Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the IQVIA Second Quarter 2021 Earnings Conference Call. As a reminder, this call is being recorded. I would now like to turn the call over to Nick Childs, Senior Vice President, Investor Relations and Corporate Communications. Mr. Childs, please begin your conference.

Thank you. Good morning, everyone. Thank you for joining our second quarter 2021 earnings call. With me today are Ari Bousbib, Chairman and Chief Executive Officer; Ron Bruehlman, Executive Vice President and Chief Financial Officer; Eric Sherbet, Executive Vice President and General Counsel; Mike Fedock, Senior Vice President, Financial Planning and Analysis; and Brian Stengel, Associate Director, Investor Relations. Today, we will be referencing a presentation that will be visible during this call for those of you on our webcast. This presentation will also be available following this call in the Events and Presentations section of our IQVIA Investor Relations website. Before we begin, I would like to caution listeners that certain information discussed by management during this conference call will include forward-looking statements. Actual results could differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company's business, which are discussed in the company's filings with the Securities and Exchange Commission, including our annual report on Form 10-K and subsequent SEC filings. In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in the press release and conference call presentation. I would now like to turn the call over to our Chairman and CEO, Ari Bousbib.

Thank you, Nick, and good morning, everyone. Thank you for joining today. This morning, we reported second quarter results with outstanding double-digit growth in all key financial metrics. Following the strong performance, we've once again raised our guidance for the year. As you recall, we're tracking ahead of our pre-COVID V 22 financial plan. The health of the life sciences industry continues to strengthen. New clinical trial starts are trending well above recent historical figures. They are up 22% versus 2020 levels and up 7% compared to 2019. The pipeline of late-stage molecules continues to expand to record numbers, indicating a large backlog of potential launches, some of which have been pushed to the right during the pandemic last year. And finally, biotech funding continues to increase significantly. According to the National Venture Capital Association, funding totaled $25 billion in the first half of 2021. This represents an increase of 64% compared to the first half of 2020, which itself was already a record first half year. During 2020, the pandemic disrupted execution of clinical trials and businesses requiring face-to-face interactions. But at the same time, it accelerated change in the industry. It created new demand for new services. And IQVIA is uniquely positioned to deliver based on the differentiated capabilities such as data analytics, advanced technology offerings, and of course, our deep scientific and therapeutic expertise, all of which capabilities were highlighted to our clients during the pandemic. We are confident that these capabilities will continue to drive strong demand for both our clinical and commercial offerings in 2021 into 2022 and beyond. As we begin thinking about our plans during 2022, I am pleased to announce that we will be hosting an investor conference in New York City on November 16, where we will update you on our V 22 progress and share our plans for the next phase in IQVIA's evolution. Nick and the team will, of course, provide more details once all the logistics are set and available. With that, let's review the second quarter in more detail. Revenue for the second quarter grew 36.4% on a reported basis and 33.2% at constant currency. This represents growth that was $176 million above the midpoint of our guidance range. About 40% of this beat came from strong operational performance, and the remainder was from higher pass-throughs. Second quarter adjusted EBITDA grew 49.5%, reflecting the revenue growth drop-through as well as productivity measures. The $20 million beat above the midpoint of our guidance range was entirely due to the stronger operational performance. Second quarter adjusted diluted EPS of $2.13 grew 80.5%. That was 8% above the midpoint of our guidance range and was driven entirely by the adjusted EBITDA drop-through. Let me provide a little more update and color on the business during the quarter. Starting with our real-world evidence business. It once again performed well, strengthening its leadership position. This included a recent win with a top 20 pharma client to develop an ophthalmology evidence platform for upcoming product launches. The platform integrates primary and secondary data and layers on AI/ML tools to monitor patient safety in real time. This will allow this client to add new products and indications to the platform without initiating new studies. This, of course, will save critical amounts of time and money while also reducing the burden on patients and sites. Turning to our commercial technology business. It continues to increase penetration among top 10 life science companies and emerging biopharma clients. A top 5 pharma client entered during the quarter into a commercial agreement to leverage the IQVIA human data science cloud as part of their core data and digital strategy for one of their large therapeutic areas. This client plans to roll out this platform in over 50 countries to centralize all of their fragmented data assets, resolve data management complexities, and improve speed to insights. Our orchestrated customer engagement offering, OCE, gained additional ground this quarter as 9 new clients adopted the platform for commercial operations, including 2 wins with large biotech clients. One of these OCE biotech clients has the potential for a global rollout to over 20 countries. The other large biotech win represents a competitive win back of the customer-facing team in the U.S. To date, we have 159 client wins for OCE. Our clinical technology solutions team continued our path to innovation in decentralized clinical trials with the introduction of IQVIA's Clinical Data Analytics Suite or CDAS. This solution builds on our human data science cloud platform, providing life science companies with new approaches to data use and harmonization as well as producing AI/ML and analytics-based insights. As an open scalable cloud platform, CDAS seamlessly works with sponsors' existing data archive and systems. We now have all of the top 10 and 18 out of the top 20 pharma clients using at least one of the several modules within our clinical technology suite. By connecting the right technology with the right data sources, IQVIA is enabling customers to identify new opportunities to maximize product value, get to market faster, improve departmental and business alignment, and reduce costs. Switching to our R&DS business. During the quarter, it continued to build on its strong momentum, with over $2.5 billion of net new bookings on a 606 basis. In the quarter, we achieved a contracted net book-to-bill ratio of 1.34 including pass-throughs and 1.37 excluding pass-throughs. As of June 30, our LTM contracted book-to-bill ratio was 1.45 including pass-throughs and 1.40 excluding pass-throughs. Our contracted backlog in R&DS including pass-throughs grew 16.7% year-over-year to $23.9 billion as of June 30, 2021. As a result, our next 12 months' revenue from backlog increased to $6.6 billion, which is up 19.6% year-over-year. I want to highlight the lab business, which continues to be a key driver of growth and, therefore, will remain an area of strong investments for IQVIA. You'll recall that on April 1, we completed the acquisition of the remaining interest in Q2 Solutions from Quest Diagnostics. Following this transaction, we announced our plans to expand our laboratory operation in Scotland to bolster our investment in cutting-edge technology, including next-generation genomic sequencing and testing. Also in the quarter, we agreed to acquire Myriad RBM, adding to our capabilities in the lab. RBM specializes in biomarker detection and quantification testing that supports early- and late-phase drug development in key therapeutic areas such as oncology, CNS, and immunology. This acquisition fits nicely into our strategy to develop specialized testing and precision medicine to help support drug development with state-of-the-art solutions. These actions further demonstrate our commitment to advancing outcomes in this space, and we are excited to continue to grow and innovate in the lab business. The Myriad RBM transaction is expected to close sometime in the third quarter.

Yes. Thanks, Ari, and good morning, everyone. Let me first start with revenue. Second quarter revenue of $3.438 billion grew 36.4% on a reported basis and 33.2% at constant currency. First half revenue was $6.847 billion, growing at 29.8% reported and 27% at constant currency. Our Technology & Analytics Solutions revenue for the second quarter was $1.353 billion. That was up 22% reported and 17.9% at constant currency. For the first half, Tech & Analytics Solutions revenue was $2.701 billion, up 21.3% reported and 17.5% at constant currency. R&D Solutions second quarter revenue of $1.891 billion was up 53.1% at actual FX rate and 50.7% at constant currency. Now excluding the impact of pass-through, second quarter R&DS revenue grew 44.6% year-over-year. For the first half, revenue in R&D Solutions was up 44.5% reported and 38.5% at constant currency. CSMS revenue of $194 million in the quarter grew 9.6% reported and 7.3% on a constant currency basis. And that brings the first half CSMS revenue to $387 million, up 3.8% reported and 1.3% at constant currency. And moving down the P&L and going to adjusted EBITDA. That was $722 million in the second quarter, which represented growth of 49.5%, bringing first half adjusted EBITDA to $1.466 billion, up 40.3% year-over-year. Second quarter GAAP net income was $175 million, and GAAP diluted earnings per share was $0.90. For the first half, we had GAAP net income of $387 million or $1.99 per diluted share. Adjusted net income was $416 million for the second quarter, and adjusted diluted earnings per share grew 80.5% to $2.13. For the first half, adjusted net income was $841 million or $4.32 per share. Let's turn briefly to R&D Solutions. As Ari mentioned, we delivered another outstanding quarter of net new business. We see backlog grew 16.7% year-over-year to $23.9 billion at June 30. And next 12 months' revenue from backlog at June 30 stood at $6.6 billion, up 19.6% year-over-year. Okay. Now on to the balance sheet. At June 30, cash and cash equivalents totaled $1.8 billion, and debt was $12.3 billion, which results in net debt of $10.5 billion. Our net leverage ratio at June 30 came in at 3.74x trailing 12-month adjusted EBITDA. Cash flow was again strong in the quarter. Cash flow from operations was $539 million and CapEx was $145 million, resulting in free cash flow of $394 million. This brought our free cash flow for the first half of 2021 to over $1.1 billion, which is a material improvement over our 2019 and 2020 results. In the quarter, we repurchased $45 million of our shares, leaving us with $822 million of share repurchase authorization remaining under our latest program. And now on to guidance. We're raising our full year 2021 revenue guidance by $275 million at the midpoint, reflecting the strong second quarter and the continued operational momentum that we see in the business. Our new revenue guidance is $13.550 billion to $13.700 billion, which is year-over-year growth of 19.3% to 20.6%. I would note there's no FX impact versus our previous guidance. Compared to prior year FX continues to be a tailwind of 150 basis points to full year revenue growth. Looking at the segments. We continue to expect full year Technology & Analytics Solutions revenue to grow low to mid-teens and R&D Solutions revenue to grow mid- to high 20s, while we now expect the CSMS business to be up low single digits. You saw that we also raised our profit guidance. As a result of the stronger revenue outlook, we've increased our full year adjusted EBITDA guidance by $43 million at the midpoint. Our new full year guidance is $2.950 billion to $3 billion, which represents growth of 23.7% to 25.8%. Moving to EPS. We adjusted our guidance and increased our adjusted diluted EPS guidance by $0.18 at the midpoint. Our new guidance range is $8.70 to $8.90, which is growth year-over-year of 35.5% to 38.6%. Our full year 2021 guidance assumes that June 30 foreign currency rates remain in effect for the second half. Now to review the revenue guidance for the third quarter. Third quarter revenue is expected to be between $3.290 billion and $3.365 billion, representing growth of 18.1% to 20.8%. We expect adjusted EBITDA to be between $710 million and $730 million, up 17.5% to 20.9%. And finally, adjusted diluted EPS is expected to be between $2.06 and $2.13, growing 26.4% to 30.7%. And again, our third quarter 2021 guidance assumes June 30 foreign currency rates remain in effect for the quarter. So to summarize, we delivered very strong second quarter results. We had double-digit growth in all key financial metrics. We posted revenue growth of over 20% in our TAS segment and over 50% in R&DS segment. R&DS backlog improved again to $23.9 billion, up 16.7% year-over-year. Next 12 months' revenue from that backlog increased to $6.6 billion. That's up 19.6% year-over-year. We reported another strong quarter of free cash flow. And given the momentum that we see in the business and our strong second quarter results, we're once again raising our full year guidance for revenue, adjusted EBITDA and adjusted diluted EPS. So with that, let me hand it back over to the operator for questions and answers.

Your first question comes from the line of Eric Coldwell with Baird.

I have two questions. Ron, first, congrats on the great cash flow performance year-to-date. I'm just hoping you can give us some more details on where you're making the biggest gains, changes supporting these improvements? And any color commentary on your outlook for the future? Second question, just COVID-related. It's the typical standard ask: if you could give any insights on COVID revenue in the quarter, bookings, backlog, thoughts on the tail end of 2022, that would be helpful as well.

Sure. To your first question, Eric, on cash flow, there are two principal drivers of our strong cash flow performance. The first, of course, would be our earnings growth, which was quite good. But beyond that, we've made substantial progress and continue to make progress in reducing our days sales outstanding. We've had a real focus on that over the past year, bringing down past dues, improving our billing terms with customers, billing sooner because we have substantial unbilled amounts. And all of that has contributed to strong collections. The one caveat I would say is that some of the COVID-related work does come with some advances that will burn off over time. So we're still targeting to have cash flow in any given year in the range of 80% to 90% of adjusted net income. Now obviously, substantially stronger than that so far this year. I think it's probably about 125% for the first half. And if we can beat that 80% to 90% range, great, but I think that's a good kind of medium-term sort of target for cash flow in a normal environment. But we're very happy with the progress we've made on cash flow and expect cash flow to continue to be strong for the future.

Thank you for highlighting that aspect of our performance in the second quarter. We were not satisfied with our cash flow performance in 2018, where our total yearly free cash flow was $600 million, which is just barely half of what we achieved in the first half of this year. In 2019, it was approximately $800 million, and last year, in 2020, we increased that to around $1.3 billion. We are very pleased with our performance and, as Ron mentioned, we are especially grateful to the finance team for their efforts in managing our receivables, collections, and improving the bill-to-cash process. It required a significant amount of work, but we believe it will continue to yield results. We had also committed to reducing our leverage ratio from the mid- to high 4s on a net basis to 4 or less by the end of 2022, and for two consecutive quarters, we have been below that target—probably a year earlier than expected. While we may see fluctuations in the average ratio due to circumstances and our spending on mergers and acquisitions and share repurchases, we are very pleased with our current performance.

The second question was about COVID work and its significance. It’s best to examine the amount of COVID work in our backlog. I can share that the large COVID vaccine trials, which have made up the majority of our COVID-related work, account for significantly less than 5% of our total backlog. This provides some perspective. Moving forward, we anticipate that COVID-related work will continue to be a component of our business for the foreseeable future. We expect COVID studies to have an ongoing presence through 2021, into 2022, and possibly even 2023. There will still be a demand for vaccines from various manufacturers, and we have requests for proposals for vaccine work from different companies globally. New vaccines are being developed to address variants, and alternative vaccines are required due to adverse safety events, quality issues, and manufacturing delays. Additionally, we have numerous novel treatment programs aimed at specific populations and conditions still in our pipeline. However, it’s important to note that the significant vaccine work remains well below 5% of our overall backlog, including pass-throughs. Any further comments on revenue or impact are not particularly noteworthy. Even if we exclude all COVID-related work, we still saw very strong revenue growth, with double-digit growth in both the TAS segment and the R&DS segment. While COVID contributed to our results this quarter, the underlying non-COVID-related work was also experiencing strong growth. COVID is a reality we face today and is part of our business. We want to be involved in that work, and we have actively participated in it.

Your next question comes from the line of Shlomo Rosenbaum with Stifel.

I have two questions. One is more of a housekeeping thing. Ron, maybe you could provide the precise organic revenue growth metrics for each segment, TAS and R&DS. And then secondly, I wanted to ask you a little bit more about what Ari started out with in terms of the growth in the real-world evidence business. What's the size of the business at this point in time? What was the growth in the quarter? How is that contributing to the overall business growth? And just more detail, it seems like that's a significant differentiator for IQVIA versus a lot of the competition. I thought we could flesh some of that out.

Let me take the first question, Shlomo, on organic growth. The contribution of acquisitions in the quarter to our revenue growth was insignificant. If you look back over the past number of quarters, you can see our acquisition activity tailed off quite a bit and is only recently beginning to pick back up. So there's almost no contribution whatsoever of acquisitions to our growth. So organic growth, for all intents and purposes, equals reported growth in those segments.

Yes. And then, Shlomo, on the real-world side, that business is about $1 billion. As we've talked about before, continues to grow double digits. This quarter was high double digits again. Continue to see very, very strong results in that business and continue to deliver for us and drive the pass-through.

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

I wanted to follow up on real-world evidence. Earlier this year, you mentioned significant government COVID tracking work, which was expected to decrease. What are your thoughts on the sustainability of that program now, and what are you factoring into your guidance for the year?

John, we're expecting that work to continue through the balance of the year, but it will be less contribution in the second half than the first half. We'll see whether it continues on into 2023 or not. That sort of work tends to be pretty quick burn and rapidly changing, but we do expect some incremental contribution from the government COVID-related work through the balance of the year. Think particular, when you get into the fourth quarter, the compare to last year's fourth quarter when we had a substantial amount of it is going to be negative. But you see overall, for our implied fourth quarter guidance, that it remains very strong for the company as a whole.

Ron, that's helpful. And maybe a follow-up. Can you guys just talk a little bit about the staffing environment? We hear a lot about labor shortages. Just curious if you're seeing any constraints in your ability to recruit and hire and if that's driving any pressure on margins.

Yes. It's well known that the industry is experiencing strong competition for talent. Companies seek IQVIA talent because we are recognized for our training and diverse skill sets. However, we are confident in our ability to attract and retain talent as we are a leading company in the industry and have invested in our employees, particularly during the pandemic. We prioritized our employees by maintaining their salaries and not restructuring. This situation has created some anxiety in the industry, leading to wage inflation and a slight increase in attrition rates. Despite this, we remain optimistic. While we expect some minor challenges to our margins, we have implemented various programs and productivity initiatives that give us confidence in our performance. Our margins have been improving and growing faster than we had anticipated.

Yes. John, obviously, any cost pressure we're feeling is fully baked into our 2021 guidance.

Your next question comes from the line of Tycho Peterson with JPMorgan.

Ari, on the 16.7% backlog growth, I'm just wondering if you could provide any more color. How much of this, in your view, is kind of pent-up demand, catch-up work? And then any kind of lingering concerns around site accessibility and the variant potentially impacting conversion in the back half of the year?

You've got a comparison issue quarter-over-quarter that is driving some unusually high growth rates. We have a mix of factors influencing this: first, catch-up work. A lot of the work from last year was done remotely, and we still need on-site document verification activities. This adds to our growth. Secondly, projects that were supposed to start last year were delayed, which also creates demand. Thirdly, we’ve been gaining market share, as reflected in our consistently higher book-to-bill ratios and revenue size, indicating that we are indeed capturing more share. We're now beginning to execute on projects that started with delays last year. Lastly, there is the COVID work contributing to this strong growth rate. Regarding operational metrics like site access, we’re essentially approaching 80%. This is in light of various flare-ups in infections around the world. Our guidance for 2021 considers numerous factors, including site accessibility. At this 80% level, we can deliver effectively using various methods we've improved, including remote visits. While site access is useful to monitor during the general recovery, it doesn't directly correlate with revenue recognition. We track many other metrics: site startups have returned to the baseline of 2019, patient recruitment is at or above 2019 averages, and patient visits are close to pre-pandemic levels. These metrics reassure us that our non-COVID trial pipeline is not only being awarded, as demonstrated by our strong bookings, but is beginning to deliver with sites enrolling patients and facilitating visits.

That's helpful. And then for a follow-up, 2 quick ones. I'm wondering if you can update us on the orchestrated clinical trial rollout, how that's going. And then separately, on the acquisitions. I understand they're not big revenue contributors. I'm just curious if the accretion assumptions have changed. I think you've previously talked about $0.12 accretion from the Q2 acquisition. I just want to make sure that's still the case.

You asked about decentralized, right? Yes, we will discuss that. Regarding the acquisition, just to clarify, the 40% acquisition of the minority stake in the lab that we didn't own had no impact on revenue and EBITDA since we already consolidated as we were the 60% owner. However, there was accretion on the bottom line. Do you have the exact number for the accretion for Q2?

$0.12.

For the balance of the year? Yes. That has already been addressed. By the time. Nothing has changed regarding your initial question. Was it about the centralized trials or about OCT?

It was about the orchestrated clinical trials, OCT, the suite launch and how that's going.

Everything is going well. In my opening remarks, I noted that all of our top 10 pharmaceutical clients are using one module from our clinical technology suite, and 18 out of the top 20 are as well. This shows that we are making progress. Nearly all of the suites have been launched, and most modules are actively in use, with our sales pipeline continuing to grow. There is significant interest from our clients, both in the platform and individual or standalone modules. This interest spans all customer segments, not just the top 20 but also mid-tier clients and EVPs. We are receiving demand for multiple products within the digital patient suite, which is contributing to the growth we observed in the TAS business. Regarding the Clinical Data Analytics Suite, it integrates both structured and unstructured data from clinical trials into a central repository, creating a unified version of the truth that supports predictive analytics. This is a crucial advantage for our clients, as the challenge in healthcare has been data interoperability—connecting customers and trial operators like IQVIA with various applications and data sources. Our CDAS product simplifies this by allowing applications to connect directly to it, enabling us to harmonize the data and offer an intuitive, scalable solution for mapping multiple clinical data sources. This also allows us to implement AI and machine learning analytics within a single data ecosystem. We are very encouraged by the advancements we are making and our clients are starting to recognize the value of our offerings as we penetrate deeper into the customer base. Thank you.

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

Ari, I was hoping you could give a little bit more color on the progress of OCE to now 109 clients. What's the revenue base for this business? And where do you think you are in the growth curve? Is it still in investment mode? Or has the business turned profitable at this point?

I don't believe we've disclosed the exact revenue figure. However, we mentioned that in 2021, we secured 19 new clients, bringing our total client wins to 159 since our launch 3.5 years ago. We've consistently captured a significant share of the market, approximately two-thirds of the wins. Our performance with large pharmaceutical deployments remains strong, as highlighted by Roche's deployment of around 15,000 users. Despite the challenges posed by COVID, we have not encountered any significant slowdowns in implementation, apart from a few isolated issues that we have addressed. In fact, some of the deployments have even accelerated in their timelines. Overall, the feedback we’re receiving is positive, with field representatives highly engaged. The launch of OCE, which was only 3.5 years ago, is progressing better than we initially anticipated.

Great. And then you started by talking about the strength of the funding environment and the VC activity going on. I was wondering if you're seeing any themes emerge from a therapeutic area perspective and how you thought IQVIA was stacked up for that. And one specific area I was hoping you could weigh in on is Alzheimer's and just whether you think that's an area where you could see new investment coming in.

I believe the area receiving the most funding is oncology, particularly in subcategories where effective drugs have been difficult to develop. There is significant venture capital investment in oncology. Another important area is central nervous system disorders, with ongoing developments in Alzheimer's. Cardiovascular is also experiencing strong growth. Additionally, immunology is attracting considerable interest, especially due to the impact of the virus and COVID. I would identify these as the four main areas of funding.

Our next question comes from the line of Dan Leonard with Wells Fargo.

So hoping, first, you could elaborate a bit more on your decentralized trial offering and maybe update specifically on Study Hub trends.

Yes, as we mentioned, the decentralized trial opportunity was recognized well before COVID. We've discussed it previously, referring to it as virtual or hybrid trials, and felt we were making significant progress. The pandemic highlighted the importance of these capabilities, accelerating their development. Essentially, it combines remote technologies with the digitizable aspects of clinical trials, including eConsent, telemedicine modules, eCOA, and extensive digital communication. This approach enhances and virtualizes interactions between local labs and healthcare providers when needed, creating a virtual network of investigators and care professionals. We establish preset terms with the investigators who agree to participate, and we've operationalized this segment with a dedicated decentralized trial team. For instance, we have a clinical research coordinator for decentralized clinical trials who can assist sites remotely and guide them in using technology. This approach is new for both investigators and patients, and we realized we needed a centralized support team, similar to a help desk, to assist through the decentralized trial process. Additionally, we offer support with research nurses and a phlebotomy solutions team, leveraging our global network for decentralized studies. We've transitioned from the pre-2020 pilot phase, which involved around 60 small, experimental trials, to a more mature phase. In 2021 alone, we secured over a dozen larger decentralized clinical trials and expanded into new therapeutic areas, collaborating with five of the top ten large pharmaceutical clients. One key factor contributing to our success in gaining a greater share of COVID-related trials, both therapeutic and vaccine-related, was our advanced decentralized trial capabilities. Currently, we cover approximately ten therapeutic areas, including nephrology, oncology, psychiatry, CNS, and dermatology, and we're progressing towards a more mature phase, which we will discuss in further detail later. However, in the context of our large R&D business, it isn't significantly impacting our overall numbers despite the strong growth we're experiencing.

Yes. To provide some context to what Ari mentioned, we currently have 81 trials fully deployed on Study Hub. Additionally, there are around 250 trials utilizing some aspect of Study Hub. At any given time, we expect to have nearly 1,000 full-service clinical trials in progress. While this component of our business is growing, it still does not constitute the majority of our operations.

That's very thorough and helpful. Just a quick follow-up to Jack's question earlier. I'm curious if you could explain the size of the Alzheimer's opportunity for IQVIA. I remember when something had to come out of backlog a couple of years ago, it was quite significant, and I've been wondering how significant the upcoming items in backlog could be.

Yes. I don't think it's significant. At that time, our bottle was much smaller. When we launched, it was considerable, but it felt seamless. We never encountered it as an issue, whether it was leaving or coming back partially. I'm not sure what you're referring to. I don't know if we disclosed that, but it wouldn't be material and would be negligible considering the size of our backlog.

Yes. The current Alzheimer's contribution of our backlog is not material. Now could there be more coming in the future? Sure, we hope there is, but we'll see.

Your next question comes from the line of Patrick Donnelly with Citi.

Ari, you touched on M&A a little bit, and obviously, the cash flow performance, where the leverage is. Can you just talk about kind of the landscape, what the pipeline looks like? Obviously, a lot of activity in the space. And then secondarily, given some of the mergers and movements around the space, are you seeing any disruption opportunity for share gains? Any commentary from customers suggesting this is an opportunity for you guys at the moment?

Yes, the latter part of your question touches on consolidation. Soon, we may be the only independent entity left. Overall, the clinical trial business is quite appealing and positioned for growth. We believe it will yield superior returns in the long-term and is attracting significant interest from buyers, including private equity and large companies seeking to boost their revenue and profit. This is positive news for our industry. Regarding the strategic and operational implications, it’s clear that we don’t need to actively participate in M&A. We evaluate potential acquisitions and have opted not to pursue some due to valuation concerns or our ability to increase market share without buying. Acquiring another CRO presents challenges in realizing significant gains. There are opportunities to enhance capabilities, whether through therapy areas or geographical presence, particularly in different stages of drug development such as preclinical, Phase I, II, or III. The ongoing consolidation creates potential opportunities since we have been increasing our market share significantly, which diminishes the urgency to engage in M&A. It’s known that large mergers typically bring about disruptions and talent loss, which we've observed from others in the industry. Customers often prefer to maintain relationships with multiple providers, leading them to seek out different options when two providers overlap. While both talent and customer dynamics present opportunities, our primary focus remains on executing our strategy, which has proven effective thus far. We are continuously exploring potential acquisitions, particularly in the technology sector, and have a solid pipeline of opportunities. While there hasn’t been much activity recently aside from a minority acquisition in Q2, the possibility for acquisition exists; it's a matter of whether or not they materialize.

No. That's helpful. And maybe just a quick follow-up. CSMS doesn't get the most airtime, but it's nice to see the recovery ongoing. I think you bumped guidance from low single-digit declines to low single-digit growth. Can you just talk about the market recovery going on there and the outlook?

Many clients chose not to cancel contracts last year due to uncertainty about the duration of the situation. Although our field representatives couldn't operate in the field, many remained available while contracts were either suspended or renegotiated, which led to some disruptions. As we started to improve the business, our revenue growth temporarily declined again. However, we are now on a path to recovery. I believe that double-digit growth is unlikely for us, so we should expect single-digit growth at best, and we are effectively managing this scenario. This issue is becoming less significant, especially given the overall size of our company and the growth in other areas of the business. You might remember that almost five years after our merger, we attempted to sell this part as a whole, but we discovered it wouldn’t bring substantial value, which is why we integrated it into our regions. It is now well incorporated into our commercial operations and has been beneficial. For example, we are utilizing nurses from the CSMS business to assist with the virtual aspects of visiting patients at home, which adds value. However, this will not significantly impact our overall performance as it did in the earlier days of Quintiles or IQVIA.

Okay. Last question, Nick?

Our last question comes from the line of Sandy Draper with Truist Securities.

This should be a pretty quick one. Ron, just when I look at the third quarter guidance, looking down sequentially, I just want to confirm, I would assume most of that is because of an expected decline in pass-through revenue and R&D. Is anything else...

Yes. That's really the driver. You're correct, Sandy.

Thank you, guys.

That's it. Well, thank you, everyone, for joining us today. We look forward to speaking to all of you again on our third quarter call. Me and this team will be available later for any follow-up questions you might have and look forward to talking to you. Thanks, everyone.

This concludes today's conference call. You may now disconnect.