Q4 2022 ICON PLC Earnings Call
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
[music].
Okay.
Good day, and thank you for something by welcome to the icon Q4, and full year 2022 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one.
One on your telephone you will then hear an automated message advising you on this race to withdraw your question. Please press star one on one again please be advised that today's conference is being recorded I would now like to turn the conference over it you'll speak stay Cape Haven. Please go ahead.
Thank you good day and thank you for joining us on this call covering the quarter and full year ended December 31, 2022 also on the call today, we have our CEO , Dr. Steve Cutler and our CFO , Mr. Brendan Brennan I would like to note that this call's webcast and other slides available to download on our website to accompany today's call.
Certain statements in today's call will be forward looking statements. These statements are based on management's current expectations and information currently available.
Including current economic and industry conditions.
Actual results may differ materially from those stated or implied by forward looking statements due to risks and uncertainties associated with the company's business and listeners are cautioned that forward looking statements are not guarantees of future performance forward.
Looking statements are only as of the date. They are made and we do not undertake any obligation to update publicly any forward looking statements either as a result of new information future events or otherwise.
More information about the risks and uncertainties relating to these forward looking statements can be found in our SEC reports filed by the company, including the form 20-F filed on March one 2022.
This presentation includes selected non-GAAP financial measures, which Stephen Brendan will be referencing in their prepared remarks for our presentation of the most directly comparable GAAP financial measures.
Please refer to the press release section titled Condensed consolidated statements of operations, while non-GAAP financial measures are not superior to or a substitute for the comparable GAAP measures. We believe certain non-GAAP information is more useful to investors for historical comparison purposes.
Included in the press release and the earnings slides you will note a reconciliation of non-GAAP financial measures adjusted EBITDA adjusted net income and adjusted diluted earnings per share excludes stock compensation expense restructuring costs foreign currency gains and losses amortization and transaction related and integration related costs and their respective <unk>.
<unk> benefits.
We will be limiting the call today to one hour and would therefore ask participants to keep their questions to one each with an opportunity to ask one brief related follow up question I would now like to hand over the call to our CFO Mr. Brendan Brennan.
Thank you Keith.
Quarter for icon achieved gross business wins of $2 7 billion.
And recorded $355 million worth of cancellations. This resulted in net awards in the quarter at $2.350 billion and net book to Bill of one two times.
Full year 2022, gross business wins were $10 $99 billion in cancellations were $1 4 billion, resulting in net business wins of 945 billion and a net book to bill of one to two.
With the addition of the New awards in quarter four our backlog grew to a record 27 billion representing.
An increase of two 4% on quarter three of 2000 gets too.
Or an increase of eight 7% year over year.
Born with nine 7% for the quarter in line with quarter three levels.
Revenue in quarter, four was $1.962 billion.
Represented a year on year increase of four 3% on an adjusted revenue or seven 6% on a constant currency organic basis.
Any impact from year over year changes in foreign currency exchange rates resulted in a headwind of approximately $63 million in quarter four.
Full year revenue was $7.741 billion. This represents a year on year increase of 41, 2% or 45, 4% on a constant currency basis.
Revenue from our top 25 customers consisting of a range of customer sizes increase from quarter three concentration.
Concentration in our top customer represented nine 2% of revenue and our top five customers represented 29, 3% of revenue our top 10 represented 44, 5%, while our top 25 represented 67, 8%.
And the full year 2000, <unk> to our top customer represented eight 8% of revenue and our top five customers represented 28, 3% of revenue our top 10 represented 42, 7%, while our top 25 represented 63, 1%.
Gross margin for the quarter was 29, 9% compared to 29, 5% in quarter three.
Full year gross margin was 28, 9%.
Gross margin strength was driven by continued direct fee revenue growth and improved resource utilization in quarter four.
Total SG&A expense was $182 $2 million in quarter, four or nine 3% of revenue.
In the comparable period last year total SG&A expense was $197 million or 10, 5% of revenue.
We expect total SG&A expense to be similar absolute level in quarter one.
Full year SG&A expense was 757 four.
$4 million.
Adjusted EBITDA was $405 million for the quarter or 26% of revenue in the comparable period last year, adjusted EBITDA was $332 5 million or 17, 7% of revenue.
Representing a year on year increase of 21, 8%.
Full year 2022, adjusted EBITDA was $1 billion of $479 5 million or 19, 1%.
Adjusted operating income for quarter, four was $377 7 million a margin of 19, 3%.
The net interest expense was $70 $4 million per quarter for full year net interest expense totaled $210 million. In 2022. This represented an increase of approximately $50 million from our initial assumptions for full year interest expense when guidance was issued back in January 2022.
The effective tax rate was 16% for the quarter. The full year 2022 effective tax rate was 16, 5%.
Adjusted net income attributable to the group for the quarter was $257 7 million a margin of 13, 1% equating to adjusted earnings per share of $3 <unk>, an increase of 19% year over year.
Full year adjusted net income attributable to the group was $968 $7 million equating to adjusted earnings per share of $11 75, an increase of 21, 7% year over year.
In the fourth quarter the company recorded a $10 7 million.
Transaction and integration related costs full.
Full year transaction and integration related costs were $39 $7 million.
U S. GAAP income from operations amounted to $203 4 million or 10, 4% of revenue drawing port for.
Full year U S GAAP income from operations.
$795 2 million.
GAAP net income attributable to the group in the quarter.
Quarter, four was $117 4 million or $1 42 per ads.
The diluted share compared to 92 cents per share for the equivalent prior year period.
Full year U S. GAAP net income attributable to the group was $505 $3 million or $6 13 per diluted share.
<unk> to $153 2 million or $2 25 per diluted share for the full year 2024.
The additional dynamics, we discussed on the terrific quarter coal for the year remain in place with the expectation of a continuing revenue headwind from foreign exchange in the first half of the year.
With the largest impact expected in the first quarter.
Backlog conversion is expected to average nine 5% for the full year as we continued to see a mix shift towards longer duration full service programs in our backlog and a lower overall contribution from vaccine related studies. Additionally, Cobra related programs are expected to represent approximately 4% of our total revenue for the.
Full year down approximately 200 bps from the 2022 levels.
Separately, we will see a sequential increase of approximately $10 million in.
In our quarterly interest expense in quarter one.
Net accounts receivable was $1.182 billion at 31 December 2022. This compares with a net accounts receivable balance of $934 million at the turning to September 2010 to two.
DSO was 54 days in the quarter up from 31 days been comparable basis from December 31, 2021, and up from 43 days in the comparable basis at September <unk> 2022, cash outflow from operating activities in the quarter was $59 million we.
We saw an increase in our DSO as we continued to align billing payments and collection processes. We are however, encouraged by the record billing quarters, we had in quarters three and four in 2022, resulting in an increase in total billed accounts receivable coming due within the first half of 2023, our target DSO is still.
Circa 45 days and we expect to see positive movement as we proceed through 2023.
At December 31, 2022, the company had a cash balance of $288 8 million and debt of $4.654 billion.
Leaving a net debt position to $4.364 billion.
This compared to net debt of $4 billion $239 million at September <unk>, our net debt of $4.682 billion at December 31, 2021 capital expenditure during the quarter was $57 million.
We ended the quarter with a net debt to trailing 12 months adjusted EBITDA ratio of two nine times.
Substantially from our net leverage ratio of three four times adjusted EBITDA at the end of 2021.
The primary priorities continues to be the pay down of debt and as such we made payments of $200 million on our term loan b facility in the quarter, bringing our total repayments to 800 million for full year 2022.
As previously communicated in January we finalized our hedging strategy at the end of the fourth quarter to provide more certainty around our total interest expense in twice to phase III.
Due to the volatile interest rate environment. The hedging solution resulted in the proportion of our fixed rate debt metric to circa 60% of our total debt. Our current <unk> full year guidance assumes total interest expense for the full year to be in the range of $280 million to $200 million.
Based on our current projections on rate movements throughout this year, we anticipate the full year interest expense will be at the higher end of that range with all of that said I'd now like to hand over the call to Steve.
Thank you Brendan and good day everyone.
2020 to Mark another year of success for icons, we continued our journey to become the worlds, leading healthcare intelligence organization.
Do you was certainly not without its challenges as the fix from the war in Ukraine ongoing pandemic related issues in several macroeconomic headwinds impacted our operations and financial results.
Against this backdrop icon continued to deliver consistent and predictable results for our investors through the deployment of our comprehensive clinical services strong customer focus and rigorous cost management.
We recognized another important milestone for iPhone. This week as we approach the two year Mark the announcement of our Union with PRA Health Sciences.
We made significant progress in creating a unified employee experience through the harmonization of systems processes and facilities across the organization.
Our approach and utilizing the best of both.
<unk> has benefited our teams and most importantly, our customers as we evaluate every decision through the lens of how we can optimally position ourselves to deliver our expanded capabilities efficiently and effectively as one icon.
Progress towards achieving our synergy targets has continued as previously communicated with the expectation to realize the full $150 million of cost synergies in 2023, one year ahead of our R&D.
This will take time.
Our revenue synergy of $100 million exiting 2024 remains on track. After continued success in securing cross sell of wounds, which exceeded $100 million for the full year 2022.
The fundamentals of our industry remain healthy as demand for efficient patient centric clinical development services continues across biopharma customer segments.
We have seen consistent trends with regards to overall RFP activity as well as out resulting business development performance as mid and large biopharma customers have continued to show strength across these areas.
In the emerging biotech segment, we have seen sponsors continue to closely manage overall spending levels and optimize development strategies as the broader funding environment in types of decisions.
We are encouraged that we have not seen an uptick in cancellations that it's all material project delays as a result of the current environment, but RFP activity in the biotech segment has been muted in the second half of 2022, and we expect this to continue.
Nevertheless, as biopharma customers navigate the uncertain macroeconomic environment and assess potential implications for the portfolios. We believe opportunities will emerge to find new ways of supporting our customers as they are.
Evaluate.
Of those strategies.
Our diversified and well balanced portfolio appeals to customers across segments as we are.
Uniquely positioned to customize our offerings for their specific needs and gain market share.
Further to this point I am pleased with the success, we had in securing additional strategic partnerships in 2022 across our business segments.
One highlight was our recent strategic partnership we executed with a midsized pharma sponsors to be the sole provider delivering a customized integrated model of development, leveraging civil icon services, including foodservice and functional offerings.
<unk> has worked closely with this customer for a number of years and together, we constructed an optimal into any solution that will provide efficient portfolio execution and outcomes.
Our drawing upon outcomes wealth of expertise and unique broad service offering we believe this partnership can achieve our customers goes.
<unk> innovative treatments to patients faster through a scalable development mode.
In our <unk> solutions business, we are continuing to gain traction with program wins utilizing our customer centric engagement approach.
This is predicated on early consultations with customers, including medical regulatory and therapeutic experts alongside our operational team to truly understand our customers needs and bring valuable insights to the development plans for instance, we had recent success with the mid sized customers program in lung cancer column.
We're already on a novel development plan to target accelerated approval of a drug utilizing outcomes, leading therapeutic expertise and experience in these complex theory book to Bill.
These recent wins of select examples of a broader trend DSC indeed.
Which requires <unk> to adapt and customize offerings leveraging innovation.
Knowledge experience and expertise to further evolve outsourcing delivery models.
We remain committed to our structure focused operational use that serves distinct customer segments and develop models.
This uniquely positions <unk> to provide flexible solutions that address customer needs, regardless of size or preferred outsourcing practice.
Our approach along with our significantly increased capabilities and scale has allowed us to engage in discussions with a number of potential new partners and we are excited about the opportunities that lie ahead.
As we build towards our vision of becoming the worlds, leading healthcare intelligence organization, we are investing in and executing on important initiatives across iqos to position us for further success in that market.
Innovation at arc to them as a critical element of our strategy.
And value proposition as we develop integrated technologies and advanced analytics that are focused on outcomes that matter most to our customers.
We continue to simplify and streamline processes throughout them to development and across our service offerings enabled by the application tools like AI.
<unk> and robotic process automation.
<unk> had a very impactful year in 2022, as we processed over 1 billion hours of activities through automation.
Separately.
<unk> recently launched the Sola platform, a digital tool utilized with customers to improve efficiency.
Study setup process.
This platform provides such a sophisticated interface with technology features to reduce rework minimized manual data entry and reduce errors.
Solar is one component of our long term strategy and driving towards greater use of mobile applications to automate site activities and enhance sample management capabilities.
Yes.
Additionally, following the release of our 2021 report.
<unk> program was awarded a silver medal for <unk>, the world's most trusted provider of sustainability ratings, achieving an overall school improvement of 40% from 2020 through 2022 and pricing item in the top quartile of companies participate in this program.
Blood.
We have also launched iPhone cares a companywide initiative demonstrates our ongoing commitment to ESG and monitor progress across our goals in this important area.
Aimed to engage our employees and identify further opportunities for advancements in areas like diversity inclusion and below where we can make a positive impact on our people partners communities and patients.
Turning to our financial performance in quarter, four <unk> delivered very solid results with four 3% revenue growth was seven 6% revenue growth on a constant currency organic basis of a quarter for 2021.
Excluding COVID-19 related work revenue growth increased over 10% year over year on the same basis.
Net bookings were flat sequentially and continued to be impacted by foreign currency and the strengthening of the U S. Dollar on our comparative year over year basis.
Backlog grew eight 7% of our backlog at the end of December 2021, as demand for our services, particularly strong from the mid and large pharma customer statements.
We also saw strong expansion of our gross margins as increased utilization and direct fee revenue growth helped drive sequential and year over year.
Further <unk>.
Our focused cost management and initiatives delivered a best in class Global business support model resulted in an adjusted EBITDA margin for the full of 26%.
An increase of 110 bps sequentially and 290 basis points from quarter four 2021.
Finally, adjusted earnings per share met our expectations in both quarter four.
The full year, resulting in an increase of 19% and 22% year over year, respectively.
We continued our progress in reducing our floating rate debt exposure, but making a $200 million payment on our term loan b facility will therefore, the total repayments.
$800 million and resulted in a ratio of two nine times net debt to adjusted EBITDA at the end.
<unk>.
We expect to continue our payments.
Monthly facility, averaging $200 million to $250 million per quarter in 2023.
Our capital deployment strategy remains focused on debt pay down in the near term.
While our increasing activity and building our M&A pipeline.
On that note. We currently see a number of interesting opportunities to enhance our existing capabilities and further differentiate.
Service offering.
Our strong performance in quarter, four and in 2022 positions us well for continued growth.
We are reaffirming our full year 2023 financial guidance that was issued in January .
With revenue in the range of $794 billion to $834 billion, representing growth of two six to seven 7% on a year over year reported basis and adjusted earnings per share in the range of $12 40.
The $13 five representing five five to 11, 1%.
On a year over year basis.
This guidance assumes very strong adjusted EBITDA growth continue for the full year 2023.
We remain focused on longer term growth targets, we have set for 2025 as we continue to successfully navigate an uncertain environment supported by the fundamental drivers of demand for outsourced political development.
Our revenue ambition of $10 billion remains in place as we envision M&A contribution to revenue returning in the back half of this year and into 2024.
We've already made excellent progress toward our adjusted EBITDA margin target of 21% as well as strong earnings per share growth. Despite the significant movement in interest rates over the past year.
Turning towards our organization for a moment our employees are at the forefront of what we do and during the year. The commitment of our team shown through regularly as we continue to find ways to meet customers' needs and support patients and sites across the globe.
We are constantly challenging ourselves to be the employer of choice in our industry.
To this end.
Making focused investments in our people areas such as can redevelopment.
ZIP training compensation and talent acquisition.
This will ensure asset sits in recruiting and retaining talent as well as maintaining environment, where people are proud to work and feel supported and challenged in their roles.
We believe this has contributed to the positive trends, we have seen in employee retention, which improved sequencing sequentially every month throughout 2022, despite very competitive labor market in our industry.
We were named to Forbes America's Best large employers for the fourth time since 2008.
Furthermore, icon was recognized with a number of industry awards throughout 2022, and I was particularly proud of our team being recognized at the 2022 Scrip awards as the best full service CRO.
In closing the.
When we move to Q&A I want to recognize the resilience engagement and strong performance of our colleagues across <unk>. We are grateful for your commitment to excellence and ongoing efforts for our customers sites and patients.
Operator, we're now ready for questions.
Thank you to ask a question you in its press star one on one on your telephone and wait for your name to be announced.
Your question. Please press star one on one again.
We will now go to your first question.
One moment please.
And your first question comes from the line of Sandy Draper with Guggenheim. Please go ahead. Your line is open.
Great. Thanks, very much I guess.
First question and I'll try to keep it short just on Brendan if you can just remind me the change in billing terms was that.
Dictated by the customers and is that related to the.
The current macro environment, what caused you to change that it sounds like you expect.
So just to come back down and I think youre still targeting over $1 billion of free cash flow, but just trying to understand again what happened there and then how we should think about the improvement over the course of the year in terms of the cash flow.
I don't know who it is.
Who is that complex I need to be honest, we did a lot of integration work. During the course of 2020 to certainly some of that the strike to the billing levels were probably a little lower than I would've liked earlier in the year, but as I said in my prepared comments, we really saw a significant improvement in operating levels in Q3, and Q4, particularly we do see that having a positive cash flow impact in the.
First half of this year. So I would say it was more of that I think our billing our contractual terms are commercial terms relatively consistent our mix of business.
We will focus on debt pay down and.
Sandbar backs at this point.
You never rule amount, but at this point really.
Not not high on average into.
Okay great.
Thanks.
Uh-huh.
Thank you.
We will now go to our next question.
And your next question comes from the line of just been balance from tight Shebang. Please go ahead. Your line is open.
Hi, Good afternoon. Good afternoon, everyone. Just a few on the background could you sorry D. The backlog could you characterize the solutions that large farmer are are requesting.
Let's say as we enter 2023 and how that shifted as we entered endemic state and then can you remind us on your backlog policy for the F. S P business.
Uhm, whether the mix is the increased.
Decreased over.
Over the last let's say 18 months or so.
Sure I'll take I'll take the quick launch adjusted it may be Brendan can talk about the backlog.
A shift.
We see.
Large from talking.
Talking to us about a number of different models and when you see sometimes I think we think that companies have very few of modal most of them have a component of the various.
Versus that we offer whether it be functional whether it be full service, whether it be some sort of mix.
And so most of them do that.
Some some of the larger farmers were talking to you more about the hybrid models or more of a functional others are continuing down the full service the midsized promised probably more than the full service as others the biotechs.
We I don't think we see any sort of major push one way or the other at this stage and that's that suits us bond because being so well positioned in the in the functional group with a bleeding.
There are those services in the market and also well positioned we.
We feel we can offer either of those solutions or a combination of those solutions. So if there's any trend I suppose it's probably more towards that combination that hybrid that hybrid model with I want functional to certain areas, but they are very cognizant of the benefits of full service for others as well so if anything it's probably moving towards perhaps a bit more.
Towards a hybrid but really all of those particular farmers have a combination of those sorts of models in place already and so.
The trends of minimal.
Yeah, an inherent just enough the actual highway broken into into backlog those FSP contracts, although functional stopping contracts. We very much you know fairly fairly conservative around that they're they're based on renewals those on an annual basis. So we we look at 12 months in terms of how many heads will have on betting for that period and then we'll make sure we've always.
That kind of a 12 month period in front of us in backlog, we don't go beyond that they can't have Msas, obviously that bill for three or four years, we generally wouldn't take anything more than 12 months. It directly in front of us in terms of the movement in the mix of backlog year over year, Let's say end of year 20 wanted to end of your 22, I wouldn't say that we've seen a significant increase in the.
The FSP proportional to the full service outsourcing in fact, the whole servers aren't sourcing had a very strong year in 2022. So at this point, it's adult with the plans, it's never straightforward, but certainly no massive shifts that would impact on the backlog in terms of the mix.
Got it and then just a quick one on.
The guide and then Sneeze commentary does the range reflects some M&A or.
Would that be incremental too.
To the top line guidance.
Regardless was given the assumption that there is no M&A.
It just says so.
There there would be some upsides potentially.
Able to execute the back into the.
Otherwise undisturbed.
I appreciate it.
Okay.
<unk>.
We will now go to your next question Huh.
And your next question comes from the line of Patrick Tiny from City. Please go ahead. Your line is open.
Hey, good morning. Thank you guys for taking my questions. Steven maybe one just on the biotech versus mid to large pharma it sounds like the biotech RFP.
For the second half or a little softer sounds like you were expecting that to continue here for a little bit can you just talk about I guess, the conversation's you're hearing from customers visibility income maybe that picking back up and then on.
On the back of that just the confidence level in terms of the mid to large remaining strong enough to kind of offset that in the near term would just be curious to hear a kind of a different conversations going our customers there.
Yeah.
Congress as as we're having with but you can certainly.
The environment is more muted I think as I indicated more common that it was 12 months ago.
Being more careful and deliberate in their spending.
Allocation of capital Interestingly, we've seen.
Reasonable uptick in the number of Rsp's that we've received but the value has been slightly downward certainly better than flat. So.
Yes that would sort of indicate smaller projects again, that's focusing on asking specific questions or answering specific questions in the development program and get them to a point, where they can raise for the capital. So it's it's more cautious and more deliberate.
On the biotechs, but on the other hand in the in the speed and large farmer, we've seen some pretty pumped me, that's a pretty positive conversations around partnerships that they more strategic about being a great a part of the of the expandable focus part of its been certainly the discussions around cost control and saving money.
But as a as a major player in the industry were able to go back to lodge, a formal tunnel and talk about the sorts of savings. We can generate if we can have we received a greater proportion of the expensive we're able to cover the greater push this been because we have the capability. So it's a different tone of conversation.
But there are a lot of time or an overall, we've seen the the opportunities in that large.
Particularly sort of push upwards. It hasnt counted some of the downturn on the budget, but it was a look at biotech in the long term, we're coming back to a position on the long term, but sort of more in line with.
The longer term averages I've said a number of times on these calls we had the sugar highs of a of a year or two ago and were coming back down to put some more normal runway.
I do expect that we've kind of hit a deer, and we'll be moving on an upcoming foods.
Optimistic, but I think the next six to 12 months will be pretty much.
Steady as she goes in much the same in the box he said.
Okay. That's helpful. And then maybe one for Ya Brendon just on the [noise].
The margin peace nice to see you guys be able to pull forward. The synergies could you just talk about I guess, the moving pieces. This year in terms of some of the wage inflation pressures and then the offsets obviously being the synergies maybe a little bit on pricing just trying to get a feel for you know obviously you pulled forward the synergies.
And pulled a big lever there what's kind of left beyond this in terms of if you think about the model.
Necessarily 24, but just twenty-three moving pieces and then again the comfort that continued expansion beyond this after pulling the synergies forward. Thank you guys.
Yeah, I think that's I think one of the things we said from the commencement of the deal was that way.
And fundamentally changed our spots. So we are always very careful cost managers I think thats been apparent obviously since we completed the transaction as it had been before I think one of the things as we go into 2023, and indeed I would truly of 2024 and we look at that margin progress. We obviously want to see the good progress the very very good progress that we've.
Made in 2002 in the back and the 22 sustained and developed as we go through 23. So I think it's more of that story, it's that bad slow development. During the course of the year I mentioned on the Sars to call in my prepared remarks that SG&A for example in quarter, one would be at a similar dollar levels of what we saw in quarter for so telematic Lee again, it's about controlling cost base.
Leveraging that top line very happy with the gross margin progress obviously in queue for as well as very very solid. So for me 2023 is about establishing stabilizing those levels and making sure we were considering and staying at those levels as we walk towards more midterm goals getting to 21%.
As you can see with the progress we page through twice tried to Sue we're well ahead of that target I think in all in all honesty. When we think about the further leverage that left in the organization beyond that point, we never really put a ceiling on our ambition. So we we think about it the 21% were going to move towards that certainly during the course of this year.
And then it will be for us to have another look at the organization and see where we can go from there I won't I won't predestined that at this point in time, but I would say we would continues to be ambitious about Florida margin expansion beyond that point.
Great. Thank you guys.
Thank you.
We will now go to the next question.
I'm doing next question.
From the line of Eric Colwell. Some bad. Please go ahead your line is open.
Thank you.
I have two I'll start with just conceptually on the revenue guidance I know in the prepared remarks, there was a mention of some activity on the preferred provider front, if I'm not mistaken I believe late later last year, there were comments that or maybe early this year there were comments that.
If some of the larger opportunities in the pipeline emerged it could bias or revenue towards the higher end of the range as you exit this year I'm. Just curious are there any updates on the pipeline for larger preferred deals perhaps how many you are looking at or in negotiations on and what kind of timing.
Might be available if some of those do materialize.
Yes, Eric Thanks for the question.
I'd be hesitant to get too far ahead of ourselves in terms of pushing towards the upper end of the range. At this point. These preferred we've always said these preferred provide a discussion take awhile typically would you some work and they expect you to deliver it well before they sort of fall into the into a full sort of a partner.
<unk> mode, where and that sort of mode with a number of customers I will say, we've been able to engage with a number of significant large farm applause on partnership discussions that wouldn't have happened had we not formed a union with with theorized that we feel the rest of the one of the key rationale for the deal was to to be in those conversations that we.
But as always these things take a little bit of time to come through so I'd I wouldn't necessarily pushes towards the high end of the range of about revenue God at this stage that might change if we look in the next quarter. A total will certainly be ready to update you on one of these calls if that's the case.
That's that's very fair and then my my <unk>.
Additional question is around the comments on M&A.
I'm curious if you could.
You share with us what your current thinking is on areas of interest what the the pipeline of opportunities looks like thoughts on.
Sponsor or seller valuation at this point and then.
Just a confirmation or commentary around the old string of pearls approach that icon undertook versus perhaps something.
A bit larger.
In Meteor.
And the and the pipeline or in the consideration here. Thank you so much.
Sure.
So you mentioned the swimming pools.
That is really so it was sort of back to that sort of operational sort of modus operandi. If you lock on it.
We don't see any.
Real transformation will talk big deals in the pipeline I think we've done that.
Very happy with the progress, we're making in that in that area, but I don't think we're going to go down that track.
Again anytime soon we are looking you know.
Usual areas, there's there's some technology plays.
Real World evidence, we've seen great progress in the real World evidence group <unk> group has done very well over the last 12 months, we've we've made significant progress.
And so we feel there's some opportunity to continue the.
The growth in that space are labs, and you know we still believe we're a little behind where we'd like to be ultimately in the lab space. So that's an opportunity.
There is some you know and there's some areas around some of the sort of building on some of the previous acquisitions, we did around the MAPI and all sorts of areas. So there's a number of tuck ins in areas that we feel we could meaningfully contribute.
To our top lawn, particularly and of course, otherwise well in terms of pricing you know I don't think it's fair to say, we haven't seen much of a decline.
The pricing is still fairly frothy and the market is still fairly frothy in that space and so.
Going to be sensible and.
And careful with how we allocate obviously, we can still continue to focus on the on the debt Paydown and so I'm very cognizant of of wanting to continue the good progress with my Dear.
But so so I think we'll we'll look at all the opportunities in the context of where we can best.
Apply the capital that we have.
We won't be doing anything.
Crazy from a from a pricing or from a rent of multiple point of view.
Overall postponed, but it's something with actively looking at and believe we will have some opportunities come through in the next.
Six to nine months.
That's great. Thank you very much.
Thank you.
We will now go to your next question.
And your next question comes from the line of <unk> from Barclays. Please go ahead, you're lying to save him.
Hi, This is Sarah <unk> for Luke and thanks for your question so.
Just one on one Q and pacing for the year. Some of your peers are guiding to a lighter one Q compared to the remainder of the year. Just wondering if you were seeing a similar trend.
Any color there would be appreciated and.
On the free.
Free cash flow story, and four Q anything else to call out there other than the billing process. Thanks.
Yeah, I might take dozens and in terms of one Q I think we made reference to the fact that it probably is the toughest called on the foreign currencies side of things as we go into the quarter.
We're all longterm contract businesses. So the contract you are working in queue for pretty much the same ones who are working on a Q1. So I think the moral of the story is about the incremental growth obviously, but there's obviously a very very hard FX comp with a dollar was obviously significantly moved during the summertime of 2022, So I I think that's probably <unk>.
Q1, Q2, so I think totally he wants you to that comes with the Dr. Higher obviously and keeps Ricky for they should should improve not the way we'd be looking at it but nothing outside of that I suppose in a in a Q1 perspective.
On the face of free cash flow as well you know yeah. It was it was it was disappointing the vast majority of that related to the DSO in queue for as I said on my comments to Sandy I do think that was more around.
You know really making sure that we were back on top of a billing I think that that slipped a little behind earlier in the year and I kind of caught us and as a consequence in the back end of the year in terms of the of cash collections. So we're looking at us that we had a very good quarter. The billing other. Thank you three to four look to capitalize on that in the first couple of quarters thought there was obviously some additional payments that were made.
<unk> and certainly we're ready to make sure that we're on top of all of our payments to our different investigators relevance of the critical path in terms of plan for research, which are very very important to the whole process. So certainly I think the combination of those factors that negative outlook on cash flow again.
We go into the course of the year, we haven't changed our expectations for our forecast in terms of the free cash flow still still ambitious about getting back on top of that cycle and say good cash flow conversion as we go through all of the orders of 23.
Great that's it for me thanks.
<unk>.
Well now go to the next question.
Do next question comes from the line of Casey between from J P. Morgan. Please go ahead, you alignments Athens.
[noise] great. Thank you so.
So you have your peers are going through some notable reorganizations here once putting a new team in place that had a spin off another is sort of reshuffled their business development team I'm curious as to what employee attrition looks like from your perspective.
I'm the same quantity maybe touch on the competitive landscape particular area and Smith biotech heavier when rates increased or decreased at all over the last several months.
Sure Casey.
Our attrition rates is I've actually been.
Actually I think as I mentioned in my comments, we've improved our retention month on month as we went through 22. So so we've we've got our retention right back to where it was pre pandemic levels. Now I think we see continued trends of improvement that may be maybe that's partly because of some of.
The challenges are.
Competitors have been having I don't know.
That one to them.
But we're very pleased with the way our retention has been improving we've been investing heavily in that space.
Employees overall been doing a terrific job and.
And delivering for our customers.
In terms of.
Of the biotech spice in the competitive nature. It remained it's always a competitive spices when rates have held up.
Pretty well, we feel good about what the opportunity if it if it was if anything in terms of some of the challenges on the style. So it's really because there haven't been quite as much the beetle.
Feel that when rights and our engagement with these customers has been strong but do you think in the longer term will have some opportunity to gain market share in the spices.
A noted there are some of the competitors have some challenges and.
We feel we're going to be ready and able to to make the most of those sorts of opportunities, but when the lights had been solid I tend to tend to be a little volatile up and down.
And course always have the close relationship with the smaller customers that we do with the larger ones.
And of course, they come they come and they go a little bit but overall, we feel we have a good model works well with that market, we feel the biotech companies and customers Trust Us and then I feel we.
Willing and able to work with.
IPhone.
That is a large organization and we feel that the focused effort and the focus attention and resources. We put in budget. We have about a thousand people focused entirely in the biotics, but really gives them some reassurance that they.
They're not lost.
And the company and that they get the services and they get the result of it and ultimately the outcomes, which is what the.
That they need and that they deserve.
That's helpful. And then maybe if I could just squeeze one more and there's been some noise around the inflation reduction accents potential to impact large farm R&D spent.
Just coming out of our confidence it sounded like many of those pharma companies that would be impacted are expected to increase R&D spend this year, but just wanted to get your thoughts on.
At the Iras come up in your conversations with pharma and if that could be a risk. It all thank you.
You weren't really hasn't come up much.
Conversations with lots of them already cause there are some puts and calls with respect to that end.
Generally seeing as I have indicated that that large farmer markets mid market is sorry.
The mid size market as large as is on the up to go very positive for us counteracting a little bit some of the some of the more muted approach in the biotics by so.
I.
Awesome challenges my my understanding is that those are going to hit several years down the track, we're talking really three four years down the track before they really.
Impact our customers and at that point.
There may be some impact with us, but overall at this stage.
Having no impact on our business.
Frankie.
We will now go to the next question.
And your next question comes from the line of David Lindley from Jeffries. Please go ahead. Your line is open.
Hi, Thanks for taking my questions I wanted to we've kind of some follow ups and the topics that have already been touched upon from a cable standpoint, and thinking about operating expenses, bringing you talked about the SG&A.
Margin has commonly kind of stepped out of fourth quarter and the first quarter pretty similarly, if not better.
Fourth quarter and 22 ended on a on a very significant positive spike and margin and so I wondered if.
Beyond the SG&A, if you could just talk more precisely about.
How do you expect the overall EBITDA margin picture to look as you enter.
23 relative to where you're ending 22.
Yeah I suppose my my comments will we'll start off by the the the usual health warning that subject to the Euro dollar right yeah.
Remaining pretty pretty consistent with where it is at the moment.
So yeah engage a crystal ball for that one but I.
We're pleased with the work we've done in terms of our call to control. During the course of 2022, I think one of the things that some of the points. We made during the course of 22 was we were doing large scale infrastructural projects that will allow us to take a step in terms of some of the some of the pieces in particular yesterday costs, Utah I think he saw that specifically.
As we went to particularly from Q3 in the queue for in terms of 22.
And how that how that trend that we are I suppose planning for that level to remain environment Sustainment and then nominally in dollar terms as we go through the course of 2023, so that that certainly is a significant year over year advantage. If you're like in terms of margin profile I think your point to the sequential nature.
It was it's about maintaining the good progress that we saw in queue for into Q1, and then throughout the course of 23, so why not what I think maybe the margin expansion from Q1 Q4 of 23 may not be as spectacular as we saw it and joined 22, the full year over year margin profiled when a step up quite nicely.
Off the back of the of the work done during 2000 to deliver it in quarter for 2022, and then sustained and built on a more <unk>.
In a smaller way, but still building at quarter over quarter as we go through 23.
And those infrastructure points that you're making I know one of the things that is kind of core to icons cost management strategy is offshoring. Some of your HR legal accounting finance functions is that essentially what disrupted the billing activity that you're.
Kind of dismantling the domestic U S.
PRA finance function in moving those activities over to I presume India.
Well I mean, you know.
Anytime you're you're doing you know significant integration work, there's always a bit of an issue around that so it would be.
Not even me to say no nothing happened on that front at all I mean, there was an element of that however, I do think we have a structure now that is well suited to what we need to achieve we've got a great organization in place and we've got the systems in place now so we didn't awful lot. During the course of 22, we looked at where our software we looked at the invitation of the article project across.
The organization I think those two things taken together Ah, we're probably an awful lot to bite off and chew in the course of the year, where we're delighted we got there and I know, it's a focus in the first half is obviously, you're getting make sure we got the cash in the door.
Okay, and then maybe a second follow up to just come.
At this topic slightly differently on the revenue front. So here you on on the dollar Euro.
Don't have the math in front of me, but I'm thinking the headwind is the highest in the first quarter 423, but wouldn't be any worse than the fourth quarter faced.
And and so I'll I'll ask you one of two ways.
That right and or from a burn rate standpoint should we be thinking about the burn rate hanging in pretty consistently with the fourth quarter or is that something that kind of steps down toward that 9.5% number that you're looking at for the full year.
I think on your on your Ethics Collins, Yes, I think fourth quarter into Q1 that it shouldn't be materially different we haven't got the average rates in those quarters at this point at least it's fairly consistent so it shouldn't be so that I suppose they the constant currency will take that we talked about it in queue for shouldn't be materially different in quarter. One again, that's assuming we don't.
[noise] around too much between now and the end of the month or the end of the quarter I should say on the conversion rates. You know I think there are two parts of the play there. There's obviously we talked about.
Still seeing the vaccine work being a lesser part upstate Covid I made reference to that coming back a bit.
Over the course of last year, we probably expect that to continue of it as we go into this year. So it's still rolling around mixed mixed up business going back to that more traditional model they'll call us. So yeah. I think that's something you probably will see a bit of a step down we guided that the full year, we're thinking about 95%. So I would expect that a little step down on that one Q for Q1 as always we'll do our app.
The best choice maximize that as we go through quarterbacks.
Okay. That's great. Thanks for the perspective.
Thank you.
We will now go to my next question.
I'm doing next question.
Comes from the line of Elizabeth <unk> Agricole. Please go ahead your line is Nathan.
Hi, guys. Thanks, so much for that question I was wondering if you could talk a little bit more about the $100 million and crossed out what are you cross selling like which is there a predominant directionality underclass out where do you see that opportunity now.
18 months post the transaction.
Yeah. It was the the cross so we monitor the cross still pretty carefully as much as anything that comes in the door. It's really it's really looking at what was silly and services that we had in the league is the iPhone organization too, particularly to the.
To the legacy Prio organizational essentially a biotech group that they didn't have the best example of what is in the lab business we've sold.
Well that's the predominantly.
Labs, but that's the predominant sort of of the 100 million be soul C lab business because the legacy P. R. I group didn't have a lap so all the.
Proposing.
Selling icon.
Icahn lab and into the biotech project, which is a positive than these things are are immediate group again imaging has been sold.
He has been sold and they fought accurate is being sold and there are still a kid size network is putting so so so lumping the biggest but there's there's a number of other sort of more varied services that are now coming into the organization will come into a bar to group that wouldn't have done in the past and we admitted that carefully.
The result of a solid now it's going to take a little of course.
That will have to come in and advertising and burn.
And we don't.
Despite billions of revenue synergy until we exit 2004, but we feel we're well on track to to make that progress in the silly is happening.
Got it.
And one last question just sort of cleaning up on the Covid.
What do you expect that sort of 4% of Avenue total to be kind of like a like a going forward right. At this point I mean, I know, it's hard to say, but isn't it kind of distant projects.
And you think going forward. It could have more you know have that or some other amount on an ongoing basis.
Yeah, it's more the latter scenario.
Elizabeth.
4% is where we are mom and you know we done we didn't win a lot of Covid work in the second half of last year. So it's gonna be a declining part about portfolio and government.
Probably always be.
For a long time, so we used a.
Component of Covid work treatment work, whatever long term follow ups, but it'll it'll certainly declined from the 4% level.
Got it Super helpful. Thank you.
Okay.
<unk>.
We will now go into our next question.
And your next question comes from the line I've done.
Please go ahead, you're lying is Nathan.
So thank you for taking my question just a clarification.
Bookings were down for the last couple of quarters year on year, and I know foreign currencies a driver, but do you think these trends are a reflection of aggregate industry RFP value or has strength in the mid to large pharma part of your business spend enough to overcompensate for small biotech caution.
Oh, I think that's probably a bit above that if I can put it that way, we certainly save strength in the in the mid size and a large file that has counteracted some some down ticket on the on the biotech spice.
Always see we're about flat on the on the Rfp's going Florida trailing 12 month basis.
There's still a pretty healthy levels and allows us when we do that we we focus on a win rights and that wouldn't have been solid and strong and we believe we can we can improve them even going forward. So you.
I think it's the size of the market.
Has been changing changing quite quite.
Quite fast quite dynamically over the last 12 to 24 36 months and yeah, We certainly say as I say, a more muted biotic segment, but but we're very pleased with the opportunities. We're seeing in the lodge a mid sized farmer were taking advantage full advantage of those of that that's part of the business is doing very well.
Understood and just a quick clarification on foreign currency for Brendon Brendon I think before you had discussed a 1% foreign currency headwinds and the twenty-three guide is that still the case because it seems like currency can be a tailwind in the back half of the year.
First time.
We should put a wager on this one.
Well done on predicting what the effects rates.
Yeah, one 1% is where we were thinking coming into the year. It probably has often there is a bit from the from the 1% and foreigners, but it's still it's still probably that but the best part of 1%. So I don't know if I'd really say, it's materially moved enough to call out a different perspective, it's probably a little better than the 1%. So under 1% at this point, but as I said not maturity.
Got it thank you.
And key.
Now get your next question.
And your next question comes from the line of attack Me <unk>. Please go ahead. Your line is open.
Hello, everyone.
First question most of my questions are sort of margin related the first is on pricing.
If you could give us an update on the right card and I'm just you know.
And the inflationary environment, if you've had any more success on putting price through.
I'll take that one Jack.
I think we've had success in pushing food right increases certainly above the normal inflation, but it is although I would say, it's probably Ah.
More of the negotiation with our customers.
Now that it was a year ago.
So customers are happy to see.
Sort of above inflation.
Happy that's maybe maybe a bit of an overstatement, there as I understand above inflation.
Moves on right cause, but if he'd be coming back to three years in a row with that.
Those discussions probably do get a little bit more.
Angie shovel it so I put it that way. So so we do our customers do understand that we we want to keep our employees competitive on a salary basis and all that good stuff and that's to the benefit of course as well so.
The discussions are always constructive.
But but the pricing environment is becoming probably a bit more competitive than it was 12 months ago.
Particularly with those as some of the challenges some of our competitors, adding so it's an era when we watch carefully.
But we feel as I say constructive discussions, but probably a little more challenging.
And then for Brendan what are you thinking on gross margin progression for the year and can you just provide some color on how wage growth and attrition trended throughout 2022.
Jack I mean, I'm I'm Super happy with where we're ended up in queue for on margin progression and I've said for a long time now if we can if we can keep that in the ballpark attorney present, it will all be happy a as we see that kind of competing elements of I coming through the course of the year, Steve made reference to a bit of a sharp as those in terms of pricing you know they are still.
Is salary inflation there in 2023, so again I suppose our story for 2023 is really about maintenance on that gross margin line as as much as anything.
Anything sorry, Jack the second part of your question was.
Oh attrition alright.
Alright, and we ask her.
Yeah now so it was manageable during 22 as we said we saw.
There's always two parts to wage growth is the underlying marriage increase and then there's the attrition piece, which is kind of the hidden increase if you like.
We've seen as Steve come in just a couple of times every month was better from a retention perspective. If you can if you can work that down you can certainly manage your cost base.
Efficiently as well, because obviously, the new stuff coming in or at a higher price. So I think that the blend of those things is still no worse than it was last year for 2003, Sir Anthony.
And he still workable within the margin profile, so we'd be looking at that.
In terms of 23, but it it worked well as you can see from the margin profile. During the course of 22 and I think the improves retention rates should offset some of that inflationary impact on salaries as we go through 23.
Thank you Brandon.
Thank you.
We will now take our last question today.
And your last question comes from the line of stomach the Boeing from Bank of America. Please go ahead your line of <unk>.
Hi, Good morning, Thank you for putting me in.
Since a lot of things have been asked I'll I'll try to come up with something here.
So.
One of the <unk>.
<unk> from investors about <unk>.
<unk> I mean, some of this era is report numbers differently and you know you've got some can be sanded Murray 20 per cent core like this you call that a 20, 10%.
Sort of like X cupboard growth rate in poor Q, what is sort of your ex COVID-19 core growth outlook organic outlook for 2013, just trying to get some impact on the headwind that comes in.
So you're looking for.
Guidance essentially on yeah, basically your what's your guidance would be S. Covid, yes, yes, yes, your core underlying growth yeah without guidance.
Derek and say we call that was it that you know, it's rare that 200 basis headwind.
Okay here from from 22, the full year X Covid, you know revenue constant currency President about 14 per cent and 20 down. So you can I think between us to your address.
You know get to you into it that looks like for 23.
Great that's what I wanted and.
I've had some investors asking.
Obviously, there's been some issues in the early stage diarra market with an H PS.
I don't think that's going to have a fall on impact to the white space players like icon, but we've had a number of investors asking which sort of like appreciate your thoughts on.
Do you see this one.
Potential and studied delays in the early stage flowing through too polite stage. Thank you.
Derek we haven't had any of our customers express any concerns about that in terms of the projects they're outsourcing to us.
I suppose it really focused on I think on the preferred.
Preclinical Ciara.
But.
And I'm gonna do with that so it's not something that's really come up in discussions with our customers and I don't anticipate it will impact. So they are life size business, but even out early stage business, we don't see any advice at this point.
Okay.
Thank you very much.
Okay.
Keith Island.
I will now have Nicole back to Steve NASA closing remarks.
Thank you operetta. Thank you everyone for joining the call today, we look forward to updating you on a continued performance as we progress through this year.
Recognize our employees so they continued dedication Newark.
And are important mission.
Nancy drug development. Thank you all and have a good day.
Thank you. This concludes today's conference cool. Thanks participating you may now disconnect speakers. Please stand by.
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