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spk15: Good morning, ladies and gentlemen. Welcome to the Seniors Health Fourth Quarter and Full Year 2022 Earnings Conference Call. At this time, all participants are on a listen-only mode. Later, we will conduct a question and answer session, and instructions will be given at that time. I would now like to hand the conference over to Ronnie State, Senior Vice President of Investor Relations. Please go ahead, sir.
spk00: Good morning, everyone. With me on the call today are Michelle Keefe, our CEO, Jason Meggs, our CFO, and Michael Brooks, our COO. In addition to the press release, a slide presentation corresponding to our prepared remarks is available on our website at investor.cineoshealth.com. Remarks that we make about future expectations, growth, trends, anticipated financial results, and our expectations regarding transformation initiatives, expectations regarding the macroeconomic environment, The COVID-19 pandemic and the war in Ukraine constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995, and we disclaim any obligation to update them. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors. These factors are discussed in the risk factors section of our Form 10-K for the year ended December 31st, 2022, and our other SEC filings. During this call, we will discuss certain non-GAAP financial measures which exclude the effects of events and transactions we consider to be outside of our core operations. These non-GAAP measures should be considered a supplement to, and not a replacement for, measures prepared in the courts with GAAP. For reconciliation of non-GAAP financial measures with the most directly comparable GAAP measures, please refer to the appendix of our presentation. I would now like to turn the call over to Michelle Keefe. Michelle?
spk12: Thanks, Ronnie. Good morning, everyone, and thank you for joining us today. As you saw in our release, our results this quarter came in as expected, and in particular, commercial awards were strong. We remain keenly focused on transformation and are encouraged by customer feedback and are seeing the very early signs of improvement in clinical awards and positive impacts from our investments. First, I want to start by resetting the stage for our key priorities and my expectations for the future of the company. Let me also underscore that customers remain our top priority, and I continue to engage directly with them to ensure that we are exceeding their expectations. As a leadership team, we are laser focused on driving transformation across the business with a particular concentration on clinical operations, business development, and cost structure realignment. We are also investing in retaining and strengthening our talent and prioritizing how we resource projects to ensure optimal delivery on customer commitments. While these investments will continue to suppress margins in the near term, I firmly believe this is the responsible approach to reestablishing our competitive strength in clinical and building a foundation for long-term success. I would now like to review our results and discuss our demand drivers and net awards. Total company revenue declined by 1% for the fourth quarter compared to the prior year, while growing 1.7% on a constant currency basis. Clinical solutions revenue declined 2.1%, primarily due to lower net awards and the impact of foreign exchange, partially offset by higher reimbursable expenses. Excluding reimbursable expenses and on a constant currency basis, clinical solutions revenue declined 0.8%, due primarily to lower net awards and backlog conversion delays, largely offset by growth in our large pharma business, including FSP. Commercial solutions revenue grew by 2.5% compared to the fourth quarter of 2021, driven by higher reimbursable expenses and growth in deployment solutions. Excluding reimbursable expenses and on a constant currency basis, commercial solutions revenue increased 0.5%, driven by deployment solutions, primarily due to the contribution from the Cineos One portfolio. Our commercial business continues to perform in line with expectations, although growth has slowed over the course of 2022 as the macro environment began to impact our SMID customers, particularly in communications and consulting. Now let's review our demand drivers. In clinical large pharma, although we remain underweight in this segment, we are encouraged by progress on several new opportunities, particularly in top 20 pharma. In fact, we recently expanded a top 10 pharma relationship into a sixth preferred provider strategic relationship where we are now the lead of two providers across their portfolio, after helping them design an outsourcing model to consolidate 60-plus regional vendors into two global providers. While we do not expect this expanded relationship to have a material near-term impact on awards and revenue, this is an important example of how our new customer engagement approach, developing fit-for-purpose solutions with dedicated leadership, is resonating. Our existing preferred provider relationships also remain healthy although we continue to see slower pipelines as these customers assess their R&D spending and clinical outsourcing strategies. We anticipate incremental new awards from these customers over the course of 2023, weighted toward the second half of the year. With our existing clinical SMIT customers, we are beginning to see the very early returns on our operating model and business development investments. While RFP flow from these customers remains down on a GTM basis, Fourth quarter RFP flow was at its highest level since Q3 of 2021 and included more high value opportunities. Additionally, we are beginning to see other early signs of improvement as our win rate with repeat customers increased compared to the third quarter, an important indicator of customer satisfaction. However, we still have work to do to improve our overall win rate among SMID customers. We also recently won a preferred provider relationship with a larger SMID customer that has already generated multiple RFPs for early phase studies with future late stage opportunities expected. While these early indicators have not yet materially impacted overall SMIT awards, they reinforce our confidence that our investments will continue to drive a gradual recovery. Although we are encouraged by this progress, clinical net awards for the fourth quarter continued to be impacted by the dynamics that affected us in the third quarter, including cancellation activity within our normal range. This resulted in a book-to-bill ratio of 0.39 times excluding reimbursable expenses and 0.77 times on a TTM basis. We have factored these recent trends in RFP flow and awards into our 2023 outlook for the clinical business. The commercial team produced the second highest quarter of net awards in our history with a book-to-bill ratio of 1.43 times for the quarter and 1.05 times on a TTM basis excluding reimbursable expenses. While the commercial demand environment remains relatively healthy, we have seen some softening among a large form of customers where RFP flow remains up on a TTM basis but has slowed sequentially. We believe this impact is temporary as these customers evaluate the allocation of their commercialization budgets in light of the Inflation Reduction Act while looking for innovative commercial models to enhance efficiency. We have also continued to see slower TTM RFP flow from SMID customers, primarily attributable to the macroeconomic environment. These recent trends were factored into our 2023 outlook for the commercial business. Now I will provide an update on the two primary areas of investments we highlighted last quarter. First, we are making progress on transforming our clinical operating model. In recent months, we have streamlined our organizational structure consolidating roles and simplifying processes that provide an improved experience for customers and employees, while allowing us to better deploy fit-for-purpose solutions specific to each customer's needs. Foundational to these improvements have been investment and accelerated development of clinical development tools and data applications, ranging from statistical modeling for site performance and enrollment to use of AI machine learning to better detect risks and issues. These investments are closing competitive gaps and showcasing our differentiators in proposals and bid defenses. For example, we recently won an opportunity that leveraged our statistical tools for site and enrollment modeling and featured compelling solutions for engaging patients and healthcare providers, made possible by the unique blending of our clinical and commercial capabilities, all under the direction of trusted therapeutic experts. We believe further wins will materialize as we fully deploy these tools into our therapeutic areas and mature unique combinations of technology, data, and clinical to commercial capabilities. We are also deploying a high touch global to local country model for site and patient related activities, more effectively leveraging local knowledge about regulatory requirements, standards of care, and site performance while maintaining global standards and best practices. Coupled with the clinical development tools and applications I mentioned, our operating model is showing early signs of delivering more streamlined and automated startup, improved enrollment productivity, high-quality data, and an improved experience for sites, customers, and employees. This new model has generated very encouraging feedback from customers, and we expect its integration across our portfolio to be largely complete for new customers during the first half of 2023. Clinical employee retention is also trending at a two-year high, providing strong continuity for customers and enabling us to build momentum in operating performance, customer engagement, and ultimately backlog conversion and net awards. We believe these investments in technology, the integration of clinical and commercial capabilities as bundled solutions to support better protocol design, faster enrollment, and improved patient outcomes, and strengthening our heritage of scientific and therapeutic expertise will be important factors in driving new business and long-term growth. Our second area of focused investment is the transformation of strategic business development, with Christian and his leadership team working closely with Michael and our operations teams to drive enhanced customer engagement. We continue to expand our BD talent, hiring seasoned veterans with relationships that are already bringing new opportunities. Clinical expertise is ultimately the key to customers' decision-making process. and we are expanding our therapeutic and scientific talent and bringing these leaders to the forefront of customer solutions to improve our delivery, account development, and sales activities. Further, we have established dedicated organizations and leadership aligned to each large pharma partnership across full service and FSP, enabling consistent quality and efficiency while allowing us to quickly adapt to each customer's evolving outsourcing strategies. Another important aspect of driving clinical awards is more fully leveraging our commercial and consulting expertise for account management, win strategy, and sales enablement. To this end, we have increased the participation of our CINEOS One group to support customers with asset development and prioritization, funding strategies, and shaping their clinical outsourcing models. Based on recent engagements and awards, this expanded consultative approach is already creating more high-value clinical opportunities. Combined with the progress on our clinical operating model, over time we expect our improved business development approach to increase win rates with new customers while also generating incremental repeat business opportunities. We have also evaluated our cost structure to align with our current business and the evolving demand environment and to drive efficiencies while continuing to invest in position or organization for long-term success. I have decided to consolidate and integrate the various strategic projects underway within the company, including Forward Bound, Unify, and Clinical Reimagined under Project Velocity, a single transformational effort that will bring value to customers and employees and drive long-term margin expansion. This combined initiative will be led by senior management and reports directly to me. Jason will provide further details, including how these initiatives will ramp and impact guidance. In summary, we believe the programs I've discussed will yield benefits to improve quality and scalability while driving long-term margin expansion, enabling us to best serve customers and enhance performance over time. We remain confident in our strategy, and senior leadership is relentlessly focused on this ongoing transformation to best position Cineos Health to capitalize on a compelling long-term market opportunity. As this will be Jason's last earnings call as CFO, I want to recognize and thank him for his dedication and contributions to Cineos Health over the last nine years, including nearly five years as CFO. We are all incredibly grateful for his commitment and leadership, and we wish him the very best. Jason?
spk09: Thank you for the kind words, Michelle, and good morning, everyone. It has been an honor and a privilege to work at Cineos Health, particularly for these past five years as CFO. I've been supported by a great team and I am thankful to each of them and very proud of what we've accomplished together. With that, let me turn to our results. Total revenue for the fourth quarter of 2022 was $1.36 billion, down 1% as reported and up 1.7% in constant currency compared to 2021. Excluding reimbursable expenses and on a constant currency basis, revenue declined 0.4% compared to the fourth quarter of 2021. Clinical solutions revenue for the fourth quarter was $1.02 billion, down 2.1% as reported, and up 0.7% in constant currency compared to 2021. Excluding reimbursable expenses and on a constant currency basis, clinical solutions revenue declined 0.8% versus the fourth quarter of 2021, driven primarily by lower net awards and backlog conversion delays, largely offset by growth in large pharma. Clinical revenue was above our expectations during the fourth quarter, primarily due to higher reimbursable expenses and foreign exchange. Total as reported clinical revenue includes an 80 basis point tailwind from reimbursable expenses. Fourth quarter commercial solutions revenue was $336.6 million, up 2.5% or 4.8% in constant currency compared to 2021. Excluding reimbursable expenses and on a constant currency basis, commercial solutions revenue increased 0.5%. Growth in commercial revenue was driven by deployment solutions, primarily due to the contribution from our SENIOS 1 portfolio. This growth was partially offset by headwinds in communications and consulting. Commercial revenue for the fourth quarter was above our expectations due to higher reimbursable expenses and foreign exchange. Total as reported commercial revenue growth also included the tailwind of 450 basis points from reimbursable expenses. It is important to note that reimbursable expenses were higher than anticipated in quarter four, primarily due to two fast-burning, reimbursable expense-heavy projects that ramped quickly. One project is in clinical and one is in commercial, and the reimbursable expense burn will continue to impact the first half of 2023. Adjusted EBITDA for the fourth quarter decreased 11.8% to $209.1 million, representing an adjusted EBITDA margin of 15.4%, a decline of 190 basis points compared to the fourth quarter of 2021. The decrease in adjusted EBITDA margin for the fourth quarter was primarily the result of a less favorable revenue mix, including reimbursable expenses and our investments. Fourth quarter adjusted EBITDA margin was below our expectations due to the impact of a less favorable revenue mix, primarily reimbursable expenses and foreign exchange. For the full year 2022, adjusted EBITDA increased 4.6% to $800.8 million. This represents 14.8% adjusted EBITDA margin and year-over-year expansion of 10 basis points. Excluding the impacts of higher than anticipated reimbursable expenses and incremental foreign exchange in Q4, margin expansion was 40 basis points. Adjusted diluted EPS of $1.23 for the fourth quarter declined 16.9% year-over-year driven by the decline in adjusted EBITDA and higher interest and depreciation expense, partially offset by a lower share of account and tax rate. Full year 2022 adjusted diluted EPS was $4.72, up 5.8% from 2021. Operating cash flow was healthy at $123.8 million for the fourth quarter and $427 million for the full year. Operating cash flow for the full year declined primarily due to increased DSO, coupled with higher cash taxes and interest. DSO increased from the prior year primarily due to higher concentration of accounts receivable than larger pharma customers, including the related timing of billing and collections. Capital expenditures were $23.6 million for the fourth quarter and $93.5 million for the full year, primarily due to increased strategic investments in data, technology, and analytics platforms to support our operations. During the quarter, we expanded our accounts receivable securitization facility by $150 million, extended the maturity until October of 2025, and voluntarily prepaid the same amount of our term loan A. We also refinanced our primary credit facilities, expanding our revolving credit facility from $600 million to $1 billion to increase available capacity, while extending maturities to November of 2027. The full term aid facility and $261 million on the revolver were drawn at the closing to pay off the previous term loan. Finally, we subsequently repaid an additional $140 million of our revolving credit facility. These transactions resulted in debt outstanding at year end of $2.69 billion. Combined with unrestricted cash of $111.9 million, net leverage at the end of the quarter was 3.2 times. When our current interest rate swap matures at the end of Q1, we plan to continue to hedge a portion of our floating interest rate exposure with the target of making 45 to 55% of our debt effectively fixed rate. We expect this to provide some additional certainty around anticipated interest expense for 2023 as market conditions continue to fluctuate. Our non-GAAP effective tax rate for the fourth quarter was 21.5%, bringing our effective tax rate for the full year down to 23%, driven by increased research and development credits and a lower state tax rate. Before turning to guidance, I want to provide more details on the consolidated initiatives Michelle highlighted. Our near-term cost management efforts include right-sizing and realigning our workforce while streamlining our organizational structure. We are also condensing our global facilities footprint while deploying new approaches for local employee engagement that better align to a hybrid work environment. Our longer-term initiatives are expected to include partnering on certain functions while utilizing our transformation and technology partner to drive innovation and automation across our business. In aggregate, we expect these activities to result in initial cost savings of $30 to $40 million in 2023, net of funding the investments we have highlighted. We expect these net savings to increase to $100 to $150 million in 2024 as velocity activities continue to ramp up. To fuel these initiatives and investments this year and beyond, we expect to incur significant restructuring, transaction, and integration costs as reflected in our guidance. Turning now to our 2023 guidance. Our guidance contemplates our current view of the estimated impacts of ongoing economic and geopolitical developments and reflects foreign exchange rates as of February 13. We expect total revenue of $4.98 billion to $5.18 billion, representing contraction of 7.8% to 4%, including a foreign exchange headwind of $10 million. This includes an estimated net headwind of 100 basis points from reimbursable expenses. We expect our total adjusted EBITDA to range from $675 million to $725 million. This reflects an adjusted EBITDA margin of 13.6% to 14%, down approximately 100 basis points from 2022 at the midpoint. Lastly, we expect adjusted diluted EPS to range from $3.26 to $3.53, representing year-over-year decline of 30.9% to 25.2%. Our adjusted diluted EPS guidance includes interest expense of $139 million to $149 million, an increase of $63.2 million over 2022. This is based upon current market forecasts and reflects the maturity of our current interest rate swap on March 31st. Our adjusted diluted EPS guidance also assumes a non-GAAP effective tax rate of 23.5%, a 50 basis point increase over 2022, driven by an increase in the UK tax rate. Our guidance also reflects an estimated diluted share account of 104.8 million shares. We expect our net cash outlay for income taxes during 2023 to be approximately $50 to $55 million. We expect first quarter revenue of $1.26 billion to $1.31 billion and total adjusted EBITDA of $136 million to $148 million. This reflects a revenue decline of 5.7% to 2% and adjusted EBITDA decline of 21.7% to 14.8% compared to the first quarter of 2022. This revenue guidance includes a foreign exchange hedge win of $17 million. Importantly, FX has the most significant impact on the first quarter as it changes to a tailwind during the second half of the year. This revenue guidance also reflects a tailwind of approximately 200 basis points due to reimbursable expenses, largely driven by the projects that impacted us in the fourth quarter. The reimbursable expense tailwind attributed to those projects results in a year-over-year headwind of 50 basis points to our adjusted EBITDA margin. In addition to Q1 being a seasonally low margin quarter, The investments we have highlighted will impact Q1 more heavily, while the benefit of our savings initiatives will ramp throughout the year. Finally, assuming clinical net awards and backlog burn rate recover during 2023 as reflected in our guidance, and we do not experience further deterioration in the macroeconomic environment, we expect low single-digit revenue growth in 2024. Given this revenue profile, the 2023 adjusted EBITDA margin reflected in our guidance, our investments, and increased savings initiatives, we currently expect a rebound in adjusted EBITDA dollars to a level comparable to 2022. I'm now going to turn it back over to Michelle for some final comments. Michelle?
spk12: I am encouraged by the customer feedback on our enhanced operating model and differentiated strategy. In closing, I want to stress our continued focus on excellent delivery for our customers as the foundation for our future success. Our investments and other initiatives I discussed are designed to further accelerate our strategy, enhance the scalability and efficiency of our operations, and drive new business awards. I want to thank all of my Cineos Health colleagues around the world for their energy and collaboration, as only together can we achieve the highest performance for our customers. I am proud of our ongoing transformation, our culture, and the positive impacts we have on patients around the world. This completes our prepared remarks and we would be happy to answer any questions. Operator?
spk15: Thank you. Ladies and gentlemen, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. In the consideration of time, we ask that you please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster.
spk14: And our first question coming from the line of Patrick Donnelly from Citi.
spk15: Your line is open.
spk16: Hey, guys. Thank you for taking the questions. Michelle, maybe one on one of the comments you made there, I think it was on the commercial piece, just in terms of large pharma, you know, maybe taking a little closer look at things, kind of given the IRA. Can you just talk about what you're hearing from them? It's definitely an interesting comment. I know it's come up a few times on other peer calls as well. What the commentary is there, what the impact could be, and again, how much more deliberate are they being with kind of the spend and thought process given this new act out there?
spk13: Patrick, thanks for the question.
spk12: So, you know, our large farmer trailing 12-month RFP flow is up high single digits, but we have seen it sequentially slowing down from Q3 to Q4. And when we have these conversations around the macro environment and the Inflation Reduction Act, you know, we're hearing they're just being really purposeful and looking at their portfolios, seeing where they want to invest in the portfolios based on the potential impacts of the IRA down into 2025. They know what the list of products are in 2025, and they're thinking through, based on the portfolios they have or their business development activities, what types of products do they want to invest in in the future. The good news is we're part of those conversations. And our teams, we actually have a team that does a lot of work around this in partnership with pharma companies. And so, you know, we think it's temporary. We think as they think about their new commercial models, how those models become more efficient in driving profitability of the assets they have today, as well as planning for what they're thinking about doing tomorrow, we think we're part of that solution and can take advantage of that. But we do see it slowing some of the decision-making right now, for sure.
spk16: Okay. That's helpful. And then maybe just on the clinical side, you know, bookings obviously remained a little bit soft in terms of the book to bill, but it sounds like you, you have had some, at least signs of signs of life with customers and customer conversations and are feeling like there's, you know, a potential inflection of sorts coming. Can you just give us any metrics you have around kind of what gives you some confidence that that booking number is going to come back again, the book to bill confirm up a little bit. And then similarly on that IRA piece, is there potential for that to impact clinical down the road? Just your perspective there would be helpful as well.
spk17: Thank you.
spk13: Sure, Patrick. So, you know, we have seen some green shoots.
spk12: There are some very early indicators for clinical awards. We did see an improvement in repeat customers that, as you know, we talked about that last quarter as really important to us as a as a measure, so we did see improved awards with repeat customers. We have seen our SMID RFP pipeline improve significantly. I think it's the second highest, you know, SMID RFP flow that we've seen in Q4. We also had a really important win, which was we had our sixth preferred providership for clinical added. So we're excited about that, and there's some really innovative things there in regards to how we used our consulting team to partner with our clinical operations team, along with senior leadership, working on how to really consolidate 60-plus vendors and FSP down to global providers. And so really excited about that integrated clinical and commercial solution to drive a future opportunity with that six preferred providership. You know, we're looking at repeat business, Patrick. We're looking at improving our RFP flow. But, you know, the feedback from customers has been very, very positive. You know, I'll turn it over to Michael who can maybe give you some even more specifics around what he's seeing.
spk11: Right. So, Patrick, as we've been putting the investments into our clinical data applications to help us better model out scenarios as we've been looking to consolidate clinical and commercial capabilities into novel solutions for enrollment and data monitoring. We are getting positive feedback from customers. In fact, I was just talking to a CEO earlier this week who's been around the industry for a long time. He remarked to me, love the strategy, love the project team, love how clinical and commercial have been combined together with what you're doing. And he's really bullish on where we're going as an organization. And we're seeing those green sheets just across the board, you know, how we're winning, how we're talking to clients. It's just very different than it was at the beginning of last year.
spk16: Great. Thank you.
spk17: And maybe just quickly on the IRA impact and clinical, anything you see there, Michelle. Thanks.
spk13: Sure. So, you know, we haven't really heard it impacting anything on the clinical side right now.
spk12: That hasn't been really the conversation. I think it's more you have the leadership at Pharma looking at the impact of this long-term across their portfolio. But no, we haven't really seen it have any significant impact on the clinical side to date.
spk03: Appreciate it. Thank you, guys.
spk15: Thank you. Now, next question coming from the line of Tucker Remmers with Jefferies, Yolanda Stallman.
spk08: Hi, I think that's me. It's Dave Windley. Thanks for taking my question. Good morning. I wanted to, I guess, first understand around business development. I think I've heard it from enough people to believe that it's probably true that I think Christian kind of cleaned house in your business development organization in September. And maybe you could talk about what brought that about. I mean, was it, you know, you talked about the inability or the lack of bringing your full solution set to the clients. And maybe, you know, that was a decision that was born out of that. But I guess the magnitude of cuts in business development at a time when, you know, third quarter bookings were pretty critical is a pretty big decision to make. And I wanted to understand that. you know, the logic behind that, how you're back filling those seats, and where you feel like that team is today.
spk13: Hi, David.
spk12: So, from a business development perspective, we took a step back and looked at what is going to take for us to put the right people in the right place at the right time to impact the different trends that we're seeing in different markets, right? Whether it's the SMID market, whether it's the increasing FSP market, whether it's making sure we have the right talent globally in different locations to take advantage of the opportunities. And so we did redeploy our own talent to different roles and to impact our business development opportunities. We have, as you've heard us say, talk a lot about how we're managing our large pharma relationships, building dedicated teams, making sure that we have strong partnerships at the most senior levels within large pharma, as well as really it's about the partnership between our BD team, our therapeutic experts, and the project managers that really will help us with repeat business. And so it was really around aligning our salespeople with our leaders within the business operationally. By doing that, we believe that that is why we're seeing the green shoots we're seeing. That's why we're seeing the sixth large pharma partnership. That's why we're seeing our repeat business improve in Q4 with SMID customers. You know, I would reframe it as we looked at what did the market need and what was the best way to mix our existing talent along with bringing in new talent that had some of the capabilities that we needed to make sure that we could be extremely competitive. I think that's how I would frame it.
spk08: Okay. Thanks for that. Here's my second question is related around your consolidation of projects, I think investors will probably welcome the reduction in the number of names of projects that you're working on. So, kudos for that. The, I guess I'll ask it this way. So, you think clinical reimagined is now project velocity. What specifically about the clinical operating model is changing that the customer will see? Michael, you gave an anecdote from a client that maybe bears on this, but is it simply reduction in spans of control or expansion of spans of control, more direct reports to people, or are there more fundamental changes to the clinical operating model that the client would need to step back and evaluate that might have a further kind of depressing impact in the short run to bookings?
spk13: So, I'll start, and then I'll let Michael give you more color.
spk12: So, you know, the changes that we've made have really been under the umbrella of getting decision makers closer to the customer, right? That should be the, I think, the umbrella statement, right? We want to make sure that our customers have access to the decision makers who can do the things they need to do to make sure that we are able to achieve the goals of every single clinical trial that we're running. So I think that's the first thing. The second thing that we're doing that I think is really having a lot of impact is bringing a lot of our technology solutions in earlier into each and every opportunity that is brought to us, as well as introducing them to existing customers where they make sense along the journey of where we are in that clinical trial. We're seeing some really great, you know, positive feedback and some great results around patient identification, patient enrollment, feasibility, our relationships with sites, as well as our relationship with patients throughout the journey of the trial. So we're really using, you know, automation and technology solutions along with, you know, some of the things, our study kick business, as well as, you know, some of the things we've developed through RxDS. We're bringing, I think, a much more streamlined approach to our customers, and our feedback's been very, very positive. So I'll let Michael maybe give you more granularity and color around how it shows up in front of the customer, because the feedback that I've gotten, David, has been extremely positive from customers who've worked with us for a long time, as well as brand-new customers. So, Michael?
spk11: Yeah, so, David, we've been implementing the changes over the course of last year and into this year. We've been doing it incrementally, introducing first piloting and then introducing new capabilities that we believe bring benefit to our customers. Number one is we did have some competitive gaps in things like data visualization tools and some of our statistical modeling tools. We used RxData Science to help us close those gaps very quickly. So in a period of nine months, they were able to get those closed for us. And so clients got a really good benefit from now having good data visualization, seeing into their projects, and being able to see the modeling out of various, you know, things like site activations, enrollment, and data. By closing those gaps, it lets some of our differentiators really shine through. So how we take things like study kicks, some of our commercial capabilities, bundle those into our enrollment solutions. Customers can see that better because they're spending less time talking about where we may have had gaps historically. We also used RxData Science to help us look at our entire resourcing load across clinical. They helped us look at where we may have had individuals over-allocated to projects. We consolidated the allocations, defragmented our teams. So the benefit for our customers now is they have more dedicated resources, whether it's at a country level or a functional level, which is a real benefit to them as well. And then finally, we really brought our therapeutics back to the center of our business, not just through project management, but through our medical and scientific teams. By having them much more involved, both at the bid stage, the kickoff stage, and throughout the life of the project, our clients are seeing the consistency of those therapeutic insights to help them make the pivots that they need to make throughout the life of the trial. So really, it's all upside, Dave, from day one all the way through to where we are. And I believe by the first half of this year, we'll have that really to a steady state where all of our customers are going to experience the benefits of clinical reimagine wherever they are in the journey with CINEOS.
spk08: That's very helpful and encouraging. If I could ask one last question, which is around just kind of, I'll call it IR process. Is this call with 23 guidance and even some comments on 24, Does that create a level of visibility or comfort confidence with where the company is that you can kind of dispense with this, you know, every three months appearance cadence and start being responsive to analysts and investors? Is that something the lawyers are going to start to let you do?
spk12: So, David, yes, we have made the decision that we will be doing one-on-ones with analysts and our investors today and tomorrow, and I think we have some already scheduled for next week. And, you know, it's our goal to ensure that we're getting direct feedback from our shareholders and from analysts. So, yes.
spk08: Great. Glad to hear that. Thank you.
spk15: Thank you. And our next question, coming from the lineup, Eric Caldwell with Bayer, your line is open.
spk05: Thank you very much. I wanted to kind of add on to David's questions about the business development, account management, turnover. It felt like you sort of skirted his question a bit. I also think everybody has heard about turnover and changes there, but could you maybe just get a little deeper into where you are in staffing with account management, business development teams, what kind of net turnover you've seen and where you are today versus where you want to be in terms of resourcing and staff in the business development functions. And then I have some follow-ups. Thank you.
spk13: Okay, Eric, thank you for the question.
spk12: So when we re-looked at business development to make sure that we can be competitive in the marketplace, we looked much more broadly than just the people who are traditionally the business developers. We really thought about what our approach is in regards to how we're going to work with customers. And I think the thing that we're seeing that's having a lot of impact is marrying our business developers with our technical and scientific experts along with the local project leads to ensure that, you know, we have a fulsome understanding of, you know, what the customer is looking for and that we can meet them in their journey where they're at, whether it's from a scientific expertise perspective, whether it's, you know, making sure we deliver with quality and consistently and whether they're looking for, you know, innovative solutions around technology and data, et cetera. You know, we really looked at it much more fulsomely along with our account management team, right? So we have these dedicated account management teams around our largest customers and how they work closely with, again, operations. We felt that that was really important for us to be able to share with our customers this enhanced clinical operating model, which we believe is truly differentiated and very competitive, right? And so, you know, it was... It was a re-look at the whole market. We have realigned existing team members. So I just need to reiterate that, you know, our business development team, many of them are still the same people who have been here for a while and we value them greatly. And we've also brought in some new people with some differentiated experiences, right? You know, so we wanted to make sure that we had both. And that's what we have been doing. And I think that, you know, you always align your talent, the right talent, against the right objectives. And I feel really good about where we're at.
spk05: At a high level, and I know these forecasts can be difficult, and I'm not looking for necessarily specifics unless you're willing to give it. Do you have objectives for net book to bill for the two segments that you could share with us for this year? And I guess, you know, bottom line, I mean, clearly it's going to be a ramp and it's going to take some time, but do you see a positive book to bill as a potential in clinical this year, whether it's by the end of the year in a quarter or even on a full year basis? Is that even in the realm of possibility at this point? And then similarly with the commentary around commercial. What is the new outlook on what a full year commercial book to bill should look like? Because obviously the quarters bounce around a lot. You've had some historical guidance on, I think it's around a 1.1 for the full year, give or take. So I'm just curious if you have an update on what you're anticipating and how you would steer the street in terms of thinking about the bookings this year.
spk13: Sure, Eric, I'm happy to give you some color on that.
spk12: So when you look at, let's start with clinical. I think that's a good place to start. You know, we have always said there's going to be a gradual recovery of our awards over the course of 2023. And we did have shared and have been consistent in sharing that we believe a lot of the larger farmer awards are more geared towards the back half of 2023. And so we do believe that it will, you know, gradually improve over the course of the year. And that is contemplated in the guidance, right? So the guidance we gave you contemplates that as well. In regards to commercial, you know, we've traditionally set a 1.05 to a 1.1 book-to-bill as the target range that we'd like to be in. As you know, we're exiting 2022 with a 1.05 trailing 12-month book to bill. But with what's going on in the macro environment and some of the things that we're seeing in more deliberate decision-making, the SMID, you know, some of the funding issues that some of the SMIDs are having, along with the, you know, deliberate decision-making within large pharma due to the IRA, you know, we're just making sure that we align that guidance to reflect that decisions might take longer. in 2023. But long-term, we believe that that is the right book to build for the commercial business, but we're just taking, I would say, a more prudent approach this year based on what we see going on in the macro environment.
spk05: And then finally for me, the last quarter there was a lot more detail on metrics around clinical bookings and RFPs, hit rates, delays, et cetera. Now we're looking at A couple of pretty tough quarters on clinical awards, three quarters of negative book to bill in total. Can you talk a bit about share loss versus simply delays and timing issues? It clearly at this point is starting to feel like there's some more obvious signs of share loss here. I'm just curious if you can talk about clients that you've talked about six preferred deals with Big Pharma, but
spk12: Eric, thanks for that question as well. So, you know, we know that the new model is receiving really positive customer feedback, and we... I'm sorry.
spk13: I missed that. Eric, can you just repeat the end?
spk12: I didn't hear you clearly. I'm sorry.
spk05: Yeah, I mean, look, bottom line is I'm always a bit reluctant to call share loss after one bad quarter, but now we have two rough quarters in clinical awards. Three quarters ago wasn't great. Feels like you're seeing share loss. We've heard about some new wins, but I'm hoping you can give some stats or metrics on actually saying, yes, look, in fact, we have lost share. These aren't just delays or timing issues, that it's something more than that. And I was hoping you could share your views on having customers that have actually tried it over the last few quarters. Thank you.
spk13: Okay.
spk12: So we have shared some of the green shoots, as you know, around our repeat business rate is improving with SMIDS. and the new large pharma partnerships. We are also seeing some rescues. And so, you know, we feel like we're going in the right direction. But, you know, we understand the position we're in, and we know we have to improve our RFP volume. We have to improve our win rates. And it's really important that we add those large pharma partnerships. As you know, we've got one or two that we're looking at this year and that we're in contention for, and that's going to be really important. And we need to convert the more high-value opportunities. So, We know those are the things we need to do to stay competitive in the marketplace.
spk14: Thank you. One moment please for our next question.
spk15: And our next question coming from the line of Justin Bowers with Deutsche Bank. Your line is now open.
spk03: Good morning, everyone. Michelle, could you provide us with a little more color on the six strategic partnership that you guys have won? I know it's been a priority area for the company for several years and I think you said they'll be consolidating 60 vendors into two. Just a little more, we just want to verify that and then do you have a sense of is this going to be FSP heavy or um you know full service or hybrid and and when when you know how should we think about the ramp for that and then related to that yeah i'll pause there for them sure thanks for the question so yeah we're excited about this six partnership so this was a top 10 customer for us um they um we were um you know
spk12: doing really well there, and they had FSP vendors across the globe. Like, they had some small regional vendors across the globe, and they really wanted to think about how they could be more efficient and effective in deploying their FSP solution. And so we brought our consulting team in to work with them to design what their outsourcing model should look like and could look like from an FSP perspective. you know, partnering with the manufacturer on what would good look like there. And they made the decision to take, you know, that instead of that regional approach to a more global approach, and they chose, you know, us as one of two vendors. And I think, you know, that's something that's unique about us, right, the fact that we can bring that kind of expertise in from a consulting perspective to be able to help our customers make some of these decisions around their outsourcing strategy and then being able to execute and deliver against that strategy. And so we're really excited about that. We don't believe it's going to impact near-term awards. We think it's more of a long-term growth driver. But I think it was really important just to establish that having that kind of impact with our customers is what we're all about. And it's really, really important that we continue to grow our large form of partnerships, right? That's our number one organic growth opportunity, and we want to continue to focus on that. And also, Michael, if there's anything else you want to add there.
spk11: It's still early days, so we're in discussions with the customer around their plans for the consolidation, their plans for increasing any funding, if they are going to increase funding. So as we get more details, we'll update our 2023 plans, 2024 plans, and share them as it makes sense. It's just too early for us to have any more. information on the impact.
spk03: Got it. And then one for Jason and the team. I think you said in the prepared remarks that some of the initiatives that you have underway would result in 30 to 40 million of net savings in 2023 and then 100 into 2024, is that, are we understanding that correctly, that it's net of the restructuring costs that you'll be incurring this year? Or is that what the restructuring costs will yield this year? And then just the second part to that would be, you know, I think it's exciting that you put out an initial framework for 2024. But, you know, can you help us bridge maybe the high level, like how you anticipate, you know, getting back to growth and expanding margins, just given where the bookings are trending at this point? Like, is there an exit rate on the bookings like implied in that forecast?
spk09: Yeah, thanks, Justin. So, on the first question, The savings that were noted are net of the investments that we are making into the business that are above the line in the programs, not the restructuring charges that are below the line. So just for clarity's sake on that piece. And those initiatives include the current short-term actions that we're looking at around the real estate footprint and our related employee engagement efforts and hybrid strategy there as well as just streamlining the operations and all the things that Michael has talked about around technology and data and how we implant that into the business and the impacts that has on what we need to streamline the organization as well as velocity and the longer term path we have with our technology partner there as we move that forward. When you Think about 24 and the setup. And this goes a little bit back to Eric's question, I think, that we absolutely inherent in our guide, and as I mentioned, have our clinical bookings gradually improving throughout the year and getting back north of one in the back half of 23 and into 24. And there will be an increase in the burn rate when you think about 23 throughout the year. given the mix of business that we've won, whether it's FSP or it's faster-burning studies within full service or our technology and data businesses, et cetera. So those things are all built into, you know, what we're looking at as we see the gradual recovery bookings in the back half to above that 1, 1.2 even as we exit. And then the exit rate on the savings, Justin, gets you to, you know, as we exit, Q4 of 2023, that puts you somewhat in line with that 2024 number when you do a full year annualized number.
spk03: Got it. Appreciate the detail there.
spk15: Thank you. And as a reminder, ladies and gentlemen, please limit yourself to one question and one follow-up. And our next question coming from the line of Sandy Draper with Guggenheim, your line is open.
spk04: uh thanks very much uh a lot's already been covered um so maybe uh i'll ask a first question on the commercial side when i just look at um the slowdown we saw in uh in in the growth in the fourth quarter and then i look at backlog basically is flat on a year rear basis um i know you're not giving specific guidance by segment but is it reasonable to think that commercial is is a low to maybe mid single digit grower thinking about 23 now sort of and just and if if this again coming off of the basically one percent growth and backlog um you know it could be a little higher but not a ton higher so just any any thoughts around that versus um because it sounds like you've been pretty positive and been growing double digits but it doesn't look to me based on the numbers you'd be able to do that so that would be the first question thanks
spk13: Sure, thanks for the question.
spk12: In our 2023 guidance, you know, the assumption does assume that commercial is flat to the 2022, driven by the recent macroeconomic demand pressures that we outlined, so that is contemplated in the guidance for 2023. Okay, great.
spk04: That's really helpful. And then maybe just one quick follow-up just on when I'm thinking about the the patterns and Jason, you've given a lot of information, which I appreciate. It sounds like my inference is the first quarter is not the trough quarter, just all in, certainly on the revenue, but it's more like second or third quarter, but just any additional thoughts on the pacing? I know you've given first quarter guidance in the fourth quarter, I mean, sorry, the full year, but just thinking about is there a specific quarter you would sort of project as the the trough revenue quarter and obviously have the offsets on the expenses. So it may not line up in terms of EBITDA. Thanks.
spk17: Yes, Andy.
spk09: So we talked a little bit about the reimbursables that we had in Q4 that are going to impact Q1, you know, in a positive way, primarily a little bit in quarter two, but primarily quarter one. So when you look at total revenue, I think sort of how you're thinking about it is in line with how we're thinking about it on the revenue side, given some of those dynamics. And then on the EBITDA side, we are making some investments earlier on in the year that will stay consistent throughout the year. We'll continue to make investments, but Some of them will sort of tail off from Q2 and Q3 onward, given what they are, particularly around the clinical business and clinical reimagined that Michael has talked about as we get through that first half and sort of get most customers into that new model. And then the savings initiatives that we have start to pick up from Q2 onward as well. So think about EBITDA, seasonally low always in quarter one, has a little bit of extra headwind in it this year due to the investments and the cost savings not being ramped. And then, you know, from quarter two onward, we start to see that ramp. And the exit rate of quarter four EBITDA is broadly in line with what we're talking about for that full year 2024. Okay, great.
spk04: That's really helpful. Thanks.
spk15: Thank you. And our next question, coming from the lineup, Max Moff with William Blair, your line is open.
spk07: Hi. Thanks for taking our questions. I just wanted to follow up on some of the backlog conversion delays you discussed. I'm curious how much of your 2023 guide for clinical in particular is coming from existing backlog and how much visibility you have into potential delays and cancellations moving forward?
spk13: I can start. I mean, I'll start with cancellations.
spk12: I mean, our 2022 cancellation rate was lower than our 2021 cancellation rate. You know, we're right in line with where we've always said we expect our councils to be, but maybe, Jason, you want to give them a little more color on backlog.
spk09: Yeah, I think, Max, you were asking the visibility of the backlog into 2023. Is that right? Yeah, that's right. That's right.
spk07: And how much of 2023 is coming from? Yeah, so...
spk09: Yeah, so roughly, you know, if you look at last year, I think, and, you know, the next 12-month backlog cover, I think we were in around 90% or something, and we're higher than that as we head into 2023. So, you know, see good cover there. That doesn't change the fact that we have to execute on, you know, the pipeline and the RFP flow and the bookings for the back half of the year, and that's what Michelle and Michael have talked about. So, You know, that's what we see currently on the clinical side. And, you know, that includes a very detailed bottoms-up review of every single project that we do every month as we come into the year. And, you know, based on what we've seen in the past in terms of how our projects and backlog run out in a given 12-month period, we feel really good about that in terms of the accuracy and consistency.
spk07: Got it. Thank you for that. Just a quick one for me on Cineos One. I wanted to follow up on your comment from earlier this year about the more than 24 potential asset launches translated into, I think you said $2 billion in additional value launched. Just wondering if you've ever taken a stab at coming up with a risk-adjusted number for that $2 billion that might be a little bit more practical for us to consider as we think about the commercial revenue growth longer term here. Thank you.
spk12: Yeah, so thanks for the question and the suggestion. You know, we're consistently looking at how we can get better, you know, longer-term visibility into which assets are going to come through the pipeline that are currently sitting in our clinical business, right, so that, you know, we understand what percentage of them we actually think are going to become, you know, an opportunity for us to commercialize. So, you know, there is still quite a large amount of assets under our our leadership on the clinical side that potentially will need commercial solutions. Um, and so we feel really good that that's going to continue to be, um, an opportunity to, to feed the commercial business. But I hear what you're saying, um, you know, having better visibility into how much of that actually will impact, um, commercial, you know, we're constantly looking at that. I would shift to say a couple things. Um, you know, we're starting to see some, um, great interest in, um, you know, Cineos One across the continuum of product development, right? So we're getting assets that are currently in phase three that need commercialization. We just had one of our commercial Cineos One customers award us a piece of business and clinical in a different therapeutic area. So, you know, we're starting to see that, you know, when we, no matter where we work with them along the line, it's not particularly to that one asset. We're starting to see them look across their portfolio to think about how they work with us in the CINEOS 1 model. So I think that's something additive that, you know, early days of contemplating CINEOS 1, we didn't know that we were going to get that benefit, and we're now seeing that benefit.
spk07: Got it. Very helpful. Thank you.
spk15: Thank you. And our next question coming from the lineup, Casey Woodring with JPMorgan Chase, your line is now open.
spk06: Hi. Thank you for taking my questions. So last quarter on the 03 book to bill, you noted a portion of that was related to pushouts that were expected to be recouped in 4Q and then even in 1Q23. So just curious how much of those pushouts did you recoup in 4Q and the 039 number, and then how much was pushed out to 1Q here, and then how much of that work was ultimately lost?
spk13: Thanks for the question, Casey.
spk12: Of the Q3 delays that were decided in Q4, our win rate definitely stabilized. I think we still have more opportunity there. And I think about half of them went to decision, and it was about the normal, you know, where we've normally been in regards to our win rate. We are continuing to see some deliberate decision making, but it's, you know, definitely improved sequentially in regards to that decision making. We don't think that the push-outs long-term are going to continue to be outsized. They're a little bit on the high side right now, but they're not the way they were in Q3. So we think that phenomena is stabilizing.
spk06: Got it. And then maybe just following up on one of the previous questions around share, just when you look across your peer group and clinical, IQVIA had a record bookings quarter in 4Q. Commentary from Thermo suggests that PPD is also performing at a high level, same with ICON from a booking standpoint. So just curious as to what sort of confidence you have in the investments you're making in clinical that allow you to think that you can kind of win customers back that you presumably lost to the larger scale players. Thank you.
spk12: Thanks, Casey. So you've heard Michael speak a little bit today already about some of the key things that we're doing and how we're seeing green shoots in different areas. We're really confident in executing our strategy. We're absolutely concentrating on clinical operations and business development and our cost structure realignment. And this investment that we're also making in retaining and strengthening our talent, having our retention being at a two-year high, we believe all those things are creating great experiences with our existing customers. And with new customers, we are also creating a really compelling offering for consideration for Cineos Health. And so based on the things that we're doing, we believe that we're competitive. We believe that customers are going to continue to give us the opportunity to compete for business. And, you know, looking forward to that as, you know, Jason said, as the year goes on, we're predicting our book to bill will continue to rise in clinical over the course of the year.
spk15: Thank you. One moment, please, for our next question. And our next question coming from the lineup, Luke Sergat with Barclays. Your line is open.
spk02: Hey, guys. Thanks for the question. Just one for me. And it's more on the EBITDA framework for 24. I mean, that's a pretty big step up, 100 million essentially coming out off of a low single-digit top-line growth. And just kind of wanted to get a good sense of long where that's coming from, you know, and are you going to be cutting too much on SG&A that will hinder more business development? You know, there's a risk to that. And then really kind of thinking about the 23 guide, you know, how much healthy conservatism is baked into that, where if you come in well above that $700 million at the midpoint, obviously it makes it easier to hit that $800 million. Just give us some way to think about that, please.
spk09: Yeah, hey, Luke, it's Jason. I'll start. So on the 2024, when you think about the low single-digit growth and the incremental margin associated with that, And then you add on the incremental, you know, savings from the initiatives. And that can include top-line growth as well that, you know, is inherent in that single digit at a better margin. That's how you start to get to that year-over-year step-up, right, because you're 30 to 40 in 2023 of savings over 2022. and then you're up $100 million, $150 million in 2024. So that incremental savings plus the growth and margin associated with that. So that's rough, you know, sort of orders of magnitude there of how we get there. On the business development side, we're not making any cuts. As a matter of fact, we're investing in business development, right? And that's, you know, if you look at that through, you know – Perhaps the CFO lands, you're like, wait a minute, bookings are down, BD costs are up. That doesn't make any sense. Well, we believe, though, that longer term, that's what's going to drive the growth of the business and move it forward. And we're staying very much committed to that and continue to invest around that, as Michelle has said. For 2023 and the guidance, you know, we always, you know, start with our backlog build, start with our pipeline and everything that we've talked about. And then we work through our initiatives, whether it's been our synergies from the initial transaction back in 2017 and our forward-bound initiative that we had a lot of success with. Now we have our project velocity that's sort of our new operating models we move forward where we've demonstrated we can execute these initiatives. We've looked at all that in the exact same way and put a sort of margin of error on it that we typically would, plus perhaps a bit more given the macroeconomic uncertainty that's out there and just, you know, some execution risk type thing. So, you know, feel good about the guidance ranges that we've given for 2023, and you're right. Obviously, the better we do, you know, that makes that step back up in 2024 easier. Great. Thank you.
spk15: Thank you. One moment for our next question. And our next question coming from the lineup, Elizabeth Anderson with Evercriser. Your line is now open.
spk10: Hi, guys. Thanks so much for the question. I was wondering if you could comment a little bit more on how pricing is trending both in sort of clinical and commercial versus sort of earlier in the year. And then also on secondarily sort of accounting cleanup questions. Does your interest rate assumption for the full year assume that the hedge gets put on again? I was just slightly unclear on that point, so if you could answer that too, that would be helpful.
spk13: Sure.
spk12: So, Elizabeth, thanks for the question. In regards to – well, I'll let Jason answer the interest rate question.
spk09: Yeah, on the interest rate side, the current guidance assumes that we move to 75% variable as of April 1. So it doesn't assume we put on a new hedge, and it assumes the folder curve that's currently out there for SOFR.
spk12: And Elizabeth, could you just repeat the beginning of the question?
spk10: Yeah, absolutely. So just if you could comment a little bit more on pricing in both clinical and commercial and how that's trending versus, say, a quarter or two ago.
spk12: Yes. Right. Sure. Great. Thank you, Elizabeth. So, you know, I think you've heard us say in both clinical and commercial that we think, you know, we price for value and we price for the operating, you know, delivery that we believe is going to get you the best outcome, whether it's clinical or commercial. And I think that stands true today. I don't think we've seen anything different around anybody's pricing approach. I think all these customers are making decisions that they believe are in the best interest of maximizing their assets value. So, we haven't really seen a change in that.
spk15: Okay, that's very helpful. Thank you. Thank you. I'm not showing any further questions. I would now like to turn the call back over to Michelle Kueh for any closing remarks.
spk13: Before I conclude the call, I wanted to take a moment to thank Linda Hardy for her service on our Board of Directors.
spk12: Linda has been on our board since March of 2017, and Cineos Health has been well served by her advice and her contributions. I also want to thank the entire Cineos Health team. I am motivated and inspired by their commitment to our customers, sites, and patients. Despite the near-term challenges, we remain confident in our market positioning and our strategy, and we look forward to updating you on our continued transformation. Thank you for joining us today on our call and for your interest and investment in our company.
spk15: Ladies and gentlemen, that does end our conference for today.
spk14: Thank you for your participation. You may now disconnect. The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 11.
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