Earnings Call
Icon PLC (ICLR)
Earnings Call Transcript - ICLR Q4 2024
Operator, Operator
Good day, and welcome to the ICON Q4 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. And please also note that today's conference is being recorded. I would now like to hand you over to the speaker of today, Kate Haven. Please go ahead.
Kate Haven, Speaker
Good day, and thank you for joining us on this call covering the quarter and year ended December 31, 2024. Also on the call today, we have our CEO, Dr. Steve Cutler; our CFO, Nigel Clerkin; and our COO, Barry Balfe. I would like to note that this call is webcast and that there are slides available to download on our website to accompany today's call. Certain statements in today's call will be forward-looking statements. These statements are based on management's current expectations and information currently available, including current economic and industry conditions. Actual results may differ materially from those stated or implied by forward-looking statements, due to risks and uncertainties associated with the company's business and listeners are cautioned that forward-looking statements are not guarantees of future performance. Forward-looking statements are only as of the date they are made and we do not undertake any obligation to update publicly any forward-looking statements, either as a result of new information, future events, or otherwise. More information about the risks and uncertainties relating to these forward-looking statements may be found in SEC reports filed by the company, including the Form 20-F filed on February 23, 2024. This presentation includes selected non-GAAP financial measures, which Steve and Nigel will be referencing in their prepared remarks. For a presentation of the most directly comparable GAAP financial measures, please refer to the Press Release section titled Condensed Consolidated Statements of Operations. While non-GAAP financial measures are not superior to, or a substitute for, the comparable GAAP measures, we believe certain non-GAAP information is more useful to investors for historical comparison purposes. Included in the press release and the earnings slides, you will note a reconciliation of non-GAAP measures. Adjusted EBITDA, adjusted net income, and adjusted diluted earnings per share exclude stock compensation expense, restructuring costs, foreign currency gains and losses amortization, and transaction-related and integration-related costs in their respective tax benefits. We will be limiting the call today to one hour and would therefore ask participants to keep their questions to one each in the interest of time. I would now like to hand the call over to our CEO, Dr. Steve Cutler.
Steve Cutler, CEO
Thank you, Kate. Before I begin my remarks on the quarter, I wanted to briefly introduce our newly appointed COO, Barry Balfe, who is joining us on the call today. Barry has had a long and successful tenure at ICON over the last twenty years in both full service and FSP roles, most recently leading our large pharma business. He brings to the role extensive experience in establishing and growing large strategic partnerships that have delivered clear and sustainable value for our customers. This is a key component of our growth strategy that Barry will focus on strengthening across our mid-size customer segment going forward. Turning to the results for the fourth quarter and full year 2024, ICON's performance was in line with the expectations we set out when reporting quarter three, with both revenue and adjusted earnings per share results at the midpoint of our full year guidance range. Moving to this year, we are reaffirming our full year guidance range that we issued last month, which reflects the current transition period in which we are operating. Our current views on the overall environment are consistent with what we saw at the start of this year, with evidence of positive leading indicators, alongside a continuing backdrop of cautiousness and volatility. Overall opportunity flow improved in quarter four and was broadly based across the business. In the biotech market, the dynamic of careful capital allocation is continuing, where companies are being more cautious in how they are deploying their spend across their development programs. While we saw progress in terms of awards in this division in the quarter, decision making and speed of trial starts is not yet back to a normalized timeframe. From a large pharma perspective, the picture continues to be mixed. Some customers are well placed for R&D spending growth this year, and others face budgetary pressures or have already gone through reprioritization exercises. While this type of activity can result in disruption in terms of overall spend, in some cases, it also affords ICON an opportunity to engage further, precipitating opportunities to help alleviate problems within their portfolio or development functions. We are seeing particular strength in demand from our recent strategic alliances and have a number of current partnership opportunities extending beyond the Top 20 pharma cohort in our pipeline for this year. This, in addition to the improving indicators in biotech, provides us with visibility to accelerated growth as we move through this current transition period in our business. We were also encouraged by the improved performance from a business development perspective in quarter four, with gross bookings of $3.06 billion increasing 8% sequentially and 3% year-over-year. We made good progress in awards within our biotech business, executing on the improved pipeline and opportunity flow in that division. Unfortunately, this better performance in gross bookings was offset by an uptick in overall cancellations in the quarter, which totaled $651 million, and this resulted in a net book-to-bill ratio of 1.18x in quarter four and 1.2x on a trailing 12 month basis. Cancellations impacted all divisions without a particular concentration in any therapeutic area. These canceled trials, some of which were expected to run in quarter one, will pressure near-term revenue and margin as a result, but were contemplated when we issued our full year 2025 guidance in January. With the addition of our new awards in quarter four, our backlog grew to $24.7 billion at the end of 2024, representing an increase of 1.4% on quarter three of 2024 or increase of 8.3% year-over-year. Our backlog burn was 8.4% in the quarter, slightly down from quarter three levels. With regard to our COVID-related work this year, I'm pleased to advise that there are no issues with funding related to the two large scale next generation vaccine studies we are supporting. One is now actively screening patients and moving forward as planned. The other trial has been delayed by the sponsor, and we are working with them on plans to resume later in the year. This has been considered in our guidance reaffirmation, and we continue to monitor the situation carefully. As we navigate the current volatility in our market and headwinds within our portfolio, we remain focused on investing in the key factors that are continuing to differentiate ICON and are delivering value for our customers. Our digital innovation strategy is a critical component of how we can transform clinical delivery by seamlessly integrating AI and key technology advancement into clinical research. By uniting technology, unique data assets, and excellent service delivery, we are seeing better outcomes for customers across several key metrics. Year-over-year, this is delivering 10% faster site activation, 33 fewer non-recruiting sites, and a 24% increase in trials completed on time. We're building on that success with the planned launch of several new solutions this year that will improve efficiencies in areas such as resource forecasting and site contracting. As our customers evaluate and change their development models, it is incumbent upon ICON to understand their goals and support their evolving needs. Each customer situation is unique, but what most are seeking is a provider that can offer them innovative solutions with the flexibility and agility to adapt to the needs of their portfolios. Importantly, this evolves as customers acquire new companies, assets, or adjust prioritization to a functional or full service model in their portfolios. ICON's deep partnership experience and ability to customize solutions is a critical element of our differential advantage in the CRO market, providing value and delivering key outcomes for customers. Embedded in our culture of innovation is our focus on the continued progression of automation across our organization. It not only fuels our ability to drive better solutions for our customers but it has also enabled us to lead the industry in the adoption and implementation of robotic process automation, a tool that makes us a more competitive and efficient organization. We exceeded our target of 3.5 million hours delivered in 2024 and are on the way to achieving over 5 million hours in 2025, which will save over $100 million in total costs annually, compared to what they would have been without these automations. We have a number of key areas we're focused on improving this year, including pharmacovigilance, document management, laboratory services, and internal processes across finance and commercial functions. In addition to the elements of our automation strategy that will enable us to better leverage our cost base across the organization, we've been executing our plans for further cost management. ICON has a long track record of successful cost management. As we continue to see the market volatility, we are taking measures to ensure our cost base is aligned to the demand environment. This began in quarter four and focuses primarily on the alignment of resources globally to support our customers' needs across all segments. Reflecting back on 2024, despite the more challenging backdrop, our team delivered full year revenue growth of 2% and adjusted earnings per share of 9.5%, both on a full year and year-over-year basis. Importantly, we also achieved our target on free cash flow of $1.1 billion for the full year, an increase of 10% over full year 2023. Amidst the market volatility we are experiencing currently, there are a number of areas across our business that are positively impacting our performance and positioned us for a return to targeted growth in the mid-term. Our lab and early phase business are moving forward well, and we have seen continued strength in therapeutic areas such as cardio-metabolic diseases as well as oncology with new award growth increasing in the double-digits in both areas on a full service basis in 2024. In quarter four, we won a significant level of work from a new mid-sized customer in our Biotech division with a well-positioned oncology pipeline. These program wins were attributable to the strong team and clear strategy at ICON, leveraged from the positive experience and solid relationships that our team had built with a smaller biotech that this mid-size customer had acquired. While we are pleased to see the momentum in new awards in these important therapeutic areas and new partnerships, they will take time to contribute to revenue. We continue to expect that pass-through revenue mix will increase in the first half of 2025, which will pressure our EBITDA margin. From a bookings perspective, we are maintaining our target of a book-to-bill ratio of at least 1.2x on a trailing twelve month basis, which we believe is supported by the overall opportunity flow we are seeing across the totality of our business. We saw good evidence of this already this year with a large Phase 3 full service award from one of our new strategic alliance partners in the cardio-metabolic space in quarter one. This underscores ICON's ability to elevate historically transactional relationships to the level of enterprise partnerships with our scaled and diversified offering. Our strong balance sheet positions us to continue to execute our capital deployment strategy, prioritizing share repurchase activity in the short-term alongside highly strategic M&A transactions to further scale our service offerings. Finally, while we continue to work through a somewhat uncertain environment, I believe the fundamentals of our business and the market within which we operate remain strong, supporting an improved outlook in 2026. During this time, we are focusing on our core operations and customer delivery, positioning ICON to emerge from this view as a more resilient organization, able to take full advantage of the many opportunities that lie ahead. Before I close out my prepared remarks, I want to thank all our employees at ICON for their efforts in 2024, the year in which we supported over 400 customers across 1,500 studies. I'll now hand it over to Nigel for further review of our financial results.
Nigel Clerkin, CFO
Thanks, Steve. Revenue in quarter four was $2.04 billion, representing a year-on-year decrease of 1.2%. For the full year 2024, revenue was $8.28 billion, an increase of 2% over 2023. In quarter four, overall customer concentration in our Top 25 customers increased from quarter three 2024. Our top five customers represented 26.2% of revenue in the quarter. Our Top 10 represented 42.3%, while our Top 25 represented 64.4%. Gross margin for the quarter was 29.6% and 29.7% for the year, compared to 30.4% and 29.9% in quarter four and full year 2023, respectively. Total SG&A expense was $181 million in quarter four or 8.9% of revenue. For the full year, total SG&A expense was $727 million or 8.8% of revenue, a decline from total SG&A expense of $733 million or 9% of revenue for the full year 2023. Adjusted EBITDA was $423 million for the quarter or 20.7% of revenue. In the comparable period last year, adjusted EBITDA was $448 million or 21.7% of revenue, representing a year-on-year decrease of 5.7%. For the full year 2024, adjusted EBITDA totaled $1.74 billion or 21% of revenue, an increase of 2.5% over full year 2023, and a 10 basis point increase in adjusted EBITDA margin. Adjusted operating income for quarter four was $385 million, a margin of 18.9%. Net interest expense was $47 million for quarter four and $205 million for the full year 2024. On a full year basis, net interest expense declined $110 million or 35%. The effective tax rate was 16.5% for the quarter as well as for the full year 2024. Adjusted net income for the quarter was $282 million, a margin of 13.8%, equating to adjusted earnings per share of $3.43, a decrease of 0.9% year-over-year. For the year, we recorded adjusted earnings per share of $14, an increase of 9.5% over 2023. In the fourth quarter, the company reported $8 million of transaction and integration-related costs. U.S. GAAP income from operations amounted to $297 million or 14.6% of revenue during quarter four. U.S. GAAP net income in quarter four was $260 million or $3.16 per diluted share, compared to $2.6 per share for the equivalent prior year period, an increase of 21.5%. For the year, we recorded U.S. GAAP net income per diluted share of $9.53, up from $7.4 in 2023. Net accounts receivable was $1.07 billion at December 31, 2024. This compares with a net accounts receivable balance of $1.17 billion at the end of quarter three, 2024. DSO was 47 days at December 31, 2024, a decrease of five days from quarter three, 2024, and flat from quarter four, 2023. Cash from operating activities in the quarter was $338 million, and free cash flow was $277 million in the quarter, bringing our full year 2024 free cash flow to a total of $1.1 billion in line with our target for the year and representing an increase of 10% over full year 2023. At December 31, 2024, cash totaled $539 million, and debt totaled $3.4 billion, leaving a net debt position of $2.9 billion. This compared to net debt of $2.7 billion at September 30, 2024, and net debt of $3.8 billion at December 31, 2023. We ended the quarter with a leverage ratio of 1.7x net debt to adjusted EBITDA. Our balance sheet is very strong, but we remain disciplined as we consider opportunities for further capital deployment. Our overall strategy is focused in the near term on a balanced approach to deployment in favor of share repurchases as well as opportunistic M&A execution. We made significant share repurchases in quarter four, totaling $400 million at an average price of $217, given our view on the dislocation in the valuation of the company, which brought our full year total share repurchase amount to $500 million in 2024, at an average price of $229. We plan to remain active in buying back shares in the near term and have secured an additional $750 million authorization from our Board of Directors, bringing our total current authorization to $1 billion. We will also continue to evaluate M&A opportunities to further scale our current service offerings in strategic areas that can support future growth. With that, we'll now open it up for questions.
Operator, Operator
Thank you. We're now going to our first question. And the first question is coming from Justin Bowers from DB. Your line is open. Please go ahead.
Justin Bowers, Analyst
Hi, good afternoon, Steve and Barry. Can you discuss the demand environment and how that's evolving for both large pharma and biotech customers? And then, a quick follow-up on that is, you talked about the strength in Phase 1 and we've heard about that across the industry as well. And should we view that as a leading indicator for what's to come down the pipeline in Phase 2 and beyond over the next year or two?
Steve Cutler, CEO
Sure, Justin. Regarding the current environment for both large pharma and biotech, our RFP numbers have been strong. In fact, they showed some growth towards the end of the year, particularly in the fourth quarter, with stability in large pharma and a slight increase in biotech. We are seeing promising opportunities emerging from a reasonably full pipeline. However, we need to convert these into wins and revenue. Overall, the demand landscape appears solid across all segments, and I feel we are positioned well. In terms of our early phase business, as I noted earlier, we are witnessing improvements and growth. Although it's a small segment of our overall organization, it holds significant importance. We are seeing positive trends in both RFPs and revenue there, which, while not dramatic, is encouraging. Whether this will lead to increased business in Phase 2 and Phase 3 is debatable, but it's not something we will delve into today. Historically, there hasn't been much translation from Phase 1 to Phase 2 and Phase 3. However, with smaller biotech companies, there is some potential for this to occur. That said, I would advise against making too strong a connection between growth in Phase 1 and similar growth in Phase 2. Generally, within the industry, I believe successful compounds progressing through Phase 1 will likely open up more opportunities in Phase 2 and 3, but this correlation is fairly loose.
Operator, Operator
Thank you. We're now going to go to the next question in the line. And this question is coming from Patrick Donnelly from Citi. Your line is open. Please go ahead.
Patrick Donnelly, Analyst
Hi, guys. Thank you for taking the questions. Steve, maybe on the back of that, it sounds like the demand environment, you sound okay on it, in general. Again, maybe a little bit of optimism in there. You obviously gave a very wide range, particularly on the earnings side, to start the year a month ago. Are you feeling any different today than a month ago? Are things firming up a little bit? I guess when we think about that range, 13% to 15%, particularly, what could lead us to the bottom end there? Or, are you feeling a little bit better about maybe edging towards the midpoint or above? And then on the back of that, if I could, for Nigel, just how you think about the margins, as we go through the year, the moving pieces? What are the cost actions you guys are looking at, if things do soften a little bit? Thank you guys so much.
Steve Cutler, CEO
Yes, Patrick, I believe the situation remains largely unchanged since four to six weeks ago at JPM. We have provided a wide range for guidance due to some caution and volatility in the market. There's not much more to add beyond what we've already stated; it's a mixed scenario. While there are several challenges, there are also numerous opportunities that could push us toward the higher end of that range. However, there are risks that could drive us toward the lower end. For now, we are reaffirming our guidance as we believe this is the appropriate course of action. The guidance range for both revenue and EPS stays the same because we are only about a month into the year. As we progress further into the year, we should be able to narrow that range. I'll let Nigel address the margin question.
Nigel Clerkin, CFO
Yes, Patrick. Consistent on the margins as well from what you would have heard us say before essentially, when you look at our full year margin in 2024 at an EBITDA level, it was about 21%. And for this year, just given some of the pressures we talked about before, particularly the pass-through Steve mentioned in H1 especially, we would expect our full year margins to be probably somewhere around 1% lower this year. Within that lower in H1 and obviously then higher in H2, just given the cadence of some of that pass-through activity and also then the cost adjustment actions that are sort of ongoing at ICON typically. So hopefully that gives you a flavor for us.
Operator, Operator
Thank you very much. And we're now going to take the next question in line. This question is coming from Luke Sergott from Barclays. Your line is open. Please go ahead.
Luke Sergott, Analyst
Great. Good morning. Thank you for the question. I just kind of wanted to get a sense of the 4Q booking strength. You guys had a really big step-up there sequentially. Anything that we've seen outside of typical seasonality over the last few years. So can you just talk about, what the makeup of that bookings are, more FSP or more, like, low-cost, you know, lower price business? Is there any type of trend there or waiting towards a small versus large pharma? And then kind of how this leads into your jump-off into Q1 and how we should think about that?
Steve Cutler, CEO
Sure, Luke. The strength in Q4 was probably more around the biotech segment actually in terms of the wins we were able to secure. We brought in a couple of significant full-service biotech opportunities, which I think, as they start up, albeit there's always a ramp-up period. Large pharma was more muted, I would say, in Q4. But overall, we were very pleased with the gross number that we're able to pick up cancellations. As I mentioned in my call, my notes were a little elevated and that was sort of across the different segments. Nothing perhaps a little bit more in large pharma actually in the end rather than biotech. But again fairly well spread and no particular therapeutic area there. So we were pleased with the improvement in the wins on the biotech side of things and that's continued in terms of the opportunities that we're seeing. They're not quite ready to declare victory, but we do see some green shoots in that space and then some opportunity as we get into 2025 obviously and then in 2026. And so, we'll play that through. We need to continue that momentum, if you like from a business development point of view. And I think we have the pipeline to be able to do that and that should then start to translate into some solid revenue gains as we get later in this year and into 2026.
Operator, Operator
Thank you. We're now going to move on to the next question in the line. And this question is coming from Ann Hynes from Mizuho. Your line is open. Please go ahead.
Ann Hynes, Analyst
Great. Thank you. Can you talk about pricing trends in both segments, biotech and large pharma, just competitive pricing trends? And also, in relation to your last question, on the biotech strength, do you think you're gaining share from competitors? Or do you think it's just the underlying market gaining strength again? Thanks.
Steve Cutler, CEO
Let me take the biotech one first and then I'm going to hand over to Barry to talk a bit more about pricing trends that he's seeing within those segments. I think it's a little early to get too bullish around gaining share on the biotech market. And we have some work to do there. I think we've made some solid progress, but I think we still have some work to do. We're pleased with the opportunities we're seeing. I was very pleased with the business development performance. We now need to turn that into solid operational performance and revenue. And I'd like to get that question again in a quarter or two, because I think at that point, we'll be able to sort of be a bit more definitive about the progress we're making in terms of market share. But happy with progress, but I think more to do in that space. Pricing trends, Barry?
Barry Balfe, COO
I don't think there's a whole lot to report on in terms of changes on competitiveness or otherwise of pricing. It's always been competitive. It remains the case. I think in the biotech space, we tend to compete on the amount of certainty and clarity we can give to customers, not just straight up sticker price on a particular study. So the quality of strategy, the experience and indications, the degree to which we can bring not only speed but also predictability tends honestly, if anything, to be a bigger factor than the last couple of points on price. And as we said before, in large pharma, the real competition on price tends to be at these periodic refresh points for the large preferred provider, rather than at the point of award of individual studies. So nothing really to report in terms of how that played out in the quarter, certainly nothing different to previously reported quarters.
Operator, Operator
Thank you. We're now going to move on to the next question in the queue. And the next question is coming from David Windley from Jefferies. Your line is open. Please go ahead.
David Windley, Analyst
Thanks. Good afternoon, gentlemen, and, Barry, congrats on the promotion. I'm going to ask a multi-parter, maybe predictably, but I'll headline it by saying my driving point here, Steve, is around kind of burn rate essentially and getting into some of the points you made about still slow decision making. So, the trend in the industry and that's gotten a lot of lip service has been FSP. We got that back in a couple of different surveys. And my point there, I guess, is that, FSP and particularly the way you guys book FSP in backlog would drive a higher burn rate. But then, ICON has actually won a couple of full-service partnerships that you've highlighted recently, and I'm not clear on how much business from those partnerships might be flowing into backlog, and that might have an opposite effect on burn rate. So, punch line here is, you talked about burn rate being slower. You talked about still slow decision making. I'm curious about how FSP mix is shifting in your business and backlog and just want to hear you talk out more how the demand environment that sounds like it's getting better is not necessarily immediately translating into a revenue outlook that you had to guide a little lower when you came out in January? Thanks. Sorry for the long question.
Steve Cutler, CEO
That's okay, Dave. We know you well. You've almost answered your own question, Dave. To be honest with you, because you've got it pretty much right. FSP certainly does burn more consistently, more reliably and faster, and full service less so. And of course, we wait for ramp-ups, and there's probably more delays with the full service sort of project. And particularly in the biotech space, some of those delays relate to decision making and how quickly we can get started. I was really pleased with our performance in the quarter in relation to, as I think you mentioned, a couple of the strategic partnerships, new strategic partnerships that we've won and we've been able to secure work from actually two of those new strategic partnerships that has gone into the backlog. And that will play through certainly starting in this year, but it will have a limited impact because again, it's a relatively slow burn. And they are full-service projects that will help us to deliver a really solid margin. There's a number of things, pros and cons, tailwinds and headwinds on that. The FSP work that we won wasn't any more than we normally expect to win in a quarter. So to the extent that, that will maintain or help us maintain the burn rate, the full service might slow it down a little bit. So I'll ask Nigel to maybe comment a little bit on the burn rate going forward because that is an area that we're obviously working on very hard to progress.
Nigel Clerkin, CFO
Yes, Dave, getting back to the point, I don't think really FSP is any materially different in terms of proportion of our business than it has been. That was part of your underlying question. So that's not really a driver. It's more to the point Steve said, and you've heard us talk about before. We are seeing obviously a broader trend of more complex trials, which do take longer to start up and so on. We do continue to see delays in biotech just driving forward with awards that have been already made. So those trends still are there. And then, at these points, we've had some nice wins in the full service side as well. So we obviously exited the year at about 8.4% burn rate, and I'd say, it will be in the low 8s again through the course of the year, broadly similar.
Operator, Operator
Thank you. We're now going to move on to the next question in line. And the next question is coming from Jailendra Singh from Truist Securities. Your line is open. Please go ahead.
Jailendra Singh, Analyst
Yes, thank you. This is Jailendra Singh from Truist. I want to go back to the biotech market. It looks like you're calling trends there still relatively mixed, some positive sign, but still some delayed decision making. How do I reconcile that with a commentary from some of your peers? One of your peers pointed to pretty stable trends there. Another CEO talked about funding still being a challenge. Is that primarily a function of the type of biotech clients you work with? And related to that, have you guys been able to figure out one or two things which might be driving these decision-making delays? And what kind of catalyst or clarity they're looking for?
Steve Cutler, CEO
Yes, it’s a complex issue. You described it well. We’re experiencing ongoing volatility and a mixed environment in the biotech industry. Last year, 2024 was generally positive for biotech funding and capital raising, but it was also very unpredictable. The numbers fluctuated significantly each month. When you look into the details, you'll notice that the funding wasn’t evenly distributed; it was concentrated among certain biotech companies with strong science or promising opportunities. This uneven distribution likely poses challenges for those companies that are not as well-funded in allocating their capital. I believe this contributes to the volatility and difficulties we are observing in the biotech landscape moving forward. However, the requests for proposals are holding steady, showing low single-digit growth. We hope and expect this trend to continue. If the capital markets continue to develop positively—there are some early signs of that—I’m optimistic, although I’m not ready to say we’ve overcome all issues yet. The biotech segment shows promising signs, and we’re focusing on it, aiming to gain market share in the medium term.
Operator, Operator
Thank you. We're now going to move on to the next question in the queue. And this question is coming from Jack Meehan from Nephron Research. Please go ahead.
Jack Meehan, Analyst
Thank you. Just had a guidance question for you, which is great to hear from you what your visibility into the 2025 revenue forecast is in terms of revenue coverage. I know some of your peers provide that stat, just be helpful to hear that. And then, also what sort of book-to-bill do you think you need in order to hit the forecast to kind of make up whatever gap there is? Thanks.
Steve Cutler, CEO
So Nigel might take that one. Jack, if you don't mind.
Nigel Clerkin, CFO
Yes, Jack. I mean, obviously, we've talked about there is increased uncertainty. There is volatility out there. That is why we've given a wider range. So forgive me if we're not going to give you more specifics in terms of coverage, et cetera. Frankly, at this point, it's early in the year. Steve talked about the various pieces that are moving around. But again, we've reaffirmed the range, and let's keep plugging through the year.
Steve Cutler, CEO
And I think from a book-to-bill, Jack, as I mentioned, we're targeting 1.2x. I think there possibly will be some volatility in that number, but 1.2x on a trailing 12 month basis is the target that we have. And we would like to think we would expect to be very close to that on a trailing 12 month, but I think there could well be some volatility in that number.
Operator, Operator
Thank you very much. We're now going to move on to the next question in the line. And this question is coming from Max Smock from William Blair. Your line is open. Please go ahead.
Max Smock, Analyst
Good morning. Thanks for taking our question. Congrats, Barry, on the new role. I wanted to follow-up on some of the COVID commentary you all made during the prepared remarks. Just on the BARDA COVID contract specifically, how much of that is still in your backlog? And how much are you baking into revenue from the contract this year at the midpoint? And how much should we expect to remain as we head into 2026? Thanks.
Steve Cutler, CEO
The BARDA work is still in our backlog, along with the COVID work, which is at a low single-digit number. As mentioned in my prepared remarks, one of the studies is moving forward actively, with screening starting today or in a few days. The other study has faced delays due to technical aspects of the trial, unrelated to funding, but it has not been canceled and remains in our backlog. We hope, though with more hope than expectation, that this study will resume towards the end of the year; that's what we're planning for. However, we are being cautious with our forecasts, and our reaffirmation of guidance reflects all of this. The COVID work is still important to us, as is the vaccine work, but they do not constitute a large part of our portfolio or backlog. The vaccine work remains in the low single-digits within our backlog. While it's significant, because it can progress quickly, it isn't a major component of our overall portfolio. I'll leave it at that.
Nigel Clerkin, CFO
Yes. Max, obviously, we won't give the individual contract contributions as we never do in our business. But in totality across the business in terms of the COVID contribution for the year, we would expect it would pick up a bit from the full year '24, in that, and represent about low single-digits in totality for COVID-related business in 2025.
Operator, Operator
Thank you. We're now moving on to the next question in the line. And the next question is coming from Michael Cherny from Leerink. Your line is open. Please go ahead.
Michael Cherny, Analyst
Good morning. Thank you for taking my question. This is Asim Hussain from Michael Cherny. I know that you mentioned, you are managing cost in the volatile operating environment, which is obviously prudent. How are you thinking about the trade-off on these cost-cutting versus your views on growth? Thank you.
Steve Cutler, CEO
I think I got your question related to cost in relation to delivering the work. I think that was the trade-offs there. I mean obviously we're in somewhat challenging and we call it a transition year 2025 as we move through. We do have to be very active in aligning our cost base with the work that we have in the backlog and the work that's burning in the backlog. I'll ask Barry to comment a little bit in a minute because he has overall the largest part of the business in terms of our cost allocations. But there is certainly some work being done to realign those costs and to maintain our margins and to get to where we want to be from an EPS point of view. And that's we're very active on that. And we've got a good track record of doing that. So we won't be too specific about where those cost reductions are happening, but it is something that's obviously occupying us pretty assiduously at the moment. Do you want to comment, Barry?
Barry Balfe, COO
Yes. I think as we said, cost control is an ongoing competence at ICON. It's nothing out of the ordinary. And for us, we obviously manage our cost base in order to ensure that we execute on growth opportunities where they exist or make adjustments where appropriate. So we're certainly continuing to invest in the business where there's opportunities to accelerate growth, and we'll manage our costs appropriately in order to do that.
Operator, Operator
Thank you very much. And we're now going to the next question in the line. And this question is coming from Elizabeth Anderson from Evercore ISI. Your line is open. Please go ahead.
Elizabeth Anderson, Analyst
Hi, guys. Thanks so much for the question. I was wondering, one, if you could talk about sort of the growth of FSP and bookings versus, say, a year ago. Is that sort of still on trend? Do you see sort of a softening and maybe a more balance between FSO and FSP in the booking? And secondly, can you talk about anything that would change your typical free cash flow conversion in 2025 versus what we saw in 2024? Thanks.
Steve Cutler, CEO
Okay, Elizabeth. I'll let Barry have a crack at the FSP question, and then Nigel might talk about cash flow.
Barry Balfe, COO
I think I'll just repeat what Steve said a little earlier, Elizabeth, which is FSP hasn't changed fundamentally as a proportion of our business. I think that's reflected, generally speaking, in the awards, in the backlog, and in the revenue. So nothing material there. Obviously, there's waxes and wings on individual customers across quarter-to-quarter. But as a percentage of the overall business, I don't honestly have anything to report as a departure there. Nigel, perhaps you take the free cash flow?
Nigel Clerkin, CFO
Yes, Elizabeth. So cash flow, we obviously continue to manage cash flow very strongly. The company has a good record on that and finished 2024 really well, hitting the $1.1 billion free cash flow target that we set out. Within the year, you will have seen, as I mentioned before, there was an uptick in our unbilled revenue amount during the year of about $400 million through the end of Q3. And we did manage to start to make some inroads into that in Q4. It came down by about $75 million, but there still remains north of $300 million of a disconnect there, i.e. revenue was ahead of billings. So, inherently, that should impact free cash flow for this year to the tune of around that amount. Obviously, we are working hard to try and mitigate the impact of that, as we go through the year. And again, pleased to see we've already made some progress on that in the fourth quarter. But directionally, you should expect it to be lower than 2024 because of that fact.
Operator, Operator
Thank you very much. And we're now going to move on to the next question in the line. And this question is coming from Casey Woodring from JPMorgan. Your line is open. Please go ahead.
Casey Woodring, Analyst
Great. Thank you for taking my questions. My first is just you talked about customers evaluating and changing development models and you also mentioned some of the new solutions you're launching. Can you just elaborate on that? Are these new solutions something customers are now asking for? And also curious, if customers have shifted their percentage of outsourcing spend versus outsourcing here as a result of these changing development models? And if you still assume that 100 to 200 basis points of annual outsourcing penetration in the market moving forward? Thanks.
Steve Cutler, CEO
Okay, Casey, you got your three questions in there nicely done. I'll let Barry go with the development model.
Barry Balfe, COO
I think when we talk about changing development models, what we're really talking about is matching their partnering or sourcing strategy to their evolving development strategy. And so far as we've called out a trend, largely among the more established companies. It has been that by and large, everybody is doing some work in house, some work on an in-source and some work on an outsourced basis. And we've tried to make a virtue out of meeting customers where they are and customizing our solutions to account for their preferences. So yes, that certainly is a very major point of engagement with our customers. There's not a one-size-fits-all approach. And that's been something that's played out very well for us as we've seen that heightened period of activity for preferred providerships, refreshes, and re-ups over the last 18 months or so. Of course, we are blending new capabilities. You talk about new solutions. It's not just about how we blend the modalities, it's about new capabilities. And Steve already alluded to, I think I spoke about when we win, it tends to be because we can apply our processes, our systems, our technologies to demonstrate greater confidence in trial execution planning. So time to start, better predictability of recruitment rates, increased site performance, and ultimately reduce time and cost. So these are certainly things that we tend to see. To the tail end of your question about FSO, FSP dynamics, I think there are certainly more people doing some FSP than there were five years ago. But as I said, I think it was to Elizabeth, there isn't a material difference in the proportion of our business that is FSO or FSP. As we move towards these blended solutions, we tend to be doing both models with a greater proportion of our customers, and we tend to be incumbent with a greater proportion of that customer universe. So nothing major to report in terms of the proportionality of FSO and FSP, but certainly those conversations focusing on blending and making sure we're better able to customize those models.
Steve Cutler, CEO
And then, just on the outsourcing spend and penetration, Casey, we remain pretty positive and pretty constructive in the long-term in terms of R&D budgets moving ahead and outsourcing spend continuing to penetrate, continuing to move up at around 100 bps a year. That's what we've seen really over the last, I don't know, 15 or 20 years ever since I've been doing this in this business. And while it might go down and up a little bit year-to-year, we remain pretty constructive on the market. The value I think that our industry and it's not just ICON, but our industry brings to the pharma, I think most enlightened pharma development managers really do recognize the flexibility, the innovation and the can-do approach that we take. And I think that's something that our industry brings to pharma development and I think that's going to continue allow our market to continue to grow.
Operator, Operator
Thank you very much. And we're now going to move on to the next question in line. This question is coming from Charles Rhyee from TD Cowen. Your line is open. Please go ahead.
Unidentified Analyst, Analyst
Hi. This is Lucas on for Charles. Thanks for taking the questions. I wanted to ask about elevated cancellations in 4Q, just if there's any common themes among these cancellations, obviously a big step-up in 4Q. And then, in terms of that trend kind of moving forward, others have indicated that cancellations could continue into the early part of 2025. So I guess what are your guys' expectations for this trend moving forward? And then is there any assumption built into your revenue guide that assumes this does continue forward?
Steve Cutler, CEO
Yes. As I said on the in my prepared remarks, we saw it was a fairly even spread across the business in terms of the cancellations, not just for Q4, but as we look back over 2024 in its entirety. So nothing much really to call out there. Possibly a little bit more in the large pharma space over the full year. But as we've said, biotech continues to be challenged a little bit in terms of their availability of capital. And I would expect the cancellations would continue to be on the higher side of normal, I'll put it that way, as we go through 2025. And until we're really in a situation where capital markets are really back and fully available to biotech, some of the science has been flushed out or some of the more fragile science has been flushed out, if I could put it that way. I think we'll find there will be a little bit more on the elevated side. Having said that, we were very pleased, as I said, with our gross booking number and the opportunities in the pipeline, I think suggest that that can continue at our targeted rate. And I think we've got some real opportunity there. Overall, we're very optimistic, notwithstanding the fact that we do believe that cancellations will be a sort of a passive more elevated factor part of our life going forward. And that is all contemplated and considered as we've done the guide and as we reaffirm our guidance as well. We've thought that through. We've made some projections on that front, and we believe we've taken that all into account.
Operator, Operator
Thank you. We're now going to move on to the next question in line. And this question is coming from Matt Sykes from Goldman Sachs. Your line is open. Please go ahead.
Matt Sykes, Analyst
Thank you. Good morning. Thanks for taking my questions. A lot has been asked. But I just want to focus on one topic regarding policy uncertainty and specifically the reports of FDA headcount reductions. Have you had any kind of comments or feedback from your customers in terms of how that might impact their business and pipeline progression? And then, as you reflect on your own business, any kind of impact that that could have on you? I know there's a lot of uncertainties, but just would love to get your view on that.
Steve Cutler, CEO
We haven't received any specific feedback from the team about the situation with the FDA and potential headcount reductions. As you've pointed out, there's quite a bit of uncertainty related to the recent changes in Health and Human Services with the new secretary's appointment. However, we believe that it doesn't necessarily mean everything will be negative. There are potential opportunities for us in this area. As regulations face challenges, that could actually work in our favor. Our customers have mentioned the possibility of small molecules receiving the same patent protection as large molecules under the IRA Act, which would be beneficial for them. Additionally, we've heard encouraging remarks from our customers regarding the direction the new administration and Health and Human Services might take with regulation and their interest in gathering more information and data related to vaccines. This drive for more data means more trials will need to be conducted. Overall, we perceive the situation under the new administration as being more positive than negative. While we acknowledge there are risks and it's still early to draw firm conclusions, we remain optimistic. We expect that the new administration will bring many good opportunities, and we believe we can benefit from those developments.
Operator, Operator
Thank you very much. We're now moving on to the next question in line. And this question comes from Michael Ryskin from Bank of America. Your line is open. Please go ahead.
Michael Ryskin, Analyst
Great. Thanks for squeezing me in. Steve, I kind of want to go back and ask maybe a big picture question. And I'm thinking back to last quarter's earnings call when you framed sort of your updated view and what happened on 3Q. And if I remember correctly, you kind of framed it from the perspective of every period you forecast, there are risks and opportunities that are unknown to you as you're going in. And sometimes you capitalize on opportunities, sometimes you avoid risks or vice versa. And you kind of framed 3Q as a lot more of the risks materialize and a lot fewer of the opportunities, but still sort of being in that general range you look at. I just want to get now that you have fourth quarter under your belt, you've got January and most of February, has your perspective on those ranges kind of been the same in terms of balancing the risk and the reward, the opportunities and the downsides going forward? And what I'm trying to get back to is your comments on how biotech played out in the fourth quarter? How bookings played out? Your thoughts on the gross booking wins and the cancellations. Are you still operating in that sort of same environment where it's a little bit of a balance and comes down to execution to get to the upper end of that?
Steve Cutler, CEO
The short answer is, absolutely, yes. We've analyzed the risks within our portfolio, within the opportunities that we've had. And our finance team has been doing sterling work in looking at that and evaluating and quantifying what those risks are. And on the other side, we're also looking at the opportunities and what can potentially come into the organization in terms of opportunities or RFPs or work that we know about now. And then, of course, we always expect that, some things that we don't know about will come in. As I said, it's still very early in the year. So our evaluation continues. We've taken a good look at ourselves, I think over the last couple of months and I think we've done a good job in Q4 in quantifying those opportunities and those risks. I believe our guidance, as I think everybody is well aware remains wide, and that's for a reason. We are in a very volatile environment. So characterizing those opportunities and the risks is probably a little bit more challenging. There are probably more of them both ways, and they may be a little larger in some ways as well. So that's why we've maintained our wide range on both EPS and revenue, and that will continue at least for the next few months. We'll obviously consider that as we get to our first quarter earnings call and probably our second quarter earnings call, and wherever we can look at what those risks and opportunities are and look to narrow that range. But at the moment, we still see, as I've characterized a somewhat mixed environment where there are plenty of opportunities, but there are also some risks as well. And we want to be very transparent about that. And we've considered those as we've gone forward and as we've set the guidance ranges, which we did back in January.
Operator, Operator
Thank you. We're now going to have our final question. And our final question comes from Josh Waldman from Cleveland Research. Your line is open. Please go ahead.
Josh Waldman, Analyst
Thanks for taking my questions. Steve, I believe you mentioned stronger RFP activity at the end of the year. I guess, was this above normal seasonality? And at this point, do you think there's anything unique about the current environment that suggests there could be maybe more of a disconnect between RFP flow and revenue conversion versus historical patterns? Or do you still feel pretty confident RFP flow remains a good indicator of near-term demand?
Steve Cutler, CEO
Josh, I believe the flow of RFPs is a somewhat reasonable indicator of future revenue, although it's not perfect. We typically win about a third of those RFPs, lose another third, and the remaining third get canceled. This distribution can vary across different segments of the business. In recent years, the work we've won has generally been in slower-growing areas like oncology and rare diseases, as Nigel mentioned. However, we've also made headway in the cardio-metabolic space, which we believe will progress more quickly. As the therapeutic mix within our RFP portfolio changes, there's potential for us to improve our revenue growth rates. That said, it might be too soon to say that the positive trends we observed at the end of the year will immediately translate into revenue in the short term. I usually assess RFPs over a trailing twelve-month period, and during this timeframe, while we saw stability in the large pharma sector, the biotech sector experienced a slight increase but remained at low single-digit growth. So, overall, while the end of the year showed positive signs, the longer-term view displayed stability, and I remain optimistic. However, I don’t anticipate a significant increase in revenue beyond what we would normally expect in 2025.
Operator, Operator
There's no more questions in the queue at the moment.
Steve Cutler, CEO
Okay. So, thank you, operator, and thank you all for attending the call today. I want to close by reiterating my confidence in the underlying fundamentals of our industry, the strength of the ICON offering, and our strong position in the market. We'll continue to navigate this environment as we did in quarter four, investing in our business to take advantage of the opportunities we see across the market and advance our innovative solutions for customers. Thanks for joining us and your support of Icon.
Operator, Operator
This concludes today's conference call. Thanks for participating. You may now disconnect.