ICON plc

Good day, ladies and gentlemen. Thank you for joining us on this call covering the quarter ended September 30th, 2021. Also on the call today, we have our CEO, Dr. Steve Cutler, 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 guarantees of 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. This presentation includes selected non-GAAP financial measures, which Steve and Brendan will be referencing in their prepared remarks. For a presentation of the most directly comparable GAAP financial measures, please refer to the press release statement headed, Condensed Consolidated Statements of Operations. Please refer to the appendix of the earnings presentation for reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures. To assist investors and analysts with year-over-year comparability for the merged business, we have included combined company information. These measures include financial information that combines the standalone ICOM PLC and PRA health sciences information for revenue and adjusted EBITDA, and other metrics as if the merger had taken place on January 1, 2020, with conforming adjustments to the current year presentation. Specifically, these financials represent the simple addition of the historical adjusted financials of each company. These combined financials are not intended to represent pro forma financial statements prepared in accordance with GAAP or Regulation SX. 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. Taking the call today to one hour, and would 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, Kate. In quarter three, ICOT achieved gross business wins of $2.72 billion and recorded $346 million worth of cancellations. Consequently, net awards in the quarter were a record $2.37 billion, resulting in a net book to bill of 1.27 times. and a trading 12-month meant book-to-bill of 1.3 times. At the beginning of the third quarter, consolidated backlog on 606 basis was $18.1 billion. This backlog figure accounts for legacy ICON backlog at the end of quarter two, along with total backlog from PRA adjusted to include past trues in keeping with ICON's reported backlog methodology. With the addition of the new awards in quarter three, our backlog grew. to a record $18.6 billion, representing an increase of 3% from closing of the acquisition. Included in the press release and the earnings slides, you will note that we included a reconciliation of non-GAAP measures. Adjusted EBITDA excludes stock compensation expense, restructuring costs, foreign currency gains and losses, amortization and transaction, and integration-related costs and their respective tax benefits. Adjusted revenue in the quarter three was $1,870,000,000. This represents a year-on-year increase of 167% or 165% on a constant currency basis. On a combined company basis, adjusted revenue increased 25% from the comparable period last year. One of the key strengths of the new icon is our increased customer diversification and balanced representation across customer segments. In the third quarter, our top customer represented 8.3% of revenue, and our top five customers represented 28.2% of revenue. Our top 10 represented 43.3%, while our top 25 represented 64.7%. Adjusted gross margin for quarter three was 27.9%, and adjusted SG&A expense was 10.5% of revenue in the quarter. On a combined company basis, adjusted EBITDA was $325 million in the quarter, or 17.4% of revenue. In a comparable period last year, adjusted EBITDA was $266 million, or 17.7% of revenue on a combined company basis, representing a year-on-year increase of 22%. Adjusted operating income for the quarter three was $300.1 million, a margin of 16%. The adjusted net interest expense was $46.5 million for the quarter, and the adjusted effective tax rate was 17% for the quarter. We continue to expect that the effective tax rate for the fourth quarter will be 17%. We continue to work through the expected changes on a go-forward basis to our tax position, given the recently announced OECD global tax deal and expected increase to the minimum corporate tax rate in Ireland. We plan to give an update on the new target tax rate when we issue 2022 guidance, at which point we will have more clarity on the anticipated US tax changes that have not yet been finalized. Adjusted net income attributable to the group for the quarter was $209.8 million, a margin of 11.2%, equating to diluted earnings per share of $2.55. During the quarter, the company recorded $149.8 million of transaction and integration-related costs U.S. GAAP income from operations amounted to $5.1 million or 0.3% of revenue. U.S. GAAP net loss attributable to the group was $94.3 million or a loss of $1.17 per share compared to $1.72 per share for the equivalent prior year period. Net accounts receivable was $540 million at the 30th of September 2021 This compares with net accounts receivable of $417.4 million at 30 June 2021. On a comparable basis, day sales outstanding were 26 days at September 30, 2021. This compares with 43 days at the end of June 2021 and 64 days at the end of September 2020. Cash generation from operating activities in the quarter was $299 million. At September 30, 2021, the company had a net cash balance of $1.01 billion, and debt of $5.93 billion, leaving a net debt position of $4.92 billion. This compared to net cash of $707.2 million at September 30, 2021, and net cash of $359.8 million at September 30, 2020. Capital expenditure during the quarter was $24.4 million. We ended quarter three with a debt to trailing 12 months adjusted EBITDA, including synergies below four times. The priority of capital deployment remains on debt pay down in the near term. Given our strong cash flow generation, our stated goal and expectations to reach two and a half times adjusted EBITDA by the end of 2023 remains unchanged. With all that said, I'd now like to hand over the call to Steve.

Thank you, Brendan, and good day, everybody. Today, we're delighted to recognize another milestone in ICON's acquisition of PRA Health Sciences by reporting our first quarter as a combined organization. The overall environment and clinical development continues to be robust, with strong demand seen across large pharma, small and mid-sized companies, biotech, and medical device companies throughout the quarter. RFP growth has been solid, and we continue to be encouraged by the healthy level of biotech funding year-to-date. I'm proud to highlight that our team at ICON has continued to aid in the advancement of several new drug approvals this quarter, which now total 27 year-to-date. As seen by our strong performance in the quarter, our customers are continuing to turn to ICON as their trusted partner in clinical development. The response from customers to the merger has been excellent, leading to increased engagement with new and existing customers across all segments and delivery models. Customers are eager to understand our enhanced offering that features increased scale, innovative solutions and broader service capabilities. We are particularly encouraged by the increased number of strategic partnership discussions that are currently ongoing across our service areas, which we expect will drive continued long-term growth for ICON. During the quarter, Icon increased net business wins to a record $2.37 billion, delivering a quarterly book to bill of 1.27 and growing our backlog to $18.6 billion, an increase of approximately 3% since the close of the acquisition at the start of the third quarter. New award activity was strong across all of our operating segments. Revenues also increased 25% on a combined company basis and our backlog burn for the quarter increased to over 10%. In addition, diversity of our customer base, one of our key strategic merits of our combination, was improved in the quarter with a notable decrease in our customer concentration. I was also delighted with our cash collection efforts, which moved our DSO down to 26 days and reduced our leverage to less than four times adjusted EBITDA, including synergies. This should allow us to reduce the interest rate on our term loan in Q4. We are pleased with the level of new wins secured from our cross-selling initiatives across legacy organisations and are confident of the expected revenue synergies these will drive in the longer term. We have seen strength across a number of service offerings, in particular central and specialty laboratories, imaging, our Acelicare site networks and in-home health services. We have already seen great examples of the power of our combined resources in certain segments and regions, such as large pharma and Asia-Pac, respectively. We are clearly displaying to customers our improved depth and breadth of talent and experience across our business. Our integration is progressing smoothly, with several key accomplishments worth highlighting. In the quarter, we completed a significant number of office integrations across several regions, with a number more planned in the coming quarters. Initiatives to enable a unified employee experience are underway, including an initial phase of benefits harmonisation, as well as enterprise-level system planning and data centre connectivity. We have united a number of teams across operational segments and global business support functions. We continue to utilize a best-of-both approach to the integration of the legacy organizations, ensuring that new icon benefits from the wealth of experience, talent, and optimal processes from both organizations. Our priorities remain unchanged through this integration phase, a continued focus on project delivery for our customers, as well as employee retention and engagement. The COVID-19 pandemic continues to present new opportunities for our industry to find ways to increase efficiencies and challenge the traditional model of clinical monitoring. The demand for our unique suite of solutions in areas such as remote and risk-based monitoring, direct-to-patient services, and the seller care in-home services continues to remain at a high level. While new ICON has continued to contribute to the development of COVID-19 vaccines and therapies, as expected, our level of COVID work began to decrease as a percentage of total revenue in the quarter from quarter two levels, as large vaccine trials wind down and treatment work increases. At the end of quarter three, COVID-related projects represented about 5% to 7% of our total backlog, down slightly from the end of the second quarter. While there are still approximately 15% of sites that remain restricted in some capacity due to COVID across the globe, we saw this figure continue to improve over the course of the third quarter. Importantly, our customers' interest in and adoption of enhanced delivery solutions remain as high as changes brought on by the global pandemic have begun to show the value of deploying remote technologies and patient-centric services that can lead to increased efficiencies and continuity in their clinical trials. Our enhanced ability to invest in and deploy such novel remote technologies and services at scale over the next few years will open a further competitive advantage over smaller and mid-sized CROs. To that end, we have seen strong demand for our decentralized clinical trial solutions, which we believe will be the most comprehensive and integrated offering in our industry. Our unique suite of solutions integrates all of the key components needed to run a hybrid or full DCT trial, from patient concierge services to wearables to a full-service technology platform. ICON's offerings incorporate leading technology capabilities with the necessary operational expertise and delivery focus required to run these trials successfully. We saw evidence of significant customer interest in the quarter as Icon engaged in a number of enterprise-level partnership discussions with pharma customers, and I'm pleased to report that one of these discussions has led to a leading biopharma company selecting Icon's DCT platform as their enterprise solution across all of their decentralized trials. As the marketplace continues to evolve, we see a consistent need to offer solutions that are more patient-centric and technology-enabled to customers. The new icon has continued to invest in talented people, technologies, and innovation internally, as well as with partners to disrupt traditional product development and delivery models. Through our patient site and data strategy, we continually look for ways to reduce the burden on patients, clinicians, and sponsors. Expanding access to treatments for patients while ultimately increasing the overall efficiency of clinical trial execution. In the third quarter, we expanded our partnership agreement with DeepLens, a specialty software and services provider that focuses on improving patient recruitment in the community oncology sector. DeepLens provides sites with an artificial intelligence platform that harmonizes EHR data, unstructured data, and genomics data to enable patient matching to trial inclusion-exclusion criteria. By combining ICON's vast data resources with DeepLens' technology and community oncology network, sponsors can readily gain access to difficult-to-reach patients that are eligible for their oncology trials. We are also getting significant interest from customers in our Synoma tokenization tool that allows us to follow clinical trial patients on a long-term basis. Sponsors spend a large amount of their development budgets on long-term follow-up for trial patients, and the Sonoma tool, in conjunction with our Symphony data asset, allows key information to be collected and utilized in a much more cost-efficient manner. Our partnership with DeepLens and the rollout of our Sonoma patient tokenization tool are just a few examples of the many initiatives we have ongoing at ITON. to offer truly differentiated solutions to our customers that drive forward our patient site and data strategy. Since the acquisition, we are continuing to refine and focus the innovation priorities for Nuicon on our customers' core needs. Faster access to patients, more efficient clinical development, and diversity and inclusion in trial participants. The new icon is well on the way to becoming the world's leading healthcare intelligence organisation. We are committed to continuing to invest in and progress initiatives that are centred on these key focus areas in the industry. We're excited about the progress we're making in creating a new paradigm for bringing clinical research to patients by offering expanded capabilities and solutions to customers while also delivering significant value to shareholders. By continuing to invest in innovative technologies, talent, and novel solutions, we expect to create significant long-term shareholder value as we build on our market-leading operational capability and best-in-class global support services model. With a strong performance in the third quarter, we are increasing our 2021 outlook with revenue guidance in the range of $5.43 to $5.53 billion and adjusted earnings per share guidance in the range of $9.55 to $9.75, up 1.5% and 3.8% respectively from the midpoints of our previous ranges. As we look forward to 2022 and beyond, we continue to expect to deliver on the long-term projections we made earlier this year at the time of the acquisition of PRA. revenue growth in the high single digits on a combined company basis, adjusted EBITDA growth in the low teens, and EPS growth in the mid to high teens. We've already made good progress on our synergy targets, and I'm confident that we will achieve both our cost and revenue targets of $150 million and $100 million, respectively, over the next four years. We plan to provide more definitive guidance on 2022 in January at the JPMorgan Healthcare Conference. In addition, we are looking forward to holding an in-person analyst date, which we intend to schedule in March of 2022. Finally, we were delighted to be included as the only CRO in Forbes' 2021 World's Best Employers list. And I'd like to thank the 38,000 employees of the new icon across the globe for all of their dedication, hard work, and commitment during the quarter. We look forward to the exciting journey ahead as we continue to build the world's leading healthcare intelligence organization. So operator, we're now ready for questions.