Q4 2024 IQVIA Holdings Inc Earnings Call
Ladies and gentlemen, thank you for standing by at this time I would like to welcome everyone to the <unk> fourth quarter 2024 earnings Conference call.
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If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
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As a reminder, this conference is being recorded.
I would now like to turn the call over to Terry Joseph Senior Vice President Investor Relations and Treasury. Mr. Joseph You May now begin your conference.
Okay.
Thank you operator.
Good morning, everyone.
Thank you for joining our fourth quarter of 2024 earnings call.
With me today are <unk> chairman.
<unk> Executive officer.
Rob Romaine Executive Vice President and Chief Financial Officer, Eric Sherbet, Executive Vice President and General Counsel, Mike <unk>, Senior Vice President financial planning and analysis.
Peroni: <unk> Peroni senior director of Investor Relations.
Peroni: Today, we will be referencing a presentation that will be visible during this call for those of you on our webcast. This presentation will also be available following this call and the events and presentations section of our <unk> Investor Relations website at IR <unk> IQ via dock files.
Peroni: Before we begin I'd like to caution listeners that certain information discussed by management. During this conference call includes forward looking statements.
Peroni: Actual results could differ materially from those stated or implied by forward looking statements due to risks.
Peroni: Associated with the company's business, which are discussed in the company's filings with the Securities and Exchange Commission, including our annual report on Form 10-K, and subsequent SEC filings.
In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP.
Peroni: A reconciliation of these non-GAAP measures to comparable GAAP measures is included in the press release and conference call presentation.
Peroni: I would now like to turn the call over to our chairman and CEO Ari.
Ari: Thank you Jerry and good.
Ari: Good morning, everyone. Thank you for joining us today to discuss our fourth quarter and full year 2024 results.
Ari: It was great to see many of you at <unk> at our December Investor Day innovation embark headquarters.
Ari: I Hope this helps you appreciate the depth and breadth of our offerings.
Ari: As we showcased product demos and towards some of our industry leading laboratory.
Ari: In fact, a number of you commented to me afterwards, they left with a deeper understanding.
Ari: The breadth and depth of our capabilities.
Ari: And how our strategy to improve patient outcomes.
Ari: <unk>.
Ari: As we close 2024, we delivered solid full year results with revenue growth of five 5% at constant currency, excluding there could be drilling stepped down adjusted earnings per share growing over 9%.
Ari: And free cash flow of $2 $1 billion, which represents growth of 41% versus last year.
Ari: As well as 104% of adjusted net income.
Ari: I'm very proud of the results the <unk> team was able to deliver an industry faced significant challenges in 2024.
Ari: We saw the consequences of inflation reduction half, which led to delayed customer decision making.
Ari: We reduced discretionary spend and portfolio re prioritization.
Ari: Additionally, we had a challenging macro environment that persistence with geopolitical unrest.
Ari: The high interest rates and inflation foreign currency headwinds and.
Ari: And questions about the impact of political elections in the U S and around the world all of which we.
Ari: Created tremendous amount of noise and incremental uncertainties.
Ari: In fact.
Ari: Very few companies in our broader industry sector achieved positive growth.
<unk> IQ the.
Ari: Really stood out as an outperform.
Ari: More specifically in the fourth quarter you saw that we have strong operational results.
Ari: Revenue came in above the high end of our guidance range, representing about four 5% growth excluding the impact of foreign exchange.
Ari: It could be related work.
Ari: We delivered just under 10% growth in adjusted diluted earnings per share and we achieved a record quarter of free cash flow.
Ari: On the clinical side.
Ari: Net new bookings for the quarter were over $2 $5 billion and this highlights the great work that was done by our R&D team is securing new business contracts.
Ari: This helped to mitigate the outsized level of cancellations that did materialize in the quarter just as we had anticipated.
Ari: Now despite the tough macro environment. The R&D as business has some significant achievements in 2024, we successfully renewed all of our large pharma strategic partnerships this past year.
Ari: Even as many clients are reevaluated and consolidated their alliances. In addition, we establish new relationships displaced incumbents and expanded the scope of work in several partnerships positively positioning our business for future growth.
Ari: IQ again, how has partnerships with two of the top 25 pharma companies.
Ari: We made significant advancements in our global health business. For example, we have the World Health organization controlled polio virus outbreaks in Africa.
Ari: We have collaborated with the coalition for epidemic preparedness innovations Sydney.
Ari: Rhonda.
Ari: So we were able to respond swiftly to or Marburg virus disease outbreak.
Ari: Finally, we were selected by a large volumes declined to expedite the vaccine trials and books in sub Saharan Africa addressing acritical outbreak, an unmet medical need. This all comes to show as whenever there is a crisis IQ via use of company public health officials.
Ari: Now moving to the.
Ari: The growth trajectory materialized, just do we sell it.
Ari: Low single digit growth in the first half and gradually ramping up each quarter.
Ari: In fact growth exceeded our expectations in the second half. Obviously this was helped by easier compares versus the second half of 2023, but we also had stronger organic demand than expected.
Ari: Across all sub segments.
Ari: We're actually returning to double digit growth.
Ari: We finished the year with constant currency growth of five 7% and about 675%, excluding the COVID-19 step down which was at the high end of our guidance.
Ari: We expect to sustain these favorable trends into 2025.
Ari: Reflecting on 2024.
Ari: We are proud of what we achieved in the US a couple of business highlights. We introduced 60 innovations this past year, including 39 AI enabled applications.
Ari: For example, we introduced IQ as yet AI assistance, our first ever Gen AI interface.
Ari: <unk> customers to interact with a growing number of our products and get answers to their questions almost instantly.
Ari: We launched a number of AI enabled patient offerings, including outpatient relationship manager, which has already been deployed at eight clients, including three top 10 pharma.
Ari: Our digital business, which up to now was largely U S has begun expanding into Europe. We've doubled the number of websites publishers and partners that are now integrated into our digital network.
Ari: Yes.
Ari: Looking at 2025, we are reaffirming the guidance we provided to you.
Ari: December invested this on the Dod side things have continued to recover as we anticipated.
Ari: On the R&D side, we still have some volatility so we might see another quarter or two of.
Ari: A fluctuating demand and elevated cancellations.
Ari: We think the bulk of the portfolio prioritization at large pharma has been completed in fact, we feel good about the R&D as demand environment, because leading indicators continue to be favorable for example.
Ari: Our Q4 RFP flow was up mid single digits.
Ari: These are higher actually.
Ari: These segments are.
Ari: Our qualified pipeline is also up with positive growth across all segments EVP.
Ari: EVP funding as you noted was strong through 2024.
Ari: Full year biotech funding was over $100 billion.
Ari: Which is 44% higher than it had been in 2023.
Ari: Now.
Ari: We did have much higher cancellations in 2024 than ever before in fact.
Ari: Nearly 50% higher in 2024 than the average of the previous three years.
Ari: Our gross new bookings before cancellations for 2024 were even stronger.
Ari: And up mid single digits at constant currency versus 2023, which led to an end of year backlog of $31 1 billion.
Ari: Which is again constant currency five 5% higher than a year.
Ari: Sure.
Ari: No.
Turning to the results for the quarter.
Ari: Revenue for the fourth quarter grew to 43% on a reported basis and 3% at constant currency.
Ari: Compared to last year, and excluding Covid related work.
Ari: Both periods, we grew the topline about four 5% on a constant currency basis and that included in the quarter about two points of contributions from acquisitions, mostly on the tonnage side.
Ari: Fourth quarter, adjusted EBITDA increased three 1% driven by revenue growth.
Ari: And ongoing cost management discipline, which resulted in 20 bps of margin expansion.
Ari: Fourth quarter, adjusted diluted EPS of $3 and <unk> increased nine 9% year.
Ari: Okay.
Ari: Let me now give you some color on business activity.
Ari: Success is achieved.
Ari: By continuing to raise the bar in innovation every year and investing in highly differentiated capabilities. You saw the recent announcement of our collaboration with <unk> to <unk>.
Ari: Transforming healthcare and Lifesciences to advanced <unk> AI solutions.
Ari: AI has the potential to transform our industry for example by addressing lengthy and complex processes in clinical trials or on the commercial side by helping expedite the agnostic.
Ari: And improve treatment adherence by patients.
Ari: Our collaboration with Nvidia will help accelerate the introduction of <unk> agents within our workflows.
Ari: <unk>, essentially becoming digital companions to researchers hcp's and patients.
Ari: Let me give you some more examples of wood.
Ari: What was achieved in the quarter and let me start with <unk>.
Ari: Their business is rapidly evolving as we see increasing demand for integrated solutions that combine information analytics and services.
Ari: This is enabling us to win much larger longer term deals with our clients because of our unique ability to deliver these combined offerings and give you. A few examples <unk> was awarded a strategic partnership to deliver Omnichannel marketing solutions to promote it top 10 pharma clients.
Ari: Established portfolio.
Ari: Yes, we utilized analytics AI automation technology and commercial also Youll see <unk>.
Ari: <unk> also partnering with the biotech company to launch a new treatment for ovarian cancer.
Ari: Which will be our clients first products in market.
Ari: This last deal Leverages, <unk> comprehensive commercial capabilities and expertise to execute regulatory process launch and commercial activities.
Ari: Another ADP clients.
Ari: Asked iqs, yet to support them in launching a new cell therapy for severe pediatric condition.
Ari: By providing the full comprehensive commercial infrastructure and that includes field sales medical and commercial communications compliance and CE.
Ari: A large pharma client that means that you get to simplified data management by integrating diverse sources from all over three countries 30 countries.
Ari: Do see complexity and enhancing efficiency.
Ari: To support the client's information strategy to streamline operations and centralized its global information into a single standardized system that we will be operating.
Ari: Moving now to our real world.
Ari: Using advanced AI to support a top 10 pharma clients to demonstrate efficacy for gastric cancer treatments and gain approval in new markets.
Ari: Top.
Ari: <unk> pharma client chose <unk> to help track disease and treatment efficacy in support of various regulatory submissions in Europe.
Ari: Let me move now to Rds.
Ari: Earlier noted the success of our R&D team and want to highlight some notable wins that represents our capabilities across segments therapeutic areas and operational dynamics.
Ari: Let me start with large pharma.
Ari: The top five pharma client selected ICU has yet to conduct a complex foodservice phase III study the address in asthma and COPD patients.
Ari: We want another foodservice global phase III breast cancer study for a top 30 pharma.
Ari: Another top 10 pharma client awarded <unk> logistics.
Ari: The largest is the contract award is notable because we displaced tuned large longtime incumbent.
Ari: Rose.
Speaker Change: Med Tech.
Was awarded a study to evaluate in novel medical device, specifically targeting cardio vascular condition.
Speaker Change: Biotech.
Speaker Change: Notable awards include a critical phase III oncology study.
Speaker Change: Based on our strong data driven approach and the ability to manage global complex trials efficient.
Speaker Change: Another global studies.
Speaker Change: Foodservice study forward another biotech clients for progressive pulmonary fibrosis disease, which involves nearly 1000 patients in 26 countries and again, we're able to win this based on our global footprint.
Speaker Change: Beauty expertise.
Speaker Change: The phase II trial for a rare CNS conditions with limited previous research.
Speaker Change: Lots of success in the marketplace with large pharma.
Ron: <unk> and Edp I'll be focusing our call over to Ron for more detailed review of our financial results I'd like to take a minute to acknowledge and congratulate our employees around the world.
Ron: They are extraordinary award this past year, it was challenging but we delivered.
Ron: Great team, we also received.
Ron: Amazing recognitions throughout the year I just want to highlight a few frost <unk> Sullivan awarded IQ via the 2024 global customer value leadership Award.
Ron: For excellence in quality and regulatory solutions in healthcare.
Ron: I assume thats.
Ron: Tomorrow sold enterprise SKU, a mess was recognized for best use of AI in health care by the met the breakthrough awards.
Ron: My Green lab awarded <unk> laboratories, a 2024 race to zero leadership Award.
Ron: For certifying 100% of olive workloads.
Ron: We received recognition as the leader in Forbes world's best healthcare and life Sciences managements.
Ron: And lastly for the eighth year role IQ yet was named one of the world's most admired companies in Fortune's annual survey and importantly for the fourth year in a row.
Ron: <unk> was named the number one most admired company in our category of healthcare pharmacy and other services.
Ron: In addition, as <unk>.
Ron: <unk> Yep earned number one ranking in the categories of innovation.
Ron: <unk> competitiveness people management and use of corporate assets now wrong.
Ron: More details on our financial results.
Speaker Change: Thanks, Ari and good morning, everyone, let's start with revenue.
Speaker Change: Fourth quarter revenue of $3 billion $958 million grew two 3% on a reported basis and 3% constant currency.
Speaker Change: In the quarter Covid related revenues were approximately $10 million, which is down.
Speaker Change: $50 million versus the fourth quarter of 2023.
Speaker Change: Excluding all Covid related work both from this year and from that constant currency growth was about four 5% and as already mentioned acquisitions contributed approximately two points of this growth.
Speaker Change: Technology <unk> analytics solutions revenue for the fourth quarter was $1.658 billion, which was up eight 3% reported and nine 5% constant currency.
Speaker Change: R&D solutions fourth quarter revenue of $2 billion $123 million was down one 3% reported and 1% constant currency.
Speaker Change: But excluding all Covid related work R&D revenue grew over 1% in constant currency.
Speaker Change: And finally contract sales <unk> medical solutions fourth quarter revenue of $177 million declined four 8% reported and three 2% at constant currencies.
Speaker Change: For the full year revenue was $15 billion and $405 million, that's up two 8% reported and three 4% at constant currency.
Speaker Change: <unk> related revenue totaled approximately $110 million for the year.
Speaker Change: Excluding all Covid related work from this year and last constant currency growth and revenue was five 5% for the year.
Speaker Change: Full year technology, <unk> analytics solutions revenue $6.160 billion that was up five 1% reported five 7% at constant currency.
Speaker Change: And 6.5%, excluding all COVID-19 related work at constant currency.
Speaker Change: Full year revenue and R&D solutions with $8.527 billion up one 6% on a reported basis, 2% at constant currency, excluding all COVID-19 related work growth in constant currency and R&D was over 5%.
Speaker Change: And finally, our full year <unk> revenue was $718 million down one 2% reported but up one 4% at constant currency.
Speaker Change: Yeah.
Speaker Change: As already mentioned in his opening remarks, the 2024 growth trajectory and task played out as we anticipated with improvements every quarter.
Speaker Change: And we had we experienced a softening growth rates throughout 2023 due to cautious customer discretionary spending.
Speaker Change: And we predicted that 2024 would be a turnaround year based on our forward looking indicators in recent history. In fact, that's what happened in 2020 for cash growth picked up significantly, finishing the second half with high single digit growth driven by strong mid single digit organic growth.
Taz: As you know Taz, it's the short cycle part of our business and as we've seen in 2023 data that's.
Taz: Early insight into customer spend behavior during the downturn.
Taz: By the same token we expect that in 2020 for turnaround and Tad serves as a good leading indicator of the industry recovery for 2025.
Taz: If you move down the P&L adjusted EBITDA in the quarter was $996 million representing growth of three 1% full year adjusted EBITDA was $3 billion $684 million, that's up three 2% year over year.
Taz: Fourth quarter GAAP net income was $437 million and GAAP diluted earnings per share was $2 42.
Taz: For the full year GAAP net income was $1 billion $373 million or $7 49.
Taz: Of earnings per diluted share.
Taz: Adjusted net income was $564 million for the fourth quarter and adjusted diluted earnings per share was $3 12.
Taz: That for the full year brought adjusted net income to $2 billion $42 million and adjusted diluted earnings per share to $11 and 13 six.
Taz: R&D is backlog at December 31 was $31 1 billion, an increase of four 4% year over year and five 5% at constant currency.
Taz: And to anticipate the question that I think we will get about why backlog was flat sequentially versus Q3.
Taz: Recall that the dollar strengthened considerably during the fourth quarter and we have to re translate the backlog at the end of each quarter for reporting year.
Taz: And that knocked about a half a billion dollar off the backlog that retrans relation alone.
Taz: As of December 31, cash and cash equivalents totaled $1 billion $702 million and gross debt was $13 billion $983 million, resulting in net debt of $12 $281 million or net leverage ratio ended the year at 333.
Taz: <unk> trailing 12 month adjusted EBITDA.
Taz: Fourth quarter cash flow from operations was $885 million in Capex was $164 million, resulting in free cash flow of $721 million for the quarter.
Taz: Record quarterly free cash flow.
Taz: For the full year free cash flow was $2 billion $114 million as already set up 41% year over year.
Taz: You noted that in the quarter, we repurchased $1 billion $150 million of our shares bringing our full year share repurchase.
Taz: The $1 billion $350 million.
Taz: Okay.
Taz: Just yesterday absolutely.
Taz: I gave you a board of directors replenished the share repurchase authorization.
Taz: By $2 billion, which increases the total remaining authorization to approximately $3 billion.
Taz: Now, let's turn to guidance for the full year, we're reaffirming.
Taz: Our 2025 outlook, which is for revenue growth at constant currency ex COVID-19 of 4% to 7% adjusted EBITDA margin expansion of up to 20 basis points and adjusted diluted earnings per share growth up 5% to 9%.
Taz: This translates into total revenue between $15 billion $725 million $16.125 billion.
Taz: Which includes just over a $100 million step down in Covid related work, which is entirely in R&D at.
Taz: Of which 75% will be in the first half at 25% in the second half.
Taz: We expect 100 to 150 basis points of contribution from M&A activity and an FX headwind.
Taz: Should rates continue of approximately 150 basis points versus 2024.
Taz: Our adjusted EBITDA guidance of $3 billion $765 million to $3 billion $885 million and adjusted diluted EPS guidance is $11 72 to $12 10.
Taz: This includes about $675 million of net interest expense approximately $575 million of operational DNA and effective income tax rate of about 18, 5% and an average diluted share count of approximately $178 million.
Sure.
Taz: The guidance also assumes $2 billion of cash deployment split between acquisitions and share repurchase.
Taz: And finally, the guidance assumes that foreign currency rates as of February five continue for the balance of the year.
Taz: Got it and segment level guidance.
Taz: Is also unchanged for TASS R&D and see at that Matt No changes in any of the segments. We expect <unk> revenue to grow 5% to 7% at constant currency, which translates into six 3% to $6 5 billion.
Taz: A note will have easier comps in the first half in the second half.
Taz: <unk> revenue is expected to grow 4% to 6% at constant currency ex COVID-19, which translates into eight 7% to $8 $9 billion of revenue.
Taz: This guidance includes over $100 million of step down in Covid related revenue that represents about 100 basis point that headwind Rds growth rate, we anticipate that R&D is growth rates will be lower and the first half and improved sequentially thereafter.
Taz: Finally, <unk> revenue is expected to be.
Taz: Approximately $700 million.
Taz: Flattish year over year.
Taz: Now, let's look at first quarter guidance for the first quarter, we expect revenue to be.
Taz: <unk> 3 billion.
Taz: $740 million $3 billion $790 million note that Q1 had the largest impact in the year for both foreign exchange and Covid revenue step down.
Taz: A total of approximately 300 basis points of headwind.
Taz: Adjusted EBITDA is expected to be between $870 million $890 million in the quarter and adjusted diluted EPS.
Taz: It is expected to be between $2 60, and $2 70.
Taz: And as mentioned our guidance assumes that foreign currency rates at February five continue for the balance of the year.
Taz: So let me summarize we delivered an excellent fourth quarter, which closed out a strong year for.
Taz: For the full year revenue grew five 5% at constant currency, excluding covered weighted work adjusted EBITDA margin continued to expand adjusted diluted EPS was up nine 1%.
Taz: Free cash flow was a record in the quarter at $721 million, bringing the full year to over $2 $1 billion up 41%.
Taz: In the quarter, we repurchased $1 billion $150 million of our shares for the full year share repurchases with $1 $350 million.
Taz: Our board of directors increased our share repurchase authorization by $2 billion, which brings our remaining authorization to approximately $3 billion.
Taz: During the year, we introduced 60 innovations, including 39 AI enabled applications and momentum continues to build with our recently announced collaboration with Nvidia.
Taz: <unk> was named to Fortune's list of world's most admired companies for the eighth consecutive year and earned first place ranking in our industry.
Taz: For the fourth consecutive year.
Taz: And lastly, we reaffirmed our full year 2025 revenue growth guidance.
Taz: At constant currency of 4% to 7% adjusted EBITDA margin expansion of up to 20 basis points and adjusted diluted earnings per share growth of 5% to 9%.
Taz: And that concludes our formal remarks that let me hand, it back over to the operator to open up the call dealing head.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Taz: Quest that you limit yourself to just one question so that others in the queue may participate as well.
Taz: For tomorrow.
Taz: To compile the Q&A roster.
Speaker Change: Our first question comes from Shlomo Rosenbaum from Stifel. Please go ahead. Your line is open.
Shlomo Rosenbaum: Hi, Thank you very much I wanted to just ask you to dig back in a little bit more on how the operating environment progressed through the quarter and relative to what you were expecting in <unk> we.
Speaker Change: We had some discussion about reassessing of vendor relationships kind of ending or the expectation that would end in the fourth quarter and some of that re prioritizing work ending we're still talking about some.
Shlomo Rosenbaum: Potential volatility for the next one to two quarters does that.
Shlomo Rosenbaum: The way you were expecting coming into the fourth quarter or is there any change into.
Shlomo Rosenbaum: Note that in.
Shlomo Rosenbaum: As part of that maybe you could talk about is there any change in your expectation. There is divided the contracts that you discussed last quarter. Thank you.
Shlomo Rosenbaum: Okay.
Shlomo Rosenbaum: Thank you Joe well note will be meetings, we spoke.
Shlomo Rosenbaum: That long ago in December.
Shlomo Rosenbaum: And a rally and we shared there our sentiments with respect to the operating environment.
Shlomo Rosenbaum: <unk>.
Shlomo Rosenbaum: Not much has changed versus what we told you then that is it was a difficult operating environment for all the reasons. We mentioned then in.
Shlomo Rosenbaum: Iterate that in my introductory remarks, the microenvironment.
Shlomo Rosenbaum: Sequences of array a bunch of.
Shlomo Rosenbaum: Unexpected large cancellations.
Shlomo Rosenbaum: <unk> reserves, we had last year and then the two large phase <unk> trials, though we have just started that for reasons.
Shlomo Rosenbaum: Independent of Julia were just delayed.
Shlomo Rosenbaum: Because of the nature of these projects basically pushed back to the back end of 'twenty five nothing's changed here.
Shlomo Rosenbaum: Thanks.
Shlomo Rosenbaum: We think the bulk of the cancellations that we prioritization.
Shlomo Rosenbaum: Has occurred.
Shlomo Rosenbaum: We said then I'll repeat now we still going to have 104 rooms of some volatility.
Shlomo Rosenbaum: And.
Shlomo Rosenbaum: Sitting here I can't tell you what.
Shlomo Rosenbaum: First quarter to second quarter.
Shlomo Rosenbaum: In December we were closer to the end of the quarter. So it moved visibility frankly.
Shlomo Rosenbaum: The one market in the quarter you can never down what are we going to book what are we going to sell.
Shlomo Rosenbaum: Which.
Shlomo Rosenbaum: Deals that are going to come in this quarter or whenever you put yourself in the next quarter, which cancellations may or may not occur. This quarter. We have no idea I just always shocked when people are able to predict what have bookings that net bookings will be in a given quarter I have no idea as I stand here, one month into the quarter, especially first month of the year generally.
Shlomo Rosenbaum: Not much happens.
Shlomo Rosenbaum: Yes.
Shlomo Rosenbaum: Say, Italy.
Shlomo Rosenbaum: What is truth towards maybe 70% 75% of the somewhere.
Shlomo Rosenbaum: In 2000 <unk>.
Shlomo Rosenbaum: Re prioritization that we knew all that large pharma essentially is our MH.
Shlomo Rosenbaum: It may still be a little bit of fluctuation here.
Shlomo Rosenbaum: Next quarter or two but I can't I can't say for certain what may or may not happen and with respect to these two trials.
Shlomo Rosenbaum: Made which was your second question.
Shlomo Rosenbaum: Nothing changed his seat on declines very much want to do them.
Shlomo Rosenbaum: It causes us to.
Shlomo Rosenbaum: Perhaps we maintain some costs.
Shlomo Rosenbaum: Through the year end.
Shlomo Rosenbaum: That's kind of affecting EBITDA gross margin because we had the stranded costs, but that's okay, we manage that.
Shlomo Rosenbaum: And we feel good about that and those those will happen as we said no change.
Shlomo Rosenbaum: End of the year.
Shlomo Rosenbaum: Thank you.
Speaker Change: Our next question comes from Elizabeth Anderson from Evercore ISI. Please go ahead. Your line is open.
Elizabeth Anderson: Hi, <unk> hi, Ron Thanks, so much for the question.
Elizabeth Anderson: If you could give a little bit more color on two things I think you've been given some some some nice pharmacology I was wondering if you could talk a little bit more about the biotech environment, how how thats going how you sort of see an RFP flow or are you seeing any kind of unlocking of some of the funds that were raised last year, but not spend and then also talk a little bit more about what you think the drivers.
Elizabeth Anderson: On the real world evidence acceleration. Thank you.
Elizabeth Anderson: Okay, Alright, so Luke Vinny.
Elizabeth Anderson: The biotech funding, which so.
Elizabeth Anderson: So sort of a leading indicator of roads.
Elizabeth Anderson: What what is going to happen in terms of the booking environment for that segment has been strong okay. We consistently use the same.
Elizabeth Anderson: Stats.
Elizabeth Anderson: <unk>, it's over 100 billion for 'twenty 'twenty four there has been fluctuation quarter in quarter out, but thats the number and that's a huge number that's a record number ever if you exclude the two years of 2020, one which were.
Elizabeth Anderson: 130, and $1 20, respectively, but I mean last year, what was the number last year guys.
Elizabeth Anderson: Was that in the $70 million $70 million.
Elizabeth Anderson: $7 billion to $1 billion last year, Okay. So significant.
Elizabeth Anderson: Growth in pumps now we said before.
Elizabeth Anderson: Just because biotech gets funding today it doesn't mean that it translates into.
Elizabeth Anderson: Pretty good trial awards. The next day, Okay. It takes time.
Elizabeth Anderson: And Neal it's six months a year, but it's a good strong leading indicator and we solve for.
Elizabeth Anderson: These start to pick up already.
Elizabeth Anderson: A year ago and therefore, we are still we are starting to see these RFP flow.
Elizabeth Anderson: They said was up mid single digits for us.
Elizabeth Anderson: Across the portfolio, we did which again in the current environment is very very good.
Elizabeth Anderson: And edp was higher than that.
Speaker Change: Okay higher than the 5%.
Speaker Change: And yes, so that's about the environment. So I think we feel good about the EVP segments lots of opportunity and we're chasing all of that.
Speaker Change: Our next question comes from Ann Hynes from Mizuho. Please go ahead. Your line is open.
Ann Hynes: Hi, Good morning, just on cancellations I know going into Q4, you thought it would be $1 billion did it come in and to the $1 billion or was it higher and then I know you said that you success second of all even if all your RFP activity can you just talk about pricing on those renewals and how that's playing out from a competitive.
Speaker Change: Landscape. Thanks.
Speaker Change: Right well first of all I noticed it towards a $1 billion I said that is historically.
Speaker Change: The average already cancellations is about half a billion dollars a quarter.
Speaker Change: Corey quarter without I mean, I defy anyone to predict towards the cancellations wouldn't be in a given quarter ever.
Speaker Change: However.
Speaker Change: That's.
Speaker Change: True.
Speaker Change: And there are quarters, where we had 300 million where there was a we had 600 million, but on average that's kind of the number okay.
Speaker Change: And to date.
Speaker Change: The bus.
Speaker Change: So what I said was that given the amount of or was it last fall is doing and the scrutiny that they are placing on.
Speaker Change: Those programs and the <unk>.
Speaker Change: Increased level of cancer as we saw for the year as I was.
Speaker Change: Suggesting that wouldnt be surprising the fourth quarter was double that.
Speaker Change: And he basically was that it wasn't a billion, but he was way above seasonal.
Speaker Change: <unk> handle was we could have imagined so it was somewhere around but not far off.
Speaker Change: Not quite a vision. So it was very high in fact for the year and I think thats an interesting.
Speaker Change: I think I mentioned in my introductory remarks, if you look at the average cancellations in a given year.
Speaker Change: Let's take the last three years for an example.
Speaker Change: Somewhere close to a couple of your earlier with under $2 billion right for the year, Okay consistent with.
Speaker Change: Evidence.
This year it was almost 50% higher meaning this year 2024.
Speaker Change: Was 50% higher than that.
Speaker Change: Despite that.
Speaker Change: We grew our backlog grew and that's because we're able on a gross level to book, even more business than last year offsetting more than offsetting the higher level of cancellations. So on the demand side.
Speaker Change: Things are good.
Speaker Change: Cancellations were very elevated.
Speaker Change: Surprises there.
Speaker Change: Essentially as we expected.
Speaker Change: <unk>.
Speaker Change: And a CPU I, just don't know what theyre going to be next quarter or two.
Speaker Change: We are going to navigate this environment.
Phil: Phil good that the bulk of that is behind us.
Phil: You asked about the pricing environment right, yes, so yes, I mean, yes, I mean look this.
Phil: In the current environment, you would expect and anticipate that pricing is going to be more difficult because it's.
Phil: Stock compensation.
Phil: There are lots of CLR was up there I mean people tend to forget.
Phil: There are 4000 and CRM tools out there.
Phil: Okay.
Phil: So.
Phil: They don't all participate in every single bit, but it's not unusual.
Phil: When <unk> go around and shoved there the deal around they talked to a lot of people.
Phil: And on the large pharma side as we mentioned.
Phil: They've decided last year to re open all of their partnerships and thankfully we won.
Phil: <unk>.
Phil: Re signed with all these partners in fact expanded our portfolio large pharma wanted to consolidate the spend that we were on the winning side of that exercise that was very good at it bodes well for the future.
Phil: Great. Thanks.
Phil: Our.
Speaker Change: Question comes from David Windley from Jefferies. Please go ahead your line is open.
Speaker Change: Hi, good morning, Thanks for taking my questions and a good segue from the last or you've talked a fair amount about.
Speaker Change: The push toward FSP, you've talked about pricing.
Speaker Change: Pricing pressure as you just kind of highlighted generally, but but that pricing pressure also.
Speaker Change: In FSP with these partnerships.
Speaker Change: Procurements.
Speaker Change: And then you've also talked about carrying cost for these mega trials.
Speaker Change: I was actually surprised at the Investor day.
Speaker Change: You could expand margin at all and so so my question is what are the cost levers that you're pulling.
Speaker Change: To be able to eke up your margin just a little bit in the face of all of those pressures.
Speaker Change: And then just more simply in the navigation on on gross margin versus SG&A and EBITDA are we seeing some of that business mix shift toward the FSP in the P&L.
Speaker Change: Already like in the fourth quarter. Thank you.
Speaker Change: Thank you, Dave well as always you're on the market and you are highlighting.
Speaker Change: Centrally.
Speaker Change: The tasks that we have day in and day out how do we.
Speaker Change: <unk>.
Speaker Change: Sure.
Speaker Change: All of those headwinds, yes, youre absolutely correct.
Speaker Change: Surprised how we're able to still grow margins.
Speaker Change: Bear in mind.
Speaker Change: Since the merger.
Speaker Change: And <unk>, we've grown our margins I mean, we ended the quarter with over 25% correct adjusted EBITDA margins.
Speaker Change: In those days you might recall, we were more in the 20% kind of range. So we expanded margins now in the early years, we extend margins a lot more.
Speaker Change: Now obviously, it's harder but that is what we do here we try.
Speaker Change: Just to grow our margins.
Speaker Change: No.
Speaker Change: <unk> tried to grow profits faster than our revenue.
Speaker Change: That's how we're offering.
Speaker Change: Mode here of how do we do then yes, you are right the mix.
Speaker Change: Influences can influence the gross margin I don't think that that was the case in Q4, Yes, I think we see you could see on gross margin was a little.
Speaker Change: <unk>.
Speaker Change: Looking into.
Speaker Change: Four but I don't think it is.
Speaker Change: A reflection of the higher FSP mix the higher FSP mix is in the bookings it's going to take time, okay. It's not yet in the PNM to be precise in answer to your question is.
Speaker Change: It's more.
Speaker Change: Quarterly core routes.
Speaker Change: If you look at Q3 for example of last year, we had gross margin expansion.
Speaker Change: So is there any.
Speaker Change: Given the mix of revenue that you recognize in a quarter.
Speaker Change: Plus obviously does business.
Speaker Change: Also influences that.
Speaker Change: For example within doors.
Speaker Change: I can tell you that our real world is a little lower margin than the rest by the lower margin that.
Speaker Change: Lower marketing and analysis at a lower margin than tech.
Speaker Change: In the fourth quarter Real award was very strong.
Speaker Change: A really strong I mentioned was back to double digits.
Speaker Change: And so that of course affects.
Speaker Change: The mix and then I'll remind you.
Speaker Change: From the fourth quarter, we had this high level of stranded costs on those two mega trials and that also affected our gross margin, but we put the usual levers.
Speaker Change: You've been covering us for a while you know will be do we constantly evaluate how to.
Speaker Change: Optimize the average labor rates across all of our geographies.
Speaker Change: We constantly.
Speaker Change: Explore opportunities to increase our economies of scope that is restructure have flattened the organization.
Speaker Change: We constantly lever.
Speaker Change: Infrastructure and for the past year.
Speaker Change: Sure.
Speaker Change: We've accelerated the deployment of AI tools within our own processes.
Speaker Change: You mentioned before that the next big thing certainly operationally within our own.
Speaker Change: <unk> rules is to leverage.
Speaker Change: AI tools as much as can be and we start to see some impact of that and we plan to continue use and deployment of those and that these are the levers that help us mitigate all the cost pressures that you just highlighted so it's a day in day out deeply the trends.
Speaker Change: <unk> strong operational discipline.
Speaker Change: And our relentless focus on continuing to optimize our costs.
Speaker Change: Yes.
Speaker Change: Good for you for that thank you very much very helpful.
Speaker Change: Our next question comes from Charles <unk> from TD Cowen. Please go ahead. Your line is open.
Charles: Yes. Thanks, Thanks for taking the question.
Speaker Change: Just wanted to go back maybe then to the test segment I think early you just mentioned.
Speaker Change: Obviously, we were all evidence had sounded like you said double digit growth in the quarter, maybe can you give us a sense for sort of the trends youre seeing across between both <unk> analytics and consulting and maybe technology platforms and give us a sense for within the 25 outlook, how you see those kind of separate parts.
Speaker Change: Of that.
Speaker Change: Kind of the outlook for each of those relative as we think about the mix going forward.
Speaker Change: Yes, well. Thank you for the question, Yes, I mean look good SaaS business.
Speaker Change: It should be should have been and should remain a very resilient business. We are very consistent.
Speaker Change: The type of growth so in full.
Speaker Change: <unk> is a low.
Speaker Change: <unk> right, it's about a 1% grower that did not change.
Speaker Change: Through the periods.
Speaker Change: That's a very sticky.
Speaker Change: Sure.
Speaker Change: Subscription base repetitive business.
Speaker Change: The analytics and consulting is where we had seen.
Speaker Change: It's dramatic.
Speaker Change: Impact of the cautionary spending trends, we saw end of 'twenty three in early 2004, because some of that the significant part of that is discretionary spend and that essentially got shut down so we had negative quarters in.
Speaker Change: Analytics and consulting.
Speaker Change: Earlier in the year and.
Speaker Change: As we ate both through your it went back towards these mid single digit kind of Mark what was the end of the quarter.
Speaker Change: And then the higher growth businesses, which had been hydro rules real world and take.
Speaker Change: Basically for the full year.
Speaker Change: Essentially went back to high single digits.
Speaker Change: And in the quarter.
Speaker Change: Back into double digits.
Speaker Change: So that's what we saw now because we anticipate that these why did this happen and why we'll be confident recoveries because a lot of the work.
In a real world take and also <unk>.
Speaker Change: <unk> analytics and consulting are most active.
<unk> activities for our clients.
Speaker Change: When our clients get the drug approved and as you know in 2023 was a record USD <unk> 65.
Speaker Change: Approvals in 2023.
Speaker Change: By the way 24 was also good as it was about 50 approvals. These are very high numbers, if you back historically.
Speaker Change: These approvals.
Speaker Change: Typically within six to nine months, you've got to launch the project and that's where we come in this we all services play.
Speaker Change: Is it launching the drug promoting the drug commercializing the drug pricing, good drug et cetera et cetera.
Speaker Change: Supporting the <unk>.
Speaker Change: You could see demonstrations and safety administrations and supporting pricing.
Speaker Change: For the drugs all of that is also improving our analytics business and in our real world business and so those needed to be done and clients delayed does but eventually that has to do with and Thats why we saw a strong returns.
Speaker Change: The business in the second.
Speaker Change: Great. Thank you appreciate it.
Speaker Change: Our next question comes from Jack Meehan from Nephron Research. Please go ahead. Your line is open.
Okay.
Speaker Change: Thank you and good morning.
Speaker Change: I had a couple of questions for Ron just on the income statement.
Speaker Change: First was.
Speaker Change: The gross margins in the fourth quarter was wondering if you could just walk us through the dynamics there as they were down a little over 100 bps year over year, but you have lower pass throughs.
Speaker Change: Was this the trapped costs related to those two trials or just any other color would be great.
Speaker Change: Well the first thing I would caution thats when youre looking at gross margins Youre looking at reported and not adjusted so if youre trying to tie the gross margins and SG&A on our income statement back to our adjusted EBITDA. There is a difference right. There because those are reported not adjusted numbers, but having said that our.
Speaker Change: We did already give you some insight into that we have stranded costs associated with those trials that got delayed.
Speaker Change: Certain of our businesses that had strong growth like the real world business tend to be lower margin business for us.
Speaker Change: So there is a mix impact in there certainly.
Speaker Change: But again anytime you are looking at the reported numbers remember that things like restructuring or other adjustment to get added back can affect the percentages that youre calculating straight off the income statement.
Speaker Change: Got it okay that makes sense.
Speaker Change: One for Ari.
Speaker Change: On the policy front, we're in a couple of weeks into the New administration here.
Speaker Change: Just any thoughts on how.
Speaker Change: Just implications for pharma and biotech customers and then second one question. We get is just any exposure to NIH funding were.
Speaker Change: Anything related to that would be great. Thank you.
Speaker Change: I think the short answer to that question is zero.
Speaker Change: Okay.
Speaker Change: Zero and five.
Speaker Change: Zero NIH.
Speaker Change: Nothing.
Speaker Change: The longer answer is.
Speaker Change: I think overall, it's going to be a more business friendly environments.
Speaker Change: That's clear.
Speaker Change: The.
Speaker Change: The new administration of parent.
Speaker Change: From what we gathers is maybe open to just some of the aspects.
Speaker Change: All right.
Speaker Change: Looking at the differences between small and large molecules.
Speaker Change: There are adjustments and we are.
Speaker Change: In dialogue.
Speaker Change: Opioid levels.
Speaker Change: That could be.
Speaker Change: Some reforms that are being discussed on the GDS side on the reimbursement side and so on but.
Speaker Change: Again, all of that is net positive for us frankly.
Speaker Change: And yes, I mean, we don't.
Speaker Change: So I think there is a strong possibility.
Speaker Change: Ministration will embrace.
Speaker Change: Life Sciences innovation sector more positively relative to other.
Speaker Change: Competing economies that China or Europe.
Speaker Change: And support more ongoing investments of.
Of U S based research manufacturing et cetera.
Speaker Change: I think there are a lot of positives here and I don't see.
Speaker Change: Any of the noise around the specific nominations.
Speaker Change: Affecting us at all frankly.
Speaker Change: That's just.
Speaker Change: Basically noise.
Speaker Change: They'll do it.
Speaker Change: What we see in the whole dialogue. So far has been actually very constructive and positive and we're pleased with the eliminations head of the FDA and as of NHI has all of those are very very good to have good relationships.
Speaker Change: And it will support strong evidence based science, which the executive in the business we're in.
Speaker Change: The M&A environment would be more favorable I think all of that.
Speaker Change: Our net positives.
Speaker Change: That all sounds good thank you.
Speaker Change: Our next question comes from Michael <unk> from Bank of America. Please go ahead. Your line is open.
Speaker Change: Great.
Speaker Change: Thanks for taking the question.
Speaker Change: Alright, I want to go back to something you touched on earlier you made some comments in the prepared remarks in terms of pharma re prioritization sort of working through it still expect maybe.
Speaker Change: A couple of quarters of some volatility going forward, but thinking you are mostly through it I think you said something about 70% to 75% of the Reprivatization as Don just wondering sort of.
Speaker Change: How are you arriving at that number and just to put it bluntly I mean, we've had some announcements just in the last 24 hours and with just seems like there is still.
Speaker Change: No companies can come back and decide they are going to do more in a second cut in the third cut in the fourth so just what are the conversations you're having with the pharma companies, especially your top 20, yes.
Speaker Change: Thank you thanks for the question.
Speaker Change: What I said.
Speaker Change: <unk> 2017, 70, 75%, so I, so Kerry, which he is head in his hands.
Speaker Change: It draws you thought we don't give them a number because somebody is going to.
Speaker Change: 70, 71, maybe 65, maybe 76, so look we're trying to give you a sense, okay. How do I know because we speak to our clients okay.
Speaker Change: And we know what they are looking at so down.
Speaker Change: It sounds like.
Speaker Change: They're going to go back okay. So we know that they are still a few programs that are kind of what do we havent made the decision and that's why I say.
Speaker Change: Maybe a quarter towards third of those.
Speaker Change: More to go but.
Speaker Change: That's an estimate so again I repeat I have no idea.
Speaker Change: Yes.
Speaker Change: Didn't even quarter OLED will get booked I just don't know.
J B: J B.
Speaker Change: Basing myself on conversations we're having with clients at every level, we know what their pipe is we know what the programs that they have.
Speaker Change: We know what they are prioritizing and they tell us what they are looking at in fact in many cases, we help them review these programs and we analyze them. So that's how we know about.
Speaker Change: But he sold based based on this analysis and Thats My best guess for now.
Speaker Change: Caution you always.
Speaker Change: Not to focus on a given quarter.
Speaker Change: I mean, how you see.
Speaker Change: Someone reports.
Speaker Change: <unk>.
Speaker Change: You heard me before.
Speaker Change: We have another tangent here, but.
Speaker Change: One about this.
Speaker Change: Obsessive focus on what's the what are the bookings quarter, what's the book to Bill that infamous number one what is it and then they arrive implications for an entire industry.
Speaker Change: Was one company reports.
Speaker Change: You just can't do that it's a long cycle business one quarter is a window of there's been some volatility there might be some overlap I. Just don't know also frankly very little visibility on the sector. I said before there are 4000 <unk> out there you have no idea what their numbers are actually.
Speaker Change: Our next best largest competitor as part of a larger company and then report nothing about this competitor of ours nothing no revenues.
Speaker Change: No margins no bookings.
Speaker Change: <unk> backlog silicon in a book to Bill. So we have no idea you have no idea we have no idea there are only four publicly traded.
Speaker Change: Crows, each and every one of them is extremely different from the others. You cannot derive was we reports Tom once we report whats going to happen to them to be counted.
Speaker Change: We both what's happened to us I saw that before earlier.
Speaker Change: <unk> past quarter, just because one of our competitors say something all of it sounded all stock goes up or down. It's ridiculous is everyone is extremely different you just cannot extrapolate.
Speaker Change: And for US frankly is causing issues with our customers someone was asking before about customers and pricing.
Speaker Change: That's obsessive.
Speaker Change: Also the focus on these book to Bill ratio.
Speaker Change: Causes our clients know that large pharma available that so at the end of the quarter.
Speaker Change: They handle another $10 million a year of another 12 million there that are fixed price. It affects our bottom line long term managed detrimental to investors. So there isn't.
Speaker Change: Somewhat obsessive focus on this quarterly.
Speaker Change: Nevertheless in a long cycle business that are not that great for us again, I'll remind you we are a large company.
Speaker Change: Without justice CLO, the CLO business is just over half of our business.
Speaker Change: And to to infer.
Speaker Change: Yes.
Speaker Change: This is about the what's going on in the industry for the quarter or two of cancellations of book to business or what have you.
Speaker Change: Is.
Speaker Change: Is it that I couldnt flawed I saw the if I can share with my people here.
Speaker Change: Okay.
Speaker Change: They did but okay I'll end with that has certain folks.
Speaker Change: That's helpful.
Speaker Change: I'm sorry.
Speaker Change: Okay, Alright, so we have another question over here.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay, Okay got it right here.
Speaker Change: Kevin. Thank you. Thank you guys. Thanks for taking the time to join US today, and we look forward to speaking with you again on our first quarter of 2025 earnings call. The team will be available the rest of the day to take any follow up questions you might have thank you.
Speaker Change: This concludes today's conference call you may now disconnect.
Please wait the conference will begin shortly.
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