IQVIA Q3 2021 Earnings Call Transcript

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Provided by Quartr
October 20, 2021

Key Takeaways

  • Record revenue and profit growth: Q3 revenue rose 21.7% to $3.391 billion, beating guidance by $54 million, while adjusted EBITDA grew 20.5% and EPS jumped 33.1% to $2.17.
  • Robust life‐sciences industry momentum: Biotech funding hit a record $35.8 billion through September, 3,000 late‐stage molecules are in Phase II/III, trial starts are up 23% year‐on‐year, and FDA approvals stand at 40 YTD.
  • Technology and real‐world evidence leadership: FDA cited IQVIA publications in draft guidance on RWE, 10 new clients adopted the OCE platform (total 169), and 89 fully decentralized trials worth over $1 billion have been awarded.
  • Expanding backlog in R&D services: RMBS net new bookings reached $2.6 billion in Q3 (LTM net new $10 billion), contracted backlog rose 12.7% YoY to $24.4 billion, underpinning $6.9 billion of revenue over the next 12 months.
  • Upgraded full‐year guidance: Management raised 2021 revenue guidance to $13.775–13.85 billion (21.3%–21.9% growth), adjusted EBITDA to $2.98–3.01 billion, and EPS to $8.85–8.95, reflecting strong operational momentum.
AI Generated. May Contain Errors.
Earnings Conference Call
IQVIA Q3 2021
00:00 / 00:00

There are 10 speakers on the call.

Operator

Ladies and gentlemen, this is the operator. Today's conference is scheduled to begin momentarily. And until that time, reliance will again be placed on music hold. Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the IQVIA Third Quarter 2021 Earnings Conference Call.

Operator

All lines have been placed As a reminder, this call is being recorded. Thank you. I would now like to hand the conference over to your speaker today, Nick Childs, Senior Vice President, Investor Relations and Corporate Communications. Mr. Tryout, please begin your conference.

Speaker 1

Thank you. Good morning, everyone. Thank you for joining our Q3 2021 earnings call. With me today are Ari Busby, Chairman and Chief Executive Officer Ron Bruman, Executive Vice President and Chief Financial Officer Eric Sherbit, Executive Vice President and General Counsel Mike Fedock, Senior Vice President, Financial Planning and Analysis and Brian Stangel, Associate 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 Before we begin, I would like to caution listeners that certain information discussed by management during this conference call will include forward looking statements.

Speaker 1

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 ks 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

Speaker 2

CEO, Ari Buzbee. Thank you, Nick, and good morning, everyone. Thank you for joining today for our Q3 results. Our strong momentum from earlier in the year has continued despite the resurgence of COVID-nineteen due to the Delta variant. This has not had an impact on our operations as we have learned to manage through these disruptions.

Speaker 2

Our outlook for the longer term remains unchanged. The backdrop for the life science industry continues to be very strong. Biotech funding continues to run at record levels. According to the National Venture Capital Association, funding totaled $35,800,000,000 through September 2021, already exceeding the full year of 2020. The pipeline of late stage molecules continues to expand And is at an all time high with almost 3,000 molecules in active Phase II or Phase III development.

Speaker 2

Clinical trial starts are trending well ahead of recent years with year to year date starts up 23% over 2020 and 13% over 2019. And finally, new drug approvals by the FDA are keeping pace with the historically high levels of 2020 with 40 new drugs approved year to date, which sets the stage for a strong volume of upcoming commercial launches. The bottom line is the dynamics in the industry are strong and we remain bullish on our outlook for our end markets and for IQVIA in particular. As we think about our longer term plans, I want to remind you of our upcoming Analyst and Investor Conference on November 16 in New York City. At that meeting, we will provide financial guidance for 2022 ahead of our usual timeline, which is normally coinciding with the end of year results in early February.

Speaker 2

And we will share as well our midterm outlook and plans for the next phase of IQVIA's growth. We look forward to seeing everyone and hope You can join us then. With that, let's review the Q3. Revenue for the Q3 grew 21.7 $54,000,000 above the midpoint of our guidance range. The beat was driven primarily by higher pass throughs, which as you know dilutes our margin somewhat as well as by stronger organic revenue growth.

Speaker 2

3rd quarter adjusted EBITDA Grew 20.5%, reflecting our revenue growth as well as productivity measures. The $8,000,000 beat Above the midpoint of our guidance range was entirely due to the stronger operational performance. 1st quarter adjusted diluted EPS of $2.17 grew 33.1 percent. That was $0.07 above the midpoint of our guidance with a bit coming from the adjusted EBITDA drop through as well as favorability in below the line items. I will now provide an update on the business.

Speaker 2

Our real world evidence business continues to take a leading role in informing health care. In late September, the FDA released their draft guidance on how electronic health records and medical claims data can support regulatory decision making And it cited several IQVIA publications. With the growth of rare disease therapies and personalized medicine driven trials, The number of single arm clinical trials increases every year and external comparators provide important context for these studies for both regulators and payers. Our clients recognize our leading expertise in this area. For example, We had a recent major win to deliver an external comparator in a cardiovascular study for a top 20 pharma client.

Speaker 2

In another example, we were awarded a 15 year follow-up study to demonstrate the long term effectiveness and safety of a newly launched gene therapy. Regulatory guidance requires extended follow-up for patients exposed to cell and gene therapy and IQVIA's innovative real world capabilities combining direct to patient solutions as well as IQVIA's technology platforms to capture secondary data was pivotal in this award. On the technology front, our suite of offerings continue to be adopted in the marketplace. You're familiar with our OCE platform and other commercial technology applications. And we have, of course, continued to expand our footprint here.

Speaker 2

We have 10 new client wins in the quarter, bringing the total number of OC wins to date to 169 customers. But we are also very excited to see increased adoption of our orchestrated clinical trial suite, OCT. This quarter, for example, A leading biotechnology company in Asia selected our site portal module within OCT to power site engagements across We now have 165 customers that have bought the site portal module, representing 155,000 sites and 1716 active studies successfully deployed over 150 projects across 35 different therapeutic areas. To date, We have over 70 customers using this platform, including 8 of the top 10 pharma clients. The platform has processed over 10,000,000 unique patient responses in 65 countries and across 28 languages.

Speaker 2

Now I want to say a few words about a fast growing part of our industry. You're familiar with decentralized trials or DCT. The IQVIA decentralized trial offering combines several tech modules within our OCT suite, including ECOA, Econsent, and connected devices as well as other service capabilities including home nurses And phlebotomists along with our decentralized trial patient concierge and study coordinators, All organized around our decentralized trial platform. Importantly, we've developed innovative clinical patient engagement offerings, including direct to patient services to accelerate recruitment and improve patient diversity and inclusion in clinical trials. When we step back and look at the growing importance of DCT in our own portfolio, we find that up to 30% Of our active full service trials utilize 1 or more components Of our DCT offering.

Speaker 2

Incidentally, when our competitors speak about their own DCT offerings, this Is often what they report as the ADCT business. When we look at trials that actually Fully utilize our DCT capabilities, meaning they are fully run on our decentralized trial platform. We've been awarded 89 trials to date, totaling over $1,000,000,000 These awards are with 34 unique sponsors, of which 10 have multiple decentralized trials ongoing with us. This trial spans 12 different therapeutic areas, 32 unique indications and have recruited over 200,000 patients in 40 countries. Our ability to combine advanced clinical technology with an extensive network of investigators and care Professionals differentiates us in this space and makes us department of choice for decentralized trials that utilize the full capabilities.

Speaker 2

Our overall RMBS business continues to build on its strong momentum. We had approximately 2.6 $1,000,000,000 of net new bookings in the quarter, bringing our LTM net new bookings for the first time to over $10,000,000,000 including pass throughs. This resulted in a contracted net book to bill ratio of 1.39 including pass throughs and 1.28 excluding pass throughs. At September 30, our LTM contracted book to bill ratio was 1.38 including pass throughs and 1.37, excluding pass throughs. Our contracted backlog in RMBS including pass throughs grew 12 point 7% year over year to $24,400,000,000 at September 30, 2021.

Speaker 2

As a result, our next 12 months revenue from backlog increased to $6,900,000,000 up $300,000,000 sequentially versus the second quarter. As we have signaled several times in the past, We've ramped up investments in our lab capabilities. We recently announced the opening of our new 160,000 Square Foot Innovation Laboratories in North Carolina. This facility provides customers with access to cutting edge bioanalytical, vaccine and genomics capabilities along with an expansion into exploratory human biomarker discovery services. These new services will enable us to partner closely with sponsors in the development of essential biomarkers to support new molecules moving into clinical development and throughout the life cycle.

Speaker 2

And this expansion, of course, comes on top of the investment we announced last quarter

Speaker 3

Okay. Thanks, Ari, and good morning, everyone. Let's start by reviewing revenue. 3rd quarter revenue of $3,391,000,000 grew 21.7 percent on a reported basis and 21.1% at constant currency. Year to date revenue was $10,238,000,000 growing at 27% reported and 25% at constant currency.

Speaker 3

Technology and analytics solutions revenue for the Q3 was $1,337,000,000 which was up 10.8% reported 9.9 percent at constant currency. Year to date, Technology and Analytics Solutions revenue was $4,000,000,000,000 which was up 17.6% reported and 14.9% at constant currency. In the Q3, R and D Solutions had revenue of $1,853,000,000 up 32.4% at actual FX rates and 31.9% at constant currency. Excluding the impact of pass throughs, 3rd quarter R and DAS revenue grew 24.7% year over year. Our year to date revenue in R and D Solutions was $5,612,000,000 up 37.7% reported and 36.2% at constant currency.

Speaker 3

Finally, contract sales in Medical Solutions or CSMS revenue Of $201,000,000 was up 12.3% reported and 12.8% at constant currency. Year to date, CSMS revenue was $588,000,000 growing 6.5% reported and 5.1% at constant currency. Now let's move down to P and L to adjusted EBITDA, which was $728,000,000 in the 3rd quarter, up 20.5 percent year to date adjusted EBITDA was $2,194,000,000 growing 33.1% year over year. 3rd quarter GAAP net income was $261,000,000 and GAAP diluted earnings per share was $1.34 Year to date, we had GAAP net income of $648,000,000 or $3.32 of earnings per diluted share. Adjusted net income was $423,000,000 for the 3rd quarter and adjusted diluted earnings per share grew 33.1 percent to 2.17 Year to date, adjusted net income was $1,264,000,000 or $6.48 per share.

Speaker 3

Turning now to the R and D Solutions backlog. As Ari reviewed, R and D Solutions delivered another outstanding quarter of net new business. Backlog now stands at $24,400,000,000 In last 12 months, net new bookings, Including pass throughs rose to over $10,000,000,000 Okay. Turning to the balance At September 30, cash and cash equivalents totaled $1,500,000,000 and debt was $12,200,000,000 This resulted in net debt of $10,700,000,000 Our net leverage ratio at September 30 came in at 3.65 times trailing 12 month adjusted EBITDA. Cash flow was again quite strong in the Q3.

Speaker 3

Cash flow from operations was $844,000,000 And with CapEx of $162,000,000 this resulted in free cash flow of $682,000,000 This Q3 performance brought our free cash flow year to date, that is through the 1st 3 quarters, to almost $1,800,000,000 which continues the strong improvement trend we've had over the past 3 years. In the quarter, we repurchased $125,000,000 of our shares, which leaves us with $697,000,000 of share repurchase authorization remaining under our latest program. Okay. Let's turn to guidance. As you saw, we're raising our full year 2021 revenue guidance by $188,000,000 at the midpoint.

Speaker 3

This is reflecting the Q3's strength and the continued operational momentum in our business. Our new revenue guidance is $13,775,000,000 to $13,850,000,000 Representing year over year growth of 21.3 percent to 21.9%. I'll note that included in this guidance It's a $30,000,000 headwind from FX versus our previous guidance. Now looking at the comparison to Prior year FX is a tailwind of about 120 basis points to full year revenue growth. We're also raising our profit guidance.

Speaker 3

As a result of a stronger revenue outlook, we've increased our full year adjusted EBITDA guidance by $20,000,000 at the midpoint. Our new full year guidance is $2,980,000,000 to $3,010,000,000 rather, which represents year over year growth of 25% to 26.3%. Moving down to EPS, we're increasing our adjusted EPS guidance by $0.10 at the midpoint. The new guidance range is now $8.85 to $8.95 which represents year over year growth of 37.9 percent to 39.4 percent. Now our full year 2021 guidance assumes September 30 foreign currency rates remain in effect for the balance of the year.

Speaker 3

Of course, the full year guidance implies a 4th quarter guidance, which we show here. And before getting to the numbers, I'll say for context, You'll probably recall that last year's Q4 was unusual due to a snapback in the general business as we rebounded from the effects of COVID-nineteen picked up incremental demand from mega vaccine studies in RMBS FX in the quarter is a headwind of growth of about 100 basis points. We expect 4th quarter TAS revenue growth to be mid single digits, reflecting the expected year over year decline in government COVID related work and the FX drag. I'll note though that underlying constant currency organic growth for TAS will be in the high single digits, which is a level that TAS has recently accelerated. R and D revenue growth will be in the low teens With services growth in the mid teens despite last year's difficult comparison due to the COVID vaccine work, CSMF will be up 6.9% to 11% and adjusted diluted EPS is expected to be between 2.37 So in summary, we delivered a very strong Q3 with strong results on both the top and bottom line.

Speaker 3

R and D backlog improved to $24,400,000,000 that's up 12.7% year over year. Next 12 months revenue from backlog Increased to $6,900,000,000 up $300,000,000 sequentially versus the 2nd quarter. We reported another strong quarter of free cash flow, which at $1,800,000 through the 1st 3 quarters of the year is a market improvement And finally, we're once again raising our full year guidance for revenue, adjusted EBITDA and adjusted diluted EPS. And with that, let me hand it back over to the operator for questions and answers.

Operator

Your first question comes from the line of John Kreger

Speaker 4

Curious, if you could just take that one step further, what do you think the operational implications are for you guys and your clients as you see greater adoption of some of these newer technology tools?

Speaker 2

Well, I mean, operationally, obviously, You know that one of the single most important challenge we and actually the entire industry has The ability to deploy people, again, is a strong book of business that we've all generated. And so this is a great development because what DCC does is it kind of increased productivity, So I think operationally, we are just adapting to this. Now again, the full Productivity only comes when the trial is fully decentralized trials, as I explained, because there's a lot of confusion in this space. As As soon as someone uses a digital platform, they say, well, we've got a DCT award here, but that's not the case. Now if we do that, as I mentioned, about 20% of our full Clinical trials, which is just probably we have a little bit under 1,000 trials that are full service Clinical trials ongoing.

Speaker 2

So it's a larger number that already utilizes 1 or several of our DCT modules, eConsent or Ekoa or others connected devices. But our clients Our experimenting quote on quote with smaller trials and trying the Full DCT platform, which puts together all of the capabilities and the maximum utilization of the digital tools that we have at our disposal. I think hands down, I believe we are leader in this space.

Speaker 5

Sounds good. Thanks. And

Speaker 4

one quick follow-up on staffing. Obviously, we've there's a lot of talk about tight labor market. Is that proving to be any sort of a headwind for you guys on EBITDA margins? And have you seen your staff attrition rates change at all as we've moved through this year?

Speaker 2

I mean, there's no question about it. It's not a secret. This is true. Across industry sectors and in our sector in particular, since we have such a strong industry backdrop, There's a lot of competition for talent. We of all of the peers in the CRO space are a hunting ground So obviously, we are responding.

Speaker 2

We are actively recruiting and hiring to meet this demand. We recruit thousands of employees every year. So we've got whole talent acquisition capability that's So global and that's actively at work. Does it create cost pressure? Yes.

Speaker 2

And it's already included in our guidance. That's certainly a headwind. But as you well know by now, hopefully, you know that when you look And our overall results, you see that there has been margin expansion despite these cost headwinds. In fact, Even when you see in this past in this Q3 results that our operating margins are flat to slightly declining, When

Speaker 3

you actually take out

Speaker 2

the pass throughs, you actually see that our margin, the operating margins Expanded quite nicely. And this is despite the cost headwinds that we have. So yes, it is a headwind And we are dealing with it and offsetting with the usual productivity and efficiency programs that I hope we

Operator

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

Speaker 6

Thanks. Good morning. I have a couple as well. First one, I think the number one inbound this morning is on your M and A spend in The quarter, obviously, a much higher number than we were anticipating with the Myriad deal sizing being known. I'm curious if you could Address that in a couple of ways.

Speaker 6

1, the type of deals, nature of deals, number of deals, but also what impact you expect on a revenue basis, This both in the Q4 as well as any thoughts on the run rate of the companies that you've recently acquired? Thanks very much. And I might have a follow-up as

Speaker 2

Okay. So let me take this latter part of your question first. In the quarter, The contribution of M and A was minimal, I mean, maybe a little over a point. And that's the same basically for RMBS and for TAS.

Speaker 4

That's correct.

Speaker 2

In the Q4, Nick, a little bit more than that?

Speaker 1

Yes. In the Q4

Speaker 2

and half

Speaker 1

total company were a little over 0.5.

Speaker 3

Yes, a

Speaker 2

0.5 of contribution to our revenue growth. Now, yes, we had a big spend this year. It's going to be lumpy. We always say acquisitions is binary. It happens or it doesn't happen.

Speaker 2

I will note that we didn't spend very much last year. I think in the entire year, we spent $177,000,000 And there are quarters where we spent $10,000,000 or $15,000,000 And this quarter And this year actually, we spent quite a bit more money. As you know, the largest acquisitions we've done is simply the consolidation of our joint venture request In the lab business, that was a $760,000,000 transaction we did in the 2nd quarter. So that represents really a very large portion, almost half of the spend today. In the quarter, We were very active.

Speaker 2

We were we actually closed only a handful of transactions. The 2 largest Account for the vast majority, say, almost 90% in sales, something like that, 80% to 90% of the spend. It's Two transactions only. 1 is the Myriad RBM lab, which we had announced during our Q2 earnings and it actually closed It supports early and late stage drug development in very specific therapeutic areas, oncology, CNS and immunology. We also purchased DMD.

Speaker 2

DMD is a leading provider of analytics and digital marketing solutions to healthcare professionals. It brings advanced tech enabled analytics and insights for intelligent Omnichannel Marketing, and we consider that acquisition to be a strategic asset. And yes, it did Company with a lot of it costs quite a bit. So these two transactions again is Basically the bulk of the spend. Now, where is the You have the second question, right?

Speaker 6

Yes. Just a clarification on the first one. So the last one, I think you said DMV, if I understood correctly?

Speaker 2

DMD, okay, got it.

Speaker 6

And then is that actually a CSMS segment deal or is that a Tech and analytics deal.

Speaker 2

Yes, it's a tech and analytics deal.

Speaker 6

Okay. And then my follow-up is my Typical burden on you to talk about COVID contributions in 3Q for revenue and bookings, Specifically in R and Ds, but also other segments as necessary. If you could update us on the backlog of COVID work in total In RMBS and then talk about bookings in 3Q related to total COVID related activity

Speaker 3

Would be great.

Speaker 2

Yes. I mean, on as we think, our COVID work is obviously going to it continues a little bit. There is a tail to it. But certainly, On the TAL segment, it's a significant step down. We had signaled this before.

Speaker 2

The government related COVID work is Gradually going away and certainly will stop them dramatically in the Q4 and going forward. And we're just going to return once you eliminate the noise of what happened last year. The TAS underlying organic growth rate is in the high single digits. You remember TAS historically Was in a mid single digit grower and in our investor conference in June 2019, we said that TAS would accelerate to high single digits and that's where we've been most of the year. We've told you that when we reported prior quarters That the TAS growth rate included significant COVID related work and excluding that, The growth rate was in the high single digits and it remains so when you take out the noise of the compares, etcetera.

Speaker 2

On the RMBS, can you give us the numbers?

Speaker 3

Yes, sure. Look, 1st, we like to look at the contribution of COVID to the backlog. And if you strip out the mega vaccine trials, Eric, from the backlog of R and D, it's less than 5% of the backlog. If you take out all COVID related work, it's less than 10% of the R and D backlog. And you were asking about the contribution of COVID to revenue, I think, too, in the quarter.

Speaker 3

And look, RMBS had Very strong growth even accepting the COVID related work. If you Take out the large fast burning COVID work, you were in the high 20s for R and D revenue growth. And even if you take out all COVID related work, you were still Strong teens growth. So COVID did contribute, of course, and the work will Trail down over time, but the underlying business in other therapeutic areas is very strong and ramping up as we go forward in R and D.

Speaker 6

Thanks very much, guys.

Operator

The next question is from the line of Jack Meehan with Nephron Research.

Speaker 7

Thanks. Wanted to continue on the COVID conversation, but looking at the TAS business, I I think you referenced when talking about the Q4 guidance some headwinds versus the prior year. But could you just maybe talk a little bit How you feel like the longer term durability of COVID work in the segment, just your thoughts around that?

Speaker 2

Yes. Again, there's no headwinds In the Q4 for time, the growth rate is slower simply because it's a math question. We're comparing last year's Q4, which was Which includes the COVID work with and a bunch of noise with the Q4 here, which eliminates that noise. Again, when you eliminate all of that, the underlying organic growth rate for TALLE is in high single digits in the 4th quarter. So there is no headwind in the underlying business.

Speaker 2

And we expect that trend and momentum to continue. We will, as you know, provide We generally provide guidance on the year, concurrent with the release of our Q4 earnings. Last year, because it was such an unusual year, we decided to give guidance for 2021, comparing to the release of our This year, we plan to do it at our November Investor Conference, which is just 2 weeks away. Great.

Speaker 7

And I don't want to steal any thunder from the Investor Day a few weeks from now, but I was curious if you could Talk a little bit about some of the puts and takes for 2022. The funding environment, as you're referencing, is very strong. Are there any takes that you would consider? And then the one thing that stands out to me is pass throughs. They've obviously been elevated this year.

Speaker 7

Just any color around how that might phase into next year

Speaker 2

would be helpful. Yes. So I mean, look, It's always important to put things in context and look at the longer term trends as you're asking. And if you Go back to June 2019, we gave a 3 year set of targets Now no one could have predicted then that 6 months later, we would be starting the pandemic and We would have such disruption across the world for all businesses and including for ours. But when you and I think people like to look at 2019 to 2021 to kind of try to eliminate COVID.

Speaker 2

I don't think that's It's fair because the whole COVID effect is not gone yet because you still have these disruptions that I just talked about. I think it's important to look at the 3 year 2019 to 2022 timeframe. And if you go back to the targets we gave, we certainly are running ahead, Actually, well ahead of the growth rates we predicted for 2022. We are ahead of that. A little bit of this is because of COVID and the pass throughs that you just referred to.

Speaker 2

But even if you strip that out, we're still ahead on every single one of the metrics. Now, I don't know if you are at that conference, but as you're doing now and as The colleagues were doing trying to push me for even more precision on what the numbers would be. I said then That I was hoping to exit 2022 at a 10% growth rate for the company. Now I've said before earlier this year that we reached Our end of 'twenty two targets in 'twenty one. And I believe that that momentum will continue into 'twenty So that's all I can say and I have to wait for more precision in 3 weeks.

Speaker 2

But I certainly sitting here feel very, very confident That we will certainly exceed those numbers that we gave you 3 years ago and set the stage for further acceleration beyond.

Speaker 7

Great. Thank you.

Operator

Your next question is from the line of Shlomo Rosenbaum with Stifel.

Speaker 8

Hi, good morning. Thank you for taking my questions. Ari, can you talk about where you are in general with OCE implementations, particularly with Like Roche and AstraZeneca, have you gotten to the point where the implementations are not a significant drag on the margins You have to offset in other areas and just where are you seeing the business progress in terms of hitting kind of a Steady state of revenue or revenue exceeding the cost to implement?

Speaker 2

I mean, you bring up a good point. Implementations are very costly and We have a large number of wins and I referenced an additional 10 new wins. So every time you're opening a new Award again, you have to implement. So it's not like when you are behind the curve of implementation and you start generating The license revenue, you still have to implement the new ones that you sold and we're happy with this. So we're not past that headwind, if you will, in terms of the implementation costs.

Speaker 2

That's Significant drag and we're not seeing yet, that in fact if you read that inflection point where you've now essentially plateaued Your market penetration and you're essentially sitting tight and collecting license revenue For movies and installations, we're not there in aggregate.

Speaker 8

Okay. And then just maybe this one is for Ron. The free cash flow was incredibly strong. Something just more this year, 33% more than you had all of year, which was I think a record quarter. Can you talk about what's going on?

Speaker 8

There was a significant increase in unearned revenue and some other working capital changes. And how should we be thinking about this on a go forward basis? Obviously, very healthy numbers. Is this something that you can keep up? Or is it or adjusting and catching up on some of the working capital items.

Speaker 3

Well, Shauna, we've made a really concerted effort internally here you would in a manufacturing firm receivables are really where we have a lot of our assets other than our deferred software investment. And that's been our efforts have been on several fronts. First off is collecting on time. We had Go back a little while. We had a large amount of overdue receivables, and that's just kind of focused to go and collect What to do from us.

Speaker 3

The next is billing on time. I mean, we had a large amount of unbilled receivables, And that comes down to internal processes about billing more quickly in a more timely fashion. So we get paid in a more timely fashion. And of course, the third that you mentioned is the deferred revenue, the customer advances that we get. We Again, made an effort internally to negotiate contracts with our customers so we get paid more upfront, So we're not out of pocket, and this has helped substantially.

Speaker 3

And I expect all three of those to continue to be a driver of strong cash Now of course, having said that, cash flow is lumpy. Quarter to quarter, it's difficult to predict. And you do get instances where you'll get an unusual amount of advances because some of the work you're doing that will burn out off over time and then rebuild up. So I would urge you not to focus too much on the quarter to quarter, but yes, what you're saying is that Fundamentally, we've improved our collections processes and improved our underlying free cash flow generation as a result.

Speaker 2

Yes. I mean, if I just might, I'll do that. We're very pleased with the performance, but let's be honest. This was a bad point for us, and I think some of you have pulled that The past 3 years or so, our cash flow performance was simply very poor. So the fact that we are now performing very well, It's not an unusual thing.

Speaker 2

I mean, I think not too long ago in 2018, we generated just barely over $600,000,000 of free cash flow for the entire year. And here we are 3 quarters into the year, we've already generated 3 times that number. Obviously, we are a much bigger company and so on. But Look, the outperformance was just not good. And we said that and it was on us and we worked on it and we continue To pay attention and have the right metrics and the right incentives and the team focus on it.

Speaker 2

And as always, when you shine the light on something, it improves. And that's what

Operator

Your next question is from the line of Dave Windley with Jefferies.

Speaker 9

Hi, thanks. Good morning. Good morning, folks. Appreciate you taking my question. Wanted to follow-up on, I believe, a John Kreger question around DCT.

Speaker 9

He asked around operational, Ari, I wanted to ask around financial. Joel, as it seems like you now have a pretty substantial number of trials where you're running Pretty fully on your DCT platform. I'm wondering if you could relate to us what how that changes the dollar value of a trial and does that Give you the opportunity to garner more margin in that trial because of the technology enabled efficiency.

Speaker 2

Yes. I mean, look, there's a high degree of interest from clients, okay, around how to operational VCT. And It's not like it's going to overwhelm and all of a sudden become 100% overnight. As I said, large pharma in particular is experimenting. A lot of trials are using one composer on the other, so it's going to take time.

Speaker 2

So this is not next year or the day after that we're going to have To say the issue that you're raising. Our experience customers are struggling with how to make various point solutions Fit together. So we are actually very being very aggressive here. We want to Move to DCT. We've said this since the merger opened 5 years ago, we want to accelerate and not slow down Technology introduction and changing the model.

Speaker 2

Now obviously, the question you ask Is the question we'll ask of us many years ago, which is, as you seek to replace labor in a model that Where pricing is largely based on labor inputs that aren't you lowering the value of the trial and And etcetera, what are the implications of the margin? So we don't believe so. We have As you know, we have a long run effort to switch pricing to value and deliverables and outputs. That's number 1, and that has made substantial progress. Our clients are not looking at Saving a couple of pennies here or there.

Speaker 2

They're looking at getting what they need the answers that they want faster, more efficiently with less error and with higher quality. And they are willing to pay a premium for that. Now, they're not going to pay more than what they were paying before, but they're not going to pay less than what they're paying before. And so now The margin implication is correct over time. The more we deploy technology, the less we need people, the more There's going to be margin accretion, but again, this is going to take time.

Speaker 2

There are also new delivery roles, which offset some of the reduced CRA visit activity. So I think it's too early to comment on the exact margin impact for this overall. We are monitoring, we do not anticipate this to disrupt our margin performance. RMBS is a very long cycle business. We have, I mentioned, 89 fully decentralized trials ongoing that we won.

Speaker 2

We're working on, if you look at, as I said, just under maybe 900 to also full service Trials, so it's a fraction of that. As you look at the total trials we are involved in, this is over 2,500 clinical trials that we're involved in globally. So it will take some time to penetrate. It's a slow moving business, but it's a good point. We are totally focused on it.

Speaker 2

We do not anticipate a margin I'm sorry, a value deterioration. We do anticipate a margin accretion over the long term.

Speaker 9

Great. If I could ask a second follow-up around a question on COVID. It seems like a lot of focus on how much revenue now and How much in backlog now? It seems equally important to me, if not more so, to focus on how that will phase out. And I think you've made comments in the past that you see projects booked out through 'twenty two and maybe even into 'twenty three.

Speaker 9

Would it be appropriate to call The COVID contribution kind of a soft landing, so to speak, that it's not going to drop off, it's just going to slowly taper over time. Is that the right way to think about it?

Speaker 2

On the RMBS business, absolutely. No question. What you said is exactly what I would say. It's a softening 2022, 2023 and it Frankly, we get lost in the rounding by the time we get to 2023.

Speaker 9

Very helpful. Thank you.

Speaker 2

Unless, of course, gas could be there is another variant or another COVID or another. But right now, as we see based on what we know today, it's a soft

Operator

The next question is from the line of Dan Leonard with Wells Fargo.

Speaker 2

Thank you and good morning.

Speaker 3

Can you comment on trial site operations? Are there any continued bottlenecks The Site accessibility numbers remain around 80% or so. But look, we've managed to work around that and operate it close to normal. And not all sites are equal. The larger sites are open, and that hasn't been an issue for us.

Speaker 3

We've seen Site start up and patient recruitment at near pre pandemic levels, not quite, but near pre pandemic levels. The patient visits are still lagging a little bit, just gradually coming back. And so when we Look at our overall operations, we're not totally back to pre pandemic level yet, and we'll expect a gradual improvement over back to pre pandemic level, but it really hasn't been a major issue for our operations. As Ari mentioned in his Opening remarks. We've learned how to manage the way we went around.

Speaker 3

Yes.

Speaker 2

I mean, the numbers that I got the numbers here in detail, but basically the order between 80% it's 80% or so across all of those metrics. A little bit higher for site start up, which is more again, as a percentage of 2019 base levels, okay? So site startup is a little higher, is that more 85% of their adults globally. The bottom line is these metrics We see provide confidence that the non COVID trial pipeline is not only being awarded, As you can see from the strong new bookings, but it's also starting to be delivered. And the sites are enrolling, the patients are enrolling and the visits are ongoing.

Speaker 2

So I think there hasn't been any major Change from this as a result of the new variants or anything like that.

Speaker 3

And as a Follow-up, Ari, can you comment on perceived market share trends in R and D as in the quarter? You've been pretty open about the various strategic actions by your Competitors potentially allowing an opportunity for share gain.

Speaker 2

Look, it's hard to look at market share in a given quarter. Okay. It's lumpy. A trial can be awarded the last day of the quarter or the first day of the following. I wouldn't look at We like as we always say, look, we were defeated and You know, give you quarterly book to bill ratios, but really we don't we believe we should focus on longer term Book to bill ratio is pretty lumpy and focus also on Business from the backlog over the next 12 months.

Speaker 2

Now, if you look at our competitors, there's been a lot of disruption. And yes, I mean, we've had conversations with customers, but just as you don't win a new customer overnight, you don't throw out The CRO overnight, we're in the middle of trials, right? So some of those mergers will have an impact on market share. I think it's favorable to us. Maybe we'll remain the last CRO stand, I don't know.

Speaker 2

But We feel that and we know from experience what a merger and a large acquisition Does to the underlying business, there's all disruption. There is people lose their jobs, people who don't like the new arrangement and that's just life and the result of that is some market share. We had that problem after our merger in Let's be honest about it, and we had some market share issues, which we rebounded once we put together the I think we are the future is very bright for us. We continue to gain new customers And the biotech environment in particular is extremely, extremely Hot right now. We are gaining new clients.

Speaker 2

In Europe, we're making inbounds with customers we never had before In Asia as well, the teams are extremely energized, and I feel we are on a winning momentum here. And there's no doubt that when we look back, we will see that our market share has improved.

Speaker 1

This isn't going to be our last question of the day.

Operator

And your last question comes from the line of Patrick Donnelly with Citi.

Speaker 5

Ari, maybe a follow-up on that last question. You talked a little bit about Kind of all the mergers going on in the space, again, headcount disruption. Following up on one of the earlier questions in terms of labor costs, does that position you guys Better in terms of being able to acquire some talent that got bottled around during some of these mergers, kind of being in a stable ship there and Grab some people, maybe at not quite the inflationary costs you're seeing in the labor side. And then secondarily to that, maybe with a focus on R and Ds, How much can you pass some of these price increases on to customary? I know full service contracts and backlog are It's typically tough to adjust, but just wondering how much you can pass on in terms of some of the price pressure you're getting there.

Speaker 2

Okay. Well, on the personnel question, you've got to differentiate between the executive management leadership level and then the actual field force, the CRAs, etcetera. So on the first In general, the first category, yes, there is an opportunity to bring in talent that somehow is Satisfied with where they are and that will or may occur. And it has happened Already in a few cases. But again, these are small numbers.

Speaker 2

On the CRAs and the project leads and That's much more difficult because it's driven by the book of business and by the execution That our competitors are also in the midst of trials and they need those people as much as we do. And so there's no not much There's just an inflation on wages, which is the result of all the factors we talked about before. But The mergers don't affect at least immediately the CRAs and Your other question had to do with And Bill, we

Speaker 3

didn't get passed from all costs.

Speaker 2

Yes. So as you noted yourself in your question, it's very hard. You can't We sold projects with certain assumptions. And there are some Collations and some factors built into those contracts. So that will be reflected.

Speaker 2

But by and large, the pricing We'll set based on different assumptions and when you have higher costs then you have to absorb that. But then as we move forward, Obviously, the pricing is affected. There's no magic here. It's all going to get passed on and There's no secret, but it's going to lag because of the nature of our business, Especially in the RMBS business. Right.

Speaker 3

And of course, on the TAS side of the business, shorter cycle business, A greater ability to pass along cost increases. Right. But there's less labor. Less labor. Correct.

Speaker 5

Understood. Thank you, guys.

Speaker 2

Thank you very much.

Speaker 1

Thank you everyone for joining us today. We look forward to seeing everyone on our Investor Day

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