Q1 2022 ICON PLC Earnings Call
Good day and thank you for standing by welcome to the icon plc first quarter results 2022 conference calls at this time all participants are in listen only mode. After the speaker's presentation. There will be question and answer session to ask a question Jordan. This session you will need to press star one on your telephone keypads. Please be advised that today's conference.
This is being recorded.
I'd like to hand, the conference over to our Speaker today Kate Haven. Please go ahead.
Good day and thank you for joining us on this call covering the quarter ended March 31, 2022 also on the call today, we have our CEO , Dr. Steve Cutler and our CFO , Mr. Brendan Brennan I would like to note that this call's webcast and that there are slides available to download on our website to accompany today's call.
Certain statements in today's call will be forward looking statements.
These statements are based on management's current expectations and information currently available, including current economic and industry conditions. Actual results may differ materially from those stated or implied by forward looking statements due to risks and uncertainties associated with the company's business and listeners are cautioned that forward looking statements are not get.
20th of future performance.
Forward looking statements are only as of the date. They are made and we do not undertake any obligation to update publicly any forward looking statements either as a result of new information future events or otherwise.
More information about the risks and uncertainties relating to these forward looking statements may be found in our SEC reports filed by the company, including the form 20-F filed on March one 2022.
This presentation includes selected non-GAAP financial measures, which Steve and Brendan will be referencing in their prepared remarks for our presentation of the most directly comparable GAAP financial measures. Please refer to the press.
Release section titled Condensed consolidated statements of operations, while non-GAAP financial measures are not superior to for a substitute for the comparable GAAP measures. We believe certain non-GAAP GAAP information is more useful to investors for historical comparison purposes.
Included in the press release and the earnings slides you will note a reconciliation of non-GAAP measures adjusted EBITDA excludes stock compensation stock compensation expense restructuring costs foreign currency gains and losses amortization and transaction related costs in the respective tax benefit we.
We will be limiting the call today to one hour and would therefore ask participants to keep their questions to one each with an opportunity to ask one related follow up question I would now like to hand over the call to our CFO Mr. Brendan Brennan.
In quarter, one icon achieved gross business wins of $2 78 billion.
A record of $257 million worth of cancellations.
So at least net awards in the quarter were $2 $43 billion, resulting in a net book to Bill of one <unk> times.
With the addition of the New awards in quarter, one our backlog grew to a record of $19 6 billion, representing an increase of two 7% from quarter. Four 2021, an increase of nine 8% year over year on a combined company basis.
Backlog burn was 10% in the quarter consistent with quarter four.
Revenue in quarter, one was 1 billion nine 2 million. This represented a year on year increase of 121, 6% or 125% on a constant currency basis.
On a combined company basis revenue increased 6% to six 1% or seven 8% on a constant currency basis from the comparable period last year the revenue impact from.
From year over year changes in foreign currency exchange rates resulted in a headwind of approximately $12 million in quarter one.
Our top 25 customer had concentration increased slightly from quarter four as our top customer represented eight 9% of revenue and our top five customers represented 28, 6% of revenue our top 10 represented 43, 8%, while our top 25 represented 62, 8%.
Adjusted gross margin for the quarter was 27, 8% compared to $28.
One in quarter four gross margin was negatively impacted in the quarter, but the slowdown in Russia, and Ukraine as well as supply challenges in our laboratory services business.
Adjusted EBITDA was $346 million for the quarter or 17, 9% of revenue in the comparable period last year adjusted EBITDA was $295 9 million.
On a combined company basis, or 16% of revenue representing an impressive year on year increase of 19%.
Adjusted operating income for quarter, one was $314 million a margin of 16, 5%.
The adjusted net interest expense was $38 5 million for quarter one.
The reduced interest expense was attributable to the 25 basis points decrease in the race on our term loan B facility, which took effect at the end of quarter four when our leverage ratio declined below four times adjusted EBITDA. This resulted in a <unk> <unk> benefit to earnings per share over our quarter. Four we do not expect this level of <unk>.
Fence to continue in subsequent quarters as we anticipate a rising interest rate environment over the course of this year.
The adjusted effective tax rate was 17% for the quarter. However, we continue to expect the full year 2022, adjusted effective tax rate to be approximately $16 five.
5%.
Adjusted net income attributable to the group for the quarter was $228 million and margin of 12% equating to diluted earnings per share of $2 76, an increase of 27% year over year.
In the first quarter the company recorded $12 1 million of transaction and integration related costs U S. GAAP income from operations amounted to $173 million or 9% of revenue during the quarter. One U S. GAAP net income attributable to the group in quarter, one was $112 million or $1 26 per diluted share.
Compared to $1 82 per share for the equivalent period last year.
Net accounts.
Receivable were $745 million at 31 March 2022. This compares with a net accounts receivable balance of $642 million towards you on December 2021.
Cash collection efforts continued to be strong with DSO at 35 days in the quarter down from 49 days on a comparable basis from March 31, 2021, and up from 31 days on a pilot basis at December 31 2021.
The sequential increase in DSO as a consequence of ongoing finance integration activities and alignments of billing processes. As this work is completed we will look to maintain and decrease our DSO.
Cash generated from operating activities in the quarter was $227 million.
At March 31, 22, the company had a cash balance of $568 million and the debt of $5.142 billion, leaving a net debt position of <unk> $581 million.
This compared to net debt of $4 $692 million at December 31, 2021, and net cash of $5 $95 6 billion at March towards one 2021.
Expenditure during the quarter was $19 $6 million.
We ended the quarter with a pro forma net debt to trailing 12 months adjusted EBITDA ratio of three three times the.
Our priority for capital deployment remains on debt pay down in the near term and as such in quarter. One we made a payment of $300 million on our term loan B associates.
Given our continued strong cash flow generation, we reiterate our target of exiting 2020 to below three times adjusted EBIT.
As announced on our last call our board of directors authorized a share repurchase program of up to $100 million I'm pleased to report we were successful in deploying the full authorization of $100 million within quarter, one resulting in the purchases of 421000 shares at an average price of $227 70 success with all of upset.
I would like to hand over the call to Steve.
Thank you Brendan and good day everyone.
<unk> had a strong start to the year in quarter, one reflecting continued operational strength and business momentum despite macroeconomic headwinds impacting our business.
Throughout the year.
<unk> employees continued to exhibit their ongoing resilience and dedication to delivering customers programs as effects from the pandemic continues with the emergence of new Covid variance and the war in Ukraine presented a new set of challenges.
Ensuring the safety of our employees in the region as our fluids and foremost priority.
We have been able to provide support to many Ukrainian families and employees it across the border to neighboring regions and assistant and relocation to other iPhone offices with circumstances allow.
We are working closely with our customers to ensure studies continue and patient safety is maintained to the full extent possible deploy remote technologies for monitoring and assisting dislocated prices in finding new trial sites.
Patient recruitment activity in the region that has been halted and no new studies all sides are being started at this time in Russia or the Ukraine.
Earlier this month I was in our office in Poland, which has been at the forefront helping to provide the on the ground support to many of our employees, leaving us.
I am incredibly proud of the extraordinary efforts exhibited by our employees in Poland and nearby countries.
I'll stop in the region, not only have gone above and beyond for their colleagues and for our customers and patients as well.
During the trial continuity and mitigating risk.
The variability.
They are excellent representation of the iPhone culture, and we are grateful for their dedication.
<unk>.
In the quarter the financial impact from the war in Ukraine was approximately $5 million.
Anticipate a continued impact in subsequent quarters up to an estimated 1% of revenue for the full year, assuming no further change in our ability to operate in the region for the foreseeable future.
Despite challenges from the warm Ukraine and emergence of additional COVID-19 variance the broader environment for clinical development remained strong.
Total RFP volume was solid this quarter, while increasing by low double digits on a year over year basis.
On the biotech funding market declined further in the quarter, we have seen pharma R&D spend continued to grow and we have not witnessed a slowdown in RFP activity in the small and mid sized Biopharma segment, which was consistent with the strong levels. We saw in quarter four 2021.
Additionally, I would note that we haven't seen an uptick in the level of cancellations or project delays in this segment of our business.
Continued to see private and venture capital funding supporting companies with strong signs of novel therapies in areas, such as oncology rare disease infectious diseases and urology.
In the last few years icon has worked with over a thousand emerging biopharma companies and our consultative partnership model strongly appeals to this customer segment.
We are confident with <unk> ability to continue winning market share across the biotech and small pharma segment, given our leading expertise and purpose built politic unit consisting of 8000 dedicated employees.
Our backlog disclosure to capital market dependent companies remains low.
Strong position across all other key market segments to ensure our business wins remained robust in the foreseeable future.
Our business development performance was excellent in the quarter, resulting in another record quarter of net business wins of $2 $43 billion, representing a net book to bill of one <unk>.
Water.
127 on a trailing 12 month basis.
Backlog grew 10% year over year to $19 6 billion on a combined company basis, an increase of two 7% sequentially from quarter four 2021.
Sales performance was particularly strong in that large pharma unit, but it was broad based across all business units, reflecting continued demand for our innovative and integrated solutions.
Strategic discussions across several key partnerships are continuing to advance presenting opportunities for growth and expansion across our business segments.
Our clinically focused but diversified business mix and customer centric offering has played a key role in winning new customers.
And renewing existing partnerships as customers seek flexible development models, along with a broad set of services and expertise.
One of our key success factors in building and maintaining strong customer partnership is our commitment to collaboration and operational excellence in.
In the quarter, we held our first partner of choice meeting as new icon, bringing together several of our partners and the strategic solutions segment of our business to share insights and ways to further innovate in this area.
Icon is leading the way with its approach to customer engagement and events like this clearly demonstrate our commitment to our focus on creating enduring customer partnerships.
Financial performance was strong in the first quarter, resulting in combined company revenue of 6% or 8% on a constant currency basis year over year.
These results exceeded our initial expectations given difficult comparisons on a year over year basis from high pass through revenue related to Covid studies and further headwinds due to foreign currency fluctuations and Ukraine, which will continue to challenge us in quarter two.
Despite these macro headwinds operational performance was impressive with adjusted EBITDA growth of 19% year over year on a combined company basis Q4 to one.
SG&A cost management was particularly strong due to achievement of initial cost synergies.
He was also very pleased with our adjusted earnings per share of $2 76.
Which grew 27% from quarter one 2021.
At a high level, our overall customer mix has stayed consistent and well balanced in quarter, one with approximately 50% of total revenue and large biopharma and approximately 45% of total revenue in mid and small biopharma.
Within the small biopharma segment companies that have less than a $100 million annual R&D spend again represented a mid teens percentage of our own.
<unk> revenue and backlog.
Sure.
Given our cash collection efforts in the quarter, we were able to make a $300 million payment on our term loan b facility further reducing our leverage to three three times adjusted EBITDA at the end of the quarter down from three four times at the end.
Cool.
We believe we are on track to hit our aspirational target of exiting 2022 with a leverage ratio of approximately two five times adjusted EBITDA.
Our integration progress continued throughout quarter, one as we passed the one year Mark since we announced the transformative Union with PRA Health Sciences. The now completed nine months operating as a combined organization.
Our focus on enabling a unified employee experience has continued to advance bringing more of our stuff together physically through facility integrations of which we have now completed 50 across the globe.
Even more importantly, our efforts to connect the organization through the implementation of common platforms and enterprise wide technology systems are reaching critical milestones.
A few of our first system implementations, including a few in capital management system will go live this quarter and we are.
Advancing deployment several other tier one enterprise wide systems, which will come online in the next few months.
Our successful integration efforts to date have enabled continued progress on our synergy targets and as we reaffirmed in March at our analyst day, we expect to realize approximately 50% of our cost synergy target of $75 million in 2022.
From a revenue synergy perspective, a cross sale activity was again strong in quarter one was.
With approximately $30 million in New awards consistent with the activity in the fourth quarter of 2021.
Cross sell awards in the first quarter were led by laboratory services early phase and <unk>.
Okay.
Turning to Covid related trends there were several notable factors impacting our business in quarter one.
Revenue related to Covid studies was consistent with quarter four representing a mid single digit percentage of overall revenues.
Backlog related to Covid programs was approximately 5% total ending backlog as we were successful in winning new business through additional vaccine work related to boost studies in the quarter.
These additional study winds are evidenced that COVID-19 related work will be part of that business for some time and an excellent Testament to icons leadership in vaccine development and strong trial execution in this area.
With the New awards won in quarter, one we expect the Covid related revenues will represent approximately 5% of our total revenue for the full year 2022.
From a <unk> perspective, we saw continued resilience from sites and staff throughout the quarter. Despite the emergence of additional COVID-19 variance and the lockdown in China, losing restricted access to sites that had previously reopens.
This dynamic coupled with <unk> access impacts from the war in Ukraine, who was the slight increase in the number of sites restricted in some capacity now totaling approximately 17%.
While we have seen volatility in levels of sard access across different regions, either due to Covid global recently from the war in Ukraine.
Teams are now able to pivot faster and more seamlessly deploy.
Deploy remote based solutions listing trial impacts that would it be more substantial two years ago.
We are seeing continued adoption across customer segments, a decentralized trial components.
The hybrid models are developed.
While we have noted that fully decentralized trials are few in number currently we were pleased to have started the recruitment on a full phase III decentralized clinical trial study and women's health in quarter one.
This study is a great example of the power of our broad set of integrated services with the trial is being executed utilizing multiple decentralized components.
Digital patient recruitment services, our silica site network and Concierge services Center with the study and managed by a decentralized critical trials operational team.
We remained focused on our commitment to further invest in key technologies tools and platforms that will improve efficiency and delivery in our industry.
One search our innovative site selection too is continuing to deliver insights to our customers on optimal site selection, reducing site startup times decreasing the number of non recruiting sites and improving overall patient recruitment rates.
During the quarter, we invested further in the two interface updates to enable better user experience and data enhancements to add valuable data sources as well as backend mapping.
We continue to look for opportunities to integrate broader source data not only to one search.
Ross our entire set of solutions.
Our focus is on increasing our access to not necessarily ownership hold unique data sources as well as evaluating partnerships and other opportunities that advance our healthcare intelligence strategy.
Further enhancing our analytics capability, producing more targeted results and outcomes for our customers.
Another area of strong focus for our organization is in automation.
So the additional capacity provided by robotic process automation, we have continued to enable new capabilities and offerings customers with the outputs of clinical trials can be delivered in a more timely way and at a higher level of consistency and quality.
A great example is in the completion of our Etfs, which is being one of the strongest areas for RPI productivity in 2022, so far.
Over 2800, FTE business days saved in quarter one.
In addition, we continue to leverage advances in technology, enabling us to employee remote monitoring across a range of workflows.
Trucks.
We are unifying our sights towards a single wire working enabling remote review of ECG and lab reports and combining patient recruitment and scheduling into an overall integrated capability.
As clinical development continues to evolve and biopharma customers increasingly look to their partners to provide innovative solutions, we see an excellent opportunity to lead the market with a focus on health care intelligence.
We believe our investments in talent.
<unk> data and analytics are leading to improvements in long held industry challenges I should recruitment side identification and study startup just to name a few.
We remain excited by the opportunity to create a new paradigm, we are bringing clinical research to patients and the enhanced outcomes. It will deliver all of our stakeholders.
With a strong performance in the first quarter and continued positive customer demand environment. We are reiterating our 2022 financial guidance revenue in the range of $7 77 to $8 $5 billion and adjusted earnings per share in the range of $11 55.
To $11 95 states.
As indicated at our analyst day in March we expect an adjusted EBITDA margin of approximately 18% in the full year 2022.
Finally earlier this month I was honored to accept the award of Islands company of the year 2021 business and Finance awards on behalf of icon.
This award recognizes companies based on their market position operational and financial achievements and is a tribute to the dedication and engagement of our 39000 employees around the world.
Before moving to our Q&A session I would like to take an opportunity to recognize our employees for their commitment and efforts in quarter one.
We look forward to the continued success of our organization throughout the year.
We remain focused on delivery for customers sites and patients around the world.
Operator, we're now ready for questions.
Thank you Dan participants we will now begin the question and answer session. As a reminder, if you wish to ask a question. Please press star and one on the telephone keypad and Mike for name to be announced.
The first question comes from the line of Elizabeth Anderson from Evercore ISI. Please ask your question.
Hi, guys. Good morning. Thanks, so much further question today.
I think your comments on the biotech funding environment I think were very helpful. On the impact in your business I guess one question I would just have given some of the reports that we've seen from competitors.
How are you thinking about the RFP flow.
Across the various stages of your business would you point out any sort of notable distinctions between earlier phase.
Later.
Any details there you could provide would be helpful.
Sure.
In terms of an RFP flow has been consistent and strong.
Low double digits across the business that was particularly good this quarter and large pharma it was particularly strong in quarter four and the biotech area, but it's been consistent really across all of the segments of the business. We're pleased with the access we're getting to.
New opportunities from customers and it continues to define a very positive picture.
Got it and then just sort of a follow up have you heard of any sort of customer sort of restructuring or anything like that on the biotech side for.
Financial or non sort of safety efficacy and does that sort of any distinction in.
Versus prior quarters.
No we haven't as yet to be very direct on that one note that hasnt come across my radar screen I think Brendan So you said as well no no at this stage certainly in the customer set that we have we're very happy we do a lot of work with those folks as we onboard them to make sure that there are really good customers and are quite good.
Good funding access so yeah, we've been very happy with the customer base from our perspective and Youll see that.
There's no increases in our in our bad debt provisions or anything of that nature. So we're very happy with us.
Okay perfect. Thank you very much.
Thank you. The next question comes from the line of Eric Coldwell from Baird.
Question.
Thank you good afternoon overseas.
I would say two questions here first.
Following on Elizabeth's question, if you could provide just a recent update specifics on.
And I'm sorry, if I missed this on the percent of backlog a percent of revenue of.
Of these pre commercial biotechs or I think you called them capital markets reliant clients and then my follow up would be or additional question would be you mentioned supply chain impacts on the labs here in the quarter I was curious if you could give us some additional detail.
Are these specific components or is it more around transportation and freight just anything you could share with the supply chain impacts on the lab based business would be helpful. Thank you very much.
Hi, Eric.
In terms of.
Backlog in revenue for the capital markets business with the way, we've defined that as companies would spend less than $100 million annually in R&D.
We've been focused we've been public before ensign thats around mid teens like around 15% of our revenue and our backlog is.
In that in that.
Spices that category.
Whether they are entirely capital market dependent I think we can all debate the definitions probably vary a little bit.
But Eric when we think of our exposure and particularly in sort of probably a little less than that going forward as we continue to be very careful who we work with.
We do it we have a very careful.
The screening process as we get these opportunities come through the door and we check the.
The financial viability of these customers. So it is it is an area that our finance group look at very hard.
Our minds around this item the mid teens for us.
In terms of in terms of supply chain challenges. It was really particularly around kit supply at the moment, where we've had some some challenges the components of various components of kits, particularly for the more complex studies, we're doing in the oncology space.
It has been something of a challenge to obtain those those components and it has led to some delays in those that we believe it's a relatively short term problems that we're able to address so I do expect in the next couple of months, we will be able to move forward.
And to move those out of those.
Those are the challenges way so to speak but it hasnt been really around keep supply as opposed to transportation or anything like that.
Thank you very much.
Thank you. The next question comes from the line of Patrick Donnelly from Citi. Please ask your question.
Thanks for taking the questions guys.
Steve you kind of touched on SG&A being a focus during during the prepared remarks that we're talking about it coming in ahead of your expectations can you just talk about what youre seeing there again is it some of the costs being pulled forward on the synergy side, obviously inflation and wage inflation has been a big focus for investors. So can you just talk about the moving pieces I thought it was interesting you called that out as a nice lever for.
For the margin side.
Yes, Patrick.
We think we've got a really good model in that in that in that area were.
Relatively centralized.
Costs are scrutinizing controls I think we've got a pretty good track record really over the last dozen or so years in that space.
Our group right across the global.
Business services group, whether it be <unk>.
Facilities administration et cetera.
What's is that watches those costs very carefully and we've been able I think to gain some of the synergies we've been after as we bring together PRA health sciences and bring them into that model. That's a process that continues and as we said we've been able to identify about $75 million for this year. We believe we can continue doing that.
Identified 150 gone, Florida, that's a target we feel very comfortable with at the moment.
To get down to specifics.
The.
And I think I referenced 50 integrations with closes on the office Thats been a substantial savings.
We've made some progress in the <unk> fund around the number of applications. We're working with that has been a substantial sum.
On the.
And the HR areas.
Well, so it's fairly broad range, but it really comes down to the model we have in.
In place.
<unk>.
<unk>.
<unk> is in this in this area put on those sort of costs.
That's helpful and then maybe one for Brendan just nor on the modeling side.
Can you just talk about the FX impact I mean again, it's encouraging to see you guys.
Reiterate the overall number I assume FX increases a headwind.
The organic maybe a little bit better. So can you just touch on that and then on the back of that just the linearity of the year as we look ahead kind of the cadence of the quarters.
<unk> anything to call out there I mean, just given the COVID-19 roll off FX, Russia, Ukraine, I mean, it seems like things are hitting the first half maybe a little harder.
So I'm just curious in terms of how we should think about the cadence as we model revenue and earnings guidance.
Yeah. Thanks, Patrick.
As we mentioned when I called it out it's actually was there was a $30 million headwind in Q1 on the FX and obviously, we've kind of we came into the year thinking about a year of $1 15 to the Euro dollar, which is our which is our primary currency pair. Obviously you can see what the dollar is at the moment certainly as we thought about the guide.
Since we were more in the ballpark of $1 eight and obviously, it's like right now and I was at 31 March right. Now obviously, it's even we could do that again. So it's something that is of concern and we will keep a continued eye on it but you are quite right in the face of that headwind, we're still obviously confident enough in the in the revenue position to reaffirm our rep.
And your guidance for the full year I think your point on the sequential nature of revenue and how it will come in through the course of the year is good one and we had said that we were lapping these big Cobra trials in Q1 Q2, probably the biggest quarter that we had in 2021 was without a doubt Q2, and so that will represent the toughest.
That we have and we did say first half of the year would be more like mid singles on second half would be high single, so you've seen a decent enough performance, we feel on the six and seven 8% on a constant currency basis in quarter. One quarter. Two has had a tough quarter from from a comparative perspective, given that big bolus of work, we saw coming through from the Cobra.
Work in Q2 next year as I say once we get through Q2 into Q3 and Q4, we are obviously back to that high single digit.
<unk>.
That is how we are thinking about the remainder of the year.
Very helpful. Thank you.
Thank you. The next question comes from the line of Casey Woodring from Jpmorgan. Please ask your question.
Hi, guys. Thanks for taking my questions.
Just wanted to talk about pricing how should we think about.
What's embedded in the guide for the year.
And given all the different macro factors supply chain biotech funding environment.
Yes.
And kind of that.
Trying to.
I would say Casey.
These proceeds is trending well.
It's not this is ever anything other than a very competitive business.
Pricing wise, but customers do understand that inflation is moving up that there are some challenges in the labor market that we're all aware of.
In terms of our negotiations whether it be renewals of msas or contracts.
I would say, it's probably as favorable as it favorably.
I've not been decided.
But customers are smart.
Many times the same sort of challenges we have in terms of <unk>.
Timing this golf and understand that we need to pilot market salaries, and bringing new staff as it can be expensive as well so.
I would say the pricing environment is relatively positive although as you know.
As I alluded to the call.
All of the things. He is also a little more challenging than normal so it's balancing off pretty well from our perspective, and hence I think we are optimistic in terms of how we can progress our gross margins in the more medium term.
Got you and then just one on the biotech funding piece, we're hearing anecdotally about large pharma looking to license and partner more with some of these smaller biotechs given the current environment.
Would you call this out.
Trends in the industry that you are seeing and would there be any impact there for you guys, maybe perhaps a source of competitive advantage given your relationships with these large pharma customers. Thank you.
We have seen a few examples of customers that we have partnered with on a large scale basis large pharma partners acquiring companies and us being able to then move our relationship will move our partnership to that smaller company that certainly happened and even it's gone the other way occasionally where we've had.
Relationship with a smaller company and been doing a project and we've been able to move.
Move into a relationship with a larger company.
Works, both ways and we have some examples of doing that is generally.
Positive positive.
Positive for us.
Just say on the on the biotech side of things we had of our 10 biggest wins in the quarter five as I moved from small biotech companies.
Substantial Windsor I think I've said it before these companies are ambitious they continue to want to move their drugs to market and then potentially PON.
Perhaps once they go into more commercial space, but in the sense of the clinical development, we have a number of very ambitious small biotech customers than they have.
<unk> been allocating us as I say, some very substantial wins, but the top 10 in terms of backlog and our top 10 wins this quarter half of them abating in the biotech space. So it's more companies, so really familiar with as well as these companies.
Have the money and are willing to spend it in the clinical space.
Okay.
Okay.
Excuse me have you finished with your question.
Yes. Thank you.
Thank you very much. The next question comes from the line of David Windley from Jefferies. Please ask your question.
Hi, Good morning, good afternoon for you guys. Thanks for taking my question.
Steve I was hoping you could maybe add some additional color too.
The traction that Youre seeing post merger.
You have some cross selling that you highlighted.
You have DCT capabilities that are coming together nicely as you as you integrate the two businesses.
And you've kind of in that vein talked about at the Investor Day Analyst day.
Some big pharma relationships that you have been able to kind of where is your way into.
Late that you hadn't worked with for quite a long time. So just hoping you could kind of drill in a little bit on maybe what areas are are resonating the best with the client audience.
Sure. Thanks, Doug.
Well, let me start with the DCT.
We havent really in the new release of our platform. This quarter that we're getting a lot of engaged not just from from large pharma right across the spectrum of customers on a on a DCT platform not just the platform itself, but the approach that we're taking in terms of integrating our services around home health.
<unk> group a network of course, the Wearables expertise MAPI acquisition, we made a few years ago is being integrated into the platform. So there's a number of components that are coming together very nicely.
A lot of it is sort of relatively early days in terms of discussions around around the platform in our approach, but we are engaging a number of.
Customers yes.
Lodge side, but also in the in the biotech space as well.
Around that platform and around our offering on that in terms of cross sell.
I referenced that.
About $30 million again, we want to continue to move that inevitably when you bring two large organizations together there is an element of learning what we have.
Learning.
Options. The organization has to sell we were doing well in the lab space around our imaging space.
The home health care, the <unk> network are all contributing.
Revenue if you like of sales that wouldn't otherwise have been the case, if we'd remind as independent entities.
We see good progress there, albeit we expect to see further progress going forward, but I think our $100 million in revenue synergies is a target that is very very achievable over the more medium to longer term of course.
The order will take some time to.
To come online in terms of the big pharma.
As we mentioned in the last quarter call that we actually signed up very significant customer partnership environment. We've made some further progress with.
With another one where we believe we're going to move towards.
Our partnership agreement, we haven't we haven't got there yet, but we've made some good progress partly on our DCT approach, partly on our new scale and functional expertise and abilities. The fact that we were planning now.
Customers in large pharma, particularly want to talk to.
Both customers and both partners that we weren't really in a strategic relationship with.
The independent icon or independent PRA Health Sciences, So I feel one of the one of the key rationale for coming together is really being played out with these with these partnerships and then Robert there are a couple of others that are probably a little bit further back in the process. These things take a while but I do feel that we're in the conversation now is with <unk>.
Every large part when the when they are looking to renew their partnership so theyre strategic alliances with the Sierra we are we are.
Part of that conversation and Thats exactly where we wanted to.
Excellent I appreciate that my follow up question is around capital related to this so I know your primary goal and target with with your cash generation is to pay down the debt in the near term.
Do you see.
Do you imagine yourself moving back to a tuck in acquisition type strategy once that is complete.
And what would the if that's the case what would those tuck ins be for example would you would you look to kind of continue to expand the site network and things like that I'm just wondering what your capital strategy is.
Related to building out these capabilities.
Sure.
As you quite correctly said, our focus certainly in the short term. The next couple of quarters is on that debt repayment, we see obviously interest rates going into the middle 4% to 5% and the.
Our relatively short term and we think thats the best use of out of our capital is to pay that debt down.
We're making excellent progress on that we're well ahead of schedule as to where I thought we'd be when we close the acquisition and so we are starting to think about how we would deploy our capital either on an M&A front or even potentially on a on a share repurchase although we probably wouldn't look at that until towards the end of this year.
But we remain open for that.
Those sorts of discussions, although that's sort of thinking as we as we make progress on that debt repayment in terms of the M&A side of things. There's a number of areas I think we would look at we are keen on the data side of things. We do believe there's investment required in that space and opportunity in that space to be that healthcare intelligence.
We want to be we want to improve our data capabilities and particularly our data analytics capabilities. So those areas and that's both the network as a core part of our strategy.
We don't rule out sort of a certain development of opportunities and then we have a JV with <unk> that is moving forward and thats a potential.
Further investment going forward. So the sites are certainly very much a part of it and then even things like Biosimilars <unk> all other home health is areas that we were.
To continue to look at I don't think we are going.
Outside of our core clinical area, but theres certainly a number of areas that we think we can strengthen and continue to develop to solve those key key customer challenges that we're all trying to we'll try to crack.
Much appreciate it thank you very much.
Thank you. The next question comes from the line of from Barclays. Please ask your question.
Good afternoon. This is Phil Im calling in for Luke.
Got a question on burn rate.
And how that has kind of stabilized at low 10 should we expect that to start to step down.
Pandemic level all of that for this year as we.
C work arm like traditional study.
Yes, I'll take that one.
Obviously, we're very focused on the 10% we outlined that in our <unk>.
And our call and our analyst day as well.
We're thinking about as we go through the course of the year you see that's been stable in Q4 and into Q1, and we're looking to maintain that level as we go through the back end of this year as we go out into 2023 I think it's something we are going to be looking hard on trying to maintain certainly clipping those double digits. As we go out through time, there was a mix of our.
Our business of course that plays into that and if you take any three year project and just work the math youre going to be at 8% right. So that's just the math of how that works out but of course, we have other businesses like our strategic solutions business that has a different cadence to it to its that burn rate. So I think it is certainly possible to stay at least in the high single digits.
And that kind of nine to 10 ballpark as we move out beyond 2023, and certainly as an organization we want to make sure. We're realizing our revenue and pulling our backlog through as quickly as we can so we're going to say is as focused as we count on trying to keep that in the double digits.
Thanks, that's helpful and as a follow up.
Can you talk about the work coming online to kind of replacement of vaccine work that gives you confidence in the long term guide.
The trial size is definitely not going to be at large.
So could you help us think about the differences in the economics there.
Is that more phase III work than usual.
Now.
Some of those trials will pause.
During the pandemic.
Thank you.
Okay.
To get your question I think to follow on work in terms of vaccine work.
We certainly believe we have a strong franchise in the vaccine space and so to.
To the extent of it.
We need to develop a claim.
We believe we're a very strong player in that space that I think the Covid vaccine work is probably pretty much at an angle that we.
I think I alluded to in my comments, we won.
Some some fourth dose.
Some follow on work there and that will probably continue for a while but theres a lot of vaccine work going on that particularly with the mrna technology, becoming more ubiquitous.
Sponsors and pharma companies showing what they can do in terms of that.
But you are in the middle of New York.
So let me maybe.
Just thinking about that yes, okay.
So we see we see plenty of opportunity for vaccines, particularly with mrna technology, not just around infectious disease around around oncology and those sorts of areas. Then that work does boon for US no question about that.
Some of the sort of slow ramp down.
But it is related to the sort of change.
Our portfolio was less let's say work and perhaps more moving back towards the.
Oncology work, which is sort of 30% to 35% of our revenue in all of our backhaul, that's where the bulk of it.
Development has been done and that's where we're operating.
I hope that helps you in terms of the central equipment.
It does I appreciate it.
Okay.
Thank you Yeah participants as a reminder, if you wish to ask a question. Please press star and one on the telephone keypad.
The next question comes from the line of Justin <unk> from DB. Please ask a question.
Hi, Good afternoon, I was wondering if you could talk about the backlog mix I know that you highlighted a lot of large pharma wins in the quarter, but is there anything to.
Call out in terms of FSP versus full study.
And maybe going a little further downstream with the strategic solutions more color there would be appreciated.
All of it correctly that in Bryn Mawr might add in terms of our backlog.
Although we haven't seen any sort of substantial change.
Over the last quarter or so in terms of large pharma versus biotech.
Tends to be as I said around half and half about 50 ish percent, maybe a touch more of our backlog.
60% is large pharma that 45.
As the biotech so to space in mid size and then this other government work and those sorts of things that are little bit out of the ordinary.
And that has that mix really hasnt changed much. We see continued as I said continued success in winning.
Our tech and small pharma work the large pharma business was particularly strong in quarter one.
Very good quarter as did <unk>.
Biotech business.
So really there's not much to call out in terms of FSP, we continue to get significant opportunities with a market leader in that space. We have a very innovative creative group in that areas those opportunities tend to come a little bit along a little bit light buses.
Large opportunities sort of relatively infrequently.
RFP from it can be a little volatile, but we have very good relationships with.
With several significant customers large pharma customers typically the ones that do the <unk>.
Space space, and we're being creative and innovative in the way that we're prosecuting those partnerships and bringing value to what's.
That FSP model. So it's not just the provision of of resources, but it's new ways of contracting.
New functions that were doing.
Working ways that we integrate with their operations and works seamlessly with their operations.
To the extent and it's also allowing us to develop relationships with those customers, which can lead to do other work.
Sometimes at least willing to full service work.
Most organizations are very few organizers are purely FSP or purely full service.
They tend to have a mix.
We've positioned ourselves well both throughout.
Strategic solutions group and through our full service group to be the beneficiaries of whatever opportunities are coming out of those customers and to talk to them about the sorts of things that they should be doing and how they should be structuring their outsourcing business. So.
It's led to opportunities right across the business and continues to be very important part of our business mix.
Alright, I appreciate all the color and then just just real quickly the Covid mix can you remind us what the.
What the proportion of revenue was in <unk> 2021 .
In terms of Covid, if I recall it was in sort of like the.
Mid teens low to mid teens.
Correct.
It was mid teens in Q2, 'twenty one yes.
Okay, Alright, thank you ill hop back in queue.
Thank you. The next question comes from the line of John Kim from Bank of America. Please ask your question.
Hey, good afternoon.
Thanks for the color on the strategic discussions.
I think you've mentioned that in the past as well that.
The two organizations have relationships with the top 13 farmers and.
You guys are moving forward with.
One of the other seven in the top 20.
Yeah.
Has that.
Have you guys.
In your discussions with the <unk> for the <unk> event or is that are we.
Are we still moving forward with the 14th one here.
Yeah, I'm not sure was.
That specific John but but yes, we are focusing obviously on the seven with which up to the time of the Union. We Didnt have strategic I mean, we were doing were doing work with those customers, but in terms of our strategic partnerships. We've advanced that I think we mentioned last call. We've advanced that bought another one and there are several more of those.
Seven.
We've made substantial progress with to the point, where I would like to think in the next quarter or two we will we will have some positive news on at least one of one more of those so I'm really pleased with the with the progress we're making as we.
I aim to be the partner of old 'twenty, that's certainly our long term.
Exploration of course, but we have that in place and we are making good progress towards that.
Got you. Thank you for that that's all for me. Thanks, John Thanks, John .
Sure.
Thank you there are no further questions I would now like to hand, the conference over to the speaker today for closing remarks, it will be Steve Cutler. Please go ahead.
Thanks, operator.
Thank you everyone for listening today, we're pleased to have delivered another strong quarter results deployed the contributions of our employees as we progress to become the worlds, leading healthcare intelligence organization.
You all have a good day.
And that concludes our conference for today. Thank you for participating you may all disconnect have a nice day.
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