Earnings call transcript: ICON plc beats Q2 2025 earnings expectations

ICON plc reported better-than-expected earnings for the second quarter of 2025, with earnings per share (EPS) of $3.26, surpassing the forecast of $3.19. This positive surprise, combined with revenue exceeding projections, led to a significant post-earnings stock surge of 20.75%. According to InvestingPro analysis, ICON maintains a "GREAT" overall financial health score of 3.24/5, though current valuations suggest the stock is trading above its Fair Value. The stock has shown some volatility in subsequent trading.

Key Takeaways

• EPS of $3.26 beat forecasts by 2.19%.
• Revenue of $2.017 billion exceeded expectations.
• Stock surged by 20.75% post-earnings announcement.
• Continued innovation with AI-enabled tools and new product launches.
• Market remains volatile, with concerns about elevated cancellations.

Company Performance

ICON plc demonstrated robust performance in Q2 2025, despite a 4.8% year-over-year decrease in revenue. The company’s strategic focus on innovation and efficiency, including the launch of an AI-enabled protocol digitization tool, helped drive earnings above expectations. With a healthy gross profit margin of 28.66% and strong return on invested capital of 8%, ICON’s performance in the biotech and large pharma segments contributed to its competitive edge. InvestingPro subscribers can access 8 additional key insights about ICON’s financial performance and future prospects.

Financial Highlights

• Revenue: $2.017 billion (4.8% year-over-year decrease)
• Earnings per share: $3.26 (2.2% increase from Q1)
• Adjusted Gross Margin: 28.3%
• Adjusted EBITDA: $396 million

Earnings vs. Forecast

ICON plc’s Q2 results exceeded market forecasts, with EPS coming in at $3.26 compared to the expected $3.19, a 2.19% surprise. Revenue also surpassed expectations, totaling $2.017 billion against a forecast of $1.98 billion, marking a 2.02% surprise.

Market Reaction

Following the earnings announcement, ICON’s stock price experienced a substantial increase of 20.75%, reaching $195.01. The stock has since adjusted to $177.86, reflecting some market volatility. With a beta of 1.17 and market capitalization of $13.69 billion, ICON shows moderate market sensitivity. The initial surge indicates strong investor confidence in the company’s performance and strategic direction. Get comprehensive valuation analysis and more detailed insights with a InvestingPro subscription, including access to the full Pro Research Report covering ICON’s market position and growth prospects.

Outlook & Guidance

ICON plc maintained its full-year revenue guidance of $7.85-$8.15 billion, with a midpoint of $8 billion, and adjusted EPS guidance at $13.50. The company anticipates market stabilization in Q4 and beyond, despite near-term challenges such as elevated cancellations.

Executive Commentary

CEO Steve Cutler expressed optimism about the company’s strategic initiatives, stating, "We feel constructive without feeling over the top on where this is going." He highlighted opportunities in the Chinese biotech market, noting, "We see China as being a source of innovation and of new compounds in the next, again, realistically medium to long term, three to five years." Supporting this outlook, InvestingPro data shows ICON maintains a strong Altman Z-Score of 9.87, indicating robust financial stability, while analyst consensus remains bullish with a rating of 1.59 (Strong Buy).

Risks and Challenges

• Volatility in the clinical development market.
• Elevated cancellations expected in the near term.
• Ongoing competition in the biotech and pharma sectors.
• Potential macroeconomic pressures impacting the industry.
• Dependence on technological innovations for competitive advantage.

Q&A

During the earnings call, analysts inquired about the company’s competitive pricing strategies and opportunities in the Chinese biotech market. Concerns regarding the biotech funding environment were also addressed, with executives emphasizing the company’s strategic focus on efficiency and innovation.

Full transcript - ICON PLC (ICLR) Q2 2025:

Conference Operator: Good day, and thank you for standing by. Welcome to the ICON plc Q2 twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there’ll be a question and answer session. To ask a question during the session, you’ll need to press 11 on your telephone, and you will then hear an automated message advising your hand is raised.

To withdraw your question, please press 11 again. Please be advised today’s conference is being recorded. I’d now like to hand the conference over to your first speaker today, Kate Haven. Please go ahead.

Kate Haven, Investor Relations, ICON plc: Good day, and thank you for joining us on this call covering the quarter ended 06/30/2025. Also on the call today, we have our CEO, doctor Cusco.

Conference Operator: You are now live. Please go ahead.

Kate Haven, Investor Relations, ICON plc: Can you hear me? Good day, and thank you for joining us on this call covering the quarter ended 06/30/2025. Also on the call today, we have our CEO, doctor Steve Cutler our CFO, Nigel Clerkin. Testing.

Steve Cutler, CEO, ICON plc: Hello, operator?

Kate Haven, Investor Relations, ICON plc: And our COO, Barry Belf. I would like to note that this call is webcast and that there are slides available to download on our website to accompany today’s call. Certain statements in today’s call will be forward looking statements. These statements are based on management’s current expectations and information currently available, including current economic and industry conditions. Actual results may differ materially from those stated or implied by forward looking statements due to risks and uncertainties associated with the company’s business, and listeners are cautioned that forward looking statements are not guarantees of future performance.

Forward looking statements are only as of the date they are made, and we do not undertake any obligation to update publicly any forward looking statement, either as a result of new information, future events, or otherwise. More information about the risks and uncertainties relating to these forward looking statements may be found in SEC reports filed by the company, including the Form 20 F filed on 02/21/2025. This presentation includes selected non GAAP financial measures, which Steve and Nigel will be referencing in their prepared remarks. For a presentation of the most directly comparable GAAP financial measures, please refer to the press release section titled Condensed Consolidated Statements of Operations. While non GAAP financial measures are not superior to or a substitute for the comparable GAAP measures, we believe certain non GAAP information is more useful to investors for historical comparison purposes.

Included in the press release and the earnings slides, you will note a reconciliation of non GAAP measures. Adjusted EBITDA, adjusted net income, and adjusted diluted earnings per share exclude stock compensation expense, restructuring costs, foreign currency gains and losses, amortization and transaction related and integration related costs, and their respective tax benefits. We will be limiting the call today to one hour and would therefore ask participants to keep their questions to one each in the interest of time. I would now like to hand the call over to our CEO, Doctor. Steve Cutler.

Steve Cutler, CEO, ICON plc: Thank you, Kate. ICON’s second quarter results showed good progress across a number of key areas as we navigated ongoing volatility in the broader clinical development market. Gross business awards increased 11% on a sequential basis over quarter one, with notable wins from several biotech customers as well as the continued ramp up of several large pharma partnerships that have been added in the last eighteen months. Our revenue performance was ahead of expectations, assisted by higher pass through revenue in the quarter. This dynamic helped to increase our burn rate slightly to 8.2% in quarter two and was in line with our expectations of holding a stable burn rate as we progress through this year.

While study delays and the elongation of timelines from contracting to start date have presented a headwind to this metric, there are a number of initiatives we are focused on to improve cycle times and ultimately increase burn rate, which is showing promising results on in flight studies. Through execution of our cost management initiatives across the business as well as continued automation, we saw progression in adjusted EBITDA dollars sequentially. Gross margin improved over quarter one to 28.3% and SG and A costs reduced by $9,000,000 year over year, demonstrating our ability to optimize our efficient global operations. Overall adjusted EBITDA margin increased over quarter one to 19.6% with solid cost control offsetting higher pass through revenue. This translated to a 2% increase in earnings per share sequentially, resulting in adjusted earnings per share of 3.26 While we achieved solid conversion on the opportunities that went to decision in this quarter, our net book to bill result of 1.02 times was negatively impacted by elevated cancellations as we anticipated.

Overall cancellations increased sequentially and on a year over year basis in the quarter, driven by the cancellation of one of the large next generation COVID vaccine trials. We saw a similar trend to recent periods where the mix of cancellations across customer groups, excluding the large COVID study, was in line with our relative distribution of revenue. The reasons for cancellations remain broad based, ranging from decisions related to portfolio rationalization and reprioritization to negative clinical trial results. As we look forward to the second half of the year, we expect largely similar conditions to persist in the market. While challenges remain, we entered the third quarter with an encouraging level of actionable opportunities in the pipeline.

We have seen good momentum in our ability to win across customer segments. With our scale and differentiated offering, we are presenting compelling clinical solutions that can deliver optimal efficiencies for customers, positioning us well in an increasingly competitive market. Further, despite the fact that net bookings will continue to be challenged by elevated cancellations and extended decision making in the near term, we believe that as market conditions stabilize, cancellations will return to historic levels and net business wins will increase. In addition, the current need for many large farmers to address their loss exclusivity in the short to medium term necessitates continued and in many cases increased investment in their late stage development pipelines. In quarter two, we began to see early but encouraging signs of this in the market with increased M and A and licensing activity amongst large pharma companies.

At ICON, we are well positioned to benefit from this activity given our significant number of established strategic relationships across large pharma companies alongside our differentiated biotech offering. We have seen recent notable wins across our business where we have leveraged the strength of our existing relationships and experience with smaller biotech organizations that were acquired by mid sized and large pharma companies to then broaden our relationships with those acquiring organizations. In fact, in quarter two, two of our largest awards were with a mid sized pharma company where we successfully expanded our relationship that originated with one of their acquired biotech companies. ICON’s demonstrated performance in the delivery of prior studies was a key consideration in the further development of this expanded relationship. We updated our full year guidance to reflect our expectation for higher pass through revenue this year, including the restarted next generation COVID vaccine trial that resumed activity in quarter two and is actively dosing patients.

We remain confident in the prudent approach we took in setting our full year outlook in April and have kept our assumptions consistent regarding macro conditions through the balance of the year. These factors result in our revised guidance range increasing by $100,000,000 at the low end to $7,850,000,000 and the high end of the range remaining unchanged at $8,150,000,000 increasing the midpoint to $8,000,000,000 Given the expected range to our full year revenue is largely related to increased pass through revenue, we are maintaining the midpoint of our adjusted earnings per share guidance range at $13.5 While we were pleased to see progress across financial and bookings metrics in quarter two, I also want to highlight developments in key operational areas in our broader business. Our customer and site satisfaction scores have shown positive momentum driven by accelerated site activation, patient recruitment and trial completion. In addition, we continue to focus on further investments to strengthen our offering and expertise where we can develop distinct advantages to our customers through delivery of novel solutions. One of these areas has been to advance our capability in key therapeutic areas that have been growing rapidly in the market, such as obesity and related metabolic diseases.

ICON launched its Centre for Obesity this year, a purpose built network of over 100 US sites that will ultimately have access to over 10,000 prescreened potential patients in this key disease area. Our strategic approach streamlined startup activities such as contracting, site training and documentation harmonization leading to targeted site activation in thirty days or less. In addition, 85% of these sites operate on the same integrated technology platform, allowing for improved efficiencies in processes across enrollment and recruitment, as well as in real time monitoring. Separately, our digital innovation strategy continues to produce meaningful applied advances across our business. Our AI Centre of Excellence and operational teams collaborate to identify processes and opportunities to develop AI enabled tools to enhance our delivery of services.

Our latest development centers on protocol digitization, a process to extract information from a trial protocol and then set up standard documentation and system specifications before the trial begins, which is currently highly manual in nature. This AI agent, which is now utilized in the laboratory setting, intelligently reads protocol data, identifies the relevant tests, and auto populates data to create the study deliverables. This is enabling ICON to achieve upper quartile performance metrics for our sponsors, allowing significantly reduced study start up times and improve overall project timelines as well as overall quality. This is a tangible example of how we are adopting AI to evolve our offering in a way that is considered practical and most importantly, driving efficiency in the overall clinical trial process for our customers. Our financial position remains very strong and we continue to be disciplined in our approach to capital deployment.

In quarter two, we again repurchased $250,000,000 in shares and our Board also approved a new share repurchase authorization for up to $1,000,000,000 an increase of $500,000,000 from what was remaining on our prior authorization. We remain active in evaluating potential acquisition opportunities that will enhance our offering alongside continued internal investment in areas that will help fuel our growth such as key technology platforms and tools, capabilities in our labs and other services. As the leading provider of clinical development services in the industry, it is incumbent upon us to continue to innovate and evolve our offering to meet the needs of our customers and our strong financial position affords us the ability to continue to invest in key strategic growth areas while also returning capital to shareholders. June marked the thirty fifth anniversary of founding in Dublin, Ireland. We have evolved significantly as an organization since that time, growing from a team of 5,000 to 40,000 individuals.

I’d like to thank the employees of ICON that have joined us on this path that was set out in 1990 to be the global leader in clinical development for their hard work and ongoing commitment to the customers we serve. I’ll now hand it over to Nigel for a review of our financial results. Nigel?

Nigel Clerkin, CFO, ICON plc: Thanks, Steve. Revenue in quarter two was $2,017,000,000 representing a year on year decrease of 4.8%. Revenue was up approximately 1% sequentially on quarter one twenty twenty five. Overall, customer concentration in our top 25 customers was aligned with quarter one twenty twenty five. Our top five customers represented 25% of revenue in the quarter.

Our top 10 represented 39.7%, while our top 25 represented 65.6%. Adjusted gross margin for the quarter was 28.3% compared to 29.9% in quarter two twenty twenty four and up 10 basis points on quarter one twenty twenty five. Adjusted SG and A expense was $174,800,000 in quarter two or 8.7% of revenue. Relative to the comparative period last year, adjusted SG and A was down by $8,600,000 in quarter two. Adjusted EBITDA was $396,000,000 for the quarter, an increase of $5,400,000 sequentially.

Adjusted EBITDA margin increased 10 basis points over quarter one twenty twenty five to 19.6% of revenue. Adjusted operating income for quarter two was $357,400,000 while adjusted net interest expense was $46,600,000 The effective tax rate was 16.5% for the quarter. We continue to expect the full year 2025 adjusted effective tax rate to be approximately 16.5%. Adjusted net income for the quarter was $259,500,000 equating to adjusted earnings per share of 3.26 a decrease of 13.1% year over year or an increase of 2.2% on quarter one twenty twenty five. U.

S. GAAP income from operations amounted to $209,200,000 or 10.4% of quarter two revenue. U. S. GAAP net income in quarter two was $183,000,000 or $2.3 per diluted share compared to $1.76 per share for the equivalent prior year period, an increase of 30.7%.

From a cash perspective, quarter two had cash from operating activities coming in at $146,200,000 and free cash flow of $113,900,000 While overall cash collections were solid in quarter two, our free cash flow was lower than quarter one, reflecting the timing of interest and tax payments as well as restructuring expenses. At 06/30/2025, cash totaled $390,400,000 and debt totaled $3,400,000,000 leaving a net debt position of $3,000,000,000 This was broadly in line with net debt at 03/31/2025 of $2,900,000,000 We ended the quarter with a leverage ratio of 1.9 times net debt to adjusted trailing twelve month EBITDA. Our balance sheet position remains very strong and we continue to execute our disciplined capital deployment strategy. We are focused on an approach to deployment that balances further investment in strengthening our business while also returning capital to shareholders. We made significant share repurchases in quarter two totaling $250,000,000 at an average price of $146 per share.

We plan to remain active in buying back shares in the near term with our total current authorization now expanded to $1,000,000,000 With that, we’ll now open it up for questions.

Conference Operator: Thank We will take our first question, which is from the line of Elizabeth Anderson from Evercore ISI. Please go ahead.

Elizabeth Anderson, Analyst, Evercore ISI: Hi, guys. Thanks so much for the question and congrats on a really nice quarter. I was wondering if you could give us a little bit more detail, Steve, maybe about what you’re seeing in terms of different market segments, maybe sort of biotech versus pharma or if there’s any sort of difference in terms of demand inflection that you’re seeing by phase? Thank you very much.

Steve Cutler, CEO, ICON plc: Sure, Elizabeth. Things haven’t changed dramatically over the last few months since our first quarter call. The environment is pretty much the same. Certainly from an RFP basis, we’ve seen a modest uptick sort of in the mid single digit range. That’s probably been more in the biotech segment than it has been the large pharma segment.

We’ve certainly seen some positives in that respect in terms of our early phase business and our Phase three business. So those areas are looking positive. We’ve also pleased within the wins that we’ve won. We’ve been able to start to really leverage the partnerships that we’ve been able to secure over the last eighteen months or two years. So the team’s done a nice job in bringing those partnerships on and not just winning initial projects, but expanding within those partnerships.

So overall, we see a reasonably constructive development sort of environment, if you like, across the business, probably a little bit more in biotech than in large pharma. We tend to look at these things on a trailing twelve month basis rather than a quarter basis. Within the quarter, there’s still a fair bit of volatility, things go up and down. But on a trailing twelve month basis, it looks positive.

Conference Operator: Thank you. Next question is from Michael Cherny, Leerink Partners. Please go ahead.

Michael Cherny, Analyst, Leerink Partners: Good morning and thanks for taking the question. Maybe if I can just dive, Steve, a little bit more into that biotech comment. You’re not the only CRO that’s talked about biotech improvements over the course of the quarter. This seems to fly somewhat in the face of the general biotech funding environment. I appreciate the cautious optimism here, but what do you think is getting more awards over the finish line in terms of what drove the better bookings performance?

And how do you think that factors into the current funding environment in terms of bookings wins to bookings conversion?

Steve Cutler, CEO, ICON plc: Yes, Michael, we don’t want to get too far ahead of ourselves on the biotech, on the positive biotech. As I said, that’s on a trailing twelve month basis. Within the quarters and across the quarters, it has been a little bit more volatile And we still continue to see caution in terms of decision making times, etcetera, etcetera. But we are seeing I mean, overall, it does seem to be moving in the right direction. Three of the top four awards that we had during the quarter were in the biotech segment.

So we were pleased with our performance in terms of winning some fairly substantial biotech projects. And as said, three of the top four. Notwithstanding that, as I said, the large pharma also starting to contribute with those expansions on the partnership side of things. So there is a little bit of perhaps a confluence, if you like, it’s not quite lining up, I suppose, where you see with the biotech funding. I suspect there’s probably a bit of a lag here and we’re seeing that there’s some positivity starting to come through that we’re encouraged about.

But we’re certainly not declaring victory just at this point and we wait to continue that biotech progress.

Conference Operator: Thank you. Next question is from Patrick Donnelly from Citi. Please go ahead.

Patrick Donnelly, Analyst, Citi: Hey guys. Thank you for taking the questions. Steve, maybe another one on just the bookings side. Nice to see the results come through there. Did you see things change at all as the quarter progressed?

Obviously, again, a few of your peers sounded better as well the last few days. I think it caught people a little bit by surprise. Did things turn as the quarter went? Did you hear any changes from the pharma customers just given all the noise on tariffs, MFN, etcetera? It sounds like, again, biotech news was a little bit better.

But just curious in terms of breaking that down and how things progressed during the quarter and what that means for the go forward? Again, do you feel pretty confident that we have turned the corner a little bit here on the cancels and the book to bill should continue to trend in the right direction? Thank you.

Steve Cutler, CEO, ICON plc: Pat, we feel constructive on the environment and moving forward on the environment. But as I say, we don’t want to get too far ahead of ourselves. I think our pharma sponsors are probably they’ve at least heard all the bad news and they’re probably digesting that bad news and working. So it’s not all bad news. I mean, there’s some positives coming out in terms of opportunities for early review with an FDA.

We’ve seen the reduction in animal testing, which I think will help the tax, potentially even tax benefits for R and D that’s done in The U. S. So I think our customers are sort of looking at it, seeing that it’s starting to settle down a little bit and hence their plans and their spending plans notwithstanding the patent cliffs that they need to confront are also looming and they need to make those decisions. So I think things are starting to move forward, But it’s still a sort of somewhat volatile and uncertain environment that we’re working in. We were very encouraged by the gross bookings.

That was that 10% improvement over the previous quarter was something I was really pleased about. The team was very pleased about. We did a good job on. But it remains to be seen as to whether those opportunities I mean, we certainly have opportunities in the pipeline. No question about that.

Some actionable good actionable opportunities. We need to continue that. Obviously, I’ve mentioned the cancellations will continue to be elevated, certainly in the very short term. So we’ve got to manage that through, but we see a constructive environment, albeit I don’t think we’re quite through everything just yet.

Conference Operator: Thank you. Next question is from the line of David Windley from Jefferies. Please go ahead.

David Windley, Analyst, Jefferies: Hi. Good morning. Good afternoon. Thanks for taking my question. The my question is focused on your partnerships, and it’s a multi parter, as you might imagine, or anticipate.

Okay. You you talked about, progress in those those partnerships. I think, in some meetings that we had with with you, with Barry in particular, there was some discussion about one of those recent partnerships being, somewhat expanded or restructured to give you access to more of that customer’s wallet. And I wondered if you could maybe talk about that a little bit and what expanded opportunity and if you’ve already seen benefit from that. And then second point here was or second part of the question is that I think your strategy has been to also replicate the success that you’ve had in kind of top 25 focused partnerships and pursue some of that same type of structure down market.

And I wondered what progress or what opportunity you see there? Thank you.

Steve Cutler, CEO, ICON plc: Sure. Maybe I’ll have a crack at the first part, Dave, and then Barry might jump in on specifically on when we made some progress in the top 25 or so. Is a let’s be honest, it remains and probably has intensified the competitive nature of the business has probably intensified a little bit over the last, I’d say three to six months. And so as we get approached by customers to look at partnerships and even rigid partnerships and embed ourselves. Our approach being the scale operation that we are is we look to do more of their work.

And that’s been we’ve been able to help them on efficiencies in exchange for getting a greater share of their wallet. And that’s generally been a successful strategy for us or it continues to be a strategy we’re pursuing. And as I say, as one of the larger players, I believe we have an advantage in that space and that we cover all of the areas that they want to outsource and we cover all the areas that they develop. And so that’s been working well for us. We’ve also been pushing that down to the more into the mid sized companies as well.

We’ve made some of our recent partnerships have really been in that area of the business. And again, we’re saying while they don’t have quite the volume of spend the larger farmers have, they are customers and they are companies that do have a significant amount of work and we can engage them and write it right across the business. So I’ll let Barry perhaps jump in on any sort of specifics on that front.

Barry Belf, COO, ICON plc: Yeah, Dave, on the first part of your question, I guess I’m slow to comment too much on any one partnership, but I can certainly think of an example where we were brought into a partnership where the full service component of that relationship was significantly smaller, that being the component we had access to, than the FSP component which we were not at that stage partnered on. And since coming in, the customer has decided to pivot much more heavily towards that blended full service model that we’re party to, which gives us some cause for optimism as we continue to progress that relationship. I think your second point is also well made. We have had encouraging success in recent times about broadening the partnership base across the top 25. And really we look at those partnerships between maybe twenty and sixty or those companies between twenty and sixty as a zone of some opportunity and we continue not just to add customers in that domain, but also to broaden these out from more transactional relationships to deeper opportunities where you have more qualified RFP flow and perhaps a deeper engagement with that customer.

So yes, that is the plan, not just to see a broader base of RFP flow outside the top 20 but to develop more of what I’ll call portfolio relationships in that segment and continue to build on that. That remains the strategy and I’m encouraged by the progress.

David Windley, Analyst, Jefferies: You.

Conference Operator: Next question is from Justin Bowers, Deutsche Bank. Please go ahead.

Patrick Donnelly, Analyst, Citi: Hi, good afternoon and good morning, everyone. Steve and Barry, can you help us understand some of the new opportunities that are that you’re seeing in your funnel and your pipeline? It seems like RFP growth has been pretty solid over the last few quarters. Is that across the board, large pharma related, biotech related and what do we need to see in industry for that to start to convert and monetize into bookings?

Steve Cutler, CEO, ICON plc: Yes, Justin, mean, there’s a couple of aspects there. Therapeutically oncology continues to be the main sort of ball or if you like of backlog and our new wins. We’re an effective oncology shop and we have a very good unit buzz in biotech and in the large pharma space. I’d say that’s an area. We’ve certainly seen an uptick in the metabolism, cardiovascular we call it cardiovascular and metabolism.

That’s really I think around the obesity, NASH, call it what you like indication. That’s an area that we’ve seen tick up as well. I think those are probably the two sort of main movers, if you like. The COVID vaccine work remains at about 1% to 2% of our backlog and about of our revenue. We haven’t seen much of an uptick in that one, although of course, as we talked about that study moving ahead.

In terms of phases, as I mentioned in my remarks, early phase has moved forward nicely. And we also see Phase three moving forward. So it’s a little bit of a customers focusing their attention obviously on their Phase three assets and moving into market that makes a lot of sense. But also they’re not forgetting about moving some of their early assets through as well. So I’m encouraged by the long term opportunities that, that presents as well.

So overall, we’re, as I say, constructive on the market or it hasn’t changed dramatically, but we certainly see some nice progress over the last quarter or so.

Conference Operator: Thank you. Next question is from Jack Meehan from Nephron Research. Please go ahead.

Patrick Donnelly, Analyst, Citi: Thank you. Hello, everyone. I think everybody is trying to take in the early results from some of the CROs and feel like we only have a piece of the aperture here with the bigger guys reporting. Steve, I was wondering if you could comment on what you think is happening in terms of share dynamics in the industry. Just any color on what you’re seeing in terms of win rate would be helpful.

Steve Cutler, CEO, ICON plc: Yes, Jack, it’s always hard to get too specific share dynamics. I was very pleased with our gross wins. And as I said, we were fairly broad based in those wins across the customer segments that we service. So that was a pleasing aspect of it. I sense that we are being successful in moving our market share forward, but it’s hard to be too quantitative on that.

It’s something that we try to monitor as much as we can, but the market data that we have is variable and somewhat volatile to be honest with you. We’re certainly seeing progress in the biotech segment. Our FSP business continues to grow. We’ve made nice progress in our early phase business. Our lab business is growing in the teens.

And so there’s a lot of nice aspects of our businesses that are moving forward and reflecting, I think in areas that do indicate that we are gaining share not just in the functional business, but also in full service business and in the preclinical sides of our business labs, early phase imaging, etcetera, etcetera. So overall, as I say, constructive, but we’re not getting too far ahead of ourselves.

Conference Operator: Thank you. Next question is from Eric Coldwell from Baird. Please go ahead.

Eric Coldwell, Analyst, Baird: I’m going to have to dial star one a lot sooner next time. I think I’ve rewritten my question list eight times in a row now. So I’ll ask a clarification and then maybe try to wing a bigger topic. On the clarification, Steve, you’ve talked a couple of times about the cancels remaining elevated short term. If we’ve done the math right, it looks like ex the BARDA cancel, you were probably around that 2.5% of backlog that has historically marked the higher end of a range for you.

Are you seeing more that zip code or are you actually signaling something higher than that?

Steve Cutler, CEO, ICON plc: Well, I think what we’re saying, Eric, is that the current level of cancellations we would expect is likely to sort of continue in that sort of ballpark in the near term. That’s the way we’re looking at it. So I hope that clarifies your question. So I think we were at $916,000,000 I think that was the sort of number from a cancellation number. We would expect a broadly similar number in the next quarter in the near term before we would see or anticipate some attenuation of that Q4 and perhaps into Q4.

But the market and the environment continues to be volatile and continues to be a little uncertain. And so we’re not declaring victory on the cancellations back to what had been historical norm just at this point. As I say, in the near term, we’re expecting to see some still some fairly significant cancellations. Can you open up? There was a backup question.

Think we’ll give him a break, think, because he was pushing staff. Sorry

Eric Coldwell, Analyst, Baird: about that. Thank you. Yeah, just, I guess, big picture here. We’ve had you and several of your peers have highlighted a trend towards higher pass through indirect revenue in the moment. It seems like most are suggesting that it has to do with mix changes, at least in some cases mix changes.

But is there something more? Is there something broader coming in, a different twist or dynamic that either clients are asking you to do more on the pass throughs or somehow we’re seeing study site inflation or some other form of inflation really kicking in again? Is it just some oddity in the timing in the moment of when things are hitting and you’re recognizing these pass throughs? Just it does seem to be a bit of an industry wide mantra right now that some of the bookings and some of the revenue growth increases have been skewed much more to indirect revenue than perhaps we’ve seen here in recent quarters?

Steve Cutler, CEO, ICON plc: Yeah, mean, it’s a question we ask ourselves a lot as well, Eric, to be honest with you and there are various reasons for it. I’ll let Barry have a crack at that one.

Barry Belf, COO, ICON plc: I think you nailed it

Eric Coldwell, Analyst, Baird: in the question, Eric.

Barry Belf, COO, ICON plc: I think this is overwhelmingly a business mix trend that you’re seeing. Steve already talked about the uptick in cardiometabolic opportunity flow and indeed revenue flow over the course of the last year. I think that’s a significant contributor. And I don’t think there’s anything below the line that we’ve seen that would speak to other trends. Get lots of calls, yeah, I’m sure rates are up about a period of time, but the number one driver here as I would see it, I think as we have observed it in our own numbers is that this is driven by therapeutic mix primarily of the studies that we’re running.

Conference Operator: Thank you. Next question is from Jalendra Singh from Truist Securities. Please go ahead.

Kate Haven, Investor Relations, ICON plc0: Thank you. Thanks for taking my questions. Now if this makes Eric feel better, he just stole my pass through question. Anyway, I want to actually switch to my other question about getting your updated thoughts on the pricing environment a little bit more. What exactly are you seeing in large pharma and EBP?

Some other of your peers have talked about getting a little bit more open to taking a little bit more pricing concession. Just curious if you can share your thoughts on the pricing environment in both EPP and large pharma.

Steve Cutler, CEO, ICON plc: Sure. So again, I’ll have a crack at it and then Barry might jump in, Jalendra. Think as I said in my prepared remarks, we are seeing probably a more intense pricing environment going forward. Our customers, we’ve talked about going through that, how they’re dealing with the patents, Cliffs, and they’re expecting more and more value. And so we are in a competitive, very competitive environment.

Talk about typically it’s a competitive environment, it’s always competitive. It’s probably intensified a little bit more, I think more recently. And we believe we have some good opportunities to gain market share, but I’ll let Barry talk perhaps a little bit about how we’re competing in that environment.

Barry Belf, COO, ICON plc: Yeah, I think Steve’s right. I think while it’s always been competitive, it perhaps has notched up a little bit as you might imagine. I guess the first thing to say is I don’t know anybody who thinks that drug development wouldn’t benefit from greater cost efficiency. So we see it as our role to create value through reducing the cost of clinical development. And while all competitive advantage is time bound, where we identify competitive advantage through our technologies, through our strategies, through our superior execution and we’re able to bring a competitive price point versus the competition, we’re going to do that.

We’re very happy to do that. On the other side, we also see value in volume and where significant opportunities come across. We’re happy to get assertive to make sure we win that incumbency in the large pharma as we’ve talked about and continue to build a broader base in the biotech community. So I think on both of those metrics it’s fair to say it’s pretty competitive out there and maybe touch up on where it was before, but for us the key remains can we bring higher confidence in the time, the cost and the predictability of trial execution plans to our customers. We still see that as probably the number one metric, notwithstanding perhaps a slight uptick in the competitiveness angle of children.

Conference Operator: Thank you. Next question is from Luke Sergott from Barclays. Please go ahead.

Kate Haven, Investor Relations, ICON plc1: Awesome, great. Thank you. And at risk of just diarrhea of the mouth, I just wanna figure this out like, so you have a big step up in bookings, you have a big step up in revenue. We’ve seen it across all the other ones. This kinda came out of nowhere and every company’s talking about this coming from biotech despite lack of funding data, and all the data and channel checks to the contrary.

And then everybody’s talking about, you know, metabolic and faster burning, higher pass through trials. So, like, is there a risk here that there’s just an air pocket that could be coming from you get some big bolus of like a couple quarters of these big metabolic trials and then they’re a lot faster burning, shorter duration, etcetera. That’s like the first part. Then the second part is, I mean, just metabolic coming on or just from recent M and A doesn’t really add up to the massive step up we’ve seen across the board. And so just trying to like foot the bill with what’s been going on, in general because out of 1Q, nobody really sounded positive on a demand environment.

Steve Cutler, CEO, ICON plc: Well, I hesitate to be your therapist, Luke, but let me have a crack.

David Windley, Analyst, Jefferies: No one’s at it. Just

Steve Cutler, CEO, ICON plc: drop down to the sort of therapeutic area. We do see the metabolic, the obesity side of things being an ongoing in the long term trend that is going to fuel us and our portfolio backlog for some time to come. I mean, this is a huge market. There are lots of opportunities for improving those drugs, whether it be how they’re administered or the side effect profile. And they are going to need to be large scale trials that are in the scheme of things relatively easy to recruit.

And I don’t think it’s easy, but relatively compared to your difficult oncology trial, they should burn faster, they should be larger. So we think there’s a long and a significant opportunity there for us and hence our obesity center of excellence that I talked about. It’s not just though in the metabolic area. You look at things like MASH, as they call it now rather than NASH, that’s an area that we’re seeing a lot of activity. A lot of companies doing a lot of work in, lot of progress being made in it.

Oncology continues to be a driver. And even in the CVT space, cardiovascular space, we’re seeing some significant opportunities as well. So therapeutically, are I think a number of areas, old medical science thing and then bringing new drugs to market hasn’t gone away. There’s still a huge area of unmet medical need and a lot of very important therapeutic areas that I think we can help to address. So I don’t think it’s an air pocket.

But I think as I’ve said a number of times, it is a somewhat volatile environment. And as you say, the biotech funding doesn’t really support necessarily the talk than what we’re seeing here. But I think that may be a little bit in the lag. And I think we’re seeing some companies get funded that do have some good science. We’re able to access those companies.

Our win rate within that segment is improving. We feel good about what we’re offering in that segment. Now certainly our win rate in the large pharma segment continues to be very strong. And as I said, we’re leveraging the partnerships in that large pharma segment. So overall, I’ll say it again, feel constructive without feeling over the top on where this is going.

Could there be a little bit of a slowdown? Yes, there could be. There’s no question there could be. And I’m sure we’re quite out of the woods yet, as I say. But we’re happy to have had a decent quarter, particularly from a gross bookings point of view and we feel we can continue that.

The material is in the pipeline in the sausage machine to make these sort of numbers to continue. And as I said, notwithstanding some continued elevation on cancels, we still see some optimism moving as we move into the back end of the year. Do you want to add to that?

Barry Belf, COO, ICON plc: No, I think you covered it. It might have been Patrick earlier on who asked about whether there was a pivot point during the quarter. I don’t think there was. And I suppose what’s harder to convey than just the opportunity flow is a more qualitative assessment of what we’ll be through. I think, Steve, you just alluded to it.

We were pretty satisfied as we moved through the quarter that there was some attractive opportunities that were transactable. And as we came out of q two into q three, nobody’s, you know, seeing a couple of swallows and declaring a permanent summer, but we do feel like qualitatively, there’s some encouraging, observations there. But this is not, you know, a straight line industry. Things can move relatively quickly. So conservatively optimistic with the, with the signs that we’re seeing, I think, is a fair summation.

Conference Operator: Thank you. Next question is from Max Smock from William Blair. Please go ahead.

Kate Haven, Investor Relations, ICON plc2: Hey, good morning. Good afternoon. Thanks for taking our questions. Maybe just a quick one here for Nigel. On the burn rate, it seems like the midpoint of the guide implies about a 20 basis point step down in the second half of this year, even though you’ve kicked off that faster burning COVID trial.

Is there is that just conservatism or is there something else that we should kind of be thinking about that’s driving that implied step down? Thank you.

Nigel Clerkin, CFO, ICON plc: Yeah, Max. Look, I think our view on the burn rate fundamentally is it will be broadly stable through the course of the year. Look, that is what’s built into the guide. It was what we had assumed back in April. And as Steve mentioned earlier, fundamentally our underlying assumptions in terms of the backdrop remains the same.

So we’d still expect book to bills at roughly the same level through the rest of the year. And within that as well, then the burn rate being broadly consistent as well. The step up in the revenue guide again is fundamentally really driven by the increased pass throughs that we’re seeing. So look. Let’s see where we end up ultimately in terms of the end of the year.

But at this point, we expect burn rate to be broadly stable over the balance of the year and somewhere around 8% for the full year.

Conference Operator: Thank you. Next question is from Charles Rhyee from TD Cowen. Please go ahead.

Kate Haven, Investor Relations, ICON plc3: Yes. Thanks for taking the question. Maybe if I could just ask some clarifications just from some of the stuff earlier. Steve, I think you said that for next quarter, you’re expecting sort of cancellations to be similar to this quarter, around 900,000,000 something million. But this quarter included the $300,000,000 cancellation of the COVID trial.

So are we expecting more like 600 something next quarter? Or are you seeing a step up? Maybe what does that mean for book to bill expectations for next quarter? And then I think last quarter, you gave sort of a breakdown of FX impact, sort of the COVID trial impact. Maybe for Nigel, if you can give us a sense for either this quarter as well as sort of those components in the rev guide.

Thanks.

Steve Cutler, CEO, ICON plc: Okay. So Charles, let me be clear on cancels. We’re expecting to see a number in the same sort of postcode as what we saw this quarter from the fact that we did call out the BARDA cancel earlier. And so you were aware of that. That doesn’t make it exceptional.

We have some cancels and we will be putting them into our numbers in the third quarter. So the number will be in the same sort of postcard. What it will be on one third of the way through the quarter, we’re working on these things, these things some slow, some delays, some so it’s but don’t think of it as don’t take don’t think of it as part of an exceptional item, I would say at this stage. I think certainly for the very near term, that’s the expectation. I think as we get into fourth quarter into next year, I think things will normalize.

That’s our expectation. But again, that remains to be seen and will depend upon the environment becoming a little less volatile, a little less uncertain. Nigel, I’ll leave you for the COVID.

Nigel Clerkin, CFO, ICON plc: Yeah, Charles. So on the guide change from April to today, FX is really neutral. You remember most of that dollar shift that we saw for the last few months had already happened actually by the April when we came out with the April guidance. So there’s really no impact in terms of our revenue guidance change from FX, it’s fundamentally driven from the uptick in pass throughs. And maybe just circling back, Mark, on the burn rate point, while we do think it’ll be broadly 8% for the year as a whole, the pattern between Q3 and Q4 will depend a bit on the pass through activity in particular that COVID study.

So at this point it’s ramping wells, it may well be that we see that burn a bit faster in Q3 than in Q4. So you might see a slightly better burn rate in the nearer term Q3 versus Q4, but let’s see how that evolves. So hopefully that’s helpful Charles.

Steve Cutler, CEO, ICON plc: And actually Charles, didn’t answer your other question around book to bill. Our expectation on book to bill would be again in the same ballpark as what we did this quarter, notwithstanding the continued elevation on cancellation. So as I said, we have some strong opportunities in the pipeline. We feel very focused. We feel like those opportunities are actionable and real.

And so we feel that the similar ish book to bill is certainly possible.

Nigel Clerkin, CFO, ICON plc: And just to underline that Charles, yes, look, we’ve assumed roughly one aspect to bill over the balance of the year, which does reflect elevated cancers continuing through that period as well. And that’s reflected in the guide that we’ve put out.

Conference Operator: Thank you. Next question is from Casey Woodring from JPMorgan. Please go ahead.

Kate Haven, Investor Relations, ICON plc4: Good morning. This is Sebastian Sandler on for Casey. Thanks for taking my question. So you called out licensing activity among large pharma in your prepared remarks. In terms of your operations in China, given some of the recent sizable pharma licensing deals with Chinese biotechs you’ve seen since last quarter, Can you just walk us through ICON’s role in these types of deals and how you see this dynamic playing out for ICON?

Do you think Chinese biotechs will rely primarily on Chinese CROs? Or does pharma acquire these assets and run the remaining trials through ICON? And then lastly, what percentage of your revenue is coming from China now? I think in the past you’ve called out China not being a large part of the business. So just wondering how this has trended in recent times.

Thank you.

Steve Cutler, CEO, ICON plc: Okay. You got a couple of questions in there, Sebastian. So let me try to unpick some of that. First of all, let me do the easy ones. Revenue in China approximately 3% -ish, so low single digits.

We have about 1,200 people in China. It’s a good operation, one of the best operations we have in the company, well staffed, really good strong people. We have some good connections with the Chinese biotech industry. And this is I mean, there’s a lot happening in China as you all know. I mean, I think it’s something like a third of the new clinical trial starts globally are happening in China.

And they’re not all happening outside of China, but there’s a lot of activity. Certainly the Chinese government is giving a lot focus on biotech and we have a number of customers in The U. S. Who are accessing portfolios and accessing new compounds and drugs and opportunities and licensing opportunities from Chinese companies. And we’ve been lucky enough to partner with them to develop some of those activities some of those drugs.

We see that as being a nice albeit more longer term medium to longer term fuel for our business. And we certainly see China as being a source of innovation and of new compounds in the next, again, realistically medium to long term, three to five years. This doesn’t happen overnight. But certainly the Chinese are putting a huge amount of focus on their pharmaceutical and biotech industries, helping their companies. And those companies are not using local CROs to do international trials.

They certainly use them in to do trials within China. That’s certainly an area that they have locked down. But in terms of doing global trials, trials in the West for registration in Europe and for registration in The U. S, they’re turning to organizations like ICON to do those sort of trials. And we’re very happy to see that.

We have those connections. We have a strong business development team in China, which is going to allow us to absolutely make those connections and develop that business. So I’m optimistic about China albeit this is not a short term thing. This is a more longer term partnership, if you like, with a country as much as anything else. We certainly see some benefits over the longer term.

Conference Operator: Thank you. Next question is from Michael Ryskin from Bank of America. Please go ahead.

Kate Haven, Investor Relations, ICON plc5: Great. Thanks for taking the question. I’ll do I got one big one, just a quick clarification. On the clarification, you talked about competitive environment and sort of how you see that evolving. If you could just expand on that a little bit in terms of where you’re seeing the most competition in terms of who you’re running into the most.

Is it the big three where you’re seeing a little more competition? Or maybe some of the more niche players are really the smaller CROs out there, just where you see that environment ramping up in the last three or six months? And then or if there’s any other way for you to break it down in terms of therapeutic area or customer class. And then the other question I was going have was on the cost controls you about earlier this year that you implemented. Could you just obviously, you maintained your EPS numbers and some of your margin color on cost.

But if you could update how that’s going and how you think about leveraging the cost side of the business as you go through the rest of the year, if you do see some of the improvements in bookings continue? Thanks.

Steve Cutler, CEO, ICON plc: Okay, Michael. I’ll take the second part of the question and Barry might talk about the competitive environment, what he’s seeing in the large pharma and the biotech space. So the cost controls, we’ve made good progress and we continue to make good progress. I think we have a reputation in the industry as being pretty good cost managers and the team has done an excellent job in looking at that and in working that through. We’ve reduced our SG and A some of our $9,000,000 year on year.

We continue to focus on that. The AI that I talked about, the technology, the bots that we’ve been deploying in doing much the more routine sort of work has been very effective for us and continues to drive down our overall SG and A costs and ultimately improves our efficiency as Barry alluded to that being a very important component of us being actively competitive on the pricing side of things with our larger customers and with the biotech customers for that matter, but certainly in the partnerships that gives us an opportunity to compete actively and we’re doing that very effectively. So I’m really pleased with the way we’re managing our costs. We have more to do and it’s an ongoing challenge for us. But whether we do it through the way we optimizing our labor force, effectively supporting our labor force and our employees with new technology and AI, it’s all risk for the mill and it’s something that we take very seriously.

Barry, you want to talk about the competitive environment?

Barry Belf, COO, ICON plc: Yeah, and the two honestly are linked. I mean, the teams really have done an excellent job of executing with efficiency over the course of the year, productivity and utilization on a broad basis right across the company on a year over year basis. That doesn’t just help us with cost controls, that also helps us to get these studies delivered for customers. So on the competitive environment, I guess we’re still ICON, we’re happy to compete with and by and large we do, but particularly in the pharma space I think you’re probably in the right neighbourhood. These are large global diverse partnerships across broad portfolios of different therapeutic modalities.

We do tend to run into the more established players more and more. I guess it’s a harder market for others to compete in. That’s somewhat more diversified in the biotech space, particularly at the earlier phase biotech end of the market. As I say, some of the larger biotechs pushing into the mid sized space, they start to become more like portfolio accounts with multiple studies, governance and oversight layers, etcetera. So, probably a slightly different dynamic across those two market segments, but with a bias towards larger, more global and more diversified competitors.

Conference Operator: Thank you. We have one more question and this is from Rob Cottrill from Cleveland Research. Please go ahead.

Nigel Clerkin, CFO, ICON plc: Hi, good morning. Thanks for taking our questions. Just in terms of

Patrick Donnelly, Analyst, Citi: the medium term revenue and booking outlook, you talked about elevated near term pass throughs, but also increased price intensity. Are those offsetting factors or does one outweigh the other in terms of future bookings? And then can you remind us how these higher pass throughs are flowing through to the quarterly booking and backlog numbers for 2Q?

Kate Haven, Investor Relations, ICON plc: Sorry, Rob. We we didn’t catch I think we saw on mute, Rob. We’re taking some feedback from you, but I I don’t think we got the second part of that question, unfortunately. But do you wanna take the first part in terms of the medium term?

Steve Cutler, CEO, ICON plc: Do you wanna just repeat the questions, Rob? We we kinda got a little bit distracted with the feedback. Can you?

Kate Haven, Investor Relations, ICON plc5: Yes, can

Nigel Clerkin, CFO, ICON plc: you hear me now? That

Steve Cutler, CEO, ICON plc: better? Yes. Right, great. Thank you. So I

David Windley, Analyst, Jefferies: guess first was just on the how we should pair the comments around higher near term pass throughs, but increased price competition. And do those two offset each other or does one outweigh the other positive or negative? And then the second question was how to treat the near term elevated pass throughs in terms of bookings and backlog for the second quarter?

Steve Cutler, CEO, ICON plc: Maybe I’ll do the first one and maybe Nigel might jump in or Barry on the second one. Certainly offsetting between higher pass throughs and price competition, I don’t really see it as an off offset. Price competition is what it is and it tends to be around the direct fees. So our margin producing revenue whereas pass throughs don’t have any margin in them and they tend to be what they are what they are. Customers don’t necessarily ask us to reduce on those.

The fact that they go up and we talked about that from a therapeutic point of view, whether they be around vaccine studies or metabolism studies, obesity, it helps us on the top line, but certainly doesn’t produce any margin for us. And so I don’t really see them as offsetting price competition tends to be around those direct fees. So I hope that gives you some sort of flavor for how we consider that price competition. As I say, that will potentially hurt our margin. But as Barry talked about earlier in the call, we have some pretty creative and innovative ways of being able to deliver these studies in a way that doesn’t impact our margins as much.

And so we can be competitive on price without sacrificing too much on margin. That’s the way we try to do it. And that’s the team has been very successful in that so far. Do you want to talk about pass through?

Nigel Clerkin, CFO, ICON plc: Yeah, sure. And Rob, on bookings, so pass throughs are just part of the gross wins basically. Study award is both direct fee and pass through. So it’s not a particular factor there other than obviously the comments around just pass through is generally being an increasing proportion of what we’re seeing. So that’s all I’d say on that.

Then we obviously talked about elevated cancels in Q2 and the likelihood of those continuing has been the other factor in terms of the overall book to bill number. So I wouldn’t call out anything particular on pass throughs in terms of that pattern into the future. We were more commenting on it in relation to the change in the revenue guide from April to now being driven by the higher pass through pattern we’re seeing currently in revenue.

Conference Operator: Thank you. And there are no further questions. I will hand back to the speakers for any closing comments.

Steve Cutler, CEO, ICON plc: Thank you, operator. As we navigate current conditions, we’re pleased with the progress we made in quarter two and remain focused on capitalizing on the opportunities we have in front of us. We thank you all for joining the call and for your support of iClone. Good afternoon.

Conference Operator: Thank you. This concludes today’s conference call. Thank you for participating, and you may now disconnect.

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