ICON plc Q3 FY2024 earnings call

• Welcome incoming CFO Nigel Clerkin and thank outgoing CFO Brendan Brennan. - Q3 results didn't meet expectations due to risks like top customers with cost pressures, biotech decision delays, and vaccine project delays/cancellations. - Actions taken include aligning resources, improving processes, reducing costs, and increasing automation/technology. - Successes: renewed all strategic partnerships, won a new Top 10 strategic partnership, solid backlog growth in lab and early phase services. - Revenue growth 5.6% excluding COVID, adjusted EPS growth 13.5% YTD.

In Q3, ICON PLC had revenue of $2.03 billion, a year-on-year decrease of 1.2% or 1% on a constant currency basis. Gross margin was 29.5%, a decrease of 40 basis points from Q2 2024. Adjusted EBITDA was $418.8 million, 20.6% of revenue. Backlog grew to a record $24.3 billion, representing a 9.4% year-over-year increase. Revenue growth excluding COVID-related revenue was 5.6% year-to-date, and adjusted earnings per share growth was 13.5% year-to-date.

• Not issuing full-year 2025 guidance yet, plans to do so in January. - Anticipate book-to-bill of 1.2x to 1.3x on a trailing 12-month basis. - Pass-throughs expected to reflect in revenue mix next year. - Initial view on growth outside certain large pharma customers is positive.

• Top customers facing cost pressures and development model transitions. - Biotech market slow to recover, with decision delays and award delays. - Volatile vaccine programs leading to cancellations and revenue shortfalls.

Q: Elizabeth Anderson from Evercore asked about confidence in Pharma 2025 budgets.

A: Steve Cutler responded that large pharma market is expected to grow in low to mid-single digits, with a transition period over next two to three quarters for certain customers.

Q: Michael Cherny from Leerink Partners asked about biotech demand.

A: Steve Cutler said biotech challenges continue, with funding and decision delays, but long-term positive outlook.

Q: Michael Ryskin from Bank of America asked about revised guide.

A: Steve Cutler discussed that risks outweighed opportunities in Q3, but process isn't broken and risks may not outweigh opportunities going forward.

Q: David Windley from Jefferies asked about big pharma partnerships and model changes.

A: Steve Cutler and Kate Haven talked about varying share of wallet, model changes not tied to specific external factors, but presenting opportunities.

Q: Max Smock from William Blair asked about booking shortfall.

A: Steve Cutler said delay in biotech decisions was main reason for booking shortfall, but RFP flow remains solid.

Q: Dan Leonard from UBS asked about large pharma demand isolation.

A: Steve Cutler said issues with two large customers are isolated, not widespread across all large pharma.

Q: Jailendra Singh from Truist Securities asked about growth rate and backlog burn.

A: Steve Cutler said low-to-mid single-digit growth is organic, and vaccine work impacts burn rate with volatility.

Q: Eric Coldwell from Baird asked about unbilled revenue and acquisitions.

A: Brendan Brennan and Steve Cutler talked about unbilled revenue due to customer contracting and acquisition of an Eastern European organization with immaterial impact.

Q: Matt Sykes from Goldman Sachs asked about why opportunities didn't materialize.

A: Steve Cutler said biotech funding uncertainties and delays in decision-making were reasons.

Q: Casey Woodring from JPMorgan asked about preclinical to clinical pipeline.

A: Steve Cutler and Kate Haven said preclinical to clinical transition isn't impacted, with early phase activity good.

Q: Charles Rhyee from TD Cowen asked about capital deployment.

A: Steve Cutler said balance sheet is strong to do both M&A and share buyback, looking at areas to supplement operations