Q3 2022 ICON PLC Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
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Good day, and thank you for standing by walking to the icon Q3, 2022 results conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one on your telephone you will then have an automated message advising Johan just raised please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker today Kate Haven. Please go ahead.
Thank you good day and thank you for joining us on this call covering the quarter ended September 30th 'twenty 'twenty. Two 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 guarantees 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 or a substitute for the comparable GAAP measures. We believe certain non-GAAP information is more useful to investors for historical comparison purposes.
Included in the press release and the earnings five you will note a reconciliation of non-GAAP measures adjusted EBITDA excludes stock compensation expense restructuring costs foreign currency gains and losses amortization and transaction related costs and their respective tax benefits.
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, the call over to our CFO , Mr. Brendan Brennan.
Thanks Kate.
It's sort of a tree icon achieved gross business wins of $2.740 billion on a recorded $389 million worth of cancellation. This resulted in net awards in the quarter of $2 35 billion.
Book to Bill of 121 times trailing.
Trailing 12 month basis, our net book to Bill was one four times.
With the addition of the New awards in quarter, three our backlog grew to a record of 22 billion, representing an increase of one 3% in quarter two of 2022 or an increase of 9% year over year.
Backlog burn was nine 7% in the quarter slightly below quarter too.
Revenue in quarter, three was $1.942 billion.
This represented a year on year increase of three 9% on adjusted revenue or seven 4% on a constant currency organic basis.
The revenue impact from year on year changes in foreign exchange results resulted in a headwind of approximately $67 million in quarter three.
That's helpful 25 customers concentration increased slightly from quarter two as our top customer represented eight 6% of revenue our top five customers represented 27, 8% of revenue our top 10 represented 41, 7%, while our top 25 represented 62, 6%.
Adjusted gross margin for the quarter was 29, 5% compared to 28, 4% in quarter two.
Gross margin strength was driven by continued direct fee revenue growth and improved resource utilization in quarter three.
Total SG&A expense was $192 $9 million in quarter, three or nine 9% of revenue in the comparable period last year total SG&A expense was $196 $3 million or 10, 5% of revenue.
We expect total SG&A expense to be at a similar absolute level in quarter four as we saw in quarter three.
Adjusted EBITDA was $379 6 million for the quarter or 19, 5% of revenue in the comparable period last year, adjusted EBITDA was $324 $9 million or 17, 4% of revenue.
Representing a year on year increase.
16, 9%.
Adjusted operating income for quarter, three was $352 7 million a margin of 18, 2%.
The adjusted net interest expense was $57 $2 million for quarter three as previously communicated due to the increasing interest rate environment is expected through the duration of this year. We are anticipating full year interest expense to total approximately $210 million in 2022. This represents.
Presents an increase of approximately $50 million from our initial assumptions for full year interest expense when the guidance was issued in January .
The adjusted effective tax rate was 16% for the quarter. We continued to expect the full year 2022, adjusted effective tax rate to be approximately 16, 5%.
Adjusted net income attributable to the group for the quarter was $247 2 million a margin of 12, 7% equating to diluted earnings per share of $3, an increase of 17, 5% year over year.
In the third quarter, the company recorded $8 million of transaction and integration related costs U S. GAAP income from operations amounted to $243 7 million or 12 712, 5% my apologies of revenue during quarter three U.
U S. GAAP net income attributable to the group and in quarter, three was $162 million or $1.94 per diluted share compared to a loss of $1 17 per share for the equivalent period last year.
Net accounts receivable was $934 million of Turkey as of September 2022. This compares with a net accounts receivable balance of $875 million at towards June 2022, cash collection efforts continued to be strong with DSO of 43 days in the quarter up from 26 days on a comparable basis from September 30.
2021, and up from 41 days on a comparable basis at June 32022 cash.
Cash generation from operating activities in the quarter was $214 million.
At September <unk> 2022, the company had a cash balance of $609 2 million and debt of $4.850 billion, leaving a net debt position of $4.239 billion.
This compared to a net debt of $4.429 billion at June 30 of 2002 to two and net debt of $4.918 billion at September 30th 2021.
Capital expenditure during the quarter with $37 3 million.
We ended the quarter with a net debt to trailing 12 months adjusted EBITDA ratio of two nine times, our capital deployment priorities continue to be debt Paydown and as such we made a payment of $200 million on our term loan b facility in the quarter, bringing our total repayments to $600 million year to date, we expect to make a similar size.
Repayment in quarter, four which will allow us to exit the year with a net debt to trailing 12 month adjusted EBITDA of approximately two seven times. This is in line with our previously communicated target exiting the year with a leverage ratio below three times and well ahead of our initial expectations set in July of last year.
With the rising interest rate environment, we have decided to hedge a portion of our floating interest rate exposure and term loan b facility.
While we will work to finalize our hedging strategy and resulting agreement by the end of this year. We anticipate this will effectively hedge a significant proportion of our floating interest rate exposure, providing more certainty around anticipated interest rate expense for the full year 2023 as market conditions continue to fluctuate.
With all of that said I'd now like to hand over the call to Steve.
Thanks, Brendan and good day to everyone.
Alright com delivered a very solid performance in the third quarter as our team continued to execute well across our operational segments amidst the challenging macroeconomic environment.
The macroeconomic pressures that have been impacting our business for the majority of this year remaining focus as the war in Ukraine.
To a lesser degree the lingering effects of the pandemic, including Rolling Lockdowns in the zero Covid policy in China have impacted our operations in these regions.
Across the globe, we continue to prioritize the safety of our employees, while also maintaining trial continuity for our patients and customers.
Our expectation for the full impact in 2022 revenue.
From these factors remained in the range of $60 million to $80 million.
As we have not seen any notable improvement in our ability to operate in the Ukraine and Russia in particular.
In addition to the conflict in Europe , and the Covid related issues in China, but further strengthening of the U S dollar and rising interest rate environment continued to impact our results in the third quarter and the outlook for the full year 2022.
Notwithstanding these issues, we remain encouraged by the positive underlying demand environment for clinical development services.
Strength in demand is being led by meat and large biopharma companies. Both in terms of RFP activity and in our business development performance in quarter three.
As the broader funding environment in the biotech sector remains challenged we are seeing a continuation of the trend we highlighted on previous earnings call, which is more deliberate spending from customers in the emerging biotech segment.
This is translating to a lower average opportunity value in this segment as biotech companies look to optimize study designs and a generally more cautious in their approach to clinical development is a conserve cash in an uncertain environment.
While this dynamic has caused a slight headwind to new business wins in this segment, we have not seen disruptions in terms of ongoing projects delays or increase in cancellations at this time.
Bad debts also remain at historical low levels.
Overall clinical development demand has continued to grow as evidenced by a trailing 12 month RFP growth in the high single digits is increasingly complex clinical trials required capabilities footprint and integrated solutions with only global Crows can deliver.
Icons unique partnership model that brings the necessary expertise technology and insights to deliver patient centric trials is resonating well and we continue to find success and expanding existing customer partnerships.
We've also made good progress initiating new large pharma discussions and partnerships, which was a key strategic rationale for our union with PRA Health Sciences.
We believe the diversified portfolio of services across Oracle positions us well with customers that have evolving needs and require flexibility in their approach to clinical development.
Our strategic focus on all aspects of clinical development has enabled us to lead the market and providing unique solutions such as blended trial models, where elements of full service and functional service provision are utilized and customized to deliver dedicated services and functions to biopharma customers.
Yeah.
In addition to supporting our customers new models of development, we remain steadfast in our commitment to innovation and continued to invest in opportunities, where we see potential for significant near term improvements in patient identification recruitment site performance and investigator engagement.
Quarter, three we successfully completed a pilot of our partnership with very done at a company that is creating the largest E. <unk> integrated site network in the industry with 23000 sites 30000, physicians and access to over 40 million potential patients for trials.
Through the partnership we aim to lower the burden of participation for physicians, while increasing the overall number of patients that have access to clinical research.
We are encouraged by the results of the pilot and the opportunity to more rapidly and predictably connect patients and physicians with appropriate clinical trial opportunities.
Additionally, our one search platform, which uses proprietary algorithms and a variety of data sources to identify the best sites for our clinical trial was recently recognized by a major trade publication as the leading industry too in data analytics and business intelligence.
One search is helping to tangibly improve our site startup times and recruiting site metric, which drives improved speed and efficiency for our customers.
Turning to our financial performance I am pleased with our results in the third quarter with strong backlog growth of 9% year over year and revenue growth of approximately 4% or seven 4% on a constant currency organic basis over the third quarter 2021.
Excluding COVID-19 related work revenue growth was over 14% year over year on the same basis.
Operational performance was particularly strong in the quarter with approximately 17% adjusted EBITDA growth year over year, resulting in a margin of 19, 5%.
Direct fee revenue growth and improved resource utilization alongside strong SG&A cost management helped drive our performance in the quarter.
And we remain well on track to meet our target of 19% adjusted EBITDA margin for the full year 2022.
This leaves us well on track to meet our medium term goal of mid teens growth in adjusted EBITDA through 2025.
In addition earnings per share grew strongly at 17, 5% year over year in quarter three.
We continued our progress in reducing our floating rate debt exposure by making a $200 million payment on our term loan b facility in quarter, three resulting in a two nine times net debt to adjusted EBITDA ratio at the end of the quarter.
Furthermore, as Brendan mentioned, we are finalizing our hedging strategy for the majority of our variable rate debt in order to provide greater certainty on our interest costs going forward.
We expect to be able to announce the terms of this agreement by the end of this year.
Only 15 months after completing the union with PRA Health Sciences, we have made excellent progress on the execution of cost synergies and integration of the organization, which has allowed us to pay down our variable rate debt, even faster than our initial expectations.
As we approach our target of two five times adjusted EBITDA, We anticipate our capital deployment focus will increasingly include potential share repurchase activity alongside M&A as we look to add capabilities and assets that further enhance our service offering.
Given our financial performance in quarter, three and the healthy underlying business environment. We are reaffirming our full year 2022 guidance of revenue in the range of 769 to 781 billion and earnings per share of $11 65 to $11.
<unk>.
Additionally, as previously communicated our full year EBITDA margin expectation of 19% remains unchanged.
I've spoken in the past about our ambitious goal to be the recognized as employer of choice in the industry and highlight I was particularly proud of in the quarter with icons recognition as the 2020 to forbes' world's best employers list as one of only two crows.
We believe this award along with other industry recognition, we have received as a direct result of the investment and focus icon has made on talent management training programs and overall career development for our employees.
We continue to operate in a highly competitive industry talent and despite continued tightness in areas of the labor market I am pleased to report that we have seen steady improvements in employee retention each month as we have progressed through 2022.
An additional highlight in quarter three was the release of our 2021 ESG report, featuring our featuring our environmental social and governance commitments.
Icon performed our first ESG materiality assessment in 2022 and identified a number of priorities, where we believe we can deliver the greatest positive impact for our stakeholders.
We are deeply committed to our stated goals and objectives across a number of initiatives, including advancing public health, improving our employee experience and minimizing our global environmental footprint.
And a lot of broader macroeconomic challenges is expected to continue to impact our business results. We wanted to provide initial thoughts on our outlook for 2023.
Given the significant strengthening of the U S. Dollar over the course of 2022, we anticipate the continuing revenue headwind in the first half of 2023, assuming foreign exchange rates continue at current levels.
Backlog conversion is expected to be flat to slightly below Q3 levels due to a few notable factors.
Seeing a lengthening of overall study duration due to increasing trial complexity and full service programs driven by growth in therapeutic areas like oncology and rare disease and the decline in vaccine related work as a proportion of our overall backlog.
Based on current dynamics in the demand environment.
Quarterly book to Bill remains unchanged in the range of a 1312 to one three times target.
We remain ambitious goal to drive 100 basis points of EBITDA margin expansion in 2023, as we continue to expect strong direct fee revenue growth along with solid cost management initiatives, including the realization of the full $150 million cost synergy target in 2023.
Yeah.
Our longer term growth aspiration of achieving $10 billion in revenue in 2025 remains unchanged.
We plan to issue detailed financial guidance in accordance with our usual timing in January at the Jpmorgan Healthcare conference.
This timing allows them allows for the necessary inputs of our quarter four results.
Hedging strategy and the latest macroeconomic outlook.
In order to provide a specific guidance range for the year.
Before we move to Q&A I want to recognize and thank our employees across the globe for their continued efforts and significant contributions to our performance this quarter and in the year to date.
So operator, we are now ready for questions.
Thank you as a reminder to ask a question that you would need to happen.
And one on your telephone and wait for your name to be announced please standby, while we compile the Q&A roster.
Yes.
Your first question comes from the line of Eric Coldwell from Baird. Please ask your question.
Thank you very much I'm going to start with some comments made today September conference about the labor inflation environment I did here today at the turnover and staffing overall, maybe improving month to month, but there were some comments about going into 'twenty three expecting higher labor expense.
And frankly, I thought that might pull back your EBITDA expansion goals, but it doesn't sound like it has so anything you can share on that would be a good start. Thank you very much.
Sure. Thanks, Eric Yeah, we do expect to see some inflation.
Labor rates, given the inflationary environment, but the bottom line is we believe we can count to that with the various initiatives we have.
Ongoing in the organization.
To help as we continue to reduce our SG&A costs, we have various operational initiatives that we believe we can we can put in place. So while we are not naive and expecting that there's going to be some pressure on labor rates. Those those sort of increases we believe can be more than offset by some of the initiatives.
Have going on in the organization.
If I could just have one more real quick.
Thank you for some of these initial thoughts on 'twenty three that's helpful.
Maybe the biggest.
Yes.
When we're looking at variance across the street, probably the biggest variance we've been seeing across a number of our names as models for interest expense I know theres, some uncertainty with the hedging program youre setting up but.
Is it possible to.
Prompt you to maybe give a bit of a maybe a wide range on what you're thinking just to level set and get get everybody in the same ballpark on interest expense outlook.
For next year Eric.
Brendan here at all.
I'll take that one.
One of the reasons I suppose we talked about giving guidance.
J P average because like everything else the underwriting out.
Underlying LIBOR and so far rates are are fluctuating quite dramatically at the moment as well so it's a bit of a moving moving Paul or are moving goalposts I should say at this point that said, we do expect to be in the high two hundreds for the full year interest rate.
I'd say, probably more toward the top end of that range.
So that's our current expectation, but please do take that as a draught, and we'll see how the market is playing out over the next couple of months and obviously, we will come back to you with something a little more specific on that when we get to January and our guidance at J P. M.
Great. That's very helpful. Thanks, guys. Congrats on good results.
Thank you we will take our next question.
Yeah.
And the question comes from the line of Mark Smith from William Blair. Please ask your question.
Hi, Thanks for the question Christine <unk> on for Matt.
Okay.
Just a question on last quarter's call you pointed out that icon is interesting increasing its exposure to small biotech.
I didn't hear you talk about on this call, but I think that makes sense given what we see is excellent long term growth prospects.
But it kind of took us by surprise given near term numerous so I was hoping you could give some details on that strategy.
Like your timeline that you expect to pursue this.
And your optimal small biotech target mix.
Yes.
That's not our recollection Christine.
Not looking to increase our exposure to the small, but I think it remains a very important part of our business.
At around half of it.
But it's it's an area that as we all know has.
Some funding challenges at the moment and that's something we recognize but we're not looking necessarily to increase it in fact, what we've seen is large pharma midsized pharma discussions and on business development has probably moved.
It's very significantly up in the last probably the last 12 months really as we've come together and that certainly that trend has continued in quarter three so if anything where we're at.
We'll be increasing our exposure in the large pharma market given the success we've had both in winning business in that segment and in some of these more strategic discussions that we continue to have in the large pharma space. So I mean by biotech and small emerging remain an important part of our business as I've mentioned, but we're not looking necessarily to dramatically increase our exposure in that space.
Yes.
Thanks that makes sense.
And just one follow up for me just on the.
Revenue front last quarter, you noted on your iPad meet your $100 million cross sell target.
For the year and I didn't hear you mentioned at this time around is that still the goal.
That is that is very much still a goal we remain on track for that we've said that would be as we enter 2024. So there is a longer term.
AG I suppose on revenue synergies the.
Cost synergies as I think I outlined.
<unk> faster than we expected, where we are on track for $100 million this year and from a run rate of $150 million for next year. So we feel we're very pleased with how they've gone to revenue synergies are working forward with selling and getting those awards, but that will be a little bit slower to come through and when you were talking end of 24 months.
Great. Thank you so much.
Okay.
Thank you we will take our next question.
Please standby.
And your question comes from the line of David Windley from Jefferies. Please ask your question.
Hi, Thank you for taking my question.
I wanted to start with a backlog conversion as a general topic, Steve in your prepared remarks you.
Can you talk about longer duration of trials and some factors on that front. We've also heard some commentary about.
Labor challenges in attrition at sites and things like that so the.
I guess the duration of our studies and your backlog is probably a little more secular or are there also some some shorter term issues that are affecting that duration and do you think those can be.
Alleviated.
In the near term.
Yes, thanks, guys.
As I think we've outlined the backlog conversion has dropped down a little bit and we.
Were anticipating flat, maybe slightly lower as we go to the end of the year and it's really because of the return to sort of normal cadence of longer term trials oncology is becoming.
A more a larger proportion of our backlog the COVID-19 stuff is sort of moving away those fast burning vaccine study. So it's more related in relation to the shift.
In our backlog if you lock in the makeup of the studies that we are.
Doing in terms of how we mitigated theres a number of factors ongoing obviously operationally, but the site the site one's an interesting one we haven't seen the sort of disruption from a resource point of view at Ara silica side. So we do believe there is an opportunity there to push more trials through our silver care sites and to expand that we have a good for most of the people in fact.
The people in our silica thoughts are dedicated to us in a dedicated on research they don't have.
Pulled too.
So the more standard clinical work and so we see that as an advantage and that's leading to continued.
Continued improved performance in those sites.
So that's where we're well above.
Recruitment rates, 2030%, 40% above our sort of more ad hoc sites.
And so that's playing through nicely for US we believe there's further opportunity there to this I push will push more trials and mitigate any any pressure on the backlog burn.
Thank you for that very helpful. So then my second question is around your.
Your comments on RFP versus.
Kind of a reported numbers on bookings.
Sounds like the RFP flows are still.
Progressing now to a pretty decent Cliff you said high single digits bookings were down year over year by about 1% and so I wondered if.
If the bridge there is hit rate or decisions awards, just not being issued.
More RFP is not going to award or what would be the.
The delta between.
Kind of high single digit.
RFP growth and slightly down bookings.
The bookings on a quarter to quarter Davis.
Pretty flat there, but it was slightly up rather than slightly down about 1%, but.
Yes.
There's rfps I think I've always said this is somewhat.
In exact.
Mark or if you like for bookings, we do get Rfps that come through that are costing exercises. Some of them are more ballpark figures and then some completely out of the blue So as I say, it's not at all.
It's not.
Exact match for bookings, we're certainly seeing a lot of activity in the large pharma space on the RFP space. That's an area that has gone up and on the biotech spaces, it's been a little more muted.
So we are seeing but overall the numbers are solid as I say mid started high single digits on a trailing 12 month basis.
I hesitate to get too.
Focusing on Rfps its the business development, where we have been flattish and that reflects as I say some movement within the market on a large pharma mid sized and biotech putting it altogether.
It is it is what it is.
Thank you very much and good luck with the rest of the year. Thank you.
Thanks.
Thank you we will take our next question.
The question comes from the line of from D. J Purcell Guggenheim Partners. Please ask your question.
Thanks.
First question.
On the cash flow good quarter, and I think in the slides you still have the target of 100.
$1 billion of free cash flow just wanted to see Brendan if thats still the target and if so that would imply a pretty nice step up and would assume that would really come from working capital. So just wanted to get any comments on that.
Yeah, we just we put those kind of those that.
Targets, they were kind of implied in the original guidance.
Sandy I shouldnt, probably be retro as forecast elements. So they were kind of the objectives. We set at the beginning of the year I think we will.
Improve certainly in cash flow in Q4, we had an excellent quarter of billing in Q3, So I do expect to see good cash flow generation on the back of that in Q4, but probably not quite to the level that would get us to the $1 billion Mark in.
Total.
Still aim for that but we're probably around.
We've been doing just over $200 million in free cash flow on a quarterly basis. So far this year I'd like to see a little bit more but probably won't close that gap into policy. So.
Only 200, plus is our certainly our expectation and I would like to say that maybe push up maybe even to the 300, Mark but I don't think were quite close that gap.
Okay. That's really helpful and then my unrelated follow up.
On the gross margin side, obviously really good.
A good number and I think you mentioned, maybe it was Steve about.
And the high mix of service revenue versus pass through I didn't know if there is.
That's really the bulk of that or if there's other stuff going on there and in general I mean is it.
Fair to think about because I know theres a lot of focus on bookings, but I try to focus on quality and bookings.
A big quarter and Thats heavily served.
Yes through doesn't mean, a whole lot, but is it fair to say youre bookings over the past three or four quarters have been more weighted towards service revenue versus pass through because it's certainly showing up in the gross margin side, just any thoughts around that sort of trend.
Yeah, I'll start off on that one Sunday, and maybe Steve might want to chime in.
I think from from listened, we called out and so you've called out the numbers very good solid double digit growth ex COVID-19 this year, and obviously covered where it is.
Just quantum of pass through and we saw in prior years.
<unk> factor on gross margin, we certainly with the normalization of the mix of our backlog coming through the course of this year and I see those kind of vaccine high pass through business continuing to wind down and to your point really good solid direct fee revenue, replacing that which has a normal cadence of pass through income.
In it so youre, probably in kind of I suppose.
Historically taught about somewhere in the 25% to 30% of gross revenue being being passed through on full service work.
And I think you are coming back down to that obviously that was much much higher wood covered workwear. It was it could have been actually of the posture was often bigger than the actual a significantly bigger indirect fees. So yes, I think we are seeing an element of that continuing and as I said that that also adds to some of the points that we've talked about in terms of backlog conversion.
As well so it's certainly it's a good story from a business perspective in terms of good mix of direct fee revenue, helping gross margin Steve did you want us.
Okay.
Alright.
What <unk> said is right, we're certainly seeing a greater proportion of.
Trials with with a lower proportion of pass throughs as that makes sense. So if you look at that directly.
Our revenue growth, we are in a sort of high high single digits, that's sort of number.
It's flowing through nicely and helping out helping fuel as a tailwind for our gross margin going forward.
Yeah.
Got it thanks, so much.
Thank you we will take our next question.
Okay.
All the questions from participants on <unk> from Evercore ISI. Please ask your question.
Hi, good morning, or good afternoon, guys.
I was just wondering I guess sort of as you were talking about the demand environment in that quarter that was very helpful. As you think about sort of how the fourth quarter has been trending so far.
We feel very confident that there'll be there'll be there and we will already will have the $100 million in the in the in 2022 so.
Well ahead of where we thought we were going to be with respect to Ah Ah efficiencies cost synergies et cetera, et cetera, and that's helping us.
It'd be pretty confident about our EBITDAR in EPS growth going forward a little bit back to every question are rapidly our library places, they're awesome headwinds on labor inflation, but because we've driven so well and we've been we've we've accelerated.
Right. It does cost synergies we think.
We can move forward you know well overall from an EBITDA point of view and there was some of that also impacts are gross margin.
Thank you.
Good.
Keeping they take our next question.
Oh my questions from the kitchen Palace thumb.
What's your question.
Hi, Good afternoon, everyone just continuing on the margin question.
So the.
The additional synergies are clearly you know a big piece of the buzzer, but can you help us think through the other the other the other levers they're gonna help you drive that hundred basis point expansion.
For 2023.
[noise] sure Justin.
There's a number of operational initiatives that we have in a as in planning as we as we come together as we continue to come together. This is a this is a long term process with being very conceited.
Careful about how we integrate not wanting to disrupt customers projects, but having said that the rest of them are operational efficiencies around functions that we believe we can we can gain we've got some opportunities around where we locate resource as we go forward really over the next couple of years, we have initiatives around our artificial.
Intelligence and machine learning aspects that we're bringing into some of the more routine once other a number of areas. There that we bought it over the potent probably more medium term that we can we can drive and we believe that's gonna give us again over and above any headwinds.
Some opportunities to expand our monitored by the by the 100 bits that we I think we can do next year.
And maybe just just one more on the large pharma commentary, we talked about the the challenge 12 <unk> growth in.
Was there anything out there, but you're saying that my <unk> and then.
You know in terms of the increase momentum.
That you are seeing that icon scene and large <unk> what are what do you think some of the key factors are there.
Is there anything out there that could you know.
I guess, there's always things that contains this sort of thing, but we say, it's not just one or two customers. We see a trend across a number of different organizations number of different large farm right in mid sized farmer for that matter.
Who want to engage with us and so of course, there are things that could knock us off track, but but you know at the moment, we're not saying anything and even with the challenges around the you know the macro dropping it's probably driving more of it I think they are seeing more of an opportunity for more.
More importance around they're outsourcing strategy in getting those strategies in place with good competent partner. So I'm I'm very confident that will continue that's sort of progress the business development side of things continued continues to be positive, particularly in that segment Ah, particularly in that segment and so you know what.
We're we're very optimistic about the way we were doing that and I think the main reason for it is because we're an organization of significant scale now as I said it was one of the key rationale for further union with P. R. I P. R. I brought huge expertise and competence to us we're a signet very very significant clinical development Pliant Allen.
Customers want to talk to us about what we can bring to them whether it be in the Fsb's base. The full service space technology labs icon decentralized platform.
Spending and a lot of resources and effort and bringing that forward, we're seeing a lot of opportunities around those decentralized trials and I want to be I want to be part of that they want to have that discussion with us. So.
We feel very constructive and positive about that.
Those sorts of discussions.
Thank you I appreciate the questions.
I can't really take our next question.
And the question comes from God.
Please ask you a question.
Alright, thanks, guys.
Do you think do some housecleaning stuff can you give us an idea of what your gross X COVID-19 want us to see what that person looks like.
Yeah, we can.
Sorry.
Trying to find the number here in the script writing Street.
Yeah mid teens, I think regarding pretty cold up 48% Luke.
Comments and that would have been constant currency on a constant currency basis, yes, 14% was the number.
Awesome. Thanks, So just getting back here too thinking forward and pass the Covid and everything. So you guys gave out and normalize analyze where I am right four largest customer and this was a while ago I think it was that your Dublin analyst day and that was around like 350, if I remember correctly, how should we think about this going.
Forwarded F, let's say as you're approaching that path failure or a longterm guide.
No quite clearly the question.
[laughter] sorry [laughter].
Okay.
It's basically trying to figure out you know as that because your customer your largest customer right now is about $650 million and just trying to figure out how quickly that burns off and.
And then where are the offset is it looks like the rest of your book continues to grow.
Outside of your top 25, taking massive step ups here in the last Coupla years. So it just really trying to figure out the those two moving parts going forward.
Yeah, I mean, I mean, when I came back to the one of the rationales for the Union right was to reduce our customer concentration we've done that no one's more than I think tempus eligible to 10% I think airlines, it's around about eight per.
Saint a backlog in revenue wise so.
We're pleased with the result of that that Union. While that's done that was you know I I, we would see that probably continuing at about that right. We have a good relationship with that customer obviously I feel confident what we're doing and so I don't know that that's going to dramatically full however, as you as you know the same we are growing our business.
Outside of the top 25, I think this this quarter we had.
Something like high single digits outside of the top 25 with sort of signals, where we're going as an organization around expanding our customer base and and working.
Working in the in the more mid size and smaller customers sort of groups. So you know and I'm not sure I'm not sure that I see dramatic changes going forward I'll top.
510 customers will continue to be a very significant part of our business and there'll be really where a lot of our strategic partnerships are focused of course.
So I would anticipate concentration there would be.
Would continue at about that right, maybe drop a little bit in the in the longer term as we expand but overall not dramatic differences.
Alright. Thanks.
Thank you we will take our next question.
I have a question from the line of particularly piece ask you a question.
Taking the questions. Steve helpful. Helpful color on twenty-three to start there I guess kind of diving into that a little bit more I mean, we talked previously about the book to bill kind of being above one point too that would enable high single digit growth and twenty-three potential become shift down towards mid single.
If it goes below I think we've been right at that number for two quarters now you talked a little bit about the conversion being flat or slightly below freaky without lengthening in trial duration, I guess, where does that leave us thinking for next year, we sliding a little bit below the high single ER I'm, just Wanna get color. There and then and then may be Brendon just how big is the ethnic homeland I know you're talking to.
It's evident when the first off no surprises that but maybe if you could just quantify that would be helpful.
Yeah, maybe I'll I'll take the first part of your question Patrick.
We're talking about I think it was on a constant currency buys isn't that remains out of target plant I think we're going to look at all sorts of inputs as I indicated in the next you know two or three months to see where we're going to be from from a guidance point of view and we're not ready to you know to provide really any sort of strong indication gardens on this on the.
Well, we we aspire to.
Those high single digits.
Look at the various inputs the burn rate century, the wind rights and the composition of the wins, which is very important.
As we look at will get into the sort of final few months of the year. You know another couple of wins in the vaccine. So you can have a material impact on these sorts of things. So we'll we'll look at all of those things and.
And come back to you in January with respect to where we're going to be on the gardens, but on a constant currency basis, we remain.
Focused on moving towards.
What we said in the past.
Yeah perfect.
Yeah sure on on the FX Peace and I think this is this is this is called our now from our year to date perspective thin and.
Q to you of course, you know we kind of we had just that our top line revenue guidance take account of that and at the time, we were saying it was in the range of 1140 of an impact having.
Having on the top line at that point, we have seen that increase in Q3, but the most dramatic part of that certainly within the first half of the year. So it certainly just about north of 152 to the end of September and will keep a close eye to where FX rates are going they're still wobbling, a little bit I think we've got a little more.
Hanging on top priority, but certainly the euro has dumped below poverty on a number of occasions of last couple of weeks. So unlike there'll be a factor as we think about Q4, but to this point at the end of Q3. It was it's just just north of 150.
And then for twenty-three Brendon any initial can a number as a F X rays today.
Yeah. That's that's my question you know I think there is as we look out and we think of average rates in constant currency from from this year to next year. If we apply something like spotlights June next year versus this year I could that could deliver about a 1% headwind in foreign exchange terrorists. His.
Steve's point, there's a lot of work to do between now and our guidance and call in a jpn, but that's certainly is indicative of what we would expect and if there was no change from we're right at the moment.
Okay, and let me just quickly on the balance sheet capital deployment encouraging to hear you guys pay announcement that getting rid of some of the environmental interest mentioned share repurchases well, Steve I think bolt on M&A, how do we think about the balance there kind of in the near term I assume that it's still the priority, but maybe just talk through that'd be it. Thank you.
Yeah.
There is probably down is still a priority as I said, we anticipate adding another $200 million off.
Alone in the fourth quarter, but.
As you will know.
<unk> takes a little bit of time and so we're certainly looking actively you'll starting to look actively in the market because we believe around two and a half times adjusted EBITDA is about the right number.
For a balance sheet, we don't we're not we're not planning to go back to zero debt. So so we want to use our balance sheet, we've got a strong business.
Generating significant cash flow and so as we get into next year.
It will be looking at suddenly M&A will be the.
The next priority once we once we've got we've moved at.
Ill leverage right to where we want to be but.
But share buybacks reminding of an option as well as we are again as we contemplate what we're going to do without capital as we and we keep it around the two and a half time, so that that will be that would be a little bit more up to meet are opportunistic and that will depend upon what's available in the market and once that our pricing we're seeing around some of the assets.
Looking to.
Two across other is a number of factors going in there, but we didn't want to signal at the.
We are going to be actively in that space, probably certainly over the next 12 to 18 months that's that plan.
And can we really mean to our next question.
The question comes from the lineup check me suddenly.
Suddenly touch please ask you a question.
Thank you Hello, everyone wanted to follow up on Patrick's initial question, just take a little bit more into the backlog conversion dynamic is it possible to say today.
I don't know what portion of your mixes oncology and rare disease and just how much that's going to shift next year.
And maybe just Conversely, what the vaccine mixes changing.
I'll I'll I'll I'll tell you as the start of that one Jack and then Brendan mud follow up I mean oncology and.
College in Ray disease is a significant part of it I thought it's about 40 ish percent, what we do and it's probably going up rather than going down and if you look at oncology CNS vaccines, that'd, probably get pretty close to 60% of anthrax vaccine to cause a bun.
Wake up and ER as those trials come in they do give us a tailwind on burn but oncology.
[laughter], that's every oncology draw.
<unk> is a rare disease trial at least does because of this sort of patience. We're looking for so and I do tend to be quite a large long term top study. So they are a drag if you lock on allburn, albeit the long term long term work, but they do we.
Increasingly in there and.
As I say, a very significant part of that backlog.
They do put a little bit of Ah of.
A headwind when did you want to add.
Yeah, No I think they have done anything that doesn't mean, you're spot on Steve in terms of the proportionality is there.
Of a boat oncology and anti Infectives.
So I I I, the one thing I would call. It maybe is that the COVID-19 as as a part of our backlog. It is still in there and I kind of mid single digit level. Then we expect as we talked about that in terms of revenue contribution moving down from probably mid single this year and to properly lower thing goes next year. So that there is still a contributing factor in some of the.
Conversion drop off as well.
Got it.
And then just curious does any of you know the.
Moderation you are expecting in backlog conversion related to labor access.
And also can you just talk about regional dynamics, notably Europe and China just.
How do you feel about the site access and the rate at which trial starts have been.
Yeah, we.
We don't see Labour access at least our internal labour access being a right limiter four four backlog conversion we are seen at some of our knowing the seller Ks sites some impact.
Particularly in.
States and of course, with the Lockdowns et cetera, China, we've been we've been fairly clear on that so there is some impact in that space, but we are hoping and expecting that week and as I said I think previously we can drive some of our more of that trials into iron silicate network and expand out of Silicon network, because we have dedicated.
Resources in our network that are impacted by some of the other challenges that are more and more AD hoc side tab. So we think we can mitigate some of that site.
But if that makes sense.
Through <unk> network and through supporting sites.
In addition to that is supporting some of the AD hoc sites, particularly key recruiting side. So there's various things we're doing to help us decide mitigate the risks on the side to side of things. We don't see you know in terms of labor access you know, it's a challenging market.
And all that sort of thing I don't think that's gonna any significantly easier, but it hasn't gotten any worse either so we see access to library access to people, who can do the work internally to Spain and not affect that it's going to hurt us in the short term begins huh.
He wanted me to my next question.
The question comes on that Casey returning from J P. Milk. Please ask you a question.
Thanks to squeeze me in just piggy backing off of the cash flow question asked earlier looks like Unbilled revenue grew 62% year over year. So I'm just curious as to what drove such a big jumped in the corner and if there are any readthroughs from that number. Thank you.
Hey, I'll take that and we've been going through a process of harmonizing our process around revenue recognition Ah over the course of the year.
Certainly we did see.
Some some elements of that where we would have had a naturally.
Naturally a higher unbilled revenue balance in the icon organization and I think what you're saying is that kind of returning to that point were saying you know obviously when we brought in PRA at first and they had a lower lower position on that one but I think I think what we're what we're doing is correct I do think well we've had a I mean, focusing on the future a little bit more so is that we've had a very very solid quarter of good.
Billing in Q3, I made reference to the fact that we had a couple of systems issues as we went through queue to and we obviously are now all on one arocha platforming in Q3, which has been a huge huge piece of work and that will help us significantly and driving this bonds as we go forward. So we're certainly looking at pushing that down as we go forward, but then.
[noise] will always be a normal level of them they'll violence there.
As we look at their makeup of idea so probably somewhere in the region of 35 to 40 days is not a bad area, where we'd like to be in the longer term. So we certainly won't be looking at pushing that balance down as I said really good quarter of billing and will see hopefully play into the numbers in queue for.
Okay. Let me turn next question.
The question comes from the lineup.
Credit Suisse. Please ask you a question.
Oh. Thank you for taking my question. So I was wondering if you can give us the dollar amount of Covid related trial revenue in the quarter and then the progression Brendan can I clarify you said low single digits a portion of revenue in 2023 or is that a backlog comment in response to Jack.
And second question first maybe that was.
It was low single digits in terms of revenue in 2003, it's our expectation that this points coming off backlog of about 5% or mid spent tingles at the moment.
On the I don't know if we have even though a percentage on the in the quarter take to get that number Yeah man signal mid Citigroup Avenue yeah.
That works thank you.
Okay.
Mhm.
The question comes along the lines of stomach Dipper I'm from Bank of America. Please ask you a question.
Hi, good morning.
Can we can you talk a little bit about sort of like your cancellation rate expectations as we're thinking about.
2% a good go forward number to do that and just anything unusual your scene and with respect to cancellations now.
He pulled back and people changing plans just like that just just some general color on what you were saying their housing about going for it. Thank you.
Yeah, I think the I mean, the overall comment on that then is Ah.
Sort of more of the same we haven't seen any significant changes in a cancellation order the right. The dollar number you're sort of 2% of the backlog.
Gross was you know which were fairly careful with what we put into the backlog in terms of who we contract with and so.
Might be stuff that we put in that you know does it never happens sort of thing but overall.
Smaller customers as I said in my comments were seeing some more and more deliberate in terms of what studies that funding and in terms of what studies that doing that's let's logical but we are seeing good science and good companies getting funding and getting an ability to move their projects food and whether it be in the private market. So we are in the public market for that.
From followings.
They seem to be able to get the money they need so we're not certainly not seen in the clinical spice an increase in the in the cancellation right around these smaller cause that's the way what are you what are your questions directed and ER. So overall.
More of the same.
Great. Thank you.
Okay.
And we will take our final question.
The question comes from the lineup John Sourdough from you'd be at Peace asked you a question.
Hi, Thanks for taking my question here at the end on the revenue synergies you mentioned earlier on exiting on 2024 of those synergies, but if you're looking out at the Japan demand environment here and if things were to change is their ability to partially maybe offset that and accelerate some of these remedies.
Synergy, that's where you look to next year.
Oh, I mean, John we're always trying to accelerate a revenue as soon as he has been really depends upon the and we tracked is pretty carefully we used to use it.
Just studies, we thought we might have one if we hadn't come together, they're very they're very carefully tracked in terms of this is the service we're providing at one organisation with legacy organization or the other that wouldn't have been provided if we remain two separate organization. So trusting that in the in the awards really are on track for that hundred.
And we are on an annual basis and we expect those.
These things Berlin, and take a little bit of time to come through we expect those you know the the revenue synergies to actually hit as we exit 2024, so yeah.
We're always trying to of course provide or accelerate them, but at the moment. The indication is that we're on track with what we said, we're going doing as opposed to the cost synergies, where where where well ahead of what we said we'd do.
Thanks.
Okay. So thanks to everyone. We remain very confident about the the business environment and what we're doing here, though I come to to execute and to prosecute cuss.
Customers projects. So thank you everyone for joining the call today were pleased the third quarter results and when you're a guy and extend our thanks to our dedicated workforce across icon as we continued to navigate the evolving landscaping clinical development and the broader environment, we remain focused on partnering Tuesday.
To market faster for patients. Thank you very much everyone.
[noise] concludes today's conference call.
Yeah.
Right.
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