Q3 2021 Syneos Health Inc Earnings Call
Okay.
Good morning.
You said, the Sydney as health third quarter 2021 earnings Conference call.
At this time all participants are in listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time I would now 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, <unk> <unk>, our president of commercial solutions.
Paul Colvin, our Chief business Officer, and Michael Brooks, Our Chief Development Officer.
In addition to the press release, a slide presentation corresponding to our prepared remarks is available on our website at investor <unk> wholesale dot com.
Remarks that we make about future expectations plans growth anticipated financial results and prospects and our expectations regarding the COVID-19 pandemic constitute forward looking statements for purposes of the Safe Harbor provisions under the private Securities Litigation Reform Act of 1995.
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 I'm delighted to report another quarter of strong results demonstrating the enthusiastic customer response to our differentiated product development strategy and have continued market momentum.
We again exceeded the midpoint of our guidance across all financial metrics for the quarter, our integrated offerings. Those way we work across the product lifecycle fueled strong awards and backlog growth in both segments during this quarter.
Both clinical and commercial continued the robust year over year growth in the quarter and we now anticipate 2022 revenue growth rates of both the midpoint, we outlined during our investor event in December 2020.
Demand environment remains very healthy with strong pipelines ahead of us across our business in terms of Rfps relationship discussions new drug approvals and demand for our innovative models based around the senior guys one approach.
Now for three key highlights from the quarter.
<unk> overall net awards grew by 35, 1% year over year.
This performance drove third quarter book to Bill ratios of 130 times for clinical solutions and 0.89 times for commercial solutions, resulting in robust TTM book to Bill ratios of 139 times for clinical and 116 times for commercial.
Second we are enthusiastic about the continued strength of our commercial solutions business and the success of our integrated solutions approach.
Demonstrated by revenue growth accelerating to 18, 7% and deployment solutions backlog growth of 24, 9%.
Third we are pleased to have recently closed acquisitions of Citi kick and Rx data signs enhancing our patient engagement and data science capabilities.
Companies expand our dynamic Assembly network to bring further innovation and technology enabled service offerings to our customers.
Now moving into further details on our results we continue to see recovery from the impacts of COVID-19, and our total company year over year revenue growth remained strong at 22, 7% compared to the third quarter of 2020.
Clinical solutions revenue grew 23, 9% compared to the third quarter of 2020.
Our organic growth was driven by our full service portfolio, including the continuing ramp up in our larger pharma relationships, particularly in oncology as they gain full scale and efficiency.
This was accompanied by rapid growth in our real world and late phase businesses.
Our clinical team also closed another strong quarter of awards, particularly in the Smid segment driven by the strong sales record ending backlog that is up two 3% year over year on a record pipeline of new opportunities clinical solutions remains well positioned for robust revenue growth into 2022 and beyond.
Before I discuss our recent acquisitions were sharing an update that will drive further growth across clinical solutions and broader organization.
We continue to focus on our product lifecycle model, we're rotating executive leadership across the organization to drive deep connections micro Brooks, our current Chief Development Officer will now lead our clinical solutions organization.
Michael has a 25 plus year track record across clinical development, and commercialization setting strategy and driving business transformation.
<unk> will transition into Michaels former role and take his customer focused approach to lead our go to market ecosystem as chief business Officer.
Both deep customer relationships and product development mindset will accelerate deploying high value solutions to the marketplace. We believe this partnership will be powerful aligns to our customers and is a competitive advantage for <unk> health.
Shifting to our recent acquisitions, we are constantly enhancing our approach to the way, we engage with sites patients physicians and communities and as the clinical trial landscape evolves, we are placing increasing focus on decentralized trial capabilities in patient recruitment.
We continue to expand our dynamic Assembly network of service data and technology providers to bring additional innovative solutions to our customers.
We are very enthusiastic about the advanced patient engagement capabilities added by the acquisition of <unk> three.
<unk> Global network of patient communities and advanced technology platform. So DKK expands our ability to accelerate site startup as well as patient enrollment and engagement, helping to improve patient retention and access.
Innovative capabilities include E consent, Tele medicine, and improve patient accessibility to enhance experiences for both patients and sites with the goal of reaching more diverse patient populations and reducing the burden of clinical trial participation.
In addition, patient concierge services and site support capabilities remain a key focus for our clinical solutions organization.
We see a unique opportunity to connect the service support platforms of steady cake without a home health technology platforms patient go and source code, creating a compelling patient and site support ecosystem.
<unk> is an integrated patient concierge service and application facilitating patient travel reimbursement and K give us a call.
<unk> is a recently released application that enables <unk> to securely capture high quality patient data in real time during home health visits.
Combining these technology enabled capabilities with our home health services further positions <unk> health is a leader in decentralized clinical trial delivery.
We also recently acquired Rx data science, especially as the organization that helps biopharma customers solve challenging problems via advanced analytics data management and AI.
Rx data science is well aligned to our lab to life model offering advanced analytic solutions across the entire product development spectrum from clinical through real world late phase and commercial.
Combined with our existing data science and analytics capabilities, including kinetic a modern engagement capability Rx data science will allow us to accelerate delivery of cutting edge analytical solutions for customers.
These solutions help to drive increased performance in areas like clinical trial diversity clinical trial protocol insights decentralized clinical trials and real world evidence generation and Omnichannel analytics.
As biopharma companies increasingly harness data to address their most difficult challenges Rx data science offers excellent AI capabilities, helping to structure, an organized massive data sets and rapidly develop prototypes of solutions that drive value.
I am excited about the significant strides we continue to make in bringing the latest innovation in technology enabled services to our customers to further our goal of shortening the distance from lab to life.
Turning now to commercial solutions, we saw accelerating year over year revenue growth of 18, 7% compared to the third quarter of 2020.
Growth in our core business outpaced this level, partially offset by the headwind from the 2020 divestiture of our medication adherence business.
This growth continued to be broad based across our commercial services deployment solutions had another high performing quarter of new team starts driving the number of deployed resources and ending backlog to a four year high.
Consulting had the highest growth rate of our commercial businesses and.
And we also experienced impressive growth and the public relations and medical communication specialties within our communications business and.
In addition, full service commercial gross awards are up over 70% on a year to date basis compared to 2020.
We expect the success of this integrated model to further enhance commercial revenue visibility and drive more consistent growth as customer adoption continues to increase.
The market for our commercial services remains strong driven in part by the pace of innovation, new drug approvals on the biotech funding environment.
Spec commercial solutions performance to continue in the fourth quarter with growth again in the high teens.
Our commercial expertise continues to fuel innovation across the product development spectrum with dynamic capabilities such as kinetic.
And I think he is designed to optimize HCP engagement in commercial and accelerate patient referrals into clinical trials through advanced targeting and digital capabilities.
Our early case studies across clinical and commercial indicate that Connecticut is producing on average 15% improvement in these activities.
We believe this unique suite of capabilities along with our other innovative solutions continue to differentiate <unk> in all key factors in driving new business Awards.
<unk> our end to end product development methodology also continues to differentiate <unk>, particularly with our small to mid sized customers.
During the third quarter, we began the first commercial launch among the 23 assets currently managed by the <unk> team.
This marks a significant milestone for our team demonstrating the success of this unique offering and it's only the first of these launches.
We've also initiated planning activities for two additional <unk> commercial launches expected during the first half of 2022 subject to final regulatory approval.
This quarter, we also expanded one of our largest Sidney I just warn relationships beyond the U S product launch to include the European and Canadian launch activities for the same asset.
We anticipate these launches will start contributing to awards and backlog in the second half of 2022, expanding the geographic reach of an existing asset demonstrates yet another way that <unk> can drive revenue growth and also diversify our commercial pipeline.
We expect the <unk> portfolio to increasingly contributes commercial awards and revenue over the coming years with an expanding diverse group of product launches in multiple therapeutic areas indications in regions around the globe.
Lastly, I wanted to highlight the recent publication of our 2020 sustainability report.
The small class third annual report, which showcases our commitment, creating a douglas equitable and inclusive workplace for our employees, while making a positive social impact.
Also outlines our pledge to reduce the company's environmental impact I.
I am proud that these continued ESG efforts and commitments represent the fabric of our culture I want to thank the entire <unk> community for their passion and commitment to these important issues, while they work tirelessly to provide excellent service to our customer sites and patients worldwide.
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 third quarter.
2021 was 135 billion up 22, 7% and 22% in constant currency compared to the third quarter of 2020, which was impacted by the COVID-19 pandemic.
Our clinical solutions revenue for the third quarter was one point of a $4 billion up.
23, 9% or 23, 1% in constant currency compared to the third quarter of 2020.
These increases were driven by growth in our full service portfolio, including higher Reimbursable expenses, the ramp in our larger pharma relationships and strength in our real world and late Phase business. This total growth includes a 975 basis point contribution from acquisitions and a 750 basis point tailwind from increased Reimbursable expenses.
Our third quarter commercial solutions revenue was $310 $8 million up 18, 7% or 18, 4% in constant currency compared to the third quarter of 2020.
Growth in commercial revenue was driven by broad double digit expansion across our core commercial businesses with particular strength in consulting and includes a 180 basis point tailwind from Reimbursable expenses.
This growth also includes the impact of a 310 basis point headwind from the 2020 divestiture of our medication adherence business.
Adjusted EBITDA increased 10, 8% to $202 $6 million, representing an adjusted EBITDA margin of 15% a decrease of 160 basis points compared to the third quarter of 2020.
The decrease in adjusted EBITDA margin for the third quarter was primarily the result of increased cost from the expiration of temporary savings programs instituted in 2020 Andy.
And a less favorable revenue mix.
These impacts were partially offset by the benefits of revenue growth and cost management initiatives and our forward bound program.
Adjusted diluted EPS of $1 22 for the third quarter increased by 17, 3% year over year, primarily driven by the increase in adjusted EBITDA and lower interest expense.
Our operations generated $48 $5 million in cash flow for the third quarter in part due to timing of billing and collections.
Our year to date 2021 cash flow from operations has been solid reaching $264 $3 million driven primarily by our net income as the impacts of the pandemic subsides.
We expect improved operating cash flow in the fourth quarter and have already seen strong billing and collections activity in October.
DSO for the quarter was $48 three days returning to a more normalized level of revenue growth resumed driving increased accounts receivable and unbilled revenue.
Our capital expenditures were $7 6 million for the third quarter.
We ended the quarter with $122 4 million of unrestricted cash and total debt outstanding of $2 $95 billion, resulting in net leverage of three nine times.
As Alistair highlighted we closed our acquisition of steady kit during the quarter.
Even the related utilization of cash and a $30 million draw on our revolving credit facility, our net leverage ratio increased slightly compared to the second quarter.
We currently expect our net leverage to be slightly higher than our prior expectations, but remained below four times through the end of this year.
In addition in October we expanded our AR securitization facility by $35 million, which will serve to reduce our overall cost of debt and we used the proceeds to reduce our outstanding revolver balance.
Our non-GAAP effective tax rate for the third quarter was 24% consistent with our expectations for the full year 2021.
Turning now to our updated 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 are narrowing our expected range of full year 2021 revenue to $5 2 billion to $5 8 billion.
Representing growth of 17, 8% to 19, 6%.
This growth includes an estimated contribution from acquisitions of $560 to 580 basis points and.
And the headwind from our 2020 divestiture of approximately 110 basis points.
We're also narrowing our expected range of total adjusted EBITDA to $755 million to $775 million.
This continues to reflect an adjusted EBITDA margin of 14, 5% to 14, 7% up 30 basis points from the 2020 midpoint.
Lastly, we are increasing our expected adjusted diluted EPS to a range of $4 35.
To $4 49.
Our year over year growth of 27, 6% to 31, 7% to reflect lower expected interest expense and depreciation.
Our guidance incorporates interest expense of approximately $80 million, a non-GAAP effective tax rate of 24% and an estimated diluted share count of $105 1 million shares.
Further we now expect our net cash outlay for income taxes during 2021 to range from $30 million to $35 million.
As Alistair highlighted based on our strong trailing 12 month awards backlog and pipelines in both segments. We expect our 2022 growth to exceed the midpoint of the 7% to 10% range, we communicated at our Investor day in 2020.
Importantly, we expect notable contributions from both clinical and commercial particularly considering the ongoing strength in commercial.
Given our expectation of a somewhat higher mix of Reimbursable expenses and increased contribution from commercial we now expect our adjusted EBITDA margin to expand in the range of 30 to 50 basis points for the full year 2022 compared to 2021.
This completes our prepared remarks, and we would be happy to answer any questions.
Operator.
Thank you.
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Our first question comes from Patrick Donnelly with Citi. Your line is open.
Great. Thanks, guys Alistair maybe starting on the 22 commentary there. It sounds like you guys are pretty confident going into next year can you just talk about the visibility to set up again your confidence level and it sounds like maybe a little above the mid point is the right way to think about some of that long term guide, but would love your a little deeper on the set up there.
Okay.
Jason good.
Good morning, Thanks for the question, so, yes, I think where we sit right now.
Kind of.
Backlog visibility through the whole year with both.
The increased backlog that's coming through from clinical we mentioned, we're winning a lot of oncology work.
So for long.
The view of the pipe back.
Backlog, so you've got a lot more visibility to that also from commercial with a backlog that we're seeing coming through on the deployment side.
And really the trend also around that deployment, where can that that the fact that we went in full service commercial gives you a longer view through that commercial pipe.
And also the amount of.
New products getting approved and the style of those new products get approved so I think in 2021 more than 50% of the products have been approved all go into market with the smid or still in the seat.
And obviously, the <unk> model and the integrated commercial solution that we have a very good model for those folks to take those products suite to the market.
I think we.
Steel that we also see very strong pipelines in terms of Rfps discussions, we're having with customers.
It's coming our way in terms of FSP. So it's really it's really a nice setup right across the business.
We're seeing accelerate.
And I think we just have a better look at 2022 and a healthy picture then.
We would normally see at this point so we are happy.
Happy to.
That confidence come through a little bit in bringing the guide.
A little touch for 2020.
Yes.
That's a good summary.
That's really helpful and so that's encouraging to hear out there.
And then you touched a little bit on the RFP side, but maybe can you just talk about the flows there I mean, the site activation sounds like its going well above pre pandemic levels and then just a quick update on the Covid.
The composition of the backlog and rather would be great. Thank you.
Yes.
So I think the flow that we're seeing RFP strong across the board, both large pharma and Smith and we've been really working on strategies to drive more penetration into the large format that was one of the.
So one of the imperatives of the merger right Scott that scales get into large pharma where that scale is important.
So we're seeing that we I think have the most compelling smid offering in the market and it's a healthy part of the market.
There is fluctuation is always in the biotech funding index, but the smid customer has got a lot of cash on hand, and we don't see that as an issue as we go forward and certainly from the pipe that we see that it's certainly not an issue that they see either.
So I think that sets up is good sites activity is strong and continues to recover there are still issues in some therapeutic areas with.
Immune suppressed patients and things like that there are still a little bit cautious.
Enrollment I think in some of the therapeutic areas still likes a little bit but it is coming back.
So as that rolls forward, because those patients to pull through.
And I think thats very encouraging I think some of the improvements that we've made in study start so steady kick is in addition to that so a lot more.
<unk> around those three starts open patient engagement processes, which bodes well for what we do I mean, our goal is actually not to just hit projects timelines, but to accelerate them. So we continue to look for processes and investments in technologies.
Changes in the way that we conduct our business to accelerate starts to get patients and sites faster and get ahead of projects and I think we're starting to see that more and more.
And the projects that we're delivering.
Yeah, and then Patrick on the Covid side, we continue to win work there I think we're up to 180 projects one across the business.
The vaccine trial that we had in clinical.
That was ramping in quarter two did continue to ramp in quarter, three so a bit higher in terms of contribution in quarter three than in quarter two.
And then with some changes there.
And just burning that revenue down the backlog of Covid has to come down.
To about slightly under 2% I think for clinical so good mix there are not any super heavy concentration so.
We're happy with that.
Yes.
Very helpful. Thank you guys.
Thanks Pat.
Thank you. Our next question comes from Tycho Peterson with Jpmorgan. Your line is open.
Hey, Thanks, Alister I'm wondering if you could talk a little bit more about the recent deals that you cannot satisfy Susan as we think about kind of your decentralized strategy.
And kind of the broader approaching what percentage in here.
Backlog keeping goes decentralized over the next couple of years.
Yes, good question Tycho and good morning.
So.
We talked about this I think in a lesser amount might be in the one before that.
So we're looking at how we drive the business forward based around the patient alright. So.
Whichever channel you go down whether it's decentralized traditional trial would go directs patient youre ways and open to patients. So we're looking at technologies and we're looking at capabilities.
That takes us to the patient regardless of those channels. So steady cake. Great addition for the team we've studied cake for several years.
The receptiveness from our customers has been tremendous.
This is a great addition to what we do.
It enables us not only to engage sites that have a big site network.
Adds to the catalyst networks that we have.
But also.
The capabilities in terms of patient identification patient engagement.
Their ability to to deliver telemedicine.
<unk> around some of the elements of decentralization are all key elements that fit together with anyway. We can the strategy that we're putting together we are executing on putting together the strategy that we're executing on around this around pivoting around the patient.
We can identify and engage a patient through steady kick out the sites.
Quickly.
Then deliver ailing with services to patients I think it's a great setup it puts us right at the forefront of that.
Not just talking about decentralized trials actually delivering them properly.
I.
Was it adding with event couple of weeks ago, and they were telling me about a patient they recruited.
Delivered all the services for that slipped 800 miles away from the site that were attached to our in Russia somewhere.
And Thats really a rare disease patient.
That patient would have been lost to the to the to the trial, if we weren't able to engage them.
Enroll them and then deliver the services in the home and that's what decentralized trial isn't it should look like you are taking all that barriers down and you've taken the trial to them.
Things like source Sky patient go enables enabled us to deliver that with technology makes it takes a burden on the patient.
In the visiting nurse, so will that strategy starts to.
Right accelerate because we can actually deliver these trials.
Yeah.
That's helpful and then a follow up on FSP. If we go back to last quarter. You noted some big wins competitive wins multiyear deal can you just talk on.
The momentum there continuing.
Hey, Jeff interact and what are you seeing given kind of the consolidation in the background.
Competitive.
Yes no.
How much of the FSP work is being driven by <unk> add a couple of small FX space have been absorbed into the big team now.
Did add another FSP relationship I think in Q3 early Q3, we added another one.
It was in the safety.
Team.
So yes, the demand I think for FSP is good it's not just the new Fsp's thing is the expansion of the current ones as well, we're seeing a lot of flow there.
As resources are more and more difficult to find I think FSP plays a part in that as well because we can deploy.
More rapidly through FSP, if a customer loses resource from another relationship or loses somebody internally, we're able to backfill that firm as quickly as we can.
Yes, I think that FSP.
The FSP market hit stay right with the larger farmers, but I think what we've got with the scale that we have which is.
I think it's one of the key elements of being one of the largest <unk>.
Is that you can deliver these models quickly from a large resource pool in.
Okay.
I won't say random locations, but when a customer comes along and says I need to sell right now and it needs to be here.
Have a much better chance of being able to fill that particularly with <unk>.
Resourcing networks, we have the teams we have.
Recruitment agency internally.
Taylor strategy partners that was able to help us find.
Needles in haystacks, if we need to but we have a big pool of people that we work with on a regular basis contractors as well so.
I think we're very compelling in the FSP space I think the FSP 360 model that we launched a couple of years ago was works very very well and will continue to drive good growth in that sector.
And just on the competitive front given all the consolidation in the background are you seeing any change on the ground.
It's probably a question I've asked Paul to Michael <unk>.
And Michael I'll say it today.
Moving over to Jerome clinical Mark pulls moving over to run the overall go to market strategies.
Any thoughts on those two guys.
I think we're continuing to see that with the consolidation.
Some impacts of other partners that are having some disruptions, but overall all the.
<unk> are still out in the marketplace I think we're just continuing to differentiate ourselves.
With our service offerings, especially in DCT, but the competitors remains strong I think we're just competing against them with some differentiated service offerings right now.
Yes, I agree and maybe the question is I am receiving around culture and.
Tables, our culture, how engaged our executive leaders with our employees and with our clients which of course, we are very focused around that protecting that employee lifecycle and making sure. We're very focused on our customers is our top priority.
<unk>.
Thanks, guys.
Okay. Thank you.
Got it thanks.
Thank you. Our next question comes from David Windley with Jefferies. Your line is open.
Hi, good morning, Thanks for taking the questions.
Alastair.
Your prepared remarks, as well as Jason's emphasized ramp in large pharma relationships I know this has been kind of an ongoing.
Didn't have emphasis I.
I guess I wanted to try to better understand if you were seeing expansion in some of the early wins that are maybe two or even perhaps three years running or if your if youre winning some fairly large.
Callout type new pharma relationships in the portfolio.
Yeah, Good morning, Dave.
It's a bit of both.
I think when you when you get into large pharma relationships, especially in the new so if you remember back in.
I was going say back in the day, but a couple of years ago. We won this.
New entry points to large pharma.
You still have to prove yourself operationally and I think we've done that and now we're starting to get the tailwind from that a little bit as well. So we saw in Q3, some nice big oncology awards come through from a couple of those relationships that we established back then.
Seen us perform they've seen us get stopped trials up and running of course 18 months about two years relationship has been through the teeth of Covid. So I think we conducted ourselves very well and delivered very well through COVID-19.
So we not only got the hunting license in those early wins now we're now we're getting repeat business, if you like pulling through and be interested with bigger and bigger programs.
That's what's happening in those establish wins.
And we are penetrating.
More and more of the top 50.
We deployed the global client solutions team.
A couple of years ago.
Executives from some of our competitors, who have been able to establish us in some of those new and.
In additional accounts and additional relationships and that work is starting to come through now we haven't announced anything that we've got new provider ship et cetera, because we're getting to that point, where they have given us a go we get in a couple of trials here and there we're picking up a couple of rescues here and there and you.
You prove yourself and then you move on to the onto the hunting license list and then preferred provider list. So yeah. We're pleased with that how it's going with the ones that we won and how we're moving forward in the in some of those newer relationships.
Excellent.
And a related question, but flipping over to commercial.
You mentioned your Investor day from last year in your prepared remarks, as well and that was that was a time, where you did spend a fair amount of that time focused on.
Some of the opportunities that were percolating in your commercial business, including full service launch I think the first of those was supposed to launch at the end of the just closed quarter, maybe about right now I'd be curious about your comments on how that's going and if it's playing out.
In the beneficial ways that you anticipated for the commercial business.
Yes, you've got Michele <unk> for me, it's Dave So she is chomping at the best.
I'll kick it off I mean I think.
There's been a lot of skepticism about how our commercial business fits together with the with everything else that we do but I think we're really starting to see the full fruition of that now and the strategies that we put together as we came out of the inventive measure.
I just wanted together as a model as an idea to run with customers Christine and his team have built.
A pretty hefty following 23 assets that we're pushing through lots of conversations going on this year. We've got we're seeing 50% of those products come into market or in that smid sector. We've always targeted smid with Sydney Swan and now we're starting to see that pipeline of work that backlog of work that we've won but haven't booked.
Starting to come through into Michelle's domain. So yeah.
Yes, we are in the teeth of that launch and I am going to hand, you over to Mitch.
And she will tell you a bit more about it so David I was counting on you're asking a good question.
I'm excited to answer it so.
Alex just shared with you just the success, we're having with the <unk> assets starting to layer into the.
The commercial division and we did go to our first launch I was there it was actually in Park City, Utah was over the summer.
And we're having a lot of success with that team and what that team is going to be able to do and as you know our second.
Major launch coming from sending us one in which we've announced publicly in a joint.
A press release that approval is in early January and we believe that will start.
Really deploying that team in Q1 of 2022. So we're very very excited about that there's three things that we have to do in commercial to make sure that we continue to have the success. We're having currently the first is make sure we manage the finance one assets flawlessly and bring those to fruition I think we're doing a great job with that the second thing.
As to continue to win in the commercial integration area and we're up 70% onwards, there and the third thing is the individual businesses cross selling and being best in class and consulting and communications in deployment solutions and I think you've seen it's very impressive that all three of those businesses are growing double digits.
For Q3, so all the things we're counting on for long term commercial success are all firing on all cylinders right now and so it's just very exciting for our teams to see the success Theyre having.
Great well congrats on that I'll leave it at that thank you.
Thanks, Dave.
Thank you. Our next question comes from John Kreger with William Blair. Your line is open.
Hey, guys. Another one for the commercial business and Michelle.
Now that things seem to really be picking up can you just expand a bit on two things one is sort of what's the makeup of the business right now across those three buckets.
And particularly with the kind of commercially integrated contracts starting to ramp should we be thinking about this business is sort of mixing up or mixing down. Thanks.
Yes, good question, Jon I'll kick it off I think across clinical clinical.
Clinical sorry, we saw that across.
The deployment solutions communications and consulting I think we're seeing good strong growth in all three now that's from their individual go to market work as well as the integration work and I think the real kind of catalysts to accelerate so that we're seeing is from the commercialized is from the.
Commercial integration.
It can help the commercial end of the scenarios one launches.
The work that goes into getting them to the launch planning the communications consulting et cetera.
But also then the delivery so I think it's a bit of both.
All three businesses going well.
Michelle has been bringing in new leadership over the last couple of years to help drive that new talent engagement with customers earlier in the in the lifecycle. So.
I think it's a combination of individual business lines success in integrating them into a package.
Michelle setting us up 70% year over year and it was up pretty heavily last year as well so definitely seeing I think a market trend that's taken us towards that.
The integration so yes, so the only thing I will add as you know we've been working really hard to diversify our backlog right across customers and across types of customers and I think we're being very successful in doing that we have great.
Our relationships with the customers and Youre seeing that really flows through commercial integration and sending us one opportunities, but you're also seeing us.
Do really great work with top 50 pharma. So I think it's really important that our backlog is diversified youre not seeing any one customer or any one team or communications relationship to morph. The rest. So I think that that's been really important for this business from a visibility perspective.
And I think we feel really good about that.
We still say deployment solutions backlog is probably the strongest metric that we have for the commercial business because.
We have much better visibility into that and you saw the numbers in the script that the deployment solutions backlog is up over 24%, but it really matters. The complexion of that backlog and that backlog is very much moving into a different kind of group of folks right. So field teams are moving to be.
Not just sales reps anymore. We've had this conversation before their hybrid is we're seeing nice growth in the Med affairs, the MSL space and reimbursement and so the fact that deployment solutions isn't a CSO we've been saying this for a while it's not our CFO and I think that Thats, a big part of.
With the success that we know we're going to continue to see moving forward. So hopefully that gives you a little more color. It doesn't just just one quick follow up so given all of the success that Youre seeing what are you guys currently thinking about the ability to drive margins up in the coming one or two years.
So I'll take I'll add I'll hand that over to Jason.
Hey, John.
Youll see in the numbers that commercial had a good move in margin sequentially.
In quarter, three and we anticipate that we will continue to see that as the business grows when you look at moving into smaller teams away from your traditional reps and the deployment solutions side of things, which is still the largest component of the segment.
Those are higher margin opportunities that we see and that will continue to come through over time, and then as we get sending us one assets in there as.
As well as the full service commercial launches that michelle's team wins.
Standalone, but it's across services. This multi service those will tend to be higher margin over time as well you can have certain points in time, whereby you might stand up traditional team where it could be good.
Good growth a little bit of a margin headwind, but then over time, it's all going to come back around as well so.
We see the opportunity to continue to grow margins there and there are also a key contributor to forward down our program around optimizing our operating model on a global basis and getting everything we can.
More efficient whether it's via automation are using lower cost resources. So.
We see an excellent opportunity and then they also finally get good SG&A leverage out of that business too.
Sounds great. Thank you.
Thanks, Sean.
Thank you. Our next question comes from Donald Hooker with Keybanc capital markets. Your line is open.
Great Good morning.
I was intrigued by I guess Alastair you had mentioned you throw out a metric that was intriguing that 50% or something I think you mentioned, 50% one of the earlier questions of small smid Biopharma sponsors are taking the product all the way to commercial.
Is that is that a reference to your own one <unk> portfolio or is that a sort of an industry metric and can you maybe elaborate on what youre seeing there.
Yes, I think yes, it's good question Doug.
I think the <unk> portfolio.
Other than three or four of assets is actually all Smith.
So for us, it's actually a higher percentage than 50%. So I mean, what would that be for over 23, you guys. In the mass guys you worked that out.
I think the 50% references as actual marketplace on so if you look at those products coming through.
Over 50% of the products launched this year outside the top 50.
So.
<unk> is targeting those customers and the Smith, who.
Hanging onto their assets longer they are resisting the temptation to sell them taken.
<unk> taken them to the market specialty medicines personalized medicines and I think the <unk> one platform. The way that we think about product lifecycle delivery through clinical through <unk> through all of that planning and then the full execution of the commercial strategy.
Whether we're building a team with somebody else or we're delivering it completely.
Where the market is moving too and that's kind of what we built five years is it five years four years ago.
And I think we at the time said, we're going to put something together that would.
B, where the puck was going and I think the book is approaching is so very.
Very pleased with where we fully organization in that sense.
And the fact that we've had the time to build and learn how to deliver it and that's all starting to come through I think it's good validation of the model that we have.
Michelle's on staging and Utah launching the first product that we've pulled all the way through that model. So it's good validation of the proof of concept that we had and now we have a line of products moving through that as well so yes.
Yes, I think the markets, where we predicted kind of it would be.
With access to capital and people determine their own products on the market and then go to about in the next one and that positions us very well.
Interesting. Thank you and then maybe one other more mundane financial question.
In terms of the in terms of the cash taxes I think it looks like it's actually can be even lower this year. So you guys are burning through some Nols winter those Nols.
Expire and Youre going to get a more normalized cash tax rate.
At this point.
Yeah, Hey does Jason.
So we've been working on that and.
Looking at how we can maximize and optimize and think it is probably going to push out into 2023 in terms of when we will use.
The final <unk>.
The Nols however.
As we move forward into 'twenty two cash taxes will go up is just I don't think we'll learn through all the Nols until 2023.
Okay. Thank you so much have a good day.
Thanks, Paul Thanks, Tom.
Thank you. Our next question comes from Elizabeth Anderson with Evercore. Your line is open.
Hi, guys. Thanks, so much for the question I know you talked about a little bit about the puts and takes of the 22 margin outlook.
Wondering if you could specifically comment on the hiring environment and wages and sort of what youre seeing in there vis vis what we're hearing in the news about sort of broader inflation trend in wages and then also specifically about the competitive environment given all the changes at some of your peers.
Sure.
Thanks good.
Good morning Elizabeth.
A little bit.
Yes.
The environment is strong and I think it all starts there so.
The Covid bubble.
<unk> through its still there, but it's starting to ease a little bit I don't think we have seen an easing in the demand environment.
Hiring environment, a little bit because of that as well so.
I think we're an attractive organization that people want to come and work for we got a different model, it's about product lifecycle delivery and people are engaged by that and we have a law. We've got good culture people engaged by that and we hear that law.
I think we have something like 500 people at the last count I remember, who left the organization and have come back pretty much instantly, which is also great shows that progression is not always greener.
There's been some disruption in the market driven people into that into that space, but it is we are seeing.
Inflationary pressures on costs, particularly I think in a few areas in an unusual hotspots oncology.
Some areas of Asia, some of the communications positions et cetera.
We've managed to add.
I don't remember the last count.
About 3000 incremental head through the year, so we're keeping up with the demand that we need to.
To deliver.
That cost comes through now we have the ability to go back to customers and pass that through.
And probably the majority of contracts, we got the inflationary reviews, and obviously a big part of our inflation is the cost of personnel, we're bringing in now with a full rebound efforts and.
The Sydney Ice operations network that we have where we're able to take some of those tasks off of.
People and move them to lower cost jurisdictions, we're able to handle the price pressure a little bit by that as we develop out. So there is a multi chip a multitude of strategies that we've got going on always and it's not just is right I think <unk> do the same thing we will be able to service businesses do the same thing where we're shifting cost to.
To lower levels, and we're shifting costs too.
Lower cost countries.
Yes, I would just say as we look forward.
I'd say the sinuous operations network has been a real success for US we will continue to maximize that right across both businesses as well as the G&A side of things and even in certain.
Selling side of things, where we can.
But thats, probably the single biggest opportunity for us as we think about 'twenty, two and beyond is going to be automation, and just simplifying things and getting more efficient.
The organization to be able to scale. So we're very focused on that we're getting more and more focused on that and that will just help us as we move into 'twenty two and beyond.
Got it that's super helpful. And then with some of the acquisitions that you just announced a steady taken the Rx data science et cetera, how long that sort of the integration process for some of those assets in terms of being able to plug into to your current portfolio.
Yes, that's a good question.
So to kick for several years, so the processes and engagement, particularly across the sell side of our business is pretty much there already.
Think there are several use cases that we are looking at where we can we can also attach other bits of technology that we have.
Patient go source go.
Some of the connectivity that we have around concierge services that will need to be connected together so that would take.
The actual connecting of those things is quite quick, but then obviously rolling those out to customers and pushing those rents to market takes a little bit of time.
I think on the Rx data science side Thats really.
We have a data science team that people, who built kinetic and have driven that success.
Those two groups are coming together.
In play right now.
The Rx data science do different things to what our traditional.
I don't think traditional is probably the right word for data science, but anyway, what we've done in data science in the past.
Rx data science going out and working with customers individually on really complex large data.
Questions that they have some of the work the Rx have done.
As I look.
Most.
Like Wow this is very cool stuff.
Using their capabilities using the platform to.
Just handle.
And suddenly difficult questions.
I mean, some of the some of the way they've done it.
That was pulp people get label extensions from just looking at massive data sets and identifying where products can be used without running for the trials.
So far is that adds a lot of value to our model.
We were able to step into a new arena, we're able to do that with an incredibly high reputation company.
That just has a different service line now we've got to train the BD guys to get in the door and who the customers are in that kind of thing.
Paul My call Michelle with the rest of the team are working on that because it's something we can apply right across clinical and commercial so very excited about that but it will take some time.
And it will take some time for us to optimize it and the way that we deliver it to customers.
That makes sense. Thank you.
Thanks, a lot.
Yes.
Thank you. Our next question comes from Luke Scott.
With Barclays. Your line is open.
Hey, guys. Thanks for taking my question.
So you guys didn't do a buyback in the quarter can you give us an update on the capital allocation priorities and if the M&A is starting to become a bigger.
Part of your story, just thinking out over the next six to 12 months.
Yes, good morning, Luke so priorities are the same.
As before.
We're looking to continue to pay down debt get.
The leverage down.
I think we believe the target that we start out to hit so we're happy to keep bringing that down.
We look at M&A, when we look at.
Continuing in this patent of took and so we've been doing it's about differentiation.
Okay, Alright status sites interact we did.
Ending with again looking at how we invest around the patient or invest around new services that bring us.
New entry points into customers and.
Okay.
What we continue to do and then we.
We've done all the buybacks that we plan to do this year, so Jason I thought.
Well just to.
Put a finer point on debt Paydown, Delevering mentioned will be a bit higher than we than the three to three five times at the end of the year, but still focused on being below four then.
And then yes, I mean M&A is something that's always been in our minds, a second priority and tuck ins and that's what you see coming through but as we move into next year. We will continue to look at those share repurchases to prevent dilution we've already done that through the first half of this year.
Alright, that's fine.
And then lastly, I mean with all the recent Covid vaccine work that you guys have been winning that seems to be picking up.
Can you give us a sense of the reimbursable.
Contribution in the quarter and then on your <unk> outlook, where you guys raised how much of that if at all was due to higher reimbursable.
Yes so.
During the quarter, we did see that our vaccine trial, well I guess, let me backup so the majority of our trials and clinical our normal sort of burn rate and mix between reimbursable expenses indirect.
Given their therapeutics, but we did have.
The one large vaccine trial that we've been talking about that ramp during quarter, two and quarter three where it did have that normal.
Yes.
Multiples higher Reimbursable expenses, then directs and that is starting to come down right. We've we've ramped that and it's going to start coming down not a hard landing, but it's going to it's going to come down in quarter four and into.
2022, when you look at the 2020 to update to the guidance.
As I mentioned in his prepared remarks, there is some realm.
Relative.
The increase on the Reimbursable expenses that puts a little pressure on margin, but nothing.
Two significant and Thats, how we are still going to be able to get to 30% to 50 basis points of margin accretion out of the out of the year.
That's really helpful. Thank you.
Thanks Luke.
Thank you and there are no further questions I would.