Earnings Call Transcript - ICLR Q1 2022

Operator, Operator

Good day and thank you for standing by. Welcome to the ICON Plc First Quarter results 2022 Conference call. At this time, all participants are in listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kate Haven. Please go ahead.

Kate Haven, Speaker

Thank you. Good day and thank you for joining us on this call covering the quarter ended March 31st, 2022. Also on the call today, we have our CEO, Dr. Steve Cutler, and our CFO, Mr. Brendan Brennan. 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 March 1st, 2022. This presentation includes selected non-GAAP financial measures which Steve and Brendan 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 to 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 excludes stock compensation expense, restructuring costs, foreign currency gains and losses, amortization, transaction-related costs, and their respective tax benefits. We will be limiting the call today to one hour, and we therefore ask participants to keep their questions to one each with an opportunity to ask one related follow-up question. I would now like to hand over the call to our CFO, Mr. Brendan Brennan.

Brendan Brennan, CFO

Thank you Kate. In Quarter 1, ICON achieved gross business wins of $2.78 billion and recorded $357 million worth of cancellations. Consequently, net awards in the quarter were $2.43 billion, resulting in a net book-to-bill of 1.28 times. With the addition of the new awards in Quarter 1, our backlog grew to a record $19.6 billion, representing an increase of 2.7% on Quarter 4 of 2021, or an increase of 9.8% year-over-year on a combined company basis. Our backlog burn was 10% in the quarter consistent with Quarter 4. Revenue in Quarter 1 was $1.902 billion; this represented a year-on-year increase of 121.6% or 125% on a constant currency basis. On a combined company basis, revenue increased 6% to 6.1% or 7.8% on a constant currency basis from the comparable period last year. The revenue impact from year-over-year changes in foreign currency exchange rates resulted in a headwind of approximately $20 million in Quarter one. Our top 25 customer concentration increased slightly from Quarter 4 as our top customer represented 8.9% of revenue, and our top five customers represented 28.6% of revenue. Our top 10 represented 43.8%, while our top 25 represented 62.8%. Adjusted gross margin for the quarter was 27.8% compared to 28.1% in quarter four. Gross margin was negatively impacted in the quarter by the slowdown in Russia and Ukraine, as well as supply challenges in our laboratory services business. Adjusted EBITDA was $340.6 million for the quarter, or 17.9% of revenue. In the comparable period last year, adjusted EBITDA was $285.9 million on a combined company basis, or 16% of revenue, representing an impressive year-on-year increase of 19%. Adjusted operating income for quarter one was $314 million, a margin of 16.5%. The adjusted net interest expense was $38.5 million for quarter one, and the reduced interest expense was attributable to the 25 basis points decrease in the rate on our term loan B facility, which took effect at the end of quarter four when our leverage ratio declined below four times adjusted EBITDA. This resulted in a $0.06 benefit to earnings per share over quarter four. We do not expect this level of expense to continue in subsequent quarters as we anticipate a rising interest rate environment over the course of this year. The adjusted effective tax rate was 17% for the quarter. Overall, we continue to expect the full-year 2022 adjusted effective tax rate to be approximately 16.5%. Adjusted net income attributable to the group for the quarter was $228 million, a margin of 12%, equating to diluted earnings per share of $2.76, an increase of 27% year-over-year. In the first quarter, the company recorded $12.1 million of transaction and integration-related costs. U.S. GAAP income from operations amounted to $170.3 million, or 9% of revenue during Quarter 1. U.S. GAAP net income attributable to the group in Quarter 1 was $112 million, or $1.36 per diluted share compared to $1.82 per share for the equivalent period last year. Net accounts receivable was $745 million at March 31, 2022. This compares with a net accounts receivable balance of $642 million at December 31, 2021. Cash collection efforts continued to be strong with DSO of 35 days in the quarter, down from 49 days in the comparable basis from March 31, 2021, and up from 31 days on comparable basis at December 21, 2021. The sequential increase in DSO is a consequence of ongoing finance integration activities and alignment billing processes. As this work is completed, we would look to maintain and decrease our DSO. Cash generated from operating activities in the quarter was $227 million. As of March 31, 2022, the company had a cash balance of $560.8 million and a debt of $5.142 billion, leaving a net debt position of $4.581 billion. This compared to net debt of $4.682 billion at December 31, 2021 and net cash of $595.6 million at March 31, 2021. Capital expenditure during the quarter was $19.6 million. We ended the quarter with our performance net debt to trailing 12-month adjusted EBITDA ratio of 3.3 times. The priority for capital deployment remains on debt pay down in the near term, and as such, in quarter one, we made a payment of $300 million on our term loan B facility. Given our continued strong cash flow generation, we reiterate our target of exiting 2022 below 3 times adjusted EBITDA. As announced on our last call, our Board of Directors authorized a share repurchase program of up to $100 million. I'm pleased to report we were successful in deploying the full authorization of $100 million within Quarter 1, resulting in the purchase of 421,000 shares at an average price of $227.76. With all of that said, I'd now like to hand over the call to Steve.

Steve Cutler, CEO

Thank you, Brendan, and good day everyone. I had a strong start to the year in Quarter 1, reflecting continued operational strength and business momentum, despite macroeconomic headwinds impacting our business. Throughout the year, ICON employees continue to exhibit their ongoing resilience and dedication to delivering customer programs as effects from the pandemic continued with the emergence of new COVID variants, and the war in Ukraine presented a new set of challenges. Ensuring the safety of our employees in the region is our first and foremost priority. We've been able to provide support to many Ukrainian families and employees that have crossed the border to neighboring regions, and assisted in relocation to other ICON offices where circumstances allow. We are working closely with our customers to ensure studies continue and patient safety is my intent to the full extent possible, deploying remote technologies for monitoring and assisting dislocated patients in finding new trial sites. Patient recruitment activity in the region has been halted and no new studies or sites are being started at this time in Russia or Ukraine. Earlier this month, I was in our office in Poland, which has been at the forefront, hoping to provide the on-the-ground support to many of our employees leaving Ukraine. I'm incredibly proud of the extraordinary efforts exhibited by our employees in Poland and nearby countries. Our staff in the region not only have gone above and beyond for their colleagues and for our customers, patients as well. Ensuring trial continuity and mitigating risk to the best of our abilities. They are an excellent representation of the ICON culture and we are grateful for their dedication and tireless efforts. In the quarter, the financial impact from the war in Ukraine was approximately $5 million. We anticipate a continued impact in subsequent quarters, up to an estimated 1% of revenue for the full year, assuming no further change in our ability to operate in the region for the foreseeable future. Despite challenges from the war in Ukraine and emergence of additional COVID variants, the broader environment for clinical development remains strong. Total RFP volume was solid in Quarter 1, increasing by low double-digits on a year-over-year basis. While the biotech funding market declined further in the quarter, we have seen Pharma R&D spending continue to grow, and we have not witnessed the slowdown in RFP activity in the small and mid-sized Biopharma segment, which was consistent with the strong levels we saw in Quarter 4, 2021. Additionally, I would note that we haven't seen an uptick in the level of cancellations or project delays in this segment of our business, we have continued to see private and venture capital funding supporting companies with strong signs and novel therapies in areas such as oncology, rare disease, infectious diseases, and neurology. In the last few years, ICON has worked with over 1,000 emerging biopharma companies. And our consultative partnership model strongly appeals to this customer segment. We have confidence in ICON's ability to continue winning market share across the Biotech and small pharma segment given our leading expertise and purpose-built Biotech unit, consisting of 8,000 dedicated employees. Our backlog exposure to capital market dependent companies remains low, and our strong position across all other key market segments should ensure our business wins remain robust in the foreseeable future. Our business development performance was excellent in the quarter, resulting in another record quarter of net business wins of $2.43 billion, representing a net book-to-bill of 1.2% for the quarter and 1.27 on a trailing 12-month basis. Backlog grew 10% year-over-year to $19.6 billion on a combined company basis, an increase of 2.7% sequentially from quarter four 2021. Sales performance was particularly strong in our large pharma unit that was broad-based across all business units, reflecting continued demand for our innovative and integrated solutions. Strategic discussions across several key partnerships are continuing to advance, presenting opportunities for growth and expansion across our business segments. Our clinically focused but diversified business mix and customer-centric offering have played a key role in winning new customers and renewing existing partnerships as customers seek flexible development models along with a broad set of services and expertise. One of our key success factors in building and maintaining strong customer partnerships is our commitment to collaboration and operational excellence. In the quarter, we held our first partner of choice meeting as new ICON, bringing together several of our partners in the Strategic Solutions segment of our business to share insights and why the future is to innovate in this area. ICON is leading the way with its approach to customer engagement, and events like this clearly demonstrate our commitment to our focus on creating enduring customer partnerships. Financial performance was strong in the first quarter, resulting in combined company revenue increase of 6% or 8% on a constant currency basis year-over-year. These results exceeded our initial expectations given difficult comparisons on a year-over-year basis from high pass-through revenue related to COVID studies and further headwinds due to foreign currency fluctuations, and the war in Ukraine, which will continue to challenge us in Quarter 2. Despite these macro headwinds, operational performance was impressive with adjusted EBITDA growth of 19% year-over-year on a combined accompanied basis in quarter one, as SG&A cost management was particularly strong due to achievement of initial cost synergies. I was also very pleased with our adjusted earnings per share of $2.76, which grew 27% from quarter one 2021. At a high level, our overall customer mix has stayed consistent and well-balanced in quarter one with approximately 50% of total revenue in large Biopharma and approximately 45% of total revenue in mid and small Biopharma. Within the small Biopharma segment, companies that have less than $100 million in annual R&D spend again represented a mid-teens percentage of our overall revenue and backlog for quarter one. Given our cash collection efforts in the quarter, we were able to make a $300 million payment on our term loan B facility, further reducing our leverage to 3.3 times adjusted EBITDA at the end of the quarter down from 3.4 times at the end of Quarter 4. We believe we are on track to hit our aspirational target of exiting 2022 with a leverage ratio of approximately 2.5 times adjusted EBITDA. Our integration progress continued throughout Quarter 1 as we passed the one-year mark since we announced the transformative union with PRA Health Sciences that now completes nine months operating as a combined organization. Our focus on enabling a unified employee experience has continued to advance, bringing more of our staff together physically through facility integration, of which we have now completed 50 across the globe. Even more importantly, our efforts to connect the organization through the implementation of common platforms and enterprise-wide technology systems are reaching critical milestones. A few of our first system implementations, including our human capital management system, will go live this quarter, and we are advancing deployment of several other Tier 1 enterprise-wide systems, which will come online in the next few months. Our successful integration efforts to date have enabled continued progress on our synergy targets. And as we reaffirmed in March at our Analyst Day, we expect to realize approximately 50% of our cost synergy target, or $75 million in 2022. From our revenue synergy perspective, our cross-sell activity was again strong in Quarter 1, with approximately $30 million in new awards, consistent with the activity in the fourth quarter of 2021. Cross-sell awards in the first quarter were led by the laboratory services, early phase, and by our remote technologies. Turning to COVID related trends, it was several notable factors impacting our business in Quarter 1. Revenue related to COVID studies was consistent with Quarter 4, representing a mid-single-digit percentage of overall revenues. Backlog related to COVID programs was approximately 5% of total ending backlog, as we were successful in winning new business for additional vaccine work related to boost studies in the quarter. These additional study wins are evidence that COVID related work will be part of our business for some time and an excellent testament to ICON’s leadership in vaccine development and strong trial execution in this area. With the new awards won in Quarter 1, we expect COVID-related revenues will represent approximately 5% of our total revenue for the full year 2022. From a site access perspective, we saw continued resilience from site and staff throughout the quarter, despite the emergence of additional COVID variants and the lockdown in China causing restricted access to site that had previously reopened. This dynamic coupled with site access impacts from the war in Ukraine holds a slight increase in the number of sites restricted in some capacity. Now totaling approximately 17%. While we have seen volatility in levels of site access across different regions, either due to COVID or more recently from the war in Ukraine, our teams are now able to pivot faster and more seamlessly by deploying remote-based solutions, lessening trial impacts that would have been more substantial two years ago. We have seen continued adoption across customer segments of decentralized trial components, particularly hybrid models of development. While we have noted that fully decentralized trials are few in number currently, we were pleased to have started recruitment on a full phase two decentralized clinical trial study in Women's Health in Quarter 1; this study is a great example of the power of our broad set of integrated services with the trial being executed utilizing multiple decentralized components. Digital patient recruitment services, our Accellacare site network, and concierge services center, with the study managed by our decentralized clinical trials operational team. We remain focused on our commitment to further invest in key technologies, tools, and platforms that will improve efficiency and delivery in our industry. One Search, our innovative site selection tool, is continuing to deliver insights to our customers on optimal site selection, reducing site start-up times, decreasing the number of normal recruiting sites and improving overall patient recruitment rates. During the quarter we invested further in the tool with interface updates to enable better user experience and data enhancements to add valuable data sources as well as back-end mapping. We've continued to look for opportunities to integrate broader sources of data, not only to One Search but across our entire set of solutions. Our focus is on increasing our access to not necessarily ownership of unique data sources as well as evaluating partnerships and other opportunities that advance our healthcare intelligence strategy while further enhancing our analytics capability, producing more targeted results and outcomes for our customers. Another area of strong focus for our organization is automation. Through the additional capacity provided by robotic process automation, we have continued to enable our new capabilities and offerings; customers with the outputs of clinical trials can be delivered in a more timely way and at a higher level of consistency and quality. A great example of this is the completion of our ETMS, which has been one of the strongest areas for RPA productivity in 2022 so far, with over 2,800 FTD business days saved in Quarter 1. In addition, we continue to leverage advancements in technology, enabling us to employ remote monitoring across a range of workflows in our clinical trials. We are unifying our sights towards a single way of working, enabling remote review of ECG's and lab reports and combining patient recruitment and scheduling into an overall integrated capability. As clinical development continues to evolve and biopharma customers increasingly look to their partners to provide innovative solutions, we see an excellent opportunity to lead the market with our focus on health care intelligence. We believe our investments in talent, technologies, data, and analytics are leading to improvements in long-held industry challenges: basic recruitment, site identification, and study startup, just to name a few. We remain excited by the opportunity to create a new paradigm for bringing clinical research to patients, and the enhanced outcomes it will deliver for all of our stakeholders. With the strong performance in the first quarter, we continued positive customer demand environment, we are reiterating our 2022 financial guidance revenue in the range of $7.77 to $8.05 billion and adjusted earnings per share in the range of $11.55 to $11.95. As indicated at our Analyst Day in March, we expect an adjusted EBITDA margin of approximately 18% in the full-year 2022. Finally, earlier this month, I was honored to accept the award of ICON's Company of the Year 2021 business and finance awards on behalf of ICON. This award recognizes companies based on their market position, operational, and financial achievements, and is attributed to the dedication and engagement of our 39,000 employees around the world. Before moving to our Q&A session, I would like to take an opportunity to recognize our employees for their commitment and efforts in Quarter 1. We look forward to the continued success of our organization throughout the year as we remain focused on delivery for customers, sites, and patients around the world. Operator, we're now ready for questions.

Operator, Operator

Thank you. Dear participants, we will now begin the question-and-answer session. The first question comes from the line of Elizabeth Anderson from Evercore, ISI. Please ask your question.

Elizabeth Anderson, Analyst

Hi, guys. Good morning. Thanks so much for the question today. I think your comments on the Biotech funding environment were very helpful in the impact on your business. I guess one question I would just have, given some of the reports that were seen from competitors. How are you thinking about the RFP flow across the various stages of your business? Would you point out any notable distinctions between earlier phase things and later phase things? Any details there you could provide would be helpful.

Steve Cutler, CEO

Sure. In terms of RFP flows being consistent and strong, those are referenced low double-digits across the business. That was particularly good this quarter in large pharma, it was particularly strong in Quarter 4 in the Biotech area and it's been consistent nearly across all the segments of the business. We're pleased with the access we are getting to new opportunities from customers and it continues to make for a very positive picture.

Elizabeth Anderson, Analyst

Got it. And then just as a follow-up, have you heard of any customer restructurings or anything like that on the Biotech side from a financial or non-safety efficacy perspective, and does that show any distinction versus prior quarters?

Steve Cutler, CEO

No, we haven't. We'll be very direct on that one. No, that hasn't come across my radar screen. I think Brendan is shaking his head as well.

Brendan Brennan, CFO

No. At this stage, certainly in the customer set that we have, we're very happy. We do a lot of work with those folks as we onboard them to ensure they are really good customers and have good funding access. Yes, we've been very happy with the customer base from my perspective. You will see that there's no increases in our bad debt provisions or anything of that nature, so we're very happy with that.

Elizabeth Anderson, Analyst

That's okay. Thank you very much.

Operator, Operator

Thank you. The next question comes from the line of Eric Coldwell from Baird. Please ask your question.

Eric Coldwell, Analyst

Thank you. Good afternoon, everyone. I have two questions. First, could you provide a recent update on the percentage of backlog and revenue from these pre-commercial biotech clients? I apologize if I missed this earlier. My second question relates to the supply chain impacts on the labs this quarter. Could you share more details? Are there specific components affected, or is it primarily about transportation and freight? Any information on the supply chain effects on the lab-based business would be appreciated. Thank you.

Steve Cutler, CEO

Sure. Hi, Eric. So in terms of backlog and revenue for the capital markets, the way we've defined that is companies that spend less than $100 million annually in R&D. That's the group we've been focusing on. We've been public before in saying that's around mid-teens, like around 15% of our revenue, and our backlog is in that space, in that category. Whether they are entirely capital market dependent, I think we can all debate; the definitions probably vary a little bit. But we've been cautious in our screening process as these opportunities come through the door, and we check the financial viability of these customers. It remains around mid-teens for us. In terms of supply chain challenges, it has been particularly around kit supply at the moment; we've had some challenges. The components of various components of kits, particularly for the more complex studies we're doing in the oncology space, have been challenging to obtain and have led to some delays. We believe it’s a relatively short-term problem that we're able to address, though I do expect in the next couple of months, we'll be able to move forward and resolve those challenges.

Eric Coldwell, Analyst

Thank you very much.

Operator, Operator

Thank you, the next question comes from the line of Patrick Donnelly from Citi. Please ask your question.

Patrick Donnelly, Analyst

Thanks for taking the questions, guys. Steve, you kind of touched on SG&A being a focus during the prepared remarks, talking about it coming in ahead of your expectations. Can you just talk about what you're seeing there? Again, is it some of the cost being pulled forward on the synergy side? Obviously, inflation and wage inflation have been a big focus for investors. Can you just talk about the moving pieces? I thought it was interesting you called that out as a nice lever for the margin side.

Steve Cutler, CEO

We believe we have a strong model in that area. It is fairly centralized, with costs being closely monitored. Over the past dozen years, we have established a solid track record in this space. A team across our global business services group, including IT, HR, facilities, and administration, carefully examines these costs. We have achieved some of the synergies we aimed for by integrating PRA Health Sciences into this model. This process is ongoing, and we have projected around $75 million in synergies for this year. We are confident we can maintain this momentum, having identified a target of $150 million moving forward. Specifically, I mentioned approximately 50 office integrations or closures that have resulted in significant savings. We have also made strides in our IT fund regarding the number of applications we are using, which has been a considerable benefit, as well as in the HR areas. The model we have established and the scrutiny from all our leaders in this domain are at the core of these efforts.

Patrick Donnelly, Analyst

That's helpful. And then maybe one for Brendan more on the modeling side. Can you just talk about the FX impact, again, encouraging to see you guys reiterate the overall number. I assume FX increases headwind implied in the organic and maybe a little bit better, so can you just touch on that? And then on the back of that, just the linearity of the year as we look ahead the cadence from the quarters. 2Q, anything to call out there? Just given the COVID roll-off, FX, Russia, Ukraine, it seems like things are hitting the first half maybe a little harder. So just curious in terms of how we should think about the cadence as we model revenue and earning values.

Brendan Brennan, CFO

Yes, thanks, Patrick. As we mentioned, I called it out. It actually was a $20 million headwind in Q1 on the FX, and obviously we came into the year thinking about a year of a $1.15 for the euro, a dollar, which is our primary currency pair. You can see where the dollar is at the moment. Certainly, as we talked about the guidance, we were more in the ballpark of a $1.08. And obviously, it’s down right now; that’s a concern. We will keep a continued eye on it. In face of that headwind, we're still obviously confident in the revenue position to reaffirm our revenue guidance for the full year. Your point on the sequential nature of revenue and how we will come through the course of the year is a good one, and we had said that we were lapping these big COVID trials. Q1, Q2 probably had the biggest quarter that we had in 2021. That will represent the toughest comp that we have. And we did say the first half of the year would be more like mid-singles, and the second half would be high singles. We’re seeing a decent performance. We feel in the 6% and 7.8% on a constant currency basis in Quarter 1. Quarter 2 is a tough quarter from a comparative perspective given that big bolus of work we saw coming through from the COVID work in Q2 last year. Just say once we get through Q2 and into Q3 and Q4, we are obviously back to that high single-digit profile, and that is how we're thinking about the remainder of the year.

Patrick Donnelly, Analyst

Very helpful. Thank you.

Operator, Operator

The next question comes from the line of Casey Woodring from JPMorgan. Please ask your question.

Casey Woodring, Analyst

Thanks for taking my questions. Just wanted to talk about pricing. How should we think about what's embedded in the guide for the year? And given all the different macro factors, supply chain, Biotech funding environment, how is pricing trending?

Steve Cutler, CEO

I would say, Casey, pricing is trending well. This is an ever-competitive business pricing-wise, but customers do understand that inflation is increasing and that we all face challenges in the labor market. In terms of our negotiations, whether it be renewals of MSAs or contracts, I would say it's probably as favorable as it's ever been. I don't mean to suggest it's easy, but customers are savvy; they often face similar challenges in retaining staff and recognize that we need to offer market salaries, and hiring new staff can also be costly. So, I would consider the pricing environment to be relatively positive. However, as I've mentioned, the cost side is also a bit more challenging than usual, so it's balancing out pretty well from our perspective. Therefore, I think we're optimistic about improving our gross margins in the medium term.

Casey Woodring, Analyst

Got you. And then just one on the Biotech funding piece; we're hearing anecdotally about large Pharma looking to license and partner more with some of these smaller Biotechs given the current market environment. Would you call this out as a trend in the industry that you're seeing? And would there be any impact there for you guys, perhaps a source of competitive advantage given your relationships with some of these large Pharma customers? Thank you.

Steve Cutler, CEO

We have seen a few examples of customers that we're partnered with on a large scale basis, and our large Pharma partners acquiring companies and us being able to then move our relationship, or move our partnership to that smaller company; that's certainly happened. And sometimes, even it’s gone the other way, occasionally, where we've had a good relationship with a smaller company and we’ve been doing a project and we've been able to move into a relationship with a larger company. So it works both ways, and we have some examples of doing that. It's generally a positive for us. I would just say on the Biotech side of things, we had about 10 major wins in the quarter; five of them were from small Biotech companies, which led to substantial wins. I think I've said it before: these companies are ambitious; they continue to want to move their drugs to market and potentially partner once they go into more commercial space. But in the sense of the clinical development we have, a number of very ambitious small Biotech customers have allocated us very substantial wins. All of our top 10 in terms of backlog and our top 10 wins this quarter, half of them are from these small Biotech companies so there’s a significant demand from these companies who have the money and are willing to spend it in the clinical space.

John Kim, Analyst

Alright, I appreciate all the color. And then just real quickly, the COVID mix, can you remind us what the proportion of revenue was in Q2 2021? In terms of COVID, if I recall, it was the mid-teens, low-to-mid teens?

Brendan Brennan, CFO

Yes, that's correct. It was mid-teens in Q2 2021.

John Kim, Analyst

Okay. Alright, thank you. I'll hop back in queue.

Operator, Operator

Thank you. The next question comes from the line of David Windley from Jefferies. Please ask your question.

David Windley, Analyst

Hi, good morning. Good afternoon for you guys. Thanks for taking my question. Steve, I was hoping you could maybe add some additional color to the traction that you're seeing post-merger. You have some cross-selling that you highlighted. You have DCT capabilities that are coming together nicely as you integrate the two businesses. You, in that vein, talked about at the Investor Day - Analyst Day, some Big Pharma relationships that you've been able to wedge your way into of late that you hadn't worked with for quite a long time. So just hoping you could kind of drill in a little bit on maybe what areas are resonating the best with the client audience.

Steve Cutler, CEO

Well, let me start with the DCT, in the new release of our platform this quarter, we're getting a lot of engagement, not just from large Pharma, but across the spectrum of customers on our DCT platform. But not just the platform itself, but the approach that we're taking in terms of integrating our services around our home-health, our nursing group, site network of course, and the wearables expertise; Mapi, the acquisition we made a few years ago, is being integrated into the platform, so there are a number of components that are coming together very nicely. Lot of it is sort of relatively early days in terms of discussions around the platform and our approach, but we are engaging a number of customers on the large side, but also in the Biotech space around that platform and around our offering. In terms of cross-selling, I referenced about $30 million again, we want to continue to move that forward. Inevitably when you bring two large organizations together, there's an element of learning what we have, and what options the organization has to sell. We're doing well in the lab space around our imaging space. The home health care, the site network are all contributing to revenue that wouldn’t have otherwise been the case if we remained as independent entities. We see good progress there, albeit, we expect to see further progress going forward, but I think our $100 million in revenue synergies is a target that is very achievable over the medium to longer-term. Of course, these awards always take some time to come online in terms of the Big Pharma. We think we've mentioned in the last quarter call that we've witnessed some significant customer partnerships. We've made some further progress with another one, where we believe we're going to move towards a partnership agreement. We haven’t arrived there yet, but we made some good progress partly due to our DCT approach and partly due to the scale and functional expertise and capabilities we possess. The fact that we are a client that our customers and large Pharma particularly want to talk to. I believe they are both customers and partners that we weren't really in a strategic relationship with as an independent Icon or independent PRA Health Sciences. So I feel one of the key rationales for coming together is really being played out with these partnerships. There are a couple of others that are probably a little bit further back in the process. These things take a while, but I do feel that we're in the conversation now with every large partner when they are looking to renew their status for their strategic alliances with the CRO. We are part of that conversation, and that's exactly where we want to be.

David Windley, Analyst

Thank you. I appreciate it. I have a follow-up question regarding the capital associated with this. I understand that your main goal for cash generation is to reduce debt in the near term. Once that is accomplished, do you envision returning to a tuck-in acquisition strategy? If so, what types of tuck-ins would you consider? For instance, would you aim to further expand the site network and similar initiatives? I'm curious about your capital strategy in relation to developing these capabilities.

Steve Cutler, CEO

Sure. Well, as you quite correctly said, our focus certainly in the short term and the next couple of quarters is on that debt repayment. We see obviously interest rates going into the middle 4% to 5% in the relatively short term, and we think that's the best use of our capital, is to pay that debt. However, we're making excellent progress on that, and we're well ahead of schedule as to where I thought we'd be when we closed the acquisition. We are starting to think about how we would deploy our capital either on an M&A front or even potentially on a share repurchase. Although we probably wouldn't look at that until toward the end of this year, but we remain open for those sorts of discussions and that sort of thinking as we make progress on that debt repayment. In terms of the M&A side of things, there are several areas I think we would look at. We are keen on the data side of things. We do believe there's investment required in that space, and opportunity in that space to be that health care intelligence organization we want to be, and we want to improve our data capabilities and particularly our data analytics capabilities; that is an area of focus. The site network is a core part of our strategy; we won't rule out certain development opportunities. Then we have a JV with on-peak care that is moving forward, and that’s a potential further investment going forward. So the sites are certainly very much a part of it. There are areas like bio simulation or home health that we want to continue to look at. I don't think we're going well outside of our core clinical area, but there are certainly a number of areas that we think we can strengthen and continue to develop to address those key customer challenges we're all trying to solve.

Operator, Operator

Thank you. The next question comes from the line of Salem Salem from Barclays. Please ask your question.

Salem Salem, Analyst

Good afternoon. This is Salem calling in for Luke. We had a question on burn rate and how that's stabilized at the low end. Should we expect that to step down to pre-pandemic levels after this year as we see work normalize to traditional models?

Brendan Brennan, CFO

Yes. I'll take that one. We're obviously very focused on 10% and we outlined in our call, and our Analyst Day as well that that's where we're thinking as we go through the course of the year. You see that has been stable in Q4 and into Q1, and we're looking to maintain that level as we go through the back end of this year. As we go out into 2023, I think it's something we're going to be looking at trying to maintain, certainly clipping those double digits as we go out through time. There's a mix of our business, of course, that plays into that. If you take any 3-year project and just work the math, you're going to be at 8%, right? So that's just the math; however, we have other businesses like our strategic solutions business that has a different cadence to its burn rate. I think it is certainly possible to stay in the high single-digit range, in the 9-10 ballpark, as we move out beyond 2023. Certainly as an organization, we want to ensure we're realizing our revenue and pulling our backlog through as quickly as we can. We are going to stay as focused as we can on trying to keep that in the double-digits.

Salem Salem, Analyst

Thanks, that's helpful. And as a follow-up, can you talk about the work coming online to replace the vaccine work that gives you confidence in the longer-term guide? The trial size is definitely not going to be as large. So could you help us think about the differences in the economics there? And is that more Phase 3 work than usual, given how some of those trials were paused during the pandemic?

Steve Cutler, CEO

To get your question, I think follow-on work in terms of vaccine work. We certainly believe we have a strong franchise in the vaccine space and, as we've alluded to, we believe we are a very strong player in that space. I think it's actually work is probably pretty much at an annual level, but we believe we are seeing important follow-on work there that will probably continue for a while. But there's a lot of vaccine work going on, particularly with the mRNA technology becoming more ubiquitous, and sponsors on Pharma companies showing what they can do in terms of advancing vaccine-related products. So we see plenty of opportunity for vaccines, particularly with the mRNA technology, not just around infectious disease, but also in oncology and other areas. The networks are blown fast; no question about that, and that’s part of the slow ramp down in our burn rate. It is related to the change in our portfolio, with less vaccine work and perhaps more moving back toward oncology work, which is 30% to 35% of our revenue and of our backlog. That's where the bulk of the clinical development is being conducted.

Operator, Operator

Thank you. The next question comes from the line of Justin Bowers from DB. Please ask your question.

Justin Bowers, Analyst

Hi, good afternoon. I was wondering if you could talk about the backlog mix. I know that you highlighted a lot of large Pharma wins in the quarter, but is there anything to call out in terms of FSP versus full study? And maybe going a little further downstream with the strategic solutions, more color there would be appreciated.

Steve Cutler, CEO

I'll let Brendan add in terms of our backlog. We haven't seen any substantial change over the last quarter or so in terms of large Pharma versus Biotech. It tends to be, as I said, around 50 to 60% of backlog is large Pharma, about 45% is Biotech, small and mid-sized companies, and other government work. That mix really hasn't changed much. We continue to see success in winning Biotech and small Pharma work, as our large Pharma business was particularly strong in Quarter 1, and had a very good quarter, as did our Biotech business. So there’s not much to call out in terms of FSP; we continue to get significant opportunities with the market leader in that space. We have a very innovative, creative group in that area; those opportunities tend to come a little bit slower, a little bit more involved. Large opportunities can be a little volatile, but we have very good relationships with several significant customers in large pharma, typically those who do the FSP space, and we are being creative and innovative in the way that we’re approaching those partnerships and bringing value to the FSP model. So it’s not just the provision of resources but it’s new ways of contracting, and new functions that we’re performing to work seamlessly with their operations. That is allowing us to develop relationships with those customers that can lead to other work. Sometimes that leads more into full-service work. Most organizations or very few organizations are purely FSP or purely full-service; they tend to have a mix, and we have positioned ourselves well in that area to benefit from these opportunities.

Operator, Operator

Thank you. And there are no further questions. I would now like to hand the conference over to your speaker today for closing remarks, and it will be Steve Cutler. Please go ahead.

Steve Cutler, CEO

Thanks, Operator. Thank you everyone for listening today. We're pleased to have delivered another strong quarter of results and applaud the contributions of our employees as we progress to become the world's leading health care intelligence organization. Thanks all, have a good day.

Operator, Operator

That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a nice day.