Contract Research Organizations show good 4th quarter results

Encouraging Earnings

While some companies have yet to report their fourth quarter earnings, things are looking good for several leading contract research organizations (CROs).

According to Zacks Investment Research, IQVIA Holdings Inc., based in Danbury, Connecticut, reported solid fourth-quarter 2021 results. The company’s earnings, as well as revenues, surpassed the Zacks Consensus Estimate. Adjusted earnings per share of $2.55 exceeded the consensus mark by 4.9 percent and improved 20.9 percent on a year-over-year basis. The reported figure exceeded the guided range of $2.37 to $2.47.

Total revenues of $3.64 billion outpaced the consensus estimate by 1.2 percent and increased 10.2 percent year over year on a reported basis and 11.6 percent on constant-currency basis. The reported figure exceeded the guided range of $3.537 to $3.612 billion. Over the past year, shares of IQVIA have gained 24.5 percent. The Zacks S&P 500 composite grew 12.2 percent in the same time frame.

IQVIA ended fourth-quarter 2021 with a cash and cash equivalents balance of $1.37 billion, as compared with $1.47 billion at the end of the previous quarter. Long-term debt was $12 billion, as compared with $12.1 billion at the end of the previous quarter. The company generated $692 million of cash from operating activities in the reported quarter, and CapEx was $184 million. Free cash flow was $508 million.

During the reported quarter, IQVIA repurchased shares worth $174 million. As of December 31, 2021, the company had nearly $523 million of its share-buyback authorization remaining. On February 10, 2022, the company’s board announced an additional $2.0-billion share repurchase authorization, thereby bringing the remaining authorization to more than $2.5 billion.

IQVIA expects to have first-quarter revenues in the range of $3.515 to $3.575 billion. The current Zacks Consensus Estimate of $3.63 billion lies above the guidance. Adjusted earnings per share are expected to be between $2.40 and $2.46. The Zacks Consensus Estimate of $2.42 lies within the guidance.

Syneos Health, based in Morrisville, New Jersey, reported financial results for the three and twelve months ended December 31, 2021. Revenue of $1,373.4 million increased 20.5 prcent on a reported basis and 20.8 percent on a constant currency basis for the three months ended December 31, 2021, compared to the same period in the previous year, due in part to the prior period being impacted by the COVID-19 pandemic.

The company’s Clinical Solutions revenue increased 20.7 percent on a reported basis and 21.0 percent on a constant currency basis to $1,042.5 million. Acquisitions contributed approximately 1,000 basis points to Clinical Solutions reported revenue growth. Commercial Solutions revenue increased 19.8 percent on a reported basis and 20.2 percent on a constant currency basis to $330.9 million. The divestiture of medication adherence resulted in an approximate 300 basis point headwind to Commercial Solutions reported revenue growth.

GAAP net income for the three months ended December 31, 2021, decreased 17.3 percent to $76.0 million, resulting in diluted earnings per share of $0.72, compared to GAAP net income of $91.9 million, or diluted earnings per share of $0.87, for the three months ended December 31, 2020. The decrease in GAAP net income and diluted earnings per share for the three months ended December 31, 2021, was primarily driven by favorable discrete tax benefits in the fourth quarter of 2020. Adjusted net income for the three months ended December 31, 2021, increased 33.4 percent to $155.8 million, resulting in adjusted diluted earnings per share of $1.48, compared to adjusted net income of $116.8 million, or adjusted diluted earnings per share of $1.11, for the three months ended December 31, 2020.

The company's guidance takes into account a number of factors, including existing backlog, current sales pipeline, trends in cancellations and delays, trends in reimbursable out-of-pocket expenses and the company's ForwardBound initiative, which includes expansion of the Syneos Operations Network, process optimization and automation initiatives. In addition, the guidance represents the company's best efforts to estimate the impact of COVID-19 on its business. The severity and duration of the COVID-19 pandemic are outside of the company's control and, given the uncertain nature of the pandemic, could cause the company's future operating results to be different from its current expectations, particularly if the impact of the pandemic worsens. 

Furthermore, the guidance is based on current foreign currency exchange rates, current interest rates, and the company's expected non-GAAP effective tax rate of approximately 23.5 percent for the year ending December 31, 2022. The guidance is also based upon the company's estimated number of weighted average diluted shares outstanding and does not take into account any share repurchases that may occur in 2022.

Within Clinical Solutions, the COVID pandemic has accelerated the adoption of virtual engagement with sites and patients, creating increased demand for decentralized solutions capabilities. As a result, Syneos has continued to experience reduced travel and other reimbursable out-of-pocket expenses related to lower physical monitoring visits for Clinical Solutions relative to pre-pandemic levels. It has also experienced a reduction of the costs associated with investigational medicinal products, which has also resulted in lower reimbursable out-of-pocket expenses. Within Commercial Solutions, Syneos has continued to experience fewer field team visits to healthcare providers and increased virtual investigator meetings. Therefore, Syneos expects reimbursable out-of-pocket expenses as a percentage of revenue to remain lower relative to pre-pandemic levels and has adjusted its ending backlog accordingly, impacting both its reported net new business awards and backlog growth in the fourth quarter.

“Strong fundamentals and execution across our business, combined with innovative, integrated clinical and commercial capabilities enabled by data and technology, drove robust earnings and cash flow growth in the fourth quarter and full year 2021,” said Alistair Macdonald, chief executive officer of Syneos Health. “The market for our services remains strong, driven in part by customer adoption of our unique product development strategy, new drug approvals and biotech funding. In 2022, we expect robust growth propelled by recent acquisitions, uptake for our Syneos One and Medical Affairs offerings, and continued execution of our Value Creation Plan.”