Earnings Call Transcript - IQV Q4 2021

Operator, Operator

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the IQVIA Fourth Quarter 2021 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. As a reminder, this call is being recorded. Thank you. I would now like to turn the call over to Nick Childs, Senior Vice President, Investor Relations and Corporate Communications. Mr. Childs, you may begin your conference.

Nick Childs, Senior Vice President, Investor Relations

Thank you and good morning everyone. Thank you for joining our fourth quarter 2021 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 Bryan Stengel, Associate Director, Investor Relations. Today, we will be referencing a presentation that will be visible during this call for those of you on our webcast. This presentation will also be available following this call in the events and presentations section of our IQVIA Investor Relations website. 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 will 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.

Ari Bousbib, Chairman and Chief Executive Officer

Thank you, Nick and good morning everyone. Thank you for joining today for our fourth quarter results. It was great to see many of you in person at our Analyst and Investor Conference in November. And as you will recall, we shared our expectations that we would meet or exceed our three-year Vision 2022 targets. We also laid out our plans to make 2022 yet another inflection point in our growth trajectory and further accelerate the company's growth rate in the next three-year phase of our journey to 2025. The team highlighted the power of connected intelligence, which brings together IQVIA differentiated capabilities and drives our leadership position in the clinical and commercial markets. This underpins our new 20 x 2025 strategy, which alludes to our plans to achieve at least $20 billion of revenue by 2025. We're excited about this next phase of growth for IQVIA, and we are busy refining our strategies and action plans, and you will hear more about it as the year progresses. Two weeks ago, IQVIA was named to Fortune's list of the World's Most Admired Companies for the fifth consecutive year. Importantly, we earned a first place ranking within the health care, pharmacy and other services category for the first time. We ranked number one in the categories of innovation, capital deployment, global competitiveness, quality of product and services, and long-term investment value. I want to thank our nearly 80,000 employees worldwide for this recognition, which is a tribute to their innovation and drive. Turning now to our results. We ended 2021 on a high note, despite COVID-19's continued impact on many parts of the world. We delivered robust top and bottom line growth in the quarter, which, as you know, was against a much tougher year-over-year comparison than earlier in the year. These results reinforce our confidence that we will achieve our 2022 guidance. And, of course, it sets us up well to meet our ambitious 2025 targets. Let's review the fourth quarter. Revenue for the fourth quarter grew 10.2% on a reported basis and 11.6% at constant currency. The $62 million beat above the midpoint of our guidance range was driven by stronger operational performance across all three segments as well as higher pass-throughs, partially offset by FX headwinds. Compared to prior year and excluding COVID-related work, our core businesses, meaning R&DS and TAS, grew mid-teens at constant currency on an organic basis. Ron will provide a lot more detail in his remarks, including additional COVID adjusted numbers for each segment. Fourth quarter adjusted EBITDA grew 12.7%, reflecting our revenue growth as well as ongoing productivity initiatives. The $27 million beat above the midpoint of our guidance range was entirely due to our operational performance. Fourth quarter adjusted diluted EPS of $2.55 grew 20.9%. That was $0.13 above the midpoint of our guidance, with the majority of the beat coming from the adjusted EBITDA drop-through. Let me now provide an update on the business. On the commercial side of the business, it was a strong year for new molecules and launches as the industry continued its recovery from the COVID-19 pandemic disruption. This year, 50 new molecules were approved by the FDA and 72 new commercial launches took place. IQVIA supported nearly 80% of launches by top 20 pharma and approximately 60% of all launches. This highlights our scale globally and across all customer segments in applying advanced technology and analytics capabilities to enhance launch planning, engagement and measurement. Overall, we've seen significant momentum and continued demand for our technology solutions. There are now over 3,000 clients who have adopted one or more of our technology platforms, including human data science cloud, orchestrated analytics, E360, Omnichannel Navigator, Engage and of course, Orchestrated Customer Engagement, or OCE. In fact, the footprint of our OCE platform itself has continued to grow, with over 350 clients having adopted one or more modules on the platform since launch. Early in 2021, we launched IQVIA Next Best Action, which is an AI-driven omni-channel customer engagement decision engine. Two top 20 pharma clients have successfully rolled out this intelligence engine to orchestrate customer engagements in over 30 countries and across more than 40 brands each. Two other top 20 pharmas are currently in the implementation phase. Another highlight in our TAS business has been the success of DMD Marketing Solutions, a leading provider of data and digital marketing solutions that help brands deliver personalized digital content to healthcare professionals. In the quarter, we entered into an enterprise agreement with a top 10 pharma client to utilize DMD's advanced analytic capabilities to power omnichannel engagement across all eight of their brand franchises. To date, 18 of the top 20 have adopted at least one of DMD solutions. We're very excited for the future growth of this business within IQVIA. Real-world evidence and other highlights of the year, IQVIA continues to play a leading role in the use of secondary data to answer key questions for life science customers. In the fourth quarter, we won two large post-authorization safety studies in an autoimmune area with a top 10 pharma. These studies use existing healthcare data to observe patients over a period of 10 years to better understand long-term effects of the treatment. We were also recently awarded a disease registry project for an upcoming novel gene therapy. Here, we will recruit a broad population of patients with a specific disease to understand how they are currently managed in clinical practice. This information is vital to our life science sponsors to inform the design of subsequent clinical trials so they can target patient groups with the highest unmet need. Moving to clinical technology. We saw increased adoption of our Orchestrated Clinical Trials, OCT platform, which supports trial planning, site management, patient engagement, trial management and clinical data analytics. During the year, we added 90 new OCT clients, bringing the total to over 350 clients who have adopted one or more modules within our clinical technology suite since launch, including all of the top 10 and 18 of the top 20. Within OCT's digital patient suite this year, we secured three preferred provider partnerships with top 30 pharmaceutical clients to provide our interactive response technology capabilities to support site operations across their entire clinical trial portfolios. This technology facilitates patient randomization to ensure protocol adherence and streamline site supply chain management to reduce drug wastage and drive significant cost reductions. Our solution was awarded a top-ranking by industry leaders in a recent ISR report for randomization and chart supply management capabilities. We also saw increased demand for our industry-leading decentralized clinical trial offering. Approximately one-third of our active full-service clinical trials incorporate one or more of our DCT technology or services capabilities, and we expect this to continue to grow as the need for these capabilities in complex studies becomes more evident. For example, we are currently executing a full-service trial for treatment of multiple system atrophy, a severe degenerative neurological disorder affecting the body's involuntary functions. We are deploying our full suite of capabilities, including electronic clinical outcome assessments, electronic consent, and home research nurses on this study to significantly reduce the travel burden on these patients who have significant mobility challenges. Finally, our overall R&DS business continues to build on its strong momentum with over $2.4 billion of net new business, including pass-throughs, and it set a record for quarterly service bookings, achieving over $1.9 billion of service bookings for the first time ever. This resulted in a fourth quarter contracted net book-to-bill ratio of 1.36 excluding pass-throughs and 1.24, including pass-throughs. For the calendar year, we delivered over $10 billion of total net new bookings for the first time ever, an increase of 14.6% compared to 2020. This led to an LTM contracted net book-to-bill ratio of 1.35 excluding pass-throughs and 1.34 including pass-throughs. Our contracted backlog in R&DS, including pass-throughs, grew 10.2% year-over-year to a record $24.8 billion as of December 31, 2021. And now I will turn it over to Ron for more details on our financial performance.

Ron Bruehlman, Executive Vice President and Chief Financial Officer

Thanks Ari and good morning everyone. Let's start by reviewing revenue. Fourth quarter revenue of $3.636 billion grew 10.2% on a reported basis and 11.6% at constant currency. You'll recall that last year's fourth quarter was a much tougher comparison than earlier quarters as we picked up incremental demand from mega vaccine studies in R&DS and government-related COVID work within TAS. Also, the core business began to rebound from the effects of COVID-19. In this year's fourth quarter, COVID-related revenues were approximately $325 million, down about 25% versus the fourth quarter of 2020. In our base business, that is excluding all COVID-related work from both 2021 and 2020, organic growth at constant currency was mid-teens. Technology & Analytics Solutions revenue for the fourth quarter was $1.496 billion, up 5% reported and 6.6% at constant currency. Year-over-year, TAS experienced just over 400 basis points of headwind due to a step-down in COVID-related work. Excluding all COVID-related work, organic growth at constant currency in TAS was high single digits. R&D Solutions fourth quarter revenue of $1.944 billion was up 15.4% at actual FX rates and 16.3% at constant currency. Excluding all COVID-related work, organic growth at constant currency and R&DS was approximately 25%. Contract Sales & Medical Solutions, or CSMS, fourth quarter revenue of $196 million grew 3.7% reported and 7.4% at constant currency. Excluding all COVID-related work, organic growth at constant currency in CSMS was low single digits. For the full year, revenue was $13.874 billion, growing at 22.1% reported and 21.1% at constant currency. COVID-related revenues in 2021 were approximately $1.8 billion, with just under 80% of that attributable to R&DS, about 20% due to TAS and the remainder in CSMS. The incremental COVID-related revenues in 2021 versus 2020 accounted for approximately half of our growth in 2021. Full year Technology & Analytics Solutions revenue was $5.534 billion, up 13.9% reported and 12.4% at constant currency. Excluding COVID-related work, organic growth at constant currency in TAS was high single digits. Full year revenue in R&D Solutions was $7.556 billion, growing at 31.2% reported and 30.4% at constant currency. Excluding COVID-related work, R&DS organic growth at constant currency for both total revenue and services revenue was low double digits. Full year CSMS revenue was $784 million, representing 5.8% growth on a reported basis and 5.7% at constant currency. And excluding COVID-related work, organic growth at constant currency in CSMS was low single digits. Now moving down to P&L. Adjusted EBITDA was $828 million for the fourth quarter, which was 12.7% growth on a reported basis. Full year adjusted EBITDA was $3.022 billion, up 26.8% year-over-year on a reported basis. Fourth quarter GAAP net income was $318 million and GAAP diluted earnings per share was $1.63. Full year GAAP net income was $966 million or $4.95 of earnings per diluted share. Adjusted net income was $496 million for the fourth quarter, up 20.7% year-over-year and adjusted diluted earnings per share grew 20.9% to $2.55. For the full year, adjusted net income was $1.760 billion or $9.03 per share, up 41%. Now as already reviewed, R&D Solutions delivered another outstanding quarter of net new business. R&DS backlog now stands at a record $24.8 billion, an increase of 10.2% year-over-year. Full year 2021 net new bookings, including pass-throughs, rose to over $10 billion for the first time, that's 14.6% growth compared to 2020. Okay. Let's move to the balance sheet now. Cash flow was again quite strong in the quarter. Cash flow from operations was $692 million and CapEx was $184 million, which resulted in free cash flow of $508 million. This brought our free cash flow for the full year to a record $2.3 billion, up 70% versus the prior year. At December 31, cash and cash equivalents totaled $1.366 billion and gross debt was $12.125 billion, resulting in net debt of $10.759 billion. Our net leverage ratio at December 31 was 3.56 times trailing 12-month adjusted EBITDA. Now it's worth highlighting that our improved free cash flow over the last two years allowed us to deploy approximately $4.5 billion of capital to internal investments, acquisitions and share repurchase, while at the same time, we were able to reduce our net leverage ratio from a high of 4.8 times in Q2 2020, which you'll recall was the height of the pandemic to nearly 3.5 times. And in doing this, we achieved our Vision 2022 net leverage ratio target of 3.5 times to four times a full year early. In the quarter, we repurchased $174 million of our shares, which resulted in a full year share repurchase of $395 million, and we ended the year with 195 million fully diluted shares outstanding and $523 million of share repurchase authorization remaining under our existing program. Now last week, our Board of Directors approved a $2 billion increase to our share repurchase authorization, which increases our remaining authorization to just over $2.5 billion. Now let's turn to the guidance. As you saw, we’re reaffirming the full year 2022 revenue guidance that we issued at our analyst and investor conference in November. And in maintaining this guidance, we actually absorbed a $70 million revenue headwind from FX since we initially guided in November. Now, additionally, we're raising our full year 2022 profit guidance versus what we provided you in November. So to summarize the overall guidance for the full year, we expect revenue to be between $14.700 billion and $15 billion, which represents year-over-year growth of 7.1% to 9.2% at constant currency and 6% to 8.1% on a reported basis compared to 2021. Now we expect adjusted EBITDA to be between $3.330 billion and $3.405 billion representing year-over-year growth of 10.2% to 12.7%. And we also expect adjusted diluted EPS to be between $9.95 and $10.25, which represents year-over-year growth of 10.2% to 13.5%. Now our full year 2022 guidance assumes at December 31, 2021 foreign currency exchange rates remain intact for the balance of the year. Now compared to the prior year, I should mention FX is now a headwind of 110 basis points to our full year revenue growth and our projected revenue growth includes a little bit over 100 basis points of contribution from M&A activity. Now with our analyst and investor conference in November, we told you to anticipate that our COVID-related revenue will step down by approximately $1 billion in 2022, but will more than compensate for that headwind with strong growth in our base business. And let me give you some additional detail around this that I think will be helpful. Excluding COVID-related revenue, the FX headwind and the contribution of acquisitions, our total company revenue guidance implies organic growth at constant currency in the low to mid-teens. At the segment level, we anticipate full year Technology & Analytics Solutions revenue growth of between 5% and 7%. Excluding COVID-related work, we expect organic revenue growth at constant currency in TAS to be in the high single digits. Research & Development Solutions revenue growth is expected to be between 8% and 10%. Excluding COVID-related work, we expect organic revenue growth at constant currency in R&DS to be in the upper teens. And finally, Contract Sales & Medical Solutions revenue is anticipated to be down about 2%, but excluding COVID-related work, we expect organic revenue growth at constant currency in CSMS to be in the low single digits. Let's move to the first quarter now. As you all know, the first quarter of last year marked a continued rebound in our base business after the 2020 pandemic-related decline. In addition, Q1 and Q2 of last year represented our peak COVID-related revenues. As a result of this, the first half of the year will have the most challenging year-over-year comparisons. For the first quarter, our revenue is expected to be between $3.515 billion and $3.575 billion, representing growth of 4.8% to 6.6% on a constant currency basis and 3.1% to 4.9% on a reported basis. Now excluding COVID-related work, we expect organic revenue growth at constant currency to be in the mid-teens. Adjusted EBITDA is expected to be between $800 million and $815 million, up 7.5% to 9.5%. And finally, adjusted diluted EPS is expected to be between $2.40 and $2.46, growing 10.1% to 12.8%. So to summarize, we delivered very strong fourth quarter results on both the top and bottom line against what was also a very strong fourth quarter of 2020. R&DS recorded its largest ever quarter of service bookings and for the first time had over $10 billion of total net new bookings in a year. Our contracted backlog improved to a record of nearly $25 billion, up over 10% year-over-year. We delivered another strong quarter of free cash flow, bringing the full year to a record $2.3 billion. We closed 2021 with net leverage of 3.6 times trailing 12-month adjusted EBITDA. Our Board approved a $2 billion increase to our share repurchase authorization. And finally, we're reaffirming the full year of 2022 guidance that we provided in November for revenue, and we're raising our adjusted EBITDA and adjusted diluted EPS guidance. And with that, let me turn it back over to the operator for questions and answers.

Operator, Operator

Your first question is from Jack Meehan with Nephron Research.

Jack Meehan, Analyst

Thank you and good morning. Wanted to talk a little bit more about COVID and I appreciate all the detail you gave, Ron, during the prepared remarks on this. So at the Analyst Day, you talked about $1 billion of COVID tapering this year, there was 1.8 in 2021. Can you talk about the balance of the COVID work and just how you feel about the duration of COVID kind of over the next few years? Do you think there's some aspect that might prove stickier in TAS or some ongoing work in R&DS? Just any color there would be great.

Ron Bruehlman, Executive Vice President and Chief Financial Officer

Yes. Look, we do have a balance of COVID work, obviously. That's going to continue to burn off over the next two years. I think it will be a gradual decline during the course of 2022, but it's going to continue on into 2023. Yes, it's hard to foresee, Jack, how much additional COVID work there might be. We've all been surprised by the ups and downs of the pandemic and so forth. So it's certainly possible there could be more right now. We're facing our projections based on what we currently have in the backlog, and we'll see where it goes from there and see what other work might come along.

Ari Bousbib, Chairman and Chief Executive Officer

Yes, Jack, you are absolutely correct. We can only assess the current situation. One thing we've learned from this pandemic is that we can't accurately predict its evolution. We do have requests for proposals in our pipeline, particularly on the R&D side, aimed at developing new therapies for COVID. We are even in discussions with some of the top ten pharmaceutical companies regarding potential therapeutics. I expect that there will continue to be some ongoing COVID-related work. However, based on the current scenario, I foresee it gradually decreasing through 2023 and possibly into early 2024. Unless something significant changes, which we all hope does not happen, that’s the outlook we have. This is mainly dependent on the ongoing activities in both the commercial and clinical sectors.

Jack Meehan, Analyst

Great. As a follow-up, could you share your current perspective on labor and wage inflation? How has your view evolved since your initial guidance regarding wage inflation and its potential impact on the 2022 forecast?

Ari Bousbib, Chairman and Chief Executive Officer

Yes, that's a great question. The most significant operational challenge we face is managing our workforce. While it’s fantastic to lead in this industry with a $25 billion backlog and strong commercial demand, it also means we need a substantial number of employees. Even as technology increasingly automates more of our tasks, the need for personnel remains high. With 80,000 staff, we recognize that we will need to recruit many more this year. Attrition is a challenge that affects us, as it does for many others, particularly in the wake of the great resignation related to the pandemic. This is part of our success. We have become a talent hub, with many companies seeking talent from IQVIA. We are adapting by implementing various flexible work and compensation arrangements, loyalty-building programs, and training initiatives. We're also focusing on redefining roles and expectations for our employees, which is part of our future work strategy. We've been quite innovative in our approach to workspace management and are tackling multiple issues. Regarding the financial impact, raising compensation and managing workforce costs can be challenging. However, I want to emphasize that our adjusted EBITDA margins continue to grow, and we expect them to grow more than ever before. We're seeing the benefits of the restructuring and cost improvement actions taken right after the merger, which is helping to counterbalance the effects of wage inflation. Our profit growth is significantly outpacing our revenue growth, indicating substantial margin expansion. Ron?

Ron Bruehlman, Executive Vice President and Chief Financial Officer

Yes. And also I would say, Jack, that we do have the ability in a lot of instances to raise prices to adjust prices. We have some provisions for improvement in our MSA agreements. We also have some short-cycle businesses. So, wherever we have the ability to adjust prices, we are doing so. And we're getting some offset there as well.

Jack Meehan, Analyst

Great. Thank you guys.

Operator, Operator

Your next question is from Eric Coldwell with Baird.

Eric Coldwell, Analyst

Thank you. Good morning. So, probably the number one topic here recently has been the biotech funding environment and any potential knock-on impacts to the group. Your competitor, who also reported at the same time this morning and is very exposed to pre-commercial biotech, said their RFP volumes were down 10% in the fourth quarter, down 25% in January. But that they haven't seen any cancellations or delays so far, no business impact so far. I'm curious if you could help us by, one, talking about your mix of pre-commercial biotech as a percent of R&D backlog or bookings? And two, talk about what you're seeing in real-time in terms of business demand bookings, other related activity in that pre-commercial biotech space? That would be very helpful. Thank you.

Ari Bousbib, Chairman and Chief Executive Officer

Yes, thank you, Eric. As you can imagine, we monitor these numbers very closely. While there are various definitions of biotech funding, we are not observing any changes in the RFP pipeline compared to the strong demand environment we have seen for the EVP segment overall. Regarding our bookings, we don't have the backlog figures, but I can provide some numbers. In terms of actual bookings, large pharmaceutical companies still account for the majority, just over half, if I'm not mistaken.

Ron Bruehlman, Executive Vice President and Chief Financial Officer

That's correct.

Ari Bousbib, Chairman and Chief Executive Officer

Right. And then we think the midsize is perhaps about somewhere around 10 percent.

Ron Bruehlman, Executive Vice President and Chief Financial Officer

Yes.

Ari Bousbib, Chairman and Chief Executive Officer

Of our bookings, I would estimate that over 35% is EBP, though this figure can vary. When we look at the current pipeline of RFPs, it continues to grow significantly, experiencing double-digit increases in both dollars and volume. The strength of our pipeline is noteworthy, currently matching our backlog. With COVID-19 largely behind us, it represents only a minor portion of our total pipeline. Oncology is seeing an increase of over 20%, while CNS has surged by more than 33%. We are observing strong EBIT growth across all therapy categories in the pipeline. This is not the booked revenue but the future potential in our pipeline, which indicates funding capabilities moving forward, and EBP constitutes the majority of it right now. We're not expecting any major changes; although January saw a dip in EBP funding, it's not prudent to make assumptions based on a single month or quarter. Historically, EBP funding levels have been very high; we are likely in one of the top three years in terms of funding. While this year's funding might fall a bit short of last year's record highs, it's still considerably higher than in the past several years. Therefore, the slight decrease in funding does not raise concerns, as we continue to experience robust bookings and an even stronger pipeline.

Eric Coldwell, Analyst

Hey, Ari, if I could just do one follow-up. Could you remind everyone what your definition of EBP, the emerging biopharma, what your technical definition is, what it takes for a client to fit into that category versus some of the other?

Ari Bousbib, Chairman and Chief Executive Officer

Well, we look at how much the spend in terms of clinical development, of R&D spend. Okay.

Eric Coldwell, Analyst

Some of that client base concerns us as we continue to see very, very good bookings and even higher numbers in the pipeline.

Ari Bousbib, Chairman and Chief Executive Officer

Yes, yes. That's correct. That encompasses what you might call small pharma as well that has commercialized products, in addition to commercial.

Ron Bruehlman, Executive Vice President and Chief Financial Officer

Let's say, if a company spends less than a couple of hundred million, I don't know exactly the number and how we segment it, we have, as you know, tons of analytics and segmentation definitions. But broadly speaking, a company that spends less than a couple of hundred million dollars in a given year in its R&D budget, for us is an EBP, that's just one definition. We've got others also we triangulate, as you can imagine. But that's one definition that I happen to like.

Eric Coldwell, Analyst

All right. Last one. If you had to guess and maybe you're not willing to do so, but if you had to guess just off the cuff, not holding your feet to the fire. Would 10% of your backlog be pre-commercial biotech? 20%?

Ari Bousbib, Chairman and Chief Executive Officer

I’m not sure I can provide those numbers. However, how about this? For follow-up questions, we can try to offer more clarity or give you a range regarding what's in the backlog. I’ll ask the finance team to assist in preparing this information. I feel a bit pressured at the moment and don’t know exactly what I can share, but I will make sure to provide some information.

Ron Bruehlman, Executive Vice President and Chief Financial Officer

Eric, to start addressing your question, I can say that in the last two years, large pharma orders have accounted for slightly over 50% of our bookings. That should give you a point of reference for what you're interested in.

Eric Coldwell, Analyst

Right. Yeah, correct. All right. Well, look, I appreciate it, and I thought you had a great quarter. So good job, keep it up and look forward to the rest of the call. Thanks so much.

Ari Bousbib, Chairman and Chief Executive Officer

Well, thank you, Eric. Usually, you tell us at the beginning of the question, so I was concerned, but thanks for saying it again.

Operator, Operator

Your next question is from Tycho Peterson with JPMorgan.

Tycho Peterson, Analyst

Hey thanks. Ari, given that most of the questions we're getting are on RFPs and wage inflation, I want to go back to the wage inflation discussion and EBITDA margins because it is notably you're guiding for expansion here. You talked about benefits from the original merger and integration plan. You talked about digitization and maybe some price increases. But can you maybe just give us a little bit more color on how you're planning to drive margin expansion in this environment this year? Are you pulling forward any additional cost actions?

Ari Bousbib, Chairman and Chief Executive Officer

No, not at all. To clarify, the main reason for our margin expansion is the benefits we're seeing from the cost actions implemented after the merger. We have significant restructuring costs each year, which have impacted our cash flow, but we're now leveraging those overhead optimizations, outsourcing actions, and infrastructure consolidations. Additionally, the acceleration in margin expansion in 2022 compared to 2021 can be attributed to what I just mentioned as well as a favorable mix. It's important to note that the COVID-related work from the past couple of years had a lower margin compared to our base business. Some of this work, especially on the government side, had very small margins, and we also made COVID-related clinical trials more affordable than traditional work to contribute to pandemic efforts. As the COVID-related work declines and our base business grows as a proportion of total work, we expect to see an improvement in margins. It’s also worth mentioning that the number of pass-throughs for COVID-related work was unusually high, with vaccine trials starting earlier than typical timelines. This combination of lower service margins and an increased proportion of pass-throughs negatively impacted our margins. As the COVID work winds down, we anticipate a more favorable mix effect on our margins, contributing to the acceleration in our margin growth.

Tycho Peterson, Analyst

Okay. That's helpful. And then a follow-up on APAC. Your long-term guidance is 11% to 13% growth through 2025. Obviously, within China, there's been a lot of noise, biologics getting placed in the unverified list. They're CDMO, you're a CRO, so very different markets. But can you just talk on your view on China here in the near-term? And does any of this kind of noise potentially benefit you?

Ari Bousbib, Chairman and Chief Executive Officer

We have disclosed that we have a couple of $100 million businesses in China, which have been growing at double-digit rates over the past few years. In addition to our core IQVIA business, we own a CRO subsidiary called Punto, which is tailored to meet local Chinese regulatory requirements and primarily serves the local market and biotechs. Meanwhile, our IQVIA parent focuses on collaborating with multinational sponsors for their clinical trial needs in China when applicable. This unique structure, combined with our global CRO platform, positions us to take advantage of greater growth opportunities in China. We are confident in our capabilities in this market and in our ability to sustain this growth trend. While there are strong local CRO competitors emerging in China, with many organizations operating in the space, we remain untroubled by this competition. We are continuously investing as necessary and maintaining a solid market position, even though this segment is a small part of our overall business.

Tycho Peterson, Analyst

Okay. One last quick one before I hop off. On OCE on the retention, you talked about 350 clients using one or more. Your biggest competitor did, I think, talked about winning back Roche. Are you able to comment on that at all?

Ron Bruehlman, Executive Vice President and Chief Financial Officer

No. Look, we don't comment on individual customers and dynamics with individual customers. And as the Roche win is a very big win and the large majority of that is outside of the U.S., I think about 90% or so.

Ari Bousbib, Chairman and Chief Executive Officer

Yes, 90% of the project is outside the US. The independent subsidiary is involved, and Roche has reaffirmed their commitment, looking to accelerate the rollout after our successful implementations in several regions. They've also shown interest in purchasing other modules, so we are very pleased with our collaboration with this client. However, we won't comment further.

Ron Bruehlman, Executive Vice President and Chief Financial Officer

Next question.

Operator, Operator

Your next question is from John Kreger with William Blair.

John Kreger, Analyst

Hi, thank you very much. I wanted to revisit your comment about expecting your R&DS revenue growth this year to be in the upper teens if you exclude COVID work, which is quite impressive. I'm curious about what you think that business can achieve in the long term.

Nick Childs, Senior Vice President, Investor Relations

Longer-term growth. I believe that achieving double-digit growth is a significant milestone we have reached and will continue to pursue. At the start of the merger, our growth was quite low, in the single digits. We anticipate that this acceleration will persist, and maintaining double-digit growth in the long term is our goal.

Ari Bousbib, Chairman and Chief Executive Officer

Yes, during our investor conference, we provided targets for 2025 for the company as a whole, indicating that we expect to grow 10% to 12% annually, starting from a $15 billion base. This means that R&DS needs to achieve double-digit growth to meet that goal. I want to highlight the long-term growth trend we discussed a few months ago in New York, where we outlined our long-term goals and growth projections, which reflect a significant acceleration compared to our performance from 2019 to 2022. We expect strong double-digit growth.

Ron Bruehlman, Executive Vice President and Chief Financial Officer

Strong double digits.

Ari Bousbib, Chairman and Chief Executive Officer

Yes, strong double digits.

Operator, Operator

Your next question is from Shlomo Rosenbaum from Stifel.

Shlomo Rosenbaum, Analyst

Hi. Good morning. Thank you. Yes, Ari, can you talk a little bit about the breakdown of the upper single-digit revenue growth in TAS when you exclude COVID? What's driving the growth there? Is it real world evidence? Is it technology? And I know the information, part of the business doesn't grow much at all. So maybe you can just help us with the composition and what are some of the really big drivers there.

Ari Bousbib, Chairman and Chief Executive Officer

Yes, thank you, Shlomo. We have discussed this before, and if you look at TAS, I would break it down into three tiers. The first tier consists of the basic core information solutions, which is essentially the old IMS business, primarily focused on data. This accounts for about 30% of the business and has a flat growth rate. This is a strategic choice, as we primarily sell the data with minimal price increases, resulting in steady performance. The second tier represents a moderately growing segment of the business, which constitutes approximately another quarter of the overall business and includes analytics, consulting, and various services. This segment has been expanding at double-digit growth rates for the past few years, having previously grown in the mid to high single digits. Now, it's experiencing growth rates in the low to mid-double digits.

Ron Bruehlman, Executive Vice President and Chief Financial Officer

Low teens.

Ari Bousbib, Chairman and Chief Executive Officer

Yes, low teens. The higher growth businesses, including the technology sector, are expected to grow at a good mid-teens rate. Currently, these segments account for about 45% of the business, whereas we previously indicated that the division was a third, a third, a third. The real-world and technology sectors are now the fastest-growing parts of TAS, leading to their increased representation. Consequently, if you calculate that, it should result in high single digits of underlying growth for the segment.

Shlomo Rosenbaum, Analyst

Okay, great. Thank you. And then, maybe just for Ron. How much is the incremental FX headwinds impacting EBITDA and EPS guidance for 2022? You talked about absorbing the $70 million of revenue. If I were to normalize, how much was that impacting the guidance and just maybe give us a little bit of color on that.

Ron Bruehlman, Executive Vice President and Chief Financial Officer

Well, we offset the entire $70 million in maintaining our revenue guidance. So, I mean, another way of looking at it, as we raised our constant currency revenue guidance by $70 million. I'm not sure I understand your question beyond that. EBITDA?

Shlomo Rosenbaum, Analyst

If it’s the EBITDA. Yes. EBITDA, you went up like $10 million on each side and EPS of like $0.05 in each side – is that sort of revenue...

Ron Bruehlman, Executive Vice President and Chief Financial Officer

Yes, typically foreign exchange does not significantly impact our EBITDA. We have experienced a slight negative effect from foreign exchange, but it is not as pronounced as the impact on revenue that we accounted for. Additionally, we have more offsets on the EBITDA side compared to the revenue side, which is why the impact is less noticeable there.

Shlomo Rosenbaum, Analyst

Okay. Great. Thank you.

Operator, Operator

Your next question is from Patrick Donnelly with Citi.

Patrick Donnelly, Analyst

Hey, guys. Thanks for taking questions. Maybe just a follow-up on the M&A question earlier. Can you just talk a little bit about the outlook? Obviously, cash flow really strong, leverage is pretty reasonable at 3.6 times. Are you seeing more activity in the pipeline given some of the volatility in the public markets, or does that take a little bit longer to play a role in kind of rattling out the potential sellers?

Ari Bousbib, Chairman and Chief Executive Officer

That's a great question. We are always assessing opportunities, and even if we weren't actively seeking them, we receive calls from various sources. There are many assets available in the market, although we haven't been heavily engaged in acquisitions over the past few years in terms of quantity. This year, however, we have increased our spending on acquisitions significantly, primarily due to our largest deal ever, which involved consolidating our lab business. We acquired the remaining 40% from Quest for approximately $760 million. We are looking for more larger acquisitions, but the valuations in the healthcare technology and information sector are quite high, driven by private equity firms trading assets among themselves, which inflates prices. We are cautious and will pursue assets where we see value potential. There won't be any major shifts from our previous strategies. If opportunities arise, we'll make reasonable bids and remain grounded regarding our communication with the market. We have a strong CFO who ensures we engage in healthy discussions with business leaders. Historically, our capital allocation has been sensible. We may consider taking on more debt because our business model allows it. During the peak of the pandemic, our leverage was 4.8, which is lower than past legacy companies that reached six times. We are comfortable with our leverage ratios due to our business profile, cash flow generation, and visibility, with most of our business already booked early in the year, both commercially and clinically. This comfort persists even amidst concerns about rising interest rates. Most of our debt is fixed-rate, which provides stability. Our capital allocation priorities are internal investments first, then acquisitions, followed by share repurchase. You'll see us adjust this based on available opportunities. We aim to reduce debt prudently, but eliminating debt at current interest rates would be imprudent for us. That sums up my response to your question. Thank you very much. Are we finished?

Patrick Donnelly, Analyst

Yes. Thanks Ari. And if I could just squeeze in one follow-up, if you have a minute. I just want to follow-up on the funding backdrop. Obviously, you've talked a little bit about the R&DS strength going out multiple years, double-digit growth. I guess when you think about the funding, I mean, it seems like you were never underwriting the type of record strength we saw last year in order to hit those numbers. If we did see some prolonged softness in the funding environment relative to last year's levels, it's still more than sufficient to support that growth outlook, I guess I just want to make sure that's the way you're framing it.

Ari Bousbib, Chairman and Chief Executive Officer

I cannot overemphasize that we are not seeing any impact on our sales pipeline. As I mentioned earlier regarding biotech, I am not sharing specific numbers here because I'm uncertain if I should, but the majority of the RFP dollar pipeline, in terms of volume and dollars, is actually EBP. Therefore, we are not experiencing any effects from a potential slowdown in funding; not at all. The pipeline remains at record high levels, and it will not affect us in any way. Furthermore, I'm not observing that slowdown occurring. We communicate with EBP regularly.

Patrick Donnelly, Analyst

That’s encouraging to hear. Thanks.

Ari Bousbib, Chairman and Chief Executive Officer

Okay. Thank you.

Nick Childs, Senior Vice President, Investor Relations

Thank you. That's going to be our last question. So thank you for taking the time to join us today. We look forward to speaking again next quarter. Myself and the team will be available for any follow-up questions you might have in the rest of the day. Thanks.

Operator, Operator

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