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Operator: Good day and thank you for standing by. Welcome to the ICON plc Q1 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Kate Haven. Please go ahead.

Kate Haven: Good day and thank you for joining us on this call covering the quarter ended March 31, 2025. Also on the call today, we have our CEO, Dr. Steve Cutler; our CFO, Nigel Clerkin; and our COO, Barry Balfe. 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 20F filed on February 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, Dr. Steve Cutler.

Steve Cutler: Thank you, Kate. I want to begin my comments with a few perspectives on the market given the dynamic and unpredictable environment in which we are currently operating. Our overall view has been one of cautious optimism as we began this year noting positive leading indicators of mid-term demand alongside more challenging dynamics of elevated cancellations and delays in clinical trial decisions and starts which has pressured our outlook on near-term revenue. We knew that this year was going to be one of transition for the company and unfortunately broader macro uncertainty had only accentuated those market risks, as we progressed through the year. The persistent volatility and narrow focus of biotech funding has not yet supported a sustained recovery in that part of the market, despite continued progress in opportunity flow.

Large pharma demand continues to be mixed linked to company specific exposure to loss of exclusivity and overall budgetary spend. On the positive side, we continue to generate momentum from our recent strategic partnerships as well as in the mid-sized pharma segment. Net-net, there continues to be evidence of solid opportunities supporting mid-to-long-term outlook as well as a continued need for innovation by our customers and we remain highly constructive on our prospects going forward. However, conversion has been inconsistent on a quarterly basis as cautious behavior has tightened or delayed spending and there remain broad elements of uncertainty in our market. We are focused on navigating this period adeptly to support our customers while capitalizing on the opportunities we do see to further improve our market leading position.

The ICON team have good collective and individual experience in managing through similar cycles in this industry and well understand the need for agility and flexibility across our business to quickly react to opportunities and changes in demand. We are well placed to do this again. From a business development standpoint, overall opportunity flow was mixed in quarter one. In biotech, we’ve seen a significant increase in overall opportunities as well as a modest uptick in our win rate on projects that have gone through to decision. However, this was offset by an increase in the number of RFP opportunities that were ultimately cancelled by customers. Hence, while we are making progress in biotech, the segment remains challenging, given the funding environment and continued cautious decision making.

In large pharma, while RFP opportunities were more muted during the quarter, our success rate remained high underscoring our strong partnership positioning in this segment. These mixed dynamics, in addition to delays in decisions we anticipated to be made in the quarter, negatively impacted our overall performance in bookings, decreasing our book-to-bill to 1.01 times in the quarter. In terms of cancellations, we saw elevated levels again this quarter, a similar absolute amount to quarter four. Reasons for cancellations were broad, ranging from portfolio prioritization to clinical data and futility decisions. Overall, in terms of customer split, the cancellations were in line with the relative distribution of revenue across the company. We anticipate continued volatility in bookings performance on a quarterly basis due to continued caution and reprioritizations.

Cancellations remain a headwind to revenue this year and our updated full year guidance reflects this dynamic continuing to be elevated in the near term. Our results for quarter one are reflective of the transition period we expected as we came into the year. Revenue in the quarter was impacted by the delayed next generation COVID vaccine study that we disclosed in early March. Our focused efforts on driving operational utilization alongside good cost control across our business resulted in better than expected adjusted EBITDA margin performance of 19.5% in the quarter, translating to earnings per share in line with our initial expectations to start the year. This clearly demonstrates our ability to align our resources with the work in our backlog and effectively manage our business.

We have updated our full year guidance to reflect recent booking trends including increased cancellations as well as the removal of both of the next generation COVID trials, approximately $350 million that were previously expected to start this year. We felt it was appropriate to take this action as one of those studies was cancelled early in quarter two and will be reflected in our second quarter cancellations and the other study was on 90-day hold as of the end of quarter one. However, we received a positive update on the second study just this week, lifting the hold to restart patient screening activity. We have resumed work on this project and are actively working with this customer to begin screening patients. We will provide further updates as we gain additional visibility on the expected impact and timeline for study enrolment this year.

As we navigate this period of uncertainty, we remain focused on customer delivery and continuing to strengthen our offering, prioritizing investment and execution of what is squarely within our control. While we ultimately can’t influence decisions on study cancellations, we can ensure we are delivering even better for our customers. This ultimately leads to increased visibility of in-flight studies and solutions to expedite development milestones, which will also assist us in our efforts to improve our burn rate. To that end, we have seen early benefits from leveraging best practices and implementing standardization across our portfolio in areas such as trial planning, activation and oversight as well as contract management. By streamlining processes and unifying platform technology across our operational units, we are seeing better performance on our study cycle times.

This integration is driving increased cross sell opportunities within customers with meaningful wins in ancillary offerings such as laboratory services. In quarter one, we saw evidence of this with a new partnership award in labs with an existing large pharma strategic customer, expanding our position and providing additional opportunity for growth. This partnership win is representative of the solid opportunity and continued growth we’ve seen in our laboratory services business as well as recent momentum in our early phase business. Beyond our focus on operational delivery, we have leveraged one of our long standing core competencies, managing our cost base to align with customer demand. We have been executing on our plans to ensure proper alignment of resources across our business as well as identifying additional opportunities for further efficiencies through automation and other non-labor elements of our costs.

Our investment in digital innovation has also continued in earnest with the release of two new AI enabled tools in the quarter which will advance our strategy to accelerate trials, enhance data and optimize operational efficiencies. The first is iSubmit, which automates the clinical trial document management process primarily through managing electronic trial master files. It also uses AI to improve compliance, reduce the burden on clinical project teams and manage documents in an efficient and accurate way. The other tool is SmartDraft, which streamlines the clinical contract drafting process during study startup, allowing sites to shorten overall startup times. These two new releases join our broader suite of AI solutions that are truly enhancing our delivery for customers, embracing the opportunities that AI and advanced technology are presenting to transform clinical development.

Finally, we continue to execute our capital deployment strategy, balancing further investment in the business while returning capital to our shareholders. We have highlighted our current priority on share repurchase given our recent share price performance and we executed on this with the repurchase of $250 million in shares over the course of quarter one. Within the confines of Irish law, we plan to assertively allocate capital towards share repurchases in the near term while also evaluating strategic M&A opportunities that are in our pipeline. We remain focused on addressing key customer challenges such as patient recruitment and retention by enhancing and scaling our current clinical services. Our concentration on these key areas will aid in our return to growth over the short to medium term.

Importantly, the strength of our balance sheet affords us the opportunity to execute both share repurchases and acquisitions, should they meet our strategic and financial criteria. Before handing over to Nigel, I’ll close out with a perspective I often share with investors when asked about cyclical periods in our industry and customers’ changing behavior and requirements when it comes to development needs, ad simply put, it’s why we exist as a company and as an industry. Day in and day out we are adapting to meet our customers’ needs and opportunities, as we partner with them to navigate the complex and ever-changing healthcare environment to develop life saving medicines. It’s incumbent upon us as an organization to identify the available opportunities and manage that change appropriately, ensure we are innovative, agile and resourced to meet the needs of our customers and become an even better partner for them.

We are keenly focused on capitalizing on the many opportunities that are in front of us at this time of uncertainty to further solidify our leading position in the market. I want to thank all of the employees across ICON that are working incredibly hard to do just that. I’ll now hand it over to Nigel for a review of our financial results. Nigel?

Nigel Clerkin: Thanks Steve. Revenue in quarter one was $2 billion, representing a year-on-year decrease of minus 4.3% or minus 3.2% on a constant currency basis. Overall customer concentration in our top 25 customers was aligned with quarter four 2024. Our top five customers represented 24.9% of revenue in the quarter, our top 10 represented 40.2%, while our top 25 represented 64%. Adjusted gross margin for the quarter was 28.2% compared to 29.9% in quarter one 2024. Adjusted SG&A expense was $173.4 million in quarter one, or 8.7% of revenue, a reduction on quarter one 2024 SG&A expense of $181.7 million. Adjusted EBITDA was $390.7 million for the quarter, or 19.5% of revenue. In the comparative period last year, adjusted EBITDA was $444 million, or 21.2% of revenue.

Adjusted operating income for quarter one was $353.6 million, a margin of 17.7%. Adjusted net interest expense was $44.3 million for quarter one. In the comparable period last year, net interest expense was $65.8 million, representing a year-on-year decrease of 32.6%. 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 $258.3 million, a margin of 12.9%, equating to adjusted earnings per share of $3.19, a decrease of 8.1% year-over-year. US GAAP income from operations amounted to $219.6 million or 11% of quarter one revenue. US GAAP net income in quarter one was $154.2 million, or $1.90 per diluted share, compared to $2.25 per share for the equivalent prior year period, a decrease of 15.6%.

We had a good quarter from a cash perspective, with cash from operating activities in the quarter coming in at $268.2 million and free cash flow of $239.3 million. At March 31, 2025, cash totaled $526.7 million and debt totaled $3.4 billion, leaving a net debt position of $2.9 billion. This was broadly in line with net debt at December 31, 2024 and a decrease on net debt of $3.1 billion at March 31, 2024. We ended the quarter with a leverage ratio of 1.7 times net debt-to-adjusted EBITDA. Our balance sheet position remains very strong and we continue to be disciplined as we evaluate opportunities for further capital deployment. Our strategy is focused in the near term on a balanced approach to deployment in favor of share repurchases as well as opportunistic M&A execution.

We made significant share repurchases in quarter one totaling $250 million at an average price of $184 per share. We plan to remain active in buying back shares with our total current authorization of $750 million remaining. Additionally, there are a number of M&A opportunities in our pipeline that we are evaluating with the potential for execution within this calendar year. With that, we now open it up for questions.

Operator: Thank you. [Operator Instructions] We’ll now go ahead with the first question. This is from Michael Cherny from Leerink Partners. Please go ahead.

Ahmed Muhammad: Good morning. Thank you for the question. This is Ahmed Muhammad on for Michael Czerny. I was hoping to ask about cancellations. I appreciated the color on the call, but is there anything else you can say about the elevated levels? Were there any outlier or sizable cancellations that impacted the quarter? And if you could give any more color across the distribution in terms of customer type, thank you very much.

Steve Cutler: Sure. I mean the short answer to your question is no, there’s nothing unusual about any particular customer group, market segment or ever. They were generally elevated across the customer segments that we work in that reflect our portfolio of business. And we do expect that those cancellations will continue. That elevated level will continue as we work through the year, we’re in that sort of environment. But there was nothing there that was particularly focused in any one particular segment or customer or anything else for that matter. So that’s where we are on cancellation.

Operator: Thank you. We’ll now take the next question. This is from the line of Patrick Donnelly from Citi. Please go ahead.

Patrick Donnelly: Hey guys, thank you for taking the question. Steve, maybe one just on kind of follow-up there. Just on the overall backdrop here, obviously cancellation, similar level to last quarter but elevated. Can you just talk about the conversations? Obviously we’ve heard a lot about these pharma reprioritization, the biotech funding environment. Those are obviously the headwinds to your point, maybe one of these BARDA contracts comes back. We have seen at least some headlines about reinvestments, including one of your larger customers. So I’m just curious how you think about the positives and negatives here. Where we are in the cycle again, do cancellations, are they stable going forward? Is there potential for them to go down, up?

Just curious, given the conversations you’re having, what the expectations are going forward, including the book to bill, right, the 1.01, obviously a little bit light. How do you think about the trends going forward given the conversations? We appreciate it.

Steve Cutler: Yeah, Patrick, it’s a tough question in terms of where we think this is going. Obviously the cancellations have ticked up from our normal levels and we do expect that that will continue. I don’t believe it’s necessarily going to go higher, although of course in quarter two we will have a significant cancellation as we were open and transparent about with one of the BARDA studies being cancelled in quarter two and as we report quarter two, we will report that as a cancellation, so it may tick up a little bit in the next quarter. But overall we see, as I say, continued elevated levels on a sort of run rate basis. I don’t believe it’s necessarily going to increase any more than it is at the moment, but I do think it will be sustained for probably the rest of this year, is kind of would be my expectation from the cancellation basis.

We have some work to do in that space and we’re obviously working on our backlog and making sure that as much of it as possible is moving forward as quickly as possible, but our burn rate has come down a little bit that we’ve been honest and transparent about that, and that does suggest that there is some work in there that probably will move out at some point in the future. So it’s very hard to be Nostradamus on this sort of stuff, but we do expect, as I say, elevated to continue at around about the levels we’re seeing. Notwithstanding it may tick up a bit more in Q2, given the large cancellation that we will be taking at that time.

Kate Haven: I’ll just maybe quickly add in Patrick. I mean, that is, we have embedded that in our guidance. Of course, in terms of the updated guide that we’ve given does assume an elevated cancellation rate continues and we think that’s appropriately cautious given the environment at this stage.

Operator: Thank you. We’ll now take the next question. This is from David Windley from Jefferies. Please go ahead.

David Windley: Hi, thanks for taking my question. Mine also around revenue in general, what we hear from our contacts in the industry is that customers, probably more on the smaller end of the scale, but customers are price sensitive and issuing more RFPs to try to essentially fish for more bids and potentially more competitive bids. So I’m wondering, one, if you’re seeing that; two, how do you kind of try to adjust for that noise that it might look like RFP values are stable or growing, but it’s actually kind of inflated by this dynamic. How is that changing your win rate from those customers? And have you considered — to your point that you just made, Steve, have you considered risk adjusting out kind of unproductive backlog to kind of take that risk off the table, so to speak? Thank you for taking my questions.

Steve Cutler: Yeah, Dave, I’ll try. And then Barry Balfe may jump in on that one. He’s close to these biotech opportunities. I mean, I think it’s fair to say that in the biotech space, we do tend to compete with more competitors, other CROs, and so our strike rate in that space is lower and you’d expect it to be lower. I don’t know that that necessarily changes the way we think about those things. We do believe we’re making some progress in terms of that strike rate. It’s ticked up modestly. And as you say — as we’ve said, we are seeing more opportunity in that space. Some of that opportunity where we are a little, I don’t want to say suspicious, but a little careful with given we have seen a bit of an uptick in RFPs that have been cancelled as well.

In other words, RFPs that really never come to a yes or a no decision, so we’re conscious of, despite the uptick in opportunities, some of it is not always of immediate opportunity, if that makes sense, or is not always going to go to a contract within a reasonable period of time, because we’ve seen that uptick of there. We don’t necessarily risk adjust as such. We do recognize that there are different dynamics in that segment. There’s more competition in that segment from other competitors and we adjust from that point of view in terms of our expectations, but we don’t treat it any differently to large pharma in that space. Do you want to add?

Barry Balfe: Yeah, thanks, Steve. Dave, I think it’s a good question to think about RFP flow and win rates as having slightly different dynamics between pharma and biotech. Very honestly, in pharma, our win rates remain very, very healthy. We’re winning substantially more than half of what we touch and we’re very pleased about that. As Steve said, there has been an uptick, something of a sustained uptick in RFP flow in biotech, but the quality of that RFP flow isn’t always as strong as we might wish. I don’t link that to price, actually. I think that’s more to do with funding sensitivities and people trying to scope out the viability of certain development programs. That seems to be what we see more among those smaller customers. So we’re heartened that we’re seeing more of that market, albeit we’re looking forward to a higher proportion of those RFPs converting to contract into award.

Operator: Thank you. We’ll now take the next question. This is from Justin Bowers from Deutsche Bank. Please go ahead.

Justin Bowers : Hi, good morning, everyone. So, just want to stick with the overall landscape here and I think there’s been a lot of talk over the last couple of quarters about what inning we’re in with respect to large pharma in terms of reprioritizations, pricing, strategic partnerships. And I know there’s a lot of macro sort of noise, but I’d love to get your perspective on, again, like where we are in the cycle and how some of these efforts in the administration have driven your conversations with those important customers about the partnerships going forward.

Steve Cutler: Yeah, Justin, it’s a big question and one we think about quite a lot. The way we’re looking at it at the moment is that certainly — we’re certainly very much focused or for large pharma, very much focused on cost reduction, on budgets, particularly with the LOE issues they’re confronting over the next few years and they’re certainly very much in the middle of that. I don’t know — we don’t know what sort of stage it is. I don’t want to call out an inning or whatever, but we do think that that’s been very much the focus over the last 12 months. It probably will continue. I don’t know that there’ll ever be an end to it, but I think that’s certainly very much a focus at the moment. I do think as we move into the year, in the sort of more medium — short to medium term, the focus will switch to how they bring new drugs to market, how they effectively replace the revenue.

They’re not going to cut their way to success, we all know that. And so they are going to have to spend on an R&D basis, they are going to have to probably acquire companies. I do think there’s likely to be a period of M&A either consolidating in the pharma space or buying — and buying the biotechs. We all know that most of the innovation comes out of the biotech space these days. We think we’re very well positioned as they move into that phase, as they move into bringing — to spending more obviously, or acquiring projects or acquiring companies that have drugs that are ready for the market. As Barry mentioned, our strike rate, our partnership strategy in the large pharma space has been paying dividends for us. So we think as those large pharmas acquire, we’ll have an opportunity to benefit from that from an outsourcing point of view.

We also believe that if we’re working with the particular biotech at that time and we’re acquired by a partner company, there’s a benefit for us on that space as well. And I think we basically want to come back to the fact that they’re not going to cut their way to success. They are going to need to spend some money or buy some companies or to bring new drugs to market, new companies, new pharmaceuticals to market. And I think that also leads us, as an outsourcing group to feel that we’re well positioned. It’s a very, very uncertain time. There’s a lot of things happening that we can talk a lot about, but it doesn’t seem to — it seems to me that during those times of uncertainty and of volatility, that outsourcing becomes an even more viable option for those large pharmas, as they don’t necessarily want to add significant fixed cost to their organizations when it’s unclear as to what’s going to be happening, what they’re going to be doing in 6, 12 or 24 months time.

So again, in terms of the environment, as we go forward and certainly in the medium to longer term, we’re very constructive on the ability for outsourcers and organizations like ours to do more of the clinical development work, as I say, given the uncertainty that our pharma brethren are facing at the moment.

Justin Bowers : Thank you, Steve. I appreciate the thoughtful response. And just a quick follow up. You did talk about efforts to drive a greater burn rate and can you just elaborate, maybe Barry can chime in too, on what levers you can pull to do that. And is that really the swing factor in the top line guide for the rest of the year or is that more related to cancellations, et cetera? Thank you.

Steve Cutler: I’ll let Barry jump in on that one. Justin.

Barry Balfe: Yeah Justin, I think when we think about burn rate, we’re thinking about those studies that are yet to begin burning as we take them post award and those that are already burning. And the way we increase burn rate primarily is by focusing on faster execution of the clinical trials that are already underway. As you’re aware, we aligned our operational groups under common leadership in quarter one and one of the things I’m focusing a lot on with the team is trying to replicate best practice. So where we have business units that are doing really well on applying technologies, standardized processes to better execute those trials, whether it’s the startup phase, the patient recruitment phase, data aggregation phase, to make sure we roll those out across the organization to avail of those benefits for the customers and obviously in terms of burn rate.

And really one of the things we look at already talked about the win rate in large pharma and more of the market that we’re seeing in biotech, we’re trying to make sure that while we offer differentiated solutions and service offerings for those different ends of the market, that where a uniform best practice is in the interest of all of those customers that we roll it out, be that a system, a technology or a way of work.

Nigel Clerkin: Justin, I might add just on your point on the upper end of the range and the guidance. So certainly burn rate would obviously be a factor in that the midpoint of the range does assume burn rate sort of continuing roughly where it was in Q1 over the course of the year. That will be one factor along with of course also where we end up ultimately on both wins as we go through the rest of the year and cancellations. So it will be a combination of all of those factors.

Operator: Thank you. We’ll now take the next question. This is from Jack Meehan from Nephron Research. Please go ahead.

Jack Meehan: Thank you. Hello everyone. Wanted to ask a couple of tariff-related questions. The first is could you just talk about any direct impact on tariffs for ICON, maybe in the lab or elsewhere and then more broadly there’s this discussion around pharmaceutical tariffs. They obviously haven’t been enacted yet, but just curious what you’re hearing from customers as it relates to that. Thank you.

Steve Cutler: Sure. Let me take the first question, Jack. With respect to our business, we don’t see any much of an impact in terms of our services business. It’s not out of the question, of course, expect the unexpected with the current administration, but we’re not thinking there’s going to be an immediate or material impact in terms of our services. There are some components of our business that do mean that components stock is moved across boundaries and so things like our lab kits could potentially be impacted. It’s a relatively minor part of our overall lab business and certainly our overall revenue, so I don’t think there’s going to be a material impact there, but it could impact on us on that front. In terms of our pharma customers, I hear what you hear, I read what you read.

We’ve seen some announcements fairly recently about giving them a little bit more time to work through. I saw some comments just recently from the White House around a delayed implementation of any pharma tariffs. Clearly there’s a requirement or a wish from the current administration to do more manufacturing onshore, sort of in the US and that will have and potentially could have some implications, but it’s pretty early days on that front and it does, as I say, seem like there’s some delays. There’ll be some discussions there and I know the pharma brethren will be lobbying hard the various key people in the administration to represent themselves and they do a pretty good job with that sort of thing. So we’ll wait and see, like you. If there is an impact in pharma, it’s potentially going to flow down to us, but it’s really unclear at the moment and I’m hesitant to speculate too much on what the impact on our business would be and what the time frame for that would be as well.

Operator: Thank you. We’ll now take the next question. This is from Jailendra Singh from Truist Securities. Please go ahead.

Jailendra Singh: Thank you and thanks for taking my questions and good morning. With all the macro noise and large pharma still focused on reprioritization, have you seen any changes in full service versus FSP RFP mix among your large pharma clients or the mix still relatively steady? And related to that, have you seen any increased adoption of FSP projects downstream like among mid-pharma clients?

Steve Cutler: Again, I’ll start and maybe Barry might jump in on that one, Jailendra. At the moment really we see the mix of FSO and FSP business being pretty consistent. Over the quarter, the top three wins we had were in full service. The partnership that we were able to secure in more the mid size was more full service business. So the proportions of our revenues that are full service versus FSP haven’t changed dramatically over that period of time. It is true to say, I think that — well I know that our FSP business is growing a little faster than our full service business at the moment but and so over the long term there may be some changes but really at the moment we’re not seeing any major shifts and I think I’d apply that to our mid-sized customers as well. Barry, do you want to drop in?

Barry Balfe: Yeah, I think that’s absolutely right. They’ve remained relatively constant, particularly when adjusted for seasonal factors. I think the trend, if there is one, remains that in order to compete for strategic alliances at the top level, you’ve got to be able to demonstrate mastery of FSP and full service. And we’re fortunate in that regard to be the largest and I would argue the best in the FSP space as well as a leading provider of FSO. That does lead you to a conversation where it’s getting harder and harder to define what’s FSO versus FSP. Our experience is very much that we are blending around the margins. Most of our large alliances involve customers doing elements of the work themselves, elements in FSP and elements with FSO.

So that’s certainly something we continue to see. There are some more mid-sized customers perhaps nibbling around FSP solutions, but ultimately the ability to adopt an FSP component to your development strategy is largely dependent on what competencies you have in house. They’re quite hard to build if you don’t have them certainly in a hurry, so we don’t see any major disturbance in terms of that distribution, Jailendra.

Operator: Thank you. We’ll now take the next question. This is from Max Smock from William Blair. Please go ahead.

Max Smock: Hi, good morning. Good afternoon. Thanks for taking the questions. Maybe just one on margins here, wonder if you could comment on the total adjusted EBITDA target for this year and just how to think about the cadence for adjusted EBITDA moving forward. Is it fair to think about 1Q being the floor on the margin side and how big of a step up should we expect in 2Q and then what does that acceleration look like in the back half of the year? Thank you.

Nigel Clerkin: Hey Max, it’s Nigel. I’ll take that one. So, no real change actually in our margins outlook for the year from what we would have talked about before. Still expectation would be that EBITDA margin for the year as a whole would be roughly 1% or so lower than it was last year. Within that obviously Q1 was a good performance, 19.5%, slightly better frankly than we had initially anticipated given the strong measures we’ve been taking on cost controls. And I’d expect that to gradually increase as we go through the year, Max. So it’s a gradual uptick as we go through the quarters, quarter to quarter, and anticipating exiting the year at a rate somewhere around or hopefully slightly higher than we were in Q4 last year, so close to 21% as we exit the year.

Operator: Thank you. We’ll take the next question. This is from Dan Leonard from UBS. Please go ahead.

Dan Leonard: Thank you. Stephen, I was wondering if you had any perspective on the amount of clinical development coming out of China, how you’re positioned to participate and whether any regional shifts might have a positive or negative influence on your total addressable opportunity.

Steve Cutler: Sure, Dan. Yeah, it’s a good question. China’s very topical at the moment. I was on a panel a couple of weeks back talking about the many, many opportunities that companies in the US and not just biotech but large pharma are taking out of China. The research and development capabilities out there are really catching up with what we do here in the United States and in Europe. And so we are well positioned. We believe we have something like 1200 people in China. We have a big operation there and we’re increasingly able to run either clinical trials in China, as many of them are. Something like a third of the worldwide clinical trial starts are from Chinese companies and they happen in China. So they are an under-recognized powerhouse really in clinical development.

And I think they’re going to be very much ready to emerge and to come west in the longer term. So we feel we’re well represented there with those 1,200 people. We’re obviously ready to bring work from China as they come and do multinational clinical trials. But a lot of the clinical trials we run in China at the moment are run within the country. It’s a country of, what is it, 1.2, 1.3 billion people. They don’t necessarily need to go to other parts of the world, although of course if they want to get access to those markets that’s a regulatory discussion that they need to have. We’re very optimistic about the opportunities that are happening in China, not just in the sort of R&D space, but in the ability for us to do those development programs either in China or as a global multinational.

Operator: Thank you. We’ll take the next question. This is from Michael Ryskin from Bank of America. Please go ahead.

Michael Ryskin : Hey, thanks for taking the question. I want to kind of circle up a couple prior comments on cancellations going forward, book-to-bill going forward and just kind of bring that back to your updated full year guide on revenues. So you cut the full year guide by I think 400 million at the midpoint, then as you said, 350 of that is just attributed to the two next gen COVID trials. But if I look at how first quarter came in 1.01 book-to-bill, you talked about the elevated cancellations, talked about pretty sizable drop in gross new wins down mid teens. Why isn’t there a little bit more conservatism for the rest of the year, I guess? Well it feels like the environment has turned a little bit worse in the quarter beyond just those two projects and yet I see the full year guide as relatively unchanged, excluding that.

So just maybe this ties into the burn rate discussion or something like that. Just what kind of makes up the difference for you, as you go through the rest of the year? Thanks.

Nigel Clerkin: Yeah, Michael, it’s Nigel. Let me have a stab at that. So firstly, obviously we’ve provided a range rather than just a point estimate, just as a reminder. So the range as a whole does allow for all of the factors that you spoke to. And I would think as well, FX, although it was a modest drag for us in Q1, likely will be a modest benefit for us for the year as a whole, so just bear that in mind as well, probably in around 1% for the full year, so do remember that as well. So look from our seat we’ve tried to set out a guidance range that does reflect the current macro environment and takes a cautious view, frankly, in terms of book-to-bill outlook over the balance of the year, broadly in line with what we saw in the first quarter.

Steve Cutler: I think the other thing, Michael, is, as we’ve alluded to on the call, we did have some positive news earlier in the week around one of the next gen trials and that work is starting straight away. So we do think that provides us some insurance or reassurance as well with respect to the range of revenue guidance that we’ve incorporated as well. So as always, there’s opportunity as we go forward and that certainly represents some immediate term opportunity. And Barry’s team’s very much on top of that straight away and we’re anxious to get that trial going with that customer.

Operator: Thank you. The next question is from Luke Sergott from Barclays. Please go ahead.

Luke Sergott: Great, thanks guys. I just wanted to touch here on margins and more, what’s in the backlog and coming through. So the current thinking is that you’re facing a little bit more pricing pressure, probably a little bit more FSP mix. And so as you guys look at that backlog and then at your current bookings trend and revenue growth, like what’s the — have the incrementals changed here where your minimum growth range before we see margin contraction, where it was like probably around 2% prior, might need to see like 3 or 4% just as we think about going forward in the out years.

Nigel Clerkin: Yeah, look, why don’t I take that. I think Steve and Barry have touched on the macro environment. Fundamentally we don’t see anything that’s radically different in terms of the pricing environment today from where it has been nor do we see much in the way of significant shift, certainly in the near term FSP to — FSO to FSP. I did mention sort of a longer term gradual shift just given what we’re seeing overall. But stepping back then, I don’t think anything has really changed, frankly in terms of the margin opportunity for this business overall into the medium term. When you look at the history, this company before I got here certainly has been doing a very good job over years in terms of creating operating leverage, which means that as revenue does turn to growth, when we get to that place, if market conditions recover and when they do, we would expect to see operating leverage and we are continuing to manage the cost base prudently, as I think you can see, even in our Q1 performance.

And of course we’ll continue to do that along with all of the investments we’ve been making in automation and so on. So that fundamental perspective of margin expansion opportunity over time as and when and if revenue returns to growth, we don’t think that’s changed at all, frankly.

Operator: Thank you. Next question is from the line of Matt Sykes from Goldman Sachs. Please go ahead.

Matt Sykes: Good morning. Thanks for taking my questions. I just want to focus on some of the cost savings you mentioned at the outset. I think there’s an assumption that given the labor cost component, it’s just a hard thing to but it sounds like you’ve made some progress on the non-labor side. So maybe some more details on what types of costs you’re taking out, what the runway is on further cost takeout to preserve margins this year and do you feel like that puts you out of balance in terms of a demand recovery at some point in the future?

Nigel Clerkin: Maybe I’ll start. This is Nigel and then Steve and Barry want to chime in. So in terms of cost you’re right. Obviously the majority of our cost base is people cost and so, yes, we constantly adjust our resourcing against the demand profile that’s there. We’re obviously very thoughtful in terms of how we do that and I’ll leave Steve and Barry to comment on that. So it’s not the totality of our cost base and we are of course in parallel making lots of investments and progress with automation as well. So it is a combination of all of the above, Matt. So Barry, I don’t know if you want to add to that.

Barry Balfe: Yeah, I would say that the non-labor components echo with something I commented on earlier on around standardizing platforms and best practices where that’s appropriate. We know that our biotech and pharma customers, for example, require different solutions, different team structures, different project team configurations, but since the beginning of the year we have been looking closely at the platforms we operate to make sure that we leverage best value for the customer in the first instance in terms of quality but also in terms of the cost that we spend. And in terms of how far into that process, both on labor and non-labor we’ve been very active in quarter two and would expect to be very significantly through the near-term change by the end of the quarter.

Operator: Thank you. Next question is from the line of Eric Caldwell from Baird. Please go ahead.

Eric Caldwell: Thanks very much. I have a couple of quick clarifications to solve here. First off, regarding a recent question on the 350 million of COVID work that’s been removed from your outlook. To be clear, that wasn’t all going to burn in 2025, correct, i.e. what was the actual revenue impact of those removed studies from this year’s revenue outlook.

Nigel Clerkin: Eric, it’s Nigel. To be clear that $350 million was the anticipated revenue in 2025. That has been adjusted within the revenue range guidance then to know, both of them combined.

Eric Caldwell: Okay. Got it. Okay. So were they — I guess I’m a bit confused because looking at your BARDA award, I don’t remember it being much more than that. So you were expecting all of this to burn this year?

Kate Haven: Two separate studies.

Nigel Clerkin: Yeah, there’s two studies, Eric. So in aggregate, they would have had an award valued higher than that and what it would have turned over a significant chunk this year, but also into next year as well.

Eric Caldwell: What is the sizing of the project that is canceled? What the incremental headwind is in Q2?

Nigel Clerkin: For book-to-bill, you mean?

Eric Caldwell: Yeah, for cancellation and bookings, yes.

Nigel Clerkin: Yes. So it’ll be somewhere in the region of about $300 million, Eric, for that council in the second quarter.

Operator: Thank you. We’ll take our next question. This is from Charles Rhyee from TD Cowen. Please go ahead.

Unidentified Analyst: This is [Indiscernible] for Charles Rhyee. Thanks for taking the questions. Can you guys update us on trends you’re seeing with your two largest customers? Last we heard, you were starting to see stable trends with your largest customer and then that your second largest customer was still seeing declining sales. Are there any changes to what you’re seeing with those two? And then have they given you any indication on what their plans are with you in 2025?

Steve Cutler: Okay, so I’ll take that one. I mean, there’s, there is some — we are still seeing some downtick in one of those customers. The other one is also sort of moving around a little bit as well. But really we’re sort of seeing that those last year are not, our two largest customers this year. There’s a fair bit of movement within our top 10, I suppose, and so it’s hard to sort of get too specific about any sort of group of customers at the moment. And so we’ve kind of — we’d like to sort of move away from our discussion around the two largest customers. As I say, there’s some customers going up, some customers have come down. It goes beyond, as I say, our top 10, and so it’s something that we’re kind of moving on with.

We’re looking at our portfolio as a whole now and looking at the various segments that we’re working in and seeing where the opportunities are. And we see plenty of opportunities. Several of our more strategic partnerships are now moving very much in the right direction. We’re being able to start to win work from those strategic partners and those are the ones we’re really focused on.

Operator: Thank you. And the next question is from Casey Woodring from JPMorgan. Please go ahead.

Casey Woodring: Great. Thank you for taking my questions. Can you just talk about month-over-month demand trends in April in large pharma and biotech? Just wondering if customer behavior has changed following the tariff announcements. And then on 2Q book-to-bill you talked about taking one of the vaccine trials out and the cancellations next quarter. Is it safe to assume book-to-bill will come in below 1Q sequentially and then maybe just any color there on how we should think about book-to-bill for the rest of the year? I know previously you had kind of anchored towards a 1.2 number on a trailing 12 month for the year. Thank you.

Barry Balfe: Casey, it is Barry here. In terms of the book-to-bill outlook for the rest of the year, I think it’s a bit early to call a book-to-bill for Q2. I think Nigel has already given an outlook in terms of the relative impact of that one particular account in the quarter, so I’m certainly not going to call the quarter this early. In terms of month-over-month RFP, the answer to your question is no, I wouldn’t observe any but also, no, I wouldn’t particularly look to a month-over-month trend as being something I could extrapolate. So I think Nigel already pointed out that the guidance that’s reissued presumes roughly consistent conditions throughout the balance of the year and that basis on which we’re working.

Operator: Thank you. We have one more question from the phone lines. This is from Josh Waldman from Cleveland Research. Please go ahead.

Josh Waldman: Hi, thanks for taking my question, a follow up I think. I mean it sounds like the sounds like 50 million of the guide reduction was related to slower activity outside of the COVID program headwinds, I guess. Is that right? And if so, any additional color you can provide on what variables you contemplated to get to that number. Why you think that’s the right number? Was that based on projects that you have visibility on as of the end of Q1 or is this also trying to predict kind of future trend, be it better or worse from here?

Nigel Clerkin: Josh, it’s Nigel, maybe just to recap over some of the points there again. So in aggregate to, you’re right, the midpoint moved by $400 million, I would just remind you what we’ve issued is a range, not just a point estimate. So that’s the first thing. Second thing is yes, you’re right in terms of the $350 million impact of the two studies being removed. I also touched on earlier FX, we’d anticipate being roughly a 1% tailwind for the full year. So your net adjustment, bear in mind that implies everything else, is slightly more negative. And then within that, it is the factors we talked about, again book-to-bill in Q1 was what it was. We tried to take a cautious view on what that might be for the balance of the year, as we mentioned.

Burn rate again we touched on was 8.1% in Q1. Again, we’re anticipating it being approximately similar as we go through the rest of the year. So those are the major factors and obviously the guidance reflects everything we’re aware of as of now.

Operator: Thank you and there are no further questions. So I will now hand the conference back to the speakers.

Steve Cutler: Thanks, operator. We are focused on managing the business through this heightened period of uncertainty and volatility in the broader market, properly balancing investment in our business to further enhance our offering for customers while returning capital to shareholders. We continue to see good opportunity to accelerate our position across customers and areas of the market, capitalizing on our experience and success as a strategic and essential development partner. Thank you for joining us today and for your support of ICON. Good day.

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