ICON plc

Good day, and thank you for joining us on this call covering the quarter ended March 31st, 2022. 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, including the Form 20F filed on March 1, 2022. 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 release section titled Condensed Consolidated Statements of Operations. While non-GAAP financial measures are not superior to or a substitute for the comparable GAAP measures, we believe certain non-GAAP information is more useful to investors for historical comparison purposes. Included in the press release and the 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. 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 one, Icon achieved gross business wins of $2.78 billion and recorded $357 million worth cancellations. Consequently, net awards in the quarter were $2.43 billion, resulting in a net book to bill of 1.28 times. With the addition of the new awards in quarter one, our backlog grew to a record $19.6 billion, representing an increase of 2.7% on quarter four of 2021, or an increase of 9.8% year-over-year on a combined company basis. Our backlog burn was 10% in the quarter, consistent with quarter four. Revenue in quarter one was $1,902,000,000. This represented a year-on-year increase of 121.6% or 125% on a constant currency basis. On a combined company basis, revenue increased 6% to 6.1% or 7.8% on a constant currency basis from the comparable period last year. The revenue impact From year-over-year changes in foreign currency exchange rates resulted in a headwind of approximately $30 million in quarter one. Our top 25 customer concentration increased slightly from quarter four, as our top customer represented 8.9% of revenue, and our top five customers represented 28.6% of revenue. Our top 10 represented 43.8%, while our top 25 represented 62.8%. Adjusted gross margin for the quarter was 27.8%, compared to 28.1% in quarter four. Gross margin was negatively impacted in the quarter by the slowdown in Russia and Ukraine, as well as supply challenges in our laboratory services business. Adjusted EBITDA was $340.6 million for the quarter, or 17.9% of revenue. In the comparable period last year, adjusted EBITDA was $285.9 million, on a combined company basis, or 16% of revenue, representing an impressive year-on-year increase of 19%. Adjusted operating income for quarter one was $314 million, a margin of 16.5%. The adjusted net interest expense was $38.5 million for quarter one. The reduced interest expense was attributable to the 25 basis points decrease in the rate on our term loan B facility, which took effect at the end of Q4, when our leverage ratio declined below four times adjusted EBITDA. This resulted in a $0.06 benefit to earnings per share over Q4. We do not expect this level of expense to continue in subsequent quarters as we anticipate a rising interest rate environment over the course of this year. The adjusted effective tax rate was 17% for the quarter. However, we continue to expect the full year 2022 adjusted effective tax rate to be approximately 16.5%. Adjusted net income attributable to the group for the quarter was $228 million, a margin of 12%, equating to diluted earnings per share of $2.76, an increase of 27% year over year. In the first quarter, the company recorded $12.1 million of transaction and integration-related costs, U.S. GAAP income from operations amounted to $170.3 million, or 9% of revenue during quarter one. U.S. GAAP net income attributable to the group in quarter one was $112 million, or $1.36 per diluted share, compared to $1.82 per share for the equivalent period last year. Net accounts. Receivable was $745 million at 31 March 2022. This compares with a net accounts receivable balance of $642 million at 31 December 2021. Cash collection efforts continue to be strong with DSO of 35 days in the quarter, down from the 49 days on a comparable basis from March 31st to 2021, and up from 31 days on a comparable basis at December 31, 2021. The sequential increase in DSO is a consequence of ongoing finance integration activities and alignment of billing processes. As this work is completed, we will look to maintain and decrease our DSO. Cash generated from operating activities in the quarter was $227 million. At March 31, 2022, the company had a cash balance of $560.8 million and a debt of $5,142,000,000. leaving a net debt position of $4,581,000,000. This compared to net debt of $4,682,000,000 at December 31, 2021, and net cash of $595.6 million at March 31, 2021. Capital expenditure during the quarter was $19.6 million. We ended the quarter with a performer net debt to trading 12-month adjusted EBITDA ratio of 3.3 times. The priority for capital deployment remains on debt pay down in the near term. And as such, in quarter one, we made a payment of $300 million on our term loan B facility. Given our continued strong cash flow generation, we reiterate our target of exiting 2022 below three times adjusted EBITDA. As announced in our last call, our Board of Directors authorized a share repurchase program of up to $100 million. I'm pleased to report we were successful in deploying the full authorization of $100 million within quarter one, resulting in the purchase of 421,000 shares at an average price of $237.76. With all of that said, I'd now like to hand over the call to Steve.

Thank you, Brendan, and good day, everyone. Icon had a strong start to the year in quarter one, reflecting continued operational strength and business momentum, despite macroeconomic headwinds impacting our business. Throughout the year, ICON employees continued to exhibit their ongoing resilience and dedication to delivering customers' programs as effects from the pandemic continued with the emergence of new COVID variants and the war in Ukraine presented a new set of challenges. Ensuring the safety of our employees in the region is our first and foremost priority. We have been able to provide support to many Ukrainian families and employees that have crossed the border to neighboring regions and assisted in relocation to other ICON offices where circumstances allow. We are working closely with our customers to ensure studies continue and patient safety is maintained to the full extent possible, deploying remote technologies for monitoring and assisting dislocated patients in finding new trial sites. Patient recruitment activity in the region has been halted and no new studies or sites are being started at this time in Russia or the Ukraine. Earlier this month, I was in our office in Poland, which has been at the forefront of helping to provide the on-the-ground support to many of our employees leaving Ukraine. I'm incredibly proud of the extraordinary efforts exhibited by our employees in Poland and nearby countries. Our staff in the region not only have gone above and beyond for their colleagues, but for our customers, sites and patients as well, ensuring trial continuity and mitigating risk to the best of our abilities. They are an excellent representation of the ICON culture and we are grateful for their dedication and tireless efforts. In the quarter, the financial impact from the war in Ukraine was approximately $5 million. we anticipate a continued impact in subsequent quarters, up to an estimated 1% of revenue for the full year, assuming no further change in our ability to operate in the region for the foreseeable future. Despite challenges from the war in Ukraine and emergence of additional COVID variants, the broader environment for clinical development remains strong. Total RFP volume was solid in quarter one, increasing by low double digits on a year-over-year basis. While the biotech funding market declined further in the quarter, we have seen pharma R&D spend continue to grow, and we have not witnessed the slowdown in RFP activity in the small and mid-sized biopharma segment, which was consistent with the strong levels we saw in quarter four 2021. Additionally, I would note that we haven't seen an uptick in the level of cancellations or project delays in this segment of our business. have continued to see private and venture capital funding supporting companies with strong science and novel therapies in areas such as oncology rare disease infectious diseases and neurology in the last few years icon has worked with over a thousand emerging biopharma companies and our consultative partnership model strongly appeals to this customer segment we are confident with Icon's ability to continue winning market share across the biotech and small pharma segment, giving our leading expertise and purpose-built biotech unit, consisting of 8,000 dedicated employees. Our backlog exposure to capital market-dependent companies remains low, and our strong position across all other key market segments should ensure our business wins remain robust in the foreseeable future. Our business development performance was excellent in the quarter, resulting in another record quarter of net business wins of $2.43 billion, representing a net book-to-bill of 1.28 for the quarter and 1.27 on a trailing 12-month basis. Backlog grew 10% year-over-year to $19.6 billion on a combined company basis, an increase of 2.7% sequentially from quarter four, 2021. Sales performance was particularly strong in our large farming unit, but was broad-based across all business units, reflecting continued demand for our innovative and integrated solutions. Strategic discussions across several key partnerships are continuing to advance, presenting opportunities for growth and expansion across our business segments. Our clinically focused but diversified business mix and customer-centric offerings has played a key role in winning new customers and renewing existing partnerships as customers seek flexible development models along with a broad set of services and expertise. One of our key success factors in building and maintaining strong customer partnerships is our commitment to collaboration and operational excellence. In the quarter, we held our first Partner of Choice meeting as new icons. bringing together several of our partners in the strategic solutions segment of our business to share insights and ways to further innovate in this area. ICON is leading the way with its approach to customer engagement, and events like this clearly demonstrate our commitment to our focus on creating enduring customer partnerships. Financial performance was strong in the first quarter, resulting in combined company revenue of 6%, or 8% on a constant currency basis year over year. These results exceeded our initial expectations, given difficult comparisons on a year over year basis from high pass-through revenue related to COVID studies and further headwinds due to foreign currency fluctuations and the war in Ukraine, which will continue to challenge us in quarter two. Despite these macro headwinds, operational performance was impressive, with adjusted EBITDA growth of 19% year-over-year on a combined company basis in quarter one, as SG&A cost management was particularly strong due to achievement of initial cost synergies. I was also very pleased with our adjusted earnings per share of $2.76, which grew 27% from quarter one, 2021. At a high level, our overall customer mix has stayed consistent and well-balanced in quarter one, with approximately 50% of total revenue in large biopharma and approximately 45% of total revenue in mid and small biopharma. Within the small biopharma segment, companies that have less than $100 million in annual R&D spend again represented a mid-teens percentage of our overall revenue and backlog, Given our cash collection efforts in the quarter, we were able to make a $300 million payment on our term loan B facility, further reducing our leverage to 3.3 times adjusted EBITDA at the end of the quarter, down from 3.4 times at the end of quarter four. We believe we are on track to hit our aspirational target of exiting 2022 with a leverage ratio of approximately 2.5 times adjusted EBITDA. Our integration progress continued throughout quarter one as we passed the one year mark since we announced the transformative union with PRA Health Sciences that now completed nine months operating as a combined organization. Our focus on enabling a unified employee experience has continued to advance. bringing more of our staff together physically through facility integrations, of which we have now completed 50 across the globe. Even more importantly, our efforts to connect the organisation through the implementation of common platforms and enterprise-wide technology systems are reaching critical milestones. A few of our first system implementations, including our human capital management system, will go live this quarter, and we are advancing deployment of several other tier one enterprise wide systems, which will come online in the next few months. Our successful integration efforts to date have enabled continued progress on our synergy targets. And as we reaffirmed in March at our analyst day, we expect to realize approximately 50% of our cost synergy target or $75 million in 2022. From a revenue synergy perspective, our cross-sell activity was again strong in quarter one, with approximately $30 million in new awards, consistent with the activity in the fourth quarter of 2021. Cross-sell awards in the first quarter were led by Laboratory Services, Early Phase, and IRT, sir. Turning to COVID-related trends, there were several notable factors impacting our business in quarter one. Revenue related to COVID studies was consistent with quarter four, representing a mid-single-digit percentage of overall revenues. Backlog related to COVID programs was approximately 5% total ending backlog, as we were successful in winning new business for additional vaccine work related to booster studies in the quarter. These additional study wins are evidence that COVID-related work will be part of our business for some time, and is an excellent testament to ICON's leadership in vaccine development and strong trial execution in this area. With the new awards won in quarter one, we expect that COVID-related revenues will represent approximately 5% of our total revenue for the full year 2022. From a site access perspective, we saw continued resilience from sites and staff throughout the quarter, despite the emergence of additional COVID variants and a lockdown in China causing restricted access to sites that had previously reopened. This dynamic, coupled with site access impacts from the war in Ukraine, caused a slight increase in the number of sites restricted in some capacity, now totaling approximately 17%. While we have seen volatility in levels of site access across different regions, either due to COVID or more recently from the war in Ukraine, Our teams are now able to pivot faster and more seamlessly by deploying remote-based solutions, lessening trial impacts that would have been more substantial two years ago. We have seen continued adoption across customer segments of decentralized trial components, particularly hybrid models of development. While we have noted that fully decentralized trials are few in number currently, we were pleased to have started a recruitment on a full phase two decentralized clinical trial study in women's health in quarter one. This study is a great example of the power of our broad set of integrated services, where the trial is being executed utilizing multiple decentralized components. Digital patient recruitment services, our AcelaCare site network, and concierge services center with the study managed by a decentralized clinical trials operational team. We remain focused on our commitment to further invest in key technologies, tools, and platforms that will improve efficiency and delivery in our industry. OneSearch, our innovative site selection tool, is continuing to deliver insights to our customers on optimal site selection, reducing site startup times, decreasing the number of non-recruiting sites, and improving overall patient recruitment rates. During the quarter, we invested further in the tool with interface updates to enable better user experience and data enhancements to add valuable data sources, as well as backend mapping. We continue to look for opportunities to integrate broader sources of data, not only to OneSearch, but across our entire set of solutions. Our focus is on increasing our access to, not necessarily ownership of, unique data sources, as well as evaluating partnerships and other opportunities that advance our healthcare intelligence strategy by further enhancing our analytics capability, producing more targeted results and outcomes for our customers. Another area of strong focus for our organization is in automation. Through the additional capacity provided by robotic process automation, we have continued to enable our new capabilities and offerings for customers, where the outputs of clinical trials can be delivered in a more timely way and at a higher level of consistency and quality. A great example is in the completion of our eTMS, which has been one of the strongest areas for RPA productivity in 2022 so far. with over 2,800 FTE business days saved in quarter one. In addition, we continue to leverage advancements in technology, enabling us to employ remote monitoring across a range of workflows in our clinical trials. We are unifying our sites towards a single way of working, enabling remote review of ECGs and lab reports and combining patient recruitment and scheduling into an overall integrated capability. As clinical development continues to evolve and biopharma customers increasingly look to their partners to provide innovative solutions, we see an excellent opportunity to lead the market with our focus on healthcare intelligence. We believe our investments in talent, technologies, data and analytics are leading to improvements in long-held industry challenges, patient recruitment, site identification and study start-ups, just to name a few. we remain excited by the opportunity to create a new paradigm for bringing clinical research to patients and the enhanced outcomes it will deliver for all of our stakeholders. With a strong performance in the first quarter and continued positive customer demand environment, we are reiterating our 2022 financial guidance revenue in the range of $7.77 to $8.05 billion and adjusted earnings per share in the range of $11.55 to $11.95. As indicated at our Analyst Day in March, we expect an adjusted EBITDA margin of approximately 18% in the full year 2022. Finally, earlier this month, I was honoured to accept the award of Ireland's Company of the Year at the 2021 Business and Finance Awards on behalf of ICON. This award recognises companies based on their market position, operational and financial achievements, and is a tribute to the dedication and engagement of our 39,000 employees around the world. Before moving to our Q&A session, I'd like to take an opportunity to recognise our employees for their commitment and efforts in quarter one. We look forward to the continued success of our organisation throughout the year as we remain focused on delivery for customers, sites, and patients around the world. Operator, we're now ready for questions.

Thank you, dear participants. We'll now begin the question and answer session. As a reminder, if you wish to ask a question, please press star and 1 on your telephone keypad and wait for your name to be announced. The first question comes from Elizabeth Anderson from Evercore ISI. Please ask your question.

Hi, guys. Good morning. Thanks so much for the question today. You know, I think your comments in the biotech funding environment, I think, were very helpful in the impact in your business. I guess one question I would just have, given some of the reports that we've seen from competitors, are you seeing, how are you thinking about the RFP flow across the various stages of your business? Would you point out any sort of notable distinctions between earlier phase things and later phase things? Any details there you could provide would be helpful. Sure.

Sure. In terms of, I mean, RFP flow has been consistent and strong. I think I referenced low double digits across the business. That was particularly good this quarter in large pharma. It was particularly strong in quarter four in the biotech area, but it's been consistent really across all of the segments of the business. We're pleased with the access we're getting to new opportunities from customers and it continues to paint a very positive picture.

Got it. And then just as sort of a follow-up, have you heard of any sort of customer sort of restructurings or anything like that on the biotech side for financial or non-safety efficacy reasons? Is that sort of any distinction versus prior quarters?

No, we haven't, you know, to be very direct on that one. No, that hasn't come across my radar. I think Brendan's shaking his head as well.

No, no, I did say certainly in the customer set that we have, we're very happy. We do a lot of work with those folks as we onboard them to, you know, make sure that they're really good customers and got good funding access. So, yeah, we've been very happy with the customer base from that perspective. And you'll see that, you know, there's no increases in our bad debt provisions or anything of that nature. So we're very happy with that.

Okay, perfect. Thank you very much.

Thank you. The next question comes from Eric Caldwell from Baird. Please ask your question.

Thank you. Good afternoon overseas. I would say two questions here. First, following on Elizabeth's question, if you could provide just a recent update specifics on, and I'm sorry if I missed this, on the percent of backlog, percent of revenue, of these pre-commercial biotechs, or I think you called them capital markets-reliant clients. And then my follow-up would be, or additional question would be, you mentioned supply chain impacts on the labs here in the quarter. I was curious if you could give us some additional detail. Are these specific components? Is it more around transportation and freight? Anything you could share with the supply chain impacts on the lab-based business would be helpful. Thank you very much.

Sure. Hi, Eric. So in terms of backlog and revenue for the capital market, the way we've defined that is companies would spend less than $100 million annually in R&D. That's the group we've been focusing on. I think we've been public before. in saying that's around mid-teens, I think around 15% of our revenue and our backlog is in that sort of space, in that category. Now, whether they're entirely capital market dependent, I think we can all debate. The definitions probably vary a little bit. But we think of our exposure in particular in sort of probably a little less than that going forward as we continue to be very careful in who we work with in this thing. We have a very careful sort of... screening process as we get these opportunities come through the door and we check the financial viability of these customers. So it is an area that our finance group look at very hard. But it remains around, as I say, the mid-teens for us. In terms of supply chain challenges, it was really particularly around kit supply at the moment where we've had some challenges. The various components of kits, particularly for the more complex studies we're doing in the oncology space, It has been something of a challenge to obtain those components, and it has led to some delays in those. We believe it's a relatively short-term problem that we're able to address. So I do expect in the next couple of months we'll be able to move forward and sort of move those challenges away, so to speak. But it has been really around kit supply as opposed to transportation or anything like that.

Thank you very much.

Thank you. The next question comes to the line of Patrick Donnelly from Citi. Please ask your question.

Thanks for taking the questions, guys. Steve, you kind of touched on SG&A being a focus during the prepared remarks there, talking about it coming in ahead of your expectations. Can you just talk about what you're seeing there again? Is it some of the costs being pulled forward on the synergy side? Obviously, inflation and wage inflation have been a big focus for investors. So can you just talk about the moving pieces? I thought it was interesting you called that out as a nice lever for the margin side.

Yeah, Patrick, we think we've got a really good model in that scheme, in that area. It's a relatively centralized, the costs are scrutinized and controlled. I think we've got a pretty good track record really over the last dozen or so years in that space. And our group right across the global business services group, whether it be IT, HR, facilities, administration, et cetera, you know, watches that, watches those costs very carefully. And we've been able, I think, to gain some of the synergies we've been after as we bring together PRA Health Sciences and bring them into that model. Now, that's a process that continues. And as we said, we've been able to identify about $75 million for this year. We believe we can continue doing that. We've identified $150 going forward, and I think that's a target we feel very comfortable with at the moment. You know, to get down to specifics, you know, I mentioned, I think I referenced the 50 integrations or closes on the office. That's been a substantial saving. You know, we've made some progress in the IT fund around the number of applications we're working with. That's been a substantial, some of the IT and the HR areas as well. So it's fairly broad ranging, but it really comes down to the model we have in place and the scrutiny that all of the leaders in this area put on those sort of costs.

That's helpful. And then maybe one for Brennan, just more on the modeling side. Can you just talk about the FX impact? I mean, again, it's encouraging to see you guys reiterate the overall number. I assume FX increases the headwind, implying the organic is maybe a little bit better. So can you just touch on that? And then on the back of that, just The linearity of the year as we look ahead, kind of the cadence of the quarters, 2Q, anything to call out there? I mean, just given the COVID roll-off, FX, Russia-Ukraine, I mean, it seems like things are hitting the first half maybe a little harder. So I'm just curious in terms of how we should think about the cadence as we model revenue and earnings value.

Yeah, thanks, Patrick. As we mentioned, you know, and I called it out, it actually was a $30 million headwind in Q1 on the FX. And obviously, we kind of, you know, we came into the year thinking about a year of $1.15 to the euro-dollar, which is our primary, you know, currency pair. Obviously, you can see where the dollar is at the moment. Certainly, as we talked about the guidance, we were more in the ballpark of $1.08. And obviously, it's right now, that was 31st of March. Right now, obviously, it's even weaker than that again. So it's something that is of concern, and we will keep a continued eye on it. But you're quite right, you know, in the face of that headwind, we're still obviously confident enough in the revenue position to reaffirm our revenue guidance for the full year. I think your point on the sequential nature of revenue and how it will come in through the course of the year is a good one. We had said that we were lapping these big COVID trials in Q1, Q2. Probably the biggest quarter that we had in 2021 was, without doubt, Q2. And so that will represent the toughest comp that we have. And we did say first half of the year would be more like mid singles and second half would be high singles. So you've seen a decent enough performance, we feel, in the 6% and 7.8% on a constant currency basis in quarter one. Quarter two is, as I said, a tough quarter from a comp comparative perspective, given that big bolus of work we saw coming through from the COVID work in Q2 next year. As I say, once we get through Q2 into Q3 and Q4, we are obviously back to that high single-digit profile, and that is how we are thinking about the remainder of the year. Very helpful. Thank you.

Thank you. The next question comes from Casey Woodring from J.P. Morgan. Please ask your question.

Hi, guys. Thanks for taking my questions. Just wanted to talk about pricing. How should we think about what's embedded in the guide for the year? And given all the different macro factors, supply chain, biotech funding environment, how is pricing kind of trending?

I would say, Casey, pricing's Pricing's trending well. It's not that this is ever anything other than a very competitive business, pricing-wise. But customers do understand that inflation is moving up, that there are some challenges in the labor market that we're all aware of. And certainly in terms of our negotiations, whether it be renewals of MSAs or contracts, I would say it's probably as favorable as it's ever been. And I don't mean to say that's easy. But customers are smart. They have many times the same sort of challenges we have in terms of retaining their staff and understanding that we need to pay market salaries and bringing in new staff can be expensive as well. So I would say the pricing environment, as I say, is relatively positive. Although, as I've alluded to, the cost side of things is also a little more challenging than normal. So it's balancing off pretty well from our perspective. And hence, I think we're optimistic in terms of how we can progress our gross margins in the more medium term.

Gotcha. And then just one on the biotech funding piece. You know, we're hearing anecdotally about large pharma looking to license and partner more with some of these smaller biotechs given the current market environment. You know, would you call this out as a trend in the industry that you're seeing, and would there be any impact there for you guys, maybe perhaps a source of competitive advantage given your relationships with some of these large pharma customers? Thank you.

We have seen a few examples of customers that we've partnered with on a large-scale basis in our large pharma industry. partners acquiring, you know, companies and us being able to then move our relationship or move our partnership, you know, to that smaller company. That's certainly happened. And even it's gone the other way occasionally where we've had a good relationship with a smaller company and been doing a project and we've been able to, you know, to move into a relationship with a larger company. So it works both ways and we have some examples of doing that. It's generally, you know, a positive for us. You know, I would just say on the biotech side of things, we had about 10 biggest wins in the quarter. Five of them were from small biotech companies and substantial wins. So I think I've said it before. These companies are ambitious. They continue to want to move their drugs to market and then potentially partner perhaps once they go into more commercial space. But in terms of the clinical development, we have a number of very ambitious companies small biotech customers, and they've been allocating us, as I say, some very substantial wins, both our top 10 in terms of backlog and our top 10 wins this quarter. Half of them have been in the biotech space, so it's more companies. So it really, to me, augurs well that these companies have the money and are willing to spend it in the clinical space.

Excuse me, Casey, have you finished with your questions?

Yes, thank you.

Thank you very much. The next question comes from David Windley from Jefferies. Please ask your question.

Hi, good morning. Good afternoon for you guys. Thanks for taking my question. Steve, I was hoping you could maybe add some additional color to the traction that you're seeing post-merger. You have some cross-selling that you highlighted. You have DCT capabilities that are coming together nicely as you integrate the two businesses. And you've kind of in that vein talked about at the investor day, analyst day, some big pharma relationships that you've been able to kind of wedge your way into of late that you hadn't worked with for quite a long time. So just hoping you could kind of drill in a little bit on maybe what areas are resonating the best with the client audience.

Sure. Thanks, Dave. Well, let me start with the DCT side of things. We've had a new release of our platform this quarter that we're getting a lot of engagement, not just from large pharma, but right across the spectrum of customers on our DCT platform. And not just the platform itself, but the approach that we're taking in terms of integrating our services around our Home Health, our nursing group, our site network, of course, the wearables expertise, MAPI, that acquisition we made a few years ago, is being integrated into the platform. So there's a number of components that are coming together very nicely. And a lot of it is sort of relatively early days in terms of discussions around the platform and our approach. But we are engaging a number of customers today. on the large side, but also in the biotech space as well, around that platform and around our offering on that. In terms of cross-selling, I referenced about $30 million again. We want to continue to move that forward. Inevitably, when you bring two large organizations together, there's an element of learning what we have and learning what options the organization has to sell. We're doing well in the lab space, around our imaging space, the the home health care, the site network, are all contributing, you know, revenue, if you like, or sales that wouldn't otherwise have been the case if we'd remained as independent entities. So, you know, we see good progress there, albeit, you know, we expect to see further progress going forward. But I think our $100 million in revenue synergies is a target that is very, very achievable. Over the more medium to longer term, of course, these awards always take some time to... to come online. In terms of the big pharma, we mentioned in the last quarter call that we actually signed up a very significant customer on a partnership environment. We've made some further progress with another one where we believe we're going to move towards a partnership agreement. We haven't got there yet, but we've made some good progress partly on our DCT approach, partly on our new scale and functional expertise and abilities. The fact that we're a player now that our customers and large pharma particularly want to talk to. And they're both customers and both partners that we weren't really in a strategic relationship with as an independent icon or independent PRA health sciences. So I feel one of the key rationale for coming together is really being played out with these partnerships. And then there are a couple of others that are probably a little bit further back in the process. These things take a while, but I do feel that we're in the conversation now with every large partner when they're looking to renew their partnerships or their strategic alliances with the CRO. We are part of that conversation, and that's exactly where we want to be.

Excellent. I appreciate that. My follow-up question is around capital related to this. So I know your primary goal and target with your cash generation is to pay down the debt in the near term. Do you see, do you imagine yourself moving back to a tuck-in acquisition type strategy once that is complete? And what would those, if that's the case, what would those tuck-ins be? For example, you know, would you look to kind of continue to expand the site network and things like that? I'm just wondering what your capital strategy is, you know, related to building out these capabilities. Sure.

Well, as you quite correctly said, our focus certainly in the short term and the next couple of quarters is on that debt repayment. We see, obviously, interest rates going into the middle, you know, 4% to 5% in the relatively short term, and we think that's the best use of our capital is to pay that debt down. However, you know, we're making excellent progress on that. We're well ahead of schedule as to where I thought we'd be when we closed the acquisition. And so we are starting to think about how we would deploy... our capital, either on an M&A front or even potentially on a share repurchase. Although we probably wouldn't look at that until towards the end of this year, but we remain open for those sorts of discussions or that sort of thinking as we make progress on that debt repayment. In terms of the M&A side of things, there's a number of areas I think we would look at. We are keen on the data side of things. We do believe there's investment required in that space. an opportunity in that space to be that healthcare intelligence organisation we want to be. And we want to improve our data capabilities, and particularly our data analytics capabilities. So there's areas in that space. The site network is a core part of our strategy. We don't rule out sort of certain, you know, development of opportunities in there. We have a JV with OncaCare that is moving forward, and that's a potential, you know, further investment going forward. So the sites are certainly... very much a part of it. And then even things like biosimulation or home health are areas that we want to continue to look at. I don't think we're going well outside of our core clinical area, but there are certainly a number of areas that we think we can strengthen and continue to develop to solve those key customer challenges that we're all trying to crack.

Very much appreciated. Thank you very much.

Thank you. The next question comes to the line of Luke Serget from Barclays. Please ask your question.

Good afternoon. This is Salem calling in for Luke. We had a question on burn rates and how that's kind of stabilized at the low tens. Should we expect that to start to step down to pre-pandemic levels after this year as we see work normalize to traditional studies?

Yeah, I'll take that one. Obviously, we're very focused on 10%. We outlined that in our call and our analyst day as well. That's where we're thinking about as we go through the course of the year. You see that's been stable in Q4 and into Q1, and we're looking to maintain that level as we go through the back end of this year. As we go out into 2023, I think it's something we're going to be looking hard at trying to maintain, certainly clipping those double digits as we go out through time. There is a mix of our business, of course, that plays into that. And if you take any three-year project and just work the math, you're going to be at 8%, right? So that's just the math of how it works out. But, of course, we have other businesses like our strategic solutions business that has a different cadence to its burn rate. So I think it is certainly possible to stay at least in the high single digits. So in the kind of 9 to 10 ballpark as we move out beyond 2023, and certainly as an organization, we want to make sure we're realizing our revenue and pulling our backlog through as quickly as we can. So we're going to stay as focused as we can on trying to keep that in the double digits.

Thanks. That's helpful. And as a follow-up, can you talk about the work coming online to kind of replace the vaccine work that gives you confidence in the long-term guide? The trial size is definitely not going to be as large. So could you help us think about the differences in the economics there? And is that more phase three work than usual, given how some of those trials were caused during the pandemic? Thank you.

Okay. So to get your question, you know, I think to follow on work in terms of vaccine work, I mean, we certainly believe we have a strong franchise in the vaccine space. And so... to the extent that customers continue to develop the vaccine, you know, we believe we're a very strong player in that space. Now, I think the COVID vaccine work is probably pretty much at an end, although we, as I think I alluded to in my comments, we won some fourth dose and some follow-on work there, and that'll probably continue for a while. But there's a lot of vaccine work going on now, particularly with the mRNA technology becoming more ubiquitous and, you know, sponsors and pharma companies showing what they can do in terms of development. You're in the middle of New York. We see plenty of opportunity for vaccines, particularly with the mRNA technology, and not just around infectious disease, around oncology and those sorts of areas. The network does burn faster. There's no question about that. Perhaps some of the sort of slow ramp down in our burn rate is related to the sort of change in our portfolio with less vaccine work and perhaps more moving back towards the oncology work, which is sort of 30 to 35% of our revenue and of our backlog. That's where the bulk of clinical development is being done, and that's where we're operating. So I hope that helps you in terms of the question. It does. Appreciate it.

Okay, good.

Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star and 1 on your telephone keypad. The next question comes from Justin Bowers from DB. Please ask a question.

Hi, good afternoon. I was wondering if you could talk about the backlog mix. I know that you highlighted a lot of large farmlands in the quarter, but is there anything call out in terms of FSP versus full study and maybe going a little further downstream with the strategic solutions. More color there would be appreciated.

I'll have a crack at that and then Brendan might add. In terms of our backlog, we haven't seen any sort of substantial change over the last quarter or so in terms of large pharma versus large You know, it tends to be, as I said, around half and half, about 50-ish percent, maybe a touch more of our backlog, 50 to 60 percent is large pharma, about 45 is the biotech sort of space and midsize. And then there's other government work and those sorts of things that are a little bit out of the ordinary. And that mix really hasn't changed much. We see continued, as I said, continued success in winning biotech and small pharma work. The large pharma business was particularly strong in quarter one. It had a very good quarter, as did our biotech business. So really, there's not much to call out there. In terms of FSP, we continue to get significant opportunities. We're the market leader in that space. We have a very innovative, creative group In that area, those opportunities tend to come a little bit along, a little bit like buses, you know, large opportunities that are relatively infrequent. So that sort of RFP can be a little volatile, but we have very good relationships with several significant customers and large pharma customers, typically the ones that do the FSP space, and we're being creative and innovative in the way that we're prosecuting those partnerships and bringing value to that FSP model. So it's not just the provision of resources, but it's new ways of contracting and new functions that we're doing from it, working ways that we integrate with their operations and work seamlessly with their operations to the extent, and it's also allowing us to develop relationships with those customers, which can lead to other work. Sometimes it leads more into full service work. Most organizations, or very few organizations, are purely FSP or purely full service. They tend to have a mix, and we've positioned ourselves well, both through our strategic solutions group and through our full service group, to be the beneficiaries of whatever opportunities are coming out of those customers, and to talk to them about the sorts of things that they should be doing and how they should be structuring their outsourcing business. So it's, you know, it's led to, you know, as I say, opportunities right across the business and continues to be a very important part of our business mix.

All right. I appreciate all the color. And then just real quickly, the COVID mix, can you remind us what the proportion of revenue was into Q2021? In terms of COVID, if I recall, it was in sort of like the mid-teen, low to mid-teen.

Yeah, that's correct. It was mid-teens in Q2, 21. Yeah. Okay.

All right. Thank you. I'll hop back in queue.

Thank you. The next question comes from John Kim from Bank of America. Please ask your question.

Hey, good afternoon. Thanks for the color on the strategic discussions. I think you've mentioned it in the past as well that the two organizations have relationships with the top 13 pharmas and you guys are moving forward with one of the other seven in the top 20. Have you guys begun your discussions with the 15th or the 16th even, or is that, are we just entering, are we still moving forward with the 14th one here?

Yeah, I'm not sure we thought of that specific, John. But yeah, I mean, we are focusing obviously on the seven with which up to the time of the union, we didn't have strategic. I mean, we were doing, we're doing work with those customers, but in terms of a strategic partnership. So we've advanced that. I think we mentioned that at the last call, we've advanced that by another one. And there are several more of those seven that we've made substantial progress with to the point where I'd like to think in the next quarter or two we'll have some positive news on at least one more of those. So I'm really pleased with the progress we're making as we aim to be a partner of all 20. That's certainly our long-term aim. That's aspirational, of course. But we have that in place and we're making good progress towards that.

Gotcha. Thank you for that. That's all for me.

Great. Thanks, John.

Thank you. There are no further questions. I would now like to hand the conference over to your speaker today for closing remarks, and it will be Steve Kotler. Please go ahead.

Thanks, operator. Thank you, everyone, for listening today. We're pleased to have delivered another strong quarter of results and applaud the contributions of our employees as we progress to become the world's leading healthcare intelligence organizations. Thanks all and have a good day.