ICON plc

The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1. good day and thank you for standing by welcome to the icon q3 2022 results conference call at this time all participants are in a listen-only mode after the speaker's presentation there will be a question and answer session to ask a question during the session you will need to press star 1 and 1 on your telephone you will then hear an automated message advising your hand is raised please be advised that today's conference is being recorded I would now like to hand the conference over to your speaker today, Kate Haven.

Please go ahead. Thank you. Good day, and thank you for joining us on this call covering the quarter ended September 30th, 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 20-S 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 press release section titled Condensed Consolidated Statements of Operations. While non-GAAP financial measures are not superior to or a substitute for the comparable GAAP measures, we believe certain non-GAAP information is more useful to investors for historical comparison purposes. Included in the press release in 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 the call over to our CFO, Mr. Brennan Brennan.

Thank you, Kate. In Quarter 3, ICON achieved gross business wins of $2,740,000,000 and a recorded $389,000,000 worth of cancellations. This resulted in net awards in the quarter of $2.35 billion, a net book-to-bill of 1.21 times. On a trading 12-month basis, our net book-to-bill was 1.24 times. With the addition of the new awards in Quarter 3, our backlog grew to a record of $20.2 billion, representing an increase of 1.3% on Q2 of 2022, or an increase of 9% year-over-year. Our backlog burn was 9.7% in the quarter, slightly below Q2. Revenue in Q3 was $1,942,000,000. This represented a year-on-year increase of 3.9% on adjusted revenue, or 7.4% on a constant currency organic basis. The revenue impact from year-on-year changes in foreign exchange results resulted in a headwind approximately of $67 million in quarter three. Our top 25 customers' concentration increased slightly from quarter two, as our top customer represented 8.6% of revenue, our top five customers represented 27.8% of revenue, our top 10 represented 41.7%, while our top 25 represented 62.6%. Adjusted gross margin for the quarter was 29.5% compared to 28.4% in quarter two. Gross margin strength was driven by continued direct fee revenue growth and improved resource utilization in quarter three. Total SG&A expense was $192.9 million in quarter three, or 9.9% of revenue. In the comparable period last year, total SG&A expense was $196.3 million, or 10.5% of revenue. we expect total SG&A expense to be at a similar absolute level in quarter four as we saw in quarter three. Adjusted EBITDA was $379.6 million for the quarter, or 19.5% of revenue. In the comparable period last year, adjusted EBITDA was $324.9 million, or 17.4% of revenue, representing a year-on-year increase of 16.9%. Adjusted operating income for Q3 was $352.7 million, a margin of 18.2%. The adjusted net interest expense was $57.2 million for Q3. As previously communicated, due to the increasing interest rate environment expected through the duration of this year, we are anticipating full-year interest expense to total approximately $210 million in 2022. This represents an increase of approximately $50 million from our initial assumptions for full-year interest expense when guidance was issued in January. The adjusted effective tax rate was 16% for the quarter. 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 $247.2 million, a margin of 12.7%, equating to diluted earnings per share of $3, an increase of 17.5% year-over-year. In the third quarter, the company recorded $8 million of transaction and integration-related costs. U.S. GAAP income from operations amended to $243.7 million, or 12.5% of revenue during Q3. U.S. GAAP net income attributable to the group in Q3 was $160.2 million, or $1.94 per diluted share of compared to a loss of $1.17 per share for the equivalent period last year. Net accounts receivable was $934 million at 30 September 2022. This compares with a net accounts receivable balance of $875 million at 30 June 2022. Cash collection efforts continue to be strong with DSO 43 days in the quarter, up from 26 days on a comparable basis from September 30, 2021, and up from 41 days on a comparable basis at June 30, 2022. Cash generation from operating activities in the quarter was $214 million. At September 30, 2022, the company had a cash balance of $609.2 million and debt of $4,850,000,000, leaving a net debt position of $4,239,000,000. This compared to a net debt of $4,429,000,000 at June 30, 2022, and net debt of $4,918,000,000 at September 30th, 2021. Capital expenditure during the quarter was $37.3 million. We ended the quarter with a net debt to trading 12 months, adjusted EBITDA ratio 2.9 times. Our capital deployment priorities continued to be debt pay down, and as such, we made a payment of $200 million on our term loan B facility in the quarter, bringing our total repayments to $600 million year to date. We expect to make a similar-sized repayment in Q4, which will allow us to exit the year with a net debt to trailing 12-month adjusted EBITDA of approximately 2.7 times. This is in line with our previously communicated target of exiting the year with a leverage ratio below 3 times and well ahead of our initial expectations set in July of last year. With the rising interest rate environment, we have decided to hedge a portion of our floating interest rate exposure in Term Loan B facilities. While we will work to finalize our hedging strategy and resulting agreement by the end of this year, we anticipate this will effectively hedge a significant proportion of our floating interest rate exposure, providing more certainty around anticipated interest rate expense for the full year 2023, as market conditions continue to fluctuate. With all of that said, I'd now like to hand over the call to Steve.