IQVIA Holdings, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the IQVIA Fourth Quarter 2019 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. As a reminder, this conference is being recorded on Wednesday, February 12, 2020. I would now like to turn the conference over to Andrew Markwick. Senior Vice President, Investor Relations and Treasury. Please go ahead.

Thank you, Pema. Good morning, everyone. Thank you for joining our fourth quarter and full year 2019 earnings call. With me today are Ari Boosby, Chairman and Chief Executive Officer, Michael McDonnell, Executive Vice President and Chief Financial Officer, Eric Sherbert, Executive Vice President and General Counsel, Nick Charles, Senior Vice President, Financial Planning and Analysis, and Jen Halczak, Senior Director, Investor Relations. Today, we'll be referencing a presentation that will be visible during this call for those of you on our webcast. This presentation will also be available following this call on the events and presentation section of our IQVIA Investor Relations website at ir.iqvia.com. Before we begin, I would like to caution listeners that certain information discussed by management during this conference call will include forward-looking statements. Actual results could differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company's business, which are discussed in the company's filings with the Securities and Exchange Commission, including our annual report on Form 10K and subsequent SEC filings. In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non-GAAP measures for the comparable GAAP measures is included in the press release and conference call presentation. I would now like to turn the call over to our Chairman and CEO, Ari Busby.

Thank you, Andrew, and good morning, everyone. Thank you for joining our fourth quarter and full year 2019 earnings call, where we will review how we closed 2019 and provide financial guidance for 2020. As you know, 2019 marks the final year of our three-year merger integration program. We've had 13 quarters since our merger closed. I am pleased that we have consistently delivered revenue EBITDA and EPS at or above expectations. Let's review this most recent quarter in more detail. Fourth quarter revenue of $2,895,000,000 came in $38 million above the high end of our guidance range. revenue growth was 7.7% on a reported basis and 8.5% on a constant currency basis. If we take a look back at our three-year growth performance, we grew revenue at 6.9% on average, and we exited 2019 at 7.7% or 8.5% on a constant currency basis. Recall at the time of the merger, we told you that total company revenue growth would be 100 to 200 basis points higher exiting the third year of our merger integration. And as you know, this was achieved during the third year of our merger integration. Full year 2019 revenue of $11,088,000,000 grew 8% at constant currency. and almost 6% on organic constant currency basis. That represents an organic revenue growth acceleration of well over 200 basis points compared to 2018. We see this strong top line growth rate continuing into 2020, and Mike will provide more details later. Back to the quarter. From a segment perspective, Technology and analytics solutions revenue grew 9% at constant currency. As expected, technology and analytics solutions growth moderated slightly sequentially. This was the result of our unusually strong Q3 organic performance, as well as a lower contribution from M&A. But despite this, technology and analytics solutions organic growth came in at over 7%, 7.4% to be precise, which is well above the historic trend from the IMS days, which some of you will recall was more in the 4% range. So, in this segment, significant acceleration. R&D solutions revenue grew 8.1% at constant currency. Now, we told you last quarter that RMDS organic services growth would be higher in the fourth quarter. And in fact, adjusting for the impact of pass-throughs of approximately 400 basis points and an M&A contribution of approximately 200 basis points, organic services growth on a constant currency basis accelerated to exactly 10%. also representing a significant acceleration versus the pre-merger services organic growth rate, which was just under 5%. Contract sales and medical solutions continues to demonstrate that it has turned a corner, growing 8.3% on a constant currency basis in the quarter. Now, this is undoubtedly very strong performance, but I would remind you, It was also an easy comparison against fourth quarter last year. We expect CSMS to maintain very modest growth going forward. Fourth quarter adjusted EBITDA came in at $642 million, resulting in adjusted EBITDA margins that continued to expand in the quarter. As you know, we've been making investments in technology, talents, and go-to-market resources. We've also been very active in deploying all of our tech wins, developing the clinical and commercial technology offerings, and acquiring tech companies, all of which have a dilutive impact on our margins. So in this context, we are very pleased with our results. Fourth quarter adjusted diluted DPS of $1.74 was at the high end of our guidance range and grew 16%. These strong financial results were driven by numerous operating achievements and milestones. I'd like to take you through some of our 2019 operational achievements. 2019 was a pivotal year for our technology business. OCE gained significant traction, earning deserved credibility in the market. We won 50 new OCE deals in 2019 compared to 30 in 2018, which was the first full year post-launch. We now have almost 60,000 contracted seats to deploy. We have four top 15 pharma clients who have made the decision to adopt our superior platform. Our deployment with Roche is complete for several countries in Asia. With that successful delivery, we are working to accelerate the rollout globally to enable Roche's worldwide digital strategy. The Novo Nordisk deployment is well underway, and feedback has been very positive. Additionally, we are excited to start our first large U.S. deployment, as you've seen in one AstraZeneca U.S. business for OCD. During 2019, we also ramped our investment in the clinical technology space, and I want to highlight today our progress in virtual trials. You will recall that our virtual trial technology, StudyHub, is a scalable SaaS platform built on Salesforce's Health Cloud. We're having success in the market with this transformative technology and delivery model. We're now executing on several studies on a global basis in all key geographies. Studies span multiple therapeutic areas, including CNS, oncology, and digital therapeutics, to name a few. And the study execution can take the form of either a full virtual trial or a combination of both traditional and virtual trial. We have a strong pipeline in virtual trials and have established ourselves as a premier provider in this space going into 2020. In real world, we continue to build our leading position in the real world market. We were selected as a preferred provider by a large pharma company with over 20 real world engagements already over the next five years. We also have the top 10 pharma company obtained an FDA-approved license extension for an oncology product using a real-world comparator arm. And lastly, we continue to make enhancements to E360 genomics, our patented technology platforms which will advance research in the real-world space through the use of non-identified genomic data linked to rich patient analytics. The real-world team continues to invest in our rich clinical data assets, which have now grown to 800 million non-identified patients globally. Moving to R&D. For the fourth quarter, our book-to-bill ratio was 1.46 on both the services basis and including pass-throughs. For the full year, our services book-to-bill was 1.34, and including pastures, the book-to-bill was 1.33. Our backlog at the end of the year was a record $19 billion. Our next 12 months' revenue from backlog increased by a further $100 million to $5.2 billion. In 2019, we won business with well over 250 new clients in the clinical space during the year. Importantly, we captured two preferred provider agreements with top 15 pharma clients that had been locked out previously. We are clearly seeing more and winning more trials as sponsors come to realize the benefits of our highly differentiated capabilities. In fact, our co-powered smart trial offering continues to drive new business ones. During the quarter, we were awarded over $900 million of co-powered smart trial business, excluding pass-throughs. Today, 13 of the top 20 pharma companies are using our co-powered approach to improve trial design, to speed up site identification, and to increase patient recruitment. As we speak, we have over 800 smart trials in operation, enrolling more than 120,000 patients. Finally, just like to say a few words about the business environment. R&D activity is at an all-time high. The total number of molecules in clinical development continues to grow, with the late-stage pipeline growing 11% in 2019. On average, over the last three years, the FDA has approved 51 new drugs. Importantly, outsourcing penetration of addressable clinical spend has grown to almost 50%. as pharma companies turn to CROs for expertise in running increasingly complex trials and recruiting increasingly hard-to-find patients. Venture capital funding of life sciences companies remains robust. The National Venture Capital Association reported a record number of deals in 2019 with dollars invested moderating only slightly over a record set in 2018. All of this supports a very solid backdrop for the industry as we go into 2020. Once again, another very strong quarter and a very, very strong year across all our businesses. Mike will now review the financials in more detail.

Thank you, Ari. Good morning, everyone. As you have seen, it was a very solid quarter ramming out a very strong year. Let's turn first to revenue. Fourth quarter revenue of $2,895,000 grew 8.5% at constant currency and 7.7% reported. Revenue for the full year was $11,088,000 and grew 8% at constant currency and 6.5% reported. Technology and analytics solutions fourth quarter revenue of $1,214,000,000 grew 9% at constant currency and 7.7% reported. Technology and analytics solutions revenue for the year was $4,486,000,000 and grew 10.7% at constant currency and 8.4% reported. R&D solutions fourth quarter revenue of $1,471,000,000 grew 8.1%. at constant currency and 7.5% reported. Full year R&D solutions revenue of $5,788,000,000 grew 6.9% at constant currency and 5.9% reported. Fourth quarter contract sales and medical solutions revenue of $210,000,000 grew 8.3% on a constant currency basis and 8.8% reported. CSMS revenue for the year was $814 million, up 1.6% in constant currency and half a percent on a reported basis. Turning now to profit. Adjusted EBITDA was $642 million for the fourth quarter and $2,400,000,000 for the full year of 2019. Fourth quarter GAAP net income was $16 million and GAAP diluted earnings per share was $0.09. Full year GAAP net income was $191 million and GAAP diluted earnings per share was $0.96. Adjusted net income was $343 million for the fourth quarter and $1,276,000,000 for the full year. Fourth quarter adjusted diluted earnings per share grew 16% year over year to $1.74. Full year adjusted diluted earnings per share of $6.39 grew 15.1%. Let's turn now to R&D Solutions backlog. Closing backlog at December 31, 2019 was $19 billion and the amount of backlog that we expect to convert to revenue over the next 12 months increased by approximately $100 million to $5.2 billion. As Ari mentioned, we are well positioned for further acceleration in R&DS revenue growth in 2020. Let's now review the balance sheet. At December 31st, cash and cash equivalents totaled $837 million in debt with $11,645,000, resulting in net debt of $10,808,000. Our net leverage ratio was 4.5 times our trailing 12-month adjusted EBITDA. Cash flow from operating activities was $583 million in the fourth quarter and $1.4 billion for the year. CapEx for the full year was $582 million, of which $137 million was spent in the fourth quarter. As expected, we had a large ramp in free cash flow in the fourth quarter. Fourth quarter free cash flow was $446 million, resulting in full year free cash flow of $835 million. We repurchased $255 million of our stock during the fourth quarter, totaling $945 million for the year. Now let's turn to 2020 guidance. Our full year 2020 revenue guidance is $11,775,000,000 to $12,000,000,000. For full year profit, we expect to test the EBITDA to be between $2,565,000,000 and $2,620,000,000 and adjusted diluted EPS to be between $7.15 and $7.35. This guidance assumes foreign currency rates at February 7, 2020, remain in effect for the rest of the year. You should note that since the beginning of the year, when we originally set our plans for the year, foreign currency rates have moved against us and have resulted in a headwind toward 2020 revenue plan of about $80 million. So, absentee movements, full-year 2020 revenue guidance would have been about $80 million higher. In addition, our financial guidance includes our best assessment of potential coronavirus impacts, which our guidance assumes will primarily affect our R&D solutions segment. You can appreciate that this is evolving in real time, but we can already see disruptions to our sites, which are mostly hospitals in China. We are currently assuming and hoping for a short-term resolution to this outbreak and have therefore assumed an impact of first quarter revenue of $25 million with heavy drop-through and have carried these impacts to our full-year guidance. Before turning to our first quarter guidance, a few additional points about the full year. Regarding our segments for 2020. We currently expect technology and analytics solutions revenue to be between $4,775,000,000 and $4,860,000,000 representing reported growth of 6.4% to 8.3% or 7.2% to 9.1% on a constant currency basis. This guidance assumes approximately 100 basis points of M&A contribution, which is considerably lower than what it has been over the last three years. R&D Solutions revenue is expected to be between $6,185,000,000 and $6,325,000,000, representing reported growth of 6.9% to 9.3%, or 7.2% to 9.6% on a constant currency basis. Note, this growth rate assumes a 200 basis point headwind from pass-through, so R&D Solutions constant currency services growth is expected to be 9.2% to 11.6%. This guidance assumes approximately 100 basis points of M&A contribution. We expect R&D Solutions revenue growth to be lumpy quarter over quarter. You should not expect the growth rate to be linear. Specifically, as it relates to the first quarter of 2020, I would encourage you to look at our past performance. You will see it is not unusual for growth rates and R&D solutions to step down from the fourth quarter to the first quarter. Additionally, this year, we have incorporated the impact of the coronavirus, which I just discussed. CSMS revenue is expected to be about $815 million, representing reported growth of about 0.1% for 2020, or approximately 0.7% at constant FX rates. While we look at the acceleration of the business overall, we know many of you are focused on a revenue acceleration for R&D solutions. So I'd like to take a minute to highlight our progression there. As you know, the impact to growth from pass-throughs has been lumpy, but since the adoption of ASC 606 in 2018, we have continued to see pass-throughs grow at a slower rate than service revenues. This is due to the number of projects we have in the startup phase where less pass-through is generated. Therefore, we believe it is best to look at R&D solution services growth adjusted for the impact of pass-throughs. On that basis, content currency R&D solution services growth was 5.4% in 2017, which was the first full year after the merger. For 2020, the first full year after our merger integration period, the midpoint of our R&D solution's constant currency services growth guidance is 10.4%. So you can see we have nearly doubled our growth rate, which represents a dramatic acceleration. Let me now give you some color on the first quarter of 2020. Assuming FX rates at February 7 remain constant through the end of the quarter, We expect revenue to be between $2,790,000,000 and $2,840,000,000. Adjusted EBITDA to be between $595,000,000 and $610,000,000, and adjusted diluted EPS to be between $1.59 and $1.65. And as I mentioned earlier, we have assumed a disproportionate impact of the coronavirus in the first quarter, and this is reflected in our guidance. First quarter guidance assumes foreign currency rates at February 7, 2020 remain in effect for the rest of the quarter. As I mentioned earlier, foreign currency rates have moved against us since the beginning of the year, which has resulted in a headwind to our first quarter revenue plan of about $20 million. And so absent these movements, first quarter revenue guidance would have been about $20 million higher. And so in summary, Fourth quarter revenue, adjusted EBITDA and earnings were at or above our financial targets. Full year 2019 organic constant currency revenue growth accelerated over 200 basis points compared to 2018. Adjusted diluted EPS continues to compound in the mid-teens with 15.1% growth in 2019. We won 50 new OCD deals in 2019. R&D Solutions' backlog stands at $19 billion, with $5.2 billion expected to convert to revenue over the next 12 months. CSMS successfully stabilized in 2019. We deployed almost $1 billion to share repurchase, and we are planning for a very strong 2020, demonstrating strong continued operating momentum and growth acceleration. And with that, let me hand it back to the operator for Q&A.

Thank you. Ladies and gentlemen, if you would like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you'd like to withdraw your registration, please press the 1 followed by the 3. If you're using a speakerphone, please lift your handset before entering your request. One moment, please, for the first question. Our first question comes from the line of Eric Caldwell with Baird. Please proceed with your question.

Thanks very much and good morning. I have two questions. The first is in technology and analytics. It's a tough one to ask. I'm not sure how to best go about this, but there's been obviously a lot of investment, a lot of new wins. You've got a lot of onboarding coming with the top pharmas that you've highlighted here. I'm curious if you have a sense on when based on the current pipeline and your current wins, when the actual revenue and performance of clients that have been onboarded might be able to offset the incremental investments that you're making during the onboarding phase? In other words, do you see a point, is it 2021 or 2022, where you have more momentum with onboarded clients that you can absorb future onboarding and maintain or grow the EBITDA on the segment?

Hey Eric, this is Andrew. I think, I mean, if we go back to our analyst day in June, we laid out a new plan for the next three years through the 2020-2022 timeframe. We clearly said there that we expect EBITDA to grow slower than it has done in the past. We're committed to margin expansion and we're looking for margin expansion in the business. But the deployments we're putting out currently are going to pressure that and the investments we're seeing in technology. We're going to see some of that revenue come through now, but obviously we've got large global deployments for the likes of Roche, and we're planning on being active with our go-to-market as well. Hopefully, as we go forward, this will bring natural margin accretion because the revenue that we're layering into the base is higher margin. But we're not assuming that's going to take place during the next three years. So we've asked everyone to underwrite the midterm guidance. But if you do the math on the EBITDA, you'll get to an average of about 20, 30 basis points, which assumes kind of continued investment in the technology world.

Eric, good morning. If your question is, as always, on the mark, you're trying to understand when the benefit of higher margin seats, license, revenue, offsets the investments. And obviously, we are hoping that we're going to continue to accelerate our selling momentum in this business. So it's hard, you know, to just isolate the EBITDA contribution of that line of business because we continue to invest and deploy new seats, and hopefully we continue to grab market share and expand. You know, when the business in isolation is more accretive to margins, it will be some time in the next three-year period But in aggregate, as Andrew reminded us, we expect to continue to grow our EBITDA faster than our top line and over the period and have margin accretion for the company as a whole. You have the second question.

Yeah, yeah. It's sort of a follow-on on that. And I absolutely agree. We'd rather see the business wins than you making the investments now for the future. So, Thank you for that. The follow-on, and I apologize if I missed it. We're toggling a couple of reports. But did you mention anything about the pipeline, either in OCE or tech more broadly? You had the 80-plus wins that you've cited here on this call since rolling out OCE. I'm curious what your pipeline might be in OCE. Do you have a line of sight over the next year on additional top 15 pharmas? You know, what does that pipeline look like based on those clients' renewal cycles and who may be coming to market?

Yeah. I mean, look, we are in dialogue. We have been in dialogue since we launched the product with essentially all large pharma and anyone who's contemplating either a renewal or a switch or an upgrade to their CRM platform. So, you know, we have an active pipeline and some are more likely than others. But, you know, it's hard for me to give you these precise numbers in isolation for that line. In addition, as you know, we have all the add-ons, you know, we've got the ePromo, the analytics, the NVM products that are that can be stitched together with OCD. And we are very, very active in conversations on the clinical technology side. I mentioned in my remarks virtual trials that I wanted to highlight, but certainly the other modules of our clinical technology suites. We are also in active discussions with safety and regulatory modules and others of company management So there is a very large pipeline, and we have a lot of conversations. It's going to continue to ramp up. This is why we feel comfortable with a guidance on the technology analytics segment that represents a significant acceleration versus our history. I think you are familiar with the history at IMS and our, you know, quote-unquote best-in-class organic growth rate was more in the 4% range. And bear in mind that our info business, which is a significant portion, let's say about a third or 30% or so of our technical analytics solution segment, grows at 0%. So, you know, when you do the math, you will realize that the growth on the technology piece and the analytics piece is significant.

Yeah. No, that's great. Thank you so much for the answers and congrats on the strong outlook. Thank you.

Thank you, sir. Continuing on, our next question comes from the line of Robert Jones with Goldman Sachs. Please proceed with your question.

Great. Thanks so much. Yeah, I guess just wanted to talk a little bit about the cadence for 2020. I know you guys laid out a lot of detail to help us think through that. But, you know, if I just look at the sequential, you know, total enterprise level revenue step down from last year and then what you're indicating for this year, It does seem like, obviously, an easier comp for 1Q year over year, adjusting for corona. Is there anything else you guys are thinking about as far as what's at play, as far as why the revenue in 1Q might look to be a bit of a deceleration, again, off of an easy comp year over year? And then what's the line of sight, obviously, to get the full year number that you guys sound very confident in achieving next year?

I'm not sure what the question is. The question is on Q1. Why is Q1? Again, Q1, unfortunately, we just assumed that the quarter will, you know, we see what's happening in China as a result of coronavirus. I don't want to overstate it because it's, you know, China represents a very tiny piece of our overall business. You know, without disclosing the number of cents, we are well over $100,000. you know, worldwide and in the particular region in China where this is happening, it's less than 100 sites. I think in China we might have somewhere around a couple thousand sites. So the people, you know, patients are simply not going, the patients who are enrolled in a trial are simply not going to visit the hospitals where all the sites are in China because that's kind of the you know, the most dangerous spot right now. And then, obviously, CRAs, we're not sending them. So there's a little bit of a pause in business environment, if you will, as a result of this. And we've quantified that to be $25 million of impact in the first quarter, assuming resolution by then, hopefully. And that, obviously, we're still paying people. So, you know, the costs are there. And so most of that $25 million is dropping through profits And so that kind of causes a new depression in the first quarter. And we've . No, I think that makes a ton of sense.

Sorry, I guess maybe I asked another way. I guess, you know, X-ing out the impact from corona, is there anything we should be contemplating as far as the cadence of 2020 versus the normal cadence of revenue growth? that we've seen the last few years?

No, I mean, look, generally, if you look at every year, so for instance, we've had IQ in operation, which is over three years. Generally, the first quarter represents a little less proportion of the revenue than the other quarters, right? I mean, it's like a couple of percentage points lower than in Q1 than Q4, for example. You know, if you take a look at 2019, Q1 was 24% of our EBITDA for the full year, and Q4 was 27%. And on a revenue basis, Q1 of 2019 was 24% of our revenue, and Q4 was 27%. So it's generally the case. And then furthermore, if you look at actual numbers, FX is significant. And I think relative to prior year, when you compare year over year, the impact of FX year over year is very significant. is more significant in the first quarter. Do you want to add something, Andrew?

No, I was going to say, obviously, FX is a headwind to year-over-year growth for the full year. We're obviously going to see that in the first quarter. Mike called out that since the beginning of the year, FX has moved against us by $20 million. So our guidance would have been $20 million higher if we hadn't had the strengthening of the dollar over the last few weeks. The growth ratio, calculating on a reported basis, obviously on a constant dollar basis, would probably be about 90 to 100 basis points higher for that year-over-year FX headwind as well. Got it.

Thank you.

Thank you. Continuing on, our next question comes from the line of Jack Meehan with Barclays. Please proceed.

Thank you. Good morning. I wanted to focus on the upside in the fourth quarter. So if you look at revenue, it came in above the guidance you had laid out for the fourth quarter pretty comfortably. I guess versus your plan, where was the upside? At least when I first saw the number, I assumed it was pass-throughs, but it was actually the opposite. Obviously, that was a headwind. And then on the EBITDA line, you know, I think one nitpick would be you didn't see any drop-downs. So I was just wondering if you could comment on whether there was some reinvestment back in the business as well.

Yes. Well, thank you, Jack. Thank you for the question. Yeah, the upside versus guidance on the revenue came entirely from the underlying operational performance of the businesses and not from FASU. As you said, FASU is a headwind. The majority of the beats versus our guidance, the vast majority, was in the technology segment. The We just talked about this during my remarks and answers to Eric's question. We're starting to see revenue ramp on the technology business, technology analytics solution segment. And the flip side is mitigating the drop-through of EBITDA, which is very strong, by the way, on the technology side, very strong EBITDA drop-through, but mitigating that are the continuing investments in deployment. So when we finish deployment for our top 10 clients in Asia, those revenues come in at a very high margin because, again, there are size licenses, but at the same time, we're deploying in other parts of the world, and so that implementation is essentially a no margin business, so that offset that, and of course, our continuing investments, as you pointed out. Nevertheless, I just want to point out that we generated margin accretion, margin expansion, in a quote.

Yeah, and that's all fair. And, Mike, I was curious as you went about assessing the impact from coronavirus, and I know it's to the best of your abilities at this point, but just comment, is this predominantly the 25 million on the R&D segment? Is there any impact potentially on the tech side?

Yeah, the majority of it is on the R&D side because, you know, I'd say it's 100% on the R&D side where we would see the impact. The rest of the business, we don't see any material impacts.

Yeah, I mean, you know, just to add, obviously, again, it's just a physical constraint. I mean, the rest of the business is less, does not require, you know, actual physical movements of people on the technology analytics solution side. So, as Mike said, I think we can say 99% is on the R&D side. Thank you.

And thank you.

And by the way, I'm sorry, just to tamper with this a little bit, we obviously have contingencies and we're working on mitigating all of these issues, so I don't want to, it's obviously an evolving situation, but, you know, we currently expect that this will be resolved, and we're also internally working on mitigation plans, you know, reorienting certain sites, opening up new sites outside of China, et cetera. So it's not like we're just sitting and waiting for these sites to reopen, you know, blindly. So I just want to make sure you understand we are a large company and we can absorb these issues, you know, within our contingency for the year. We will revisit as appropriate, you know, if things change.

Thank you, sir. Now, our next question comes from the line of Elizabeth Anderson with Evercore. Please proceed.

Hi, guys. Thanks for taking the question. I have a question on obviously the book to bill in the quarter was very impressive, and you've spoken to some of the lumpiness and outlook. Is there anything to think about in terms of like the trial conversions and sort of the length or delays and starts that we should also take into account?

Sorry, can you say that again? We couldn't hear the beginning of your question.

Oh, sorry about that. Hopefully you can hear me better now. So obviously you guys put up a very impressive book to build, and it comes on the back of several other really nice book to build. So I know that you spoke about some of the impact of the trial lumpiness in the quarter, but I wanted to know if there was anything you guys had to comment about, sort of trial conversions or increased complexity or delayed start times or anything on sort of like a more broader level that you're seeing that would also potentially play into some of the sort of inter-quarter movement in your guidance?

No, I think, I mean, when you look at the first quarter, I think if you look at history, we're kind of pretty much along the lines of what we've seen historically. There's nothing unusual, no delays. I think, if anything, we're moving forward with our backlog. next four months revenue is nice and healthy and shows continued increases every quarter at this stage and it's business as usual for us.

Yeah, very, very strong bookings continuing across the board. We've pointed out before that we believe we're gaining market share and I think it's pretty obvious if you look at the size of our revenue and the level of the I think we've had seven quarters in a row where we've had book-to-bill ratios above 1.2. Is that correct?

Yeah, for the last couple of years.

And we've had very, very strong bookings for the year 133 or 134, if you look at it on a services basis. And it's across the board with a very, very strong proportion, very, very strong, the vast majority being full clinical work. And because we are in startup phase for all of those very strong bookings that we generated last year, you will remember in the third and fourth quarters of 2018, we had book-to-be ratios of 1.7. And those were, lots of them were full clinical work, and they are in startup phase. And during that startup phase, they are, There's no pass-throughs, obviously, right? So that's what's causing the headwinds from pass-throughs, the higher headwinds from pass-throughs in the fourth quarter. Now, the good news is, you know, full clinical are the nice sweet spots of the CRO business where you want to be, and they have higher margins, and we expect, you know, strong margin drop-throughs, you know, in the next quarter. couple of years as we continue to deploy those or perform those clinical trials.

Okay, that's very helpful. And obviously with your book to bill and the, you know, continued revenue growth, you guys are putting up some probably what I assume are some nice, you know, share gains versus peers. Is there anything you'd like to call out either qualitatively or not about sort of reasons that people, you know, sponsors are choosing you, any particular, like, product offerings or other things?

Yeah, I think that we've mentioned in the past that, you know, our capabilities are unique. What we call the core-powered smart trials using data analytics and technology to sort of model out the trial early on, help the trial design, optimize protocols, accelerate site identification to optimize the trial strategy, and of course, all of that supporting a faster and more precise patient recruitment, which is demonstrated now by our performance on those trials. When we started after the merger, I think not talking about bookings, but awards of smart trials being $200, $300 million a quarter. I mentioned in my introductory remarks that this past quarter we had over $900 billion of awards, and that services only in terms of co-powered smart trials. You know, it's becoming the way we do business. We are applying co-powered smart trials to the vast majority of what as a result of those two dividends. Thank you.

Okay, perfect. Thank you.

Thank you. Continuing on, our next question comes from the line of Shlomo Rosenbaum with CIFL. Please proceed, sir.

Hi. Thank you very much for taking my questions. Ari, given all the wins that you've had in OCE, can you talk a little bit about just have you seen a competitive response from a major competitor over there? Is there anything that they're doing in terms of pricing? Also, there's some comments that I've heard from speculation that in order to win some of the business, you could be subsidizing the OCE with the fact that you have such a big base of info services. Is the pricing that you're going out to the market with competitive in the market? Are you winning based on capabilities, or is there some of that subsidy going on? Thank you.

Thank you, Shlomo. And we, I know there's a lot of noise, and as you know, there is an entrenched dominant competitor in the space that has had it essentially easy for many years, essentially for a decade. And so, for sure, we are coming from behind. And, you know, that competitor has done a fantastic job, and we admire their performance. But we believe that our product is superior in terms of functionality. I remind you that OCE is based on a different Salesforce platform than the competitor product was. The competitor product was built on the Salesforce platform of 10 years ago. Since then, it's a totally different platform with a lot more functionality that is being built into the platform and from which we have benefited. So the added functionality is really what helps us win. There are AI ML modules built into this OCE platform that do not exist at the comparison In order to match those, they'd have to build custom-made modules. Now, ours are standard and built from the start. That's the fundamental difference. That's the fundamental difference, and this is why we were able to win. You know, trust me, on a global deployment in over 100 countries, as we're doing for Rush, for such an important tool for Rush, a few dollars, more or less, are not going to make them switch. This is one of the most sophisticated pharma companies around. They will pay a higher price for better functionality. In the grand scheme of things, it does not represent a huge line item in Russia's P&L. Okay, so we are not, I underline the stress, we are not We actually, in some cases, have priced at the premium.

Okay, great. And has there been a competitive response that you want to point out, or what does it look like to you?

Look, I usually refrain from commenting on what competitors are doing. I mean, all I know is the competitor bought the company. that kind of works with something like that that has a little bit of data or that works with data. I'm not quite sure what it is, to be frank. But clearly, it's an attempt at providing capabilities additional. And then there are other reactions that I'd rather not comment on. Okay, great.

Thank you very much.

Thank you. Continuing on, our next question comes from the line of John Krieger with William Blair. Please proceed with your question.

Hi, thank you. Ari, another technology question for you. Could you give us an update on the OCT suite of products? Curious if you could give us a sense about timing. and whether or not you think that could offer a similar opportunity as the success you're seeing now with OCE. Thanks.

Yeah. So, today, look, we have a few modules that are already available and that are being sold with specific technologies like the site portal, the investigative payments, and e-consent that are out in the market and are quite successful. There are also, you know, patient portals, virtual trials that I discussed is really what we've been pushing. And by the way, the context, I don't want to bring it up again. In context of what's going on in China, this virtual trial technology actually shows that, you know, that's the way of the future. Risk-based monitoring and mobile CLA will go live in the third quarter of 2020. And we've got additional products like CTMS, which will be released in Q4. So, which, again, with a full suite. As we said, the full suite will be essentially available by the end of the year. So, we're releasing modules as we go.

Very helpful. Thanks. And, Mike, a question for you. I think you talked about backlog increasing 11% last year compared to where it ended in 18%. Is there anything you want to call out in terms of mixed shifts within that backlog that could perhaps be a tailwind or headwinds for margins over the next couple of years?

Thanks. Hey, John. It's Andrew. I think, I mean, we obviously have a very large backlog, which we're very pleased with, and we see continued growth in next 12 months' revenue from backlog. I think it's becoming increasingly diverse in terms of client mix, but really is more concentrated towards large pharma at this stage. We've obviously had a lot of success with the emerging biopharma sector. which is a segment that we really wanted to focus on post-merger, and we've seen a lot of success there. Out of the gate with our core power solution, I think that's where really we put those clients. They're hungry for data, tech, analytics. They have the right kind of products that are focused on that kind of approach. As our core power business has grown, and Ari mentioned earlier, we were kind of a couple hundred million dollars, of course, of post-merger, Now we're running at a clip of more like $900 million, a quarter. Large pharma are really coming to the table and looking at that offering. So I think being obsessed with all client segments, but still mainly large pharma is the main mix within our revenue base and that one.

Okay. Thank you.

Thank you. And our next question comes from the line of Erin Wright with Credit Suisse. Please proceed with your question.

Great, thanks. You've historically been very diligent on the cost management front. I understand that you've completed the initial integration post-merger, but what does your guidance assume in terms of continued incremental cost savings here on in 2020 or even beyond? Thanks.

Yeah, Aaron, thanks for the question. We indeed, as you pointed out, actually exceeded our plans for the $200 million synergy cost takeouts that we had announced at the time of the merger, and we achieved that sometime earlier in 2019. We also announced at our investor conference in June that that we were launching a new $200 million cost elimination initiative, which we named V22, for the next three-year period, 2021-22. And we are doing this in order to take advantage of the new larger scale of our business. We're now at the phase of an inflection point, frankly, where we see growth accelerating, And we have to make sure when this happens in a business that we don't let costs creep up, you know, ahead of revenue or even at the same time or in line with revenue. At the same time, we've got to support that growth. So it's a more complex equation to manage. And therefore, it's important that we have a specific program and we do have a program office that with a full-time team that's dedicated to running those initiatives across the company. Those run the gamut from continued initiatives on procurement, on infrastructure optimization, whether it's real estate, IT systems, and, of course, the more complex aspects of automation, using bots and AI ML tools within our own operations, actually which continues scaling up our Philippines, our India, and our other offshore centers in Eastern Europe and South America to continue, you know, supporting the growth from those centers, and all of those, In combination, we expect to generate exiting 2022 $200 million of cost savings, which we believe is necessary to more than offset the headwind to margin that we would otherwise have if we did nothing else. And we believe that that is going to be ramping usually, you know, a smaller portion the first year. Maybe I'm going to say 20% or so of that $200 billion will come in 2020. And then perhaps another 30% or so in 21. And then the balance, the last 50% during 2022. So that's, you know, the best estimate we have here of how this is going to ramp up.

Thank you very much, Erin. That's perfect. And then on virtual trials, Do you think that you're leading the market now in virtual trial concepts? And you mentioned a strong pipeline there. Do you think that your win rates are disproportionately higher with virtual trials? And how many virtual trials are you actually working on now? Thanks.

Okay. It's in the double digits, right? So I think it's what exact number? We have the number? I don't even want to start. Yeah, we're not going to say. You know, more than 10, less than 20. Okay, and it's always large farmer.

Okay, great.

Thanks very much for the questions, Erin. I think we're approaching the top of the hour now, so I think we'll end the call there. Thank you, everyone, for taking the time to join us today, and we look forward to speaking with you again on our first quarter of 2020 earnings call. Jen and I will be available to take any follow-up questions you may have for the rest of the day. Thank you very much.

Thank you. Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you once again.