IQV - NYSE

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the IQVIA Fourth Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Kerri Joseph, Senior Vice President, Investor Relations and Treasury. Mr. Joseph, you may now begin your conference.

Thank you, operator. Good morning, everyone. Thank you for joining our fourth quarter 2024 earnings call. With me today are Ari Bousbib, Chairman and Chief Executive Officer; Ron Bruehlman, Executive Vice President and Chief Financial Officer; Eric Sherbet, Executive Vice President and General Counsel; Mike Fedock, Senior Vice President, Financial Planning and Analysis; and Gustavo Perrone, Senior Director, Investor Relations. Today, we will be referencing a presentation that will be visible during this call for those of you on our webcast. This presentation will also be available following this call on the Events and Presentations section of our IQVIA Investor Relations website at ir.iqvia.com. Before we begin, I'd like to caution listeners that certain information discussed by management during this conference call will include forward-looking statements. Actual results could differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company's business, which are discussed in the company's filings with the Securities and Exchange Commission, including our annual report on Form 10-K and subsequent SEC filings. In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in the press release and conference call presentation. I would now like to turn the call over to our Chairman and CEO, Ari Bousbib.

Thank you Kerri and good morning everyone. Thank you for joining us today to discuss our fourth quarter and full year 2024 results. It was great to see many of you in-person at our December Investor Day at Innovation Park headquarters. I hope this helps you appreciate the depth and breadth of our offerings as we showcased product demos and tour some of our industry leading laboratories. In fact, a number of you commented to me afterwards that they left with a deeper understanding of the breadth and depth of our capabilities and how our strategy to improve patient outcomes is being executed. As we closed 2024 we delivered solid full year results with revenue growth of 5.5% at constant currency excluding the COVID revenue step down, adjusted diluted earnings per share growing over 9% and free cash flow of $2.1 billion, which represents growth of 41% versus last year, as well as 104% of adjusted net income. I'm very proud of the results the IQVIA team was able to deliver in an industry that faced significant challenges in 2024. We saw the consequences of the Inflation Reduction Act, which led to delayed customer decision making, reduced discretionary spend and portfolio reprioritizations. Additionally, we had a challenging macro environment that persisted with geopolitical unrest, continued high interest rates and inflation, foreign currency headwinds and questions about the impact of political elections in the U.S. and around the world, all of which created tremendous amount of noise and incremental uncertainty. In fact, very few companies in our broader industry sector achieved positive growth and IQVIA really stood out as an outperformer. More specifically, in the fourth quarter you saw that we had strong operational results. Revenue came in above the high end of our guidance range representing about 4.5% growth excluding the impact of foreign exchange and COVID-related work. We delivered just under 10% growth in adjusted diluted earnings per share and we achieved a record quarter of free cash flow. On the clinical side, net new bookings for the quarter were over $2.5 billion and this all highlights the great work that was done by our R&DS team in securing new business contracts. This helped mitigate the outsized level of cancellations that did materialize in the quarter, just as we had anticipated. Now, despite the tough macro environment, the R&DS business had some significant achievements in 2024. We successfully renewed all of our large pharma strategic partnerships this past year, even as many clients reevaluated and consolidated their alliances. In addition, we established new relationships, displaced incumbents and expanded the scope of work in several partnerships, positively positioning our business for future growth. IQVIA has partnerships with 22 of the top 25 pharma companies. We made significant advancements in our global health business. For example, we helped the World Health Organization control polio virus outbreaks in Africa. We collaborated with the Coalition for Epidemic Preparedness Innovations, CEPI, in Rwanda, so we were able to respond swiftly to a Marburg virus disease outbreak. Finally, we were selected by a large biotech client to expedite a vaccine trial for Mpox in Sub-Saharan Africa, addressing a critical outbreak and unmet medical needs. These all comes to show that whenever there is a crisis, IQVIA is a company public health officials turn to. Now moving to TAS. The growth trajectory materialized just the way we said it would. Low single digit growth in the first half and gradually ramping up each quarter. In fact, growth exceeded our expectations in the second half. Obviously, this was helped by easier compares versus the second half of 2023. But we also had stronger organic demand than expected across all sub-segments with real world actually returning to double digit growth. We finished the year with constant currency growth of 5.7% and about 6.5% excluding the COVID step down, which was at the high end of our guidance. We expect to sustain these favorable trends into 2025. Reflecting on 2024, we're proud of what we achieved in TAS. A couple of business highlights. We introduced 60 innovations this past year, including 39 AI-enabled applications. For example, we introduced IQVIA AI Assistant, our first ever gen AI interface. It allows customers to interact with a growing number of our products and get answers to their questions almost instantly. We launched a number of AI-enabled patient offerings, including our Patient Relationship Manager, which has already been deployed at eight clients including three top 10 pharma. Our digital business, which up to now was largely in the U.S., has begun expanding into Europe where we've doubled the number of websites, publishers and partners that are now integrated into our digital network. Now looking at 2025, we are reaffirming the guidance we provided to you at the December Investor Day. On the TAS side, things have continued to recover as we anticipated. On the R&DS side, we still have some volatility, so we might see another quarter or two of fluctuating demand and elevated cancellations, but we think the bulk of the portfolio reprioritizations at large pharma has been completed. In fact, we feel good about the R&DS demand environment because leading indicators continue to be favorable. For example, our Q4 RFP flow was up mid single digits, little higher actually in the EBP segment. Our qualified pipeline is also up with positive growth across all segments. EBP funding, as you noted, was strong through 2024. Full year biotech funding was over $100 billion, which is 44% higher than it had been in 2023. Now we did have much higher cancellations in 2024 than ever before, in fact nearly 50% higher in 2024 than the average of the previous three years. But our gross new bookings before cancellations for 2024 were even stronger and up mid single digits at constant currency versus 2023, which led to an end of year backlog of $31.1 billion, which is again at constant currency 5.5% higher than a year ago. Now turning to the results for the quarter. Revenue for the fourth quarter grew 2.3% on a reported basis and 3% at constant currency. Compared to last year and excluding COVID related work from both periods, we grew the top line about 4.5% on a constant currency basis and that included in the quarter about 2 points of contribution from acquisitions, mostly on the TAS side. Fourth quarter adjusted EBITDA increased 3.1% driven by revenue growth and ongoing cost management discipline which resulted in 20 bps of margin expansion. Fourth quarter adjusted diluted EPS of $3.12 increased 9.9% year-over-year. Let me now give you some color on business activity. IQVIA success is achieved by continuing to raise the bar in innovation every year and investing in highly differentiated capabilities. You saw the recent announcement of our collaboration with NVIDIA to transform healthcare and life sciences through advanced agentic AI solutions. AI has the potential to transform our industry, for example by addressing lengthy and complex processes in clinical trials or on the commercial side by helping expedite diagnosis and improve treatment adherence by patients. Our collaboration with NVIDIA will help accelerate the introduction of AI agents within our workflows, with AI agents essentially becoming digital companions to researchers, HCPs and patients. Let me give you some more examples of what was achieved in the quarter and let me start with TAS. The business is rapidly evolving as we see increasing demand for integrated solutions that combine information, analytics and services. This is enabling us to win much larger longer term deals with our clients because of our unique ability to deliver these combined offerings. Let me give you a few examples. IQVIA was awarded a strategic partnership to deliver omnichannel marketing solutions to promote a top ten pharma clients established portfolio. IQVIA here we utilize analytics, information technology and commercial outsourcing capabilities. IQVIA is also partnering with a biotech company to launch a new treatment for ovarian cancer which will be our client's first product in market. This large deal leverages IQV’s comprehensive commercial capabilities and expertise to execute regulatory process, launch and commercial activities. Another EBP client asked IQVIA to support them in launching a new cell therapy for a severe pediatric condition by providing the full, comprehensive, commercial infrastructure and that includes field sales, medical and commercial communications, compliance and OCE. A large pharma client engaged IQVIA to simplify data management by integrating diverse sources from all over – 30 countries, reducing complexity and enhancing efficiency. IQVIA will support the client’s information strategy to streamline operations and centralize its global information into a single, standardized system that we will be operating. Moving now to real-world, IQVIA is using advanced AI to support a top ten pharma client to demonstrate efficacy for gastric cancer treatment and gain approval in new markets. A top 10, 15 pharma clients chose IQVIA to help track disease and treatment efficacy in support of various regulatory submissions in Europe. Let me move now to RDS. I earlier noted the success of our RDS team and want to highlight some notable wins that represent our capabilities across segments, therapeutic areas and operational dynamics. Let me start with large pharma. The top five pharma clients selected IQVIA to conduct a complex, full service Phase 3 study addressing asthma and COPD patients. We won another full service global Phase 3 breast cancer study for a top 30 pharma. Another top 10 pharma client awarded IQVIA a large FSP contract. This award is notable, because we displaced two large, long-time, incumbent CROs. MedTech, IQVIA was awarded a study to evaluate a novel medical device specifically targeting a cardiovascular condition. Biotech, few notable awards include a critical Phase 3 oncology study based on our strong data-driven approach and ability to manage global complex trials efficiently. Another global study full service study for another biotech client for progressive pulmonary fibrosis disease which involves nearly 1,000 patients in 26 countries. And again, we are able to win this based on our global footprint and therapeutic expertise, a Phase 2 trial for rare CNS conditions with limited previous research. Lots of success in the marketplace with large pharma, MedTech and EBP. Now, before passing the call over to Ron for a more detailed review of our financial results, I'd like to take a minute to acknowledge and congratulate our employees around the world for their extraordinary work this past year. It was challenging, but we delivered, a great team. We also received amazing recognitions throughout the year. I just want to highlight a few. Frost & Sullivan awarded IQVIA at the 2024 Global Customer Value Leadership Award for excellence in AI quality and regulatory solutions in healthcare. IQVIA’s SmartSolve Enterprise QMS was recognized for Best Use of AI in Healthcare by the MedTech Breakthrough Awards. My Green Lab awarded IQVIA Laboratories the 2024 Race to

Thanks, Ari. And good morning everyone. Let's start with revenue. Fourth quarter revenue of $3,958 million grew 2.3% on a reported basis and 3% constant currency. In the quarter COVID-related revenues were approximately $10 million, which is down about $50 million versus the fourth quarter of 2023. Excluding all COVID related work both from this year and from last, constant currency growth was about 4.5%. And as Ari mentioned, acquisitions contributed approximately two points of this growth. Technology & Analytics Solutions revenue for the fourth quarter was $1,658 million which was up 8.3% reported and 9.5% constant currency. R&D Solutions fourth quarter revenue of $2,123 million was down 1.3% reported and 1% constant currency. But excluding all COVID-related work, R&DS revenue grew over 1% at constant currency. And finally, Contract Sales & Medical Solutions’ fourth quarter revenue of $177 million declined 4.8% reported and 3.2% of constant currency. Now for the full year, revenue was $15,405 million, that's up 2.8% reported and 3.4% at constant currencies. COVID-related revenue totaled approximately $110 million for the year. Excluding all COVID-related work from this year and last, constant currency growth and revenue was 5.5% for the year. Full year Technology & Analytics Solutions revenue $6,160 million, that was up 5.1% reported, 5.7% at constant currency and 6.5% excluding all COVID-related work at constant currency. Full year revenue in R&D Solutions was $8,527 million, up 1.6% on a reported basis, 2% of constant currency. Excluding all COVID-related work growth in constant currency in R&DS was over 5%. And finally our full year CSMS revenue was $718 million, down 1.2% reported but up 1.4% at constant currency. As Ari mentioned in his opening remarks, the 2024 growth trajectory in TAS played out as we anticipated with improvements every quarter. We had we experienced a softening growth rate throughout 2023 due to cautious customer discretionary spending and we predicted that 2024 would be a turnaround year based on our forward-looking indicators in recent history. In fact, that's what happened in 2024 TAS growth picked up significantly, finishing the second half with high single digit growth driven by strong mid-single digit organic growth. As you know, TAS is a short cycle part of our business and as we've seen, 2023 gave us early insight into customer spend behavior during the downturn. By the same token, we expect that the 2024 turnaround in TAS serves as a good leading indicator of the industry's recovery for 2025. Let's move down the P&L. Adjusted EBITDA in the quarter was $996 million, representing growth of 3.1% full year. Adjusted EBITDA was $3,684,000,000, that's up 3.2% year-over-year. Fourth quarter GAAP net income was $437 million and GAAP diluted earnings per share was $2.42. For the full year GAAP net income was $1,373,000,000 or $7.49 of earnings per diluted share. Adjusted net income was $564 million for the fourth quarter and adjusted diluted earnings per share was $3.12. That for the full year brought adjusted net income to $2,042,000,000 in adjusted diluted earnings per share to $11.13. R&DS backlog at December 31 was $31.1 billion, an increase of 4.4% year-over-year and 5.5% at constant currency. And to anticipate the question that, I think, we'll get about why backlog was flat sequentially versus Q3, recall that the dollar strengthened considerably during the fourth quarter and we have to retranslate the backlog at the end of each quarter for reporting to you and that knocked about a $0.5 billion off the backlog that retranslation alone. As of December 31, cash and cash equivalents totaled $1,702,000,000 and gross debt was $13,983,000,000, resulting in net debt of $12,281,000,000. Our net leverage ratio ended the year at 3.33 times trailing 12-month adjusted EBITDA. Fourth quarter cash flow from operations was $885 million. And CapEx was $164 million resulting in free cash flow of $721 million for the quarter, a record quarterly free cash flow. For the full year free cash flow was $2,114,000,000, as Ari said, up 41% year-over-year. Now you note that in the quarter we repurchased $1,150,000,000 of our shares bringing our full year share to $1,350,000,000. And just yesterday actually the IQVIA Board of Directors replenished the share repurchase authorization by $2 billion, which increases the total remaining authorization to approximately $3 billion. Now let's turn to the guidance. For the full year, we're reaffirming our 2025 outlook, which is for revenue growth at constant currency ex-COVID of 4% to 7%, adjusted EBITDA margin expansion of up to 20 basis points, and adjusted diluted earnings per share growth of 5% to 9%. This translates into total revenue between $15,725 million and $16,125 million, which includes just over a $100 million step down in COVID-related work, which is entirely in R&DS and of which 75% will be in the first half and 25% the second half. We expect 100 basis points to 150 basis points of contribution from M&A activity and an FX headwind should rates continue of approximately 150 basis points versus 2024. Our adjusted EBITDA guidance is $3,765 million to $3,885 million in adjusted diluted EPS guidance is $11.70 to $12.10. This includes about $675 million of net interest expense, approximately $575 million of operational D&A, an effective income tax rate of about 18.5%, and an average diluted share count of approximately 178 million shares. The guidance also assumes $2 billion of cash deployment split between acquisitions and share repurchase. And finally, the guidance assumes that foreign currency rates as of February 5 continue for the balance of the year. Now at the segment level, guidance is also unchanged for TAS, R&DS and CSMS. No changes in any of the segments. We expect TAS revenue to grow 5% to 7% at constant currency, which translates into $6.3 billion to $6.5 billion. A note, we'll have easier comps in the first half than the second half. R&DS revenue is expected to grow 4% to 6% at constant currency ex-COVID, which translates into $8.7 billion to $8.9 billion of revenue. This guidance includes over $100 million of step down in COVID-related revenue that represents about 100 basis points of headwind R&DS growth rate. We anticipate that R&DS growth rates will be lower in the first half and improve sequentially thereafter. A final CSMS revenue is expected to be approximately $700 million flattish year-over-year. Now let's look at first quarter guidance. For the first quarter we expect revenue to be between $3,740 million and $3,790 million. Note that Q1 has the largest impact in the year for both foreign exchange and COVID revenue step down for a total of approximately 300 basis points of headwind. Adjusted EBITDA is expected to be between $870 million and $890 million in the quarter, and adjusted diluted EPS is expected to be between $2.60 and $2.70. And as mentioned, our guidance assumes that foreign currency rates of February 5 continue for the balance of the year. So, let's summarize. We delivered an excellent fourth quarter, which closed out a strong year. For the full year, revenue grew 5.5% of constant currency excluding COVID-related work. Adjusted EBITDA margin continued to expand and adjusted diluted EPS was up 9.1%. Free cash flow was a record in the quarter at $721 million, bringing the full year to over $2.1 billion, up 41%. In the quarter, we repurchased $1,150 million of her shares for the full year. Share repurchase was $1,350 million. Our Board of Directors increased our share repurchase authorization by $2 billion, which brings the remaining authorization to approximately $3 billion. During the year, we introduced 60 innovations including 39 AI-enabled applications, and the momentum continues to build with our recently announced collaboration with NVIDIA. IQVIA was named a Fortune's list of World's Most Admired Companies for the eighth consecutive year and earned first place ranking in our industry group for the fourth consecutive year. And lastly, we reaffirmed our full year 2025 revenue growth guidance at constant currency of 4% to 7%, adjusted EBITDA margin expansion of up to 20 basis points and adjusted diluted earnings per share growth of 5% to 9%. And that concludes our formal remarks. Let me hand it back over to the operator to open up the call Q&A.

Thank you. [Operator Instructions] Our first question comes from Shlomo Rosenbaum from Stifel. Please go ahead. Your line is open.

Hi, thank you very much. Ari, I wanted to just ask you to dig back in a little bit more on how the operating environment progressed through the quarter and relative to what you were expecting in 4Q? We had some discussion about reassessing of vendor relationships kind of ending or the expectation it would end in the fourth quarter and some of that reprioritizing work ending. We're still talking about some potential volatility for the next one to two quarters. Is that kind of the way you were expecting it coming into the fourth quarter? Or is there any change into about that? And as part of that, maybe you could talk about is there any change in your expectation in those divided contracts that you discussed last quarter? Thank you.

Okay, thank you, Shlomo. Well, no, look, we spoke not that long ago in December in a rally, and we shared there our sentiment with respect to the operating environment. Not much has changed versus what we told you then. That is, it was a difficult operating environment for all the reasons we mentioned then, and I reiterated in my introductory remarks the macro environment consequences of the IRA, a bunch of unexpected large cancellations due to futility reasons we had last year. And then the two large fast burning trials that we had just started that for reasons in the panel of IQVIA were just delayed and because of the nature of these projects they basically pushed back to the back end of 2025. Nothing's changed here. We think the bulk of the cancellations and reprioritizations has occurred. We said then, I repeat now, we're still going to have [indiscernible] of some volatility. And I sitting here, I can't tell you what it's going to be, first quarter or second quarter in December, we were closer to the end of the quarter, so I had more visibility, frankly after one month in a quarter, you can never tell. What are we going to book? What are we going to sell? Which deals are going to come in this quarter, are going to be pushed up to the next quarter, which cancellations may or may not occur this quarter? We have no idea. I'm just always shocked when people are able to predict what their bookings, the net bookings will be in a given quarter. I have no idea. As I stand here one month into the quarter, especially first month of the year, January, not much happens. So yes, I mean, I would say, what is it two-thirds maybe 70%, 75% of the somewhere there, almost two-thirds, 75% of the reprioritization that we know of at large pharma essentially is our own. So there may still be a little bit of fluctuation here in the next quarter or two, but I can't tell for certain what may or may not happen. And with respect to these two trials that were delayed, which was your second question, nothing changed. They're still on. The clients very much want to do them. It causes us to have to maintain some costs, through the year, and that's kind of affecting a little bit our gross margin because we have this shredded cost. But that's okay. We will manage that and we feel good about that. And those will happen. As we said, no change back end of the year.

Thank you.

Our next question comes from Elizabeth Anderson from Evercore ISI. Please go ahead. Your line is open.

Hi, Ari. Hi, Ron. Thanks so much for the question. I was wondering if you could give a little bit more color on two things. I think you've been given some nice pharma color. I was wondering if you could talk a little bit more about the biotech environment, how that's going, how you're sort of seeing RFP flow? Are you seeing any kind of unlocking of some of the funds that were raised last year but not spent? And then also talk a little bit more about what you think the drivers on the real world evidence acceleration are? Thank you.

Okay, all right. So look, the biotech funding, which is a sort of a leading indicator of what is going to happen in terms of the booking environment for that segment, has been strong. Okay. We consistently use the same, stats, and according to those facts, it's over $100 billion for 2024. There's been fluctuation, quarter-in, quarter-out. But that's the number, and that's a huge number. That's a record number ever, if you exclude the two years of 2020 and 2021, which were, I think $130 billion and $120 billion [ph], respectively. But I mean, last year, what was the number last year, guys, for? It was like in the $70 million – $71 million [ph] last year. Okay, so significant growth in funding. Now, as we said before, just because biotech gets funding today doesn't mean that it translates into a clinical trial award the next day. Okay? It takes time and take six months, take a year. But it's a good, strong leading indicator. And we saw funding start to pick up already a year ago. And therefore, we're still, we're starting to see this RFP flow, as I said, was up mid single digit for us across the portfolio, which again, in the current environment is very, very good. And EVP was higher than that. Okay. Higher than the 5%. And yes, so that's about the environment. So I think we feel good about the EBP segment, lots of opportunity and we're chasing all of that.

Our next question comes from Ann Hynes from Mizuho. Please go ahead. Your line is open.

Hi, good morning. Just on cancellations, I know going into Q4, you thought it would be a $1 billion. Did it come into that $1 billion or was it higher? And then I know you said that you successfully renewed all your RFP activity. Can you just talk about pricing on those renewals and how that's playing out from a competitive landscape? Thanks.

Right. Well, first of all, I never said the word a billion. I said that historically the average quarterly cancellations is about $0.5 billion of quarter-in, quarter-out. I mean, identify anyone to predict what the cancellations would be in a given quarter ever. That's it's a flow, and there were calls where we had $300 million where there were calls where we had $600 million. But on average, that's kind of the number, okay? And if you take a look at the past and so what I said was given the amount of work that large pharma is doing and the scrutiny that they are placing on those programs and the increased level of cancer as we saw through the years, I was suggesting that it wouldn't be surprising the fourth quarter was double that. And basically it was that it wasn't a billion, but it was way above the higher end of what we could have imagined. So it was somewhere around that. Not far from a billion, but not quite a billion. So it was very high. In fact, for the year and I think that's an interesting, I mean, actually I mentioned it in my introductory remarks. If you look at the average cancellations in a given year, let's take the last three years, for example, it's just somewhere close to a couple of billion [ph], a little bit under $2 billion, right, for the year, okay, consistent with what you experienced. This year, it was almost 50% higher, meaning this year, 2024 was 50% higher than that. And despite that, we grew – our backlog grew and that's because we were able on the growth level to book even more business than last year, offsetting – more than offsetting the higher level of cancellation. So on the demand side, things are good. The cancellations were very elevated. I look at the surprises there, it came essentially as we expected. And, as I said, I just don't know where they're going to be next quarter or two, but we are going to navigate that environment. We feel good that the bulk of that is behind us. You asked about the pricing environment of things, right?

Yes.

So I mean, yes, I mean, look in the current environment you would expect and anticipate that pricing is going to be more difficult because, it's tough competition. There are lots of CROs out there. I mean, people tend to forget, there are 4,000 CROs out there, okay. So they don't all participate in every single bid, but it's not unusual that when, EVPs go around and shop their dealer around, they talk to a lot of people. And on the large pharma side as we mentioned, they decided last year to reopen all their partnerships. And thankfully, we won. We re-signed with all these partners and in fact expanded our portfolio. Large pharma wanted to consolidate the spend and we were on the winning side of that exercise, that was very good and it bodes well for the future.

Great. Thanks.

Our next question comes from David Windley from Jefferies. Please go ahead. Your line is open.

Hi, good morning. Thanks for taking my questions, and a good segue from the last. Ari, you've talked a fair amount about the push toward FSP. You've talked about, pricing pressures you just kind of highlighted generally. But that pricing pressure also in FSP with these partnership, re-procurements. And then you've also talked about carrying costs for these mega trials. I was actually surprised at the Investor Day that you could expand margin at all. And so, my question is, what are the cost levers that you're pulling to be able to eke-up your margin just a little bit in the face of all those pressures? And then just more simply in the navigation on gross margin versus SG&A and EBITDA, are we seeing some of that business mix shift toward FSP and P&L already like in the fourth quarter? Thank you.

Thank you, Dave. Well, as always you're right on the mark and you are highlighting essentially the tasks that we have day-in and day-out. How do we offset all of those headwinds? Yes, you are absolutely correct. You expressed surprise how we're able to still grow margins. I mean, bear in mind, since the [indiscernible], we've grown our margins. I mean, we had a quarter with over 25%.

Correct.

...adjusted EBITDA margins. In those days you might recall we were more in the 20% kind of range. So we expanded margins. Now in the early years we sell margins a lot more. Now obviously it's harder, but that is what we do here. We try our best to grow our margins, and try to grow our profits faster than our revenue, that's our operating mode here. How do we do that? Yes, you're right. The mix influences can influence the gross margin. I don't think that that was the case in Q4. I think we see, you could see on gross margin was a little interesting in Q4, but I don't think it is a reflection of the higher FSP mix. The higher FSP mix is in the bookings. It's going to take time, okay? It's not yet in the P&L to be precise and answer your question. It's more quarter-in quarter-out, if you look at Q3, for example, of last year, we had gross margin expansion. So it's really the given mix of revenue that you recognize in a quarter, plus obviously the TAS business also influences that. For example, within TAS, I can tell you that real world is a little lower margin than the rest, right? It's lower margin than data, lower margin and analytics and lower margin than tech. And in the fourth quarter, real world was very strong, really strong. I mentioned it was back to double-digits, and so that, of course, affects the mix. And then I'll remind you that from the fourth quarter, we had these high level of stranded costs on those two mega trials that also affected gross margin. But we pulled the usual levers. And you've been covering us for a while, you know what we do. We constantly evaluate how to optimize the average labor rate across all of our geographies. We constantly explore opportunities to increase our economies of scope that is restructure, flatten the organization. We constantly lever IT infrastructure, and for the past year we've accelerated the deployment of AI tools within our own processes. I mentioned before that the next big thing, certainly operationally within our own workflows is to leverage AI tools as much as can be. And we start to see some impact of that, and we plan to continue use and deployment of those. And that these are the levers that help us mitigate all the cost pressures that you just highlighted. So it's a day-in, day-out deep in the trenches, strong operational discipline, and a relentless focus on continuing to optimize our costs.

Good for you for that. Thank you very much. It was very helpful.

Our next question comes from Charles Rhyee from TD Cowen. Please go ahead. Your line is open.

Yes. Thanks for taking the question. Hey, Ari, just wanted to go back maybe then to the TAS segment; I think earlier you just mentioned, and obviously real world evidence had something like you said double-digit growth in the quarter. Maybe can you give us a sense for sort of the trends you're seeing across between both RWE [ph], analytics and consulting and maybe technology platforms? And give us a sense for within the 2025 outlook, how you see those kind of separate parts of it, kind of the outlook for each of those relative as we think about the mix going forward?

Yes. Well, thank you for the question. Yes. I mean, look, the TAS business should be – should have been and should remain a very resilient business with very consistent type of growth. So info, as you know, is a low single-digit, right? It's about a 1% grower that did not change through the period. That's a very sticky subscription based repetitive business. The analytics and consulting is where we had seen a dramatic impact of the cautionary spending trends we saw end of 2023 and early 2024 because some of that – the significant part of that is discretionary spend and that essentially got shut down. So we had negative orders in analytics and consulting earlier in the year. And as we evolved through year, it went back towards these mid-single-digit kind of mark towards the end of the core year. And then the higher growth businesses, which had been higher growth, real world and tech, basically for the full year essentially went back to high single digits and in the quarter back into double-digits. So that's what we saw. Now because we anticipated this, why did this happen and why were we confident in the recovery is because a lot of the work in real world tech and also some in analytics and consulting are must do activities for our clients when our clients get the drug approved. And as you know, in 2023 was a record year. I think we had 55 approvals in 2023, by the way, 2024 was also good. I think it was about 50 approvals. These are very high numbers. If you look back historically, these approvals typically within six to nine months, you got to launch the project. And that's where we come in. This is where our services play. It's in launching the drug, promoting the drug, commercializing the drug, pricing the drug, et cetera, et cetera. supporting the efficacy demonstrations and safety demonstrations and supporting pricing for the drugs. All of that is also included in our analytics business and in our real-world business. And so those needed to be done and clients delayed that, but eventually they had to do it. And that's what we saw a strong return of the business in the second.

Great, thank you. Appreciate it.

Our next question comes from Jack Meehan from Nephron Research. Please go ahead. Your line is open.

Thank you, and good morning. And a couple of questions for Ron. Just on the income statement. First was the gross margins in the fourth quarter? Was wondering if you could just walk us through the dynamics there. So, they were down a little over 100 bps year-over-year, but you had lower pass throughs. So, was this the trapped cost related to those two trials or just any other color would be great?

Well, the first thing I would caution is, when you're looking at gross margins, you're looking at reported and not adjusted. So, if you're trying to tie the gross margins and SG&A on our income statement back to our adjusted EBITDA, there's a difference right there because those are reported, not adjusted numbers. But having said that, Ari did already give you some insight into that. We have stranded costs associated with those trials that got delayed. Certain of our businesses that had strong growth like the real-world business tend to be lower margin businesses for us. So there's a mix impact in there certainly. But again, anytime you're looking at the reported numbers, remember that things like restructuring or other adjustments that get added back can affect the percentages that you're calculating straight off the income statement.

Got it. Okay, that makes sense. And one for Ari just on the policy front, we're in a couple weeks, into the new administration here. Just any thoughts on, how just implications, for pharma, biotech customers. And then second, one question we get is just any exposure to NIH funding or anything related to that would be great. Thank you.

I mean the short answer to that question is zero.

That all sounds good. Thank you.

Our next question comes from Michael Ryskin from Bank of America. Please go ahead. Your line is open.

Great. Thanks for taking a question. Ari, I want to go back to something you touched on earlier. You made some comments in the prepared remarks in terms of pharma reprioritization, sort of working through it. Still expect maybe a couple quarters of some volatility going forward, but thinking you're mostly through it. I think you said something about 70% to 75% of the rate prioritization is done. Just wondering sort of how you're arriving at that number. Just put a blindly. I mean we've had some announcements just in the last 24 hours and we just seems like there's still, you never know, companies could come back and decide they're going to do more and a second cut in the third cut and the fourth cut. So just what are the conversations you're having with the pharma companies? Especially, your top 20…

Yes, thank you. Thanks for the question. When I said earlier, two thirds, 70%, maybe 75%. So I saw Kerry put his head in his hands because he told me for don't give them a number because someone is going to tell you 71%, maybe he's 65%, maybe it's 76%. So look, we're trying to give you a sense. Okay, how do I know? Because we speak to our clients, okay, Day in and day out and we know what they're looking at. So if they're done, they're done. It's not like they're going to go back. Okay. So we know that there are still a few large programs that are kind of where they haven't made a decision. And that's where I say, maybe a quarter to a third of those, more to go. But that's an estimate. Again, I repeat, I have no idea what gets, what is even called. All will get booked. I just don't know. Okay, I'm basing myself on conversations that we have with clients at every level. We know what their pipe is, we know what the programs that they have are, we know what they're prioritizing and they tell us what they are looking at. In fact, in many cases we help them review these programs and reanalyze them. So that's how we know. But it's all best based on these analysis. And that's my best guess for now. I mean, I would caution you always not to focus on a given quarter. Okay, I mean, I see, someone reports that. You've heard me before. I'm going on another tangent here. But, why about this obsessive focus on what's the, what are the bookings in a quarter, what's the book-to-bill that infamous number, what is it? And then you derive implications for an entire industry from what one company reports. You just can't do that. It's a long cycle business. One quarter is a window. There's been some volatility, there might be some overlap this year, I just don't know. Also, frankly, you have very little visibility on the sector. I said before, there are 4,000 CROs out there. You have no idea what their numbers are. Actually, our next best largest competitor is part of a larger company and they report nothing about this competitor of ours. Nothing. No revenues, no margins, no bookings, no backlog. Certainly no book-to-bill. So we have no idea. You have no idea. We have no idea. There are only four publicly traded CROs. Each and every one of them is extremely different from the others. You cannot derive what we report from what we report what's going to happen to them. We cannot derive what they report what's going to happen to us. I saw that before, earlier, in a few past quarters. Just because one of our competitors say something, all of a sudden our stock goes up or down. It's ridiculous. It’s everyone is extremely different. You just cannot extrapolate plus frankly it's causing issues with our customers. Someone was asking before about customers and pricing. That obsessive quarterly focus on this book-to-bill ratio causes. Our clients know that at Lazz Pharma they know that. So at the end of the quarter they handle another $10 million here, another $12 million there. That affects pricing, it affects our bottom-line long term and it's detrimental to investors. So there is a somewhat obsessive focus on these quarterly members in a long cycle business that are not upgrade. Plus again, I remind you, we are a large company. We're not just a Seattle. The CRO business is just over half of our business. And to infer, any thesis about what's going on in the industry from a quarter or two of cancellations or book-to-bills or what have you is intellectually flawed. I sort of, if I can share with, I can have my people here, agitated. But okay, I'll end with that. I'm sorry for.

That's helpful. Thank you.

Okay. All right. Should we have another question or. We're done here. We're done. Okay, fine. Kerry?

Thank you, guys. Thanks for taking the time to join us today and we look forward to speaking with you again on our first quarter of 2025 earnings call. The team will be available the rest of the day to take any follow up questions you might have. Thank you.