ICON Public Company (ICLR) FY Conference June 04, 2025 11:40 AM ET Speaker0 Alright. Good morning, everyone, and thanks for joining us today for the management presentation. My name is Max Mach, and I'm the research analyst here at William Blair who covers Icon. We're pleased to be joined this morning by CEO, doctor Steve Cutler, and Kate Haven, vice president, investor relations. Before we get into the presentation, I have to mention two things. First, the breakout session will be held in Adler on the seco ...

Core Insights - ICON plc (ICLR) is positioned for growth in upcoming quarters due to strategic additions and advancements in AI and technology, optimizing clinical delivery and showing improvements in key metrics [1][3] - The company has faced a significant stock decline of 37.9% year-to-date, contrasting with a 3.8% decline in the industry and a slight increase of 0.1% in the S&P 500 [2] Growth Drivers - ICON is focused on expanding its business through strategic acquisitions and partnerships, enhancing its scientific and therapeutic expertise in areas such as oncology, rare diseases, dermatology, infectious diseases, and women's health [3] - A partnership with Mural Health Technologies aims to utilize their participant management and payments platform to enhance clinical trial processes [4] - The company is innovating in clinical trial design, patient recruitment, and patient-centric trials, integrating AI advancements through tools like iSubmit and SmartDraft to streamline operations [5][8] - ICON's updated digital platform supports decentralized clinical trials with features for direct data capture and integration with other ICON solutions [6] Challenges - Macroeconomic pressures, including high inflation and rising labor costs, have led to a 4.3% year-over-year decrease in total revenues and a contraction of gross margin by 170 basis points in Q1 2025 [7][8] - Foreign exchange fluctuations pose a significant risk as ICON operates in multiple currencies, affecting financial results due to the translation of revenues and expenses into U.S. dollars [9] Financial Estimates - The Zacks Consensus Estimate for ICON's 2025 earnings per share has decreased by 2.1% to $13.25, with a revenue estimate of $7.94 billion, indicating a 4.2% decline from the previous year [10]

Core Viewpoint - A class action lawsuit has been filed against ICON Public Limited Company for alleged violations of federal securities laws, specifically regarding misleading statements about its business performance and customer engagements [1] Group 1: Lawsuit Details - The lawsuit pertains to shareholders who purchased ICON's securities between July 27, 2023, and October 23, 2024 [1] - Allegations include that ICON misrepresented its business stability, claiming it did not suffer losses due to customer funding limitations [1] - The company's Functional Service Provision (FSP) and hybrid models were ineffective in mitigating market downturn impacts [1] Group 2: Customer Behavior - Customers reportedly used Requests for Proposals (RFPs) as a pricing tool rather than a genuine demand indicator [1] - There were cancellations of contracts and reductions in engagements as existing agreements concluded [1] - ICON's two largest clients began diversifying their Clinical Research Organization (CRO) providers by incorporating competitors [1]

Core Viewpoint - A class action lawsuit has been filed against ICON Public Limited Company for alleged violations of securities laws, claiming the company made false and misleading statements that led to investor losses [1][4]. Group 1: Lawsuit Details - The lawsuit pertains to securities purchased between July 27, 2023, and October 23, 2024, during which investors are encouraged to contact the Schall Law Firm for participation [2]. - The complaint alleges that ICON's misleading statements were related to its business performance and customer engagements, which were negatively impacted by funding limitations faced by its customer base [4]. Group 2: Company Performance Issues - ICON's Functional Service Provision (FSP) and hybrid models did not safeguard the company from market downturns, leading to contract cancellations and reduced engagements from clients [4]. - The two largest clients of ICON began diversifying their contract research organization (CRO) providers, which further contributed to the company's declining business [4].

Core Viewpoint - ICON plc reported a mixed performance for Q1 2025, with adjusted earnings per share beating estimates but revenues falling short, reflecting ongoing challenges in the clinical development market [7]. Group 1: Earnings Performance - Adjusted earnings per share for Q1 2025 were $3.19, down 8.1% year-over-year, but exceeded the Zacks Consensus Estimate by 3.5% [1] - GAAP earnings per share were $1.90, a decrease of 15.6% from the previous year [1]. Group 2: Revenue Analysis - Total revenues decreased by 4.3% year-over-year to $2.00 billion, and fell short of the Zacks Consensus Estimate by 0.5% [2]. - Gross business wins for the quarter were $2.68 billion, with cancellations totaling $659 million, resulting in net business wins of $2.02 billion and a book-to-bill ratio of 1.01 [2]. Group 3: Margin and Expense Insights - Gross profit declined by 9.8% year-over-year to $558.7 million, with gross margin contracting by 170 basis points to 27.9% [3]. - Selling, general and administrative expenses rose by 11.9% to $198.4 million [3]. - Adjusted operating income was $360.3 million, reflecting an 18.4% year-over-year decrease, with adjusted operating margin contracting by 313 basis points to 18% [3]. Group 4: Cash Position - At the end of Q1, ICON had cash and cash equivalents of $526.7 million, down from $538.8 million at the end of Q4 2024, with a net debt balance of $2.9 billion [4]. - Cumulative cash flow from operating activities was $268.2 million, compared to $327.1 million in the prior-year period [4]. Group 5: 2025 Guidance - The company updated its full-year 2025 revenue guidance to a range of $7.75 billion to $8.15 billion, reflecting a year-over-year decrease of 6.4% to 1.6% [5]. - Adjusted EPS for the year is anticipated to be between $12.75 and $14.25, indicating a year-over-year change of -8.9% to 1.8% [6]. Group 6: Market Context - The performance reflects volatility and caution in the clinical development market, with bookings below expectations due to delays in customer decision-making and high cancellation rates [7]. - The updated financial outlook excludes two large next-generation COVID-19 vaccine trials, indicating a strategic shift in focus [7].

Financial Data and Key Metrics Changes - Revenue for Q1 2025 was $2 billion, representing a year-on-year decrease of 4.3% or 3.2% on a constant currency basis [21] - Adjusted gross margin for the quarter was 28.2%, down from 29.9% in Q1 2024 [21] - Adjusted EBITDA was $390.7 million, or 19.5% of revenue, compared to $444 million or 21.2% of revenue in the prior year [21] - Adjusted net income for the quarter was $258.3 million, a margin of 12.9%, equating to adjusted earnings per share of $3.19, an 8.1% decrease year-over-year [23] - U.S. GAAP net income was $154.2 million, or $1.90 per diluted share, down 15.6% from $2.25 per share in the prior year [24] Business Line Data and Key Metrics Changes - In biotech, there was a significant increase in overall opportunities, but this was offset by an increase in canceled RFPs [10][11] - In large pharma, RFP opportunities were muted, but the success rate remained high, indicating strong partnership positioning [11] - Book-to-bill ratio decreased to 1.01x due to elevated cancellations [11] Market Data and Key Metrics Changes - Customer concentration remained stable, with the top five customers representing 24.9% of revenue and the top 10 representing 40.2% [21] - Cancellations were elevated across customer segments, reflecting broader market dynamics [11][30] Company Strategy and Development Direction - The company is focused on navigating market volatility while capitalizing on opportunities to improve its market position [9][10] - There is a strategic emphasis on operational utilization and cost control, resulting in better-than-expected adjusted EBITDA margin performance [13] - The company plans to continue share repurchases and evaluate strategic M&A opportunities [19][25] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism, noting mixed demand from large pharma and ongoing challenges in the biotech funding environment [7][8] - Elevated cancellations are expected to persist, impacting near-term revenue guidance [12][36] - The company remains focused on enhancing customer delivery and leveraging digital innovation to improve operational efficiencies [17][19] Other Important Information - The company repurchased $250 million in shares during Q1 2025, with plans to continue share buybacks [25][26] - New AI-enabled tools were released to enhance clinical trial processes, demonstrating a commitment to digital innovation [17] Q&A Session Summary Question: About elevated cancellations and their impact - Management indicated that cancellations were generally elevated across customer segments without any unusual patterns [28][30] Question: On the overall backdrop and future spending - Management expects elevated cancellation levels to continue but does not foresee a significant increase beyond current levels [34][36] Question: Regarding revenue trends and pricing sensitivity - Management acknowledged increased price sensitivity among smaller customers and noted a modest uptick in RFP flow in biotech, but emphasized that the quality of RFPs varies [40][46] Question: On the clinical development landscape in China - Management highlighted the growing R&D capabilities in China and the company's strong position to participate in clinical trials there [76][78] Question: About the impact of COVID-related cancellations on revenue guidance - Management clarified that the $350 million reduction in guidance was primarily due to two next-generation COVID trials being removed from the outlook [81][100]

Financial Data and Key Metrics Changes - Revenue for Q1 2025 was $2 billion, representing a year-on-year decrease of 4.3% or 3.2% on a constant currency basis [22] - Adjusted gross margin for the quarter was 28.2%, down from 29.9% in Q1 2024 [22] - Adjusted EBITDA was $390.7 million, or 19.5% of revenue, compared to $444 million or 21.2% in the same period last year [23] - Adjusted net income for the quarter was $258.3 million, a margin of 12.9%, equating to adjusted earnings per share of $3.19, down 8.1% year-over-year [24] - U.S. GAAP net income was $154.2 million, or $1.90 per diluted share, a decrease of 15.6% from the prior year [25] - Cash from operating activities was $268.2 million, with free cash flow of $239.3 million [26] Business Line Data and Key Metrics Changes - In biotech, there was a significant increase in overall opportunities, but this was offset by an increase in canceled RFPs [11] - In large pharma, RFP opportunities were muted, but the success rate remained high, indicating strong partnership positioning [12] - Book-to-bill ratio decreased to 1.01x due to elevated cancellations [12] Market Data and Key Metrics Changes - Customer concentration remained stable, with the top five customers representing 24.9% of revenue [22] - Cancellations were elevated across customer segments, reflecting broader market dynamics [30] Company Strategy and Development Direction - The company is focused on navigating a period of uncertainty while capitalizing on opportunities to improve its market position [10] - There is an emphasis on operational utilization and cost control to manage the business effectively [14] - The company plans to continue share repurchases and evaluate strategic M&A opportunities [19] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism, noting mixed demand from large pharma and ongoing challenges in the biotech sector [9] - Elevated cancellations are expected to continue, impacting revenue guidance for the year [36] - The company remains focused on enhancing customer delivery and leveraging technology to improve operational efficiencies [18] Other Important Information - The company repurchased $250 million in shares during Q1 2025, with plans to remain active in share buybacks [26] - Two new AI-enabled tools were released to enhance clinical trial processes [18] Q&A Session Summary Question: About elevated cancellations - Management indicated that cancellations were generally elevated across customer segments, with no unusual patterns in specific groups [30][31] Question: On the overall backdrop and cancellations - Management expects elevated cancellations to continue, with a significant cancellation from a BARDA study anticipated in Q2 [36][39] Question: Regarding revenue and pricing pressures - Management noted that while there is increased competition in biotech, win rates in large pharma remain healthy [47] Question: On clinical development opportunities in China - Management highlighted the growing R&D capabilities in China and the company's strong position to participate in clinical trials there [80] Question: About the impact of COVID-related cancellations - Management clarified that the $350 million in anticipated revenue from COVID studies has been adjusted in the revenue guidance for 2025 [101][102]

Core Viewpoint - Icon PLC reported quarterly earnings of $3.19 per share, exceeding the Zacks Consensus Estimate of $3.08 per share, but down from $3.47 per share a year ago, indicating a 8.1% year-over-year decline [1] - The company posted revenues of $2 billion for the quarter, missing the Zacks Consensus Estimate by 0.58% and down from $2.09 billion year-over-year, reflecting a 4.3% decrease [2] Group 1: Earnings Performance - Icon PLC achieved an earnings surprise of 3.57% for the recent quarter, having previously reported earnings of $3.43 per share against an expectation of $3.42 per share, resulting in a surprise of 0.29% [1][2] - Over the last four quarters, the company has surpassed consensus EPS estimates three times [2] Group 2: Revenue Insights - The company has topped consensus revenue estimates only once in the last four quarters, indicating challenges in revenue performance [2] - The current consensus EPS estimate for the upcoming quarter is $3.25, with expected revenues of $2.05 billion, while the estimate for the current fiscal year is $13.48 on $8.21 billion in revenues [7] Group 3: Stock Performance and Outlook - Icon PLC shares have declined approximately 28.8% since the beginning of the year, contrasting with the S&P 500's decline of 5.5% [3] - The estimate revisions trend for Icon PLC is currently unfavorable, resulting in a Zacks Rank 4 (Sell), suggesting expected underperformance in the near future [6] Group 4: Industry Context - The Medical Services industry, to which Icon PLC belongs, is currently ranked in the top 29% of over 250 Zacks industries, indicating a relatively strong position within the sector [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

ICON plc Q1 2025 Results Period Ended March 31, 2025 Forward Looking Statement Statements included in this presentation which are not historical facts are forward-looking statements. Such forward-looking statements are made pursuant to the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 (the "PSLRA"). Forward-looking statements include statements regarding our financial guidance and outlook, and may be identified by the use of future tense or other forward-looking words s ...

Financial Performance - First quarter 2025 revenue was $2,001.3 million, a decrease of 4.3% compared to Q1 2024[6] - GAAP net income for Q1 2025 was $154.2 million, resulting in diluted earnings per share of $1.90, down 15.6% year over year[7] - Adjusted EBITDA for Q1 2025 was $390.7 million, representing 19.5% of revenue, a decrease of 12.0% from Q1 2024[8] - Net income for the three months ended March 31, 2025, was $154,151,000, a decrease of 17.7% compared to $187,438,000 for the same period in 2024[23] - Adjusted EBITDA for the three months ended March 31, 2025, was $390,658,000, down 12.1% from $444,036,000 in the prior year[25] - Adjusted net income for the three months ended March 31, 2025, was $258,269,000, a decrease of 10.5% from $288,513,000 in 2024[25] Guidance and Projections - Full-year 2025 revenue guidance is updated to a range of $7,750 - $8,150 million, reflecting a year-over-year decrease of 6.4% to 1.6%[5] - Adjusted diluted earnings per share guidance for 2025 is now projected to be between $12.75 and $14.25, indicating a year-over-year change of -8.9% to +1.8%[9] Cash Flow and Capital Expenditures - Cash generated from operating activities in Q1 2025 was $268.2 million, with capital expenditures of $28.9 million[9] - Cash flows provided by operating activities decreased to $268,240,000 from $327,076,000, reflecting a decline of 18% year-over-year[23] - The company reported a net cash used in financing activities of $252,832,000, compared to $263,699,000 in the same period last year[23] - Cash and cash equivalents at the end of the period were $526,698,000, down from $396,082,000 at the end of the same period in 2024[23] Debt and Financial Ratios - As of March 31, 2025, net debt was $2.9 billion, with a net debt to adjusted EBITDA ratio of 1.7x[9] - The effective tax rate on adjusted net income for Q1 2025 was 16.5%[9] Shareholder Actions - The company repurchased ordinary shares amounting to $250,000,000 during the quarter, reflecting a strategic move to enhance shareholder value[23] - The diluted weighted average number of ordinary shares outstanding decreased to 80,924,355 from 83,249,303, indicating a reduction of approximately 2.8%[25] Business Operations - Net business wins in Q1 2025 were $2,022 million, with a book-to-bill ratio of 1.01[9] - The closing backlog as of March 31, 2025, was $24.7 billion, an increase of 6.0% year over year[9] - The company incurred restructuring charges of $39,346,000 during the quarter, which were not present in the same period last year[25] Currency Impact - The effect of exchange rate movements on cash resulted in a positive impact of $9,787,000 compared to a negative impact of $6,032,000 in the prior year[23]