Q2 2021 Syneos Health Inc Earnings Call

[music].

Okay.

Good morning, and welcome to the <unk> Health second quarter 2021 earnings Conference call.

At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time.

I would like to hand, the conference over to Ronnie Speight Senior Vice President of Investor Relations. Please go ahead Sir.

Good morning, everyone with me on the call today are Alistair Macdonald, our Chief Executive Officer, Jason Meggs, Our Chief Financial Officer, Michelle Keefe, our president of commercial solutions and Paul Colvin our per.

Residents of clinical solutions.

In addition to the press release, a slide presentation corresponding to our prepared remarks.

Available on our website in Investor Dot City Hotel Dot Com remarks that we make about future expectations plans growth anticipated financial results and prospects and our expectations regarding the COVID-19 pandemic cash.

These forward looking statements for purposes of the Safe Harbor provisions under the private Securities Litigation Reform Act of 1995, and we disclaim any obligation to update them.

Actual results may differ materially from those indicated by these forward looking statements as a result of various important factors.

These factors are discussed in the risk factors section of our form 10-K for the year ended December 31, 2020, and our other SEC filings.

During this call, we will discuss certain non-GAAP financial measures, which exclude the effects of events and transactions, we consider to be outside of our core operations.

These non-GAAP measures should be considered a supplement to and not a replacement for measures prepared in accordance with GAAP for.

For a reconciliation of non-GAAP financial measures with the most directly comparable GAAP measures.

Please refer to the appendix of our presentation.

I would now like to turn the call over to Alistair Macdonald Alastair.

Thanks, Ronny and good morning, everyone and thank you for joining us today.

Families are in good health.

To share another strong quarter of results, which demonstrate that differentiated product development strategy continues to resonate in the market.

We exceeded the midpoint of our guidance across all financial metrics for the second quarter and our integrated product offerings powered strong awards and backlog growth for both segments. Most importantly, both clinical and commercial revenue returned to robust year over year growth trend, we expect to continue for the balance of 2021.

Now for some key highlights from the quarter.

First overall net awards grew by 25, 6% year over year, including clinical growth of 21, 2% on commercial growth of 55, 3%.

This award strength drove second quarter book to Bill ratios of 145 times for clinical solutions, and <unk> 94 times per commercial solutions, resulting in robust TTM book to Bill ratios of 137 times for clinical and 114 times for commercial.

Second we achieved strong profitability gains with 47, 1% year over year, adjusted EBITDA growth and a 190 basis point improvement in adjusted EBIT margin compared to the second quarter of 2020.

Thirdly, we continue to attract world class leadership talent and I'm excited about the addition of micro Brooks as our Chief Development Officer.

Michael has deep experience and connections in clinical development and commercialization will drive our go to market strategy advanced innovation and enhance the voice of the customer across the product development continuum to create better patient outcomes.

Also at the board level, we are enthusiastic about the recent addition of Dr. David Wilks as a champion for addressing disparities in health care Doctor Wilke shares our passion for positively impacting patients' lives. We look forward to benefiting from his impressive industry experience in medical expertise.

Now moving into further details on our results we continue to recover from the impacts of COVID-19, as our total company sequential revenue growth strengthened and year over year revenue growth accelerated to 26, 6% compared to the second quarter of 2020.

Clinical solutions revenue grew 31, 1% compared to the second quarter of 2020, driven by accelerating startup of both non COVID-19 and Covid clinical projects.

And contributions from our 2020 acquisitions.

Our clinical team also closed a record quarter of net awards.

Fueled in part by continued strength in the Smid segment. These awards also included 3 large scale FSP 360 wins, where we are replacing existing providers, demonstrating our competitiveness scale and flexibility of our solutions under our awards policy for FSP services. We only included 12 months of services.

And our bookings even though each agreement represented an initial term of at least 3 years.

The remainder provides further fuel for growth in addition to our reported backlog.

Driven by these strong sales record ending backlog that is 21, 5% and a robust pipeline of new opportunities clinical solutions remains well positioned for strong revenue growth in the second half of 2021 and beyond.

Our second quarter Clinical awards also included several COVID-19 related projects, although this category, including treatment therapeutics remained at less than 4% of our backlog at the end of the quarter give.

Given this limited backlog concentration of Covid studies, we expect a robust revenue growth in 2022 will be driven by the strength of our non COVID-19 backlog.

Given growing customer demand for decentralized clinical trials, we continue to enhance the way, we engage with sites patients and physicians.

Our decentralized trial solutions are designed to bring trials closer to the patient reducing site and patient burden, while expanding participant diversity.

We recently launched 2 initiatives to foster improved engagement.

First we established a dedicated decentralized trials site advocacy group focused on new technology optimization to make trials more accessible while improving data capture along with participant diversity and retention.

Second we launched our patient voice consortium cross functional hope that integrates strategic patient perspective throughout the product development lifecycle.

We believe these efforts set the standard for best practices and incorporating patient insights into clinical trial design communications access initiatives and launch strategies. We also continue to expand our dynamic Assembly network of DCT data and technology providers in order to best serve our customers with the recent announcement of our relationship.

With ACO.

ATM provides regulatory great data and analytics produce railroad evidence on the safety effectiveness and value of treatments to patients and other stakeholders. These initiatives in combination with our ending with home health services represent significant inroads toward improving the patient experience in realizing our vision of shortening the distance.

From lab to life.

Turning now to commercial solutions, we saw accelerating sequential recovery and a return to year over year revenue growth of 13, 2% compared to the second quarter of 2020.

Year over year growth in our core business was even stronger but was partially offset by the headwind from the divestiture of our medication adherence business in the fourth quarter of 2020.

All of our core commercial businesses posted a return to strong year over year growth.

Appointment solutions had another quarter of strong new team staff and the number of deployed resources reached a 4 year high.

Consulting completed a very strong first half of the year and communications continues to see strength in the public relations and medical communications businesses.

Potently full service commercial gross awards, where we strategically combine these capabilities have more than doubled on a year to date basis compared to 2020.

This performance highlights the continued success of our integrated model fueling growth across our commercial portfolio.

Additionally, several key factors are contributing to the ongoing diversification of our deployment solutions business, which we expect to improve the consistency of future commercial growth, including our ability to deliver sophisticated solutions. The continued evolution towards more targeted therapies and the strong biotech funding environment.

Based on our mix of supported a migration towards smaller average field team sizes, a lower concentration of sales teams and revenue and longer project durations.

Our commercial expertise also continues to fuel innovation across the product development continuum with dynamic engagement capabilities, such as kinetic which seeks to optimize HCP engagement through a combination of face to face and virtual field team activities. Additionally, we are seeing increased adoption of the digital amplifier component of connect.

By our clinical customers.

This capability is designed to accelerate patient engagement and enrollment by driving patient referrals by physicians into clinical trials.

We believe this unique suite of capabilities differentiate <unk> health and is a key factor in driving our strong new business Awards.

Lastly, <unk>, our innovative end to end product development methodology continues to provide a competitive advantage across both segments.

Particularly ex cited about the <unk> contribution to growing the pipeline of potential commercial awards and revenue with the first of many <unk> portfolio assets set to begin commercialization in the third quarter.

Although these assets are not featured prominently income.

Or revenue to date, we expect the Sydney ex 1 portfolio along with our integrated full service commercial and innovative connected capabilities to position us well to capitalize further on strong market demand and drive robust commercial revenue growth over the long term.

Before I turn the call over to Jason I want to thank the entire <unk> health community for their ongoing resilience focus and collaboration as we work together to help our customers improve and accelerate the delivery of therapies may impact health worldwide. Their continued commitment to collaboration inclusive thinking and use of insights is helping.

<unk> to superior culture to deliver high levels of innovation for our customers and their patients.

Jason will now provide additional comments on our financial performance and guidance Jason.

Thank you Alastair and good morning, everyone our.

Total revenue for the second quarter 2021 was $1.2 8 billion up 26, 6% 23, 6% in constant currency compared to the second quarter of 2020, which was significantly impacted by the COVID-19 pandemic.

Our clinical solutions revenue for the second quarter was $991.1 million up 31, 1% or 27, 5% in constant currency compared to the second quarter of 2020.

These increases include increased startup activity across both our COVID-19 and non Covid projects, a 795 basis point contribution from acquisitions.

And a 240 basis point tailwind from the faster recovery in Reimbursable expenses.

This was partially offset by a headwind of 85 basis points from the.

2020 divestiture of our contingent staffing business.

Our second quarter commercial solutions revenue was $291.5 million up 13, 2% or 12, 2% in constant currency compared to the second quarter of 2020.

This robust growth in commercial revenue was driven by broad double digit expansion across our core commercial businesses with particular strength in consulting.

And includes a 75 basis point tailwind from Reimbursable expenses.

This growth also includes the impact other 250 basis point headwind from the 2020 divestiture of our medication adherence business.

Adjusted EBITDA increased 47, 1% to $174.6 million representing.

Representing an adjusted EBITDA margin of 13, 6%, an increase of 190 basis points compared to the second quarter of 2020.

The increase in adjusted EBITDA margin for the second quarter was primarily the result of revenue growth and our 4 bound program, including operating leverage.

These benefits were partially offset by increased costs from the expiration of temporary savings programs instituted in 2020, a higher mix of Reimbursable expenses and the impact of foreign exchange.

Adjusted diluted EPS of <unk> 97 for the second quarter increased by 67, 2% year over year, primarily driven by an increase in adjusted EBITDA.

Our operations generated $88.7 million in cash flow for the second quarter a.

Our year to date 2021 cash flow from operations has been very strong reaching a record level of $215.8 million driven primarily by our net income as the impacts from the pandemic subsides.

DSO for the quarter was 43 days and our capital expenditures were $11.2 million.

We ended the quarter with $269 million of unrestricted cash and total debt outstanding of $2.92 billion.

Resulting in net leverage of 3.8 times.

During the quarter, we amended our credit agreement to increase terminal day by $495 million and used the proceeds to fully repay our outstanding term loan b in order to further reduce future interest expense.

We also repurchased $73 million of our outstanding share during the quarter in conjunction with the sales of the remaining ownership interest in our private equity sponsors.

Our non-GAAP effective tax rate for the second quarter was 24% consistent with our expectations for the full year 2021.

Turning now to our 2021 guidance this guidance contemplates our current view of the estimated impact of COVID-19 on our business recognizing that factors related to COVID-19 are outside of the company's control and subject to change.

We now expect full year 2021 revenue in the range of $5.8 billion to $5.3 billion.

Representing growth of 17, 3% to 20% an increase of $15 million at the midpoint, primarily due to higher reimbursable expenses.

This growth includes an estimated contribution from acquisitions, a $540 to 580 basis points and a headwind from our 2020 divestitures of approximately 110 basis points, both of which are unchanged.

We are narrowing our expected range of total adjusted EBITDA of $750 million to $780 million.

This continues to reflect an adjusted EBITDA margin of 14, 5% to 14, 7% up 30 basis points from 2020 at the midpoint, which now incorporates a higher mix of reimbursable expenses compared to our original expectations.

Lastly, we are increasing our expected adjusted diluted EPS to a range of $4.25.

The $4.43.

Our year over year growth of 24, 6% to 29, 9% primarily to reflect the impact of our second quarter share repurchases and lower interest expense.

Our guidance incorporates interest expense of $84 million to $87 million, our non-GAAP effective tax rate of 24% and an estimated diluted share count of $105.2 million shares.

Further we continue to expect our net cash outlay for income taxes to range from 50 million to $6 million.

Turning to our outlook for the third quarter, we expect year over year growth to moderate somewhat given the sequential recovery that began in the second half of 2020.

It remains strong in both businesses.

We expect third quarter revenue of $1.315 billion to $1.36, 5 billion and total adjusted EBITDA of $195 million to $205 million.

This reflects as reported revenue growth of 19, 7% to 24, 2% compared to the third quarter of 2020.

It is important to note that this reflects an adjusted EBITDA margin of 14, 9% at the midpoint, which is down from Q3.2020 percentage the impact of our temporary cost saving measures instituted in 2020 in response to the COVID-19 pandemic.

However, we remain on track for achieving our full year expansion in adjusted EBITDA margin that is reflected in our guidance.

This revenue growth includes an estimated contribution of acquisitions of approximately 610 basis points and a headwind from our 2020 divestitures of approximately 80 basis points.

This growth also includes an expected tailwind of approximately 375 basis points due to growth in Reimbursable expenses.

This completes our prepared remarks, and we'd be happy to answer any questions.

Great.

Thank you as a reminder, if you would like to ask a question Press Star then 1 key on your Touchtone telephone.

Withdraw your question press the pound key.

And our first question comes from David Windley with Jefferies. Your line is open.

Hi, Good morning, Thanks for taking my question I wanted to focus on full service commercial if I could you mentioned Dallas during your remarks that the first 1 is slated to launch in the third quarter that seems like that's kind of stayed on time.

To your early expectations.

Expectations could you talk about how you think that will ramp and what what amount of contribution that is making and then also just so we can understand a little bit better how you've taken.

Value from that into bookings how did these types of deals begin to contribute to bookings or when do they thanks.

Okay. Good questions, David and a long answer good morning, everybody and good morning to day.

So that that launches the non schedule.

Moving through we're pleased with that I think it's probably easier to start with how we book them.

And then go to the contributions from from that work. So we really book those carnivore. Most is a combination of FSP and.

When the world goes to contract so that we don't trigger any of the contingencies day, it doesn't get approved and that kind of thing. So we've taken the pre planning and team build work in terms of bookings for that bookings start to come through from those projects as the work.

Kind of goes into.

Into the.

And to the back of railings. So we almost taken as current when contracts are signed.

So that we so we know where that work is coming through in the pacing of it et cetera et cetera. So those products that come through the <unk> channel or even through the full service commercial channel which is a.

Growing Ellen.

Element of Michelle's work.

The bookings and the start of that work are quite close together. So that we don't get ahead of ourselves we don't.

Artificially inflate the backlog et cetera, if 1 of the contingencies.

That product doesn't get approved the product who get funded etcetera, if 1 of those things happens.

Doesn't trigger.

I think it's quite well, it's a very conservative way to do it I think it's the best way to do it helps us to day count any of the kind.

The volatility that was.

An element of commercial previously.

It helps us build a very robust backlog with that Michelle any additional equipment.

Hi, David.

So 1 other things.

Really helpful about full service commercial awards, along with the <unk> pipeline that will continue to feed commercial in the upcoming year is that we have good line of sight, because we've put our product development roadmap together everything that the customer is going to be dealing with us over time and it has milestones that are tied to approvals et cetera.

So.

It gives us very good.

Our view into the future of what potentially can drop into actual revenue quarter by quarter over the next 2 or 3 years.

And as Alex just to add we take a I think a prudent approach and the fact that we book the pre revenue Mark and what we mean by pre revenue as the preapproval.

Mark for the asset and then once we know the product has been approved we then let's start taking things like deployment sales forces et cetera, So in that case.

We've taken that pre approval work planning market access strategy.

What kind of setup.

Setup of the management team and the build out of debt.

<unk> team, but as that team goes into the field, that's when we'll take more of it so.

Pace it through quite conservatively.

Total come really on that launch in terms of in terms of bookings and then obviously, we can get to the billings growth.

If I could follow up with just 1 last 1 your.

3 Q4 Q cadence.

Suggest that debt.

<unk> is up a little bit <unk> day.

It comes a fairly steep inflection.

I know you typically in commercial have some.

Annual bonus payments that contribute to that but if you could perhaps comment about other factors like cadence pass throughs that might influence.

Both the revenue progression and then the margin progression from <unk>. Thanks.

Yeah, Hey, Dave Jason here. So you are right on the deployment solutions side debt certainly is featuring on the commercial side in terms of quarter 4 <unk>.

Continuing to sequentially ramp up we also we launched record teams last year.

We've continued to launch a significant number of teams in each quarter and anticipate that continuing in Q3.

In Q4, and you get those teams to scale as well.

As you progress throughout the year and then we also have the normal seasonality in the communications and consulting side of the business where.

We see utilization Max out really in quarter 4.

So thats really what we see on the commercial side on the clinical side.

Continuing to see good site activations continuing to see good enrollment of Covid and non Covid. We continue to win Covid work I think we're up to 130 projects and in clinical that are COVID-19 related and have a good tail on that frankly into 2022.

I think you've heard from some of our other peers.

Reimbursable Dart recovery I don't see we.

We mentioned in the prepared remarks debt we.

We have.

Tailwind from from Reimbursable.

We're having the guidance range due to reimbursable et cetera. So there is some of that as we look to the back half on the clinical side as well as the commercial side and then on the margins right you look back to prior years, even last year items, our 2000, and our Q4.2020 margin 17% plus.

Right so.

That's what we see on the growth of the business utilization maxing out contract modifications. The bonuses you mentioned CTO tax accruals coming back our way so from that perspective, its normal seasonality and in line and nothing from our perspective has really changed when you look at the second half relative to where we were.

Okay. Thank you.

Thanks, Doug.

Thank you. Our next question comes from Patrick Donnelly with Citi. Your line is open.

Great. Thanks, guys Alistair maybe 1 for you I know last quarter, you talked about some large bushing bookings that were being pushed out beyond your backlog window can you just talk about customer behavior. This quarter relative to <unk> on that from just curious how things are trending with kind of the large bookings net clients are still pushing things out or being kind of acted.

Non of a little more near term yes.

Yes, good question.

We didn't see any of that really in Q2, you naturally get things that move around around the end of the quarter, but nothing out of the ordinary and I think we've seen a continued.

Kind of.

Return to what we'd expected.

Expect to see kind of pre COVID-19 with the activity from smid customers being very strong activity from large pharma customers being more.

And normally if you like with decisions being made projects coming through and getting into the clinic.

As you see we had a great bookings quarter very strong clinical and commercial very strong Infineon is 1 very strong and in full service commercial as well so really.

We are pretty pleased with all of those sectors. Good robust pipelines as we go into Q3.

Very pleased with the demand environment that we see and I think the.

<unk> that we're bringing.

2 customers in terms of integrating products and selling doing more cross selling et cetera, as well as the full end to end 1 is putting us in a really strong position.

Okay. That's helpful. And then maybe just on the general recovery in things like site access and RFP flow.

Jason what are you seeing there and then what are you assuming also kind of a back half in terms of continued normalization on that from.

Yes.

The RFP flow.

I think we are seeing a very robust environment from all sectors.

Both clinical and commercial.

And large in both sectors as well so a good healthy environment and then Paul I think.

Comments on the other.

I think we are continuing to see really strong and it's been really across all segments. At this point an FSP in full service.

From my perspective, I think that's going to continue on.

Especially as we've looked at our partnerships and as we continue.

Continuing to expand there.

This quarter, a couple of new partnerships that we brought into the fold. We think those will continue to add volume as we go into the back half of this year and into 'twenty 2.

And then Patrick on the.

Operational metrics mentioned site Activations continue to be well above pre COVID-19 levels continue to grow enrollment is.

It was really hit.

1 point and some of that frankly is driven by the Covid vaccine trials that we have.

But underneath that enrollment continues to move forward as well so we're encouraged by it and I think.

As we talk about this internally it's more around.

How we accelerate trials and get caught up as best we can.

Or the benefit of our customers versus we can't quite get to the site and get study started moving so I think we have critical mass as well and can move these projects forward.

Great. Thanks, guys.

Our next question comes from Tycho Peterson with Jpmorgan. Your line is open.

Hey, Thanks, maybe a couple of follow ups on the last line of questioning can you quantify the Kobe contribution in the quarter from a revenue perspective, I know you said kind of backlog and then on site accessibility last quarter, you said, you're about 70% of site permitting physical visits I'm, just curious where that stands today.

Do you think that could go in the back half of the year given the delta there.

How are you going to be leveraging healing worth around remote monitoring I think previously you said about 25% of sites were up and running on that front too.

Well, let's start with anything with I think we are.

Very pleased with ending with Kantar.

Continued penetration into new categories New project.

Also within <unk> projects. So it's really it's really in a really enabling us to expand the footprint of our presence with sites being able to get out.

Execute visits in the home rather than people haven't come to site.

I think in Q2 operationally was a new record drilling with in terms of the number of visits in that.

Looking forward through the rest of the year and actually out into 'twenty..2 we see that progression continuing to go. So I think that innovation around decentralization of trials is very important not just for the execution of the remaining.

Covid balance.

Trial work.

But also new therapies, where people are more reluctant to get out in the office I think we had a.

An example in in.

In Russia.

The mailing with visit the capture of patient per our rare disease trial. The patients live day 100 miles from the from the from the site so for us being able to execute that in farmland.

With a big gap between the site to capture that patient.

Without dealing with that patient would have been lost to us.

Is a significant step forward and I think that will continue.

In other trials, we continue to see sites being able to live with Covid.

And continue to enable patients to come in I think.

What we saw through Q4 Q1 with sites working out local protocols et cetera has continued that.

<unk> obviously.

As a concern globally.

We saw the impact that had in India. We saw the impacts we had in the U K.

In terms of COVID-19 rates, but that.

In the in the countries with a high vaccination rates. If you look at the stats in the U K as the Delta went through it.

We really can see the chain has been broken between infection hospitalization and deaths.

Lots of.

Sites continuing to open up continue to ramp up new new studies being placed new sites.

A good sign for us as we continue to go through the rest of the year.

Yeah, Hey, Tiger, Jason on the Covid contribution right.

We talked about being less than 4% of backlog I think.

When you when you look at quarter 2 it was a bit higher net as a percentage.

But both Covid and non Covid are growing in the way that I would think about it is consistent with how we talked about it in quarter, 1 which is when you look at the full year total company revenue that revenue contribution is going to be broadly in line with that backlog percentage.

No.

That's kind of how I would think about it.

Okay. That's helpful. Alistair you called out the 3 large scale FSP 360, <unk> I'm just curious if you could kind of put these in context and how's momentum building.

And that side of the business are you seeing kind of larger orders come your way here. You mentioned these are kind of multi year deal day, only 12 months.

Backlog.

Yes, absolutely we're very pleased with that I mean for us to play in the large pharma sector you have to be very capable.

P and not just in a function but globally.

So scale wise III pretty Big awards, 2 of them were brand new customers.

But for us in terms of our FSP sector, and replacing or displacing previous incumbent's. So very pleased with that very pleased with the penetration there.

Something that we need as we continue to grow and our large pharma sector.

As a as a kind of a.

Deployment methodology for us to be able to take share. So very pleased with that long term deals.

All of them are at least 3 years some of them have a longer timeframe on them and across clinical data services et cetera. So.

In multiple different areas.

Great 1 last 1 on commercial line, obviously, you had the benefit of easy comps are still relatively easy. The next couple of quarters, but I know you said the recovery was pretty widespread.

As you get past the easy comps do you feel like Youre still on the recovery path here on commercial.

Absolutely.

Excuse me, yes, absolutely we do.

I think the.

So a lot of the strategic where that we've been doing over the past. Several years is really now starting to come home to roost tourists and commercial.

Cross selling across from clinical.

Integrated clinical and commercial across several platforms, including Qinetiq, we still we continue to see the growth of kinetic digital amplifier.

A lot of those innovations that we've worked to deliver for customers in terms of patient engagement enrollment patient support.

And in the commercial side of the business.

The contributions from the <unk> 1 most of that work was 1 when the products from clinical phase GAAP first loans. This quarter. We got several line book as we've shared with you all before at Investor conferences et cetera, and also commercial itself a.

A much stronger team are much more focused and dynamic team.

The BD team that we built 3 years ago is fully operational.

Understand the model of how we sell and this really helps us to build and sell integrated packages in line with what customers are looking for so I think all of those things are now starting to come home to roost and I think that's shown in the recovery of commercial shown in how we look at commercial going forward as a much stronger entity.

And much more.

Most significant contribution to the way that we win not just in commercial itself, but also in clinical.

Okay. Thank you.

Thanks, Thank you.

Thank you. Our next question comes from John Kreger with William Blair. Your line is open.

Hey, guys. Thanks.

Maybe 1 follow up Tyco's question, Jason can you give us a sense about.

How Covid awards figured into your Q2 bookings total.

Yeah, Hey, John so.

<unk>.

It's broadly in line with the percentage of backlog, a little bit higher, but nothing nothing material, but.

Good news is that work continues the awards continue the pipeline flow continues as you look to 'twenty 2 right as I mentioned.

It's not some massive headwind right, which it could have been.

If we're to believe everything we thought at the beginning of Covid.

Where it was and Thats, how we see it playing out the rest of the year and into 2000.

Great. Thanks, and then a few questions relating to margin.

1 we've heard a lot about labor shortages can you just talk about how that's impacting you guys if at all and how you're adjusting to it.

Then alastair given those larger FSP awards I tend to think of those as being a little bit less profitable.

Should we assume that that way and does that impact your thoughts about sort of margin progression over the next year.

Well, yes, let me start with.

Demand environment, while debt.

Uh huh.

Resorts environment. So, yes that I think it's easy to see that with the demand going through the <unk> at the moment the recovery of Covid Covid trials.

<unk> work.

Net.

The work, we've got pushed to the right coming through those high demand in this sector, we see that as well.

We're being I think very successful in bringing people into the organization. We've had people who have left has gone to competitors and come back in their droves and I think that bodes very well for us and bodes well for our culture.

Good organization to work flow and people like to work here in this environment, we'll do the right things and we take care of our people and the people organization Thats very important but yes. This heavy demand is unusual areas high demand in oncology, there's high demand and FSP I think because large pharma places a lot of that work out with still roads that demand is there.

So yes.

A high demand environment, we're doing well with net gain is in that and we're able to attract the talent that we want where we want the right time and there is always pressure with that.

We have a great team income acquisition, that's doing a great job. So really pleased with where we are heading in that direction.

The.

Net demand environment as well as global.

In the early days it was really a U S phenomenon as people can move physicians in the U S. A little bit more ease them in Europe, but we've seen it in Europe and Asia as well.

Yes.

We continue to be successful in that and bringing the right level of people.

And John on the margin side.

As it relates to growing head count et cetera.

There are.

Incremental costs, there I don't I don't see it as any different than any other year in terms of the scale of that.

We're always adding heads were always competing we do have.

Price escalation clauses in our contracts each year, where we increased rates and things of that nature, we have some businesses, where we actually can increase.

Prices.

Just on this given the demand environment and then we have other opportunities for efficiencies via forward bound and just looking at the organization to help offset this anything that we might see that is.

Unusually high but we're just not seeing.

<unk> seen too much of that and on the FSP versus full service and we've talked a little bit about this in the past a lot of the FSP work comes without the Reimbursable low debt a full service does so when you get down to total EBITDA just the same as between clinical and commercial in the different businesses, we just need to grow them all in.

And feel like we can continue to show that margin accretion over time that we've been asked about in the past.

So 50 basis points per year.

Let me answer that FSP piece as well so a lot of these below the fsp's that we when we ended up delivering more hybrids as well on top so once you get through the door with an FSP.

Hence gas then you become a preferred provider et cetera, you get you tend to ask them to bid on the full service work which comes with.

That.

Without unusual margins, but as Jason says with the pass through load as well so.

We want to get into these accounts deliver whether it's FSP episode.

Commercial et cetera, we have multiple entry points.

And kind of do the traditional lend and expand from that.

Sounds good thanks, guys.

John.

Thank you. Our next question comes from Donald Hooker with Keybanc capital markets. Your line is open.

Great.

Was intrigued by the comments around the pharma sales force.

I know you guys have been talking about this for a while now but just wanted to hear maybe an update here you are saying the sales teams.

Across the pharma industry have sort of gotten smaller which makes sense mortgage at all.

In your view has are we at a new normal now has the industry fully adapted to this.

Or are there service arena, so still see this being a continuing trend going forward post COVID-19.

I think there are 2 trends and they are actually in our GAAP Michelle it's come in as well. So I think the trend of sales teams generally getting smaller is.

Is the norm now there are 1 or 2 big ones out there that come through but the norm is more specialty more hybrid more digitally enabled.

The second trend I think is that shift to digital day still go.

<unk> still got some ways to go on that so we are seeing.

Our platform the kinetic platform being used more and more by customers to provide that hybridized digital support.

On the channel kind of support to Hcp's by the field teams and that's great for US We've got great technology. We now have to use that we've seen better sales results from our customers by using it I don't think Thats, a great enhancement and obviously true.

We can sell more product to customers.

<unk> returned to them as well, we can cover more ground with less reps so the rent numbers.

Need to expand as much for us to drive incremental revenue and how customers GAAP get out there and the other products in the right place at the right time, So I think the 2 kind of simple trends within it.

Like Jason said I think we've launched more teams in 2020 I think we're on target to do that again in 2021, so continuing to have a dropdown low.

Yeah, I'll add 1 thing.

I'll just comment around we've deployed more reach.

Resources in the last 4 years.

As a record number it's important to note does have deployed resources. Those are a variety of resources those are sales representatives educators.

There is a growing trend in net of fast with our MSL reimbursement specialists.

Patient liaisons the types of things.

And the teams are much more integrated right you see digitally enabled sales and sales representatives and managed care folks can reimbursement specialists working on integrated team.

So that's really I think a very important distinction around.

The diversification of what's going on with the planned installation.

Okay, maybe just to follow up on your comments there. Thank you for that.

It seems like I think Alistair from what you said is we're going to if I asked you. The same question next quarter Youre, probably didn't give me the same answer it sounds like the sales teams are getting smaller and smaller and it will continue to get smaller and smaller in the coming quarter. So its not like there was 1 big change in the industry. This is an ongoing ongoing trend does that is that a fair interpretation of what you said.

I think the <unk>.

Infield team get smaller so you end up with less kind of dedicated sales reps, but the whole team.

Because we are delivering a hybrid you've got the KOL centers, you've got the team working on the kinetic platform.

Putting that as well as delivering it you've got the omnichannel pieces of that so.

Yes.

If you had traditional team out in the field of I don't know other people you might have now 50 that are out in the field really interacting with the docs are with HK from a health care provider directly, but you've got a bigger proportion sitting behind that in terms of analysts.

We're doing a lot of data crunching in that that we didn't used to do to support that to build the insights. So that we can look at while who should be prescribing. This who is how do we get.

How do we optimize different sites have different patents show different patents and that data and information. So we've got a data science team. That's working on that now you've got call Center you've got.

Other people producing the digital materials et cetera, and supporting and the training. So it's a more complex delivery.

Yes, the sales team in the field is reduced in terms of number of heads because they cover more ground digitally and the debt driving around in the call.

You've got more revenue coming through in different channels more digital channels more digital enablement channel and I think that's really promising trend for us for commercial in general, but also <unk> because we are the market leader in non capability.

And we continue to rollout new innovations that pharma a doesn't happen themselves.

It makes us stickier in terms of being able to deliver not just a retina.

In the.

Territory, but a rep in a territory with the right tools with the right technology and that technology is difficult to replicate in the day.

Delivery of it is difficult to replicate and I think that bodes very well for us and 1 last add on and a lot of this is due to the complexity of the products that are getting approved right now.

Youre not getting like your first inhaler and respiratory going on the market right, where you have to have that it's an arms race anymore. Because these products are highly specialized and you look at the product. They are in the pipeline there orphan rare disease or oncology.

<unk> cell and gene therapy, they are much more complicated delivery.

Systems and so the types of teams to support them past day of kind of a line to the capability that we're trying to deliver ultimately don't paycheck. So.

It's also a it's a need based on what the pipelines are looking like is also driving that sizing.

Interesting. Thank you. Thank you so much for the commentary.

Thank you. Our next question comes from Elizabeth Anderson with Evercore ISI. Your line is open.

Hi, guys. Thanks, so much for that question and congrats on that.

Nice quarter.

Wondering if you could provide just a little bit more breakdown on the revenue between the third quarter in terms of how youre thinking about it between a nickel Marshall and then also I was just wondering if you could tell book breakout.

The numbers that you said regarding pass through acquisitions and divestitures, just said that all of those things.

<unk> clinical and commercial.

Okay, Liz with it.

On the M&A activity.

<unk> be better just to do that offline, but on the.

Different.

Sequential increases in the businesses between clinical and commercial for the quarters rather.

Excited about both of the businesses as they continue to Covid recovery and we continue to win a lot of work.

And grow backlog.

Commercial, particularly as just establishing a lot of momentum right now coming out of quarter 214 book to Bill almost 18% backlog growth.

Record team launches last year, and continuing to see that Fresenius, 1 launches coming up.

So.

When you look at on a normalized organic basis looking at quarter, 3 and quarter 4.

We're high teens scaring 20% growth.

In the commercial business, which is really great to see and I think al's per share a little bit about how we're thinking about that longer term as well.

Just COVID-19 recovery clinical side.

We are really seeing good good performance there as well as Covid continues to recover we talked a little bit about the COVID-19 trials and how they're standing up to.

The vaccine trial that will continue into the back half, although we did peak as we thought we would likely in quarter 2 on those COVID-19 trials or the vaccine trials, but the other.

Large relationships, we have we're continuing to stand up and the projects are growing we are trying to catch those up as best we can from Covid.

Great Smid performance in sales in quarter, 4 and quarter, 1 again in quarter, 2 that starting to pull through into revenue as well in the back half and so looking at gross.

There.

In the low to mid Twenty's right. When you look at the clinical growth. So that's how we're looking at it by segment really pleased with it and we.

If you look back at our guidance.

On the clinical side.

Coming in in December at our Investor Day, and then where we've been thus far right we've been in the <unk>.

Low 20% growth.

Ever since that time, and what you've seen is us really stick to that and I think.

As.

Other than the industry has.

Seen their COVID-19 backlog and there are other projects unfold I think they are catching up to where we were over the year and some are going higher with their COVID-19.

Towards in backlog burn pulling through low really pleased just debt.

Been able to put that out there and go visit.

Okay.

Thanks, that's helpful.

Thank you and we have a question from Katy.

Same with credit Suisse. Your line is open.

Hi, Thanks for taking my question so outside of the 3 larger FSP 360 Awards I mean can you speak to the nature of the clinical net awards in the quarter in terms of what you saw from maybe a therapeutic and our customer perspective is there anything.

Surprising or unusual to call out other than those 3 larger awards.

Okay.

Not really I think pretty well balanced quarter.

We got a low to strength in the smid.

But the leader in the smid sector. So we expect that I think thats per.

Particularly strong for us this time, good FSP awards as we mentioned 90 site and good contribution from large pharma I don't think therapeutically, if there was any kind of bias.

Paul shaking his head so I think that's right.

But you have a pretty balanced quarter business your therapeutic units all firing their guns, and FSP, winning and winning in the smid using kinetic to differentiate ourselves and clinical as well as commercial and cross selling into commercial. So we are pretty pleased with how well balanced that isn't that that also helps I think I can't remember who asked the question about resources, but when you wind up.

<unk> bye.

It really helps too.

It was to deploy the resources in a more balanced way and we're not skewing towards oncology or somewhere else, which kind of creates a pinch point for resources.

By therapy, so pretty pleased with how our balance that essentially and I think the pipeline looks at line still as well.

Well balanced.

Pipeline, not just therapeutically, but also globally.

Okay, Great. That's helpful and then in terms of.

I mean, we saw a lot of deal activity earlier. This year are you seeing any opportunities in the marketplace or can you provide an update on what youre seeing shake out in terms of our committed.

<unk> landscape standpoint thanks.

From an M&A perspective, I think you mean.

Yes, what youre seeing in terms of.

With all the deal activity with some of the scenarios earlier in the year I mean, how is that impacting how you're competing out in the field. There are you seeing any opportunities to capitalize on.

Yeah, absolutely I think.

I think 1 of those FSP wins could be.

Repercussion of.

All of our M&A activities.

I think as stability.

Scale.

The fact that we are growing pretty well.

We have become.

Unemployed that people want to come work flow.

It helps because I think when you hire talent.

Into an organization like ours that gives you opportunities to go back into customers with.

With those people were before so we're pretty pleased with that.

But yes, I think thats, creating opportunity.

There's plenty of activity still going on in the M&A landscape a lot of organizations that are coming up.

But we get see the book solve et cetera, low commercial assets actually as well.

Changing hands and we're excited about that it looks like people value that commercial capability.

In the private sector, and we're seeing a lot of interest in that so.

Yes, we continue to be opportunistic around that and continue to.

Use non capabilities to bring in the right people and will continue to continue to do so.

Okay.

Okay, great. Thanks.

Thank you.

Yeah.

Thank you and I'm showing no further questions in the queue I would like to turn the call back to Alistair Macdonald for closing remarks.

Thank you so again, thank you and.

Since day. Thanks go to the <unk> health team for all they continue to do to manage through challenging circumstances, while delivering for our customers. We remain very confident in our market positioning and look forward to continued strong growth and profitability in the second half of 2021 as the recovery from COVID-19 continues. Thank you for your attendance today.

And for your interest and investment in Sydney Hotel, please be safe and have a great day and be good. Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect.

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