Q4 2022 Syneos Health Inc Earnings Call
Okay.
Good morning, ladies and gentlemen, welcome to the seniors health fourth quarter and full year 2022 earnings conference call.
At this time.
It depends on a listen only mode.
Later, we will conduct a question and answer session and instructions will be given at that time.
I'd now like to turn the conference over to Ronnie Speight.
Senior Vice President of Investor Relations. Please go ahead Sir.
Good morning, everyone with me on the call today are Michelle Keefe, our CEO , Jason Meggs, our CFO and Michael Brooks, our CFO and.
In addition to the press release, a slide presentation corresponding to our prepared remarks.
More on our website at Investor <unk> Dot com.
Remarks that we make about future expectations growth trends anticipated financial results and our.
Our expectations regarding transformation initiatives expectations regarding the macroeconomic environment.
But 19 pandemic and the war in Ukraine.
Forward looking statements for purposes of the Safe Harbor provisions under the private Securities Litigation Reform Act 1995, and we disclaim any obligation to update them.
Actual results may differ materially from those indicated by these forward looking statements as a result of various important factors. These factors are discussed in the risk factors section of our Form 10-K for the year ended December 31, 2022, and our other SEC filings.
During this call, we will discuss certain non-GAAP financial measures, which exclude the effects of events and transactions, we consider to be outside of our core operations.
These non-GAAP measures should be considered a supplement to and not a replacement for measures prepared in accordance with GAAP.
For a reconciliation of non-GAAP financial measures with the most directly comparable GAAP measures. Please refer to the appendix of our presentation.
I would now like to turn the call over to Michelle Keefe Michelle.
Thanks, Ronny and good morning, everyone and thank you for joining US today as you saw in our release our results. This quarter came in as expected and in particular commercial and warrants are strong we remain keenly focused on transformation and are encouraged by customer feedback and are seeing the very early signs of improvement and clinical awards and positive <unk>.
Through our investments.
First I want to start by resetting the stage for our key priorities and my expectations for the future of the company let.
Let me also underscore that customers remain our top priority and I continue to engage directly with them to ensure that we are exceeding their expectations as.
As a leadership team we are laser focused on driving transformation across the business with a particular concentration on clinical operations business development and cost structure realignment. We are also investing in maintaining and strengthening our talent and prioritizing how we resource projects to ensure optimal delivery on customer commitments.
While these investments will continue to suppress margins in the near term I firmly believe this is a responsible approach to reestablishing our competitive strength in clinical and building a foundation for long term success.
I would now like to review our results and discuss our demand drivers that net awards total company revenue declined by 1% for the fourth quarter compared to the prior year, while growing one 7% on a constant currency basis.
Clinical solutions revenue declined two 1%, primarily due to lower net awards and the impact of foreign exchange, partially offset by higher Reimbursable expenses, excluding reimbursable expenses and on a constant currency basis clinical solutions revenue declined 8% due primarily to lower net awards and backlog can.
Version delays largely offset by growth in our large pharma business, including FSP.
Commercial solutions revenue grew by two 5% compared to the fourth quarter of 2021, driven by high higher Reimbursable expenses and growth in deployment solutions exclude.
Excluding reimbursable expenses and on a constant currency basis commercial solutions revenue increased 5% driven by deployment solutions, primarily due to the contribution from the <unk> portfolio. Our commercial business continues to perform in line with expectations. Although growth has slowed over the course of 2022 as the macro.
Environment began to impact our smid customers, particularly in communications belting.
Now, let's review our demand drivers and clinical large pharma, although we remain underweight in this segment. We are encouraged by progress on several new opportunities, particularly in top 20 pharma. In fact, we recently expanded a top 10 pharma relationship into a sixth preferred provider strategic relationship where we are now the lead of two providers.
Across their portfolio after helping them design and outsourcing model to consolidate 60, plus regional vendors into two global providers.
While we do not expect this expanded relationship to have a material near term impact on awards and revenue.
It is an important example of how our new customer engagement approach developing fit for purpose solutions with dedicated leadership is resonating.
Our existing preferred provider relationships also remain healthy, although we continue to see slower pipelines as these customers assess their R&D spending and clinical outsourcing strategies, we anticipate incremental new awards from these customers over the course of 2023 weighted towards the second half of the year.
With our existing clinical smid customers, we are beginning to see the very early returns on our operating model and business development investments.
RFP flow from these customers remains down on a TTM basis fourth quarter RFP flow was at its highest level since Q3 of 2021 and included more high value opportunities. Additionally, we are beginning to see other early signs of improvement as our win rate with repeat customers increased compared to the third quarter.
An important indicator of customer satisfaction.
However, we still have work to do to improve our overall win rate amongst smid customers.
We also recently won a preferred provider relationship with a larger Smith customer that has already generated multiple rfps for early phase studies with future late stage opportunities expected. While these early indicators have not yet materially impacted overall Smit award they reinforce our confidence that our investments will continue to drive a gradual recovery.
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Although we are encouraged by this progress clinical net awards for the fourth quarter continued to be impacted by the dynamics that affected us in the third quarter, including cancellation activity within our normal range. This resulted in a book to bill ratio of <unk>, three nine times, excluding reimbursable expenses and $7 seven times on a TTM basis.
We have factored these recent trends and RFP flow and awards into our 2023 outlet for the clinical business.
The commercial team produced the second highest quarter of net awards in our history with a book to Bill ratio of 143 times for the quarter and one five times on a TTM basis, excluding reimbursable expenses, while the commercial demand environment remains relatively healthy we have seen some softening among our large farm.
Our customers were RFP flow remains up on a TTM basis, but has slowed sequentially. We believe this impact is temporary as these customers evaluate the allocation of their commercialization budgets in light of the inflation reduction act, while looking for innovative commercial models to enhance efficiency.
We have also continued to see slower TTM RFP flow from smid customers, primarily attributable to the macroeconomic environment. These recent trends were factored into our 2023 outlook for the commercial business.
Now I will provide an update on the two primary areas of investments we highlighted last quarter.
First we are making progress on transforming our clinical operating model in recent months, we have streamlined our organizational structure consolidating roles and simplifying processes that provide an improved experience for customers and employees, while allowing us to better deploy fit for purpose solutions specific to each customer's needs.
Foundational to these improvements have been investment and accelerated development of clinical development tools and data applications ranging from statistical modeling for site performance and enrollment to use of AI machine learning to better detect risks and issues. These investments are closing competitive gaps and showcasing our differentiators and proposals.
And bid defenses.
For example, we recently won an opportunity that leveraged our statistical tools for site enrollment modeling and feature compelling solutions for engaging patients and health care providers made possible by the unique blending of our clinical and commercial capabilities all under the direction of trusted therapeutic experts.
We believe further wins will materialize as we fully deploy these tools into our therapeutic areas and mature unique combination of technology data and clinical to commercial capabilities.
We are also deploying our high touch global local country model for site and patient related activities more effectively leveraging local knowledge about regulatory requirements and standards of care and site performance, while maintaining global standards and best practices.
Coupled with the clinical development tools and applications I mentioned, our operating model is showing early signs of delivering more streamlined and automated startup improved enrollment productivity high quality data and an improved experience for <unk> customers and employees. This new model has generated very encouraging feedback from customers.
And we expect its integration across our portfolio to be largely complete for new customers. During the first half of 2023.
Clinical employee retention is also trending at a two year high providing strong continuity for customers and enabling us to build momentum in operating performance customer engagement and ultimately backlog conversion in net awards.
We believe these investments in technology, the integration of clinical and commercial capabilities as bundled solutions to support better protocol design faster enrollment and improve patient outcomes and strengthening our heritage of scientific and therapeutic expertise will be important factors in driving new business and long term growth.
Our second area of focus investment is the transformation of strategic business development with Christian and his leadership team working closely with Michael and our operations teams to drive enhanced customer engagement.
We continue to expand our BV talent hiring seasoned veterans with relationships that are already bringing new opportunities.
Clinical expertise is ultimately the key to customers' decision, making process and we are expanding our therapeutic and scientific talent and bringing these leaders to the forefront of customer solutions to improve our delivery account development and sales activities. Further we have established dedicated organization and leadership aligned to each large pharma partnership across.
Full service and FSP, enabling consistent quality and efficiency, while allowing us to quickly adapt to each customer's evolving outsourcing strategies.
Another important aspect of driving clinical awards as more fully leveraging our commercial and consulting expertise for account management when strategy and sales enablement to this end we have increased the participation of our scenarios one group to support customers with asset development of prioritization funding strategies and shaping their clinical outcome.
Models based on recent engagements and awards. This expanded consultative approach is already creating more high value clinical opportunities combined with.
The progress on our clinical operating model over time, we expect our improved business development approach to increased win rates with new customers, while also generating incremental repeat business opportunities.
We have also evaluated our cost structure to align with our current business and the evolving demand environment and to drive efficiencies, while continuing to invest and position our organization for long term success I have decided to consolidate and integrate the various strategic projects underway within the company, including forward bound unify and.
Clinical re imagined under project velocity, a single transformational effort that will bring value to customers and employees and driving long term margin expansion. This combined initiative will be led by senior management and reports directly to me Jason will provide further details, including how these initiatives will ramp and impact guidance.
In summary, we believe the programs I've discussed will yield benefits through improved quality and scalability, while driving long term margin expansion, enabling us to best serve customers enhanced performance over time.
Remain confident in our strategy and senior leadership is relentlessly focused on this ongoing transformation to best position <unk> to capitalize on a compelling long term market opportunity.
As this will be Jason's last earnings call as CFO I want to recognize and thank him for his dedication and contributions to the city of health over the last nine years, including nearly five years as CFO .
We are all incredibly grateful for his commitment and leadership and we wish him the very best.
Jason.
Thank you for the kind words, Michele and good morning, everyone. It has been an honor and a privilege to work extend yourself, particularly for these past five years as CFO I've been supported by a great team and I am thankful to each of them and very proud of what we've accomplished together.
With that let me turn to our results total revenue for the fourth quarter of 2022 was $1 36 billion.
Down, 1% as reported and up one 7% in constant currency compared to 2021.
Excluding reimbursable expenses and on a constant currency basis revenue declined 4% compared to the fourth quarter of 2021.
Clinical solutions revenue for the fourth quarter was 102 billion down two 1% as reported and up 7% in constant currency compared to 2021.
Excluding reimbursable expenses and on a constant currency basis clinical solutions revenue declined 8% versus the fourth quarter of 2021, driven primarily by lower net awards and backlog conversion delays largely offset by growth in large pharma.
Revenue was above our expectations during the fourth quarter, primarily due to higher reimbursable expenses and foreign exchange.
Total as reported clinical revenue includes an 80 basis point tailwind from Reimbursable expenses.
Fourth quarter commercial solutions revenue was $336 6 million up two 5% or four 8% in constant currency compared to 2021.
Excluding reimbursable expenses and on a constant currency basis commercial solutions revenue increased 5%.
Growth in commercial revenue was driven by deployment solutions, primarily due to the contribution from our <unk> portfolio.
This growth was partially offset by headwinds in communications and consulting.
Commercial revenue for the fourth quarter was above our expectations due to higher reimbursable expenses and foreign exchange.
Total as reported commercial revenue growth also includes the tailwind of 450 basis points from Reimbursable expenses.
It is important to note that reimbursable expenses were higher than anticipated in quarter four primarily due to two fast burning reimbursable expense heavy projects that ramped quickly.
One project is in clinical and one is in commercial and the Reimbursable expense burn will continue to impact the first half of 2023.
Adjusted EBITDA for the fourth quarter decreased 11, 8% to $209 1 million, representing an adjusted EBITDA margin of 15, 4% a decline of 190 basis points compared to the fourth quarter of 2021.
The decrease in adjusted EBITDA margin for the fourth quarter was primarily the result of a less favorable revenue mix, including Reimbursable expenses and our investments.
Fourth quarter adjusted EBITDA margin was below our expectations due to the impact of a less favorable revenue mix, primarily reimbursable expenses and foreign exchange.
For the full year 2022, adjusted EBITDA increased four 6% to $808 million.
This represents 14, 8% adjusted EBITDA margin and year over year expansion of 10 basis points.
Excluding the impacts of higher than anticipated reimbursable expenses and incremental foreign exchange in Q4 margin expansion was 40 basis points.
Adjusted diluted EPS of $1 23 for the fourth quarter declined 16, 9% year over year, driven by the decline in adjusted EBITDA and higher interest and depreciation expense, partially offset by a lower share count and tax rate.
Full year 2022, adjusted diluted EPS was $4 72.
Five 8% from 2021.
Operating cash flow was healthy at $123 8 million for the fourth quarter and $427 million for the full year.
Operating cash flow for the full year declined primarily due to increased DSO, coupled with higher cash taxes and interest.
DSO increased from the prior year, primarily due to higher concentration of accounts receivable with larger pharma customers included the related timing of billing and collections.
Capital expenditures were $23 6 million for the fourth quarter and $93 5 million for the full year, primarily due to increased strategic investments in data technology and analytics platforms to support our operations.
During the quarter, we expanded our accounts receivable securitization facility by $150 million <unk>.
Extended the maturity until October 2025, and voluntarily prepaid the same amount of our term loan a.
We also refinanced our primary credit facilities, expanding our revolving credit facility from $600 million to $1 billion.
To increase available capacity, while extending maturities to November 2027.
The full term a facility and $261 million on the revolver, we're drawn at the closing to pay off the previous term loan.
Finally, we subsequently repaid an additional $140 million of our revolving credit facility.
These transactions resulted in debt outstanding at yearend of $2 six 9 billion.
Combined with unrestricted cash of $111 $9 million net leverage at the end of the quarter was three two times.
When our current interest rate swap matures at the end of Q1, we plan to continue to hedge a portion of our floating interest rate exposure with a target of making $45 to 55% of our debt effectively fixed rate.
We expect this to provide some additional certainty around anticipated interest expense for 2023 as market conditions continue to fluctuate.
Our non-GAAP effective tax rate for the fourth quarter was 21, 5%, bringing our effective tax rate for the full year down to 23% driven by increased research and development credits and a lower state tax rate.
Before turning to guidance I want to provide more details on the consolidated initiatives Michelle highlighted.
Our near term cost management efforts include right sizing and realigning our workforce, while streamlining our organizational structure.
We are also convincing our global facilities footprint, while deploying new approaches for local employee engagement that better align to our hybrid work environment.
Our longer term initiatives are expected to include partnering on certain functions, while utilizing our transformation and technology partner to drive innovation and automation across our business.
In aggregate, we expect these activities to result in initial cost savings of $30 million to $40 million in 2023.
Net of funding the investments we have highlighted.
We expect these net savings to increase to $100 million to $150 million in 2024 as velocity activities continue to ramp up.
To fuel these initiatives and investments this year and beyond we expect to incur significant restructuring transaction and integration costs as reflected in our guidance.
Turning now to our 2023 guidance our guidance contemplates our current view of the estimated impacts of ongoing economic and geopolitical developments and reflects foreign exchange rates as of February 13.
We expect total revenue of $4 nine 8 billion to $5, one 8 billion.
Representing contraction of seven 8% to 4%, including a foreign exchange headwind of $10 million. This includes an estimated net headwind of 100 basis points from Reimbursable expenses.
We expect our total adjusted EBITDA to range from $675 million to $725 million.
This reflects an adjusted EBITDA margin of 13, 6% to 14% down approximately 100 basis points from 2022 at the midpoint.
Lastly, we expect adjusted diluted EPS to range from $3 26 to $3 53 Rep.
Representing year over year decline of 39% to 25, 2%.
Our adjusted diluted EPS guidance includes interest expense of $139 million to $149 million, an increase of $63 $2 million over 2022.
This is based upon current market forecast and reflects the maturity of our current interest rate swap on March 31.
Our adjusted diluted EPS guidance also assumes a non-GAAP effective tax rate of 23, 5%.
50 basis point increase over 2022, driven by an increase in the UK tax rate.
Our guidance also reflects an estimated diluted share count of $104 8 million shares.
We expect our net cash outlay for income taxes during 2023 to be approximately $50 million to $55 million.
Yeah.
We expect first quarter revenue of $1 6 billion to $1 31 billion and total adjusted EBITDA of $136 million to $148 million.
This reflects a revenue decline of five 7% to 2% and adjusted.
EBITDA decline of 21, 7% to 14, 8% compared to the first quarter of 2022.
This revenue guidance includes a foreign exchange headwind of $17 million.
<unk> FX has the most significant impact on the first quarter as it changes to a tailwind in the second half of the year.
This revenue guidance also reflects a tailwind of approximately 200 basis points due to reimbursable expenses.
Driven by the projects that impacted us in the fourth quarter.
The reimbursable expense tailwind attributed to those projects resulted in a year over year headwind of 50 basis points to our adjusted EBITDA margin.
In addition to Q1 being a seasonally low margin quarter. The investments we have highlighted will impact Q Q1, more heavily while the benefit of our savings initiatives will ramp throughout the year.
Finally, assuming clinical net awards and backlog burn rate recover during 2023 as reflected in our guidance and we do not experienced further deterioration in the macroeconomic environment, we expect low single digit revenue growth in 2024.
Given this revenue profile the 2023 adjusted EBITDA margin reflected in our guidance are investments and increased savings initiatives. We currently expect a rebound in adjusted EBITDA dollars to a level comparable to 2022.
I'm now going to turn it back over to Michel for some final comments Michelle.
I am encouraged by the customer feedback on our enhanced operating model and differentiated strategy in closing I want to stress. Our continued focus on excellent delivery for our customers as the foundation for our future success, our investments and other initiatives I discussed are designed to further accelerate our strategy enhance the scalability and efficiency.
<unk> of our operations and drive New business Awards I want to thank all of my <unk> colleagues around the world for their energy and collaborations as the only together can we achieved the highest performance for our customers I am proud of our ongoing transformation, our culture and the positive impacts we have on patients around the world.
This completes our prepared remarks, and we'd be happy to answer any questions operator.
Thank you, ladies and gentlemen to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again into consideration of time, we ask that you. Please limit yourself to one question and one follow up please standby, while we compile the Q&A roster.
And our first question coming from the line of.
Patrick Donnelly from Citi. Your line is open.
Hey, guys. Thank you for taking the questions.
Michel maybe one on one of the comments you made there I think it was on the commercial piece just in terms of large pharma.
Maybe taking a little closer look at things kind of given the given the IRA can you just talk about what youre hearing from them separately and interesting comment I know, it's come up a few times on other other peer calls as well what the commentary is there what the impact could be and again, how much more deliberate are they being kind of a <unk>.
Spending and thought process given us this new act out there.
Patrick Thanks for the question so.
Our large farm our trailing 12 months RFP flow is up high single digits, but we have seen it sequentially slowing down from Q3 to Q4 and when we have these conversations around the macro environment.
Inflation reduction Act.
Hearing, they're just being very purposeful and looking at their portfolios seeing where they want to invest in the portfolio is based on the potential impact of the IRI down into 2025, they know what the list.
Products are in 2025, and they are thinking through based on the portfolio as they have or their business development activities what types of products that they want to invest it in the future. The good news is we're part of those conversations and our teams we actually have a team that does a lot of work around this and partnerships.
Yes.
With pharma companies and so we think it's temporary we think as they think about their new commercial models, how those models become more efficient and driving profitability of the assets. They have today as well as planning for what they're thinking about doing tomorrow. We think we're part of that solution and can take advantage of that but we do see it slowing some of the.
The decision, making right now for sure.
Okay. That's helpful.
And then maybe just on the clinical side bookings.
Bookings, obviously remained a little bit soft in terms of the book to bill, but it sounds like you have had some at least signs of signs of life with customers and customer conversations and are feeling like there is.
A potential inflection of sorts comment could you just give us any metrics you have around kind of what gives you some confidence that that bookings number is going to come back again, the book to bill confirm up a little bit and then similarly on the <unk> piece is there potential for that to impact clinical down the road just your perspective, there would be helpful. As well. Thank you.
Sure Patrick So we have seen some green shoots there are some very early indicators for clinical awards, we did see an improvement in repeat customers that as you know we've talked about that last quarter as really important to us is that as a measure so we did see.
Improve the warrants with repeat customers, we have seen our smid RFP pipeline improved significantly I think it's the second highest.
Smith RFP flow that we've seen in Q4.
Also had a really important win much.
Which was we had our sixth.
Preferred provider chef.
So our clinical added so we're excited about that and there's some really there's some really innovative things there in regards to how we used our consulting team to partner with our clinical operations team along with senior leadership working on how to really consolidate 60, plus vendors and FSP down two global providers and so.
Really excited about that integrated clinical and commercial solution to drive.
To drive our future.
Your opportunity with that six preferred provider so.
We're looking at repeat business, Patrick we're looking at improving our RFP.
Slow, but the feedback from customers has been very very positive and I'll turn it over to Michael who maybe give you some even more specifics around what he is saying right. So Patrick because we've been putting the investments into our clinical data applications to help us better model out.
Our scenarios as we've been looking to consolidate clinical and commercial capabilities into novel solutions for enrollment and data monitoring we are getting positive feedback from customers.
I was just talking to the CEO earlier. This week has been around the industry for a long time.
To me Love the strategy Love the project team.
Clinical and commercial combined together is what youre doing and he's really bullish on where we're going as an organization and we're seeing those green shoots just across the board.
Winning how we're talking to clients is very different than it was at the beginning of last year.
Great. Thank you and maybe just quickly on the IRA impacting clinical anything you see there Michele.
Sure. So we haven't really heard it impacting anything on the clinical side right now that hasnt been really the conversation I think it's more you have the leadership as far as looking at the impact of this long term across our portfolio, but we haven't really seen it have any significant impact on the clinical.
Year to date.
I appreciate it thank you guys.
Thank you.
Next question coming from the line of Taco Remmers with Jefferies. Your line is now open.
I think Thats me, it's Dave Windley.
For taking my question good morning.
I wanted to I guess first understand around business development I think I've heard it from enough people to believe that it's probably true that.
But I think Christian kind of cleaned house in your business development organization in September and maybe you could talk about what brought that about.
Was it you talked about the inability or the or the lack of bringing your full solutions set through.
To the clients and maybe that was a decision that that was born out of that but I guess the.
The magnitude of of cuts in business development at a time when third quarter bookings were pretty critical.
There is a pretty big decision to make.
And I wanted to understand.
Logic behind that how you are back filling those seats and where you feel like that that team is today.
Got you.
Hi, David So from a business development perspective, we took a step back and looked at what it's going to take for us to put the right people in the right place at the right time to impact the different trends that we're seeing in different markets right, whether it's a.
Mid market, whether it's the increasing FSP market, whether it is making sure we have the right talent globally.
In different locations to take advantage of the opportunity and so we did redeploy our own talent.
Two different roles and.
To impact our business development opportunities, we have as you've heard us talk a lot about how we're.
Managing our large pharma relationships building dedicated teams, making sure that we have strong partnerships at the most senior level within large pharma as well as really its about the partnership between our BD team, our therapeutic expertise and the project managers that really will help us with repeat business and so it was really around aligning our.
Our salespeople with our leaders within the business operationally and so.
Doing that we believe that that is why we're seeing the green shoots we're seeing right. That's why we're seeing that fixed large pharma partnerships. That's why we're seeing our repeat business improve and.
In Q4 with smid customers and so.
I would refrain that as we looked at what could the market need and what was the best way to mix, our existing talent along with bringing in new talent that has some of the capabilities that we needed to make sure that we can be extremely competitive and I think that's how I would frame it.
Okay. Thanks for that.
My second question is related around.
Your consolidation of.
<unk>.
I think investors will probably welcome the reduction in the number of names of projects that Youre working on.
So kudos for that.
The.
I guess I guess I'll ask it this way.
So you think clinical re imagined is now project velocity.
What specifically about the clinical operating model is changing.
That the customer will see Michael you gave an anecdote from a from a client that maybe bears on this but.
Is it simply reduction and spans of control and and our expansion of the spans of control.
More direct reports to people or.
Are there more fundamental.
It'll changes to the clinical operating model that the client would need to step back and evaluate.
That might have a further kind of depressing impact in the short run to bookings.
Okay.
So I'll start and then I'll, let Michael give you more color. So the changes that we've made have really been under the umbrella of getting decision makers closer to the customer right that that should be the I think the umbrella statement right. We wanted to make sure that our customers have access to the decision makers, who can do the things they need to do to make sure that we are able to achieve.
The goals of every single clinical trial that we're running so I think thats. The first thing the second thing that we're doing I think is really having a lot of impact is.
Bringing a lot of our technology solutions and earlier into each and every opportunity that is brought to us as well as introducing them to existing customers, where they makes sense along the journey of where we are in that clinical trial. So we're seeing some really great.
Positive feedback and some great results around patient identification patient enrollment usability.
Our relationships with sites.
Well as a relationship with patients throughout the journey of the trial. So we're really using automation and technology solutions, along with some of the things are steady kicked business as well as some of the things we've developed through <unk> so well.
Bringing I think a much more streamlined.
Approach to our customers and our feedback has been very very positive so, but I'll, let Michael maybe give you more granularity and color around how it shows up in front of the customer because the feedback that I've gotten David has been extremely positive from customers who've worked with us for a long time as long as the brand new customers. So Tycho, yes, so David <unk> bin.
Implementing the changes over the course of last year and into this year, we have been doing it incrementally introducing first piloting and then introducing new capabilities that we bring benefit to our customers.
One is we did have some competitive gaps and things like data visualization tools and some of our statistical modeling tools, we use Rx data science can help us close those gaps very quickly. So in a period of nine months they were able to get those closed for us and so clients got a really good benefit from now having good data visualization seeing into the projects will be able to see.
Our modeling out of there.
<unk>.
Things like site Activations enrollment.
Data.
Closing this gap and let some of our Differentiators really shine through so how do we take things like study kick some of our commercial capabilities bundle those into our enrollment solutions customers can see that better because they're spending less time talking about where we may have had historically.
We also use data science to help us look at our entire resourcing load across clinical to help us look at where we may have had individuals over allocated to projects. We consolidated the Alex the allocations deep fragmented our teams so the benefit for our customers now is they are more dedicated resources.
Country level or a functional level, which is a real benefit to them as well.
And then finally, we've really brought our therapeutics to the center of our business not just the project management through our medical and scientific teams.
Having a much more involved both at the bid stage that should cost cadence throughout the life of the project our clients have seen the consistency of those therapeutic insights to help them make the pivot that they need to make throughout the life of the trial. So really it's all I'm sorry, David Dave from day, one all the way through to where we are and I believe by the first half of this year well have that really to a steady state.
While all of our customers are going to experience the benefits of clinical or imagine wherever they are in the journey with scenarios.
That's very helpful and encouraging if I could ask one last question, which is around just kind of I'll call. At IR process is is this call with 23 guidance and even some comments on 24.
Does that create a level of.
Visibility or comfort confidence with.
Where the company is that you can.
Kind of.
Dispense with every three months appearance cadence and start being responsive to analysts and investors is that something the lawyers are going to start to let you do.
So David Yes, we have made the decision that we will be doing one on ones with analysts and our investors today and tomorrow and I think we have some already scheduled for next week and.
It's our goal to ensure that we're getting direct feedback from our shareholders and from analysts so yes.
Great to hear that thank you.
Thank you and our next question coming from the line of Eric Coldwell with Baird. Your line is open.
Thank you very much.
I wanted to.
<unk>.
Kind of add on to David's questions about the business development account management turnover.
It felt like you sort of skirted his question a bit.
I also I think everybody has heard about.
Turnover and changes there, but could you maybe just get a little deeper into where you are in staffing with account.
Management business development teams, what kind of net turnover you've seen and.
Where you are today versus where you want to be in terms of Resourcing and staff in and the business development functions and then I have some follow ups. Thank you.
Okay, Eric Thank you for the question.
So when we looked at business development to make sure that we can be competitive in the marketplace.
It looks much more broadly than just the people who are traditionally in the business developers, we really thought about what our approaches in regards to how we're going to work with customers and.
The thing that we're seeing that's having a lot of impact is marrying our business developers with our.
Technical and scientific experts along with the local project leads to ensure that we have a fulsome understanding of what the customer is looking for and that we can meet them in their journey, where they where theyre at whether it's from a scientific expertise perspective, whether it's making sure we deliver with quality.
<unk> and consistently and whether theyre looking for.
Innovative solutions around technology, and data et cetera, and so we really looked at it much more socially along with our account management team right. So we have are these dedicated account management teams around our largest customers.
And how they work closely with again operations, we felt that that was really important for us to be able to share with our customers. This enhanced clinical operating model, which we believe is truly differentiated and very competitive right and so.
It was a re look at the whole market.
Have realigned existing team members, so I just need to reiterate that.
Our business development team many of them are still the same people who have been here for a while and we value them greatly and we've also brought in some new people with some differentiating experiences right. So we wanted to make sure that we have both and that's what we have been doing and I think that youre always align your talent the right talent.
Against the right objective and I feel really good about where we're at.
At a high level.
And I know these forecasts can be difficult and I'm not looking for necessarily specifics unless you're willing to give it but do.
Do you have.
<unk> four net book to Bill for the two segments that you could share with us for this year.
And I guess.
Bottom line I mean, clearly, it's going to be a ramp and it's going to take some time, but do you see a positive book to Bill is a potential in clinical this year.
It's by the end of the year in a quarter or even on a full year basis is that even in the realm of possibility at this point and then similarly with the.
Commentary around commercial.
What is the new outlook on what a full year of commercial book to Bill should look like because obviously the quarters bounce around a lot you've had some historical guidance on I think it's around a one one for the full year give or take so I'm. Just curious if you have an update on what you are.
What youre anticipating in how you would steer the street in terms of thinking about the bookings this year.
Sure Eric I'm happy to give you some color on that so when you look at let's start with clinical I think that's a good place to start.
We have always said theres going to be a gradual recovery of our of our awards over the course of 2023, and we did have shared and have been consistent in sharing that we believe a lot of the larger pharma awards are more geared towards the back half of 2023 and so we do believe that it will gradually improve over the course of.
And that is contemplated in the guidance right. So the guidance, we gave you contemplates that as well.
In regards to commercial we have traditionally thought of one five to a one one book to Bill is the target range that we'd like to be in.
As you know, we're exiting 2022 with a 1.5 trailing 12 month book to Bill, but with what's going on in the macro environment and some of the things that we're seeing in.
More deliberate decision, making the smid.
Some of the funding issues that some of the Smiths are having along with the <unk>.
Deliberate decision, making within large pharma due to the IRI.
Just making sure that we align that guidance to reflect that decisions might take longer.
<unk> 2023, but long term, we believe that that is the right book to bill for the commercial business, but we're just taking I would say a more prudent approach. This year based on what we see going on in the macro environment.
And then finally for me.
Last quarter, there was a lot more detail on metrics around clinical bookings and rfps hit rates delays et cetera.
Now we're looking at.
A couple of pretty tough quarters on clinical awards.
Three quarters of negative book to Bill in total.
Can you.
Can you talk a bit about share loss versus simply delays and.
Timing issues. So it clearly at this point is starting to feel like there is some.
More obvious signs of share loss here I'm. Just curious if you can talk about clients that you've talked about six preferred deals with big pharma, but okay.
That question as well.
So we know that the new model is receiving really positive customer feedback.
I'm, sorry, I missed that Eric can you just repeat that I Didnt hear you clearly I am sorry.
Yes, I mean look bottom line is I'm always a bit reluctant to call share loss. After a one one bad quarter, but now we have two rough quarters in clinical awards three quarters ago wasn't great. It feels like it feels like Youre seeing share loss, we've heard about some new wins, but.
Hoping you can give some stats or metrics on.
Actually saying, yes look in fact, we have loss share these arent just delays or or tiny.
Timing issues that it's something more than that and I was hoping you could.
Share your views on.
Having customers that have actually tried it over the last few quarters. Thank you.
Okay. So we have shared some of the green shoots as you know around our repeat business rate is improving with Smith.
And the new large pharma partnerships. We are also seeing some rescues.
And so we feel like we're going in the right direction, but we understand the position we're in and we know we have to improve our RFP volume, we have to improve our win rates.
And it's really important that we add those large pharma partnerships as you know we've got one or two that we're looking at this year and that were in contention for and that's going to be really important and we need to convert the more high value opportunity. So we know those are the things we need to do to stay competitive in the marketplace.
Thank you one moment please for our next question.
And our next question coming from the line of Justin Bowers with Deutsche Bank. Your line is now open.
Hi, good morning, everyone Michele could you.
Provide us with a little more color on the strategic partnership that.
You guys have one I know that's been a priority area for the company for several years and.
I think you said.
There'll be consolidating 60 vendors into two.
Just a little more we just want to verify that and then.
Do you have a sense of.
Is this going to be FSP heavy or.
So service or hybrid and when when.
How should we think about the ramp for that.
And then related to that.
I'll pause there for that.
Sure. Thanks for the question. So yeah. We're excited about the <unk> partnership. So this was a top 10 customer for us.
They.
We're.
Doing really well there and they had.
Key vendors across the globe like add some small regional vendors across the globe and they really wanted to think about how they can be more efficient and effective and deploying their FSP solution and so we brought our consulting team in to work with them to design what their outsourcing model should look like and could look like.
From an FSP perspective.
Partnering with the manufacturer on what would good look like they're at.
And they made the decision to.
Take.
That instead of that regional approach to a more global approach and they chose <unk>.
So it's one of two two vendors and I think that's something that's unique about US right. The fact that we can bring that kind of expertise in from a consulting perspective to be able to help our customers make some of these decisions around their outsourcing strategy, and then being able to execute and deliver against that strategy and so we're really excited about that.
It's not we don't believe it's going to impact near term awards, we think it's more of a long term growth driver.
But I think it was really important just to.
Establish that.
Having that kind of impact with our customers is what we're all about and it's really really important that we.
We continue to grow our large pharma partnerships right. That's our number one organic growth opportunity and we want to continue to focus on that and if Michael if there's anything else you want to add there.
Early days. So we are in discussions with the customer around their plans for the consolidation their plans for <unk>.
Are you seeing any funding if they are going to increase funding. So as we get more details we will update our 2023 plans 2024 plans and share them as it makes sense.
Too early for us to do that anymore.
Information on the impact.
Got it and then and then one for Jason.
Team I think you said in the prepared remarks.
Some of the initiatives that you have underway would result in $30 million to $40 million of net savings.
In 2023, and then a 100 into 2024.
Is that.
Are we understanding that correctly that it's net of the restructuring.
Costs that you'll be incurring.
This year or is that what the restructuring costs will yield this year and then just.
The second part to that would be.
I think it's exciting.
Exciting that you put out an initial framework for 2024.
Can you can you help us bridge, maybe the high level like how do you anticipate.
Getting back to growth.
<unk> margins, just given where the bookings are trending at this point.
Like is there an exit rate on the bookings like implied in that forecast.
Yes.
Yeah. Thanks, Justin so on the first question.
The savings that were noted are net of the investments.
We are making into the business that are above the line in the programs not the restructuring charges that are below the line.
So just for clarity sake on that piece.
Those initiatives include the current short term actions.
We're looking at around the real estate footprint and related employee engagement efforts and hybrid strategy, there as well as just streamlining the operations.
At all of the things that Michael has talked about around technology and data and how we implement that into the business and the impacts that has on what we need to streamline the organization as well as velocity and the longer term.
The path, we have with our technology partner there.
We move that forward.
When you think about 'twenty four and the setup.
And it goes a little bit back to Eric's question, I think that we absolutely inherent in our guide and as I mentioned have.
Our clinical bookings gradually improving throughout the year and getting back north of one in the back half of 'twenty, three and then to 24.
There will be.
An increase in the burn rate when you think about 23 throughout the year.
Given the mix of business that we've won whether it's FSP or its faster burning studies within full service or our technology and data businesses et cetera. So those things are all built into what we're looking at as we see the gradual recovery bookings in the back half to above that one 1.2, even as.
We exit and then the exit rate on the savings.
Justin gets you too as we exit Q4 of 2023 that puts you somewhat in line with that 2024 number when you when you do a full year annualized number.
Got it I appreciate the detail there.
Thank you and as a reminder, ladies and gentlemen, please limit yourself to one question and one follow up and our next question coming from the line of Sandy Draper with Guggenheim. Your line is open.
Okay.
Thanks, very much lots already been covered.
EV.
That's the first question on the commercial side when I just look at.
The slowdown we saw in and the growth in the fourth quarter and then I'll look at backlog basically is flat on a year over year basis.
I know youre, not giving specific guidance by segment, but is it reasonable to think that commercial is.
Low to maybe mid single digit grower thinking about 'twenty three.
And just.
It's just again coming off of the basically 1% growth in backlog.
It could be a little higher but not a ton higher so just any thoughts around that versus because it sounds like you've been pretty positive it's been growing double digits, but it doesn't look to me based on the numbers you'd be able to do that so that would be the first question. Thanks.
Sure. Thanks, Brent Thanks for the question.
And our 2023 guidance.
The assumption does assume that commercial is flat to the 2022 driven by the recent macroeconomic demand pressures that we outlined so that is contemplated in the guidance for for.
For 2023.
Okay great.
Really helpful. And then maybe just one quick follow up just on it when I'm thinking about that.
Patterns and Jason you've given a lot of of information, which I appreciate.
It sounds like my inference is.
The first quarter start to trough quarter.
It's all in certainly on the revenue, it's more like second or third quarter, but just any additional thoughts on the pacing I know you've given first quarter guidance in the fourth quarter I mean, sorry, the full year, but just thinking about is there a specific quarter you would sort of project as the trough revenue quarter and obviously you have the offsets on the expenses.
So it may not lineup in terms of EBITDA.
Yes, Andy So we talked a little bit about the reimbursable that we had in Q4 that are going to impact Q1 in a positive way, primarily a little bit in quarter, two but primarily core one so.
You look at total revenue I think sort of how youre thinking about it.
<unk>.
As in line with with how we're thinking about it on the revenue side given some of those dynamics.
And then on the EBITDA side, we are making some investments earlier on in the year.
That will stay consistent throughout the year, we'll continue to make investments.
But some of them will sort of tail off from Q2 and Q3 onward.
Given what they are particularly around the clinical business and clinical re imagined that Michael has talked about as we get through the first half and sort of get most customers into that model and then the savings initiatives that we have start to pick up from Q2 onwards as well so.
Think about EBITDA.
Low always in quarter, one has a little bit of extra headwind in it this year due to the investments and the cost savings not being ramped and then from quarter. Two onwards, we started to see that ramp and the exit rate of quarter. Four EBITDA is broadly in line with what we're talking about for the full year 2024.
Okay, Great that's really helpful. Thanks.
Thank you and our next question coming from the line of Max <unk> with William Blair. Your line is open.
Alright, thanks for taking my questions.
Wanted to follow up on some of the backlog conversion delays you discussed I'm curious how much of your 2023 guide for clinical in particular is coming from existing backlog and how much visibility you have into potential delays and cancellations moving forward.
I can start I mean, I'll start up with cancellations I mean, our 2022 cancellation rate was lower than our 2021 cancellation rates, though.
Right in line with where we've always said, we expect our cancels today, but maybe Jason you want to give them a little more color on backlog.
Yes, I think Max you were asking the visibility of the backlog into 2023 is that right recovery yet.
And how much of 2020 I just wanted to confirm revenue has come in okay.
Yes.
Okay.
Yes.
Yeah.
Roughly if you look at last year I think.
The next 12 month backlog cover I think we're in around 90% or something.
We're higher than that as we head into 2023.
So you'll see good cover there that doesn't change the fact that we have to execute on the pipeline and the RFP flow in the bookings for the back half of the year and Thats, what Michelle and Michael have talked about so that's what we see currently on the clinical side.
That includes a very detailed bottoms up review of every single project that we do every month as we come into the year and based on what we've seen in the past in terms of.
How our projects and backlog run out.
In a given 12 months period.
Feel really good about that in terms of the accuracy and consistency.
Got it. Thank you for that just a quick one for me on <unk> I wanted to follow up on your comments earlier this year about the more than 24 potential asset launches translating into I think you said $2 billion in additional value of launched just wondering if you've ever taken.
<unk> taken a stab at coming up with a risk adjusted number for that $2 billion it might be a little bit more practical for us to consider as we think about the commercial revenue growth longer term here. Thank you.
Yes, so thanks for the question and the suggestion.
Certainly looking at how we can get better longer term visibility into which assets are going to come through the pipeline that are currently sitting in our clinical business right. So that we understand what percentage of them. We actually think are going to become an opportunity for us to commercialize so there is still.
Quite a large amount of assets under our.
Our leader SaaS on the clinical side that potentially lumpy commercial solutions.
So we feel really good that that's going to continue to be.
An opportunity to feed the commercial business, but I hear what you're saying.
Having better visibility into how much of that actually will impact commercial we're constantly looking at that I would shift to say a couple of things.
We're starting to see some great interest and.
Sitting us one across the continuum of product development right, So where we're getting assets that are currently in phase III that may commercialization. We just had one of our commercial cineaste, one customers Award US a piece of business and clinical in a different therapeutic area. So we're starting to see that.
When we no matter, where we work with them along the line that is not particularly I said that one asset we're starting to see them look across their portfolio to think about how they work with us in the finance one model. So I think thats something additive that early days are contemplating sending us one we didn't know that we're going to get that benefit and we're not seeing that benefit.
Got it very helpful. Thank you.
Thank you and our next question coming from the line of Casey Whitman with Jpmorgan Chase. Your line is now open.
Hi, Thank you for taking my questions. So last quarter on the zero three book to Bill you noted a portion of that was.
Related to push outs.
We expect it to be recouped in <unk> and then even in <unk> 'twenty three so just curious how much of those push outs that you recoup and <unk> and the <unk> hundred 39 number.
And then how much was pushed out to <unk> here and then how much of that work was ultimately lost.
Thanks for the question Casey.
The Q3 delays that were decided in Q4 our win rate has definitely stabilized I think we still have more opportunity there.
And then think about half of them went to two.
Two decision and it was about the normal wherewith normally ban in regards to our win rate.
We are continuing to see some deliberate decision, making but it's <unk>.
Definitely improved sequentially in regards to that decision, making we don't think that the push out long term are going to continue to be outsized or a little bit on the high side right now, but they're not where they were in Q3. So we think that phenomena is stabilizing.
Got it and then maybe just following up on one of the previous questions around share just when you look across your peer group and clinical IQ via had a record bookings quarter in <unk> commentary from Thermo suggests that PPD is also performing at a high level same with icon from a booking standpoint. So just curious as to what sort of confidence you have in the investments youre, making in clinic.
<unk> debt.
Allow you to think that you can kind of win customers back that you presumably lost to the larger scale players. Thank you.
Okay.
Thanks Casey so.
You've heard Michael speak a little bit today already about some of the key things that we're doing and how we're seeing green shoots in different areas, we're really confident in executing our strategy.
We're absolutely concentrating on clinical operations and business development and our cost structure realignment and this investment that we're also making in retaining and strengthening our talent, having our attention being at a two year high we believe all those things are creating great experiences with our existing customers and with new customers. We are.
We are also creating a really compelling offerings for consideration for sending us house and so based on the things that we're doing we believe that we're competitive we believe that customers are going to continue to.
Give us the opportunity to compete for business and.
Looking forward to that as you know Jason since that as the year goes on we're predicting our book to Bill will continue to rise in clinical over the course of the year.
Okay.
Thank you one moment please for our next question.
And our next question coming from the line of Luke <unk> with Barclays. Your line is now open.
Hey, guys. Thanks for the question just one from me.
And it's more on the EBIT.
Framework for 2004, I mean, thats, a pretty big step up $100 million essentially coming out.
Off of a low single digit top line growth.
And just kind of wanted to.
To get a good sense of one where that's coming from.
Are you going to be.
Cutting too much on SG&A that will hinder or more business development.
There is a risk of that.
And then really kind of thinking about the 23 guide.
No.
How much healthy conservatism is baked into that where if you come in well above that $700 million at the midpoint. Obviously it makes it easier to hit that $800 million, just just give us just give us some.
Way to think about that please.
Yeah, Hey looks Jason I'll start so on the 2024, when you think about.
The.
Low single digit growth in the incremental margin associated with that.
And then you add on the incremental savings from the.
Initiatives and that can include top line growth as well.
It is inherent in that single digit.
At a better margin, that's how you start to get to that year over year step up right because youre 30 to 40.
In 2023 of savings over 2022, and then Europe 100 $150 million in 2024, so that incremental savings plus the growth in <unk>.
Margin associated with that so that's a rough sort of orders of magnitude there of how we get there on the business development side, we're not making any.
As a matter of fact, we're investing in business development right.
If you look at that through.
Perhaps the CFO , Andrew like wait a minute bookings are down BD costs are up that doesn't make any sense well, we believe though that longer term, that's what's going to drive the growth of the business and move it forward and we are staying very much committed to that and continuing to invest around that as Michel has said.
For 2023 and the guidance.
We always.
Start with our backlog build start with our pipeline of everything that we've talked about and then we work through our initiatives, whether it's been our synergies from the initial.
Transaction back in 2017, and our forward bound initiative that we had a lot of success with now we have our project velocity, that's sort of our our new operating model as we move forward, where we've demonstrated we can execute these initiatives. We've looked at all of that the exact same way.
And put.
Sort of margin of error on it that we typically would plus perhaps a bit more given the macroeconomic uncertainty that's out there.
And just some execution risk type things so.
Phil.
Good about the guidance ranges that we've given for 2023 and Youre right. Obviously, the better we do that makes that step back up in 2020 for easier.
Great. Thank you.
Okay.
Thank you.
One moms with my next question and our next question coming from the line of Elizabeth Anderson with Evercore ISI. Your line is now open hi.
Hi, guys. Thanks, so much for the question I was wondering if you could comment a little bit more on how pricing is trending both entered a clinical and commercial versus sort of earlier in the year.
And then also secondarily sort of accounting cleanup question does your interest rate assumption for the full year assume that the hedge get to play it on again I would just so I'm clear on that point. So is that would fit into that too that would be helpful.
Sure. So Elizabeth Thanks for the question.
And in regards to I'll, let I'll, let Jason answer that the interest rate question.
Yeah on the interest rate side, the current guidance assumes that we moved.
275% variable as of April one so it doesn't assume we put on a new head Janet assumes the forward curve. That's currently out there.
Sure.
Sofa.
And Elizabeth could you just repeat the beginning of the question, yes, absolutely.
Just if you could comment a little bit more on pricing in both clinical and commercial entitled sort of how that's trending versus SaaS or two ago.
Yeah.
Right.
Great. Thank you Elizabeth.
I think you've heard us say in both clinical and commercial that we think we we price for value when we price for the operating.
Delivery that we believe it's going to get you the best outcome, whether it's clinical or commercial and I think that stands true today I don't think we've seen any anything different around anybody's pricing approach I think all of these customers are making decisions that they believe are in the best interest of maximizing asset value. So we haven't really seen a change in that.
Okay. That's very helpful. Thank you.
Yeah.
Thank you I'm not showing any further questions I would now like to turn the call back over to Michelle <unk> for any closing remarks.
Before I conclude the call I wanted to take a moment to thank Linda Harty for her service on our board of Directors Linda has been our board seat on our board since March of 2017 and city hotels has been well served by her advice on her contributions.
I also want to thank the entire <unk> team I am motivated and inspired by their commitment to our customers sites and patients. Despite the near term challenges, we remain confident in our market positioning and our strategy and we look forward to updating you on our continued transformation. Thank you for joining us today on our call and for your interest in <unk>.
<unk> in our company.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
[music].
Okay.
Yes.