IQVIA Holdings, Inc.

To withdraw your question, please press star one again. As a reminder, this conference is being recorded. I would now like to turn the call over to Kerry Joseph, Senior Vice President, Industrial Relations and Treasury. Mr. Joseph, you may now begin your conference.

Thank you, operator. Good morning, everyone. Thank you for joining our fourth quarter of 2024 earnings call. With me today are Ari Boosby, Chairman and Chief Executive Officer, Ron Braun, Eric Sherbert, Executive and Vice President for General Counsel, Mike Fedok, Senior Vice President, Financial Planning and Analysis, and Gustavo Peroni, Senior Director, Investor Relations. Today, we'll be referencing a presentation that will be visible during this call for those of you on our webcast. This presentation will also be available following this call in 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 risk and uncertainty 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 Boots. Thank you, Jerry, and good morning, everyone.

Thank you for joining us today to discuss our fourth quarter and full year 2024 results. It was great to see many of you in person at our December investor day at the Innovation Park headquarters. I hope this helps you appreciate the depth and breadth of our offerings as we showcase the product demos and tour some of our industry leading laboratories. commented to me afterwards that they left with a deeper understanding of the breadth and depth of our capabilities and how our strategy to improve patient outcomes is being executed. As we close 2024, we delivered solid full-year results with revenue growth of 5.5% of cost on currency, excluding the COVID revenue step-down, adjusted earnings per share growing over 9%, and free cash flow of $2.1 billion, which represents growth of 41% versus last year, as well as 104% of adjusted net income. I'm very proud of the results the IQVIA team was able to deliver in an industry that faced significant challenges in 2024. We saw the consequences of the inflation reduction act, which led to delayed customer decision-making, reduce discretionary spend, and portfolio reprioritizations. Additionally, we had a challenging macro environment that persisted with geopolitical unrest, continued high interest rates and inflation, foreign currency headwinds, and questions about the impact of political elections in the US and around the world, all of which created tremendous amount of noise and incremental uncertainty. In fact, Very few companies in a broader industry sector achieved positive growth, and IQVIA really stood out as an outperformer. More specifically, in the fourth quarter, you saw that we had strong operational results. Revenue came in above the high end of our guidance range, representing about 4.5% growth, excluding the impact of foreign exchange and COVID-related work. We delivered just under 10% growth in adjusted diluted earnings per share, and we achieved a record quarter of free cash flow. On the clinical side, net new bookings for the quarter were over $2.5 billion, and this all highlights the great work that was done by our RMBS team in securing new business contracts. This helped mitigate the outsized level of cancellations that did materialize in the quarter, just as we had anticipated. Now, despite the tough macro environment, the R&DS business had some significant achievements in 2024. We successfully renewed all of our large pharma strategic partnerships this past year, even as many clients re-evaluated and consolidated their alliances. In addition, we established new relationships, displaced incumbents, and expanded the scope of work in several partnerships, positively positioning our business for future growth. IQGNR has partnerships with 22 of the top 25 pharma companies. We made significant advancements in our global health business. For example, we helped the World Health Organization control polio virus outbreaks in Africa, We collaborated with the Coalition for Epidemic Preparedness Innovations, CEPI, in Rwanda. So we were able to respond swiftly to a Marburg virus disease outbreak. Finally, we were selected by a large biotech client to expedite a vaccine trial for mpox in sub-Saharan Africa, addressing a critical outbreak and unmet medical needs. This all comes to show that whenever there is a crisis, IQVIA is the company public health officials turn to. Now moving to TAS. The growth trajectory materialized just the way we said it would. Low single digit growth in the first half and gradually ramping up each quarter. In fact, growth exceeded our expectations in the second half. Obviously, this was helped by easier compares versus the second half of 2023. but we also had stronger organic demand than expected across all sub-segments with real world actually returning to double digit growth. We finished the year with constant currency growth of 5.7% and about 6.5% excluding the COVID step down, which was at the high end of our guidance. We expect to sustain this favorable trend into 2025. Reflecting on 2024, we're proud of what we achieved in TAS. A couple of business highlights. We introduced 60 innovations this past year, including 39 AI-enabled applications. For example, we introduced IQVIA AI Assistant, our first-ever gen AI interface that allows customers to interact with a growing number of our products and get answers to their questions almost instantly. We launched a number of AI-enabled patient offerings, including our patient relationship manager, which has already been deployed at eight clients, including three top 10 pharma. Our digital business, which up to now is largely U.S., has begun expanding into Europe, where we've doubled the number of websites, publishers, and partners that are now integrated into our digital network. Now, looking at 2025, we are reaffirming the guidance we provided to you at the December investor desk. On the TAR side, things have continued to recover as we anticipated. On the RMDS side, we still have some volatility, so we might see another quarter or two of fluctuating demand and elevated cancellations. But we think the bulk of the portfolio reprioritizations at L'Arche Pharma has been completed. In fact, we feel good about the RNDS demand environment because leading indicators continue to be favorable. For example, our Q4 RFP flow was up mid single digits, a little higher actually in the EVP segments. Our qualified pipeline is also up with positive growth across all segments. EVP funding, as you noted, was strong through 2024. four-year biotech funding was over $100 billion, which is 44% higher than it had been in 2023. Now, we did have much higher cancellations in 2024 than ever before. In fact, nearly 50% higher in 2024 than the average of the previous three years. But our gross new bookings before cancellations for 2024 were even stronger, and up mid-final digits at constant currency versus 2023, which led to an end-of-year backlog of $31.1 billion, which is, again, at constant currency, 5.5% higher than a year ago. Now, turning to the results for the quarter. Revenue for the fourth quarter grew 2.3% on a reported basis and 3% at constant currency. Compared to last year, and excluding COVID-related work from both periods, we grew the top line about 4.5% on a constant currency basis, and that included in the quarter about two points of contributions from acquisitions, mostly on the stock side. Fourth quarter adjusted EBITDA increased 3.1%, driven by revenue growth and ongoing cost management discipline, which resulted in 20 bps of margin expansion. Fourth quarter adjusted diluted EPS of $3.12 increased 9.9% year-over-year. Let me now give you some color on business activity IQVIA's success is achieved by continuing to raise the bar in innovation every year and investing in highly differentiated capabilities. You saw the recent announcement of our collaboration with NVIDIA to transform healthcare and life sciences to advance agentic AI solutions. AI has the potential to transform our industry, for example, by addressing lengthy and complex processes in clinical trials, or on the commercial side, by helping expedite diagnosis and improve treatment adherence by patients. Our collaboration with NVIDIA will help accelerate the introduction of AI agents within our workflows, with AI agents essentially becoming digital companions to researchers, HCPs, and patients. Let me give you some more examples of what was achieved in the quarter, and let me start with TAS. The business is rapidly evolving as we see increasing demand for integrated solutions that combine information, analytics, and services. This is enabling us to win much larger, longer-term deals with our clients because of our unique ability to deliver these combined offerings. Let me give you a few examples. IQVIA was awarded a strategic partnership to deliver omnichannel marketing solutions to promote a top 10 pharma client's established portfolio. At IQVIA here, we utilize analytics, information, technology, and commercial outsourcing capabilities. IQVIA is also partnering with a biotech company to launch a new treatment for ovarian cancer, which will be our client's first product in market. This large deal leverages IQVIA's comprehensive commercial capabilities and expertise to execute regulatory process, launch, and commercial activities. Another ADP client asked IQVIA to support them in launching a new cell therapy for severe pediatric conditions. by providing the full comprehensive commercial infrastructure, and that includes field sales, medical and commercial communications, compliance, and OCE. A large pharma client engaged Acuvia to simplify data management by integrating diverse sources from over 30 countries, reducing complexity and enhancing efficiency. IQVIA will support the client's information strategy to streamline operations and centralize its global information into a single standardized system that will be operating. Moving now to the real world. IQVIA is using advanced AI to support a top 10 pharma client to demonstrate efficacy for gastric cancer treatment and gain approval in new markets. A top 10 15 pharma clients chose IQVIA to help track disease and treatment efficacy in support of various regulatory submissions in Europe. Let me move now to RDS. I earlier noted the success of our RDS team and want to highlight some notable wins that represent our capabilities across segments, therapeutic areas, and operational dynamics. Let me start with large pharma. The top five pharma clients selected IQVIA to conduct a complex full-service phase III study addressing asthma and COPD patients. We won another full-service global phase III breast cancer study for a top 30 pharma. Another top 10 pharma client awarded IQVIA a large FSP contract. This award is notable because we displaced two large long-time incumbent CROs. Medtech. IQVIA was awarded a study to evaluate a novel medical device specifically targeting a cardiovascular condition. Biotech. Few notable awards include a critical phase three oncology study based on our strong data-driven approach and ability to manage global complex trials efficiently. Another global study, full-service study for another biotech client for progressive pulmonary fibrosis disease, which involves nearly 1,000 patients in 26 countries. And again, we're able to win this based on our global footprint and therapeutic expertise. The phase two trial for rare CNS conditions with limited previous research. Lots of success in the marketplace with large pharma, medtech, and EVP. Before passing the call over to Ron for more detailed review of our financial results, I'd like to take a minute to acknowledge and congratulate our employees around the world for their extraordinary work this past year. It was challenging, but we delivered. A great team. We also received amazing recognitions throughout the year. I just want to highlight a few. Frost and Sullivan awarded IQVIA the 2024 Global Customer Value Leadership Award for excellence in AI quality and regulatory solutions in healthcare. IQVIA's SmartSolve Enterprise QMS was recognized for best use of AI in healthcare by the MedTech Breakthrough Awards. My Green Lab awarded IQVIA Laboratories the 2024 Race to Zero Leadership Award for certifying 100% of our laboratories. We received recognition as a leader in Forbes World's Best Healthcare and Life Sciences Management. And lastly, for the eighth year in a row, IQDIA was named one of the world's Most admired companies in Fortune's annual survey, and importantly for the fourth year in a row, IQVIA was named the number one most admired company in our category of healthcare, pharmacy, and other services. In addition, IQVIA earned number one ranking in the categories of innovation, global competitiveness, people management, and use of corporate assets. Now, Ron, will give you more details on our financial performance.

Thanks, Ari, and good morning, everyone. Let's start with revenue. Fourth quarter revenue of $3,958,000,000 grew 2.3% on a reported basis and 3% of constant currency. In the quarter, COVID-related revenues were approximately $10 million, which is down about $50 million versus the fourth quarter of 2023. Excluding all COVID-related work, both from this year and from last, constant currency growth was about 4.5%. And as Ari mentioned, acquisitions contributed approximately two points of this growth. Technology and analytics solutions revenue for the fourth quarter was $1,658,000,000, which was up 8.3% reported, and 9.5% of constant currency. R&D Solutions' fourth quarter revenue of $2,123,000,000 was down 1.3% reported and 1% constant currency, but excluding all COVID-related work, R&DF's revenue grew over 1% of constant currency. And finally, Contract Sales and Medical Solutions' fourth quarter revenue of $177,000,000 declined, 4.8% reported, and 3.2% of constant currencies. Now, for the full year, revenue was $15,405,000. That's up 2.8% reported and 3.4% of constant currencies. COVID-related revenue totaled approximately $110 million for the year. Excluding all COVID-related work from this year and last, constant currency growth and revenue was 5.5% for the year. Full-year technology and analytic solutions revenue, $6,160,000,000. That was up 5.1% reported, 5.7% at constant currency, and 6.5% excluding all COVID-related work at constant currency. Full-year revenue and R&D solutions with $8,527,000,000, up 1.6% on a reported basis, 2% at constant currency, Excluding all COVID-related work, growth in constant currency in R&DS was over 5%. And finally, our full-year CSMS revenue was $718 million, down 1.2% reported, but up 1.4% of constant currency. As Ari mentioned in his opening remarks, the 2024 growth trajectory in TAS played out as we anticipated, with improvements every quarter. And we experienced a softening growth rate throughout 2023 due to cautious customer discretionary spending. And we predicted that 2024 would be a turnaround year based on our forward-looking indicators in recent history. In fact, that's what happened. In 2024, cash growth picked up significantly, finishing the second half with high single-digit growth driven by strong mid-single-digit organic growth. As you know, TAS is the short cycle part of our business, and as we've seen, 2023 gave us early insight into customer spend behavior during the downturn. By the same token, we expect that the 2024 turnaround in TAS serves as a good meeting indicator of the industry's recovery for 2025. So we're down to P&L. Adjusted EBITDA in the quarter was $996 million, representing growth of 3.1%. Full-year adjusted EBITDA was $3,684,000,000. That's about 3.2% year-over-year. Fourth quarter GAAP net income was $437 million, and GAAP diluted earnings per share was $2.42. For the full year, our GAAP net income was $1,373,000,000, or $7.49 of earnings per diluted share. Adjusted net income was $564,000,000 for the fourth quarter and adjusted diluted earnings per share was $3.12. That, for the full year, brought adjusted net income to $2,042,000,000 in adjusted diluted earnings per share to $11.13. RMDS backlog at December 31 was $31.1 billion, with an increase of 4.4% year-over-year and 5.5% at constant currency. And to anticipate the question that I think we'll get about why the backlog was flat sequentially versus Q3, recall that the dollar strengthened considerably during the fourth quarter, and we have to retranslate the backlog at the end of each quarter for reporting to you, and that knocked about a half a billion dollars off the backlog, that retranslation alone. As of December 31, cash and cash equivalents totaled $1,702,000,000 in gross debt with $13,000,000,000 $983 million, resulting in net debt of $12,281,000,000. Our net leverage ratio ended the year at 3.33 times trailing 12 months of just EBITDA. Fourth quarter cash flow from operations was $885 million, and SAFx was $164 million, resulting in free cash flow of $721 million for the quarter. a record for quarterly free cash flow. So the full year free cash flow was $2,114,000,000, as I already said, up 41% year over year. Now, you note that in the quarter, we repurchased $1,150,000,000 of our shares, bringing our full year share repurchase to $1,350,000,000. And just yesterday, actually, the ICBA Board of Directors replenished the shell repurchase authorization by $2 billion, which increases the total remaining authorization to approximately $3 billion. Let's turn to guidance. For the full year, we're reaffirming Our 2025 outlook, which is for revenue growth at constant currency ex-COVID of 4% to 7%, adjusted EBITDA margin expansion of up to 20 basis points, and adjusted diluted earnings per share growth of 5% to 9%. This translates into total revenue between $15,725,000,000 and $16,125,000,000. which includes just over a $100 million step down in COVID-related work, which is entirely in R&DF, and of which 75% will be in the first half and 25% in the second half. We expect 100 to 150 basis points of contribution from M&A activity and an FX headwind should rates continue of approximately 150 basis points versus 2024s. Our adjusted EBITDA guidance is $3,765,000,000 to $3,885,000,000, and adjusted diluted EPS guidance is $11.70 to $12.10. This includes about $675,000,000 of net interest expense, approximately $575,000,000 of operational DNA, an effective income tax rate, of about 18.5% and an average diluted share count of approximately 178 million shares. The guidance also assumes $2 billion of cash deployment split between acquisitions and share repurchase. And finally, the guidance assumes that foreign currency rates as of February 5 can use for the balance of the year. On the segment level, guidance is also unchanged for TAS, R&DF, and CSMF. No changes in any of the segments. We expect TAS revenue to grow 5% to 7% at constant currency, which translates into $6.3 to $6.5 billion. A note, we'll have easier comps in the first half than the second half. R&DF revenue is expected to grow 4% to 6% at constant currency ex-COVID. which translates into $8.7 to $8.9 billion of revenue. This guidance includes over $100 million of step-down in COVID-related revenue that represents about 100 basis points of headwind R&DS growth rate. We anticipate that R&DS growth rates will be lower in the first half and improve sequentially thereafter. Finally, CSMS revenue is expected to be between approximately $700 million, and flattish year over year. Now, let's look at first quarter guidance. For the first quarter, we expect revenues to be between $3,740,000,000 and $3,790,000,000. Note that Q1 has the largest impact in the year for both foreign exchange and COVID revenue stepdowns for a total of approximately 300 basis points of headwinds. Adjusted EBITDA is expected to be between $870 million and $890 million in the quarter, and adjusted ballooned EPS is expected to be between $2.60 and $2.70. And as mentioned, our guidance assumes that foreign currency rates of February 5 continue for the balance of the year. So let's summarize. We delivered an excellent fourth quarter, which closed out a strong year. For the full year, revenue grew 5.5% of constant currency excluded COVID-related work. Adjusted EBITDA margin continued to expand and adjusted to when DPS was up 9.1%. Free cash flow was a record in the quarter at $721 million, bringing the full year to over $2.1 billion, up 41%. In the quarter, we repurchased $1,150,000,000 of our shares. For the full year, share repurchase was $1,350,000,000. Our board of directors increased our share repurchase authorization by $2 billion, which brings the remaining authorization to approximately $3 billion. During the year, we introduced 60 innovations, including 39 AI-enabled applications, and the momentum continues to build with our recently announced collaboration with NVIDIA. IQVIA was named the Fortune's list of world's most admired companies for the eighth consecutive year and earned first place ranking in our industry group for the fourth consecutive year. And lastly, we reaffirmed our full year 2025 revenue growth guidance at constant currency of 4% to 7%, adjusted EBITDA margin expansion above the 20 basis points, and adjusted diluted earnings per share growth of 5% to 9%. And that concludes our formal remarks. Let me hand it back over to the operator to open up the call to Q&A.

Thank you. At this time, I would like to remind everyone in order to ask a question, press star then number one on your telephone keypad. We request that you limit yourself to just one question so that others in the queue may participate as well. We'll pause to compile the Q&A roster. Our first question comes from Shlomo Rosenbaum from Stiefel. Please go ahead, your line is open.

Hi, thank you very much. Ari, I wanted to just ask you to dig back in a little bit more on how the operating environment progressed through the quarter and relative to what you were expecting in 4Q. We had some discussion about reassessing of vendor relationships, kind of ending or the expectation it would end in the fourth quarter, and some of that reprioritizing work ending. We're still talking about some potential volatility for the next one to two quarters to step back. kind of the way you were expecting it coming into the fourth quarter, or is there any change about that? And as part of that, maybe you could talk about, is there any change in your expectation in those divided contracts that you discussed last quarter? Thank you.

Okay.

Thank you, Sean. Well, no, look, we spoke not that long ago in December last, in a rally, and we shared there our sentiments with respect to the operating environment. Not much has changed versus what we told you then. That is, it was a difficult operating environment for all the reasons we mentioned then, and I reiterated in my introductory remarks, the macro environment, consequences of the IRA, a bunch of the you know, unexpected large cancellations due to futility reasons we had last year. And then the two large fast burning trials that we had just started that for reasons independent of Iculia were just delayed. And because of the nature of these projects, you know, they basically pushed back to the back end of 25. Nothing's changed here. You know, we think the bulk of the cancellation, the reprioritizations has occurred. We said then, I'll repeat now, we're still going to have 100 quarters of some volatility. And, you know, sitting here, I can tell you what it's going to be, first quarter or second quarter. In December, we were closer to the end of the quarter, so we had more visibility. Frankly, you know, after one month in a quarter, you can never tell. You know, what are we going to book? What are we going to sell? You know, which deals are going to come in this quarter or going to be pushed up to the next quarter? Which cancellations may or may not occur this quarter? We have no idea. I'm just always shocked when people are able to predict what their bookings, their net bookings will be in a given quarter. I have no idea as I stand here one month into the quarter, especially first month of the year, January, you know, not much happens. So, yeah, I mean, I would say, you know, what is it, two-thirds, maybe 70%, 75% of the, somewhere there, you know, between two-thirds and 75% of the reprioritization that we know of at large pharma essentially is out of order. So there may still be a little bit of fluctuation here in X-Core O2, but I can't tell for certain what may or may not happen. And with respect to these two trials, They were delayed, which was your second question. You know, nothing changed. They're still on. The clients very much want to do them. It causes us to have to maintain some costs, you know, through the year. And that's kind of affecting a little bit our gross margin because we have this shredded cost, but that's okay. We'll manage that. And we feel good about that. And those will happen, as we said, no change. Thank you.

Our next question comes from Elizabeth Anderson from Evercore ISI. Please go ahead. Your line is open.

Hi, Ari. Hi, everyone. Thanks so much for the question. I was wondering if you could give a little bit more color on two things. I think you've been given some nice pharma color. I was wondering if you could talk a little bit more about the biotech environment, how that's going, how you're sort of seeing RFP flow. Are you seeing any kind of unlocking of some of the the funds that were raised last year but not spent, and then also talk a little bit more about what you think the drivers on the real-world evidence acceleration are.

Thank you. Okay. All right. So, look, the biotech funding, which is sort of a leading indicator of what is going to happen in terms of the booking environment for that segment, has been strong, okay? We consistently use the same um you know stats and uh according to those stats it's over 100 billion dollars for 2024 that's been fluctuation quarter in quarter out but that's the number and that's a huge number that's a record number ever if you exclude the two years of 20 and 21 which were i think 130 and 120 respectively but I mean, last year, what was the number last year, guys? It was like $70 million. $70 million? $71 billion last year. Okay. So significant growth in funding. Now, as we said before, just because biotech gets funding today doesn't mean that it translates into a clinical trial reward the next day. Okay? It takes time. and, you know, take six months, take a year, but it's a good, strong leading indicator, and we saw funding start to pick up already a year ago, and therefore, you know, we're starting to see this. RFP flow, as I said, was up mid-single digit for us across the portfolio, which, again, in the current environment, is very, very good. And EBP was higher than that. Okay, higher than the 5%. And yeah, so that's about the environment. So I think we feel good about the EBP segments. Lots of opportunity and we're chasing all of that.

Our next question comes from Anne Hines from Mizuho. Please go ahead. Your line is open.

Hi, good morning. Just on cancellations, I know going into Q4 you thought it would be a billion dollars. Did it come into that billion dollars or was it higher? And then I know you said that you successfully renewed all your RFP activity. Can you just talk about pricing on those renewals and how that's playing out from a competitive landscape?

Thanks. Right. Well, first of all, I never said it was a billion. I said that historically the average quarterly cancellations is about half a billion dollars a quarter. Quarter in, quarter out. I mean, I defy anyone to predict what the cancellations would be in a given quarter ever. You know, that's, you know, it's a flow. And, you know, there were quarters where we had 300 million, where there were quarters where we had 600 million. But on average, that's kind of the number, okay? And if you take a look at the past, And so what I said was, you know, given the amount of work that Lash Farma is doing and the scrutiny that they are placing on those programs and the increased level of cancer research through the years, I was suggesting that it wouldn't be surprising if the fourth quarter was double that. And it basically was that it wasn't a billion, but it was way above, you know, the higher end of what we could have imagined. So it was somewhere around that. Not far from a billion, but not quite a billion. So it was very high. In fact, for the year, and I think that's an interesting, I think I mentioned it in my introductory remarks, if you look at the average cancellations in a given year, you know, let's take the last three years, for example, it's just, you know, somewhere close to a couple of billion, a little bit under $2 billion, right, for the year. Okay, consistent with experience. This year, it was almost 50% higher, meaning this year. 2024 was 50% higher than that. And despite that, we grew, our backlog grew, and that's because we were able, on the gross level, to book even more business than last year, offsetting, more than offsetting, the higher level of cancellation. So on the demand side, Things are good. The cancellations were very elevated. Look at the surprises there. It came in essentially as we expected. And, you know, I sit here, I just don't know what they're going to be next quarter or two. But, you know, we are going to navigate that environment. We feel good that the bulk of that is behind us. You asked about the pricing environment, right? Yes. So I did. Yeah, I mean, yeah, I mean, look, in the current environment, you would expect and anticipate that pricing is going to be more difficult because, you know, it's tough competition. There are lots of CROs out there. I mean, people tend to forget, you know, there are 4,000 CROs out there, okay? You know, they don't all participate in every single bid, but it's not unusual that when EVPs go around and shop their deal around, you know, they talk to a lot of people. And on the large pharma side, as we mentioned, you know, they decided last year to reopen all their partnerships, and, you know, thankfully we won. We re-signed with all these partners and, in fact, expanded our portfolio. Our trauma wanted to consolidate the span, and we were on the winning side of that exercise. That was very good, and it bodes well for the future.

Great.

Thanks. Our next question comes from David Winsley from Jefferies. Please go ahead. Your line is open.

Hi, good morning. Thanks for taking my questions. A good segue from the last. Ari, you've talked a fair amount about the push toward FSP. You've talked about pricing pressure, as you just kind of highlighted, generally, but that pricing pressure also in FSP with these partnership re-procurements. And then, you know, you've also talked about carrying costs for these megatrials. I was actually surprised at the investor day that you could expand margin at all. And so my question is, what are the cost levers that you're pulling to be able to eat up your margin just a little bit in the face of all those pressures? And then just more simply in the navigation on gross margin versus S&A and EBITDA, Are we seeing some of that business mix shift toward FSP and the P&L already, like in the fourth quarter? Thank you.

Thank you, Dave. Well, you know, as always, you're highlighting essentially the tasks that we have day in and day out. You know, how do we offset that? you know, all of those headwinds. Yes, you are absolutely correct. It's a surprise how we're able to still grow margins. I mean, bear in mind, since the merger in the end of 2016, we've grown our margins. I mean, we added a quarter with over 25%. Correct. Adjusted a bit the margins. In those days, you might recall, we were more in the 20% kind of range. So we expanded margins now. In the early years, we sell margins a lot more. Now, obviously, it's harder, but that is what we do here. We try our best to grow our margins, you know, and try to grow our profits faster than our revenue. That's how we're operating mode here. How do we do that? Yes, you're right, we mix margins. Influences can influence the gross margin. I don't think that that was the case in Q4. Yeah, I think we see you could see on gross margin was a little, you know, first in Q4, but I don't think it is a reflection of the higher FSP mix. You know, the higher FSP mix is in the bookings. It's going to take time, OK? It's not yet in the P&M to be precise and answer your question. It's more, you know, Quarter in, quarter out, if you look at Q3, for example, of last year, we had gross margin expansion. So it's really the given mix of revenue that you recognize in a quarter. Plus, obviously, the TAS business also influences that. For example, within TAS, I can tell you that real world is a little lower margin than the rest. by the lower margin than data, lower margin than analytics, and lower margin than tech. And in the fourth quarter, real world was very strong, really strong. I mentioned it was back to double digits. And so that, of course, affects the mix. And then I'll remind you that from the fourth quarter, we had this high level of stranded costs from those two mega trials that also affected our gross margin. But we pull the usual levers and you know, you've been covering us for a while, you know what we do. We constantly evaluate how to optimize the average labor rate across all of our geographies. We constantly explore opportunities to increase our economies of scope, that is restructure, flatten the organization, We constantly lever IT infrastructure, and for the past year, we've accelerated the deployment of AI tools within our own processes. I mentioned before that the next big thing, certainly operationally within our own workflows, is to leverage IT. AI tools as much as can be. And we start to see some impact of that and we plan to continue use and deployment of those. And these are the levers that help us mitigate all the cost pressures that you just highlighted. So it's a day in, day out, deep in the trenches, strong operational discipline and a relentless focus on continuing to optimize our costs.

Good for you for that. Thank you very much. It was very helpful.

Our next question comes from Charles Reeve from TD Cowan. Please go ahead. Your line is open.

Yeah, thanks for taking the question. Hey, Ari, I just wanted to go back maybe then to the task segment. I think earlier you just mentioned, obviously, real-world evidence had, it sounded like you said, double-digit growth in the quarter. Maybe can you give us a sense for sort of the trends you're seeing across between both RWE analytics and consulting and maybe technology platforms? And give us a sense for within the 25 outlook, how you see those kind of separate parts of it, you know, kind of the outlook for each of those relative as we think about the mix going forward.

Yeah, well, thank you for the question. Yeah, I mean, look, the task business... should be, should have been, and should remain a very resilient business with very consistent type of growth. So, info, as you know, is a low single-digit, right? It's about a 1% grower that did not change through the period. That's a very sticky, you know, subscription-based repetitive business. The analytics and consulting is where we had seen a dramatic impact of the cautionary spending trends we saw end of 23 and early 24, because some of that, a significant part of that, is discretionary spending, and that essentially got shut down. So we had negative quarters in analytics and consulting earlier in the year. And as we evolved through the year, it went back towards this mid-single-digit kind of mark. It was the end of the whole year. And the higher growth businesses, which had been higher growth, real world and tech, basically for the full year, essentially went back to high single-digits. And in the quarter, back into double digits. So that's what we saw. Now, because we anticipated this, why did this happen? And why were we confident in the recovery is because a lot of the work in real-world tech and also some in analytics and consulting are must-do activities for our clients. When our clients get the drug approved, and as you know, in 2023 was a record year. I think we had 55 approvals in 2023. By the way, 24 was also good. I think it was about 50 approvals. These are very high numbers if you look back.

Looking at reported and not adjusted. So if you're trying to tie... the gross margins and SG&A on our income statement back to our adjusted EBITDA, there's a difference right there because those are reported, not adjusted numbers. But having said that, Ari did already give you some insight into that. We have stranded costs associated with those trials that got delayed. Certain of our businesses that have strong growth, like the real world business, tend to be lower margin businesses for us. So there's a mixed impact in there, certainly. But again, anytime you're looking at the reported numbers, remember that things like restructuring or other adjustments that get added back can affect the percentages that you're calculating straight off the income statement.

Got it. Okay, that makes sense. And one thing for Ari, just on the policy front, we're in, you know, a couple weeks, you know, into the new administration here. Just any thoughts on, you know, how just implications, you know, for pharma biotech customers. And then second, one question we get is just any exposure to NIH funding or anything related to that would be great. Thank you.

I mean, the short answer to that question is zero. Zero impact, zero NIH, nothing. The longer answer is I think overall it's going to be a more business-friendly environment. That's clear. The new administration apparently, from what we've gathered, is maybe open to address some of the aspects of the IRA. looking into differences between small and large molecules, and a number of adjustments, and we are in dialogue at the appropriate levels. There could be some reforms that have been discussed on the PDM side, on reimbursement side, and so on. But again, all of that is net positive for us, frankly. And, yeah, I mean, we don't stop. I think there's a strong possibility the new administration will embrace life sciences, innovation sector more positively relative to other competing economies like China or Europe and support more ongoing investments of U.S.-based research, manufacturing, etc., I think there are a lot of positives here, and I don't see any of the noise around the specific nominations affecting us at all, frankly. I think that that's just basically noise. What we see and our dialogue so far has been actually very constructive and very positive, very pleased with the nominations and head of the FDA and head of NHS, all of those are very, very good relationships. They're also both strong evidence-based science, which is exactly the business we're in. You know, the M&A environment would be more favorable. I think all of that are net positives.

That all sounds good. Thank you.

Our next question comes from Michael Riskin from Bank of America. Please go ahead. Your line is open.

Great. Thanks for taking the question. Ari, I want to go back to something you touched on earlier. You made some comments in the prepared remarks in terms of pharma reprioritization, sort of working through it, still expect maybe a couple quarters of some volatility going forward, but thinking you're mostly through it. I think you said something about 70 to 75% of the reprioritization is done. Just wondering, sort of, How are you arriving at that number? Just put it bluntly. I mean, we've had some announcements just in the last 24 hours and we just, it seems like there's still, you know, you never know companies that could come back and decide they're going to do more in a second cut and the third cut and the fourth cut. So just what are the conversations you're having with the pharma companies, especially, you know, your top 20?

Yeah. I mean, you know, thank you. Thanks for the question. You know, when I said, uh, earlier, you know, two, three, 70% and 75%. So I saw Carrie. put his head in his hands because he told me, Paul, don't give them a number because someone is going to tell you, someone is in 71, maybe in 65, maybe in 76. So, look, we're trying to give you a sense, okay? How do I know? Because we speak to our clients, okay? Day in and day out. And we know what they're looking at. So, if they're done, they're done. It's not like they're going to go back, okay? So, we know that there are still a few There are programs that are kind of where they haven't made a decision. And that's where I say, you know, maybe a quarter to a third of those, you know, more to go. But, you know, that's an estimate. Again, I repeat, I have no idea what will get canceled in even quarter or what will get booked. I just don't know. Okay. I'm basing myself on conversations that we have with clients at every level. We know what their fight is. We know what the programs that they have are. We know what they're prioritizing. And they tell us what they're looking at. In fact, in many cases, we help them review these programs and reanalyze them. So that's how we know. But it's all based on these analyses. And that's my best guess for now. I mean, I would caution you always not to focus on a given quarter, okay? I mean, I see, you know, someone reports that you've heard me before. I'm going on a tangent here, but, you know, whine about this obsessive focus on what are the bookings in the quarter, what's the book to be of that infamous number? What is it? And then you derive implications for an entire industry from what one company reports. You know, you just can't do that. It's a long cycle of business. One quarter is a window. There's been some volatility. There might be some more volatility. I just don't know. Also, frankly, you have very little visibility on the sector. I said before, there are 4,000 CROs out there. You have no idea what their numbers are. Actually, our next best, largest competitor is part of a larger company, and they report nothing about this competitor of ours. Nothing. No revenues, no margins, no bookings, no backlog, certainly no book to build. So we have no idea. You have no idea. We have no idea. There are only four publicly traded CROs. Each and every one of them is extremely different from the others. You cannot derive what we report from what we report. What's going to happen to them? You cannot derive from what they report what's going to happen to us. I saw that before, earlier, in a few past quarters, just because one of our competitors says something, all of a sudden they're now stuck goes up or down. It's ridiculous. Everyone is extremely different. You just cannot extrapolate. Plus, frankly, it's causing issues with our customers. Someone was asking before about customers and pricing. You know, that obsessive quality focus on this book-to-bill ratio causes our clients to know that at Latch Pharma. They love that. So at the end of the quarter, they handle another 10 million here, another 20 million there. That affects pricing. It affects our bottom line long-term, and it's detrimental to investors. So there is a somewhat obsessive focus on this quarterly numbers in a long cycle of business that are not upgrade. Plus, again, I remind you, we are a large company. We're not just a CRO. The CRO business is just over half of our business. And to infer... you know, any thesis about what's going on in the industry from a quarter or two of cancellations or book to bills or what have you, is, you know, is intellectually flawed. I'm sorry if I can share one. I can have my people here, you know, agitated. But okay, I'll end with that. I'm sorry for the answer. That's helpful. Okay. All right. So we have another question or we're done here? Okay, guys. Thank you.

Thank you, guys. Thank you for taking the time to join us today, and we look forward to speaking with you again on our first quarter of 2025 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.