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 2024 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 like to turn the call over to Kerry Joseph, Senior Vice President, Investor Relations and Treasury. Mr. Joseph, please begin your conference.

Thank you, operator. Good morning, everyone. Thank you for joining our third quarter 2024 earnings call. With me today are Ari Boosby, Chairman and Chief Executive Officer, Rob Roman, Executive Vice President and Chief Financial Officer, Eric Sherbert, Executive Vice President and General Counsel, Mike Fedok, Senior Vice President, Financial Planning and Analysis, and Gustavo Peroni, 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 in the events and presentation section of our IQVIA investor relations website at ir.iqvia.com. 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 risk 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 Busby.

Thank you, Kerry, and good morning, everyone. Thank you for joining us today to discuss our third quarter results. IQVIA delivered another quarter of strong operational results. Revenue came in above the high end of our guidance range, representing about 6.5% growth, excluding the impact of foreign exchange and COVID-related work. And we also delivered 14% growth in adjusted diluted EPS. As we expected, the environment for our short cycle businesses continues to improve. as our clients are launching new drugs and executing on critical commercial programs. In fact, TAS revenue growth accelerated in Q3 to over 8% year over year, with growth in all subsegments. This reaffirms the second half growth trajectory that we had anticipated for TAS since the beginning of the year. And we now expect TAS growth for the year at the high end of our mid single digit range. On the clinical side, the near-term market environment continues to be choppy as we've been discussing in prior earnings calls. None of this is new, but as you know, we've been facing aggressive competitive pricing and tougher negotiations. Additionally, the trend that started over a year and a half ago with large pharma reprioritizing their program portfolios as a result of the IRA has been continuing. And this has been leading to a higher than normal level of cancellations. And we expect this to be the case again in the fourth quarter. On the EBP side, Funding levels this year have improved, but as you know, it does take time for this funding to translate into actual RFP flows and even more time to translate into awards. Our bookings in the quarter included a substantial cancellation due to drug futility that impacted our quarterly net new business by approximately $350 million. for that one trial. The reported net book-to-bill was 1.06, but excluding this specific cancellation, the book-to-bill would be 1.22. Lastly, in late September, two clients notified us of their need to delay two mega studies that were already in startup phase due to client-related logistics issues. This affects our short-term guidance and Ron will share more about that later. While we navigate through these short-term challenges, it's important to remember that our CRO business is a long cycle business. The demand metrics give us confidence in the strength and resilience of our business. I'd like to share some details of what we are seeing. Firstly, as you may know, many large pharma companies have been running processes this year to reevaluate and consolidate their strategic partnerships. To date, we have successfully renewed every single large pharma strategic partnership. In fact, we've added new relationships, displaced incumbents, and expanded the scope in over half a dozen of our strategic partnerships with large pharma clients. There are two aspects to this successful performance by the RDS team. One is that our existing large pharma customers have reaffirmed their trust in IQVIA. And two, it opens up opportunities for us to gain greater share of wallet in future programs because these clients have consolidated their strategic partnerships. In the EBP world, biotech funding reached about $16 billion in the quarter, according to Bioworld. And that means that year to date, biotech funding was over $80 billion, which represents more than 50% growth in funding year over year. Now again, As I remarked earlier, it does take time, and it could take a year to a year and a half before that funding translates in actual awards. Three, our backlog reached a new record of $31.1 billion at the end of the quarter, and that represents growth of 8% compared to the prior year. Four, our trailing 12-month book-to-bill remains healthy. at 1.22. Fifth observation, our next 12-month revenue from backlog is up 5.5% year over year. Our quarterly RFP flow continued the same trend we saw in the first half, increasing mid-single digits year over year. And finally, our qualified pipeline in the quarter is up across all customer segments and it grew low double digits overall compared to the prior year and that is good now just to be balanced i should point out that in stronger market environments that qualified pipelines have sometimes been up in high double digits now let's turn to the results for the quarter revenue for the quarter grew 4.3% on a reported basis, and 4.2% at constant currency. Compared to last year, and excluding COVID-related work from both periods, we grew the top line about 6.5% at constant currency, of which just under 5% is organic growth. Third quarter adjusted EBITDA increased 5.7%, driven by revenue growth and ongoing cost management discipline, and that resulted in 30 bps of margin expansion. Third quarter adjusted diluted EPS of $2.84 increased 14.1% year over year. I'd like to share a few highlights, as is our practice, of business activity. Let me start with RMDS, where we continue to differentiate with our therapeutic expertise, clinical technology, and public health offerings. IQVIA won a top 10 pharma partnership as a new preferred provider for central lab, as well as secured extension for several existing FSP engagements in clinical monitoring, data management, and clinical technology. We were awarded a strategic partnership to provide DCT solutions for a metabolic and cardiovascular program at the top 15 pharma clients. We're the only company that can offer these DCT services and technology without having to partner with third parties. Within oncology, which is, as you know, a key therapeutic area for our industry, we were selected by several leading sponsors in the core, including a U.S. biotech client to manage a large global phase three study for renal cell carcinoma for patients who have progressed after first-line immunotherapy combinations, a large pharma customer to conduct an early phase trial in prostate cancer, leveraging our expertise in dose escalation and dose expansion study designs. A biotech client to run a global phase three study for a biosimilar targeting multiple myeloma. This project aims to bring the first biosimilar for multiple myeloma to market. A biotech client, leader in cell and gene therapies. to conduct a groundbreaking phase three trial for reoccurring cancer in the lymphatic system. Across these awards, we differentiate with our ability to run global studies with dedicated teams, as well as our AI-enabled site selection solutions. Within clinical technology, in fact, we continue to expand our recently launched One Home for Sites offering. A biotech client selected IQVIA to increase clinical trial capacity by streamlining access to multiple vendor sites via our single sign-on platform. In the quarter, a large biotech client selected IQVIA to expedite the setup of a trial to deliver vaccines for mpox in Sub-Saharan Africa, addressing a critical outbreak in the region and significant unmet medical needs. Finally, IQVIA in partnership with the Coalition for Epidemic Preparedness and Innovations, CEPI, the Rwandan governments and the Sabine Institutes responded to an outbreak of the Marburg virus, a hemorrhagic fever with greater than 50% fatality in Rwanda at the end of September. Our organizations collaborated to mobilize and dose the first patients with an investigational vaccination within nine days of the outbreak. Moving to TAS, as you saw from our results, the business is recovering even better than we had forecasted. One area we continue to make great strides in is in building differentiating AI capabilities across our offerings. You will have seen we recently launched the IQVIA AI Assistant, which is a new generative AI tool designed to provide life science customers with quick and powerful insights through a user-friendly conversational interface. This allows users to ask complex business questions and receive comprehensive and reliable answers in real time. IQVIA AI Assistant is built on IQVIA's trademark healthcare-grade AI, which enables extensive privacy safeguards and provides expert validation of accurate, reliable outputs as is demanded by the healthcare industry. IQVIA was awarded a multi-year contract by a large pharma client to deliver our next best action offering, for sales reps across nine countries. This AI-enabled solution optimizes sales rep engagement activities and enhances their interactions with HCPs. IQVIA secured a multi-year contract with a North American biotech client to improve workflow efficiency through an integrated, fully connected intelligence solution that includes OCE, orchestrated analytics, and one key offerings. The top ten client shows IQVIA to improve HCP engagement for a new schizophrenia treatment, and in this case, we displaced the incumbent by offering a solution that will enable daily alerts based on near real-time inputs versus the incumbent's weekly frequency. A top five pharma client awarded IQVIA a multi-year contract to provide co-pay support for oncology and women's health franchises. This deal enhances patient access to medications and drives better health outcomes. A couple of examples in the real-world segment, a top five pharma client selected IQVIA to support the launch of a new GLP-1 asset targeting weight loss, based on European payer reimbursement models. The top five pharma clients engaged IQVIA to provide an evidence-based approach for a client's medical affairs team to optimize funding decisions and prelaunch activities in the North American market. A top 20 large pharma client awarded IQVIA a contract to support engagement with HCPs and KOLs. based on detailed share of voice analysis of scientific and clinical experts in nine countries across all core therapeutic areas for the client. Finally, and before I turn it over to Ron for more details on our financial performance, I'd like to invite you to our IQVIA Investor Day, which has been scheduled for December 10th. on the campus of our headquarters in Durham, North Carolina. Our investor relations team will be available to provide additional logistical details. Event information is already available on our investor portal.

Ron? Thanks, Ari, and good morning, everyone. Let's start by reviewing revenue. Third quarter revenue of $3,896,000,000 grew 4.3% on a reported basis and 4.2% at constant currency. In the quarter, COVID-related revenues were approximately $20 million, down from about $100 million in the third quarter of 2023. Excluding all COVID-related work from both this year and last, constant currency growth was about 6.5%. of which just under 5% was organic. The majority of the acquisition contribution was in the TAS segment, as is typical. Technology and analytics solutions revenue was $1,554,000,000, up 8.6% reported and 8.2% of constant currency. R&D solutions revenue of $2,162,000,000 was up 1.9% reported and an even 2% at constant currency. Excluding all COVID-related work, growth at constant currency and R&DF was about 6%. Lastly, contract sales and medical solutions, or CSMS, revenue of $180 million declined 1.6% reported and 1.1% at constant currency. Year-to-date revenue. was $11,447,000,000, up 3% on a reported basis and 3.5% at constant currency. Excluding all COVID-related work, growth at constant currency was 6% year-to-date. Technology and analytics solutions revenue was $4,502,000,000 year-to-date, up 3.9% reported and 4.3% constant currency. Excluding all COVID-related work, growth at constant currency in TAS was 5%. Now, as a reminder, Q1 2023 was the last quarter where TAS revenue had a meaningful contribution from COVID-related work. R&D Solutions' year-to-date revenue of $6,404,000,000 was up 2.6% at actual FX rates and 3% at constant currencies. excluding all COVID-related work, growth at constant currency and R&DF was 7%. Lastly, contract sales and medical solutions year-to-date revenue of $541 million was flat on a reported basis, and up 3% at constant currencies. Let's move down to P&L. Adjusted EBITDA was $939 million for the third quarter, which was growth of 5.7%, while year-to-date adjusted EBITDA was $2,688,000,000, up 3.3% year-over-year. Third quarter GAAP net income was $285,000,000, and GAAP diluted earnings per share was $1.55. Year-to-date GAAP net income was $936,000,000, which represented $5.08 of diluted earnings per share. Adjusted net income was $523 million for the third quarter. Adjusted diluted earnings per share was $2.84, up 13.2% and 14.1%, respectively, versus prior year. Year to date, adjusted net income was $1,478,000,000, or $8.02 per share. Our backlog at September 30th was $31.1 billion, That's up 8% year-over-year and 6.7% at constant currency. Next 12 months revenue from backlog was $7.8 billion, going 5.5% year-over-year. Reviewing the balance sheet now, as of September 30th, cash and cash equivalents totaled $1,572,000,000 in gross debt with $13,512,000,000 and that resulted in a net debt of $11,940,000,000. Our net leverage ratio at the end of the quarter was 3.27 times trailing 12-month adjusted EBITDA. Third quarter cash flow from operations was $721,000,000, and capital expenditures were $150,000,000, resulting in very strong free cash flow of $571,000,000. You saw in the quarter that we repurchased $200 million of our shares. That leaves us with just under $2.2 billion of share repurchase authorization remaining under the current program. Okay, let's turn to guidance now. Now, while our views on industry fundamentals remain positive, we are updating our full-year guidance due to the delay in the two separate fast-burning mega trials, which clients communicated to us at the end of the quarter. These delays resulted from client-related logistical issues. Our team is working closely with these customers to ensure timely resumption of the trials in 2025. For the year, we now expect revenue to be between $15,350,000,000 and $15,400,000,000, adjusted EBITDA to be between $3,675,000,000 and $3,700,000,000, and adjusted diluted earnings per share to be between $11.10 and $11.20. There is no material change from our prior guidance to our assumptions around COVID-related step-down and foreign exchange. The revenue growth contribution from acquisitions is expected to be about a point and a half for the year. Now, at the segment level, we currently expect TAS to grow approximately 6% for the full year and R&DS approximately 5%. Both growth rates are at constant currency, excluding the impact of the COVID revenue step down. For the fourth quarter, we expect revenue to be between $3,903,000,000 and $3,953,000,000. This includes TAS revenue of growth of approximately 8% and R&DS revenue growth of about 1%, both at constant currency and in the case of R&DS, excluding COVID-related impacts. Adjusted EBITDA is expected to be between $987 million and $1,012,000,000. An adjusted diluted EPS for the quarter is expected to be between $3.08 and $3.18. And this guidance assumes that foreign currency rates as of October 30th continue for the balance of the year. So to summarize, we delivered another quarter of strong operational results. Revenue came in above the high end of our guidance at about 6.5% year-over-year, excluding the impact of foreign exchange and COVID-related work. Adjusted EBITDA margin expanded to 24.1%. Adjusted diluted EPS grew by 14%. as interest expense is no longer a headwind. Free cash flow was again strong, going 31% year over year, representing 109% cash conversion of adjusted net income. R&DS bookings were affected by the cancellation of one large program due to drug fatality. We updated our Q4 guidance to reflect the delayed start of two fast-burning megatrails that are now expected to resume again in 2025. And while we are experiencing some near-term bumpiness in R&DS, forward-looking indicators continue to signal a healthy demand environment, confirming the strength and resilience of this business into 2025 and beyond. And with that, let me hand it back over to the operator to open the Q&A session.

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one in your telephone keypad. We request that you please limit yourself to just one question so that others in the queue may participate as well. We'll pause for a moment to compile the Q&A roster. Your first question comes from the line of Anne with Mizuho. Your line is open.

Good morning. Thank you so much. Any thoughts on preliminary 2025? I know the industry is going through a tough time now, but do you think you could still grow in that kind of high single-digit range given the backdrop?

Thanks. Well, thank you, Anne. You know, we don't usually give guidance for the following year at the time of the third quarter earnings release. But we do plan to at least give some indication of what 25 will look like at our investor meeting on December 10. And as always, to give you more precise guidance for the year concurrent with the full year earnings release. Now, having said that, look, you know, I'm going to depart from what everybody else here in the room is telling me to do, and I'm going to tell you that what, and I'll do that because the environment is so shaky and obviously you're wondering what's going to happen at 25. So look, if you look at 24, we grew, we will have grown the company about mid-single digits. Okay, after all the short-term challenges that we signal are absorbed. And my expectation is that it'll be similar in 2025. That's really a high-level expectation. We haven't finished our planning process, as you can imagine, but if you look at the segments, TAS, as predicted, rebounded in the second half, and TAS is a short cycle business, so I think things are coming back as expected, and we anticipate this will continue. So if TAS grows this year at constant currency again around 6% or so, then I think I'm expecting that the same will be true at least in 2025. And then for RDS, which will continue to um deal with these short-term cancellations in q4 and probably the early part of 25 um you know we we are projecting five-ish percent growth five percent plus growth for rds for this year i'm going to assume at this early stage that it will be similar and that's what's guiding my observation that I think company-wide will be around those levels as well in 2025. Again, that's just as a placeholder. I invite you to join us on December 10 where our planning will be more advanced and we'll share more about that and certainly a full year detailed guidance when we release full year earnings. Thank you, Anne. Thank you.

Your next question comes from the line of Shlomo with Stifel. Your line is open.

Hi, thank you very much. Ari, I knew it's one question, but I just want to get a lot more detail, if you can, on the trial delays, because ICON talked about two trial issues also. They were talking about financial reprioritization and stuff like that with some of their clients. You're talking about some kind of logistical issues. Can you give us a little bit more detail? Are these logistics, physical logistics? What else could be involved in that? Does it have anything to do with the financials? what kind of confidence do you have that the projects will really, you know, ramp into the second half of 25? And, you know, if you can kind of flesh that out as much as possible, I'd appreciate it.

Yeah. So, look, I mean, what other competitors are experiencing is absolutely coincidental. That's two trials, and we are two trials. I understand why you're asking the question. Just again to step back and look at what's happening, we've got a general environment where – as I stated in my introductory remarks, large pharma has been reprioritizing their programs. That is nothing new here. And that has led, that's a direct consequence of the IRA. That has led to an elevated number of cancellations. That affects the industry. That's the market environment. And frankly, even in that environment, we normally should be expected given our scale and performance and momentum, we should be expected to continue to deliver. And that's what we did for the first three quarters of the year. Separately, and unfortunately, at the same time, we have had to deal with a very large cancellation that has nothing to do with reprioritization. It has to do with futility. And that, you know, obviously is affecting our short-term impact. Now, in a normal environment, we would have been able to absorb that and move on. But because it's such a tough environment and we're dealing with a general heightened level of cancellations, we've not been able to absorb that. Again, separately and unfortunately concurrently, two clients, this is totally independent of anyone else, of any reprioritization, of any financial considerations, of anything else, have had, for their own reasons, we know what the reasons are. I cannot share them with you. We are subject to very strict NDAs for obvious reasons. It has absolutely nothing to do with the drug, with us, with financials. We just can't tell you what the reasons are. I regret that. But those trials will resume. They happen to be fast uh burning and they have to tend to be very large we're confident that they will resume in 25. now i know it's a lot to absorb and when you look at the whole picture that's you know a lot of different things and i regret it as much as you but that's the you know that's the reality we're facing with a choppy environment We'll navigate that under normal circumstances, but we've had to deal with two discrete events unrelated really to the environment.

Thank you.

I hope that helps.

Yep.

Thank you.

Your next question comes from the line of Anne with JP Morgan. Your line is open.

Hi, guys. Thanks so much for the question. I was hoping perhaps you could help us understand just maybe the timing of some of these dynamics of the cancellations. How much notice do you get in advance? And when we think about the delays for kind of pushing to the back half of next year, do they impact any other projects for 2025, or does that become incremental to 2025? Thanks very much.

Okay. On cancellations, typically, look uh it depends okay all these can there's two types of cancellations and i'm going to roughly say that in this past year what we're seeing is that about half is due to the reprioritization and about half is the normal you know drug utility based on results um how does it happen well the reprioritization you know it's a process that Our clients are going through and, you know, they've been going through this for a year and a half. And I believe we are peaking at this point. You know, it has an end. This process has an end. I see this ending at the end of this year. That's my prediction. It's one man's prediction. But I think that we're going to still see elevated cancellations in the fourth quarter. um you know we don't we now IQJ does not give quarterly numbers for cancellations but I've said before normally it's about a half a billion dollars and it can vary plus or minus 200 million dollars either side it by definition it's not a a constant number it cannot be the same number every quarter Okay, so there are quarters where it's 300, there are quarters where it's 250, there are quarters where it's 600, 700. The average is around 500. And I think that, you know, we are seeing, you know, I'm not surprised we see quarters where we have double that number because of these reprioritizations. Okay, so that's what we're dealing with. The traditional cancellations, other than reprioritization, the traditional cancellations that are due to data, it usually takes time because you've got a piece of data that's not favorable. As you know, there are independent panels, investigative panels that review that data. There's discussions with the FDA. It's a long process. And even in order to reach the decision to cancel, it takes time. When that happens, it also takes time to unwind the trial. If the trial is ongoing, as opposed to the trials that are canceled because of reprioritization, which are things that are simply taken out of the backlog, programs that are canceled because they are in the middle, in flight because of results, it takes time to unwind. It could take two or three quarters because we have to deal with patients that have been dosed, that are under treatment, et cetera. So there are serious reasons. And often it leads to additional bookings of extra work in order to facilitate that disengagement. So that's, again, it's a complex, unwinding process. But I hope that helps answer your question.

And, Ann, you had also, I think, asked about delays and whether the delays at incremental work in 2025. Don't forget, these are multi-year trials. So if 24 work gets pushed into 25, sure, we pick it up there, but 25 work gets pushed into 26. So I wouldn't think of these as being incremental to 2025. Right.

That's correct. However,

um you know the sequential growth will be affected right so so you know just because it compares and exactly and we'll give you more uh information on the sequential growth that we expect as we go forward during our you know normal guidance process great thank you very much

Your next question comes from the line of Luke at Barclays. Your line is open.

Hey, guys. Thanks. A couple of cleanups here to start. On the M&A, you guys did $428 million, I think, in the quarter. Any update there on, like, the financial profile? And is all this in TAS? And kind of how we think about that business growing so we can, from a modeling perspective, in the next year?

Yeah, thank you. Well, yeah, you're correct. As has been typically the case, the majority of our acquisition contribution is in TAS. But I would point out that in the quarter, TAS had very strong step up in organic growth. In fact, more than three times sequentially. The company-wide organic growth was just under 5%, excluding acquisitions. And so acquisition contributed to just over one and a half points to our about six and a half points of growth at constant currency, excluding COVID. Now, if you do the math, you'll see that the organic growth in TAS was also mid single digits, which again is over three times what it was in the prior quarter. So strong in TAS across the board organically. Since you asked about acquisitions, I just want to step back and reiterate what I've said many times before, and that is that acquisitions are an important part of our growth algorithm. Always has been the case, and hopefully will continue to be the case. In fact, we always aimed at at least two points of incremental growth from acquisitions, but if you look at our numbers, you'll see that historically we've never been able to do two points. plus of growth it's been more between one and one and a half points and this year hopefully one and a half of contribution from acquisitions now bear in mind we do a very large number of tiny tiny deals okay um yeah you have the list here in front of you uh yeah ron just to give an example a couple of examples this year in the uh

In the TAS area, we did an acquisition of a commercial engagement company, H3O, that has a million dollars of annual revenue. We did a real-world platform, B2I, that had slightly over a million dollars of revenue. So when you look at the total number of acquisitions we do, it looks like a really big number. but there are any number of very small acquisitions.

I mean, that's typical. If you look at our list of actual acquisitions, you know, with all these little fancy names, and they are important, okay? These are little deals that we do this because we believe we are pretty good at buying good companies with potential growth, and typically after we integrate them within a year or two of ownership, they do very well. um so again the vast majority of these did have very little revenue now sometimes we have to pay up a lot i mean there are there's a handful of acquisitions we've done in the past in the recent past that we've paid 10 times revenue for you know i'm thinking of the dmd for example right a couple of years which um facilitated our entry into the uh the digital space um we paid almost 10 times revenue for that company so if you will the acquisition number uh the dollar paid for the acquisitions and the revenue contributions are not connected um you know for example year to date what's the spend on acquisitions zero today as of q3 649 okay we spent 649 million dollars year to date on acquisitions at the as of the end of the third quarter Almost half of that was one acquisition, a company called Micra, which is a small specialized CRO in med devices. It's actually an RDS acquisition. And we bought that in the third quarter, sometime in August, if I remember. And that was almost half of the spend. And we paid almost five times revenue for that. So obviously, it's a big number in terms of the spam, but the revenue contribution this year of that acquisition is de minimis. Okay, because again, we paid almost five times. We bought that in, you know, it has like maybe one month of revenue in the quarter, and that's what it was. so again um very important acquisition as part of our strategy thanks for asking the question by the way i would remind you the best deal we ever did was the acquisition of the 40 minority we didn't yet own from our joint venture with quest in our central lab that was the largest deal that we did and we paid 760 million dollars for that it came with exactly zero revenue because We already consolidated revenue, right, but it was a great deal nonetheless. So, again, I hope that helps give context to our acquisition strategy. Thank you. It does.

Your next question comes from the line of Justin with Deutsche Bank. Your line is open.

Thank you, and good morning, everyone. Looking forward to seeing the lab at the Innovation Center in December. Ari, just sticking with the M&A, I think in capital deployment, at the beginning of the year, you guys talked about $2 billion in deployment. I think when you put together the M&A and the buyback, you're still tracking below $1 billion. So assume nothing gets done in the fourth quarter. Would it be fair to assume sort of like $3 billion of dry powder for 2025? And then just lastly related to the comments around pricing pressure, I think earlier you've said it's been mostly concentrated to FSP. Are you seeing that spill over at all into FSO?

Okay. Well, thank you, Justin. It's a great question. On the capital deployment, as you know, we signaled, you know, between $2 and $3 billion as a long-term goal annually. spread between acquisitions and share repurchase. And as you correctly pointed out, so far this year, some of the members, so far we spent $649 million on acquisitions and just $200 million on share repurchase. and you know frankly that's because we were looking at bigger acquisitions that we were unable to do either for pricing or other reasons acquisitions as you know are binary you do them or you don't do them now based on what i know today i don't think that we're going to spend a lot more on acquisitions before the end of the year maybe again i'm speculating between another 50 50 to 100 million dollars at the most and therefore to point out that leaves us with a lot of dry paddle. My intention before the earnings release was to massively buy shares in the fourth quarter. And today, my intention is even to more massively buy shares at the end of the quarter. My general counsel is putting his head on his head here. But I am telling you that, you know, we are very excited and we are going to buy a lot of shares. We have $2.2 billion plus share buyback authorization. and the share price is screaming by, and that's where we're going to spend our capital. Then you have the question on pricing. Pricing is tough across the board, has been commercial and RDS. Obviously, you know, it's not that it's more on FSP than in FSO, It's just that FSP was stronger this year. Remember, FSP is perhaps, correct me if I'm wrong, over here, it's like about 15% of revenue, roughly. But it's been increasing in terms of our bookings and inching towards 20%, right? So eventually, it'll be about 20%. But again, again, we might win again other FSOs. So I think it'll be always between 15% and 20%. And FSP has, as you know, lower margins, so that depresses our, it's a headwind to our margins because of mix every time we do more FSP. Pricing is tough across the board, okay? One, because as I mentioned before, this year, clients, most large pharma companies put us through a sort of a rebid process. invited every CRO under the sun, and as I mentioned in my introductory remarks, we did very well there. Essentially, in every single one of these big processes, we were reselected for our existing strategic partnerships, and we expanded with half a dozen strategic partners and expanded the scope uh of what we are going to be preferred suppliers for including especially for central lab um so we think that the future is is very bright uh on our nds and again pricing very tough that's one reason the other reason is that we have as you know the industry has has kind of sort of split between three large cro's and then another second set of second tier cro's who have had let's say, more trouble in the recent past and who are desperate to win business. And when you're desperate, the place you go to is price. And so all of that, even though they never selected, they end up creating somewhat of a more pricing pressure. And clients, of course, are going to be delighted to use them for that purpose. So these are the reasons. um it doesn't look like it's improving it's going to continue to be tough but again we are confident that we will continue to to win and do well in the long term thank you justin thank you your next question comes from the line of david with jeffries your line is open oh hi thank you for taking my question good morning um i wanted to start with just a clarification i think based on

on the book bill that you're reporting this morning. You added about $140 million of new wins, bookings above revenue. Your backlog's growing about $500 million. Is the difference there just FX? So that's clarification. And then Ari, thinking about taking the timing issues, the cancellations, et cetera, the pricing pressure that you just commented on, how should we think about your ability to manage cost structure and continue to kind of hold margin or deliver margin as you have in the past in this environment? Thank you.

Dave, first of all, the first observation, your math, I think, is correct. I don't have the numbers in front of me, but based on what I heard, I think you're absolutely on the mark with the math on the bookings and the backlog. Your question on the cost management is an excellent one, and you probably are inferring from what we said correctly that we have to deal with significant cost headwinds for the following reason. These delays, as you can imagine, we had already started up those two mega trials, okay? They were in startup phase, and therefore we stood up the resources and the infrastructure, the teams, and everything that's required to perform and deliver on those trials. Now, they are interrupted. So it's almost like, but they are going to resume in 25. I think one of them second quarter, and then the rest basically second half and ramp up in second half. Now, we are not going to let these resources go and undo what we just did to ramp up the resources. So that already is a cost that we have to bear. Now, obviously, we're going to redeploy some of that against some of the other opportunities, FSP and so on. But nevertheless, there is no question that we are going to be living here over the next two, three quarters. with an extra bucket of costs associated with this. And these are huge trials, okay? And that is going to affect our margins. Now, again, we haven't finished our planning process. We have a lot of other levers. We are working constantly on costs. And we, I mean, you saw, obviously, we hadn't yet been affected by this issue so far, but you saw that so far this year we've done pretty well and we've actually in the fourth quarter achieved record margins. I think 24.1% is the highest operating margins that we have achieved since the company was created in 16, correct? So we've done well, 30 bps of expansion this quarter. But again, in the next know two three quarters you know we will have to see and we'll share more details um on um on on december 10 and certainly on um you know concurrent with the full year earnings release but david you are you're exactly um uh on the mark thank you great thanks your next question comes from the line of elizabeth with evercore isi your line is open

Hi guys, thanks so much for the question. Maybe one high level question and one numbers question. Can you tell me where we are in this sort of strategic partnership? Obviously that's been an area of strength for you guys, but sort of are we sort of through this round? Are we sort of still beginning this? Is it that not the right way to think about it? And then on the number side, can you what do you think that interest expense is going to be for 2024 in your updated guidance? Thank you.

Thank you, Elizabeth. You know, yes, I mean, the strategic partnerships, we did very well this year. Listen, we've been working with these guys for a long time. As you know, we've expanded the number of logos that we have preferred partnerships with. And so this year, and I think it's part of the overall reaction to the IRA and the overall focus on cost management. You know that most large pharma companies announce massive cost reduction programs. And so they opened up, they reopened all of their vendor relationships. I believe that we are largely through all of that. And I think that we are ready to move forward. Most of the large ones essentially have been completed. So that's for your first question. And second question, guys, you've got the answer?

Interest expense, talking about this year, Elizabeth, you know, round number 625 or so, give or take around that number, which is not terribly different than what we were telling you before.

Got it. And do you want to comment on 25 right now or not on that?

25 interest? I mean, obviously, it depends to an extent on what uh the fed and the ecb do with interest rates but flattish for next year we're anticipating but we'll update as we go along great thank you very much thank you your next question comes from the line of michael with leering partners your line is open uh morning and thank you for taking the question um i know we don't have the formal 25 guidance so i might be treading a little lightly here

But relative to R&DS and the 5% Roth give or take expectation at this point in time, what do the conditions have to look like relative from a macro basis, cancellation rates, et cetera, to make sure that number is still feasible? Is that predicated on those two mega trials re-ramping in the second half? And what are the most important puts and takes you're focused on that could change versus what the current trend is of general market choppiness?

Yeah, I mean, look, I wish I had a crystal ball, you know, but I can only tell you what we see now. I believe that by the end of the year, these program reprioritizations will come to an end. We know that because we are in close conversations with our clients. And look, that's the business our clients are in, is to do research and innovate. You know, they've been at this for a year and a half. Started, I think, in the kind of middle of last year. I think we basically know what's been reprioritized and canceled. we know what will be canceled by the end of the year, basically. Now, there could be other trials that have drug futility issues that can always happen, but that's kind of in the normal range of things, and we anticipate that. In that mid-single-digit type of high-level expectations that we have, as of now, for 2025 for our MDS, That's based on what we know today that has been canceled. The large, you know that we had this $350 million program canceled in the quarter that we took in. We also had in the first quarter a large $250 million program cancellation. And we know that these two programs, Megatrends, have been delayed. And then we factored in everything else. Again, most of the Trials are much smaller than that. And we work on hundreds and on over 2,000 of them. So it's going to be the normal course of things. These big ones move the needle. If you look at R&D as growth this year, we had 7% in the first quarter. What did we have? First quarter was ex-COVID constant currency. 8% first quarter.

Then we had 6% and 6%.

on, again, a constant currency ex-COVID basis. And then we're going to have 1% in the fourth quarter. So, you know, similar to what I said last year about TAS, you know, it might be like a mirror image in 25, okay, with things going the other way. Just because of the cancellations, the short-term impact of that, and the delay is the short-term impact of that so that that's that's how best i can describe what we expect for 25 at this point based on what we know thank you thank you michael there are no further questions at this time mr joseph i turn the call back over to you thank you operator thank you all for taking the time to join us today and we look forward to speaking with you again in our fourth quarter 2024 earnings call

The team will be available the rest of the day to take any follow-up questions you might have. Thank you.

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