Syneos Health, Inc.

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.

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?

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?