Earnings Call Transcript - ICLR Q3 2021

Operator, Operator

Good day, everyone. Thank you for joining us for this call regarding the quarter that ended on September 30, 2021. With us today are our CEO, Dr. Steve Cutler, and our CFO, Mr. Brendan Brennan. I want to mention that this call is being webcast, and slides are available for download on our website to accompany our discussion. Some statements made during the call will be forward-looking and based on our management's expectations and current information, including economic and industry conditions. Actual results may differ significantly from these forward-looking statements due to the risks and uncertainties associated with our business. We want to remind everyone that these statements are not guarantees of future performance and are relevant only as of the date made. We are not obligated to update any forward-looking statements based on new information or future events. More details about the risks and uncertainties related to these statements can be found in the SEC reports filed by our company. This presentation includes selected non-GAAP financial measures which Steve and Brendan will refer to in their comments. For the most comparable GAAP financial measures, please check the press release titled condensed consolidated statements of operations. You can also find reconciliations of non-GAAP financial measures to GAAP measures in the appendix of the earnings presentation. To aid investors and analysts in comparing year-over-year performance for the merged business, we have provided combined information that includes financial data from both ICON Plc and PRA Health Sciences for revenue, adjusted EBITDA, and other metrics as if the merger had occurred on January 1, 2020, with suitable adjustments to the current year presentation. These financials consist of a straightforward addition of the historical adjusted financials of both companies. These combined financials are not meant to serve as pro forma statements prepared in line with GAAP or Regulation S-X. While non-GAAP financial measures are not better than or a replacement for the comparable GAAP measures, we believe that certain non-GAAP information provides more value to investors for historical comparisons. I will now turn the call over to our CFO, Mr. Brendan Brennan.

Brendan Brennan, CFO

Thank you, Kate. In quarter three, ICON achieved gross business wins of $2.72 billion and recorded $346 million worth of cancellations. Consequently, net awards in the quarter were a record $2.37 billion, resulting in a net book-to-bill of 1.27x, and a trading 12-month net book-to-bill of 1.3x. At the beginning of the third quarter, consolidated backlog on a 606 basis was $18.1 billion. This backlog figure accounts for legacy ICON backlog at the end of quarter 2, along with total backlog from PRA adjusted to include certain adjustments in keeping with ICON's reported backlog and methodology. With the addition of the new awards in quarter 3, our backlog grew to a record $18.6 billion, representing an increase of 3% from closing the acquisition. Included in the press release and the earnings slides, you will note that we included a reconciliation of non-GAAP measures. Adjusted EBITDA excludes stock compensation expense, restructuring costs, foreign currency gains and losses, amortization, and transaction and integration-related costs and their respective tax benefits. Adjusted revenue in quarter 3 was $1.870 billion. This represents a year-on-year increase of 167% or 165% on a constant currency basis. On a combined company basis, adjusted revenue increased 25% from the comparable period last year. One of the key strengths of the new ICON is our increased customer diversification and balanced representation across customer segments. In the third quarter, our top customer represented 8.3% of revenue, and our top 5 customers represented 28.2% of revenue. Our top 10 represented 43.3%, while our top 25 represented 64.7%. Adjusted gross margin for quarter 3 was 27.9%, and adjusted SG&A expense was 10.5% of revenue in the quarter. On a combined company basis, adjusted EBITDA was $325 million in the quarter or 17.4% of revenue. In the comparable period last year, adjusted EBITDA was $266 million or 17.7% of revenue on a combined company basis, representing a year-on-year increase of 22%. Adjusted operating income for quarter 3 was $300.1 million, a margin of 16%. The adjusted net interest expense was $46.5 million for the quarter, and the adjusted effective tax rate was 17% for the quarter. We continue to expect that the effective tax rate for the fourth quarter will be 17%. We continue to work through the expected changes on a go-forward basis to our tax position, given the recently announced OECD global tax deal and expected increase to the minimum corporate tax rate in Ireland. We plan to give an update on the new target tax rate when we issue 2022 guidance, at which point we will have more clarity on the anticipated U.S. tax changes that have not yet been finalized. Adjusted net income attributable to the group for the quarter was $209.8 million, a margin of 11.2%, equating to diluted earnings per share of $2.55. During the quarter, the company recorded $149.8 million of transaction and integration-related costs. U.S. GAAP income from operations amounted to $5.1 million or 0.3% of revenue. U.S. GAAP net loss attributable to the group was $94.3 million or a loss of $1.17 per share compared to $1.72 per share for the equivalent prior year period. Net accounts receivable was $540 million at the 30th of September, 2021. This compares to a net accounts receivable of $417.4 million at 30th of June 2021. On a comparable basis, days sales outstanding were 26 days at September 30, 2021. This compares with 43 days at the end of June 2021 and 64 days at the end of September 2020. Cash generation from operating activities in the quarter was $299 million. At September 30, 2021, the company had a net cash balance of $1.01 billion and debt of $5.93 billion, leaving a net debt position of $4.92 billion. This compares to net cash of $707.2 million at September 30, 2021, and net cash of $359.8 million at September 30, 2020. Capital expenditure during the quarter was $24.4 million. We ended quarter 3 with a debt to trailing 12-month adjusted EBITDA, including synergies below 4x. The priority of capital deployment remains on debt paydown in the near term. Given our strong cash flow generation, our stated goal and expectations to reach 2.5x adjusted EBITDA by the end of 2023 remain unchanged.

Steve Cutler, CEO

Thank you, Brendan, and good day, everybody. Today, we're delighted to recognize another milestone in ICON's acquisition of PRA Health Sciences by reporting our first quarter as a combined organization. The overall environment in clinical development continues to be robust with strong demand seen across large pharma, small and midsized companies, biotech, and medical device companies throughout the quarter. RFP growth has been solid, and we continue to be encouraged by the healthy level of biotech funding year-to-date. I'm proud to highlight that our team at ICON has continued to aid in the advancement of several new drug approvals this quarter, which now total 27 year-to-date. As seen by our strong performance in the quarter, our customers are continuing to turn to ICON as their trusted partner in clinical development. The response from customers to the merger has been excellent, leading to increased engagement with new and existing customers across all segments and delivery models. Customers are eager to understand our enhanced offering that features increased scale, innovative solutions, and broader service capabilities. We are particularly encouraged by the increased number of strategic partnership discussions that are currently ongoing across our service areas, which we expect will drive continued long-term growth for ICON. During the quarter, ICON increased net business wins to a record $2.37 billion, delivering a quarterly book-to-bill of 1.27 and growing our backlog to $18.6 billion, an increase of approximately 3% since the close of the acquisition at the start of the third quarter. The overall activity was strong across all of our operating segments. Revenues also increased 25% on a combined company basis, and our backlog burn for the quarter increased to over 10%. In addition, diversity of our customer base, one of our key strategic merits of our combination was improved in the quarter with a notable decrease in our customer concentration. I was also delighted with our cash collection efforts, which moved our DSO down to 26 days and reduced our leverage to less than 4x adjusted EBITDA, including synergies. This should allow us to reduce the interest rate on our term loan in quarter four. We are pleased with the level of new wins secured from our cross-selling initiatives across legacy organizations and are confident of the expected revenue synergies these will drive in the longer term. We have seen strength across a number of service offerings, in particular, central and specialty laboratories, imaging, our Accellacare site network, and in-home health services. We have already seen great examples of the power of our combined resources in certain segments and regions such as large pharma and Asia Pac, respectively. We are clearly displaying to customers our improved depth and breadth of talent and experience across our business. Our integration is progressing smoothly, with several key accomplishments worth highlighting. In the quarter, we completed a significant number of office integrations across several regions with a number more planned in the coming quarters. Initiatives to enable a unified employee experience are underway, including an initial phase of benefit harmonization as well as enterprise-level system planning and data center connectivity. We have united a number of teams across operational segments and global business support functions. We continue to utilize a best-of-both approach to the integration of the legacy organizations, ensuring that new ICON benefits from the wealth of experience, talent, and optimal processes from both organizations. Our priorities remain unchanged through this integration phase - a continued focus on project delivery for our customers as well as employee retention and engagement. The COVID-19 pandemic continues to present new opportunities for our industry to find ways to increase efficiencies and challenge the traditional model of clinical monitoring. The demand for our unique suite of solutions in areas such as remote and risk-based monitoring, direct-to-patient services, and Accellacare in-home services continues to remain at a high level. While new ICON has continued to contribute to the development of COVID-19 vaccines and therapies, as expected, our level of COVID-related work began to decrease as a percentage of total revenue in the quarter from quarter 2 levels as large vaccine trials wind down and treatment work increases. At the end of quarter 3, COVID-related projects represented about 5% to 7% of our total backlog, down slightly from the end of the second quarter. While there is still approximately 15% of sites that remain restricted in some capacity due to COVID across the globe, we saw this figure continue to improve over the course of the third quarter. Importantly, our customers' interest in and adoption of enhanced delivery solutions remains as high as changes brought on by the global pandemic have begun to show the value of deploying remote technologies and patient-centric services that can lead to increased efficiencies and continuity in their clinical trials. Our enhanced ability to invest in and deploy such novel remote technologies and services at scale over the next few years will open a further competitive advantage over smaller and mid-sized CROs. To that end, we have seen strong demand for our decentralized clinical trial solutions, which we believe will be the most comprehensive and integrated offering in our industry. Our unique suite of solutions integrates all of the key components needed to run a hybrid or full DCT trial from patient concierge services to wearables to a full-service technology platform. ICON's offering incorporates leading technology capabilities with the necessary operational expertise and delivery focus required to run these trials successfully. We saw evidence of significant customer interest in the quarter as ICON engaged in a number of enterprise-level partnership discussions with pharma customers, and I'm pleased to report that one of these discussions has led to a leading biopharma company selecting ICON's DCT platform as their enterprise solution across all of their decentralized trials. As the marketplace continues to evolve, we see a consistent need to offer solutions that are more patient-centric and technology-enabled to customers. The new ICON has continued to invest in talented people, technologies, and innovation internally as well as with partners to disrupt traditional product development and delivery models. Through our patient site and data strategy, we continually look for ways to reduce the burden on patients, clinicians, and sponsors, expanding access to treatment for patients while ultimately increasing the overall efficiency of clinical trial execution. In the third quarter, we expanded our partnership agreement with Deep Lens, especially software and services provider focused on improving patient recruitment in the community oncology set. Deep Lens provides sites with an artificial intelligence platform that harmonizes EHR data, unstructured data, and genomic data to enable patient matching to trial inclusion/exclusion criteria. By combining ICON's vast data resources with Deep Lens' technology and community oncology network, sponsors can readily gain access to difficult-to-reach patients that are eligible for their oncology trials. We are also getting significant interest from customers in our Sonoma tokenization tool that allows us to follow clinical trial patients on a long-term basis. Sponsors spend a large amount of their development budgets on long-term follow-up of the trial patients, and the Sonoma tool in conjunction with our Symphony data asset allows key information to be collected and utilized in a much more cost-efficient manner. Our partnership with Deep Lens and the rollout of our Sonoma patient tokenization tool are just a few examples of the many initiatives we have ongoing at ICON to offer truly differentiated solutions to our customers that drive forward our patient site and data strategy. Since the acquisition, we are continuing to refine and focus the innovation priorities with new ICON on our customers' core and needs, faster access to patients, more efficient clinical development, and diversity and inclusion in trial participation. The new ICON is well on the way to becoming the world's leading health care intelligence organization. We are committed to continuing to invest in and progress initiatives centered on these key focus areas in the industry. We're excited about the progress we're making in creating a new paradigm by bringing clinical research to patients by offering expanded capabilities and solutions to customers while also delivering significant value to shareholders. By continuing to invest in innovative technologies, talent, and novel solutions, we expect to create significant long-term shareholder value as we build on our market-leading operational capability and best-in-class global support services model. With the strong performance in the third quarter, we are increasing our 2021 outlook with revenue guidance in the range of $5.43 billion to $5.53 billion, and adjusted earnings per share guidance in the range of $9.55 to $9.75, up 1.5% and 3.8%, respectively, from the midpoint of our previous ranges. As we look forward to 2022 and beyond, we continue to expect to deliver on the long-term projections we made earlier this year at the time of the acquisition of PRA. Revenue growth in the high single digits on a combined company basis, adjusted EBITDA growth in the low teens, and EPS growth in the mid- to high teens. We've already made good progress on our synergy targets, and I'm confident that we will achieve both our cost and revenue targets of $150 million and $100 million, respectively, over the next 4 years. We plan to provide more definitive guidance on 2022 in January at the JPMorgan Healthcare Conference. In addition, we are looking forward to holding an in-person Analyst Day which we intend to schedule in March of 2022. Finally, we were delighted to be included as the only CRO in Forbes' list of the 2021 World's Best Employers. And I'd like to thank the 38,000 employees of the new ICON across the globe for all of their dedication, hard work, and commitment during the quarter. We look forward to the exciting journey ahead as we continue to build the world's leading healthcare intelligence organization.

Operator, Operator

And your first request today is from Patrick Donnelly of Citi.

Patrick Donnelly, Analyst

Steve, maybe just on kind of one of the final points you had there in terms of the synergies. Can you talk about the revenue synergies opportunities? And how the deal has been closed for a few months? You certainly sound confident in that opportunity. But as you've been out talking to customers and you kind of had the companies together, can you just talk about that opportunity set? And again, the confidence level in that number continues to move higher, I guess?

Steve Cutler, CEO

I think we have publicly stated that we expect to achieve around $100 million over approximately four years. I believe we are on track for that. We have made some initial progress. Our business development team has been actively selling in certain areas, such as our lab, which includes central and specialty labs. The legacy PRA did not have a lab, so that's a clear opportunity. We have also secured several new awards for our lab through the legacy PRA group. The imaging group has also made progress since they previously lacked that capability. Additionally, we are expanding in language services, Accellacare, the site network, and the home health network. These areas have no overlap, and we have achieved some early wins. We are optimistic about reaching that $100 million annual revenue synergy goal. While there is still work to be done, I believe our business development team and operational staff have been effective in offering these services to customers, especially in the biotech sector and to clients that legacy ICON could not reach with those services. Overall, I feel positive about our current position.

Patrick Donnelly, Analyst

You mentioned staff retention, which is always a concern with mergers, especially given the current labor market conditions. Can you share any metrics related to that? Additionally, Brendan, what can you tell us about labor costs and the impact of inflation on margins? How are you navigating these challenges as we move into 2022?

Steve Cutler, CEO

I'll let Brendan comment on the margin aspect. It's clear that the labor market, especially in North America, is currently very tight and challenging, though it's not necessarily linked to the merger. As we emerge from the pandemic, the dynamics of employment are changing, with varying unemployment rates and the shift towards remote work. We're addressing the challenges associated with this situation. Overall, employee retention has been higher than I would prefer, but it's not significantly out of sync with our competitors and customers, who acknowledge the current labor market difficulties. As with any organization, there are segments where retention is lower than desired. North America presents our most significant challenge right now, while Europe and Asia Pacific are performing well, with India also in a favorable position. It's a mixed situation, and there are always opportunities for improvement, which we are diligently pursuing. Brendan, would you like to discuss the margin?

Brendan Brennan, CFO

As we move through this year, you may have noticed in my prepared comments that the gross margin for the upcoming quarter is nearing 27.9%. A lot of the factors influencing this are related to our ongoing vaccine work. Moreover, the staff retention dynamics, as Steve mentioned, are likely having a larger impact as we approach Q4. Overall, I believe our gross margin trend will remain strong as we transition from Q3 to Q4. We anticipate that as the volume of pass-throughs associated with vaccine work declines, we will make good progress in terms of gross margin on a quarterly basis. This will serve as a helpful benchmark and indication for our gross margin outlook for 2022. We expect continued margin improvement as we move from Q3 to Q4, and this will be an important figure to consider as we address cost pressures heading into 2022.

Operator, Operator

Your next question is from the line of John Kreger of William Blair.

John Kreger, Analyst

Steve, just to follow up on a couple of your comments. I think you indicated good uptake from larger, smaller and device clients. Can you give us a sense about kind of the relative growth you're seeing across those 3 buckets?

Steve Cutler, CEO

Device remains a relatively small part of our portfolio, though it is growing. We had a strong quarter with our large pharma customers, achieving significant wins. We're also experiencing solid growth in the RFP area. In the biotech sector, we've seen a notable increase in revenue year-to-date, with good performance in new awards and RFPs. Overall, as I mentioned earlier, the environment is very strong and robust. It's difficult to highlight any specific area, as we are seeing widespread positivity in the RFP process, award outcomes, and this is contributing positively to our revenues.

John Kreger, Analyst

And maybe another way to kind of cut that same question. If you think about your awards in the quarter, maybe your new trial starts, can you give us a sense about the uptake of some of these newer tools that you've got good capabilities and now like DCT or home-based or site networks? Just curious how broadly those are being adopted in your newer wins.

Steve Cutler, CEO

Yes, it's interesting. I don't think there are many trials that we start these days that don't have a component of a decentralized trial. Now there are very few that are completely decentralized. I don't want to overstate that. But there are very few that don't have some sort of component, whether it be a risk-based monitoring component, a wearables component, or a home health component. So the customers are increasingly asking us to include these sorts of decentralized type components. You can sense another one that's proven very helpful in the vaccine trial where you have many thousands of patients and many protocol amendments that all need to be approved by the patients. And so having an electronic copy, an electronic version has been extremely helpful in that respect. So the uptake is, I would say, very good in terms of individual components. But I don't want to overstate it in terms of the completely decentralized trial. They're still relatively rare. We do some of them, and we have some of them, and we're working well with some of them. But they're not, I wouldn't say anywhere near as common as perhaps, as I say, the normal approach, which is a more hybrid version, I guess.

Operator, Operator

Your next question is from the line of Elizabeth Anderson from Evercore.

Elizabeth Anderson, Analyst

Could you explain how we should consider the transition from vaccine-based trials to therapy-based trials as we think about the backlog turning into revenue, especially since you mentioned that COVID projects make up 5% to 7% of that backlog?

Steve Cutler, CEO

We've previously discussed the impact of COVID on our business, and this quarter, it represents about 11% of our revenue. Looking ahead, we anticipate a decline in COVID-related work, primarily focused on vaccines. However, we are fortunate to see growth in non-COVID-related work. I want to emphasize that we are not facing a sudden drop-off; COVID work will continue to play a significant role in our backlog, even though its contribution to revenue is decreasing. I expect COVID to become more endemic, leading to an increase in treatment trials, which have been a growing part of our successes recently. The era of large-scale vaccine trials is likely coming to an end, though there may still be opportunities for second-generation vaccines or new variants. Currently, our focus is shifting towards treatment work, which aligns with how our backlog is changing, and our revenue will reflect this shift. While COVID-related work is decreasing, it will remain a vital component of our revenue for at least the next 12 to 24 months.

Elizabeth Anderson, Analyst

And maybe just to jump on the back of John's question. When you talked about some of the elements of decentralized trials, I mean can you generalize and say sort of like do people kind of dip their toes in with what you said like e-consent or some of those things and then generally expand? Is that kind of the general momentum? I guess I'm just trying to figure out how to think about that ramping opportunity maybe within clients overall?

Steve Cutler, CEO

They generally don't expand within the trial once it's been planned, which typically includes elements like wearable consent, risk-based monitoring, or home health. However, during the pandemic, we had to pivot and adapt, and we've seen some changes. Now that we're moving into a more stable phase, the new trials we're seeing tend to include one or more of those components. It might involve e-consent along with wearables and risk assessments, but it varies. Usually, those elements are established for the trial, and they don’t expand further. Yet, we're noticing an increase in interest for these components because we can demonstrate that they improve efficiency in conducting trials. The pressure to manage resources makes hiring and getting personnel more challenging, and we have significant work ahead. The shift towards risk-based and remote monitoring is enhancing our efficiency with these resources. Hence, there's a strong incentive for us to pursue this direction and we're observing growing customer interest in this type of work. I expect that there will be more trials incorporating decentralized components. However, I would be cautious in predicting that in two years, everything will be fully decentralized. This transition will be gradual and take many years, and we might not reach complete decentralization. Currently, around 1% or 2% of trials are fully decentralized. In terms of new trials, about 75% to 80% of them involve some degree of decentralization, and I anticipate that the number of components in these trials will continue to grow as we validate the model and showcase its efficiency. Additionally, as regulators conduct audits and approvals, this trend will likely continue.

Operator, Operator

Your next question is from the line of Tycho Peterson of JPMorgan.

Tycho Peterson, Analyst

It's Tycho, actually. A couple of questions. Congrats. It sounds like the integration is going fine so far. Can you give us any color on the PRA numbers? Obviously, they had a blowout second quarter. And I'm really just curious if the guidance increase is more tied to the PRA side versus ICON or just how it's been performing overall.

Steve Cutler, CEO

I'm sorry to let you down, but I want to clarify that we're the new icon and will be presenting our numbers accordingly moving forward. However, I must emphasize that we experienced solid growth in both organizations. The year-over-year growth we've discussed has been quite similar across both entities. We've always stated that we were two organizations building from a strong foundation, and the merger has proven to be beneficial. Thus, we are very pleased with the progress we've made so far.

Tycho Peterson, Analyst

And the step up in backlog burn, I mean, sequentially, 8.7% to 10.4%. Is that just a function of the blended combination or the COVID work rolling off? Or can you maybe just touch on the backlog burn?

Brendan Brennan, CFO

Yes, Mark, I'll address that. It is more about the integration of the organizations, and we are pleased to see it exceed 10%. We are very satisfied with the combined backlog, which was 18.1 at the beginning of the quarter and 18.6 at the end. This reflects the pass-through elements incorporated into the historical PRA backlog, along with the addition of the entire piece to the historical ICON backlog. So yes, that is certainly the range we have in mind.

Tycho Peterson, Analyst

And the last one for Steve. It sounds like you're flagging some early wins here, which is great to see. Are there particular things that your customers are honing in on? I mean one of the things you've talked about in the past is accelerating patient recruitment with Accella, the care network, and maybe that can even step up a little bit with the combined combination. So can you maybe just touch on that aspect in particular around patient recruitment?

Steve Cutler, CEO

Tycho, I mean we are seeing a lot of interest in the patient recruitment, particularly around the Accellacare site network. That business has been moving nicely for us. It played a major role in our vaccine work. And I think on the back of that, we're getting some good publicity, good verification validation of that model. A number of aspects in I talked about the revenue synergies, the labs and the imaging and patient, as I say, the home health is also stepping up. There's a lot of interest in that around, particularly around the decentralized trial basis. So the early wins are really in those areas. They do tend to be focused around the efficiency aspect of the trials of home health of an ability to do risk-based monitoring. We're talking to a big customer around taking over a large region around their monitoring area and applying some of our data analytics to their monitoring process and an ability to identify how to monitor more effectively, more efficiently, quite frankly. So the scale that the organization now brings to our customers is really starting to play out nicely in terms of the discussions we have for new business. We really are able to deploy a depth and a breadth of scaled resources that allows us to provide a very efficient or much more efficient and effective service. So that's where I'm encouraged on the business wins.

Tycho Peterson, Analyst

And last one, are you finding any more doors opening with all the kind of consolidation in the background? Are you starting to kind of see some of your customers shift away from some of the combined combinations?

Steve Cutler, CEO

I didn't quite get the question.

Tycho Peterson, Analyst

A question on all the consolidation in the CRO space. And is that starting to kind of drive more discussions to your way?

Steve Cutler, CEO

I hesitate to say this, Tycho, but I think we're not negatively impacted by the consolidation we're experiencing. The backlog has increased since we completed the acquisition, and RFPs have increased by double digits compared to last year. We had a strong quarter, not just in terms of new business wins, but also in our incoming RFP numbers. My customers haven't indicated any concerns about the industry or the ongoing consolidation. Therefore, I’m not overly worried. We're concentrating on our efforts, and we're not hearing any issues from our customers. The data also suggests that our customers are not worried either.

Operator, Operator

Your next question is from the line of Eric Coldwell from Baird.

Eric Coldwell, Analyst

I appreciate it. My question is a bit of a review regarding patient identification, enrollment, and retention over the last 18 to 20 months in the U.S. since the national emergency was declared. I'm also interested in the global perspective. With the waves of lockdowns and reopenings, how have you seen patient enrollment and retention evolve during this time? I'm asking because there are conflicting views in the market right now. One perspective is that as the world opens up, patients will be harder to identify since they'll return to work and daily activities. The opposite view suggests that sites will be open, allowing people to move around more freely. I'm curious about how you're observing these trends as COVID affects market openings and closings.

Steve Cutler, CEO

I think it's a bit early to fully address that question as we emerge from the pandemic, and hopefully we are moving past it without returning to lockdowns. When the pandemic struck, our enrollment in non-COVID trials significantly declined, which isn’t surprising. Fortunately, we later enrolled in some large COVID studies, which helped to offset that decline and even exceeded our patient enrollment expectations. As we progress further, I align more with the view that as society reopens, patients will be more mobile and able to visit trial sites. We mentioned that around 15% of sites are still affected, and I don’t expect that number to change significantly in the coming year. There will still be residual impacts as we transition to a more endemic phase of COVID. However, I do see a notable increase in enrollment in our non-COVID trials as site accessibility improves and economies reopen in various regions. I strongly believe that this upward trend will continue. Additionally, with the integration of new technologies and data opportunities, we expect to drive enrollment further. Our tokenization efforts have garnered significant interest for long-term patient follow-up, and we are excited about the possibility of tracking their well-being beyond just clinical trials. By implementing these initiatives, we anticipate a rise in trial participation. We are also committed to promoting clinical research as a care option within our Veradigm and Deep Lens networks, facilitating patient access to trials and presenting them as viable alternatives to standard treatments. We aim to expand the pool of patients exposed to clinical trial opportunities, which we believe will be a key driver for our long-term growth.

Eric Coldwell, Analyst

Brendan, I understand there is some hesitation to share extensive details on pass-throughs, as they can be difficult to predict and quite variable in terms of revenue and gross margin impact. I'm interested if you could provide any insight, even if more qualitative, on how pass-through bookings are currently coming in or what trends you observe. You mentioned that the COVID-related pass-throughs will decrease as the year progresses. When considering the overall work mix or pipeline, are you noticing any significant changes in pass-throughs compared to the pre-COVID period? Additionally, if you could offer more context on these statistics or your outlook as we approach 2022 and beyond, that would be very beneficial.

Brendan Brennan, CFO

I believe the question is complex. The vaccine studies we conducted have led to a significantly larger portion of the pass-through through the business in the first half of this year, and to some extent, in the latter part of last year. We are beginning to see a reduction in the COVID-related work now, which means that the backlog and pass-through elements of the backlog are likely returning to the levels seen before the pandemic and before the vaccines. As we approach Q4, the revenue run rate from Q3 to Q4 will provide a good indication of what our revenue looks like following the major vaccine studies. This aligns with my earlier point about margins being more indicative of normalized levels of pass-through in Q4, which is also true for revenue. We will provide further details as we release our guidance for 2022. Steve mentioned that we remain optimistic about achieving high single-digit revenue growth as we move into next year. However, I expect the fluctuations you mentioned to mostly stabilize by Q4, allowing us to see a more consistent quarterly pattern moving forward.

Eric Coldwell, Analyst

Last one for me, should be pretty easy. Do you have or have you provided a long-term DSO goal on a combined basis? And just a quick reminder to save us from having to track it down. What is the term loan interest rate drop in Q4 if you maintain this leverage below 4x post-synergy?

Brendan Brennan, CFO

On the DSO, no, we haven't got a target there yet. We'll have to think about it. I'm just really pleased with the fact that how good my colleagues in legacy PRA are doing their cash collections. So that's been an education to me and something that we're looking to pursue across the organization. So certainly, we want to bring their skill sets and our best of both mentality to the whole company, and hopefully, we continue to see that DSO target fall from where we are, but I'm delighted obviously with the number we have in the quarter. On the interest rate, it will be about 25 basis points, Eric, on that interest rate as we go into Q1. I think we're coming into an inflationary environment. So you might see interest rates tick up on the bottom line. But certainly in the immediate term, it's about 4%.

Operator, Operator

Your next question is from the line of Dave Windley from Jefferies.

Dave Windley, Analyst

But I believe, Steve, at the end of your prepared remarks, you made a comment about being enthusiastic about your long-term guidance construct. And Brendan, the answer you just gave, Eric. You kind of touched on this, but I'm wondering if you believe that, that long-term construct specifically applies to '22.

Steve Cutler, CEO

Yes, I believe so, Dave. We've mentioned that we expect revenue growth in the high single digits for 2022. We anticipate EBITDA and EPS to grow in the teens beyond that. Overall, we feel that 2022 will be a strong year for us, and we are positioning ourselves well to achieve success in terms of burn rate and new wins.

Dave Windley, Analyst

A separate topic and following up on the decentralized trial commentary. I guess I'm wondering, as you move into that and you see, as you mentioned, a high percentage of new trial starts that include something. I'm curious on two points. One, is there a common theme in that something? Or is it kind of all across the board? And then two, as you are pricing projects or maybe more appropriately the RFPs that come through that ask for maybe some blend of traditional and DCT type approaches, is that revenue-enhancing? Does the value of that project grow versus just a traditional approach? Or do the DCT elements actually drive an efficiency into that, that shrinks the value of a project like-for-like?

Steve Cutler, CEO

Let me address the first question about common themes. I don't have the specific data available right now. However, I believe there are certain elements of decentralized trials that we generally apply as a product. For instance, the risk-based monitoring approach and remote monitoring are components we include in nearly every trial we propose. It might not encompass everything, and certain regions may have restrictions regarding access to electronic health records, particularly in Europe. That said, risk-based monitoring is the most common element included. Wearables are a bit less frequent but still often included. We are very enthusiastic about e-consent based on our experience with vaccine trials. Overall, it's a bit variable, and few trials integrate all of these elements. Remote monitoring and risk-based monitoring are the primary components we see. Regarding how this impacts our pricing, I would say the effect is minimal right now, but it is contributing to our efficiency, which enhances margins. The impact on revenue is modest at the moment due to the hybrid approach. Even in trials where we apply risk-based monitoring, it's uncommon for the entire trial to utilize this or be fully remote. We believe this is enhancing our margins without significantly increasing revenues, which is acceptable because it allows our customers to conduct more trials within their budgets. Overall, it’s a benefit for us and our clients, enabling us to be more effective and efficient, assisting them in achieving their trial goals. We are not concerned about any potential revenue impacts from becoming more efficient and effective.

Operator, Operator

Your next question is from the line of Luke Sergott from Barclays.

Luke Sergott, Analyst

I'm going to revisit Dave's initial question regarding 2022. I understand you’re not providing guidance, but you mentioned being comfortable with high single-digit growth. IQVIA is indicating a 2% to 3% COVID headwind, which suggests a softer landing. When you refer to high single-digit growth, does that exclude the COVID headwind, or is it included, indicating a growth range of about 4% to 5%? Any context or framework you can provide would be helpful, as this is the main question we're hearing from investors right now.

Steve Cutler, CEO

I'll let Brendan address that as well. We're discussing mid- to high single digits, which is what we've previously stated. This includes a ramp down from the COVID work, particularly the large vaccine projects. As Brendan mentioned, changes in component with pass-throughs will likely enhance margins, even if there is a slight revenue headwind. While I acknowledge the revenue challenge from reduced COVID work, the qualitative guidance we're providing in the mid- to high range accounts for any expected headwinds. We anticipate ongoing work, especially with treatment protocols coming in. They may not have the same scale or impact on overall revenues, but there is still substantial work to be done. This will be a significant aspect of our operations for at least the next two years as we move forward.

Brendan Brennan, CFO

Yes, I agree with you, Luke. You're correct that there was a significant pass-through element in 2021 that we will not experience again. I believe we will revert to a more typical pre-pandemic pass-through in 2022, which will affect year-over-year comparisons. However, the direct fee and margin revenue that we consistently emphasize, particularly regarding our EBITDA profile, will remain strong year-over-year. Our focus is on ensuring we achieve the double-digit growth figures we mentioned earlier.

Luke Sergott, Analyst

Can you provide an update on demand and pricing for FSP, considering PRA is a large business and you also have significant operations? How has the demand been progressing and are you able to address any wage inflation?

Steve Cutler, CEO

It continues to be a significant part of our business. It's growing nicely on the top line as are the other more full-service components of our business, Luke. So we're happy with the progress that business is making. In terms of passing on, we've been in significant negotiations with a number of customers around some of those challenges. And let's be honest, customers have been accommodating, I would say, generally. Customers don't always like to hear about labor challenges and wage inflation that's beyond what we expect in terms of normal inflation, but they've been, I would say, receptive to those sorts of discussions. And we've made progress on a number of fronts in that. So I'm encouraged by our customers' understanding of those sort of challenges and our ability to mitigate any margin pressure that we have in that business. But there's other ways, lots of work to do in that space, and it remains one that we continue to need to work harder.

Operator, Operator

Your next question is from the line of Jack Meehan from Nephron Research.

Jack Meehan, Analyst

I was hoping maybe just a little color on what cost synergies may have already been recognized in the first quarter out of the gate. I look at the pro forma cash EBITDA was up 7% sequentially versus the pro forma revenue, which was down 2.5% sequentially. So just maybe talk a little bit through the dynamic there would be helpful.

Steve Cutler, CEO

Yes, we're pleased with the progress we're making. We are effective cost controllers within the ICON organization, and this will be a strength as we transition into the new ICON, especially in Q4 and into 2022. The impact in the first quarter was not significant; it involved mid-single digits in millions of dollars regarding the actual synergy benefit. We have good clarity on reaching the $150 million target we previously mentioned, and we are actively addressing many items that will support our progress in how this impacts our profit and loss statement in the coming years. For now, I encourage everyone to consider this in the same way we communicated during the transaction. When we provide guidance for Q1, we might be able to share more details on the timing and its effects on our overall cost structure.

Jack Meehan, Analyst

And then another follow-up for you, Brendan. You referenced some of the changes in tax regulations globally. I know you're going to give us more thoughts in 2022, but just was curious your philosophy, just any high-level thoughts as to what this can mean up, down versus the prior forecast you talked about, any type of magnitude you're thinking?

Brendan Brennan, CFO

There are many factors at play right now, Jack, particularly regarding what is happening in Congress in the United States, which will certainly have a significant effect. There has been discussion about various tax rates, and while our corporate tax rates in the U.S. started at a higher level, I believe they will decrease. This will also affect the GILTI rates, as you are aware, given the amount of work you've done in the U.S. Another major factor influencing this situation is the OECD rules concerning the new 15% minimum global tax rate. Previously, the Irish corporate tax rate was 12.5%, so there is a 2.5% difference to consider when comparing our historic tax rates to that base Irish rate. This is part of the equation, but not the entirety of it. We mentioned that we would provide more insights in January because we expect to have clearer visibility on what may unfold, especially with regard to U.S. tax legislation. I think it is likely that our rates will increase slightly, but they will still remain quite competitive in comparison to our peers.

Operator, Operator

And your last question is from the line of Donald Hooker from KeyBanc Capital Market.

Donald Hooker, Analyst

I have a question regarding your previous remark about a major biopharma company choosing the ICON DCT platform as its enterprise solution. Could you clarify if this is a technology sale, where you provide a set of technologies for their clinical trials, or if it is part of a comprehensive solution within your full-service offerings? Alternatively, is it a stand-alone technology sale?

Steve Cutler, CEO

It's not a stand-alone technology sale, Donald. But it does involve services as well. But in a sense, essentially, it's a hybrid. I mean we will be providing the platform and services, but they will be able to use the platform for their own internal trials as well. So that's the way it's working out at the moment. We're very encouraged by that as an endorsement of our platform. And this is a very significant organization. And so having their involvement with it, we think is going to be a real positive for us from a platform and a platform development point of view, but it does involve services as well as technology.

Donald Hooker, Analyst

But just to be clear, you mentioned they might use your like e-consent tools, for instance, or monitoring tools for studies that they're not outsourcing to you as well, right?

Steve Cutler, CEO

That option is available to them should they wish to take.

Operator, Operator

There are no further questions. Please continue.

Steve Cutler, CEO

Thank you, operator. Well, thank you, everyone, for listening in today. We're pleased to have delivered another strong quarter at our first as the new ICON. So we look forward to further progressing our integration and building the world's leading health care intelligence organization, continuing to help our customers accelerate the development of drugs and devices. And finally, I want to take this opportunity again to recognize our entire 38,000 people around the globe for their commitment and efforts over the past quarter. So thank you all, and have a good rest of the day.

Operator, Operator

And that concludes the presentation today. Thank you for participating. You may disconnect.