IQVIA Holdings, Inc.

Gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the IQVF first quarter 2021 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 would like to ask a question during this time, simply press star 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. 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, Casey. Good morning, everyone. Thank you for joining our first quarter 2021 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 newcomer to this call, Brian Stengel, Associate Director, Investor Relations. And Brian has succeeded Jen Helcheck. 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-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 Ducey.

Good morning, everyone, and thank you, Andrew. Welcome and thank you for joining us today. This morning, we reported first quarter results with strong double digit growth in all key financial metrics. And as a result of this performance and an improved outlook for the rest of the year, we have once again raised our guidance The 2021 guidance that we provided you last quarter was already within reach of our original pre-COVID plans for 2021. Our revised guidance today significantly exceeds those original plans. In many ways, 2020 was a reset year for our company and also for the industry. We've been saying for a long time that the traditional timelines for the development of new drugs are too long. The speed at which COVID vaccines were developed in 2020 has obviously raised the bar in terms of what expectations should be. The crisis accelerated the adoption of new technologies, and we believe it will force a lasting change in how innovative medicines are developed, and commercialized. All of this has made IQVIA even more relevant to our clients and has highlighted the power of our differentiated offerings. The deep client engagements that we had during the pandemic demonstrated how uniquely positioned we are to bring new insights and expertise that can improve drug development and commercial timelines. What is also becoming clear is that there is a lot of pent-up demand due to, one, the many trials that were slowed down or temporarily pushed to the right, and two, the trials that did not get started as they were crowded out by the COVID resolution efforts on which everyone was focused. This pent-up demand across therapy areas combined with record levels of biotech funding, provide a very strong backdrop for our industry. As a result of these favorable conditions, we've started the process of revisiting our Vision 2022 goals. We plan to update you later this year on our Vision 2022 progress, and lay the groundwork for the next phase of our journey. We may do this at an investor conference later this year, especially if we are able to hold one in person. So stay tuned for more information. For now, let's review the quarter. Revenue for the first quarter grew 24% on a reported basis and 21% at constant currency. It was $209 million above the high end of our guidance range. About half of this beat came from strong operational performance, and half was from higher pass-throughs. First quarter adjusted EBITDA grew 32%, reflecting our revenue growth and productivity measures. The $69 million beat above the high end of our guidance range was entirely due to the stronger organic revenue performance. First quarter adjusted diluted EPS of $2.18 grew 45%. The beat here entirely reflects the adjusted EBITDA drop through. A little bit more color on the business. Our commercial technology presence continues to grow as we launch new offerings in the market. During the quarter, a top 10 pharma client deployed our next best action solution in 14 countries. This tool is a SaaS-based technology platform that optimizes our clients' Salesforce effectiveness. It increases the success of their marketing activities by providing automated sales call recommendations to the field based on advanced artificial intelligence and machine learning algorithms. Our base OCM CRM win rate remains strong. We added another 10 new clients this quarter and now have 150 clients deploying about 70,000 users. Our ECOA technology platform or electronic clinical outcomes assessment tool, which is used by our real world as well as our MDS teams, is also experiencing strong demand. This cloud-based platform utilizes a user-friendly interface to collect clinical data directly from patients. We launched this solution during 2019, and the team is seeing strong user acceptance. To date, we've been awarded over 125 studies with over 300,000 patients enrolled and over 4 million surveys completed. Moving now to our MBS. We continue to build on our strong bookings momentum in our NDS business. In the first quarter, we achieved a contracted net book-to-bill ratio of 1.41, including pass-throughs, and 1.41, excluding pass-throughs. At March 31st, our LTM contracted book-to-bill ratio was 1.52, including pass-throughs, and 1.45, excluding pass-throughs. These numbers are all the more impressive, obviously, given our strong revenue growth. Our contracted backlog in RMBS, including pass-throughs, grew 18.3% year-over-year to $23.2 billion at March 31, 2021. As a result, our next 12 months' revenue from backlog increased by over $600 million sequentially to $6.5 billion. That's up 31.1% year over year. The R&D team is building on the success we experienced in 2020 with our hybrid virtual trial offering, or the term of art is now decentralized trials. In the first quarter, we won decentralized trials in new therapeutic areas, including cardiovascular and metabolic disorders. we are working with five of the top 10 pharma clients and to date we've recruited almost 170 000 patients using our advanced decentralized trial solutions finally you saw that on april 1 we completed the acquisition of the remaining interest in q square solutions from quest diagnostics as you know q squared is an industry-leading laboratory service provider for clinical trials with global capabilities across safety, bioanalytical, vaccine, genomics, and bioanalytical testing, along with best-in-class technology in biospecimen and consent lifecycle management. These transactions streamline strategic decision-making for us and gives us the flexibility to build out greater bioanalytical, genomic, and biomarker capabilities as we see increased attractive growth opportunities in this expanding market. With that, I will turn it over to Ron for more details on our financial performance.

Ron? Thanks, Ari, and good morning, everyone. As Ari mentioned, this is a very strong quarter. Let's start first by giving you some more detail on revenue. First quarter revenue of $3,409,000,000 grew 23.8% on a reported basis and 21.4% at constant currency. Technology and analytics solutions revenue for the first quarter was $1,348,000,000, which was up 20.7% reported and 17.1% at constant currency. R&D Solutions' first quarter revenue of $1,868,000,000 improved 29.6% at actual FX rate and 28.1% at constant currency. Pass-through revenues were a tailwind of 770 basis points to the R&DF revenue growth rate in the quarter. CSMS revenue of $193 million was down 1.5% reported and 4.1% on a constant currency basis. Moving down to P&L, adjusted EBITDA was $744 million for the quarter, representing growth at 32.4%. Margins expanded on 140 basis points, despite significant headwinds from higher pass-through revenue and lower margin COVID work. GAAP net income was $212 million, and GAAP diluted earnings per share were $1.09. Adjusted net income was $425 million for the first quarter, and adjusted diluted earnings per share grew 45.3% to $2.18. R&D Solutions delivered another exceptional quarter of net new business. Backlog was up 18.3% year-over-year to $23.2 billion at March 31. Next 12 months revenue, as already mentioned from backlog, grew significantly and currently stands at $6.5 billion, up 31.1% year-over-year. And of course, this metric now includes the first quarter of 2022, which is a further indication that we see the momentum of the business continuing beyond this year. Now let's review the balance sheet. At March 31, cash and cash equivalents totaled $2.3 billion, and debt was $12.2 billion, resulting in net debt of $9.9 billion. Our net leverage ratio at March 31 improved to 3.9 times trailing 12-month adjusted EBITDA, marking the first time since just following the merger that this ratio was below four times. And this is particularly noteworthy. You may recall that in 2019, when we gave you our three-year guidance, we've committed to deliver to four turns or below XMA 2022. And we're pleased to have achieved this target entering 2021. First quarter cash flow, free cash flow in particular, was very strong. Cash flow from operations was $867 million. CapEx was $149 million, resulting in free cash flow of $718 million. We repurchased $50 million of our shares in the quarter, which leaves us with $867 million of share repurchase authorization remaining under the program. Now let's turn to guidance. You'll recall that back on April 1 when we announced the acquisition of Quest's 40% interest in our Q-squared joint venture, we raised our 2021 EPS guidance by 12 cents. to reflect the elimination of Quest minority interest in the joint venture's earnings. We left the revenue and adjusted EBITDA guidance unchanged, of course, because we already consolidated the financials of the joint venture prior to the transaction. Well, today we're revising our guidance upward again as follows. We're raising our full year 2021 revenue guidance both at the low and high end of the range, resulting in an increase of $625 million at the midpoint of the range. The new revenue guidance is $13,200,000,000 to $13,500,000,000, which represents year-over-year growth of 16.2% to 18.8%. This increased guidance range reflects the first quarter strength and the continued operational momentum that we see in the business, and also absorbs an FX headwind versus our previous guidance. Now, compared to the prior year, FX is expected to be a tailwind of about 150 basis points to full-year revenue growth. From a segment perspective, we now expect full-year technology and analytic solutions revenue to grow at a low to mid-teens percentage rate, and R&D solutions to grow in the low to mid-20s. Our previous expectations that revenue in the CSMS business would be slightly down remain unchanged. We're also raising our full-year profit guidance. As a result of a stronger revenue outlook, we've increased it Increased adjusted EBITDA guidance at both the low and high end of the range, resulting in an increase of $133 million at the midpoint. Our new full-year guidance is $2,900,000,000 to $2,965,000,000, which represents year-over-year growth at 21.6% to 24.4%. Moving to EPS, I mentioned the Q-squared transaction on April 1. As a result of that, we raised our adjusted diluted EPS guidance by 12 cents to a new range of $7.89 to $8.20. We're now raising both the low and the high end of that guidance range, resulting in a new adjusted diluted EPS guidance of $8.50 to $8.75, or year-over-year growth of 32.4% to 36.3%. A little bit of detail on the P&L. Interest expense is expected to be approximately $400 million for the year. Operational depreciation and amortization is still expected to be somewhat over $400 million. And we're continuing to assume an effective tax rate of approximately 20% for the full year. This guidance assumes that current foreign currency exchange rates remain in effect for the rest of the year. Now let's turn to the second quarter guidance. Assuming FX rates remain constant through the end of the quarter, second quarter revenue is expected to be between $3,225,000,000 to $3,300,000,000, which represents reported growth of 27.9% to 30.9%. Adjusted EBITDA is expected to be between $690 million and $715 million, which represents reported growth of 42.9% to 48.0%. And finally, adjusted diluted EPS is expected to be between $2 and $2.10, up 69.5% to 78%. So to summarize, we delivered very strong first quarter results, once again reporting double-digit growth in all key financial metrics. This included revenue growth of over 20% in both our TAS and R&DS segments. R&DS backlog improved to $23.2 billion, up 18% year-over-year. Next 12 months, revenue from that backlog increased to $6.5 billion, up 31% year-over-year. Free cash flow was strong again this quarter. Net leverage improved a 3.9 times trailing 12-month adjusted EBITDA. And finally, given the strong momentum we see in the business, we are once again raising our full-year guidance for revenue, adjusted EBITDA, and adjusted diluted EPS. Before we open up the call-up for Q&A, I'd like to make you aware of a couple of leadership changes within IQVIA's finance organization. Andrew Markwick, who has led our investor relations function for the past four years, and very capably, I think you'll agree, is moving on to become CFO of the R&DF unit. Nick Childs, who currently runs our corporate FP&A function, will take over as SVP of investor relations and corporate communications. Nick has been in his role for over three years and has a very deep knowledge of the company and our financials. Now, he will be succeeded by Mike Fedok, who has served as CFO of the R&D FC unit for the past two years. Finally, those of you on the fixed income side know that Andrew has also served as our treasurer for the past couple of years. And Manny Karakis, who is our corporate controller, will also assume leadership of the treasury function going forward. Now, rest assured, Andrew will stay around for a few days to finish up the quarter and take all your questions and to assure a smooth transition to both Nick and Manny. And with that, let me hand it back over to Casey who will open the call for Q&A. Great.

Thank you. At this time, I would 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 and your first question here comes from the line of robert jones from goldman sachs please go ahead your line is now open great good morning uh congrats to everyone and especially andrew uh hopefully uh you know we'll still we'll still be

having to talk to all of us all the time. I was going to ask Ari about the long-term guidance, but I think it sounds like I can anticipate the answer will be way until later this year. Obviously, the updated revenue guidance today looks like it's a CAGR of 9% to 10% off of 2019. So it sounds like, if I heard you right, we'll get more on that later. So instead, maybe I'll just go back to – to a bigger industry question around M&A. You know, Ron, you mentioned getting the leverage below the target. that you guys had set out, and clearly there's a ton of activity in the space right now. So I'm curious, Ari, as you look at the business and you look at some of the movement around you in the space in what your competitors are doing, do you feel like there are capabilities that you really need to go out and buy to enhance or build out what you're already doing? Or do you think ITV is in a pretty formidable competitive standpoint where it is today?

All right. Well, John, you're... I'm sorry. Oh, Robert. Lots of questions here, and I wouldn't have minded your long-term question either, but the reason why we think we need to update on long-term guidance is you will recall in June 2019, we shared our three-year planning process and the goals that we set for ourselves. We had called both on the top line and on the productivity measures and the continued efforts to engineer the company and make it more efficient. And we set some targets in terms of top line and bottom line growth at the time. Now, obviously, a lot has happened. 2020, as I said in my introductory remarks, was largely a reset year. And therefore, we feel it's appropriate to pause and update you on the progress we've made. And look, I think I'm not going to shock anyone to say that we think that those targets are no longer relevant and that we are going to likely blow through those numbers in 2022. To give you some more precision, we feel that we need to complete our planning process, and then when we're ready later this year, we'll hopefully have an investor conference similar to what we had in June 19, and then update 22, and obviously try to give you a sense for the new, maybe 2025 targets. So that's for the long-term strategy and goals. With respect to M&A activity in the sector, look, we're not surprised since the merger that we did IMS and quintiles back in the 16th. Now we're approaching the fifth year anniversary. Lots of activity has occurred. We believe strongly it's in reaction to what we did We disturbed and disrupted the industry, which was the goal of the merger. We believe we are accomplishing the goals we had set for ourselves at the time. We believe the strategy was right. The strategic rationale was right. and enhance the flurry of activity to try to acquire those capabilities any way possible. And barring the ability to acquire those technology, data, and analytics capabilities, then CROs are compelled to either sell themselves or merge. And that's all I'll say on what's happening. With respect to our own M&A activity, we've said before, that we were interested in deploying capital to acquire strategically compelling companies that added capabilities. We've done that mostly in the technology area to accelerate the growth of our technology business and the acquisition of those capabilities. we will of course look every time that an asset that is within our businesses is put up for sale and you probably all know what those have been or are and we look and we do the work in every case we fast so far So that's all I will say. I mean, we've said before that we have a lot of liquidity, right? We have now between the $2.3 billion at the end of the quarter and the $1.5 billion of untapped revolver capacity. That's $3.8 billion. Obviously, we used $760 million of that on April 1. for the acquisition of the minority stake in the lab business, which we are very, very excited about. And so we have over $3 billion of cash deployable. And we'd rather spend it, A, on internal developments, B, on strategic acquisitions. And then, you know, barring all of that, we would invest the balance of available cash by redistributing to shareholders via share repurchase, as we've done historically. Thanks, Robert. Thanks, Eric.

Your next question comes from the line of Eric Coldwell from Baird. Please go ahead. Your line is now open.

Hey, thanks very much. Good morning. A lot of things we get hit on here, but I know I'm going to get inbounds on the COVID stats for the quarter and the year, if you'll bear with me on this. I know it gets laborious, but would it be possible if you, sorry if I missed it, to update the number of trials you've been awarded to date in COVID? Any insights into the percent of revenue in Q1 or your outlook for the year related specifically to COVID vaccines or therapeutics? Maybe something on the percent of backlog that is represented by COVID or any comments on the pipeline of activity around COVID studies. That would be great. Thank you so much. All right. Thank you, Eric.

So, look, on the... the number of trials, I have no recollection of the number of trials. I can tell you the most relevant impact from COVID are obviously the COVID vaccine trials, which are large and fast burning, as you know. And so that's really what moves the needle. We've got lots of a small COVID-related activity all around the company, but that doesn't move the needle. What moves the needle are these COVID vaccine trials. And as you know, of the five phase three large vaccine trials funded by Operation Warp Speed, we've had work on four of them. Now, we haven't done the full clinical trial on all four of them. We've done it on two of them. And the other ones, on the third one, we've got the pharmacovigilance work, and on the other one, we have the lab work. So those are the ones that have had the most impact. With respect to the impact on the first quarter, excluding these work, RMVS revenue grew mid-teens. So that's the impact in the first quarter. What was your other question? You also should point out that the COVID work has had an impact on the first quarter growth for TAS as well. As you know, we've said that on previous earnings calls, We've had demand from governments around the world, in the U.S., the FDA, in Europe, in Asia as well. And those have also provided high growth in the first quarter without those activities the TAS revenue growth would have been in the high single digits. So roughly, I think you could say that COVID contributed all this large, fast-burning COVID work and the TAS work contributed about half of the total company revenue growth. What was your question? I guess on the RMBS backlog, you asked, what it is as a portion of the backlog. If I recall, Andrew, correct me if I'm wrong, if we look at the service backlog in our NDS, it's in the high single digits. So that's what it represents. Now, it does have a much longer tail than we would have thought. It certainly is going to remain with us through 2021 and well into 2022. There are many reasons for that. There are many vaccines from multiple manufacturers that are being developed to meet global demand. We are still responding to RFPs for vaccines around the world in many other countries that want to develop their own vaccines. There are follow-up studies for adapting the vaccines for the mutations of the virus. There are alternative versions of the vaccines that would be needed in case of adverse safety events or in case of quality or manufacturing issues. And then there are a bunch of novel treatment programs that are targeted at specific populations, specific conditions. And then there is a lot of safety monitoring work that is also in the pipe. So again, the first point that I understand the context of the question is that COVID-related work is not going away anytime soon. And it's here for a while. We're very happy that we have a fair share of that market. What I also should say, because I know if you didn't ask the question, you're going to ask it soon, that the RFP pipeline across the board is very strong, well beyond COVID. In fact, our pipeline of qualified RFPs is approaching $25 billion, if I remember correctly. I think 23. 23, okay. It's over $23 billion. And it's growing double digits, both in volume and in value. Again, bear in mind, as I said in my introductory remarks, that the work that should have happened in 2020 on all of those other trials that were either about to start or starting or in flight, lots of it was kind of slowed down or pushed to the right. So because of that, we've got that pent-up demand that's coming up. And number two, lots of projects that normally would have come in were displaced, crowded out by the efforts that everyone put on trying to resolve the COVID situation. And so all of that is coming through. And we are confident that both because the COVID work is not going away in a sharp manner. And number two, because we've got all of these other activities that have been bubbling up, we are confident in our guidance for this year and continue strong momentum for the business well beyond COVID.

Thank you. Ari, thank you. I appreciate it.

Your next question comes from the line of Shlomo Rosenbaum from Stiefel. Please go ahead. Your line is now open.

Hi, thank you very much. Ari, if you don't mind, I'm going to try and slip in a few. First, I want to ask you if you could talk a little bit about the real-world evidence trends and update us on how that's going. That's been a very strong grow in the past. Number two, I just want to ask you for a little bit more detail on how you accelerate the growth in that Q2 business by owning all of it. And then finally, I mean, how do you do an encore for a quarter like this? I mean, you talk about the discussion about the business momentum, you know, continuing. It's such a strong quarter. It's hard to believe that you'll be able to improve upon this. And I know I've asked a lot, but I'm going to kind of put them out there.

Yeah, thank you so much. Well, look, I mean, we're not suggesting we're going to have – you know, the 25% growth or whatever it is that we showed here, you know, on an ongoing basis, that's not our new normal, obviously. And I explained why, you know, in response to Eric's question, what the impact of that large, fast-burning vaccine work for COVID had on our business. Now, Excluding all of that, the business has strong momentum. You will recall we gave guidance for where we wanted to get as a company by the end of 2022, and we said, you know, high single digits. was going to be our new normal, where we believe we are going to be above that, excluding all of the disruption and the unusual bubbles. So again, excluding that fast-burning work that we had in the first quarter, the RMBS business grew mid-double digits. And the SaaS business grew high single digits, excluding the COVID-related work. So that is very, very comfortable with. The rest of the year, obviously, will be higher than that, again, because we have the trailing impact of COVID. We think well into 2022. And the pent-up demand that needs to be caught up. So all of that helps build momentum. With respect to your specific question on real world, it is strong double-digit growth in Q1. I mentioned, you know, we spoke last time about the care registry for the FDA. We spoke about the patient monitoring efforts, the deployment of our advance. We now have over a billion patients. patient lives in our database. And we've continued to deploy E360 platform for clients. We're deploying our ECOA platform, which helps collect clinical data directly from patients. We are seeing extremely strong demand on real world. Obviously, this is just getting started now, but we are seeing demand to track patient populations in terms of people who had the virus, in terms of surveilling patients that actually took the vaccines, and monitoring for potential adverse effects, et cetera. So all of that plays right smack in the center of what our capabilities are in the real world. Thank you, Sean.

Your next question comes from the line of John Krieger from William Blair. Please go ahead. Your line is now open.

Thanks very much. Hey, Ari, just maybe a follow-up. I think last quarter you talked about your assumption that within TAS you assumed RWE COVID work would really sort of fall off, I think, in the second quarter. Do you still feel that way, or do you think this is going to continue to be strong throughout the year?

Yeah, I mean, look, it's going to continue longer than we expected. That's what I said in response to an earlier question. We were not assuming that we would continue at the time, and that was the basis of our guidance for the year. The reason we are updating the guidance and increasing it so much is, A, to reflect the performance in the first quarter, the overperformance, but also to reflect performance our revised expectation that this work is going to continue for the balance of the year. It will not be at the same level as it was in the first quarter or the fourth quarter and will gradually start declining, but it is still significant for the balance of the year and importantly into 2022.

And, Ron, question for you. I believe gross margin year-over-year was down something like 90 basis points. Was that all driven by the higher pass-throughs and R&DS?

Yeah, it's two things. It's the higher pass-throughs and R&DS, and some of the COVID work is inherently a little bit lower margin than some of the other work. Those are the two reasons. But our operating margins are up. Yeah, our operating margins are up. Our EBITDA margins are up 140 basis points in the quarter. So despite that, overall, very strong performance. Obviously, we had the leverage of the higher volumes, and we didn't increase costs accordingly. Great. Thank you.

Your next question comes from the line of Tycho Peterson from JP Morgan. Please go ahead. Your line is now open.

Hey, thanks. Ari, I want to go back to one of the original questions just on the M&A and the space. You've got three competitors now all tied up with mergers. I'm just curious, what are you hearing from customers? How do you think about the opportunity to maybe pick up share in an environment where there is a lot of distraction and churn? Can you maybe just talk to those dynamics?

Okay. I mean, look, whatever I say here is just – you know, opinions and a little bit of an educated set of observations based on, as you said, inputs from clients and having our fingers on the pulse of the industry. Look, we were already gaining share and we're not counting on others to be weaker than they were in order to gain share. We are largely, you know, our market share shared gains, which I think are evident, are the result of our unique differentiated capabilities and offerings. So that's number one. We don't spend that much time looking at what other people do in the industry. We focus on our strategy and building out our capabilities and trying to persuade customers that they should go with us, and we are successful doing that. Now, if I look out, obviously, I can't miss the activity. You will recall that INC Research and Inventive merged in order to form Seniors. LabCorp bought Children. PRA bought Symphony Health. ICON is merging with PRA. TPD is selling itself to tmo um what else lab core is exploring strategic alternatives whatever that means so lots of activity and i probably missing some but you know generally um when you you know In the CRO business, there are very few cases where there is synergy between two CROs. Very few cases. You know, if someone is largely present in phase one or preclinical in phase one, if someone is stronger in phase two, phase three, then maybe you could say there's complementarity and value. If someone is very strong in the U.S., very weak in Asia, and someone else is very strong in Asia, very weak in the U.S., then you can say there is geographic complementarity, and there is value. But, you know, in most cases, they're serving the same client base, and in many cases, including for the people that I just mentioned who are merging, there are clients where they, the two of them, are the preferred providers for a client. So what do you think is going to happen? The client is not going to remain with one provider, So we now have a negative synergy, a dis-synergy on the revenue side. Yes, you always have cost benefits because you don't need two CEOs, two CFOs, two general counsels, et cetera, et cetera. But largely, this is a project-based business. you still need a different team for every project. So the level of scalability as a result of merger and the efficiency, because you put two CROs together, is extremely limited. So I don't see that much value there. And don't come back to me if we ever buy a CRO and tell you why you're buying a CRO. Again, there could be cases where it does make sense, again, because the complementarity are indeed significant. complimentary or because the customer coverage is complimentary, etc. Again, we want to focus on what we do. Clearly, a company in a merger situation is weakened. We experienced it ourselves, despite the fact that we were doing a merger between two totally different companies that were bringing very rich capabilities to each other. But The merger, no doubt about it, is disruptive. The sale is disruptive. Talent flees. We've experienced it. So we know what is going to happen. Obviously, it's an opportunity for us. Again, we're not counting on that. We're gaining share regardless. Thank you.

Okay. And then one follow-up, speaking of things you are buying, on the Q2 solutions, I just would like a little more color. I mean, you mentioned it streamlines decision-making. You can build out greater analytical capabilities. But can you just talk a little bit more on the rationale for bringing that back in-house? And I know you had a question earlier on how you can scale it up. I didn't hear an answer to that as well.

Yeah. I mean, look, we own 60%. It was managed jointly. We had a board, a joint venture, but I think it had been run largely by our side in terms of the management. It fit into the clinical trial process. The companies were put together originally. Both were relatively weak in the space. It was turned around, improved. It's a strong business. Those capabilities are extremely sought after. The market is becoming more and more attractive. There have been, back to the M&A question, a number of very attractive, highly specialized biologic, genomics-related labs that came up for sale. And we were unable to proceed decision-making, ability to focus, et cetera. And all of that, I think, will be facilitated going forward. So it's a business that we like. It's a growth business. It's an attractive business. And we want to invest in it. and when and if there are acquisitions in this space, we will seriously look at them and be able to move faster. Now, also compelling in passing, I might say, it was a financial no-brainer kind of transaction for us. Thanks, Ari.

Your next question comes from the line of Patrick Donnelly from Citi. Please go ahead. Your line is now open.

Hey, guys. Thanks for taking the question. Ari, maybe just on the OCE business. I know it's not the biggest piece of revenue yet, but a nice growth opportunity. I think you talked about 10 ads this quarter. Can you just talk about how that business is looking in the face of the pandemic, what you're expecting as we go through the rest of the year and just the competitive environment there?

Well, look, we continue to win in the marketplace at about the same pace. I mentioned we had 10 client wins so far in 2021. We had 150 since launch. The large client deployments are going very well. Implementations went well despite the COVID environment. Last year, there were barely any slowdowns. In fact, some deployments are seeing accelerated timelines. Everything is on schedule. I don't know if we disclose the names of the clients or not in this business. I'm not sure. The feedback is very positive. Generally, the field reps are very engaged. You're aware, of course, of the Roche global deployment, the Novantdome disk international operation, the AstraZeneca US deployment. All of that is largely on target. with very good positive feedback. You know that OC is rather revolutionary compared to other offerings in the market. It's not just a CRM. It's platformed on force.com and the Lightning platform. It's a very collaborative tool. It utilizes AI and machine learning to integrate various functions within the the the pharma companies commercial operations enables faster integration of data and therefore faster deployments um it links the healthcare providers and the script data for a better view of the doctor and all of that again optimizes um optimizes our our uh our client salesforce effectiveness um and then since then obviously we're adding modules that are you know based on the oce We've got HTTP engagement management. We've got OC optimizers. We've got next best action. All of those are enhancing functional capabilities that our clients are buying, and that helps grow the business even faster. Great. Thanks, Arthur.

Your next question comes from the line of Sandy Draper from Truro Securities. Please go ahead. Your line is now open.

Thanks very much. Just maybe one quick clarification and then a broader one. First, Ron, the comments you made about the growth rates by segment, was that constant currency or is that reported?

Okay. Anybody here?

Sandy, yeah, the growth rates we've given to the guidance are on a reported basis.

Okay, so like the low teens and mid-20s, so those are reported. Okay, great.

Yeah, but the Apex impact is slightly positive during the course of the year, but it isn't a big driver. And it diminishes as the year goes on at current rates.

Super. That helps. And then maybe more broadly for whoever wants to take it, obviously business is going really well. As you said, Ari, it looks like the targets may hire. It seems to me maybe one of the biggest challenges you're going to have, because you said a lot of this is a service business, and obviously some of the software, the software can scale. But how do you think about, do you have to change anything about hiring? Think about where you're going for people? Are you worried about wage pressure? Because clearly, you're going to have to add a lot of people to continue to build, you know, to get to the growth you're doing. So we just love your thoughts on hiring, wage inflation, and how you manage adding that many people in what's a very positive but also competitive labor market? Thanks.

It's a great, great question. And you know, you're touching on one of the, obviously, the biggest operational challenges we have. And that's a natural challenge when you're growing and you're in the service industry and you're right, you know, the software-based business or the data subscription business. You know, they're growing, but not at the pace that the services business is growing. And in aggregate, in relative terms, we're still going to need to hire people. Now, two observations. Number one, in early 2020 and 19, early 2020, in anticipation of continued growth, we already had hired a lot of people. We did not restructure people in 2020. We kept people. And even when they weren't working and we paid them, they're here and they're now working and delivering. So we haven't had to hire more people as much as you might think relative to our workforce last year. And it's part of the reason why we're having nice margin expansion here. Second observation is, we talked before about merger of competitors. Obviously, this is going to lead to some talent bleed and availability. And we are, in fact, being approached and a talent is there. But yeah, I mean, wage inflation, that's true across industries and certainly in our industry as well. So we'll have to deal with that. You know that we have a program to continue to seek efficiencies, scale, whether it's through consolidation of activities, using our offshore centers, automation of processes, etc. And we have lots of programs to create cost efficiencies that, again, the purpose of which is to continue to be able to deliver margin expansion, even as we've got wage inflation. Juan?

And one more thing, Sandy. Anticipated wage inflation is fully factored into our guidance.

Yes. Sorry, Sandy, go ahead. Oh, I just said thanks for taking the question. That's it. Thanks, Andy. It's a pleasure. I think we've got time for probably just one more question before we get to the top of the hour.

Great. Thank you. Your next question comes from the line of Elizabeth Anderson from Evercore ISI. Please go ahead. Your line is now open.

Hi, guys. Thanks so much for the question and squeezing me in. You know, obviously free cash flow was very strong in the first quarter. I just wondered how you thought that would continue to pace across the year. I mean, obviously last year was extraordinary for a variety of reasons, including on the free cash flow front. So I just wanted to see sort of how you guys are thinking about the pacing of that as we move through the rest of the year.

Thanks. Hi, Elizabeth, and thanks for the question. We did have very strong cash flow. It's not a coincidence. You know, since the start of the pandemic, we've been focusing a lot on that, on collections, not letting accounts receivable slip past due. We've been successful in working down our overdues and negotiating contracts with better billing terms with customers. And you're also seeing, although there has been pressure from the industry, from clients to extend billing terms, you know, that's kind of winding down. There's a one-time impact, and then you hit steady state. uh now you know having said that uh look cash flow is lumpy so you know i'm not going to promise that we're going to have 700 million dollars of free cash flow every quarter it tends to go up and down but we have fundamentally shifted our emphasis on improving cash flow and you've seen that over the past year you know just as a general guidance uh you know helping the guidance you would expect free cash flow in an average year be between 80% and 90% of adjusted net income. And keep in mind that our adjusted net income is growing quite strongly, so our cash flow will grow on that basis. But in any given quarter or any given year even, it may differ from that. Cash flow is not like earnings. It isn't as smooth. It goes up and down. But yes, we have seen improvement, and we expect continued strong cash flow going forward. but expect the normal volatility that any company's going to have in cash flow. Quarter to quarter.

Quarter to quarter, correct. I think let's try and squeeze in one more quick one as well before we end.

Thank you. Your next question comes from David Winley from Jefferies. Please go ahead. Your line is now open.

Hi. Thanks for squeezing me in. I appreciate it. Ari, I thought maybe the most impressive, important number in the quarter was the $6.5 billion in next 12 months backlog. That's such a big sequential increase. I think it's the biggest since you merged. And I know you said earlier in the call that, you know, clearly bookings were very strong. That layers in. You're rolling forward to the next quarter. It's an outsized improvement and gives great visibility for the next 12 months. And I wondered if there was also something to be read into that either that sites and patient recruitment are opening up and there's a greater comfort level that is materially improving in terms of your client's willingness to move forward and sites, you know, cooperation on that and or, you know, some of your tools for patient recruitment that are having that impact. And I wondered if you could just add some color to how that, you know, how that outlook is improving so dramatically.

Thanks very much for that question. And yes, you're absolutely right. And your observation is correct. There's been a dramatic sequential improvement in our next 12 months revenue growth outlook for the R&DS business by over $600 million. And this is the result of continued strong net new bookings performance, as well as, again, as you point out correctly, steadily improving clinical trial recovery landscape. Now, by the way, this metric of next 12 months now includes the first quarter of 2022, which is again an encouraging sign, as you also point out, of continued strength well beyond this year. Now, in terms of the improvements that we've seen in terms of accessibility to sites and so on and so forth, recall that we had in the Q1 earnings call just a year ago, 20% access to the site. 20% of our sites were accessible. In the Q2 call, it was 53%. Q3 was about 70%. Q4 was slightly above 70%. And now it's higher than that and trending up as well. I think it's in the 75%, 76% range. Our guidance for 2021 takes many factors into account with respect to the next 12 months N and B. I'm sorry, next 12 months revenue from the backlog, we do this project by project. It's a bottom-up process where we evaluate the expected revenue burn for each project for the next 12 months. So it's an extremely precise process. exercise and I think a very relevant measure and indication of the visibility on our business going forward. But beyond access to site, you know, look, the site startup activity is essentially, is actually above the 2019 levels. So site startup activity is a very strong indication of revenue burn going forward and that's above pre-pandemic levels. Patient recruitment, it's close to pre-pandemic levels and we see trending up and probably above in not too distant future. Patient visits, same thing, very close to pre-pandemic levels and trending up. So bottom line, these metrics provide a strong confidence that the trial pipeline, and I'm talking now about the non-COVID trial pipeline, the one that's being awarded or that was awarded and pushed to the right, is starting to be delivered with sites enrolling, patients enrolling, and patients visits. So you are absolutely correct, and thank you for bringing up the question. I hope that you're going to draw the conclusion, Dave,

Yeah, I appreciate you squeezing me in. I appreciate your pastime a little bit, but that's very, very helpful. Thank you. Thank you, Dave.

Thanks for the question, Dave, and thank you, everyone, for joining us today. We look forward to speaking with you again on our second quarter 2021 earnings call. The team will be available to take any follow-up questions you might have for the rest of the day. Thank you, everyone.

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