OREANDA-NEWS. IMS Health Holdings, Inc. (“IMS Health”) (NYSE:IMS), a leading global provider of information and technology services to the healthcare and life sciences industries, today announced results for the quarter ended June 30, 2016.

Second-Quarter 2016 Operating Results

Revenue for the second quarter of $802 million increased 8.1 percent on a reported basis and 8.4 percent on a constant currency basis, compared with the second quarter of 2015.

Technology services revenue grew 13.8 percent in the second quarter on a reported basis and 14.3 percent on a constant currency basis versus the same period last year. Information offerings revenue was up 2.5 percent reported and 2.6 percent on a constant currency basis. Emerging markets revenue increased 5.4 percent in the second quarter on a reported basis and 11.0 percent at constant currency. Developed markets revenue grew 8.7 percent on a reported basis and 7.9 percent at constant currency.

Adjusted EBITDA of $238 million improved 8.1 percent on a reported basis and 6.7 percent on a constant currency basis, compared with the second quarter of 2015.

“We delivered another quarter of consistent revenue and earnings performance,” said Ari Bousbib, chairman and CEO, IMS Health. “We are looking forward to the pending merger with Quintiles and the benefits that will accrue to our customers, shareowners and employees.”

Second-quarter 2016 net income was $24 million compared to $47 million in last year’s second quarter, with the decline principally attributable to higher restructuring charges in 2016. Adjusted Net Income for the second quarter was $139 million, up 10.7 percent on a reported basis and 15.7 percent on a constant currency basis.

Diluted earnings per share was $0.07 in the second quarter, compared with $0.14 per share in the second quarter of 2015. Adjusted Diluted Earnings per Share of $0.41 increased 12.2 percent reported and 17.3 percent on a constant currency basis, reflecting the higher Adjusted Net Income and lower shares outstanding.

First-Half 2016 Operating Results

Revenue of $1,576 million for the first six months of 2016 increased 14.7 percent reported and 16.1 percent on a constant currency basis, compared with the first half of 2015. Excluding the first quarter impact of the Cegedim acquisition, which closed on April 1, 2015, revenue for the six months ended June 30, 2016 was up 8.6 percent on a constant currency basis.

Adjusted EBITDA of $474 million increased 8.7 percent on a reported basis and 8.0 percent on a constant currency basis, compared with the first half of 2015. First-half net income was $67 million, compared with net income of $345 million last year. Beginning in the first quarter of 2015, IMS Health has asserted that its non-U.S. earnings would be indefinitely reinvested outside the U.S., with the company no longer accruing taxes on those foreign earnings at the higher U.S. tax rate. This resulted in a $256 million non-cash income tax benefit in last year’s first quarter from a one-time reduction in the deferred tax liability. Adjusted Net Income, which excludes this one-time, non-cash tax benefit, increased to $279 million in this year’s first half, up 6.8 percent on a reported basis and 10.9 percent at constant currency.

Diluted earnings per share was $0.20 in the first half of 2016, compared with $1.01 per share in the prior-year period. Adjusted Diluted Earnings per Share of $0.83 in the first half increased 9.1 percent on a reported basis and 13.2 percent on a constant currency basis.

Financial Position

As of June 30, 2016, cash and cash equivalents were $368 million and the principal amount of debt was $4,565 million, resulting in net debt of $4,197 million. At the end of the second quarter, IMS Health’s Gross Leverage Ratio was 4.9 times trailing 12-month Adjusted EBITDA, compared with 4.8 times at December 31, 2015.

During the second quarter, IMS Health spent $25 million to repurchase 1.0 million shares of its common stock.

Cash Flow

Cash flow from operating activities was $111 million in the second quarter, compared with a strong $186 million in the second quarter of 2015, with the difference principally reflecting growth in accounts receivable and timing of cash flows related to loyalty card programs the company administers on behalf of its customers. Cash flows in these programs can fluctuate significantly from quarter to quarter. Capital expenditures and additions to deferred software of $53 million increased by $7 million versus the second quarter of 2015. Unlevered Free Cash Flow for the second quarter was $153 million, or 64 percent of Adjusted EBITDA.

2016 Full-Year and Third-Quarter Guidance

For the 2016 full year on a reported basis, IMS Health is increasing its revenue growth guidance by 1 percentage point to 10 to 12 percent, Adjusted EBITDA growth by 1 percentage point to 8.5 to 10.5 percent, Adjusted Net Income growth by 3 percentage points to 5 to 7 percent, and Adjusted Diluted Earnings per Share growth by 3 percentage points to 7 to 9 percent.

On a constant currency basis, IMS Health reaffirms full-year 2016 guidance for revenue to grow 10 to 12 percent and Adjusted EBITDA to grow 7.5 to 9.5 percent, and raises guidance on Adjusted Net Income and Adjusted Diluted Earnings per Share growth by 1.5 percentage points to 8 to 10 percent and 10 to 12 percent, respectively.

For the third quarter on a reported basis, IMS Health expects revenue and Adjusted EBITDA to grow by 8 to 9 percent, while Adjusted Net Income will decline 1 to 2 percent and Adjusted EPS will decline 0.5 to 1.5 percent.

On a constant currency basis, the company expects third-quarter revenue to grow by 7.5 to 8.5 percent, Adjusted EBITDA to grow by 4 to 5 percent, Adjusted Net Income to grow by 0 to 1 percent and Adjusted Diluted EPS to grow by 1.5 to 2.5 percent.

All reported guidance assumes that current foreign currency exchange rates hold constant through the end of 2016.

IMS Health reports results in U.S. dollars, but does business on a global basis. Exchange rate fluctuations affect the U.S. dollar value of foreign currency revenue and expenses and may have a significant effect on reported results. The discussion of IMS Health’s financial results in this release includes comparisons with the prior year in constant currency terms, using consistent exchange rates. Management believes this information facilitates comparison of underlying results over time.

About IMS Health

IMS Health is a leading global information and technology services company providing clients in the healthcare industry with end-to-end solutions to measure and improve their performance. Our 7,000 services experts connect configurable SaaS applications to 15+ petabytes of complex healthcare data in the IMS One™ cloud platform, delivering unique insights into diseases, treatments, costs and outcomes. The company’s 15,000 employees blend global consistency and local market knowledge across 100 countries to help clients run their operations more efficiently. Customers include pharmaceutical, consumer health and medical device manufacturers and distributors, providers, payers, government agencies, policymakers, researchers and the financial community.

IMSFIN

               

Table 1

IMS Health Holdings, Inc.

Income Statement

(Preliminary and unaudited)
               
      Three Months Ended     Six Months Ended  
      June 30,     June 30,  
(in millions, except per share data)     2016     2015     2016     2015  
Revenue     $ 802     $ 742     $ 1,576     $ 1,374  
Information       383       374       759       728  
Technology services       419       368       817       646  

Operating costs of information, exclusive of
 depreciation and amortization

       175       169       335       326  

Direct and incremental costs of technology services,
 exclusive of depreciation and amortization

       240       195       462       333  

Selling and administrative expenses, exclusive of
 depreciation and amortization

       168       180       345       317  
Depreciation and amortization       88       81       175       177  
Severance, impairment and other charges       52       21       67       34  
Operating Income       79       96       192       187  
Interest income       1       1       2       1  
Interest expense       (47 )     (43 )     (93 )     (80 )
Other income (loss), net       (2 )     6       (7 )     10  
Non-Operating Loss, Net       (48 )     (36 )     (98 )     (69 )
Income before income taxes       31       60       94       118  
(Provision for) benefit from income taxes       (7 )     (13 )     (27 )     227  
Net Income     $ 24     $ 47     $ 67     $ 345  

Earnings per Share Attributable to Common

                                 

Stockholders:

                                  
Basic     $ 0.07     $ 0.14     $ 0.20     $ 1.03  
Diluted     $ 0.07     $ 0.14     $ 0.20     $ 1.01  

Weighted-Average Common Shares

                                 

Outstanding:

                                  
Basic       328.8       331.6       328.7       333.6  
Diluted       335.5       340.0       335.6       342.6  
                                   
             

Table 2

IMS Health Holdings, Inc.

Condensed Balance Sheet

(Preliminary and unaudited)
             
      June 30,     December 31,
(in millions)     2016     2015
Assets:                
Cash and cash equivalents     $ 368     $ 396
Accounts receivable, net       557       508
Property, plant and equipment, net       175       167
Computer software, net       334       309
Goodwill & other identifiable intangibles       6,158       5,782
Other current & long-term assets       347       297
Total Assets     $ 7,939     $ 7,459
                 
Liabilities and Stockholders’ Equity:                
Liabilities:                
Accounts payable, accrued & other current liabilities, &                
deferred revenues     $ 942     $ 974
Postretirement and postemployment benefits       109       109
Long-term deferred tax and other liabilities       643       609
Debt       4,499       4,195
Total Liabilities       6,193       5,887
                 
Stockholders’ Equity:                
Total Stockholders’ Equity       1,746       1,572
                 
Total Liabilities and Stockholders’ Equity     $ 7,939     $ 7,459
                 
       

Table 3

IMS Health Holdings, Inc.

Condensed Statement of Cash Flows

(Preliminary and unaudited)
       
    Six Months Ended  
    June 30,  
(in millions)   2016     2015  
Cash Flows from Operating Activities:                
Net Income   $ 67     $ 345  
Adjustments to Reconcile Net Income to Net Cash                
Provided by Operating Activities:                
Depreciation and amortization     175       177  
Deferred income taxes     (11 )     (270 )
Non-cash stock-based compensation charges     15       14  
Loss on Venezuela remeasurement     2       7  
Other     (10 )     (22 )
Change in assets and liabilities, excluding effects from                
acquisitions and dispositions:                
Changes in current assets and liabilities     (122 )     (32 )
Changes in long-term assets and liabilities     (20 )     (4 )
Net Cash Provided by Operating Activities     96       215  
                 
Cash Flows from Investing Activities:                
Capital expenditures     (32 )     (25 )
Additions to computer software     (60 )     (53 )
Payments for acquisitions of businesses, net of cash acquired     (279 )     (373 )
Other investing activities, net     (1 )     —  
Net Cash Used in Investing Activities     (372 )     (451 )
                 
Cash Flows from Financing Activities:                
Net Cash Provided by Financing Activities     241       203  
                 
Effect of Exchange Rate Changes on Cash and Cash Equivalents     7       (9 )
Decrease in Cash and Cash Equivalents     (28 )     (42 )
Cash and Cash Equivalents, Beginning of Period     396       390  
Cash and Cash Equivalents, End of Period   $ 368     $ 348  
                 
             

Table 4

IMS Health Holdings, Inc.

Net Income to Adjusted EBITDA Reconciliation

(Preliminary and unaudited)
             
      Three Months Ended
June 30,		     Six Months Ended
June 30,
(in millions)     2016   2015   2016   2015
Net Income     $ 24     $ 47     $ 67     $ 345  
Provision for (benefit from) income taxes       7       13       27       (227 )
Other (income) loss, net       2       (6 )     7       (10 )
Interest expense       47       43       93       80  
Interest income       (1 )     (1 )     (2 )     (1 )
Depreciation and amortization       88       81       175       177  

Deferred revenue purchase accounting
 adjustments

       2       2       3       3  
Stock-based compensation charges(1)       8       8       15       14  
Restructuring and related charges(2)       51       21       67       35  
Merger and acquisition-related charges(3)       10       11       22       19  
Secondary offering expenses       —       1       —       1  
Adjusted EBITDA     $ 238     $ 220     $ 474     $ 436  
Depreciation and amortization       (34 )     (35 )     (68 )     (69 )
Interest expense, net       (46 )     (42 )     (91 )     (79 )
Royalty hedge gain (loss)       (3 )     6       (1 )     13  
Cash tax payments, net of refunds(4)       (16 )     (24 )     (35 )     (40 )
Adjusted Net Income     $ 139     $ 125     $ 279     $ 261  
                                   

(1)

    

Stock-based compensation charges are included in Operating costs of information, Direct and incremental costs of technology services and Selling and administrative expenses as follows:
    Three Months Ended     Six Months Ended
    June 30,     June 30,
(in millions)   2016     2015     2016     2015
Operating costs of information   $ 2     $ —     $ 3     $ 1
Direct and incremental costs of technology services     —       1       1       1
Selling and administrative expenses     6       7       11       12

(2)

     Restructuring and related charges includes severance and impairment charges and the cost of employee and third-party charges related to dual running costs for knowledge transfer activities. Dual running costs for knowledge transfer activities of less than $1 million for both the three months ended June 30, 2016 and 2015, and less than $1 million and $1 million for the six months ended June 30, 2016 and 2015, respectively, are included primarily in Operating costs of information and Selling and administrative expenses.

(3)

     Merger and acquisition-related charges are included primarily in Selling and administrative expenses.

(4)

     The Company currently presents Adjusted Net Income on a cash tax basis as it believes this presentation better reflects the Company’s utilization of its existing assets to generate income as it expects its deferred tax assets to be available to offset U.S. taxable income for the foreseeable future. Following the closing of the merger with Quintiles Transnational Holdings Inc., the combined company will conform how the two legacy companies present non-GAAP metrics.
       
             

Table 5

IMS Health Holdings, Inc.

Net Income to Adjusted Net Income Reconciliation

(Preliminary and unaudited)
             
    Three Months Ended
June 30,		     Six Months Ended
June 30,		  
(in millions, except per share data)   2016     2015     2016     2015  
Net Income   $ 24     $ 47     $ 67     $ 345  
Provision for (benefit from) income taxes     7       13       27       (227 )
Amortization associated with purchase accounting     54       46       107       108  

Deferred revenue purchasing accounting
 adjustments

     2       2       3       3  
Stock-based compensation charges(1)     8       8       15       14  
Restructuring and related charges(2)     51       21       67       35  
Merger and acquisition-related charges(3)     10       11       22       19  
Secondary offering expenses     —       1       —       1  
Other (income) loss, net     2       (6 )     7       (10 )
Adjusted Pre Tax Income   $ 158     $ 143     $ 315     $ 288  
Royalty hedge gain (loss)     (3 )     6       (1 )     13  
Cash tax payments, net of refunds     (16 )     (24 )     (35 )     (40 )
Adjusted Net Income   $ 139     $ 125     $ 279     $ 261  
                                 
Adjusted Earnings per Share Attributable to                                
Common Shareholders:                                
Basic   $ 0.42     $ 0.38     $ 0.85     $ 0.78  
Diluted   $ 0.41     $ 0.37     $ 0.83     $ 0.76  
Weighted-Average Common Shares                                
Outstanding:                                
Basic     328.8       331.6       328.7       333.6  
Diluted     335.5       340.0       335.6       342.6  
                                 

(1)

    

Stock-based compensation charges are included in Operating costs of information, Direct and incremental costs of technology services and Selling and administrative expenses as follows:
    Three Months Ended     Six Months Ended
    June 30,     June 30,
(in millions)   2016     2015     2016     2015
Operating costs of information   $ 2     $ —     $ 3     $ 1
Direct and incremental costs of technology services     —       1       1       1
Selling and administrative expenses     6       7       11       12
                               

(2)

     Restructuring and related charges includes severance and impairment charges and the cost of employee and third-party charges related to dual running costs for knowledge transfer activities. Dual running costs for knowledge transfer activities of less than $1 million for both the three months ended June 30, 2016 and 2015, and less than $1 million and $1 million for the six months ended June 30, 2016 and 2015, respectively, are included primarily in Operating costs of information and Selling and administrative expenses.

(3)

     Merger and acquisition-related charges are included primarily in Selling and administrative expenses.
       
             

Table 6

IMS Health Holdings, Inc.

Net Cash Provided by Operating Activities

to Unlevered Free Cash Flow

(Preliminary and unaudited)
             
    Three Months Ended
June 30,		     Six Months Ended
June 30,		  
(in millions)   2016     2015     2016     2015  

Net Cash Provided by Operating Activities

   $ 111     $ 186     $ 96     $ 215  
Capital expenditures     (19 )     (16 )     (32 )     (25 )
Additions to computer software     (34 )     (30 )     (60 )     (53 )
Free Cash Flow   $ 58     $ 140     $ 4     $ 137  
Cash interest payments     53       44       86       75  
Cash tax payments, net of refunds     16       24       35       40  
Merger and acquisition-related charges(1)     10       11       22       19  
Secondary offering expenses     —       1       —       1  
Severance, transaction & other payments     14       10       43       17  
FX hedge (receipts) payments     2       (11 )     —       (13 )
Unlevered Free Cash Flow   $ 153     $ 219     $ 190     $ 276  
                                 

(1)

     Merger and acquisition-related charges and Sponsor monitoring fees are included in Selling and administrative expenses.
       
 

Table 7

IMS Health Holdings, Inc.

Calculation of Gross Leverage Ratio

as of June 30, 2016

(Preliminary and unaudited)
 
(in millions)
Gross Debt as of June 30, 2016   $ 4,565  
Adjusted EBITDA for the year ended December 31, 2015     886  
Less: Adjusted EBITDA for the six months ended June 30, 2015     (436 )
Add: Adjusted EBITDA for the six months ended June 30, 2016     474  
Adjusted EBITDA for the twelve months ended June 30, 2016   $ 924  
Gross Leverage Ratio (Gross Debt/LTM Adjusted EBITDA)     4.9x  
         
 

Table 8

IMS Health Holdings, Inc.

Non-GAAP Adjustments

By Income Statement Line Items

(Preliminary and Unaudited)
 
    Three Months Ended
June 30,		     Six Months Ended
June 30,
(in millions)   2016   2015   2016   2015
Non-GAAP adjustments included in:                              

Operating costs of information, exclusive of
 depreciation and amortization

     2       1       3       2

Direct and incremental costs of technology
 services, exclusive of depreciation and
 amortization

     1       1       2       1
Selling and administrative expenses, exclusive                              
of depreciation and amortization     15       19       32       33