Q3 2022 Syneos Health Inc Earnings Call

November 4, 2022

And performance for each of our customer segments. As a reminder, our strategic business plan for driving growth in clinical solutions is focused on each of our customer segments driving further large pharma penetration investing to grow the pre revenue biotech segment, and finally bolstering our strong position in the small to mid.

<unk> biotech segment.

First our existing clinical large pharma preferred provider relationships remain strong and we are pleased with our continued progress on several new opportunities. Although we continue to see slower near term awards with our existing preferred provider relationships, we anticipate incremental new awards over the course of 2023.

Next demand in our pre revenue biotech customer segment is consistent with our expectations with slowing RFP flow largely driven by the impact of the macroeconomic environment.

Our core issues with clinical net new business and revenue growth are primarily with small to midsized biotech customers, where we historically maintained a leading position while demand from these customers has been impacted by the macroeconomic factors. We now believe that these headwinds are more specific to <unk>, we believe that as we have.

Grown in recent years, our clinical operating model had begun to lose its traditional strengths of agility and leadership engagement that was critical to these post revenue smid customers, which began to negatively impact our opportunities for repeat business. In addition, we saw delays in award decisions from smid customers at a higher volume in September .

Then we experienced in June and experienced an unexpected decline in our overall clinical smid win rate during Q3.

As I will discuss in more detail. Shortly we are focused on accelerating clinical re imagined and enhancing our business development activities to increase our share of new business opportunities, including repeat business. Our clinical net awards for the quarter were impacted by these dynamics, which contributed to an unfavorable book to bill compared to our updated outlook provides.

In September <unk>.

Clinical solutions book to Bill ratio was <unk> three times for the third quarter, excluding Reimbursable expenses, resulting in a <unk> 98 times TTM book to Bill.

The commercial demand environment remains healthy with particular strength in our larger pharma customer segment, as we leverage kinetic and our new digital capabilities to drive new opportunities for growth.

We have seen some normalization of RFP flow from smid customers attributable to the macro economic environment.

The commercial team had a solid quarter of net awards, reflecting our normal seasonality with a book to bill ratio of <unk> eight times for the quarter and a 1.7 times on a TTM basis, excluding reimbursable expenses.

Over the last few months I've spent a great deal of time with our customers to gain a full understanding of what it is important to them and how we are performing against our expectations.

Ultimately I expect us to be the Premier Biopharma solutions provider, leveraging our unique product development model and the insights it generates to accelerate success for our customers.

However, we are disappointed by our current financial performance and are aggressively attacking four focus areas to reach this goal.

Clinical re imagined strategic business development, improving visibility and increasing efficiency.

First our smid customers are clear that they want city hotels to continue to deliver therapeutic insights, but with enhanced agility and high touch leadership engagement clinical re imagined was launched in Q1 2022 and is working to reduce the complexity of our full service operating model to streamline our organization and <unk>.

Processes enhance our customer engagement and infuse innovation and insights throughout our clinical operations. We believe the result will be an efficient and effective delivery model supported by our technology enhancements designed to build momentum with our projects and customers leading to improved backlog conversion and net award.

Including repeat business, the upgrades and talent and investments. We've previously outlined are already addressing these issues, but to put it plainly it has been more extensive and taken longer than we expected.

Most importantly, we have already deployed our new operating model across a number of customers and we are receiving overwhelmingly positive feedback.

Second we have had a number of leadership and organizational changes within strategic business development over the last 18 months as a result, we did not evolve our business development capabilities to fully leverage our integrated solutions or effectively engage our customers within the current competitive environment.

We now have the right senior leadership in place and they are driving more proactive productive customer engagement.

We're strengthening our approach with cross functional regional teams working to ensure we utilize our full capabilities to design the best delivery strategy for each customer opportunity enabled by technology and shared insights combined with a more efficient and effective delivery model. We expect these enhancements to improve our win rates and repeat business.

Opportunities across our customer portfolio.

We are seeing early signs of success with these initiatives and expect awards from post revenue smid customers to begin a gradual recovery during Q4.

Third we must improve visibility into our business and are taking a number of steps to improve our business development operational and financial systems and processes.

We believe these changes coupled with the impact of clinical re imagined and our investments in strategic business development will enhance operational insight and lead to improved visibility and performance.

Fourth and finally long term margin expansion continues to be a critical component of our value creation plan. We've undertaken a full review of our organization to ensure we have the appropriate size and scope for our current business and will continue to drive longer term margin expansion.

Additionally, through our forward down programs, we are focused on continuing to streamline the structure of our operations and processes as a bold new step in this transformation journey I am pleased to announce project velocity, which will further catalyze our forward down efforts.

We have selected two world class partners to help us accelerate innovation and quality throughout the enterprise and across multiple phases to drive further long term margin expansion Jason.

Jason will provide more detail on this exciting new project.

We are intensely focused on executing these activities and investments with accountability from senior leadership.

We do not expect to see significant improvements in our performance overnight, we will share the key trends that demonstrate our progress in this transformation.

We remain confident in our strategy and the breadth of our capabilities and are laser focused on managing our near term headwinds, while we work to improve performance and best position <unk> for long term success.

We must improve our near term performance against our business plan and financial targets, our industry strategy and balance sheet remains strong and our future remains bright.

I will close with some additional color on my broader vision for sending US held following Jason's discussion of our Q3 results and updated guidance Jason.

Thank you Michelle and good morning, everyone. Our total revenue for the third quarter of 2022 with 134 billion.

Down, 9% as reported and up two 2% in constant currency compared to the third quarter of 2021.

Including Reimbursable expenses and on a constant currency basis, our revenue increased six 9% compared to the third quarter of 2021, our clinical solutions revenue for the third quarter was $1 billion down three 5% as reported were down 2% in constant currency compared to the third quarter of 2021.

Excluding reimbursable expenses and on a constant currency basis clinical solutions revenue increased six 9% versus the third quarter of 2021.

Primarily driven by our large pharma customers, including strength in our FSP business, partially offset our backlog conversion delays and lower revenue from COVID-19 related projects.

Our as reported political revenue for the third quarter contracted somewhat on a sequential basis due to lower net awards and delays incremental foreign exchange and a decline in COVID-19 related revenue.

Our clinical growth was below our expectations during the third quarter, primarily due to the impact of lower awards and customer delays in our full service and FSP businesses and foreign exchange.

Total as reported clinical revenue growth includes an 80 basis point contribution from acquisitions.

750 basis point headwind from Reimbursable expenses.

Our third quarter commercial solutions revenue was $333 million up 8% or 10, 6% in constant currency compared to the third quarter of 2021.

Excluding reimbursable expenses and on a constant currency basis commercial solutions revenue increased six 9%.

Growth in commercial revenue was driven primarily by growth in deployment solutions, including the contribution from our <unk> portfolio and higher Reimbursable expenses.

This growth was partially offset by headwinds in our communications business driven by mix.

Commercial revenue for the third quarter was in line with our expectations.

Total as reported commercial revenue growth also included a tailwind of 380 basis points from Reimbursable expenses.

Adjusted EBITDA for the third quarter increased three 7% to $210 million representing.

And adjusted EBITDA margin of 15, 7%.

An increase of 70 basis points compared to the third quarter of 2021.

The increase in adjusted EBITDA margin for the quarter was primarily the result of lower Reimbursable expenses.

Foreign exchange and forward balance, partially offset by a less favorable revenue mix and the impact of our organic investments.

Adjusted EBITDA was below our expectations, primarily due to the impact of lower than expected revenue, partially offset by cost reductions.

In addition, unadjusted EBITDA for the third quarter was $200 million, an increase of 15, 3% compared to the prior year.

Adjusted diluted EPS of $1 23 for the third quarter increased by 8% year over year, driven by growth in adjusted EBITDA and lower share count largely offset by increased interest and depreciation expense.

Operating cash flow was $132 4 million for the third quarter, an increase of 173% compared to the prior year.

On a year to date basis cash flow from operations increased by 14, 7% largely driven by higher cash net income.

DSO increased from the prior year, primarily due to higher concentration of accounts receivable with large pharma customers coupled with timing of collections.

Our capital expenditures were $21 $9 million for the third quarter.

We ended the quarter with $170 million of unrestricted cash and total debt outstanding of $2 84 billion.

Resulting in net leverage of three two times.

During October we expanded our accounts receivable securitization facility by $150 million.

Extending the maturity until October 2025.

And voluntarily prepaid the same amount of our term loan a.

To further manage our interest expense and debt maturities, we are actively pursuing opportunities to extend our credit facilities.

Our non-GAAP effective tax rate for the third quarter was 23, 5% consistent with our estimate for the full year 2022.

Turning now to our updated 2022 guidance this.

This updated guidance contemplates our current view of the estimated impacts of ongoing economic and geopolitical developments and reflects foreign exchange rates as of September 30.

We now expect total revenue of $5 3 billion to $5 $36 billion reps.

Representing growth of one 7% to 8%.

Total revenue growth includes an estimated contribution from acquisitions of approximately 50 basis points.

And an estimated net headwind of 370 basis points from Reimbursable expenses.

We now expect our total adjusted EBITDA to range from $800 million to $830 million.

This reflects an adjusted EBITDA margin of 15, 1% to 15, 5% up approximately 60 basis points from 2021 at the midpoint.

Lastly, we now expect adjusted diluted EPS to range from $4 69.

To $4 87.

Representing year over year growth of five 2% to nine 2%.

Our guidance incorporates interest expense of $80 million to $84 million.

This range is based upon current market forecast for LIBOR and reflects that 40% of our debt is currently at variable rates.

Guidance also assumes a non-GAAP effective tax rate of 23, 5% and an estimated diluted share count of $103 5 million shares.

We expect our net cash outlay for income taxes during 2022 to be approximately $65 million.

Importantly, we remain steadfast in our commitment to driving long term margin expansion of our adjusted EBITDA margin.

We've executed on forward bound since its launch in 2019.

Successfully scaling Arsenious operations network, while driving automation process improvement and workforce management.

Now that we have sufficient scale in these initiatives as Michel highlighted we're taking a bold new step and we're calling it project velocity.

We have selected two world class transformation partners to provide foundational business operations support and to catalyze these innovations going forward.

These two organizations will leverage that golar bound groundwork to accelerate innovation digital transformation quality and margin expansion.

Project velocity is expected to help transform our cost structure by optimizing our operational footprint, while providing tools and technologies that will enhance both the customer and employee experience.

Project velocity is expected to consist of multiple phases over multiple years.

To the extent, we fully execute on all phases, we could recognize up to $1 billion of cost savings over the next 10 years, while driving innovation and investments to fuel growth.

We will continue to roll out more details in the coming months as the initiatives get fully underway.

Finally, with regards to 2023, given our current demand trends the macroeconomic environment, creating uncertainty in areas like biotech funding interest rates and foreign exchange as well as the trends in our net awards and backlog, we no longer expect to achieve the 7% to 10% revenue growth outlined in our prior guidance.

Sure.

In addition, while we anticipate seeing margin benefits from project velocity, we do not currently expect to achieve our targeted 30% to 50 basis points of annual adjusted EBITDA margin expansion in 2023.

We will continue to provide updates on our initiatives and investments and anticipate providing formal 2023 guidance early next year as we gain further visibility.

I am now going to turn it back over to Michel for some final comments Michelle.

Following my evaluation of our business and strategy in recent months and wanted to close by outlining my long term vision for <unk> health that will guide our transformation in the coming quarters and the Arris I remain very enthusiastic about the strong secular growth of our market and the customer feedback on clinical re imagined our products.

Element strategy and the benefits, we expect from our investments.

Our initiatives are designed to address our near term challenges and further accelerate our strategy enhancing the scalability and efficiency of our operations and drive New business Awards. We are directly engaged with over 200 of our senior leaders on this transformation and they are invested and eager to drive the comp.

Any forward.

We must accelerate the full integration of our capabilities to address evolving market dynamics, we will work tirelessly to evolve our organization into a premier Biopharma solutions provider meeting, our customers' clinical regulatory and market adoption needs with a unique breadth of services.

Courted by technology, and a common data platform to share critical insights.

I want to thank all of my <unk> colleagues around the world for their energy and collaboration.

As only together can we achieve the highest performance for our customers.

I am incredibly proud of the culture, we are creating at <unk> health and the positive impacts we are making for patients around the world. This completes our prepared remarks, and we would be happy to answer any questions operator.

As a reminder to ask a question you will need to press star one one on your telephone again Thats Star one one on your telephone to ask a question. Please standby, while we compile the Q&A roster.

Yeah.

Our first question comes from the line of Patrick Donnelly of Citi. Please go ahead.

Hey, guys. Thank you for taking the questions.

So maybe just on the customer base, obviously, it seems like smid slowed down pretty significantly could you just talk about who gets the conversations there I mean, it was a pretty stark difference from kind of your peers, who is trying to figure out between share shift.

A slowdown in the market you talked about a little bit of kind of stretching out of the trials maybe.

Maybe just dive into that segment, a little more and kind of try to pull the curtain back on what's happening there.

Thanks, Patrick for the question so.

I won't be specific or.

Our Q3 surprise was the reduction in awards from post revenue Smith, and we also had a reduction in our normal repeat business awards.

So when we look at the whole market, we feel really good about where we are with large pharma, we have tons of large pharma opportunities with new partnerships coming our way that we're competing for.

And the pre revenue Smith, where we do know there's been some macro economic issues.

We're performing well there.

So in commercial business development, and new wins are performing really well and so when we really looked into why are we seeing that and we didn't even see it until September a couple of things happened in the first one is our strike rates would go down in that segment and secondly, we had more than our fair share of pushes out of Q3 into Q4.

Or in that segment.

We've identified a couple of things and we have now realigned all of our business development efforts around that the first is that.

When we really looked at repeat business and I went out and talked to customers. The main thing I was hearing and we love your therapeutic insight. We want you to be more agile. We want you to work closer with us to really design the best solution and candidly we were not integrating all the great capabilities, we have developed and acquired over the last.

12 to 18 months consistently into our bid defenses and our relationships with those customers. The good news is where we have done that we had phenomenally overwhelming positive feedback. So I feel confident we understand what the issue is and we are already taking steps to improve that from there.

A business development perspective, as well as our existing project teams working in those customer segments to make sure they understand what those customers expect from us.

Okay No that's helpful.

And then Jason maybe just on kind of the margin commentary.

Just trying to get at.

Patterns around the options you guys have here can you talk about I guess the levers you can pull as growth slows all kind of these bookings as we get into 'twenty three.

And again not overly surprised to see you kind of soften on the seven to 10.

Is there a path to kind of positive growth I'm, just trying to figure out again. This number is a little surprising in terms of kind of that.

Book to Bill.

So maybe just try to kind of put some parameters around what we should expect in 'twenty three.

Yes, Thanks, Patrick so.

As we've talked about before as well obviously always.

Keep the cost base in terms of the cost of delivery aligned to what's right in front of us.

Michael and the team were already.

On that every day right in terms of that that focus forward bound has has been very successful for us.

In terms of delivering our margin accretion targets over the last three years I think at the midpoint of our guide this year right. We will we will have delivered.

50 basis points per year since 2019, so forward bound has helped us.

That area, we have more room on fall were bound in terms of the sinuous operations network automation.

As well as workforce management and workforce management.

Think of that in terms of spans and layers and things of that nature.

Is something that we've really just embarked on in 2022, so there's more opportunity there.

We've talked about our investments in the pacing of our investments and the fact that we will continue to invest in the business because that's ultimately what's going to help us deliver effectively for our customers and to make our employees success.

Successful in their growth and development levers, but we can pace those accordingly to the revenue as needed and then finally.

As we talked about today project velocity is going to be really transformational for the company. We're excited about it.

And the opportunity that we have there that is going to launch here in the fourth quarter and we will be standing that up during 2023 and think about that is <unk>.

Leveraging investments in automation and process improvement and systems and innovations that our partners have been <unk>.

Investing in for years and years and years and rolling out to their customers. So that's going to be something thats really helpful. For us as we continue to think about margin growth in future years over the long term.

And certainly will help in 2023 as well, but right now we're not talking specifics relative to the 2023 margin accretion.

I guess some color thats helpful.

Thank you.

Okay.

Yes.

Thank you. Our next question comes from the line of Dave Windley of Jefferies. Please go ahead.

Hi, good morning, Thanks for taking my questions I wanted to.

First clarify a couple of things so.

In the in your prepared remarks, and then in the release you talk about.

Bookings lower bookings that that affected the revenue in the quarter and I.

I guess I would think that your bookings up to June you would've known and set guidance on so I'm interpreting that you mean lower bookings in the quarter affected revenue in the quarter, maybe clarify that if I'm right, there and how that happened.

No.

Future impact.

So David I'll start and I'll, let Jason jump and so.

The Q2 Q3 revenue mess right commercial and Reimbursable is more in line with the prior guide.

The lower revenue was due to lower awards and customer delays and we had some customer delays in full service.

Delays in FSP and some of it was FX and it was partially offset by the reimbursable expense be.

And the lower EBIT, our EBITDA was due to lower revenue, including mix, partially offset by cost reduction. So remember we do have some short cycle businesses as well right.

Within the Tech Bu this businesses.

Early phase.

Communications business that does.

Sell and deliver in the same quarter and so that is some of that as well.

Did I Miss anyone.

Okay.

Alright very good.

David I didn't Miss anything okay, sorry about that.

The other clarification.

I heard I heard a mention of FSP strength, but then also FSP delay. So if you could clarify that and also.

I think FSP contracts are typically paid hedge deploy times the rate per month, and so if you could help us understand what NFS P delay it looks like.

Sure I'll start and I'll turn it over to Michael So.

We do have a real strength in FSP is an area of growth for us in 2022 over 2021, and but we do have some delays that have occurred that were <unk>.

Communicated to us very recently right. So we would get an award we were given a certain value for that FSP. We're out recruiting for those folks and then we've been asked to slowdown in certain accounts. So I'll, let Michael give you a little more color on that.

Yes.

It's actually Paul specifically within our clinical FSP.

And of the three the three major areas that we saw the slowdown one was with the new partnership that was awarded to us in Q2.

The ramp up for that has been delayed due to the customers evaluating their portfolio.

Strategic decisions, we're working really closely with that customer around the plans for when that ramp up will occur we can ensure that model correctly.

Our end of year end 2023 forecast and really appreciate the level of transparency that customers, giving us in terms of replacement our customers basically are holding off on replacement that belong to us contractually. So again, we're working with those customers to understand as they evaluate their portfolio and make key decisions of Gwen.

Can we expect those replacements to resume and then with some of the new partnerships that we're pursuing we're seeing some delays in decisions where originally we thought we had a Q3 early Q4 decision has now been pushed off too.

The end of this year beginning of next year.

Got it Okay and then my last question is around.

Maybe a follow up to Patricks margin question, which is.

Kind of both fourth quarter and next year from our calix, it looks like you're guiding down.

Revenue such that that revenue would be down in total sequentially in the fourth quarter, but EBITDA will be up.

And.

I know you've in commercial you typically maybe have some some higher margin performance based payments that might influence the margin percentage in the quarter, but just it looks like you've got to take a lot of cost out.

Sequentially to drive that EBITDA number.

And then your comments Jason on 2023 in General I guess the question I have for you is.

In light of the things that you are facing.

Is now maybe a more appropriate time to just.

So cut.

Take the hit on EBITDA make substantial investments in the business now to fortify it for the longer term future.

Rather than trying to salvage.

Basis points of EBITDA margin in the near term.

Are you, making enough investment in the business basically.

David I'll start and then I'll turn it over to Jason are we making enough investment in the business. The answer is yes, we have.

Ensure that we can continue to invest in the things that we've been sharing with you which is our investment in technology and data and insights.

Our focus on getting on one platform, which we've called project unify to make sure we are able to have more visibility and clarity around operational.

<unk> and.

That really.

Kind of underpins everything we're doing in clinical re imagined as well and so we feel really good about our investment thesis and we do feel that we've given ourselves the room to drive.

The EBITDA expansion that we've discussed for Q4.

Well on the EBITDA results, our Q4 as well as <unk>.

Being able to continue to invest in the business. So that we're able to drive topline growth. We do feel good about that but I want Michael to touch a little bit about clinical re imagined.

Absolutely so as Jason I've worked to execute on Michelle's vision, the clinical re imagined as a key part of that and what are the big pieces for us has been removing redundancies and layers within the organization that we actually believe historically had gotten in the way of exceptional delivery. So by taking those layers out it's actually.

Enable us to give our customers a much better experience much better quality and delivery and let me return the savings to Jason for the margin targets that we have.

In addition to that the investments so right now the coated pre match includes investments in data technology hiring new leaders upscaling, our talent and also being able to achieve the financial targets adjacent nine partnered on.

Yes, Dave I'll, just give a little bit more specifics.

If you think about the Q3 to Q4 typically Q4 is our best margin quarter, we have things that go.

Throughout the year tend to cap out around taxes and things of that nature that produces that we do tend to have as you highlighted some some areas in commercial.

We tend to see utilization really finished strong.

In addition, we have some FX benefit from Q3 to Q4, we also had some utilization drags in Q3, frankly that in Q4, we see.

That's going to be a return. So we are investing in the business I think is what youre hearing, but there are things that just naturally happen and that we're working on <unk>.

<unk> are bound clinical re imagined et cetera that will help drive that quarter four stuff.

Alright, thanks for the answers.

Thank you.

Yes.

Our next question.

Come from the line of Luke Sorry got Barclays.

Question. Please.

Hey, guys.

Just kind of follow up on the questions that have been asked here. So can you just help us think about.

What happens to your growth in the near term when you put up.

<unk> bookings like that we've never seen.

<unk> seen that happen. So just trying to get a framework of how to think about where growth can go in and then let's say outside of <unk>.

Sure I'll start and then I'll turn it I think Jason gave some color on this already but it will happen.

Some things so we're very focused on.

What's right in front of us as I shared in the.

The prepared remarks, we believe our return will be gradual and awards right and we do believe that our new awards will gradually grow.

<unk> revenue Smith.

Over the course of future months, but it is gradual and so we're very focused on delivering against clinical re imagined getting our business development team to continue to focus on converting those new awards instead, winning our preferred partnerships and large pharma and continuing to have the commercial business perform.

At the rate, it's been performing and so.

We're focused on what's right in front of us and I think Jason.

What's a little bit through around the.

The color for 2023 and that we are removing the 7% to 10%.

Because we do want to just focus on getting Q4 behind US and then focus on how we are going out.

For 2023 and <unk>.

Do the things we need to do to get back on track, which we're confident we can do but Jason I don't know if there's anything you want to add.

No no nothing to add really.

Other than the margin commentary Lucas I think.

Yes.

We've talked about growth being.

If you have several quarters of 1.2 or below one two book to bill above one one.

That would do to growth.

For 'twenty three now we have two in the books.

And Michelle has given some color around our expectation of Q4.

No.

Gives you a sense of how to think about growth I think of the top line.

It is consistent with what we've been saying I think on the margin side.

There's opportunity that I've outlined we outlined in the prepared remarks and <unk>.

And that's an area, we're going to be focused on while we're reinvesting in the business.

Continuing to invest in the business.

Alright.

And then on.

On commercial I think the sort of the natural fear is.

As the calling out biotech funding and things getting pushed out.

And so as those customers are tightening their belt.

Wouldn't commercial see that first.

Because if you're.

Youre booking and that commercial side you wanted to get your clinical done first and so you are like are we don't need that commercial piece, yet, let's get the clinical out the door.

Yes, that's a very good question thanks for asking so.

When we look at RFP flow and commercial.

RFP flow and commercial is up in large pharma and its moderate moderating of normalizing in the Smith so.

We are keeping an eye on that however, when.

When we look at the pipelines, we look at the mix of business potential new business between mid and large pharma and we will look at R. R.

Our hidden strike rate in our book to Bill in commercial it still remains very very strong I think what we're seeing is youre seeing larger customers build more flexibility into their operating models that are outsourcing more and theyre thinking about how they can partner with companies like city hotels, especially on more complex diseases.

Because it is so complex and you need the best thinking from within the manufacturer as well as some of the work that we do on our side as a product development company, but we.

We are keeping an eye on it but it has not impacted our business to date.

Yeah.

Alright, great. Thanks.

Thank you.

Our next question comes from the line of Sandy Draper of Guggenheim. Please go ahead.

Thanks, very much I guess the first question.

Jason.

It looks like it went up.

When I look at the bookings and the bookings.

Sort of ex Reimbursable looks like we had not the same extent, but it's similar dynamics in the fourth quarter was there.

Another write down or did you cancel out I'm, assuming more reimbursable and just trying to understand that dynamic better about.

What's going on with that and why that happened again.

Are you referring to the.

The Reimbursable in Q3.

Yes, just to make sure I'm looking at the.

Looking at the bookings, what if I'm reading correctly bookings.

Totals of 182, an extra reimbursable to OE. So it looks like there was another cancellation out of Reimbursable.

Oh, yes, yes, yes.

Yes.

While cancellations overall.

Sandy when you think about on the direct side of things, we're excluding reimbursable were within our range during the quarter.

We did have a cancellation that had.

Basically the same amount of reimbursable expenses that the direct fees and if you exclude that from the overall.

Book to Bill calculation.

Including and excluding Reimbursable book to Bill would have been exactly the same for the quarter essentially so there was one cancel in there that had outside reimbursable.

That caused that discrepancy.

Okay got it that's helpful. One other quick.

Financial question for Jason I think I heard you say you expect now for the year.

The reimbursable drag to be 370 basis points is that for the total business and if so not backing into it right that suggests reimbursable is around 145 or are you just talking about reimbursable is on the clinical side down three 370 basis points, perhaps the headwind that much.

Yes.

The commentary is total company.

Okay.

Perfect. That's helpful. And then I will get the final is just when I think about.

The reimbursable impact on.

Backlog burn you slowed down a bit but do you have any thoughts about sort of where you stand today and looking at your backlog is too are you continuing to see probably that trending down being stable.

Moving back up just any thoughts about sort of the visibility for backlog burn and how thats going to be trending. Thanks.

Yes.

So we will see it tick up a bit in Q4.

Relative to Q3.

And I'm, referring on the direct or the excluding reimbursable side.

Yeah.

And then if you think about next year.

Just given the backlog.

Movement.

And growth or contraction.

Year over year.

Mathematically right Youre going to have some level of increase just from burning all the awards that have been won in prior periods.

I expect to see it tick up.

A bit in 2023.

Think about that it's just right now the extent of that.

It is something that we're not we're not.

Getting into that said.

We haven't seen our weighted average study period move much relative to what we've disclosed in prior periods you know in that low to mid 60 months, we've talked about the fact that we have won.

Some opportunities that are more fast burn.

So non oncology type awards, and we're also growing pretty quickly in an FSP, which given our bookings policy right helps your growth rate. So.

Im sorry, your burn rate. So those are a few factors that I would put into a sandy but not getting into the specifics on it yet.

That's really helpful. I appreciate that commentary Jason.

Youre welcome.

Yes.

Thank you.

Our next question.

Comes from the line of Elizabeth Anderson Evercore Your question. Please.

Hi, guys. Thanks, so much for that question.

If I could.

A little bit about I think Michelle you mentioned.

Issue about some of your newer capabilities not being fully integrated particularly impacting the gross revenues, which made renewal I was wondering if you could talk about specifically what those capabilities are and then two if you could potentially help us decide the push out from <unk> in that sector.

Sure I'll start with the peso.

I think you know we've made a lot of investments and our capabilities.

RFC as has been really building out some really great targeting tools around.

How do you find the right patients diverse patients and sites.

Working with steady cash to make sure that we're activating the communities they have in different therapeutic areas and just ensuring that we consistently bring those capabilities to customers and a very.

In a deliberate way and so.

Where we are doing that and how that's infused into clinical re imagine and really getting closer to the customer having really close leadership relationships with our customers as well as being agile to bring that to our customers, we're getting great results and so.

That's really where.

Michael has done a really great job.

In making that a more standard offering and now we're very focused on making sure. We have business development teams that are focused on the different customer segments that really understand those unique differences and why they're important to those different customer segments. So that's an example of what I mean, and then in regards to that.

I'll, let Jason walk you through that.

On.

The warrants from.

From Q3 out sure yes.

When we talked about the quarter to pushes being 15% to 20% over and above what we had experienced in the past.

When we are tracking a similar profile of push during quarter three.

It was three.

Three to four times, what we saw and not all of that is getting pushed into quarter. Four some of that is getting pushed further.

Al just given what's going on in that customer set.

Majority of that.

Profile was a bit different to I think it was 80%, 90% smid and versus we did have some other dynamics going on with some of our strategic accounts in quarter. Two so it was quite substantial for us not all in quarter four.

Some of it is going to be pushing out into 2023.

Got it that's helpful and I know I appreciate what you said about 2023 and that sort of volatility there are there any changes in terms of your interest rate or interest.

Interest expense expectations for 2023 at the moment.

So.

What we've done.

We obviously have provided visibility around.

The debt structure, and what we're doing and what we have done we're continuing to work on.

I've talked about in prepared remarks is extending.

Our deal.

We're very focused on that.

We do have around 40% variable rate debt right now that moves to 75% variable rate in March of 2023 on our swaps expire so looking at where we are on all of that Elizabeth What we've said is we anticipate our interest expense in 2023 will be 40% to 50% higher than.

Our interest expense in 2022.

Okay got it thank you.

Okay.

Thank you. Our next question comes from Justin Bowers of Deutsche Bank. Please go ahead.

Okay.

Hi, good morning.

Just wanted to follow up on the on the last comments.

Okay.

It sounds like you said <unk> activity was 15% to 20% the pushout was 15% to 20% above what you've seen in the past men.

And then.

<unk> was three to four times that.

So is the interpretation there that that the push outs were sick.

60% to 80% higher.

Then what you saw and then.

Also can you give us a sense or is there going to be.

Are you expecting some improvement in the awards and bookings sequentially.

And I'll pause there.

Sure. So I'll answer that and then if I missed anything Jason Kenney and walk us through so if you go back to the Q2 award decision delays two thirds of those pushes that we highlighted in Q2 went to decision and one half of those which has been consistent with our enormous strike rate.

And a third sale have not gone to decision when you look at what happened in Q3.

Our awards cadence is weighted to the last month of the quarter.

And we saw an unforeseen drop and the win rate in that post revenues med.

As well as higher award decision delays with that same cohort. That's the three to four times that Jason mentioned in September versus let it happen back in June and they were.

And so those have pushed out and as Jason shared some of them are pushed out beyond Q4, and so now we have to do.

Get a center.

Whether those are going to be awarded whether we're going to win them. We don't have that much visibility into that yet we're about one month and.

So.

If you go back again I just want to remind you within the post revenue smid customers and we do believe that we will see a gradual.

Improvement there, even our RFP flow has ticked up slightly and that in that area over the last 30 days and so.

We're just focused on what comes in right in front of us, making sure we deliver against clinical re imagined our new.

This development approach and just making sure that we have.

The cross functional and regional teams working to ensure we utilize our full capability to design the best delivery strategy and with this focus right in front of us in Q4 on conversion.

Okay got it and then just one one follow up on.

Im project Green unification could you just help us understand the scope of that and also.

Some of the milestones that you have and when the targeted completion date for that based on the current scope of work.

So project unify to sort of clarify.

Yes.

I'll make sure I'm answering the right question Okay.

It's going on right now, yes, I am sorry on the market.

Yes project unify I'll, let Jason walking through it because he is really spearheaded that end.

It's really around one system, giving us insights and data to make it easier for our employees to get real data real time and their fingertips to deliver excellence for our customers. So I'll, let Jason walk you through the detail.

Yes, Hey, Jeff So, yes, it's project unify its to basically implement our new.

ERP system across the enterprise. It includes resource management that includes HR.

And it includes finance and accounting, it's a multiyear project. We are just now wrapping up the.

Target operating model work that we'll do and then we'll move into a global design phase here over the next several months and then we will actually start implementation during 2023.

We have a.

Great partner in terms of a system integrator that we've selected and we also have a great technology cloud based technology that we've selected so we're excited about it we do believe it will help make our employees lives a lot easier and it will also provide everybody better visibility and including our customers.

Got it that's all for me thank you.

Thank you. Our next question comes from Eric Coldwell of Baird. Your question. Please.

Okay. Thanks.

On could you gosh, I don't even know where to start with this.

Operator, any more questions in queue.

Hello.

Yes.

Hello.

Yes, Sir.

Your line is open.

Yes can you guys hear me.

Yes, we can now.

I don't know Im sorry, again, Eric Coldwell from Baird. Your line is open.

Thank you can you hear me now.

Okay.

We can hi, Eric.

Our rfps.

I know the number can be somewhat meaningless, but could you give us a sense just.

Our percentage of where that stood versus last quarter prior year any metrics around RFP flow I'm trying to walk through the <unk>.

The environment.

Opportunity versus the delays versus the cancels versus everything else, where can we just start with rfps and get some numbers.

Sure I'll start so.

Our clinical trailing 12 month RFP flow.

<unk> is down a bit so it is down our commercial trailing month, John 12 months RFP flows up.

And we are seeing sequential improvement with clinical Ned.

And we're hoping to start to lap the strong 2021 comps so.

We are very focused.

Our strategic.

Approach on the clinical side to ensure that with the focus on.

Building better intimacy with our customers in the post revenue smid and focusing on repeat business to truly understand what customers are looking for.

That we believe that that will help us improve in that area.

So yes in Arizona.

Jason was going to add something Eric.

Yes, the only thing that I would add on the clinical side Eric is that.

The RFP flow.

During late 2020, and during 2021 for us on the Smid side was very strong.

And when we talk down it's down year over year and Michelle's commentary. If you look at our smid RFP flow in quarter three sequentially. It was higher in quarter, two and it was higher in quarter three.

So it sequentially moving up but we haven't yet overcome the really strong RFP flow that we saw in that sector in 2021.

Okay.

On the win rate there were there was some mention of.

Unexpectedly low win rate could you of awards the winter decision could you give us a sense on just how low that was.

Yes.

When you we don't typically disclose the actual.

Rates, Eric, but I would say when you look at the.

Decisions.

We're talking about.

Customers that were on a repeat business bases predominantly.

We were we were down probably.

Somewhere between 30% and 50% of our normal rate in a quarter. So it was it was not inconsequential.

I'd say, though when you look at that that impact on what we talked about in our September update that did have an impact to the obviously, how we finished the quarter and how we.

Performed relative to that target forecast from that update in September but the bigger piece of it was the items that pushed out that Michelle has talked about that we didn't anticipate.

And then.

Cancellations I know there was a comment that overall cancellations were normal but.

Or within the normal range, it's frankly hard to believe that given the pass through bookings were negative and overall bookings were.

Basically.

100 <unk>.

What you would expect over the last few quarters or what we should have expected. So.

I mean can you really say cancellations were.

345% of backlog is something like that I mean, it just doesn't feel reasonable.

Well, we have the way we think about it Eric as we go back and we look at the history of quarterly cancels in Norway outside of a range of what we've experienced in the past as we move to a full year number.

And.

For the quarter, we were at the higher end of the range that we've experienced in the past, but we were above that.

The highest end of the range that we've experienced and when we look at the full year based on what we know right now we still.

Anticipate being in or around the full year cancellation number that we typically see so.

That Dutch.

That kind of is what it is from from our perspective that gives a little more color on it.

Okay.

And then.

On the call.

Comments about non renewals.

We've heard that.

<unk> have taken rescue work from Sydney OS at unprecedented levels is this a situation where you won an initial award got a startup began the work thought you would get the next phase or the next program and then Thats, leaving to go to one of your competitors. So it's not necessarily a cancellation per se.

Yeah.

Youre not youre not getting the next phase of a project that you already had the beginning phase of.

Yes, so I'll start and then I'm going to turn it over to Michael.

We don't like to comment on rumors as you know are things that we hear that we don't hear directly.

But here's what I will say some of our newest award are rescues from other CRO, that's all I'll say there.

<unk>.

So I think it's important that we focus on.

Yes. This is a new phenomena, we didnt see we just recognize this and that and our Q3, we haven't seen a reduction and repeat business until Q3 and so.

I'll, let Michael talk about how we're focusing on our existing customers.

But.

We are not going to comment on a room or like that.

The most important thing is for our customers to experience the clinical re imagined model that we've created we've really restored our culture of can do I own it.

We're all of our leaders and our managers are contributing around our clients and around our deliverables, bringing therapeutic insights and bringing those integrated solutions <unk> prescribing.

No really Great example, I was one of our top 50, we'd be customers just last week. So this is a large zero that doesn't act like a large CRM and that's exactly what I wanted to say that's how we have to compete in the current marketplace.

It is fierce out there we hear a lot of the same things that the year is rumors, but im really pleased with how our customers are reacting to the clinic re imagine model.

So it's not one or two it's many many of our customers are saying this is exactly what they want that agility technology and the leaders that we have here.

Okay last one from me on the <unk> EBITDA sustainability.

I know there were a number of factors cited.

Is one of those factors the reversal of bonuses.

And if so how much.

Sure So I'll address that as well Eric as you know I think I answered the question for you last quarter.

Well again, so we have been accruing as you know we have multiple pumps bonus program. So let me start that we have multiple bonus programs for different.

Leaders within the organization right and so theyre awarded based on performance and.

Nothing's changed there and our management incentive plan, which is what you. What you were asking me about Q2, which is a very specific incentive plan for the senior leaders of this organization, we accrue based on the performance that targets that we have given to our individual leaders in that in that particular plan.

And I think I also shared with you that at once a year and absolutely true up right because at the end of the year. We had targets that were tied to these plans and we true up at the end of the year.

Through Q3 based on the performance that we're delivering we are accruing.

For that management incentive plan does.

Does that help.

Yes, I am just curious if you're expecting that to reverse in <unk>.

Based on within that the confidence in the updated guy or the rest of the year for Q4, we have we believe that commercial and Reimbursable and are on target and we do have the lower net awards backlog conversion delays and FSP customer delay is baked into that so we executed on what's right in front of us.

I am confident that the team well.

Accrued and it's in there.

Okay. Thank.

Thank you.

Our next question comes from the line of Max Smock of William Blair. Your question. Please.

Hi, Thanks for taking my questions I wanted to follow up on one of Eric's questions around the win rate and I'm. Just wondering if you can elaborate on some of the feedback that you've gotten from customers around.

Why they decided to go with some of your competitors I know you mentioned being more agile in working with customers working closer with customers, but any additional insight you can provide around what exactly this entails and how it just one of those issues are here in the near term.

So it's a great question. So I always start with when we win why are we winning Brian I think that's the number one thing that you should focus on.

And so we've been laser focused on understanding that and so what we have been told when we win at some of the things that Michael just shared around that were really nimble and agile.

Meeting the needs of those post revenues net customers that we have a high level of quality and delivery.

We know that one of our large pharma partners as Jeff shared with us that we have the highest quality delivery of any other CRM partner. So the things that we know will make us when are the things that we're now doubling down on rate the innovation in our capabilities focusing on technology and data innovation and regards to embedding that into our clinical trial solutions.

For those customers and so those are the things that are making us land and those are the things that we are now laser focused on making sure we bring the customers.

Got it thank you I had anything.

Okay.

Yes.

The only thing I would add I agree with that when we deploy our integrated solution with the right project team our therapeutic insight we win.

Have to deploy that consistently so with Christian to enroll as our chief business Officer PNR partnered out to ensure that all of our business development team you have the toolkits they need to build to ensure that we're bringing those integrated solutions, where we can to make sure our business leaders understand how we put these together and how we sell them and so as we get that fully deployed across our entire organization.

<unk>, we feel very confident its not just going to resonate with clients, we're going to win we're going to look to deliver on it.

Yeah.

Got it thank you for that additional color as well and just.

Following up here on one of <unk> questions from earlier and not to belabor. The point on the outlook for next year, but you mentioned, obviously you won't hit your topline target next year, but what do you think is actually achievable or in other words, maybe what is the worst case scenario for revenue next year and then is it fair to think about next year as a jumping off point for getting back to those targets in 2024.

Or it sounds like this might take more than a few years here to turn this around thank you.

Yes, so as we've shared we're very focused on.

Delivering against the Q4 and executing against our strategic business plan.

Aggressively attacking.

The things to drive performance and improved visibility and as we close out.

The fourth quarter, we will have much better visibility and so what will occur in 2023, and we're very aware the better we do in focusing on Q4.

Delivery.

We will be in a good position to share with you ban how we see 2023 playing out.

Got it thank you for taking our questions.

Youre welcome.

Thank you.

Our next question comes from Casey Woodring of Jpmorgan. Your question. Please.

Thank you thanks for fitting me in.

So you said you feel good about the large pharma business just curious what gives you confidence there that you can compete with the larger scale players in that space.

Just to clarify those full service and FSP delays you called out are those the same delays that you've been seeing over the last several months months from the large pharma customers that have been delaying decision making.

The management changes.

Some of the other reasons that you've called out or is it something different.

Sure. So I'll start with why we're excited about large pharma and why we feel we can compete there and then I'll, let Michael talk about some other things.

I think now we won our first large pharma partnership in Q1 of 2022.

And all of our large pharma partnerships.

We have a very good relationship with the organization and they are very pleased with our delivery and our quality.

And in very good shape, there and so we feel good about those those customers, giving us repeat business.

In 2023, probably more based on our pipeline more in the second half of 2023, we think we'll see more.

Particular awards and we also have been in conversations with multiple other large pharma organizations that are looking to.

Either add a new CRO or replace an existing CRM through their processes and if you recall, we've always said that we want to win one to two a year. We won the one this year and going into 2023.

We feel really confident of the ones that are right in front of us that we can we can win that one or two a year.

They're focused on doing that so.

I think we have the global scale now we have the capabilities that customers are looking for and so we feel we're more than ready to compete and that's an opportunity for us to grow share in that particular segment, but I'll, let Michael talk a little bit about the delays and FSA, yes, Casey the delays that have been described are the.

Same ones that we've been discussing earlier.

Around timing.

For the FSP replacements and the growth in the full service.

Yes.

Operator, I think we lost you again.

I'm here.

Thank you our next our.

Next question comes from the line of John Savio Savio.

Yes, hi, thanks for taking the question a lot of questions have been answered maybe just one on the commercial segment.

FDA approvals are tracking a little bit light this year any thoughts on how that might impact the outlook for the commercial segment as we look out and is that.

A good leading indicator to look at.

Thanks.

Sure. We've always said that's one of many leading indicators for the commercial business.

We also look at many other things right, which is the fact that we've been having a lot of conversations specifically with large pharma about building more flexibility into their cost basis in their cost structure.

And so I think we shared R. R.

Our RFP flow, it's up in large pharma and commercial and we think thats going to definitely be an opportunity for us as we move forward. We also think the complexity.

Of the science of a lot of these new launch products that are coming through.

Our definitely.

An opportunity for us because you need a variety of capabilities and a lot of customers as they are getting into some of these new therapeutic areas, we want to leverage our expertise. It's also in the smid customer basis, a good opportunity for our finance line, a full service commercial offering because.

It gives especially smid customers the opportunity to commercialize their assets themselves versus being for us to license them. Our co promote them and so we still think that that.

An opportunity for commercial.

Got it thanks for the question.

Youre welcome.

Thank you at this time I would like to turn the call back over to CEO , Michelle Qi for closing remarks.

I want to thank the entire sitting as health team I'm very motivated and inspired by their commitment to our customer sites and patients. Despite the near term challenges, we remain confident in our market position and our strategy and look forward to updating you on our transformation of you for joining us.

Thank you for joining us today and for your interest and investment in our company.

This concludes today's conference call. Thank you for participating you may now disconnect.

The conference will begin shortly.

As Johan during Q&A, you can dial one one.

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Okay.

Good morning, and welcome to the <unk> Health third quarter 2022 earnings Conference call.

At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time.

I would like to hand, the conference over to Ronnie Speight Senior Vice President of Investor Relations. Please go ahead Sir.

Good morning, everyone with me on the call today are Michelle Keefe, our CEO , Jason Meggs, our CFO and Michael Brooks, our CEO of <unk>.

The press release, a slide presentation corresponding to our prepared remarks.

<unk> web site at Investor <unk> Com.

<unk> that we make about future expectations growth trends anticipated financial results and our expectations regarding the macroeconomic environment.

COVID-19 pandemic and the war in Ukraine.

Constitute forward looking statements for purposes of the Safe Harbor provisions under the private Securities Litigation Reform Act of 1995, and we disclaim any obligation to update them.

Actual results may differ materially from those indicated by these forward looking statements as a result of various important factors. These.

These factors are discussed in the risk factors section of our Form 10-K for the year ended December 31, 2021, and our other SEC filings.

During this call we will discuss certain non-GAAP financial measures.

Which exclude the effects of events and transactions, we consider to be outside of our core operations.

These non-GAAP measures should be considered a supplement to and not a replacement for measures prepared in accordance with yet.

For a reconciliation of non-GAAP financial measures with the most directly comparable GAAP measures. Please refer to the appendix of our presentation.

I would now like to turn the call over to Michelle Qi Michelle.

Thanks, Ronny and good morning, everyone and thank you for joining us today I am disappointed to share that <unk> has experienced more significant headwinds and net awards revenue and margins than anticipated during the third quarter producing results that were well below our expectations and frankly unacceptable.

I am going to briefly cover our third quarter results and discuss our demand drivers after which I'll walk you through the four areas, where we are focused in order to address performance and improved visibility, while continuing to invest for long term growth.

Total company year over year revenue contracted by 9% for the third quarter compared to the prior year and clinical solutions revenue declined three 5% primarily related to Reimbursable expenses and the impact of foreign exchange, excluding reimbursable expenses and on a constant currency basis clinic.

<unk> solutions revenue grew six 9% driven primarily by growth in our large pharma business, partially offset by backlog conversion delays and lower revenue from Covid related projects are clinical growth was below our expectations, primarily due to the impact of lower net awards and delays in backlog conversion along.

With customer delays in our FSP business.

In our commercial solutions business revenue growth remained strong at 8% compared to 2021 commercial growth was primarily driven by deployment solutions, including the contribution from our <unk> portfolio and higher Reimbursable expenses, our commercial business continues to perform well and we.

We have enhanced our digital capabilities beyond our kinetic offering with the addition of digital learning solutions and advanced technology for patient hub services now I'd like to take a deeper look at demand drivers and what we are seeing in terms of awards and performance for each of our customer segments as.

As a reminder, our strategic business plan for driving growth in clinical solutions is focused on each of our customer segments driving further large pharma penetration investing to grow the pre revenue biotech segment, and finally bolstering our strong position in the small to midsize biotech segment.

Our existing clinical large pharma preferred provider relationships remain strong and we are pleased with our continued progress on several new opportunities. Although we continue to see slower near term awards with our existing preferred provider relationship we anticipate incremental new awards over the course of 2023 next to me.

And our pre revenue biotech customer segment is consistent with our expectations with slowing RFP flow largely driven by the impact of the macroeconomic environment.

In recent years, our clinical operating model had begun to lose its traditional strengths of agility and leadership engagement that was critical to these post revenue smid customers, which.

Which began to negatively impact our opportunities for repeat business. In addition, we saw delays in award decisions from smid customers at a higher volume in September than we experienced in June and experienced an unexpected decline in our overall clinical smid win rate during Q3.

September clinical.

<unk> book to Bill ratio was <unk> three times for the third quarter, excluding Reimbursable expenses, resulting in a nine eight times TTM book to Bill.

We have seen some normalization of RFP flow from smid customers attributable to the macro economic environment.

The commercial team had a solid quarter of net awards, reflecting our normal seasonality with a book to bill ratio of <unk> eight times for the quarter and a one seven times on a TTM basis, excluding reimbursable expenses.

Over the last few months I have spent a great deal of time with our customers to gain a full understanding of what is important to them and how we are performing against our expectations. Ultimately I expect us to be the premier Biopharma solutions provider, leveraging our unique product development model and the insights it generates to accelerate success.

For our customers How's.

However, we are disappointed by our current financial performance and are aggressively attacking four focus areas to reach this goal.

Clinical re imagined strategic business development, improving visibility and increasing efficiency.

Nation and processes enhance our customer engagement and infuse innovation and insights throughout our clinical operations.

We believe the result will be an efficient and effective delivery model supported by our technology enhancements designed to build momentum with our projects and customers leading to improved backlog conversion in net awards, including repeat business the <unk>.

Upgrades and talent and investments we previously outlined are already addressing these issues.

To put it plainly and its been more extensive and taken longer than we expected.

Most importantly, we have already deployed our new operating model across a number of customers and we are receiving overwhelmingly positive feedback.

Second we have had a number of leadership and organizational changes within strategic business development over the last 18 months as a result, we did not have our business development capabilities to fully leverage our integrated solutions, where effectively engage our customers within the current competitive environment. We now have the right senior leadership.

In place and they are driving more proactive productive customer engagement, we are strengthening our approach with cross functional and regional teams working to ensure we utilize our full capabilities to design the best delivery strategy for each customer opportunity enabled by technology and shared insights combined with a more efficient and effective delivery model.

We expect these enhancements to improve our win rates and repeat business opportunities across our customer portfolio.

We are seeing early signs of success with these initiatives and expect awards from post revenue snap customers to begin a gradual recovery during Q4.

Third we must improve visibility into our business and are taking a number of steps to improve our business development operational and financial systems and processes. We believe these changes coupled with the impact of clinical re imagined and our investments in strategic business development will enhance operational insight and lead to improved visibility and.

Formats.

Fourth and finally long term margin expansion continues to be a critical component of our value creation plan. We've undertaken a thorough review of our organization to ensure we have the appropriate size and scope for our current business and will continue to drive longer term margin expansion.

Additionally, through our four down program, we are focused on continuing to streamline the structure of our operations and processes as a bold new step in this transformation journey I am pleased to announce project velocity, which will further catalyze our forward down effort.

We have selected two world class partners to help us accelerate innovation and quality throughout the enterprise and across multiple phases to drive further long term margin expansion Jason.

Jason will provide more detail on this exciting new project.

We are intensely focused on executing these activities and investments with accountability from senior leadership, while we do not expect to see significant improvements in our performance overnight, we will share the key trends that demonstrate our progress in this transformation.

While we must improve our near term performance against our business plan and financial targets, our industry strategy and balance sheet remains strong and our future remains bright.

I will close with some additional color on my broader vision for finance health following Jason's discussion of our Q3 results and updated guidance Jason.

Thank you Michelle and good morning, everyone. Our total revenue for the third quarter of 2022 with 134 billion.

Down <unk>, 9% as reported and up two 2% in constant currency compared to the third quarter of 2021.

Excluding reimbursable expenses and on a constant currency basis, our revenue increased six 9% compared to the third quarter of 2021, our clinical solutions revenue for the third quarter was $1 billion down three 5% as reported were down 2% in constant currency compared to the third quarter of 2021.

Excluding reimbursable expenses and on a constant currency basis clinical solutions revenue increased six 9% versus the third quarter of 2021.

Primarily driven by our large pharma customers, including strength in our FSP business, partially offset backlog conversion delays and lower revenue from Covid related projects are.

Our as reported clinical revenue for the third quarter contracted somewhat on a sequential basis due to lower net awards and delays incremental foreign exchange and a decline in COVID-19 related revenue.

Our clinical growth was below our expectations during the third quarter, primarily due to the impact of lower awards and customer delays in our full service and FSP businesses.

Foreign exchange.

Total as reported clinical revenue growth includes an 80 basis point contribution from acquisitions, and a 750 basis point headwind from Reimbursable expenses.

Our third quarter commercial solutions revenue was $333 million up 8% or 10, 6% in constant currency compared to the third quarter of 2021.

Excluding reimbursable expenses and on a constant currency basis commercial solutions revenue increased six 9%.

Growth in commercial revenue was driven primarily by growth in deployment solutions, including the contribution from our <unk> portfolio and higher Reimbursable expenses.

This growth was partially offset by headwinds in our communications business driven by mix.

Commercial revenue for the third quarter was in line with our expectations.

Total as reported commercial revenue growth also included a tailwind of 380 basis points from Reimbursable expenses.

Adjusted EBITDA for the third quarter increased three 7% to $210 million, representing an adjusted EBITDA margin of 15, 7% in.

An increase of 70 basis points compared to the third quarter of 2021.

The increase in adjusted EBITDA margin for the quarter was primarily the result of lower Reimbursable expenses.

Foreign exchange and <unk>, partially offset by a less favorable revenue mix and the impact of our organic investments.

Adjusted EBITDA was below our expectations, primarily due to the impact of lower than expected revenue, partially offset by cost reductions.

In addition, unadjusted EBITDA for the third quarter was $200 million, an increase of 15, 3% compared to the prior year.

Operating cash flow was $132 4 million for the third quarter, an increase of 173% compared to the prior year.

On a year to date basis cash flow from operations increased by 14, 7% largely driven by higher cash net income.

DSO increased from the prior year, primarily due to higher concentration of accounts receivable with large pharma customers coupled with timing of collections.

Our capital expenditures were $21 9 million for the third quarter.

We ended the quarter with $170 million of unrestricted cash and total debt outstanding of $2 84 billion.

<unk> and net leverage of three two times.

During October we expanded our accounts receivable securitization facility by $150 million.

Extending the maturity until October 2025.

And voluntarily prepaid the same amount of our term loan a.

To further manage our interest expense and debt maturities, we are actively pursuing opportunities to extend our credit facilities.

Our non-GAAP effective tax rate for the third quarter was 23, 5% consistent with our estimate for the full year 2022.

Turning now to our updated 2022 guidance.

This updated guidance contemplates our current view of the estimated impacts of ongoing economic and geopolitical developments.

And reflects foreign exchange rates as of September 30.

We now expect total revenue of $5 3 billion to $5 $36 billion.

Presenting growth of one 7% to two 8%.

Total revenue growth includes an estimated contribution from acquisitions of approximately 50 basis points.

And an estimated net headwind of 370 basis points from Reimbursable expenses.

We now expect our total adjusted EBITDA to range from $800 million to $830 million.

This reflects an adjusted EBITDA margin of 15, 1% to 15, 5%.

Approximately 60 basis points from 2021 at the midpoint.

Lastly, we now expect adjusted diluted EPS to range from $4 69.

To $4 87.

Representing year over year growth of five 2% to nine 2%.

Our guidance incorporates interest expense of $80 to $84 million.

This range is based upon current market forecast for LIBOR and reflects a 40% of our debt is currently variable rate.

Guidance also assumes a non-GAAP effective tax rate of 23, 5% and an estimated diluted share count of $103 5 million shares.

We expect our net cash outlay for income taxes during 2020 to be approximately $65 million.

Importantly, we remain steadfast in our commitment to driving long term margin expansion of our adjusted EBITDA margin.

We've executed on forward bound since its launch in 2019.

Successfully scaling Arsenious operations network, while driving automation process improvement and workforce management.

Now that we have sufficient scale in these initiatives as Michel highlighted we're taking a bold new step and we're calling it project velocity.

We have selected two world class transformation partners to provide foundational business operations support and to catalyze these innovations going forward.

These two organizations will leverage the full rebound groundwork to accelerate innovation digital transformation quality and margin expansion.

Project philosophy is expected to consist of multiple phases over multiple years.

To the extent, we fully execute on all phases, we could recognize up to $1 billion of cost savings over the next 10 years, while driving innovation and investments to fuel growth.

We will continue to roll out more details in the coming months as the initiatives to get fully underway.

Yes.

We will continue to provide updates on our initiatives and investments and anticipate providing formal 2023 guidance early next year as we gain further visibility.

I am now going to turn it back over to Michel for some final comments Michelle.

Following my evaluation of our business and strategy in recent months I wanted to close by outlining my long term vision for <unk> health that will guide our transformation in the coming quarters and the Arris.

I remain very enthusiastic about the strong secular growth of our market and the customer feedback on clinical re imagined our product development strategy and the benefits we expect from our investments.

Our initiatives are designed to address our near term challenges and further accelerate our strategy enhancing the scalability and efficiency of our operations and drive New business Award.

We are directly engaged with over 200 of our senior leaders on this transformation and they are invested and eager to drive the company forward.

Ported by technology, and a common data platform to share critical insights.

I want to thank all of my <unk> colleagues around the world for their energy and collaboration.

<unk> only together can we achieve the highest performance for our customers.

I am incredibly proud of the culture, we are creating <unk> health and the positive impacts we are making for patients around the world. This completes our prepared remarks, and we would be happy to answer any questions operator.

As a reminder to ask a question you will need to press star one one on your telephone again Thats Star one one on your telephone to ask a question. Please standby, while we compile the Q&A roster.

Okay.

Our first question comes from the line of Patrick Donnelly of Citi. Please go ahead.

Hey, guys. Thank you for taking the questions.

So maybe just on the customer base, obviously, it seems like smid slowed down pretty significantly could you just talk about I guess the conversations there I mean, it was a pretty stark difference from kind of your peers, who just trying to figure out between share shift.

A slowdown in the market you guys talked about a little bit of kind of stretching out of the trials maybe.

Maybe just dive into that segment, a little more and kind of try to pull the curtain back on what's happening there.

Thanks, Patrick for the question so.

I won't be specific or.

Our Q3 surprised was the reduction in awards from post revenue Smith, and we also had a reduction in our normal repeat business awards.

And the pre revenue med, where we do know there's been some macro economic issues.

We're performing well there.

So in the commercial business development, and new wins are performing really well and so when we really looked into why are we seeing that and we didn't even stay in until September a couple of things happened in the first one is our strike rate that go down in that segment and secondly, we had more than our fair share pushes out of Q3 into Q4.

Or in that segment.

We've identified a couple of things and we have now realigned all of our business development efforts around that the first is that.

When we really looked at repeat business and I went out and talked to customers. The main thing I was hearing it we love your therapeutic insight we want you to be more agile. We want you to work closer with us to really design the best solution and candidly we were not integrating all the great capabilities, we have developed and acquired over the last.

12 to 18 months consistently into our bids.

Defenses and our relationships with those customers. The good news is where we have done that we had phenomenally overwhelming positive feedback so I feel confident we understand what the issue is and.

We are already taking steps to improve that from a business development perspective, as well as our existing project teams working in those customer segments to make sure they understand what our customers expect from us.

Okay No that's helpful.

And then Jason maybe just on kind of the margin commentary.

Just trying to get at.

Hands around the options you guys have here can you talk about the levers you can pull as growth slows I'll call kind of these bookings as we get into 'twenty three.

And again not overly surprised us so you can kind of soften on the seven to 10.

Is there a path to kind of positive growth I'm, just trying to figure out again. This number is a little surprising in terms of kind of that.

Book to Bill So maybe just try to kind of put some parameters around what we should expect in 'twenty three thank you.

Yes, Thanks, Patrick so.

As we've talked about before as well obviously always.

Keep the cost base in terms of the cost of delivery aligned to what's right in front of us.

Michael and the team were already.

On that every day right in terms of that focus forward bound has has been very successful for us.

In terms of delivering our margin accretion targets over the last three years I think at the midpoint of our guide this year right. We will we will have delivered.

50 basis points per year since 2019. So forward bound has helped us in that area. We have more room on forward bound in terms of the <unk> operations network automation as.

As well as workforce management and workforce management.

Thank you that in terms of spans and layers and things of that nature.

Is something that we've really just embarked on in 2022. So there is more opportunity there.

We've talked about investments in the pacing of our investments and the fact that we will continue to invest in the business because that's ultimately what's going to help us deliver effectively for our customers and to make our employees are successful in their growth and development levers, but we can pace those accordingly to the revenue.

As needed and then finally.

As we talked about today project velocity is going to be really transformational for the company. We're excited about it.

And the opportunity that we have there.

That is going to launch here in the fourth quarter, and we will be standing that up during 2023 and think about that is.

Leveraging investments in automation and process improvement and systems and innovations that our partners have been.

And certainly will help in 2023 as well, but right now we're not talking specifics relative to the 2023 margin accretion.

I'll give some color thats helpful.

Thank you.

Okay.

<unk>.

Thank you. Our next question comes from the line of Dave Windley of Jefferies. Please go ahead.

Hi, Good morning, Thanks for taking my questions I wanted to first clarify a couple of things. So in the in your prepared remarks, and then in the release you talk about.

Bookings lower bookings that that affected the revenue in the quarter and I guess.

I would think that your bookings up to June you would've known and set guidance on so I'm interpreting that you mean lower bookings in the quarter affected revenue in the quarter, maybe clarify that.

If I'm right, there and how that happened.

You know usually future impact.

So David I'll start and I'll, let Jason jump and so.

So the Q2 Q3 revenue mess right commercial and Reimbursable were in line with the prior guide.

The lower revenue was due to lower awards and customer delays that we had some customer delays in full service.

Some delays in FSP and some of it was FX and it was partially offset by the reimbursable expense be.

The lower EBIT, our EBITDA was due to lower revenue, including mix, partially offset by cost reductions. So remember we do have some short cycle businesses as well right.

Within the Tech Bu this businesses early phase.

Communications business that does.

Sell and deliver in the same quarter and so that is some of that as well.

And David did I Miss anyone.

Sure.

David I didn't Miss anything okay, sorry about that.

The other clarification.

I heard I heard a mention of FSP strength, but then also FSP delay. So if you could clarify that and also.

I think FSP contracts are typically paid hedge deploy times of rate per month, and so if you could help us understand what.

<unk> P delay it looks like.

Sure I'll start and I'll turn it over to Michael So.

We do have a real strength in FSP is an area of growth for us in 2022 over 2021, and but we do have.

Some delays that have occurred that were.

Communicated to us very recently right. So we would get an award we were given a certain value for that FSP. We're out recruiting for that and then we've been asked to slowdown in certain accounts. So I'll, let Michael give you a little more color on that.

Yes.

It's <unk>.

Actually Paul specifically within our clinical FSP.

And of the three the three major areas that we saw the slowdown one was with the new partnership that was awarded to us in Q2.

<unk> for that has been delayed.

Due to the customers evaluating their portfolio.

<unk> decision.

It can really closely with that customer around the plans for when that ramp up will occur. So we can ensure that modeled correctly.

Our end of year end 2023 forecast and really appreciate the level of transparency that customers, giving us in terms of replacement our customers basically holding off on replacement that belong to us contractually. So again, we're working with those customers to understand <unk>.

<unk> care portfolio and make key decisions.

When can we expect those replacements to resume and then with some of the new partnerships that we're pursuing we're seeing some delays on decisions where originally we thought we had a Q3 early Q4 decision has now been pushed off too.

At the end of this year beginning of next year.

Got it Okay and then my last question is around.

Maybe a follow up to Patricks margin question, which is.

Kind of both fourth quarter and next year from our calix it looks like you're guiding down revenue such that that revenue would be down in total sequentially in the fourth quarter, but EBITDA will be up.

And I.

Sequentially to drive that EBITDA number.

And then your comments Jason on 2023 in General I guess the question I have for you is.

In light of the things that you are facing is is now maybe a more appropriate time to just.

Cut.

Take the hit on EBITDA make substantial investments in the business now to afford to buy it for the longer term future.

Rather than trying to salvage.

This points of EBITDA margin in the near term.

Are you, making enough investment in the business basically.

David I'll start and then I'll turn it over to Jason are we making enough investment in the business. The answer is yes, we have.

Ensure that we can continue to invest in the things that we've been sharing with you which is our investment in technology and data and insights are focused on getting on one platform, which we've called project unify to make sure. We are able to have more visibility and clarity around operational metrics.

That really.

Kind of underpins everything we're doing in clinical re imagined as well and so we feel really good about our investment thesis and we do feel that we've given ourselves the room to drive.

The EBITDA expansion that we've discussed for Q4.

Well on the EBITDA results, our Q4 as well as <unk>.

Being able to continue to invest in the business. So that we're able to drive topline growth. We do feel good about that but I want Michael let's touch a little bit about clinical re imagined.

Absolutely so.

Jason Ive worked to execute on Michelle vision, the clinical rematch music key part of that and one of the big pieces for us has been removing redundancies and layers within the organization that we actually believe historically had gotten in the way of exceptional delivery. So by taking those layers out it's actually enabled us to give our customers a much.

Better experienced a much better quality and delivery and it lets me return those savings to Jason for the margin targets that we have.

In addition to that the investments so right now the coated <unk> includes investments in data technology hiring new leaders upscaling, our talent and also being able to achieve the financial targets adjacent nine partnered on.

Yes, Dave I'll, just give a little bit more specifics. So if you think about the Q3 to Q4 typically Q4 is our best margin quarter, we have things that go.

Throughout the year tend to cap out around taxes and things of that nature that produces that we do tend to have as you highlighted some some areas in commercial.

We tend to see utilization really finished strong.

In addition, we have some FX benefit from Q3 to Q4, we also had some utilization drags in Q3, frankly that in Q4, we see.

That's going to be a return. So we are investing in the business I think is what youre hearing, but there are things that just naturally happen and that we're working on <unk>.

<unk> are bound clinical re imagined et cetera that will help drive that quarter four step.

Alright, thanks for the answers.

Thank you.

Yes.

Our next question.

Comes from the line of Luke sorry got it.

Barclays.

Question. Please.

Hey, guys.

Just kind of follow up on the questions that have been asked here. So can you just help us think about.

What happens to your growth in the near term when you put up.

<unk> bookings like that we've never seen.

Seen that happen. So just trying to get a framework of how to think about where growth can go in and then let's say now outside of <unk>.

Sure I'll start and then I'll turn it I think Jason gave some color on this already but it will happen.

Cover some things so we're very focused on.

What's right in front of us as I shared in the.

The prepared remarks, we believe our return will be gradual on awards right. So we do believe that our new awards will gradually grow and the <unk>.

<unk> revenue Smith.

Over the course of future months, but it is gradual and so we're very focused on delivering against clinical re imagined getting our business development team to continue to focus on converting those new awards and smid, winning our preferred partnerships and large pharma and continuing to have the commercial business perform.

At the rate, it's been performing and so.

We're focused on what's right in front of us and I think Jason.

What's a little bit through around the.

The color for 2023 and that we are removing the 7% to 10%.

Because we do want to just focus on getting Q4 behind US and then focus on how we are going out.

For 2023 and <unk>.

Do the things we need to do to get back on track, which we're confident we can do but Jason I don't know if there's anything you want to add.

No no nothing to add really.

Other than the margin commentary Lucas I think.

Yes.

We've talked about growth being.

If you have several quarters of 1.2 or below one two book to bill above one one.

That would do to growth.

For 'twenty three now we have two in the books.

And Michelle has given some color around our expectation of Q4. So that gives you a sense of how to think about growth I think of the top line.

It's consistent with what we've been saying I think on the margin side.

Opportunity that.

As outlined we outlined in the prepared remarks.

And that's an area, we're going to be focused on while reinvesting in the business, we're continuing to invest in the business.

Alright.

And then on <unk>.

Commercial I think sort of the natural fear is.

As the Youre, calling out biotech funding and things getting pushed out.

And so as those customers are tightening their belt.

Wouldn't commercial see that first.

Because if you're.

Yes.

You are booking in the commercial side you wanted to get your clinical done first and so you are like are we don't need that commercial piece, yet, let's get the clinical out the door.

Yes, that's a very good question thanks for asking so.

When we look at RFP flow and commercial.

RFP flow and commercial is up in large pharma and its moderate moderating of normalizing in the smid. So we are keeping an eye on that however, when.

When we look at pipelines, we look at the mix of business potential new business between mid and large pharma and we look at R. R.

Because it is so complex and you need the best thinking from within the manufacturers as well as some of the work that we do on our side as a product development company, but we.

We are keeping an eye on it but it has not impacted our business to date.

Yeah.

Alright, great. Thanks.

Thank you.

Uh huh.

Our next question comes from the line of Sandy Draper of Guggenheim. Please go ahead.

Thanks very much.

The first question.

Jason.

It looks like when I when I look at the bookings and the bookings.

Sort of ex Reimbursable looks like we had not to the same extent, but it's similar dynamics in the fourth quarter was there.

Another write down or did you cancel out I'm assuming more.

Reimbursable and just trying to understand that dynamic better about.

What's going on with that and why that happened again.

Are you referring to the.

The Reimbursable in Q3.

Yes, just to make sure I'm looking at the.

Looking at the bookings, what if I'm reading correctly bookings.

Totals of 182, an extra reimbursable to OE. So it looks like there was another cancellation out of Reimbursable.

Oh, yes, yes, yes so.

While cancellations overall.

Sandy when you think about on the direct side of things, we're excluding reimbursable were within our range during the quarter.

Did have a cancellation that had.

Basically the same amount of reimbursable expenses that the direct fees and if you exclude that from the overall.

Book to Bill calculation.

Including and excluding Reimbursable book to Bill would have been exactly the same for the quarter essentially so there was one cancel in there that had outside reimbursable.

That caused that discrepancy.

Okay got it that's helpful. One other quick.

Financial question for Jason I think I heard you say you expect now for the year.

The reimbursable drag to be 370 basis points.

The total business and if so not backing into it right that suggests reimbursable around 145 or are you just talking about reimbursable is on the clinical side down three 370 basis points, perhaps the headwind that much.

Yes.

The commentary is total company.

Okay.

Perfect. That's helpful. And then I guess the final is just when I think about.

The reimbursable impact on.

Moving back up just any thoughts about sort of the visibility for backlog burn and how thats going to be trending. Thanks.

Yes.

So we will see it tick up a bit in Q4.

Relative to Q3.

And I'm, referring on the direct or the excluding reimbursable side.

Yeah.

And then if you think about next year.

Just given the backlog.

Movement.

And growth or contraction.

Year over year.

Mathematically right Youre going to have some level of increase just from burning all the awards that have been won in prior periods.

I expect to see a tick up.

A bit in 2023.

Think about that it's just right now the extent of that.

It is something that we're not we're not.

Getting into that said.

We haven't seen our weighted average study period move much relative to what we've disclosed in prior periods you know in that low to mid 60 months, we've talked about the fact that we have won.

Some opportunities that are more fast burn.

So non oncology type awards, and we're also growing pretty quickly in an FSP, which given our bookings policy right helps your growth rate. So.

Im sorry, your burn rate. So those are a few factors that I would put into a sandy but not getting into the specifics on it yet.

That's really helpful. I appreciate that commentary Jason.

Youre welcome.

Yes.

Thank you.

Our next question.

Comes from the line of Elizabeth Anderson Evercore Your question. Please.

Hi, guys. Thanks, so much for that question.

Tim.

A little bit about I think Michelle you mentioned.

Issue about some of your newer capabilities not being fully integrated particularly impacting the post revenues, which made renewal I was wondering if you could talk about specifically what those capabilities are and then two if you could potentially help us decide the push out from <unk> to <unk> in that sector.

Sure I'll start with that so I think we've made a lot of investments in our capabilities.

RFC as has been really building out some really great targeting tools around.

How do you find the right patients diverse patients and sites.

Working with steady cash to make sure that we're activating the communities. They have in the different therapeutic areas and just ensuring that we consistently bring those capabilities to customers and a very.

Deliberate way and so.

That's really where Mike.

Michael has done a really great job.

Making that a more standard offering and now we're very focused on making sure. We have business development teams that are focused on the different customer segments that really understand those unique differences and why they are important to those different customer segments. So that's an example of what I mean, and then in regards to that.

I'll, let Jason walk you through that.

On.

The warrants.

From Q3 out sure yes.

So when we talked about the quarter to push as being 15% to 20% over and above what we had experienced in the past.

When we are tracking a similar profile of push during quarter three.

It was.

Three to four times, what we saw and not all of that is getting pushed into quarter. Four some of that is getting pushed further.

Al just given what's going on in that customer set.

Majority of that.

Some of it is going to be pushing out into 2023.

Got it that's helpful and I know I appreciate what you said about 2023 and that sort of volatility there are there any changes in terms of your interest rate or interest.

Interest expense expectations for 2023 at the moment.

So.

What we've.

We obviously have provided visibility around.

The debt structure, and what we're doing and what we have done we're continuing to work on.

I've talked about in prepared remarks is extending.

Our deal.

We're very focused on that.

Our interest expense in 2022.

Okay got it thank you.

Okay.

Thank you. Our next question comes from Justin Bowers of Deutsche Bank. Please go ahead.

Okay.

Hi, good morning.

Just wanted to follow up on the on the last comments.

That's.

It sounds like you said <unk> activity was 15% to 20% the pushout was 15% to 20% above what you've seen in the past men.

And then.

Three Q.

Three to four times that.

So is the interpretation there that the.

The push outs were sick.

60% to 80% higher.

Then what you saw and then.

Also can you give us a sense or is there going to be.

Are you expecting some improvement in the awards and bookings sequentially.

And I'll pause there.

Sure. So I'll answer that and then if I may.

Jason can you walk us through so if you go back to the Q2 award decision delays two thirds of those pushes that we highlighted in Q2 went to decision and we won half of those which has been consistent with our normal strike rate and a third sale have not gone to decision. When you look at what happened in Q3.

Our awards cadence is weighted to the last month of the quarter.

And we saw an unforeseen drop and the win rate in that post revenues met as.

As well as higher award decision delays with that same cohort. That's a three to four times that Jason mentioned in September versus let it happen back in June and they were.

And so those have pushed out and as Jason shared some of them are pushed out beyond Q4, and so now we have to.

Get a sense of.

Whether those are going to be awarded whether we're going to win them. We don't have that much visibility into that yet we're about one month and.

So.

If you go back again I just want to remind you within the post revenue smid customers and we do believe that we will see a gradual.

Improvement there, even our RFP flow has ticked up slightly in that in that area over the last 30 days and so.

We're just focused on what comes in right in front of us, making sure we deliver against clinical re imagined our new biz.

This development approach and just making sure that we have.

The cross functional and regional teams working to ensure we utilize our full capability to design the best delivery strategy and we're just focused right in front of us in Q4 on conversion.

Okay got it and then just one one follow up on <unk>.

<unk> Green unification could you just help us understand the scope of that and also.

Some of the milestones that you have and when the targeted completion date for that based on the current scope of work.

The project unify just want to clarify.

Yes.

Sir I was answering the right question Okay.

Projects going on right now yes.

I'm sorry on the market.

Yes project unify I'll, let Jason walking through it because he is really spearheaded that and then.

Yes.

So yes, its project unify its to basically.

Implement our new ERP.

ERP system across the enterprise. It includes resource management that includes HR.

And it includes finance and accounting, it's a multiyear project. We are just now wrapping up the.

Target operating model work that we'll do and then we will move into global design phase here over the next several months and then we will actually start implementation during 2023.

We have a great partner in terms of a system integrator that we've selected and we also have a great technology cloud based technology that we've selected so we're excited about it we do believe it will help make our employees lives a lot easier and it will also provide everybody better visibility and including our customers.

Okay.

Got it that's all for me thank you.

Thank you. Our next question comes from Eric Coldwell Baird. Your question. Please.

Okay. Thanks.

On could you gosh, I don't even know where to start with this.

Operator, any more questions in queue.

Hello.

Yeah.

Hello.

Yes, Sir your Youre.

Your line is open.

Yes can you guys hear me.

Yes, we can now.

I don't know Im sorry, again, Eric Coldwell from Baird. Your line is open.

Thank you can you hear me now.

Okay.

We can.

There are rfps.

I know the number can be somewhat meaningless, but could you give us a sense just.

Our percentage of where that stood versus last quarter prior year any metrics around RFP flow I'm trying to walk through the.

The environment.

The opportunity versus the delays versus the cancels versus everything else, where can we just start with rfps and get some numbers.

Sure I'll start so our clinical trailing 12 month RFP flow.

<unk> is down a bit so it is down our commercial trailing month, John 12 months RFP flow is up and.

And we are seeing sequential improvement with clinical Ned.

We're hoping to start to lap the strong 2021 comp so.

We are very focused.

Our strategic approach on the clinical side to ensure that with the focus on.

Building better intimacy with our customers in the post revenue smid and focusing on repeat business to truly understand what customers are looking for.

That we believe that that will help us improve in that area.

So yes, it's all done.

Jason is going to add something Eric.

Yes, the only thing that I would add on the clinical side Eric is that.

The RFP flow.

During late 2020, and during 2021 for us on the Smid side was very strong.

And when we talk down it's down year over year and Michelle's commentary if you.

You look at our smid RFP flow in quarter three sequentially. It was higher in quarter, two and it was higher in quarter three.

So it's sequentially moving up but we haven't yet overcome the really strong RFP flow that we saw in that sector in 2021.

Okay.

On the the win rate there were there was some mention of.

Unexpectedly low win rate could you of awards the winter decision could you give us a sense on just how low that was.

Yes.

When you we don't typically disclose the actual.

Hey, Eric, but I would say when you look at the.

Decisions.

We're talking about <unk>.

Customers that were on a repeat business bases predominantly.

We were we were down probably.

Somewhere between 30% and 50% of our normal rate in a quarter.

It was it was not inconsequential.

I would say, though when you look at that.

The impact on what we talked about in our September update that did have an impact to the obviously, how we finished the quarter and how we.

Performed relative to that target forecast from that update in September but the bigger piece of it was the items that pushed out that Michelle has talked about that we didn't anticipate.

And then.

Cancellations I know there was a comment that overall cancellations were normal but.

Or within the normal range, it's frankly hard to believe that given the pass through bookings were negative and overall bookings were.

Basically.

<unk>.

What you would expect over the last few quarters or what we should have expected. So.

I mean can you really say cancellations were.

345% of backlog is something like that.

Just doesn't feel reasonable.

And.

For the quarter, we were at the higher end of the range that we've experienced in the past, but we work above the.

The highest end of the range that we've experienced and when we look at the full year based on what we know right now we still.

Anticipate being in and around the full year cancellation number that we typically see so.

That Dutch.

That's kind of is what it is from from our perspective that gives a little more color on it.

Okay.

And then.

On the call.

Comments about non renewals.

We've heard that.

But youre.

Youre not youre not getting the next phase of a project that you already had the beginning phase of.

Yes, so I'll start and then I'm going to turn it over to Michael.

Yes.

We don't like to comment on rumors as you know or things that we hear that we don't hear directly.

But here's what I will say some of our newest award are rescues from other CRO, that's all I'll say there.

<unk>.

So I think it's important that we focus on.

This is a new phenomena, we didnt see we just recognize this and that.

And our Q3, we haven't seen a reduction and repeat business until Q3 and so I'll.

I'll, let Michael talk about how we're focusing on our existing customers.

But.

We're not going to comment on a home or like that.

Yes here is the most important thing is for our customers to experience the clinical re imagined model that we've created we've really restored our culture of can do I own it.

All of our leaders and our managers are contributing around our clients around our deliverables.

Therapeutic insights and bringing those integrated solutions <unk> prescribing.

Really Great example was one of our top 50, we'd be customers just last week. So this is a large zero that doesn't act like a large CRM and that's exactly what I wanted to say that's how we have to compete in the current marketplace.

You just see yourself there we hear a lot of the same things that the hearing rumors, but im really pleased with how our customers are reacting to the clinic re imagine model.

Ones or twos, it's many many of our customers are saying this is exactly what they want that agility.

Technology and the leaders that we have here.

Okay last one from me on the <unk> EBITDA sustainability.

I know there were a number of factors sited.

Is one of those factors the reversal of bonuses and.

And if so how much.

Sure So I'll address that as well Eric as you know I think I answered the question for you last quarter.

I'll go again, so we have been accruing as you know we have multiple pumps bonus program. So let me start that we have multiple bonus programs for different.

Leaders within the organization right and so theyre awarded based on performance and.

And I think I also shared with you that at once a year and definitely true up right because at the end of the year. We had targets that were tied to these plans and we true up at the end of the year.

Through Q3 based on the performance that we're delivering we are accruing.

For that management incentive plan.

Does that help.

Yes, I am just curious if you're expecting that to reverse in <unk>.

Based on within that the confidence in the updated guy.

The rest of the year for Q4, we have we believe that commercial and Reimbursable and are on target and we do have the lower net awards backlog conversion delays and FSP customer delays baked into that so we executed on what's right in front of us and I'm confident that the team well.

It's accrued and it's in there.

Okay.

<unk>.

Yeah.

Thank you.

Our next question comes from the line of Max Smock of William Blair. Your question. Please.

Alright, Thanks for taking my questions I wanted to follow up on one of Eric's questions around the win rate and I'm. Just wondering if you can elaborate on some of the feedback that you've gotten from customers around.

Why they decided to go with some of your competitors I know you mentioned being more agile in working with customers working closer with customers but.

Additional insight you can provide around what exactly this entails and how it just one of those issues are here in the near term.

So it's a great question. So I always start with when we win why are we winning Brian I think that's the number one thing that you should focus on and so we've been laser focused on understanding that and so what we have been told when we win at some of the things that Michael just shared around that were really nimble and agile as the CRE.

Meeting the needs of those posts revenues net customers that we have a high level of quality and delivery.

Now that one of our large pharma partners as Jeff shared with us that we have the highest quality delivery of any other CRM partner. So the things that we know will make us when are the things that we're now doubling down on rate the innovation in our capabilities focusing on technology and data innovation and regards to embedding that into our clinical trial solutions.

For those customers and so those are the things that are making us land and those are the things that we are now laser focused on making sure we bring to customers.

Got it thank you and then anything.

Okay.

Yes.

The only thing I would add I agree with that when we deploy our integrated solution with the right project team our therapeutic insight we win we have to deploy that consistently so with Christian to enroll as our chief business Officer P&I partnered out to ensure that all of our business development team.

The toolkit they need to build to ensure that we're bringing those integrated solutions, where we can to make sure our business leaders understand how we put these together and how we sell them and so as we get that fully deployed across our entire organization. We feel very confident its not just going to resonate with clients. We're going to win we're going to look to deliver on it.

Got it thank you for that additional color as well and just.

Or it sounds like this might take more than a few years to turn this around thank you.

Yes, so as we've shared we're very focused on.

Delivering against the Q4 and executing against our strategic business plan.

Aggressively attacking.

The things to drive performance and improved visibility and as we close out the <unk>.

Fourth quarter, we will have much better visibility and so what will occur in 2023, and we're very aware the better we do in focusing on Q4.

Delivery will.

B and a.

A good position to share with you Ben.

How we see 2023 playing out.

Got it thank you for taking my questions.

Youre welcome.

Thank you.

Our next question comes from Casey Woodring of Jpmorgan. Your question. Please.

Thank you thanks for fitting me in.

So you said you feel good about the large pharma business just curious what gives you confidence there that you can compete with the larger scale players in that space.

Management changes.

Some of the other reasons that you've called out or is it something different.

Sure. So I'll start with why we're excited about large pharma and why we feel we can compete there and then I'll, let Michael talk about some other things so.

I think we.

One our first large pharma partnership in Q1 of 2022.

And all of our large pharma partnerships.

We have a very good relationship with the organization and they are very pleased with our delivery and our quality. We are in very good shape, there and so we feel good about those those customers, giving us repeat business.

In 2023, and probably more based on their pipelines more in the second half of 2023, we think we'll see more.

Particular awards and we also have been in conversations with multiple other large pharma organizations that are looking to.

Either add a new CRO or replace an existing CRM through their processes and if you recall, we've always said that we want to win one to two a year one one this year and going into 2023.

We feel really confident of the ones that are right in front of us that we can we can win that one or two a year.

Laser focused on doing that so I.

One that we've been discussing earlier.

<unk> timing.

For the FSP replacements and the growth in the full service.

Yes.

Operator, I think we lost you again.

I'm here.

Our next our.

Next question comes from the line of John Savio, Sorry beer.

Hi, Brian Thanks for taking the question a lot of questions have been answered maybe just one on the commercial segment.

FDA approvals are tracking a little bit light this year any thoughts on how that might impact the outlook for the commercial segment as we look out and is that.

A good leading indicator to look at.

Thanks.

Sure. We've always said that's one of many leading indicators for the commercial business.

And so I think we shared R. R.

Our RFP flow with us and large pharma and commercial and we think thats going to definitely be an opportunity for us as we move forward. We also think the complexity.

Of the science of a lot of these new launch products that are coming through.

Our definitely.

An opportunity for us because you need a variety of capabilities and a lot of customers as they are getting into some of these new therapeutic areas, we want to leverage our expertise. It's also in the smid customer base is a good opportunity for our <unk> full service commercial offering because.

It gives especially smid customers the opportunity to commercialize their assets themselves versus being for us to license them. Our co promote them and so we still think that that.

An opportunity for commercial.

Got it thanks for the question.

Youre welcome.

Thank you at this time I would like to turn the call back over to CEO , Michelle Qi for closing remarks.

I want to thank the entire city is health team I'm very motivated and inspired by their commitment to our customer sites and patients. Despite the near term challenges, we remain confident in our market position and our strategy and look forward to updating you on our transformation of you for joining us.

Thank you for joining us today and for your interest and investment in our company.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q3 2022 Syneos Health Inc Earnings Call

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