Q1 2025 ICON PLC Earnings Call
Good day, and thank you for standing by and welcome to the Icon Plc Q1, 2025 earnings Conference call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on one on your telephone you will then have an automated message advising your hand is raised to withdraw your question. Please press star one on one again please.
Be advised todays conference is being recorded.
Speaker Change: Ill turn the conference over to your first speaker today Kate Haven. Please go ahead.
Speaker Change: Good day and thank you for joining us on this call covering the quarter ended March 31 2025.
Speaker Change: Also on the call today, we have our CEO, Dr. Steve Cutler, our CFO Nigel Clerkin intercede, although very bill 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. 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.
Speaker Change: Yeah 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 statements either as a result of new information future events or otherwise.
Speaker Change: Information about the risks and uncertainties relating to these forward looking statements may be found in our SEC reports filed by the company, including its form 20-F filed on February 21 2025.
Speaker Change: This presentation includes selected non-GAAP financial measures, which Steven is we will be referencing in your prepared remarks for a presentation of the most directly comparable GAAP financial measures.
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 a 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 adjusted EBITDA adjusted net income and adjusted diluted earnings per share excludes stock compensation expense restructuring costs foreign currency gains and losses amortization and transaction related and integration related costs in 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 I would now like to hand, the call over to our CEO Dr. Steve Cutler.
Kate Haven: Thank you Kate.
Steve Cutler: I want to begin my comments with a few perspectives on the market given the dynamic and unpredictable environment in which we are currently operating.
Steve Cutler: Our overall view has been one of cautious optimism as we began this year, noting positive leading indicators of mid term demand alongside more challenging dynamics of elevated cancellations and delays in clinical trial decisions and stops which has pressured our outlook on near term revenue.
Steve Cutler: We knew that this year was going to be one of transition for the company and unfortunately broader macro uncertainty and only accentuated those market risks as we progressed through the year.
Steve Cutler: The persistent volatility and narrow focus of biotech funding has not yet supported a sustained recovery in that part of the market. Despite continued progress and opportunity flow.
Steve Cutler: Large pharma demand continues to be mixed leaked company specific exposure to loss of exclusivity and overall budgetary spend.
Steve Cutler: On the positive side, we continued to generate momentum from our recent strategic partnerships as well as in the mid sized pharma segment.
Steve Cutler: There continues to be evidence of solid opportunity supporting mid to long term outlook as well as the continued need for innovation by our customers and we remain highly constructive on our prospects going forward.
Steve Cutler: However conversion has been inconsistent on a quarterly basis as cautious behavior as cotton or delayed spending.
Steve Cutler: And they remain broad elements of uncertainty.
Steve Cutler: Mark.
Steve Cutler: We are focused on navigating this period definitely to support our customers while capitalizing on the opportunities we do see to further improve our market leading position.
Speaker Change: The icon team have good collective and individual experience in managing through similar cycles in this industry and well understand the need for agility and flexibility across our business to quickly react to opportunities and changes in demand.
Steve Cutler: We are well placed to do this again.
Steve Cutler: From a business development standpoint, overall opportunity flow was mixed in quarter one.
Steve Cutler: And biotech we've seen a significant increase in overall opportunities as well as a modest uptick in our win rate on projects that have gone through its decision.
Steve Cutler: However, this was offset by an increase in the number of RFP opportunities that will ultimately canceled by customers. Hence, while we are making progress in biotech segment remains challenging given the funding environment and continued cautious decision making.
Steve Cutler: And large pharma, while RFP opportunities will more muted during the quarter. Our success rate remained high underscoring our strong partnership positioning in this segment.
Steve Cutler: These mix dynamics. In addition to delays in decisions, we anticipate it to be made in the quarter negatively impacted our overall performance in bookings decreasing our book to bill to 1.1 tons in the quarter.
Steve Cutler: In terms of cancellations, we saw elevated levels of guidance this quarter, a similar absolute amount of quarter four.
Steve Cutler: Reasons for cancer license with broad ranging from portfolio prioritization to clinical data and futility decisions.
Steve Cutler: Overall in terms of customer split the cancellations were in line with the relative distribution of revenue across the company.
Steve Cutler: We anticipate continued volatility in bookings performance on a quarterly basis due to continued caution and re prioritization.
Steve Cutler: Cancellations remained a headwind to revenue this year.
Steve Cutler: Our updated full year guidance reflects this dynamic continuing to be elevated in the near term.
Steve Cutler: Our results for quarter, one are reflective of the transition period, we expected as we came into the year.
Steve Cutler: Revenue in the quarter was impacted by the delayed next generation Covid vaccine study that we disclosed in early March.
Steve Cutler: Our focused efforts on driving operational utilization alongside good cost control across our businesses resulted in better than expected adjusted EBITDA margin performance of 19, 5% in the quarter translate into earnings per share in line with our initial expectations to stop.
Steve Cutler: This clearly demonstrates our ability to align our resources with the work in our backlog and effectively manage our business.
Steve Cutler: We have updated our full year guidance to reflect recent booking trends, including increased cancellations as well as the removal of both of the next generation trials approximately $350 million.
Steve Cutler: That were previously expected to start this year.
Steve Cutler: We felt it was appropriate to take this action is one of those studies was canceled early in quarter, two and will be reflected in our second quarter cancellations and the other study was our 90 day hold as of the end of quarter one.
Steve Cutler: However, we received a positive update on the second study just this week lifting the hold to restart patient screening activities.
Steve Cutler: We have resumed work on this project and are actively working with this customer to begin screening patients.
Steve Cutler: We will provide further updates as we gain additional visibility on the expected impact and timeline for study enrollment this year.
Steve Cutler: As we navigate this period.
Steve Cutler: Certainty, we remained focused on customer delivery and continuing to strengthen our offering prioritizing investment and execution of what is squarely within our control.
Steve Cutler: While we ultimately can't influence decisions on study cancellations, we can ensure we are delivering even better for our customers.
Steve Cutler: Ultimately leads to increased visibility of inflight studies and solutions to expedite development milestones, which will also assist us in our efforts to improve our burn rate.
Steve Cutler: To that end, we have seen early benefits from leveraging best practices and implemented standardization across our portfolio in areas such as trial planning activation and oversight as well as contract management.
Steve Cutler: Our streamlining processes and unifying platform technology across our operational units Youre seeing better performance on our study cycle times.
Steve Cutler: This integration is driving increased cross sell opportunities within customers with meaningful wins in ancillary offerings, such as laboratory services.
Steve Cutler: Quarter, one we saw evidence of this with a new partnership award in labs than existing large pharma strategic customer expanding our position in providing additional opportunity for growth.
Steve Cutler: This win is representative of the solid opportunity and continued growth we've seen in our laboratory services business as well as recent momentum in our early phase business.
Steve Cutler: Beyond our focus on operational delivery you have leverage one of our longstanding core competencies managing our cost base to align with customer demand.
Steve Cutler: We have been executing on our plans to ensure proper alignment of resources across our business as well as identifying additional opportunities for further efficiencies through automation and other non labor elements of our costs.
Steve Cutler: Our investment in digital innovation is also continued in earnest with the release of two new <unk>.
Steve Cutler: Enabled tools in the quarter, which will advance our strategy to accelerate trials enhanced data and optimize operational efficiencies.
Steve Cutler: The first is I submit with.
Steve Cutler: <unk> automates the clinical trial document management process, primarily through managing electronic trial Master files.
Steve Cutler: It also uses AI to improve compliance reduce the burden on clinical project teams and manage documents in an efficient and accurate way.
Steve Cutler: The other two is smart drop which streamlines the clinical contract drafting process during study startup, allowing sites to shorten overall startup times. These.
Steve Cutler: These two new releases join a broader suite of Iot solutions that are truly enhancing our delivery for customers embracing the opportunities in.
Steve Cutler: In advanced technology are presenting to transform clinical development.
Steve Cutler: Finally, we continue to execute and execute our capital deployment strategy.
Steve Cutler: Balance sheet further investment in the business, while returning capital to our shareholders.
Steve Cutler: We have highlighted our current priority on share repurchases given our recent share price performance and we executed on this with the repurchase of $250 million in shares over the course of quarter one.
Steve Cutler: Within the confines of Irish law, we plan to a certainly allocate capital towards share repurchases in the near term while also evaluating strategic M&A opportunities that are in our pipeline.
Steve Cutler: We remain focused on addressing key customer challenges, such as patient recruitment and retention by enhancing and scaling our current clinical services.
Steve Cutler: Our concentration on these key areas will aid in our return to growth over the short to medium term.
Steve Cutler: Importantly, the strength of our balance sheet affords us the opportunity to execute both share repurchases and acquisitions should they meet our strategic and financial criteria.
Steve Cutler: Before handing over to Nigel I'll close out with a perspective, often shared with investors when asked about cyclical periods, our industry and customers changing behavior and requirements when it comes to the development needs.
Steve Cutler: Simply put it's why we exist as a company and as an industry.
Speaker Change: Diana Diana we are adapting to meet our customers' needs and opportunities as we partner with them to navigate the complex and ever changing healthcare environment to develop life saving medicines.
Steve Cutler: Cumbent upon us as an organization.
Steve Cutler: Identify the available opportunities and manage that change appropriately and so we are innovating agile and resources to meet the needs of our customers and become an even better.
Steve Cutler:
We are keenly focused on capitalizing on the many opportunities that are in front of us at this time of uncertainty to further solidify our leading position in the market.
Steve Cutler: I want to thank all of the employees across all items that are working incredibly hard to do just that.
Steve Cutler: I'll now hand, it over to Nigel for a review of our financial results.
Nigel Clerkin: Thanks, Dave.
Nigel Clerkin: Revenue in quarter, one was $2 billion, representing a year on year decrease of minus 44, 3% or minus three 2% on a constant currency basis.
Nigel Clerkin: Overall customer concentration in our top 25 customers was aligned with quarter four 2024.
Nigel Clerkin: Our top five customers represented 24, 9% of revenue in the quarter.
Nigel Clerkin: Our top 10 represented 42%, while our top 25 represented 64%.
Nigel Clerkin: Adjusted gross margin for the quarter was 22% compared to 29, 9% in quarter one 2024.
Nigel Clerkin: Adjusted SG&A expense was $173 $4 million in quarter, one our <unk>, 7% of revenue a reduction on quarter, one 2020 for SG&A expense of 181 $7 million.
Nigel Clerkin: Adjusted EBITDA was $397 million for the quarter or 19, 5% of revenue.
Nigel Clerkin: In the comparative period last year, adjusted EBITDA was $444 million or 21, 2% of revenue.
Nigel Clerkin: Adjusted operating income for quarter, one was $353 6 million a margin of 17, 7%.
Nigel Clerkin: Adjusted net interest expense was $44 $3 million for quarter one.
Nigel Clerkin: In the comparable period last year net interest expense was $65 $8 million.
Nigel Clerkin: Representing a year on year decrease of 32, 6%.
Nigel Clerkin: The effective tax rate was 16, 5% for the quarter we.
Nigel Clerkin: We continue to expect our full year 2025, adjusted effective tax rate to be approximately 16, 5%.
Nigel Clerkin: Adjusted net income for the quarter was $258 3 million a margin of 12, 9% equating to adjusted earnings per share of $3 19.
Nigel Clerkin: A decrease of eight 1% year over year.
Nigel Clerkin: U S. GAAP income from operations amounted to $219 6 million or 11% of quarter one revenue.
Nigel Clerkin: U S. GAAP net income in quarter, one was $154 2 million or $1 90 per diluted share compared to $2 25 per share for the equivalent prior year period, a decrease of 15, 6%.
Nigel Clerkin: We had a good quarter from a cash perspective with cash from operating activities in the quarter coming in at 260, <unk> $2 million.
Nigel Clerkin: And free cash flow of $239 $3 million.
Nigel Clerkin: At March 31, 2025 cash totaled $526 7 million in debt totaled $3 $4 billion.
Nigel Clerkin: Leaving our net debt position of $2 9 billion.
Nigel Clerkin: This was broadly in line with net debt at December 31, 2024, and a decrease of net debt of $3 1 billion at March 31 2024.
Nigel Clerkin: We ended the quarter with a leverage ratio of one seven times net debt to adjusted EBITDA.
Nigel Clerkin: Our balance sheet position remains very strong and we continue to be disciplined as we evaluate opportunities for further capital deployment.
Our strategy is focused in the near term on a balanced approach to deployment in favor of share repurchases as well as opportunistic M&A execution.
Nigel Clerkin: We made significant share repurchases in quarter, one totaling $250 million at an average price of $184 per share.
Nigel Clerkin: We plan to remain active in buying back shares with our total current authorization of $750 million remaining.
Nigel Clerkin: Additionally, there are a number there are a number of M&A opportunities in our pipeline that we're evaluating with the potential for execution within this calendar year.
Nigel Clerkin: With that we'll now open it up for questions.
Nigel Clerkin: Thank you if you would like to ask a question you will need to press star one and one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one on one again and as a reminder, currently asked one question per pass in place.
Nigel Clerkin: We will now go ahead with the first question is from Michael Cherny from Leerink Partners. Please go ahead.
Nigel Clerkin: Good morning. Thank you for the question. This is Allen on for Mike.
Speaker Change: I was hoping to ask about cancellations I appreciated the color on the call, but is there anything else you can say about the elevated levels were there any outlier outlier sizable cancellations that impacted the quarter.
Nigel Clerkin: And if you could give any more color across.
Speaker Change: The distribution in terms of customer type.
Nigel Clerkin: Very much.
Nigel Clerkin: Sure I mean, the short answer to your question.
Nigel Clerkin: No theres nothing unusual about any particular customer group market segment or if they were generally elevated across the customer segments that we work in that reflect.
Nigel Clerkin: Our portfolio of business.
Nigel Clerkin: So.
Nigel Clerkin: And we do expect that those cancellations will.
Nigel Clerkin: Continue that that elevated level of <unk> will continue as we work through the year, we're in that sort of environment, but there was nothing that was particularly focused in any one particular segment or customer or anything else for that matter.
Nigel Clerkin: Where we are on cancellations.
Speaker Change: Thank you.
Speaker Change: We'll now take the next question.
Speaker Change: This is from the line of Patrick Donnelly from Citi. Please go ahead.
Patrick Donnelly: Hey, guys. Thank you for taking the question.
Patrick Donnelly: We have maybe one just on kind of follow up there on the overall backdrop here, obviously cancellation similar level to last quarter, but elevated.
Patrick Donnelly: Can you just talk about the conversations obviously, we've heard a lot about these pharma re prioritization the biotech funding environment.
Patrick Donnelly: Those are obviously the headwinds to your point, maybe one of the BARDA contract comes back we have seen some headlines about reinvestments, including one of your larger customers.
Patrick Donnelly: Curious, how you think about the positives and negatives here, where we are in the cycle again cancellations are stable going forward as a potential for it to go down up just curious given given the conversations youre, having what the expectations are going forward.
Patrick Donnelly: <unk> the book to Bill right, the one point or one obviously a little bit light.
Patrick Donnelly: How do you think about the trend going forward given the conversations would appreciate it.
Patrick Donnelly: Yes, Patrick.
Patrick Donnelly: Tough question.
Patrick Donnelly: In terms of where we think this is going well.
Patrick Donnelly: Obviously, the cancellations have ticked up from our normal levels and.
Patrick Donnelly: And we do expect that that will continue.
Patrick Donnelly: I don't believe it's necessarily going to go higher although of course in quarter. Two we will have a significant cancellation is we will open.
Patrick Donnelly: Open and transparent about with one of the border.
Patrick Donnelly: Studies being canceled in quarter, two and as we report quarter two we will report that.
Patrick Donnelly: As a cancellation so it may tick up a little bit in the next quarter, but you know.
Patrick Donnelly: Overall, we see as a site continued elevated levels.
Patrick Donnelly: On a sort of run rate basis.
Patrick Donnelly: I don't believe it's necessarily going to increase any more than it is at the moment, but I do think it will be sustained for probably the rest of this year is kind of it would be my expectation from a cancellation, but we have we have some work to do in that in that space and we're obviously working on our backlog and making sure that.
Patrick Donnelly: As much of it is possible is moving forward as quickly as possible, but our burn rate has come down a little bit that's we've been honest and transparent about that and that.
Patrick Donnelly: That does it suggest that there is some.
Patrick Donnelly: Some work in there that probably will move out at some point in the future.
Patrick Donnelly: It's very hard.
Patrick Donnelly: To be nostradamus on this sort of stuff, but we do expect as of say elevated to continue at around about the levels were seeing notwithstanding it might tick up a bit more in Q2, given the large cancellation that we will we will be taking at that time.
Patrick Donnelly: I think I'll, just quickly add and Patrick I mean that is we have embedded that in our guidance of course in terms of the updated guide that we've given does assume an elevated cancellation rate continues.
Patrick Donnelly: We think that's appropriately cautious given given the environment.
Patrick Donnelly: Yes.
Patrick Donnelly: Thank you.
Patrick Donnelly: We'll now take the next question.
Speaker Change: This is from David Windley from Jefferies. Please go ahead.
Speaker Change: Hi, Thanks for taking my question mine also around revenue in general.
Speaker Change: What we hear from our contacts in the industry is that a customer is probably more on the smaller end of the scale, but.
Speaker Change: <unk> or <unk>.
Speaker Change: This sensitive and issuing more rfps.
Speaker Change: To try to essentially fish for more more bids and potentially more competitive bids.
Speaker Change: I'm wondering one if you are seeing that too how do you kind of try to adjust for that noise that it might look like RFP values are stable or growing but it's actually kind of inflated by this dynamic.
Speaker Change: How is that changing your win rate.
Steve Cutler: From those customers and have you considered to your point that you just made Steve have you considered.
Speaker Change: You know risk adjusting out.
Speaker Change: Kind of unproductive backlog.
Speaker Change: To kind of take that risk off the table so to speak. Thank you for taking my questions.
Speaker Change: Yes.
Speaker Change: Try and then Barry belt by jumping on that one he is close to these biotech opportunity I mean, I think it's fair to say that in the biotech space.
Speaker Change: Do tend to compete with with more <unk>.
Speaker Change: Competitors other <unk> and so al strike right in that space is lower than you would expected to be lower.
Speaker Change: I don't know that that necessarily changes the way, we think about those those things we do believe we're making some progress.
Speaker Change: In terms of that strike, while it's ticked up modestly and as you say.
Speaker Change: As we've said we are seeing more opportunity in that space. Some of that opportunity. We are a little although I don't want to say suspicious, but a little careful with given we have seen a bit of an uptick in rfps that have been canceled as well in other words rfps that really never come to a a yes or no decision. So we're conscious of it.
Speaker Change: Despite the uptick in opportunity. Some of it is is not always of immediate opportunity that makes sense or is not always is not always going to go to to a contract within a reasonable period of time, because we've seen that uptick of the we don't necessarily risk adjust as such we do recognize that there are different dynamics in that segment.
Speaker Change: There's more competition in that segment from other competitors and we adjust from that point of view in terms of our expectations, but we don't we don't treated any differently to large pharma in that space.
Speaker Change: Yes, Thanks, Steve Dave I think it's a good question to think about RFP flow and win rates as having slightly different dynamics between pharma and biotech.
Speaker Change: Very honestly in pharma our win rates remain very very healthy and we're winning substantially more than half of what we touch them. We're very pleased about that as Steve said, there has been an uptick something of a sustained uptick in RFP slow in biotech, but the quality of that RFP flow isn't always as strong as we might wish I don't linked that to <unk>.
Speaker Change: Actually I think thats more to do with funding sensitivities and people trying to scope out.
Speaker Change: The viability of certain development programs it seems to be what we see more among those smaller customers. So we're heartened that we're seeing more of that market, albeit.
Speaker Change: We're looking forward to a higher proportion of those rfps converting to contracting to award.
Speaker Change: Thank you.
Speaker Change: We'll now take the next question.
Justin: This is from Justin <unk> from Deutsche Bank. Please go ahead.
Speaker Change: Hi, good morning, everyone. So just wanted to stick with.
Speaker Change: The overall landscape here and I think theres been a lot of talk over the last couple of quarters about what inning, we're in with respect to large pharma in terms of requiring sanctions.
Speaker Change: Pricing.
Speaker Change: These partnerships and I know theres, a lot of macro sort of noise, but I'd love to get your perspective on again like where we are in.
Speaker Change: In the cycle and how.
Speaker Change: How some of these.
Speaker Change: Efforts in the New administration has driven year.
Speaker Change: Conversations with those important customers.
Speaker Change: The partnerships going forward.
Speaker Change: Okay.
Speaker Change: Yes, Justin it's a it's a big question.
Speaker Change: When we think about quite a lot the way we're looking at at the moment is that certainly we're certainly very much focused on large pharma very much focused on cost reduction on budgets, particularly with the LOE issues that were confronting over the next few years and they are certainly very.
Speaker Change: Very much in the middle of that I don't know, we don't know whats sort of stays as is I don't want to call out.
Speaker Change: Inning, or whatever but we do think that that's been very much the focus over the last 12 months and probably will continue I don't know that it'll ever be in into it but I think that's certainly very much a focus at the moment I do think as we move into that.
Speaker Change: And the sort of more medium short to medium term the focus will switch to how they bring new drugs to market how they effectively replace the revenue they knock on a company wide. Our success, we all know that and so they are going to have to.
Speaker Change: You have to spend on an R&D basis, they are going to have to probably acquire companies I do think that there's likely to be.
Speaker Change: Period of M&A. The are the consolidator in the pharma space or by end and buying the biotech we will know the most of the innovation comes out of the biotech space.
Speaker Change: We think we're very well positioned as they move into that phase as they move into bringing to.
Spending more obviously.
Speaker Change: Or acquiring <unk>.
Speaker Change: Projects would acquiring companies that have drugs.
Speaker Change: Ready for the market.
Speaker Change: As Barry mentioned, our strike rate our partnership strategy in the large pharma space has been paying dividends for us. So we think as those large pharma to acquire we will have an opportunity to benefit from that from an outsourcing point of view.
Speaker Change: Also I believe that if we're working with.
Speaker Change: The particular biotech at that time.
Speaker Change: Acquired by a partner company there is a benefit for us on that space as well and I think.
Speaker Change: We basically want to come back to the fact that they're not going to cut their way to success. They are going to need to spend some money or buy some companies will bring to bring new drugs to market new companies, new pharmaceuticals to market and I think that also leads us as an outsourcing group to feel that way.
Speaker Change: We're well positioned it's a very very uncertain time.
Speaker Change: There's a lot of things happening.
Speaker Change: We can we can talk a lot about but it doesn't seem it seems to me that.
Speaker Change: During those times of uncertainty.
Speaker Change: The volatility that outsourcing becomes an even more viable option for those large pharma as they don't necessarily want to add significant fixed cost to their to their organizations. When it's unclear as to what's going to be happening what theyre going to be doing in 612 or 24 months' time. So again in terms of the environment as we go forward.
Speaker Change: And certainly in the medium to longer term, we're very constructive on.
Speaker Change: On the ability for outsourcing.
Speaker Change: As I look out to do do more of the clinical development work as I said, given the uncertainty that Ara pharma brethren.
Speaker Change: At the moment.
Speaker Change: Yeah.
Speaker Change: Thank you Steve I appreciate the thoughtful response and just a quick follow up.
Speaker Change: You did talk about efforts to drive.
Speaker Change: Greater burn rate and can you just elaborate maybe Barry can chime in too on on what levers you can pull to do that and is that really.
Speaker Change: Swing factor in the top line guide.
Speaker Change: For the rest of the year or is that more related to cancellations et cetera. Thank you I'll, let I'll, let Barry jump in on that one Justin Yeah, just I think when we think about burn rate we're thinking it.
Speaker Change: Those studies that are yet to begin burning as we've taken post award and those that are already burning in the way we increase burn rate primarily is by focusing on faster execution of the clinical trials that are already underway.
Speaker Change: As Youre aware, we aligned our operational groups under common leadership in quarter, one and one of the things I'm focusing a lot on what the team is trying to replicate best practice, so where we have business units that are doing really well on applying technologies standardize processes to better execute those trials, whether it be startup phase of patient recruitment phase.
Speaker Change: Data aggregation phase to make sure we roll those out across the organization to avail of those benefits for our customers and obviously in terms of burn rate.
Speaker Change: And really one of the things we look at where you talked about.
Speaker Change: The win rate in large pharma and more of the market that we're seeing in biotech we're trying to make sure that while we.
Speaker Change: Our differentiated solutions and service offerings for those different ends of the market.
Speaker Change: There a uniform best practice in the interest of all of those customers that we roll it out system, a technology or a waiver.
Speaker Change: Just and I might add just with my tongue on than the upper end of the range in the guidance. So certainly burn rate would obviously be a factor in Nash.
Speaker Change: The midpoint of the range the same burn rate.
Speaker Change: And roughly where it was in Q1 over the course of the year and that will be one factor along with of course also wherever we end up ultimately on both wins as we go through the rest of the year and cancellations. So it'll be a combination of all of those factors.
Thank you.
Speaker Change: Well now take the next question.
Jack Meehan: This is from Jack Meehan from Nephron Research. Please go ahead.
Jack Meehan: Thank you Hello, everyone.
Jack Meehan: Wanted to ask a couple of tariff related questions. The first is could you.
Jack Meehan: Just talk about any direct impact on tariffs for icon, maybe in the lab or elsewhere and then more broadly there is this discussion around pharmaceutical tariffs.
Jack Meehan: Yeah.
Jack Meehan: Obviously haven't been enacted yet, but just curious what youre hearing from customers as it relates to that.
Jack Meehan: So let me take the first question.
Jack Meehan: Jack with respect to our business, we don't see.
Jack Meehan: And in much of an impact in terms of our services business is not out of the question of course expect the unexpected with the current administration, but we're not thinking that it's going to be an immediate or material impact in terms of out our services. There are some components of our business that do.
Jack Meehan: Didn't mean that.
Jack Meehan: <unk>.
Jack Meehan: Our stock has moved across.
Jack Meehan: Across boundaries, and so things like out of that lab kits could potentially be impacted.
Jack Meehan: It's a relatively minor part of our overall lab business and Thats certainly our overall revenue. So I don't think theres going to be a material impact there.
Jack Meehan: It could impact all of us on that.
Jack Meehan: In terms of our pharma customers.
Jack Meehan: I hear what you hear I read what you read we've seen some announcements fairly recently about giving them a little bit more time to work through so some comments.
Jack Meehan: Just recently from the from the White house around the.
Jack Meehan: A delayed implementation of any pharma tariffs clearly there is a requirement or a wish from the current administration to do more manufacturing.
Jack Meehan: Onshore is it sort of in the U S and that will have a potentially could have some implications, but it's pretty early days on that front and it doesn't.
Jack Meehan: <unk> seem like there is some some delays there'll be some discussions there and I know the.
Jack Meehan: Our pharma brethren will be lobbying hard.
Jack Meehan: The various key people in the administration to represent themselves and they do a pretty good job with that sort of thing. So we'll wait and see like you. If there is an impact in pharma.
Jack Meehan: It's potentially going to flow down to us, but it's really unclear.
Jack Meehan: Clear at the moment and Im hesitant to speculate too much on the on what the impact on our business would be and what the time frame for that would be as well.
Jack Meehan: Thank you.
Jack Meehan: Well now take the next question.
Speaker Change: This is from Shannon just sang from tourist Securities. Please go ahead.
Shannon: Okay. Thank you and thanks for taking my questions and good morning, with all the macro noise and large pharma is still focused on for your prioritization, having seen any changes in full service versus FSP RSP mix. Among your large pharma clients are the mix still relatively steady and related to that have you seen any increased adoption of FSP projects.
Speaker Change: Downstream like among mid pharma client.
Speaker Change: Again, I'll start and then maybe Barry jump in on that one Julian.
Speaker Change: And really we see the mix of peso in FSP business being pretty consistent.
Speaker Change: Over the quarter the top three wins, we had were in full service.
Speaker Change: The partnership that we were able to secure in more the mid size was a more full service business. So the proportions of our revenues that are full service versus FSP haven't changed dramatically over that period of time. It is true to say I think that well.
Speaker Change: Our FSP business is growing a little faster than that full service business at the moment.
Speaker Change: And so over the long term there may be some changes, but really at the moment, we're not seeing any any major shifts and I think I would apply that to that.
Speaker Change: Mid mid sized customers as well Barry do you want to drop it.
Barry Belt: That's absolutely right. It remained relatively constant 61 adjusted for seasonal factors I think the trend. If there is one remained that in order to compete for a strategic alliances at the top level, you've got to be able to demonstrate mastery of FSP and full service and we're fortunate in that regard to be the largest and I would argue the best in the FSP.
Barry Belt: Space as well as the leading provider of <unk> that does lead you to a conversation, where it's getting harder and harder to define whatsapp peso versus FSP. Our experience is very much that we are blending around the margins most of our large alliances involve customers doing elements of the work themselves elements in FSP and elements with SSO.
Barry Belt: So that's certainly something we continue to see.
Barry Belt: There are some more mid sized customers, perhaps nibbling around FSP solutions, but ultimately the ability to adopt an FSP component to your development strategy is largely dependent on what competencies you have in house.
Barry Belt: Quite hard to build if you don't have them certainly in a hurry. So we don't see any major disturbance in terms of that distribution.
Barry Belt: Linda.
Barry Belt: Thank you.
Barry Belt: Well now take the next question.
Speaker Change: This is from Max Smock from William Blair. Please go ahead.
Max Smock: Hi, Good morning, good afternoon. Thanks for taking the questions maybe just one on margins here wondering if you could comment on the total adjusted EBITDA target this year and just how to think about the cadence for adjusted EBITDA, but going forward is it fair.
Max Smock: Fair to think about <unk> being a floor on the margin side and how big of a step up should we expect in <unk> and then what does that acceleration look like in the back half of the year. Thank you.
Max Smock: Exercise a lot of tech that loan so no real change actually in our margin outlook for the year from what we would have talked about before and still expectation would be that EBITDA margin for the year as a whole would be roughly 1% or so lower than it was last year and within that obviously Q1.
Max Smock: <unk>.
Max Smock: Good performance 19, 5%.
Max Smock: Thank you better frankly than we had initially anticipated given the strong measures we've been taking on cost controls.
Max Smock: And I would expect that to gradually increase as we go through the earmarks.
Max Smock: It's a gradual uptick as we go through the quarters and quarter to quarter.
Max Smock: And anticipating exiting the year at a rate somewhere around or hopefully slightly higher than we were in Q4 last year, so closer to 21% as we exit the year.
Max Smock: Thank you.
Max Smock: We'll take the next question.
Speaker Change: This is from Donlin is from UBS. Please go ahead.
Donlin: Thank you Steven I was wondering if you had any perspective on the amount of clinical development coming out of China, how you're positioned to participate in and whether any regional shifts might have a positive or negative influence on your total addressable opportunity.
Speaker Change: Sure Dan Yeah. It's a good question China's a very topical at the moment I was a panel a couple of weeks back talking about the.
Donlin: Many many opportunities that.
Donlin: Companies in the U S and that's just bought a large pharma taking out of China, The research and development capabilities out there.
Donlin: Really catching up.
Donlin: With what we are what we do here in the United States and in Europe and so.
Donlin: We are well positioned we believe we have something like 200 people in China, we have a big operation there and we're increasingly able to to run the other clinical trials in China.
Donlin: Many of them are something like a third of the worldwide clinical trial stopped from Chinese companies and they happened in China. So they are on under recognized a powerhouse really in clinical development and I think theyre going to be very much ready to emerge and to come west.
Donlin: In the longer term so we feel we're well represented there with those 200 people.
Donlin: Obviously ready to bring work from China as they come and do the multinational clinical trial, but a lot of the clinical trials, we run in China at the moment I'll run within the country. It's a country where does the 121 3 billion people that don't necessarily need to go to other parts of the world. Although of course, if they wanted to get access to those markets. That's a that's a.
Donlin: Regulatory discussion.
Speaker Change: Need to have.
Speaker Change: We're very optimistic about the opportunities that are that are happening in China, not just in the sort of R&D space, but in the ability to do it.
Speaker Change: For us to do those development programs, either in China or has a global multinational.
Speaker Change: Thank you.
Speaker Change: We'll take the next question.
Michael Raskin: Is from Michael Raskin from Bank of America. Please go ahead.
Michael Raskin: Hi, Thanks for taking my question I wanted to circle up a couple of prior comments on cancellations going forward book to Bill going forward just kind of.
Michael Raskin: Bring that back to your updated full year guide on revenues.
Michael Raskin: So you kept the full year guide by 400 million at the midpoint, then if you said <unk> 50 of that.
Michael Raskin: Just attributed to the two.
Michael Raskin: Nextgen Cobra trials, but if I look at how first quarter it came in.
Michael Raskin: 101 book to Bill you talked about the elevated cancellations.
Michael Raskin: Yes, we talked about.
Michael Raskin: Pretty sizable drop in gross new winds down mid teens.
Michael Raskin: Right.
Michael Raskin: Why isn't there a little bit more conservatism for the rest of the year I guess.
Michael Raskin: It feels like the environment has turned a little bit worse in the quarter.
Michael Raskin: Beyond those two projects and yet I see your full year guide is relatively unchanged excluding that.
Michael Raskin: Maybe just kind of the burn rate discussion or something like that just what kind of makes up the difference for you as you go through the rest of the year.
Michael Raskin: Thanks.
Nigel Clerkin: Yeah, Michael It's Nigel let me, let me have a stab at that and so firstly, obviously, we provided a range.
Michael Raskin: Rather than just a point estimates.
Michael Raskin: As a reminder, so the range as a whole it does allow for all of the factors that you spoke to and I would think as well FX.
Michael Raskin: Although there was a modest drag for us in Q1 likely will be a modest benefit for us for the year as a whole so just bear that in mind as well probably in and around 1% after the full year. So.
Speaker Change: Do you remember that as well so look from our phase.
Speaker Change: We've tried to set out a guidance range that that does reflect the current macro environment context cautious view frankly in terms of book to bill outlook over the balance of the year broadly in line with what we saw in the first quarter.
Speaker Change: I think the other thing Mark was as we've alluded to on the call. We had we did have some positive news earlier in the week around one of the.
Speaker Change: The Nexgen trials.
Speaker Change: That work is starting to drive a while.
Speaker Change: So we do think that provides us some insurance or reassurance as well with respect to the range.
Speaker Change: The revenue guidance that we've incorporated as well so as always there's a there's opportunity as we go forward and that certainly represents some immediate term opportunity at various times.
Speaker Change: Much on top of that straight away and we're anxious to get that.
Speaker Change: That trial going with that customer.
Speaker Change: Thank you.
Speaker Change: The next question is from Luke <unk> got from Barclays. Please go ahead.
Speaker Change: Alright, thanks, guys.
Speaker Change: I just wanted to touch on your margins and more whats in the backlog in coming through so the current thinking is that youre facing a little bit more pricing pressure.
Speaker Change: Probably a little bit more FSP mix.
Speaker Change: And so as you guys look at that backlog and then at your current bookings trend in revenue growth like what's the have the incrementals changed here, where your minimum growth range before we see margin contraction, where it was like probably around 2% prior might be might be need to like see like three.
Speaker Change: There are 4% just as we think about going forward in the out years.
Speaker Change: Yeah look at times, why don't I take us I think Steve and Barry touched on in the macro environment fundamentally we didn't see anything that's radically different in terms of the pricing environment today from where it has been.
Speaker Change: Nor do we see much in the way of significant shifts.
Speaker Change: Certainly in the near term FSP two episodes of FSP, Alright had mentioned sort of a longer term gradual shifts just given.
Speaker Change: What we're seeing overall.
Speaker Change: Stepping back then.
Speaker Change: I don't think anything has really changed in terms of the mall.
Speaker Change: Margin opportunity for this business overall into the medium term when you look at the history.
Speaker Change: Before I got here certainly has been doing a very good job over the years in terms of creating operating leverage.
Speaker Change: Which means that as revenue does turn to growth when we get to that place.
Market conditions recover and when they do.
Speaker Change: We would expect to see operating leverage and we are continuing to manage the cost base.
Speaker Change: You can see even in our Q1 performance.
Speaker Change: And of course, we'll continue to do that along with all of the investments we've been making in automation and so on so.
Speaker Change: Fundamental perspective of.
Speaker Change: Margin expansion opportunity overtime.
Speaker Change: I was in Atlanta, and if revenue returns to growth.
Speaker Change: I think that's changed at all frankly.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Next question is from the line of Mac Sykes from Goldman Sachs. Please go ahead.
Mac Sykes: Hi, good morning, Thanks for taking my questions.
Speaker Change: I just wanted to focus on some of the cost savings you.
Speaker Change: You mentioned.
Speaker Change: At the outset I think there was an assumption that given the labor cost component. It's just a hard thing to do.
Speaker Change: But it sounds like you've made some progress on the non labor side. So maybe some more details on what types of cost we're taking out what the runway is on further cost takeout to preserve margins this year.
Speaker Change: And do you feel like that puts you out of balance in terms of a demand recovery at some point in the future.
Nigel Clerkin: Maybe I'll start and this is Nigel and then Steve if you want to chime in and so.
Nigel Clerkin: So in terms of costs, you're right. Obviously, the majority of our cost base is people cost and so yes, we constantly adjust our resourcing against the demand profile. That's there. We're obviously very thoughtful in terms of high reduce us.
Speaker Change: These Steve and Brian to comment on that.
Nigel Clerkin: So it's not.
Nigel Clerkin: Totality of our cost base and we are of course in parallel making lots of investments.
Nigel Clerkin: Investments in progress with automation as well so it is a combination of all of the above Mike.
Nigel Clerkin: So I don't know if you want to add to that.
Speaker Change: Yes, I would say the non labor components Echo with something I commented on earlier on around standardizing platforms and best practices, where that's appropriate and we know that our biotech and pharma customers for example require different solutions team structures.
Speaker Change: Project team configurations, but since the beginning of the year, we have been looking closely at the platforms. We operate to make sure that we leverage best value for the customer in the first instance in terms of quality, but also in terms of cost spend.
Speaker Change: And in terms of how far into that process, both labor and non labor we've been very active this quarter too.
Speaker Change: To be very significantly through.
Speaker Change: Near term change by the end of the quarter.
Speaker Change: Thank you.
Speaker Change: Next question is from the line of Eric Coldwell from Baird. Please go ahead.
Eric Coldwell: Thanks very much.
Eric Coldwell: I have a couple of quick clarifications is all here first off.
Eric Coldwell: Regarding the recent question on the $350 million of Covid.
Eric Coldwell: Work, that's been removed from your outlook.
Eric Coldwell: To be clear that wasn't all going to burn in 2025 correct.
Eric Coldwell: I E. What was the actual revenue impact of that those remove studies from this year's revenue outlook.
Eric has either no sorry to be sure that $350 million was anticipated.
Eric Coldwell: Revenue in 2025 that has been adjusted within the revenue range guidance.
Eric Coldwell: Then tonight.
Eric Coldwell: Okay. So.
Eric Coldwell: Got it okay. So I guess I'm a bit confused because.
Eric Coldwell: Looking at your BARDA Award I don't.
Eric Coldwell: I don't remember it being.
Eric Coldwell: Much more than that so you were expecting all of this to to burn this year.
Eric Coldwell: Yes, Hey, Britt studies, yes, there's two studies, Eric so in aggregate they would've had an award value higher than that okay.
Eric Coldwell: And over.
Speaker Change: A significant chunk this year, but also into next year as well.
Speaker Change: For us with what is the sizing of the project that is cancelled what what the incremental headwind is in Q2.
Speaker Change: Or.
Speaker Change: Today, what do you mean, yes for booked for cancellation and bookings yes.
Speaker Change: Yes, so it will be somewhere in the region of about $300 million, Eric for Dot com, so that in the second quarter.
Speaker Change: Thank you.
Speaker Change: We'll take our next question.
Speaker Change: This is from Charles <unk> from TD Cowen. Please go ahead.
Speaker Change: Okay. This is Lucas on for Charles Thanks for taking my questions can you guys update us on trends you're seeing with your two largest customers last we heard you were starting to see.
Speaker Change: Stable trends with your largest customer and then that your second largest customer was still seeing declining sales or are there any changes to what you're seeing with those two.
Speaker Change: Are they giving you any indication on what their plans are with you and 2025.
Speaker Change: Okay. So I'll take that one I mean, there's there is we are still seeing some downtick in one of those customers.
Speaker Change: The other one is also sort of moving around a little bit as well, but really we're sort of we're sort of saying that does.
Speaker Change: Yeah.
Speaker Change: Austere and not absolute largest customers this year, there's a fair bit of movement.
Speaker Change: Our top 10, I suppose and so it's hard to sort of get too specific about any sort of group of customers at the moment.
Speaker Change: And so.
Speaker Change: We'd like to sort of move away from our discussion around the two largest customers as I said is there's some customers going up some customers have come down.
Speaker Change: It goes beyond the.
Speaker Change: Our top 10, and so it's something that wave.
Speaker Change: We're kind of moving along with we're looking at our portfolio as a whole now and looking at the various segments that we're working on and seeing where the opportunities are.
Speaker Change: We see plenty of opportunities as several of our most strategic partnerships are now moving very much in the right direction, we're being able to start to win work from those strategic partners.
Speaker Change: These are the ones, where we're really focused on.
Speaker Change: Thank you.
Casey Woodring: The next question is from Casey Woodring from Jpmorgan. Please go ahead.
Great. Thank you for taking my questions can.
Casey Woodring: Can you just talk about month over month demand trends in April and large pharma and biotech just wondering if customer behavior has changed following the tariff announcements and then on <unk> book to Bill you talked about taking one of the vaccine trials out in cancellations next quarter.
Casey Woodring: Is it safe to assume book to Bill will come in below <unk> sequentially and then maybe just any color there on how we should think about book to bill for the rest of the year. I know previously you had kind of anchored towards a one two number on a trailing 12 months of the year. Thank you.
Casey Woodring: Okay.
Jerry: Jerry here.
Jerry: The book to Bill outlook for the rest of the year I think it's a bit early to call that book to Bill for Q2 <unk> already given.
Jerry: Look in terms of the relative impact of that one particular accounts in the quarter. So I'm certainly not on the call.
Jerry: This early.
Jerry: In terms of month over month RFP flow the answer to your question is no I wouldn't observe any but also no I wouldn't particularly look through a month over month trend as being something that could extrapolate.
Nigel Clerkin: I think Nigel I already pointed out that the guidance is reissued presumes roughly consistent conditions throughout the balance of the year and that's based on LIBOR.
Nigel Clerkin: Thank you.
Speaker Change: We have one more question from the phone lines. This is from Josh Feldman from Cleveland Research. Please go ahead.
Speaker Change: Hi, Thanks for taking my question a follow up I think I mean, it sounds like the.
Speaker Change: 50 sounds like $50 million of the guide reduction was related to slower activity outside of the Covid program headwinds I guess is that right.
Speaker Change: So any additional color you can provide on what variables you're contemplating to get to that number and why you think thats the right number.
Speaker Change: Maybe with that based on projects that you have visibility on as of the end of Q1 or is this also trying to predict future trends be it better or worse from here.
Nigel: Josh It's Nigel maybe just a recap over some of the clients there again.
Speaker Change: So.
Speaker Change: It aggregates, you're right the midpoint moved by $400 million I would just remind you what we initiated a range and not just a point estimate.
Speaker Change: So that's the first thing second thing is yes.
Speaker Change: You're right in terms of the $350 million impact of the two studies being removed.
Speaker Change: Touched on earlier FX, we'd anticipate being roughly a 1% tailwind for the full year. So your net adjustment bear in mind that implies everything else is slightly more negative.
Speaker Change: And then within that it is the factors we talked device again book to Bill in Q1 was about it was we tried to take a cautious view on what that might be for the balance of the year as we've mentioned and earn rates again, we touched on at all.
Speaker Change: 1% in Q1 again, we're anticipating it being approximately similar as we go through the rest of the year.
Speaker Change: So those are the major factors and obviously the guidance reflects everything were aware of us up at night.
Speaker Change: Thank you.
Speaker Change: No further questions I will now hand, the conference back to this because.
Speaker Change: Thanks, Operator, we are focused on managing the business through this heightened period of uncertainty and volatility in the broader market properly balancing investment in our business to further enhance our offering to customers, while returning capital to shareholders. We continue to see good opportunity to accelerate our position across customers.
Speaker Change: In areas of the market capitalizing on our experience and success as a strategic and essential development partner. Thank.
Speaker Change: Thank you for joining us today and for your support vital.
Speaker Change: Thank you. This concludes today's conference call. Thank you for participating and you may now disconnect.
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