ICON plc

Good day, ladies and gentlemen. Thank you for joining us on this call covering the quarter and full year ended December 31st, 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 related 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. While non-GAAP financial measures are not superior to or substitute for the comparable gap measures, we believe certain non-gap information is more useful to investors for historical comparison purposes. We will be limiting 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 four, ICON achieved gross business wins of $2.79 billion. and recorded 413 million worth of cancellations. Consequently, net awards in the quarter were $2.38 billion, resulting in a net book-to-bill of 1.26 times. Full-year 2021 grocers' business wins were $8.12 billion, and cancellations were $1.16 billion, resulting in net business wins of $6.96 billion and a net book-to-bill of 1.27 times. With the addition of the new awards in quarter four, our backlog grew to a record $19.1 billion, representing an increase of 2.6% on Q3 2021 or an increase of 9.5% year-over-year on a combined company basis. Included in the press release are earnings slides. You will note a reconciliation of non-GAAP measures. Adjusted EBITDA excludes stock compensation expense, restructuring costs, foreign currency gains and losses, amortization and transaction-related costs and their respective tax benefits. Adjusted revenue in quarter four was $1,881,000,000. This represents a year-on-year increase of 147.4% or 148.7% on a constant currency basis. On a combined company basis, adjusted revenue increased 15.1% from the comparable period last year. For full-year revenue, The number was 5,481,000,000. This represents a year-on-year increase of 95.9% or 94.5% on a constant currency basis. On a combined company basis, adjusted revenue increased 24.8% from 2020. We continue to see an improvement in our top 25 customer concentration in the fourth quarter. Our top customer represented 8.5% of revenue and our top five customers represented 28.3% of revenue Our top 10 represented 41.4%, while our top 25 represented 61.4%. In the full year 2021, our top customer represented 8% of revenue, and our top five customers represented 31.6% of revenue. Our top 10 represented 45.3%, while our top 25 represented 65%. Adjusted gross margin for the quarter was 28.1%, compared to 27.9%, quarter three, full-year adjusted gross margin was 27.9%. Adjusted EBITDA was $333 million to the quarter, or 17.7% of revenue. In the comparable period last year, on a combined company basis, adjusted EBITDA was $295 million, or 18.1% of revenue. This represents a year-on-year increase of 12.7%. On a combined company basis, full-year 2021 adjusted EBITDA was $1,248,000,000, or 16.7%. This compares to adjusted EBITDA of $996 million for the full year 2020, or 16.7% of revenue, representing an increase of 25.3% year-on-year. Adjusted operating income for the quarter 4 was $308 million, a margin of 16.4%. The adjusted net interest expense was $44.3 million for the quarter, and the adjusted effective tax rate was 17% for the quarter. As noted earlier this year, we expect the full year 2022 adjusted tax rate to be approximately 16.5%. Adjusted net income attributable to the group for the quarter was $218 million, a margin of 11.6%, equating to diluted earnings per share of $2.63%, an increase of 25% year-over-year. Full-year adjusted net income attributable to the group was $666 million. During the quarter, the company recognized gap revenue of $1,885,000,000 and $5,481,000,000 of gap revenue in the full year 2021. In the fourth quarter, the company recorded $16 million of transaction and integration-related costs Four-year transaction and integration-related costs were $198.3 million. U.S. GAAP income from operations amounted to $144.5 million, or 7.7% of revenue during the quarter four. Four-year U.S. GAAP income from operations amounted to $378.5 million. U.S. GAAP net income attributable to the group for the quarter four was $76.5 million, or $0.92 per diluted share, compared to $1.90 per share of the equivalent share. prior year period. Full year U.S. GAAP net income attributed to the group was $153.2 million, or $2.25 per diluted share. Net accounts receivable was $642 million at the 31st of December 2021. This compares with a net accounts receivable balance of $540 million at the 30th of September 2021. On a GAAP comparative basis, days sales outstanding were 31 days at December 31, 2021. This compares to 26 days sales outstanding at September 30, 2021, and this also compares to 57 days at the end of December 2020. Cash generation from operating activities in the quarter was $290 million. At December 31, 2021, the company had a gross cash balance of $754 million, and debt of $5,436,000,000, leaving a net debt position of $4,682,000,000. This compared to a net debt of $4,918,000,000 at September 30, 2021, and net cash of $494,000,000 at December 31, 2020. Capital expenditure during the quarter was $47.7 million, driven by spend associated with IT infrastructure and systems, as well as additional investments in our facilities and laboratories. We ended the year with a performer net debt to trailing 12 months adjusted EBITDA ratio of 3.4 times. The priority for capital deployment remains on debt pay down in the near term. Given our strong cash flow generation, we reiterate our target of exiting 2022 below three times adjusted EBITDA well ahead of the initial target we set in 2021. In addition, our Board of Directors authorised a shared repurchase programme of up to $100 million, which we intend to deploy opportunistically beginning this quarter. With all of that said, I'd now like to hand over the call to Steve.

Thank you, Brendan, and good day, everyone. 2021 was an outstanding year for ICON. Over the course of the year, we completed a transformational acquisition, doubling the scale of the organisation and creating a world-leading healthcare intelligence and clinical research organisation. Our employees expertly navigated the challenges of the ongoing pandemic, deploying innovative solutions to ensure clinical trials were able to continue and patients received life-saving treatments despite continued impact to site and patient access. We delivered on our mission to accelerate the development of customers' drugs and devices by providing support on 30 new drug approvals in 2021 in areas such as liver disease, schizophrenia, a range of cancers, and of course, infectious disease. I'm incredibly proud of the role the ICON team has played in the fight against COVID and the development of these critical vaccines and therapies. The overall environment in clinical development throughout 2021 was robust as biopharma development spending continued to grow and biotech funding activity was near the record level seen in 2020. Scientific advancements in areas such as mRNA techniques in vaccines and cell and gene therapies present new opportunities to develop novel drugs that could have a major impact on potential treatments for a variety of diseases. Customers are increasingly turning to CROs as partners, not just providers, to aid in the development of these complex and groundbreaking therapies. RFP volume continued to be strong through the year, increasing low double digits on a year-over-year basis for the quarter and full year 2021. While biotech funding levels were down from a record year in 2020, we have not seen this negatively affect overall demand in the small biopharma customer segment. In fact, in quarter four, we saw particular strength in RFP activity in the small and mid-sized biopharma segments, as strong cash positions continued to drive demand for best-in-class development. We were very pleased to see our top 25 customer concentration decrease sequentially in the fourth quarter, as well as from a full-year perspective attributable to the new icon combination. At a high level, our overall customer mix is well balanced with approximately half of revenue attributable to large biopharma and 45% attributable to small and mid-sized biopharma companies. Within this segment, companies that have less than $100 million in annual R&D spend represented a mid-teen percentage of our overall revenue in 2021. This percentage will vary on a quarterly basis, and I would add that we haven't seen any issues or concerns related to cash collections or rising bad debts in this customer subset. Our engagement with customers on a strategic level has continued to show positive progress. ICON's offering of integrated and innovative solutions appeals to biopharma customers large and small and across different modalities of development from functional to full service. Our success in creating enduring strategic customer partnerships with strong delivery for our customers has led to further opportunities to expand existing relationships as well as open the door to new partnerships. As new icon, we can be even more of a strategic partner to our customers with the unique resources, world-class talent, and differentiated solutions we offer. I'm delighted to report that we secured an agreement with a large pharma partner during the quarter, expanding our existing relationship across a number of services and further validating the strategic merits of the new ICOM organization. During the quarter, ICOM increased net business wins to a record $2.38 billion, delivering a quarterly book to bill of 1.26 and growing our backlog to $19.1 billion, an increase of approximately 3% over quarter three, 2021, and approximately 10% year over year on a combined company basis. We believe our backlog is a robust figure based on contracted and awarded work with a conservative but realistic assessment of associated pass-through costs. New award activity was strong across several operating segments. On a combined company basis, full year 2021 revenue and adjusted EBITDA increased an impressive 25% year over year, hitting the midpoint of our guidance ranges for revenue and adjusted EPS for the year. Our backlog burn for the quarter remained over 10%. Cash collection efforts continued to be strong with a DSO of 31 days down from 57 days on a comparable basis from December 31st 2020. As a result, I'm happy to report that these efforts allowed us to make a $500 million payment on our term loan B facility at the end of the year, reducing our leverage to 3.4 times adjusted EBITDA, including synergies, exiting 2021. This puts us on track to exit 2022 with a leverage ratio of approximately 2.5 times adjusted EBITDA, we are pleased with the progress already made on our cost and revenue synergy goals. As announced earlier this year, we expect to reach a run rate of approximately 50% of our $150 million cost synergy target, or $75 million exiting this year. From a revenue synergy perspective, our target of $100 million by 2024 remains unchanged. Our cross-sell award activity has been strong, particularly in awards for central and specialty labs, the AcelaCare site network, imaging, and early phase services. Our integration process continues well with notable achievements in the first six months as a combined organization. We have completed over 30 facility integrations across our sites, unifying our workforce and ensuring an efficient footprint across our organization as the pandemic restrictions start to ease. Our technology and systems integration activity and planning is well underway, with a priority focus on enterprise-level systems in order to enable a unified and engaged employee experience as soon as possible. Our global business support services model has started organization-wide implementation in areas such as finance, IT, and other administrative functions. In addition, we have rolled out our new brand campaigns highlighting the shared values of New Icon and reflecting the best of both from the organisations we have brought together. The priorities we set out at the start of the integration remain unchanged, delivering on time and budget for our customers and ensuring a positive employee experience. To that end, we have increased our investment in internal initiatives to improve retention and attract the industry's best talent. as we strive to become the employer of choice in the CRO industry. Indeed, we were pleased to be the only CRO included in the Forbes America's Best Large Employers list for 2022. As the labour market continues to be highly competitive, we recognise the importance of continuing to invest in our employees and provide support in areas such as career development and training With the increased scale of new ICON, we are excited by the expanded and diverse career opportunities that are available for our entire employee population. As the COVID-19 pandemic continues on, we see areas of opportunity amidst the challenges that inevitably will remain. Alongside our biopharma partners, ICON has played a key role in the ongoing development of COVID vaccines and therapies. We rose to the challenge of executing clinical trials in record timelines, starting up sites and recruiting patients with increased efficiency. Our site network was at the heart of many of these critical vaccine trials, displaying the strategic benefits we can bring to our owned and partnered sites in the AsellaCare network. We saw the peak of revenues related to COVID programs occurring in the first half of 2021. As expected, the level of COVID work decreased further in quarter four to mid-single digits as a percentage of total revenue as large vaccine trials gradually wound down and therapies made up a larger proportion of our contracted work. End of quarter four, our backlog from COVID-related projects decreased further, representing approximately 5% of total backlog, which is down slightly from the end of the third quarter. Our expectation is that revenue attributable to COVID-related vaccines and therapies will represent less than 5% of total revenue in 2022. This assumes we do not see a need for further large-scale trials on new variants. We saw increased and continued resilience from sites and staff through the fourth quarter despite the emergence of the Omicron variant, although approximately 15% of sites remain restricted in some capacity due to COVID across the globe, a similar level to quarter three. Innovation is valued in our industry and by our customers more than ever, as impacts from the global pandemic continue to be felt and have necessitated a change in how we can best execute clinical trials. We are seeing solutions such as remote and risk-based monitoring deployed on the majority of clinical trial programs, and the number of hybrid trials initiated have increased significantly over the course of the last two years. Our innovation priorities at ICON have focused on providing enhanced solutions that address core customer needs, faster access to diverse patient groups, and more efficient clinical development. As customers seek novel solutions, we have continued to invest in unique partnerships and expanded offerings to further our position as a leader in helping to transform clinical development. During the quarter, we announced an expansion of our AcelaCare site network, entering the new partnerships with six research sites across four countries. These new site partnerships further our strategy of increasing the reach and capabilities of our site network, as well as expanding our therapeutic depth and expertise in the areas of CNS and immune diseases. With the addition of these new partnerships, Our site network now stands at over 100 active locations across eight countries, with access to over 9 million patients globally. This broad reach and increased resource has enabled us to realise increased efficiencies for our customers' trials, including faster patient recruitment and steady start-up at ICON sites versus industry averages. In addition to the site network, we have made significant investments in our digital health platform, one of the key components of our decentralized clinical trial offering. Now branded the ICON Digital Platform, or IDP, this platform builds upon our already strong patient-facing mobile application and has integrated other key applications, such as e-consent, wearables data capture, and telehealth capabilities. One of our critical differentiators is our ability to integrate operational and functional expertise into our digital platform, allowing for customization and enhancements based on customer needs and our first-hand trial experience, while also providing a compelling one-stop service that avoids the need to contract third parties, thereby improving accountability while reducing risk and timelines for customers. Her role as a leader in successful decentralized trial execution was evidenced with the presentation of the chief heart failure trial results in quarter four in conjunction with the 2021 American Heart Association Conference. This is the only published, positive, fully decentralized trial that we have seen in the industry. This large, randomized trial required a significant amount of innovative planning, design, implementation, and unique services to execute. This trial integrated several components of our DCT offering, the mobile health platform, including a smartphone app to enroll participants and collect data, direct-to-patient drug and device logistics, a virtual coordinating center, and wearables components. In addition to showing improvement in patient retention rates, Trial results confirmed a dramatic increase in patient diversity, more than four times better than industry averages. I applaud the new ICON team that ran this program alongside a key pharma partner, successfully implementing a new model of development in the middle of a global pandemic and enrolling patients with heart failure, which is one of the most challenging disease entities to treat. This is a great example of our innovative strategy in action, providing solutions to support patients and creating the opportunity for a more diverse patient population to participate in clinical research. In addition to increasing patient diversity and inclusion in clinical trials, we have seen trials including decentralized components recognize other benefits, such as reduced data variability and more timely data capture with the utilization of digital health technologies and wearables. By leveraging our extensive resources, technology, and product development expertise, ICON is well positioned to partner with our customers to provide insights on where hybrid and decentralized designs are likely to work well for sites and patients, and just as importantly, in what protocols they are unlikely to be successful. Deploying decentralized solutions is not a one size fits all approach. Every study needs to be evaluated by an experienced team to properly conduct this analysis. As this market continues to evolve, we see a consistent need from our customers to find new ways of solving complex issues in their development programs. At ICON, we pride ourselves on our ability to take on our customers' challenges as our own. We are committed to our investments in innovation through talent, technologies, data, and analytics, as well as with novel partnerships such as those with DeepLens and Veridigm announced earlier this year to disrupt traditional product development. We're excited by the opportunity in front of us to create a new paradigm for bringing clinical research to patients and believe in the value it will bring to shareholders, sites, customers, and patients. With the strong performance in the fourth quarter and positive momentum coming into this year, We are reiterating our 2022 financial guidance of revenue in the range of $7.77 to $8.05 billion, representing growth of 42% to 47% over full year 2021 revenue. And adjusted earnings per share guidance in the range of $11.55 to $11.95, up 20% to 24%, over full year 2021 adjusted earnings per share. As we look beyond 2022, we continue to expect to deliver on the mid to long term financial projections we announced a year ago. Revenue growth in the mid to high single digits on a combined company basis and adjusted EBITDA growth in the low teens and EPS growth in the mid to high teens. We're looking forward to sharing more of our longer term projections at our in-person analyst day, which will be held on St. Patrick's Day, March 17th, at our site in Bluebell, Pennsylvania. The event will be webcast and will feature several members of ICON's leadership team highlighting our strategic focus areas, including innovation and technology. Finally, I'm thrilled that our team's excellent performance in 2021 has resulted in several industry awards, including SRIP's Best CRO Award, and additionally, As mentioned previously, ICON was the only CRO to be recognised in Forbes America's best large employers list for 2022. Before moving to Q&A, I'd like to recognise and thank sincerely all of the 38,000 ICON employees across the globe for their commitment and tireless efforts in the quarter and throughout 2021. We look forward to continued success in 2022 as we build the world's leading healthcare intelligence organization and help shape the future of drug development. Operator, we're now ready for questions. Thank you.