the extent to which those funds can be accessed on a cost-effective basis. The repatriation of cash balances from certain of our subsidiaries could have adverse tax consequences; however, those balances are generally available without legal restrictions to fund ordinary business operations. We have and expect to transfer cash from those subsidiaries tothe United States and to other international subsidiaries when it is cost effective to do so.
We had a cash balance of
Based on our current operating plan, we believe that our available cash and cash equivalents, future cash flows from operations and our ability to access funds under our revolving credit and receivables financing facilities will enable us to fund our operating requirements, capital expenditures, contractual obligations, and meet debt obligations for at least the next 12 months. We regularly evaluate our debt arrangements, as well as market conditions, and from time to time we may explore opportunities to modify our existing debt arrangements or pursue additional financing arrangements that could result in the issuance of new debt securities by us or our affiliates. We may use our existing cash, cash generated from operations or dispositions of assets or businesses and/or proceeds from any new financing arrangements or issuances of debt or equity securities to repay or reduce some of our outstanding obligations, to repurchase shares from our stockholders or for other purposes. As part of our ongoing business strategy, we also continually evaluate new acquisition, expansion and investment possibilities or other strategic growth opportunities, as well as potential dispositions of assets or businesses, as appropriate, including dispositions that may cause us to recognize a loss on certain assets. Should we elect to pursue any such transaction, we may seek to obtain debt or equity financing to facilitate those activities. Our ability to enter into any such potential transactions and our use of cash or proceeds is limited to varying degrees by the terms and restrictions contained in our existing debt arrangements. We cannot provide assurances that we will be able to complete any such financing arrangements or other transactions on favorable terms or at all.
Equity Repurchase Program
OnFebruary 10, 2022 the Board increased the stock repurchase authorization under the Repurchase Program with respect to the repurchase of the Company's common stock by an additional$2.0 billion , which increased the total amount that has been authorized under the Repurchase Program to$9.725 billion since the plan's inception inOctober 2013 . The Repurchase Program does not obligate the Company to repurchase any particular amount of common stock, and it may be modified, extended, suspended or discontinued at any time. As ofDecember 31, 2021 , the Company had remaining authorization to repurchase up to approximately$0.5 billion of its common stock under the Repurchase Program. TheFebruary 10, 2022 $2.0 billion increase in the stock repurchase authorization, increased the remaining authorization to repurchase common stock under the Repurchase Program up to approximately$2.5 billion . In addition, from time to time, the Company has repurchased and may continue to repurchase common stock through private or other transactions outside of the Repurchase Program. Additional information regarding the Repurchase Program is presented in Part II, Item 5 "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities " and Note 13 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Debt
As ofDecember 31, 2021 , we had$12.2 billion of total indebtedness, excluding$1.4 billion of available borrowings under our revolving credit facilities. See Note 10 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional details regarding our credit arrangements. 56 --------------------------------------------------------------------------------
Our long-term debt arrangements contain customary restrictive covenants and, as
of
Senior Secured Credit Facilities
As ofDecember 31, 2021 , the Fifth Amended and Restated Credit Agreement, as amended (the "Fifth Amended and Restated Credit Agreement") provided financing through several senior secured credit facilities (collectively, the "senior secured credit facilities") of up to approximately$7,140 million , which consisted of$5,740 million principal amounts of debt outstanding and$1,400 million of available borrowing capacity on the revolving credit facility and standby letters of credit, with a total capacity of$1,500 million . The revolving credit facility is comprised of a$675 million senior secured revolving facility available inU.S. dollars, a$600 million senior secured revolving facility available inU.S. dollars, Euros, Swiss Francs and other foreign currencies, and a$225 million senior secured revolving facility available inU.S. dollars and Yen. The term A loans and revolving credit facility under the Fifth Amended and Restated Credit Agreement mature inAugust 2026 , while the term B loans under the Fifth Amended and Restated Credit Agreement mature in 2024 and 2025. We are required to make scheduled quarterly payments on the term A loans equal to 1.25% of the original principal amount, with the remaining balance paid at maturity. In addition, beginning with fiscal year endingDecember 31, 2017 , we were required to apply 50% of excess cash flow (as defined in the Fifth Amended and Restated Credit Agreement), subject to a reduction to 25% or 0% depending upon our senior secured first lien net leverage ratio, for prepayment of the term loans, with any such prepayment to be applied toward principal payments due in subsequent quarters. We are also required to pay an annual commitment fee that ranges from 0.20% to 0.35% in respect of any unused commitments under the revolving credit facility. The senior secured credit facilities are collateralized by substantially all of our assets and the assets of our material domestic subsidiaries including 100% of the equity interests of substantially all of our material domestic subsidiaries and 66% of the equity interests of substantially all of our first-tier material foreign subsidiaries and their domestic subsidiaries. For information regarding the senior secured credit facilities, see Note 10 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Receivables Financing Facility
For information regarding receivables financing facility, see Note 10 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. As ofDecember 31, 2021 , no additional amounts of revolving loans were available under the receivables financing facility.
Years ended
Cash Flow from Operating Activities
Year Ended December 31,
(in millions) 2021 2020 2019
Net cash provided by operating activities
2021 compared to 2020 Cash provided by operating activities increased$983 million in 2021 as compared to 2020. The increase is primarily due to an increase in cash-related net income ($762 million ), an increase in advanced billings ($411 million ), a decrease in prepaid expenses and other assets ($131 million ) and the timing of income tax and other payables ($81 million ), offset by a decrease in accounts receivable and unbilled services ($393 million ) and the timing of accounts payable and accrued expenses ($9 million ).
Cash Flow from Investing Activities
Year Ended
(in millions) 2021 2020 2019
Net cash used in investing activities $ (2,103) $ (796) $ (1,190)
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2021 compared to 2020
Cash used in investing activities increased$1,307 million in 2021 as compared to 2020. The increase was primarily driven by more cash used for the acquisition of businesses, net of cash acquired ($1,281 million ), acquisitions of property, equipment, and software ($24 million ), lower net payments received from unconsolidated affiliates ($15 million ) and an increase in purchase of marketable securities ($1 million ), offset by an increase in net proceeds from sale of equity securities ($7 million ), and other ($7 million ).
Cash Flow from Financing Activities
Year Ended December 31,
(in millions) 2021 2020 2019
Net cash used in financing activities
2021 compared to 2020 Cash used in financing activities increased$1,018 million in 2021 as compared to 2020, primarily due to an increase in debt payments ($1,227 million ), cash payments for the Company's acquisition of Quest's non-controlling interest in Q2 Solutions ($758 million ), an increase in cash payments on contingent consideration and deferred purchase price accruals ($20 million ) and an increase in cash payments related to employee stock option plans ($15 million ), offset by a decrease in cash used in repayments of revolving credit facilities, net of proceeds ($595 million ), a decrease in cash used to repurchase common stock ($41 million ), an increase in cash provided by proceeds from debt issuances, net of payment of debt issuance costs ($353 million ) and a decrease in cash distributions to non-controlling interests ($13 million ).
Contingencies
We are exposed to certain known contingencies that are material to our investors. The facts and circumstances surrounding these contingencies and a discussion of their effect on us are in Note 12 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. These contingencies may have a material effect on our liquidity, capital resources or results of operations. In addition, even where our reserves are adequate, the incurrence of any of these liabilities may have a material effect on our liquidity and the amount of cash available to us for other purposes. We believe that we have made appropriate arrangements in respect of the future effect on us of these known contingencies. We also believe that the amount of cash available to us from our operations, together with cash from financing, will be sufficient for us to pay any known contingencies as they become due without materially affecting our ability to conduct our operations and invest in the growth of our business.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements.
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--------------------------------------------------------------------------------Contractual Obligations and Commitments
Below is a summary of our future payment commitments by year under contractual
obligations as of
(in millions) 2022 2023-2024 2025-2026 Thereafter Total
Long-term debt, including interest(1)
$ 6,207 $ 3,883 $ 13,537 Operating leases 143 200 103 48 494 Finance leases 10 20 20 201 251 Data acquisition 657 619 265 2 1,543 Purchase obligations(2) 13 8 3 1 25 Commitments to unconsolidated affiliates(3) - - - - - Benefit obligations(4) 33 28 33 81 175 Uncertain income tax positions(5) 21 25 12 2 60 Total$ 1,271 $ 3,953 $ 6,643 $ 4,218 $ 16,085 (1) Interest payments on our debt are based on the interest rates in effect onDecember 31, 2021 . (2) Purchase obligations are defined as agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable pricing provisions and the approximate timing of the transactions. (3) We are currently committed to invest$139 million in private equity funds. As ofDecember 31, 2021 , we have funded approximately$91 million of these commitments and we have approximately$48 million remaining to be funded which has not been included in the above table as we are unable to predict when these commitments will be paid. (4) Amounts represent expected future benefit payments for our pension and postretirement benefit plans, as well as expected contributions for 2022 for our funded pension benefit plans. We made cash contributions totaling approximately$29 million to our defined benefit plans in 2021, and we estimate that we will make contributions totaling approximately$33 million to our defined benefit plans in 2022. Due to the potential impact of future plan investment performance, changes in interest rates, changes in other economic and demographic assumptions and changes in legislation in foreign jurisdictions, we are not able to reasonably estimate the timing and amount of contributions that may be required to fund our defined benefit plans for periods beyond 2022. (5) As ofDecember 31, 2021 , our liability related to uncertain income tax positions was approximately$131 million ,$71 million of which has not been included in the above table as we are unable to predict when these liabilities will be paid due to the uncertainties in the timing of the settlement of the income tax positions.
Application of Critical Accounting Policies and Estimates
Note 1 to the audited consolidated financial statements provided elsewhere in this Annual Report on Form 10-K describes the significant accounting policies used in the preparation of the consolidated financial statements. The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the period. Our estimates are based on historical experience and various other assumptions we believe are reasonable under the circumstances. We evaluate our estimates on an ongoing basis and make changes to the estimates and related disclosures as experience develops or new information becomes known. Actual results may differ from those estimates.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
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--------------------------------------------------------------------------------Revenue Recognition
The majority of the Company's contracts within the Research & Development Solutions segment are service contracts for clinical research that represent a single performance obligation. The Company provides a significant integration service resulting in a combined output, which is clinical trial data that meets the relevant regulatory standards and can be used by the customer to progress to the next phase of a clinical trial or solicit approval of a treatment by the applicable regulatory body. The performance obligation is satisfied over time as the output is captured in data and documentation that is available for the customer to consume over the course of the arrangement and furthers progress of the clinical trial. The Company recognizes revenue over time using a cost-based input method since there is no single output measure that would fairly depict the transfer of control over the life of the performance obligation. Progress on the performance obligation is measured by the proportion of actual costs incurred to the total costs expected to complete the contract. Costs included in the measure of progress include direct labor and third-party costs (such as payments to investigators and other pass through expenses for the Company's clinical monitors). This cost-based method of revenue recognition requires the Company to make estimates of costs to complete its projects on an ongoing basis. Significant judgment is required to evaluate assumptions related to these estimates. The effect of revisions to estimates related to the transaction price or costs to complete a project are recorded in the period in which the estimate is revised. Most contracts may be terminated upon 30 to 90 days notice by the customer; however, in the event of termination, most contracts require payment for services rendered through the date of termination, as well as for subsequent services rendered to close out the contract.
Income Taxes
The provision for income taxes includes federal, state, local and foreign taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences between the financial statement carrying amounts and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be recovered or settled. We recordU.S. deferred taxes based on the Federal corporate income tax rate of 21%, We account for tax related to GILTI as a period cost when incurred. Recognition of deferred income tax assets is based on management's belief that it is more likely than not that the income tax benefit associated with certain temporary differences, income tax operating loss, capital loss carryforwards, and income tax credits, would be realized. We recorded a valuation allowance to reduce our deferred income tax assets for those deferred income tax items for which it was more likely than not that realization would not occur. We determined the amount of the valuation allowance based, in part, on our assessment of future taxable income and in light of our ongoing income tax strategies. If our estimate of future taxable income or tax strategies changes at any time in the future, we would record an adjustment to our valuation allowance. Recording such an adjustment could have a material effect on our financial condition or results of operations. Income tax expense is based on the distribution of profit before income tax among the various taxing jurisdictions in which we operate, adjusted as required by the income tax laws of each taxing jurisdiction. Changes in the distribution of profits and losses among taxing jurisdictions may have a significant impact on our effective income tax rate. We do not consider the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested outside ofthe United States .
Business Combinations and
We use the acquisition method to account for business combinations, and accordingly, the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree are recorded at their estimated fair values on the date of the acquisition. We use significant judgments, estimates and assumptions in determining the estimated fair value of assets acquired, liabilities assumed and non-controlling interest including expected future cash flows and discount rates that reflect the risk associated with the expected future cash flows and estimated useful lives. We have recorded and allocated to our reporting units the excess of the purchase price over the fair value of the net assets acquired, known as goodwill. The recoverability of goodwill is evaluated annually for impairment, or if and when events or circumstances indicate a possible impairment. We perform our annual goodwill impairment evaluation as ofJuly 31 . The impairment analysis requires significant judgments, estimates and assumptions, including those related to macroeconomic conditions, industry and market considerations, cost factors, financial performance, fair value history and other company specific events. For the years endedDecember 31, 2021 , 2020 and 2019, the Company determined that there was no impairment of goodwill. We review the carrying values of other identifiable intangible assets if the facts and circumstances indicate a possible impairment. Any future impairment could have a material adverse effect on our financial condition or results of operations. 60 --------------------------------------------------------------------------------
Stock-based Compensation
We measure compensation cost for stock-based payment awards (stock options and stock appreciation rights) granted to employees and non-employee directors at fair value using the Black-Scholes-Merton option-pricing model. Stock-based compensation expense includes stock-based awards granted to employees and non-employee directors and has been reported in selling, general and administrative expenses in our consolidated statements of income based upon the classification of the individuals who were granted stock-based awards. The Black-Scholes-Merton option-pricing model requires the use of subjective assumptions, including share price volatility, the expected life of the award, risk-free interest rate and the fair value of the underlying common shares on the date of grant. In developing our assumptions, we take into account the following: •We calculate expected volatility based on reported data for selected reasonably similar publicly traded companies for which the historical information is available. We plan to continue to use the guideline peer group volatility information until the historical volatility of our common shares is relevant to measure expected volatility for future award grants;
•We determine the risk-free interest rate by reference to implied yields available from United States Treasury securities with a remaining term equal to the expected life assumed at the date of grant;
•We estimate the dividend yield to be zero as we do not currently anticipate paying any future dividends;
•We estimate the average expected life of the award based on our historical experience; and
•We estimate forfeitures based on our historical analysis of actual forfeitures.
The Company accounts for its stock-based compensation for performance awards based on the closing market price of the Company's common stock on the date of grant, and for performance awards that include market conditions based upon the Monte Carlo simulation model. The Company records the expense amount of these awards based on its estimates of the likelihood that the various performance targets will be achieved. The estimates are assessed on a quarterly basis.
Pensions and Other Postretirement Benefits
We provide retirement benefits to certain employees, including defined benefit pension plans and postretirement medical plans. The determination of benefit obligations and expense is based on actuarial models. In order to measure benefit costs and obligations using these models, critical assumptions are made with regard to the discount rate, expected return on plan assets, cash balance crediting rate, lump sum conversion rate and the assumed rate of compensation increases. In addition, retiree medical care cost trend rates are a key assumption used exclusively in determining costs for our postretirement health care and life insurance benefit plans.
Recently Issued Accounting Standards
Information relating to recently issued accounting standards is included in Note 1 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
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