Q1 2021 IQVIA Holdings Inc Earnings Call
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Ladies and gentlemen.
Operator, today's conference is scheduled to begin momentarily until that time your lines will again be placed on music hold thank you for your patience.
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Ladies and gentlemen, thank you for standing by at this time I would like to welcome everyone to the Itbs strength quarter 2021 earnings conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question and answer session.
You would like to ask a question. During this time simply press star followed by the number one and your telephone keypad. If he would like to withdraw your question press the pound key.
As a reminder, this call is being recorded.
I would now like to turn the call over to Andrew <unk> Senior Vice President Investor Relations and Treasury. Mr. Mark quick please begin your conference.
Thank you Casey.
Good morning, everyone. Thank you for joining our first quarter 2021 earnings call.
With me today are already BP, Chairman and Chief Executive Officer.
Ron Goldman Executive Vice President and Chief Financial Officer, Eric.
Eric Sherbet Executive Vice President and General Counsel, Nick Childs Senior Vice President of financial planning and analysis and.
On new comments on this call, Brian Stangl Associate director Investor Relations and Brian is succeeding succeeded Gen health checks.
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 on the events and presentations section of our IQ via Investor Relations website at IR <unk> com.
Yes.
Before we begin I would like to caution listeners that certain information discussed by management. During this conference call will include forward looking statements.
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 Gucci.
Good morning, everyone and Bob.
Thank you and welcome and thank you for joining us today.
This morning, we reported first quarter results.
Strong double digit growth in all key financial metrics and as a result of this performance.
And an improved outlook for the rest of the year, we have once again raised our guidance.
The 2021 guidance that we provided to you last quarter was on.
Already within reach.
Regional free Covid plans for 2021.
Our revised guidance today significantly exceeds those or regional plans.
In many ways.
<unk> 'twenty was a reset year for our company and also for the industry.
We've been saying for a long time that the traditional timelines for the development of new drugs.
Too long.
The speed at which Covid vaccines were developed in 2020 has obviously raised the bar in terms of what expectations should be.
The crisis accelerated the adoption of new technologies, and we believe it will force a lasting change in how innovative medicines are developed.
And commercialized.
All of these has made <unk>, even more relevant to our clients and has highlighted the power of our differentiated offerings.
The deep client engagements that we had during the pandemic demonstrated how uniquely positioned we are to bring new insights on expertise that I can improve drug development and commercial timelines.
What is also becoming clear is that there is a lot of pent up demand new.
New two one.
Net trials that will slow down or temporarily pushed to the right.
And to.
The trials that did not get started as they were crowded out by the Covid resolution efforts on which everyone was focused.
We spent up demand across therapy areas combined.
Record levels of biotech funding.
Provide a very strong backdrop for our industry.
Okay.
As a result on these favorable conditions, we've started the process of revisiting our vision 2022.
<unk>.
We plan to update you later this year on our vision 22 progress.
And laid the groundwork for the next phase of auction.
We may do this at an Investor Conference later this year, especially if we are able to on one in person.
So stay tuned for more information.
So now let's review the quarter.
Revenue for the first quarter grew 24% on a reported basis on 21% at constant currency was $209 million above the high end of our guidance range, but.
But about half of these beat came from strong operational performance and half was from higher pass throughs.
First quarter on adjusted EBITDA grew 32%, reflecting our revenue growth and productivity measures.
The $69 million beat above the high end of our guidance range was entirely due to the stronger organic revenue performance.
First quarter adjusted diluted EPS of $2 and 18 fence grew 45%.
The beat here entirely reflects the adjusted EBITDA drop through.
A little bit more color on the business.
Our commercial technology presence continues to grow as we launched new offerings in the market.
During the quarter, a top 10 pharma client deployed our next best action solution in 14 countries.
This too is a SaaS based technology platform that Optimizes, our clients' sales force effectiveness. It increases the success of their marketing activities by providing automated sales call recommendations for the field.
Based on advanced artificial intelligence and machine learning algorithms.
Our base on <unk> CRM win rates remained strong.
We added another 10, new clients this quarter and now have 150 clients deploying about 70000 users.
Our E coli technology platform or electronic clinical outcome assessment tool, which is used by our real world as well as R&D teams is also experiencing strong demand there.
This cloud based platform utilizes a user friendly interface.
To collect clinical data directly from patients.
We launched this solution during 2019 and the team is seeing strong user acceptance to date.
We've been awarded over 125 studies with over 300000 patients enrolled and over 4 million surveys completed.
Moving now to our MBS.
We continued to build on our strong bookings momentum in our <unk> business in the first quarter, we achieved a contracted net book to Bill ratio of one point to 41, including pass throughs and 141, excluding pass throughs.
At March 31, our LTM contracted book to Bill ratio was 152, including pass throughs and 145, excluding customers.
These numbers are all day more impressive obviously, given our strong revenue growth.
Our contracted backlog in RMB is including pass throughs grew.
Through 18, 3% year over year to $23 2 billion at March 31, 2021, as a result.
Our next 12 months revenue from backlog increased by over $600 million sequentially to $6 5 billion, that's up 31, 1% year over year.
The R&D team is building on the success, we experienced in 2020 with our hybrid virtual try on offering or the thermal vault is now a decentralized trials.
In the first quarter, we want decentralized trials, new therapeutic areas, including cardiovascular and metabolic disorders.
We are working with five of the top 10 pharma clients and to date.
Crude could almost 170000 patients using our advanced decentralized trials solutions.
On the lead.
You saw that on April one we completed the acquisition of the remaining interest in Q squared solutions from Quest diagnostics as you know Q squared is an industry, leading laboratory service provider for clinical trials with global capabilities across safety Bioanalytical vaccine genomics.
And bioanalytical testing, along with best in class technology, and bio specimens and consent lifecycle management.
This transaction streamlines strategic decision, making for us and gives us the flexibility to build out great for bioanalytical genomic and biomarker capabilities as we see increased attractive growth opportunities in these expenses expanding market.
With that I will turn it over to Ron for more details on our financial performance Ron.
Thanks, Ari and good morning, everyone.
As already mentioned this was a very strong quarter.
Let's start first by giving you some more detail on revenue.
First quarter revenue of 3 billion on $409 million grew 23, 8% on a reported basis and.
And 21, 4% at constant currency.
Technology and analytics solutions.
<unk> revenue per the first quarter was $1 $348 million.
Which was up 27 current strength.
Reported and $17 one per se.
At constant currency.
R&D solutions first quarter revenue of $1 billion and $868 million improved 29, 6% at actual FX rates and 28, 1% at constant currency.
Pass through revenues were a tailwind of 770 basis points to the R&D at CSM net revenue of $193 million was down one 5% reported and four 1% on a constant currency basis.
Moving down the P&L adjusted EBITDA was $744 million for the quarter.
Margins expanded on 140 basis points, despite significant headwinds from higher pass through revenue.
And lower margin Covid work.
GAAP net income was $212 million and GAAP diluted earnings per share were $1 and non track.
Adjusted net income was $425 million for the first quarter was sent to $2 eight.
R&D solutions delivered another exceptional quarter of net new business backlog was up 18, 3% year over year to $23 2 billion.
At March 31.
Next slide.
Efficacy and currently standard.
$6 5 billion.
31, 1% year over year.
And of course this metric now includes the first quarter of 2022, because it further indication that we see the momentum on the business continuing beyond this year.
Now I'd like to review the balance sheet.
At March 31, cash and cash equivalents totaled $2 3 billion.
And that was $12 2 billion, resulting in net debt of $9 9 billion.
Our net leverage ratio at March 31 improved to three nine times trailing 12 month adjusted EBITDA.
Marking the first time just following the merger debt.
On a ratio was below four times.
And this is particularly noteworthy you may recall that in 2019, when we gave you our three year guidance.
We are committed to delever to four turns or below exiting 2020 share and we're pleased to have achieved this target entering 2021.
First quarter.
Cash flow free cash flow on particular with very strong cash flow from operations was $867 million.
Capex was $149 million.
Growth in free cash flow of $718 million.
We repurchased $50 million of our share during the quarter.
Which leaves us with $867 million share repurchase authorization remaining under the program.
Now, let's turn to guidance Youll recall that in the back on April one when we announced the acquisition of quest, 40% interest in our Chief square joint venture.
We raised our 2021 EPS guidance by <unk> 12 to reflect the elimination of <unk> minority interest in the joint Venture's earnings.
We are after revenue and adjusted EBITDA guidance unchanged of course, because we already consolidated.
And then <unk>.
On foundation financials of the joint venture.
Prior to the transaction.
Where today, we're revising our guidance upward again as follows.
We are raising our full year 2021 revenue guidance, both at the low and high end of that range, resulting in an increase of $625 million at the midpoint of the range.
The new revenue guidance of $13 billion and $200 million to $13.500 billion.
Which represents a year over year growth of 16, 2% to 18, 8%.
This increased guidance range reflects the first quarter strength and the continued operational momentum that we see in the business.
And also absorbed an FX headwind versus our previous guidance.
Now compared to the prior year FX is expected to be a tailwind of about 150 basis points to full year revenue growth.
From a segment perspective, we now expect full year technology and analytic solutions revenue to grow at a low to mid teens percentage rate and R&D solutions growth in the road in mid 'twenty.
Our previous expectation net revenue in the <unk> M at CES MFS business would be slightly down remains unchanged.
We're also raising our full year profit guide low and high end of the range, resulting in an increase of $133 million at the midpoint.
Our new full year guidance, it's $2.900 billion to $2.965 billion.
Moving to EPS.
I've mentioned that Q squared transaction on April one.
One as a result of that we raised our adjusted diluted EPS guidance by 12 to.
To a new range of $7 89 to $8 20.
We're now raising both the low and the high end of that guidance range.
Our resulting in a new adjusted diluted EPS guidance of $8 50 to $8 75.
Or year over year growth of 32, 4% to 36, 3%.
Revenue in detail on the peak P&L interest expense is expected to be approximately $400 million for the year on.
Operational depreciation and amortization is still expected to be somewhat over $400 million.
And we're continuing to assume an effective tax rate of approximately 20% for the full year.
This guidance assumes debt.
Current foreign currency exchange rates remain in effect.
For the rest of the year.
Now, let's turn to the second quarter guidance.
Moving FX rates remain constant through the end of the quarter second quarter revenue is expected to be between $3 billion $225 million and $3 billion $300 million.
Which represents reported growth of 27, 9% to 39%.
Adjusted EBITDA is expected to be between $690 million $715 million.
Which represents reported growth of 42 nine percentage of 48.0% and finally adjusted diluted EPS is expected to be between $2 and $2 10 up 69, 5% to 78%.
So to summarize we delivered per.
Strong first quarter results once again reporting double digit growth in all key financial metrics.
This included revenue growth of over 20% in both our has an R&D segment.
R&D backlog improved to $23 2 billion.
18% year over year next 12 month revenue from that backlog increased to $6 $5 billion up 31% year over year.
Free cash flow was strong again this quarter net of average improved to three nine times trailing 12 month adjusted EBITDA.
And finally, given the strong momentum we see in the business. We are once again, raising our full year guidance for revenue adjusted EBITDA and adjusted diluted EPS.
Before we open up the call up for Q&A I'd like to make you aware of a couple of leadership changes within GBS Finance organization.
Andrew Markwest, who has led our investor relations function for the past four years with very Capably I think youll agree is moving on to become CFO of the R&D for the <unk> unit.
Net child, who currently runs our corporate SG&A function will take over as SVP of Investor Relations and corporate communications.
Net debt expanding his role for over three years and has a very deep knowledge of the company and our financials.
And he will be succeeded by Mike <unk>, who has served as CFO of the R&D FTE on it for the past two years.
Our final regarding the new on the fixed income side no debt and who has also served as our treasurer for the past couple of years and.
Manny <unk>, who is our corporate controller will also assume leadership of the treasury function going forward.
Now rest assured Andrew will stay around for a few days to finish up the quarter and take all your questions and to assure a smooth transition to both Nick and Mandy.
And with that let me hand, it back over to Casey, who will open the call for Q&A.
Okay.
At this time I would like to remind everyone to ask a question.
Alright Star then the number one on your telephone keypad.
Thank you.
On the kidney Ross.
And your first question here comes from the line of Robert Jones from Goldman Sachs. Please go ahead. Your line is now open.
Great Good morning, congrats to everyone and especially Andrew.
Hopefully we will see.
We'll still get to communicate on senior you won't Miss having to talk to all of US all the time.
I was going to ask about.
The long term guidance, but I think it sounds like I can anticipate the answer will be wasteful wait till later this year, obviously the updated revenue guidance today. It looks like it's a CAGR of 9% to 10% off on 19 so.
Like if I heard you right, we'll get more on that later, so so instead, maybe I'll just go back to.
So a bigger industry question around M&A, Ron you mentioned getting the leverage below the targets that you guys had set out then clearly there is a ton of activity in this space right now so I'm curious as you look at the business and you look at some of the movement around you in the space and what your competitors are doing do you feel like there are capable.
<unk> that you really need to go out and buy to an answer or build out what you're already doing or do.
Do you think ITV is in a pretty a pretty formidable competitive standpoint, where it is today.
Alright, well.
John.
I'm, sorry, Paul elements like low Robert.
Lots of questions here.
And then on the minded view of our long term question either but.
On the reason why we think we need to update on long term guidance as you may recall in June 2019, we share with our three year planning process and the goals that we set for ourselves we had called both on the top line and on the productivity measures and.
And the continued efforts to re engineer the company and make it more efficient and we set some targets in terms of topline and bottom line growth at the time.
Now obviously a lot has happened 2020 as I said in my introductory remarks were was largely a reset year.
And therefore, we feel it's appropriate to pause and.
Update you on the progress we've made.
And.
Look I think I'm not going to shock anyone to say that when we think that those targets are no longer relevant on the revenue.
Likely.
Blow through those numbers in 2022 to give you some more precision we see low we need to complete our our planning process and then when we readied neither of these share we'd hopefully have an investor conference similar to what we had in June 19, and then.
Update 22, and obviously try to give you a sense for the new maybe 2025 targets. So that's where the long term.
Strategy and goals with respect to M&A activity in this sector.
We're not surprised.
Since the merger.
We I.
IMS and Quintiles backing 16th now we're approaching the future anniversary.
Lots of activity has occurred we believe strongly it's in reaction to what we did.
We disturbed and disrupted the industry, which was the goal of the merger. We believe we are accomplishing the goals. We have set for ourselves on the time will be the strategy was right. The strategic rationale was right.
And hence the flurry of activity to try to acquire those capabilities any way possible and.
Net borrowing ability to acquire those technology data and analytics capabilities, and then see how roes are compelled to either sell themselves.
Sure.
And that's all I'll say on what's happening.
With respect to our own M&A activity, we've said before that we were.
And in deploying capital.
To acquire.
Strategically compelling company that added capabilities, we've done that mostly in the technology area to accelerate.
The growth of our technology business and the acquisition of those capabilities.
We will of course look every time that.
In assets debt.
Within our businesses Q2, GAAP wholesale on a new problem or no.
Those have been or are and we look.
And we do the work.
Case, we fast so far.
So thats all I want to say I mean, we've said before that we have we have a lot on liquidity, we have now between the $2 $2 billion at the end of the quarter.
And the $1 5 billion of untapped.
Revolver capacity debt.
Three $8 billion, obviously new used.
$760 million of that on April one.
For the acquisition of the minority stake in the non business, which we are really excited about.
And so we have three.
The new over $3 billion of cash on.
<unk>.
Deployable.
And we draw the spending.
On internal developments be on strategic acquisitions and then.
Volume all of that.
We would.
The balance of available cash.
We are distributing to shareholders via share repurchases as we've done historically.
Thanks Robert.
Eric.
Your next question comes on the line of Eric Coldwell from Baird. Please go ahead. Your line is now open.
Hey, Thanks, very much good morning.
Things, we get hit on here, but I know I'm going to get inbounds on the Covid stats for the quarter and the year, if youll bear with me on this I know it gets laborious, but.
Would it be possible if you if I if I'm sorry, if I missed it to update the number of trials you've been awarded to date on Covid.
Any insights into the percent of revenue in Q1 or your outlook for the year related specifically to COVID-19 vaccines or therapeutics.
Something on the percent of backlog that is represented by COVID-19 or any comments on the pipeline.
Activity around Covid studies that would be great. Thank you. So much. Thank you Ari so luke on the.
The number of trials that more production on the number of fronts I can certainly move the most irrelevant.
In fact from Colby <unk>.
The Covid vaccine.
Trials, which are large and fast burning as you note.
And so that's really what's moving the needle we've got lots of.
A small.
Covid related activity, new all around the company, but that doesn't move the needle what moves the needle all of these.
Covid vaccine trials and as you know.
Of the five.
On phase III.
On large vaccine trials funded by operational Wolf speed, we've had work on four of them now we haven't done the full clinical trial.
On all four of them we've done it on two of them.
And the other one is on the third one on we've got the former Covid <unk> work and on the other one we have the lab work. So those are the ones that have had the most impact with respect to.
The impact on them.
The first quarter.
Excluding these.
Work.
R&D as revenue grew mid teens.
So.
That's the impact in the first quarter what was your other question that you also to point out that the Covid work has had an impact on the first quarter growth.
Four.
Force has as well as you know we've said that on previous earnings calls.
We've had demand from governments around the world in the U S. The FDA.
Europe and Asia as well.
<unk>.
Those have also provided.
High growth in the first quarter without those activities.
<unk> revenue growth would have been.
In the high single digits, so roughly I think you could say that COVID-19.
Contributed.
All these large fires burning COVID-19 work and <unk> contributed about half of the total company revenue growth.
What was your question on the on the I guess on the on the <unk> backlog you asked.
What it is as a portion of the backlog if I recall, Andrew correct me if I'm wrong.
If we look at the surface.
Backlog non MBS.
In the high single digit shift that's correct.
Yes, so thats what it represents now it doesn't have a much longer tail debt.
Then we would have thought.
It certainly is going to remain with us through 2021 and well into 2022.
There are many reasons for that there are many vaccines from multiple manufacturers that are being developed to meet global demand we are.
<unk>.
Skin responding to rfps for vaccines around the world and many other countries that want to develop their own vaccines.
There are follow ups buttons for adapting the vaccines for the mutations of the virus.
There are alternative versions of the vaccine that would be needed in case of adverse safety events or in case of OTT on manufacturing issues.
And then there are bunch of novel treatment programs that are targeted at a specific population specific conditions and then there is a lot of safety monitoring work.
That is also.
In the pipe.
So again, the first point that I understand the context of your question is that Covid.
Related work is not going away anytime soon.
And he's here for a while and we're very happy that you have.
Our fair share of that.
Market, what I'll also say.
Because I know you didn't ask the question Youre going to ask Keith soon.
Soon.
On the RFP pipeline across the board he is very strong well beyond.
Covid.
In fact, we are.
Pipeline of qualified Rfps.
Approaching $25 billion, if I remember correctly.
'twenty three is.
It's over $23 billion.
And on.
It's growing.
Double digits, both in volume and in value.
Again bear in mind as I said in my introductory remarks debt.
The work that should have happened in 2020 on all those other trials that were either about to start or starting on slide four.
So it was kind of slowed down or pushed to the right.
So because of that we've got.
That pent up demand, that's coming out and number two.
Lots of projects that normally would have come in.
Displace crowded out by the efforts that everyone puts on trying to resolve the COVID-19 situation.
That is coming through and we are confident that both because of the COVID-19 work is not going away.
Sharp manner.
And number two because we've got all of these other activity that has been bubbling up.
We are confident in our guidance for this year and continued strong momentum for the business whether it be on cogent.
Thanks, Alright. Thanks, Thank you I appreciate it.
Your next question comes from the line of Shlomo Rosenbaum from Stifel.
Hi, Thank you very much alright, if you don't mind I'm going to try and slipped in a few.
First I wanted to ask if you could talk a little bit about the real world evidence trends and update us on how that.
Thats going thats been a very strong growth in the past.
Number two just wanted to ask you for a little bit more detail on how you accelerate the growth in net Q2 business by owning all of it and then finally I mean, how do you do a non core for a quarter like this I mean can you talk about the discussion about the business momentum.
<unk>, it's such a strong quarter, it's hard to believe that you'll be able to improve upon this.
I've asked a lot, but kind of kind of puts them out there.
Yes. Thank you Shlomo well look I mean, we're not suggesting that we're going to have.
Just 25% growth or whatever.
Showed you.
On an ongoing basis, that's not a new normal all the CNI explain why.
In response to Eric's question.
With new back of that garage fast burning vaccine work for Covid.
Had on our business now.
<unk>.
Excluding all of that.
The debt.
The business has strong momentum you will recall, we gave guidance for where we wanted to get as a company.
By the end of 2022, and we said low single digits.
Was going to be on new normal where we believe we are going to be above that excluding all of the disruption and the unusual bubbles. So.
Again.
We had in the first quarter the on MBS business grew mid double digits.
And the.
To have business grew high.
Debt.
It was very very comfortable with the rest of the year, obviously would be higher than that again, because we have the training.
Impact of Covid, we think one into 'twenty two.
And the pent up demand that needs to be caught up.
So all of that helps us build momentum with respect to your specific question on real world. It is strong double digit growth in Q1.
As I mentioned.
We spoke last time about the care registry for the FDA.
We spoke about the patient monitoring efforts the deployment of our advanced we now have over $1 billion.
On a lot of patient lives.
In our platform for clients.
Which.
Yes.
Alps collect clinical data directly from from patients.
We are seeing extremely strong demand on our view of this is just getting started now.
Although we have seen demand too.
To attract patient populations in terms of people who had the virus in terms of services.
Surveilling.
Patient debt to actually to give vaccines.
For a potential adverse effects et cetera. So all of that plays right smack in the center almost.
Communities are in real world. Thank you Sean.
Yes.
Your next question comes from the line of John Kreger from William Blair. Please go ahead. Your line is now open.
Thanks, very much Eric just maybe a follow up I think last quarter, you talked about your assumption that within cash you assumed ardebili.
Covid work, but really sort of fall off I think in the second quarter do you still feel that way or do you think this is going to continue to be strong throughout the throughout the year.
Yes, I mean look it's going to continue longer than we expected. That's what I said in response to an earlier question.
We.
We're not assuming needs of our guidance for the year.
The reason we are.
Updating the guidance and increasingly so much is as we said the performance in the first quarter the over performance, but also to reflect our on.
Our revised expectation that this work is going to continue for the balance of the year you will be at the same level as it was in the first quarter or the fourth quarter.
And we will gradually start.
Declining, but it is significant.
Importantly into 2022.
And Ron.
<unk> for you I believe gross margin year over year was down something like 90 basis points was that all driven by the higher.
Pass throughs on R&D.
Yes.
Two things its a higher passengers on R&D as in some of the Covid work is inherently a little bit lower margin than some of the other work so.
Those are the two reasons, but our operating margins are up yes, our operating margin dropped our EBITDA margins up 140 basis points in the quarter. So despite that.
Overall.
Very strong performance, obviously, we and our leverage at a higher value than we didn't increase our costs accordingly.
Great. Thank you.
Your next question comes from the line of clinical condition from Jpmorgan. Please go ahead. Your line is now okay.
Hey, Thanks Ari.
Alright, I want to go back to one of your original question is just on the M&A in the space you've got three competitors now all tied up with mergers I'm. Just curious what are you hearing from customers. How do you think about opportunity to maybe pick up share in an environment, where there is a lot of distraction and churn can you maybe just talk to those dynamics.
Okay.
Whenever I say here is just.
Opinions and.
And a little bit on an educated.
Central observations based on as you said includes some clients in <unk>.
And being having our fingers on the pulse of the industry.
Look we were already gaining share and we're not counting on others to be weaker than they were in order to gain share we are largely.
Our market share gains, which I see evidence.
Sure.
The result of our unique differentiated capabilities and offerings.
So thats number one we don't spend that much time looking at what other people do in the industry.
We focus on our strategy and building out our capabilities and trying to.
First weighted customers.
Go with us when we are successful doing that now.
Now as I look out obviously I can't Miss the <unk>, you will recall that I M few research and inventive merged to form <unk>.
Seniors.
Last core bought.
Q3.
PRA bought Symphony health.
Icon is emerging with PRA.
PPD is selling itself too.
M O.
What else Labcorp is exploring strategic alternatives whatever that means so on.
Lots of activity and I, probably missing some.
But.
Yeah.
Generally.
When you.
In the CLO business. There are very few cases, where there is synergy between two CLO.
Very few cases.
If someone who is already present in phase one while preclinical and phase one is somewhat stronger in phase II phase III that maybe you could say, there's complementarity and value.
Someone is very strong in new ways very weak in Asia and someone else is very strong in Asia very weak and the new ways that you can say there is geographic complementarity and there is value.
But.
Got it.
In most cases, they are serving the same client base and in many cases, including for the people that I just mentioned low emerging there.
<unk>.
But two of them on the preferred providers for applied so what do you think is going to happen. The client is not going to remain with one provider.
So without having to have negative.
Synergy.
This you mentioned on the revenue side, yes, you always have costs.
Benefits because you don't need two Ceos, cfos, two general counsels et cetera et cetera.
But largely this is a project based business you still need a different team for every project.
The level of scale of BB&T as a result of merger and the efficiency because you put <unk> together is extremely limited.
So I don't see that as much value there and don't come back to you.
We have I can see arrow.
<unk> again that couldn't be cases, where it doesn't make sense again, because the complementarity or indeed.
Complement complementary or because the customer cover these complementary et cetera.
We wanted to focus on what we do.
Clearly.
A company merger situations is the weekend.
We experienced it ourselves despite the value that we were doing a merger between two totally different companies.
So, we're bringing very rich capabilities to each other.
But.
The merger.
No doubt about it is disruptive for sale business.
Fluffy talent fleece, we've experienced.
So we know what is going to happen, obviously, each an opportunity for us.
Again, we're not counting on that we are gaining share regardless.
Okay, and then one follow up speaking of things you are buying on.
On the Q2 solutions I, just would like a little more color I mean, you mentioned it streamlines decision, making you can build out greater balance.
But can you just talk a little bit more on the rationale for bringing that back in house and I know you had a question earlier on how you can scale it up I didn't hear an answer to that as well.
Yes.
Hey.
We own 60%.
It was managed jointly we added borders joint venture, but mostly was I think it has been.
Run largely by.
All sides.
In terms of the management.
It fit into the clinical trial process he was.
The companies will put together a regionally on them.
Both were relatively weak in this space. It was turned around improved it's a strong business those capabilities are extremely sought after the.
The market is becoming more and more attractive.
There has been back to the M&A question the number of <unk>.
Really attractive highly specialized biologics genomics related.
Labs that came up for sale.
And we were unable to proceed decision making.
On the.
Ability to focus et cetera, and.
All of that I think would be facilitated going forward. So we have a business that we like.
<unk> business is an attractive business and we want to invest in it.
And when and if there are acquisition of new space, where consumers can look at them and to be able to move faster now also compelling.
In passing I might say it was a financially.
No great on the kinds of transactions for us.
Thanks, Greg.
Your next question comes from the line of Patrick Donnelly from Citi. Please go ahead. Your line is now open.
Hey, guys. Thanks for taking the question Ari maybe.
Maybe just on the oce business, it's not the biggest piece of revenue yet, but a nice nice growth opportunity I think you've talked about 10 ads. This quarter can you just talk about how that business is looking in the face of the pandemic what youre expecting as we go through the rest of the year and just the competitive environment there.
Well look we continue to weighted to marketplace on about the same days.
<unk>, we had 10 clients wins, so far in 2021, we have on M. <unk> since launch.
The large low client deployments are going very well.
Yeah.
Implementations.
Well, despite the Covid environment last year that will build on any slowdowns.
In fact, some deployments of accelerated timelines everything is on schedule.
I'm willing to disclose on east coast to the ends of the clients will not.
In these business I'm not sure that feedback is very positive generally to field reps are very engaged.
You're aware of course of the rush global deployments.
De Novo Nordisk International operation. The Astrazeneca you as deployment of that is largely on targets.
Very good positive feedback.
You know that ocs, rather resolution on re compared to other offerings in the market. It's just some justice CRM.
It's a platform on force dot com and on the licensing platform. It's very collaborative tool you can use it.
With you guys.
AI and machine learning to integrate various functions within the.
The pharma companies commercial operations enables faster integration of data and therefore faster deployments.
New <unk>.
Health care providers in the script data for a better view of the Doctor and all of that again optimizes.
On Optimizes our hour.
Appliance sales force effectiveness.
And then since then obviously, we're adding modules that debt.
Based on the oce.
Platform, we've got HCP engagement management, we've got to see Optimizer is we've got the next best action all of those are enhancing.
Functional capabilities that our clients are.
Buying in.
It helps grow the business even faster.
Okay.
Okay.
Great. Thanks Ari.
Your next question comes from the line of can be chunky from <unk> Securities. Please go ahead. Your line is now open.
Thanks, very much just maybe one quick clarification and then a broader one first one on the comments you made about that.
Growth rates by segment was that constant currency or is that reported.
Okay and then.
Sandy.
Yes, the growth rates, we've given to the guidance on.
On a reported basis.
Okay, so like the low teens and mid 'twenty.
We reported okay great.
On the FX impact is slightly positive during the course of the year, but it isn't a big driver.
Great initiatives as the year goes on.
At current rate.
Super that helps and then maybe more broadly per or whoever wants to take it.
Obviously business is going really well.
That said it looks like the targets.
To me.
Maybe one on the biggest challenges you're going to have because he said a lot of this business service business on obviously some of the software the software and can scale, but how do you think about do you have to change anything about hiring thinking about where youre going per people are you worried about wage pressure, but it's clearly youre going to have to add a lot of people to <unk>.
Senior debt.
Bill.
Get to the growth you're doing so would just love your thoughts on hiring wage inflation and how you manage.
Adding that many people in what's a very positive, but also competitive labor market. Thanks.
It's a great great question and I know you've touched on one on the obviously the biggest operational challenges we have.
And that's a natural challenge for new growing annoying the service industry and Youre right.
Software based business on the data subscription business.
They are growing but not on hunter the base debt.
Services business is growing in.
Aggregates in relative terms, we still going to need to hire people.
Now to.
Two observations number one.
In early 2020, and 19 <unk> 2000 2019.
In anticipation of continued growth, we already had hired a lot of people.
We did not we structure people in 2020, we kept people.
And.
Even when they were working.
And we paid them.
They are here and they are not working on delivering so we haven't had to hire more people.
As much as you might think.
Relative to our workforce last year on its path of the reason why we are having nice margin expansion here.
Second observation is we talked before about the merger.
Of competitors all of these Cds and winning some talent bleed and availability.
And we are.
In fact.
Being approached and it talent, there, but yes, I mean wage inflation.
That's true industry across industries, and certainly in our industry as well. So we'll have to deal with US you know that we have a program too.
<unk> to seek efficiencies.
Scale, whether it's through consolidation of activity.
Using our offshore centers automation of processes et cetera.
And we have lots of.
Programs to create.
On cost.
Efficiencies debt again, the purpose of which is to continue to be able to deliver margin expansion, even as we've got wage inflation.
And one more thing sandy anticipated wage inflation is fully factored into our guidance yes.
Okay great.
Oh, sorry.
Sorry, it's on decode.
Thanks, Brad and thanks for taking the questions. Okay. Thanks on that.
I think we took our time to probably just one more question before we get to the top of the hour.
Great. Thank you. Your next question comes from line of business connect Anderson from Evercore ISI. Please go ahead. Your line is now open.
Hi, guys. Thanks, so much for that question and ask what's going on.
I would say free cash flow on those various Jon on the first quarter I'm. Just wondering how you thought that would continue to pace across the year. I mean, obviously last year was extraordinary for a variety of reasons, including on a free cash flow in France, I just wanted to see sort of how you guys are thinking about the pacing of that thing.
Thanks.
Hi.
Listen Thanks for the question look on.
We did have very strong cash flow.
It's not a coincidence.
Since the start of the pandemic, we've been focusing a lot on that on collections not letting accounts receivable slipped past due.
We've been successful on working down our overdue.
On negotiating contracts with better billing terms with customers and Youre also seeing although there has been pressure from the industry from clients to extend billing term.
That's kind of winding down there is a one time impact.
Each day.
Now having said that.
Cash flow is lumpy.
I'm not going to promise that we're going to have $700 million of free cash flow every quarter. It tends to go up and down but we have fundamentally shifted our emphasis on improving cash flow and you've seen that over the past year.
Just as a general guidance.
Help on the guidance you would expect free cash flow on an average year.
To be between 80, and 90% of adjusted net income and keep it.
In mind that our adjusted net income is growing quite strong late though our cash flow will grow on that basis.
In any given quarter or any given year or even it may differ from that cash flow is not like earnings. It is and it smoothed that goes up and down but yes, we have seen an improvement and we expect continued strong cash flow going forward.
But expect the normal volatility that any company is going to have in cash flow to quarter quarter to quarter, correct, I think let's try and squeeze in one more quick one as well before we on.
Thank you. Your next question comes from David <unk> from Jefferies. Please go ahead. Your line is now open.
Hi, Thanks for squeezing me in I appreciate it alright, I thought maybe the most.
Impressive important number.
In the quarter was $6 $5 billion in next 12 months backlog, that's such a big sequential increase I think it's the biggest since you merged.
And I know you said earlier on the call that.
Clearly bookings were very strong net layers and youre rolling forward to the next quarter.
It's an outsized improvement and gives us great visibility for the next 12 months and I wondered if there was also.
Some something to be read into that either debt.
And patient recruitment are opening up and there is a greater comfort level that is that is materially improving in terms of your clients' willingness to move forward and sites cooperating.
I wondered if you could just add something.
Some color to how that how that.
The outlook is improving so dramatically.
Thanks, very much for that question.
Theres been a dramatic.
On a sequential improvements.
Our next 12 months revenue growth outlook.
For the <unk> business by over $600 million.
And this is the result of our continued strong net new bookings performance as well as again as you pointed out correctly.
Daily improving clinical trial recovery landscape.
Now.
By the way this metric of next 12 months now includes the first quarter of 2022, which is again an encouraging sign as you also point out.
Of continued strength where beyond this year.
Now in terms of the.
On the improvements that we've seen.
In terms of accessibility to sites and so on so forth.
Recall.
Debt.
We had in.
In the in the Q1 earnings call just a year ago.
20% of access to us too.
The site, 20% on both sides were accessible in the Q2 call. He was 53% Q3 was about 70% Q4.
Was slightly above 70% and now its higher than that and trending up as well I think it's in the 70, 576% range.
Our guidance for 2021 picks many factors into account with respect to the next 12 months NMB.
I'm sorry, what next 12 months.
Revenue.
From the backlog, we do this project by project relative to bottom up process, where we evaluate the expected revenue boon for each project for the next 12 months. So it is an extremely precise.
Exercise and I think a very relevant measure an indication of the visibility on our business going forward.
But beyond access to site.
The site startup activity is essentially.
He is actually above.
On the 2019 levels.
A very strong indication.
Revenue growth going forward and thats above pre pandemic levels.
<unk> recruitment.
Richard.
Patient visits.
Same thing.
Very close to keep on <unk> levels and trending up so bottom line is these debt.
Debt the trial.
Pipeline and I'm talking now about the non COVID-19.
<unk> pipeline.
The one that's being awarded was awarded and pushed to the right is starting to be delivered with sites enrolling patients enrolling in patients visits so youre absolutely correct and thank you for bringing up the question I hope that you're going to draw the conclusion Dave.
Yeah. Thanks, I appreciate you squeezing me in I appreciate Youre.
On your past time, a little bit, but thats very very helpful. Thank you. Thank.
Thank you Dave Thanks for the question, Dave and thank you everyone for joining us today.
So you might have for the rest of the day. Thank you everyone.
And this concludes today's conference call you may now disconnect.
Okay.
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