Q3 2021 IQVIA Holdings Inc Earnings Call
Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily and until that time. Your lines will again be placed on music hold thank you for your patience.
[music].
Yeah.
Ladies.
Gentlemen, thank you for standing by at this time I would like to welcome everyone <unk> third quarter 2021 earnings Conference call.
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After the Speakers' remarks, there will be a question and answer session.
If you would like to ask a question during this time simply press.
Star then the number one on your telephone keypad a.
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Thank you I would now like to hand, the conference over to your Speaker today, Nick Childs Senior Vice President Investor Relations and corporate Communications. Mr. Child. Please begin your conference.
Thank you.
Good morning, everyone. Thank you for joining our third quarter 2021 earnings call with me today R. R.
Ari buoys be chairman and Chief Executive Officer, Ron Roman Executive Vice President and Chief Financial Officer, Eric Eric Sherbet Executive.
President and General Counsel, Mike <unk>, Senior Vice President financial planning and analysis, and Brian Stangl Associate Director Investor Relations.
Today, we will be referencing a presentation that will be visible during this call for those of you on our webcast. This presentation and will also.
Also be available following this call and the events and presentation section of our IQ via Investor Relations website at IR Dot IQ via Dot com.
Before we begin I would like to caution listeners that certain information discussed by management. During this conference call will include.
Device, we're looking statements.
The actual results could differ materially from those stated or implied by forward looking statements due to risks and uncertainties associated with the company's business, which are discussed in the company's filings with the Securities and Exchange Commission, including our annual.
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.
And.
For a reconciliation of these non-GAAP measures to the comparable GAAP measures is included in the press release and conference call presentation.
Uh huh.
I would now like to turn the call over to our chairman and CEO.
Ari Boothby.
Yes.
Thank you Anita and good morning.
Morning, everyone. Thank you for joining today for our third quarter results.
Strong momentum from earlier in the Euro has continued despite the resurgence of COVID-19, due to the Delta variance.
This has not had an impact on our operations as we have learned to manage through these disruptions.
Our outlook for the longer term remains unchanged the backdrop for the life science industry continues to be very strong baidu.
Biotech funding continues to run at record levels. According to the National venture Capital Association funding totaled $35 $8 billion through September 2021 already.
Exceeding the full year of 2020.
The pipeline of late stage molecules continues to expand and is at an all time high with almost 3000 molecules in active phase two or phase III development.
Clinical trial starts are trending well ahead of recent years.
Already year to year to date starts up 23% over 2020 and 13% over 2019.
And finally, new drug approvals by the FDA are keeping pace with the historically high levels of 2020 with 40, new drugs approved.
With year to date, which sets the stage for a strong volume of upcoming commercial launches.
The bottom line is the dynamics in the industry are strong and we remain bullish on our outlook for our end markets and for <unk> in particular.
As we think about our longer term plans I want to remind you of our upcoming analyst and investor.
Unions on November 16th in New York City.
That meeting, we will provide financial guidance for 2022.
The head of our usual timeline, which is normally coinciding with the end of year results in early February and we will share as well.
Khan for midterm outlook and plans for the next phase of acuity as growth, we look forward to seeing everyone and hope you can join US then.
With that let's review the third quarter.
Revenue for the third quarter grew 21, 7% on a reported basis and 21.
Our percent at constant currency and was $64 million above the midpoint of our guidance range.
The beat was driven primarily by higher pass throughs, which as you know dilutes, our margin somewhat as well as by stronger organic revenue growth.
One quarter, adjusted EBITDA grew 25%, reflecting our revenue growth as well as productivity measures.
The $8 million beat above the midpoint of our guidance range was entirely due to the stronger operational performance.
Third quarter.
Third adjusted diluted EPS of $2 17.
<unk> grew 33, 1% that was <unk> <unk> above the midpoint of our guidance with the beat coming from the adjusted EBITDA drop through as well as favorability in below the line items.
Ill provide an update.
Update on the business.
Our real World evidence business continues to take a leading role in informing health care in late September the FDA released a draft guidance on how electronic Health Records and medical claims data can support regulatory decision making.
And excited several IQ via publications.
With the growth of rare disease therapies, and personalized medicine driven trials.
The number of single arm clinical trials increases every year and external competitors provide important context for these studies for both regulators and payers.
Our clients recognize our leading expertise in.
In this area for example, we had the recent major wins to deliver an external comparator cardiovascular study for a top 20 pharma clients.
Other example, we were awarded a 15 year follow up study to demonstrate the long term effectiveness and safety of our newly launched gene therapy.
Regulatory guidance requires extended follow up for patients exposed to cell and gene therapies, and <unk> innovative real world capabilities, combining direct to patient solutions.
As well as a <unk> technology platforms to capture secondary data was pivotal in this award.
On the technology from our suite of offerings continue to be adopted in the marketplace. You are familiar with our oce platform and other commercial technology applications and we are of course continued to expand our footprint here, we had 10, new client wins in the quarter, bringing the total number of oce.
Wins to date to 169 customers.
But we are also very excited to see increased adoption of our orchestrated clinical trial suite OTT. This quarter for example.
Leading biotechnology company in Asia selected our site portal module within OTT.
To power a site engagement across all of their trials. We now have 165 customers that have bought the site portal module, representing 155000 sites and 1716 active studies that are using our site portal.
Total module.
Similarly, our award winning <unk> platform continues to experience strong demand we have successfully deployed over 150 projects across 35 different therapeutic areas.
To date, we have over 70 customers using this platform.
Including eight of the top 10 pharma clients. The platform has processed over 10 million unique patient responses in 65 countries and across 28 languages.
Now I want us to a few words about our fast growing part of our industry youre familiar with decentralized trials or DCT.
The IQ via decentralized trial offering combined several tech modules within our OCC suite <unk>.
Including E call E consent, telemedicine and connected devices as well as other service capabilities, including home nurses and Phlebotomist along with our decentralized.
Our patient concierge.
And study coordinators, all organized around our decentralized trial platform.
Importantly, we have developed innovative clinical patient engagement offerings, including direct to patient services to accelerate recruitment.
And improve patient.
Elisa <unk> diversity and inclusion in clinical trials.
When we step back and look at the growing importance of DCT in our own portfolio, we find that up to 30%.
Of our active full service trials.
Utilize one or more components of our DCT offering.
Patient incidentally, when our competitors speak about their own DCC offerings.
This is often with a report as the DCT business.
When we look at trials that actually fully utilized our DCC capabilities, meaning they are fully run on our decentralized trial platform.
Offering we've been awarded 89 trials to date totaling over $1 billion. These awards are with 34 unique sponsors.
Of which 10 have multiple decentralized trials ongoing with us.
These trials spent 12 different therapeutic areas.
Platform 32 unique indications and have recruited over 200000 patients in 40 countries.
Our ability to combine advanced clinical technology with an extensive network of investigators and care professionals differentiates us in this space and it makes us the partner of choice for decentralized trials that utilized.
<unk> the full capabilities.
Our overall <unk> business continues to build on its strong momentum we had approximately $2 6 billion of net new bookings in the quarter.
Bringing our LTM net new bookings for the first time to over $10 billion, including.
<unk> pass throughs.
This resulted in a contracted net book to Bill ratio of 139, including pass throughs and $1 28, excluding pass throughs.
At September 30, our LTM contracted book to Bill ratio was 138, including pass throughs and 137.
Even excluding pass throughs.
Our contracted backlog in our Mds, including pass throughs grew 12, 7% year over year to $24 4 billion at.
At September 32021, as a result, our next 12 months revenue from backlog.
269 billion.
Up $300 million sequentially versus the second quarter.
As we have signaled several times in the past, we've ramped up investments in our lab capabilities, We recently announced the opening of our new 160.
Square foot innovation laboratory in North Carolina.
This facility provides customers with access to cutting edge bioanalytical vaccine and genomics capabilities.
Along with an expansion into exploratory <unk> biomarker discovery services.
These new services.
<unk> will enable us to partner closely with sponsors in the development of essential Biomarkers to support new molecules moving into clinical development and throughout their lifecycle and this expansion of course comes on top of the investment we announced last quarter in our 130000 square foot facility.
In Scotland.
I'll now turn it over to Ron for more details on our financial performance.
Thanks, Ari and good morning, everyone I'd like to start by reviewing revenue.
Third quarter revenue of $3 billion $391 million.
Grew 21, 7% on a reported basis.
<unk> and 21, 1% at constant currency.
Year to date revenue was $10 $238 million growing at 27% reported and 25% at constant currency.
Technology and analytics solutions revenue for the third quarter was $1 billion 337.
<unk> million dollars, which was up 10, 8% reported and nine 9% at constant currency.
Year to date technology and analytics solutions revenue.
Was $4 billion $38 million, which was up 17, 6% reported in 2014, 9%.
Is it currency.
Yeah.
In the third quarter R&D solutions had revenue of $1 $853 million.
Up 32, 4% at actual FX rates.
And 31, 9% at constant currency.
Excluding the impact of pass throughs third quarter.
<unk> revenue grew 24, 7% year over year.
Year to date revenue in our R&D solutions with $5.612 billion.
Up 37, 7% reported 36, 2% at constant currency.
Finally contract.
Our intend medical solutions, our CFS MFS revenue of $201 million was up 12, 3% reported and 12, 8% at constant currency.
Year to date <unk> revenue was $588 million.
Growing six 5% reported and five 1%.
At constant currency.
Now, let's move down the P&L to adjusted EBITDA, which was.
$728 million in the third quarter up 25% year to date, adjusted EBITDA was $2 billion $194 million growing 33, 1% year over year.
<unk> third quarter GAAP net income was $261 million and GAAP diluted earnings per share was $1 34.
Year to date, we had GAAP net income of $648 million or $3 32.
Earnings per diluted share.
Adjusted net income was.
<unk> $423 million for the third quarter and adjusted diluted earnings per share grew 33, 1% to $2 17.
Year to date, adjusted net income was $1 billion and $264 million or $6 48 per share.
Turning now to the R&D solutions backlog.
As already reviewed R&D solutions delivered another outstanding quarter of net new business backlog now stands at $24 $4 billion.
And last 12 month, net new bookings and crude path, including pass throughs rote rose to over $10 billion.
Okay.
Turning to the balance sheet at September 30, our cash and cash equivalents totaled $1 5 billion and debt was $12 2 billion.
This resulted in net debt of $10 $7 billion.
Our net leverage ratio at September 30th came in at 365 times trailing 12.
Adjusted EBITDA.
Our cash flow was again quite strong in the third quarter cash flow from operations was $844 million.
And with Capex of $162 million. This resulted in free cash flow of $682 million.
This third quarter performance brought our.
Free cash flow year to date that is during the first three quarters to almost $1 $8 billion.
Which continues the strong improvement trend we've had over the past three years.
In the quarter, we repurchased $125 million of our shares which leaves us with 697.
Hours of share repurchase authorization.
Remaining under our latest program.
Okay, let's turn to guidance.
As you saw we're raising our full year 2021 revenue guidance by $188 million at the midpoint.
This reflecting the third quarter strength in the <unk>.
Continued operational momentum in our business.
Our new revenue guidance is $13 billion $775 million to $13 $850 million.
Representing year over year growth of 21, 3% to 21, 9%.
I'll note that included in the mix.
Million maintenance is a $30 million headwind from FX versus our previous guidance.
Now looking at the comparison to the prior year FX as a tailwind of about 120 basis points to full year revenue growth.
We're also raising our profit guidance.
The result of a stronger.
This guidance outlook, we've increased our full year adjusted EBITDA guidance by $20 million at the midpoint, our new full year guidance is $2 $980 million to $3 billion $10 $10 million, rather which represents year over year growth of 25 to 26, 3%.
Longer ramp moving down to EPS, we're increasing our adjusted EPS guidance.
10 cents at the midpoint.
New guidance range is now $8 85 to $8 95, which represents year over year growth of 37, 9% to 39, 4%.
Now our full year 2021 guidance assumes that September 30th foreign currency rates remain in effect for the balance of the year.
Of course, the full year guidance implies a fourth quarter guidance, which we show here and before getting into the numbers I will say for context.
You'll probably recall that last year's fourth quarter was unusual due to a snap back in the general business as we rebounded from the effects of COVID-19 picked up incremental demand.
From Mega vaccine studies in R&D.
And government related Covid work within Tat.
<unk> fourth quarter revenue is expected to be between $3 billion and $537 million and $3 billion $612 million.
Representing growth of seven 2% to nine 5%.
FX in the quarter as a headwind to growth of about 100 basis points.
We expect fourth quarter Taz revenue growth to be mid single digits, reflecting the expected year over year decline in government COVID-19 related work and the FX drag.
I'll note, though that underlying constant currency organic growth for <unk> will be in the high single digits.
Which is <unk>.
A level that Tasiast recently accelerated.
R&D revenue growth will be in the low teens with services growth in the mid teens. Despite last year's difficult comparison due to the Covid vaccine work.
CSM F will be slightly down.
Adjusted EBITDA and.
The fourth quarter is expected to be between $786 million and $816 million up $6, 9% to 11%.
And adjusted diluted EPS is expected to be between $2 37, and $2 47.
Growing 12, three to 17, 1%.
Percent.
So in summary, we delivered a very strong third quarter.
Sure.
Strong results results on both the top and bottom line R&D backlog improved to $24 4 billion, that's up 12, 7% year over year.
Next 12 month revenue from.
Backlog increased to $6 $9 billion up $300 million sequentially versus the second quarter.
We reported another strong quarter of free cash flow, which at $1 $8 million through the first three quarters of the year as a market improvement over prior year.
And finally.
Finally, we are once again, raising our full year guidance for revenue adjusted EBITDA and adjusted diluted EPS.
And with that let me hand, it back over to the operator for questions and answers.
At this time I would like to remind everyone in order to ask a question Press Star then the number.
One on your telephone keypad, let's pause for a moment to compile the Q&A roster.
Your first question comes from the line of John Kreger with William Blair.
Hey, Thanks, very much all right. Thanks for all the detail around that.
The OTT and <unk>.
<unk> offerings that was great I'm curious if you could just take that one step further what do you think the operational implications are for you guys and your clients as you see greater adoption of some of these newer technology tools.
Well I mean operationally obviously.
You know.
One of the single most important challenge.
And actually the entire industry has.
The ability to deploy people.
Again as a strong book of business that we've all generated and so this is a great development because what <unk> does is it.
It kind of increased productivity.
Reduces.
Labor.
And enables us to essentially execute.
More efficiently. So I think operationally we are we are adjusting.
Adapting to these now again the full productivity only.
When it comes when the trial is fully.
Decentralized trials as I explained because theres a lot of confusion in this space as soon as someone uses.
Digital platform.
They say well we've got a decentralized.
DCT.
Award here, but.
That's not the case, if we do that as I mentioned about 30% of our.
Food.
Clinical trials, which she is just probably.
Probably we have a little bit under a thousand trials that are full.
Full service clinical trials ongoing.
So it's.
The larger number that already UTI is one or several of our.
DCT modules E consent to recall other connected devices.
But.
Our clients are.
<unk>.
Experiment in quarter on quarter with smaller trials and trying.
The form.
DCT platform, which puts together all of the capabilities and the maximum utilization of the digital tools that we have with all disposal I think he hands down I believe we are.
Leader in this space.
Sounds good thanks.
And one quick follow up.
On staffing.
We've there is a lot of talk about a tight labor market is that proving to be any any sort of a headwind for you guys on EBITDA margins and have you seen your staff attrition rates changed at all as we've moved through this year.
I mean, there is no no question about it.
Great.
Yeah.
This is true.
Across industry sectors and in our sector in particular.
Since we have such a.
Strong industry backdrop.
There's a lot of competition for talent.
We have all of the peers.
Aerospace.
Our hunting ground for talent.
So obviously, we're responding we're actively recruiting and hiring to meet this demand.
We recruit thousands of employees every year, so we get.
Talent acquisition capability, that's global and that's.
At CBF.
Or does it create cost pressure yes.
And it's already included in our guidance that's certainly.
A headwind, but as you well know by now hopefully you know that.
When you look at our overall results.
You see that there has been margin.
Margin expansion. Despite these cost headwinds in fact, even when will you see in this.
As in this Q3 <unk>.
And our operating margins are flat to slightly declining.
When you actually take outs.
The pass throughs.
You actually see that our margins the operating margins expanded.
Quite nicely and this is despite the cost headwinds that we have so yes. It is a headwind.
And we are dealing with it and offsetting with the usual productivity and efficiency programs that I hope.
We've been demonstrating with good. Thank you very much next question.
The next question is from the line of Eric Coldwell with Baird.
Thanks, Good morning, I have a couple as well first one I think the number one inbound. This morning is on your M&A spend in the quarter.
Obviously, a much higher number than we were anticipating with the myriad deal sizing being known I'm curious if you could.
Address that in a couple of ways one.
The type of deals nature of deals number of deals, but also what impact you expect on a revenue basis, both in the fourth quarter as well as.
Any thoughts on the run rate of the companies that you've recently acquired thanks, very much and I might have a follow up as well.
Okay.
Take those latter part of your question first of all in the quarter.
The contribution of M&A was minimal.
Maybe.
We're at a point and that's the same basically.
For R&D and for ties.
Fourth quarter, Nick a little bit more than that in the fourth quarter. In total total company, we're a little over a point and a half a point and a half of contribution to our revenue growth.
Now.
Yes, we had the big spend this year, it's going to be lumpy, we always see acquisitions as binary it happens or it doesn't happen.
I will note that.
We didn't spend very much last year I think in the entire year, we spent $177 million.
And.
There are quarters, where we spent 10 or $15 million in this quarter.
And this year actually we spent quite a bit more money as you know the largest acquisitions. We've done is simply the consolidation of our joint venture that request.
In the lab business and that was a $760 million transaction that we.
We did in the second quarter.
So that represents.
Really.
A very large portion almost half of the spend to date in the quarter.
We were very active we were we actually closed only a handful of transactions.
Too long.
This accounts for the vast majority, let's say almost 90% you would say something like 80% 90% of the spend is two transactions only one is the myriad RPM lab, which we had announced during our second quarter earnings and actually closed in the third.
Long jewelry.
It's allowed that perform sophisticated biomarker detection.
And testing it supports early and late stage drug development in very specific therapeutic areas oncology CNS and immunology. We also purchased DMT DMT is leading.
Third quarter of analytics, and digital marketing solutions to healthcare professionals. It brings advanced tech enabled analytics and insights for intelligent.
Omnichannel marketing and we consider that acquisition to be a strategic asset and yes. It did.
Come in with a lot of it.
It costs quite a bit.
So these two transactions again, it's basically the bulk of the spend.
Now there is the acquisitions that you have the second question right.
Just a clarification on the first one so the lag.
One I think you said DMV.
Understood correctly.
Deanne D. David David AMD, Okay got it and then.
Is that actually our CSS segment deal or is that a no.
Tech and analytics deal Yeah, So second analytics deal okay.
And then my follow up is my my typical.
Burden.
If I had to talk about Covid contributions in <unk> for revenue and bookings.
Specifically in R&D, but also other segments as necessary if you could update us on the backlog of Covid work in total.
And then talk about bookings and <unk> related.
<unk> to total COVID-19 related activity would be great, yes, I mean on.
As we signaled Covid work is obviously going to it continues a little bit there is a tail to it but certainly on the <unk> segment.
A significant step down.
We had signaled this before.
Non U.
The government related Covid work.
He is.
Gradually going away.
And so can you will step down dramatically in the fourth quarter and going forward and we're just going to return once you. Once you eliminate the noise of all going to happen.
Last year.
The.
The ties and relying organic growth rate is in the high single digits, you'll remember times historically was in the mid single digit grower and our.
Our Investor Conference in June 19, we said.
That size with accelerates.
High single digits, and that's where we've been.
Most of the year, we've told you that when we reported prior quarters.
The <unk> growth.
Growth rate included significant COVID-19 related work and excluding that.
Growth rate was in the high single digits and it remains so.
<unk> take out the noise of the compares et cetera on the RMB, Yes can you give us the number yes sure look.
We like to look at the contribution of our cobot to the backlog.
And if you strip out the Mega vaccine trials, Eric from the backlog of R&D, it's less than.
When your percent of the backlog if you take out all COVID-19 related work, it's less than 10% of the R&D backlog.
And you were asking about the contribution of Covid to revenue I think two in the quarter and look R&D has had very strong growth even.
Five excepting.
The COVID-19 related work.
If you take out the large fast burning Covid work you were in the high twenty's or for <unk>.
<unk> revenue growth and even if you take out all COVID-19 related work.
Strong teens growth so.
Yes, Covid did contribute.
Of course, and their work will trail down over time, but the underlying business and other therapeutic areas is very strong.
And ramping up as we go forward in R&D.
Thanks, very much guys.
Your next question is.
<unk> of Cohen of Jack Meehan with Nephron research.
Thanks.
Wanted to continue on the Covid conversation, but looking at the Tas business.
I think you referenced when talking about the fourth quarter guidance.
Headwinds versus the prior year, but could you just.
Maybe talk.
A little bit about how you feel like the longer term durability of Covid work in the segment.
Just your thoughts around that.
Again, there's a little headwind in the fourth quarter for the growth rate is slower simply because it's a math question, we've comparing last year's fourth quarter, which was which included the coming.
The work with the <unk>.
And a bunch of noise with the with the fourth quarter here, which eliminates the noise again, when you eliminate all of that the underlying organic growth rate is.
High single digits in the fourth quarter. So there is no headwind.
In the underlying business and we expect.
That trend.
And momentum to continue with.
As you know provide we generally provide guidance on the year.
Concurrent with the release of our fourth quarter.
Earnings last year, because it was such a.
We decided to give guidance for 2020.
One <unk>.
Concurrent with the release of our third quarter earnings.
This year, we plan to do it at our November Investor Conference, which is just.
Three weeks away.
Great and I don't want to steal any thunder from the Investor Day a.
A few weeks from now but.
I was curious if you could.
Talk a little bit about some of the puts and takes for 2022.
The funding environment as you're referencing was very strong.
Are there any takes that you would consider and then.
The one thing that stands out to me is pass throughs, they've obviously been elevated this year.
But any color around how that might phase in the next year would be helpful.
Yeah, So I mean look.
It's always important to put things in context and look at the.
The longer term trends as you're asking.
And if you go back to.
June 19, we gave a three year.
Set of targets for revenue profit EPS capital deployment leverage et cetera.
Now no one could have predicted than that.
Some months later would be starting.
The pandemic.
And we would have such disruption.
Across the world for all businesses, I mean 24 hours.
Yes.
But when you and I think people like to look at 19% to 21% to kind of try to eliminate COVID-19 I don't think that's fair because.
The old coffee the effect is not gone yet because you still have these disruptions that I just talked about I think it's important to look at the three year, 19% to 22 timeframe and if you go back to the targets. We gave we certainly are running ahead actually where it has.
Of the growth rates.
We predict.
Predicted.
Four.
For 2022.
We are ahead of that and a little bit of this is because of COVID-19 and the pass throughs that you just referred to but even if you strip that out we still ahead on every single one of the metrics now I don't know if you are that conference but.
As you are doing now and your colleagues are doing trying to push me for <unk>.
Even more precision on what the numbers would be.
I said then.
I was hoping to exit 2022.
At 10% growth rate for the company now.
Said.
Before earlier this year.
That when we.
<unk> reached our end of 'twenty two targets in 'twenty one.
And I believe that momentum will continue into 2000, and so that's all I can say and I have to wait for more precision.
Three weeks, but I certainly city gear feel very very confident.
That we will certainly exceed those numbers that we gave you three years ago and set the stage for further acceleration.
Beyond.
Great. Thank you.
Your next question is from the line of Shlomo Rosenbaum with Stifel.
Hi, Good morning. Thank you for taking my questions are can you talk about where you are in general with the oce implementations, particularly with like Roche and Astrazeneca.
Have you gone to the point, where you know.
The implementation.
Patients are not a significant drag on the margins that you have to offset.
Other areas and just where are you seeing the business progressed in terms of.
Hitting kind of a steady state of revenue of revenue exceeding the cost to implement.
I mean, you make you bring up a good point implementations.
A very costly and because we had a large number of wins.
I referenced.
An additional 10 new wins, so every time you.
New Award again, you have to implement so it's not like when you were behind the curve of implementation and you start generating the.
The license revenue.
You're still.
You you you still have to implement the new one that you're that you're sold out we're happy we did.
So we're not <unk> that.
The headwind.
<unk> if you will in terms of the implementation cost that is significant.
Drag and were not seeing yet we havent passed if you will.
Your points.
Now essentially plateaued.
Your market penetration.
And you're essentially sitting tight and collecting license revenue.
For more of these installations were not there.
In aggregate.
Okay.
<unk> and then just maybe this one is for Ron the free cash flow was incredibly strong.
Something just more this year, 33% more than you had all of last year, which was I think a record quarter.
Could you talk about what's going on there was a significant increase in unearned revenue and some other working capital changes and how should we be thinking about.
This on a go forward basis, obviously very healthy numbers is this something that you can keep up or is it or adjusting and catching up on some of the working capital items.
Well, Sean we made a really concerted effort internally here to improve our processes around receivables, which of course is one of our largest classes.
So we don't have inventory like you wouldn't a manufacturing firm receivables are really where we have a lot of our assets other than our deferred software investment and.
That's been our efforts had been on several fronts first off is collecting on time, we had to go back a little while we had a large.
Of that amount of overdue receivables and that's just kind of focus to go and collect what to do for months.
The next is it's building on time I mean, we had a large amount of unbilled receivables.
And that comes down to internal processes about doing more quickly.
Large in a more timely fashion. So we get paid on a more timely fashion and of course. The third that you mentioned is that deferred revenue that the customer advances that we get.
Again made an effort internally to negotiate contracts with our customers. So we get paid more upfront so.
We're not out of pocket.
And this has helped substantially and I expect all three of those to continue to be a driver of strong cash flow in the future now of course, having said that cash flow is lumpy quarter to quarter, it's difficult to predict and you do get instances, where youll get an unusual amount.
More answers because some of the work youre doing that will burn off over time, and then rebuild up so.
I would.
Or do you not to focus too much on the quarter to quarter, but yes. What you are saying is that fundamentally we've improved our collections processes and improved our underlying free.
Thanks, ROE generation as a result.
Yes.
Just my.
We're very pleased with the performance, but let's.
Let's be.
Honest.
This was.
The bad about point for Us and I think some of you had called that out.
The power of the bus.
Past three years, or so our cash flow performance, which seem to be very poor.
Although we are now performing very well.
On an unusual thing I mean, I think not too long ago. In 2018, we generated just barely over $600 million of free cash flow for the entire year and here. We are three quarters into the year, we've already generated three.
<unk> cabinet number obviously, we have a much bigger company and so on but but.
Look the outperformance was just not good and we said that was on US and we worked on it that we will continue.
To pay attention and have the right metrics in the right incentives and the team's focus on it.
And as always when you shine the light on something.
Three time roofs, and Thats, what will happen to year end.
Where we are now is the normal not not.
Unusual.
Alright, thank you.
Your next question is from the line of Dave Windley with Jefferies.
Hi, Thanks, Good morning, good morning folks.
Thank you for taking my question.
He didnt follow up on I believe of John Kreger question around DCT.
He asked around operational Ori I wanted to ask around financial as it seems like you now have a pretty substantial number of trials.
You are running.
Pretty fully on your DCT platform I am wondering.
If you could relate to us.
How that changes the dollar value of a trial and does that give you the opportunity to garner more margin in that trial because of the technology enabled efficiency.
Yeah, I mean look.
It is a high degree of interest from clients Okay.
Ron how to operationalize DCT and it's not like it's going to overwhelm and all of a sudden become 100% overnight as I said large pharma in particular was experimenting.
A lot of trials are using one compared to one or the other so it's going to take time. So this is not the mixture or the day after that we're going to have.
Two phase issue that you're raising.
No.
Our experienced customers are struggling with how to make various point solutions fit together so.
We.
All are actually very being very aggressive here, we want to.
To date, we've said this since the merger five years ago, we want to accelerate.
In a slow down.
Technology introduction.
And changing the model now obviously your question you asked.
Is.
Is this is a question people ask.
Many years ago, which is.
As you seek to replace labor model.
Pricing is largely based on labor inputs that arent you.
During the value of the trial and the <unk>.
<unk> et cetera, what are the implications on margins so.
We don't believe so.
We we have.
As you know we've had a long run efforts to switch.
Pricing to value and deliverables and outputs.
That's number one and that hasn't been substantial progress our clients.
Now looking at.
Saving a couple of pennies year over there they are looking at.
Getting what they need the answers that they want faster more efficiently with less error and with higher quality.
And they are willing to pay a premium for that now they're not going to pay more than what they were paying before but they're not.
Way less than what they are paying before.
And so.
Now the margin implication is correct over time, the more we deploy technology the less we need people to more.
There is going to be margin accretion, but again this is going to take time. There are also new delivery.
<unk> rules, which offset some of the reduced CRA visit activity.
So I think it's too early to comment on the exact margin impact for this overall, we are monitoring we do not anticipate these to disrupt our margin performance.
R&D is a very.
Long cycled business.
We have.
<unk> the 89 fully decentralized trial.
Ongoing that we won but were working on if you look at.
As I said just under.
Maybe 900 or so full service.
Trials. So it's a fraction of that as you look at the total trials. We are involved with this is it's over 2500, the clinical trials that we are involving globally.
It will take some time to penetrate its a slow moving business, but it's a good point.
Totally focused on it.
We do not anticipate tomorrow.
The margin I'm, sorry, a value deterioration.
We do anticipate the margin accretion over the long term great. If I could ask a second follow up around a question on Covid It seems like.
A lot of focus on how much revenue now and how much in backlog now.
Seems equally important.
To me if not more so to focus on how that will phase out and I think you've made comments in the past that you see projects booked out through 'twenty, two and maybe even into 'twenty three would it be appropriate to call. The COVID-19 contribution kind of a soft landing so to speak that it's not going to drop.
Off it's just going to slowly taper over time is that the right way to think about it on beyond this business absolutely no question.
You said is exactly what I would say, it's a softening 'twenty two 'twenty three.
It frankly.
We get lost in the rounding.
When we get to 'twenty three.
Very helpful.
Thank you.
Unless of course God forbid there is another another variant or another <unk> or another but right now as we see based on what we know today, it's a soft landing will get lost in the rounding by 'twenty three.
Your next question is from the line of Dan Leonard with Wells Fargo.
Thank you and good morning can.
Can you comment on trial site operations or are there any continued bottlenecks you flag or insight activity normalizing.
Got it wrong, Yeah look.
Site accessibility numbers remain around 80% or so.
Well.
We've managed to two.
Two.
Work around that and operate at close to normal and not all sites are equal the larger sites are open and that hasnt been an issue for us we've seen site startup.
And patient recruitment at near pre pandemic levels not quite.
Are we near pre pandemic levels.
The patient visits are still lagging a little bit just gradually coming back and so so when we.
Look at our overall operations were not totally back to pre pandemic level yet and.
And we will expect a gradual improvement over time back to pre pandemic level, but it really hasnt been a major issue for operations. It's already mentioned in his opening remarks, we've learned how to manage through and around yes. I mean, the you know the members of the <unk>.
The numbers in detail, but basically.
Right, but over between it's 80% or so.
Cross all of those metrics, a little bit higher fore sight startup, which is more again as a percentage of 2019 base levels. Okay.
Site startup of the new hires that more 85%.
<unk>.
The bottom line as these metrics.
C provides confidence that the non coffee trial pipeline.
He is not only being awarded.
You can see from the strong.
New bookings, but it's also starting to be delivered and the sites are enrolling the patients are enrolling.
Patient visits.
Are ongoing.
So I think there hasnt been any major change in changed from these.
As a result of the variance or anything like that.
And as a follow up can you comment on perceived market share trends.
R&D in the quarter, you've been pretty open about the various strategic actions by your competitors potentially allowing an opportunity for share gain.
Look it's hard to look at market share in a given quarter.
Okay, it's lumpy a trial can be awarded.
The.
<unk>.
The following.
I wouldn't look at.
As we always say locally.
We've.
We were defeated and end to end.
Give you quarterly book to Bill ratios, but really we don't we believe we should focus on longer.
Return.
Book to Bill ratios, because it's lumpy.
Focus also on.
On.
Business from the backlog over the next 12 months now if you look at our competitor is theres been a lot of disruption.
And yeah, I mean, we've got.
Correlation with customers, but just as we don't win a new customer overnight you don't throw out cielo overnight during the middle of trials right.
So some of those mergers will have an impact on market share I think it is favorable to us maybe it will remain the last for cielo.
<unk>.
Thomas I don't know what.
We are we feel that.
And we know we know from experience, what's the what's the merger or the large acquisition.
Does too.
No.
The lighting business as all of the disruptions that is.
People who use.
Their jobs people don't like the new <unk>.
Arrangement and Thats just life and.
The result of that and some market share we had that problem after our merger and 60.
The honest about it then we have some.
Some some market share issues, which we rebounded once we put together the company and its.
I think we are the future is very bright for us we continue to gain new customers.
And.
Biotech environment in particular is extremely extremely.
Our hot right now we are we are gaining new clients.
Europe, we are making.
Great I think balanced with customers, we never had before.
In Asia as well and the teams are extremely energized and I feel we are on the on our winning.
Mentum here and there's no doubt that.
When we look back we will see that our market share.
Sure.
Appreciate all that context. Thank you.
This isn't going to be our last question of the day.
And your last question comes from the line of Patrick Donnelly with Citi.
Alright, Thanks for fitting me in guys.
Are you maybe to follow up on that last question, you talked a little bit about kind of all the mergers going on in the space again head count disruption.
Going up on one of the earlier questions in terms of labor costs does that position you guys better in terms of being able to acquire some talent that got bottled round. During some of these mergers and kind of being stable shifts there kind of grab some.
People, maybe at not quite the inflationary costs, we're seeing on the labor side, and then secondarily to that maybe.
Maybe with a focus on R&D, how much can you pass some of these price increases on to customers I know.
Full service contracts and backlog are particularly tough to adjust but just wondering how much you can pass on in terms.
Some of the price pressure you're getting there.
Okay, well on the on the on the personnel question, you've got to differentiate between the executive management and leadership level and then the.
The actual field force the CRA is et cetera.
So the first group general the first category.
Yes, there is an opportunity to.
Bringing in talent that somehow you satisfied with where they are and that will occur.
Sure.
And it has happened.
Already in a few cases.
So and again these are small numbers.
On the CRA and the project leads and so on that is much more difficult because it's.
It's driven by the by the book of business and by by the execution that our competitor is also in the midst of trials and they need those people.
As much as we.
So theres no not much.
Just on inflation on.
Wages, which is the result of all the factors we've talked about before but.
That doesn't have the mergers don't affect.
At least immediately.
The CRA has and the people in the field.
Your other question.
<unk> had to do with pricing and ability to pass along cost yes. So as you noted yourself in your question, it's very hard.
You can't.
We sold.
Projects.
We still don't assumptions.
Do when there are some escalations in some factors built into those contracts. So so so that would be reflected but.
But by and large the pricing was set based on different assumptions than when you have higher cost then you have to absorb that.
But then as we move forward obviously.
The pricing.
And that is effective there is no.
There's no magic here and it's all going to get.
First on them.
There is no.
No secrets, but it's going to it's going to lag because of the nature of our business certainly in the in the R&D business right and of course on the tax side of the business shorter cycle business.
Business.
Greater ability to pass along cost increases right, but theres less labor so thats the best paper that's correct.
Okay. Thank you guys.
Thank you very much.
Thank you everyone for joining us today, we look forward to seeing everyone at our Investor day.
Yeah.
A few weeks if you have any other follow up questions feel free to.
Reach out we are happy to answer them. Thanks for joining today.
This concludes today's conference call you may now disconnect.
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