Summary of ICON Public Company Conference Call Company Overview - **Company**: ICON Public Company (NasdaqGS:ICLR) - **Event**: 2025 Conference at Jefferies London Healthcare Conference - **Date**: November 19, 2025 - **Key Speakers**: Barry Balfe (CEO), Nigel Clerkin (CFO) Industry Insights Demand Trends - There is a noticeable uptick in demand for clinical research organization (CRO) services, with RFP (Request for Proposal) flows increasing mid-single digits, particularly strong in biotech [3][4] - The demand environment is seen as improving, with a shift from a previous period of uncertainty to a more positive outlook [3][4] Pricing Dynamics - Pricing pressure in the CRO sector is largely influenced by the pharmaceutical industry, with recent political clarity around drug pricing being a positive development [10][11] - The cost of clinical trials is more related to trial design and strategy rather than hourly rates charged by CROs [11] - There has been a trend of renewing and refreshing preferred provider relationships among large pharma, impacting pricing dynamics [12][11] Operational Efficiency - ICON is focusing on value-based economics, aiming to reduce costs and risks associated with drug development rather than merely competing on pricing [13][15] - The company is investing in technological innovations, particularly in AI, to enhance operational efficiency and clinical trial processes [21][22] Financial Performance Margin Trajectory - ICON anticipates margin pressure due to decreased revenues and an increasing proportion of pass-through revenues, which complicates the revenue mix [39][40] - The company has seen a reduction in headcount by approximately 5% as a response to lower demand and efficiency gains [41] - There is a lag effect between improved demand and its impact on the P&L, with expectations of a return to positive operating leverage as demand stabilizes [42][43] Future Outlook - ICON aims to expand its partnerships with mid-tier companies (ranked 20-60 by R&D spend), with a goal of increasing its share of wallet in this segment [35][36] - The company has successfully partnered with 17-18 of the top 20 pharma companies and is looking to deepen these relationships while also targeting biotechs [35][36] Strategic Initiatives Functional Service Provider (FSP) Model - ICON is focusing on optimizing FSP arrangements by enhancing operational processes and reducing inefficiencies [17][20] - The company is moving towards milestone-based contracts rather than unit-based contracts, which aligns incentives for both ICON and its clients [31][33] Competitive Landscape - The definition of a clinical CRO is evolving, with ICON diversifying its services and expanding into areas such as lab services and real-world evidence [52] Conclusion - ICON is navigating a complex landscape with improving demand and pricing dynamics while focusing on operational efficiency and strategic partnerships to enhance its market position. The company is optimistic about future growth opportunities, particularly in the mid-tier market and through innovative service models.

Financial Data and Key Metrics Changes - Revenue for Q3 2025 was $701.3 million, a 3.9% increase compared to the prior year quarter, driven by growth in both clinical pharmacology and clinical development businesses [19][30] - Adjusted EBITDA for the quarter was $50.7 million, down from $64.2 million in the prior year period, primarily due to lower margins related to project mix and increased pass-through costs [23][30] - The company reported a net loss of $15.9 million for Q3 2025, an improvement from a net loss of $18.5 million in the prior year [23] - The book-to-bill ratio improved to 1.13 times, with a backlog exceeding $7.6 billion [5][22] Business Line Data and Key Metrics Changes - The clinical pharmacology business saw increased demand and higher levels of pass-through costs, contributing to revenue growth [19] - The clinical development segment also experienced growth due to new business awards, although it was partially offset by lower fee-for-service (FFP) revenue [19] - Average contract size in clinical pharmacology continues to increase, reflecting expertise in managing complex early-phase clinical trials [9] Market Data and Key Metrics Changes - Demand for services has shown signs of improvement, with growth in clinical trial starts and increased biotech funding in Q3 2025 [6] - Win rates with biotech clients doubled compared to the prior quarter, indicating a positive trend in client engagement [6][37] Company Strategy and Development Direction - The company is focusing on three critical pillars: commercial excellence, operational excellence, and financial excellence, to drive growth and improve margins [15][16] - A renewed focus on client-facing activities and employee engagement has been emphasized, with efforts to deepen relationships with clients and enhance operational efficiency [12][15] - The company is committed to maintaining a healthy balance sheet and financial flexibility, including debt repayment initiatives [7][28] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the improving demand environment and the resilience of biopharma clients, despite competitive pressures [6][40] - The company anticipates continued growth in its backlog and is focused on optimizing its capital structure and cash flow [26][30] - There is a commitment to right-sizing the organization and enhancing operational efficiency to achieve industry-standard margins [54][56] Other Important Information - The company has captured over $95 million in gross savings year-to-date, contributing to improvements in EBITDA [29] - The introduction of new technology and AI initiatives is expected to enhance productivity and operational excellence [11][12] Q&A Session Summary Question: Update on pre-spend vs post-spend awards - Management noted that there has been progress in right-sizing contracts and focusing on out-of-scope work, with improved results from these efforts [32][33] Question: Details on new-to-Fortrea clients - RFP volume from new clients increased by almost 40% quarter-over-quarter, with win rates for biotech clients doubling [37][38] Question: Bookings backdrop between large pharma and small biotech - Management observed neutral to favorable trends in both segments, with improved decision-making timelines in biotech [39][40] Question: Changes in competitive intensity and pricing environment - The pricing environment remains competitive but disciplined, with a focus on leading with science and operational expertise rather than aggressive pricing [41] Question: Margin leverage and pricing strategy - Management aims to hold prices where possible, with a focus on growing direct service fee revenue to improve margins [45][46] Question: Anecdotes on industry environment - Positive anecdotes were shared regarding decision-making timelines in both biotech and large pharma, indicating a return to more stable operational processes [62]

Financial Data and Key Metrics Changes - Revenue for Q3 2025 was $2,043,000,000, representing a year-on-year increase of 0.6% and a sequential increase of approximately 1.3% from Q2 2025 [17] - Adjusted EBITDA margin decreased to 19.4%, a decline of 20 basis points from Q2 2025 [18] - Adjusted earnings per share for the quarter was $3.31, reflecting a 1.5% increase over Q2 2025 [12][19] - Free cash flow totaled $334,000,000 for the quarter, bringing the year-to-date total to $687,000,000 [12][20] Business Line Data and Key Metrics Changes - Gross business awards totaled $3,000,000,000, up mid-single digits year-over-year, with notable strength in oncology, cardiometabolic disease, and FSP [11] - Adjusted gross margin for the quarter was 28.2%, down from 29.5% in Q3 2024 and down 10 basis points from Q2 2025 [18] - Adjusted SG&A expense was $179,200,000, or 8.8% of revenue, down by $1,200,000 compared to the same period last year [18] Market Data and Key Metrics Changes - The company reported a net book-to-bill ratio of 1.02 times, negatively impacted by elevated cancellations totaling $900,000,000 [13] - The biotech sector showed a significant increase in RFP flow on both a year-over-year and sequential basis, despite mixed funding environments [13][14] Company Strategy and Development Direction - The company amended its full-year revenue guidance to a range of $8,050,000,000 to $8,100,000,000, reflecting the nature and phasing of business wins and cancellations [14] - Focus areas include expanding opportunity flow and win rates in biotech, diversifying revenue streams in large pharma, and increasing market share in the midsized segment [14][15] - The company aims to enhance its technological capabilities, particularly in AI and process automation, to improve efficiency and reduce costs [15] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, citing a strong pipeline of actionable opportunities and a robust market position [16] - The operating environment remains mixed, with expectations for elevated cancellation levels to persist into Q4 2025 but a belief that conditions will normalize in 2026 [16][92] - Management emphasized the importance of maintaining cost control while investing in technology to enhance service delivery [15][16] Other Important Information - The company repurchased $250,000,000 in shares during Q3 2025, bringing total share repurchases year-to-date to $750,000,000 [12][21] - Cash totaled $468,900,000, with a net debt position of $2,900,000,000, maintaining a leverage ratio of 1.8 times net debt to adjusted trailing twelve-month EBITDA [21] Q&A Session Summary Question: Can you dive deeper into the cancellation dynamics? - Management noted that cancellations were in line with projections, primarily affecting studies awarded prior to Q3 that were canceled before enrollment [26] Question: What proactive measures are being taken regarding gross margins? - Management acknowledged the impact of increased pass-throughs on margins and emphasized ongoing cost management and technology investments to improve efficiency [31][32] Question: How does the industry environment differ between pharma and biotech? - Management indicated that while there are positive signs in both sectors, the environment remains mixed, with improvements in RFP flow but delayed revenue recognition [40][41] Question: Has the competitive pricing environment worsened? - Management stated that while the environment is competitive, it has not deteriorated further, with pressure primarily coming from large pharma clients [45] Question: What are the expectations for cancellations in 2026? - Management expressed confidence in a return to normalized cancellation levels in 2026, although elevated levels are expected to persist into Q4 2025 [92] Question: Is there still strength in early phase work? - Management confirmed continued strong activity in early phase work, with double-digit growth year-over-year [100]

Financial Data and Key Metrics Changes - Fortria reported revenue of $710.3 million for Q2 2025, representing a 7.2% increase year-over-year, driven primarily by growth in the clinical pharmacology unit [7][23] - Adjusted EBITDA for the quarter was $54.9 million, relatively flat compared to $55.2 million in the prior year period [27] - The net loss for Q2 2025 was $374.9 million, compared to a net loss of $99.3 million in the prior year, primarily due to a noncash goodwill impairment charge of $309.1 million [28] - Adjusted net income was $17.6 million, compared to an adjusted net loss of $2.3 million in the prior year [28] Business Line Data and Key Metrics Changes - Clinical pharmacology revenue saw significant growth, while clinical development revenue remained relatively flat due to offsetting factors [23] - The backlog as of June 30, 2025, stood at $7.5 billion, with a book-to-bill ratio of 0.79x for the quarter [8] - The company achieved a 20.1% reduction in SG&A expenses year-over-year, primarily due to lower TSA and IT-related costs [24] Market Data and Key Metrics Changes - The volume of RFP opportunities remained high, although there was customer hesitancy primarily among new biotech clients during the CEO transition [8][9] - Win rates for existing large pharma and biotech customers remained consistent, but declined for new biotech customers [9][62] Company Strategy and Development Direction - Fortria is focusing on margin optimization initiatives, with a target of $150 million in gross savings for 2025, of which one-third has been achieved in the first half [10][38] - The company plans to enhance its commercial coverage of biotech and is launching a dedicated sales team for FSP work [35][36] - The leadership transition is expected to stabilize customer relationships and improve win rates in the biotech sector [44][115] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the demand environment in pharma and biotech, noting an upward trend in pipelines [53] - The company anticipates continued positive cash flow for the remainder of 2025, driven by lower cash outlays for restructuring and improved working capital [32] - Management reaffirmed its revenue guidance for 2025, increasing the target range to $2.6 billion to $2.7 billion while maintaining the adjusted EBITDA outlook [38] Other Important Information - The effective tax rate for continuing operations was negative 1.1%, impacted by a goodwill impairment and other factors [27] - The company has ample liquidity with $400 million available on its revolver and over $80 million in cash on hand [32] Q&A Session Summary Question: Inquiry about hesitant biotech clients - Management indicated that some new biotech clients chose to go in a different direction due to leadership uncertainty, but they expect this to be a short transition period [44][45] Question: Demand environment in pharma and biotech - Management is cautiously optimistic, noting an upward trend in RFPs and pipelines, with a strong biotech pipeline being a positive factor [53][54] Question: Cancellations and win rates - Cancellations remained in line with historical trends, and win rates for existing large pharma customers were consistent, though new biotech customer win rates declined [61][62] Question: Pricing environment and margin outlook - The pricing environment is competitive, but management believes they are handling it well and expects to see benefits from cost-saving initiatives in the future [65][66] Question: Guidance for the second half of the year - Management expects revenue to moderate in the second half, aligning more with Q1 levels, but with improved margins due to ongoing cost-saving measures [80][81]

Financial Data and Key Metrics Changes - Revenue for Q2 2025 was $2,017 million, representing a year-on-year decrease of 4.8% but up approximately 1% sequentially from Q1 2025 [21][22] - Adjusted EBITDA for the quarter was $396 million, an increase of $5.4 million sequentially, with an adjusted EBITDA margin of 19.6% [22][23] - Adjusted earnings per share were $3.26, a decrease of 13.1% year-over-year but an increase of 2.2% sequentially [23][24] - Gross margin improved to 28.3% compared to 29.9% in Q2 2024 and up 10 basis points from Q1 2025 [22][23] Business Line Data and Key Metrics Changes - Gross business awards increased by 11% sequentially, with notable wins from biotech customers and large pharma partnerships [11][12] - Adjusted SG&A expenses were $174.8 million, or 8.7% of revenue, down by $8.6 million year-over-year [22] - Cancellations increased both sequentially and year-over-year, primarily due to the cancellation of a large COVID vaccine trial [12][13] Market Data and Key Metrics Changes - The company noted a modest uptick in RFPs, particularly in the biotech segment, while large pharma showed more volatility [29][30] - The oncology and cardiometabolic therapeutic areas are seeing increased activity, with early phase and Phase three business performing well [57][58] Company Strategy and Development Direction - The company is focused on leveraging strategic relationships with large pharma and expanding partnerships with mid-sized companies [15][51] - ICON launched a Centre for Obesity to enhance capabilities in rapidly growing therapeutic areas [17] - The company is investing in AI and digital innovations to improve operational efficiencies and reduce study startup times [18][19] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the market, anticipating that cancellations will return to historic levels as conditions stabilize [14][16] - The company updated its full-year guidance, increasing the low end to $7.85 billion, reflecting expectations for higher pass-through revenue [16][19] - Management acknowledged ongoing volatility in the market but highlighted encouraging levels of actionable opportunities in the pipeline [13][14] Other Important Information - The company repurchased $250 million in shares during Q2 and has a new share repurchase authorization of up to $1 billion [19][25] - Cash from operating activities was $146.2 million, with free cash flow of $113.9 million [25] Q&A Session Summary Question: Market segment dynamics between biotech and pharma - Management noted a modest uptick in RFPs, particularly in biotech, with early phase and Phase three business looking positive [29][30] Question: Biotech funding environment and bookings performance - Management acknowledged volatility but noted that three of the top four awards were in biotech, indicating positive movement [35][36] Question: Changes in bookings as the quarter progressed - Management expressed constructive views on the environment, with gross bookings improving by 10% over the previous quarter [44][45] Question: Partnerships and access to customer spending - Management discussed strategies to deepen partnerships and expand access to customer spending, particularly with mid-sized companies [51][52] Question: New opportunities in the pipeline - Management highlighted oncology and cardiometabolic areas as key growth segments, with a focus on early phase and Phase three assets [57][58] Question: Pricing environment in large pharma - Management indicated a more intense pricing environment, with a focus on creating value through cost efficiency [79][80] Question: Revenue from China and its role in licensing deals - Management stated that revenue from China is approximately 3%, with strong operations and connections in the region [113]

Summary of Key Takeaways from China Healthcare Preclinical CRO Expert Call Industry Overview - **Industry**: China's preclinical Contract Research Organization (CRO) industry - **Current Status**: Slight recovery observed in the industry with overall order inflow increasing modestly year-over-year (YoY) for both volume (up <10%) and price (up 5-10%) year-to-date (YTD) [1][7] Core Insights - **Pharmaceutical R&D**: Benefiting from policy support and a recovering capital market, particularly in modalities like multi-specific antibodies and antibody-drug conjugates [1][7] - **Profitability**: Despite the recovery in orders, profits remain low, indicating a challenging environment for CROs [1][7] - **Future Outlook**: The tipping point for significant recovery may not occur until 2026, with moderate growth expected to continue into H225 [1][17] Market Dynamics - **Overseas Market Preference**: Chinese preclinical CRO firms are focusing on overseas markets due to higher pricing (over 50% higher than domestic orders) and better earnings performance compared to those focused on the domestic market [2][11] - **NHP Pricing**: Natural Health Products (NHP) prices have increased from approximately Rmb80,000 to Rmb95,000-100,000 YTD, driven by tight supply and recovering demand. However, potential normalization of imports could exert downward pressure on prices [3][9] Regulatory and Competitive Landscape - **CRO Entities**: Over 70 registered entities for drug safety evaluation exist, with about half being non-profit research institutes. The industry has seen exits but no new entrants recently [10] - **Concentration of Industry**: The concentration of leading enterprises is increasing, with customers preferring top CROs due to price pressures [16] Challenges and Risks - **Customer Acquisition**: Challenges in acquiring overseas customers include adapting to different regulations and successfully promoting services at academic conferences [18] - **Regulatory Risks**: Potential risks include worse-than-expected price cuts from government programs, intensified competition, and stricter regulatory announcements [22] Financial Dynamics - **Revenue Recognition**: Listed CROs recognize revenue after completing specialized trials, with an average order-to-revenue cycle of six to nine months [20] - **Price Differences**: Significant price differences exist between early drug discovery and regulatory application stages, with costs ranging from hundreds of thousands to several million renminbi depending on the project type [19] Conclusion - The China preclinical CRO industry is experiencing a slight recovery, driven by pharmaceutical R&D demand and overseas market opportunities. However, challenges remain in profitability, regulatory compliance, and customer acquisition, with a cautious outlook for the near future.

Financial Data and Key Metrics Changes - For the first quarter, revenues were $651.3 million, a decline of 1.6% year on year, primarily due to varying late-stage clinical service fee wins and a slowing backlog burn rate [34][35] - Adjusted EBITDA for the quarter was $30.3 million, compared to $27.1 million in the prior year period, indicating year-over-year growth in adjusted EBITDA and adjusted EPS for the first time since the spin [34][39] - The net loss for the first quarter was $562.9 million, compared to a net loss of $79.8 million in the prior year, primarily due to a goodwill impairment charge of $488.8 million [40] Business Line Data and Key Metrics Changes - The clinical pharmacology business saw increased service fee and pass-through revenues, although bookings were slightly softer in the first quarter [36][70] - The backlog grew by 4% over the past twelve months, reaching over $7.7 billion, with a book-to-bill ratio of 1.02 for the quarter and 1.14 for the trailing twelve months [39][46] Market Data and Key Metrics Changes - The market environment remains competitive but stable, with larger customers maintaining consistent opportunities and spending [11][48] - Biotech sentiment is mixed, with some companies being cautious due to regulatory confirmations and funding challenges, while others report timely regulatory meetings [12][76] Company Strategy and Development Direction - The company is focused on improving gross margins and reducing SG&A costs, targeting gross cost reductions of $150 million in 2025 [51] - There is a strategic emphasis on enhancing customer relationships and incorporating AI to improve efficiency and quality in proposals and contracts [17][28] - The company aims to achieve a 1.2 times book-to-bill ratio over time, although current economic uncertainties make it difficult to predict new business wins [48] Management's Comments on Operating Environment and Future Outlook - Management acknowledges challenges in the biotech funding environment, noting that while there are delays in decision-making, the pipeline remains solid [92] - The company reaffirms its guidance for 2025, targeting revenues between $2.45 billion and $2.55 billion and adjusted EBITDA between $170 million and $200 million [46][45] Other Important Information - The company has exited all major transition services agreements and is now operating independently, which has contributed to a reduction in one-time spin-related costs [34] - The company has initiated transformation programs to reduce personnel costs and optimize its operational footprint [51] Q&A Session Summary Question: Revenue cadence and margin improvement - The first quarter revenue was better than expected, but guidance suggests revenue may be flat to down for the rest of the year, with margin expansion expected to be gradual [60][66] Question: Clinical pharmacology RFP volume and win rates - The clinical pharmacology business remains strong, with a return of the pipeline, and efforts are being made to convert pass-through work into revenue [69][71] Question: Bookings backdrop and pricing environment - The biotech pipeline is growing, but there is increased caution regarding funding, leading to slower decision-making [75][92] Question: SG&A expectations and margin perspective - Marginal improvement in SG&A is expected in the second quarter, with more significant improvements anticipated in the latter half of the year [82][84] Question: Cash flow improvement and DSOs - DSOs are expected to improve over the year, targeting low to mid-40s by year-end, with cash flow expected to be positive in Q3 and Q4 [88][89]

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]