Q4 2022 IQVIA Holdings Inc Earnings Call
Ladies and gentlemen, thank you for standing by at this time I would like to welcome everyone to the <unk> fourth quarter 2022 earnings Conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
He would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If he would like to withdraw your question again press Star one.
This call is being recorded I would now like to turn the call over to Nick Childs Senior Vice President Investor Relations and Treasury. Mr. Childs. Please begin your conference.
Thank you.
Good morning, everyone. Thank you for joining our fourth quarter 'twenty to 'twenty two.
Earnings call with me today are.
Already Boothby, Chairman and Chief Executive Officer, Brian Roman Executive Vice President and Chief Financial Officer, Eric Sherbet, Executive Vice President and General Counsel, Mike Feedstock Senior Vice President financial planning and analysis.
Gustavo Perone senior director Investor Relations.
Today, we will be referencing a presentation that will be visible during this call for those of you on our webcast. This presentation will also be available following this call and the events and presentations section of our IQ via Investor Relations website at IR <unk> <unk>.
<unk> Dot com.
Before we begin I would like to caution listeners that certain information discussed by management. During this conference call will include forward looking statements.
The actual results could differ materially from those stated or implied by forward looking statements due to risks and uncertainties associated with the company's business, which are discussed in the company's filings with the Securities and Exchange Commission, including our annual report on Form 10-K, and subsequent SEC filings.
In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in the press.
Please and conference call presentation.
I would now like to turn the call over to our chairman and CEO .
Thank you Sydney and good morning, everyone. Thanks for joining us today to discuss our fourth quarter and full year results.
As we close 2022, we're very proud of what we've achieved.
It was a record year for our R&D S business, we achieved bookings of $10 $8 billion, which was the highest ever.
Our backlog stands now at a record $27 $2 billion in that business added.
Over 275, new customers in the year.
We improved access to critical research, we've expanded our decentralized clinical trial capabilities by launching the first.
Self collection safety lab panel for U S clinical trial participants in collaboration with castle.
Our DCT program achieved <unk> validation in Europe , marking the first time, a DCT offering received these data privacy validation.
And our connected devices business added 15, new customers, including wins with two top 10 pharma companies.
We made significant advancements as well in a real world business, we increased the number of our active data sources by more than 30%.
Across more than 50 countries and we enhanced access to real world data for European and U S regulators to our partnerships with the European Medicines agency and the real World Alliance.
We expanded our digital marketing capabilities with the acquisition of lessor marketing, which offers a technology purpose built for health care market is to execute digital campaigns.
We deployed capital of $3.7 billion during the year.
This included $1 $3 billion in acquisitions.
One 2 billion in share repurchase.
Zero point $7 billion in Capex.
And the repayment of $510 million of debt.
At the same time, we were able to reduce our net leverage ratio to 345 times adjusted EBITDA.
2022 also marked.
At the end of our vision two to three year strategic plan.
No one could have predicted the volatile macro environment, we would have to operate in during these periods.
Despite the many headwinds we have faced since 2019, when we set these goals.
We in fact exceeded our vision 2022 goals I am proud of the resilience resourcefulness and creativity that our employees around the world demonstrate everyday.
In support of IQ <unk> mission.
It is these attributes that will allow the company to deliver on the commitments. The commitments we made to you in 2019.
As you know since the beginning of 'twenty two the industry has been reporting a slowdown in demand for clinical and commercial services caused by reductions in biotech funding as well as the higher interest rate environment and macroeconomic uncertainty.
As we've discussed before.
While we've of course seen anecdotal evidence of these concerns we at <unk> <unk>.
Remain confident that the fundamentals of our industry and the demand from our clients remain healthy.
And in fact, we remain confident in our ability to deliver on our 2025 goals.
As we begin 2023.
There are more molecules in development that at any other time in history.
Our RFP flow was up 13% for the full year.
In fact saw acceleration in Q4 to 22% with double digit growth in all three segments large mid size.
<unk> EVP segments.
Our net new business reached a record $3.1 billion in Q4, which is up 29% versus prior year.
For the full year, we achieved bookings of $10 8 billion. Despite the large COVID-19 bookings we had in 2021 that didn't repeat in 2022.
And yet in <unk>.
Our commercial business, while we are seeing some short term fluctuations in discretionary spend categories.
Such as for example consulting.
Demand for our commercial services Nonetheless remains on a favorable growth trend.
Finally.
Let me just to acknowledge and congratulate our employees around the world for.
For the nice recognition the company received last week.
<unk> was named to Fortune's list of the world's most admired companies for the sixth consecutive year importantly, once again, we earned the first place ranking within our industry group.
We also ranked number one in seven out of nine categories, including innovation.
People management.
Use of corporate assets, social responsibility quality of products and services global competitiveness and long term investment value.
Turning now to the results for the quarter.
Revenue for the fourth quarter grew two 8% on a reported basis, 7% at constant currency compared to last year and excluding COVID-19 related work from both periods. We grew the top line, 10% at constant currency on an organic basis.
Fourth quarter, adjusted EBITDA increased 11, 1%, reflecting our strong revenue growth and ongoing cost management discipline.
Fourth quarter adjusted diluted EPS of $2 78.
Grew 9% driven by our adjusted EBITDA growth.
A few highlights of business activity this quarter.
Our technology business <unk> recently entered into a milestone agreement with Alibaba cloud to collaborate in China.
Through this collaboration <unk> will be the first company to make its salesforce based products available on Alibaba cloud and the only life sciences provider to have a full sales force based ecosystem of products hosted locally and designed to be compliant with China's data residency.
And privacy regulations.
Through our partnership with Alibaba cloud and SaaS Force IQ that will continue to extend the <unk> suite.
Delivering innovative capabilities tailored to meet China's specific market needs.
As you know.
Yes, human data science cloud offers clients a combination of extensive data networks data integration and embedded intelligence all of which help our clients deal with the challenge of increased data complexity.
And volume.
The top 10 pharma awarded IQ, our largest ever commercial managed services deal well, we will take responsibility for managing the end to end commercial analytics.
All their commercial brands globally.
Personalization of care is becoming a focus of our customers commercial strategies this quarter.
<unk> was awarded a major patient support program by a top 10 pharma for their key cardiology product.
Placing the incumbent vendor and once again validating our Cuba is uniquely differentiated integrated domain expertise services and technology platform.
As I previously highlight the demand for from our EVP customers has remained high.
Fight the funding levels, returning essentially to pre pandemic levels.
As an example, a U S based emerging Biopharma company recently selected <unk> to be their end to end clinical to commercial partner.
<unk> was selected due to the breadth of capabilities, our domain expertise strong resources and technologies such as oce.
<unk> will support all aspects of their first commercial launch as.
As well as provide clinical trial services for their future indications.
And another example, bio stage, which is a biotech company developing regenerative medicine treatments selected IQ yet to manage its first clinical trial of there is sofa implant products.
Current treatment options for patients diagnosed with a sofa.
<unk> result in only 20% survival at.
Five years.
In the first use of the implant the trial demonstrated that the product was able to successfully regenerate tissue.
To restore the functionality of the esophagus.
<unk> was selected due to our dedicated gastrointestinal team and our ability and expertise running the most complex cutting edge cell and gene therapy trials.
Within our Mds, We also signed a long term collaboration with clearly the largest house services provider in Israel to launch the first prime sites in the region.
The collaboration combines IQ and <unk> capabilities in clinical trial delivery real World Research data and genomics slightly operates a network of 14 hospitals and more than 1600 primary care clinics with special expertise in oncology.
He actually greater disease and genomics.
In oncology.
Which remains the largest therapeutic area for R&D outsourcing.
We continued to experience strong double digits year over year growth in bookings as an example, we expanded one of our preferred partnerships with a top global pharma, which awarded IQ large early and late stage trial in multiple oncology indications.
We were selected because of our analytics to optimize protocol development site selection and operational planning, including our ability to recruit patients meeting their diversity targets.
So overall the R&D as business continues its strong momentum you saw we achieved new bookings of $3 1 billion in the quarter the highest in our history.
This translated into a quarterly book to Bill of 151, including pass throughs and excluding pass throughs. The business delivered almost $2 billion of total net new business in the quarter with a book to bill of a ratio of 130.
For the full year, our contracted book to Bill ratio was 136, including pass throughs and 133, excluding pass throughs.
I will now turn it over to Ron for more details on our financial performance.
Thanks, Lori and good morning, everyone, let's start by reviewing revenue.
Fourth quarter revenue of $3 billion 300, excuse me $739 million grew two 8% on a reported basis and 7% at constant currency in.
In the quarter.
<unk> related revenues were approximately $190 million, which was down about $150 million versus the fourth quarter of 2021, and our base business that is excluding all carbon related work from both this year and last organic growth at constant currency was 10%.
Technology and analytics solutions revenue for the fourth quarter was $1.499 billion up <unk>, 2% reported and four 7% at constant currency.
Excluding all Covid related work organic growth at constant currency in task with 7%.
R&D solutions fourth quarter revenue of $2.058 billion was up five 9% reported and nine 3% at constant currency, excluding all COVID-19 related work organic growth at constant currency and R&D yet was 14%.
Finally contract sales <unk> medical solutions for C. S. M S fourth quarter revenue of $182 million declined seven 1% reported but grew 2% in constant currency, excluding all COVID-19 related work organic growth at constant currency and see us en masse, which also to <unk>.
<unk>.
For the full year revenue was $14.410 billion growing at three 9% on a reported basis and seven 8% at constant currency.
Covered related revenues totaled approximately $1 billion for the year and our base business again, that's excluding all COVID-19 related work organic growth at constant currency was 13%.
For the full year technology and analytics solutions revenue was $5.746 billion.
Up three 8% reported an eight 7% at constant currency, excluding all COVID-19 related work organic growth at constant currency and cash was 10% for the year full.
Full year revenue and R&D solutions with $7.921 billion growing four 8% reported seven 7% at constant currency, excluding all COVID-19 related work organic growth at constant currency and R&D was 17%.
Full year <unk> revenue was $743 million, which was down five 2% reported but grew two 7% at constant currency.
<unk> all COVID-19 related work organic growth at constant currency in CSM mess with 4% for the year.
Let's move down the P&L.
Adjusted EBITDA was $920 million for the fourth quarter, representing growth of 11, 1%, while full year adjusted EBITDA was $3.346 billion, which was up 10, 7% year over year.
Fourth quarter GAAP net income was $227 million and GAAP diluted earnings per share was $1 20.
Full year GAAP net income was $1.091 billion or $5.72 of earnings per diluted share.
Adjusted net income was $524 million in the fourth quarter and adjusted diluted earnings per share grew 9% to $2 78 for the full year. Adjusted net income was $1 billion $937 million and adjusted diluted earnings per share was $10 16 set up 12 point.
5% year over year.
Now lets already reviewed R&D solutions delivered another outstanding quarter of bookings our backlog at December 31 stood at a record $27 2 billion.
Which was up nine 6% year over year on a reported basis and 11, 6% adjusting for the impact of foreign exchange.
Without that impact of foreign exchange year over year backlog would have been about $500 million higher.
Full year net new business increased 10 8 billion.
Dollars growing six point.
2% year over year on a reported basis at.
It increased to $10 $8 billion I should say growing six 2% year over year on a reported basis. Despite the significant amount of Covid bookings, we had in 2021 that didn't repeat in 2020.
Okay, reviewing the balance sheet as of December 31, cash and cash equivalents totaled $1 billion and $216 million and gross debt was $12.747 billion and that resulted in net debt of $11 billion and $531 million or net leverage ratio ended the year at <unk>.
345 times trailing 12 month adjusted EBITDA.
Quarter cash flow from operations was $560 million and Capex was $171 million, which resulted in free cash flow of $389 million for the quarter.
As we shared on the last earnings call early in the fourth quarter, we retired $510 million of variable rate U S. Dollar.
Term loan yes.
We scheduled to mature in early 2024.
At the end of the year, we entered into a 1 billion or $1 billion of floating fix.
Moving to fixed interest rates swaps to further limit our exposure to changes in interest rates and with these changes our debt structure at year end was 66% fixed.
And we expect this to drop to about 58% fixed at the end of Q1 when as you know we had a 1 billion dollar swap expiring.
December 31 marked the end of our vision 2022 three.
Three year plan and as already mentioned, we exceeded our commitments and here are a few highlights we achieved a compound average growth rate for revenue of nine 1% reported and 10, 2% adjusted for the impact of foreign exchange.
This achievement exceeded the high end of our goal range of 7% to 10%.
Our three year CAGR for adjusted EBITDA was 11, 7% exceeding our goal.
Up 8% to 11% and for adjusted diluted earnings per share of the average growth rate was 16, 7% consistent with our goal of double digit growth.
Finally, our net leverage ratio exiting 2022 of three four times trailing 12 month, adjusted EBITDA compared favorably to our goal of three and a half to four times.
Okay, Let's turn now to 2023 guidance.
For the full year 2023, we expect total revenue to be between $15.150 billion and $15.400 billion representing year over year growth of five 1% to six 9%.
This revenue growth includes about 100 basis points of contribution from M&A activity and a very slight FX tailwind of approximately 10 basis points versus the prior year.
Adjusting for the Covid related work step down, which we anticipate to be approximately $600 million.
The contribution of acquisitions and the FX tailwind our guidance implies 9% to 11% underlying organic revenue growth.
At constant currency.
Our adjusted EBITDA guidance is $3 billion $625 million to $3.695 billion or growth of eight 3% to 10, 4%.
Our adjusted diluted EPS guidance, it's $10 26 to $10 56, representing year over year growth of one to three 9%.
Our EPS guidance includes about $615 million of interest expense.
Just under $550 million of operational DNA.
An effective income tax rate of approximately 21%, which is about a point higher than it otherwise would've been because of the increase in the U K corporate tax rate from 19% to 25%.
And finally, our EPS guidance assumes an average diluted share count slightly above 190 million shares.
Adjusting for the year over year impact of the onetime step up in interest rates and the higher U K tax rate our guidance implies adjusted EPS growth of 11% to 14%.
This guidance assumes about $2 billion of cash deployment split evenly between acquisitions and debt retirement regarding the latter we expect to retire remaining term debt maturing in March 2024 towards the end of the year that is the end of 'twenty three based on these assumptions and our guidance are.
Leverage ratio should drop to below three times adjusted EBITDA by the end of 2023.
Finally, our guidance assumes that foreign currency rates as of February 8th continue for the balance of the year.
Now I know there are a lot of moving pieces in our guidance. So let me share some additional color on the revenue and adjusted EPS dynamics in 2023.
As I mentioned earlier, we anticipate the Covid related revenue will step down by approximately $600 million versus 2022.
And I should highlight that about 40% of the step down will occur in the first quarter.
Now we will more than compensate for this headwind during the course of the year as we project revenue to grow between nine and 11% organically at constant currency, excluding COVID-19 related work.
As I also mentioned previously our full year guidance includes about 100 basis points of M&A contribution and a very slight tailwind from foreign exchange of 10 basis points.
That said, it's important to point out that we will actually experience a headwind from FX in the first half.
Now at the segment level, we expect Taz.
Revenue growth to be 6% to 8% reported this includes a year over year step down in covered related work underlying organic growth through a task that is adjusting for the step down in Covid work FX and acquisition impacts will be 7% to 9%.
R&D revenue will grow 5% to 7% reported this reflects an even more significant year over year step down in COVID-19 related work underlying organic growth for R&D S. Again, adjusting for Covid related work FX and acquisition impact will be 10% to 12% and finally NCS en masse revenue.
Growth is expected to be flat reported and.
And approximately two percentage points organic excluding COVID-19 related work and FX impacts.
Okay.
On adjusted EPS will experience.
The year over year impact of the step up in interest rates and an increase in the U K corporate tax rate that I mentioned.
Together these non operational items are expected to impact growth by approximately 10 percentage points year over year.
Excluding these items, we expect to deliver strong results with 11% to 14% adjusted EPS growth.
It's important to note that the year over year increase in interest expense step up will be most pronounced in the first half while the operational tailwind from our cost cutting and productivity initiatives will be skewed towards the second half of the year.
And these timing issues are relevant to our first quarter guidance.
The first quarter will be the toughest comparisons versus the prior year, primarily due to four factors.
Number one the largest headwind from FX, despite FX being a tailwind for the year.
Number two the largest year over year Covid related stepped down.
Third the toughest interest expense comparison, and finally for the phased in during the year of the benefits of our productivity initiatives, which will increase as we progress through the year.
So as a result in Q1, we expect revenues to be between $3 billion $570 million and $3 billion $640 million or growth of two point forward to four 3% on a constant currency basis in 0.1% to 2% on a reported basis.
Excluding the Covid related work, we expect organic revenue growth at constant currency to be between nine and 11%.
Adjusted EBITDA is expected to be between $835 million and $860 million, which is up 2.8 to five 9%.
And finally adjusted diluted EPS is expected to be between $2 35.
And $2.46 declined four 9% to 0.4%.
Excluding the step up of interest expense and the tax rate in the U K, we expect adjusted diluted EPS to grow between six and 10% in the first quarter.
Again, our guidance assumes that foreign currency rates as of February 8th continue for the balance of the year.
So to summarize Q4 was another strong quarter capping a successful year.
For the full year revenue grew 13% organically constant currency, excluding COVID-19 related work and adjusted EPS was up 13%.
<unk> demand in the industry and our business remained healthy with RFP growth accelerating in Q4 and record bookings in R&D, yes.
During 2022, we repurchased almost $1 $2 billion of our shares and retired $500 million of variable rate.
Term debt, while reducing our net debt leverage ratio to three four times.
We exceeded our vision 2022 commitments, despite the volatile macro environment.
And lastly, we are projecting strong operating performance again in 2023, 9% to 11% organic revenue growth at constant currency, excluding covered related work and 11% to 14% adjusted EPS growth, excluding non operational headwind.
And with that let me hand, it back over to the operator for Q&A.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad. We request that you. Please limit yourself to just one question so that others in the queue may participate as well, we'll pause for a moment to compile the Q&A roster.
Your first question comes from the line of Dan Leonard with Credit Suisse. Your line is open.
Thank you. So I'll just start off Ara you mentioned continued confidence in the 2025 goals Youre guiding 5% to 7% revenue growth in 'twenty three I think the CAGR through 25 was a double digit number but can you bridge from the 2023 result to the acceleration and.
<unk> thereafter, thank you.
Yes, Thank you very much Dan.
Look when we say we are on.
The same trajectory we were on.
When we set our twenty-five bowls and it continues to be true.
Operationally obviously.
We assumed foreign currency rates that were different I think we lost that all of the exact number any longer but we probably lost half a billion dollars in revenue just in 2022.
So to FX.
So.
Look.
I don't know about revenue it'll be close maybe noteworthy but it'll be close.
On EBITDA and on earnings per share we are very confident that we will.
Those goals again.
What we are facing you first of all you'll see the EBITDA is certainly clearly on that trajectory.
Unchanged despite everything else.
And EPS is just as we said.
Our introductory remarks, a one types one time step up.
That hopefully won't replicate if anything.
The world expects rates to either stabilize or start declining afterwards in 'twenty four 'twenty five so that would be even a tailwind, but but certainly the step up is one time and after that we expect.
To resume very strong double digits as we experience I'll remind you we delivered over 16% compound earnings per share range.
Our growth rate.
Over the 2022 three year period.
Okay.
Thank you.
Your next question is from the line of Eric Coldwell with Baird. Your line is open.
Thank you good morning, So I wanted to hit on R&D is bookings first.
Difficult to ask the question in a way that TCE to answer but.
Like you to step back and think about your fourth quarter strong bookings or twenty-two bookings do you have a sense how much was it.
If you will normal opportunities versus say competitive takeaways rescue wins or incremental share capture that you might have gained through a higher hit rates through the year.
Just trying to get a sense of.
The market was versus what <unk> did additionally on top of that if that makes sense.
Yeah well.
You know, it's really hard because we don't have the perspective of time and clear data from competitor as yet.
We will know a little bit more.
After we review report on how Cielo Cielo is deep.
When everyone has reported so I'm looking forward to that dream, but.
Look we've been on a momentum certainly as soon as the merger to gain market share and I think it's clear.
We have been gaining market share.
We know we are gaining market share because we are displacing competitors.
I don't think rescue studies plays a role of course, we have the anecdotal.
Here and there but.
Nothing more or less than in.
In history, and you know things happen in the study doesn't go where are we this is an approach and at some point in time, the sponsor decided that they want to switch a CR or is it is a very difficult and cumbersome exercise and no one wants to do that but it does happen.
I don't think it's happened more than in the past.
You know unless you're including rescue studies and studies that were at the beginning.
And that's for a reason and other responsible decided to switch.
Rose and that I would include in the category of market share gains.
The market continues to be strong the underlying demand all the indicators that we see and we kept repeating it ad-nauseum during 2022 despite.
Everyone else.
Being on the other side and suggesting that the world was falling apart because of biotech fundings.
Funding levels, returning to what I consider to be very strong levels, but nevertheless, lower levels than they were during the pandemic.
We haven't seen any delays in decision, making we haven't seen any.
Signs that demand was slowing down quite the opposite I mentioned that our RFP flow.
Strong I can give you even more.
I've got some more data on the <unk>.
If you'd like.
Yes.
The answer would always be yes.
Thanks Jorge.
So I kind of I guess that.
Again overall RFP flow was very strong we said, 13% for the full year and over 20% in the fourth quarter. So if anything accelerating.
Our qualified pipeline at the end of the year was up over 20% of.
And that is really the pipeline, though we consider real.
The awards by the way, which is kind of.
The early indicators of what will happen in the future Awards I remind you is stuff that we have essentially one but we have not yet contracted for.
And thats booked for the walls are up.
The absolute number the Q in Q4 was the highest ever and it was up 9% year over year.
So we.
And the book to Bill ratios, the backlog, which itself is up just under 10% a year over year and 11, 6%. Excluding FX. So I mean, I don't I don't know.
You know.
What else to share we've got solid numbers here that support healthy healthy demand for clinical trials services.
And then on top of that you can add our.
Market share gains and I think that explains it.
Ron if I could just Ron if I could just have one quick technical item here can you confirm that there are no share repurchases built into the guidance and I know you've talked about the 2 billion capital deployment and the split between that and M&A, but is there any.
Any.
Current thinking on.
Taking some advantage of that authorization that you have on the repurchase side.
I can't confirm that there is no share repurchase baked into our guidance.
We're right now assuming $2 billion of capital appointment split evenly between M&A and debt reduction.
What might we repurchased some shares during the year sure that that's our assumption going in in the guidance that we gave is that we're not we'll devote.
The capital to debt reduction instead, but that could always change with circumstances.
Okay. Thank you.
Your next question is from the line of and Samuel with Jpmorgan. Your line is open.
And Samuel with Jpmorgan Your line is open.
Okay next question please.
Your next question is from Justin Bowers with Deutsche Bank. Your line is open.
Hi, Good morning, everyone. Just pivoting from Rds are you you talked a lot about.
Some strong momentum in commercial managed services.
Just wanted to wondering if you could expand about some of the strength there and and also is that is that.
Isolated just in task or is that also.
The Cts business.
You mean.
Yes, that's right.
Alright, so yes, yes, yes.
No I mean, you'll see SMS is a relatively.
Slow growth.
On the debt side.
The stars group.
Growth has been consistent.
We've.
We're pleased obviously to see that continue to grow.
So that's excluding the covenant stepped down when we had the fear I will see you lost share of coffee to work during the pandemic. So that's stepping down and excluding that we had growth of 7% in Q4 and 10% for the full year.
You do it.
Corner to corner he could equally varied I think the first half was more or less around 10% growth.
Third quarter was 12% we had.
Activity that was.
That came in earlier than we thought and the fourth quarter was 7%. So overall.
Very good growth in Q4, we guided 7% to 9% for next year.
This is consistent again, excluding COVID-19 acquisitions, and FX is consistent with the underlying operating.
The momentum that we've had in <unk> and then we have <unk>, two which is a high single digit so.
The real the.
The fast growers in this.
The business are.
Technology.
And real World and that's where I think you mentioned a few very significant achievements in a few significant awards with clients.
Both continue to be strong drivers of growth.
As we continue to find innovative ways to utilize where we reward evidence for clients and employ more of our technology solutions.
The piece of the business that <unk>.
Perhaps more exposed to the economic wins.
And budget.
Expansions or restrictions by clients is the more discretionary spend.
Analytics and.
<unk>.
Consulting work, we saw usually at the end.
Just to share more color.
And we usually have at the end of the year.
And acceleration in this business and we didn't see that in December and the reason for that is historically clients like to spend more towards the end of the year and they do kind of last minute purchases and they did.
The kind of.
We utilized our budgets, if you will and we didn't see that so much.
Sue and I again, I don't know whether people are being more cautious or anything.
But mostly you again it was in the consulting area and analytics, which tends to be short cycle short term and more discretionary.
But the underlying growth is driven by real world and technology, both of which are longer term decisions in a not so.
Subject to cyclical economic changes and then of course the last piece is the data business, which is flat and continues or flat to low single digits, one 1% and that continues where it is and when you do the math basically that's what yields you're high single digit growth for the <unk>.
<unk>.
Thank you for your questions.
Your next question is from the line of Jack Meehan with Nephron. Your line is open.
Thank you good morning.
So no no you sound bullish around the funding trends that you've seen over the last year wanted to ask about.
Funding in a different way just what are you seeing in terms of cancellations around year end.
Was there anything notable about that relative to kind of the last couple of years.
Nothing.
Short and sweet.
Yeah. It has there been any rumbling around restructuring in any of your important clients I guess just like how are you building.
Just sort of the macro into your outlook for the R&D segment this year.
Okay. Once again in terms of the demand no.
Signs that we can see.
That our clients are somehow delaying or canceling postponing.
Clinical trial development work that was planned.
Before so we don't see anything no unusual cancellation activity no unusual postponements.
We've been saying this essentially full 12 months exactly.
In terms of factoring the microenvironment, if you want to expand your question then that's a different discussion.
We can get.
We are we are a large powerful ship.
That would be gating extremely stormy waters.
The engine continues to be very strong that's the demand.
And certainly our operating momentum in our organization, but the wins.
In the form of.
Interest expense in the form of wage inflation.
In the or in the form of wars in a foreign theater owners that affect.
Our ability to do work in certain sides in the form of continued COVID-19 issues in China, which affected delays are returned to normal operating mode in clinical sites all of those.
And more.
Are these wins that wins and installed new water was that I'm, referring to that our macro.
Macro factors some of which we can do something about.
For example, wage inflation, we are addressing by trying to manage our workforce.
More tightly.
By increasing and accelerating our productivity initiatives.
Bye.
Looking at.
Maintaining and accelerating our cost cutting discipline.
And we've launched.
Does that affect that towards the end of last year.
The new program too.
Again bring forward.
Many.
Field overhead.
Realizations and economies of scope and outsource.
Outsourcing and offshoring.
Decisions that were scheduled to occur over the 22 to 25 planning period, and we are accelerating all of that.
Into.
2023, so as Ron mentioned the benefits of those will begin showing.
Towards the latter part of the year.
But the work is ongoing so thats, how we are trying to address those macro factors that are not that.
That are somehow.
We can offset with action on our on our side with respect to interest.
Sure. There is a one time step up in the interest expense.
Come on kind of limited in what we can do but we certainly as you saw started reducing our debt.
Levels and we entered into swaps.
We are trying to address that in capital markets, we probably towards the end of the year, we saw another $1 billion of.
Of that.
The tranche that would normally.
For them out in 2024.
We'll do that in the latter part of the year and for now.
Eric reminded us we do not have any share repurchase plan this year.
Because we are devoting our casual now if our cash flow is very strong in and circumstances can change obviously, we will adjust.
Those are those decisions, but that's what we're doing to address the macro factor. Thank you very much Jack thank.
Thank you.
Your next question is from the line of Luke <unk> with Barclays. Your line is open.
Hey, guys. Thanks can you a couple of one clean up here on the Covid can you give us a sense of the how you are expecting that the roll off in <unk> between the two segments between.
Taz in Rds, just from a modeling perspective.
Yeah, Jack It's I think I said overall of the $600 million Covid step down year over year about 40% of it would be in Q1.
They will be fairly substantial impacts in both of the segments.
They are at.
And I would say about a third of the impact of being TACE, Jack and about two thirds in R&D, that's kind of how you should think about it.
By quarter and for the full year, it's about to about that roughly.
Alright, great. Thanks, that's really helpful. And then lastly here on another one from on the free cash flow.
So I mean, I understand kind of moving parts here on for the year, but can you give us a sense of what youre targeting for 'twenty, three and as a percentage of EBITDA conversion.
We always talked about it as a percentage of adjusted net income and.
We target typically between 80 and 90% free cash flow to adjusted net income that's where we were for the full year 2022 and look at the only thing I would caution on that is that in any given year. It could vary from that cash flow is based on point to point and the balance sheet, it's not like.
And accrual.
Concept or anything like that so of course, you could be higher or lower we are substantially higher than that in 2021.
And we're right in the range in 2022, and I would say just as a.
Kind of.
Our target you should think of that as being in the 80% to 90% of adjusted net income range, but recognizing that we could deviate from that in any given year.
Alright, thank you.
Your next question is from the line of Sandy Draper with Guggenheim. Your line is open.
Thanks very much.
Question for you or a sort of have you gauged in your crystal ball a little bit.
Longer term, because I know youre talking certainly a lot more of the Biopharma Ceos than I am when I look back at sort of what I heard out at Jpmorgan Davos, just other things around how farmers looking into the next three to five even 10 years, especially with the inflation reduction Act I hear sort of.
Messages from about are people going to and Thats more hey, we want to get away from or to be more diversified and not so concentrated in one or two blockbuster drugs until we want to get more drugs out there, we're going to and so theres more trials are going to pull back I'd, just love to hear what you're hearing or what youre thinking about.
What your customers are looking at not not really from an economic perspective about the current macro environment, but with how their portfolios are how concentrated the RFP really big drugs and what the inflation reduction act needs would love to hear your thoughts on that thanks.
Yeah. Thank you Yeah, I mean look these showed a reduction act.
Just to know what did you say you had to name it.
It's very easy.
He is in flux right now there's a lot of work to be done in finalizing the details of the legislation. We actually spent a lot of time with our clients trying to explain to them what's in it.
Not that we understand it entirely because many of the provisions first of all.
Haven't been detailed enough all specific enough and we don't know how it's going to work and a lot of it is still subject to <unk>.
Negotiations.
Many of the provisions anyway wont kick in until later in the decade.
And.
Again, some parts of the legislatures are undefined many of the rooms and regulation is still under discussion.
So generally the statements from the former Ceos.
Speak to them about this is that it's harmful to innovation and to patients.
Cause.
Any time you start curbing.
No the economics or you try to start with curbing the economics for <unk>.
Drug development.
Even if it's long term and even if it's you know.
The effect if any.
Before any other administration changes these things.
It will be seen in 15 years from now.
It could.
At least conceptually each pharma companies to decide well you know it's not as attractive so I'm gonna drove this program or that program when I factor in.
Types of pricing and so on and so forth while reimbursements.
But again.
This is not how pharma works.
Despite the bad press pharma is motivated by <unk>.
<unk> people and and the R&D.
All of the R&D.
Heads at pharma companies that I know that my colleagues speak to day in and day out their motivation what makes them come to work every day as they are going to come up with a drug to cure pancreatic cancer and procure breast cancer and to cure diabetes et cetera et cetera. So this is this is the underlying.
<unk> and the model is predicated on.
Pharmaceuticals doing good for society, so that you know.
Notion that people are going to cancel a program because the economics don't look as attractive yeah the margins.
General observation second observation in my conversations with our clients is that.
A lot of that's a trend that's independent of the.
The inflation reduction.
A lot of the focus is on trying to address.
More specific.
Diseases rare diseases.
Sub categories within subcategories in oncology.
Mentioned before oncology is probably easiest continues to be the largest and strongest grower.
In our business in terms of the demand for it.
Good trials and drug development work.
So that that's just not going away and see the diseases go away, which we all hope for.
Drug development is here to stay and pretty much the same model again the focus on on addressing previously.
<unk> touched almost as much smaller markets.
That continues and that as you know plays to our strength and capabilities. So I mean, that's.
Little bit of color on my conversation. So yeah, I mean, it's a general cloud and at the conference select Davos, you could expect to hear such things but.
In practice.
It's changing very much day to day, how our clients operate and make decisions with respect to their investment programs.
Thank you got it.
Thanks Howard.
Your next question is from the line of Elizabeth Anderson with Evercore ISI. Your line is open.
Hi, guys. Thanks, so much for the question I was wondering if you could comment on that.
The degree of pricing that you're sort of getting on.
Our new contracts and that are going into bookings analysis. The degree of wage inflation you're currently.
Experiencing labor force. Thank you.
Okay.
Okay I'll take the second part of your question first.
Yes, we are experiencing significant wage inflation the skill sets that we are looking for.
All scarce and in high demand.
We're looking for people who have health care.
Expertise, who have data science expertise, who have software development expertise.
Or a combination of all three.
And that these skus are in very high demand.
Secondly, frankly, we are a hunting ground for competitors of all kinds in the health care sector in the tech sector and.
The data science sector and.
As a result, we are compelled to.
You don't raise.
Our compensation programs and that is causes inflation. So as you have the general inflation out there for us.
<unk> there are specific idiosyncratic to our business and to our company.
Now I mentioned before that despite that you can see that we are growing our margins.
So.
We are addressing it and thats through essentially cost management programs.
Meaning we do more work in lower cost.
Areas.
Et cetera.
Now I'll get into the first part of your question, which is pricing all were able to offset those cost increases with pricing generally in the commercial sector for shorter cycle.
Businesses theoretically, yes, and we are when we can but.
It's always a negotiation with clients and it's a competitive market out there you got a lot of smaller competitors, who are fighting for the slice of the bi and often what we got to the fight against that and so our pricing flexibility.
It does exist in theory on the commercial side.
In R&D.
R&D is in four clinical trials, yes of course rates have to reflect.
What the labor cost is and again, that's also subject to negotiation, but we do.
Transfer of at least a portion of those ways.
Wage.
Raises to our clients in the form of rates that are applied to determine pricing for the clinical trial, but I remind you that the clinical trials business is a long term.
Long cycled business, meaning that what we book today, which may reflect some level of price increase longview, realizing to revenues until the next.
Yeah.
1245 years, so what we are delivering in revenue today and tomorrow was sold.
Several years ago.
A different.
On the different labor cost assumption. So there is a delay if you will in the clinical trial business because of the long cycle nature of the business.
There are contracts, where we have.
Escalation clauses for inflation, but they never envisioned that type of inflation.
The inflation that we are facing in some of the market. So that's the picture on pricing.
We very much think of it.
That's very helpful. Thank you.
Well. Thank you one more question. Your final question comes from the line of Charles <unk> with Cowen Your line is open.
Great. Thanks for taking the question maybe Ron just.
I might have missed it but when you talk about the.
The impact to EPS from these buckets can you kind of break down for us the relative contribution between.
The higher tax rate interest expense et cetera that makes up for that delta on EPS growth.
And then if you think about.
For this year, yes.
Yes, yes.
Look.
The UK corporate tax rate increase.
Added about a percentage point to our overall effective tax rate. So you start with that but most of the impact year over year, it's coming from interest expense.
So.
We were I think slightly over $400 million in interest expense in 2022, we told you about $615 million in 2023. So you can do the math on that then.
190.
Roughly 190 million shares and figure out what the impact is it's principally coming out of that and that's why we we excluded those two items and charges.
Absent those our EPS growth rate underlying operational was still very strong double digit.
And that assumes.
The debt paydown assumptions and going into swap agreements or is that yes. If you do those things in here, okay, yeah, all of that into our assumptions.
Alright, great. Thank.
Thank you.
I will now turn the call back over to Mr trials.
Okay.
Thank you everyone for joining us today, we look forward to speaking you again on our next earnings call.
Myself and the team will be available the rest of the day for any follow up questions you might have.
This concludes today's conference call you may now disconnect.
Please wait the conference will begin shortly.
Yes.
[music].
Yes.
Okay.
Yes.
Yes.
Sure.
[music].
Okay.
Yes.
Okay.
[music].
Okay.
Yes.