ICON plc

Good day and thank you for standing by. Welcome to the ICON PLC Q1 Results 2021. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star and 1 on your telephone keypad. Please be advised that today's conference is being recorded today. If you require any further assistance, please press star 0. And I would now like to hand the conference over to our first speaker today, Mr. Jonathan Curtin. Thank you. Please go ahead.

Thank you. Good day, ladies and gentlemen. Thank you for joining us on this call covering the quarter ended March 31st, 2021. Also on the call today, we have our CEO, Dr. Steve Cuddler, and our CFO, Mr. Brendan Brennan. 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. Certain statements in today's call will be forward-looking statements. These statements are based on management's current expectations and information currently available. including current economic and industry conditions. Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company's business, and listeners are cautioned that forward-looking statements are not guaranteed their future performance. Forward-looking statements are only as of the date they are made, and we do not undertake any obligation to update publicly any forward-looking statement either as a result of new information, future events, or otherwise. More information about the risks and uncertainties relating to these forward-looking statements may be found in SEC reports filed by the company. In addition, as announced in February, ICON and PRA Health Sciences have entered into a definitive merger agreement. This call will touch on the transaction. Please note, this call does not constitute an offer to sell or buy or the solicitation of any offer to buy or sell any securities nor shall there be any sale of securities in a jurisdiction in which such offer, solicitation, or sale will be unlawful prior to registration or qualification under the securities law of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting regulatory requirements of Section 10 of the Securities Act of 1933. In connection with the proposed transaction, ICANN has filed a registration statement on Form F4 with the SEC containing a prospectus prospectus of ICON that also constitutes a proxy statement of each of ICON and PRA. ICON and PRA will file other documents regarding the proposed transaction with the SEC. Before making any voting or investment decisions, investors and security holders of ICON and PRA stock are encouraged to carefully read the entire registration statement and joint proxy statement, prospectus, and other documents filed with the SEC made available on each of our websites and at sec.gov. This presentation includes selected non-GAAP financial measures. For a presentation of the most directly comparable GAAP financial measures, please refer to the press release statement had a condensed consolidated statement of operations U.S. GAAP unaudited. 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. We will be limiting this call today to one hour. We therefore ask participants to keep their questions to one each with an opportunity to ask one related follow-up question. I would now like to hand over the call to our CFO, Mr. Brendan Brennan. Thank you, Jonathan.

In quarter one, ICON achieved gross business wins of $1,295,000,000 and recorded $195,000,000 worth of cancellations. Consequently, net awards in the quarter were a record $1.1 billion, resulting in a net book to bill of 1.28 times and a trailing 12-month net book to bill of 1.39 times. With the addition of these new awards, our backlog grew to a record $10 billion. This represents a year-on-year increase of 14%. Revenue in quarter one was $858.2 million. This represents a year-on-year increase of 20%, 17.9% on a constant currency basis, or 17.8% on a constant dollar organic basis. It also represents a sequential revenue increase of 12.9% from Q4 2020. Our top customer represented 19.1% of revenue for the quarter, compared with 11.4% in Q1 2020. The increase in our concentration is in relation to COVID vaccine trials we were running during the quarter. As you can see from our updated guidance, the COVID dynamic will continue to act as a tailwind over the course of 2021. Our top five customers represented 45.9% of quarter one revenue compared to 39.9% last year. Our top 10 represented 60.4% compared to 52.2% last year, while our top 25 represented 76.8% compared to 69.6% last year. Influenced by the revenues generated by COVID vaccine work, gross margin for the quarter was 27%. compared to 29.6% last quarter and 29.3% in the comparable quarter last year. And our adjusted SG&A was 10% of revenue in quarter one, which compared to 11.6% last quarter and 12.2% in the comparable period last year. Adjusted operating income for the quarter was $128.5 million, a margin of 15%. This compared to 15.8% last quarter and 14.9% in the comparable quarter last year. The adjusted net interest expense was $2.1 million for the quarter, and the adjusted effective tax rate was 13% for the quarter. Adjusted net income attributable to the group for the quarter was $109.7 million, a margin of 12.8%, equating to diluted earnings per share of $2.06. This compares to earnings per share of $1.90 in Q4 2020 and $1.70 in the comparable quarter last year. During the quarter, the company recorded $12.9 million of transaction-related costs. As a consequence, U.S. GAAP income from operations amounted to $116 million, or 13.5% of revenue. U.S. GAAP net income attributable to the group was $97.1 million, or $1.82 per diluted share, compared to $1.62 per share for the equivalent period in the prior year. Net accounts receivable was $465.6 million at 31 March 2021. This compares with a net accounts receivable balance of $483.1 million at 31 December 2020. On a comparable basis, day sales and standings were 39 days at March 31st, 2021. This compares with 41 days at the end of December 2020 and 55 days at the end of March 2020. Cash generated from operating activities in the quarter was $111.9 million. At March 31st, 2021, the company had a gross cash balance of $944.2 million in debt of $348.6 million, leaving a net cash balance of $595.6 million. This compares to net cash of $493.6 million at December 31, 2020, and net cash of $134.4 million at March 31, 2020. Capital expenditure during the quarter was $8.7 million. And with all of that said, I'd now like to hand over the call to Steve.

Thank you, Brendan, and good day, everyone. In February, we announced ICON's acquisition of PRA Health Sciences, one of the world's leading CROs with over 18,000 employees across more than 70 offices. This transaction creates a unique combination of capabilities, bringing together two high-quality, innovative, growing organizations with similar culture and values. combining to become the world's leading healthcare intelligence and clinical CRO. Our planning efforts have already commenced with the establishment of a dedicated integration management office and the appointment of external project consultants. In addition, teams from both companies representing all functions have begun meeting virtually and are collaborating well, building momentum heading into day one to ensure that we bring the best of both companies together. As both organizations get to know each other better, the rationale to combine these companies becomes even more apparent to us. Our goal is to create the world's leading CRO where customers will benefit from our broader service offerings and geographic footprint, deeper therapeutic expertise, expansive healthcare technology innovation and functional talent and capabilities. Furthermore, as a combined company with expanded capabilities and expertise, we expect to offer employees significant career development opportunities within and across the key service areas and geographies in the company. The pandemic has seen an unprecedented reorientation in the way clinical research is undertaken. and the influence of COVID-19 will be felt in clinical trials long into the future. Central to this evolving landscape is the accelerated adoption of telemedicine and digitization and the growing use of decentralized trials. By integrating capabilities, including PRA's mobile and connected health platforms, real-world data, and information solutions, With ICON's global site network, home health services, and wearables expertise, we can deliver truly differentiated, decentralized, and hybrid trial solutions to meet growing customer needs and positively impact future clinical trial development. As we integrate these key components into our patient site and data strategy, we will be able to provide a compelling set of solutions to customers that will accelerate patient recruitment and retention, increase participant diversity, and ultimately shorten clinical trial timelines. We strongly believe such a focus will enable us to provide greater efficiency and increased value for customers going forward. Our combined strength in delivering global functional and full service clinical solutions will be industry leading and we believe the need for these large-scale flexible solutions will continue to grow. The complementary nature of our services will also present revenue synergies across our broader customer base. Already, we are seeing interest from customers in the new icon, with early strategic discussions being initiated and cross-selling RFP opportunities being generated in areas such as central and specialty labs, the AcelaCare site network, home health services, and imaging. Furthermore, we believe our combined strong new business performance in quarter one demonstrates our customers' confidence in our continued operational performance and our commitment to deliver enhanced and innovative patient-centered solutions. Alongside ICON's robust business development performance, PRA's excellent year-over-year bookings growth of 21% this quarter means we consolidate both companies from positions of strength, which will enable us to drive strong growth over the medium and long terms. We are also progressing well through the regulatory approval process. We have satisfied the US regulatory approval requirements with the expiration of the waiting period under the Hart-Scott-Rodino Act as well as receiving the majority of the required approvals from other international jurisdictions. We have also completed the SEC review process, filed our final definitive proxy materials, and will hold our extraordinary general meeting on June 15th. Assuming the remaining closing conditions are met, we currently expect to close the transaction in July. I'm very pleased with the strong start ICON has made to 2021, which builds on our momentum from last year. We continue to win COVID-related work in new treatments and are continuing our vaccine work in long-term follow-up and new patient segments, such as pediatric and maternal trials, pharmacovigilance, and new variant studies. As evidenced by the success of our vaccine trials, we have firmly established ourselves as a CRO market leader in the COVID space. And we expect these opportunities to continue throughout 2021 and well into 2022. We also believe the new mRNA vaccine technology has applications well beyond COVID and will offer opportunities in new disease areas such as flu and oncology in the longer term. And we're well positioned to benefit from such developments. During the quarter, ICON increased net business wins by 27% to $1.1 billion, delivering a quarterly book-to-bill of $1.28 and growing our backlog to $10 billion, an increase of 14% year-on-year. Revenue grew 20% to $858 million and adjusted earnings per share increased by 21% to $2.06. Given our strong company fundamentals supported by a robust market environment, we are increasing our standalone 2021 revenue guidance by $200 million from a range of $3.2 billion to $3.3 billion to a range of $3.4 billion to $3.5 billion, an increase of 22% to 25% year over year. In addition, we are increasing standalone adjusted earnings per share guidance by 30 cents from a range of $8.10 to $8.50 to $8.40 to $8.80, representing an increase of 29% to 35% year over year. Before moving to Q&A, I would like to thank the entire ICON team for all their hard work and commitment during the quarter. It was very pleasing to see that both ICON and PRA were the only CROs to have been named by Forbes magazine as one of our America's Best Employers for Diversity for 2021. I would also like to take this opportunity to compliment all of those who contributed towards ICON's and PRA's success at the recent CRO Leadership Awards. Congratulations to all the recipient teams involved. So operator, We are now ready for questions.

Thank you. And as a reminder, if you wish to ask a question, please press star and 1 on your telephone keypad. And your first question comes from the line of Erin Wright from Credit Suisse. Your line is now open.

Great. Thanks so much for taking my questions. Could you give us a little bit of an update on underlying demand trends for kind of the base business in terms of RFP flow and site accessibility? study startup trends and when you think we can kind of be back to a more normalized environment here.

Sure, Erin. Let me take the RFP side of things first. You know, we've certainly seen continued strong demand on the RFP front, both on a year-on-year basis, quarter-to-quarter, and on a trading 12-month basis. We're up in the, certainly it's above 20% on a year-on-year basis from an RFP and the demand on a COVID basis also has continued to increase as well. So demand trend on the RFP front is very strong. I would say on the reopening, if you like, post-pandemic, we're still seeing some impact. I would say I would characterize it in something like 20% of sites are still impacted. Our recruitment of patients is getting back towards where it was a year ago. The COVID patients, of course, have pushed it well above where it was a year ago. So we're significantly up a year-on-year basis. But if you take the COVID patients out, we're getting back to about where we were a year ago. So even though there is still some impact from sites, we are starting to really recruit well. Site activations are starting to come back. But there is still some impact out there, no question about that. And I think that is starting to move away. We're obviously seeing... an impact of the pandemic in the rest of the world. That remains to be seen how much impact that is. But certainly in North America, we're getting back to pre-pandemic levels.

And has there been any surprises for you in terms of the response from customers to the transaction or since the transaction has been announced or employee retention dynamics following the announcement, I guess, based on what you're seeing in terms of PRA's performance, hiring trends, customer feedback, do you still feel confident in the synergy assumptions you've laid out there to achieve?

Yeah, I think we would certainly say that the customer response to the transaction has been very positive. We've heard the same from our PRA colleagues. As I mentioned in my initial commentary, we're starting to have some some discussions with strategic customers on what the combined entity will be able to offer on closing. So we feel very positive about where our customers are coming from. Obviously, there's a fair bit going on in the industry at the moment across the spectrum. And so we're all playing in the same sort of field there. But our customers generally have been very positive about the transaction, about the opportunities that the combined company offers. He's going to be able to present to them. So we feel good about that. On the employee front, we haven't seen any incremental turnover that we believe is related to the acquisition. Clearly, there's some decisions to be made and we're working through that. We're communicating closely with our employees in both organizations, both our PRA colleagues and our ICON colleagues. and letting them know where we are. So, you know, we haven't seen any incremental issues in terms of retention or in terms of attrition from an employee point of view. Having said that, the market is busy at the moment and strong at the moment. And so, you know, retention and employee engagement remains a key focus for us. For both organisations, I know, we're both very focused on retaining our best employees and making sure they see a a real vision and a real opportunity as the entities come together. So it's a busy market. I think, as you've seen, there is plenty of activity, there's plenty of work out there, and so we need to work very hard to retain our employees and keep them engaged.

Okay, great. Thank you. Thank you. And your next question comes from the light of Elizabeth Anderson from Evercore ISI. Your line is now open.

Hi, guys. Thanks so much for the question. I just wanted to talk through the Pfizer contribution. Obviously, with the vaccine contribution and I'm sure follow-on work that needs to be done, that was an outside portion of business. How do you expect that to trend as we move throughout the course of the year? Thanks.

Hi, Elizabeth. It's Brendan here. Obviously, we've done well with that particular customer over the last couple of quarters, and we're very proud of the fact that we worked with them on their vaccine program, as you well know. And obviously, there's still more good work that's coming out of that relationship. And so we do see solid progress, particularly in the first half of this year. I do think in the second half, we'll probably see more like a normalized percentage from them. But certainly, as we work through these large vaccine trials, There's no doubt that we're seeing quite a large volume coming through at the moment, certainly in the first half of the year. So I'd say in the second half, maybe more back to where we were in 2020, and still expected to be a very significant customer as we go forward. It's a great relationship, which we're very proud of.

Perfect. That's really helpful. And what's the biggest change that sort of enabled you guys to pull up your expectations in terms of when the PRA deal might close?

Yeah, we've done really well, Elizabeth, again, in terms of getting through the antitrust process. A lot of late nights in the office here by our colleagues and certainly our general counsel, Jeremy Cunningham, deserves a shout out on that one as well. They've got through that antitrust process very quickly. We've also had a very good process with the SEC review. So we've gone through a lot of the major geographies that we needed to get through from the perspective of getting through antitrust. I think that the delay now is just, you know, some of the geographies just take a little longer than others, and that's what we're seeing at the moment. So it's really just down to making sure that we can get them all closed and get on with the process as planned in July.

Okay, great. Thanks so much.

Thank you. And your next question comes from the line of Robert Jones from Goldman Sachs. Your line is now open.

Great. Thanks for the questions. Maybe just to go back to the guidance, Brendan, you know, obviously the revenue in the quarter was ahead of expectations, but guidance rate seems to reflect even more than just the strong performance in the quarter. It sounds like maybe COVID was a part of the change in thought process of how the year will play out. But we're just hoping you could share a little bit more on what you're seeing real time that gave you confidence to raise the range by that 200 million.

Yeah, Bob, obviously we came into the year expecting COVID vaccine work particularly and COVID work generally to act as a good tailwind to us from that perspective. We certainly looked at that as we came and put out our initial guidance I think what we've seen is in addition to that, if you like, obviously we were aware of that solid tailwind, but we've seen continued really, really strong business wins performance, particularly in Q4 and into Q1. We saw, again, of course, a record book-to-bill this quarter and really, you know, very, very strong market reaction to our sales offering there. And that's been very, very encouraging. So, I mean, those last two quarters, along with the RFP flow that Steve made reference to in his remarks, earlier on really gave us quite a good visibility to our revenues for the back end of the year. And certainly that's where we saw that kind of that strength coming through. Certainly vaccines more the first half, but the other bonus of work really coming up, including other non-vaccine related COVID work in the back end of the year. And I think that's one thing to focus on in terms of COVID is that it's not something that's going to be come and gone. We're going to be working on COVID work and other elements of trials around COVID for quite some time, and certainly well into 2022. So we felt that the volume of business and the RFP flow was very, very strong, and it just gave us that confidence and our visibility improved to give us that ability to be able to push up the revenue to the extent that we have done, which was very gratifying.

Great. Now that's helpful. And I guess, Steve, you made mention of how quickly the kind of decentralized virtual world is moving obviously a number of announcements out there from your peers you know icon clearly already has kind of the site and the home angle with with symphony and the site networks you've had previously um you know pra bringing some capabilities to the table around decentralized virtual uh approaches as well just was hoping maybe you could give us a sense of how you see your offering You know, with the combination of PRA stacking up against others that are out there, you know, in particular, it seems like maybe on the technology side, that might be the one area that maybe others have either partnered or done more with than what it seems like at least ICON and PRA would have on the surface. But just curious to get your thoughts on how you see your offering in that world stacking up versus what else is out there. Sure, Bob.

Yeah, you know, I think we see this as a sort of somewhat unprecedented time within the industry as customers being very much open to doing these sorts of trials. So COVID's had a number of influences, I think, on our business, not just the work. And in fact, the work is probably the smallest part of it. It's much more our customers going forward, particularly seeing what we can do, what we did within the pandemic and what opportunities there are to do trials in a different way going forward. So we really believe we're in a very good environment now, and we will be for the next few years as we apply some of the things we did in the depths of the pandemic to the new world and the customer's willingness to do that. To be more specific about our offering on the DCT, I think we're going to have, and we're building it together. Obviously, we can't do it until a transaction closes, but we have a To me, we have a number of the key components. We have the site component. We have sites who are engaged. We have our people with that. Our CellarCare site network becomes the foundation for it. We have a strong platform, essentially a clinical platform that we can use with patients to build that. That's coming in from PRA. We have our symphony data, the ability to utilize that. You saw, I think, from the PRA results, that's moving forward or starting to move forward nicely. revenue-wise and growth-wise. So that's very much a positive. We have our symphony home healthcare. Too many symphonies, I know, but we have our home healthcare network that really overlays what we believe. So we believe we have all the key components. We have some really strong wearables expertise, which is going to be particularly important. And I believe bringing that together we can do it in a really compelling way and in a way that actually we can differentiate ourselves from our competitors. So with the environment as it is, with the willingness of our sponsors to work in a different way, and the ability to be more patient-centric and to be more focused around the patient's ability and the need to be more efficient as a clinical trial organization, I believe there's a lot of tailwinds with us, a lot of things moving in the right direction. And I think as we bring those components together, we're going to have an offering, I think, that is going to differentiate from our competitors, and it's going to be really compelling for our customers. We have some work to do to do that, no question about that. But I believe over the next 12 to 24 months, we'll put together and put out there all of those components in an integrated fashion that's going to make it a real opportunity for us to grow our business.

Great. Thank you.

Thank you. And your next question comes from the line of Dan Brennan from UBS. Your line is now open.

Great. Thanks for the question. Maybe the first one is just on the PRA deal. Steve, maybe you could talk a little bit about the opportunity for I know you haven't formally baked in any synergies, but from the prepared remarks, it sounds like you're starting to get a sense there could be some real traction there. So just kind of give us a sense of what the opportunity is on maybe additional revenue capture.

Yeah, I don't think we've put a number on that at this stage, Don, but we've certainly seen a lot of interest. And the integration teams, at least the planning teams, have started to, on an appropriate arm's length basis, you know, work across both bases, the organizations. And we've seen, we're seeing a number of opportunities come across from PRA on a contractual basis that are allowing us to sort of start to get our heads around the sort of revenue synergy opportunities that are out there. They're fairly modest at this point, but the fact is we've had at least 15 sort of RFPs, mainly in the sort of labs, seller care, Symphony Home Health sort of area. The obvious imaging I think is in there as well. So it's not just in one particular function, it's in a broad number of them and obviously in areas that PRA themselves don't have those capabilities and we've been able to move, we're moving forward nicely. We haven't quantified that. I think we'll be in a position to quantify that a bit more as we come to close and we get our heads around really what the opportunities are. But it's gratifying to see that our Both organizations have engaged actively in that front now, as I say, on a contractual arm's length basis. And we've been able to start bringing in those sorts of opportunities. So I'm very optimistic for the revenue synergies that are existing there.

Great.

And then maybe one just back to COVID. Obviously, a really strong quarter. Brendan talked about it wasn't just COVID. It was obviously the base business and the booking traction. Can you just give us a sense, though, as you think about the full year, I think revenues outside your top client grew around 7% this quarter. How do we think about the progression in the full year between the base business and COVID? Any way to think about the contribution between both of those businesses and put it in your revenue guidance? Thank you.

Yeah, Don, I might take a stab at that one. It's Brendan here. Yeah, I think obviously we've outlined the revenue guidance. I think it is fair to say that If you like, the COVID, non-COVID split maybe is a little less dramatic. Obviously, we're seeing the benefit of the vaccine, non-vaccine split, if you like, certainly in the first half of the year with a broader base of business really coming through in the second half. But we are expecting sequential quarterly revenue growth. So I think, if anything, it should give you confidence that what we're seeing at the moment is certainly a tailwind coming into the year provided by that vaccine work that has been a speciality of ICON, obviously, in the first six months particularly. but still a good mix of business, both COVID and non-COVID in Q3 and Q4 that allow for sequential revenue growth in each of those quarters. So a strong kind of broad-based growth in those areas. I don't know if splitting it out, I suppose, into terms of COVID, non-COVID, once you kind of get outside of the vaccine work is terrifically helpful to you because obviously the vaccine piece is probably the piece that has the higher burn rate And that's the piece maybe that adds more complication, if you like, to the numbers than the usual. But I think that's more focused in the first half of the year. And as I say, we get back into Q3, Q4, we'll continue to see nice sequential revenue growth with probably a better mix in absolute terms of COVID, non-COVID work. Hope that helps.

I think, Don, it's worth just emphasising that, you know, going forward, the COVID work is not going to drop off a cliff. You know, we're still seeing a significant proportion of our RFPs in quarter one was COVID-related work. I think that's, you know, in the sort of mid-teens. So we're still seeing those opportunities come through, probably more in the treatment sort of areas, consulting treatment areas, than it is in the big vaccine trials, but there's still an ongoing cadence of work. And the other, as I think I tried to allude to in my comments, is that the broader implications of COVID around decentralized trials, around risk-based monitoring, Around the mRNA technology, those sorts really do offer, I think, peripheral benefits that COVID can take responsibility for or can be very much a part, but it may not directly relate to the treatment of the COVID condition. Who knows where we go with the new variants and those sorts of things. We're certainly doing a number of studies on that front, but there's a peripheral benefit, I suppose, from COVID in terms of our business that we believe we're going to benefit from over the medium to longer term.

Great. Makes sense. Thanks, Steve.

Thank you. And your next question comes from the line of David Windley from Jefferies. Your line is now open.

Hi. Thanks for taking my question, Steve. I wanted to ask a couple around some of these topics. You've just touched on DCT and COVID-related impact. You've covered the DCT capabilities and how they might come together. How important do you think it is to own and control those various capabilities which, you know, after PRA you will versus a partnering strategy? Right.

Yeah, you know, I think, Dave, we've always been fairly clear that on the data side of things that we were fairly agnostic and we continue to source data from external sources, bringing it together, integrating it. Really, on the data front, we don't believe you have to own it. Having said that, we now, or we will, once we close, own a symphony of very important. So we'll have the opportunity to assess and to benefit from, hopefully, the ownership of that data. But we certainly won't be stopping accessing data from other sources as well to the benefit of our of our clinical trial, whether they be DCTs or not. So partnering has got to remain an important component. In terms of the technology, again, we're a CRO. We're a service organization. We have to be able to work with different providers of clinical platforms. We currently partner with several different ones. We'll have our own. That obviously will be our go-to offering. We'll be developing that. We'll be integrating the various components of the DCT system together with that. That, I believe, will be a very strong and compelling offering. But, you know, we'll have to also learn how to and partner. There'll be customers who'll come to us and say, hey, we want to use the Metabull or the Science 37. That's fine. We'll be able to do that. So I think we have to have a, you know, to be honest, we're in both camps, but we're going to drive forward very hard on the components that we own and that we control and that we can believe can offer the most efficient operating service and the operating environment, particularly for customers in that biotech smaller area who are probably less concerned about what sort of systems we use, but more concerned about getting there. It's not to say large farmers, not of course, but they are typically less controlling, if you like, or less willing to say, hey, we want you to use this system or we want you to use that system. And in those cases, we'll have an offering that we can put together for them that we believe will be very much suited. So, yeah, it's a long way of answering. We're going to have to have a foot in both camps on that problem.

Understood. And maybe a follow-up on that regarding differentiation that you're kind of touching on. So it sounds like maybe having the offering internally and being able to bring that to bear directly is a bigger differentiator in decision-making to small biotech than large pharma. Would you agree with that? And what would be the differentiating factor to the large pharma in DCT?

I think I would agree generally with that. You know, I think if we can show, and our plan is to, as I say, present to the small and the biotechs that integrated platform that is efficient and effective and gets them to market quicker and more effectively and more efficiently and, you know, ultimately for, you know, a lower cost, I think that's something we can certainly sell to them. And I think that does differentiate it. I honestly do believe that's also, large pharma are also interested in that as well. So I don't think it's an either or. I think our large pharma customers are always interested in being more efficient, but we have to show them. And they'll typically have, as you well know, a group within those companies who have their own perspectives and who also have relationships with some of the companies that we have relationships with. So it's probably less of a differentiator. more of a challenge for us to differentiate in that space than it is in the smaller pharma. But particularly where we have strong partnerships, and we have and we will have a number of strong partnerships across, I think we'll have the opportunity to show them, to provide data, and to give them that offering and to provide them with that integrated solution that I think can differentiate. I just suspect it might be a little more challenging than perhaps in the smaller farmer and biotech space.

Okay. If I could sneak one last one in on numbers. In terms of the progression on concentration, your top client, I think, stayed in the 12s through the end of last year and then really jumped in the first quarter, whereas we all know that they're in the market with a vaccine – and ran a substantial trial last year. And so I guess I'm trying to understand how ICON, what or how ICON's role has evolved that that revenue impact is now hitting as opposed to hitting in the second half of 20.

Yeah, David, I might take a stab at that. I would say, you know, obviously what we're seeing is good continued growth relationship development with obviously, I mean, you're referring to Pfizer there. So, I mean, that's the relationship that continues to develop. We can continue to win additional business. And of course, we're still working on the trials that you referenced there. So, it's continued to pick up. I think it's also fair to say that, you know, we have a broad-based vaccine business. And in terms of pass-through elements of our revenue, it certainly wasn't isolated to our top customer. and that was across more than that, certainly in the top five. So there's a combination of factors there, Dave, but certainly it's a broad base of business with Pfizer that has continued to develop over time.

Super. Thank you. I appreciate that.

Thank you. And your next question comes from the line of John Kreger from William Blair. Your line is now open.

Hey, guys. Thanks. I had a follow-up question on the plan for PRA once the deal is closed. Will you be able to kind of hit the ground running and immediately go after some of these kind of revenue cross-selling opportunities that you've outlined, or are there any sort of structural things that have to change to enable that? I'm thinking, will you be able to tap into their data engine right away, or is there some sort of a systems integration plan that you're going to have to work through? Thanks.

John, there's always integration aspects around systems that we'll need to work through, and that might take a little bit of time, but I do believe that pretty much from day one, or maybe it'll be day two, but we'll be able to actively benefit from those revenue synergies. And as I alluded to in my comments, we're already seeing, we've already seen a dozen or so reasonably significant RFPs come across the labs, you know, the main one for us, obviously, but then the symphony and cellar care and imaging, a couple of other of those areas, IRTs and areas. So, you know, given that we're still several months away or a couple of months away from closing those RFPs, we'll be out there. They'll be making decisions on those, I believe, in the next, you know, few weeks, few months. You know, we do believe that we'll be starting to benefit, you know, early in the relationship, I would say. And that'll build particularly, I think, on the lab front. as we come together, but I don't think there's not, you know, PRA don't have a lab, we do. So on that front, there's limited that really needs to happen apart from, you know, we do their lab work. There will be, obviously, from an integration point of view, lots of work to do around the IT systems, but I really don't think that's going to be a major blocker or that's going to slow us down significantly in terms of the opportunities from a revenue point of view.

Great, that's helpful. Thank you. And then one just quick follow-up. Can you give us an update on where you stand on the hiring front? It seems like you and your peers are all delivering above normal revenue growth, so I'm just curious if there's any kind of stretched labor situation to try to execute on all this.

Oh, we're actively hiring right across the spectrum, particularly in the clinical ranks, project management, CRAs, you know, in the major markets. So we are, you know, we have a significant growth planned on the, you know, I can't tell you the specific numbers, but significant growth planned in those, you know, operational areas where, you know, the market's competitive, as I mentioned. I think everyone's, most of our competitors are hiring at the moment. So we're also looking at different ways of bringing people into those positions, training programs, graduate programs, career progression, et cetera, obviously for the people within our business. We're looking at that very carefully. But it's a very active market on the hiring front, and we're certainly very much involved in that, as I know PRA are as well.

Great. Thank you.

Thank you. And your next question comes from the line of Don Leonard from Wells Fargo. Your line is now open.

Thank you. Do you have any updated framing on customer overlap risk now that you're a couple months into the integration process and analysis with PRA?

I don't think we have anything further to add to what we said initially on the customer overlap. We do believe there's excellent complementarity on the customers. I think I've talked about strong partnerships with two-thirds of the top 20 companies as a combined organization. When we closed, we're about a third and a third. And there's overlap in one or two. We're initiating or customers are having discussions with us about that and how we continue to deliver on that. All very positive discussions, I would say. So I believe we're in a good, strong situation. I think the business wins from the quarter. would suggest that there's good evidence of the fact that the acquisition, the merger of the two companies is being well received by our customers. And there's really very limited concerns in the longer term.

Okay. And then secondly, on the close date, assuming positive shareholder votes in mid-June, is it possible that the acquisition could even close by June end, or is that unreasonable?

That won't happen. We would say the earliest will be July.

Okay. Thank you.

Thank you. And your next question comes from the line of Juan Avendano from Bank of America.

Hi. Thank you. Can you give us your perspective on the potential impact to the CRO industry competitive dynamics from thermal acquiring CPDs? Anything different that you foresee in now having to compete with a life sciences tools company that has a good reputation and footprint in global biopharma accounts that is now coming into the CRR space? And also, I mean, do you believe that there could be synergies between contract research and contract manufacturing services?

One, I'll be honest with you and say I don't lie awake at night worrying about Thermo Fish's acquisition of PPD as being a major competitive threat to ICON and what we're doing. I have absolute respect for PPD as a competitor. They are a very strong, very good organisation, very well run, very well managed. And I like them as a good competitor. I think they're good for us. They make us better. But they're going to be involved or... dare I say, swallowed up by a very significantly larger organisation. What's Thermo Fisher? $180, $190 billion in market cap. So I think they'll have their challenges and they'll need to work those out. I continue to have respect for them, but it doesn't worry me overly and I don't think it changes our strategy of moving forward with the acquisition of PRA and our goal, our our BHAG of really becoming the preeminent clinical CRO in the industry. That's what we expect to be and that's what we plan to become. In terms of synergies between CDMO and CRO, I mean, gosh, how often, how long have we been talking about synergies between the different parts of the clinical development? You know, it's hard enough to get the synergy between phase one and phase two, let alone contract manufacturing and clinical research. So again, I don't expect there to be much in that respect. I believe they've got common customers, but let's be honest, these customers are large organizations with very different contacts and people responsible for those different areas. And that's traditionally, in my experience, been the challenge with these sorts of things. The same on the commercial side, as we've seen. So again, the best of British luck to them, but I don't see that being a particular issue for us. As I say, we're focused very much in the clinical space. That's where we want to be. Our contacts in our sponsors are very much involved in clinical development and execution. That's the case with PRA, and we believe as we work through the integration, we'll streamline those relationships. We build those relationships. We'll develop them. And that's going to be, I think, a significant benefit to the combined organization going forward.

Thank you, Steve. I appreciate your insights there. And, Steve, I was wondering if you could help me understand, you know, now there's been a lot of talk about high-grid and trial capabilities and remote monitoring capabilities. They're slightly different, I understand. But given your Accelera site network capabilities, If you could help me understand, what are some of the incentives that sites have to support the drug development paradigm shifting from being site-centric to now being patient-centric and then essentially being partially or fully in some situations being cut out from the ecosystem? have you had any pushback at all from sites in this adoption of virtual trials and hybrid capabilities, and what incentives do they have to support that adoption as time goes on?

Yeah, that's a good question, Juan. You know, I think we're, you know, the short answer is, you know, we're in the process of talking with sites and in talking with the industry, site industry, around, you know, what their role and how, They wish to be involved, to what extent they want to be involved in this process of planning our DCTs. I would say, though, that I can't imagine a time that sites won't be involved in a clinical trial. We need to have well-qualified investigators and study nurses involved with seeing patients, assessing patients, recording data, We're going to do a lot of that data recording, of course, by patients themselves, but there'll always be things that will require a physician or a well-qualified study nurse to assess. I think what we're talking about is the burdens that they currently have on them in terms of the administrative procedures and the very regular site visits, you know, every few weeks in some cases, will be relieved. I believe, ultimately, that's going to be a positive for sites, and I'd like to think that will... mean that more sites will potentially be involved in clinical research. And of course, we want more patients involved in clinical research. I think as we've gone through the pandemic, we've seen now that people do understand what a clinical trial is and are willing to be involved in a clinical trial. That's one, I think, of the opportunities we have coming out of the pandemic. But I think the role of the sites certainly will evolve. And I do believe our Asella Care Network can play an important role role in that. The telemedicine side of things, they're going to need to be more technologically savvy. They're going to need to see patients probably less frequently, although that, of course, will depend upon the indication. But I do think the sites will move in that direction, and ultimately it will be to their benefit. They will be involved in research, in innovative programs, not just therapeutically, but technologically as well. And I think the opportunity to be more efficient, to have a greater throughput of trials, to use real-world evidence and real-world data in a way that benefits ultimately their patients is going to be very motivating for them. So in the long run, we'll need to work through, you know, obviously some processes and challenges, but I think in the long run, it's going to be a positive event for science.

Thank you.

Thank you. And your next question comes from the line of George Hill from Deutsche Bank. Your line is now open.

Hi, this is Charlotte on for George. Thanks for taking my question. Given your recent acquisition, I just wanted to ask if you've seen any impacts from the deal on the business, whether that be any doors that's opened or any disruption to the sales process. If you could just provide any color there. Thank you.

Charlotte, I think our results for this quarter and PRA's results as well would answer that question pretty straight up, to be honest with you. The answer is no. There's always going to be customers who have some reservations, but we've produced record numbers. I think PRA produced record numbers. They were at 1.33. We're at 1.28 on elevated revenue. So the evidence would suggest, no, that our customers are comfortable with what's being proposed to them. We've obviously been in touch with them. We've had a number of discussions with them. And even more so than just the results in terms of awards, their interest in having discussions around what we'll be able to offer when we close is is also very encouraging. As I said, we've had a number of strategic discussions. We have a number of strategic discussions planned. So we feel very good about our customers' response to the transaction that we're moving forward with.

Great. And then just a second question. You've been discussing the decentralization of trials. Could you just outline how this transition could be impactful to margins and how that could change any cost around trials?

Oh, yeah. I think, you know, over the longer term, I think, you know, the way I look at it is, you know, we can, it should be margin enhancing, you know, and it could be value creating, I think, for our customers as well. So I suspect that we will do more trials for the same amount of revenue and but at an enhanced margin. That's the sort of high-level look at it from my point of view. We'll do three trials for the price of two is kind of perhaps the way to look at it, but at a better margin. And so I think that gives our customers a great opportunity in terms of more shots on goal, more opportunities to bring drugs to market. I think that ultimately will enhance their top and bottom lines. And ultimately, as they do well, will do well as well. So I think it actually gives us a great opportunity to be more efficient as an industry and to get more drugs to market, particularly in areas that have rare disease. I think decentralized trials will play a major role in some of these rare disease areas. And the opportunity to effectively move those drugs through the market is to say in a more cost-effective manner will ultimately help us as an industry. So I'm very optimistic about the benefits.

Great. Thank you. Thank you. And your next question comes from the line of Luke Sergot from Barclays. Your line is now open.

Hey. Good afternoon, everybody. So I'm going to try to revisit Dave's question and ask it in a different way. So when you think about your business, you always have really strong visibility. And so I understand what Dave was asking, and all of a sudden you get this big bolus in one queue. I was thinking that maybe you guys were expecting that the milestones or everything else from the vaccine work maybe spread out over the year and somehow because of the success that you guys did and the success of the vaccine rollout that you achieved a lot of those milestones a lot earlier than possible. And really the reason for the question is just trying to figure out how to think about the COVID work rolling off in 22. So it's like if the massive beat on the quarter and the COVID work that came through from Pfizer is and the core Pfizer business is still down significantly, is it going to rebound that much more in 2022? That's ultimately what we're trying to get at.

I might take a crack at that, Luke. Obviously, as I said, and it's not just our biggest client, it's across the top clients, There's obviously an impact from pass-through that comes along with COVID and particularly in vaccine work, and we're seeing obviously more of that in quarters one. I think that will persist into quarter two. As I said, I suppose, earlier on is that, you know, we have a very strong, good visibility, to your point, on our back half of the year, and the mix of business is still very, very strong there, both in our, you know, larger customers and in other customers' So we have a good sense that we will continue that sequential revenue progression as we go through the course of this year. And as I said, as we get into the back half of the year, that's less around specifically vaccine work and more around a broader mix of business, both COVID and non-COVID. But the COVID stuff obviously at that point is more around antivirals. I mean, and as Steve said, I think there is an interesting avenue in terms of MRNA development and other applications of that technology that will allow it to continue to drive well into 22, as well as the fact that we do feel that there is, from an RFP flow, still a lot of COVID work coming through the door in quarter one. And we expect that again in quarter two. So, I mean, you know, again, I'm a little reticent to say it's all about one customer or the, you know, the quarterly progression of one customer. I think it's much more about the overall view of the market, how that's trending, what volume we're seeing on different types of trials. And so that gives us a lot of confidence that we have the visibility as we go out to the back quarter for this year for good revenue growth, off a very solid base as we came into the year. But we've had a margin progression as we get to the back half of the year. And certainly at the moment, the RFP flows indicate that that looks like we're We're well set for the foreseeable future. Again, there's nothing sequentially in the cadence that goes from Q4 to Q1 of next year where we think one customer's movement might have a detrimental impact upon our overall business visibility. I hope that helps.

Yeah, it does. It does. And sorry about the background noise, the baby crying. It's just white noise to me anymore. So my second one, I guess, is more about – Because of the success that you guys have had, especially on the mRNA, and you brought up the strength in the bookings, can you give us a sense of the interest from biotech and some of their smaller customers seeing that you guys can handle these really complex technologies, particularly mRNA therapies and these new modalities, and how the RFP flow has come from seeing your success with this technology?

Yeah, Luke, you know, I think we're seeing, I mean, you all know the biotech funding continues to be extremely strong. We've benefited from that. The PRA are benefiting from that. We continue to see significant opportunities in that space. A lot of the work we do in that segment, of course, is in the more complex trial space. Oncology is predominant, I would say, and it's not all oncology. But there's been a number of sort of areas where we've been able to develop our techniques, if that's the right word, on the trial. So, you know, cell and gene therapy is an area where we believe we have a strong market position in that area. And that's, you know, the ability to do those trials, the experience you get when you do those trials, and then our ability to sell that and to communicate that to other biotech companies. I think we've done a good job in that space, and we've continued to build our franchise in those sorts of areas, whether it be, as I say, CGT or mRNA. mRNA is relatively new, of course, and been applied more around the COVID vaccines up till now, but there are certainly opportunities coming through in flu, and we do expect things like oncology to be looked in that area. That's really more a question for our For our sponsors, they're the ones who do that, of course. But our track record, if you like, in those areas and our ability to deliver those trials can only be a positive if it allows us, if the customers select us on the basis of experience and of delivery and of performance and, of course, of the people that we have up in front of them. And, you know, if we can show them what we've done and show them the track record and help them to avoid some of the potholes that, you know, that do come along in various challenging, particularly CGT, challenging sort of clinical trials, then we put ourselves in a really good position to be selected. So it's all positive from that point of view, our experience in those areas.

Great, thank you.

Thank you. And our next question comes from Tycho Peterson from JP Morgan. Your line is now open.

Hey, thanks. One or two, just housekeeping, one on PRA, and then a couple on guidance. But it sounds like you're really not worried about dis-synergies here. You know, when we talk to some of your peers, that seems to be kind of the key sticking point, you know, just the worry that customers don't want to concentrate all the business with you. So I'm just wondering if you could kind of flesh out, you know, your comments there a little bit more. And then secondly, patient recruitment, I'm just curious how you think the addition really kind of helps you there. I know you talked about the Accelerant Care Network earlier and then, you know, virtual capabilities, but How do you think PRA can actually help you around improving patient recruitment?

Sure, Toku. On the dis-energy side, no, I think it's fair to say we're not worried about that. Certainly the evidence so far in discussions with customers where we do have a little bit of overlap has been relatively positive. And we see opportunities to actually expand in some of those businesses as a combined entity. We are not lying awake at night worrying about dis-synergies with the merger. It feels like there's much more complementarity and synergy than there is dis-synergy. So, yeah, I think you characterise it fairly well. In terms of patient recruitment, you know, I think PRA brings us, you know, a number of extra capabilities, particularly around the Symphony database. I think they would say that that's, That's an asset that seems to be moving forward now, and you've seen their results. We saw their results as well, and that seems to be moving forward. But the opportunity to integrate that into a more late-stage business and even 2-3 business is really now going to present itself, I think, very substantially as we close the deal and move forward. So I think that's probably the main area. And it's not just that. They have a number of initiatives and partnerships going on a little bit outside of the traditional industry with some of the data providers with Symphony. So I won't be too specific about that. I can't be too specific about that. But we see opportunities around those sort of data providers and accessing patients more directly. So the capabilities they bring, I think, are very substantial. And the thinking... they bring and the innovation they bring is very exciting to us. And overlaying that with our seller care site network, our symphony, home health, is really going to be, I think we're going to be able to put together a very compelling offering to customers. That's one of the things, there's a number of things, but that's one of the things that's really exciting about the union that we're moving forward with.

Okay, that's helpful. And then on the COVID dynamic, you know, you're guiding for a little bit more durability in the tailwinds than your peers, including, you know, one that reported this morning. I'm curious, you know, is that a kind of mixed issue from your perspective? What's actually baked into guidance on the COVID front? I didn't hear you quantify that. And how do you think about capacity for, you know, accommodating the non-COVID work given you're calling for more durable, you know, COVID tailwinds?

I think, I don't know that we split out, Tycho, the COVID, non-COVID revenue split in terms of the guidance. It's all in there in terms of it's all good revenue and all good customers. I think the way we look at it is, listen, our business wins in the COVID space. In the first quarter, we're still in the mid-teens. There's still good growth in what we see from an RFP flow that's COVID-related specific year over year. So we do still see it as a durable, to your point, part of our overall revenue flow. As I said in my earlier comments, certainly the first half of the year is more vaccine-related, while the second half of the year is more COVID treatment-related. And as such, we expect to see some of the pass-through elements decline as we get into the second half of the year and the margins, and gross margin particularly, improve on the back of that. But again, we haven't really split out the absolute COVID of non-COVID It's, as I said, all good business that will flow through, but certainly we are still seeing plenty of demand that's running through into the back end of this year, and we fully expect that this will still be a topic and a thematic that we are talking about well into 2022.

And then maybe just one last one. If you could flesh out that comment on the margins, you know, the 230 basis point GM decline, that was all just, I assume, passed through this quarter. So as we think about the faster-growing COVID work, you know, maybe tapering off a little bit. How do you think about the gross margin kind of trajectory over the next couple of quarters?

Yeah, as I kind of outlined Tycho, you know, we still see kind of a similar pattern possibly in Q2. That's certainly what we're thinking about in terms of forecast at the moment. But as we get into Q3 and Q4, we do feel that we will probably certainly work our way back into margins that were more comparable to where we were at the back end of the year. 2020, from a gross margin perspective, it'll take a little bit of time, but certainly by Q4. And of course, that's all in the caveat of standalone business. We obviously hope to be very much a combined business by the time we get to that point.

Understood. Thank you.

Thank you. There are no further questions at this time. Please continue.

Thank you, Operator. So thank you, everyone, for listening in today. These are exciting times for us at Icon, and we're pleased to have delivered another strong quarter, and we remain focused on delivering current projects for all of our customers. We also look forward to continuing our integration planning with the PRA team and the creation of the world's leading healthcare intelligence and clinical CROs. And finally, I would like to take the opportunity again to recognize our entire workforce and to thank them for all their efforts over the past quarter. Thank you all and have a great day.

That concludes our conference for today. Thank you all for participating.