IQVIA Holdings, Inc.

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the IQVIA third quarter 2020 earnings conference call. All lines have to be placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press star then followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. As a reminder, this call is being recorded. At this time, I would like to turn the call over to Andrew Marquick, Senior Vice President, Investor Relations and Treasury. Mr. Marquick, please begin your conference.

Thank you. Good morning, everyone. Thank you for joining our third quarter 2020 earnings call. With me today are Ari Boosby, Chairman and Chief Executive Officer, Ron Brauman, 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 will 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 10 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 to 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 Boosby.

Thank you, Andrew, and good morning, everyone. Thank you for joining our third quarter 2020 earnings call. The third quarter marked a nice sequential improvement in our financial performance with results coming in above the high end of our expectations. You will recall that based on early signs of recovery at the end of the second quarter, we raised our guidance for the year. Based on stronger than expected performance in the third quarter, we are again raising our full year guidance ranges for revenue, adjusted EBITDA, and adjusted diluted EPS. We're expecting a continuation of these recovery trends in the fourth quarter. This, of course, sets us up well for next year. As we promised back in April at the onset of the pandemic, we will talk to you today about our outlook for 2021. Based on what we currently see, we think the most significant COVID impacts to our business are behind us, and our outlook for 2021 indicates strong performance next year and a return to our growth trajectory. Ron will discuss 2020 and 2021 guidance in more detail later. Before we review the quarter, a quick operational update. We continue to experience a gradual improvement in the accessibility of clinical research sites in the R&D solutions business, even with the localized flare-ups we've seen around the world. We're seeing a return to on-site monitoring visits, And similar to last quarter, onsite visits exceeded the number of remote visits. In instances where sites remain physically inaccessible for clinical monitoring, remote monitoring and virtual solutions are proving to be effective workarounds. The pace of startup activity picked up significantly during the third quarter. and we are pretty much back to baseline levels for site initiation visits. Of course, patient recruitment trends have started to follow as well. Moving to technology analytics, as expected, TAS has remained resilient throughout this crisis in almost every area. We've had very little interruption in data supply or demand, Our information services continue to be mission critical to our clients and are therefore very insulated from the impacts of the pandemic. The analytics and consulting businesses have performed remarkably well, despite business development being hampered by the lack of in-person interactions. One area we discussed before that has experienced significant disruption is the event management business, which relies almost entirely on face-to-face interaction. And of course, as you know, that business is essentially on pause for now. Demand for our technology offerings remains strong. We've added 45 OCE clients this year, bringing our total number of clients to 125. During the quarter, we successfully rolled out OCE Optimizer, a real-time map-based territory and sales rep alignment solution. This tool will save management teams significant amounts of time previously spent planning and assessing sales data to ensure resources are effectively focused on the appropriate client base and product. Finally, our CSMS business, demand for field reps continues to be soft, which of course impacts revenue. But as we said before, while business development has also slowed due to the lack of in-person interactions, so far the business has performed modestly better than we would have expected as existing clients have largely retained field reps and have been continuing their engagements with us. Now against that backdrop, let's now review our third quarter results. Revenue for the third quarter came in at $2,786,000,000, which was $11 million above the high end of our guidance range. This revenue beat came from strong organic operational performance. Third quarter adjusted EBITDA was $604 million with a $22 million beat versus the high end of our guidance range. The EBITDA beat was due to better operational performance and productivity. Third quarter adjusted diluted EPS was $1.63 reflecting the EBITDA drop through because the below the line items essentially netted out to zero. Third-quarter RNDS contracted backlog, including pass-throughs, grew 18.5% year-over-year to $21.7 billion as of September 30, 2020. We had broad-based booking strength, but full-service clinical and lab were particularly strong. The contracted net book-to-bill ratio, including pass-throughs, was 1.71 for the third quarter of 2020 and 1.42 excluding pass-throughs. The LTM contracted book-to-bill ratio at September 30 was 1.55, including pass-throughs, and 1.45 excluding pass-throughs. I will now turn it over to Ron for more details on our financial performance.

Thank you, Ari, and good morning, everyone. Let's turn first to revenue. Third quarter revenue of $2,786,000,000 grew 0.6% reported and was flat at constant currency. Revenue for the first nine months of the year was $8,061,000,000, which was down 1.6% reported and 1.2% at constant currency. Technology and analytic solutions revenue of $1,207,000,000 grew 10.2% reported and 9.2% at constant currency. Year to date, tech and analytic solutions revenue was $3,433,000,000, up 4.9% reported and 5.6% at constant currency. In R&D solutions, third quarter revenue of $1.4 billion was down 4.5% at actual FX rates and 5.1% at constant currency. Excluding the impact of pass-throughs, R&D solution third quarter revenue grew 2.6%. Year-to-date revenue of $4.76 billion was down 5.6% at actual FX rates and 5.4% at constant currency. Contract sales and medical solutions revenue of $179 million was down 13.9% year-over-year reported and 14.4% on a constant currency basis in the third quarter. Year-to-date revenue was $552 million, down 8.6% at actual FX rates and 8.3% at constant currency. And moving down to P&L, adjusted EBITDA was $604 million for the third quarter, which represented growth of 1.9%. Year-to-date adjusted EBITDA was $1,649,000,000. Third quarter GAAP net income was $101 million, and GAAP diluted earnings per share was $0.52. Year-to-date GAAP net income was $160 million, and GAAP diluted earnings per share was $0.82. Adjusted net income was $318 million for the quarter and $841 million year-to-date. Adjusted diluted earnings per share grew 1.9% in the third quarter to $0.63. Year-to-date adjusted diluted earnings per share was $4.32. Turning to the R&D solutions backlog, as Ari mentioned, R&DF new business activity remains quite strong. Consequent on the robust booking activity that Ari talked about, our backlog grew 18.5% year-over-year to close at $21.7 billion. And we expect $5.8 billion of this backlog to convert to revenue over the next 12 months, which is an increase of over $400 million versus where we were at June 30th. And I would add that the outlook remains quite positive as RFPs are growing low double digits in both volume and dollars. Moving to the balance sheet now at September 30th, cash and cash equivalents total $1.5 billion in debt with $12.3 billion resulting in net debt of $10.9 billion. Due to our strong EBITDA and cash flow in the quarter, our net leverage ratio at September 30th was 4.7 times trailing 12-month adjusted EBITDA, which was down a tick from where we were at June 30th. Cash flow was a bright spot, as it was last quarter. Cash flow from operations was $574 million in the third quarter, up 74% over last year. Capital expenditures were $157 million, and that resulted in free cash flow of $417 million. M&A spending, as you saw, was negligible in the quarter. For the first nine months of the year, free cash flow was $769 million, which is about double the same period last year. Now, as you know, when the COVID-19 outbreak became the pandemic in March, we temporarily suspended our share repurchase program. We did not repurchase any shares in the second or third quarters, but the business is recovering well from COVID-19 disruptions. Underlying demand is robust, and cash flow is as well, and we have a very solid liquidity position. Closing the quarter with an undrawn revolver of almost on almost $1.5 billion of cash on the balance sheet. And as a result of all of this, we've lifted our suspension on share repurchase program, and we're expecting to opportunistically resume share repurchase activity. And as a reminder, we currently have about $1 billion of share repurchase authorization remaining under the program. Now let's turn to guidance. Given the continuing momentum in the business, we're raising our full year of guidance range for revenue, adjusted EBITDA, adjusted diluted EPS. Our guidance for the fourth quarter and the full year of 2020 assumes that business conditions will continue to improve during the fourth quarter. And specifically, we assume that localized flare-ups of COVID-19 will not have a material impact on fourth quarter results. We now expect 2020 revenue for the full year to be between $11,100,000,000 and $11,250,000,000, which is an increase of $125 million over our prior guidance at the midpoint of the range. For profit, we now expect full year adjusted EBITDA to be between $2,335,000,000 and $2,360,000,000, which represents a $27 million increase over our prior guidance at the midpoint of the range. And adjusted diluted EPS, we are expecting to be between $6.25 and $6.35, which is an increase of 10 cents over our prior guidance, again, at the midpoint of the range. This four-year guidance implies fourth quarter revenue of $3,040,000,000 to $3,190,000,000, representing growth of 5.0% to 10.2%. Now, this is a wider range than we would normally guide to at this point in the year due to the uncertain timing of pass-through revenues associated with the COVID trials that we're working on. From a segment perspective, we expect technology and analytic solutions revenue to be in the high single digits at the midpoint of our guidance range, R&D solutions revenue growth to reach double digits, with the caveat that this growth rate could move up or down based on the timing of pass-through revenue, and CSMS revenue growth to be similar to what we saw in the third quarter. For fourth quarter profit, we expect adjusted EBITDA to be between $685 million and $710 million, representing growth of 6.7% to 10.6%, and adjusted diluted EPS to be between $1.93 and $2.03, or growth of 10.9% to 16.7%. This guidance assumes that foreign exchange rates at September 30th, 2020 remain in effect for the rest of the year. As we indicated at the start of the pandemic, we've decided to advance our planning process versus prior years. And as a result, we're now in the position to provide our 2021 outlook. And this is much earlier than we would have done in the ordinary course. For the full year 2021, We expect revenue in the range of $12 billion, $300 million to $12 billion, $600 million. This represents growth at 10.1% to 12.8% versus the midpoint of our 2020 guide. We expect adjusted EBITDA to be in the range of $2 billion, $725 million to $2 billion, $800 million, representing growth at 16.1% to 19.3% compared to the midpoint of our 2020 guidance. And finally, we expect adjusted EPS to be in the range at $7.65, $7.95, which would represent growth at 21.4% to 26.2% compared to the midpoint of our 2020 guidance. A little bit more detail for you, the adjusted diluted EPS guidance assumes interest expense of approximately $420 million, operational depreciation and amortization of about $400 million, and other below-the-line expense items such as minority interest of approximately $50 million, and also a continuation of our share repurchase activity. The effective tax rate we're assuming will remain largely in line with 2020. Our 2021 guidance is predicated on the assumption that business conditions will continue to improve in the fourth quarter and that majority of our business will return to normal during 2021. Our outlook for 2021 also incorporates our view that there will be some tail of COVID work, but growth in R&DS will come primarily from our base business. So in summary, we're pleased with our team's ability to navigate the challenges that COVID has presented throughout the year, and we're proud to be a critical contributor to the solution to this public health crisis. Our R&DS business has adapted well, returning to growth in services revenue and achieving another record quarter of bookings. Our technology and analytics solutions business improved sequentially and has returned to pre-COVID growth rates despite the headwinds of the event management business. Our solid year-to-date overall company performance has enabled us to raise our guidance for the full year for revenue, adjusted EBITDA, and adjusted diluted EPS. Now, this performance, combined with our strong free cash flow and liquidity position, has enabled us to lift the suspension of our share repurchase program. And finally, we are expecting a continued recovery in the fourth quarter and a very strong 2021. So with that, Let me hand it back over to the operator for Q&A.

At this time, if you would like to ask a question, I would like to remind everyone in order to ask a question, press start and then number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. First question comes from Eric Coldwell with Baird.

Thanks very much and good morning. I was curious if you could share with us the percent of your bookings this quarter that came from COVID-related trials. You did give us the metric last quarter, as did I think virtually all of your peers.

I think looking at the contracted services bookings, in the quarter it was about 20%.

And, Ari, I assume higher on a pass-through basis, given the nature of those large vaccine studies?

Yeah, I mean, you know, it's very hard. The timing of pass-throughs and the volume of pass-throughs is different. Look, we have a lot of COVID awards since the start of the pandemic. Many of them small from protocol reviews. I mean, I think we are like close to 200 different awards around the world. So it gives you a sense. Some of them very tiny from protocol reviews. We have lab work. You know, they range from, again, nominal fees to, of course, we are on several of the large vaccine trials, not necessarily doing the entire work, but We, for example, have been awarded work, I think, on four of the five trials that are part of Operation Warp Speed that are in phase three. So sometimes we've got, in a couple of cases, we've got the full service work, and of course there we've got big pass-through numbers. Other cases, we've got the lab work, the pharmacovigilance work. So we are very involved. Some of that work does not include pass-throughs. Some of that, it does include pass-throughs. The large trials, we have full clinical work, do have big pass-through numbers. which have not been yet in our revenue numbers, given that, as you probably know, our full-service vaccine work is at a later stage than perhaps some of our competitors, who have already seen that revenue, that very strong revenue flow through in prior quarter, or will see it in this quarter, in Q3, mostly from past revenue.

That's very helpful. And if I could get you to just follow on to that, a number of investors are focused on how the COVID work plays out over the next several quarters. You know, when do you expect a peak in bookings and or revenue from COVID-related trials, at which point we would obviously need the core to be back fully to offset any year-over-year comparisons that might be developing?

Yeah, well, look, I mean, in developing, I'm assuming you're talking about 2021, obviously. Yeah, yeah, of course.

Thank you.

Yeah, so, I mean, look, Eric, we have spent a lot of time, and as I mentioned back in April, we wanted to try to give you a sense for how 2021 would shape up. And we've spent a lot of time bottom-up reviewing what would happen. And as you know, we affect every single project. piece of work across our business segments with probabilities and an assessment of what revenue will be derived in subsequent periods. So the same applies to the COVID trial. Most of the revenue on the large full-service COVID trials is pass-through. This has no impact to profit. that's just a fact. When you are a full-service work on the vaccine trial, you have to remember there are cases I've seen, I don't know if that's the case for us, but where the pass-through revenue is a ratio of 10 to 1, in other words, $10 of pass-through versus $1 of service revenue, Whereas in normal traditional trials, we would see one pass-through dollar to each two or three dollars of service revenue. And once again, pass-throughs is totally irrelevant to our profits. It has no impact whatsoever. So it makes it very difficult to predict. So that's one element of the COVID trial. The second one is, of course, we've taken into account the possibility that vaccine trials get canceled. There could be a vaccine that gets approved or two or three, and the other ones feel that it's not economically worthwhile for the sponsor to continue the vaccine trial. In fact, historically, well before COVID, we know from experience that vaccine work carries an unusually high risk of cancellation versus traditional other drug developments. So with all of that in mind, so we know all of that, we factored all of that into our guidance, and we feel good. We've anticipated many possibilities and many such scenarios. And we feel good about that. Now, you bear in mind that a lot of the work that was supposed to come online, new projects, have been put on hold by our clients because many clients have diverted their attention, resources, to COVID, whether it's for therapeutics or for vaccine work. And we do expect, in fact, our clients have told us that when that phase goes away, they'll go back to the project they were supposed to have been working on in 2020. So we have no concern that all of a sudden, if that's what you're alluding to, there will be a kind of a drop in either bookings or revenue. We do not expect that, and we've factored a lot of that potential variability into our guidance. That's the benefit of having such a wide, diversified portfolio as we do have at IQVIA, both within our MDS business and our TAS business. You should also realize that we are getting a lot of interest from public health authorities, but also a lot from sponsors for pharmacovigilance, in other words, tracking COVID patients. Our real-world business is experiencing strong double-digit growth. and we expect continued interest in pandemic-related work in general. We all hope this will be the last pandemic ever, but we also all know and understand that such crises will happen in the future, and perhaps the magnitude of the COVID crisis has taught all of us a lot of interesting things that we are going to put in place going forward in terms of preparedness, in terms of patient tracking, in terms of monitoring what exactly, you've seen our press release on the CARE project with the FDA, where we are looking at patients who have potentially been exposed to COVID. We are connecting all the dots between their medical history and our de-identified patient records, understanding what types of vitamins they've been taking, what other drug regimens they've been under, and trying to determine a map of at-risk populations with a lot more precision than what's been done today. So all of those projects are in the pipe, and I expect those to continue irrespective of whether the COVID crisis ends or not. So again, everything has been factored into our guidance.

Ari, thank you very much for the detailed answers. I appreciate it.

Next question comes from John Krieger with William Blair.

Hi, thanks very much. Ari, just to kind of continue on that, I think you mentioned to Eric that about 20% of your bookings were COVID-related. For the other 80%, are you able to start those studies up and enroll in a fairly reasonable basis, or would you say that's still broadly impaired?

Thank you. As I said in my introductory remarks, with respect to site initiation visits and site startup activity, that's the area of our business that has seen the strongest improvement. In fact, the site initiation visits are back to baseline levels and recruitment of patients is obviously starting to follow. So I think actually very good news on that front. The accessibility to sites for trials that are in flight hasn't quite recovered. We are currently at about, I'm going to say, I look at my team, it's about 70%, right? We are currently for global, if you look globally at our sites, we are back to about 70% normal accessibility. That's a bit below what we would have expected, but interestingly, it's critical size, because a site is not a site is not a site. There are sites that are very tiny, and the relative incremental value of opening that site doesn't yield much. So we're focused on the ones that are most significant. So that's for in-flight trials, and we're returning gradually to normal activity there. For new trials, again, site startup activities has resumed. Site initiation has essentially the visits are where they should be normally, pre-COVID levels. Normally, patient recruitment lags, but has increased significantly throughout the quarter. Patient recruitment was fundamentally disrupted, okay, because, you know, essentially everything was put on hold. And we are gradually going back. We have good momentum. And we don't think we will recover to baseline level until sometime in 2021. But again, all of that is factored into our guidance.

Great. Thank you. One quick follow-up. Can you give us a sense about where your focus is on sort of new technology development? I think in the past you've talked about an OCT development suite launch by year end. Is that still on the table?

Yes, absolutely. As you know, we've had great success with OCE coming from behind. And we had, therefore, along with our partner Salesforce, we expanded the relationship to clinical tech. platforming tools on the health cloud. We have certain technologies available today for digital sites and patient suites. The digital patient suite includes products such as eConsent, eCOA, and also a patient portal. We will, by the end of the year, have the digital trial management suite go live, probably by the end and before the end of the year. And the products will include CTMS, risk-based monitoring, and the mobile CRA platform. So again, the fully orchestrated solution, OCT that you're referring to, will be available by the end of this year. Again, we're also coming from behind in this area, but we will be claiming our fair share as we are doing in OCD on the commercial side. Thank you.

Sounds good.

Thank you.

Next question comes from Bob Jones with Goldman Sachs.

Great. Thanks for taking the questions. I guess, Ari, maybe just to follow up there, you know, you're saying that site activations are getting back to normal and patient recruitment obviously catching up. You know, you saw X pass through growth in RDS, I think, of around 2.6%. I guess what needs to happen to see the double-digit RDS growth in 4Q, and more importantly, what has to happen between now and over the course of 21 years you know, to kind of get to that guidance range? Is there a lot that needs to improve, or is it just kind of a normal course of what you're already seeing that needs to play out in order to get to these, you know, 4Q in 2021 RDS targets?

Well, look, we've said that we should be seeing or reaching double-digit RDS growth in Q4, okay? And we do expect meetings in 2021. So that's, you know, what needs to happen is, you know, normal course of business based on the work that we've done that I described earlier in my reply to Eric's question. Our guidance is being bottom-up, as we always do, project by project, and we make an assumption that of, look, I mean, what needs to happen is things that are going to happen, okay? The elections are going to be behind us. There'll be more clarity on the environment. There'll be at least two or three vaccines out there. People have learned to live with this. People are moving on. And all of that will happen sometime in 2021 during the year. um obviously this assumes when we say quote unquote normal business conditions it means that what we are seeing today the trends that we are seeing today the improvements that we are seeing today uh continue um with a bit more stability in 2021 due to all of these um you know factors uh being out there again elections behind more clarity on the environment vaccines, learning to live with this thing, all of this assumed. When we say stable business conditions, it means there's no new pandemic, God forbid, or anything like that. And it's a new normal, if you will. And that's what we're assuming. Nothing extraordinary, nothing needs to happen. I should point out that we haven't done any acquisitions of significance, as you know, really for the past two years. I mean, we haven't really spent at the rate that we used to. This is all organic for the most part. And so, again, we feel very good about this challenge.

No, that's fair. And I guess maybe just one follow-up. We haven't spent a lot of time on TAS. You described it as resilient, but I think the growth rate is the highest we've seen in years. Can you maybe just spend a little bit more time there talking about what's driving the performance in TAS? I know you mentioned real-world evidence, but just wanted to get a little bit more clarity behind the record growth you're seeing in that segment.

Look, the performance is the reflection, as I say, of, I can't say it a different way, of the resilience of the business. You know, a lot of what we do is mission critical to our clients with or without a pandemic. Certainly the data business hasn't, you know, hasn't moved. If anything, you know, there was, you know, it proved how mission critical it was. We probably had the best visibility. I mean, you guys and a lot of people out there felt we were insane back at the beginning of the pandemic for giving relatively precise guidance for the balance of the year. And now here we are. And it looks like, you know, more or less we were on target. It's not because we were geniuses. It's because we have visibility. We've got... you know, businesses that allow us to have that visibility. And we are global, so there are different stages of the pandemic in different parts of the world, so we can model this out. We have our internal, you know, data-based deep analytics, predictive analytics modeling capability. The task business is very, very critical, and our clients have seen that. We've had extremely strong and positive feedback from our clients. So, again, there is a part of the business that's face-to-face, which is why we had headwinds. I think it's not a huge business. I don't know if you have disclosed the members in the past. Not a huge business, but even if it's $50 million and the $50 million disappear, it's a big headwind. If it's hundreds, it's again. So we had some headwinds when this thing happened. But now we're returning to strong growth. And we told you back in June of 19, when we gave long-term guidance in our Vision 22 goals, that we did expect this business to solidify high single-digit trajectory and gradually continue to grow, driven again by our analytics, our real-world evidence, and of course, our technology offerings. Remember, the real-world business has not wavered practically, I mean, we've had some in phase four work, we've had some, you know, site accessibility issues, and so on. And, and but but which is in a way, it's a bit similar to the clinical trial business. But at the end of the day, it has continued to perform solid double digits, you know, unabated.

Yeah, just one thing I would emphasize, Bob, if there was a surprise versus where we were expecting early in the year, it's our analytics and consulting businesses continue to be very strong. And I think Hari highlighted that in his prepared remarks, You know, we were expecting some disruption due to business development activity, face-to-face selling being affected, and, in fact, it hasn't. Our analytics and consulting business has been quite strong.

Thanks for all that. Appreciate it.

Next question comes from Tycho Peterson with J.P. Morgan.

Hey, thanks. Ari, starting with R&D, does the 4Q guidance assume resumption of any of the trials that have been halted with J&J and AstraZeneca? And then, you know, what gives you the confidence that COVID flare-up won't impact results? I know you talked about side initiation visits back to baseline levels, but I guess what I'm really asking is, have you taken steps, you know, to try to kind of mitigate any impact of flare-ups? And then as we look ahead to 2021 in R&D, can you just give us a sense of how much contribute to that mid-teens growth you talked about? Thanks.

Yeah, I mean, you're asking about the impact of the delays in the vaccine work. Yes, I mean, first of all, interactions in trials in general are a common occurrence. when there are adverse events. In the case of vaccine trials, where you have the number, which is by the way one of the reasons why pass-throughs are so big, is because the number of patients enrolled in vaccine trials is huge. We're talking about massive amounts, 30, 40, 50, 60,000 people in a trial. You're going to have adverse events, and those adverse events will cause an interruption of the trial. But again, we've factored that in. It's all in our guidance and we don't expect. And by the way, as I mentioned before, that there are also cancellations in vaccine trials that are more likely. So look, again, we factored that in. We put probabilities on all of our vaccine work. And bear in mind, cancellations don't result in 100% loss revenue. You know, there's wind down and so on. And finally, frankly, since for the full service trial, the one that you talked about, we, you know, most of the revenue is passed through. So, and this is COVID work, so it's not like we are making, even on the service side, uh the the small portion of the revenue that's service it's not like we're making a margin or a margin at all right because this is part of our contribution to the effort um so that's for for the vaccine what was the other question you had

Yeah, I mean, it was whether you've taken proactive steps to mitigate any impact from COVID flare-ups. You talked about Fed initiatives at the baseline levels, but what gives you confidence in no impact? And then on the 2021 outlook, you talked about COVID being 20% of awards, but how much do you think it contributes to growth, that mid-teens growth next year?

Yeah, I don't know if I can give you the exact contribution to growth, but it is not what's creating the... the very strong double-digit growth that we expect.

We have solid growth next year in revenue and R&DS, even excluding the COVID work.

That's the short answer. By the way, we would have had growth this year, underlying growth, without the COVID work also. Not that great growth, but we would have had growth. And Q4 also. Yeah, and Q4 also. But the flare-ups, I mean, look, If it continues in the same proportion and occurrence and frequency as we see now, that's what's factoring in our guidance. But again, eventually, with the advent of vaccines by the end of the year or early next year, We think all of that will, and people will learn how to work with this, and it's already happening. If you look at, again, China is a good, you know, things are back to normal in China. I'd say entirely. I mean, sites, it's not 100%, it's 95% plus accessible access. There are Fleras, by the way, in China, but people just don't work with this. Also, again, we have to do some catch-up work, bear in mind. That's also a factor into our guidance. We did a lot of remote monitoring this year when we couldn't access the site. I think people forget that we're not going to move to 100% remote monitoring. There's still a requirement by all regulatory authorities around the world that source document verification has to occur on site. At the VA, all the regulators explicitly require that the source documents should not be shared remotely. So again, obviously, what has changed is the number of data points that might be looked at remotely, like key safety and efficacy data, for example. And so there is reduced requirements on less critical data. But in general, we still have to do that work that we were not able to do. So all of that is quote-unquote pent-up demand that needs to be addressed in the coming quarters. Catch-up work, if you will.

Okay, and then our last quick one on T-SMS, can that return to, you know, call it low single-digit growth next year?

I don't know about that because, you know, I'm not going to venture to make a prediction on T-SMS. I've been wrong in both directions. You know, I've assumed they would go down and they went up, and I've assumed they would go up and they went down. So, look, what's factored into our guidance is kind of flourishing. type growth, okay? If it's a plus 1%, plus 2%, I don't know. But, you know, flattish growth, flattish for next year. Okay, thank you. More detail on the segments when we provide guidance in the ordinary course at the beginning of 21 when we share full-year results and Q4 results, and as we traditionally do, and we give more detailed segments there. But I'm sure you can derive based on the comments we made and on the overall guidance that the momentum we see in our three business segments will continue.

Next question comes from Aaron Wright with Credit Suisse.

thanks um in terms of capital deployment here the cherry purchase activity what's embedded overall on your guidance for 2020 2021 and in terms of the sharing purchase activity and have have you been active in the fourth quarter to date and i guess on that topic as well i you mentioned it was a largely organic growth that you're pointing to i just want to clarify is does the guidance assume any acquisition i guess activity consistent with your past practices you mean the fourth quarter fourth quarter and 2021. Yeah.

So first of all, congratulations to you, Erin. Nice to have you back.

Thank you.

And secondly, look, we have not done any share repurchase since we suspended our program. So other than the shares that we repurchased in the first quarter, when the last primarily sponsored shares were sold, and we participated into that secondary. And you know about that, that was in the first quarter pre-pandemic. We haven't done anything since then. I wish we had bought all these shares, by the way, at $85 a share, but we didn't. And so we are going to start now, opportunistically, after the ONIX release and will be probably in the market. We don't have lots of time since we have to stop before the end of the year anyway. And with respect to acquisitions, no, I mean, there's nothing here for the balance of the year that would be materially different than what we've seen this year. That is relatively negligible M&A activity. In 2021, what's the assumption?

Well, you can expect in 2021 we'll spend some on acquisition, share repurchase together, we'll trade off between the two, and our normal assumption there, which is valid in 2021, is about $1.5 billion between the two during the course of the year.

Okay, perfect. That's what we had in 2018. Consistent with past practices.

Okay, great. And then just cost mitigation efforts and further flexibility. I guess if we do continue to see things get a little bit worse in terms of these COVID flare-ups, there are ample levers you can pull here from a cost mitigation standpoint, correct?

Yes. I mean, Erin, you make a very good point. As you know, we made a deliberate decision not, by and large, not to do any restructuring of our workforce. We have maintained employment, and I might add base compensation as well. First of all, the crisis situation dictated that that was the right thing to do, to focus on our people and take care of our people. And number two, we anticipated a strong V-shaped recovery, Q4 and 2021. And obviously, we wanted to preserve our talent and resources. And so we've not, you know, done anything. Now, obviously, we had a sustained situation that, you know, in a systemic way, you know, would force us to look at a totally different environment for the long term. Then we would change that, and we do have levers. I mean, the only thing that I can tell you is that we've had strong productivity despite not reducing our workforce or our base compensation. We've learned, like most companies, to work remotely. We have a very important study going on called the future of work internally, and we are trying to determine which roles, and as you know, we have about 70,000 people, so we have a lot of different roles in the company. and we are detailing which roles can actually work from home what we've learned during this pandemic what office space do we really need um you know if you're going to be behind your workstation all day uh not interacting with other people what what's the need for having a you know physical presence at an office again again depends on the geographies there are countries where That's just required, like in Japan, for example, others not. What do we do with home office? And so on and so forth. There are a lot of questions depending on the roles. And so there will be changes to our real estate footprint, no question, like most companies. you know, IT investments that we are making, you know, to solidify the remote phone work capabilities even further, et cetera. But again, we've got very significant levers that we are by and large not touched.

Okay, great. Thank you. Next question comes from Patrick Donnelly with Citigroup.

I have a question. Ari, maybe just on the remote monitoring virtual trial side, a lot of talk about that during the pandemic. I guess as you see general bookings and trials pick back up, are you seeing any notable shifts in activity towards that? And then how are you guys positioned? Maybe just talk through that side.

You're talking about remotes? Yeah. Anybody wants to take this?

Yeah. Yeah, on the remote monitoring side, and stop me, Patrick, if I'm not answering your precise question here, but the remote monitoring side, we have largely been able to substitute for the work we would otherwise be doing on site, but not 100%, because there's still the requirement to – you know, to be on site to check source documentation at the site under FDA guidelines. Now, remote monitoring, we should say, is different than virtual trials. Virtual trials include patient televisits, home health nursing, phlebotomy services, use of patient diaries and things of that nature, so quite different in that regard. I think sometimes these two terms are confused and people are saying that they're doing virtual trials when in fact what they're doing is remote monitoring. Right.

Remote monitoring of that which can be monitored remotely, which is not everything, right? Not all components of a trial may be monitored remotely. Virtual trial is a trial that has been designed to be virtual. And that doesn't mean that there won't be on-site monitoring visits either. But it uses technologies and has been designed from the start, whereas remote monitoring is a component of the regular trial that just happens to be that some of the tasks, some of the activities are monitored remotely.

Okay, that's helpful. Maybe just on the PAS business, following up on Bob's question, you guys have obviously long talked about the quality of resiliency there, so it's encouraging to see the high single-digit growth this quarter. Outlook certainly seems bullish for 4Q and 21. I guess when you think about 21 continuing this high single-digit growth, I guess what are the one or two key drivers you see there? Customer conversations, I assume, certainly trending positively, but would love just a little more granularity on the outlook for next year on that side.

Look, we have developed our guidance on TAS, assuming what we see today continues and there's no reason. Again, we've seen it in the worst of the pandemic perform very well. So certainly when things return to a more stable environment, we will continue our high single-digit growth trajectory where we are on now. And so, there aren't any specific parts of the business. Remember, the data business is zero to low single-digit growth, and that's kind of very stable. The analytics and services business, again, was mid to high single digits and continues so, you know, on the high end of that range. The real world business is just on fire, to be frank. I mean, it was before on fire, I mean, in a positive way, in firing on all cylinders. And it was... already in a very strong double-digit territory before the pandemic, it continued to be in solid double-digit territory before the pandemic and is now expected to continue to grow at that same pace. Technology continues to pick up as the deployments of OCIE are well on their way, going very well, I might add, and all of that will start generating the license revenue we expect. uh not sure not a huge portion of our task business but very nice uh revenue at nice margins so all of that will um will continue and so uh it's these four uh you know segments of our business and when you do the math and you look at the momentum you know there's no reason anticipate there's no there's no you know big uh there's no one big good guy that that will affect this this growth rate and you know one big bad guy that will that would affect that uh that forecast andrew you have any we're approaching the top of the hour so i was wondering do we want to squeeze in one more question quickly operator yeah we have a question from shilma rosenbaum with stifle

Hi, thank you very much for squeezing me in at the end. I just want to piggyback off the last question, Ari, maybe you could talk a little bit about more just on the implementations. You know, I think at one point in time, you mentioned there were like 60,000 seats to deploy, just like where you are, how long do you think this is going to take? And, you know, is there anything changing in terms of, you know, competitively, or is it really the same kind of win rates that you've talked about in prior earnings calls?

Yeah, thank you, Shlomo. OCF continued with exactly the same momentum, that is, we win about two-thirds of the time. As I mentioned in my introductory remarks, we have now, since the beginning of the year, won another 45 new clients, and that now is a total of 125. distinct clients. When we talk about the clients, we mean one company. There are competitors out there that count five different wins with the same client as five. We count that as one. You mentioned 50,000. I think we are now, correct me if I'm wrong, Andrew, like 63,000, 64,000? Maybe just over 63,000. Yeah, close to 65,000 users in deployment. And we expect that to continue to grow. We've got a nice pipeline and lots of conversations continue to go. So the momentum here is unabated, no changes. Thank you so much. Thank you, everyone.

Thanks very much. Thank you, everyone. And thanks for taking the time to join us today. We look forward to speaking with you again on our fourth quarter 2020 earnings call. And as always, Jen and I will be available to take any follow-up questions you might have throughout the day.

And this concludes today's conference call. You may now disconnect.