Q4 2021 IQVIA Holdings Inc Earnings Call
Ladies and gentlemen, thank you for standing by at this time I would like to welcome everyone to the I T V. S fourth quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
To ask a question during that time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question press the pound key.
As a reminder, this call is being recorded.
Thank you I would now like to turn the call over to Nick Childs Senior Vice President Investor Relations and corporate Communications. Mr. Charles You May begin your conference.
Thank you.
Good morning, everyone. Thank you for joining our fourth quarter 2021 or earnings call with me today are.
Ori buoys be chairman and Chief Executive Officer, Ron Room, and Executive Vice President and Chief Financial Officer, Eric Sherbet, Executive Vice 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 will also be available following this call and the events and presentations section of our IQ via Investor Relations website at IR Dot <unk> Dot com.
Before we begin I would like to caution listeners that certain information discussed by management. During this conference call will include forward looking statements.
Actual results will differ materially from those stated or implied by forward looking statements due to risks and uncertainties associated with the company's business, which are discussed in the company's filings with the Securities and Exchange Commission, including our annual report on Form 10-K and subsequent SEC.
You see filings.
In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in the press release.
<unk> and conference call presentation.
I would now like to turn the call over to our chairman and CEO .
Ari who has been.
Thank you Anita and good morning, everyone.
Thank you for joining today for our fourth quarter results.
Well, it's great to see many of you in person at our analyst and Investor Conference in November .
And as you will recall, we shared our expectations that we would meet or exceed our three year vision 'twenty two targets.
We also laid out our plans to make 2022, yet another inflection point in our growth trajectory and.
And further accelerate the company's growth rate.
In the next three phase three year phase of our journey to 2025.
The team highlighted the power of connected intelligence, which brings together <unk> differentiated capabilities.
And drives our leadership position in the clinical and commercial markets.
This underpins our new 20 by 25 strategy, which alludes to our plans to achieve at least $20 billion of revenue by 2025.
We're excited about this next phase of growth for <unk>, and we are busy refining our strategies and action plans and you will hear more about it as the year progresses.
Two years two weeks ago.
I was.
Was named to Fortune's list of the world's most admired companies for the fifth consecutive year.
Fortunately, we earned first place ranking within the healthcare pharmacy and all the services category for the first time.
We were ranked number one in the categories of innovation capital deployment global competitiveness quality of product and services and long term investment value.
I want to thank our nearly 80000 employees worldwide for <unk>.
This recognition is a tribute to the innovation and drive.
Turning now to our results we ended 2021 on a high note.
Despite COVID-19 has continued impact on many parts of the world.
We delivered robust top and bottom line growth in the quarter, which as you know was against a much tougher year over year comparison.
Earlier in the year.
These results reinforce our confidence that we will achieve our 2020 guidance and of course, it sets us up well to meet our ambitious 20 by 'twenty five targets.
Let's review the fourth quarter.
Revenue for the fourth quarter grew 10, 2% on a reported basis and 11, 6% at constant currency.
The $62 million beat above the mid point of our guidance range was driven by stronger operational performance across all three segments as well as higher pass throughs, partially offset by FX headwinds.
Compared to prior year, and excluding Covid related work.
Our core businesses, meaning R&D Sn Pas grew mid teens at constant currency on an organic basis.
Ron will provide a lot more detail in his remarks, including additional could be to adjusted numbers for each segments.
Fourth quarter, adjusted EBITDA grew 12, 7%, reflecting our revenue growth as well as ongoing productivity initiatives.
$27 million beat above the mid point of our guidance range was entirely due to our operational performance.
Fourth quarter adjusted diluted EPS of $2 55 grew 29%.
That was 13.
The midpoint of our guidance with the majority of the beat coming from the adjusted EBITDA dropped through.
Let me now provide an update on the business.
On the commercial side of the business. He was a strong year for new molecules and launches.
As the industry continued its recovery from the COVID-19 pandemic disruption.
This year.
50, new molecules were approved by the FDA and 72, new commercial launches took place.
IQ Evs supported nearly 80% overall choose by top 20 pharma and approximately 60% of all launches.
This highlights our scale globally and across all customer segments in deploying advanced technology and analytics capabilities to enhance launch planning engagements and measurements.
Overall.
We've seen significant momentum and continued demand for our technology solutions. There are now over 3000 clients, who had who have adopted one or more of our technology platforms, including human data science cloud orchestrated analytics <unk> hundred 60, Omnichannel navigator anchor.
<unk> and of course orchestrated customer engagement oce in fact.
Footprint of our Oce platform itself has continued to grow with over 350 clients, having adopted one or more modules on the platform since launch.
Early in 2021, we launched IQ here.
Next best action, which is an AI driven omnichannel customer engagement decision engine.
Two top 20 pharma clients have successfully rolled out this intelligence engine to orchestrate customer engagements in over 30 countries.
Across more than 40 brands each.
Two other top 20 pharma are currently in the implementation phase.
Another highlight in our SaaS business has been the success of DMD marketing solutions, a leading provider of data and digital marketing solutions that help brands deliver personalized digital content to healthcare professionals.
In the quarter, we entered into an enterprise agreement with a top 10 pharma clients to utilize <unk> advanced analytic capabilities to power omnichannel engagements across all eight of their brands franchises to date 18 of the top 20.
Adopted at least one of DMD solutions, we're very excited for the future growth of this business within <unk>.
Real World evidence and other highlights of the year <unk> continues to play a leading role in the use of secondary data to answer key questions for life science customers in the fourth quarter, we want to launch post authorization safety studies in an autoimmune area with the top 10.
Former.
These studies use existing health care data to observe patients over a period of 10 years to better understand long term effects of the treatment.
We were also recently awarded a disease registry project for an upcoming novel gene therapy <unk>.
Here, we will recruit a broad population of patients with a specific disease to understand how they are currently managing clinical practice. This information is vital to our life science sponsors to inform the design of subsequent clinical trials. So they can target patient groups with the highest unmet.
Need.
Moving to critical technology, we saw increased adoption of our orchestrated clinical trial OTT platform, which supports trial planning site management patient engagement trial management and clinical data analytics during the year, we added 90, new OTT clients, bringing.
The total to over 350 clients, who have adopted one or more modules within our clinical technology suite since launch, including all of the top 10, and 18 of the top point.
Within OTT digital patient suites. This year, we secured three preferred provider partnerships with top 30 pharmaceutical clients to provide our interactive response technology.
T capabilities to support site operations across our entire clinical trial portfolios. These technology facilitates patient randomization to ensure protocol adherence and streamlines site's supply chain management to reduce drug wastage and to drive significant cost reductions.
Our solution was awarded a top ranking by industry leaders in a recent ISR report for randomization and trial supply management capabilities.
We also saw increased demand for our industry, leading decentralized clinical trial offering approximately one third of our active full service clinical trials incorporate one or more of our DCT technology or services capability and we expect these to continue.
To grow as the need for these capabilities and complex studies becomes more evidence for example.
We are currently executing a foodservice trial for treatment of multiple system atrophy.
The severe degenerative neurological disorder affecting the body's involuntary functions.
We are deploying a full suite of capabilities, including E Cola E consent, and whom research nurses on this study.
To significantly reduce the travel burden on these patients who have significant mobility challenges.
Finally, our overall R&D as business continues to build on its strong momentum with over $2 $4 billion of net new business, including pass throughs.
And it set a record for quarterly service bookings achieving over one $9 billion of service bookings for the first time ever.
This resulted in a fourth quarter contracted net book to Bill ratio of 136, excluding pass throughs and 124, including pass throughs for the calendar year, we delivered over $10 billion of total net new bookings for the <unk>.
First time ever.
An increase of 14, 6% compared to 2020.
This led to an LTM contracted net book to Bill ratio of 135, excluding pass throughs and 134, including buses our contracted backlog in our NDS <unk>.
Including pass throughs grew 10, 2% year over year to a record $24 $8 billion as of December 31, 2021 .
And now I will turn it over to Ron for more details on our financial performance. Thanks, Ari and good morning, everyone, let's start by reviewing revenue.
Fourth quarter revenue of $3 billion $636 million grew 10, 2% on a reported basis and 11, 6% at constant currency.
You'll recall that last year's fourth quarter was a much tougher comparison than earlier quarters as we picked up incremental demand from Mega vaccine studies in R&D.
And government related Covid work within task.
Also the core business began to rebound from the effects of COVID-19.
In this year's fourth quarter Covid related revenues were approximately $325 million down about 25% versus the fourth quarter of 2020.
In our base business that is excluding all COVID-19 related work from both 2021 and 2020 organic growth at constant currency was mid teens.
Technology <unk> analytics solutions revenue for the fourth quarter was $1.496 billion up 5% reported and six 6% at constant currency.
Year over year, Taz experienced just over 400 basis points of headwind due to a step down in COVID-19 related work.
<unk>, all COVID-19 related work organic growth at constant currency and Taz with high single digits.
R&D solutions fourth quarter revenue of $1 billion $944 million was up 15, 4% at actual FX rates and 16, 3% at constant currency <unk>.
Excluding all Covid related work organic growth at constant currency and R&D was approximately 25%.
Contract sales <unk> medical solutions or CSM as fourth quarter revenue of $196 million grew three 7% reported and seven 4% at constant currency.
Excluding all Covid related work organic growth at constant currency in CSM mask was low single digits.
For the full year revenue was $13 billion $874 million growing at 22, 1% reported and 21, 1% at constant currency.
Covid related revenues in 2021 were approximately $1 $8 billion with just under 80% of that attributable to R&D, yes.
20% due to Taz and the remainder in CSM mess.
The incremental Covid related revenues in 2021 versus 2020 accounted for approximately half of our growth in 2021.
Full year technology, and analytics solutions revenue was $5 $534 million up 13, 9% reported and 12, 4% at constant currency.
Scooting Covid related work organic growth at constant currency and tags was high single digits.
Full year revenue on R&D solutions with $7.556 billion, it's growing at 31, 2% reported and 34% at constant currency exclude.
Excluding COVID-19 related work R&D organic growth at constant currency for both total revenue and services revenue was low double digits.
Full year <unk> revenue was $784 million reps.
Representing five 8% growth on a reported basis and five 7% at constant currency and excluding COVID-19 related work organic growth at constant currency in CSM was low single digits.
Now I'll move down the P&L adjusted EBITDA was $828 million for the fourth quarter, which was 12, 7% growth on a reported basis.
Full year, adjusted EBITDA was $3 billion $22 million up 26, 8% year over year on a reported basis.
Fourth quarter GAAP net income was $318 million and GAAP diluted earnings per share was $1 63.
Full year GAAP net income was $966 million or $4 95.
Of earnings per diluted share.
Adjusted net income was $496 million for the fourth quarter up 27% year over year and adjusted diluted earnings per share grew 29% to $2 55.
For the full year, adjusted net income was $1 $760 million or $9 and <unk> <unk> per share up 41%.
Now it's already reviewed R&D solutions delivered another outstanding quarter of net new business R&D backlog now stands at a record $24 $8 billion, an increase of 10, 2% year over year.
Full year 2021, net new bookings, including pass throughs rode over 10 rose to over $10 billion for the first time, and that's 14, 6% growth compared to 2020.
Okay, let's move to the balance sheet now our cash flow was again quite strong in the quarter cash flow from operations was $692 million in Capex was $184 million, which resulted in free cash flow of $508 million. This brought our free cash flow for the full year two.
A record $2 $3 billion.
Up 70% versus the prior year.
At December 31, cash and cash equivalents totaled $1 $366 million in.
Gross debt was $12 billion $125 million.
Resulting in net debt of $10 billion $759 million.
Our net leverage ratio at December 31 was 356 times trailing 12 month adjusted EBITDA.
Now, it's worth highlighting that our improved free cash flow over the last two years allowed us to deploy approximately $4 $5 billion of capital to internal investments acquisitions and share repurchase.
While at the same time, we were able to reduce our net leverage ratio from a high of four eight times in Q2, 2020, which you'll recall was the height of the pandemic to nearly three five times and in doing this we achieved our vision 22 net leverage ratio target of three five to four times.
Full year early.
In the quarter, we repurchased $174 million of our shares which resulted in full year share repurchases of $395 million.
And we ended the year with 195 million fully diluted shares outstanding.
And $523 million of share repurchase authorization remaining under our existing program now last week, our board of directors approved a $2 billion increase to our share repurchase authorization.
Which increases our remaining authorization to just over $2 5 billion.
Now, let's turn to the guidance.
As you saw we are reaffirming the full year 2022 revenue guidance that we issued at our analyst and Investor Conference in November and in maintaining this guidance, we actually absorbed it $70 million revenue headwind from FX since we initially guided in November .
Now. Additionally, we're raising our full year 2022 profit guidance versus what versus what we provided you in November .
So to summarize the overall guidance for the full year, we expect revenue to be between $14.700 billion and $15 billion.
Which represents year over year growth of seven 1% to nine 2% at constant currency and 6% to eight 1% on a reported basis compared to 2021.
Now, we now expect adjusted EBITDA to be between $3 billion $330 million and $3 billion $405 million representing year over year growth of 10, 2% to 12, 7%.
And we also now expect adjusted diluted EPS to be between $9 95, and $10 25.
Which represents a year over year growth of 10 to 13, 5%.
Our full year 2022 guidance assumes that December 31, 2021, foreign currency exchange rates will remain in effect for the balance of the year.
Now compared to the prior year I should mentioned FX is now a headwind of 110 basis points to our full year revenue growth.
And our projected revenue growth includes a little bit over 100 basis points of contribution from M&A activity.
Now with our analyst and Investor Conference in November we told you to anticipate that our Covid related revenue will step down by approximately $1 billion in 2022, but will more than compensate for that headwind with strong growth in our base business and let me give you some additional detail around this and I think it will be helpful.
Excluding COVID-19 related revenue, the FX headwind and the contribution of acquisitions. Our total company revenue guidance implies organic growth at constant currency in the low to mid teens.
At the segment level, we anticipate full year technology and analytics solutions revenue growth of between five and 7%.
Excluding COVID-19 related work, we expect organic revenue growth at constant currency and task to be in the high single digits.
Research and development solutions revenue growth is expected to be between eight and 10%.
Excluding COVID-19 related work, we expect organic revenue growth at constant currency and R&D to be in the upper teens.
And finally contract sales <unk> medical solutions revenue was anticipated to be down about 2%.
But excluding COVID-19 related work we expect.
Organic revenue growth at constant currency and <unk> to be in the low single digits.
Let's move to the first quarter now as you all know the first quarter of last year marked a continued rebound in our base business. After the 2020 pandemic related decline.
In addition, Q1 and Q2 of last year represented our peak Covid related revenues.
As a result of that's the first half of the year will have the most challenging year over year compares.
For the first quarter, our revenue is expected to be between $3.515 billion and $3 billion $575 million representing growth of four point.
8% to six 6% on a constant currency basis, and three 1% to four 9% on a report for.
Reported basis now excluding Covid related work, we expect organic revenue growth at constant currency to be in the mid teens.
Adjusted EBITDA is expected to be between $800 million $815 million up seven 5% to nine 5%.
And finally adjusted diluted EPS is expected to be between $2 40, and $2 46.
Growing 10, one to 12, 8%.
So to summarize.
We delivered very strong fourth quarter results on both the top and bottom line against what was also a very strong fourth quarter of 2020.
R&D <unk> recorded its largest ever quarter of service bookings and for the first time had over $10 billion in total net new bookings in a year.
Our contracted backlog improved to a record of nearly $25 billion up over 10% year over year or.
We delivered another strong quarter of free cash flow, bringing the full year to a record $2 $3 billion.
We closed 2021 with net leverage of three six times trailing 12 month adjusted EBITDA.
Our board approved a $2 billion increase to our share repurchase authorization and finally were reaffirming the full year 2022 guidance that we provided in November for revenue and we're raising our adjusted EBITDA and adjusted diluted EPS guidance.
And with that let me turn 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 and we'll pause for just a moment to compile the Q&A roster.
Your first question is from Jack Meehan with Nephron research.
Thank you and good morning.
Wanted to talk a little bit more about COVID-19 and appreciate all the color you gave Ron during the prepared remarks on this so at the analyst day, you talked about $1 billion of Covid tapering this year.
There was one eight and 2021 can you talk about the balance of the Covid work and just how you feel about the duration of Covid kind of over the next few years do you think there is some aspect that might prove stickier and taas.
There are some ongoing work in R&D, just any color there would be great.
Yes look.
We do have a balance of covered work obviously, that's going to continue to burn off over the next two years I think there'll be a gradual decline during the course of 2022, but it's going to continue on into 2023, yes. It is hard to foresee Jack.
How much additional COVID-19 work there might be we've all been surprised by the ups and down to the pandemic and so forth. So it's certainly possible there could be more right now we're pacing.
Our projections on what we currently have in the backlog and we'll see where it goes from there and see what other work might come along yes, John I mean this is.
Exactly right.
Well all we can do is.
Look at the situation today if anything.
We've learned anything by this pandemic, we just can't predict.
The evolution, so we do have.
RFP pipeline.
Especially on the R&D side.
Requests for.
Proposals to assist in new therapies to address Covid. There are even launch top 10 pharma that we're talking to about potential therapeutics.
So I do anticipate there will be.
Some residual amount of <unk> work ongoing.
But unless things change dramatically based on the picture today.
It's just going to gradually taper down.
Yes, that's what we have here through 'twenty, three and maybe the beginning of 'twenty four unless something else happens, which no one of your hopes for but that that's what we have it's all largely based on on Bruni golf the word both commercially and clinically.
Great.
And just as a follow up would be great to get your latest thinking on <unk>.
Labor and maybe wage inflation what is.
Has your view changed at all related to when you initially gave guidance around.
Just wage inflation and the impact that might have on the forecast for 2022.
Yeah, I mean look that's a good question that is the single most important channel operational challenge we have is.
As people are management, I mean look it's wonderful to be the leader.
In this space and to have.
Such a $25 billion backlog to execute and strong commercial demand as well.
The result of that we need to all our people, even though technology is gradually taking over more and more of the work that we deliver but we've seen it all our people and at 80000 people. We know we have to recruit many thousands more this coming year.
We have attrition, which is an issue really for everybody.
Great Great resignation is affecting guests as well.
Post pandemic.
We are we've become and Thats good.
The price of our success.
We have become an academy company a lot of people.
Recruit talent from IQ via.
But luke.
We are adjusting to this we are creating all kinds of flexible work arrangements compensation arrangements.
Loyalty building programs training programs.
Back to work in the future of work, which is an initiative that we have to redefine roles and what's expected from our employees. So we're being very innovative.
About workspace really working on a lot of multiple fronts with respect to the number is and how it affects.
Number results, obviously, it's challenging when you have to raise compensation costs and generally people management costs. However.
I would point to you that our margins our adjusted EBITDA margins have continued to grow I mean in fact, they've been growing more than and they are expected to grow more.
Then.
Than ever before.
And the reason for that is we are finally getting the leverage on the massive restructuring and cost improvement initiatives that we launched immediately post merger and we're now getting the benefit of that leverage and that's offsetting more than offsetting.
The wage inflation headwinds again, I point to the growth of our profit numbers relative to the growth of our revenue numbers and youll see that we significantly materially.
Rave or grow our profit.
Higher than materially higher than our revenue growth, which implies significant margin growth.
Yes, I also would say Jack.
We do have the ability and a lot of instances to raise prices to adjust prices we have some.
<unk> for improvement in our MSA agreements. We also have some short cycle businesses. So wherever we have the ability to adjust prices we are doing so.
<unk>.
We're getting some offset there as well.
Great. Thank you guys.
Your next question is from Eric Coldwell with Baird.
Thank you good morning, so probably the number one topic here recently has been the biotech funding environment and any potential knock on impacts to the group your.
Competitor, who also reported at the same time this morning.
Is very exposed to a pre commercial biotech said their RFP volumes were down 10% in the fourth quarter down 25% in January .
But they haven't seen any cancellations or delays so far no no business impact so far.
I'm curious if you could help us by one <unk>.
Talking about your mix, a pre commercial biotech as a percent of R&D.
Log or bookings and to talk about what youre seeing in real time in terms of business demand bookings.
Other related activity in that.
Pre commercial biotech space that'd be very helpful. Thank you.
Yeah. Thanks, Eric.
Can you imagine we track these numbers pretty tightly.
As you know many definitions of what's biotech funding and so on.
Yeah.
We are not seeing.
In the actual RFP pipeline any changes versus what hasn't been as you know is very strong demand environment.
For the <unk> segment in general.
In terms of percent of our bookings what do we give you we don't have the backlog, but we have the bookings let me see I have got a few.
Our numbers here.
For you I think look in terms of.
Of the actual bookings.
Large pharma still represents.
The majority right a little bit over half.
Is that correct.
And then we don't maybe it'll do the mid size, perhaps about.
Somewhere around 10 ish percent of our bookings and the rest. So again I would say you know, 35% plus is EVP and that has been again it fluctuates as you can imagine these things. These numbers go up and down now if you compare where we are here in terms of the.
The pipe of the RSP a fruit okay. It's still continues to grow double digits in dollars and volume I mean, it's really really high and more than double digits.
If we give you the numbers, but the pipeline is very very strong I mean actually meets the bank had the our pipeline is about equal to our backlog.
As we speak right now okay and.
And again as I said before Covid has basically gone more or less that's very very tiny.
<unk> of the total.
Pipeline here.
A lot of it is oncology, which is up more than 20% of CNS more than 33% up.
Agree across therapy categories, we're seeing very good EVP growth.
In the pipeline I'm talking now okay, not the book something in the pipeline to your question what do we see going forward, Okay, which would be normally.
Yeah.
A lagging indicator of the funding and we see that edp in the pipeline actually represent.
Majority of our pipeline.
Right now so.
Again, we don't see any significant changes Luke I wouldn't.
Yes, it's true.
January was lower.
The month of January was lower there was a BBB funding.
But I wouldn't extrapolate from one month and all from one quarter for that matter as you know generally the levels of Edp funding R.
Our very very high I mean, do we are we must be in the top three.
Yours ever in terms of the funding. So it may be that this year will be lower than last year, which again. These will record viewers we're talking about.
<unk> of magnitude greater in terms of multiples of the funding.
Just go back 3456 years, so yeah I mean.
The step down in funding doesn't concern as we've continued to see that.
Very good.
Both bookings and even higher.
The numbers in the pipeline.
Sorry, if I could just do one follow up could you remind everyone. What your definition of edp the emerging Biopharma. What your technical definition is what what it takes for a client to fit into that category as we look at we look at how much they spend.
In terms of.
The clinical development of R&D spend.
Some of that below exactly <unk> I'm.
I'm sorry go ahead.
I was just going to say some of that client base would actually be companies that have.
Commercial pipeline.
Correct.
Compass as what you might call small pharma as well that has commercialized product.
Sure.
Sure.
If a company spends less than a couple of hundred million I don't know exactly the number and how we segment that we have.
As you know.
Tons of analytics and segmentation definitions, but broadly speaking a company that's spending less on a couple of hundred million dollars in a given year.
In its R&D budgets for us at an EVP.
That's just the.
One definition, we've got others also we triangulate as you can imagine, but that's one that because of that I happen to like.
Alright last one if you had to guess and maybe youre not willing to do so, but if you had to guess.
Just off the costs not holding your feet to the fire.
10% of your backlog be pre commercial biotechs, 20%.
No.
<unk>.
I don't know if I can give you these numbers, but you know what why don't we do this why don't we give us on follow up questions. We'll try to give you a little bit more clarity or range.
What's in the backlog, we wouldn't try to utilize the finance team here too.
I'll try to prevail and use my executive.
To recap these guys.
No at this point.
You'll probably be able to spot <unk> I don't know exactly what I wanted to give you.
Give you something it is.
Helpful.
Give you a partial answer to that to say the last two years large pharma orders had been bookings had been slightly over 50% of our bookings.
It gives you at least that started at what you are looking at anyway.
Yes, correct, alright, well look I appreciate it and I thought I thought you had a great quarter. So good job keep it up and look forward to the rest of the call. Thanks. So much. Thank you are usually you said as you said at the beginning of the question. So I was concerned about thanks for setting the dividend.
Alright, so all good alright next question.
Your next question is from Tycho Peterson with Jpmorgan.
Hey, thanks.
Or given that most of the questions. We're getting are on rfps and wage inflation I want to go back to the wage inflation discussion and EBITDA margins because it is notably Youre guiding for expansion here you talked about benefits from the original merger integration plan, you talked about Digitization and maybe some price increases, but can you maybe just give us a little bit more color on how youre planning to drive margin expansion.
Environment this year.
Forward any additional cost actions.
No not at all not idle as I said before.
Just to make myself clear again.
D.
Largely the main driver of our margin expansion is simply leveraging the benefit of all the cost actions that we took post the merger. Okay. You will recall, you'll go back and look at the numbers, we had significant restructuring amounts.
Every year, which obviously affected our cash flow.
And and we.
I'll now benefiting and leveraging those overhead optimizations outsourcing actions.
Consolidation of infrastructure merging of ITE systems et cetera, et cetera now.
In addition to these.
Part of the reason you see margin expansion actually probably accelerate in 2022 versus 2021 in a quite significant way I think some of it.
Is what I, just said and some of it is a mix benefit I want to remind everyone that the COVID-19 related work, which was quite significant portion.
Over the past year or two.
Was at a lower margin than we would otherwise have our base business.
Okay lots of it towards government work, whether it's on the commercial side very small margins or on the R&D side, where we also contributed to the global effort to address the pandemic by pricing our.
Covid related clinical trials.
Not at the same level as it would otherwise have for traditional.
Work.
And so in terms of mix.
This COVID-19 related work gradually tapers down and the base business continues to grow.
As a proportion of the total and then of course, you would get a benefit on the margin side I might add further that the amount of pass throughs on Covid related work was unusually high vaccine trials and came also.
Earlier on than it would under normal.
Trial timelines, so the combination of lower margin service margins to start with.
US a higher proportion, but unusually a high proportion of pass throughs all of that all contributed to be.
When adverse impact mixed impact on our margins as this work gradually tapers down.
And then obviously.
The mix.
Impact on.
On margins is going to be more favorable and that's the other reason youll see an acceleration of our margin growth.
<unk>.
Okay. That's helpful and then a follow up on APAC.
Long term guidance is 11% to 13% growth through 'twenty, five obviously within China, and there's been a lot of noise Wuxi biologics getting placed on the unverified list there a CMO your CRO, so very different markets, but can you just talk on your view on China here in the near term and does any of this kind of noise potentially benefit you.
Well I mean, I will note that we disclosed this but we've got a couple hundred million dollar business in China has been growing double digits over the last few years.
We have a 41.
CLO subsidiary in addition to <unk>, those who have a core of <unk> business and we've got a full yield CLO subsidiary, that's called <unk>, which is designed for low code Chinese regulatory requirements and largely.
Caters to the local.
Market the local biotechs.
Wallace IQ.
Parents deals with the work of multinationals sponsors for their piece of the clinical trial in China when it exists.
Unique setup, which is which in combination with our global CRM platform.
How's us to capture higher growth opportunities with China.
Again.
We feel good about our capabilities in this market and about our prospects to continue this growth trend look there are local C. Our roes that are emerging that are formidable competitors that are gaining share.
They are Honduras mutually.
<unk> in China, as you know I won't.
I don't need to be able to pull in but China is a complex market there are lots of.
Factors external to our industry that can effect.
How the market dynamics play out but we.
We're not worried we're not concerned we are we are we are in continued.
Continue to invest as required we have a good market positions.
Small piece of our total business.
Okay. One last quick one before I hop off on Oce on our retention you talked about 350 clients using over one module. Your biggest competitor did I think talked about winning back Roche are you able to comment on on that.
That dynamic at all.
Anyone.
And a point of view.
Look.
We don't comment on individual.
Individual customers and dynamics with individual customers and.
Yes.
Roche win was a very big win and.
The large majority of that is outside the U S. I think about 90% or so yes, 90% of the world.
Project is outside the U S. So.
I think that would be.
An independent subsidiary.
Thanks.
Yes.
It had its own program, but yeah no no no.
Russia has reaffirmed our commitment and is looking to accelerate the rollout of Dr. <unk>. After the successful implementations we've had in several regions.
They have also expressed interest in purchasing other modules. So we're very.
We're very pleased with our collaboration with these clients, but beyond that we're not going to comment yes.
Okay next question.
Your next question is from John Kreger with William Blair.
Hi, Thanks very much.
I wanted to come back to you guys made the comment that you expect your R&D.
Revenue growth this year I think to be in the upper teens. If you ignore COVID-19 work, which is a very impressive number just curious what do you. What do you think that business can do longer term.
Which one.
The term growth yes.
Yes, I think.
Look I think thats the the.
The double digit growth was a marker that we have achieved and strive to achieve if you remember at the beginning of the merger the growth was very low in the single digits. So we think there continued acceleration will continue and certainly that double digit sort of mark and in the longer term, it's something that we're looking forward to maintain that acceleration.
Yes, I mean look at our Investor Conference, We gave you.
Even 'twenty five targets for our company as a whole and we said that the company as a whole.
We grow 10% to 12%.
Annually.
Which.
Presumably from a from a $15 billion base.
So.
<unk>.
R&D is has to be growing into the double digits in order to achieve that.
So.
So.
That's kind of where we didn't we gave guidance was helpful by segment.
25 of those numbers get while the team he is bringing this up but again.
Hi.
Your attention I'll bring your attention to what we gave as longer term growth trends.
Just a couple of months ago in November in New York.
When we were all together in person and we gave you long term goals and growth trends and all of which represented a significant acceleration.
Versus what we've had over the.
19% to 2% double digit at the Investor Conference strong double digits, yes. So so so that's the long term trend.
Of the business and again I'd point to you that these are large scale businesses.
Yes, absolutely very very impressive thanks, and a quick follow up Brian I think this one is probably best for you in the quarter can you.
A mind us what.
What the acquisition contribution was to growth and did you buy anything notable in the fourth quarter.
Yes, the acquisition contribution.
The growth was.
Was relatively minimal it was little over 150 basis points.
We made a couple of acquisitions in the quarter, the largest of which was a payer analytics company in Europe , but nothing terribly large.
Thank you.
Yeah.
Your next question is from Shlomo Rosenbaum from Stifel.
Hi, Good morning. Thank you Ari can you talk a little bit about the breakdown of the upper single digit revenue growth and task. When you exclude COVID-19 is what's driving the growth here or is it real world evidence is the technology in there.
The information part of the business doesn't grow much at all so maybe you can just help us with the composition and what are some of the really big drivers there.
Yes, Thank you Shlomo.
And we've done this before.
<unk> told you what it's comprised of.
If you look at <unk>.
Like to look at it in terms of three tiers.
Get the.
Basic core information solutions, which is the overall <unk> business essentially the data.
And that's about I'm going to say, 30% of the business.
Give or take.
And Thats, a flattish growth rate business, Okay no.
And that strategic Thats the way, we do it we just sell the data with very neutral.
Price increases, it's a flattish business.
Then you've got the.
Moderately growing piece of the business, which is let's call. It another quarter at this point, maybe a quarter of the business that's analytics.
Analytics consulting various services.
And that grows.
Double digit now it has been growing.
Strong double digits in fast food for US you used to grow.
Mid to high single digit now withdrawing.
Low to mid double digits, the past few years.
<unk>, yes, low teens and then you've got.
The higher growth businesses, and Thats, the real world and technology businesses.
Which will grow.
Teens and Thats about it.
What do I see the balance was at like 45% of the business. Today, obviously, we used to see two thirds a third a third now obviously because real world the fastest growing piece of cars.
Real World and technology are growing at a much faster rate now represents already.
45% of the total.
And so if you do the math that should get you to high single digit underlying.
Growth for the segment.
Okay, great. Thank you and then maybe this is for one how much is the incremental.
FX headwinds impacting EBITDA and EPS guidance for two.
2022, you talked about absorbing the $78 million to $70 million of revenue if I were to normalize how much you'd said impacting the guidance.
Just give me give us a little bit of color on that.
Well we.
We offset the entire $70 million and maintaining our revenue guidance.
I mean, another way of looking at it as we raised our constant currency revenue guidance by $70 million I'm not sure I understand your question beyond that.
The EBITDA.
EBITDA went up by $10 million on each side and EPS <unk> and <unk> side.
Revenue typically doesn't have that big.
FX typically doesn't have a big impact on our EBITDA.
We had a little bit of negative drag from from FX not not like we did with the revenue that we absorbed in our numbers and.
We have more offsets on the EBITDA side than we do on the revenue side. So you don't see as much impact there.
Okay, great. Thank you.
Your next question is from Patrick Donnelly with Citi.
Hey, guys. Thanks for taking the questions.
Just to follow up on the M&A question earlier can you just talk a little bit about the outlook, obviously cash flow really strong leverage is pretty reasonable at three six times.
Are you seeing more activity in the pipeline given some of the volatility in the public markets or does that take a little bit longer to play a role in kind of rattling out the potential sellers.
Well that's a good question Luke.
We always.
Obviously, we're.
We're always looking and even if you weren't looking people call us.
So there are lots of assets that are in the market.
We.
We haven't been that active over the past couple of years in terms of numbers of acquisitions, we've done a little bit more in dollars. This year.
Largely driven by our largest ever deal, which was simply the consolidation of our.
Lab business we.
We bought 40% that we didn't own from Q squared I'm sorry from quest.
That was our Q squared lab joint venture.
And we paid I think $760 million for that.
And we need a couple more larger acquisitions as you know the multiple valuations in this space.
We operate in the health care technology.
Technology information space, the multiples are really very high and the reason for that is it private equity.
Essentially is trading those assets.
From one private equity firm to another and so they keep.
Bumping up the evaluations and we we look at these assets, but we are always going to continue to be very reasonable and conservative if we see value.
That we can create then we will certainly look at these assets but.
No major changes.
Versus what you have seen us do before.
We will be opportunistic.
If there are things assets that we would like to own we will make a reasonable bids and we want to get excited by what we.
We have told the market is.
<unk> got to.
Good balancing.
The CFO here with that.
Deb.
That we have we have healthy discussions with the business heads in.
Again.
I hope that you could see from our history that our capital deployment has been prudent.
We've been willing to have more debt.
And we may be willing to have more debt if necessary because we believe our business model is very different.
Leverage for us at the peak of the pandemic.
Pandemic was $4 eight and as a company or even go back to the legacy companies, we believed with leverage ratios that we even six times.
And the reasons for why we were willing to live with those leverage ratios you simply because.
Our business profile, our cash flow generation model.
Our business visibility profile.
Sure.
The majority of our business is already booked early in the year.
Both commercial and.
In clinical.
All of that.
It makes us comfortable that we could live with those especially in an environment, where I know theres a lot of talk about <unk>.
Rising rates and I want to remind you that.
The bulk of our debt.
Essentially fixed rates, largely because of hedges and the alignment between our euro and.
Euro dollar and euro our profits and dollars versus dollar profit so all of that.
It makes us comfortable rates continue to be at historic lows. So we we will do what's right for the business, we will allocate capital to first.
Total investments secondly to acquisitions, and thirdly to share repurchase and Youll see us go back and forth depending on opportunities, but again.
We intend to try to continue to reduce debt.
Is prudent.
Within the limits of what makes sense from a management standpoint, it doesn't make sense.
Eliminated all debt at the current rates.
That is as negligence on all parts.
So thats the best answer I can use your question. Thank you very much.
Well done.
Sorry, if I could just squeeze in one follow up if you have a minute.
Just wanted to follow up on kind of the funding backdrop.
Obviously, you've talked a little bit about the R&D strength going out multiple years double digit growth I guess, when you think about the funding I mean, it seems like you would never underwriting with type of record strength. We saw last year in order to hit those numbers and if we did see some prolonged softness on the funding of government relative to last year's levels, it's still more than sufficient to support that growth.
Look I guess I just wanted to make sure thats kind of the way you frame it up.
I cannot be I cannot be.
I cannot overemphasize that we are not seeing that translate into our our sales pipeline.
And again I gave you some numbers earlier in biotech.
I'm not giving you the numbers.
I don't know if I should give them to you or not but the vast majority a big majority of the RFP dollar pipeline and numbers volume in dollars.
He's actually EVP.
So we're not seeing any impact from <unk>.
Potential slowdown of the funding into our pipeline and the pipeline is at record high levels.
Again.
Don't affect us one bit and by the way again I am not seeing that happening we talked we review all the time.
Okay, that's encouraging to hear thanks. Thank you.
That's going to be.
Last question. So thank you for taking the time to join US today, we look forward to speaking again next quarter.
Myself and the team will be available for any follow up questions you might have in the rest of the day.
This concludes today's conference call you may now disconnect.