IQVIA Q2 2022 Earnings Call Transcript

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Provided by Quartr
July 20, 2022

Key Takeaways

  • IQVIA delivered strong Q2 2022 financial results with revenue up 3.0% reported (7.1% cc), organic base business growth of 16% cc excluding COVID work, adjusted EBITDA +10.8%, and EPS +14.6%.
  • The R&D Solutions segment booked over $2.6 billion in net new business, lifting contracted backlog to a record $25.6 billion (up 50% over three years) with a book-to-bill ratio of ~1.32.
  • Commercial Technology & Analytics Solutions grew 4.1% reported (9.4% cc) and 10% organic ex-COVID, driven by AI-powered next-best-action platforms, pharmacovigilance tools, real-world evidence offerings, and the award-winning ECOA patient engagement solution.
  • IQVIA emphasized operational resilience with no significant impact from biotech funding declines, only modest COVID lockdown effects in China, and proactive management of Ukraine/Russia trial activities amid geopolitical risks.
  • Financial health remains solid with net leverage at 3.58x EBITDA, $590 million in Q2 share repurchases (leaving $1.5 billion capacity), and full-year guidance largely unchanged despite an ~$125 million FX headwind.
AI Generated. May Contain Errors.
Earnings Conference Call
IQVIA Q2 2022
00:00 / 00:00

There are 9 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the IQVIA Second 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 As a reminder, this call is being recorded. Thank you.

Operator

I'd now like to turn the call over to Nick Childs, Senior Vice President, Investor Relations and Corporate Communications. Mr. Childs, you may begin your conference.

Speaker 1

Thank you. Good morning, everyone. Thank you for joining our Q2 2022 earnings call. With me today are Arie Boosby, Chairman and Chief Executive Officer Ram 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 of our IQVIA Investor Relations website at ir.iqvia.com.

Speaker 1

Before we begin, I would 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 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 CEO, Ari Foussini?

Speaker 2

Thank you, Nick, and good morning, everyone. Thank you for joining us today To discuss our Q2 results, IQVIA delivered strong financial results this quarter despite the dynamics Of the broader macro environment and the various global geopolitical issues, let me address a few of the Q1s. Some of you have continued to ask about the impact of biotech funding on the CRO industry. As we have said on several occasions, the recent decline in biotech funding has not Had any significant impact on our business. Our exposure to pre commercial EDPs remains at just Over 10% of our backlog, we have not seen an impact on bookings or RFPs Nor any increase in cancellations or delays in clinical trial work From the slowdown in biotech funding, actually RFP dollars From the overall EDP client segment continued to grow double digits in the quarter.

Speaker 2

In China, the government imposed COVID lockdowns had a modest impact on our 2nd quarter results, Mostly from disruptions to our clinical and laboratory operations, our commercial business was virtually unaffected. Our experience in managing through prior lockdowns during the pandemic has been helpful in minimizing the operational impact Our guidance assumes that modest impacts from COVID related lockdowns in China We continue through the end of the Q3. In Ukraine, we continue to work with sites and sponsors to ensure the safety of our employees and patients, while working to mitigate trial disruptions caused by the ongoing crisis. In Russia, we continue to conduct trials currently underway to ensure the safety of patients already enrolled in clinical trials, But we are moving recruitment on new trials to other countries. The financial impacts Of the Russian Ukraine crisis are tracking in line with the expectations we communicated back in April.

Speaker 2

More generally, we are of course monitoring, as are you, the possibility of a recession. I would just note that over the past 20 years, IQVIA, along with the broader CRO industry, Has shown resilience to economic downturns. During recessionary times over the past 2 decades, Annual S and P 500 revenue contracted by as much as 10%. While IQVIA's clinical business and the CRO industry as a whole never experienced a year Our revenue decline, the resilience of the CRO industry likely reflects the long cycle nature of our business, As well as, of course, the mission critical importance of clinical research and more generally, the defensive nature of healthcare. With that as background, let's review the 2nd quarter.

Speaker 2

Revenue for the 2nd quarter grew 3 On a reported basis and 7.1 percent at constant currency, the $46,000,000 beat Above the midpoint of our guidance range was primarily driven by the timing of pass through revenues versus our expectations, As well as some operational upside. Compared to last year and excluding COVID related work From both periods, our base businesses grew 16% At constant currency on an organic basis, Ram will provide additional detail in his remarks, including COVID adjusted numbers for each of our segments. 2nd quarter adjusted EBITDA increased 10.8%, reflecting our strong revenue growth and ongoing cost management discipline. 2nd quarter adjusted diluted EPS of $2.44 grew 14.6%, driven entirely by our adjusted EBITDA growth. Let me provide some more updates and color On the business in the quarter, the continued strong performance at IQVIA It's driven by our highly differentiated capabilities.

Speaker 2

As you know, the key differentiator for us In the clinical and commercial spaces is IQVIA's connected intelligence. Let me give you a few examples of how IQVIA's applications here help our clients solve their most complex problems. IQVIA's AI driven next best action platform helps our clients integrate multiple data sources, Transforming raw data into personalized recommendations to sales, marketing and medical personnel, Which, of course, leads to deeper relationships with health care providers. In the quarter, a top 10 pharma client Shows IQVIA's solution to completely transform their omnichannel commercial engagement model and to improve their go to market Efficiency across multiple brands in 8 countries by up to 30%. Another example in the quarter, we were selected by the top 20 pharma client to optimize the delivery of brand content directly to health care providers for one of their respiratory brands.

Speaker 2

Our solution here connects digital And field sales channels to deliver highly personalized content that results in high quality, Seamless brand experience for healthcare providers. This will improve these clients' digital engagement metrics By 3.5x. Another area where demand has been growing is pharmacovigilance. Our platform here combines a unique catalog of over 500,000 safety specific terms and patterns With natural language processing to mine vast amounts of online data and to identify potential adverse events. In the quarter, another top 10 pharma client selected our solution to reduce the risk of noncompliance And to increase data accuracy, ultimately improving their efficiency by up to 75%.

Speaker 2

Beyond large pharma, our commercial solutions are also resonating with EBP clients, especially when they decide to commercialize their assets on their own Following approval, for example, in the quarter, we contracted with a leading EVP client This includes data provisioning, master data management and data modeling. Our ability to offer these services on fully integrated platform We will allow for more streamlined implementation, generating savings of up to 20% versus multi vendor solutions. As you know, IQVIA continues to be the global leader in real world evidence. In the quarter, a top 10 pharma awarded a major project in medical affairs. The project leverages our AI and ML capabilities to provide near real time disease insights Across 5 different therapeutic areas, these insights will help identify misdiagnosis and suboptimal treatments, Which will include improved patient outcomes.

Speaker 2

As you know, our ECOA or electronic clinical outcomes assessment platform Has won multiple awards for its breakthrough patient engagement innovations. The product includes a library of over 1500 prebuilt Clinical outcome assessments, which enabled sponsors to deploy assessments to patients after 14 weeks Sooner than competitors' offerings. This efficiency reduces risks to study startup timelines And allows our clients to capture more feedback from patients, ultimately amplifying the patient's voice real time. The top 5 sponsor recently engaged IQVIA to couple this ECOA platform with our patient randomization tool So that we eliminate redundant workflows, improve data accuracy and patient compliance, thereby reducing site onboarding activities by an estimated 50%. Finally, In the overall R and D business, we continued our strong momentum, delivering over $2,600,000,000 Our total net new business in the quarter, including pass throughs, the services bookings Also remained at the historic high we have seen recently of over $1,900,000,000 This resulted in a 2nd quarter contracted net book to bill ratio of 1.34, including pass And 1.32, excluding pass throughs.

Speaker 2

Over the last 12 months, our contracted net book to bill ratio It was 1.32, both including and excluding pass throughs. As you can see, There continues to be strong positive momentum across the business And an unprecedented level of engagement with our clients across our portfolio of commercial and clinical businesses Despite the broader environment, I will now turn it over to Ron for more details on our financial performance.

Speaker 3

Thanks, Dari, and good morning, everyone. Let's start by reviewing revenue. 2nd quarter revenue of $3,541,000,000 grew 3% on a reported basis and 7.1% at constant currency. In the quarter, COVID related revenues were approximately $250,000,000 which was down about $300,000,000 This is the Q2 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 16%.

Speaker 3

Technology and Analytics Solutions revenue for the 2nd quarter was $1,408,000,000 4.1% reported and 9.4% constant currency. Now excluding all COVID related work, Organic growth at constant currency in TAS was 10%. Research and Development Solutions 2nd quarter revenue of $1,950,000,000 was up 3.1% reported and 6% at constant currency. And excluding all COVID related work, organic growth at constant currency and R and Ds was 22%. Contract Sales and Medical Solutions or CSMS 2nd quarter revenue of $183,000,000 declined 5 point 7% reported, but grew 2.1% at constant currency.

Speaker 3

Excluding all COVID related work, organic growth at constant currency in CSMS was 7%. First half revenue of $7,109,000,000 grew 3.8% on a reported basis, 6.9% at constant currency. In our base business that is excluding all COVID related work, organic growth At constant currency for the first half was 14%. Technology and analytics solutions revenue for First half was $2,847,000,000 up 5.4% reported and 9.6% at constant currency. Excluding all COVID related work, organic growth at constant currency in TAS was 10% for the first half.

Speaker 3

R and D Solutions for SaaS revenue of $3,884,000,000 was up 3.3% at actual And 5.3% at constant currency. Excluding all COVID related work, organic growth at constant currency in R and Ds was 19%. And finally, contract sales and medical solutions or CSMS first half revenue of $378,000,000 Declined 2.3% reported and grew 3.9% in constant currency. Excluding all COVID related work, organic growth in Constant currency in CSMS was 6%. Now let's move down the P and L.

Speaker 3

Adjusted EBITDA in the quarter was $800,000,000 representing growth of 10.8 percent, while first half adjusted EBITDA was $1,612,000,000 up 10% year over year. 2nd quarter GAAP net income was $256,000,000 and GAAP diluted earnings per share was $1.34 For the first half, we had GAAP net income of $581,000,000 or $3.02 of earnings per diluted share. Adjusted net income was $466,000,000 for the 2nd quarter and adjusted diluted earnings per Share grew 14.6 percent at $2.44 For the first half, adjusted net income was $943,000,000 Or $4.91 per share. Now as already highlighted, R and D Solutions delivered yet another strong quarter of New business, this graph that we're showing here shows the growth of our backlog over the past few years at actual currency rates And it demonstrates the sustained strength of our clinical business through the COVID pandemic. Now you'll recall that as our bookings reached record levels During the pandemic, many of you expressed concern about a looming so called COVID cliff.

Speaker 3

And we told you then that our COVID related bookings would be replaced by new programs that span the breadth of our therapeutic care Expertise, Sam. In fact, that's what happened. As of June 30th, our contracted backlog stands at a record $25,600,000,000 including pass throughs. That's a 50% increase over about 3 years. The COVID contribution to our backlog, which peaked at 11% early in 2021 is now approximately 6%.

Speaker 3

Okay. Let's turn to the balance sheet. As of June 30, cash and cash equivalents totaled $1,428,000,000 and gross debt was $12,767,000,000 resulting in net debt of $11,339,000,000 Our net leverage ratio as of June 30 was 3.58x trailing 12 month adjusted EBITDA. 2nd Q4 cash flow from operations was $329,000,000 and CapEx was $161,000,000 resulting in free cash flow of $168,000,000 for the quarter. Now this was somewhat lower than prior quarters and it mainly reflected The timing of cash collections, which we expect to normalize in the second half.

Speaker 3

You saw in the quarter that we Quite active in the market, repurchasing $590,000,000 of our shares and this puts our year to date share repurchase activity at just shy of $1,000,000,000 This leaves us with slightly over $1,500,000,000 of share repurchase authorization remaining under the current program. Okay. Moving to guidance. Our full year 2022 revenue expectation at constant currency remains unchanged. On a reported basis, the strengthening of the dollar since April has caused an incremental full year revenue headwind from foreign currency A translation of approximately $125,000,000 based on rates as of this Monday, July 18.

Speaker 3

We're updating our revenue guidance to reflect this. For the full year, we now expect revenue to be between $14,400,000,000

Speaker 2

$14,550,000,000

Speaker 3

which represents year over year growth of 7.4% to 8.5% at constant currency And 3.8% to 4.9% at actual FX rates. Now as a reminder, this equates to low to mid teens organic growth at constant currency excluding COBRA related work. Our projected revenue growth includes just over 150 basis points of contribution from M and A.

Speaker 2

Since FX fluctuations have had

Speaker 3

a minimal impact on Our profit or adjusted EBITDA guidance remains unchanged. We are tightening the guidance range to be between 3,340 $5,000,000 $3,395,000,000 which represents year over year growth of 10.7% to 12.3% And our adjusted diluted EPS guidance also remains unchanged. We are tightening the range here

Speaker 2

to between

Speaker 3

$10 $10.20 which translates to year over year growth at 10.7% to 13%. Our full year 2022 guidance assumes that foreign currency rates as of July 18 continue for the balance of the year. Since issuing our initial guidance at our analyst and investor conference in November, FX fluctuations have caused full year revenue headwind revenue to be between $3,515,000,000 $3,565,000,000 or growth of 8.4% to 9.8% on a constant currency basis and 3.7% to 5.1% on a reported basis. Excluding COVID related work, we expect organic revenue growth at constant currency to be in the low to mid teens in the 3rd quarter. Adjusted EBITDA is expected to be between $805,000,000 $820,000,000 up 10.6% to 12.6 percent in adjusted diluted EPS is expected to be between $2.34 2 point 0 point 42 dollars growing 7.8% to 11.5%.

Speaker 3

So to summarize, we delivered a very strong 2nd quarter, our base business delivered mid teens organic growth at constant currency, excluding COVID related work. Our R and Ds business had another strong bookings quarter with over $2,600,000,000 of net new business. Contracted backlog at the end of the quarter is at a new record of $25,600,000,000 up Over 7% year over year. We repurchased nearly $600,000,000 of our shares while maintaining our net leverage ratio of approximately 3.6 Trailing 12 month adjusted EBITDA. And finally, we adjusted our revenue guidance to reflect changes in foreign exchange that held our earnings guidance unchanged.

Speaker 3

And with that, let me turn it back over to our operator for Q and A.

Operator

Thank you. We request that you please limit yourself to just one question so that others in the queue may participate as well. We'll pause for just a moment to compile the Q and A roster. Our first question comes from Sandy Draper from Guggenheim. Please go ahead.

Operator

Your line is open.

Speaker 4

Thanks very much and congratulations On a solid quarter in a tough environment. I guess I'm actually going to let other people ask about R and D Solutions. I'm sure there'll be a lot of questions there. But my question Ari and Ron is on the TAS side. As we're not out of COVID, but certainly getting further past it and sort of trying to act In a more normal way.

Speaker 4

Have either buying patterns or what people are focused on changed at all? So was there sort of A certain focus during COVID of these are short term tech solutions we need because trials are being shut down or whatever it is. We can't get salespeople Into doctors' offices, but as we're coming out, is that the general trends persisting or are you seeing any shift in refocus on New areas on the tech side. Thanks.

Speaker 2

Yes. Thank you, Sandy, and good morning to you. I I'm going to stop answering your question, but simply saying there is absolutely none of those concerns. We haven't seen any of that. We're very pleased with the continued growth of our TAS business really across the board.

Speaker 2

And you know that We like to think of our business in 3 buckets, the high growth ones, which is real world and technology. And that represents, Mike, we're going to say about 40%, 45% of the total. And that's experiencing continued growth, hasn't abetted during COVID at all And continues to sell us through to sell through at the same pace. Then we have the Kind of labor based consulting, primary market research, analytics business Which grows mid to high single digits and has been very strong through COVID and continues to be strong Essentially on the same page, and that's about 25% or so. 25% approximately.

Speaker 2

So the last balance, the 30% It's basically our historic IMS data business and that's kind of flattish To up 1% or 2% quarter in, quarter out. And that also has been essentially flat In terms of its growth and through the COVID crisis. So as Ron mentioned, Organic constant currency revenue growth for TAS, excluding COVID, It was 10% in the quarter and also 10% for the first half. So again, Really, we're not seeing anything at all that's changed versus the pandemic peak or before the pandemic peak, Continued strong momentum. Thank you, Sandeep.

Operator

Our next question comes from Eric Coldwell from Baird, please go ahead. Your line is open.

Speaker 5

Thank you. Good morning. Wanted to hit on capital structure. With the comments, Obvious comments about looking at the potential for a recession, rising interest rates, etcetera. A number of companies have changed their capital allocation and capital structure strategies, I'm curious if you could talk about what you're doing on those fronts, maybe discuss any terms, maturities or issues with The various fixation instruments you have on your variable rate debt, because I do believe the majority of your debt is effectively fixed at this point.

Speaker 5

And then what is embedded in your interest rate assumptions for the year? And how much has 2020 2 guidance in total been impacted from your first guidance to current guidance in relation to the interest rate increases That we've seen so far. I know that's a lot, but

Speaker 2

No, it's I wouldn't expect less from you, Eric. You That's one question and you managed to pack 10 questions in one. So I think it's obviously a timing.

Speaker 1

I think it's a topic of timing. I think it's a topic of timing. I think it's a

Speaker 6

topic of

Speaker 2

It's a topical question, obviously. And you can imagine, we are looking at the broader environment, the rate. You saw the ECB About 50 basis points this morning, and we do have some euro debt, as you know. Obviously, look, there is a point at which those changes cross certain thresholds, and it does have an impact On our capital structure and we are modeling all of those and making different scenarios as How we will change or not our capital allocation strategy. For now, it remains what it was.

Speaker 2

I'm going to ask Ron To give you more detail, I'll address the specifics of your question.

Speaker 3

Yes. Yes. To your specific question, I think you had asked about our In essence about whether our debt and how much of our debt is fixed rate versus variable rate, so how much is affected going forward. And I know this is of interest to the group in any event. About 45% of our debt is fixed rate, just shy of 60% is fixed with Well, we did have a euro floor that fixed even more of our debt up until recently, but we're about At the floor now with the recent ECB decision.

Speaker 3

So up

Speaker 2

to today, it was like 75% 75% 70% fixed.

Speaker 3

But going forward, it will be more like a shy of 60% fixed. And you had asked about what does Our guidance assume and we pretty much followed what the market consensus is there about in the U. S. About assuming a couple of 75 basis point increases in the U. S.

Speaker 3

In July September and 25 basis Point increases in the Q4, two times. And for the euro, we have a series of increases, Smaller increases assumed out through the balance of the year totaling Over just slightly over 100 basis points baked into our numbers. And that's pretty much in line with The market consensus right now. Now you asked also about how much has interest expense, The increase in rates affected our interest expense assumptions since November, I guess, when we put our initial guidance out. I'll have to go back and look at that.

Speaker 3

It's obviously had an impact, not so much in the first half of the year, but more in the second half of the year, Obviously, as the rate increases or the pace of rate increases has been kind of back end loaded in the year, We'll have to come back with an answer to that unless Nick has this handy.

Speaker 1

Yes, I mean, right now we're thinking at Somewhere between $50,000,000 to $75,000,000 is what we're seeing on interest. But you've seen that we've been able to hold the EPS number. So we've had Some favorability in terms of our assumptions on share count and all of that below the line that it's kind of helped us manage that a little bit better.

Operator

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

Speaker 7

Hi, guys. Thanks so much for the question. One so just 2 maybe I'll take Eric's and have a combined combo. 1, if you could talk about the assumptions regarding China specifically and your embedded in your 3Q guidance? And then 4, looking at the guidance that you gave for 3Q, it implies a nice EBITDA step in the Q4.

Speaker 7

And you guys obviously did a nice job managing the SG and A line, in particular this quarter. So I just wanted to understand there if There was something specific to call out that was driving sort of that step up in EBITDA there or what's the explanation there? Thanks.

Speaker 2

Yes. Well, thanks, Elizabeth. These are 2 very distinct questions. So let me just start with the second one, the 4th quarter. Look, 4th quarter, there's some level of seasonality in our business historically has always been the case both on the commercial side And on the clinical side, and the 4th quarter traditionally is always the strongest one.

Speaker 2

You Specifically alluding to EBITDA, and I would point that if you go back and look in general, our margins In the Q4 are higher than, let's say, sequentially in the Q3, for example. And in general, it's about a point higher, Maybe a little less than that, maybe a little bit more than that depending on the years. And that is because on the commercial side, it's the end of the year, A lot of the budget tends to be spent and a lot of purchases get done last minute. And obviously, both our clients Wanna do that before they close the year. And our sales force pushes, as always, to make the quarter and so on and so forth for more Sales at the end of the quarter and at the end of the year, so that's kind of momentum on the commercial side, whether it's data or analytics Well, just across the board on our commercial portfolio.

Speaker 2

On the so that's always the case year in, year out. And this year, it's true, looks a little bit stronger than might have been the case in prior years, but it's not inconsistent. On the clinical side, it's all driven by the execution of the backlog and when and how it converts. So that's really we do a roll up project by project of when we anticipate the work will be done and Cost incurred and revenue recognized and we do that bottom up and that's where it comes out. Again, in general, 4th quarter tends to be stronger in the clinical side as well historically and that is Probably because people want to try to execute the work before the end of the year.

Speaker 2

So that's again not unusual, agree That's sequentially a bit more than prior years, but again nothing inconsistent. Ram, you want to say something?

Speaker 3

Yes. Just to answer your question on China and the impact there. Modest impact In Q2, we're assuming continued modest impact in Q3, mainly around our lab business and clinical trials as Not all the sites are open in areas where there are shutdowns or restrictions. The only caution I would say there is just that None of us knows exactly what's going to happen in China, where future lockdowns might happen and so forth. But right now, we're not expecting a big impact.

Speaker 2

I mean, as it was, Matt, on China, I'll bear in mind, it's less than 3% of our total revenue. We have a strong presence there relative our competitors, we are doing very well. On the clinical side is where the impact is. Remember, on the commercial side, we have exactly zero impact From the lockdown, that was the case during the pandemic at the peak of it and it continues to be the case today. On the clinical side, obviously, the issue is accessing sites and when it's closed, it's closed.

Speaker 2

But we have learned During the pandemic, how to work with that and to do remote visits, etcetera. And so far, I think the impact From China lockdowns, which have been extensive, as you know, in Shanghai and Tianjin and some other areas, We have been able to manage through that and whatever financial impact was essentially absorbed in our numbers. Thank you, Elizabeth.

Operator

Our next question comes from Derik De Bruin from Bank of America. Please go ahead. Your line is open.

Speaker 6

Hi, good morning. Thank you for taking my question. I've gotten a bunch of questions from investors and along the lines. I think people appreciate that the RD and S business is very resilient during the past recessions. You're absolutely right.

Speaker 6

I mean, having done the Quintiles IPO, I remember the growth rates back then. I have a question, I've gotten some on the TAS business And just like how that goes, particularly on the consulting side of the business, and any sort of potential impact from recession there? Thank you.

Speaker 2

Yes. Well, thank you for your question. Look, the resilience that's obvious on the clinical side and It's borne by the history, the long term history, as I mentioned in my introductory remarks. On the commercial side, You are correct. I mean, I guess, you pointed to consulting because consulting is usually the most discretionary type of spending that our clients.

Speaker 2

So far, not one I would say not one noise, not one Nothing. We are looking I am asking every day what is going on in the business in every aspect of it. And I can tell you there is no indication whatsoever that somehow people are purchasing their budgets on the commercial side. Bear in mind, the last big recession we had along with the housing crisis in the end of the like 2008, 'nineteen 'ten, The commercial business was affected really by different factors. There were very large pharma consolidations.

Speaker 2

On the commercial side, when you have a large pharma merger, where you go from 2 clients to 1 client, so that automatically affects your revenues. Not so much on the clinical side. Generally, if you are in the 2 pharma companies that merge all in the same therapy, The authorities want to let you merge. And generally, When pharma merged, they have complementary therapies and clinical trials continue. So yes, those large that pharma consolidation wave that took place at that time, a lot of it driven by tax considerations, Affected our commercial business, we're not seeing any of that so far.

Speaker 2

Secondly, there was a unique phenomenon then, which was that there was an unusual Large number of patent expiries and those LOEs were sort of accelerating in the 2008 to 2012 timeframe. There was a so called patent cliff and that was coupled with an unusually low number of New product approvals. The pharma commercial business is largely driven by the net of new approvals Versus patent or loss of exclusivity. And usually, that's a net positive. And at that time, there were these unusual circumstances where we had a trough in new approvals and a peak In loss of exclusivity, and that was a reverse trend.

Speaker 2

But today, we don't see that. We know the pipeline. We know the Molecules in the pipe that are supposed to be approved and the expiries and so on. And we see none of that anytime soon. So we're not concerned and we feel that the commercial business is fairly well insulated as well.

Speaker 2

Thank you.

Operator

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

Speaker 6

Hi, thanks. Good morning. Thanks for taking my question. Ari, You've touched on China and Ukraine very effectively. You've seen the R and D We're gating through that really, really well.

Speaker 6

Some of the things that we've heard are that in addition to those acute issues in certain parts of the world that we have Kind of general staff burnout like we have in the broader healthcare system that sites are overwhelmed and site level turnover and things

Speaker 1

like that are affecting the

Speaker 6

capacity of the site, The capacity of the site network that you might be using, I wondered if again, you guys seem to be navigating that And so I wondered if you could talk to how you are supporting the sites to be able to continue to get your trials Processed in an environment where the global capacity for sites is somewhat affected?

Speaker 2

Yes. And I assume you mean globally, not just Russia, Ukraine. Yes. I mean, look, Russia, Ukraine, the first part of your question, we addressed that, As you said quite effectively, that doesn't mean that it was easy or that it didn't consume an enormous amount of management attention And work. But thankfully, we're able to reallocate resources and clinical work to other Now this itself does not add incrementally to the existing burden of the existing size.

Speaker 2

Your second point is more I think it's extremely valid. It is true. We have A lot of work to execute. I've mentioned many times that this is our single most important operational challenge, and that is execution, And that requires people and people recruiting, retention and development is our single most important operational Challenge in the current environment. I think I've mentioned before and I see the trend continuing, the high attrition levels we've seen Somewhat plateauing and diminishing.

Speaker 2

That may have something to do with perhaps a more recessionary environment and people are less likely to Jump ship. Also, they have to do with the fact that we really have a strong book of business and we are hopefully, I want to believe a exciting work environment and more exciting companies to be part of. So we're doing our part to try to retain our people. The sites themselves, I think we are not seeing I mean, I'm sure if you ask specific individuals, say, yes, I burnt out. We are asking people to work More and to be more productive and so on, yes.

Speaker 2

But again, that's just the nature Of the type of work that we do, we're not seeing any execution difficulties As a result of people being burnt out, we're not. When people are burned out, they either quit or they have to be allocated to Something else, and that's what we try to do. We've always tried to prioritize the well-being of our employees. And during the pandemic that has accelerated, I think I may or may not have mentioned this before, but even From myself on Dan was we've got we've had a dramatic change in tone and how we address Issues with employees, work flexibility, we do live in a different environment where The considerations for employees and valued employees and skilled employees to remain in the company Involve more than just work and compensation. And so we are doing our part To address that, I mean, we will be 90,000 plus people by the end of the year, And we continue to hire I mean, I think this year, we will have hired by the end of the year more than 25,000 people Just to replace attrition and to support the growth, we are really A hiring machine.

Speaker 2

We've dramatically improved the level of sophistication Of our human resource management functions around the world and the type of analytics and Artificial intelligence tools we use to track our employees' Workload and are really very unprecedented. So it is an issue, we are managing it. You wanted to add something, Mike?

Speaker 1

Yes. I think, Dave, just on the color on the sites, I think one thing that we've seen is sites engaging with our on-site Support offering we have within RDS. So they're reaching out to us to try to assist them. So I'm not going to comment say our site burned out or But clearly, they have a lot of work to do, and we're providing a service to help them execute that work, which is great.

Operator

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

Speaker 6

Thank you. Good morning. Ari, I was hoping you could share more perspective on the R and D environment, just given your RFP commentary. Just Looking back, we had 2 banner years of funding in 2020 2021. Things have obviously slowed down here in the public markets in 2022.

Speaker 6

As you look at the things you're bidding on now, do you have a sense for when they were funded? I guess I'm just trying to get a sense for where you think we are Kind of in this funding cycle and it's showing up for late stage work.

Speaker 2

Okay. Well, thank you. Good morning. This is obviously a good question. Again, I mentioned before for the commercial side, I do the same on I am almost daily asking a number of people to monitor activity.

Speaker 2

Again, I wouldn't be saying this if I I will assume the level of confidence that so far, up to late last night, I can assure you there simply is no sign That

Speaker 8

the pipeline,

Speaker 2

very early indicators is slowing down. The RFP volume is slowing down and it is across the board in every segment that the The Q2 was another quarter of record bookings. I can tell you, I think the awards The timing was the 2nd highest quarter ever. So we're just not seeing it. I know there are concerns and it is true that the volume of funding has gone down.

Speaker 2

It's just not Translating into a slowdown in either the strength and growth of our pipeline Has never been as large, record growth and volume, both dollars and numbers Or the RFP volume or the awards or the bookings. Now You are asking a very, very pertinent question, which is the clients, whether EBP, midsize, large pharma, who are Requesting proposals or who are in the pipeline. When did they get their funding? And you are absolutely correct. It takes Maybe 3 years, I'm going to say, before the funding raised today is actually spent In it's actually spent.

Speaker 2

So a lot of what is going to be disbursed by these companies that have booked With whom we booked business this quarter, this cash that was raised in prior periods. So you want to try to say, well, Funding is low now and therefore 2 years, 3 years from now, maybe bookings should go down. Since that's just not the experience historically, again, our business is not dependent On secondary public offerings from pre commercial EVPs, it's just not. And secondly, a lot of things are going to happen over the next few years. That's the benefit of scale.

Speaker 2

Remember, we are all over the world. We have the largest volume of business of Any CRO in the world, we're not exposed to 1 client, 2 clients, 10 clients, a segment, another segment, a geography, another geography. At any given point in time, we are working on well over 2,500 trials. I mean, we are a big ship and like every big ship, it's very hard. We're not going to you're not going to see from us 50% growth in a quarter.

Speaker 2

But on the other hand, the converse is also never going to happen. I mean, we are a very big ship. And these disturbances in a long cycle business do not affect the direction of our business. Any other comments you want to make?

Speaker 6

Thank you, David. Next question?

Operator

Our next question comes from Shlomo Rosenbaum from Stifel. Please go ahead. Your line is open.

Speaker 5

Hi. This is Adam on for Shlomo.

Speaker 1

What was the difference in FX headwind 2022, the company is facing today versus what we're expecting on the Q1 earnings call? It was $125,000,000 of the FX headwind on revenue on the full year versus what we guided in April. The guidance, you mean

Speaker 2

the second half? What is the question?

Speaker 1

Yes. What was the FX headwind? So the FX headwind on our full year guidance was $125,000,000 90 basis points worse than last quarter.

Operator

Our next question comes from Tejas Savant from Morgan Stanley. Please go ahead. Your line is open.

Speaker 8

Hey, Ari, good morning. Just couple of quick follow ups here, and apologies for beating the R and D backlog to death here again. But We've heard some estimates of up to a third of these pre commercial companies possibly needing to raise capital at some point in 'twenty three. Does that sort of at the margin change your calculus at all in terms of who you choose

Speaker 6

to work with on a go forward basis?

Speaker 8

Or do you have perhaps Higher risk adjustment triggers to your backlog as some of these companies get closer to meeting a funding raise? And then if you could also comment separately on the M and A landscape and how you're sort of thinking about that. I know last quarter you'd Sort of repos being the near term priority, but just curious as to your take on asset valuations.

Speaker 2

Well, okay, Stefan, thank you very much and good morning. Look, again, your question on the On the pre commercial EVPs needing more funding and having issues is a Good theoretical question and correct one for the industry. We're just not exposed to those folks. We have very little of our backlog that's That's with pre commercial EVPs. Those pre commercial EVPs have been carefully vetted because that's our process Long predating the current decline in biotech funding, we never Take on a molecule that doesn't have very solid science behind it that our scientific Experts have vetted and believe in that in and of itself is a guarantee that the Science will be developed and that the clinical trials will go on independently of the funding because worst case scenario, That science will be purchased by large pharma.

Speaker 2

You're seeing it today. You're seeing a number of large pharma Companies buying out 3 commercial EVPs because those 3 commercial EVPs may be running into funding issues, but the science is good. Therefore, the trial will continue no matter what. So that's number 1. Number 2, we are not going to take into our backlog A company that doesn't have funding.

Speaker 2

It just doesn't happen for us. We do a thorough financial vetting Of the project before we put into our backlog. So we don't have that exposure. Our business model is different than perhaps Some other smaller CROs that essentially team up with 3 commercial EDPs and go around to raise funding. And they put that in the backlog.

Speaker 2

We don't do that. So this is the reason why we're not seeing anything different to, Again, neither the pipeline nor the RFP volume, nor the awards, nor the bookings. Again, I mean, I've got a few of numbers. I'm looking at a very fine level of granularity here. Look at Oncology, if we look at our qualified pipeline, which is actually the with a very, very fine comp, Oncology pipeline, which there are lots of pre commercial EBTs.

Speaker 2

And that's I'm speaking about the qualified pipeline that's really, really high probability. It's up in the quarter 17%, 1.7% year over year. If you look at internal medicine, there's a lot of rare disease 14% up, the qualified pipeline. You look at the pipeline in general for EBP, The pipeline is 18% up year over year in the quarter. I mean, I'm looking at numbers that are literally record numbers, both in growth and in dollars and in volume.

Speaker 2

So I wouldn't be speaking confidently if I didn't have any numbers. I could tomorrow could I wake up tomorrow and the world is falling apart? I don't know. That's If I believe that, I wouldn't cross the street. I'm looking at numbers.

Speaker 2

The rest is

Speaker 8

It was on M and A and just prioritizing vis a vis repos. Thank you, Ari.

Speaker 2

Yes, yes, yes. M and A. Well, as you saw, we purchased almost $1,000,000,000 in the first half of the year And of shares, we did very little lemonade, not because we didn't want to. At any given point in time, we've always had a lot, I mean lots, hundreds of potential acquisitions, Small, mid, large, and that's our job. We've got corporate development activities.

Speaker 2

We rarely execute on those, Whether it's for strategic reasons or for financial reasons, sometimes, as you said, Valuations have been a little bit out of whack. It always takes time for those valuation expectations to come down And adjust to public market valuations and the environment, I think we're seeing a little bit more of that. So perhaps We will have more opportunities to execute in the second half. I just don't know. Acquisitions are binary.

Speaker 2

But we don't have the acquisition makes sense. It fits in our strategy. And there's nothing big here or out of whack Anything that we've done in the past, you know what we do. We're very disciplined. And if it fits in our strategy on the commercial side or the clinical side, then We'll go ahead and do it if the valuation makes sense.

Speaker 2

Thank you for your question.

Operator

Our last question will come from John Sauerbeer from UBS. John Sauerbeer from UBS, your line is open.

Speaker 6

Hi. Can you hear me?

Speaker 2

Yes. Yes, we can hear you.

Speaker 6

Great. So I know it's a little early to comment on the 'twenty three guidance. You think about the headlines from biotech funding and then on the other hand, the company has $1,000,000,000 in COVID RDS headwinds this year, potentially easing comps for next year. Do you think that the 'twenty three RDS growth is going to be in line with that long term low double digit guidance that was provided last year at the Investor Day?

Speaker 2

Okay. Let me give you 23 guidance. I'm just kidding. I don't know. It's a little bit early.

Speaker 2

And as we discussed over the course of the past hour, there are lots of macro Dynamics and so on and so forth, we're not going to start venturing. There is basically nothing different today From what we told you at the end of last year, in the underlying dynamics and fundamentals of our business, Strategically or operationally, what's changed is the financial environment and the Dynamics of risk because of Russia and Ukraine, because of the energy prices and so on and so forth. But That doesn't affect, as we said over and over again, the underlying dynamics and fundamentals of our business. And as I see here today, Those are the same as they were when we gave you long term guidance back in November. Thank you for your question.

Operator

We are out of time for questions today. Mr. Childs, I turn the call back over to you.

Speaker 1

Okay. Thank you, everyone, for joining us today. We look forward to talking to you after the call and on our next call in the at the end of the Q3. So if anyone has any other follow-up questions, we'll be happy to take them. Thank you all for joining.

Operator

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

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