Earnings Call Transcript - IQV Q3 2021

Operator, Operator

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the IQVIA Third Quarter 2021 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 hand the conference over to your speaker today, Nick Childs, Senior Vice President, Investor Relations and Corporate Communications. Mr. Childs, please begin your conference.

Nick Childs, Senior Vice President, Investor Relations and Corporate Communications

Thank you. Good morning, everyone. Thank you for joining our third 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 Bryan 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 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. The 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 Chief Executive Officer

Thank you, Nick, and good morning, everyone. Thank you for joining today for our third quarter results. Our strong momentum from earlier in the year has continued despite the resurgence of COVID-19 due to the Delta variant. This has not had an impact on our operations as we have learned to manage through these disruptions. Our outlook for the longer term remains unchanged. The backdrop for the life science industry continues to be very strong. Biotech funding continues to run at record levels according to the National Venture Capital Association. Funding totaled $35.8 billion through September 2021, already exceeding the full year of 2020. The pipeline of late-stage molecules continues to expand and is at an all-time high with almost 3,000 molecules in active Phase II or Phase III development. Clinical trial starts are trending well ahead of recent years with the year-to-date starts up 23% over 2020 and 13% over 2019. And finally, new drug approvals by the FDA are keeping pace with the historically high levels of 2020, with 40 new drugs approved year-to-date, which sets the stage for a strong volume of upcoming commercial launches. The bottom line is the dynamics in the industry are strong, and we remain bullish on our outlook for our end markets and for IQVIA in particular. As we think about our longer-term plans, I want to remind you of our upcoming analyst and investor conference on November 16 in New York City. At that meeting, we will provide financial guidance for 2022, ahead of our usual timeline, which is normally coinciding with the end of year results in early February. And we will share as well our midterm outlook and plans for the next phase of our growth. We look forward to seeing everyone and hope you can join us then. With that, let's review the third quarter. Revenue for the third quarter grew 21.7% on a reported basis and 21.1% at constant currency and was $64 million above the midpoint of our guidance range. The beat was driven primarily by higher pass-throughs, which, as you know, dilute our margins somewhat, as well as by stronger organic revenue growth. Third quarter adjusted EBITDA grew 20.5%, reflecting our revenue growth as well as productivity measures. The $8 million beat above the midpoint of our guidance range was entirely due to the stronger operational performance. Third quarter adjusted diluted EPS of $2.17 grew 33.1%. That was $0.07 above the midpoint of our guidance, with the beat coming from the adjusted EBITDA drop-through as well as favorability in below-the-line items. Let me now provide an update on the business. Our real-world evidence business continues to take a leading role in informing healthcare. In late September, the FDA released their draft guidance on how electronic health records and medical claims data can support regulatory decision-making, and it cited several IQVIA publications. With the growth of rare disease therapies and personalized medicine-driven trials, the number of single-arm clinical trials increases every year and external competitors provide important context for these studies for both regulators and payers. Our clients recognize our leading expertise in this area. For example, we had a recent major win to deliver an external comparator in a cardiovascular study for a top 20 pharma client. In another example, we were awarded a 15-year follow-up study to demonstrate the long-term effectiveness and safety of a newly launched gene therapy. Regulatory guidance requires extended follow-up for patients exposed to cell and gene therapy. And IQVIA's innovative real-world capabilities, combining direct-to-patient solutions as well as IQVIA technology platforms to capture secondary data, was pivotal in this award. On the technology front, our suite of offerings continues to be adopted in the marketplace. You are familiar with our OCE platform and other commercial technology applications. And we have, of course, continued to expand our footprint here. We have 10 new client wins in the quarter, bringing the total number of OCE wins to date to 169 customers. But we are also very excited to see increased adoption of our orchestrated clinical trial suite, OCT. This quarter, for example, a leading biotechnology company in Asia selected our site portal module within OCT to power site engagement across all of their trials. We now have 165 customers that have bought the site portal module, representing 155,000 sites and 1,716 active studies that are using our site portal module. Similarly, our award-winning eCOA platform continues to experience strong demand. We have successfully deployed over 150 projects across 35 different therapeutic areas. To date, we have over 70 customers using this platform, including 8 of the top 10 pharma clients. The platform has processed over 10 million unique patient responses in 65 countries and across 28 languages. Now I want to say a few words about a fast-growing part of our industry. You're familiar with decentralized trials or DCT. The IQVIA decentralized trial offering combined several tech modules within our OCT suite, including eCOA, eConsent, telemedicine, and connected devices, as well as other service capabilities, including home nurses and phlebotomists, along with our decentralized trial patient coordinators and study coordinators, all organized around our decentralized trial platform. Importantly, we've developed innovative clinical patient engagement offerings, including direct-to-patient services to accelerate recruitment and improve patient diversity and inclusion in clinical trials. When we step back and look at the growing importance of DCT in our own portfolio, we find that up to 30% of our active full-service trials utilize one or more components of our DCT offering. Incidentally, when our competitors speak about their own DCT offerings, this is often with the report as their DCT business. When we look at trials that fully utilize our DCT capabilities, meaning they are fully run on our decentralized trial platform, we've been awarded 89 trials to date totaling over $1 billion. These awards are with 34 unique sponsors, of which 10 have multiple decentralized trials ongoing with us. These trials span 12 different therapeutic areas, 32 unique indications, and have recruited over 200,000 patients in 40 countries. Our ability to combine advanced clinical technology with an extensive network of investigators and care professionals differentiates us in this space and makes us a partner of choice for decentralized trials and utilizing the full capabilities. Our overall R&DS business continues to build on its strong momentum. We had approximately $2.6 billion of net new bookings in the quarter, bringing our LTM net new bookings for the first time to over $10 billion, including pass-throughs. This resulted in a contracted net book-to-bill ratio of 1.39 including pass-throughs, and 1.28 excluding pass-throughs. At September 30, our LTM contracted book-to-bill ratio was 1.38, including pass-throughs, and 1.37, excluding pass-throughs. Our contracted backlog in R&D, including pass-throughs, grew 12.7% year-over-year to $24.4 billion at September 30, 2021. As a result, our next 12 months revenue from backlog increased to $6.9 billion, up $300 million sequentially versus the second quarter. As we have signaled several times in the past, we've ramped up investments in our lab capabilities. We recently announced the opening of our new 160,000 square foot innovation laboratories in North Carolina. This facility provides customers with access to cutting-edge bioanalytical, vaccine, and genomics capabilities, along with an expansion into exploratory human biomarker discovery services. These new services will enable us to partner closely with sponsors in the development of essential biomarkers to support new molecules moving into clinical development and throughout the lifecycle. And this expansion, of course, comes on top of the investment we announced last quarter in our 130,000 square foot facility in Scotland. I will now turn it over to Ron for more details on our financial performance.

Ron Bruehlman, Executive Vice President and Chief Financial Officer

Okay. Thanks, Ari, and good morning, everyone. Let's start by reviewing revenue. Third quarter revenue of $3.391 billion grew 21.7% on a reported basis and 21.1% at constant currency. Year-to-date revenue was $10.238 billion, growing at 27% reported and 25% at constant currency. Technology & Analytics Solutions revenue for the third quarter was $1.337 billion, which was up 10.8% reported and 9.9% at constant currency. Year-to-date, Technology & Analytics Solutions revenue was $4.38 billion, which was up 17.6% reported and 14.9% at constant currency. In the third quarter, R&D Solutions had revenue of $1.853 billion, up 32.4% at actual FX rates and 31.9% at constant currency. Excluding the impact of pass-throughs, third quarter R&D Solutions revenue grew 24.7% year-over-year. Year-to-date, revenue in R&D Solutions was $5.612 billion, up 37.7% reported and 36.2% at constant currency. Finally, contract sales in Medical Solutions or CSMS revenue of $201 million was up 12.3% reported and 12.8% at constant currency. Year-to-date, CSMS revenue was $588 million, growing 6.5% reported and 5.1% at constant currency. Now let's move down the P&L to adjusted EBITDA, which was $728 million in the third quarter, up 20.5%. Year-to-date adjusted EBITDA was $2.194 billion, growing 33.1% year-over-year. Third quarter GAAP net income was $261 million, and GAAP diluted earnings per share was $1.34. Year-to-date, we had GAAP net income of $648 million or $3.32 of earnings per diluted share. Adjusted net income was $423 million for the third quarter, and adjusted diluted earnings per share grew 33.1% to $2.17. Year-to-date, adjusted net income was $1.264 billion or $6.48 per share. Turning now to the R&D Solutions backlog. As already reviewed, R&D Solutions delivered another outstanding quarter of net new business. Backlog now stands at $24.4 billion. In the last 12 months, net new bookings, including pass-throughs, rose to over $10 billion. Okay. Turning to the balance sheet. At September 30, cash and cash equivalents totaled $1.5 billion and debt was $12.2 billion. This resulted in net debt of $10.7 billion. Our net leverage ratio at September 30 came in at 3.65x trailing 12-month adjusted EBITDA. Our cash flow was again quite strong in the third quarter. Cash flow from operations was $844 million, and with CapEx of $162 million, this resulted in free cash flow of $682 million. This third quarter performance brought our free cash flow year-to-date, that is through the first 3 quarters, to almost $1.8 billion, which continues the strong improvement trend we've had over the past 3 years. In the quarter, we repurchased $125 million of our shares, which leaves us with $697 million of share repurchase authorization remaining under our latest program. Okay. Let's turn to guidance. As you saw, we're raising our full year 2021 revenue guidance by $188 million at the midpoint. This reflects the third quarter strength in the continued operational momentum in our business. Our new revenue guidance is $13.775 billion to $13.850 billion, representing year-over-year growth of 21.3% to 21.9%. I'll note that included in this guidance is a $30 million headwind from FX versus our previous guidance. Now looking at the comparison to the prior year, FX is a tailwind of about 120 basis points to full year revenue growth. We're also raising our profit guidance as a result of a stronger revenue outlook; we've increased our full year adjusted EBITDA guidance by $20 million at the midpoint. Our new full year guidance is $2.980 billion to $3 billion, which represents year-over-year growth of 25% to 26.3%. Moving down to EPS, we're increasing our adjusted EPS guidance by $0.10 at the midpoint. The new guidance range is now $8.85 to $8.95, which represents year-over-year growth of 37.9% to 39.4%. Now our full year 2021 guidance assumes that September 30 foreign currency rates remain in effect for the balance of the year. Of course, the full year guidance implies a fourth quarter guidance, which we show here. And before getting to the numbers, I'll say, for context, you'll probably recall that last year's fourth quarter was unusual due to a snapback in the general business as we rebounded from the effects of COVID-19, picked up incremental demand from meta-vaccine studies in R&D Solutions and government-related COVID work within Technology & Analytics Solutions. Fourth quarter revenue is expected to be between $3.537 billion and $3.612 billion, representing growth of 7.2% to 9.5%. FX in the quarter is a headwind to growth of about 100 basis points. We expect fourth quarter Technology & Analytics Solutions revenue growth to be mid-single digits reflecting the expected year-over-year decline in government COVID-related work and the FX drag. I'll note though that underlying constant currency organic growth for Technology & Analytics Solutions will be in the high single digits, which is the level that Technology & Analytics Solutions has recently accelerated. R&D Solutions revenue growth will be in the low teens with services growth in the mid-teens despite last year's difficult comparison due to the COVID vaccine work. CSMS will be slightly down. Adjusted EBITDA in the fourth quarter is expected to be between $786 million and $816 million, up 6.9% to 11%, and adjusted diluted EPS is expected to be between $2.37 and $2.47, growing 12.3% to 17.1%. So in summary, we delivered a very strong third quarter with strong results on both the top and bottom line. R&D Solutions backlog improved to $24.4 billion. That's up 12.7% year-over-year. Next 12 months revenue from backlog increased to $6.9 billion, up $300 million sequentially versus the second quarter. We reported another strong quarter of free cash flow, which at $1.8 billion through the first 3 quarters of the year, is a marked improvement over prior years. And finally, we are once again raising our full year guidance for revenue, adjusted EBITDA, and adjusted diluted EPS. And with that, let me hand it back over to the operator for questions and answers.

Operator, Operator

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

John Kreger, Analyst

Ari, thanks for all the detail around the OCT and DCT offerings. That was great. Curious if you could just take that one step further, what do you think the operational implications are for you guys and your clients as you see greater adoption of some of these newer technology tools?

Ari Bousbib, Chairman and Chief Executive Officer

One of the most significant challenges we face, along with the entire industry, is the ability to deploy personnel effectively given the strong business we have built. This development is valuable because it enhances productivity, reduces labor demands, and allows us to execute tasks more efficiently. We are adjusting operationally to this change. However, full productivity will only be realized when the trial is fully decentralized, as there is a lot of misunderstanding in this area. When someone uses a digital platform, they might mistakenly think they are conducting a decentralized trial, but that is not always the case. If we implement this, about 30% of our clinical trials, which number just under 1,000 full-service ongoing trials, will benefit. A larger proportion is already utilizing one or several of our DCT modules, such as eConsent or eCOA, among others. Our clients are testing smaller trials on the complete DCT platform, maximizing the use of our available digital tools. I believe we are a leader in this sector.

John Kreger, Analyst

Sounds good. I have a quick follow-up regarding staffing. There has been a lot of discussion about a tight labor market. Is this creating any challenges for your EBITDA margins? Also, have you noticed any changes in your staff attrition rates as we progress through this year?

Ari Bousbib, Chairman and Chief Executive Officer

I mean, there's no question about it. It's not a secret. This is true across industry sectors and in our sector, in particular, since we have such a strong industry backdrop. There's a lot of competition for talent. We have all of the peers in the CRO space hunting for talent. So obviously, we are responding. We are actively recruiting and hiring to meet this demand. We recruit dozens of employees every year. So we've got a whole talent acquisition capability that's global and that's active, or does it create cost pressure? Yes. And it's already included in our guidance. That is certainly a headwind. But as you well know, by now, hopefully, you know that when you look at our overall results, you see that there has been margin expansion despite these cost headwinds. In fact, even when you see in this past, in this Q3 results, that our operating margins are flat to slightly declining. When you actually take out the pass-throughs, you actually see that our operating margins expanded quite nicely, and this is despite the cost headwinds that we have. So yes, it is a headwind, and we are dealing with it and offsetting it with the usual productivity and efficiency programs that I hope we've been demonstrating we're good at.

Operator, Operator

The next question is from the line of Eric Coldwell with Baird.

Eric Coldwell, Analyst

I have a couple as well. First one, I think the number one inbound this morning is on your M&A spend in the quarter. Obviously, a much higher number than we were anticipating with the Myriad deal sizing being known. I'm curious if you could address that in a couple of ways. One, the type of deals, nature of deals, number of deals, but also what impact you expect on a revenue basis, both in the fourth quarter as well as any thoughts on the run rate of the companies that you've recently acquired? And I might have a follow-up as well.

Ari Bousbib, Chairman and Chief Executive Officer

Okay. So let me take the latter part of your question first. In the quarter, the contribution of M&A was minimal. I mean, maybe a little over a point. And that's the same basically for R&D Solutions and for Technology & Analytics Solutions. In the fourth quarter, Nick, a little bit more than that?

Nick Childs, Senior Vice President, Investor Relations and Corporate Communications

Yes, fourth quarter total company were a little over 1.5 points.

Ari Bousbib, Chairman and Chief Executive Officer

We saw a contribution of 1.5 points to our revenue growth. This year, we had significant expenditures, which will vary greatly from quarter to quarter. Our approach to acquisitions tends to be either successful or not, and notably, we didn't spend much last year, totaling $177 million throughout the entire year. In certain quarters, our spending reached $10 million or even $50 million. However, this quarter and this year, we have increased our expenditures significantly. The largest acquisitions have primarily involved consolidating our joint venture in the lab business, with a notable $760 million transaction completed in the second quarter, which accounts for nearly half of our total spending to date. During the quarter, we closed a limited number of transactions, with two major ones representing about 80% to 90% of our total expenditures. One of these was the Myriad RBM Lab, which we announced in our second quarter earnings and finalized in the third quarter. This lab specializes in advanced biomarker detection and testing, supporting drug development across various therapeutic areas including oncology, CNS, and immunology. The second acquisition was DMD, a prominent provider of analytics and digital marketing solutions for healthcare professionals. This acquisition enhances our capabilities in tech-driven analytics and omnichannel marketing, and we see it as a strategic asset, despite its substantial cost. These two transactions essentially constitute the majority of our spending.

Eric Coldwell, Analyst

Now Ari...

Ari Bousbib, Chairman and Chief Executive Officer

You have a second question, right?

Eric Coldwell, Analyst

Yes. Just a clarification on the first one. So the last one, I think you said DMV, if I understood correctly.

Ari Bousbib, Chairman and Chief Executive Officer

DMD, as in David.

Eric Coldwell, Analyst

DMD. Okay. Got it. And then is that actually a CSMS segment deal? Or is that a Tech & Analytics deal?

Ari Bousbib, Chairman and Chief Executive Officer

Yes, it's a Tech & Analytics deal.

Eric Coldwell, Analyst

Okay. And then my follow-up is my typical burden on you to talk about COVID contributions in the third quarter for revenue and bookings, specifically in R&D Solutions but also other segments as necessary. If you could update us on the backlog of COVID work in total in R&D Solutions and then talk about bookings in the third quarter related to total COVID-related activity would be great.

Ari Bousbib, Chairman and Chief Executive Officer

Yes. Our COVID work is still ongoing, though it is tapering off. In the Technology & Analytics Solutions segment, we are experiencing a noticeable decline. We have previously communicated this. The government-related coverage work is gradually decreasing and will see a significant reduction in the fourth quarter and beyond. Once we set aside last year's disruptions, the underlying organic growth rate for Technology & Analytics Solutions is in the high single digits. Historically, this segment grew in the mid-single digits, and during our investor conference in June 2019, we projected that it would accelerate to high single digits, which has been the case for most of this year. We have indicated in prior reports that the growth rate for Technology & Analytics Solutions included considerable COVID-related work. Excluding that, the growth rate remains in the high single digits when we account for the usual comparisons. Regarding R&D Solutions, could you provide the numbers?

Ron Bruehlman, Executive Vice President and Chief Financial Officer

Yes, sure. Look, first, we like to look at the contribution of COVID to the backlog. And if you strip out the mega vaccine trials, Eric, from the backlog of R&D Solutions, it's less than 5% of the backlog. If you take out all COVID-related work, it's less than 10% of the R&D Solutions backlog. And you were asking about the contribution of COVID to revenue, I think, 2 in the quarter. And look, R&D Solutions had very strong growth, even accepting the COVID-related work. If you take out the large fast-burning COVID work, you were in the high 20s for R&D Solutions revenue growth. And even if you take out all COVID-related work, you were still strong teens growth. So COVID did contribute, of course, and the work will trail down over time. But the underlying business in other therapeutic areas is very strong and ramping up as we go forward in R&D Solutions.

Operator, Operator

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

Jack Meehan, Analyst

I wanted to continue on the COVID conversation. But looking at the Technology & Analytics Solutions business, I think you referenced when talking about the fourth quarter guidance some headwinds versus the prior year. But could you just maybe talk a little bit about how you feel like the longer-term durability of COVID work in the segment? Just your thoughts around that?

Ari Bousbib, Chairman and Chief Executive Officer

Yes. There are no challenges for Technology & Analytics Solutions in the fourth quarter. The growth rate is slower mainly due to the comparison with last year's fourth quarter, which included COVID-related work and various fluctuations, unlike the current fourth quarter that removes those factors. When you exclude those elements, the organic growth rate for Technology & Analytics Solutions is in the high single digits for the fourth quarter. Therefore, there are no obstacles in the underlying business, and we anticipate that trend and momentum will persist. As you know, we typically provide guidance for the upcoming year along with our fourth quarter earnings release. Last year, due to the unusual circumstances, we offered guidance for 2021 at our third quarter earnings release instead. This year, we plan to share it at our investor conference in November, which is just three weeks away.

Jack Meehan, Analyst

Great. And I don't want to steal any thunder from the Investor Day a few weeks from now, but I was curious if you could talk a little bit about some of the puts and takes for 2022. The funding environment, as you referenced, seems very strong. Are there any takes that you would consider? And then the one thing that stands out to me is pass-throughs. They've obviously been elevated this year. Just any color around how that might phase in next year would be helpful.

Ari Bousbib, Chairman and Chief Executive Officer

Yes. It's important to consider the context and long-term trends you're asking about. If we look back to June 2019, we laid out a three-year set of targets for revenue, profit, EPS, and capital deployment leverage. No one could have anticipated that just six months later, the pandemic would begin, disrupting businesses globally, including ours. While some people may want to compare 2019 to 2021 to remove the COVID impact, I don't think it's fair, as the effects of COVID are still present. A portion of our situation can be attributed to COVID and the pass-throughs mentioned. However, even if we exclude those factors, we are still ahead on all metrics. I previously mentioned that I aimed for a 10% growth rate for the company by the end of 2022, and I noted earlier this year that we hit our end-of-2022 targets in 2021. I believe this momentum will carry into 2022. That is all I can share right now, and I'll have more precise information in three weeks. However, I feel very confident that we will surpass the figures we provided years ago and pave the way for further acceleration.

Operator, Operator

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

Shlomo Rosenbaum, Analyst

Ari, can you talk about where you are in general with the OCE implementations, particularly with like Roche and AstraZeneca? Have you gotten to the point where the implementations are not a significant drag on the margins that you have to offset in other areas? And just where are you seeing the business progress in terms of hitting kind of a steady state of revenue or revenue exceeding the cost to implement?

Ari Bousbib, Chairman and Chief Executive Officer

I mean, you bring up a report, implementations are very costly. And because we have the large annual wins, and I referenced an additional 10 new wins. So every time a new award, again, you have to implement. So it's not like when you are behind the curve of implementation and start generating the license revenue, you still have to implement the new one that you sold, and we're happy we did. So we have not passed that headwind, if you will, in terms of the implementation costs. That's a significant drag, and we've not seen yet we haven't passed, if you will, that inflection point where you're now essentially plateaued at your market penetration and you're essentially sitting tight and collecting license revenue for Moody's installations. We're not there in aggregate.

Shlomo Rosenbaum, Analyst

Okay. This question is for Ron. The free cash flow is exceptionally strong, showing a 33% increase compared to last year, which was already a record quarter. Can you explain what is happening? There has been a notable rise in unearned revenue along with other working capital changes. How should we approach this moving forward? Clearly, the numbers are very positive. Is this level of performance sustainable, or are we just catching up on certain working capital aspects?

Ron Bruehlman, Executive Vice President and Chief Financial Officer

We have made significant efforts to enhance our receivables processes, which represent one of our largest asset categories since we don't have inventory like a manufacturing company. Our focus has been on timely collections, as we previously faced a substantial amount of overdue receivables. We have worked to improve our billing process as well, as we had a considerable volume of unbilled receivables. This improvement is aimed at ensuring we receive payments more promptly. Additionally, we have negotiated contracts with customers to secure more upfront payments, which has alleviated financial pressure. I expect these three areas to contribute positively to our cash flow going forward. However, cash flow can be unpredictable from quarter to quarter, and there will be times when we see unusual advances related to certain projects. Therefore, I recommend not focusing too much on quarterly fluctuations. Overall, we have effectively improved our collections processes, leading to better free cash flow generation.

Ari Bousbib, Chairman and Chief Executive Officer

Yes. I mean if I just might add to that, we're very pleased with the performance, but let's be honest. This was a bad point for us. And I think some of you had pulled that out in the past 3 years or so, our cash flow performance was simply very poor. So the fact that we are now performing very well is not an unusual thing. I mean, I think not too long ago, in 2018, we generated just barely over $600 million of free cash flow for the entire year. And here we are, 3 quarters into the year, we've already generated 3x that number. Obviously, we are a much bigger company and so on. But look, the outperformance was just not good. and we said that, and that was on us, and we worked on it, and we will continue to pay attention and have the right metrics and the right incentives and the team focused on it. And as always, when you shine the light on something, it improves. And that's what will happen here. And where we are now is the normal, not unusual.

Operator, Operator

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

Dave Windley, Analyst

I wanted to follow up on a question from John Kreger regarding DCT. He inquired about the operational aspects. Ari, I would like to ask you about the financial side. It seems that you now have a significant number of trials operating fully on your DCT platform. Could you share how this impacts the dollar value of a trial? Additionally, does this allow you to achieve higher margins in those trials due to the efficiencies provided by the technology?

Ari Bousbib, Chairman and Chief Executive Officer

Yes, there is significant interest from clients about how to implement decentralized clinical trials (DCT). However, this won't happen overnight; it will take time. Large pharmaceutical companies are experimenting with components of DCT in their trials. Our clients are working to integrate various solutions, and we are proactively pushing towards DCT implementation. Since our merger five years ago, we have aimed to speed up technology adoption and model changes. Your question raises a valid point about the potential impact on trial value when replacing labor, which traditionally drives pricing. We don't believe this will lead to a reduction in value. We have been focusing on transitioning our pricing model to one based on value and deliverables, and we've seen progress in that area. Our clients aren't just looking for small savings; they want quicker, more accurate, and higher-quality results, and they are prepared to pay a premium for that, though not more than what they were paying previously. Over time, as we implement more technology, we expect to need fewer personnel, which should lead to improved margins. However, this will take time, and there are new roles emerging that will compensate for the reduced activity from Clinical Research Associates (CRAs). It is still early to determine the exact impact on margins, but we don't expect any disruptions to our margin performance. R&D Solutions is a long-term business. Currently, we have 89 fully decentralized trials in progress and are also engaged in nearly 900 full-service trials, which represents a small portion of the over 2,500 clinical trials we are involved with globally. The process of penetrating this market is slow, but we are committed to it. We do not expect any decline in value, and we are confident in achieving margin improvements over the long term.

Dave Windley, Analyst

Great. If I could ask a second follow-up around a question on COVID. It seems like a lot of focus on how much revenue now and how much in backlog now, it seems equally important to me, if not more so, to focus on how that will phase out. And I think you've made comments in the past that you see projects booked out through '22 and maybe even into '23. Would it be appropriate to call the COVID contribution kind of a soft landing, so to speak, that it's not going to drop off, it's just going to slowly taper over time? Is that the right way to think about it?

Ari Bousbib, Chairman and Chief Executive Officer

On the R&D Solutions business, absolutely. No question. What you said is exactly what I would say. It's a soft landing in '22, '23, and frankly, we get lost in the rounding by the time we get to '23. Unless, of course, there's not complete. There is another variant or another COVID. But right now, as we see based on what we know today, it's a soft landing, we get lost in the rounding by '23.

Operator, Operator

Your last question is from the line of Dan Leonard with Wells Fargo.

Dan Leonard, Analyst

Can you comment on trial site operations? Are there any continued bottlenecks you flag? Or is site activity normalizing?

Ari Bousbib, Chairman and Chief Executive Officer

Ron?

Ron Bruehlman, Executive Vice President and Chief Financial Officer

Yes. Look, the site accessibility numbers remain around 80% or so. But look, we've managed to work around that and operate at close to normal. And not all sites are equal, the larger sites are open, and that hasn't been an issue for us. We've seen site start-ups and patient recruitment at near pre-pandemic levels, not quite, but near pre-pandemic levels. The patient visits are still lagging a little bit and just gradually coming back. And so when we look at our overall operations, we're not totally back to pre-pandemic levels yet, and we'll expect a gradual improvement over time back to pre-pandemic levels, but it really hasn't been a major issue for our operations. As Ari mentioned in his opening remarks, we've learned how to manage driving around the...

Dan Leonard, Analyst

And as a follow-up, Ari, can you comment on perceived market share trends in R&D Solutions in the quarter? You've been pretty open about the various strategic actions by your competitors potentially allowing an opportunity for share gain.

Ari Bousbib, Chairman and Chief Executive Officer

It's challenging to assess market share for a specific quarter due to its fluctuations. We prefer to focus on longer-term trends rather than individual quarterly figures, emphasizing business from our backlog for the next 12 months. There's been significant disruption among our competitors, and while we've had discussions with customers, changes like a new Chief Revenue Officer can't happen overnight, especially during trials. These mergers will likely impact market share, potentially in our favor. From experience, we know that mergers and large acquisitions bring challenges, such as job losses and dissatisfaction with new structures, which can influence market dynamics. After our merger in 2016, we faced similar market share issues, but we rebounded once we fully integrated the company. The future looks promising for us; we are continually attracting new customers, and the biotech sector is particularly vibrant right now. We're making progress in Europe and Asia, our teams are highly motivated, and I'm confident that when we review our progress, we'll see an improvement in our market share.

Nick Childs, Senior Vice President, Investor Relations and Corporate Communications

This will be our last question of the day.

Operator, Operator

And your last question comes from the line of Patrick Donnelly with Citi.

Patrick Donnelly, Analyst

Ari, maybe a follow-up on that last question. You talked a little bit about kind of all the mergers going on in the space. Again, headcount disruption. Following up on one of the earlier questions in terms of labor costs, does that position you guys better in terms of being able to acquire some talent that got modeled around during some of these mergers, kind of being a stable shift there and kind of grab some people, maybe not quite the inflationary costs you're seeing on the labor side? And then secondarily to that, maybe with a focus on R&D Solutions. How much can you pass some of these price increases on to customers? I know full-service contracts and backlog are particularly tough to adjust. But just wondering how much you can pass on in terms of some so the price pressure you're getting there?

Ari Bousbib, Chairman and Chief Executive Officer

On the personnel question, it's important to distinguish between the executive management level and the actual field staff, including Clinical Research Associates. For the executive category, there is potential to attract talent who may be dissatisfied in their current positions, and we've already seen this happen in a few cases, although these are limited numbers. However, attracting CRAs and project leads is more challenging due to competition from other companies that are also conducting trials and require these professionals. Currently, we are witnessing wage inflation stemming from various factors, but recent mergers do not significantly impact the CRAs and field personnel immediately. Regarding pricing, we need to consider how much of these cost increases we can pass on to customers, especially since adjusting full-service contracts and backlog can be quite difficult. Yes, as you mentioned in your question, it’s quite challenging. We sold projects based on certain assumptions, and there are escalations and factors integrated into those contracts, which will be taken into account. Overall, the pricing was determined from different assumptions, and when costs rise, we need to absorb those increases. However, as we progress, the pricing will obviously be influenced. There are no hidden factors; everything will be passed on, though it will take some time due to the nature of our business, especially in the R&D Solutions segment.

Ron Bruehlman, Executive Vice President and Chief Financial Officer

Right. And of course, on the Technology & Analytics Solutions side of the business, shorter-cycle business, a greater ability to pass along cost increases.

Ari Bousbib, Chairman and Chief Executive Officer

Right, but there's less labor. So that's...

Nick Childs, Senior Vice President, Investor Relations and Corporate Communications

Thank you, everyone, for joining us today. We look forward to seeing everyone at our Investor Day in a few weeks. If you have any other follow-up questions, feel free to reach out. We're happy to answer them. Thanks for joining today.

Operator, Operator

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