ICON Public Limited Company Q2 FY2025 earnings call

• Gross business awards increased 11% sequentially with wins from biotech customers and large pharma partnerships. Revenue was ahead of expectations due to higher pass-through revenue.
• Adjusted EBITDA dollars progressed sequentially, gross margin improved to 28.3%, and SG&A costs reduced by $9 million year-over-year. Adjusted EBITDA margin increased to 19.6%.
• Net book-to-bill was 1.02x, negatively impacted by elevated cancellations, including a large COVID vaccine trial cancellation. Cancellations were broad-based, from portfolio rationalization to negative clinical trial results.
• Customer and site satisfaction scores showed positive momentum. Focus on therapeutic areas like obesity with the launch of a Center for obesity, and digital innovation with AI applications for protocol digitization.
• Made $250 million in share repurchases in Q2, with a new $1 billion share repurchase authorization approved.

Revenue in Q2 2025 was $2.017 billion, a year-on-year decrease of 4.8% but up ~1% sequentially. Adjusted gross margin was 28.3% compared to 29.9% in Q2 2024 and up 10 basis points from Q1 2025. Adjusted SG&A expense was $174.8 million (8.7% of revenue), down $8.6 million year-over-year. Adjusted EBITDA was $396 million, up $5.4 million sequentially, with an adjusted EBITDA margin of 19.6%. Adjusted net income was $259.5 million, equating to adjusted earnings per share of $3.26. Customer concentration: top 5 customers represented 25% of revenue, top 10 39.7%, and top 25 65.6% of revenue.

• Revised full-year 2025 revenue guidance range: low end $7.85 billion, high end $8.15 billion (midpoint $8 billion).
• Midpoint of adjusted earnings per share guidance remains $13.50.
• Burn rate expected to be broadly stable, around 8% for the full year. The step-down in the second half is due to conservatism and market conditions, but the faster burning COVID trial is ramping up.

• Elevated cancellations, including from large COVID trials, impacting net book-to-bill. Cancellations remain elevated in the near term.
• Volatile market conditions and uncertainties affecting decision-making times for customers, leading to extended timelines and potential impact on bookings.

Q: Congrats on the really nice quarter. I was wondering if you could give us a little bit more detail, Steve, maybe about what you're seeing in terms of different market segments, maybe sort of biotech versus pharma or if there's any sort of difference in terms of demand inflection that you're seeing by phase?

A: Sure, Elizabeth. Things haven't changed dramatically over the last few months since our first quarter call, the environment is pretty much the same. Certainly, from an RFP basis, we've seen a modest uptick sort of in the mid-single-digit range. That's probably been more in the Biotech segment than it has been in the large Pharma segment. We've certainly seen some positives in that respect in terms of our early phase business and our Phase III business. So those areas are looking positive. We're also pleased within the wins that we've won -- we've been able to start to really leverage the partnerships that we've been able to secure over the last 18 months or 2 years. So the team has done a nice job in bringing those partnerships on and not just winning initial projects, but expanding within those partnerships. So overall, we see a reasonably constructive development sort of environment, if you like, across the business, probably a little bit more in biotech than in large pharma. We tend to look at these things on a trailing 12-month basis rather than a quarter basis. Within the quarter, there's a -- still a fair bit of volatility. Things go up and down. But on a trailing 12-month basis, it looks positive.

Q: Maybe if I can just dive, Steve, a little bit more into that biotech comment. You're not the only CRO that's talked about biotech improvements over the course of the quarter. This seems to fly somewhat in the face of the general biotech funding environment. I appreciate the cautious optimism here, but what do you think is getting more awards over the finish line in terms of what drove the better bookings performance? And how do you think that factors into the current funding environment in terms of bookings wins to bookings conversion?

A: Yes, Michael, we don't want to get too far ahead of ourselves on the biotech -- on the positive biotechs. And I said that's on a trailing 12-month basis. But within the quarters and across the quarters, it has been a little bit more volatile, and we still continue to see caution in terms of decision-making times, et cetera, et cetera. But we are seeing -- I mean, overall, it does seem to be moving in the right direction. 3 of the top 4 awards that we had during the quarter were in the biotech segment. So we were pleased with our performance in terms of winning some fairly substantial biotech projects, and I said 3 of the top 4. Notwithstanding that, as I said, the large pharma also starting to contribute with those expansions on the partnership side of things. So there is a little bit of perhaps a confluence, if you like, or it's not quite lining up, I suppose, where you see with the biotech funding. I suspect there's probably a bit of a lag here, and we're seeing that there's some positivity starting to come through that we're encouraged about, but we're certainly not declaring victory just at this point, and we wait to continue that biotech progress.