ICON plc

Good day, and welcome to the ICON Q4 earnings conference call. At this time, all participants are in listening-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone keypad, and you should hear an automated message advising you that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand you over to your speaker of today, Kate Haven. Please go ahead.

Good day, and thank you for joining us on this call covering the quarter and year-ended December 31st, 2024. Also on the call today, we have our CEO, Dr. Steve Cutler, our CFO, Nigel Clerken, and our COO, Barry Bells. 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 Nigel 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 and the earnings slides, you will note a reconciliation of non-GAAP measures. Adjusted EBITDA, adjusted net income, and adjusted diluted earnings per share includes stock compensation expense, restructuring costs, foreign currency gains and losses, amortization and transaction-related and integration-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 in the interest of time. I would now like to hand over the call to our CEO, Dr. Steve Kovler.

Thank you, Kate. Before I begin my remarks on the quarter, I wanted to briefly introduce our newly appointed COO, Barry Balfe, who is joining us on the call today. Barry has had a long and successful tenure at ICON over the last 20 years in both full service and FSP roles, most recently leading our large pharma business. He brings to the role extensive experience in establishing and growing large strategic partnerships that have delivered clear and sustainable value for our customers. This is a key component of our growth strategy that Barry will focus on strengthening across our mid-size customer segment going forward. Turning to the results for the fourth quarter and full year 2024, ICON's performance was in line with the expectations we set out when reporting quarter three, with both revenue and adjusted earnings per share results at the midpoint of our full year guidance range. Moving to this year, we are reaffirming our full year guidance range that we issued last month, which reflects the current transition period in which we are operating. Our current views on the overall environment are consistent with what we saw at the start of this year. with evidence of positive leading indicators alongside a continuing backdrop of cautiousness and volatility. Overall opportunity flow improved in quarter four and was broadly based across the business. In the biotech market, the dynamic of careful capital allocation is continuing, where companies are being more cautious in how they are deploying their spend across their development programs. While we saw progress in terms of awards in this division in the quarter, decision making and speed of trial starts is not yet back to a normalised timeframe. From a large pharma perspective, the picture continues to be mixed. Some customers are well placed for R&D spending growth this year and others face budgetary pressures or have already gone through reprioritisation exercises. While this type of activity can result in disruption in terms of overall spend, in some cases it also affords ICON an opportunity to engage further, precipitating opportunities to help alleviate problems within their portfolio or development functions. We are seeing particular strength in demand from our recent strategic alliances and have a number of current partnership opportunities extending beyond the top 20 pharma cohorts in our pipeline for this year. This, in addition to the improving indicators in biotech, provides us with visibility to accelerated growth as we move through this current transition period in our business. We were also encouraged by the improved performance from a business development perspective in quarter four, with growth bookings of $3.06 billion, increasing 8% sequentially and 3% year over year. We made good progress in awards within our biotech business, executing on the improved pipeline and opportunity flow in that division. Unfortunately, this better performance in gross bookings was offset by an uptick in overall cancellations in the quarter, which totaled $651 million And this resulted in a net book-to-bill ratio of 1.18 times in quarter four and 1.2 times on a trailing 12-month basis. Cancellations impacted all divisions without a particular concentration in any therapeutic area. These cancelled trials, some of which were expected to run in quarter one, will pressure near-term revenue and margin as a result, but were contemplated when we issued our full year 2025 guidance in January. With the addition of our new awards in quarter four, our backlog grew to $24.7 billion at the end of 2024, representing an increase of 1.4% on quarter three of 2024, or an increase of 8.3% year over year. Our backlog burn was 8.4% in the quarter, slightly down from quarter three With regard to our COVID related work this year, I'm pleased to advise that there are no issues with funding related to the two large scale next generation vaccine studies we are supporting. One is now actively screening patients and moving forward as planned. The other trial has been delayed by the sponsor and we are working with them on plans to resume later in the year. This has been considered in our guidance reaffirmation and we continue to monitor the situation As we navigate the current volatility in our market and headwinds within our portfolio, we remain focused on investing in the key factors that are continuing to differentiate iConn and are delivering value for our customers. Our digital innovation strategy is a critical component of how we can transform clinical delivery by seamlessly integrating AI and key technology advancement into clinical research. By uniting technology, unique data assets, and excellent service delivery, we are seeing better outcomes for customers across several key metrics. Year over year, this is delivering 10% faster site activation, 33% fewer non-recruiting sites, and 24% increase in trials completed on time. We're building on that success with the planned launch of several new solutions this year that will improve efficiencies in areas such as resource forecasting and site contracting. As our customers evaluate and change their development models, it is incumbent upon ICOM to understand their goals and support their evolving needs. Each customer situation is unique, but what most are seeking is a provider that can offer them innovative solutions with the flexibility and agility to adapt to the needs of their portfolios. Importantly, this evolves as customers acquire new companies, assets, or adjust prioritization to a functional or full-service model in their portfolios. Icon's deep partnership experience and ability to customize solutions is a critical element of our differential advantage in the CRO market, providing value and delivering key outcomes for customers. Embedded in our culture of innovation is our focus on the continued progression of automation across our organization. It not only fuels our ability to drive better solutions for our customers, but it has also enabled us to lead the industry in the adoption and implementation of robotic process automation, a tool that makes us more competitive and efficient organizations. We exceeded our target of 3.5 million hours delivered in 2024 and are on the way to achieving over 5 million hours in 2025, which will save over $100 million in total costs annually compared to what they would have been without these automations. We have a number of key areas we're focused on improving this year, including pharmacovigilance, document management, laboratory services, and internal processes across finance and commercial functions. In addition to the elements of our automation strategy that will enable us to better leverage our cost base across the organization, we have been executing our plans for further cost management. ICON has a long track record of successful cost management, and as we continue to see the market volatility, we are taking measures to ensure our cost base is aligned to the demand environment. This began in Q4 and focuses primarily on the alignment of resources globally to support our customers' needs across all segments. Reflecting back on 2024, despite the more challenging backdrop, our team delivered full year revenue growth of 2% and adjusted earnings per share of 9.5%, both on a full year and year-over-year basis. Importantly, We also achieved our target on free cash flow of $1.1 billion for the full year, an increase of 10% over full year 2023. Amidst the market volatility we are experiencing currently, there are a number of areas across our business that are positively impacting our performance and positioned us for a return to targeted growth in the mid-term. Our lab and early phase business are moving forward well And we have seen continued strength in therapeutic areas, such as cardiometabolic diseases, as well as oncology, with new award growth increasing in the double digits in both areas on a full-service basis in 2024. In quarter four, we won a significant level of work from a new mid-sized customer in our biotech division with a well-positioned oncology pipeline. These program wins were attributable to the strong team and clear strategy at Icon, leveraged from the positive experience and solid relationships that our team had built with a smaller biotech that this mid-sized customer had acquired. While we are pleased to see the momentum in new awards in these important therapeutic areas and new partnerships, they will take time to contribute to revenue. We continue to expect The pass-through revenue mix will increase in the first half of 2025, which will pressure our EBITDA margin. From a bookings perspective, we are maintaining our target of a book-to-bill ratio of at least 1.2 times on a trailing 12-month basis, which we believe is supported by the overall opportunity flow we are seeing across the totality of our businesses. We saw good evidence of this already this year with a large phase three full service award from one of our new strategic alliance partners in the cardiometabolic space in quarter one. This underscores ICON's ability to elevate historically transactional relationships to the level of enterprise partnerships with our scaled and diversified offering. A strong balance sheet position enables us to continue to execute our capital deployment strategy prioritising share repurchase activity in the short term alongside highly strategic M&A transactions to further scale our service offerings. Finally, while we continue to work through a somewhat uncertain environment, I believe the fundamentals of our business and the market within which we operate remain strong, supporting an improved outlook in 2026. During this time, we are focusing on our core operations and customer delivery, positioning ICON to emerge from this period as a more resilient organisation, able to take full advantage of the many opportunities that lie ahead. Before I close out my prepared remarks, I want to thank all our employees at ICON for their efforts in 2024, a year in which we supported over 400 customers across 1,500 studies. I'll now hand it over to Nigel for the further review of our financial results. Nigel. Thanks, Steve.