Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the IQVIA Fourth Quarter 2022 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 call is being recorded. Thank you. I would now like to turn the call over to Nick Childs, Senior Vice President, Investor Relations and Treasury. Mr. Childs, please begin your conference..

Thank you. Good morning, everyone. Thank you for joining our fourth quarter 2022 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 in the Events and Presentations section of our IQVIA Investor Relations Web site at ir.iqvia.com.

Before we begin, I would like to caution listeners that certain information discussed by management during this conference call will include forward-looking statements.

The 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..

Thank you, Nick, and good morning, everyone. Thanks for joining us today to discuss our fourth quarter and full-year results. As we close 2022, we are very proud of what we've achieved at IQVIA.

It was a record year for our R&DS business, we achieved bookings of $10.8 billion, which was the highest ever, our backlog stands now at a record $27.2 billion, and the business added over 275 new customers in the year.

We improved access to critical research; we've expanded our decentralized clinical trial capabilities by launching the first self-collection safety lab panel for U.S. clinical trial participants in collaboration with Tasso. Our DCT program achieved GDPR validation in Europe, marking the first time a DCT offering received this data privacy validation.

And our connected devices business added 50 new customers, including wins with two top-10 pharma companies. We made significant advancements as well in our real world business. We increased the number of active data sources by more than 30% across more than 50 countries, and we enhanced access to real world data for European and U.S.

regulators through our partnerships with European Medicines Agency and the Real-World Alliance. We expanded our digital marketing capabilities with the acquisition of Lasso Marketing, which offers a technology purpose-built for healthcare marketers to execute digital campaigns. We deployed capital of $3.7 billion during the year.

This included $1.3 billion in acquisitions, $1.2 billion in share repurchase, $700 million in CapEx, and repayment of $510 million of debt. At the same time, we were able to reduce our net leverage ratio to 3.45 times adjusted EBITDA. 2022 also marked the end of our Vision 22 three-year strategic plan.

No one could have predicted the volatile macro environment we would have to operate in during this period. Despite the many headwinds we have faced, since 2019, when we set these goals, we in fact exceeded our Vision 2022 goals.

I am proud of the resilience, resourcefulness, and creativity that our employees around the world demonstrate every day in support of IQVIA's mission. It is these attributes that allowed our company to deliver on the commitments we made to you in 2019.

And as you know, since the beginning of '22, the industry has been reporting a slowdown in demand for clinical and commercial services caused by reductions in biotech funding, as well as the higher interest rate environment and macro economic uncertainty.

As we've discussed before, while we've of course seen anecdotal evidence of these concerns we, at IQVIA, remain confident that the fundamentals of our industry and the demand from our clients remain healthy. And, in fact, we remain confident in our ability to deliver on our 2025 goals.

As we begin 2023, there are more molecules in development than at any other time in history. Our RFP flow was up 13% for the full-year. We, in fact, saw acceleration in Q4 to 22%, with double-digit growth in all three segments; large, midsize, and EBP segments. Our net new business reached a record $3.1 billion in Q4, which is up 29% versus prior year.

For the full-year, we achieved bookings of $10.8 billion despite the large COVID bookings we had in 2021 that didn't repeat in 2022.

And yes, in our commercial business, while we are seeing some short-term fluctuations in discretionary spend categories such as, for example, consulting, demand for our commercial services nonetheless remains on a favorable growth trend.

Finally, let me just acknowledge and congratulate our employees around the world for the nice recognition the company received last week. IQVIA was named to Fortune's list of the World's Most Admired Companies for the sixth consecutive year. Importantly, once again, we earned the first place ranking within our industry group.

We also rank number one in seven out of nine categories, including innovation, people management, use of corporate assets, social responsibility, quality of products and services, global competitiveness, and long-term investment value.

Turning now to the results for the quarter, revenue for the fourth quarter grew 2.8% on a reported basis, 7% at constant currency compared to last year. And excluding COVID-related work from both periods, we grew the top line 10% at constant currency on an organic basis.

Fourth quarter adjusted EBITDA increased 11.1%, reflecting our strong revenue growth and ongoing cost management discipline. Fourth quarter adjusted diluted EPS, of $2.78, grew 9% driven by our adjusted EBITDA growth.

Few highlights of business activity this quarter; in our technology business, IQVIA recently entered into a milestone agreement with Alibaba Cloud to collaborate in China.

Through this collaboration, IQVIA will be the first company to make its Salesforce-based products available on Alibaba Cloud and the only life sciences provider to have a full Salesforce-based ecosystem of products hosted locally and designed to be compliant with China's data residency and privacy regulations.

Through our partnership with Alibaba Cloud and Salesforce, IQVIA will continue to extend the OCE suite, delivering innovative capabilities tailored to meet China's specific market needs.

As you know, IQVIA's Human Data Science Cloud offers clients a combination of extensive data networks, data integration, and embedded intelligence, all of which help our clients deal with the challenge of increased data complexity and volume.

A top-10 pharma awarded IQVIA our largest ever commercial managed services deal where we will take responsibility for managing the end-to-end commercial analytics for all their commercial brands globally. Personalization of care is becoming a focus of our customers' commercial strategy.

This quarter, IQVIA was awarded a major patient support program by a top-10 pharma for their [indiscernible] cardiology product displacing the incumbent vendor. And once again validating IQVIA's uniquely differentiated integrated domain expertise, services, and technology platform.

As I previously highlighted, demand from our EBP customers has remained high despite the funding levels returning essentially to pre-pandemic levels. As an example, a U.S. based emerging biopharma company recently selected IQVIA to be their end-to-end clinical to commercial partner.

IQVIA was selected due to the breath of capabilities, our domain expertise, strong resources and technology such as OCE. IQVIA will support all aspects of their first commercial launch as well as provide clinical trial services for their future indications.

In another example, Biostage which is a biotech company developing regenerative medicine treatment selected IQVIA to manage its first clinical trial of their esophageal implant product. Current treatment options for patients diagnosed with esophageal cancer result in only 20% survival at 5 years.

In the first use of the implant, the trial demonstrated that the product was able to successfully regenerate tissue to restore the functionality of the esophagus. IQVIA was selected due to our dedicated gastrointestinal team, and our ability and expertise running the most complex cutting-edge cell and gene therapy trials.

Within our RNVS, we also signed a long-term collaboration with Clalit, the largest health services provider in Israel to launch the first Prime Site in the region. The collaboration combines IQVIA and Clalit's capabilities in clinical trial delivery, real world research data, and genomics.

Clalit operates a network of 14 hospitals and more than 1600 primary care clinics with special expertise in oncology, pediatric rare disease, and genomics. In Oncology, which remains the largest therapeutic area for R&D outsourcing, we continue to experience strong double digit year-over-year growth in bookings.

As an example, we expanded one of our preferred partnerships with a top global pharma which awarded IQVIA a large early and late stage trial in multiple oncology indications.

We were selected because of our analytics to optimize protocol development, site selection, and operational planning including our ability to recruit patients meeting their diversity targets. So, overall, the R&DS business continues the strong momentum. You saw we achieved new bookings of $3.1 billion in the quarter, the highest in our history.

This translated into a quarterly book-to-bill of 1.51 including pass throughs. And excluding pass throughs, the business delivered almost $2 billion of total net new business in the quarter with a book-to-bill ratio of 1.30. For the full-year, our contracted book-to-bill ratio was 1.36 including pass throughs and 1.33 excluding pass throughs.

I will now turn it over to Ron for more details on our financial performance..

Thanks, Ari, and good morning, everyone. Let's start by reviewing revenue. Fourth quarter revenue of $739 million grew 2.8% on a reported basis and 7% at constant currency. In the quarter, COVID-related revenues were approximately $190 million which was down about $150 million versus the fourth quarter of 2021.

In our base business, that is excluding all COVID-related work from both this year and last, organic growth at constant currency was 10%. Technology & Analytics Solutions revenue for the fourth quarter was $1,499 million, up 0.2% reported and 4.7% at constant currency.

Excluding all COVID-related work, organic growth at constant currency in TAS was 7%. R&D Solutions fourth quarter revenue of $2,058 million was up 5.9% reported and 9.3% at constant currency. Excluding all COVID-related work, organic growth at constant currency in R&DS was 14%.

Finally, Contract Sales & Medical Solutions or CSMS fourth quarter revenue of $182 million declined 7.1% reported, but grew 2% at constant currency. Excluding all COVID-related work, organic growth at constant currency in CSMS was also 2%. For the full-year, revenue was $14,410 million growing at 3.9% on a reported basis and 7.8% at constant currency.

COVID-related revenues totaled approximately $1 billion for the year. In our base business, again that's excluding all COVID-related work, organic growth at constant currency was 13%. For the full-year, Technology & Analytics Solutions revenue $5,746 million, up 3.8% reported and 8.7% at constant currency.

Excluding all COVID-related work, organic growth at constant currency in TAS was 10% for the year. Full-year revenue in R&D Solutions was $7,921 million growing 4.8% reported and 7.7% at constant currency. Excluding all COVID-related work, organic growth at constant currency in R&DS was 17%.

Full-year CSMS revenue was $743 million which was down 5.2% reported, but grew 2.7% at constant currency. Excluding all COVID-related work, organic growth at constant currency in CSMS was 4% for the year. Now let's move down the P&L.

Adjusted EBITDA was $920 million for the fourth quarter, representing growth of 11.1% while full-year adjusted EBITDA was $3,346 million which was up 10.7% year-over-year. Fourth quarter GAAP net income was $227 million. And GAAP diluted earnings per share was $1.20. Full-year GAAP net income was $1,091 million or $5.72 of earnings per diluted share.

Adjusted net income was $524 million in the fourth quarter. And adjusted diluted earnings per share grew 9% to $2.78. For the full-year, adjusted net income was $1,937 million. Adjusted diluted earnings per share was $10.16. Up 12.5% year-over-year. Now as Ari reviewed, R&D Solutions delivered another outstanding quarterly booking.

Our backlog at December 31 stood at a record $27.2 billion which was up 9.6% year-over-year on a reported basis and 11.6% adjusting for the impact of foreign exchange. Without that impact of foreign exchange, year-over-year backlog would have been about $500 million higher.

Full-year net new business increased $10.8 billion, growing 6.2% year-over-year on a reported basis. It increased to $10.8 billion I should say, growing 6.2% year-over-year on a reported despite a significant amount of COVID bookings we had in 2021 that didn't repeat in 2022.

Now reviewing the balance sheet, as of December 31, cash and cash equivalence totaled $1,216 million, and gross debt was $12,747 million. And that resulted in net debt of $11,531 million. Our net leverage ratio ended the year at 3.45 times trailing 12-month adjusted EBITDA. Fourth quarter cash flow from operations was $560 million.

And CapEx was $171 million which resulted in a free cash flow of $389 million for the quarter. Now as we shared on our last earnings call, early in the fourth quarter we retired $510 million of variable rate U.S. dollar term loan that was scheduled to mature in early 2024.

At the end of the year, we entered into a $1 billion of floating to fixed interest rates swap to further limit our exposure to changes in interest rates. And with these changes, our debt structure at yearend was 66% fixed. And we expect this to drop to about 58% fixed at the end of Q1 when as you know we have $1 billion swap expiring.

December 31 marked the end of our Vision 2022 three-year plan and as already mentioned, we exceeded our commitments and here are a few highlights. We achieved a compound average growth rate for revenue of 9.1% reported in 10.2% adjusted for the impact of foreign exchange. This achievement exceeded the high-end of our goal range of 7% to 10%.

Our three-year CAGR for adjusted EBITDA was 11.7%, exceeding our goal of 8% to 11%. And for adjusted diluted earnings per share, the average growth rate was 16.7% consistent with our goal of double-digit growth. Finally, our net leverage ratio exiting 2022 of 3.4 times trailing 12 month adjusted EBITDA compared favorably to our goal of 3.5x to 4x.

Okay, let's turn now to 2023 guidance. For the full-year 2023, we expect total revenue to be between $15.150 billion and $15.400 billion representing year-over-year growth of 5.1% to 6.9%.

This revenue growth includes about 100 basis points of contribution from M&A activity and a very slight FX tailwind of approximately 10 basis points versus the prior-year.

Adjusting for the COVID-related work step-down which we anticipate to be approximately $600 million, the contribution of acquisitions and the FX tailwind, our guidance implies 9% to 11% underlying organic revenue growth at constant currency. Our adjusted EBITDA guidance is $3.625 billion to $3.695 billion, our growth of 8.3% to 10.4%.

Our adjusted diluted EPS guidance is $10.26 to $10.56 representing year-over-year growth of 1% to 3.9%.

Our EPS guidance includes about $615 million of interest expense, just under $550 million of operational D&A and effective income tax rate of approximately 21%, which is about a point higher than it otherwise would have been because of the increase in the U.K. corporate tax rate from 19% to 25%.

And finally, our EPS guidance assumes an average diluted share count slightly above 190 million shares. Adjusting for the year-over-year impact of the one-time step-up in interest rates and the higher U.K. tax rate, our guidance implies adjusted EPS growth of 11% to 14%.

This guidance assumes about $2 billion of cash deployment split evenly between acquisitions and debt retirement and regarding the latter, we expect to retire remaining term debt maturing in March 2024, towards the end of the year; that is the end of '23.

Based on these assumptions and our guidance, our net leverage ratio should drop to below three times adjusted EBITDA by the end of 2023. Finally, our guidance assumes that foreign currency rates as of February 8th continue for the balance of the year. Now, I know there are a lot of moving pieces in our guidance.

So, let me share some additional color on the revenue and adjusted EPS dynamics in 2023. As I mentioned earlier, we anticipate that COVID-related revenue will step down by approximately $600 million versus 2022. And I should highlight that about 40% of this step-down will occur in the first quarter.

Now, it will more than compensate for this headwind during the course of the year as we project revenue to grow between 9% and 11% organically at constant currency excluding COVID-related work.

As I also mentioned previously, our full-year guidance includes about 100 basis points of M&A contribution and a very slight tailwind from foreign exchange of 10 basis points. That said, it's important to point out that we will actually experience a headwind from FX in the first-half.

Now at the segment level, we expect revenue growth to be 6% to 8% reported, this includes a year-over-year step-down in COVID-related work underlying organic growth for TAS that is adjusting for the step-down and COVID work, FX and acquisition impacts will be 7% to 9%. R&DS revenue will grow 5% to 7% reported.

This reflects an even more significant year-over-year step-down in COVID-related work, underlying organic growth for R&DS, again adjusting for COVID-related work, FX, and acquisition impact will be 10% to 12%.

And finally, in CSMS, revenue growth is expected to be flat reported, and approximately two percentage points organic excluding COVID-related work and FX impacts. On adjusted EPS, we will experience the year-over-year impact of the step up in the interest rates and an increase in the U.K. corporate tax rate that I mentioned.

Together, these non-operational items are expected to impact growth by approximately 10 percentage points year-over-year. Excluding these items, we expect to deliver strong results with 11% to 14% adjusted EPS growth.

It's important to note that the year-over-year increase in interest expense step up will be most pronounced in the first-half, while the operational tailwind from our cost cutting and productivity initiatives will be skewed towards the second-half of the year.

And as these timing issues are relevant to our first quarter guidance, the first quarter will be the toughest comparison versus the prior year primarily due to four factors.

Number one, the largest headwind from FX, despite FX being a tailwind for the year; number two, the largest year-over-year COVID-related step-down; third, the toughest interest expense comparison; and finally fourth, the phasing during the year of the benefits of our productivity initiatives which will increase as we progress through the year.

So, as a result, in Q1, we expect revenues to be between $3.570 billion and $3.640 billion or growth at 2.4% to 4.3% on a constant currency basis, and 0.1% to 2% on a reported basis. Excluding COVID-related work, we expect organic revenue growth at constant currency to be between 9% and 11%.

Adjusted EBITDA is expected to be between $835 million and $860 million, which is up 2.8% to 5.9%. And finally, adjusted diluted EPS is expected to be between $2.35 and $2.46, declining 4.9% to 0.4%.

Excluding the step up of the interest expense and the tax rate in the U.K., we expect adjusted diluted EPS to grow between 6% and 10% in the first quarter. Again, our guidance assumes that foreign currency rates, as of February 8, continue for the balance of the year. So, to summarize, Q4 was another strong quarter capping a successful year.

For the full-year, revenue grew 13% organic at constant currency excluding COVID-related work, and adjusted EPS was up 13%. Underlying demand in the industry and our business remain healthy, with RFP growth accelerating in Q4 and recording bookings in R&DS.

During 2022, we repurchased almost $1.2 billion of our shares, and retired $500 million of our variable rate term debt, while reducing our net debt leverage ratio to 3.4 times. We exceeded our Vision 2022 commitments despite the volatile macro environment.

And lastly, we're projecting strong operating performance again in 2023, with 9% to 11% organic revenue growth at constant currency excluding COVID-related work, and 11% to 14% adjusted EPS growth excluding non-operational headwinds. And with that, let me hand it back over to the operator for Q&A..

[Operator Instructions] Your first question comes from the line of Dan Leonard with Credit Suisse. Your line is open..

Thank you. So, I'll just start off, Ari, you mentioned continued confidence in the 2025 goals. You're guiding 5% to 7% of revenue growth in '23. I think the CAGR through '25 was a double-digit number. So, could you bridge from the 2023 result to the acceleration anticipated thereafter? Thank you..

Yes, thank you very much, Dan. Look, when we say we are on the same trajectory we were on when we set our '25 goals, we -- it continues to be true operationally. Obviously, we assumed foreign currency rates that were different.

I think we lost -- I don't know the exact number any longer, but we probably lost $500 million in revenue just in 2022, so -- to FX. So, look, I don't know about revenue; it'll be close. Maybe not 20, but it'll be close. On EBITDA and on earnings per share, we're very confident that we will achieve those goals.

Again, the -- what we are facing, first of all, you're seeing the EBTIDA is certainly, clearly on that trajectory unchanged despite everything else. And EPS is just as we said in our introductory remarks, a one-time step up that hopefully won't replicate.

If anything, I think the world expects rates to either stabilize or start declining afterwards, in '24 and '25, so that would be even a tailwind. But certainly the step-up is one-time. And after that, we fully expect the resume very strong double-digit as we experienced.

I remind you we delivered over 16% compound earnings per share rate of growth rate over the year 2022 period -- three-year period. Thank you..

Thanks..

Your next question is from the line of Eric Coldwell with Baird. Your line is open..

Thank you. Good morning. So, I wanted to hit on R&DS bookings first. Difficult to ask the question in a way that's easy to answer, but I'd like you to step back and think about your fourth quarter strong bookings, your '22 bookings.

Do you have a sense how much was, if you will, normal opportunities versus, say, competitive takeaways, rescue wins, or incremental share capture that you might have gained through higher hit rates through the year? Just trying to get a sense of where the market was versus what IQV did additionally on top of that, if that makes sense..

Yes. Yes, well, it's really hard because we don't have the perspective of time and clear data from competitors yet. And we will know a little bit more after we read your report on how CROs did when everyone has reported. So, I'm looking forward to that read. But look, we've been on a momentum certainly since the merger to gain market share.

And I think it's clear that we have been gaining market share. We know we are gaining market share because we are displacing competitors. I don't think rescue studies played a role. Of course, we have the anecdotal here and there, but not more or less than in history. And things happen, and the study doesn't go well with a certain approach.

And at some point in time, the sponsor decides that they want to switch CROs, it's a very difficult and cumbersome exercise, and no one wants to do that, but it does happen.

I don't think it's happened more than in the past, unless you're including rescue studies that were at the beginning and that for a reason or another the sponsor decided to switch CROs. And that I would include in the category of market share gains. The market continues to be strong.

The underlying demand, all the indicators that we see, and we kept repeating it ad nauseam during 2022 despite everyone else being on the other side and suggesting that the world was falling apart because of biotech funding levels returning to what I considered to be very strong levels, but nevertheless, lower levels than they were during the pandemic.

We haven't seen any delays in decision-making, we haven't seen any signs that demand was slowing down. Quite the opposite, I mentioned that our RFP flow is very strong. I can give you even more -- I've got some more data here on the, if you'd like, the -- our --.

Yes. The answer would always be yes, multi-core data..

So, I kind of -- I get that. Yes, the -- again, overall RFP flow was very strong. We said 13% for the full-year, and over 20% in the fourth quarter, so, if anything, accelerating. Our qualified pipeline at the end of the year was up over 20%, and that is really the pipeline that we consider real.

The awards, by the way, which is kind of an early indicator of what will happen in the future; awards, I remind you, we stopped at -- we have essentially one, but we have not yet contracted for and not booked for. The awards were up -- actually, the absolute number in Q4 was the highest ever, and it was up 9% year-over-year.

So, we mentioned the book-to-bill ratio, the backlog, which itself is up just under 10% year-over-year, and 11.6% excluding FX. So, I don't know what else to share. We've got our solid numbers here that support healthy demand for clinical trial services. And then, on top of that you can add our market share gains, and I think that explains it.

Thank you, Eric..

And Ron, if I could just have one quick technical item here, can you confirm that there are no share repurchases built into the guidance? And I know you talked about the $2 billion capital deployment and the split between debt and M&A.

But is there any current thinking on taking some advantage of that authorization that you have on the repurchase side?.

I can confirm that there is no share repurchase baked into our guidance. We're right now assuming $2 billion of capital deployment split evenly between M&A and debt reduction. Well, might we repurchase some shares during the year? Sure, that that's our assumption going in, and the guidance that we gave is that we're not.

And we'll devote the capital to debt reduction instead. But that could always change with circumstances..

Okay, thank you..

Your next question is from the line of Anne Samuel with JPMorgan. Your line is open. Anne Samuel with JPMorgan, your line is open..

Okay, next question, please..

Your next question is from Justin Bowers with Deutsche Bank. Your line is open..

Hi, good morning, everyone. Just pivoting from RDS, Ari, you talked a lot about some strong momentum in commercial managed services.

Just want to -- wondering if you could expand about some of the strength there, and also is that isolated just in TAS or is that also in the CTMS business?.

You mean CSMS, right, the Contract Sales --?.

Sorry, the CSMS?.

Yes..

Yes, that's what I --.

No, I mean, CSMS is a relatively slow grower, so I mean I would put that aside. The TAS growth has been consistent. We're pleased, obviously, to see that it continued to grow. You saw that excluding the COVID step down, and we had a fair -- I would say a large share of COVID work during the pandemic, so that's stepping down.

And excluding that, we had growth of 7% in Q4, and 10% for the full-year. Quarter-to-quarter it could vary. I think the first-half was more or less around 10% growth, third quarter was 12%, we had the -- activity that was -- that came in earlier than we thought. And the fourth quarter was 7%, so, overall, very good growth in Q4.

We guided 7% to 9% for next year. Again, this is consistent -- again excluding COVID acquisitions and FX, this is consistent with the underlying operating momentum that we've had in TAS, and that we've guided to, which is a high single-digit.

So, the real -- the fast growers in this business are technology and real-world, and that's where I mentioned a few very significant achievements and a few significant awards with clients.

Both considered to be strong drivers of growth as we continue to find innovative ways to utilize real-world evidence for clients and deploy more of our technology solutions.

The piece of the business that it perhaps more exposed to the economic whims and budget expansions or restrictions by clients is the more discretionary spend, like the analytics and the consulting work.

We saw, usually at the end, almost -- just to share a little bit more color, we usually have at the end of the year an acceleration in this business, and we didn't see that in December.

And the reason for that is, historically, clients like to spend more towards the end of the year, and they do kind of last-minute purchases, and they kind of utilize their budgets, if you will. And we didn't see that so much this year.

And I -- again, I don't know whether people are kind of being more cautious or anything, but -- and mostly, again, it was in the consulting area and analytics, which tends to be short cycle, short-term, and more discretionary.

But the underlying growth is driven by real-world and technology, both of which are longer-term decisions and are not so subject to cyclical economic changes. And then, of course, the last piece is the data business, which is flat and continues flat to low single digits, one-ish percent, and that continues where it is.

And when you do the math, basically that's what yields your high single-digit growth for the segment. Thank you for your question..

Your next question is from the line of Jack Meehan with Nephron. Your line is open..

Thank you. Good morning. Ari, so, I know you sound bullish around the funding trend that you've seen over the last year.

Wanted to ask about funding in a different way, just what were you seeing in terms of cancellations around your end? Was there anything notable about that relative to the last couple of years?.

Nothing..

Short and sweet.

Yes, has there been any rumbling around restructuring at any of your important clients? I guess just like how are you building just sort of a macro into your outlook for the R&D segment this year?.

Okay, and once again in terms of demand, no signs that we can see that our clients are somehow delaying, canceling, postponing clinical trial development work that was planned before. So, we don't see anything, no unusual cancellation activity, no unusual postponements, nothing. We've been saying this essentially for 12 months exactly.

In terms of factoring the macro environment, if you want to expand your question, then that's a different discussion. We've got -- we are a large, powerful ship navigating extremely stormy waters. The engine continues to be very strong, that's the demand, and certainly our operating momentum in our organization.

But the winds in the form of interest expense, in the form of wage inflation, in the form of wars in foreign theaters that affect our ability to do work in certain sides, in the form of continued COVID issues in China which are expected to delay our return to normal operating mode in clinical sites; all of those and more are these winds that I'm -- winds and stormy waters that I'm referring to that are macro factors.

Some of which we can do something about. For example, wage inflation we are addressing by trying to manage our workforce more tightly, by increasing and accelerating our productivity initiatives, by looking at maintaining and accelerating our cost cutting discipline.

And we've launched that effect that towards the end of last year, a new program to again bring forward many field overhead rationalizations and economies of scope and outsourcing and offshoring decisions that were scheduled to occur over the '22 to '25 planning period and we are accelerating all of that into 2023.

So, as Ron mentioned, the benefits of those will begin showing towards the latter part of the year, but the work is ongoing. So, that's how we are trying to address those macro factors that are not -- that are somehow that we can offset with action on our side.

With respect to interest, shortest one-time step-up in the interest expense, we're kind of limited in what we can do. But we certainly, as you saw started reducing our debt levels, and we entered into swaps.

We're trying to address that in capital markets, we will probably towards the end of the year retire another $1 billion of debt, the tranche that would normally turnout in 2024. We'll do that in the latter part of the year.

And for now, as Eric remind us we do not have any share repurchase plan this year, because we're diverting our cash flow now, if our cash flow is very strong and circumstances were to change, obviously, we will adjust those decisions. But that's what we're doing to address the macro factor. Thank you very much..

Thank you..

Your next question is from the line of Luke Sergott with Barclays. Your line is open..

Hey guys, thanks.

Can you one clean-up here on the COVID, can you give us a sense of the how you're expecting that the roll-off in 1Q between the two segment between TAS and RDS, just from a modeling perspective?.

Yes, Jack, it's I think I'd said overall of the $600 million COVID step-down year-over-year, about 40% of it would be in Q1, though, will be fairly substantial impacts in both of the segments there.

And I would say about a third of the impact would be in TAS, [Jack] [Ph], and about two-thirds in R&D, that's kind of how you should think about it by quarter and for the full-year, it's above that roughly..

All right, great. Thanks. It's really helpful. And lastly, here on front on the free cash flow. So, I mean, I understand a ton of moving parts here on for the year.

But can you give us a sense of what you're targeting for '23 and as a percentage of EBITDA conversion?.

We always talked about it as a percentage of adjusted net income. And we target typically between 80% and 90% free cash flow adjusted net income, that's where we were for the full-year 2022. And look the only thing I would caution on that is in any given year, it could vary from that because cash flow is based on point-to-point of the balance sheet.

It's not like, an accrual concept or anything like that. So, of course, you could be higher or lower, we were substantially higher than that in 2021. And we're right in the range in 2022.

And I would say just as a kind of a target you should think of as being in the 80% to 90% of adjusted net income range, but recognizing that we could deviate from that in any given year..

All right, thank you..

Your next question is from the line of Sandy Draper with Guggenheim. Your line is open..

Thanks very much.

Question for you, Ari to sort of engage in your crystal ball a little bit longer-term because I know you're talking certainly a lot more of the biopharma CEOs and than I am, when I look back at sort of what I heard at JPMorgan, Davos, just other things around, how pharma is looking at the next three to five even 10 years, especially with the Inflation Reduction Act, I hear sort of conflicting messages from about are people going to invest more, hey, we want to get away from or be more diversified and not so concentrated in one or two blockbuster drugs and so we want to get more drugs out there.

We are going to and so there is more trials we're going to pull back, I just love to hear what you're hearing or what you're thinking about what your customers are looking at not really, from the economic perspective about the current macro environment, but with how their portfolios are, how concentrated they are and few really big drugs, and what the Inflation Reduction Act means.

Would love to hear your thoughts on that? Thanks..

Yes, thank you. Yes, I mean look, the Inflation Reduction Act of just similar to, what they decided to name it. It's very is influx right now, there's a lot of work to be done in finalizing the details of the legislation; we actually spend a lot of time with our clients trying to explain to them what's in it.

Not that we understand it entirely, because many of the provisions, first of all, haven't been detailed enough or specific enough. And we don't know how it's going to work. And a lot of it is still subject to negotiations.

Many of the provisions anyway, won't kick in until later in the decade, and again, some parts of the inflations are undefined, many of the rules and regulations are still under discussion.

So, generally, the statements from pharma CEOs, when I speak to them about this is that, it's harmful to innovation and to patients because anytime you start curbing the economics or you try to start a curbing the economics for drug development, even if it's long-term and even if it's the effect, if any, before any other administration changes these things, it'll be seen 15 years from now, it could at least conceptually, the pharma companies to decide, well, it's not as attractive, so I'm going to drop this program or that program, when I factor in different types of pricing and so on, so forth, or reimbursements.

But again this is not how pharma works. Despite the [indiscernible] pharma is motivated by healing people.

And the R&D, all of the R&D Heads at Pharma companies that I know and my colleagues speak to day in and day out, their motivation, what makes them come to work every day is they are going to come up with a drug to cure pancreatic cancer and to cure breast cancer and to cure diabetes, et cetera, et cetera. So, this is the underlying motivation.

And the model is predicated on pharmaceuticals doing good for society. So, the notion that people are going to cancel the program, because the economic zone gets attractive, yes at the margins. That's a general observation.

Second observation in my conversations with clients is that a lot of and that's a trend that that's independent of the Inflation Reduction Act, a lot of the focus is on trying to address more specific diseases, rare diseases, subcategories within subcategories in oncology, I mentioned before oncology is probably and it continues to be the largest and strongest grower in our business in terms of the demand for clinical trials, and drug development work.

So, that's just not going away until the diseases go away, which we all hope for, drug development is here to stay. And pretty much in the same model. Again, the focus on addressing previously untouched obviously is much smaller markets. That continues, and that as you know plays to our strength and capability.

So, I mean, that's the bit of color on my conversation. So, yes, I mean it's a general cloud and at a conference like Davos, you could expect to hear such things. But in practice that is not changing very much day-to-day how our plants operate and make decisions with respect to their investment programs. Thank you..

Got it. Thanks, Ari..

Your next question is from the line of Elizabeth Anderson with Evercore ISI. Your line is open..

Hi, guys. Thanks so much for the question. I was wondering if you could comment on sort of the degree of pricing that you're sort of getting on new contracts and that are going into bookings and also sort of the degree of wage inflation you're currently experiencing as your labor force. Thank you..

Okay, I will take the second part of the question first, yes, we are experiencing significant wage inflation, the skill sets that we are looking for are scarce and in high demand, we're looking for people who have healthcare expertise, who have data science expertise, who have software development expertise, or a combination of all three, and that these skills are in very high demand.

Secondly, frankly, we are a hunting ground for competitors of all kinds in the healthcare sector, in the tech sector, and in the data science sector. And as a result, we are compelled to raise our compensation programs, and that causes inflation.

So, you have the general inflation out there, plus reasons there are specific idiosyncratic to our business and to our company. Now, I mentioned before that, despite that, you can see that we are growing our margins. So, we are addressing it, and that's true, essentially cost management programs meaning, we do more work in lower cost areas, et cetera.

Now, I get into the first part of your question, which is pricing, are we able to offset those costs increases with pricing generally, in the commercial sector for shorter cycle businesses? Theoretically, yes, and we are when we can, but it's always a negotiation with clients.

And it's a competitive market out there, you got a lot of smaller competitors who are fighting for the slice of the pie. And often, we got to defend against that. And so, our pricing flexibility is limited, it does exist in theory on the commercial side. In R&D, as in for clinical trials, yes, of course, rates have to reflect what the labor cost is.

And again, that's also subject to negotiation. But we do transfer at least a portion of those wage raises to our clients in the form of rates that are applied to determine pricing for a clinical trial.

But I remind you that the clinical trial business is a long-term, long cycle business, meaning that what we booked today, which may reflect some level of price increase, won't be realized into revenues until the next, the one to four or five years.

So, what we are delivering in revenue today, and tomorrow was sold several years ago at different, under different labor cost assumptions. So, there is a delay, if you will, in the clinical trial business, because of the long cycle nature of the business.

There are contracts where we have escalation clauses for inflation, but they never envisioned the type of inflation that we are facing in some of the markets. So, that's the picture on pricing. Thank you very much, Elizabeth..

That's very helpful. Thank you, sir..

Thank you..

One more question..

Your final question comes from the line of Charles Rhyee with Cowen. Your line is open..

Great, thanks for taking the question.

Maybe Ron, just I might have missed it, but when you talk about the impact EPS from these buckets, can you kind of break down for us the relative contribution between the higher tax rate, interest expense, et cetera, that makes up sort of that delta on EPS growth and then if you think about for this year, yes, for the EPS?.

Yes, well look the U.K. corporate tax rate increase, added about a percentage point to our overall effective tax rate. So, you start with that, but most of the impact year-over-year is coming from interest expense. So, we were, I think slightly over $400 million in interest expense in 2022. We told you about $615 million in 2023.

So, you can do the math on that, then with 190 -- roughly 190 million shares and figure out what the impact is, it's principally coming out of that and that's why we excluded those two items and showed you that absent those are EPS growth rate underlying operational was still very strong double-digit..

And that assumes the debt pay down assumptions and going into swap agreements or is that, if you do those things through the course of the year, okay?.

Yes, all of that is baked into our assumptions..

All right, great..

Thank you..

I will now turn the call back over to Mr. Childs..

Okay. Thank you everyone for joining us today. We look forward to speaking to you again on our next earnings call. Myself and the team will be available the rest of the day for any follow-up questions you might have..

This concludes today's conference call. You may now disconnect..