Ladies and gentlemen, thank you for standing by, and welcome to the IQVIA Third Quarter 2018 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. As a reminder, this conference is being recorded, Monday, October 22, 2018. I would now like to turn the conference over to Andrew Markwick, Vice President, Investor Relations. Please go ahead.

Thank you, Jenifer. Good morning, everyone. Thank you for joining our third quarter 2018 earnings call. With me today are Ari Bousbib, Chairman and Chief Executive Officer; Michael McDonnell, Executive Vice President and Chief Financial Officer; Eric Sherbet, Executive Vice President and General Counsel; and Nick Childs, Senior Vice President, Financial Planning and Analysis. 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 the call on the Events & 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 Company’s business, including the impact of the changes to the revenue recognition accounting standards which is 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 as 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.

Thanks, Andrew, and good morning everyone. Thank you for joining our third quarter 2018 earnings call. I’m pleased to report that Q3 was another quarter of strong financial performance. And once again, we report results at the high end or above our guidance ranges. To review the numbers, our third quarter revenue of $2,594 million came in at the high end of our guidance range and thus despite the headwinds from FX of approximately $10 million. Revenue growth was 6.3% at constant currency. Technology & Analytics Solutions revenue was strong despite the traditional Q3 demand softness on the commercial side of the business. Constant currency Technology & Analytics Solutions revenue growth was 15% in the third quarter. And again consistent with the first and second quarter, organic constant currency growth was about 4%. I think actually year-to-date constant currency organic growth rate on Technology & Analytics Solutions was over 4%. R&D Solutions revenue grew 3.5% at constant currency. Early in the third quarter, we marked the anniversary of all acquired R&D businesses, and therefore, this growth is organic. As you know, we experienced some quarterly lumpiness associated with the timing of revenue recognition and pass-through under ASC 606. In fact, pass-through this quarter crossed several hundred basis points of R&D growth. As expected, third quarter Contract Sales & Medical Solutions growth was down about 12% at constant currency. Switching to profit. Adjusted EBITDA of $561 million was above our guidance range, and it grew 8.4% at constant currency. Third quarter adjusted income margin expanded 80 basis points reported and 40 basis points at constant currency, reflecting the continued impact of our synergy realization and cost-containment initiatives. Let’s look a bit at our year-to-date margin expansion. Year-to-date revenue conversion contributed a 120 basis points of margin expansion and all cost take…

Thank you, Ari, and good morning, everyone. As Ari mentioned, we reported strong third quarter financials. Let’s reviews the results. Third quarter revenue of $2,594 million grew 6.3% at constant currency and 5.2% reported. Year-to-date, revenue was $7,724 million, grew 6.4% at constant currency and 7.6% reported. Third-quarter Technology & Analytics Solutions revenue of $1,014 million grew 15% at constant currency and 12.9% reported. Technology & Analytics Solutions year-to-date revenue of 3,010 million grew 12.5% at constant currency and 13.8% reported. Year-to-date Technology & Analytics Solutions organic revenue was over 4% at constant currency. R&D Solutions revenue of $1,382 million grew 3.5% at constant currency and 3.1% at actual FX rates. Year-to-date, R&D Solutions revenue of $4,097 million grew 5.8% at constant currency and 6.8% at actual FX rates. Year-to-date, R&D Solutions organic revenue growth was about 4.5% at constant currency. Contract Sales & Medical Solutions revenue of $198 million, declined 11.9% at constant currency and 12.8% reported. Contract Sales & Medical Solutions year-to-date revenue of $617 million declined 13.3% at constant currency and 11.7% at actual FX rates. Now, moving down the P&L. Third quarter adjusted EBITDA of $561 million grew 8.4% at constant currency and 9.4% reported. Year-to-date adjusted EBITDA grew 10% at constant currency and 10.6% reported, resulting in adjusted EBITDA year-to-date margin expansion of 70 basis points at constant currency and 60 basis points reported. Third quarter GAAP net income was $60 million and GAAP diluted earnings per share was $0.29. Adjusted net income of $294 million grew 13.1% in the third quarter. Growth was primarily driven by stronger adjusted EBITDA and tax efficiencies, partially offset by higher interest expense. Third quarter adjusted diluted earnings per share of the $1.42 grew 19.3%. Year-over-year growth was driven by higher adjusted net income, which I just discussed, as…

[Operator Instructions] Our first question comes from the line of Robert Jones with Goldman Sachs. Please proceed with your question.

Great. Thanks for the questions, Ari and Mike. I guess, just -- I appreciate the perspective, Mike, on FX. And, I know you are not in a position, as you mentioned, to give guidance on ‘19. But, I wanted to just ask a question on the R&D segment specifically. You sit here today on a trailing book-to-bill of 1.38. Conversion rates have been fairly steady, ticked down a little bit this quarter for you guys. So, I just was hoping maybe you could share some perspectives on when we should start to think about the top line accelerating more commensurate to the levels of the type of bookings growth that you guys have been experiencing?

Maybe I’ll say a couple of words and Mike can feel free to chip in. Look Bob, we’d like to see this today, but it’s a long cycle business. We always said, since the time of the merger that we would begin to see the benefits of the merger on our top line, exiting third year after the merger. That’s not going to be before the end of ‘19, and we are sticking to that plan and target. Now, having said that, you are correct we are actually doing probably better than we expected in terms of our market share gains and bookings, perhaps a little than we had anticipated. But, I do want to remind you that today -- and we are going to have these for the next quarter or two, we are executing backlog that was sold -- booked before the merger. And you may want to have some perspective and recall that in some quarters before the merger, we actually had book-to-bill ratios that were below 1. And so, we are in a sense fighting that adverse effect of bookings and have been at least above 1, and maybe we would start to see some growth accelerating earlier than the end of ‘19. But again, we are delivering growth in our R&D, despite these backlog issues prior to the merger. We are delivering growth that I think better than all of us were expecting. Year-to-date, what’s our R&D growth…

Year-to-date organic? About 4.5%...

Overall…

The only thing I would add as well, as since [ph] we’ve moved to the new accounting standard on 606, this is our first year of implementing, and we recast last year. We are seeing some lumpiness as we go through the year that I think -- and Ari mentioned in the remarks, Under 605, we would have been several hundred basis points higher. We got to translate this through to the new accounting standard as well.

Right. If you add -- again, pass-throughs are pretty much where we thought they would be. They’re kind of flattish year-over-year, and that’s creating a headwind to our growth of several basis points, consistently we had since the beginning of the year.

And then, I guess, Ari, just one quick follow-up. I know you usually share a little bit in the prepared remarks on the sources of bookings, obviously another big quarter as you mentioned o wins for you guys on the R&D segment. So, I was hoping maybe you could give us a little bit on the sources of the strength big pharma versus emerging biotech, and maybe if there is any individual single outsized wins in the quarter that really helped bolster that bookings number?

Yes. I have got some numbers here. Thanks for the question. Year-to-date, if you look at gross new bookings in the EBP segment, which continues to be very, very strong frankly in the marketplace and for us in particular. As you know we put renewed emphasis on the go-to-market in EBP since after the merger. Year-to-date, we have 73% or 75%...

Year-to-date 78%.

78%, right, so almost 80%, in the quarter -- actually the growth, I am even afraid of mentioning the number, but it’s just under 90% growth in the third quarter for EBP, our gross new bookings. So, again, I think, I mentioned that year-to-year -- I didn’t mention this. On a year-to-date basis, gross new business award, which probably is a best way to look at market share, this is awards, not contracted and this is on a gross basis, they grew year-to-date 30% in aggregate. So, again, very, very strong, but again, a big, big piece comes from the growth in EBP. So, yes, thank you very much.

Our next question comes from the line from Ross Muken with Evercore ISI. Please proceed with your question.

So, I wanted to go back on the technology business. Obviously, you had the phenomenal Roche announcement. It seems like that will give you more sort of selling cloud in the universe and obviously you talked about competitive win. Just help us paint a picture for where we are in that process and how this sort of competitive sell-through is going. Obviously, you have the very dominant market position already and now you’re selling in new technology capability. So, to see someone like Roche take everything on, obviously quite impressive. Do you think there will be more things like that? Do you think it’s going to help you on singular replacement? Just give us a little bit of flavor for how you are going to use that as a means of trying to push others in industry in the similar direction?

Thanks for the question. Look, I want to answer the question more from a strategic standpoint. If you look at what we’ve been doing, and this was true before the merger of IMS and certainly has continued and accelerated since the merger of IQVIA, a very significant area for investments for us is to embed data analytics and technology in everything we do. And the reason I believe this is very important to understand is, look, we don’t want to be in commoditized businesses. We want to add value to our customers. We want to the sell based on outcomes and value and on performance. We want to embed strong intellectual property in everything we do and build long, sustainable partnerships with our clients well into the future, and gain a bigger share of their spend. To step back, our pharma clients spend globally spent well over $200 billion in the type of stuff that we offer. We are the largest provider of these services by far across the board at over $10 billion of revenue a year versus our competitors in any of the segments that we compete in. And so, even we are the largest in any of these businesses, that still represents less than 5% market share of the total spend. There is no one in the world of pharma that doesn’t buy something from us. So, we already are present, as you say, in all of these clients. And we have a great commercial footprint that we can continue to leverage and try to gain share of that spend. That’s our strategy. And technology is front and center of the core of these. So, with respect to the segment -- narrow segment of CRM, and as we redefined it, OCE, our strategy has been to integrate…

Thank you. Our next question comes from the line of Erin Wright with Credit Suisse. Please proceed with your question.

How should we be thinking about the quarterly progression at some of the incremental expenses associated with some of the near-term investments? You called out in IT [ph] systems and other initiatives in the prepared remarks. And more broadly, where do we stand now in terms of those underlying cost savings or integrations synergy targets?

In terms of margins, you are right. I mean, all the things I just mentioned, don’t come for free, certainly Next-Gen capabilities build-up continues to be a headwind because we continue to hire in a tight market, very expensive, highly qualified data scientist. It’s probably the single most sought out after skill set. Everyone wants to be in artificial intelligence and predictive analysis and machine learning, and that’s what we are all about. We’ve been talking about this long before. It’s become a buzzword. We continue to invest in this area. We continue to invest in our technology suite and development program with Salesforce, as I discussed; and of course the implementation. I mean look, the first year of implementing large deployment, like the one with Roche is not profitable endeavor for us. So, these clearly are headwinds, but we are committed to continue to deliver margin expansion. Obviously, as we deploy in the years ahead these technologies and there is a less of that headwind, then obviously, margins should continue to creep at a much faster speed than they are. If you eliminate -- that’s why I wanted to share with you the year-to-date margin expansion at constant currency, you can see that absent the headwinds, we have expanded margins a lot more. There’s a revenue drop through of course form accelerating growth and then there is all the cost containment and the integration synergies which we are very on track to deliver. I think we are a little ahead probably on the cost target. You will remember we had $200 million of cost takeout everything else being the same on the base line we had at the time of the merger. And we said this would be fully there, exiting ‘19, and therefore, you will get all the benefit in ‘20. However, I think we are seeing an acceleration of that and we are very much probably I would say Andrew and Mike, correct me if I am wrong, how much of the $200 million have been executed, probably I would say two-thirds. Yes. We are in the two-thirds, 70% exiting ‘18; we will be 70% in and that comes in, in the ‘19 numbers already with the last 30% continuing so far. That’s what is for the integration.

And just quick one on the fixed price model. What percentage of new business I guess are you applying that as it stands today?

Fixed price? Let’s see. I have got the numbers here for you. On the Next-Gen awards, this is in the quarter or year-to-date? Overall, yes, yes. I think about 50% approximately of everything that we have been awarded to-date, so I said before it’s almost $3 billion since the merger, about 50% is on the fixed price. Sometimes it’s not all fixed price, but let’s say, call it fixed price of this $3 billion. And if you look across R&D bookings, all included, going forward, what we are trying to -- what we are trying to -- what we’re seeing here based on the numbers we are looking at here going forward, I would say about a third of all of our bookings will have either all fixed price or some significant portion that’s on a fixed price basis, about a third, all inclusive, not just this.

Our next question comes from the line of John Kreger with William Blair. Please proceed with your question.

Ari, just to go back to your comments about the OCT suite of clinical products, can you give us a sense about timing? When do you expect to roll those out to the market?

Well, look, we already are in the market, again sending point solutions. You are familiar with [indiscernible] and we also actually sold a couple of small pilot trials on the virtual trial front. We also sold some very nice work on the compliance side to few large top five European pharma companies. But, look, it’s going to take a little bit of time to develop. The program really calls for later in ‘19 to have our first fully integrated clinical trial technology suite.

And then, maybe, Mike, you could maybe take this one. I think the last three quarters you’ve talked about next 12-month expected backlog to revenue conversion of about $4.6 billion. Can you just talk a little bit about what are the puts and takes that’s kind of kept that number pretty stable despite the much stronger net awards that you have reported of late?

Yes. I want to remind you that the FX comments that we made on this, Bob, we lost about $35 million to FX for the balance of ‘18 from a revenue perspective. And as I mentioned in the prepared remarks, there’s about $125 million of a headwind that we see, based on current rates in 2019. So, that goes right to that metric. At the time that we recasted our opening backlog, it was about $4.5 billion that progressed to $4.6 billion. I would note that we are seeing some very good success with Next-Gen as we talked about it, but that also shifts the mix to some more complex businesses. And we have probably a larger mix of historically slower burning projects, as a result of having more complex trials that will take a little longer to complete. So, I think overall, there is some rounding in the FX is really the primary thing that I would point to on that metric.

Yes. I had the same situation. Unfortunately we’re using -- I assume that we’ll have the effect on -- I don’t remember here, but I don’t see the number here. But, this $4.6 billion over the next 12 months should be quite -- could be higher, right, if we haven’t had…

Without the FX.

Right. So, that’s -- a big portion of the $125 million that we talked about the headwind next year is actually in R&D. And again, I think that also the 2016 weak booking is also reflection of that. There were some of them which we’re again executing. This is why it’s around. But, remember, when we book a $1 today, it does translate into maybe $0.09 or $0.10 of revenue the following year and then it ramps up further $0.25 to $0.30. So, really ‘18, ‘19 is when we are seeing revenue from the bookings in ‘16, which I’ll remind you were not that special. So, that’s part of it, and it’s the mix as well. As more complex projects, which we -- more specialty stuff, where most of the Next-Gen capabilities apply, so it takes a little bit of time to run this up. But, it’s a mix issue as well. So, it’s a bunch of mix and match. But, I agree with you, I would like to this number tick up. And we would have ended up significantly, absent the FX.

Our next question comes from the line of Eric Coldwell with Baird. Please proceed with your question.

Thanks very much and good morning. I had a -- I think a couple of people have asked around my topic. But, I hate to be very client specific. But, since you do having named Pharma account with OCE, I’m hoping you can give us a little more sense on sizing, timing, cost impact. I think, Ari, you might have suggested that that will not be a profitable endeavor in year one, as you obviously want to spend a lot of money to rank that account up and do it the right way, that would be a good benchmark for future big pharma wins. But if we could get any kind of financial details or timing details around that OCE win would be very helpful.

So, I would love -- that’s a good question, Eric. To be honest with you, I would love to give you the number, but we’re not authorized to share that number. And it’s a large deal. We shared the number of…

We did 14,000...

Yes. It’s 14,000 seats, which is pretty large by CRM standards in contract, in over 100 countries. So, if you try to figure out what -- and again, it includes also a lot of other stuff. It’s not just CRM; I mentioned promo and so on, and yes, management. So, it’s a large contract. Okay. I mean, I think the numbers for license proceeds, this is a software business model, as you know, there is some implementation upfront on a front number. But then, it’s on the software basis. And the deal is -- we mentioned how many years? It’s 5 years, I don’t remember.

Yes. The contract can be three to five years. These kind of deals are very sticky.

Right. And again, you can probably derive some kind of range, but it’s a large deal. It’s larger that what my collogues at the legacy Quintiles organization would call an elephant trial. So, it’s a large number. So, more importantly, look, I mean, the market has been dominated largely by one company and that company probably has 80%, 90% share of large pharma clients. We only launched OCE in December. And we have not so much revenue here. So, we see a great market opportunity. It’s large segment, people say it about $2 billion. There is a large pharma renewal cycle that takes place over the 12 to 18 months. So, we think fair shot at claiming a non-insignificant share of the market because we strongly believe we have a superior solution.

If I could shift gears and just quickly ask on contract sales and medical solutions. Obviously, it’s not a focal point for IQVIA, and it’s not an area where I think your investor base overly concerned. But, I would be interested in getting the market update. What you are hearing in the market, what you are seeing in the market, where the bookings in that segment -- I know you don’t report them per se, but what does the bookings profile look like, when do you expect that growth to perhaps stabilize or even turn around a bit?

Yes. So, I can’t speak to bookings or to the market in general. But I can tell you that it’s not that it’s not the priority, it’s a smaller part of the business. But, since we pulled this out of the market, as you know, we were -- our first goal around was to try to divest. And we decided that we are going to retain it for now. And we have actually put a lot of emphasis from a managerial standpoint, over the past few months, in turning around this business. Now, we are now executing whatever was told before. But, I think we are -- let me put it this way. I am challenging the team to turn this trend around. I don’t want to see any red next year. And hopefully, we will turn this right. As we said, it’s early because we are in the mid of the planning cycle. But hopefully, I am looking forward to putting a marker for ‘19. That’s a bit more positive I can put it this way, than what you’ve seen to-date, over the past few years, in that business. And of course, we are of course trying to drive cost down and take it to market in a more accelerated fashion. So, that’s what I can share now. So, yes, I have good hopes and I am certainly targeting better performance in ‘19.

Thank you. Our next question comes from the line of Daniel Brennan with UBS.

Ari and Mike, just a few questions on Next-Gen. So, of your existing CRO customer base, how many have been pitched Next-Gen to-date and quickly can you roll out Next-Gen to the clients that haven’t seen it? And then, just one more part to this, in terms of the wins you’ve seen. How much -- how many of these wins are coming from existing customers versus share gains from new customers adopting?

Well, look, I’ve got a lot of data on Next-Gen, because as you can imagine, we spend a lot of time on this. As I’ve said many times, what we did -- we wanted to prove this out. Right? So, to start to our existing clients, it would have been very hard to know whether we would have won anyway because we have got good relationships and so on so forth. So, we wanted to really go after, so called locked out accounts and tried to win with clients who are not our clients. Clients who had been working this industry for a long time, for too long, and I’m only speaking about large pharma now. The function very much, I hate to say this, these lawyers and the rules, but like somewhat of a duopoly. [Ph] People, the market stabilized in a sense with -- this large pharma works with these two or three CROs; this pharma works -- and that’s because they are dealing with this industry like a commodity type of service and they can’t go out and have an RFP to hundreds CROs and have a hundreds features and shows from these CROs. They need to work with two or three to keep everybody honest. And they peak based on relationships and what have you. And we came to disrupt this model. We want to go after the entire market. We don’t want to just work with our three buddies, large pharma. We want to work with everybody, we want -- because we want to compete on value and superior technology. And we want to bring differentiated value to the market. So, therefore, it was a little harder at the beginning because we had a higher ramp. But the good news is, we have won with…

Yes. Let’s take another question, please, operator.

Our next question comes from the line of Derik de Bruin with Bank of America. Please proceed with your question.

This is Juan Avendano for Derik. My question is, at your last Analyst Day, you communicated a net leverage target ratio of 4 to 4.5 times. Given recent developments in the interest rate environment, do you still see this relatively high net leverage as appropriate for the Company?

Yes. This is Mike speaking. I would say, absolutely, you may have seen that we ended the quarter, net debt at about 4.5 times. So, we’re very comfortable at that level. We have a very good high visibility business with R&D, typically the better part of 80% of the expected revenue in years sitting in backlog. We have a subscription business, data and lot of the tech business; we just have very good cash flow visibility, only about 4% CapEx intensity. We’ve moved our maturities out to 2023 and beyond. And importantly, we fixed a lot of our debt. So, to your question about rates and potential increases, when you look at our elements of fixed debt and consider the swaps that we put in place and other protections that we have in the way of floors and caps and so forth, you get to remember that’s about 75% or little higher of our debt that’s effectively fixed. So, I think we’re sitting right in the sweet spot of a logical leverage level we’re very comfortable with it.

With our average…

And our average cost of debt is running at about 3.8%. So, we’ve got very -- and after-tax probably closer to 3%. So, it’s a very comfortable level for us.

And what about our maturities?

Yes. Our maturities, there is nothing significant really until 2024.

Thank you. And a quick follow-up on the R&D Solutions segment. Much of your focus has been on data-driven strategies around patient recruitment. But perhaps, if you could -- aside from data and analytics, can you tell us a little bit more your clinical research site strategy? Perhaps, how many sites, you have relationships with, how many of those sites you own, and how your site network strategy fits in your overall patient recruitment strategy?

Yes. I think we have that -- look, we run almost a 1,000 clinical trials -- full clinical trials and a few hundred more where we are involved not necessarily as full clinical but provided resources. I don’t have those numbers here. But, I’m sure we can provide you with the number of sites we work with. And of course we have strategy, that’s a classical way we do business with all of our competitors. I just don’t have those numbers right here. I’m sure you can follow up. Andrew will be happy to provide you with these numbers.

Thanks very much. I think, we can end the call please, operator. We will be available for the rest of day to take follow-up questions from anyone if they have questions following the call. And we look forward to speaking to everyone again on our fourth quarter 2018 earnings call.

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you kindly disconnect your lines.