Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Change
|
(in millions)
|
|
2021
|
|
2020
|
|
$
|
|
%
|
Revenues
|
|
$
|
3,409
|
|
|
$
|
2,754
|
|
|
$
|
655
|
|
|
23.8
|
|
For the first quarter of 2021, our revenues increased $655 million, or 23.8%, as compared to the same period in 2020. This increase was comprised of constant currency revenue growth of approximately $588 million, or 21.4%, reflecting a $405 million increase in Research & Development Solutions, an $8 million decrease in Contract Sales & Medical Solutions, and a $191 million increase in Technology & Analytics Solutions.
Costs of Revenue, exclusive of Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
(in millions)
|
|
2021
|
|
2020
|
|
|
|
|
Costs of revenue, exclusive of depreciation and amortization
|
|
$
|
2,293
|
|
|
$
|
1,824
|
|
|
|
|
|
% of revenues
|
|
67.3
|
%
|
|
66.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $469 million increase in costs of revenues, exclusive of depreciation and amortization, for the three months ended March 31, 2021 as compared to the same period in 2020 included a constant currency growth of approximately $410 million, or 22.5%, reflecting a $305 million increase in Research & Development Solutions, a $14 million decrease in Contract Sales & Medical Solutions, and an $119 million increase in Technology & Analytics Solutions.
Selling, General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
(in millions)
|
|
2021
|
|
2020
|
|
|
|
|
Selling, general and administrative expenses
|
|
$
|
442
|
|
|
$
|
407
|
|
|
|
|
|
% of revenues
|
|
13.0
|
%
|
|
14.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $35 million increase in selling, general and administrative expenses for the three months ended March 31, 2021 as compared to the same period in 2020 included a constant currency growth of approximately $25 million, or 6.1%, reflecting a $3 million decrease in Research & Development Solutions, an $1 million decrease in Technology & Analytics Solutions, a $2 million decrease in Contract Sales & Medical Solutions, offset by a $31 million increase in general corporate and unallocated expenses.
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
(in millions)
|
|
2021
|
|
2020
|
|
|
|
|
Depreciation and amortization
|
|
323
|
|
|
316
|
|
|
|
|
|
% of revenues
|
|
9.5
|
%
|
|
11.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $7 million increase in depreciation and amortization in the three months ended March 31, 2021 as compared to the same period in 2020 was primarily due to higher intangible asset balances as a result of acquisitions occurring in 2020 and increased amortization due to higher capitalized software balances.
Restructuring Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
(in millions)
|
|
2021
|
|
2020
|
|
|
|
|
Restructuring costs
|
|
$
|
9
|
|
|
$
|
14
|
|
|
|
|
|
The restructuring costs incurred during 2021 were due to ongoing efforts to streamline our global operations. The remaining actions under these plans are expected to occur throughout 2021 and into 2022 and are expected to consist of consolidating functional activities, eliminating redundant positions, and aligning resources with customer requirements.
Interest Income and Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
(in millions)
|
|
2021
|
|
2020
|
|
|
|
|
Interest income
|
|
$
|
(1)
|
|
|
$
|
(2)
|
|
|
|
|
|
Interest expense
|
|
$
|
99
|
|
|
$
|
106
|
|
|
|
|
|
Interest income includes interest received primarily from bank balances and investments.
Interest expense during the three months ended March 31, 2021 was lower than the same period in 2020 due to lower interest rates attributed to lower LIBOR rates and the redemption of the €1,425 million of 3.250% senior notes due 2025, partially offset by an increase in the average debt outstanding. See “Liquidity and Capital Resources” for more information on this transaction.
Loss on Extinguishment of Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
(in millions)
|
|
2021
|
|
2020
|
|
|
|
|
Loss on extinguishment of debt
|
|
$
|
24
|
|
|
$
|
—
|
|
|
|
|
|
During the three months ended March 31, 2021, we recognized a loss on extinguishment of debt for fees and expenses incurred related to the refinancing of our 3.250% senior notes due 2025.
Other Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
(in millions)
|
|
2021
|
|
2020
|
|
|
|
|
Other income, net
|
|
$
|
(37)
|
|
|
$
|
(13)
|
|
|
|
|
|
Other income, net for the three months ended March 31, 2021 increased as compared to the same period in the prior year, primarily due to foreign currency gain, as well as gain on investments in mutual funds.
Income Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
(in millions)
|
|
2021
|
|
2020
|
|
|
|
|
Income tax expense
|
|
$
|
44
|
|
|
$
|
17
|
|
|
|
|
|
Our effective income tax rate was 17.1% and 16.7% in the first quarter of 2021 and 2020, respectively. Our effective income tax rate in the first quarter of 2021 and 2020 was favorably impacted by $17 million and $21 million, respectively, as a result of excess tax benefits recognized upon settlement of share-based compensation awards. Also, our effective income tax rate in the first quarter of 2020 was unfavorably impacted by a $10 million discrete tax expense related to change in the measurement of U.S. tax on undistributed foreign earnings.
Equity in Earnings of Unconsolidated Affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
(in millions)
|
|
2021
|
|
2020
|
|
|
|
|
Equity in earnings of unconsolidated affiliates
|
|
$
|
4
|
|
|
$
|
6
|
|
|
|
|
|
Equity in earnings of unconsolidated affiliates for the three months ended March 31, 2021 remained relatively consistent with the same period in the prior year.
Net Income Attributable to Non-controlling Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
(in millions)
|
|
2021
|
|
2020
|
|
|
|
|
Net income attributable to non-controlling interests
|
|
$
|
(5)
|
|
|
$
|
(9)
|
|
|
|
|
|
Net income attributable to non-controlling interests included Quest Diagnostics Incorporated’s interest in Q2 Solutions. On April 1, 2021 the Company acquired the 40% non-controlling interest in Q2 Solutions from Quest Diagnostics Incorporated which will result in a decrease in the net income attributable to non-controlling interests in future periods. See Note 14 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional details regarding this transaction.
Segment Results of Operations
The Company’s revenues and profit by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021 and 2020
|
|
|
|
|
|
|
|
|
|
|
Segment Revenues
|
|
Segment Profit
|
(in millions)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Technology & Analytics Solutions
|
|
$
|
1,348
|
|
|
$
|
1,117
|
|
|
$
|
349
|
|
|
$
|
268
|
|
Research & Development Solutions
|
|
1,868
|
|
|
1,441
|
|
|
362
|
|
|
268
|
|
Contract Sales & Medical Solutions
|
|
193
|
|
|
196
|
|
|
20
|
|
|
11
|
|
Total
|
|
3,409
|
|
|
2,754
|
|
|
731
|
|
|
547
|
|
General corporate and unallocated
|
|
|
|
|
|
(57)
|
|
|
(24)
|
|
Depreciation and amortization
|
|
|
|
|
|
(323)
|
|
|
(316)
|
|
Restructuring costs
|
|
|
|
|
|
(9)
|
|
|
(14)
|
|
Consolidated
|
|
$
|
3,409
|
|
|
$
|
2,754
|
|
|
$
|
342
|
|
|
$
|
193
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Change
|
(in millions)
|
|
2021
|
|
2020
|
|
$
|
|
%
|
Revenues
|
|
$
|
1,348
|
|
|
$
|
1,117
|
|
|
$
|
231
|
|
|
20.7
|
|
Costs of revenue, exclusive of depreciation and amortization
|
|
812
|
|
|
666
|
|
|
146
|
|
|
21.9
|
|
Selling, general and administrative expenses
|
|
187
|
|
|
183
|
|
|
4
|
|
|
2.2
|
|
Segment profit
|
|
$
|
349
|
|
|
$
|
268
|
|
|
$
|
81
|
|
|
30.2
|
|
Revenues
Technology & Analytics Solutions’ revenues were $1,348 million for the first quarter of 2021, an increase of $231 million, or 20.7%, over the same period in 2020. This increase was comprised of constant currency revenue growth of approximately $191 million, or 17.1%, reflecting revenue growth across all regions. The revenue growth in these regions was driven by higher real-world and analytical services and COVID-19 related work.
Costs of Revenue, exclusive of Depreciation and Amortization
Technology & Analytics Solutions’ costs of revenue increased $146 million, or 21.9%, in the first quarter of 2021 over the same period in 2020. This increase included a constant currency increase of approximately $119 million, or 17.9%, reflecting an increase in compensation and related expenses to support revenue growth.
Selling, General and Administrative Expenses
Technology & Analytics Solutions’ selling, general and administrative expenses increased $4 million, or 2.2%, in the first quarter of 2021 as compared to the same period in 2020, which included a constant currency decrease of approximately $1 million, or (0.5)%, reflecting the impact of on-going cost containment actions.
Research & Development Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Change
|
(in millions)
|
|
2021
|
|
2020
|
|
$
|
|
%
|
Revenues
|
|
$
|
1,868
|
|
|
$
|
1,441
|
|
|
$
|
427
|
|
|
29.6
|
|
Costs of revenue, exclusive of depreciation and amortization
|
|
1,321
|
|
|
988
|
|
|
333
|
|
|
33.7
|
|
Selling, general and administrative expenses
|
|
185
|
|
|
185
|
|
|
—
|
|
|
—
|
|
Segment profit
|
|
$
|
362
|
|
|
$
|
268
|
|
|
$
|
94
|
|
|
35.1
|
|
Backlog
Research & Development Solutions’ contracted backlog increased from $22.6 billion as of December 31, 2020 to $23.2 billion as of March 31, 2021 and we expect approximately $6.5 billion of this backlog to convert to revenue in the next twelve months.
Revenues
Research & Development Solutions’ revenues were $1,868 million in the first quarter of 2021, an increase of $427 million, or 29.6%, over the same period in 2020. This increase was comprised of constant currency revenue increase of approximately $405 million, or 28.1%, reflecting volume-related increases in clinical services and lab testing, including incremental revenue from large COVID-19 vaccine clinical trials.
Costs of Revenue, exclusive of Depreciation and Amortization
Research & Development Solutions’ costs of revenue increased $333 million, or 33.7%, in the first quarter of 2021 over the same period in 2020. This increase included a constant currency increase of approximately $305 million, or 30.9%, 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
Research & Development Solutions’ selling, general and administrative expenses remained flat in the first quarter of 2021 as compared to the same period in 2020, and included a constant currency decrease of approximately $3 million, or (1.6)%.
Contract Sales & Medical Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Change
|
(in millions)
|
|
2021
|
|
2020
|
|
$
|
|
%
|
Revenues
|
|
$
|
193
|
|
|
$
|
196
|
|
|
$
|
(3)
|
|
|
(1.5)
|
|
Costs of revenue, exclusive of depreciation and amortization
|
|
160
|
|
|
170
|
|
|
(10)
|
|
|
(5.9)
|
|
Selling, general and administrative expenses
|
|
13
|
|
|
15
|
|
|
(2)
|
|
|
(13.3)
|
|
Segment profit
|
|
$
|
20
|
|
|
$
|
11
|
|
|
$
|
9
|
|
|
81.8
|
|
Revenues
Contract Sales & Medical Solutions’ revenues were $193 million in the first quarter of 2021, a decrease of $3 million, or (1.5)%, over the same period in 2020. This decrease included a constant currency revenue decrease of approximately $8 million, or (4.1)%, reflecting a volume decrease in the Americas region, partially offset by a volume increase in the Asia-Pacific region.
Costs of Revenue, exclusive of Depreciation and Amortization
Contract Sales & Medical Solutions’ costs of revenue decreased $10 million, or (5.9)%, in the first quarter of 2021 as compared to the same period in 2020. This decrease included a constant currency decrease of approximately $14 million, or (8.2)%, reflecting a decrease in compensation and related expenses as a result of reduced volume in the Americas region.
Selling, General and Administrative Expenses
Contract Sales & Medical Solutions’ selling, general and administrative expenses decreased $2 million, or (13.3)%, in the first quarter of 2021 as compared to the same period in 2020. This decrease included a constant currency decrease of approximately $2 million, or (13.3)%, reflecting a decrease in compensation and related expenses.
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, dividends, equity repurchases, adequacy of our revolving and other credit 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 to the United States and to other international subsidiaries when it is cost effective to do so.
We had a cash balance of $2,305 million as of March 31, 2021 ($933 million of which was in the United States), an increase from $1,814 million as of December 31, 2020.
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 and other credit facilities will enable us to fund our operating requirements and capital expenditures 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.
On April 1, 2021 the Company acquired the 40% non-controlling interest in Q2 Solutions from Quest Diagnostics Incorporated for $760 million, financed with cash on hand. See Note 14 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional details regarding this transaction.
Equity Repurchase Program
During the three months ended March 31, 2021, we repurchased 265,809 shares of our common stock for $50.5 million under the Repurchase Program. See Note 8 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional details regarding the Repurchase Program.
As of March 31, 2021, we have remaining authorization to repurchase up to approximately $0.9 billion of our common stock under the Repurchase Program. In addition, from time to time, we have repurchased and may continue to repurchase common stock through private or other transactions outside of the Repurchase Program.
Debt
Senior Notes
On March 3, 2021, we completed the issuance and sale of €1,450,000,000 in gross proceeds of the Issuer's (i) €550,000,000 aggregate principal amount of its 1.750% Senior Notes due 2026 (the “2026 Notes”) and (ii) €900,000,000 aggregate principal amount of its 2.250% Senior Notes due 2029 (the “2029 Notes” and, together with the 2026 Notes, the “Notes”). The proceeds from the Notes offering were used to redeem all of the Issuer’s outstanding 3.250% senior notes due 2025 (the “3.250% Notes”), including the payment of premiums in respect thereof and to pay fees and expenses related to the Notes offering. See Note 7 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional details regarding our credit arrangements.
As of March 31, 2021, we had $12.3 billion of total indebtedness, excluding $1.5 billion of additional available borrowings under our revolving credit facility.
Our long-term debt arrangements contain customary restrictive covenants and, as of March 31, 2021, we believe we were in compliance with our restrictive covenants in all material respects.
Three months ended March 31, 2021 and 2020
Cash Flow from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(in millions)
|
|
2021
|
|
2020
|
Net cash provided by operating activities
|
|
$
|
867
|
|
|
$
|
163
|
|
Cash provided by operating activities increased $704 million during the first three months of 2021 as compared to the same period in 2020. The increase was primarily due to an increase in cash collections from clients resulting in a decrease in accounts receivable and unbilled services ($132 million), an increase in unearned income ($294 million), higher cash related net income ($165 million) and higher cash from other operating assets and liabilities ($113 million).
Cash Flow from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(in millions)
|
|
2021
|
|
2020
|
Net cash used in investing activities
|
|
$
|
(176)
|
|
|
$
|
(150)
|
|
Cash used in investing activities increased $26 million during the first three months of 2021 as compared to the same period in 2020 primarily driven by lower payments received from unconsolidated affiliates ($18 million) and increased cash used for the purchase of property and equipment ($8 million).
Cash Flow from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(in millions)
|
|
2021
|
|
2020
|
Net cash (used in) provided by financing activities
|
|
$
|
(168)
|
|
|
$
|
107
|
|
Cash used in financing activities increased $275 million during the first three months of 2021 as compared to the same period in 2020 primarily due to a decrease in cash provided by proceeds from debt issuances, net of repayments and debt issuance costs ($803 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 ($260 million), and a decrease in cash used to repurchase common stock ($283 million).
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Contractual Obligations and Commitments
We have various contractual obligations, which are recorded as liabilities in our consolidated financial statements.
With the exception of new senior notes disclosed in Note 7 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, there have been no material changes, outside of the ordinary course of business, to our contractual obligations as previously disclosed in our 2020 Form 10-K.
Application of Critical Accounting Policies
There have been no material changes to our critical accounting policies as previously disclosed in our 2020 Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to our quantitative and qualitative disclosures about market risk as compared to the quantitative and qualitative disclosures about market risk described in our 2020 Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Securities Exchange Act of 1934, as amended (“Exchange Act”) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our CEO and CFO have concluded that as of such date, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.