Iqvia Holdings Inc. Q2 FY2024 Earnings Call

Ladies and gentlemen, thank you for standing by.

At this time, I would like to welcome everyone to the IQVIA second quarter 2024 or any conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press the star 1 again. As a reminder, this call is being recorded. Thank you. I would now like to turn the call over to Kerry Joseph, Senior Vice President, Investor Relations and Treasury. Mr. Joseph, please begin your conference.

Thank you, Operator. Good morning, everyone. Thank you for joining our second quarter of 2024 earnings call. With me today are Ari Boosby, Chairman and Chief Executive Officer, Ron Broman, Executive Vice President and Chief Financial Officer, Mike Fedok, Senior Vice President, Financial Planning and Analysis, and Gustavo Peroni, Senior Director of 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 presentation section of our IQVIA Investor Relations website at ir.iqvia.com. 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 risk and uncertainties associated with the company's business, which are discussed in the company's filings with the Security 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 Boosby. Thank you, Gary, and good morning, everyone.

Thanks for joining us today to discuss our second quarter results. AQVIA delivered another quarter of strong operational results with 5% revenue growth excluding the impact of foreign exchange and COVID-related work and 8.6% growth in adjusted diluted earnings per share. The fundamentals of the industry remain healthy, which supports our confidence in the outlook for our business. On the commercial side, things are starting to gradually improve, and while customers continue to exercise budgetary cautiousness, we see faster decisions and more focus on carrying out mission-critical projects, such as those associated with launching new drugs. As you recall, new FDA approvals for 2023 were 55, which was the second largest year since 2017. And in fact, year-to-date approvals are at 21, which is in line with the average for the last five years. In the quarter, TAS came in a little better than our expectations, consistent with the improving leading indicators that we cited earlier this year. Both consulting and analytics and real-world revenue improved sequentially in the second quarter. We said TAS revenue growth for 2024 was going to be the mirror image of 2023. And in fact, TAS revenue growth was about 3% in the first quarter, and it was 4% in the second quarter, excluding COVID and foreign exchange. At constant currency, and based on forward-looking indicators, we remain confident in our full-year forecast for TAS. This implies 6% to 7% growth for the balance of the year, resulting in full-year mid-single-digit growth, again consistent with the target we established for TAS at the beginning of the year. On the clinical side, while we continue to see the trend we have observed over the past year, with large pharma reprioritizing their portfolios of programs and reallocating money to the most attractive ones in response largely to the IRA, demand from our large pharma clients in RMDS remains solid. We are also encouraged by the continued acceleration of EBP funding. In fact, BioWorld reports emerging biotech funding for the second quarter was $22.9 billion, which is up 32% versus prior year. For the first half, biotech funding is about $70 billion, essentially equal to the entire year of 2023. Obviously, it does take time for funding to translate into RFP flows, But certainly, it bodes well for mid-long-term prospects in our EBP segment. In the quarter, RDS recorded good net new bookings of approximately $2.7 billion, representing a book-to-bill of $127 billion. Backlog reached a new record of $30.6 billion, which is growth of 7.7% versus prior year. And in fact, that's actually 8.1% when you remove the impact of foreign exchange. And of course, all of our usual forward-looking indicators, RFP flows, overall pipeline, and qualified pipeline are up. Turning now to the results for the quarter. Revenue for the second quarter grew 2.3% on a reported basis and 3.5% at constant currency. Compared to last year and excluding COVID-related work from both periods, we grew the top-line 5% at constant currency, including approximately a point and a half from acquisitions. Second quarter, adjusted EBITDA increased 2.7%, driven by revenue growth and ongoing cost management discipline. Second quarter, adjusted diluted EPS of $2.64 increased 8.6% year over year. Now, I'd like to spend a bit of time on highlighting some of our business activity, starting with Taz. IQVIA contracted with a top 20 client to expand implementation of our commercial technology ecosystem. IQVIA's AI ML offerings, including analytics and OCE, integrate seamlessly into the client's technology infrastructure and allow our client to manage their data more effectively. and to optimize their customer engagement. In the quarter, IQVIA won a multi-year contract with the top five clients to increase the effectiveness of their digital communication strategy. Here, our innovative solution enables targeted audience selection and custom content delivery. In our first quarter call, we shared a preview of a large deal awarded in April for our current OCE offering. This is a multi-year global implementation for a major division of a top five pharma client with 1,000 users, and it's displacing the incumbent. As you know, IQV has a rich history of developing AI for healthcare. For the last 10 years, we've invested heavily in artificial intelligence and machine learning algorithms that support our clients from clinical development through commercialization. Our AI offerings are specifically engineered to meet the demanding standards of precision, speed, privacy, and trust that are required in healthcare. Whether it's in patient support services, or analytics, or pharmacovigilance, our proprietary AI software solutions have become market leading. Let me share a few examples of AI wins and awards in TAS this last call. We launched a Gen AI solution, which collects structured and unstructured survey inputs from over 30,000 HCPs across 36 countries in multiple languages. And in minutes, delivers analytics and insights to our clients on how their interactions and messages about their brand resonated. This work would normally take a week at least for human analysts using existing tools. A top 10 client awarded IQVIA a contract to implement our centralized Gen AI reporting and analytic solution across their entire U.S. Salesforce, consolidating different legacy tools. IQVIA's comprehensive Gen AI solution enables users to ask questions and get contextual responses in the form of charts, graphs, and KPIs. This AI solution also proactively alerts the user of key trends, anomalies, and the changes that would be required. In another example, a U.S. medtech client selected IQVIA to implement IQVIA's AI solution to onboard and train patients to utilize their medical device for diabetes. IQVIA's AI solution incorporates real-time sentiment analysis, provides automated transcription, and smart engagement recommendations. It empowers patients to take more control of their treatment, which of course promotes better adherence to treatment protocols. Lastly, for AI in TAS, IQVIA won the award of Best Use of Artificial Intelligence in Healthcare out of 4,500 nominations in the eighth annual MedTech Breakthrough Awards. IQVIA's leading AI solution here is called Smart Solve Enterprise Quality Management System, EQMS, which simplifies quality compliance and connects regulatory and quality processes for life sciences customers. Moving to real-world, IQVIA won an effectiveness study with a mid-sized pharma client focusing on patients who have not responded well to their previous migraine treatments. We were selected due to our strong therapeutic expertise combined with our direct-to-patient approach to accelerate recruitment and reduce site burden. A U.S. EBP client awarded IQVIA a real-world post-approval safety and efficacy study in Japan for their coronary intravascular therapy. The aim of the project is to demonstrate the safety and effectiveness of their device, which could potentially increase the client's market share in Japan, as well as help the client register the device in other regions. Within the quarter, a top 15 pharma client awarded IQVIA a significant contract to study the effectiveness of a therapy for schizophrenia. The study will use data tokenization to link multiple data sources and then apply AI to provide a comprehensive view of patients pre- and post-therapy in real-world settings to physicians, patients, and caretakers. Finally, you may have seen that IQVIA was recognized by a respected, independent, third-party research organization as a leader in medical affairs and life sciences regulatory operations. IQVIA's global end-to-end solutions enable medical affairs customers to manage and curate the richness of data coming into their organization, transforming evidence into insights that can enable actionable initiatives. Let me now move to RNDS. Let's start with the trending therapeutic area, obesity treatment. A top 15 pharma client selected IQVIA labs to conduct globally harmonized high-volume testing to ensure accelerated enrollment. It's expected this will result in a significant reduction of study timelines for this therapeutic area, where speed to market is key. Our strength in the vaccine development area led to another major role to conduct a phase three trial for a new influenza vaccine that will enroll approximately 50,000 volunteers. Turning to oncology, which represents once again our largest therapeutic area in R&D's bookings this quarter. I'll offer a few examples. A top 20 client selected IQVIA to conduct a large phase 3 oncology study focusing on small cell lung cancer, a disease with a high need for effective treatments. We want this study due to our strong therapeutic expertise, data and analytics capabilities, as well as our proven delivery approach, which includes a dedicated delivery unit project staffing that is exclusively focused on the client's study. By the way, for some time now, we've been deploying this unique delivery approach for large customers who have an especially complex study portfolio across multiple therapeutic areas. A biotech client selected IQVIA to support a large-scale global complex Phase III program to test and validate their innovative cell and gene therapy vaccine for colorectal cancer. Lastly, in oncology, a top 25 pharma client awarded IQVIA a contract to develop an optimal clinical strategy and to execute a bladder cancer study in the U.S. We were awarded this engagement based on IQVIA's AI-enabled site selection and feasibility solutions that will help the client meet aggressive timelines. Now, we discussed AI initiatives in TAS, and in fact, AI enablement is also pervasive in RDS. A couple of other such examples. A U.S. biotech client awarded IQVIA four full-service clinical trials, which are supported by IQVIA's AI-enabled data and analytics, increasing the likelihood of success for each trial, reducing the risk of protocol amendments, as well as the need to add countries and sites after the trial starts. In another example, we were awarded a pharmacovigilance project by a large biotech client to manage all case processing work worldwide using our AI capabilities. The IQVIA AI-enabled solution is designed to dramatically improve productivity, reduce costs, enhance data quality and accuracy. We will continue to share more exciting AI initiatives across the businesses, hopefully at future investor forums. I now turn it over to Ron for more details on our financial performance.

Thanks, Darian. Good morning, everyone. Let's start by reviewing revenue. Second quarter revenue of $3,814,000,000 grew 2.3% on a reported basis and 3.5% at constant currency. In the quarter, COVID-related revenues were approximately $45 million, which is down about $70 million versus the second quarter of 2023. Excluding all COVID-related work from both this year and last, constant currency growth was 5%. Technology and analytic solutions revenue was $1,495,000,000, which was up 2.7% reported and 3.8% at constant currency. And if we exclude COVID work from both years, it was exactly 4% growth. As you may recall, Q1 2023 was the last quarter with meaningful COVID activity in the past. R&D Solutions revenue of $2,147,000,000 was up 2.4% reported and 3.3% constant currency. Excluding all COVID-related work, growth at constant currency and R&D S was 6%. And lastly, Contract Sales and Medical Solutions revenue of $172 million declined 2.3% reported but grew 2.8% at constant currency. For the first half, total company revenues were $7,551,000,000, up 2.3% reported, and 3.2% at constant currency. Excluding all COVID-related work, growth at constant currency was 5.5%. Technology and analytic solutions revenue for the first half was $2,948 million, up 1.7% reported, and 2.4% in constant currency. And excluding all COVID-related work, growth at constant currency in TAS in the first half was 3.5%. percent. R&D Solutions' first half revenue of $4,242 million was up 2.9 percent at actual FX rates and 3.6 percent at constant currency, excluding all COVID-related work growth at constant currency in RMDS was 7 percent for the half. And lastly, CSMS' first half revenue of $361 million increased 0.8% reported and 5% at constant currency. Let's move down to P&L now. Adjusted EBITDA was $887 million for the second quarter, representing growth of 2.7%, while first half adjusted EBITDA was $1,749 million, up 2% year-over-year. Second quarter GAAP net income was $363 million, and GAAP diluted earnings per share was $1.97. For the first half, we had GAAP net income of $651 million, or $3.53 of earnings per diluted share. Adjusted net income was $487 million for the second quarter, and adjusted diluted earnings per share were $2.64. For the first half, adjusted net income was $955 million, or $5.18 per share. Now, as already reviewed, R&D Solutions bookings were, again, strong in the quarter. Our backlog at June 30th was $30.6 billion, up 7.7% at actual currency and 8.1% at constant currency. Next 12 months, revenue from backlog increased to $7.8 billion, growing 6.9% year over year. Okay, let's turn now to the balance sheet. As of June 30th, cash and cash equivalents totaled $1,545,000,000 in gross debt with $13,258,000,000. That results in net debt of $11,713,000,000. Our net leverage ratio ending the quarter was 3.25 times trailing 12-month adjusted EBITDA. Second forward of cash flow from operations was $588 million, and capital expenditures were $143 million, and that resulted in free cash flow of $445 million. Okay, turning to guidance. With the first half of the year now behind us and better forward visibility, we're refining or financial guidance for the balance of the year. For the year, we now expect revenue to be between $15,425,000,000 and $15,525,000,000. Adjusted EBITDA should be between $3,705,000,000 and $3,765,000,000. And adjusted diluted earnings per share between $11.10 and $11.30. There is no material change to our previous assumptions about COVID-related step-down, acquisition impacts, and foreign exchange impacts. By segment, a constant currency, ex-COVID, our full-year guidance remains the same, and it's unchanged versus what we gave you back in February, which is to say CAS will grow this year around 5% and R&DS in the 7% range. Moving now to third quarter guidance, we expect revenue to be between $3,830,000,000 and $3,880,000,000. Adjusted EBITDA is expected to be between $925,000,000 and $950,000,000. And adjusted diluted EPS should be between $2.76 and $2.86. Now, all our guidance assumes that foreign exchange rates as of July 18th continue for the balance of the year. So, to summarize, we delivered another solid quarter of financial performance. R&DF had bookings at $2.7 billion with a strong book to bill of 1.27. TAS performed well against our expectations. Adjusted diluted earnings per share increased 8.6% year-over-year. We're now leaving behind the interest expense headwinds and are moving back towards resuming double-digit EPS growth. Free cash flow for the quarter and for the first half were strong, driven by strong collections performance. And we remain confident that both TAS and R&DS will achieve the full-year targets for revenue growth we provided at the beginning of the year. And with that, let me hand it back to the operator to open the session for Q&A.

Thank you. At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We request that you please limit yourself to just one question so that others in the queue may participate as well. We'll pause for a moment

to compile the Q&A roster. Your first question comes from the line of Shlomo Rosenbaum of Stiefel.

Your line is open.

Thank you very much for taking my questions. It looks like a very solid quarter, and we're seeing the TAS improving, which is definitely heartening. A question I have, Ari and Ron, is just the guidance is raised for revenue and EPS at the midpoint, but if you look at the EBITDA guidance, It was lowered a little bit. Maybe you could talk about what's going on and the nature of the revenue that's coming through for the year, and maybe just a little bit also in terms of the kind of pacing. We got the third quarter, so we could imply the fourth quarter. And if you could talk a little bit about the ramp you expect in the fourth quarter.

Yeah, thanks, Tom. Look, I wouldn't read much into the, you know, tweaks in the guidance. It's, you know, we review all of our business unit forecasts, and we build all that up, and it falls wherever it falls. You know, the FX is slightly more favorable than it was last time we reported, so that kind of is driving a little bit in aggregate the higher, a little bit higher on revenue. Again, I wouldn't read much there. um it did die it's your whatever the mix of business fell okay you know when you um you know you have a little bit more of uh of certain um offerings than others and as a result you've got uh you know the margin fell whatever it fell but look we we're still um you know delivering margin growth and uh even i mean yeah i see what you mean i mean frankly i didn't even And we don't focus on that. These are small tweaks, and I wouldn't – it could vary, you know, again, next quarter. So there's nothing other than wherever the mix of business fell, frankly. We're still delivering at this level. What's the margin expansion here? About 30 basis points at the midpoint and 50 at the high end. So that's very strong given, you know, the markets we've been navigating here for the first time. And on the EPS, I think it's largely better control of CAPEX, which in turn, you know, more favorability on DNA. It's below the line, basically, you know, that drives the EPS, the higher points on EPS. Again, these are tweaks.

I wouldn't pay much. I wouldn't draw much conclusion on that.

Thank you. Your next question comes from the line of David Windley of Jefferies. Your line is open.

Hi. Thanks for taking my question. Good morning. Ari, you've talked in some of your recent public commentary about price pressure or price expectations from customers in your opening remarks. You mentioned budget sensitivity, I think, in the context of TAS. Could you just kind of bring us up to current on your assessment of the market environment in terms of customers' willingness to, you know, to kind of pay your asking price?

Good question. I did talk about this in the past, and there's no change there. It is true. Again, I mentioned in my introductory remarks, it's not like we've all of a sudden moved to a different bullish environment. clients, large pharma, to focus on that segment first, has announced, I mean, there is barely a large pharma company that has not announced a massive cost-cutting program, multi-billion dollars, and often that comes first with a review of their procurement practices and their vendors, and we are a top vendor to pharma, so there's no surprise here. what I said before is still valid. Those budgetary constraints persist. The cautiousness persists. And of course, you know, it's not like we can price whatever we want. Now, clients still need to do some projects. Many of them had been postponed and delayed. We see that improving. Decision timelines have started to improve, and now they've improved more dramatically. They're not where they were before this whole cautiousness begun, but they have improved significantly, which is why we feel more confident with the forecast. Pricing, yeah, I mean, Look, large pharma clients are more disciplined in their spending, and therefore it's a tougher fight out there in terms of negotiations. No question about that. And it's true in TAS and it's true in R&DS, frankly. At the same time, you know, you get, you know, on the R&DS side, on the CRO side, you get really an industry that has kind of segmented itself in a way with three large players and a bunch of smaller ones, including some who are, you know, sometimes desperate for business and becoming more undisciplined with respect to how they go without approaching, you know, their bids and so on and so forth. And obviously, clients fully take – you can expect clients fully taking advantage of that. So, again, the answer to your question is pricing continues to be tough for the reasons I just mentioned, both on the commercial and on the RDS side. We, of course, respond with continued increase in our productivity programs, cost containment and programs, as well as a lot of deployment of AI within our own operations. Those things take time. Obviously, there is always a lag when we implement these solutions before we can get the full benefit. But that's what's happening on pricing. Thank you, David.

Yeah, thank you.

Your next question comes from line of Ann Samuel of J.P. Morgan. Your line is open.

Hi, thanks for taking the question. And I was thinking perhaps you could speak a little bit more about the performance of your different business segments within TAS and perhaps where you started to see some of that outperformance. Thank you.

Yeah.

You mean within TAS, the different segments? Look, I mean, the data business continues the same. You know, there's no news there. And the rest of the business has begun to improve. Sequentially, we've seen improvements. everywhere, year over year, in aggregate, it's up, again, excluding COVID and FX. The rest of the business, as you know, data is low, single digits, splattish, and the rest of the business in aggregate has started to grow, you know, mid to high single digits overall. For real world, I would say in particular, real world in particular has picked up significantly

this past quarter.

That's great to hear.

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

Hi, guys. Thanks so much for the question this morning.

Can you talk about the burn rate maybe in the back half of the year?

Is that something you sort of see based on the mix of business at this point that you think could creep up sequentially? How do you kind of view that as we progress through the back half?

On the clinical side, yeah. Yeah, I mean, look, this fluctuates. First of all, I mean, you know, the reported revenue, and even after excluding COVID and FX, you know, sometimes it's hard to predict exactly where the pass-throughs are going to come in. And so some of that quarterly fluctuation, if you will, is pass-through, the big pass-throughs. That's essentially what we saw this quarter and probably next quarter, and then rebounding for the fourth quarter. But basically, RNDS, we see, you know, growth exactly where we forecasted it at the beginning of the year, which is, you know, in the, you know, after you adjust for COVID and at constant currency in the 7-plus percent range. With respect to the mix of offerings, as you know, we do have a disproportionate share of the oncology programs out there. Again, not surprising, the critical decision factors here are therapeutic expertise and the ability to enroll patients, which is where our unique capabilities with data, analytics, and AI solutions come in. And as a result, the mix of our bookings and in our backlog continues to increase towards those more complex studies in oncology as well as rare diseases. So the burn rate is largely influenced by that. You can see, by the way, that this is a trend in the industry. You can look at the burn rate for our competitors, and they are also going down. Now, in the first quarter, the first quarter backlog burn was 7%. Is that what I recall? It was 7%. And Q2 backlog burn was about the same. It was a little bit higher, 7.1%. And for the balance of the year, we're expecting it to be very similar. We are encouraged that the next 12 months bookings are up. I think we say next 12-month revenue from backlog is $7.8 billion. That's up from what we reported first quarter. My recollection is correct. Was it 7.3?

Yeah?

It's up 7.3 billion last year, and then this quarter is 7.8. That's about 6.9% up. So, you know, we feel confident in our conversion and, consequently, on our burn of projects and revenue growth in the balance of the year and next year.

Great.

Thank you.

Your next question comes from the line of Max Smock of William Blair. Your line is open.

Hi, good morning. Thanks for taking our questions. And apologies if I missed this, but within R&DS, did you quantify how much RFP flows in the qualified pipeline were up at the end of the second quarter? And then how are you thinking about the timeline for those that convert to a potential uptick in bookings? Could we see an acceleration in book-to-bill above 1.3 times before the end of the year here, or given kind of where we are in the year, are we now at a point where you think a more meaningful potential rebound in bookings is more of a 2025 event? Thank you.

Thank you, Max. I'm just – we are laughing here because when did 1.3 become the benchmark? I mean, I know we reported amazing over 1.3 book-to-bin ratios in the past couple of years, largely because of the COVID studies and so on. But, you know, we're very happy with 1.27. We're happy with 1.2. We're happy with these book-to-bits. They are very, very strong. And you're talking about a rebound in bookings. We had excellent bookings. I don't know what – you know, we're happy with this performance. There's no rebound. It's very good. I think the bookings we reported this quarter are the third highest ever. Right. So I'm not sure what the question is with respect to bookings. Did you ask about conversion as well? Or, no, I'm sorry, I didn't –

Yeah, sorry, you just set such a high bar, Ari. But, yeah, in terms of the first part of the question –

That's true. We paid the price, but –

Yeah, sorry, victim of expectations. But my first part of the question was just around whether or not you can provide any sort of detail, more detail around just how much RFP flows in the qualified pipeline.

Oh, yes, yes, I'm sorry. Yeah, so, again, RFP flows, total pipeline, qualified pipeline, you know, in this, our app, basically, all around the qualified pipeline, I think, was up, that was the number, 12%, was up 12%, total pipeline is up single digits, RFP flows as well, right?

with the mid-teams.

Mid-teams, right.

Yeah. Thanks for taking the question.

Your next question comes from the line of Jailendra Singh of True Securities. Your line is open.

Thank you, and thanks for taking my questions. I want to go back to the individual businesses you talked about in TAS, RWE and consulting, both improving second quarter. Last quarter, you called out RWE, some recovery after some slowdown in Q4. consulting taking a step down. How are you thinking about these individual businesses as you think about tax expectations in the second half, considering that recovery and consulting remains relatively volatile, and is RWE back to mid to high teens growth rate, or is there still room for recovery there?

No. I mean, we see overall tax in the second half in the 6% to 7% range at constant currency, okay? That's what we see after, you know, obviously businesses are rolling up their forecasts and they are always higher than that. But we take some contingency, we evaluate the environment and we discount that. And that's where we are now in the 6% to 7% range in aggregate. And, you know, you can make the assumptions yourself. You can see that in order to get to that, if 30% of the business is essentially flattest, that's the data. So the 70% has to grow in the high single digits in aggregate in order to get us to those numbers. So that's where we see the forecast. And we feel, I should add, very confident based on the leading indicators that we look at.

But your real-world numbers sound optimistic.

Double digits? Yeah, well, mid-dot. No, not yet. Not yet. No, no, no. Not like that. No, no. Not high teams. Maybe it could be low teams, but, you know, high single to low teams for real world.

Exactly. Thank you.

Your next question comes from the line of Justin Bowers of DB. Your line is open.

Thank you, and good morning, everyone. So just in terms of the strength in TAS and the outlook for the rest of the year, how much of that is, in your sense, the underlying market improving versus IQVIA winning its fair share of business with some of the tools that you have? And then part two of that would be, what are some of the changes that you've made to manage the part of the business this year versus, let's say, last year at this time?

Well, thank you. First of all, it's not like the market is rebounding. I mentioned before that client cautiousness and budgetary discipline continues, especially at large pharma. It didn't go away. But what we did say before was that within the portfolio of offerings that we have, there are certain things that are mission critical for our clients. And what happened last year at this time is that we expected those things to happen, and they were pushed to the right. Okay? They were delayed. We said all along that at some point those things have to be done. and that is what is happening now and what we see happening in the second half. So it's not like the market overall has grown is that the segments of the market that are must-do for our clients are finally, you know, happening and they will be happening in the second half. So that's number one for the market. So from that sense, you could say that the market is a little better in the sense that the clients are willing to spend that money. But, again, I mentioned before, the negotiations are tougher. So, to answer the second part of your question, what we are doing differently here is obviously being more responsive to our client needs. We are being more accommodating with their terms, and we are commercially being more aggressive to make sure that we actually do win those projects that the markets are putting out there, the clients are putting out there for bid.

Understood. One quick follow-up. In terms of the improving decision-making timelines that you referenced earlier, too, is that around some of the stuff that was pushed out to the right, or is that for some new opportunities as well, or just something that you're seeing more broadly? Thank you.

It's true. It's true broadly. Obviously, the mission-critical stuff is mission-critical and needs to be done. So, yeah, that is improving the overall average. But even, I would say, even for the rest, I think we've seen improved decision-making, faster timelines.

Thank you.

Your next question comes from the line of Tejas Savant of Morgan Stanley. Your line is open.

Hey, guys. Good morning, and thanks for the time here. Ari, just following up on that line of questioning on TAS, I guess, could you share a little bit of color around what gives you confidence to this improved decision-making timeline sort of dynamic continues here, particularly given, you know, the election cycle that's sort of seeding up as we speak? And then on the analytics and consulting piece within TAS, are you starting to see the work related to those new drug approvals you talked about, you know, both year-to-date and last year, starting to show up in the project backlog? Or is that still upside to come heading into year-end and 25? Thank you.

Thank you. Well, you know, I don't think the election has much influence on the day-to-day decision-making with respect to launching of drugs. And, you know, to respond to the second part of your question, the answer is yes. Those approvals, obviously, you know, it's not common for a client to decide that they're not going to launch a drug that's been approved. And there is usually a six-month to six-to-nine-month timeline before that leads to, between the approval and the time at which the drug is actually launched and the work associated with it comes to us. So not much. This was delayed a little bit longer versus what it should have been. And some of these projects that should have happened earlier this year are happening

in the second half of the year. Again, no surprises here. Thank you. Your next question comes from the line of Dan Leonard of UBS. Your line is open.

Thank you. So I have a question on the guidance. It seems that the inferred Q4 sales ramp compared to Q3 is a bit greater than typical. Can you talk about the drivers of that and perhaps even and elaborate further on your conviction in the recovery in TAS in the back half. Thank you.

Yeah, you want to answer that, anyone? I mean, look, first of all, there is recovery in TAS. We just talked about it at length in the past few questions. So that's understandable. Secondly, the compare, you know, is more favorable. We had a deterioration in the fourth quarter last year. was the lowest quarter of the year last year. And we said all along that there would be a mirror image in 24 versus 23. That is, the first quarter would resemble the fourth quarter, the second quarter would resemble the third quarter, et cetera. So we do see a fourth quarter up. And it's not unusual, by the way. There is a seasonality in Q4 that you can go back many years. It's always the case that Q4 is much stronger. So these are the three reasons. One, recovery does, accelerating. Two, compares. And three, seasonality, which is not surprising. Anything else, guys, you want to?

No, I think that covers it.

Thank you.

Your next question comes from the line of Charles Rai of TD Cowan.

Your line is open.

Oh, yeah. Thanks, Ari. I want to ask about M&A. I think so far you've spent maybe, was it a 220-odd million in terms of acquisitions so far in the first half. Can you talk about sort of what the revenue contribution has been? Because I think in the guide was about 150 basis points of revenue growth. And just curious, has that been in TAS or in RDS or both? And, you know, how much, you know, do you still need to maybe do for the back half of the year?

Thank you so much. Yeah, so, look, we said all along that it would be – acquisition would contribute to a better point to our growth this year, and we're wishing we would do more acquisitions, but, you know, valuations continue to be high, and we are – you know, we have a big pipeline, but it's not always the case that we are able to close. So far for the euro, it's a little bit more than a point. And it's a little bit more in TAS than in RDS. But that's it. And look, we haven't spent much so far, but we hope to spend more in the second half.

And we'll see what happens.

Your next question comes from the line of Michael Reiskin of Bank of America. Your line is open.

Great. Thanks for taking the question. I'm not sure you addressed this before, but there have been a couple of prominent cancellations of clinical trials in the industry in the last couple of months. You called out one specifically on 1Q that impacted your performance then and your booked ability then. Just wondering if cancellations have trended any better recently. I know that, you know, the prominent ones always make the news, but just wondering what's happening behind, you know, below the surface on that trend.

Yeah, no, I mean, look, I mentioned in my commentary, and we've said this every quarter in the past few quarters, and it's just not a secret. The world knows that large pharma, largely in response to the IRA and hypothetical impacts down the line, large pharma has been reprioritizing their programs. And they've taken off the shelf some programs that they felt were either too competitive with other existing drugs or that didn't have the same risk-return profiles that they had assumed pre-IRA when those programs were launched. So as a result of that, there have been a little bit more cancellations than usual, really, for the past few quarters. I think, in general, look, we don't tell you what the cancellations are. We report the net bookings. Our average quarterly cancellations are in the half a billion dollar range. that has been the case for a long time, and that's kind of, you know, $500 million plus or minus whatever, $100 to $200 million. So some quarters is less. It could be $300 or $400 million. Some quarters could be more, $600 to $700 million or more. You know, most of these cancellations are $10, $15, $20, $25 million programs, that last quarter, because it was well publicized and because it was a huge one-time number, we chose to let you know about it. We had had questions. Everyone knew that we were the ones doing that program, and pre-call, we had had questions, so we decided to let you know about it. Yes, that's what it was. It was, I don't remember the exact number, in the quarter billion dollars in one shot. But, you know, that could happen. We have no, you know, companies announce usually when they terminate the program. It's partly this reprioritization that I just discussed, and sometimes it's simply because of the data. And in the case of the program that we disclosed last quarter, it wasn't a reprioritization. It was simply that the data wasn't supporting a continuation of the program,

and essentially the program failed, as it often happens in this industry.

Your next question comes from the line of Jack Wallace of Guggenheim Securities. Your line is open.

Hey, thanks for taking my questions. I just wanted to go back and ask a follow-up to the EBITDA guidance questions from earlier. Ari, you called out that there was some mix shift impacting margins in the back half of And with the TAS guidance largely reiterated in the strong second quarter, I was wondering if you could help us get a better understanding for the mix shift, which sounds like it's intra-segment. Thank you.

Yeah, I don't think I can give you much more color than that. It's just where the chips fell, okay? So, I know that this would have attracted two questions. you know, we would have, you know, to look at it again, at this range. It's just, you know, we just build up our forecast, and that's where the most appropriate range fell. It could be also, you know, we did a little bit more acquisitions this quarter, and generally acquisitions come in at a very low margin the first year. So that could have impacted. It's not a big dollar number, frankly. in the grand scheme of things. So I can't give you much more color than that.

Fair enough. And then on the positive side here, right, in OCE, you want a sizable chunk of a top five client. Can you just give us a better understanding for the one or handful of reasons that led that client to switch from the long-time incumbent?

I think they liked our solution better.

I think it gave them, you know, more ability to achieve their goals. I can't go into the details of the program.

You know, that's, yeah, they just like it better. Thank you.

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

Thanks for taking the questions. Ari, you talked a little bit on the capital deployment side about, you know,

wanting to do more in M&A, you know, maybe the environment's there. I know you guys have thought about the leverage ratio landscape, and then, again, any targets on the leverage side.

Yeah, the line came across a little bit blurry, but if I understand, you asked about capital deployment and acquisitions. Luke, you saw that our cash flow performance was actually very strong in the quarter, and that obviously helped continue to reduce leverage. I think we have, on a 12-month trading basis, we ended the quarter at 3.25 times EBITDA, which is very good. I remind you, we were not too long ago in the high fours, and we said that we were going to continue to deliver naturally as EBITDA grows. Acquisitions, yeah, we would, you know, look, our long-term guidance always contemplates a couple of points of contribution. from acquisitions to continue to boost our top line. So far, we've been able to do just over a point. Obviously, we have a rich pipeline, and it's hard for me to predict what acquisition will be in the second half or in the years to come. It's a binary outcome, so I don't know. I'm not sure if that was your question, but that's what I heard.

Your next question.

Yeah, this will be the last question, operator.

Understood. Your last question comes from the line of Matt Skikes of Goldman Sachs. Your line is open.

Good morning. Thanks for taking my questions. Ari, you mentioned the strong funding trends in the EBP segment. At the same time, you're still seeing some cautions in large pharma. How should we think about the potential revenue mix shift of EBP versus large pharma, and would there be any implications for FSP versus full service mix in that? Thank you.

Thank you. Well, first of all, you know, when there's a timeline between funding and, you know, an RFP and then the timeline between an RFP and a booking. So, you know, this is a business that has long cycles. So it's good that we have, just as we were questioning you not to panic when funding declined, and we said it's not going to affect us for a while, you know, we don't get excited because funding this quarter was very strong. Yeah, it's good for our midterm and longterm prospects. But it's not like it's going to affect the mix. Also, we are a very large backlog, the largest in the industry. And, you know, it's not going to meaningfully change the mix of what we do in the next few quarters. And, you know, what's large pharma, what's EBP, what's full service versus what FSP. But you are correct that the more EBP, the more full service, and that certainly helps mitigate the recent trend we've seen where, as we discussed in the past, large pharma have been swinging the pendulum a little bit more towards FSP, as it has happened many times in the history of this industry. So, you are correct from that standpoint that, you know, as more EBP funding is there, there'll be more EBP work in quarters to come, and therefore, when that backlog converts into revenue, there'll be a higher mix of full service versus FFP relative to what it is now.

Thank you.

With no further time for questions, I now turn the call back over to Mr. Joseph.

Thank you. Thank you for taking the time to join us today, and we look forward to speaking to you again in our third quarter of 2024 earnings fall. The team will be available for the rest of the day to take any follow-up questions you might have. Thank you and have a good day.

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