ICON plc

Hello and welcome to the ICON PLC Q1 2024 results 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 telephone question, please press star 1 1 on your keypad to join the queue. To withdraw your question, press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand over to Kate Haven, VP of Investor Relations. Please go ahead.

Thank you. Good day, and thank you for joining us on this call covering the quarter ended March 31st, 2024. Also on the call today, we have our CEO, Dr. Steve Cutler, our CFO, Brendan Brennan, and Senior Vice President of Corporate and Commercial Finance, Emer Lyons. 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 February 23, 2024. 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 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, adjusted net income, and adjusted diluted earnings per share exclude stock compensation expense restructuring costs, foreign currency gains and losses, amortization and transaction-related and integration-related costs, and the 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 for a brief follow-up. I would now like to hand the call over to our CEO, Dr. Steve Cutler.

Thank you, Kate, and good day, everyone. ICON's performance in quarter one marked a strong start to the year, combining solid financial results, an impressive uptick in business awards, and excellent adjusted earnings growth. Net business wins were a record in the quarter, exceeding $2.65 billion, as our comprehensive scaled offering continues to fuel our leadership position in clinical development. The market trends we saw early in quarter one continued throughout the balance of the quarter, characterized by stabilizing demand within the biotech customer base, as well as a continuation of the robust demand we have consistently seen from large pharma customers. Underlying demand drivers are incrementally more positive through quarter one, with biotech funding increasing over 50% on a year-over-year basis in quarter one, according to Biosentury. and large pharma R&D spend figures indicating low single digit growth for the full year in line with previous expectations. Proposal volumes are at healthy levels with overall RFP volume increasing low double digits on a trailing 12 month basis. In quarter one, net bookings grew 10% on a year over year basis resulting in a book-to-bill of 1.27 times in the quarter, and increasing our trailing 12-month book-to-bill ratio to 1.24. We had a robust business development performance across all operational segments, with notable strength in our large-pharma, full-service solutions segment, as well as in our laboratory business. While it's early in quarter two, To date, we have seen a continuation of these trends across customer segments, and we remain positive on the outlook for the full year. We expect book to bill to be in the range of 1.2 to 1.3 times on a quarterly basis, maintaining our previous target range and expectation for an average book to bill of 1.25 times for the full year 2024. One of our important strategic initiatives as we came into 2024 was the focused rebranding of our dedicated biotech solutions business, Icon Biotech. We saw an opportunity to enhance our market position within the biotech segment with customers that historically associated Icon with a large pharma focus. Icon Biotech is the world's largest dedicated biotech CRO. with approximately 8,000 staff that are exclusively committed to that segment and understand the unique needs of the biotech customers we support. We are committed to optimally serving this key customer group and believe we can best do so through our current dedicated structure. Following the rebrand activity in quarter four last year, I am pleased to report that we are already seeing positive momentum in terms of customer receptivity and an increased win rate in this segment. In addition to our focused efforts within the biotech segment, we continue to drive forward our leadership in large pharma. Growing strategic partnerships is a critical element to this strategy, which not only includes the execution of new strategic partnerships, but renewing and expanding existing customer relationships. In quarter one, we were successful in renewing a long-standing top 20 pharma partnership, primarily utilizing full-service solutions. The renewal reinforces our strong delivery, history of execution for this important customer, and our collective team's collaboration to drive efficiency across their development portfolio. Another important factor in Icon's ability to secure and grow our customer partnerships is through the development of innovative solutions across our portfolio. We are excited about the future potential of our comprehensive and cost-effective offering in clinical trial tokenization. This end-to-end approach follows patients longitudinally through their healthcare journey beyond their participation in a clinical trial. The surge in drug development in areas like diabetes and obesity has increased the need to collect and analyze long-term follow-up safety, efficacy, and health expenditure data. We are anticipating greater market, regulatory, and reimbursement requirements in the future, hence the need to deliver broader, more comprehensive insights that ultimately drive increased value for our customers. Turning to our financial performance in quarter one, our team delivered another period of strong results across a number of measures. Total revenue increased 6% on a year-over-year basis. Gross margin of 29.9% increased 10 basis points over quarter one, 2023. And total SG&A expense decreased 90 basis points on a year-over-year basis to 8.7% total revenue, driving a very strong adjusted EBITDA growth of 11.3% over quarter one, 2023. This resulted in an adjusted EBITDA margin of 21.2% in the quarter, up 100 basis points year-on-year. Given the performance on adjusted EBITDA growth and the continued pay down of our Term Loan B debt, we saw excellent year-over-year growth in adjusted earnings per share of 20%. The execution of our capital deployment strategy continued as planned in the first quarter. We closed the previously announced acquisition of Human First in January, a leader in the field of digital health technology selection. This important capability is strategically aligned with our approach to providing an enhanced integrated offering. A combination of our leading clinical outcome assessment capabilities and digital health technology selection offers the ability for customers to optimize clinical trial design and enhance data collection quality. As we previously noted, our capital deployment priority remains M&A, and we continue to actively evaluate assets that will strategically and operationally enhance the current areas of our service portfolios. After positive rating changes from S&P and Moody in the back half of 2023, moving ICON back to investment grade status, we began the execution of the planned refinancing of our variable rate debt in quarter one. This included a successful repricing of our existing term loan B in the quarter, reducing our interest rate by 25 basis points, as well as the removal of our credit adjustment spread. In parallel, we improved the terms of our revolver facility and we are working closely with our banking partners to progress refinancing of our debt. This will allow us to better utilize our balance sheet and provide more certainty on our annual interest expense. We continue to expect our full year interest expense will be in the range of $200 to $230 million this year. We are updating our full year 2024 guidance range to account for our financial performance in quarter one and the positive market environment we've seen so far this year. We expect revenue to be in the range of $8.48 to $8.72 billion, an increase of 4.4% to 7.4% over full year 2023. We expect adjusted earnings per share to be in the range of $14.65 to $15.15, an increase of 14.5% to 18.5% on a year-over-year basis. The new ranges maintain the midpoint of our previous guidance range, reflecting an outlook that is consistent in terms of overall market activity and our performance year-to-date. Before I hand it over to Brendan for further detail on our financial performance, I want to provide a brief update on our previously announced CFO transition. As we indicated earlier this month, Brendan has decided to depart ICON after a long and very successful tenure in our finance organisation as a company, and importantly, as our CFO for the past 12 years. While we're sorry to see Brendan go, we understand his desire to take on a new challenge in his career moving to a different industry, and we are very grateful for his significant contributions to our organisation over the past 18 years. As previously noted, we have commenced a process with a large global recruitment firm to identify our next Chief Financial Officer, which includes both external and internal candidates for the role. We plan to provide additional updates on this process and transition period as we progress. In the meantime, Brendan is firmly in his role as the CFO, and we have not made any changes to our broader finance organization as a result of this announcement. Finally, we are looking forward to our upcoming Investor Day, which will take place on May the 30th in New York City. The leadership team of Icon will be present at this important event, and further details will be made available on our website in the coming week. In closing, I want to thank all of our colleagues at Icon for their dedicated efforts in quarter one in continuing to support our mission in bringing new therapies to patients around the world. Brendan, I'll now turn it over to you.