Earnings Call Transcript - IQV Q4 2020

Operator, Operator

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the IQVIA Fourth Quarter 2020 Earnings 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. As a reminder, this call is being recorded. Thank you. I would now like to turn the call over to Andrew Markwick, Senior Vice President, Investor Relations and Treasury. Mr. Markwick, please begin your conference.

Andrew Markwick, SVP, Investor Relations and Treasury

Thank you. Good morning, everyone. Thank you for joining our fourth quarter and full year 2020 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; and Nick Childs, Senior Vice President, Financial Planning and Analysis. 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 on the Events and Presentations section of our IQVIA Investor Relations website. Now, you may have noticed that when we issued our press release this morning, we inadvertently missed the quarterly P&L due to an administrative issue. We apologize for this error. This P&L will be made available in our slide presentation and that will be posted to our website momentarily. 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.

Ari Bousbib, Chairman and CEO

Thank you, Andrew, and good morning, everyone. Thanks for joining our fourth quarter and full year 2020 earnings call. We will review how we closed 2020 and discuss 2021 financial guidance. I’m pleased to report we finished the year with a very strong quarter. We delivered double-digit growth in all key financial metrics and once again reported results above our financial targets. This is all the more remarkable since last year’s fourth quarter was so strong. As you know, through all these difficulties here and as we navigated through the pandemic, we try to be as transparent as possible and provide visibility to our expected financial performance. In such highly unusual circumstances, the default reaction would normally be to withdraw guidance and watch from the sidelines, but as you know, we tried our best to share with you what we saw. We did the same at the end of the third quarter when we decided to provide our 2021 outlook as soon as we had some visibility, which was a full quarter earlier than usual. Today, this outlook has become clearer and we’ve decided to update and raise that guidance. Let’s start by reviewing our fourth quarter results. Revenue for the fourth quarter came in at $3,298 million which was $108 million above the high end of our guidance range. A little over 70% of these beats came from strong organic performance, less than 30% from favorable foreign exchange. Revenue growth was 13.9% on a reported basis and 12.2% at constant currency. Fourth quarter adjusted EBITDA of $735 million grew 14.5%, reflecting our revenue growth and productivity measures. The $25 million beat above the high end of our guidance range was entirely due to the stronger organic revenue performance. Fourth quarter adjusted diluted EPS of $2.11 grew 21.3%. The beat here entirely reflects the adjusted EBITDA drop through. Our strong fourth quarter financial results were driven by numerous operating achievements during 2020. A little bit more color on those achievements starting with technology. Demand for our technology offerings remained strong in 2020. 60 new clients decided to deploy OCE last year, bringing our total number of OCE client wins to 140 since launch. As you know, at the beginning of 2020, a top 15 global pharma client began deployment of OCE in the U.S. This client has now decided to begin global OCE deployment for their medical teams, namely, there are almost 2,000 medical science liaisons worldwide. This same client is also expanding its use of IQVIA technologies through our HCP engagement management platform. We launched this platform during 2020. HCP engagement management works in conjunction with OCE to ensure global commercial activities are executed in compliance with all global regulations. In addition to HCP engagement management, you will have seen that during 2020 we also launched OCE Optimizer. OCE Optimizer is a real-time map-based territory and sales rep alignment solution, which helps our clients plan their sales rep activity and improve their marketing plans. Switching to our real-world business, our real-world business has been relatively well-insulated from the impact of the virus and it has strong growth for the year. The business is advanced in the use of secondary data, remote monitoring, and virtual research approaches, which help the team pivot quickly to working in the new remote world at the onset of the pandemic. Our rich clinical data assets are key to our real-world differentiation. The team has continued to invest in these rich clinical data assets and these assets now include over 1 billion active non-identified patients globally, and the team is busy integrating this rich clinical data into research. In 2020, we launched CARE, our COVID active research experience registry to help communities and public health authorities better understand the impact of COVID-19 on the population. We are leveraging this platform along with our vast experience of registries and analytics to partner with the FDA to support a better understanding of how people are affected by exposure to COVID. This work will help identify with symptoms individuals experience, the length and severity of symptoms and whether any medications or supplements they are taking affect the severity of those symptoms. It’s a perfect application of our real-world capabilities. Similarly, we have become the partner of choice around the world to assist various governments and healthcare authorities with large-scale diagnostic testing and monitoring of COVID patients. This new series of offerings, which leverages our connected capabilities contributed incrementally to the strong sequential growth in our TAS segment. Moving to R&DS. As you know, the R&DS team responded quickly in 2020 to support our clients with the development of vaccines and therapies for COVID-19. We’ve been involved in more than 300 clinical trials and studies for the virus, including four of the five vaccine trials that made it through Phase 3 and were funded by the U.S. Government in operational work speed. To help speed recruitment, we leveraged our direct-to-patient solutions, which include the use of patient registries and IQVIA sponsored advertisements. To-date, we’ve recruited over 100,000 patients to COVID trials. The pandemic has accelerated the need for remote and risk-based monitoring and clinical research, which in turn has accelerated the adoption of our virtual trial technology. In total, we’ve won over 60 new studies using our virtual trials solutions across 10 therapeutic areas, including awards with five top 10 pharma clients. The technology suite combines e-consent, telemedicine, eCOA, and digital communication and in-platform on health cloud, the sales force platform that is purpose-built for healthcare and life sciences. This technology is being deployed to speed vaccine development and was an important factor in helping the team secure the two Phase 3 full-service COVID trials that we are working on. The environment for R&D and outsourcing remains very healthy. Biotech funding remains strong, with the National Venture Capital Association reporting a record number of deals for the year. The pipeline of late-stage molecules continues to expand and is at an all-time high. It is these healthy environments combined with our differentiated capabilities, that has resulted in strong new business awards for the R&DS team. Our contracted backlog including pass-throughs grew 18.5% year-over-year to $22.6 billion at December 31, 2020. As a result, our next 12 months revenue from backlog increased to $5.9 billion, up 13.5% year-over-year. We continue to build on our strong momentum in the fourth quarter, with the team delivering a contracted net book-to-bill ratio of 1.41 including pass-throughs and 1.42 excluding pass-throughs. We exited the year with an LTM contracted book-to-bill ratio of 1.63 including pass-throughs and 1.44 excluding pass-throughs. We expect continued strong activity going forward as our pipeline of R&DS opportunities is growing double-digit in both volume and dollars across a very wide range of therapies.

Ron Bruehlman, CFO

Thanks, Ari, and good morning, everyone. As Ari mentioned, this was a strong quarter to close the year. Let’s start by reviewing revenue. Fourth quarter revenue of $3,298 million grew 13.9% on a reported basis and 12.2% at constant currency. Revenue for the full year was $11,359 million, which was up 2.4% reported and 2.3% at constant currency. Technology & Analytics Solutions revenue for the fourth quarter of $1,425 million increased 17.4% reported and 15.1% at constant currency. The sequential bump in growth this quarter versus the 9.2% growth in the third quarter was due to the COVID-related work that Ari mentioned. Full year Technology & Analytics Solutions revenue was $4,858 million, up 8.3% reported and 8.1% at constant currency. R&D Solutions fourth quarter revenue of $1,684 million was up 14.5% at actual FX rates and 13.2% at constant currency. Pass-throughs were a tailwind of 220 basis points to fourth quarter R&DS revenue growth, due entirely to COVID work. But you should note that R&DS delivered double-digit organic growth on both the services and 606 basis, again strong performance, especially considering the tough comparison to the fourth quarter of 2019, when organic service revenue also grew at a double-digit rate. For the full year, R&D Solutions revenue was $5,760 million, essentially flat on both the reported and constant currency basis. Excluding the impact of pass-throughs, R&D Solutions full year reported revenue grew 2.2%. CSMS revenue of $189 million was down 10% reported and 11.9% on a constant currency basis in the fourth quarter. For the full year, CSMS revenue of $741 million was down 9% at actual FX rates and 9.2% at constant currency. Demand for field reps continues to be soft in the current environment. As a result, business development activity has slowed. But the businesses performed modestly better than we expected as our clients have largely retained existing field reps. Now moving down the P&L, adjusted EBITDA was $735 million for the fourth quarter, which was a growth of 14.5%. For the full year, adjusted EBITDA was $2,384 million. Fourth quarter GAAP net income was $119 million and GAAP diluted earnings per share was $0.61. For the full year, GAAP net income was $279 million and GAAP diluted earnings per share was $1.43. Adjusted net income was $411 million for the fourth quarter and $1,252 million for the full year. Adjusted diluted earnings per share grew 21.3% in the fourth quarter to $2.11. Full year adjusted diluted earnings per share was $6.42. Now as Ari highlighted, R&DS new business activity remains strong, backlog grew 18.5% year-over-year to close 2020 at $22.6 billion. We expect $5.9 billion of this backlog to convert to revenue over the next 12 months, which represents a year-over-year increase of 13.5% and this provides a basis for our 2021 guidance, which I will be discussing shortly. Now let’s go to the balance sheet. At December 31, cash and cash equivalents totaled $1.8 billion and debt was $12.5 billion. So our net debt was $10.7 billion. Our net leverage ratio at December 31 improved to 4.5 times trailing 12-month adjusted EBITDA and that compares to a peak of 4.8 times at the end of the second quarter and 4.7 times at the end of the third quarter. And you’ll recall that we’ve committed to deleveraging between 3.5 times and 4 times net leverage as we exit 2022. You can expect that we’ll make good progress towards this target in 2021 due to our double-digit adjusted EBITDA growth and improved free cash flow conversion. The cash flow continues to be a bright spot. Cash flow from operations was $750 million in the fourth quarter, up 29% year-over-year. CapEx was $176 million, resulting in free cash flow of $574 million. For the full year, free cash flow was $1.34 billion, up 61% year-over-year. We resumed share repurchase activity during the fourth quarter, repurchasing $110 million of our shares. Full year share repurchases were $423 million. We ended the year with 194.8 million diluted shares outstanding and currently have $918 million of share repurchase authorization remaining under our program. As a result of our strong free cash flow performance, actions we took at the onset of the pandemic to access capital markets and capital allocation decisions during the year, we now have $3.3 billion of available liquidity on our balance sheet between the undrawn revolver of $1.5 billion and the cash balance of $1.8 billion. We will continue to be judicious in how we use this liquidity consistent with our goal of reducing net leverage. Okay, let’s turn to guidance now. We are raising our full year guidance by $250 million for revenue at the low end of the range and by $300 million at the high end of the range. The new revenue guidance is $12,550 million to $12,900 million. A little under half of this increase is driven by a stronger outlook for the business and the remainder is from favorable FX movements versus the guidance we provided on our third quarter call. I note that the revised guidance includes about a 200 basis points FX tailwind versus the prior year. We are also raising our full year profit guidance; we’ve increased our adjusted EBITDA by $35 million at the low end of the range and by $40 million at the high end of the range, resulting in full year guidance of $2,760 million to $2,840 million. The change in FX versus our prior guidance actually had a slightly negative impact on profit due to the unusual mix of currency fluctuations versus the historic norm. So the adjusted EBITDA increase that you see in our guidance is more than entirely the result of a stronger organic revenue output. We’re raising our adjusted diluted EPS guidance by $0.12 at the low end of the range and by $0.13 at the high end of the range to $7.77 to $8.08. This represents year-over-year growth of 21% to 25.9%. And let me go a little deeper to provide you with some color to help you with your models. First, when you’re modeling quarterly revenue, keep in mind that the second quarter will be the easiest comparison and the fourth quarter will be the toughest comparison. And within our adjusted diluted EPS guidance, we’ve assumed interest expense of approximately $415 million, operational depreciation and amortization of slightly over $400 million, other below the line expense items such as minority interest of approximately $50 million and a continuation of share repurchase activity. Our guidance also assumes that the effective tax rate will remain largely in line with 2020. Our full year 2021 guidance assumes that current foreign exchange rates remain in effect for the balance of the year. Now before turning to first quarter guidance, let me give you a look at the segment growth rates for 2021. We currently expect Tech & Analytics Solutions reported revenue growth to be between 9% and 12%. R&D Solutions reported revenue growth to be between 14% and 17%, which includes a 100 basis point headwind from pass-throughs. And CSMS reported revenue growth is expected to be down about 2%, weaker earlier in the year and recovering later in the year. Now, as in the past, we’re also providing guidance for the coming quarter and this assumes that FX rates remain constant through the end of the quarter. On that basis, first quarter revenue is expected to be between $3,150 million and $3,200 million, representing reported growth of 14.4% to 16.2%. All three segments should deliver similar constant currency growth rates to what we saw in the fourth quarter. Adjusted EBITDA is expected to be between $660 million and $675 million, representing reported growth at 17.4% to 20.1%. And finally, adjusted diluted EPS is expected to be between $1.81 and $1.87, up 20.7% to 24.7%. So to summarize, we delivered strong fourth quarter results with double-digit growth in all key financial metrics and that’s on top of a strong fourth quarter in 2019. We posted mid-teens revenue growth for both our TAS and R&DS segments. Our R&DS backlog improved to $22.6 billion, up 18.5% year-over-year. We posted a strong free cash flow for the fourth quarter and full year, a $574 million for the quarter and $1.34 billion for the year. We closed 2020 with net leverage of 4.5 times trailing 12-month adjusted EBITDA and a very healthy liquidity position, including an undrawn revolver and $1.8 billion of cash. And as we look to 2021, we see double-digit revenue growth, margin expansion, adjusted diluted EPS growth of over 20%, continued robust R&DS bookings activity, and a further reduction in our net leverage ratio.

Operator, Operator

Your first question comes from Robert Jones with Goldman Sachs. Your line is open.

Robert Jones, Analyst

Great. Good morning. Thanks for taking my questions. I guess maybe just on TAS, it seems like record constant currency growth in the quarter from the segment, despite the advanced management business, I’m assuming, not really coming fully back. And if I heard you correctly, Ari, it sounded like a good portion of the acceleration was driven by real-world evidence for the government. I’m just curious how sustainable some of that work might be into 2021 and what’s assumed in this healthy guidance of 9% to 12% in TAS? And then just any thoughts on the other pieces of TAS outside of real-world evidence and the guidance would be helpful?

Ari Bousbib, Chairman and CEO

Thank you. TAS has generally been less affected by COVID-19 in 2020 compared to R&D or CSMS. Most of our data, analytics, consulting, and real-world business operations remained unaffected, with the exception of the events management sector, which virtually paused. By the fourth quarter, the TAS business had returned to its normal growth rates, previously noted at 9.2% constant currency growth in the third quarter. The increased growth rate in the fourth quarter, approximately 600 basis points, was solely due to additional work stemming from COVID-related activities. We anticipate this added contribution will continue at a similar rate into the first quarter. Like R&DS, the COVID work in TAS has been executed faster, and our guidance for 2021 includes the COVID work we have visibility on, though currently, there are no COVID-related projects factored into the second half of 2021 guidance. It is still early in the year, so changes could occur, but we expect that most COVID-related work in TAS for 2021 will be concentrated in the first quarter, similar to the fourth quarter, with some sales in the second quarter. The COVID work mainly involves projects for governments, utilizing our resources and analytics to assist authorities in crisis management, such as our real-world work for the FDA mentioned earlier. We are also engaged in large-scale diagnostic testing and monitoring of COVID patients for various governments across Europe and Asia. We project that this work will likely diminish by mid-year according to our guidance, although we have an expectation, not included in the guidance, that we may continue similar projects as we have developed new capabilities and offerings for future market engagement.

Robert Jones, Analyst

No. That’s helpful, Ari. And if I could just ask one on the R&DS side, similar question. I know that the COVID work in the past or implications have been kind of a moving target, but just similar thoughts would be appreciated on how you’re thinking about COVID versus non-COVID-related work in the R&DS guidance for 2021.

Ari Bousbib, Chairman and CEO

Yes. COVID-related work significantly contributed to the growth of R&DS. However, mid-double-digit growth in TAS is not the standard expectation. While TAS growth accelerated, it reached the high single-digit growth we anticipated before the pandemic. Looking back at the long-term guidance we provided in June 2019, we expected TAS to hit high single-digit growth eventually reaching 10%. In terms of R&DS, it would be misleading to assume that mid-double-digit growth is the norm. It's difficult to ascertain what the growth would look like without the COVID work, as other business activities would likely have been delayed. Even without the large COVID trials, we would have seen strong underlying growth in R&DS services for the fourth quarter. We expect to continue addressing COVID work through 2021 and potentially into 2022, given the ongoing demand for vaccines and the development of new vaccines for virus variants, as well as treatment programs for specific populations. Our backlog is significant at $22.6 billion as of the end of 2020, and we are positioned to execute this backlog effectively. Improvements in site startup and patient recruitment are contributing positively. The revenue from backlog is on the rise, supporting our R&DS revenue guidance for 2021. Our pipeline of opportunities is robust, showing good growth even when excluding COVID-related opportunities. For instance, the oncology pipeline is experiencing mid-double-digit growth, and the CNS pipeline has grown low-double digits to around 12-13%. The cardiovascular and diabetes pipelines are also seeing strong double-digit growth. When considering post-COVID scenarios, we are not expecting a dramatic decline since the majority of our backlog is not COVID-related. In 2020, COVID-related work represented between 15% and 20% of our services bookings each quarter, except for the first quarter, and accounted for exactly 15% for the year. We continue to secure solid business across all therapy areas, and we anticipate strong growth in R&DS will persist even after the pandemic. Thank you.

Robert Jones, Analyst

Great. Thanks, Ari.

Andrew Markwick, SVP, Investor Relations and Treasury

If we can move to the next question in the queue please, Operator?

Operator, Operator

Your next question comes from Tycho Peterson with JPMorgan. Your line is open.

Tycho Peterson, Analyst

Hey. Thanks. Ari, start a follow up on the first question, but I think previously you talked about real world evidence actually picking up as the pandemic lingers, just given that, you need to understand why people have more severe symptoms, a lot of vaccines were rushed to market. So I’m just curious as to why you think that piece will drop off after the first quarter given there seems to be a growing need and most of your peers are talking about it being a pretty strong year for real world evidence?

Andrew Markwick, SVP, Investor Relations and Treasury

Yeah.

Ari Bousbib, Chairman and CEO

Yeah. Go ahead, Andrew. Yeah. Yeah.

Andrew Markwick, SVP, Investor Relations and Treasury

Yeah. I guess, I mean, Tycho, I think, Ari was alluding to earlier. I think he said, look, it’s still early in the year and this could change it. And then we want to get ahead of ourselves and bake anything into our guidance, but we don’t have line of sight into our contracts. It’s obviously a fast-moving environment with the COVID work and its fast execution, and we saw very good growth in the first quarter and we expect that to repeat in the second quarter of TAS. Ari mentioned in his prepared remarks at the beginning, obviously, we’re doing work with the FDA and we’re looking at how COVID is impacting the population and what kind of treatments and therapies have people been on or drug regimen have people been on, I mean, their symptoms maybe aren’t as severe as other patients. And so we’ve obviously got a seat at the table here. We’re talking to government and I think that means we’re becoming kind of the company of choice with other governments around the world. But I think we just don’t want to get ahead of ourselves here and think of anything else. Ron, if you have?

Ron Bruehlman, CFO

Yeah. Yeah. I would just add, Tycho, that we’ve included in our guidance, what we have direct visibility to, but this is a very fast-moving environment and things pop up all the time. So it could change.

Ari Bousbib, Chairman and CEO

We are thrilled to be involved in COVID-related work. The broader strategic picture is that, despite the challenges faced, our company has been well-prepared for situations like this. The capabilities we have developed through significant investment have proven essential for assisting our clients and governments, whether in commercial applications, real-world scenarios, or research and development. Our relationships with clients have strengthened, and our capabilities have been validated. We anticipate capturing a larger share of spending in the long-term within the life sciences sector, and we are truly excited about the ongoing pipeline of opportunities, both commercial and in research and development.

Tycho Peterson, Analyst

Okay. That’s helpful. And then just two quick follow ups, I’m just curious on recovery trends, where you stand in terms of site accessibility. I think it was 70% coming out of 3Q. So where does that stand today? And then, separately, I didn’t hear you mention OCT. I’m just curious how we should think about that rollout and any potential synergies with OCE? Thanks.

Ari Bousbib, Chairman and CEO

What was your first question?

Andrew Markwick, SVP, Investor Relations and Treasury

First question was on site.

Ron Bruehlman, CFO

Yeah. First question was on site access and site access actually remained fairly close to the 70% number.

Ari Bousbib, Chairman and CEO

Right.

Ron Bruehlman, CFO

We’ve just learned ways to work around it. Although, we would expect it to improve gradually.

Ari Bousbib, Chairman and CEO

At the lowest point of the crisis, our site access dropped to less than 20%, which significantly impacted our R&D business. In the second quarter, we increased site access to 53%, and by the end of the third quarter, it reached about 70%. While we have not seen further improvement in that metric, it has stabilized at 70%. The lack of return to 100% is largely due to ongoing flare-ups. However, we have adapted our strategies, demonstrating that site access isn't the only factor that matters. We discovered that maintaining a critical mass of site access, like our current level, allows our remote monitoring capabilities to effectively mitigate disruptions in service delivery. We have established site networks and relationships that enable us to navigate around sites that are not operational for clinical research, and we can transition to remote monitoring much faster than we could at the start of the pandemic. Regarding startup activity, which had also stalled, it has now returned to pre-pandemic levels, which is very positive news. This recovery has not been significantly affected by the rise in COVID cases or new variants. People have adapted to working with the virus, and startup activity is back to what it was before the pandemic, with no anticipated changes. Patient recruitment is another important area where we have seen strong trends, closely following site startup. Patients are returning to sites at levels near pre-pandemic figures, which is encouraging.

Tycho Peterson, Analyst

Orchestrated clinical trials, the OCT rollout and…

Ari Bousbib, Chairman and CEO

OCT.

Tycho Peterson, Analyst

… how do you think about that? Yeah.

Ari Bousbib, Chairman and CEO

I mentioned in my prepared remarks that our virtual trials technology has become prominent due to COVID. If we consider what OCT encompasses, there are four main components. The first is the digital site suite, which includes the site portal, payments, and ETMF. Next is the digital patient suite, where patients interact with e-consent and eCOA, essentially making the virtual trial the study hub. Following that is the digital trial management suite, which includes CTMS and risk-based monitoring, and finally, there's the compliance suite featuring RIM Smart and Vigilant. The technologies in our site suite, patient suite, and compliance suite went live in 2020, while the trial management suite is expected to be launched shortly, likely by the end of the first quarter or beginning of the second quarter this year. Overall, all four suites—the site, patient, and compliance—went live in 2020, and the trial management suite will be operational around March or April of this year. We are experiencing strong client interest, with an increase in RFP activity for the OCT platform across all customer segments, including large, mid, and AVP. We will provide more updates on this, but to answer your question, most products are live, and the entire system will be fully operational by the start of the second quarter.

Tycho Peterson, Analyst

Okay. That’s very helpful. Thank you.

Ari Bousbib, Chairman and CEO

Thank you.

Operator, Operator

Your next question comes from Ricky Goldwasser with Morgan Stanley. Your line is open.

Ricky Goldwasser, Analyst

Good morning. The backlog conversion has clearly improved, even when we account for the COVID project benefit. Looking ahead to 2021, when should we expect the backlog conversion to return to the pre-COVID level of 7.6%? Should we anticipate this in the second half of 2021, or might it extend into 2022?

Ron Bruehlman, CFO

Ricky, the line quality was quite poor. We had some difficulty hearing you. I believe your second question was about patient recruitment and whether we are anticipating an increase in the population returning. From what we are observing…

Ricky Goldwasser, Analyst

So, actually the question is whether individuals who are vaccinated might affect how you approach trial design. If someone has received a COVID vaccine, does that mean they could be compromised and unable to participate in trials?

Ron Bruehlman, CFO

No.

Ari Bousbib, Chairman and CEO

I don’t think so. No. No.

Ron Bruehlman, CFO

No. I think it’s all part of the general recovery that we’re seeing and…

Ari Bousbib, Chairman and CEO

Yeah. No.

Ron Bruehlman, CFO

But the way we are seeing.

Ari Bousbib, Chairman and CEO

It doesn’t change anything about the design of the trials. It's just another element that allows a patient to access office sites or interact with healthcare professionals. It would have been the same with a negative test or someone with antibodies. That doesn’t change anything about the design.

Ron Bruehlman, CFO

What was the first part of the question, Ricky? We were really having difficulty hearing on our side.

Ricky Goldwasser, Analyst

So the first one was, if you think about backlog conversion, clearly backlog conversion…

Ron Bruehlman, CFO

Oh! Oh! Yeah.

Ricky Goldwasser, Analyst

When do you expect to return to the pre-COVID level of 7.6%? Should we consider this when modeling the second half of 2021 or looking towards early 2022?

Ron Bruehlman, CFO

Look, like, the backlog conversion is a really tough statistic to model out because it depends on backlog burn because it depends on how much we’re adding to the backlog in any quarter. So what we’ve tried to do is provide guidance to tell you how much we think it’s going to burn during the course of the year, the next 12 months revenue, and allow you to take it from there. Yes, the COVID work does burn quicker than the other work. There’s no question about that. But we don’t guide to a particular backlog conversion rate because it’s just too difficult to do, because it depends also on how much you happen to be booking; if you’re booking a lot like, we have been recently then obviously the backlog goes up and the burn rate goes down. But that’s not a bad thing. So, yes, I would expect you would see a faster burn of the COVID-related work, which we mentioned was about 15% of our service bookings in 2020 and a more normal rate of burn on the rest of the backlog. And I think it still remains to be seen how much additional COVID-related work we’re going to book as we go through 2021. That’s still a question mark.

Andrew Markwick, SVP, Investor Relations and Treasury

Thanks. Thanks, Ricky. I think if we can move to the next question in the queue, please.

Operator, Operator

Your next question comes from Eric Coldwell with Baird. Your line is open.

Eric Coldwell, Analyst

Thanks very much. I have one technical question and then a more strategic one. So, first off, I’m getting a couple of inbound asks on the FX update. I’m just curious if you could maybe clarify, be more clear for us people who missed it. The FX guidance for 2021, is it plus 200 bps tailwind for the full year in total or was the update today that that’s an incremental 200 bps since you first gave 2021 guidance a few months ago?

Ron Bruehlman, CFO

So when you look at the year-over-year FX impact, when you’re looking at the growth rate, ultimately, if you’re trying to take our reported guidance and get to a constant currency guidance, it’s…

Eric Coldwell, Analyst

Yeah.

Ron Bruehlman, CFO

... 100-basis-point tailwind year-over-year. Similar to that in TAS and CSMS and a little bit lower in R&D, maybe about 100 basis points in R&D.

Ari Bousbib, Chairman and CEO

No. He is asking versus the previous guidance…

Ron Bruehlman, CFO

Versus the previous...

Eric Coldwell, Analyst

Yeah. That would be the follow on is, what was embedded in the guidance a few months back, so we could just see the delta?

Ron Bruehlman, CFO

Previous guidance was 150.

Ari Bousbib, Chairman and CEO

Yeah.

Andrew Markwick, SVP, Investor Relations and Treasury

Yeah. So...

Ron Bruehlman, CFO

Yeah. Yeah. So, previous guidance on 100 basis points and this will go to the 200 basis points tailwind.

Eric Coldwell, Analyst

Thank you very much for that. It's quite interesting to note the positive trends in cash flow, which I know have been a major focus for you, Ron. We have observed significant improvement over the last few quarters. I would appreciate it if you could split this into two parts. First, could you provide more specific details on what is driving the operational improvements? Second, can you separate the impact of the COVID vaccine work and the increased pass-through benefits we finally saw in the fourth quarter? How much did these factors contribute compared to the core underlying fundamental improvements?

Ron Bruehlman, CFO

It’s a good question. As you can see from our cash flow statement, the main factor behind our improvement in cash flow, particularly in 2020, was our enhanced collections performance. This came from collecting payments more quickly, billing on time, and structuring contracts to facilitate earlier cash inflows. We focused significantly on reducing our overdue receivables, which we had somewhat neglected, and we succeeded in making a substantial impact in that area. The processes we implemented should carry through into 2021, requiring continued emphasis. We've improved our procedures, and we anticipate ongoing benefits from that. You pointed out an important aspect: the COVID-related work provided some advantages in terms of customer advances, which helped our cash flow in 2020. When examining our 2020 cash flow as a percentage of adjusted net income, it was notably high. In a typical year, we aim for a free cash flow percentage of 80% to 90% of adjusted net income. However, cash flow can be unpredictable. We had a strong performance in 2021, so our 2020 figures as a percentage of net income might not be as robust next year. Nonetheless, we have significantly improved our cash conversion, and you should expect to see continued benefits moving forward.

Eric Coldwell, Analyst

That’s very helpful. Thanks, guys.

Andrew Markwick, SVP, Investor Relations and Treasury

Thanks. I think we are coming out close to the hour. But if we can take one more question, please.

Operator, Operator

Your last question comes from Dan Brennan with UBS. Your line is open.

Dan Brennan, Analyst

Great. Thank you. Thanks for taking the question. I guess a two-part question. One was on OCE. So, obviously, continued progress there. I’m just wondering when do we begin to see OCE show up in revenue, and then you talked about the timetable that was discussed deployed, and then you begin to generate traction on that with 140 wins to date, any color about what’s baked in the 2021 guidance and if not kind of when do we see it?

Ari Bousbib, Chairman and CEO

We continue to see strong traction in the marketplace, although deployment does take time. In 2020, we secured 60 client wins, and despite the challenges posed by the pandemic, we’ve managed to keep selling, totaling 140 client wins since our launch. We maintain a winning rate of two out of three against competitors. Our large client deployments include global partnerships with Roche, Novo Nordisk International Operations, and a U.S. deployment with AstraZeneca, as well as a project with another top 15 pharmaceutical company in Asia, along with more global deployments for medical teams from other top 15 pharma firms. Currently, we have tens of thousands of users, which has made a significant impact even though it didn’t affect our $12.9 billion revenue in 2021; however, it is contributing to notable growth. We foresee strong margin improvement as we finalize implementations. The margin drop-through becomes more favorable when the revenue is driven by licensing, and we’re starting to see that trend, which we expect will grow as we complete more deployments. Our selling efforts will also necessitate implementations. Our strategy remains consistent with that of other technology firms, focusing on the land and expand model. We have addressed HCP engagement management and compliance, and we are launching additional modules for continued expansion beyond OCE, which has been our centerpiece. Ron, do you have anything to add?

Ron Bruehlman, CFO

I just wanted to mention that sometimes investors mistakenly link our technology business solely with OCE, mainly because we discuss it frequently and have a competitor in that area who does the same. However, our technology business is much broader, as Ari mentioned. It spans performance management, compliance, information management, social media, and payer-provider relations, along with a growing clinical tech segment. I want to stress that our technology encompasses far more than just OCE for IQVIA.

Ari Bousbib, Chairman and CEO

Yeah. Thank you.

Andrew Markwick, SVP, Investor Relations and Treasury

Thanks very much, Dan. So we’re at the top of the hour now. So thanks, everyone, for taking the time to join us today and we look forward to speaking with you again on our first quarter 2021 earnings call and we’ll be available for the rest of the day to take any follow-up questions that you might have. Thank you everyone.

Operator, Operator

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