ICON plc

Good day and thank you for standing by. Welcome to the ICON PLC Q4 and Full Year 2025 Earnings 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. Will we draw your question? Please press star 1 and 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to speaker today, Kate Haven. Please go ahead.

Hello, and thank you for joining us today. I'm joined on the call by our CEO, Barry Bals, and our CFO, Nigel Clerken. 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 May 27, 2026. This presentation includes selected non-GAAP financial measures, which Barry and Nigel will be referencing in their prepared remarks. For a presentation of the most directly comparable GAAP financial measures, please refer to the section of the press release dated May 27, 2026, titled 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, adjusted net income, and adjusted diluted earnings per share exclude amortization, stock-based compensation, foreign currency gains and losses, restructuring, transaction integration-related and other adjustments, transaction-related financing costs, fair value movement on investments and equity, goodwill impairment, impairment of non-financial assets, and their related taxation effect. In the interest of time, we ask participants to keep their questions to one each. I would now like to hand the call over to our CEO, Barry Bell.

Thanks, Kate. Last night, we released our Q4 and full year 2025 financial results, our 2026 guidance, and also reported the findings of the recent investigation into certain accounting practices and controls. We have a lot of ground to cover today, but before we begin, I want to take a moment to recognize the significant efforts of the teams across ICON in recent months. In particular, the dedicated team that supported the completion of the investigation, but also the 40,000-strong workforce that stayed focused on delivering best-in-class research, supporting sites and patients, and delivering for customers. Throughout a challenging chapter for ICON, these teams exemplified our partnership mentality. I'm grateful for their dedication and efforts toward advancing our mission. Now, before turning to our results, I'd like to address the investigation directly. The process was initiated in October 2025 after the management team raised concerns to the Audit Committee of the Board. The Audit Committee initiated an investigation which was conducted by external legal counsel and supported by forensic and technical accounting advisors. This was comprehensive in scope, assessing not only the revenue recognition practices in our full-service businesses, but also areas including billing and recording cash. The investigation determined that from Q3 2023 to Q4 2024, improper adjustments were made to the clinical services revenue of the company. This impacted the timing of revenue recognition, though not quantum. The company also identified errors in certain inputs related to revenue recognition, specifically estimated costs to complete, the assessment of realizable value, and certain manual adjustments in respect of clinical file services contracts covering the same period and into 2025. We also identified presentation issues with unbilled and unearned revenue where contract assets and liabilities eligible for offset were not fully identified. The issues identified resulted in an overstatement of $65 million or 0.8% of full year 2023 revenue and $93 million or 1.1% in full year 2024. There was no impact on our customers, nor was there any impact on our reported cash flow. As part of the investigation, we identified material weaknesses in ITON's internal controls over financial reporting. Entity-level controls, including the tone from management, were not sufficient to enforce the monitoring and maintenance of a proper control environment, and the company did not design and operate effective internal controls to prevent material errors in revenue and related accounts. Extensive measures have been taken to ensure the accuracy of our financial statements, and we are implementing a comprehensive remediation plan, which Nigel will discuss in detail. Myself and the rest of the management team take very seriously our obligation to maintain reliable, rigorous controls. We are reassured to have identified and addressed these issues swiftly and effectively, and we are committed to ensuring they do not recur. I'd now like to turn to our results. Having previously called out and proved execution on our commercial strategy as a core priority, I'm very pleased with our strong commercial performance in quarter four. Low double-digit increase in RFP flow, win rates up right across our business, gross bookings of $3.2 billion, and significantly reduced cancellations. combined to yield net bookings of $2.9 billion, an increase of 19% year-over-year. Importantly, our direct fee book to bill was in line with our overall reporting book to bill of 1.36 times, an improvement on the mix in recent awards. Commercial excellence has been a key strategic focus across the organization, and we are seeing clear evidence of progress across a range of measures. while win rate improvement was broad-based across the business. I am particularly pleased with a five-point sequential uptick in biotech win rates, a personal priority that I laid out in prior calls. More broadly, we saw solid traction across customer groups with no single award value above $150 million. A critical enabler of our success has been our ability to flexibly meet our customers' needs across both service, functional, and hybrid models of development particularly as their preferred models change over time. In quarter four, we saw a solid contribution of awards from existing long-term partners, alongside an increasing ramp from more recent large and mid-sized partnerships. Cancellations in the quarter were $365 million, down meaningfully from the elevated levels seen in quarter two and quarter three last year, and were broadly balanced across customer groups. it's important to acknowledge that while we have made changes to how we capture cancellations, the improved quarter-over-quarter performance is evident under both new and old methodologies. As I committed previously, the change to cancellation and backlog methodologies provides for increased transparency by providing investors with enhanced visibility into intra-quarter dynamics that are relevant to assessing our current and future financial performance. Nigel will take you through the detail of the changes to our policies and the resulting impact when he covers the financials in detail. In terms of financial results for quarter four, we saw stronger than anticipated revenue, driven by a marked increase in pass-through revenue. This was partially offset by findings of the investigation. Specifically, the changes made to cost-to-complete and realizable value estimates in our full-service business impacted earnings by over $50 million in the quarter. After a thorough review process, we believe these changes appropriately reflect the expectations for future performance across full-service contracts. These dynamics significantly impacted margin performance in the quarter, resulting in an adjusted EBITDA margin of 15.5% in Q4.