IQVIA Holdings, Inc.

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

Thank you. Good morning, everyone. Thank you for joining our fourth quarter and full year 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, and Nick Childs, Senior Vice President, Financial Planning and Analysis. 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 on the events and presentation section of our IQVF Investor Relations website at ir.iqvia.com. Now, you may have noticed that when we issued our press release this morning, we inadvertently missed the quarterly P&L due to an administrative issue. We apologize for this error. This P&L will be made available in our slide presentation, and that will be posted to our website momentarily. Before we begin, I'd 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-K 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. Thanks for joining our fourth quarter and full year 2020 earnings call. We will review how we close 2020 and discuss 2021 financial guidance. I'm pleased to report we finished the year with a very strong quarter. We delivered double-digit growth in all key financial metrics and once again reported results above our financial targets. This is all the more remarkable since last year's fourth quarter was so strong. As you know, throughout this difficult year, and as we navigated through the pandemic, we tried to be as transparent as possible and provide visibility to our expected financial performance. In such highly unusual circumstances, the default reaction would normally be to withdraw guidance and watch from the sidelines, but As you know, we tried our best to share with you what we saw. We did the same at the end of the third quarter when we decided to provide a 2021 outlook as soon as we had some visibility, which was a full quarter earlier than usual. Today, this outlook has become clearer and we've decided to update and raise that guidance. Let's start by reviewing our fourth quarter results. Revenue for the fourth quarter came in at $3,298,000,000, which was $108 million above the high end of our guidance range. A little over 70% of these beats came from strong organic performance, less than 30% from favorable foreign exchange. Revenue growth was 13.9% on a reported basis and 12.2% at constant currency. Fourth quarter adjusted EBITDA of $735 million grew 14.5%, reflecting our revenue growth and productivity measures. The $25 million beat above the high end of our guidance range was entirely due to the stronger organic revenue performance. Fourth quarter adjusted diluted EPS of $2.11 grew 21.3%. The beat here entirely reflects the adjusted EBITDA drop through. Our strong fourth quarter financial results were driven by numerous operating achievements during 2020. A little bit more color on those achievements, starting with technology. Demand for our technology offerings remained strong in 2020. 60 new clients decided to deploy OCE last year. bringing our total number of OCE client wins to 140 since launch. As you know, at the beginning of 2020, a top 15 global pharma client begun deployment of OCE in the US. This client has now decided to begin global OCE deployment for their medical teams, namely their almost 2000 medical science liaisons worldwide. The same client is also expanding its use of IQVIA technologies through our HCP engagement management platform. We launched this platform during 2020. HCP engagement management works in conjunction with OCE to ensure global commercial activities are executed in compliance with all global regulations. In addition to HCP engagement management, you will have seen that during 2020, we also launched OCE Optimizer. OCE Optimizer is a real-time math-based territory and sales rep alignment solution, which helps our clients plan their sales rep activity and improve their marketing plans. Switching to our real-world business. Our real-world business has been relatively well insulated from the impact of the virus, and it has strong growth for the year. The business is advanced in the use of secondary data, remote monitoring, and virtual research approaches, which help the team pivot quickly to working in the new remote world at the onset of the pandemic. Our rich clinical data assets are key to our real world differentiation. The team has continued to invest in these rich clinical data assets. And these assets now include over 1 billion active non-identified patients globally. And the team is busy integrating this rich clinical data into research. In 2020, we launched CARE, our COVID Active Research Experience Registry, to help communities and public health authorities better understand the impact of COVID-19 on the population. We're leveraging this platform along with our vast experience of registries and analytics to partner with the FDA to support a better understanding of how people are affected by exposure to COVID. This work will help identify what symptoms individuals experience, the length and severity of symptoms, and whether any medications or supplements they are taking affect the severity of those symptoms. It's a perfect application of our real-world capabilities. Similarly, we have become the partner of choice around the world to assist various governments and healthcare authorities with large-scale diagnostic testing and monitoring of COVID patients. This new series of offerings, which leverages our connected capabilities, contributed incrementally to the strong sequential growth in our TAS segment. Moving to RMDS. As you know, the R&DS team responded quickly in 2020 to support our clients with the development of vaccines and therapies for COVID-19. We've been involved in more than 300 clinical trials and studies for the virus, including four of the five vaccine trials that made it through phase three and were funded by the U.S. government in Operation Warp Speed. To help speed recruitment, we leveraged our direct-to-patient solutions, which include the use of patient registries and IQVS-sponsored advertisements. To date, we've recruited over 100,000 patients to COVID trials. The pandemic has accelerated the need for remote and risk-based monitoring in clinical research, which in turn has accelerated the adoption of our virtual trial technology. In total, we've won over 60 new studies using our virtual trial solutions across 10 therapeutic areas, including awards with five top 10 pharma clients. The technology suite combines e-consent, telemedicine, ECOA, and digital communication, and its platform on HealthCloud, the Salesforce platform that is purpose-built for healthcare and life sciences. This technology is being deployed to speed vaccine development and was an important factor in helping the team secure the two phase three full-service COVID trials that we are working on. The environment for R&D and outsourcing remains very healthy. Biotech funding remains strong with the National Venture Capital Association reporting a record number of deals for the year. The pipeline of late-stage molecules continues to expand and is at an all-time high. It is this healthy environment combined with our differentiated capabilities that has resulted in strong new business awards for the RMDS team. Our contracted backlog, including pass-throughs, grew 18.5% year-over-year to $22.6 billion at December 31, 2020. As a result, our next 12 months revenue from backlog increased to $5.9 billion up 13.5% year-over-year. We continued to build on our strong momentum in the fourth quarter with the team delivering a contracted net book-to-bill ratio of 1.41, including pass-throughs, and 1.42, excluding pass-throughs. We exited the year with an LTM contracted book-to-bill ratio of 1.53, including pass-throughs, and 1.44, excluding pass-throughs. We expect continued strong activity going forward as our pipeline of RNDS opportunities is growing double digits in both volume and dollars across a very wide range of therapies.

I'll now turn it over to Ron for more details on our financial performance. Thanks, Ari, and good morning, everyone. As Ari mentioned, this was a strong quarter to close the year. Let's start by reviewing revenue. Fourth quarter revenue of $3,298,000,000 grew 13.9% on a reported basis and 12.2% at constant currency. Revenue for the full year was $11,359,000,000, which was up 2.4% reported and 2.3% at constant currency. Technology and analytics solutions revenue for the fourth quarter of $1,425,000,000 increased 17.4% reported and 15.1% at constant currency. The sequential bump in growth this quarter versus the 9.2% growth in the third quarter was due to the COVID-related work that Ari mentioned. Full-year technology and analytics solutions revenue was $4,858,000,000, up 8.3% reported and 8.1% at constant currency. R&D Solutions' fourth quarter revenue of $1,684,000,000 was up 14.5% at actual FX rates and 13.2% at constant currency. Pass-throughs were a tailwind of 220 basis points to fourth quarter R&DS revenue growth due entirely to COVID work. But you should note that R&DS delivered double-digit organic growth on both a services and a 606 basis. Again, strong performance, especially considering the tough comparison to the fourth quarter of 2019, when organic service revenue also grew at a double-digit rate. For the full year, R&D solutions revenue was $5,760,000,000, essentially flat on both the reported and constant currency basis. Excluding the impact of pass-throughs, R&D solutions full-year reported revenue grew 2.2%. CSMS revenue of $189 million was down 10% reported and 11.9% on a constant currency basis in the fourth quarter. For the full year, CSMS revenue of $741 million was down 9% at actual FX rates and 9.2% at constant currency. Demand for field reps continues to be soft in the current environment. As a result, business development activity has slowed. But the business has performed modestly better than we expected as our clients have largely retained existing field reps. Now, moving down to P&L, adjusted EBITDA was $735 million for the fourth quarter, which was growth of 14.5%. For the full year, adjusted EBITDA was $2,384,000,000. Fourth quarter GAAP net income was $119 million, and GAAP diluted earnings per share with 61 cents. For the full year, GAAP net income was $279 million, and GAAP diluted earnings per share was $1.43. Adjusted net income was $411 million for the fourth quarter and $1,252 million for the full year. Adjusted diluted earnings per share grew 21.3% in the fourth quarter to $2.11. Full year adjusted diluted earnings per share was $6.42. Now, as Ari highlighted, R&DS new business activity remains strong. Backlog grew 18.5% year-over-year to close 2020 at $22.6 billion. We expect $5.9 billion of this backlog to convert to revenue over the next 12 months, which represents a year-over-year increase of 13.5%. And this provides a basis for our 2021 guidance, which I'll be discussing shortly. Now let's go to the balance sheet. At December 31, cash and cash equivalents total $1.8 billion, and debt was $12.5 billion. So our net debt was $10.7 billion. Our net leverage ratio at December 31 improved to 4.5 times trailing 12-month adjusted EBITDA. And that compares to a peak of 4.8 times at the end of the second quarter and 4.7 times at the end of the third quarter. And you'll recall that we've committed to deleveraging to between 3.5 and 4 times net leverage as we exit 2022. And you can expect that we'll make good progress towards this target in 2021 due to our double-digit adjusted EBITDA growth and improved free cash flow conversion. The cash flow continues to be a bright spot. Cash flow from operations was $750 million in the fourth quarter, up 29% year over year. CapEx was $176 million, resulting in free cash flow of $574 million. For the full year, free cash flow was $1.34 billion, up 61% year over year. We resumed share repurchase activity during the fourth quarter, repurchasing $102 billion of our shares. Full-year share repurchases were $423 million. We ended the year at 194.8 million, diluted shares outstanding, and currently have $918 million of share repurchase authorization remaining under our program. As a result of our strong free cash flow performance, actions we took at the onset of the pandemic to access capital markets and capital allocation decisions during the year. We now have $3.3 billion of dry powder on our balance sheet. Between the undrawn revolver of $1.5 billion and the cash balance of $1.8 billion, we will continue to be judicious in how we use this liquidity, consistent with our goal of reducing net leverage. Okay, let's turn to guidance now. We're raising our full-year guidance by $250 million for revenue at the low end of the range and by $300 million at the high end of the range. The new revenue guidance is $12,550,000,000 to $12,900,000,000. A little under half of this increase is driven by a stronger outlook for the business, and the remainder is from favorable FX movements versus the guidance we provided on our third quarter call. I note that the revised guidance includes about 200 basis points of FX tailwind versus the prior year. We're also raising our full-year profit guidance. We've increased our adjusted EBITDA by $35 million at the low end of the range and by $40 million at the high end of the range, resulting in full-year guidance of $2,760,000,000 to $2,840,000,000. The change in FX versus our prior guidance actually had a slightly negative impact on profit due to the unusual mix of currency fluctuations versus the historic norm. So the adjusted EBITDA increase that you see in our guidance is more than entirely the result of the stronger organic revenue outlook. We're raising our adjusted diluted EPS guidance by 12 cents at the low end of the range and by 13 cents at the high end of the range to $7.77 to $8.08. This represents year-over-year growth of 21% to 25.9%. And let me go a little deeper to provide you with some color to help you with your models. First, when you're modeling quarterly revenue, keep in mind that the second quarter will be easiest comparison and the fourth quarter will be the toughest comparison. And within our adjusted diluted EPS guidance, we've assumed interest expense of approximately $415 million, operational depreciation and amortization of slightly over $400 million, other below-the-line expense items such as minority interest of approximately $50 million, and a continuation of share repurchase activity. Our guidance also assumes that the effective tax rate will remain largely in line with 2020. Our full-year 2021 guidance assumes that current foreign exchange rates remain in effect for the balance of the year. Now, before turning to first quarter guidance, let me give you a look at the segment growth rates for 2021. We currently expect tech and analytics solutions reported revenue growth to be between 9% and 12%. R&D solutions reported revenue growth to be between 14% and 17%, which includes a 100 basis point headwind from pass-through. And CSMS reported revenue growth is expected to be down about 2% a week early in the year and recovering later in the year. Now, as in the past, we're also providing guidance for the coming quarter. And this assumes that FX rates remain constant through the end of the quarter. On that basis, first quarter revenue is expected to be between $3,150,000,000 and $3,200,000,000. representing reported growth of 14.4% to 16.2%. All three segments should deliver similar constant currency growth rates to what we saw in the fourth quarter. Adjusted EBITDA is expected to be between $660 million and $675 million, representing reported growth at 17.4% to 20.1%. And finally, adjusted diluted EPS is expected to be between $1.81 and $1.87, up 20.7% to 24.7%. So to summarize, we delivered strong fourth quarter results with double-digit growth in all key financial metrics, and that's on top of a strong fourth quarter in 2019. We posted mid-teens revenue growth for both our TAS and R&DF segments. R&DF backlog improved to $22.6 billion, up 18.5% year over year. We posted strong free cash flow for the fourth quarter in the full year. $574 million for the quarter and $1.34 billion for the year. We closed 2020 with net leverage of 4.5 times trillion 12-month adjusted EBITDA and a very healthy liquidity position, including an undrawn revolver and $1.8 billion of cash. And as we look to 2021, we see double-digit revenue growth, margin expansion, adjusted diluted EPS growth of over 20%, our continued robust R&DS bookings activity, and a further reduction in our net leverage ratio. And with that, let me hand it back over to our operator for the Q&A session.

At this time, I'd like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Robert Jones with Goldman Sachs. Your line is open.

Great. Good morning. Thanks for taking my questions. I guess maybe just on TAS, it seems like record constant currency growth. in the quarter from the segment, despite, you know, the events management business, I'm assuming, you know, not really coming fully back. And if I heard you correctly, Ari, it sounded like a good portion of the acceleration was driven by real world evidence for the government. I'm just curious how sustainable some of that work might be into 2021, kind of what's assumed in this healthy guidance of nine to 12% in TAS. And then just any thoughts on the other pieces of TAS outside of real-world evidence in the guidance would be helpful.

Yeah, thank you. Look, TAS in general has been more insulated from the impact of COVID during 2020 than R&DS or CSMS. So our data, analytics, consulting, real-world business were pretty much unaffected. And as you noted, the only pockets there where we had issues were the events management business, which essentially came to a halt. Now, in the fourth quarter, the underlying TAS business returned to normal growth rate. It had already returned to normal growth rate in the third quarter. I think we posted 9.2% a constant currency growth in the third quarter. The sequential increase in that growth rate in the fourth quarter, which is about, let's call it 600 basis points, was entirely due, as you noted, to the incremental work from COVID-related activities. So we expect this incremental contribution to continue about the same pace into the first core. Now, similar to RMDS, the COVID work in TAS has been faster execution. And the guidance that we give you for 2021 does include the COVID work that we have visibility to, but I can tell you there is no COVID work in the second half. of 2021 that's built into our guidance. It's still early in the year, so this could change, right? It's not going to stop abruptly, but right now, the bulk of what we see in terms of COVID work in TAZ for 2021 is in the first quarter, similar as in the fourth quarter, and a little bit of tail in the second quarter, and that's it. What is that COVID work, by the way? It's mainly related to projects for governments, essentially using our people and analytics to support authorities in the management of the crisis. The real-world work for the FDA that I described in my introductory remarks. We're also performing large-scale diagnostic testing and monitoring of COVID patients for other governments in Europe, in Asia, around the world. And we're assuming that's going to go away. um you know certainly by the middle of the year in our guidance but again that's that could be that could prove to be i i have um an expectation again it's not built in the guidance an expectation that we will continue to have similar type of work as we've developed capabilities and really a new set of offerings which we intend to go to market going forward

No, that's helpful, Ari. And then if I could just ask one on the RDS side, you know, similar question. I know the COVID work and the pass-through implications has been kind of a moving target, but just similar thoughts would be appreciated on how you're thinking about COVID versus non-COVID related work in the RDS guidance for 2021. Yes.

So again, just as in Taal, COVID work did contribute significantly to R&DS growth, obviously. I mean, look, mid-double-digit growth in Taal is not the new norm. We've said Taal's growth accelerated, but it accelerated to the high single-digit growth that we always anticipated pre-pandemic. If you go back to the guidance we gave, the long-term guidance we gave in June of 2019, we did expect TAS to reach high single digits, 8, 9, and eventually 10%. But that's the underlying TAS growth business. Now, with RMDS, it also, of course, would be misleading to look at the RMDS business and say that's the new one with double-digit growth. Obviously, it's harder to determine what would have been without the COVID work, because without the COVID work, there would have been other business that had essentially been pushed to the right in R&DS, as you can understand. But by the way, even absent the large COVID trials that we've been privileged to work on, we would have had very strong underlying R&DS services growth in the fourth quarter as well. Now, we expect COVID work to be with us through 2021 and maybe also into 2022 because there's a need for vaccines from multiple manufacturers to meet global demand. There are new vaccines that are being developed for variants of the virus. There are alternative vaccines that are needed in case of adverse safety events or quality issues or manufacturing delays. There are novel treatment programs that are targeted at specific populations and conditions. And of course, there are post-approval commitments to regulators, all of which do require continued RNDS work. Now, look, we have a large backlog to execute, 22.6 billion at the end of 2020. We have to have the ability to execute on this existing backlog, and that ability will continue to improve. Site startup and patient recruitment continues to improve. The next 12-month revenue from backlog has increased. So all of this provides the basis for our 2021 RMDS revenue guidance. The pipeline of opportunities is very strong. If we exclude COVID opportunities, our pipeline is showing good growth. For example, the oncology pipeline is in the mid-double-digit growth. The CNS pipeline is up low double digits, 12-13%. Cardiovascular and diabetes pipe is growing strong double digits, very, very strong double digits. So if your question is suggesting that what happens post-COVID, you know, we're not falling off a cliff. We have, you know, the vast majority of the backlog is not COVID, obviously. If you look at our bookings in 2020, every quarter except for the first quarter, obviously, COVID-related work represented between 15% and 20% of our services bookings. And for the year, I think it was exactly 15%, 1.5%. So we continue to book very, very solid good business across all therapy areas, and we expect our strong growth in R&DS to continue, even post-COVID.

Thank you. Great. Thanks, Eric. If we can move to the next question in the queue, please, Operator.

Your next question comes from Tico Peterson with JP Morgan. Your line is open.

Hey, thanks. Ari, sorry to follow up on the first question, but I think previously you talked about real-world evidence actually picking up as the pandemic lingers, just given that you need to understand why people have more severe symptoms. A lot of vaccines were rushed to market. So I'm just curious as to why you think that piece will drop off after the first quarter. There seems to be a growing need, and most of your peers are talking about it being a pretty strong year for real-world evidence.

I think Ari was alluding to it earlier. I think he said that look, it's still early in the year and this could change and I think we want to get ahead of ourselves and bake anything into our guidance that we don't have. line of sight into our contracts. It's obviously a fast-moving environment with the COVID work and its fast execution, and we saw very good growth in the first quarter, and we expect that to repeat in the second quarter of a TAS. Ari mentioned in his prepared remarks at the beginning, obviously, we're doing work with the FDA, and we're looking at how COVID is impacting the population and what kind of treatments and therapies have people been on or drug regimens have people been on that mean that their symptoms maybe aren't as severe as other patients. So we've obviously got a seat at the table here. We're talking to governments, and I think that means we're becoming kind of the company of choice with other governments around the world. But I think we just don't want to get ahead of ourselves here and think of anything else wrong.

Yeah, I would just add, Tycho, that we've included in our guidance what we have direct visibility to. But this is a very fast moving environment and things pop up all the time. So it could change.

I mean, look, we're delighted to have this COVID work, right? I mean, we are super excited because The broader picture here strategically is that this crisis, as bad as it was for everyone, in terms of our company, we've been talking, it's almost like this company existed for situations like this. All of a sudden, the sets of capabilities that we've spent so much effort and investment developing proved to be exactly what was needed. to help our clients and to help governments, whether it's on the commercial side, on the real-world side, or on the R&DS side. And our relationship with clients has been strengthened. Our sets of capabilities have been demonstrated, and we expect to continue to capture a bigger share of spend going forward into the very long term in the life sciences industry. And we really are very excited by the pipeline of opportunities, again, both on the commercial side and on the R&DS side.

okay that's helpful and then just two quick follow-ups i'm just curious on recovery trends you know where you stand in terms of site accessibility i think it was 70 you know coming out of 3q so where does that stand today and then separately i didn't hear you mention oct i'm just curious you know how we should think about that rollout and any potential synergies with oce thanks

Your first question was on site access, and site access actually remains fairly close to the 70% number. We've just learned ways to work around it, although we would expect it to improve gradually.

Yeah, I mean, look, in the first, you know, in the trough, at the worst moment of the crisis, We were like less than 20% of site access, and that really created huge headwinds for our R&D as you know. Second quarter earnings call, we told you that we had gone up to 53% site access. And at the end of the third quarter, we were at about 70% site access. the kind of bad news, good news here is that we have not improved that metric. It remained at 70%. However, we've learned to work around that. And the reason why it hasn't gone back to 100%, frankly, is because of all these new flare-ups, etc. But the good news here is that it's been all right, because it's not so much we found the number of sites, but it's really You know, other metrics, you know, the main metric we looked at at the beginning of the pandemic was site access, because again, without that, you've got nothing. But we found out that there is a critical mass of site access, which again, we think is about the level where we are now, whereby our remote monitoring capabilities then prevent material disruption to the delivery of our services in general. We've got site networks, relationships, we can work around sites that are not yet up and running for clinical research. And today we can pivot much faster to remote monitoring versus when this pandemic hit. Now, if you look at startup activity, which is another important metric that we were looking at, which had also come to a halt, is now back to baseline levels pre-pandemic, and that's extremely good news. And there hasn't been any major change from this due to the increases in COVID cases or the new variants of the virus. So startup activity, people have learned to work with the virus, and it's essentially back to pre-pandemic levels, and we don't see that changing. Patient recruitment, another very important metric. Obviously, you really like site startup, but essentially those trends are very strong and the patients are returning to sites essentially close to pre-pandemic levels. So again, we're very encouraged by that. You had another question on?

Orchestrated clinical trials, the OCT rollout and how you think about that.

Yeah. Yeah. Well, I mentioned that in my remarks that our virtual trials technology has been really brought to the front here in the context of COVID. If you step back and think about what OCT is, there's really four blocks. There's a digital site suite, which is focused on the site, site portal, payments, ETMF, Then there's the digital patient suite with what the patient has to go through with e-consent, e-co-op. That's where the virtual trial essentially is the study hub. Then you have the digital trial management suite with the CTMS, risk-based monitoring, and then you have the compliance suite with RingSmart and Vigilance. So the technologies in our site suite, the patient suite and the compliance suite went live during 2020. And the technologies in our trial management suite will be going live shortly, most likely end of the first quarter, beginning of the second quarter of this year. So again, all these four suites, the site, the patient, and the compliance, they all went live during 2020. and the trial management suite will be live to be probably March-April timeframe this year. And we're seeing very strong interest from clients. We've seen an increase in RFP activity for the OCT platform, not just for individual suites or standalone products, but for the whole platform. We are seeing interest from all customer segments, large need and EBP, and stay tuned. We'll report more on that. But the answer to your question is we are live for most of the products, and it will be fully live and operational by the beginning of the second quarter.

Okay. That's very helpful. Thank you.

Thank you.

Your next question comes from Ricky Goldwalder with Morgan Stanley. Your line is open.

Yeah, hi. Good morning. So, backlog conversion clearly improved even when we back the COVID benefit, the COVID project benefit. So, when we think about... 2021, what should we expect the backward conversion to be back to that 7.6% over the pre-COVID level? Should we think about it as sort of second half of 2021 or more kind of like spilled to 2022. And then the second question, I mean, Ari, you talk about patient recruitment and the fact that you're starting to see patients are coming back to sites at pre-COVID levels. Are you seeing any impact on how, on trial designs? I mean, clearly right now, still a relatively low percentage of the population is vaccinated. But as we see more people vaccinated, would that impact how you think about trial design and potentially the pace of recruiting new patients to trial?

So, Ricky, the line was pretty bad there. We were struggling to hear you a little bit. I think your second part of the question was around patient recruitment and are we seeing, expecting, I guess, pick up in terms of the population getting vaccinated and people returning to sites.

I think from what we're seeing... So, actually, the question is, if we think about it, As individuals are vaccinated, does that sort of change how you guys think about designing trials? If someone has a COVID vaccine, does this mean that they might be compromised and can't participate in trials?

No, I don't think so.

No, I think it's all part of the general recovery that we're seeing.

It doesn't change anything to the design of the trials. I mean, it's just another... element that allows a patient to access offices, sites, or interact with the healthcare professionals. But, you know, it would have been the same with a negative test or, you know, somebody with antibodies. I mean, that doesn't change the design, no.

And then the second, the first... What was the first part of the question, Ricky? We were really struggling to hear on our side.

So the first one was if we think about backlog conversion, clearly backlog conversion in the quarter, even when we're excluding COVID. So when do you expect to return to the pre-COVID levels, that 7.6? Should we think about it when we model the second half of 2021 or early 2022 timeline?

The backlog conversion is a really tough statistic to model out because it depends on, you know, backlog burn, because it depends on how much we're adding to the backlog in any quarter. So what we try to do is provide guidance to tell you how much we think it's going to burn during the course of the year, the next 12 months revenue. and allow you to take it from there. Yes, the COVID work does burn quicker than the other work. There's no question about that. But we don't guide to a particular backlog conversion rate because it's just too difficult to do because it depends also on how much you happen to be booking. If you're booking a lot, like we have been recently, then obviously the backlog goes up and the burn rate goes down, but that's not a bad thing. Yes, I would expect you would see a faster burn of the COVID-related work, which we mentioned was about 15% of our service bookings in 2020, and a more normal rate of burn on the rest of the backlog. And, you know, I think it still remains to be seen how much additional COVID-related work we're going to book as we go through 2021. That's still a question mark.

Thanks, Ricky. I think if we can move to the next question in the queue, please.

Your next question comes from Eric Coldwell with Baird. Your line is open.

Thanks very much. I have one technical question and then a more strategic one. So first off, I'm getting a couple of inbound asks on the FX update. I'm just curious if you could maybe clarify, be more clear for us, people who missed it, The FX guidance for 2021, is it plus 200 bps tailwind for the full year in total, or was the update today that that's an incremental 200 bps since you first gave 2021 guidance a few months ago?

So when you look at the year-over-year FX impact, when you're looking at the growth rate, so ultimately if you're trying to take our reported guidance and get to a constant currency guidance, it's a 200 basis point tailwind year-over-year. Similar to that in CAS and CSMS and a little bit lower in R&D, maybe about 100 basis points in R&D.

No, he's asking versus the previous guidance. Yeah, that would be the follow-on is, you know, what was embedded in the guidance a few months back so we could just see the delta. Previous guidance was 105.

Yeah. Yeah, so previous guidance had 100 basis points in it. This goes to the 200 tailwind.

Perfect. Thank you very much for that. A little more interesting question. Really positive trends here in the cash flow. And I know it's been, Ron, I know it's been a big focus for you. We've seen some nice improvement here over the last few quarters. I'm hoping you can maybe break this into two pieces. First off, could you give us anything a little more specific or precise on what's really driving the improvement operationally, number one? And number two, perhaps parse out from that if, you know, maybe some of the timing on the COVID vaccine work and the higher pass through tailwind that you did finally get here in the fourth quarter, you know, was that how much of a contribution was that versus, let's say, core underlying fundamental improvement?

Look, it's a good question. As you can see from our cash flow statement, the principal driver, in fact, pretty much the whole driver of our improvement in cash flow, free cash flow in 2020, was due to improved collections performance. And that's a combination of collecting quicker but also billing in a more timely fashion and structuring our contracts so that we bill earlier. And And part of our collections effort, which we put a lot of focus on, was bringing down our overdue receivables. We took our eye off the ball on that a little bit and put a lot of focus on that and were able to substantially put a dent in our overdue receivables, which has helped quite a bit. And I think a lot of the processes we put in place, all of them should persist into 2021. We have to continue to put emphasis on it, but we've improved our processes, and we expect that to continue. Now, you did identify something that's important, which is that the COVID-related work did bring some benefit in terms of customer advances and being able to bill in advance that helped our 2020 cash flow. So when you look at our 2020 cash flow as a percentage of adjusted net income, it was unusually high. We target more in the 80% to 90% free cash flow as a percentage of adjusted net income in a normal year. But cash flow is very lumpy, so it bounces around. We had a very strong year in 2021. It meets as a percentage of net income. Excuse me, 2020 as a percentage of net income it probably won't be quite as strong in 2020 but fundamentally we've improved quite a lot in terms of a cash conversion and you should see continued benefit from that going into the future that's very helpful thanks guys thanks i think we're coming up close to the hour but if we can take one more question please absolutely your last question comes from dan brennan with ubs your line is open

Great. Thank you. Thanks for taking the question. I guess a two-part question. One was on OCE RE, so obviously continued progress there. I'm just wondering, when do we begin to see OCE show up in revenues? I mean, you talked about the timetable that we've just deployed, and then you begin to generate traction on that with 140 wins to date. Any color about what's baked into 2021 guidance? And if not, kind of when do we see it?

yeah so again we continue to see very good traction in the marketplace you know obviously it takes time to deploy we had 60 client wins in 2020 and i should point out obviously despite the difficult uh environment created by the pandemic we continue to sell um a total 140 clients win since the launch uh we keep winning two out of three times against competition We're deploying large clients, which we disclosed before. We have a global deployment with Roche. We have a global deployment with Nova Nordisk International Operations. AstraZeneca, U.S. deployment as well. We have another top 15 pharma deployment for a country in Asia, another top 15 pharma client that's globally deploying for their medical teams. So we already have, I'm not supposed to disclose this number, but we do have tens of thousands of users already. Now, does it move the needle on a $12.9 billion revenue company? No, not in 2021, but it is providing very significant growth. and certainly it is an area where we expect strong margin drop through over time as we complete implementations. As you know, the drop through becomes much more attractive when revenue is license-driven, and we're starting to see that, but it will continue to increase as we complete deployments and implementation. Now, we continue to sell, so that also will require implementation. And the strategy overall is the same as for any technology company, which is, you know, the land and expand model. And as you know, we sold the HCP engagement management. I mentioned it. We saw the HCP compliance. We are launching additional modules and continue to expand. So it's not just OCE. OCE was kind of the the centerpiece, and then it continues to grow. Ron?

Yeah, I just wanted to say I think sometimes investors have a tendency to equate our tech business with OCE because we've all talked about it a lot, and we have a competitor in that space that talks about it a lot as well. But we have a much broader tech business, as Ari was saying, than just that. I mean, across performance management, compliance, information management, social media, payer-provider, and then we have a growing clinical tech segment. So, you know, I just want to emphasize that tech is a lot more than just OCE for IQVIA. Thank you.

Thanks very much, Dan. So we're at the top of the hour now. So thanks, everyone, for taking the time to join us today. And we look forward to speaking with you again on our first quarter 2021 earnings call. And we'll be available for the rest of the day to take any follow-up questions that you might have. Thank you, everyone.

This concludes today's conference call. You may now disconnect.