Q4 2024 ICON PLC Earnings Call
Speaker Change: Good day and welcome to the ICONQ4 Earnings Conference Call. At this time all participants are in listening only mode.
Speaker Change: After the speaker's presentation there will be a question and answer session. To ask a question during the session you'll need to press star 11 on your telephone keypad and you should hear an automated message advising you that your hand is raised.
To withdraw your question, please press star 11 again.
Speaker Change: Please be advised that today's conference is being recorded. I would now like to hand you over to your speaker of today, Kate Haven. Please go ahead.
Speaker Change: Good day and thank you for joining us on this call covering the quarter and year ended December 31st, 2024.
Speaker Change: Also on the call today, we have our CEO, Dr. Steve Cutler.
Speaker Change: Our CFO, Nigel Clurkin, and our COO, Barry Bell. I would like to note that this call is webcast and that there are slides available to download on our website to accompany today's call.
Speaker Change: Certain statements in today's call will be forward-looking statements. These statements are based on management's current expectations and information currently available, including current economic and industry conditions.
Speaker Change: Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company's business and listeners are cautioned that forward-looking statements are not guarantees of future performance.
Speaker Change: Forward looking statements are only as of the date they are made, and we do not undertake any obligation to update publicly any forward looking statement, either as a result of new information, future events, or otherwise.
Speaker Change: More information about the risks and uncertainties relating to these forward-looking statements may be found in SEC reports filed by the company, including the Form 20-F filed on February 23, 2024.
Speaker Change: This presentation includes selected non-GAAP financial measures, which Steve and Nigel will be referencing in their prepared remarks. For a presentation of the most directly comparable GAAP financial measures, please visit www.gfh.org. Thank you.
Speaker Change: Please refer to the press release section titled Condensed Consolidated Statements of Operations. While non-GAAP financial measures are not superior to or substitute for the comparable GAAP measures, we believe certain non-GAAP information is more useful to investors for historical comparison purposes.
Speaker Change: Included in the press release and the earnings slides, you will note a reconciliation of non-GAAP measures.
Speaker Change: Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share include stock compensation expense, restructuring costs, foreign currency gains and losses, amortization and transaction-related and integration-related costs, and their respective tax benefits.
Speaker Change: We will be limiting the call today to one hour and would therefore ask participants to keep their questions to one each in the interest of time.
Speaker Change: I would now like to hand over the call to our CEO, Dr. Steve Cutler.
Thank you Kate.
Speaker Change: Before I begin my remarks on the quarter, I wanted to briefly introduce our newly appointed COO, Barry Balfe, who is joining us on the call today.
Speaker Change: Barry has had a long and successful tenure at ICON over the last 20 years in both full service and FSP roles, most recently leading our large pharma business.
Speaker Change: He brings to the role extensive experience in establishing and growing large strategic partnerships that have delivered clear and sustainable value for our customers.
Speaker Change: This is a key component of our growth strategy that Barry will focus on strengthening across our mid-size customer segment going forward.
Speaker Change: Turning to the results for the fourth quarter and full year 2024, ICON's performance was in line with the expectations we set out when reporting quarter three, with both revenue and adjusted earnings per share results at the midpoint of our full year guidance range.
Speaker Change: Moving to this year, we are reaffirming our full year guidance range that we issued last month, which reflects the current transition period in which we are operating.
Speaker Change: Our current views on the overall environment are consistent with what we saw at the start of this year, with evidence of positive leading indicators alongside a continuing backdrop of cautiousness and volatility.
Speaker Change: Overall opportunity flow improved in Border 4 and was broadly based across the business.
Speaker Change: The biotech market, the dynamic of careful capital allocation is continuing, where companies are being more cautious in how they are deploying their spend across their development programs.
Speaker Change: Well, we saw progress in terms of awards in this division in the quarter.
Speaker Change: Decision making and speed of trial starts is not yet back to a normalised timeframe.
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Speaker Change: From a large farmer perspective, the picture continues to be mixed.
Speaker Change: Some customers are well placed for R&D spending growth this year and others face budgetary pressures or have already gone through reprioritization exercises.
Speaker Change: We are seeing particular strength in demand from our recent strategic alliances.
Speaker Change: and have a number of current partnership opportunities extending beyond the Top 20 Pharma Cohort in our pipeline for this year.
Speaker Change: This, in addition to the improving indicators in biotech, provides us with visibility to accelerated growth as we move through this current transition period in our business.
Speaker Change: We were also encouraged by the improved performance from a business development perspective in Quarter 4.
Speaker Change: with gross bookings of $3.06 billion, increasing 8% sequentially and 3% year-over-year.
We made good progress in awards within our biotech business.
Speaker Change: Executive on the Improved Pipeline and Opportunity Flow in that Division.
Unfortunately, this better performance in gross bookings
Speaker Change: was offset by an uptick in overall cancellations in the quarter.
Speaker Change: which totaled 651 million dollars and this resulted in a net book to bill ratio of 1.18 times in quarter four and 1.2 times on a trailing 12 month basis.
Speaker Change: Cancellations impacted all divisions without a particular concentration in any therapeutic area.
Speaker Change: These cancelled trials, some of which were expected to run in Quarter 1, will pressure near-term revenue and margin as a result, but were contemplated when we issue our full year 2025 guidance in January.
Speaker Change: With the addition of our new awards in Quarter 4, our backlog grew to $24.7 billion at the end of 2020.
Brendan Brennan, Steven Cutler, Unknown Executive
Speaker Change: Our backlog burn was 8.4% in the quarter, slightly down from Q3 levels.
Speaker Change: With regard to our COVID-related work this year, I'm pleased to advise that there are no issues with funding related to the two large-scale next-generation vaccine studies we are supporting.
Speaker Change: One is now actively screening patients and moving forward as planned.
The other trial has been delayed by the sponsor.
Speaker Change: and we are working with them on plans to resume later in the year.
Speaker Change: This has been considered in our guidance reaffirmation and we continue to monitor the situation carefully.
Speaker Change: As we navigate the current volatility in our market and headwinds within our portfolio, we remain focused on investing in the key factors that are continuing to differentiate ICON.
and delivering value for our customers.
Speaker Change: Our digital innovation strategy is a critical component of how we can transform clinical delivery by seamlessly integrating AI and key technology advancement into clinical research.
Speaker Change: By uniting technology, unique data assets and excellent service delivery, we are seeing better outcomes for customers across several key metrics.
Speaker Change: We are building on that success with the planned launch of several new solutions this year that will improve efficiencies in areas such as resource forecasting and site contracting.
Speaker Change: As our customers evaluate and change their development models, it is incumbent upon ICOM to understand their goals and support their evolving needs.
Speaker Change: Each customer situation is unique, but what most are seeking is a provider that can offer them innovative solutions with the flexibility and agility to adapt to the needs of their portfolios.
Speaker Change: Importantly, this evolves as customers acquire new companies, assets, or adjust prioritization to a functional or full-service model in their portfolios.
Speaker Change: Icon's deep partnership experience and ability to customise solutions is a critical element of our differential advantage in the CRO market, providing value and delivering key outcomes for customers.
Speaker Change: Embedded in our culture of innovation is our focus on the continued progression of automation across our organisation.
Speaker Change: But it has also enabled us to lead the industry in the adoption and implementation of robotic process automation, a tool that makes us a more competitive and efficient organisation.
Speaker Change: We exceeded our target of 3.5 million hours delivered in 2024 and are on the way to achieving over 5 million hours in 2025, which will save over $100 million in total costs annually compared to what they would have been without these automations.
Speaker Change: We have a number of key areas we're focused on improving this year, including pharmacovigilance, document management, laboratory services, and internal processes across finance and commercial functions.
We have been executing our plans for further cost management.
Speaker Change: Icon has a long track record of successful cost management and as we continue to see the market volatility, we are taking measures to ensure our cost base is aligned to the demand environment.
Speaker Change: This began in Q4 and focuses primarily on the alignment of resources globally to support our customers' needs across all segments.
Speaker Change: Reflecting back on 2024, despite the more challenging backdrop, our team delivered four-year revenue growth of 2% and adjusted earnings per share of 9.5%, both on a full year and year-over-year basis.
Speaker Change: Importantly, we also achieved our target on free cash flow of $1.1 billion for the full year, an increase of 10% over full year 2012.
Speaker Change: Amidst the market volatility we are experiencing currently, there are a number of areas across our business that are positively impacting our performance and positioned us for a return to targeted growth in the mid-term.
Speaker Change: Our lab and early phase business are moving forward well and we have seen continued strength in therapeutic areas such as cardiometabolic diseases as well as oncology with new award growth increasing in the double digits in both areas on a full service basis.
in 2024.
Speaker Change: In Q4, we won a significant level of work from a new mid-sized customer in our biotech division with a well-positioned oncology pipeline.
Speaker Change: These program wins were attributable to the strong team and clear strategy at ICON, leveraged from the positive experience and solid relationships that our team had built with a smaller biotech that this mid-sized customer had acquired.
Speaker Change: While we are pleased to see the momentum in new awards in these important therapeutic areas and new partnerships, they will take time to contribute to revenue.
Speaker Change: We continue to expect that pass-through revenue mix will increase in the first half of 2025, which will pressure our EBITDA margin.
www.unc.org.au
Speaker Change: We saw good evidence of this already this year with a large Phase 3 full service award from one of our new Strategic Alliance partners in the cardio-metabolic space in Quarter 1.
Speaker Change: This underscores ICON's ability to elevate historically transactional relationships to the level of enterprise partnerships.
with our scaled and diversified offering.
Speaker Change: Our strong balance sheet position enables us to continue to execute our capital deployment strategy prioritising share repurchase activity in the short term alongside highly strategic M&A transactions.
to further scale our service offerings.
Speaker Change: Finally, while we continue to work through a somewhat uncertain environment, I believe the fundamentals of our business and the market within which we operate remain strong, supporting an improved outlook in 2026.
Speaker Change: During this time, we are focusing on our core operations and customer delivery, positioning ICON to emerge from this period as a more resilient organisation, able to take full advantage of the many opportunities that lie ahead.
Speaker Change: Before I close out my prepared remarks, I want to thank all our employees at ICON for their efforts in 2024, the year in which we supported over 400 customers.
across 1,500 studies.
Speaker Change: I'll now hand it over to Nigel for the further review of our financial results.
Roger.
Thanks Steve.
Speaker Change: Revenue in Q4 was $2.04 billion, representing a year-on-year decrease of 1.2%. For the full year 2024, revenue was $8.28 billion, an increase of 2% over 2023.
Speaker Change: In Q4, overall customer concentration in our top 25 customers increased from Q3 2024.
Speaker Change: Our top 5 customers represented 26.2% of revenue in the quarter. Our top 10 represented 42.3%, while our top 25 represented 64.4%.
Speaker Change: Growth margin for the quarter was 29.6% and 29.7% for the year compared to 30.4% and 29.9% in quarter 4 and full year 2023 respectively.
Speaker Change: Total SG&A expense was $181 million in Q4, or 8.9% of revenue.
Speaker Change: For the full year, total SG&A expense was $727 million, or 8.8% of revenue, a decline from total SG&A expense of $733 million.
or 9% of revenue for the full year 2023.
Speaker Change: Adjusted EBITDA was $423 million for the quarter or 20.7% revenue.
Speaker Change: In the comparable period last year, adjusted EBITDA was $448 million, or 21.7% of revenue, representing a year-on-year decrease of 5.7%.
For the full year 2024, adjusted EBITDA totalled $1.74 billion.
are 21% of revenue.
Speaker Change: an increase of 2.5% over full year 2023 and a 10 basis point increase in adjusted EBITDA margin.
Speaker Change: Adjusted operating income for Q4 was $385 million, a margin of 18.9%.
Speaker Change: Net Interest Expense was $47 million for Q4 and $205 million for the full year 2024. On a full year basis, Net Interest Expense declined $110 million or 35%.
Speaker Change: The effective tax rate was 16.5% for the quarter as well as for the full year 2024.
Speaker Change: Adjusted net income for the quarter was $282 million, a margin of 13.8%, equating to adjusted earnings per share of $3.43.
a decrease of 0.9% year-over-year.
Speaker Change: For the year, we recorded adjusted earnings per share of $14, an increase of 9.5% over 2023.
Speaker Change: In the fourth quarter, the company recorded $8 million of transaction and integration related costs.
Speaker Change: U.S. GAAP net income in Q4 was $260 million or $3.16 per diluted share.
Speaker Change: compared to $2.60 per share for the equivalent prior year period, an increase of 21.5%.
Speaker Change: For the year, we recorded U.S. GAAP's net income per diluted share of $9.53, up from $7.40 in 2023.
Speaker Change: Net accounts receivable was $1.07 billion at December 31, 2024. This compares with a net accounts receivable balance of $1.17 billion at the end of quarter three, 2024.
Speaker Change: DSO was 47 days at December 31st, 2024, a decrease of 5 days from Q3, 2024 and flat from Q4, 2023.
Speaker Change: and Free Cash Flow was $277 million in the quarter, bringing our full year 2024 free cash flow to a total of $1.1 billion in line with our target for the year and representing an increase of 10% over full year 2023.
Speaker Change: At December 31, 2024, cash totaled $539 million and debt totaled $3.4 billion, leaving a net debt position of $2.9 billion.
Speaker Change: This compared to net debt of $2.7 billion at September 30, 2024 and net debt of $3.8 billion at December 31, 2023.
Speaker Change: We ended the quarter with a leverage ratio of 1.7 times net debt to adjusted EBITDA.
Ahem.
Our balance sheet is very strong.
Speaker Change: but we remain disciplined as we consider opportunities for further capital deployment. Our overall strategy is focused in the near term on a balanced approach
to deployment in favour of share repurchases.
as well as opportunistic M&A execution.
Speaker Change: We made significant share repurchases in Q4, totalling $400 million at an average price of $217.
Speaker Change: given our view on the dislocation in the valuation of the company, which brought our full year total share repurchase amount to $500 million in 2024 at an average price of $229.
Speaker Change: We plan to remain active in buying back shares in the near term, and have secured an additional $750 million dollar authorisation from our Board of Directors, bringing our total current authorisation to $1 billion.
Speaker Change: We will also continue to evaluate M&A opportunities to further scale our current service offerings in strategic areas that can support future growth.
Speaker Change: Thank you. At this time we will conduct a question and answer session. As a reminder, to ask a question from the phone, you'll need to press star 11 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star 11 again.
Speaker Change: And the first question is coming from Justin Bower from DB. Your line is open, please go ahead.
Hi, good afternoon, Steve and Barry.
Speaker Change: Can you discuss the demand environment and how that's evolving for both large pharma and biotech customers? And then a quick follow up on that is
Speaker Change: We talked about the strength in phase one, and we've, you know, we've heard, we've heard about that across the industry as well. And, you know, should we do that as a leading indicator for, you know, what's to come down the pipe and phase two and beyond over the next year or two?
Speaker Change: Sure. Justin, so in terms of what we're seeing in the environment for both large and biotech, I think as I said, our RFP...
Speaker Change: Numbers have been very solid, certainly the back end of the year, fourth quarter, they were up somewhat. And across the last 12 months, stable in the large pharma and up to the low single digits.
Speaker Change: So we're seeing some good opportunities come through, the pipeline being reasonably full. Of course, that needs to translate into wins and then revenue, of course. But overall, the demand environment we see has been pretty solid, you know, right across the segments there. So, you know, overall,
You know, I think we're in a good place there.
the door tomorrow.
Speaker Change: The smaller companies, the biotechs, there is some potential for that to happen but I'd caution you to make too much of a correlation between
and good luck.
Speaker Change: Thank you. We're now going to go to the next question in the line and this question is coming from Patrick Donnelly from Citi. Your line is open, please go ahead.
Hey guys, thank you for taking the questions.
Patrick Donnelly: Steve, maybe on the back of that, you know, it sounds like the demand environment
Speaker Change: you sound okay on it in general. Again, maybe a little bit of optimism in there. You obviously gave a very wide range, particularly on the earning side to start the year a month ago. Are you feeling any different today than a month ago? Are things firming up a little bit? I guess when we think about that range, 13 to 15 particularly, what could lead us to the bottom end there? Or are you feeling a little bit better about maybe edging towards the midpoint or above?
Speaker Change: And then on the back of that, if I could, for Nigel, just how you think about the margins as we go through the year, the moving pieces, what are the cost actions you guys are looking at if things do soften a little bit? Thank you guys so much.
Speaker Change: Yeah, Patrick, you know, I really don't think the situation has changed much from where we were, you know, four to six weeks ago at JPM. You know, we talked about, we have provided a wide range because there is some caution and we are seeing some volatility in the market. And so, you know, I don't have a lot more to say, really, from what we said. It's mixed.
Speaker Change: At the moment, reaffirming guidance is the right thing to do, the range of guidance is huge.
Speaker Change: on both revenue and EPS remains the same because we're really only a month or so down the track. We'll, I think, be able to narrow that range as we get, obviously, further into the year. I'll leave Nigel with the margin question.
Speaker Change: Yeah, Patrick. So consistent on the margins as well, from what you would have heard us say before, essentially, when you look at our full year margin in 2024, at an EBITDA level, it was about 21%.
Speaker Change: And for this year, just given some of the pressures we talked about before, particularly the pass-through Steve mentioned in H1 especially.
Speaker Change: We would expect our full year margins to be probably somewhere around a percent lower this year. Within that, lower in H1.
Speaker Change: and obviously then higher in H2, just given the cadence of some of that pass-through activity and also then, you know, the cost adjustment actions that are sort of ongoing at ICON typically, so hopefully that gives you a flavour for it.
Speaker Change: Thank you very much and we're now going to take the next question in line and this question is coming from Luke Sergott from Barclays. Your line is open please go ahead.
Luke Sergott: Great. Good morning. Thank you for the question. I just kind of wanted to get a sense of the 4Q booking strength. You guys had a really big step up there.
sequentially.
Luke Sergott: Anything that we've seen outside of typical seasonality over the last few years. So can you just talk about what the makeup of that bookings are, more FSP or more low cost?
Luke Sergott: Unknown, you know, lower price business. Is there any type of trend there are waiting towards a small versus large pharma and that kind of how this leads into your jump off into into Q1 and how we should think about that.
Sure Luke.
Luke Sergott: The strength in Q4 was probably more around the biotech segment, actually, in terms of the wins we were able to secure. We brought in a number, a couple of significant...
Luke Sergott: Full service biotech opportunities, which I think will all go well as they start up, albeit there's always a ramp up.
Luke Sergott: Lads Farmer was more muted I would say in Q4, but overall we were very pleased with the
Luke Sergott: with the gross number that we're able to pick up. Cancellations, as I mentioned in my call, my notes were a little elevated, and that was sort of across the different segments. Nothing, perhaps a little bit more in large pharma actually in the end, rather than biotech.
Luke Sergott: Again, fairly well spread and no particular therapeutic area there, so we were pleased with the improvement in the wins on the biotech side of things and that's continued in terms of the opportunities that we're seeing. They're not quite ready to declare victory.
Luke Sergott: But, we do see some green shoots in that space and some opportunity as we get into the next phase.
in 2026, 2025, obviously, and then in 2026.
and so, you know, I will...
Unknown Speaker
Speaker Change: Thank you. We're now going to move on to the next question in the line and this question is coming from Anne Hines from Mizuho. Your line is open, please go ahead.
Speaker Change: Great, thank you. Can you talk about pricing trends in both segments, biotech and large farmer, just competitive pricing trends?
Speaker Change: And also, in relation to your last question on the biotech strength, do you think you're gaining share from competitors or do you think it's just the underlining market gaining strength again? Thanks.
Speaker Change: I think it's a little early to get too bullish around gaining share on the biotech market, and we have...
Speaker Change: You know, we have some work to do there. I think we've made some solid progress.
Speaker Change: But I think we still have some work to do. We're pleased with the opportunities we're seeing. I was very pleased with the...
Speaker Change: Business Development performance, we now need to turn that into, you know, solid operational performance and revenue. And I'd like to, you know, I'd like to get that question again in a quarter or two, because I think at that point, we'll be able to sort of be a bit more definitive about the progress.
Speaker Change: we're making in terms of market share, but happy with progress, but I think more to do in that space. Pricing trends, Barry? I don't think there's a whole lot to report on in terms of changes on competitiveness or otherwise with pricing. It's always been competitive. It remains the case.
I think in the biotech space.
Speaker Change: We tend to compete on the amount of certainty and clarity we can give the customer and not just straight-up sticker price on a particular study
Speaker Change: So the quality of strategy, the experience and indication, the degree to which we can bring not only speed, but also predictability tends, honestly, if anything, to be a bigger factor than the last couple of points on price. And as we've said before, in large format,
Speaker Change: The real competition on price tends to be at these periodic refresh points for the large preferred providerships rather than at the point of award of individual studies. So nothing really to report in terms of how that played out in the quarter, certainly nothing different to previously reported quarters.
Speaker Change: Thank you. We're now going to move on to the next question in the queue.
Speaker Change: and the next question is coming from David Windley from Jefferies. Your line is open, please go ahead.
David Windley: Thanks, good afternoon, gentlemen, and Barry, congrats on the on the promotion. I'm going to ask a multi-parter, maybe predictably, but I'll headline it by saying my driving point here, Steve, is around
David Windley: kind of burn rate essentially and and getting that some of the points you made about still slow decision making so you know the trend in the industry and that's gotten a lot of
David Windley: LiveService has been FSP. We got that back in a couple of different surveys. And my point there, I guess, is that FSP, and particularly the way you guys book FSP and backlog would drive a higher burn rate.
Speaker Change: But then ICON has actually won a couple of full service partnerships that you've highlighted recently and I'm not clear on how much business from those partnerships might be flowing in the backlog.
Speaker Change: And that might have an opposite effect on burn rate. So punchline here is.
Speaker Change: You talked about burn rate being slower. You talked about still slow decision making. I'm curious about how FSP mix is shifting in your business and backlog and just want to hear you talk out more.
Speaker Change: How the, you know, the demand environment that sounds like it's, it's getting better is not necessarily immediately translating into a revenue outlook that you had the, you know, guide a little lower when you came out in January. Thanks. Sorry for the long question.
That's okay Doug, we know you will.
Speaker Change: and Full Service, less so, and of course we wait for ramp-ups and there are probably more delays with a Full Service.
Brookings Bloomington Brian Valter helpful
Speaker Change: on that. The FSP work that we won wasn't any more than we normally expect to win in a quarter. So to the extent that that will maintain or help us maintain the burn rate, the full service might slow it down a little bit. So I'll ask Nigel to maybe comment a little bit on the on the burn rate going forward, because that is an area that we're obviously working on very hard to progress.
Speaker Change: Yeah Dave, getting back to the point, I don't think really FST is any materially different in terms of proportion of our business than it has been, if that was part of your underlying question.
Speaker Change: So that's not really a driver. It's more to the point Steve said, and you've heard us talk about before.
Steve Cutler: We are seeing, obviously, a broader trend of more complex trials, which do take longer to start up, and so on. We do continue to see, you know...
Steve Cutler: Delays in biotech just driving forward with with awards that have been already made
So those trends.
Steve Cutler: still are there. And then at this point, you know, we've had some nice wins in the full service side as well. So, you know, we obviously exited the year at about 8.4% burn rate, and I'd say it will be in the low eights again through the course of the year. Broadly similar.
Speaker Change: Thank you. We're now going to move on to the next question in line. And the next question is coming from Gilandra Singh from Tourist Securities. Your line is open. Please go ahead.
Jalandhar Singh: Yeah, thank you. This is Jalandhar Singh from Truist. I want to go back to biotech market. Looks like you're calling trends. They're still relatively mixed, some positive signs, but still some delayed decision making. How do I reconcile that with a commentary from some of your peers?
Speaker Change: One of your peers pointed to pretty stable trends there. Another CEO talked about funding still being a challenge. Is that primarily a function of type of biotech clients you work with?
Jalandhar Singh: and related to that, as you guys, have you guys been able to figure out one or two things which might be driving these decision making delays, and what kind of catalysts or clarity they're looking for?
Jalandhar Singh: Yeah, it's a multifactorial question that one, Jalendra, um, you know, I think you characterize it well We are seeing continued volatility and continued sort of mixed Environment in the biotech space, you know, I think last year 2024 was a good year overall from a biotech funding or
Capital Raising Perspective.
Jalandhar Singh: There was, it wasn't particularly well spread across a large number of, it was concentrated in certain, you know, biotechs who had some very good science or some very good opportunities. And so.
Jalandhar Singh: When it's not distributed as evenly as you'd like it probably continues to challenge us in terms of how those
Jalandhar Singh: in the biotech environment going forward. Notwithstanding that, as I say, the RFPs were in a reasonably solid place, up, as I said, low single digits.
Jalandhar Singh: We would like to think and we would expect that will continue and if we see the continued development and upticking of the capital markets, I think we're starting to see some green shoots there. I don't think I'm quite ready to declare victory.
Jalandhar Singh: but we do see some optimistic signs in the biotech segment and it's an area that I think we're very focused on and I think we can make some good market share gains in the more medium term.
Speaker Change: Thank you. We're now going to move on to the next question in the queue. And this question is coming from Jack Meehan from Nefron Research. Please go ahead.
Thank you.
Jack Meehan: Just had a guidance question for you, which is great to hear from you what your visibility into the 2025 revenue forecast is in terms of revenue coverage. I know some of your peers provide that stat, just be helpful to hear that. And then also, what sort of book to bill do you think you need in order to hit the forecast to kind of make up whatever gap there is? Thanks.
Transcription by CastingWords
Jack Meehan: So Nigel might take that one, Jack, if you don't mind.
Speaker Change: Yeah, Jack, I mean, obviously, we've talked about, there is increased uncertainty, there is volatility out there. That is why we've given a wider range.
Speaker Change: You'll forgive me if we're not going to give you more specifics in terms of coverage, etc. Frankly, at this point, it's early in the year.
Speaker Change: Steve talked about the various pieces that are moving around, but again, we've reaffirmed the range and let's keep plugging through the year.
Speaker Change: 1.2 on a trailing 12-month basis is the target that we have, and we would like to think, we would expect to be very close to that on a trailing 12-month, but I think there could quite well be some volatility in that number.
Speaker Change: Thank you very much. We're now going to move on to the next question in the line and this question is coming from Max Schmuck from William Blair. Your line is open, please go ahead.
Max Schmuck: Hey, good morning. Thanks for taking our question and congrats Barry on the new role.
Max Schmuck: I wanted to follow up on some of the COVID commentary you all made during the Preparator March. Just on the BARDA COVID contract specifically, how much of that is still in your backlog and how much are you baking into revenue from the contract this year at the midpoint and how much should we expect to remain as we head into 2026? Thanks.
Speaker Change: The other one has been delayed for reasons unrelated to funding, to some more technical aspects of the project.
of the Troy.
know we're waiting for.
into consideration.
Unknown Speaker So thanks everybody.
Speaker Change: you know the COVID work remains important to us, the vaccine work remains important to us but it's not a...
Speaker Change: It's not a huge part of our portfolio or backlog, you know, vaccine work is in the...
Low single digits.
Speaker Change: on the backlog side of things. So while it's important because it burns fast, back to Dave's question, you know, it gets moving quickly, it's not a huge part of our portfolio and so I'll leave it at that.
Speaker Change: Yeah, so Max, obviously, we won't give the individual, you know, contract contributions as we never do in our business, but in totality across the business in terms of the COVID contribution,
Speaker Change: for the year, we would expect it would pick up a bit from the full year 24 in that and represent about those single digits in totality for COVID related business in 2025.
Speaker Change: Thank you. We're now moving on to the next question in the line.
Speaker Change: and the next question is coming from Michael Turney from Leewink. Your line is open please go ahead.
Ahmed Mohammed: Good morning. Thank you for taking my question. This is Ahmed Mohammed on for Michael Churney.
Ahmed Mohammed: I know that you mentioned you are managing costs in the volatile operating environment, which is obviously prudent. How are you thinking about the trade-offs on these cost cuttings versus your views on growth? Thank you.
Speaker Change: I think I got your question related to cost in relation to delivering the work, I think that was it.
Speaker Change: The trade offs there. I mean, you know, obviously, we're in a somewhat challenging and we call it a transition year 2025. We as we move through we do have to be very active in
Speaker Change: Aligning our cost base with the work that we have in the backlog and the work that's burning in the backlog I'll ask Barry to comment a little bit in a minute because he has over all the largest
www.uncn.org.au www.uncn.org.au
Speaker Change: Allocations, but there is certainly some work being done to realign those costs and to maintain our margins and to get to where we want to be from an EPS point of view and we're very active on that and we've got a good track record.
Speaker Change: So we won't be too specific about where those cost reductions are happening, but it is something that's obviously occupying us pretty assiduously at the moment. Do you want to comment more? Yeah, I think as he said, cost control is an ongoing
Speaker Change: Competence at ICON is nothing out of the ordinary and for us we obviously manage our cost base in order to ensure that we execute on growth opportunities where they exist or make adjustments where appropriate so we're certainly continuing to invest in the business where there's opportunities to accelerate growth and we'll manage our costs appropriately in order to do that.
www.unc.org.uk
Speaker Change: Thank you very much and we're now going to the next question in the line.
Speaker Change: And this question is coming from Elizabeth Anderson from Evercore ISI.
Speaker Change: Hi guys, thanks so much for the question. I was wondering, one, if you could talk about sort of the growth of FSP and bookings versus, say, a year ago. Is that sort of still on trend? Do you see sort of a softening and maybe a more balance between FSO and FSP in the bookings? And secondly, can you talk about anything that would change your typical, say, cash flow conversion in 2025 versus what we saw in 2024? Thanks.
Speaker Change: Okay Elizabeth, I'll let Barry have a crack at the FSP question and then Nigel might talk about cash flow.
Barry: I think I'll just repeat what Steve said a little earlier, Elizabeth, which is FSP hasn't changed fundamentally as a proportion of our business. I think that's reflected, generally speaking, in the awards, in the backlog and in the revenue. So nothing material there. Obviously, there's waxes and wanes on individual customers across quarter to quarter. But as a percentage of the overall business, I don't honestly have anything to report as a departure there. Nigel, perhaps you take the recap for that?
Barry: Within the year, you will have seen, as I mentioned before, there was an uptick in our on-build revenue amount during the year of about $400 million through the end of Q3.
Barry: We did manage to start to make some inroads into that in Q4. It came down by about $75 million. But there still remains north of $300 million of a disconnect there, i.e. revenue was ahead of billings.
Barry: So inherently that should impact a free cash flow for this year to the tune of around that amount.
Barry: Obviously, we are working hard to try and mitigate the impact of that as we go through the year, and again, pleased to see we've already made some progress on that in the fourth quarter. But directionally, you should expect it to be lower than 2024 because of that factor.
Barry: Thank you very much and we're now going to move on to the next question in the line.
Speaker Change: And this question is coming from Casey Woodbring from J.P.Morgan. Your line is open. Please go ahead.
Great. Thank you for taking my questions.
Speaker Change: You know, my first is just you talked about customers evaluating and changing development models. And you also mentioned some of the new solutions you're launching. Can you just elaborate on that? Are these new solutions something customers are now asking for? And also curious if customers have shifted their percentage of outsourcing spend versus insourcing here as a result of these changing development models. And if you still assume that 100 to 200 basis points of annual outsourcing penetration in the market moving forward.
Speaker Change: Okay Casey, you've got your three questions in there nicely done. I'll let Barry go with the development models.
Speaker Change: I think when we talk about changing development models, what we're really talking about is matching their partnering or sourcing strategy to their evolving development strategy.
and insofar as we've called out a trend.
Speaker Change: largely among the more established companies. It has been that by and large everybody's doing some work in-house, some work on an in-source, and some work on an outsource basis.
Speaker Change: And we've tried to make a virtue out of meeting customers where they are and customizing our solutions to account for their preferences. So yes, that certainly is a very major point of engagement with our customers.
Speaker Change: there's not a one size fits all approach and that's been something that's played out very well for us as we've seen that heightened period of activity for preferred providership refreshes and re-ups over the last 18 months or so.
Speaker Change: Of course, we are blending new capabilities when you talk about new solutions. It's not just about how we blend the modalities, it's about new capabilities. And Steve already alluded to, I think I spoke about, when we win, it tends to be because we can apply our processes, our systems, our technologies.
Speaker Change: to demonstrate greater confidence in trial execution planning, so time to start, better predictability of recruitment rates, increased site performance, and ultimately reduced time and cost. So these are certainly things that we tend to see.
Speaker Change: To the tail end of your question about FSO-FSP dynamics, I think there are certainly more people doing some FSP than there were five years ago. But as I said, I think it was to Elizabeth, there isn't a material difference in the proportion of our business that is FSO or FSP.
Speaker Change: As we move towards these blended solutions, we tend to be doing both models with a greater proportion of our customers, and we tend to be incumbent with a greater proportion of that customer universe. So nothing major to report in terms of the proportionality of FSO and FSP, but certainly those conversations focusing on blending and making sure we're better able to customize those models.
Speaker Change: And then just on the outsourcing spend and penetration, Casey, you know, we remain pretty positive and pretty constructive on the long term in terms of R&D budgets moving ahead.
Speaker Change: and Outsourcing spending continuing to penetrate and continue to move up at around 100 Bps a year. That's what we've seen really over the last 15 or 20 years, ever since I've been doing this.
Speaker Change: in this business. While it might go down and up a little bit year to year, we remain pretty constructive on the market. The value I think that our industry, and it's not just ICON, but our industry brings
Speaker Change: to the farmer. I think most enlightened farmer development managers really do recognize
Speaker Change: The flexibility, the innovation and the can-do approach that we take and I think that's something that our industry brings to farmer development and I think that's going to continue and I think that's going to continue to allow our market to continue to grow.
Speaker Change: Thank you very much and we're now going to move on to the next question in line.
Speaker Change: And this question is coming from Charles Ree from TD Cohen. Your line is open, please go ahead.
Speaker Change: Hi, this is Lucas Sanford-Charles. Thanks for taking the questions. I wanted to ask about elevated cancellations in 4Q, just if there's any common themes amongst these cancellations, obviously a big step up in 4Q.
Speaker Change: And then in terms of, you know, that trend kind of moving forward, others have indicated that cancellations could continue into the early part of 2025. So, I guess, what are your guys expectations for this trend moving forward? And then is there any assumption built into your revenue guide?
Yeah, that assumes this does continue forward.
Speaker Change: As I said in my prepared remarks, we saw it was a fairly even spread across the business.
in terms of the cancellations.
Speaker Change: Not just for Q4, but as we look back over 2024 in its entirety. So nothing much really to call out there. Possibly a little bit more in the large farmer space over the full year.
Speaker Change: But, as we've said, Biotech continue to be challenged a little bit in terms of their availability capital.
Speaker Change: I would expect that cancellations would continue to be on the higher side of normal, I'll put it that way.
as we go through 2025 and until.
Speaker Change: We're really in a situation where the capital markets are really back.
Speaker Change: I can put it that way. I think we'll find, you know, it will be a little bit more on the elevated side. Having said that, we were very pleased, as I said, with our gross booking number and the opportunities in the pipeline, I think, you know, suggest that that can continue at our targeted...
Speaker Change: and I think we've got some real opportunity there. So, overall, we're very optimistic, notwithstanding.
Speaker Change: the fact that we do believe that, you know, cancels will be a, you know, a sort of a, perhaps a more elevated factor.
Speaker Change: and part of our lives going forward and that is all contemplated and considered as we've done the guide and as we reaffirm our guidance as well. We've thought that through, we've made some projections on that front and we believe we've taken that all into account.
Speaker Change: Thank you. We're now going to move on to the next question in line.
Speaker Change: And this question is coming from Matt Sykes from Goldman Sachs. Your line is open, please go ahead.
Matt Sykes: Thank you. Good morning. Thanks for taking my questions. A lot's been asked, but I just want to focus on one topic regarding policy uncertainty and specifically
Matt Sykes: the reports of FDA headcount reductions. Have you had any kind of comments or feedback from your customers in terms of how that might impact their business and pipeline progression? And then as you reflect on your own business, any kind of impact that that could have to you? I know there's a lot of uncertainties, but just would love to get your view on that.
Matt Sykes: I mean, we haven't had any specific comments, or at least I haven't, from the team shaking their head here.
Matt Sykes: around, you know, what's happening within FDA and potential reductions in head count, etc, etc. There's, as you quite rightly noted, a fair bit of uncertainty in terms of what's happening in Health and Human Services with the recent appointment of the new Secretary.
Matt Sykes: We don't think that's necessarily, it's all going to be bad. We think there's some potential opportunities for us in that space. You know, as regulations get challenged, I think that could be a positive for us.
Matt Sykes: Commentary from our customers in terms of you know of where even the the president and the new administration and the new health and human service sector will go in terms of
Matt Sykes: I think overall there's a, you know, it's probably more positive than negative in terms of the new administration. Not to say that there aren't some risks and certainly to agree with you in that it's very early days at this point and very hard to, we're really just speculating, but we're certainly not totally downbeat on that. We believe there's going to be a lot of good things brought forward by the
Matt Sykes: The New Administration, and we think we can benefit from it.
Speaker Change: Thank you very much. We're now moving on to the next question in line. And this question comes from Michael Riskin from Bank of America. Your line is open. Please go ahead.
Great. Thanks for squeezing me in.
Michael Riskin: Steve, I kind of want to go back and ask maybe a big picture question and I'm thinking back to last quarter's earnings call when you framed sort of your updated view and what happened on 3Q.
Michael Riskin: And if I remember correctly, you kind of framed it from the perspective of
Michael Riskin: You know, every period you forecast, there are risks and opportunities that are unknown to you as you're going in.
Speaker Change: Unknown Speaker And, you know, sometimes you capitalize an opportunity, sometimes you avoid the risks or vice versa. And you kind of frame 3Q as
Speaker Change: A lot more of the risks materialize, and a lot fewer of the opportunities, but still sort of being in that general
Speaker Change: Unknown Speaker range you look at. I just want to get, you know, now that you have fourth quarter under your belt, you've got January and most of February.
Speaker Change: has your perspective on those ranges kind of been the same in terms of
Speaker Change: balancing the risk and the reward, the opportunities and the downsides going forward. And what I'm trying to get back to is your comments on how biotech played out in the fourth quarter, how bookings played out, you know, your thoughts on the gross booking wins and the cancellations. Are you still operating in that sort of same environment where it's a little bit of a balance?
Speaker Change: you know, coming down to execution to get to the upper end of that.
Speaker Change: The short answer is absolutely yes. We've analysed the risks within our portfolio, within the opportunities that we've had, and our finance team has been doing sterling work in looking at that and evaluating and quantifying what those risks are. And on the other side,
Speaker Change: It's still very early in the year. So our evaluation, you know, continues. You know, we've taken a good look at ourselves, I think, in the over the last couple of months. And I think we've done a we did a good job in Q4 in quantifying those opportunities and those risks. I believe our guidance as
Speaker Change: I think everybody is well aware remains wide, and that's for a reason. We are in a very volatile environment, so characterizing those opportunities and the risks.
Speaker Change: is probably a little bit more challenging. There are probably more of them, both ways.
Speaker Change: and they may be a little larger in some ways as well. So that's why we've maintained our wide...
Speaker Change: At the moment, you know, we still see as a characterised as a somewhat mixed environment where there are plenty of opportunities but there are also some risks as well and we want to be very transparent about that and we've considered those as we've gone forward and as we've set the guidance ranges which we did back in January.
Thank you. We're now going to have our final question.
Josh Waltman: And our final question comes from Josh Waltman from Cleveland Research. Your line is open, please go ahead.
Hey, thanks for taking my questions.
Josh Waltman: Steve, I believe you mentioned stronger RFP activity end of year. I guess, was this above normal seasonality? And at this point, do you think there's anything unique about the current environment that suggests there could be, you know, maybe more of a disconnect between RFP flow and revenue conversion versus historical patterns, or do you still feel pretty confident?
RFP flow remains a good indicator of near-term demand.
Josh Waltman: somewhat reasonable, I'll just put it that way, indicator of future...
Josh Waltman: revenue but it's not perfect and not by a long way. You know we have within those RFPs you know I think I've said it I've said it to you all before about a third we win about a third we lose and about a third gets cancelled as an RFP and so you know when you look at those and that's that varies a bit obviously within the various segments of the business.
But ultimately, you know, the work we win...
Speaker Change: well, over the last several years has tended to be slower burn oncology, rare disease, Nigel talked all about it, where we've had the opportunity to win vaccine work, or increasingly as, as we talked about on the call, we've made some progress in the cardiometabolic space, we believe
Speaker Change: That book will burn a bit faster. So from that point of view, as the therapeutic mix sort of shifts.
Speaker Change: within the RFP, you know, portfolio, you know, work that we have in the backlog.
Speaker Change: We do have the potential to improve our burn rate and move our revenues forward. But I think it's a little early to say that the...
Speaker Change: The sort of uptick that we saw at the back end of the year, or the positive signs that we saw at the back end of the year are going to convert into revenue in the very short term. I tend to look at the RFPs across a trailing 12 month basis.
and on that basis.
25. I'll just leave it at that.
We done?
Speaker Change: So there's no more questions in the queue at the moment.
Speaker Change: We'll continue to navigate this environment as we did in Quarter 4, investing in our business to take advantage of the opportunities we see across the market and advance our innovative solutions for customers.
Thanks for joining us and your support of ICON.
Speaker Change: This concludes today's conference call. Thanks for participating. You may now disconnect.
Thank you.