IQVIA Q3 2023 Earnings Call Transcript

Participants

Corporate Executives

• Nick Childs, Senior Vice President, Investor Relations and Treasury
• Ari Bousbib, Chairman and Chief Executive Officer
• Ron Bruehlman, Executive Vice President and Chief Financial Officer
• Unidentified Speaker

Analysts

• Elizabeth Anderson, Evercore ISI
• Charles Rhyee, TD Cowen
• Dan Leonard, UBS Group AG
• David Windley, Jefferies Financial Group Inc.
• Justin Bowers, Deutsche Bank Aktiengesellschaft
• Shlomo Rosenbaum, Stifel Nicolaus
• Luke Sergott, Barclays PLC
• Jailendra Singh, Truist Securities

Presentation

[Operator]

Ladies and gentlemen, thanks for standing by. At this time, I would like to welcome everyone to the IQVIA Third Quarter 2023 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. [Operator Instructions] And just as a reminder, this call is being recorded.

I would now like to turn the call over to Mr. Nick Childs, Senior Vice President, Investor Relations and Treasury. Mr. Childs, please begin.

[Nick Childs, Senior Vice President, Investor Relations and Treasury at IQVIA]

Thank you Regina and good morning, everyone. Thank you for joining our third quarter 2023 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 Gustavo Perrone, Senior 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 at ir.iqvia.com.

Before we begin, I would like to caution listeners that certain information discussed by management during this conference call will include forward-looking statements. The actual results could 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, Chairman and Chief Executive Officer at IQVIA]

Thank you, Nick, and good morning everyone. Thank you for joining us today to discuss our first-quarter results. So inline with our expectations, R&DS is performing very well. The TAS business continued to grow, but revenue fell short of what we had expected, about half of our total revenue shortfall came from foreign-exchange headwinds versus our previous guidance and the other half from persistent weakness in-demand in the TAS segment. Despite the TAS revenue shortfall, our productivity actions allowed us to deliver on our profit guidance. We continue to receive questions about the health of the industry and customer demand, and I'd like to give you the latest of what we're seeing in the market.

Let's start on the clinical development side. Demand in the R&DS segment remained strong. Net new bookings exceeded $2.6 billion, representing a quarterly book-to-bill of 1.24, overall, including pass-throughs. And given that this quarter there is a significant difference between services bookings and bookings with pass-through, I note that our services bookings were the highest-ever at $2.3 billion, resulting in a 1.4 services book-to-bill. Our backlog reached $28.8 billion, growing 1.71% versus prior year, another historic high. Our quarterly RFP flow was up 10% Year-over-Year, with growth across all customer segments. Our strong performance is supported by continued healthy market dynamics. Emerging biotech funding was strong in the quarter. According to BioWorld third-quarter EBP funding was $18.7 billion, the largest quarter this year. Year-to-date EBP funding through Q3 was up 8% versus prior year. If you look at the first-half, large pharma R&D spend, it was above 20% of net revenues highlighting continued strong R&D activity with large pharma as well. Based on these indicators, the Clinical Trial industry remains healthy. Our strong market position, market winds scale and differentiated offerings give us confidence that our R&DS business will continue to deliver above-market growth.

Turning now to TAS, on the commercial side of our business we are obviously facing a tougher macro-environment. Our clients remain cautious with their spending and have extended their decision making timelines, beyond what we would have normally expected. I'm sure you also saw that several large pharma have announced significant cost-reduction programs. And obviously, we are a significant vendor to large pharma. Now we had anticipated to see improvement as we progress through the year and specifically in the quarter, we usually see activity pickup in September after the slower July, August summer months. It didn't happen. While we still have growth for the segment as a whole, we experienced further declines in our analytics and consulting business, somewhat slower-than-expected growth in the discretionary parts of our real-world business as well as some impact from the China situation. While the acceleration we are anticipating is taking longer-than-expected, based on our pipelines, we remain confident that there will be a rebound in-demand sometime in 2024. We know this because the pipeline of opportunities remains strong even as decision timelines are elongated and negotiations with our customers have become more difficult.

We also know this because historically going back 25 years, every time, there was a pull-back in spend on the commercial side, the industry adapts and comes back within a year or two.

With this as context, let's now review the third-quarter results. Revenue for the third-quarter grew 4.9% on a reported basis, 4.1% at constant currency. Compared to last year and excluding COVID related work from both periods, we grew the top-line approximately 8.5% on a constant currency basis and that includes approximately 1.5 of contribution from acquisitions. Third-quarter adjusted EBITDA increased 9.1%, driven by revenue growth and ongoing cost management discipline.

Third-quarter adjusted diluted EPS of $2.49 faced the ongoing headwind of the stepup in interest expense and the UK corporate tax-rate. If we exclude the impact of these nonoperational items, our adjusted diluted EPS growth underlying was 13%. Let me share a few highlights of business activity in the quarter. And let me start with TAS. This quarter, IQVIA was awarded several noteworthy analytics contracts to support our clients go-to-market strategies. For example, an EBP client selected IQVIA to provide analytics around key prescriber and payer trend for the women's health products. In another significant win this quarter, IQVIA secured a large US data analytics contract with a top 10 pharma client that had been buying from a competitor for over a decade. We also received an award from an EBP clients to support the launch of their first branded product into the diabetes market. This will be an end-to-end [Indecipherable] solution, including field reps, inside sales reps, OCE, information management infrastructure, data analytics, commercial compliance and copay card operations. Also in the quarter, I'm sure you saw that we received an award from Sanofi to deploy our OCE platform within the Middle-East and Africa markets. Sanofi has been using IQVIA in many markets around the world to support their HCP engagements.

On the tech side, we've been getting some questions about our partnership with Salesforce, and I just want to confirm that IQVIA has been a key Life Sciences Partner to Salesforce for many years now with offerings that span from clinical to commercial. And we plan to continue the strong partnership with Salesforce, combining our life sciences domain expertise and intelligence with Salesforce technologies and platforms.

Moving now to real-world, we were awarded multiple rare disease studies from both large pharma and biotech clients. Highlighting our expertise and differentiated offerings within this growing therapeutic area, including innovative study design, patient recruitment and AI-enabled technology to provide unique solutions. Couple of examples. The top 20 large pharma awarded IQVIA a 10 year study to improve patient treatments for a rare genetic liver disease. A Japanese EBP clients awarded IQVIA two large post-marketing surveillance studies on the rare diseases in the circulatory nervous and muscular systems. Moving now to R&DS, we entered into a strategic collaboration with the Coalition for Epidemic Preparedness Innovations, CEPI, aimed at enhancing the world's ability to rapidly conduct clinical research for vaccines and other biological countermeasures against emerging infectious diseases. This collaboration is a key enabler of CEPI's mission goal, which is sponsored by the G7 and G20 countries to develop safe, effective and globally accessible vaccines against emerging disease outbreaks within 100 days.

We've also entered into an innovative strategic collaboration with argenx, a global immunology biotech company leveraging our Connected Intelligence capabilities we bring together end-to-end asset development services, ranging from regulatory to-market authorization to integrated technology-enabled pharmacovigilance safety tracking. This will allow argenx to accelerate the market launch of new rare disease therapies to autoimmune patients. In the quarter, a top 10 pharma client renewed their FSP partnership with IQVIA, as they look to design and launch the new clinical monitoring model. IQVIA, we could develop the solution, leveraging our expertise innovative tech-enabled approach and exceptional delivery performance. IQVIA, has been named a sole global medical information center provider by one of our large pharma clients. IQVIA differentiate in the market as the only provider to have successfully utilized an AI, natural language processing solution for medical information. As has been the case in the last few years R&DS continues to win big in oncology, with multiple awards in the quarter. A few examples. IQVIA One late-stage program with a biotech company developing immuno-oncology therapies, we were selected after successful delivery of an earlier-stage trial as well as our unparalleled data analytics to help identify patients and populations with unmet needs. We were awarded a Phase III oncology trial from a large cutting-edge biotech company. IQVIA was selected for our expertise in endometrial carcinoma cancer as well as our ability to accelerate trial start-up. This is an important trial given the unmet medical need and limited treatment options for patients with this condition. Also IQVIA was awarded two large global oncology trials from a pharma client. IQVIA was selected due to our strategic design and operational expertise in oncology, including our ability to manage multiple large complex trials and our experience managing the unique safety profile of these molecules. With that, I will turn it over to Ron for more details on our financial performance.

[Ron Bruehlman, Executive Vice President and Chief Financial Officer at IQVIA]

Thanks, Ari and good morning everyone. Let's start by reviewing revenue -- third-quarter revenue of $3,736 million grew 4.9% on a reported basis and 4.1% on constant currency. In the quarter, COVID-rebated revenues were about $95 million, down about $125 million versus the third-quarter of 2022. Excluding all COVID-rebated work from both this year and last, constant-currency growth was approximately 0.5%, as Ari mentioned acquisitions contributed about 150 basis-points of this growth. Technology and analytics solutions revenue was $1,431 million that's up 2.2% on a reported basis and 0.9% at constant currency, excluding all COVID related work, constant-currency growth in TAS was 5%. R&D Solutions revenue of $2,122 million, was up 7.2% reported and 6.4% constant currency, excluding all COVID-related work constant currency growth in R&DS was at 11%. Lastly, Contract Sales and Medical Solutions or CSMS revenue of $183 million was flat on a reported basis and up 0.9% at constant currency. Year-to-date revenue of $11,116 million grew 4.2% on a reported basis and 4.8% at constant currency, excluding all COVID related work constant currency growth was 11% year-to-date. Technology and Analytics Solutions revenue year-to-date was $4,331 million, up 2% reported in 2.4% at constant currency and excluding all COVID-related work growth at constant currency in past year-to-date with 7%. R&D Solutions year-to-date revenue of $6,244 million was up 6.5% at actual FX rates and 6.8% at constant currency, excluding all COVID-related work growth at constant currency in R&DS was 14% year-to-date. And finally Contract Sales and Medical Solutions year-to-date, revenue of $541 million declined 3.6% reported and increased 1.2% at constant-currency.

Lets move down the P&L. Adjusted EBITDA in the quarter was $888 million, representing growth of 9.1%, while year-to-date adjusted EBITDA was $2,603 million, up 7.3% year-over-year. Third-quarter GAAP net income was $303 million and GAAP-diluted earnings per share was $1.63. Year-to-date GAAP net income was $889 billion or $4.76 of earnings per diluted share. Adjusted net income was $462 million for the third-quarter and adjusted diluted earnings per share was $2.49. Year-to-date adjusted net income was $1,378 million or $7.37 per diluted share.

Excluding the Year-over-Year, impact of the stepup in interest rates and the increase in the UK corporate tax-rate, adjusted diluted earnings per share grew 13% in the third-quarter and 12% year-to-date. Now it's already reviewed R&D Solutions delivered another strong quarter of bookings backlog at September 30th stood at $28.8 billion, up almost 12% Year-over-Year and 33% higher in the last three years.

Okay, let's review the balance sheet. As of September 30th, cash-and-cash equivalents totaled $1,224 million and gross debt was $13,631 million and that resulted in net-debt of $12,407 million. Our net leverage ratio ended the quarter at 3.52 times trailing 12 month adjusted EBITDA. Third-quarter cash-flow from operations was $583 million, and capital expenditures were $146 million, resulting in free-cash flow, $437 million. And you saw in the quarter that we repurchased $144 million of our shares, which puts our year-to-date share repurchase activity, just slightly below $800 million. This leaves us with just under $2.6 billion in share repurchase authorization remaining under the current programs.

Okay, let's turn to guidance. We're updating our guidance to reflect both the slower-growth in the TAS segment and the headwind from foreign-exchange rates compared to our previous guide, we currently expect revenue to be between $14,885 million and $14,920 million, which represents Year-over-Year growth of 3.3% to 3.5%. Excluding approximately $600 million of COVID related revenue step-down versus 2022, this guidance represents growth at constant currency of approximately 9%, including about 140 basis-points of contribution from acquisitions. To reflect these changes in revenue we're also updating our guidance for full-year adjusted EBITDA to $3,560 million to $3,570 million and this represents a Year-over-Year growth at 6.4% to 6.7%. It also implies 70 basis-points of margin expansion for the year. Lastly, we're updating our guidance for adjusted diluted EPS to $10.16 to $10.23 which is flat-to-up 0.7% a versus the prior year. This includes the Year-over-Year, impact of the stepup in interest rates and the increase in the UK corporate tax-rate, if you were to exclude these items, adjusted diluted earnings per share is now expected to grow 11% to 12%.

Based on this full-year outlook, our implied fourth-quarter guidance is as follows. For revenue, between $3,769 million and $3,804 million or growth at 0.8% to 1.7% on a reported basis in 0.7% to 1.6% on a constant currency basis. Adjusted EBITDA is expected to be between $957 million and $967 million, up 4% to 5.1%, net yields, margin expansion of about 80 basis-points in the quarter. Adjusted diluted EPS is expected to be between $2.79 and $2.86, growing 0.4% to 2.9% Year-over-Year. Excluding the stepup in interest expense and the increase UK tax-rate, we're expecting fourth-quarter adjusted diluted EPS to grow 10% to 13%. Now all of our guidance assumes that foreign currency rates as of October 30th, continue for the balance of the year. Now, as-is our custom, we plan to provide you with the detailed 2024 full-year guidance on our Q4 earnings call in February.

However, while it's early and we're still in the midst of our planning process, we thought it would be helpful to share a preliminary view that would help you frame how we see 2024. We see reported revenue growth in the mid single-digits in 2024, this includes a further step-down of approximately $300 million in COVID revenue, which is about 200 basis-points of headwind to revenue growth, new as well as another 100 basis-points of headwind from foreign-exchange rates assuming current foreign currency exchange rates remain in effect for 2024. We see adjusted EBITDA margins expanding 50 basis-points and this will drive high-single-digit adjusted diluted EPS growth. Now I trust this preliminary look at 2024 is helpful to you. Again, we will as-is our custom, give you more detailed guidance and specificity for 2024 when we release our full-year earnings early next year.

So to summarize, despite client caution in spending levels below our expectations, TAS business continued to -- its growth in the quarter. While the near-term growth outlook for taxes is below our previous expectations. We're confident in the longer-term fundamentals of the business is our pipeline indicate there will be a rebound in-demand sometime in 2024. In the quarter, we delivered another strong performance in R&DS with 11% revenue growth at constant currency, excluding COVID related work. Quarterly net-new bookings were strong at over $2.6 billion, representing a book-to-bill of 124. And we've reached a historic high of $2.3 billion in services bookings, representing a services book-to-bill of 1.4. Our industry-leading backlog reached a new record of $28.8 billion, up approximately 12% Year-over-Year. And finally, leading indicators on the clinical side remained strong, as evidenced by our quarterly RFP growth at 10% versus the prior year, with growth across all customer segments.

With that, let me hand it back over to the operator to open up the conference for Q&A now.

Questions and Answers

[Operator]

[Operator Instructions] We request that you please limit yourself to just one question, so that others in the queue may participate as well. We'll pause for a moment to compile the Q&A roster. Your first question comes from the line of Elizabeth Anderson with Evercore ISI. Please go-ahead.

[Elizabeth Anderson, Analsyt at IQVIA]

Hi guys, thanks so much for the question. One thins that I was just trying to work-through for my own sort of benefit. The commentary I think Ari you alluded to in terms of some of the pullback in R&D spend on the pharma side under the sort of continued strength of R&DS in terms of bookings and what you're seeing in terms of RFPs, could you help us think about how you think about those two factors that commentary? Where you think farmers growth is going to be for the remainder of this year and next year and that and maybe remind us of how that's played out as prior cycles? Thank you.

[Ari Bousbib, Chairman and Chief Executive Officer at IQVIA]

Yeah, you're asking -- Elizabeth thanks for your question. You're asking about contrasting the pull-back in spend on the commercial side versus --

[Elizabeth Anderson, Analsyt at IQVIA]

Sorry, R&DS more specifically, sorry.

[Ari Bousbib, Chairman and Chief Executive Officer at IQVIA]

Yeah, but there is no pull-back on spend in R&DS. I don't think I said that. I said the opposite. Funding has been very strong. I'm sorry if I misspoke or was misunderstood. But there is no pullback in R&DS, quite the opposite. I mentioned in my introductory comments that the -- if you look at the EBP sector which has been under pressure and people have been concerned about, we see EBP funding in the quarter actually higher than it was last year. And I think year-to-date I mentioned that I think funding was up 8% Year-over-Year. So I also mentioned that we are experiencing a strong, continued RFP flow growth. It's actually up 10% in the quarter Year-over-Year. So I think it's quite the opposite. Our awards continue at a record-high level again, higher than last year. To give you some more color, a qualified pipeline is up 16% Year-over-Year and continues to be very, very strong. Our total pipeline as well, very strong record-high historically. I've mentioned our book-to-bill in the quarter is 1.24 and 606 basis, including pass-throughs. And when you exclude pass-throughs and you just focus on services, our book-to-bill is 1.4. Our services bookings were $2.3 billion in the quarter. That's a historic high for us. So again nothing that we see and we've been hammering this over and over again in the environment or in our own internal metric leads us to believe there is anything changed on the R&D spend. There are different dynamics. It is true that we see our clients, large pharma, especially on exploring new models with more FSP or hybrid-type of services awarded. I mentioned we won some large FSPs which explains, of course, the lower amount of pass-throughs in the quarter in our bookings. But other than that strong and our prospects for the business continue to be very strong on the R&DS.

[Elizabeth Anderson, Analsyt at IQVIA]

Thanks. Ari, that's super helpful. And so when we take those pharma R&D commentary that you said about some of the pullback in some of the spending cuts in there, you would say that you guys are seeing -- you're still seeing strong demand within that specific pharma segment maybe further and they're cutting costs by pushing more into FSP and maybe there some anecdotal large pharma companies that are cutting, but broader strength across that. That's the correct way to interpret what you're saying on the large-pharma?

[Ari Bousbib, Chairman and Chief Executive Officer at IQVIA]

Yes, yes.

[Elizabeth Anderson, Analsyt at IQVIA]

Okay.

[Ari Bousbib, Chairman and Chief Executive Officer at IQVIA]

I mean large-pharma you saw I think two-thirds of the top 10 large pharma and we know that that's basically the case, the vast majority of large pharma companies have announced either publicly or internally, a significant cost-cutting programs that's due to the macro-environment, which is very challenging. Concerns raised by the IRA and the general issues that we see geopolitical problems all over the world continuing in Europe, the Middle-East, and of course we have the situation in China, which has frozen the market for multinational corporations, in China. So all of those are headwinds plus the companies that were very active during the COVID years. We are seeing dramatic pullbacks in revenue and all of that is putting pressure on margins. And as a result, last pharma has been -- and I would say unusually so a very aggressive in launching cost-reduction programs. Now, I said before that, that is not reflected so-far we haven't seen that in the R&D side of the house. Again, I want to reiterate, very strong strength, I mean, good momentum in the business and all the metrics show that there is no slowdown there. Again, not surprising. It's a long-cycle business. However, we are bearing the brunt of those cost-reduction initiatives on the TAS segments where we see that projects that they should take a certain amount of time are taking a lot more time to get decided or awarded and we see our clients negotiating terms a lot harder than they ever were. And all of that has caused us to come short TAS segment in our revenues. But again, we're confident that this will rebound. We know this because the pipelines continue to be very strong, although TAS segments and if you look-back at every time there was a pullback of sorts from large pharma in history. Whether you go back to the 2018 period or anytime, some big legislation was enacted there was always a little bit of a pull-back. And then it came back, the company -- the industry is very innovative and comes back growing and our business goes along with it. So we're confident this will come back sometime in 2024. Thank you, Elizabeth.

[Elizabeth Anderson, Analsyt at IQVIA]

Thank you.

[Operator]

Your next question comes from the line of Charles Rhyee with TD, Cowen. Please go-ahead.

[Charles Rhyee, Analyst at TD Cowen]

Yeah, thanks for taking the question. Just wanted to follow-up on the TAS segment here. You talked about longer timelines. But when you are in discussions with clients, do they continue to express an attention to kind of continue with the projects or is -- or things are just on-hold? And how much of this is -- you mentioned the IRA, how much would you attribute to these pharma companies kind of reviewing pipelines and projects overall? And do you have a sense on how long that kind of process could take -- you mentioned sort of re-acceleration sometime in 2024, but do you think that's early next year or could that stretch into later next year? Thanks.

[Ari Bousbib, Chairman and Chief Executive Officer at IQVIA]

Yeah, well, thank you, Charles. I mean, look. I wanted to distinguish again between the clinical development side of the house and the commercial shorter-cycle part of the house where there are more pockets of spend that are more discretionary from a timeline standpoint. So, again, on the clinical side of the house. Yes, there are reviews of pipelines and so on, and which molecules are worthwhile developing there is more analysis. But this is at the early, early stage of the process. As you know, we are primarily almost entirely of Phase III Clinical Trial company. And so we are not seeing that and we will not be seeing that for another several years if it were to affect the pipeline.

I remind you that the number of molecules coming down the pipe is at a record-high. The number of FDA approval is at a record-high. And all of that bodes well for our clinical business and all the metrics that we see from funding through RFPs to awards to backlog and bookings are very, very strong. Once again, we had a record historically -- a historic high in services bookings in the quarter of $2.3 billion, representing a book-to-bill ratio of 1.4 excluding pass-through. So that's for the clinical side of the house.

We have not seen the impact of any revisions or rethinking of pipelines so-far. On the commercial side, that's the area where we are seeing an impact of our clients being more cautious, more conservative, stepping back from some of the projects, they were planning to do, but for the most part, what we do, except again for the discretionary part must be done. There is discretion with respect to timing and of course clients are being more aggressive in terms of seeking a price reductions and better terms and so on. The pipelines that we have indicate that demand is still there. To your question, when people say to us they will no longer do a project, it's no longer in our pipeline. But if it remains our pipeline then it means the client still intends to do it. It's just that the timeline for decision-making has been pushed to the right. What explains it, it's again general concerns about the economy, general concerns about the macro or geopolitical issues. The pressures resulting from sharp revenue declines post COVID and what that entails from a margin point-of-view. As I mentioned in my introductory remarks, we are very large vendor to pharma and to large pharma in particular. And when large pharma seeks to improve their margins, they seek to reduce costs and obviously they come to us for further reductions. And that elongates timelines and of course, it will [Technical Issues] its pricing as well on our side. All of that has resulted in us coming short on our revenues along with as we mentioned in the introductory remarks the significant FX headwinds versus what we had guided to before. So that's the environment. Thank you for your questions.

[Charles Rhyee, Analyst at TD Cowen]

Yeah, sorry, I meant portfolio review but --

[Ari Bousbib, Chairman and Chief Executive Officer at IQVIA]

Portfolio on the R&D side?

[Charles Rhyee, Analyst at TD Cowen]

No, no on the commercialization side, I misspoke. I meant, how much of the impact is sort of -- as a -- has that had an effect on when pharma was portfolio reviews and where they put their discretionary spend. But it sounds like you're saying it's more just the general macroenvironment that has an impact on --

[Ari Bousbib, Chairman and Chief Executive Officer at IQVIA]

Yes, I remember the IRA hasn't had any concrete -- significant concrete impact yet on the market. This is all based on hypothetical developments and down the line. So that just adds another cloud of uncertainty and in anticipation of that uncertainty that causes management teams to appropriately seek cost containments. That's all.

[Charles Rhyee, Analyst at TD Cowen]

Okay. Appreciate it. Thank you.

[Operator]

Your next question comes from the line of Dan Leonard with UBS. Please go-ahead.

[Dan Leonard, Analyst at UBS Group]

Thank you. I just wanted to circle back here 2024 framing commentary that Mid-single-digit growth figure. Can you speak to your expectations between the TAS segment in the R&DS segment? And then in in 2024, do you expect any meaningful difference in growth rates between the direct fee revenue and total revenue? Thank you.

[Ari Bousbib, Chairman and Chief Executive Officer at IQVIA]

So, again, this is a very -- we thought it would be helpful just because it's uncertainty and you will recall that even in the -- at the peak of COVID, we decided to give you guidance early. And we're doing this because we hope that that's helpful to you. Now, it's an initial outlook based on where we are in our planning process, we have not completed our planning process. So I would caution you that this is again preliminary and we will come back as-is our custom, when we release full-year earnings early in 2024 wiht detailed and precise guidance by segment, etcetera. Just on your question, we are guiding to mid single-digits overall revenue growth. That includes $300 million of step-down from COVID and I think that's essentially more in R&DS. So if you added that back to our total revenues that would be another couple of 100 basis-points on-top of that. And of course we have -- we expect a 100 basis-points of foreign-exchange headwinds assuming FX rate remains where they are today.

So when we say mid single-digits, that's really on a reported basis. Once you adjust for the COVID stepdown and FX, it's more high-single-digits, which I'm sure you agree for an about $15 billion revenue company is quite an achievement in the current environment. With respect to segment growth, I think it's too early to give it to you. Obviously, we have an idea. I mean I just gave it to you when we tell you that the COVID impact is a 100% in R&DS, you can just assume that we are expecting essentially for now assume about the same across the segments, that is mid single-digits, I would say. Okay, before the COVID adjustments.

[Dan Leonard, Analyst at UBS Group]

Thanks, Ari.

[Operator]

As a reminder, we ask that you please limit your questions to one. Your next question will come from the line of David Windley with Jefferies. Please go-ahead.

[David Windley, Analyst at Jefferies Financial Group]

Hi, good morning. Thanks for taking my question. Ari, I wanted to focus on margin. You commented in your prepared remarks about productivity initiatives that you took in the third-quarter. You're talking about the bookings mix being heavy to service, and so that could be beneficial in R&DS to EBITDA growth. Just wondered if you could talk expansively about any further productivity initiatives that you might be able to take, and kind of what are the drivers to get you to that 50 basis-points of EBITDA margin expansion for next year? Thanks.

[Ari Bousbib, Chairman and Chief Executive Officer at IQVIA]

Well, thank you Dave. Look, I mean the productivity initiatives I mentioned, not just in the third-quarter. You will recall, we started this towards the end of last year, that's what has led us to be able to address the revenue shortfall, and not completely bear the brunt of that reduction falling through EBITDA. We've been able to offset a lot of that headwind with those cost-reduction program. It takes time. As you know, if the actions that we took in Q3, I'm not going to be -- bear benefit in Q4, Q1, Q2 of next year. When we're positively taking actions to restructure our overhead structure to review our spans of control globally to continue our offshoring programs to review our infrastructure footprint that includes real-estate, it includes IT, it includes all of that infrastructure that we need to run our business. And all of those cost factors along with mix of -- the proper mix of insourcing, outsourcing, and as I mentioned, our continued offshoring of certain activities and taking advantage of our labor arbitrage among our different centers, whether it's in the Philippines, in India, in Bangladesh and South America, etc,all of those things are being done on an ongoing basis and we see the benefit in our margins this year and the actions we took for example, in the third-quarter, the carryover benefit will materialize in Q4. So the -- and in following quarters during 2024. The reason we feel confident about a 50 basis-points margin expansion in 2024 is because we see that it's the carryover of the actions we took this year that will benefit on a full-year basis 2024. And of course, we don't intend to stop those actions selectively.

[David Windley, Analyst at Jefferies Financial Group]

That's great. Thank you. I'll stay to one. Thanks.

[Operator]

Your next question will come from the line of Justin Bowers with Deutsche Bank. Please go-ahead. Justin, your line might be on mute?

[Justin Bowers, Analyst at Deutsche Bank Aktiengesellschaft]

Thank you and good morning everyone. So just wanted to take a step-back and with respect to some of the cost-cutting programs that we've seen large pharma announced, what is IQVIA's opportunity to sort of participate in some of that and help drive some of those savings you whether it's in sort of RDS or TAS? And then, secondarily on the outlook for 2024, what's the M&A assumption embedded in that growth rates?

[Ari Bousbib, Chairman and Chief Executive Officer at IQVIA]

Thank you, Justin for your question. Yes, we are actively engaged with our customers to help them with our cost-reduction programs. Look, we have to. We are a large vendor to large pharma across-the-board, clinical and TAS. And they come to us and ask us to help them. So we have an opportunity to do that. Obviously, it affects our revenue growth. That's primarily the case in TAS because that's where the pricing changes and the renegotiated terms impact us almost immediately, less so in R&DS but mostly in TAS.

Now the opportunity if you will, for us is that in those conversations, we tried to offer more services and that has always been the case. That's the traditional way of engaging with our clients when they seek cost reductions. We tried to capture a bigger share of their spend in exchange for being able to deliver those services at a lower price points. And so the benefit for us is longer-term, we get a bigger piece as they give us some more volume. We've seen that happen frankly on the commercial side and on the R&D side over the past five-six years and certainly since the merger. And we certainly hope that that will materialize, but it will take a couple of years to materialize because when clients need to switch vendors it takes time to let the contract end and convey them to us.

Your next question was on the --

[Unidentified Speaker, at IQVIA]

Acquisition impact, its about a 100 basis-point.

[Justin Bowers, Analyst at Deutsche Bank Aktiengesellschaft]

Got it, thanks.

[Ari Bousbib, Chairman and Chief Executive Officer at IQVIA]

Again, that's the assumption for 2024 at this stage.

[Speech Overlap]. When we come back, we'll give you more guidance. This is really not guidance, it's really a preliminary look at where we are.

Thank you Justin.

[Operator]

The next question will come from the line of Shlomo Rosenbaum with Stifel. Please go-ahead.

[Shlomo Rosenbaum, Analyst at Stifel Nicolaus]

Hi, thank you very much. I just wanted to drill down a little bit more into TAS. Ari, you talked about the discretionary areas, maybe you can just hit a little bit more into -- is it consulting, BPO software data sales, maybe just a little bit more detail as to how growth is trending within each one of the sub-segments and I know you don't break it out exactly revenue-wise, but it is helpful to kind of think about what's going on beneath the surface.

[Ari Bousbib, Chairman and Chief Executive Officer at IQVIA]

Yes, thank you Shlomo, for the question and the opportunity to clarify. Look, the TAS segment has continued to grow in the quarter. I mean you know and you can look at large cap companies that serve the life sciences industry with products and services supporting post drug introduction in the market. And you can see that they almost uniformly are showing declining growth this year and sharp declines in the quarter for those reported. Now we continue to have growth. And the reason for that is because some of the stuff is longer-term and is somewhat mission-critical, I'm speaking about data, their stuff that's -- technology licenses, subscription, recurring revenue all of that continues as-is, and that's what is enabling us to continue to deliver growth.

However, the part of our business that are more discretionary and when I say discretionary I don't mean to say that our clients may decide simply not to go-ahead. It happens, but that's a small proportion of [Indecipherable], it means that it can be done later. It means that it can be done in a different way. Perhaps in a quote and quote slimmed down version, less bells and whistles. And so the consulting and analytics a part of our business, you guys, you know, is about a quarter of our revenues is showing sharp declines, sharper than we would have expected. Some of the projects have simply fallen off. But the pipelines are still there. That's what gives us confidence for a rebound in 2024. We know that these projects has to be done. The clients are just taking a lot more time to make a decision. They are negotiating us a lot longer and a lot more and a lot more aggressively and this is what has happened. This is -- I mentioned in my introductory remarks a few examples of significant wins in TAS and these are almost uniformly, these types of projects. Helping clients launch a large products in new markets, helping them with their go markets go-to-market strategies. These are things that have to be done and the projects that we won in the quarter frankly, some of those, we should have won in the first-quarter. They the pipeline since last year. So the decision timelines have extended. And the terms have been tougher. That's what has happened. I hope that color helps you.

[Shlomo Rosenbaum, Analyst at Stifel Nicolaus]

Thank you.

[Ari Bousbib, Chairman and Chief Executive Officer at IQVIA]

Thank you.

[Operator]

Your next question comes from the line of Luke Sergott with Barclays. Please go-ahead.

[Luke Sergott, Analyst at Barclays]

Awesome, thanks. So you talked about the large FSP win. You're seeing a lot more shift to that type of hybrid model. And you've talked in the past about this being really in cyclical in nature. But this has also come at a lower-margin. So, help us think about like the duration, the size of the FSP wins that you had and if we should expect some mix headwinds to your future, over the next three months to a year on this business from regarding RDS side.

[Ari Bousbib, Chairman and Chief Executive Officer at IQVIA]

Thank you, Luke. Yes, you're absolutely correct that an FSP award comes at the lower booked margin than a full-service program. And you're also correct that is a cyclical development in the industry. I recall very well that at the time we did the merger seven years ago, you're coming into at the time, the legacy Quintiles organization, it was explained to me that the industry was now in the midst of a switch from full-service to FSP. And as a result of which Quintiles at the time had pulled back from servicing these clients, because they don't want to do FSP work, given its lower-margin profile. I thought at the time, that was a strategic error. And we since then of course had decided to serve our clients with the full portfolio of services including FSP and including full-service and including hybrid and everything else. We serve clients, we don't push offerings. So if at this point in time, our clients are interested in more FSP or more hybrid models, that's where we will sell to them. It is then incumbent upon us to work on our cost structure to try to recover margins when we execute the work at a higher-level than what we booked it out and try to continue to develop cost-containment and cost reductions so that we can offset the margin mix impact.

Look, we are very large company. We are executing thousands of trials at any given point in time. We manage portfolio of businesses. Once again, we are about a $15 billion revenue company growing mid single-digits. Before you account for the step-down in COVID revenue or the FX headwind and we are at adjusted EBITDA margins of 24% and we are expanding those margins. And we intend to continue that model well into the future despite cyclical headwinds that may occur whether it is a tougher spending environment on the TAS side, whether it is a switch to FSP from some of our large pharma clients. You saw in the quarter again, $2.3 billion of services fee revenue excluding pass-through bookings resulting in book-to-bill of 1.4, again a historic high in bookings that included some FSP wins. Again, not to -- anything that would move the needle dramatically but on a large number like this, you can see that we have less pass-throughs that will materialize in our margin mix in the next couple of years, not next quarter, obviously. And we fully intend to offset that with our cost reductions and continued to increase our margins. Thank you for your question.

[Luke Sergott, Analyst at Barclays]

Thank you.

[Operator]

Your next question will come from the line of Jailendra Singh with Truist Securities, please go-ahead.

[Jailendra Singh, Analyst at Truist Securities]

Yes, thank you and thanks for taking my questions. I want to ask about the capital deployment strategy over the next 12 months. Has there been any change there in terms of your priority to pay-down debt versus buyback shares or even M&A allocation? And one quick clarification, what is the magnitude of the swaps rolling-off next year?

[Ari Bousbib, Chairman and Chief Executive Officer at IQVIA]

First question and the second question, I'll give to the technicians here. The first question on capital allocation, look, that it's fascinating -- we are getting from our investors two different messages. One is please, please reduce your leverage and one is please, please do not change your leverage. I have to tell you, we historically, have been living with level of leverage that admittedly higher than others. We are at around 3.5 net leverage right now. I wanted to just for the anecdote, tell you that we've had in the past much higher levels of leverage and their much more difficult market conditions and much lower levels of cash-flow conversion. And we've lived with that nicely because we have a highly predictable, high-visibility business model. Our strategy has been a to invest in the business and capital expenditures to innovate new products and services. B, buy companies that are assets that are accretive and enable us to grow faster and see returning money to our shareholders through share repurchases.

And that has been a very effective strategy, especially when rates were extremely low. I remind you that, just two years ago treasuries were at zero. A zero. And I'm very glad that we had that amount of leverage. Today, treasury is at 5.5. I mean, we've never seen in history such a sharp dramatic rise in interest rates in such a short period of time. Obviously, we are paying the brunt of our leverage, the price of that leverage because of that and it's costing us 10 points, 10 points of growth in earnings per share. However I would argue that mid single-digits treasury rates is high versus zero. But it's not the end-of-the world.

I would also tell you that we bore the brunt of that sharp increase in interest rates this year in 2023. And assuming like everyone else assumes that the curve, if it needs to be believed indicates the stabilization and even a potential decline, then that should be a headwind, I'm sorry, a tailwind to our EPS going-forward. And we don't anticipate a sharp increase in rates, or in interest expense going-forward. And so therefore, we should be able to resume strong EPS growth going-forward. That's for the leverage.

Having said that, we are working as we speak on obviously the refinancing and readdressing, some of the shorter-term maturities, which we have in 2004 and 2025, and we'll do that soon, hopefully. And that will continue to alleviate that headwind that we faced this year in interest expense and continue to stabilize our balance sheet.

But for now at least we intend to continue to use our cash to invest in the business and do acquisition and share repurchase. Especially at the levels where we are. Thank you for your question. Any comment on the swap?

[Unidentified Speaker, at IQVIA]

We have about $800 million of swaps rolling-off in the second-quarter of 2024. Do you want to add anything to that Nick?

[Nick Childs, Senior Vice President, Investor Relations and Treasury at IQVIA]

Which is at about an average rate of about, somewhere between 2% and 3%. So will be a headwind next year, but not to the extent that you saw on the swap that rolled-off this year.

[Jailendra Singh, Analyst at Truist Securities]

Got it, thank you.

[Ari Bousbib, Chairman and Chief Executive Officer at IQVIA]

Yes, thank you very much.

[Nick Childs, Senior Vice President, Investor Relations and Treasury at IQVIA]

All right, well thank you everyone for joining us today. We look-forward to talking to everyone on our next call. And myself and the team will be available for any follow-up calls and any other follow-up questions, you have across today and over the next few days. So feel free-to reach-out. Thanks everyone for joining.

[Operator]

[Operator Closing Remarks]