Earnings Call Transcript - ICLR Q2 2025

Operator, Operator

Good day, and thank you for standing by. Welcome to the ICON Plc Q2 2020 Earnings Conference Call. Please be advised today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Kate Haven. Please go ahead.

Kate Haven, Presenter

Good day, and thank you for joining us on this call covering the quarter ended June 30, 2025. 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 21, 2025. 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 and their respective tax benefits. We will be limiting the call today to 1 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.

Steven A. Cutler, CEO

Thank you, Kate. ICON's second quarter results showed good progress across a number of key areas as we navigated ongoing volatility in the broader clinical development market. Gross business awards increased 11% on a sequential basis over quarter 1 with notable wins from several biotech customers as well as the continued ramp-up of several large pharma partnerships that have been added in the last 18 months. Our revenue performance was ahead of expectations, assisted by higher pass-through revenue in the quarter. This dynamic helped to increase our burn rate slightly to 8.2% in quarter 2 and was in line with our expectations of holding a stable burn rate as we progress through this year. While study delays and the elongation of timelines from contracting to start date have presented a headwind to this metric, there are a number of initiatives we are focused on to improve cycle times and ultimately increase burn rate, which are showing promising results on in-flight studies. Through execution of our cost management initiatives across the business as well as continued automation, we saw progression in adjusted EBITDA dollars sequentially. Gross margin improved over quarter 1 to 28.3%, and SG&A costs reduced by $9 million year-over-year, demonstrating our ability to optimize our efficient global operations. Overall adjusted EBITDA margin increased over quarter 1 to 19.6% with solid cost control offsetting higher pass-through revenue. This translated to a 2% increase in earnings per share sequentially, resulting in adjusted earnings per share of $3.26. While we achieved solid conversion on the opportunities that went to decision in this quarter, our net book-to-bill result of 1.02x was negatively impacted by elevated cancellations as we anticipated. Overall cancellations increased sequentially and on a year-over-year basis in the quarter, driven by the cancellation of one of the large next-generation COVID vaccine trials. We saw a similar trend to recent periods where the mix of cancellations across customer groups, excluding the large COVID studies, was in line with our relative distribution of revenue. The reasons for cancellations remain broad-based, ranging from decisions related to portfolio rationalization and reprioritization to negative clinical trial results. As we look forward to the second half of the year, we expect largely similar conditions to persist in the market. While challenges remain, we entered the third quarter with an encouraging level of actionable opportunities in the pipeline, and we have seen good momentum in our ability to win across customer segments. With our scale and differentiated offering, we are presenting compelling clinical solutions that can deliver optimal efficiencies for customers, positioning us well in an increasingly competitive market. Further, despite the fact that net bookings will continue to be challenged by elevated cancellations and extended decision-making in the near term, we believe that as market conditions stabilize, cancellations will return to historic levels and net business wins will increase. In addition, the current need for many large pharma companies to address their loss of patent exclusivity in the short to medium term necessitates continued and, in many cases, increased investment in their late-stage development pipelines. In quarter 2, we began to see early but encouraging signs of this in the market with increased M&A and licensing activity amongst large pharma companies. At ICON, we are well positioned to benefit from this activity given our significant number of established strategic relationships across large pharma companies alongside our differentiated biotech offering. We have seen recent notable wins across our business where we have leveraged the strength of our existing relationships and experience with smaller biotech organizations that were acquired by midsized and large pharma companies to then broaden our relationships with those acquiring organizations. In fact, in quarter 2, two of our largest awards were with a midsized pharma company where we successfully expanded our relationship that originated with one of their acquired biotech companies. ICON's demonstrated performance in the delivery of prior studies was a key consideration in the further development of this expanded relationship. We updated our full year guidance to reflect our expectation of higher pass-through revenue this year, including the restart of the next-generation COVID vaccine trial that resumed activity in quarter 2 and is actively dosing patients. We remain confident in the prudent approach we took in setting our full year outlook in April and have kept our assumptions consistent regarding macro conditions through the balance of the year. These factors result in our revised guidance range increasing by $100 million at the low end to $7.85 billion and the high end of the range remaining unchanged at $8.15 billion, increasing the midpoint to $8 billion. Given the expected range to our full year revenue is largely related to increased pass-through revenue, we are maintaining the midpoint of our adjusted earnings per share guidance range at $13.50. While we were pleased to see progress across financial and bookings metrics in quarter 2, I also want to highlight developments in key operational areas in our broader business. Our customer and site satisfaction scores have shown positive momentum, driven by accelerated site activation, patient recruitment, and trial completion. In addition, we continue to focus on further investments to strengthen our offering and expertise where we can develop distinct advantages to our customers through the delivery of novel solutions. One of these areas has been to advance our capabilities in key therapeutic areas that have been growing rapidly in the market, such as obesity and related metabolic diseases. ICON launched its Center for obesity this year, a purpose-built network of over 100 U.S. sites that will ultimately have access to over 10,000 prescreened potential patients in this key disease area. Our strategic approach streamlines start-up activities such as contracting, site training, and documentation harmonization, leading to targeted site activation in 30 days or less. In addition, 85% of these sites operate on the same integrated technology platform, allowing for improved efficiencies in processes across enrollment and recruitment as well as in real-time monitoring. Separately, our digital innovation strategy continues to produce meaningful applied advances across our business. Our AI center of excellence and operational teams collaborate to identify processes and opportunities to develop AI-enabled tools to enhance our delivery of services. Our latest development centers on protocol digitization, a process to extract information from a trial protocol and then set up standard documentation and system specifications before the trial begins, which is currently highly manual in nature. This AI agent, which is now utilized in the laboratory setting, intelligently reads protocol data, identifies the relevant tests, and auto-populates data to create the study deliverables. This is enabling ICON to achieve upper quartile performance metrics for our sponsors, allowing significantly reduced study start-up times and improved overall project timelines as well as overall quality. This is a tangible example of how we are adopting AI to evolve our offering in a way that is considered practical and, most importantly, driving efficiency in the overall clinical trial process for our customers. Our financial position remains very strong, and we continue to be disciplined in our approach to capital deployment. In quarter 2, we again repurchased $250 million in shares, and our Board also approved a new share repurchase authorization for up to $1 billion, an increase of $500 million from what was remaining on our prior authorization. We remain active in evaluating potential acquisition opportunities that will enhance our offering alongside continued internal investment in areas that will help fuel our growth, such as key technology platforms and tools, capabilities in our labs, and other services. As the leading provider of clinical development services in the industry, it is incumbent upon us to continue to innovate and evolve our offering to meet the needs of our customers, and our strong financial position affords us the ability to continue to invest in key strategic growth areas while also returning capital to shareholders. June marked the 35th anniversary of ICON's founding in Dublin, Ireland. We have evolved significantly as an organization since that time, going from a team of 5,000 to 40,000 individuals. I'd like to thank the employees of ICON that have joined us on this path that was set out in 1990 to be the global leader in clinical development for their hard work and ongoing commitment to the customers we serve. I'll now hand it over to Nigel for a review of our financial results.

Nigel Clerkin, CFO

Thanks, Steve. Revenue in quarter 2 was $2.017 billion, representing a year-on-year decrease of 4.8%. Revenue was up approximately 1% sequentially on quarter 1 2025. Overall, customer concentration in our top 25 customers was aligned with quarter 1 2025. Our top 5 customers represented 25% of revenue in the quarter. Our top 10 represented 39.7%, while our top 25 represented 65.6%. Adjusted gross margin for the quarter was 28.3% compared to 29.9% in quarter 2 2024 and up 10 basis points on quarter 1 2025. Adjusted SG&A expense was $174.8 million in quarter 2 or 8.7% of revenue. Relative to the comparative period last year, adjusted SG&A was down by $8.6 million in quarter 2. Adjusted EBITDA was $396 million for the quarter, an increase of $5.4 million sequentially. Adjusted EBITDA margin increased 10 basis points over quarter 1, 2025 to 19.6% of revenue. Adjusted operating income for quarter 2 was $357.4 million, while adjusted net interest expense was $46.6 million. The effective tax rate was 16.5% for the quarter. We continue to expect the full year 2025 adjusted effective tax rate to be approximately 16.5%. Adjusted net income for the quarter was $259.5 million, equating to adjusted earnings per share of $3.26, a decrease of 13.1% year-over-year or an increase of 2.2% on quarter 1, 2025. U.S. GAAP income from operations amounted to $209.2 million or 10.4% of quarter 2 revenue. U.S. GAAP net income in quarter 2 was $183 million or $2.30 per diluted share compared to $1.76 per share for the equivalent prior year period, an increase of 30.7%. From a cash perspective, quarter 2 had cash from operating activities coming in at $146.2 million and free cash flow of $113.9 million. While overall cash collections were solid in quarter 2, our free cash flow was lower than quarter 1, reflecting the timing of interest and tax payments as well as restructuring expenses. At June 30, 2025, cash totaled $390.4 million and debt totaled $3.4 billion, leaving a net debt position of $3.0 billion. This was broadly in line with net debt at March 31, 2025, of $2.9 billion. We ended the quarter with a leverage ratio of 1.9x net debt to adjusted trailing 12-month EBITDA. Our balance sheet position remains very strong, and we continue to execute our disciplined capital deployment strategy. We are focused on an approach to deployment that balances further investment in strengthening our business while also returning capital to shareholders. We made significant share repurchases in quarter 2, totaling $250 million at an average price of $146 per share. We plan to remain active in buying back shares in the near term with our total current authorization now expanded to $1 billion. With that, we'll now open it up for questions.

Operator, Operator

We will take our first question from Elizabeth Anderson at Evercore ISI.

Elizabeth Hammell Anderson, Analyst

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

Steven A. Cutler, CEO

Sure, Elizabeth. Things haven't changed much over the past few months since our first quarter call; the environment remains largely the same. We've noticed a slight increase in RFPs, particularly in the mid-single-digit range, with more activity in the Biotech segment compared to the large Pharma segment. We've observed some positive trends in our early phase business and Phase III business, which are looking promising. We're also happy with the partnerships we've secured over the last 18 months to two years. The team has effectively brought these partnerships on board, not just winning initial projects but also expanding within them. Overall, we view the development environment as reasonably constructive, especially in biotech rather than in large pharma. We prefer to analyze these trends on a trailing 12-month basis instead of quarterly. Within the quarter, there is still some volatility, with fluctuations occurring, but the long-term outlook appears positive.

Operator, Operator

Next question is from Michael Cherny, Leerink Partners.

Michael Aaron Cherny, Analyst

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

Steven A. Cutler, CEO

Yes, Michael, we are cautious about the biotech sector. My comments refer to a trailing 12-month perspective. While there have been some fluctuations across the quarters, decision-making times still reflect caution. Overall, it appears to be heading in a positive direction. Three of the top four awards we received this quarter were in the biotech sector, which is a strong performance for us in securing significant biotech projects. Additionally, large pharmaceutical companies are also beginning to contribute through expanding partnerships. However, there seems to be a misalignment with biotech funding, which may indicate a lag. We are seeing some encouraging signs, but we are not claiming any victory just yet, and we are focused on continuing our progress in biotech.

Operator, Operator

Next question is from Patrick Donnelly from Citi.

Patrick Bernard Donnelly, Analyst

Steve, maybe another one on just the bookings side. Nice to see the results come through there. Did you see things change at all as the quarter progressed? Obviously, again, a few of your peers sounded better as well in the last few days. I think it caught people a little bit by surprise. Did things turn as the quarter went? Did you hear any changes from the pharma customers, just given all the noise on tariffs, MFN, etc.? It sounds like, again, biotech maybe was a little bit better. But just curious in terms of breaking that down and how things progressed during the quarter and what that means for the go forward? Again, do you feel pretty confident that we have turned the corner a little bit here on the cancels and the book-to-bill should continue to trend in the right direction?

Steven A. Cutler, CEO

Pat, we remain optimistic about the current environment and the future. However, we want to be cautious and not get ahead of ourselves. Our pharmaceutical partners have likely absorbed the recent negative news and are processing it. Not everything is negative; there are some positive developments, such as early review opportunities with the FDA and a reduction in animal testing, which may lead to potential tax benefits for R&D conducted in the U.S. Our customers are beginning to see signs of stability, and as a result, their planning and spending strategies, despite the impending patent challenges, are evolving. We are seeing progress, but the environment remains somewhat volatile and uncertain. We were encouraged by a 10% increase in gross bookings compared to the previous quarter, which was a positive outcome for our team. We're aware of actionable opportunities in our pipeline, and we need to capitalize on those. It's important to note that cancellations are likely to stay elevated in the short term, so we need to navigate through that. Overall, we see a promising environment, though we recognize we are not yet fully past the challenges.

Operator, Operator

Next question is from the line of David Windley from Jefferies.

David Howard Windley, Analyst

My question focuses on your partnerships and has multiple parts. You mentioned progress in those partnerships. In some meetings we've had with you, particularly with Barry, there was a discussion about one of the recent partnerships being expanded or restructured to provide access to more of that customer's spending. Could you elaborate on that expanded opportunity and whether you've already seen any benefits? The second part of my question is regarding your strategy to replicate the success you've had with the top 25 partnerships and pursue a similar structure in the lower market. What progress or opportunities do you see in that area?

Steven A. Cutler, CEO

Sure. I'll let Barry address the first part, and then he may elaborate on the progress we've made with the top 25 customers. Honestly, the competitive nature of the business has intensified over the last three to six months. As we engage with customers about partnerships, we aim to handle more of their operations. This approach has allowed us to improve their efficiencies in exchange for a larger share of their spending, which has generally been successful for us. As one of the larger players, we believe we have an advantage because we can cover all the areas they want to outsource and those they develop. This strategy is also being extended to midsized companies, where we've formed recent partnerships. While these companies may not have the same spending volume as larger clients, they do represent significant business, and we can engage them across various areas. I'll let Barry provide any specific details regarding this.

Barry Balfe, COO

Yes, David, regarding the first part of your question, I hesitate to comment too much on any single partnership. However, I can share an example where we entered a partnership that initially had a significantly smaller full-service component compared to the FSP component, which we weren't involved in at that time. Since then, the customer has shifted to a stronger focus on that blended full-service model, which gives us reason to be optimistic as we continue to nurture that relationship. Your second point is also valid. We have seen positive results lately in expanding our partnership base among the top 25 companies. We consider the range between 20 and 60 as a promising area, and we are not only adding more customers in that segment but also evolving these relationships from transactional to more engaged ones, leading to a greater flow of qualified RFPs. Our goal is to not only increase our RFP flow outside the top 20 but also to develop deeper portfolio relationships within that segment, and we are making progress on that front.

Operator, Operator

Next question is from Justin Bowers of Deutsche Bank.

Justin D. Bowers, Analyst

Steve and Barry, can you explain some of the new opportunities you're seeing in your funnel and pipeline? There's been solid RFP growth over the last few quarters. Is this consistent across large pharma and biotech? What conditions in the industry need to change for us to start seeing that growth turn into bookings?

Steven A. Cutler, CEO

Yes, Justin, there are a few key points to consider. Oncology remains the primary focus of our backlog and new successes. We excel in the oncology sector and have a strong presence in both biotech and large pharmaceutical companies. Additionally, we've seen a rise in activity related to metabolism and cardiovascular health, particularly concerning obesity and conditions like MASH and NASH. These are significant areas for us as well. The work on COVID vaccines constitutes about 1% to 2% of our backlog and revenue, with little change observed recently, although the study is progressing. Regarding clinical phases, early phases are advancing well, and we also see progress in Phase III studies. Customers are concentrating their efforts on Phase III assets to bring them to market, but they are also continuing to develop some early-stage projects. I'm optimistic about the long-term opportunities this presents. Overall, while the market remains stable, we've observed encouraging progress over the past quarter.

Operator, Operator

Next question is from Jack Meehan from Nephron Research.

Jack Meehan, Analyst

I think everybody is trying to take in the early results from some of the CROs and feel like we only have a piece of the aperture here with the bigger guys reporting. Steve, I was wondering if you could comment on what you think is happening in terms of share dynamics in the industry? Just any color on what you're seeing in terms of win rate would be helpful.

Steven A. Cutler, CEO

Yes, Jack, it's always challenging to be very specific about share dynamics. I was quite pleased with our gross wins, and as I mentioned, those wins are fairly widespread across the customer segments we serve. That was a positive aspect. I believe we are successfully advancing our market share, but it's difficult to quantify that. We do our best to monitor it, but the market data we have is inconsistent and somewhat unpredictable. We are definitely seeing progress in the Biotech segment. Our FSP business has continued to grow, and we've made good strides in our early phase business. Our lab business is growing in the teens, which is encouraging. Overall, there are many positive developments in our businesses that suggest we are gaining share, not only in our functional business but also in our full service and preclinical labs, including early phase imaging and so on. So overall, I believe the situation is constructive, but we are not getting ahead of ourselves.

Operator, Operator

Next question is from Eric Coldwell from Baird.

Eric White Coldwell, Analyst

I think I've rewritten my question list eight times in a row now. So I'll ask a clarification and then maybe try to wing a bigger topic. On the clarification, Steve, you've talked a couple of times about the cancels remaining elevated short term. If we've done the math right, it looks like ex the BARDA cancel, you were probably around that 2.5% of backlog that has historically marked the higher end of a range for you. Are you saying more of that ZIP code? Or are you actually signaling something higher than that?

Steven A. Cutler, CEO

What we're indicating, Eric, is that the current rate of cancellations is likely to remain in a similar range in the near term. That's our perspective. I believe we were at $916 million, which reflects the cancellation figure. We expect to see a comparable amount next quarter before we anticipate any reduction in Q4 and possibly into Q4. However, the market and environment remain volatile and uncertain, so we're not declaring that cancellations will return to historical norms just yet. In the near term, we anticipate continuing to see significant cancellations.

Nigel Clerkin, CFO

There was a backup question, I think. We're cutting a break, I think, because he was pushing stuff.

Eric White Coldwell, Analyst

Apologies for that. To provide a broader perspective, we've observed that you and several other industry colleagues have noted a trend of increased pass-through in direct revenue lately. Many have indicated that this is linked to changes in mix, at least in some instances. However, I wonder if there is a larger issue at play—are clients requesting more from you concerning pass-throughs, or are we witnessing a resurgence of study site inflation or some other type of inflation? Is it simply a matter of timing regarding audits and when these pass-throughs are recognized? It appears to be a prevailing theme across the industry right now, but we've seen a notable skew toward indirect revenue in some bookings and revenue growth compared to what we've observed in recent quarters.

Steven A. Cutler, CEO

Yes. I mean, it's a question we ask ourselves a lot as well, Eric, to be honest. And there are various reasons for I'll let Barry have a crack at that one.

Barry Balfe, COO

I think you nailed it in the question, Eric. I think this is overwhelmingly a business mix trend that you're seeing. Steve already talked about the uptick in cardiometabolic opportunity flow and indeed revenue flow over the course of the last year. I think that's a significant contributor. And I don't think there is anything below the line that we've seen that would speak to other trends. You get lots of calls. Yes, I'm sure rates are up at a period of time. But the #1 driver here, as I would see it, I think, as we have observed it in our own numbers, is that this is driven by the therapeutic mix primarily of the studies that we're running.

Operator, Operator

Next question is from Jailendra Singh from Truist Securities.

Jailendra P. Singh, Analyst

If this makes Eric feel better, he just told my pass-through question. Anyway, I want to actually switch to my other question about getting your updated thoughts on the pricing environment a little bit more. What exactly are you seeing in large pharma and EBP? Some other of your peers have talked about getting a little bit more open to taking a little bit more pricing concession. Just curious if you can share your thoughts on the pricing environment in both EBP and large pharma.

Steven A. Cutler, CEO

Sure. I'll take a shot at it and then Barry may have something to add. As I mentioned in my prepared remarks, we are anticipating a more intense pricing environment moving forward. Our customers, as we’ve discussed, are dealing with patent cliffs and are looking for greater value. This puts us in a very competitive environment. While it has always been competitive, it seems to have intensified recently. We believe there are strong opportunities for us to capture market share, but I’ll let Barry elaborate on how we are competing in this context.

Barry Balfe, COO

Yes, I think Steve is correct. While it's always been competitive, it may have increased slightly, as you can imagine. The first point to make is that I don't know anyone who thinks product development wouldn't benefit from improved cost efficiency. We see it as our responsibility to create value by reducing the costs associated with clinical development. Although all competitive advantages are temporary, when we identify advantages in our technologies, strategies, and execution that allow us to offer more competitive pricing compared to others, we will prioritize that. We are eager to do so. Additionally, we recognize the importance of volume and where significant opportunities arise. We are prepared to engage to ensure we establish ourselves as a key player within large pharmaceutical companies, as we have discussed, and continue to expand our presence in the biotech sector. Therefore, it's fair to say that the competitiveness is quite pronounced, perhaps even more so than before. However, the key for us remains whether we can provide higher confidence in the time, cost, and predictability of trial execution plans for our customers. We still view that as the most important metric, even with a slight increase in competition.

Operator, Operator

Next question is from Luke Sergott from Barclays.

Luke England Sergott, Analyst

Great. I want to clarify something regarding the significant increase in bookings and revenue we've observed. This trend seems unexpected, as many companies are discussing growth in biotech despite the absence of funding data and contrary evidence from various checks. There's also a lot of chatter about metabolic and faster-burning, higher pass-through trials. My concern is whether there could be a potential gap arising from a surge in a few quarters of these large metabolic trials, which are quicker and shorter in nature. Additionally, the recent developments in metabolic or recent mergers and acquisitions don't fully explain the substantial increase we've seen overall. I'm trying to reconcile this with the general sentiment, as no one seemed optimistic about the demand environment after the first quarter.

Steven A. Cutler, CEO

I appreciate your concern, Luke, but let me take a shot at it. Regarding the therapeutic area, we recognize that the metabolic and obesity aspects will continue to play a significant role in driving our portfolio and backlog for a long time. This is a very large market with numerous opportunities for enhancing existing drugs, be it the administration methods or the side effects. We anticipate that these will require extensive trials, which, while not simple, are likely easier to recruit for compared to the more complex oncology trials. Consequently, we see a substantial and lasting opportunity in this area, which is why we established our obesity center of excellence. It's important to note that our focus isn't limited to the metabolic field. There's notable activity in the MASH area, which is gaining traction, and many companies are making progress there. Oncology remains a key driver for us, and we also identify significant opportunities in the cardiovascular space. Overall, I believe there are several therapeutic areas where we can make a meaningful impact. The need for new drugs in medicine hasn't diminished; there's still a vast scope of unmet medical needs that we can strive to address. While I don't see an imminent downturn, I acknowledge that the environment is somewhat unpredictable. The current state of biotech funding does not fully align with the discussions taking place, but I think we're observing a slight lag. Some companies with solid scientific backing are being funded, and we are successfully connecting with them, improving our success rate in that segment. Our performance in the large Pharma sector remains robust, and we are effectively leveraging our partnerships there. To summarize, we are optimistic about the direction things are heading without being overly exuberant. There may be a slow period ahead, and while I don't believe we're completely out of the woods yet, we're pleased with our recent quarter's performance, especially regarding gross bookings. We have significant components in the pipeline to sustain our numbers moving forward. Despite some ongoing cancellations, we maintain a sense of optimism as we approach the latter part of the year. Would you like to add anything?

Barry Balfe, COO

No, I think you covered it. It might have been Patrick early on, who asked about whether there was a pivot point during the quarter. I don't think there was. And I suppose what's harder to convey than just the opportunity flow is a more qualitative assessment of what through. I think Steve, you just alluded to it. We were pretty satisfied as we moved through the quarter that there were some attractive opportunities that were transactable. And as we came out of Q2 into Q3, nobody is seeing a couple of swallows and declaring a permanent summer, but we do feel like qualitatively, there's some encouraging observations there. But this is not a straight-line industry. Things can move relatively quickly. So conservatively optimistic with the signs that we're seeing. I think that’s a fair summation.

Operator, Operator

Next question is from Max Smock from William Blair.

Maxwell Andrew Smock, Analyst

I have a quick question for Nigel regarding the burn rate. The midpoint of the guidance suggests approximately a 20 basis point reduction in the second half of this year. Despite the initiation of the accelerated COVID trial, is this simply a matter of conservatism, or is there another factor we should consider that's influencing this anticipated decrease?

Nigel Clerkin, CFO

Yes, Max. No, look, I think our view on the burn rate fundamentally is it will be broadly stable through the course of the year. Look, that is what's built into the guide. It was what we had assumed back in April, and as Steve mentioned earlier, fundamentally, our underlying assumptions in terms of the backdrop remain the same. So we still expect book-to-bill at roughly the same level through the rest of the year. And within that as well, then the burn rate being broadly consistent as well. The step-up in the revenue guide, again, is fundamentally driven by the increased pass-throughs that we're seeing. So look, let's see where we end up ultimately in terms of the end of the year. But at this point, we expect burn rate to be broadly stable over the balance of the year and somewhere around 8% for the full year.

Operator, Operator

Next question is from Charles Rhyee from TD Cowen.

Charles Rhyee, Analyst

I would like to clarify some points from earlier. Steve, you mentioned that for the next quarter, you expect cancellations to be similar to this quarter, around $900 million, including the $300 million cancellation from the COVID trial. Are we anticipating something similar, or do you see an increase that impacts our book-to-bill expectations for the next quarter? Additionally, last quarter you provided a breakdown of the foreign exchange impact and the COVID trial impact. Could Nigel provide insight into this quarter and those components in the revenue guidance?

Steven A. Cutler, CEO

Okay. So Charles, let me clarify the cancellations. We anticipate seeing similar results as we did this quarter, particularly because we mentioned the BARDA cancellation earlier. You're aware of that, and it doesn't make it unusual. We do have some cancellations, and we will be incorporating them into our numbers for the third quarter. Therefore, the figure will be comparable, although we will only be one-third of the way through the quarter. We are addressing these matters, but they progress slowly, leading to some delays. However, I wouldn’t consider it a significant outlier; the BARDA situation is an exceptional case at this point. I believe in the near term, that’s our expectation. Moving into the fourth quarter and next year, we anticipate that things will stabilize, but that remains uncertain and will rely on the environment becoming less volatile. Mark, I’ll pass it to you for the COVID update.

Barry Balfe, COO

Yes, Charles. So on the guide change from April to today, FX is really neutral. You'll remember, most of that dollar shift that we saw over the last few months had already happened actually by the end of April when we came out with the April guidance. So there's really no impact in terms of our revenue guidance change from FX. It's fundamentally driven from the uptick in pass-throughs. And maybe just circling back, Mark, on the burn rate point, while we do think it will be broadly 8% for the year as a whole, the pattern between Q3 and Q4 will depend a bit on the pass-through activity, in particular, that COVID study. So at this point, it's ramping well. So it may well be that we see that burn a bit faster in Q3 than in Q4. So you might see a slightly better burn rate in the nearer term, Q3 versus Q4, but let's see how that evolves. So hopefully, that's helpful, Charles.

Steven A. Cutler, CEO

Charles, I didn't address your other question about book-to-bill. We expect our book-to-bill ratio to be similar to what we achieved this quarter, despite the ongoing increase in cancellations. We have strong opportunities in our pipeline that we believe are both actionable and substantial. Therefore, we think achieving a similar book-to-bill ratio is definitely possible.

Barry Balfe, COO

And just to underline that, Charles, yes, look, we've assumed roughly a 1x book-to-bill over the balance of the year, which does reflect elevated cancels continuing through that period as well. And that's reflected in the guide that we've put out.

Operator, Operator

Next question is from Casey Woodring from JPMorgan.

Sebastian L. Sandler, Analyst

This is Sebastian Sandler on for Casey. So you called out licensing activity among large pharma in your prepared remarks. In terms of your operations in China, given some of the recent sizable pharma licensing deals with Chinese biotechs you've seen since last quarter, can you just walk us through ICON's role in these types of deals and how you see this dynamic playing out for ICON? Do you think Chinese biotechs will rely primarily on Chinese CROs, or does pharma acquire these assets and run the remaining trials through ICON? And then lastly, what percentage of your revenue is coming from China now? I think in the past, you've called out China not being a large part of the business. So I was just wondering how this has trended in recent times.

Steven A. Cutler, CEO

You've asked a couple of questions, so let me address them. First, the revenue from China is roughly 3%, which is low single digits. We currently have around 1,200 employees in China, and it's one of our strongest operations with excellent staff and solid connections in the Chinese biotech industry. There's significant activity happening in China; about one-third of new clinical trial starts globally are occurring there. The Chinese government is heavily investing in biotech, and we have many U.S. customers who are leveraging portfolios, new compounds, and licensing opportunities from Chinese firms. We are fortunate to collaborate with these companies to develop some of these drugs, which we see as a medium to long-term growth driver for our business. We believe China will be a vital source of innovation and new compounds over the next 3 to 5 years. This is a gradual process, but the Chinese government is prioritizing their pharmaceutical and biotech sectors, supporting their companies. While these firms use local CROs for trials within China, for international studies in Europe and the U.S., they are seeking partnerships with organizations like ours, ICON. We have a robust business development team in China that enables us to make these connections and expand our business, so I'm optimistic about the long-term prospects in China, even if this is not a short-term venture.

Operator, Operator

Next question is from Michael Ryskin from Bank of America.

Michael Leonidovich Ryskin, Analyst

I have a significant question and a quick clarification. Regarding the competitive environment you mentioned, could you elaborate on how you see it evolving? Specifically, where are you noticing the most competition? Are the larger companies presenting more challenges, or do you find that some of the smaller niche players are where the competition is most intense? How has this landscape changed over the last three to six months? Additionally, is there a way to break this down by therapeutic area or customer class? The other thing I wanted to ask is about the cost controls you implemented earlier this year. You’ve maintained your EPS projections and shared some insights on margins related to costs. Could you provide an update on how that’s progressing and how you're planning to leverage the cost side of the business as the year continues, especially if you see improvements in bookings?

Steven A. Cutler, CEO

I’ll address the second part of your question, and then Barry can discuss the competitive landscape in large pharma and biotech. We have made significant progress with our cost controls and continue to enhance our efficiency in this area. We are recognized in the industry for effectively managing costs, and our team has done an outstanding job, reducing our SG&A by approximately $9 million compared to last year. We are committed to this focus. The AI and technology we've implemented, including the bots handling more routine tasks, have proven effective in lowering our SG&A costs and improving our overall efficiency. As Barry mentioned, this is crucial for us to remain competitive, especially when dealing with larger customers and biotech firms. It also strengthens our partnerships and allows us to compete effectively. I’m very satisfied with our cost management, though we acknowledge there is more work ahead. We are continually optimizing our workforce and supporting our employees with new technology and AI, which is essential to our success. Barry, would you like to share insights on the competitive environment?

Barry Balfe, COO

Yes. And the two, honestly, are linked. I mean, the teams really have done an excellent efficiency over the course of the year, productivity and utilization of on a broad basis right across the company on a year-over-year basis. That doesn't just help us with cost controls. That also helps us to get these studies delivered for customers. So on the competitive environment, I guess we're still ICON. We're happy to compete with anybody. And by and large, we do. But particularly in the pharma space, I think you're probably in the right neighborhood. These are large, global, diverse partnerships across broad portfolios of different therapeutic modalities we do tend to run into the more established players more and more. I guess it's a harder market for others to compete in. That’s somewhat more diversified in the biotech space, particularly at the earlier phase biotech end of the market. As I say, some of the larger biotechs pushing into the midsized space, they start to become more like portfolio accounts with multiple studies, governance, and oversight layers, etc. So probably a slightly different dynamic across those two market segments, but with a bias towards larger, more global, and more diversified competitors.

Operator, Operator

We have one more question, and this is from Rob Cottrell from Cleveland Research.

Rob Cottrell, Analyst

Can you discuss the medium-term revenue and booking outlook regarding elevated near-term pass-throughs and increased price intensity? Are these factors offsetting each other, or does one have a greater impact on future bookings? Additionally, could you provide an update on how these factors are influencing the quarterly booking and backlog numbers for the second quarter?

Kate Haven, Presenter

Sorry, Rob, we missed your second question, but would you like to address the first part regarding the medium-term pass-through?

Steven A. Cutler, CEO

I can start with the first part, and Nigel may add to Barry on the second. I don’t really see the higher pass-throughs and price competition as offsetting factors. Price competition exists primarily around direct fees, which generates our revenue margins, while pass-throughs typically carry no margins and do what they do. Customers don’t generally request reductions in those areas. The increases we discussed, whether related to vaccine studies or metabolism studies on obesity, do help our top line but do not provide any margin for us. Therefore, I view them as separate from price competition, which mainly centers around direct fees. I hope this gives you some insight into our perspective on price competition, which could potentially hurt our margins. However, as Barry mentioned earlier, we have developed some creative and innovative strategies to conduct these studies without significantly impacting our margins. This allows us to remain competitive on price while preserving our margins as much as possible, and our team has been quite successful in achieving this so far.

Barry Balfe, COO

Yes, we definitely recognize that distinction, Steve. Regarding bookings, pass-throughs are simply part of the gross wins; for example, with the Citi award, it includes both direct fees and pass-throughs. There isn't a specific factor affecting this, except for the general observation that pass-throughs are increasingly contributing to what we're observing. We also discussed the rise in cancellations in Q2 and the likelihood of this trend continuing as a factor affecting the overall book-to-bill ratio. There isn’t anything specific to highlight about future patterns with pass-throughs. Our focus was more on how the increase in pass-throughs is influencing the change in our revenue guidance from April to the current period.

Operator, Operator

Thank you. There are no further questions. I will hand back to the speakers for any closing comments.

Steven A. Cutler, CEO

Thank you, operator. As we navigate current conditions, we're pleased with the progress we made in quarter 2 and remain focused on capitalizing on the opportunities we have in front of us. We thank you all for joining the call and for your support in ICON. Good afternoon.

Operator, Operator

Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect.