| Summary of Significant Accounting Policies | 1. Summary of Significant Accounting Policies The Company With more than 55,000 employees, IQVIA Holdings Inc. (together with its subsidiaries, the “Company” or “IQVIA”) conducts business in more than 100 countries. IQVIA is a leading global provider of advanced analytics, technology solutions and contract research services to the life sciences industry. The Company renamed two of its reportable segments. The reportable segment formerly known as Commercial Solutions is now named Technology & Analytics Solutions and the reportable segment formerly known as Integrated Engagement Services is now named Contract Sales & Medical Solutions. This is a name change only and there are no changes to the composition of either segment. Unaudited Interim Financial Information The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the Company’s financial condition and results of operations have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017. Income Taxes Income tax expense includes United States (“U.S”) federal, state and international income taxes. Certain items of income and expense are not reported in income tax returns and financial statements in the same year. The income tax effects of these differences are reported as deferred income taxes. Valuation allowances are provided to reduce the related deferred income tax assets to an amount which will, more likely than not, be realized. As a result of the Tax Cuts and Jobs Act (the “Tax Act”) enacted on December 22, 2017, the Company no longer considers the undistributed earnings of its foreign subsidiaries to be indefinitely reinvested and will record deferred income taxes on these earnings, as applicable. The Company has provisionally recorded their U.S. deferred taxes based on the Federal corporate income tax rate of 21%. The Company is continuing to analyze aspects of the Tax Act and, therefore, has not finalized its accounting policy with respect to whether to (1) recognize deferred taxes for basis differences expected to reverse as Global Low Taxed Intangible Income (“GILTI”) or (2) account for GILTI as period costs if and when incurred. The Company has not recognized any deferred tax impacts related to GILTI or the Base Erosion Anti Abuse Tax (“BEAT”) on a provisional basis. Interest and penalties related to unrecognized income tax benefits are recognized as a component of income tax expense. Revenue Recognition The Company’s arrangements are primarily service contracts that range in duration from a few months to several years. The Company recognizes revenue when control of these services is transferred to the customer for an amount, referred to as the transaction price, that reflects the consideration to which the Company is expected to be entitled in exchange for those goods or services. The Company determines revenue recognition utilizing the following five steps: (1) identification of the contract with a customer, (2) identification of the performance obligations in the contract (promised goods or services that are distinct), (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations, and (5) recognition of revenue when, or as, the Company transfers control of the product or service for each performance obligation. Cash payments made to customers as incentives to induce the customers to enter into service agreements with the Company are amortized as a reduction of revenue over the period the services are performed. The Company records revenues net of any tax assessments by governmental authorities, such as value added taxes, that are imposed on and concurrent with specific revenue generating transactions. The Company derives the majority of its revenues in the Technology & Analytics Solutions segment from various information and technology service offerings. Information offerings (primarily under fixed-price contracts) typically include multiple performance obligations including an ongoing subscription-based deliverable for which revenue is recognized ratably as earned over the contract period, and/or a one-time deliverable of data offerings for which revenue is recognized upon delivery. The customer is able to benefit from the provision of data as it is received. The Company’s subscription arrangements typically have terms ranging from one to three years and are generally non-cancelable and do not contain refund-type provisions. Technology services offerings may contain multiple performance obligations consisting of a mix of small and large-scale services and consulting projects, multi-year outsourcing contracts and Software-as-a-Service (“SaaS”) arrangements. These arrangements typically have terms ranging from several weeks to three years, with a majority having terms of one year or less. For arrangements that include multiple performance obligations, the transaction price is allocated to the identified performance obligations based on their relative standalone selling prices. For these contracts, the standalone selling prices are based on the Company’s normal pricing practices when sold separately with consideration of market conditions and other factors, including customer demographics and geographic location. Revenues for services engagements where the transfer of control occurs ratably over time are recognized on a straight-line basis over the term of the arrangement. Revenues from time and material contracts are recognized based on hours as the services are provided. Revenues from fixed price ad hoc services and consulting contracts are recognized over the contract term based on the ratio of the number of hours incurred for services provided during the period compared to the total estimated hours to be incurred over the entire arrangement (hours-based). Technology services offerings meet the over time criterion, as another party would not need to substantially re-perform the work already completed to satisfy the remaining obligations if the services were migrated to another party. The majority of the Company’s contracts within the Research & Development Solutions segment are service contracts for clinical research that represent a single performance obligation. The Company provides a significant integration service resulting in a combined output, which is clinical trial data that meets the relevant regulatory standards and can be used by the customer to progress to the next phase of a clinical trial or solicit approval of a treatment by the applicable regulatory body. The performance obligation is satisfied over time as the output is captured in data and documentation that is available for the customer to consume over the course of the arrangement and furthers progress of the clinical trial. The Company recognizes revenue over time using a cost-based based input method since there is no single output measure that would fairly depict the transfer of control over the life of the performance obligation. Progress on the performance obligation is measured by the proportion of actual costs incurred to the total costs expected to complete the contract. Costs included in the measure of progress include direct labor and third-party costs (such as payments to investigators and travel expenses for the Company’s clinical monitors). This cost-based method of revenue recognition requires the Company to make estimates of costs to complete its projects on an ongoing basis. Significant judgment is required to evaluate assumptions related to these estimates. The effect of revisions to estimates related to the transaction price or costs to complete a project are recorded in the period in which the estimate is revised. Most contracts may be terminated upon 30 to 90 days notice by the customer; however, in the event of termination, a substantive termination penalty requires payment for services rendered through the date of termination, as well as for subsequent services rendered to close out the contract. The Company derives the majority of its revenues in its Contract Sales & Medical Solutions segment by providing contract sales and market access professionals to customers within the biopharmaceutical industry on a fee-for-service basis. Some of the Company’s Contract Sales & Medical Solutions contracts contain multiple performance obligations with distinct promises including recruiting, sales force automation and deployment of sales representatives. The nature of the terms of these performance obligations will vary based on the customized needs of the customer. For contracts that have multiple performance obligations, the standalone selling prices of the Company’s performance obligations are not directly observable since they are rarely sold standalone. Therefore, the Company estimates the standalone selling prices using an expected cost plus a margin approach under which expected costs of satisfying a performance obligation are forecasted and added to an appropriate margin for that distinct good or service. The Company utilizes a single measure of progress for each performance obligation to recognize revenue, which includes deployment of sales representatives based on employee days worked; recruiting based on candidates recruited; sales force automation set-up based on hours worked; and sales force automation hosting and maintenance based on usage. These services meet the over time criterion as the customer consumes the benefit as activities are performed and another party would not need to substantially re-perform the work already completed to satisfy the remaining obligations if the services were migrated to another party. Variable Consideration In some cases, contracts provide for variable consideration that is contingent upon the occurrence of uncertain future events, such as performance incentives (including royalty payments or penalty clauses that can either increase or decrease the transaction price). Variable consideration is estimated at the expected value or at the most likely amount depending on the type of consideration. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The estimate of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of its anticipated performance and all information (historical, current and forecasted) that is reasonably available to the Company. Reimbursed Expenses The Company includes reimbursed expenses in revenues and costs of revenue as the Company is primarily responsible for fulfilling the promise to provide the specified service, including the integration of the related services into a combined output to the customer, which are inseparable from the integrated service. These costs include such items as payments to investigators and travel expenses for the Company’s clinical monitors and sales representatives, over which the Company has discretion in establishing prices. The Company controls the good or service and has inventory risk on contractually reimbursable expenses, as sometimes the Company is unable to obtain reimbursement from the customer for costs incurred. Change Orders Changes in the scope of work are common, especially under long-term contracts, and generally result in a change in transaction price. Change orders are evaluated on a contract-by-contract basis to determine if they should be accounted for as a new contract or as part of the existing contract. Generally, services from change orders are not distinct from the original performance obligation. As a result, the effect that the contract modification has on the contract revenue, and measure of progress, is recognized as an adjustment to revenue when it occurs. Costs of Revenue Costs of revenue include (i) compensation and benefits for billable employees and personnel involved in production, data management and delivery, and the costs of acquiring and processing data for the Company’s information offerings; (ii) costs of staff directly involved with delivering technology-related services offerings and engagements, and the costs of data purchased specifically for technology services engagements; (iii) reimbursed expenses that are comprised principally of payments to investigators who oversee clinical trials and travel expenses for the Company’s clinical monitors and sales representatives; and (iv) other expenses directly related to service contracts such as courier fees, laboratory supplies, professional services and travel expenses. Trade Receivables, Unbilled Services and Unearned Income In general, billings and payments are established by contractual provisions including predetermined payment schedules, which may or may not correspond to the timing of the transfer of control of the Company’s services under the contract. In general, the Company’s intention in its invoicing (payment terms) is to maintain cash neutrality over the life of the contract. Upfront payments, when they occur, are intended to cover certain expenses the Company incurs at the beginning of the contract. Neither the Company nor its customers view such upfront payments and contracted payment schedules as a means of financing. Unbilled services primarily arise from long-term contracts when a cost-based or hours-based input method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. Unearned income consists of advance payments and billings in excess of revenue recognized. As the contracted services are subsequently performed and the associated revenue is recognized, the unearned income balance is reduced by the amount of the revenue recognized during the period. Unearned income is classified as a current liability on the condensed consolidated balance sheet as the Company expects to recognize the associated revenue in less than one year. Recently Issued Accounting Standards Accounting pronouncements adopted In March 2017, the FASB issued new accounting guidance that requires the service cost component of net periodic benefit cost be presented in the same income statement line item as other employee compensation costs, and requires that the other components of net periodic benefit expense be recognized in the non-operating section of the income statement (“ASU 2017-07”). In addition, only the service cost component of net periodic benefit expense is eligible for capitalization when applicable. The Company adopted this new accounting guidance on January 1, 2018. In January 2017, the FASB issued new accounting guidance that changes the definition of a business to clarify when a set of assets does not constitute a business. Under the new definition, when substantially all of the fair value of gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set of assets is generally not a business. The Company adopted this new accounting guidance on January 1, 2018. The adoption of this new accounting guidance did not have a material effect on the Company’s consolidated financial statements. In January 2016, the FASB issued new accounting guidance that modifies how entities measure equity investments and present changes in the fair value of financial liabilities (“ASU 2016-01”). The Company adopted this new accounting guidance on January 1, 2018. The adoption of this new accounting guidance did not have a material effect on the Company’s consolidated financial statements “Financial Instruments – Overall (Topic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” In May 2014, the FASB and the International Accounting Standards Board issued a converged standard on the recognition of revenue from contracts with customers (“ASU 2014-09”). The objective of the new standard is to establish a single comprehensive revenue recognition model that is designed to create greater comparability of financial statements across industries and jurisdictions. Under the new standard, revenue is recognized to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The Company adopted ASU 2014-09 on January 1, 2018 using the full retrospective method. See “Revenue Recognition” and “Adjustments to Previously Reported Financial Statements from the Adoption of Accounting Pronouncements” included elsewhere in Note 1 for further discussion regarding the effects of the adoption of ASU 2014-09. Adjustments to Previously Reported Financial Statements from the Adoption of Accounting Pronouncements The following table presents the effect of the adoption of ASU 2014-09 on the Company’s condensed consolidated balance sheet as of December 31, 2017 (in millions):
December 31, 2017
As Previously Reported
As Recast
Trade accounts receivable and unbilled services, net
$
1,993
$
2,097
Total current assets
3,450
3,554
Deferred income taxes
98
109
Total assets
22,742
22,857
Unearned income
733
985
Total current liabilities
2,904
3,156
Deferred income taxes
918
895
Total liabilities
14,384
14,613
Retained earnings
655
538
Accumulated other comprehensive income
46
49
Equity attributable to IQVIA Holdings Inc.’s stockholders
8,109
7,995
Total stockholders’ equity
8,358
8,244
Total liabilities and stockholders’ equity
22,742
22,857
The following table presents the effect of the adoption of ASU 2014-09 and ASU 2017-07 on the Company’s condensed consolidated statements of income for the three and six months ended June 30, 2017 (in millions, except per share amounts):
Three Months Ended June 30, 2017
Six Months Ended June 30, 2017
As Previously Reported
As Recast
As Previously Reported
As Recast
Total revenues
$
2,375
$
2,355
$
4,697
$
4,715
Cost of revenues, exclusive of depreciation and amortization
1,560
1,557
3,083
3,083
Selling, general and administrative expenses
370
378
750
759
Income from operations
151
126
319
328
Other expense (income), net
3
(2
)
6
(3
)
Income before income taxes and equity in earnings of unconsolidated affiliates
68
48
157
175
Income tax (benefit) expense
(7
)
(14
)
5
10
Income before equity in earnings of unconsolidated affiliates
75
62
152
165
Net income
79
66
155
168
Net income attributable to IQVIA Holdings Inc.
75
62
149
162
Earnings per share attributable to common stockholders:
Basic
$
0.35
$
0.28
$
0.67
$
0.72
Diluted
$
0.34
$
0.28
$
0.65
$
0.71
Adoption of the above standards had no impact to cash from or used in operating, financing, or investing activities on the Company’s condensed consolidated statement of cash flow for the six months ended June 30, 2017. Accounting pronouncements being evaluated In June 2018, the FASB issued new accounting guidance that largely aligns the accounting for share-based payment awards issued to employees and nonemployees. Under the new guidance, the existing employee guidance will apply to nonemployee share-based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services. The new accounting guidance will be effective for the Company on January 1, 2019. Early adoption is permitted. The Company is currently evaluating the impact of this new accounting guidance on its consolidated financial statements. In February 2018, the FASB issued new accounting guidance that will allow a reclassification from accumulated other comprehensive income to retained earnings for “stranded income tax effects” resulting from the Tax Act. Because the income statement impact related to the reduction of the historical corporate income tax rate under the Tax Act is required to be included in income tax expense, the guidance acknowledges that the income tax effects of items within accumulated other comprehensive income (“stranded income tax effects”) do not reflect the appropriate income tax rate. The new accounting guidance will be effective for the Company on January 1, 2019. Early adoption is permitted. The Company is currently evaluating the impact of this new accounting guidance on its consolidated financial statements. In August 2017, the FASB issued new accounting guidance that will allow more financial and nonfinancial hedging strategies to be eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess hedge effectiveness. It is intended to more closely align hedge accounting with risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. The new accounting guidance will be effective for the Company on January 1, 2019. The Company is currently evaluating the impact of this new accounting guidance on its consolidated financial statements. In February 2016, the FASB issued new accounting guidance that requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. The income statement will reflect lease expense for operating leases, and amortization and interest expense for financing leases. The Company plans to adopt the new standard on its effective date of January 1, 2019. The Company plans to elect the practical expedients upon transition that will retain the lease classification and initial direct costs for any leases that exist prior to adoption of the new guidance. The Company is currently evaluating the impact of this new accounting guidance on its consolidated financial statements. |
