ICON Public Limited Company (ICLR) CEO Steve Cutler on Q4 2021 Results - Earnings Call Transcript

Feb. 22, 2022 1:16 PM ETICON Public Limited Company (ICLR)
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ICON Public Limited Company (NASDAQ:ICLR) Q4 2021 Earnings Conference Call February 22, 2022 9:00 AM ET

Company Participants

Steve Cutler – Chief Executive Officer

Brendan Brennan – Chief Financial Officer

Kate Haven – Vice President Investor Relations

Conference Call Participants

Eric Coldwell – Baird

John Kreger – William Blair

Kevin Casey – JPMorgan

Elizabeth Anderson – Evercore

David Windley – Jefferies

Patrick Donnelly – Citi

Jack Meehan – Nephron Research

Dan Leonard – Wells Fargo

Luke Sergott – Barclays

Derik De Bruin – Bank of America

Operator

Good day and thank you for standing by, welcome to the ICON Plc, Fourth Quarter results 2021 conference call. At this time, all participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Kate Haven, please go ahead.

Kate Haven

Good day ladies and gentlemen. Thank you for joining us on this call covering the quarter and full year ended December 31, 2021. Also on the call today, we have our CEO Dr. Steve Cutler, and our CFO, Mr. Brendan Brennan. I would like to note that this call is webcast and that there are slides available to download on our website to accompany today's call. Certain statements in today's call will be forward-looking statements. These statements are based on management's current expectations and information currently available, including current economic and industry conditions.

Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company's business and listeners are cautioned that forward-looking statements are not guaranteed the future performance. Forward-looking statements are only as of the date they are made, and we do not undertake any obligation to update publicly any forward-looking statements either as a result of new information, future events, or otherwise. More information about the risks and uncertainties related to these forward-looking statements may be found in SEC reports filed by the company. This presentation includes selected non-GAAP financial measures, which Steve and Brendan will be referencing in their prepared remarks. For a presentation of the most directly comparable GAAP financial measures, please refer to the press release statement headed Condensed Consolidated Statements of Operations.

While non-GAAP financial measures are not superior to or a substitute for the comparable GAAP measures, we believe certain non-GAAP information is more useful to investors for historical comparison purposes. We will be limiting the call today to one hour, and we therefore, ask participants to keep their questions to one each with an opportunity to ask one related follow-up question. I would now like to hand over the call to our CFO, Mr. Brendan Brennan.

Brendan Brennan

Thank you, Kate. In quarter four, ICON achieved gross business wins of $2.79 billion and recorded $413 million worth of cancellations. Consequently, net awards in the quarter were $2.38 billion, resulting in a net book-to-bill of 1.26x. Full-year 2021 gross business wins were $8.12 billion and cancellations were $1.16 billion, resulting in net business wins of $6.96 billion on a net book-to-bill of 1.27x. With the addition of the new awards in quarter four, our backlog grew to a record $19.1 billion, representing an increase of 2.6% on Q3 2021, or an increase of 9.5% year-over-year on a combined company basis. Included in the press release are earnings slides, you will note a reconciliation of non-GAAP measures.

Adjusted EBITDA excludes stock compensation expense, restructuring costs, foreign currency gains and losses, amortization, and transaction-related costs, and their respective tax benefits. Adjusted revenue in quarter four was $1 billion, $881 million, this represents a year-on-year increase of a 147.4% or 148.7% on a constant currency basis. On our combined company basis, adjusted revenue increased 15.1% from the comparable period last year. For full-year revenue, the number was $5 billion, $481 million.

This represents a year-on-year increase of 95.9% or 94.5% on a constant currency basis. On a combined company basis, adjusted revenue increased 24.8% from 2020. We continue to see an improvement in our top 25 customer concentration in the fourth quarter. Our top customer represented 8.5% of revenue, and our top five customers represented 28.3% of revenue. Our top 10 represented 41.4%, while our top 25 represented 61.4%.

In the full-year 2021, our top customer represented 8% of revenue, and our top five customers represented 31.6% of revenue. Our top ten represented 45.3%, while our top 25 represented 65%. Adjusted gross margin for the quarter was 28.1%, compared to 27.9% Quarter 3, full-year adjusted gross margin was 27.9%. Adjusted EBITDA was $333 million for the quarter, or 17.7% of revenue. In the comparable period last year on a combined company basis, adjusted EBITDA was $295 million or 18.1% of revenue. This represents a year-on-year increase of 12.7%. On a combined company basis, full-year 2021 adjusted EBITDA was one billion $1,248 million or 16.7%.

This compares to adjusted EBITDA of $996 million for the full-year 2020 or 16.7% of revenue, representing an increase of 205.3% year on year. Adjusted operating income for the quarter four was $308 million, a margin of 16.4%. The adjusted net interest expense was $44.3 million for the quarter and the adjusted effective tax rate was 17% for the quarter. As noted earlier this year, we expect the full-year 2022 adjusted tax rate to be approximately 16.5%. Adjusted net income attributable to the group for the quarter was $218 million, a margin of 11.6% equating to diluted earnings per share of $2.63, an increase of 25% year-over-year.

Full year adjusted net income attributable to the group was $666 million. During the quarter, the Company recognized GAAP revenue of $1.885 billion, and $5.481 billion of GAAP revenue in the full-year 2021. In the fourth quarter, the Company recorded $16 million of transaction and integration-related costs. Full-year transaction and integration-related costs were $198.3 million. U.S. GAAP income from operations amounted to $144.5 million, or 7.7% of revenue during the quarter four.

Full-year U.S. GAAP income from operations amounted to $378.5 million. U.S. GAAP net income attributable to the group for the quarter four was $76.5 million, or $0.92 per diluted share, compared to $1.90 per share for the equivalent prior-year period. Full-year U.S. GAAP net income attributable to the growth was $153.2 million or $2.25 per diluted share. Net accounts receivable, was $642 million at December 2021, this compares with a net accounts receivable balance of $540 million at the 30th of September 2021. On a GAAP comparative basis, days sales outstanding were 31 days at December 21st, 2021 as compared to 26 days’ sales outstanding at September 30th, 2021.

And this also compares to 57 days at the end of December 2020. Cash generation from operating activities in the quarter was $219 million. At December 31st, 2021, the company had a gross cash balance, of $754 million and debt of $5.436 billion, leaving a net debt position of $4.682 billion. This compared to a net debt of $4.918 billion at September 30, 2021, and net cash of $494 million at December 31, 2020. Capital expenditure during the quarter was $47.7 million driven by spend associated with IT infrastructure and systems, as well as additional investments in our facilities and laboratories.

We ended the year with a perform of a net debt to trailing 12-month adjusted EBITDA ratio of 3.4 times. The priority for capital deployment remains on debt pay down in the near term. Given our strong cash flow generation, we reiterate our target of exiting 2022 below three times adjusted EBITDA well ahead of the initial target we set in 2021. In addition, our Board of Directors authorized the share repurchase program up to $100 million, which we intend to deploy opportunistically beginning this quarter. And with all of that said, I'd now like to hand over the call to Steve.

Steve Cutler

Thank you, Brendan, and good day, everyone. 2021 was an outstanding year for ICON. Over the course of the year, we completed a transformational acquisition, doubling scale of the organization, and creating a world leading health care intelligence and clinical research organization. Our employees expertly navigated the challenges of the ongoing pandemic, deploying innovative solutions to ensure clinical trials were able to continue and patients received life-saving treatments despite continued impact to site and patient and access.

We delivered on our mission to accelerate the development of customers ' drugs and devices by providing support on 30 new drug approvals in 2021 in areas such as liver disease, schizophrenia, a range of cancers, and, of course, infectious disease. I'm incredibly proud of the role the ICON team has played in the fight against COVID and the development of these critical vaccines and therapies. The overall environment in clinical development throughout 2021 was robust as biopharma development spending continued to grow, and biotech funding activity was near the record levels seen in 2020. Scientific advancements in areas such as mRNA techniques in vaccines, and cell and gene therapies present new opportunities to develop novel drugs that could have a major impact on potential treatments for a variety of diseases.

Customers are increasingly turning to CROs as partners, not just providers, to aid in the development of these complex, groundbreaking therapies. RFP volume continue to be strong through the year, increasing low double-digits on a year-over-year basis for the quarter and full year 2021. While biotech funding levels were down from a record year in 2020, we have not seen this negatively affect overall demand in the small Biopharma customer segment. In fact, in quarter four, we saw a particular strength in RFP activity in the small and mid-sized Biopharma segments, as strong cash positions continue to drive demand for best-in-class development.

We were very pleased to see our top 25 customer concentration decrease sequentially in the fourth quarter, as well as from a full-year perspective, attributable to the new ICON combination. At a high level, our overall customer mix is well balanced with approximately half of revenue attributable to large Biopharma, and 45% attributable to small and mid-sized Biopharma companies. Within this segment, companies that have less than $100 million in annual R&D spend represented a mid-teen percentage of our overall revenue in 2021.

This percentage will vary on a quarterly basis, and I would add that we haven't seen any issues or concerns related to cash collections, or rising bad debts in this customer subset. Our engagement with customers on a strategic level has continued to show positive progress. ICON 's offering of integrated and innovative solutions appeals to Biopharma customers, large and small, and across different modalities of development from functional to full-service. Our success in creating enduring customers -- strategic customer partnerships with strong delivery for our customers, has led to further opportunity to expand the existing relationships, as well as open the door to new partnerships.

As new ICON, we can be even more of a strategic partner to our customers. With the unique resources, world-class talent, and differentiated solutions we offer. I'm delighted to report that we secured an agreement with a large pharma partner during the quarter, expanding our existing relationship across a number of services and further validating the strategic merits of the new ICON organization. During the quarter, ICON increased net business wins to a record $2.38 billion, delivering a quarterly book-to-bill of $1.26 billion and growing our backlog to $19.1 billion, an increase of approximately 3% over quarter 3, 2021, and approximately 10% year-over-year on a combined company basis.

We believe our backlog is a robust figure based on contracted and awarded work, with a conservative but realistic assessment of associated pass-through costs. New award activity was strong across several operating segments. On a combined Company basis, full-year 2021 revenue and adjusted EBITDA increased an impressive 25% year-over-year, hitting the midpoint of our guidance ranges for revenue and adjusted EPS for the year. Our backlog burn for the quarter remained over 10%. Cash collection efforts continued to be strong, with a DSO of 31 days down from 57 days on a comparable basis from December 31, 2020.

As a result, I'm happy to report that these efforts allowed us to make a $500 million payment on our term loan B facility at the end of the year, reducing our leverage to 3.4 times adjusted EBITDA, including synergies exiting 2021. This puts us on track to exit 2022 with a leverage ratio of approximately 2.5 times adjusted EBITDA. We're pleased with the progress already made on our cost and revenue synergy goals. As announced earlier this year, we expect to reach a run rate of approximately 50% of our $150 million cost synergy target, or $75 million exiting this year.

From our revenue synergy perspective, our target of a $100 million by 2024 remains unchanged. Our cross-sell award activity has been strong, particularly in awards for central and specialty labs, the Accellacare site network imaging, and early phase services. Our integration process continues well with notable achievements, in the first six months as a combined organization. We have completed over 30 facility integrations across our sites, unifying our workforce, and ensuring an efficient footprint across our organization as the pandemic restrictions start to ease.

Our technology and systems integration activity and planning is well underway, with a priority focus on enterprise-level systems in order to enable a uniform, unified, and engaged employee experience as soon as possible. Our global business support services model has started organization-wide implementation in areas such as finance, IT, and other administrative functions. In addition, we have rolled out our new brand campaign, highlighting the shared values of new ICON, and reflecting the best of both from the organizations we have brought together.

The priorities we set out at the start of the integration remain unchanged; delivering on time and budget for our customers, and ensuring a positive employee experience. To that end, we have increased our investments in internal initiatives to improve retention and attract the industry's best talent as we strive to become the employer of choice in the CRO industry. Indeed, we were pleased to be the only CRO included in the Forbes America's best large employers list for 2022. As the labor market continues to be highly competitive, we recognize the importance of continuing to invest in our employees and provide support in areas such as career development and training programs. With the increased scale of new ICON, we are excited by the expanded and diverse career opportunities that are available for our entire employee population.

As the COVID-19 pandemic continues on, we see areas of opportunity amidst the challenges that inevitably will remain. Alongside our Biopharma partners, ICON has played a key role in the ongoing development of COVID vaccines and therapies. We rose to the challenge of executing clinical trials in record timelines, starting up sites and recruiting patients with increased efficiency.

As site network was at the heart of many of these critical vaccine trials, displaying the strategic benefits, we can bring through our owned and partnered sites in the Accellacare network. It's all the peak of revenues related to COVID programs, occurring in the first half of 2021. As expected, the level of COVID world decreased further in quarter four to mid-single-digits as a percentage of total revenue as large vaccine trials gradually wide down and therapies made up a larger proportion of our contracted work.

End of quarter four, are backlog from COVID-related projects decreased further, representing approximately 5% of total backlog, which is down slightly from the end of the third quarter. Our expectation is that revenue attributable to COVID -related vaccines and therapies, will represent less than 5% of total revenue in 2022. This assumes we do not see a need for further large scale trials on new variants. We saw increase from continued resilience from site and staff through the Q4, despite the emergence of the omicron variant.

Although approximately 15% of sites remain restricted in some capacity due to COVID across the globe, a similar level to Q3. Innovation is valued in our industry and by our customers more than ever, as impacts from the global pandemic continue to be felt, and have necessitated a change in how we can best execute clinical trials. We're seeing solutions such as remote and risk-based monitoring deployed on the majority of clinical trial programs, and the number of hybrid drove initiated have increased significantly over the course of the last few years.

Our innovation priorities that I'm going to have focused on providing enhanced solutions, that address core customer needs. Faster access to diverse pricing groups and more efficient clinical development. As customers seek novel solutions, we have continued to invest in unique partnerships and expanded offerings to further our position as a leader in helping to transform clinical development. During the quarter, we announced an expansion of our Accellacare site network, entering the new partnerships with six research sites across four countries.

These new site partnerships further our strategy, of increasing the reach and capabilities of our site network, as well as expanding our therapeutic depth and expertise in the areas of CNS and immune diseases. With the addition of these new partnerships, our site network now stands at over 100 active locations across eight countries with access to over 9 million patients globally. This broad reach and increased resource has enabled us to realize increased efficiencies for our customers ' trials, including faster patient recruitment and Study Startup at ICON sites, versus industry averages.

In addition to the site network, we have made significant investments in our digital health platform, one of the key components of our Decentralized Clinical Trial offering. Now branded the ICON Digital Platform, or IDP, this platform builds upon our already strong pacing pricing mobile application and its integrated other key applications, such as e-consent, wearables data capture, and tele -health capabilities.

One of our critical differentiators, is our ability to integrate operational and functional expertise into our digital platform, allowing for customization and enhancements based on customer needs and our firsthand trial experience, while also providing a compelling, one-stop service that avoids the need to contract third-parties, thereby improving accountability while reducing risk and timelines for customers. Our role as a leader in successful decentralized trial execution was evidenced with a presentation of the chief heart failure trial results in Q4 in conjunction with the 2021 American Heart Association Conference.

This is the only published positive, fully decentralized drop that we have seen in the industry. This large randomized trial required a significant amount of innovative planning, design, implementation, and unique services to execute. This trial integrated several components of our DCT offering. The mobile health platform, including a smartphone app to enroll participants and collect data, direct-to-patient drug and device logistics.

A virtual coordinating center and wearable components. In addition to showing improvement in patient retention rights, trial results confirmed a dramatic increase in patient diversity, more than four times better than industry averages. I applaud the new ICON, saying that ran this program, alongside a key pharma partner, successfully implementing a new model of development in the middle of a global pandemic and enrolling patients with heart failure, which is one of the most challenging disease entities to treat. This is a great example of our innovative strategy in action, providing solutions to support patients and creating the opportunity for a more diverse patient population to participate in clinical research.

In addition to increasing patient diversity and inclusion in clinical trials, we have seen trials including decentralized components recognize other benefits, such as reduced data variability and more timely data capture with the utilization of digital health technologies and wearables. By leveraging our extensive resources, technology, and product development expertise, ICON is well positioned to partner with our customers to provide insights on their hybrid and de -centralize designs are likely to work well for sites and patients, and just as importantly, in what protocols they are unlikely to be successful.

Deploying decentralized solutions is not a one-size-fits-all approach, and every study needs to be evaluated by an experienced team to properly conduct this analysis. As this market continues to evolve, we see a consistent from our customers to find new ways of solving complex issues in their development programs. I know we can. we pride ourselves on our ability to take on our customers’ challenges as our own. We are committed to our investments innovation through talent, technologies, data, and analytics, as well as with noble partnerships, such as those with Deep Lens and Veradigm announced earlier this year to disrupt traditional product development.

We're excited by the opportunity in front of us to create a new paradigm for bringing clinical research for patients, and believe in the value of bringing shareholders, sites, customers, end purchase. With the strong performance in the fourth quarter and positive momentum coming into this year, we are reiterating our 2022 financial guidance of revenue in the range of $7.77 billion to $8.05 billion, representing growth of 42% to 47% over full-year 2021 revenue. And adjusted earnings per share guidance in the range of $11.55 million to $11.95 million, up 20% to 24% over full year 2021 adjusted earnings per share.

As we look beyond 2022, we continue to expect to deliver on the mid-term to long-term financial projections we announced a year ago, revenue growth in the mid to high single digits on a combined company basis, and adjusted EBITDA growth in the low teens, and EPS growth in the mid to high teens. We're looking forward to sharing more of our longer-term projections at our in-person Analyst Day which will be held on St. Patrick's Day, March 17, 2022, at our site in Blue Bell, Pennsylvania.

The event will be webcast from fleets of several members of ICON's leadership team, highlighting our strategic focus areas, including innovation and technology. Finally, I'm thrilled that our team's excellent performance in 2021 has resulted in several industry awards, including Scrip's best CRO award. And additionally, as mentioned previously, ICON was the only CRO to be recognized in Forbes, America's Best Large Employers list for 2022. Before moving to Q&A, I'd like to recognize and thank sincerely, all of the 38,000 ICON employees across the globe for their commitment and tireless efforts in the quarter and throughout 2021.

We look forward to continued success in 2022 as we build the world's leading health care intelligence organization and help shape the future of drug development. Operator, we're now ready for questions.

Brendan Brennan

Thank you.

Question-and-Answer Session

Operator

Thank you dear participants. We will now begin the Question-and-Answer session. [Operator Instructions]. The first question comes from the line of Eric Coldwell from Baird. Please ask your question.

Eric Coldwell

Thanks. Good morning. I just have one quick clarification and then a question. Steve, at the very end, I think you said, your midterm targets were for mid-to-high single-digit revenue CAGR. The slide deck says, high single-digit. I may have misheard you. I just want to -- I just want to get a clarification on that.

Steve Cutler

Checking. Mid to long term [Indiscernible] revenue growth mid-to-high single-digits on the long-term basis. Eric, on a revenue mid up to high single-digits.

Eric Coldwell

Okay. Thank you. And then on the client mix, I appreciate all the additional comments today. We have a group of companies in the space that all characterize and categorize their biotech mix and client mix quite differently. You gave some additional detail today talking about under $100 million of annual R&D spend. I was curious if you could maybe parse that just a bit further and talk about pre -commercial clients that don't have a marketed approved product, they are not generating their own revenue. I suspect that the slightly smaller subset of that sub-100 million R&D spend, but if you had any additional color would be great. Thank you.

Steve Cutler

Sure. So as what we outlined, we think of our small biotech’s as outside the top 75. And within that, that's about a third of our revenue, a third of our backlog and within that subset, although I was alluding to talking in my comments, about half of that group, we think of as being pretty revenue or capital market dependent, depending on how you look at it. So that would be -- we would look at ourselves as having about mid-teens. That's 15, 16% of our revenue and our backlog with that customer. as pre revenue customer. So we have a very modest exposure to that group. And quite frankly, we manage that very carefully in terms of getting credit checks on those customers.

We worked very hard to make sure our cash collections on those customers are ahead of our normal numbers. And we haven't seen any real concerns, in terms of bad debts or challenges with payment, any more than we would normally see. So we feel we manage that god -- that segment well. We feel we're in a good place with that good -- they are almost exclusively, extremely well-funded. The average cash on hand is in the two-year to three-year mark. So it's a signal market we feel comfortable with, Eric, in terms of dealing with them and in terms of working with them to build their portfolios or to help them with their portfolios and to prosecute their programs.

Eric Coldwell

And, Steve, I would assume that that mix, that 15% to 16%, is spread across at least several 100 clients if not even more than that. Give any sense?

Steve Cutler

Yeah, it would be in that range. Yes, it would be in that range. So several 100, yes. It's a large number of customers.

Brendan Brennan

Long-term. Yeah.

Steve Cutler

Long-term.

Eric Coldwell

Yeah. Very good. Thanks, guys. I appreciate it.

Steve Cutler

You're welcome.

Operator

Thank you. The next question comes from the line of John Kreger from William Blair. Please ask your question.

John Kreger

Steve with now a couple of quarters on you about -- of the sort of new ICON. It would be great if you'd be willing to sort of break down the business a little bit more. I'm curious how you'd characterize the traditional full-service business versus FSP, maybe the central lab? Cut it however you are willing. And if you think about the outlook for '22, are there any real kind of standouts across those various buckets? Thanks.

Steve Cutler

I mean, we're seeing -- I mean, we certainly saw in 2021 very strong growth. Really right across the segments of the business. John, full-service went well both in a large pharma context and in a biotech and small mid-size where we focus. Both those areas grew nicely. Our functional services group grew nicely as well and as did our specialty pharma. Specialty pharma includes our labs, early phase decentralized trials, light [Indiscernible], etc. So they all performed well from a annual growth point of view, We're seeing good interest and good RFP activity across those segments as well, whether it be Biotech, Large Pharma, probably Biotech is a little bit ahead of Large Pharma at the moment in terms of RFP opportunities and growth potential in the long term, FSP continues to be a backbone and is a strong performer for us.

Our lab business has done well. They won a good solid business in the -- over the last 12 months or so. Early phase, we've certainly based up in that space and we're a real player in that space that continues to be a real opportunity for us. Our Accellacare site network had a great year, as did our home health care and so, there weren't too many bad spots, there weren't to many areas of weakness in our business across 2021. And really we see -- we're very optimistic that is that continuing across the business going forward.

John Kreger

Great. Thank you. Quick follow-up, maybe staff hiring goals for '22 and how the turnover rate has been trending versus more historical norms in this tight labor market?

Steve Cutler

Yeah. There's no question. The labor market is tight. And I think that applies across all of our competitors and with our customers as well. Some of the biotech's in the large farmers, we all share -- we fish from the same pond, so to speak. And we're all finding some challenges in terms of making sure we attract and retain the right people. There are -- as always with our business, there are certain hot spots and certain spots that are probably okay. If you're looking for CRA is in North America, that's a hotspot at the moment. And we're working various ways of making sure we retain people, certainly attrition has gone up a little bit.

I think it's more related to the environment that we've been in, in terms of the capital in the markets to dollars available to develop drugs in the competition for that resource, more than any other [Indiscernible]. But there's -- it's certainly an area we continue to work on very hard and focus on very high. But we have a number of plans in place. We're seeing, I think, some improvement over the last couple of months. We've seen retention improve. And as we move into 2022, I think we'll -- my -- we expect to see that continue to improve. And I think, as we bring the two organizations together, people are seeing opportunities within our organizations for developing niche areas. It's not all about salaries and cost, it's about giving people opportunity to develop their careers. And we certainly making a very significant push on that and getting some traction there, I think so. Overall, we see -- we're optimistic in terms of how that's playing out, but there were -- it is an area of intense focus for us at the moment.

John Kreger

That's great. Thank you.

Steve Cutler

Thanks.

Operator

Thank you. The next question comes from the line of Tycho Peterson from JPMorgan. Please ask your question.

Kevin Casey

Hi, guys. This is Casey on for Tycho. Was curious what percentage of your trials are decentralized right now? How should we think about that percentage in 2022 given 15% of sites are currently impacted from COVID now? And then, how should we think about the net impact of increasing decentralization and the COVID roll-off capacity revenue for 2022? That your guide assumes a conservative assumption on pass - troughs. So just curious as to what you're thinking there? Thank you.

Steve Cutler

Casey, there I mean, in terms of decentralized trials, pretty much. The vast majority of trials that we win and star off have a component of decentralization going forward, and then that might be one or two components of remote monitoring, a wearable component, a home health, but there's very few trials we start off the totally traditional trial the most. But there are also very few that start off completely de -centralized, I started the one that we've completed, the Chief that was a totally de -centralized trial, very successful study. And the team did a great job.

But they are very rare. And so the vast majority of our trials are what we term hybrid trials. That we're moving more and more de -centralized going forward. But I think we're going to be -- I think we're some years away from even a significant minority of our studies being fully decentralized. We've got some more to do on that one. In terms of pass-through costs on that, we're not seeing any real fundamental change or shift in terms of the number of the amount of dollars associated, the pass-through dollars associated with de -centralized trial at the moment.

It's early days and as I said, most of the studies we run our hybrid studies and so there is still a strong competitive site investigator for these patients are still -- maybe they're not visiting sites every -- as they would normally do at every visit, but it's still a large component of certain investigator fees. There's still a requirement for [Indiscernible] to travel the side so. We're not seeing much change in terms of the pass - troughs at the moment. They represent approximately a high twenties or end up 30% of total contracted phase, and that's just a little bit during the pandemic, but really it's back and sort of where we traditionally expect to see going forward.

Brendan Brennan

And, Casey, maybe just to add to that. I think maybe what you're referencing, and correct me if I'm wrong, is the fact that, obviously, we -- in the first half of '21, we did have a large portfolio -- part of our portfolio working on the vaccine trials that do have elevated pass - troughs and, obviously, we're lapping those in the first six months of '22. And this is very much built in to the guidance there. Our run rates on -- I think Steve called out the run rates on COVID work were expected to be in '22 to be less than 5% of revenue. So we're talking about a much more normalized level of pass-through for the full-year '22, much more in line with what you would have seen in '18 and '19, so margin profile -- helping margin profile significantly and still very, very good solid underlying direct fee revenues.

Kevin Casey

Got it, thank you. And then maybe just one to follow-up. So at our conference, that SG&A would be under 10% of revenues in the longer term. I think, they were 10.5% in 4Q. So how should we be modeling what's for 2022, inclusive of the $75 million of synergies. What sort of leverage do you have on this line? Thanks.

Brendan Brennan

Yes, I think, as what we've shown in the past, we're pretty serious cost managers and we certainly want to make progress during the course of 2022. To bring us certainly in line with our 10%, if not below that 10% by the time we exit the year result. And certainly -- firmly, in our view at this point, as we continue through '22 and that's how I'd indicate how you should think about that from a modeling perspective.

Operator

Excuse me. Have you finished with your question, sir?

Kevin Casey

Yes. Thank you.

Operator

Thank you very much. The next question comes from the line of Elizabeth Anderson from Evercore ISI. Please ask your question.

Elizabeth Anderson

Hi guys. Thanks so much for the question. In terms of -- some of your peers have been talking about the pacing of the year and seeing revenues accelerate over the course of the year. I know you don't typically guide quarterly, but I wonder if just directionally, you could give us some indication about how you see the balance of demand, and then secondly, not to make Steve repeat himself again, but I'm getting a lot of questions just to a 100% understand the mid-term growth targets in what you said in your script versus the slides again, and if you could just one more time, say them for everybody.

Steve Cutler

Okay. So Elizabeth, I think as Brendan just alluded to. 2022, as we lap the large, the heavy pass - troughs that we had in the COVID trials in 2021. The growth will be a little on the lowest side and will accelerate more as we get past those and go into the second half of the year. So on a 606 basis, it will be a little lower in the first half of the year and will expand going forward in the second half of the year. On direct fee based of course, we're going to be growing at a good clip, but it's the pass - troughs that will give us a little bit of a challenge in the first half of the year.

In terms of longer-term revenue growth, I think I said mid to high, single-digits. That's what we are expecting to do on a revenue basis. So that's the ambition we have on a next -- for the next sort of two or three years, that's sort of time I'm thinking about. Mid to high single-digits is where we picture ourselves and we believe we can get to.

Elizabeth Anderson

[Indiscernible] adjusted EBITDA CAGR should have low teens and EPS CAGR mid-teens plus those two?

Steve Cutler

Yeah.

Brendan Brennan

Yeah, absolutely.

Elizabeth Anderson

Yeah. Okay. Perfect. Thanks for that clarification. I appreciate it.

Operator

Thank you. The next question comes from the line of David Windley from Jefferies, please ask your question.

David Windley

Hi. Good morning. Thanks for taking my questions. Steve, we're hearing from big pharma and even some medium and maybe the upper end of small pharma that are small Biopharma that they are leaning or potentially leaning more on FSP vendors as they have difficulty filling internal positions. And then also hearing that PRA, we knew PRA was a fairly large percentage of PRA's revenue prior to your acquisition, but that maybe you and PRA, ICON pre - PRA and PRA were among the more aggressive or assertive in the FSP space, and so wondering both what you're seeing from a demand standpoint more specifically, and how the combination has purchased you competitively. Thanks.

Steve Cutler

Sure Dave. Well, let me take the same question first. We believe we're the number one market leader in the FSP space as the two organizations come together. The legacy PRA, organization bought a very significant functional group to the docs’ organization, and together, we believe we are well in front of anybody else in the market, and it does give us significant flexibility in terms of the ability to find labor for our full-service groups as required. It also gives us an opportunity to get ourselves -- to embed ourselves with Large Pharma and particularly move partnerships along. in large pharmacies. One or two -- one or two opportunities that we've been able to start out as an FSP type contract, but it's morphed into more than that.

And that's -- so we see several benefits of being that market leader on the FSP fund, not just the normal revenues and margins, but that ability to drive partnership and build partnerships with large pharma. In terms of -- in terms of your first question around large pharma and they move towards FSP. I think it's fair to say, that large pharma are our major customers in that front. And they are leaning on us to get resource because resources are hard to find in the industry. And it is probably leading to some growth in that space or some advancement in that space that perhaps otherwise wouldn't be the case if the labor markets weren't quite so tied.

We welcome that as an opportunity because, again, and we found -- we find it can lead to other opportunities. Very few companies are just functional or just full-service. Most of the large pharma’s have a component of both. And as a company that leads in both full-service and in functional, we believe we can be that ideal partner for those companies.

David Windley

Thanks for that, and then as follow-up on duration -- I guess the follow-up question is duration of backlog and thinking about Burn rate and knowing that management team has really build this on a bottoms-up trial by trial basis. But I believe that management has commented about a target of around 10% Burn rate. We've heard from some others that as the COVID environment drifts away or drifts out of backlog, that a lot of the wins have maybe come in some fairly long duration areas like oncology and things like that. So I'm just wondering what your duration of backlog looks like and what you think that can produce from a revenue Burn rate standpoint.

Steve Cutler

I'll let Brandan to comment, but there's no question that we still through the COVID era. I could put it that way. Those vaccine trials burned quickly and did certainly help to improve out our burn rate. We've got it now to over 10% and our ambition, our target, is to keep it at around the 10% mark, that's what we'd like to do. There were a lot of things that came out of COVID apart from vaccine trials that helped us to improve our burn rate, guide. The speed at which things go approved, the ability to move trials full faster, was really kind to the fore and really did help to allow us to burn, and my expectation and hope is that we can continue that, some of those processes and then obviously that involves sites and regulators and customers, and all sort of things as well.

So it's not just our industry or our company, but my expectation is that we can continue a lot of those good things and move along faster. I think that's the opportunity that COVID has brought. The knowledge that we can do things faster if we need to and if it really matters and it does quite frankly. So I'm optimistic that we can continue to keep our Burn right at the high end even if the COVID work as it will, declines in the longer term but that remains to be seen and it also requires partnership and collaboration with all of the various parties involved in clinical trials. do you want to add?

Brendan Brennan

Yes. I said the only thing I'd add to that, Dave, is obviously our average duration of backlog or contracts. I mean, we still think, probably about three years in aggregates, given all of the mix of different therapeutic areas we have. And of course, when you think that there is a math back on that, it brings you somewhere in that 8% to 10% range of quarterly conversion. I think if you mix that eight starting point, if you like, with our mix of FSP business, our mix of consulting businesses and the fact that we have such a broad portfolio of an organization, we do think to Steve 's point, that that 10% is where we want to think about, as we go forward. And we think that's doable out of the backlog we have. And also some of the additional pieces that, as Steve said, we picked up in our armory, in terms of how to burn backlog, in terms of better use of technology and almost like that. So yes, we still like that's certainly the right number to be targeting.

David Windley

That's great. Thank you. I appreciate the detail.

Operator

Thank you, the next question comes from the line of Patrick Donnelly from Citi. Please ask your question.

Patrick Donnelly

Thanks guys. Brendan, maybe one for you just on the margin profile. Can you just talk about the moving pieces into 22 obviously the cost synergies, you're now there were eight months past the deal closer? So can you talk about the visibility into capturing those in '22 to offset maybe a little bit of the labor pressures and obviously talked and touched on SG&A a little bit. But just curious again, if you could pull forward a little bit? If the wage inflation doesn't intensify, or how you're feeling about the margin side?

Brendan Brennan

Yes. Sure Patrick. As we look into '22 in totality, and what I'm going to say that my previous comments was our Q4 was a good jumping off point to look at our margin profile as we go through '22, I think it's safe to say that we're not seeing a particularly different him from how we're going to talk about this in the past, is that gross margin will be a slower story, we say expect to see some conversion, but we do feel like our revenue mix is much more normalized, now in terms of vaccine, non-vaccine work, so using Q4 is a good benchmark to start with in terms of gross margin profile as you jump off into Q1 and there on.

And so that's the area, there's going to be a little flatter as we go through the first half of the year. And still looking for good margin leverage to your point in SG&A conversing well we said we were 50% identified and included in '22 in terms of a $150 million of synergies, that we outlined initially. So they will be rolling in, and that will be helping us get down below our 10% SG&A as a percentage of revenue target as we work through the course of the year. So it's a flatter story for gross margin, certainly in the first half of the year with some of the lapping of the elements that we've seen with continued good leverage in the SG&A line, and then probably seeing a little more pickup in the back half of the year from an overall perspective.

Steve Cutler

[Indiscernible] Patrick, the only thing I want to add to that is that we are getting -- we have a receptive audience with our customers in terms of price. As we all face the same sort of challenges. They understand that we want to retain our people and we need to pay them a market salary and it doesn't help with -- it's just too much turnover so, I'll just say that probably more so than at any time [Indiscernible] 10 to 20 years, we've -- the pricing discussions with customers are not quite as challenging like they've been in the past. I'll just leave it to that.

Patrick Donnelly

That's helpful, Steve. And then just another one on the smaller biotech companies. It's kind of helpful to hear you talk about that mid-teens percentage coming from that group. And again, good news that you haven't seen any cancellations or payment issues. I guess more forward-looking in terms of the conversations and bookings, it sounds like you're pretty confident with the amount of funds that have been raised over the past two years, and that's sustainable in terms of the cash flow for those companies to continue the trials. But just curious, those conversations again, a little more forward-looking with them, it doesn't sound like any softening, but how do you view it and do you see the background, the backdrop currently has sufficient to continue to capitalize on growth there?

Steve Cutler

Well you see, we're pretty optimistic about our operations in those segment and our ability to win business in that segment and to continue to make that a real growth area for our organization, Patrick. They are generally well funded, as I said, we see two to three years of cash on the books with these -- most of these companies. We don't have any issues, in terms of bad debts or payment issues. And so it's an area we feel confident we can continue to drive it. It's fair to say, I think, that the funding environment for that has attenuated a little bit over the last six or twelve months or so. But there is a lot of really good science out there.

The RNA technology, the checkpoint inhibitors, some of the drug conjugates. There's a lot of great science and there's money out there available to that signs. And so we see we have in conversation with the customer yesterday. Around more [Indiscernible] private companies and they were very bullish about the amount of money available to these companies. And the ability for good science and good development programs to attract this money and to continue to be well-funded buyers, there's no doubt, there's probably some things out there that, that shouldn't be funded or being funded and they won't move through.

But really companies are well organized, and have good development capabilities and good ideas, and are applying the wealth of technology and scientific opportunity that's out there to the capital available, are going to continue to do well. And I think will be the beneficiaries of that going forward. I remain optimistic and very positive about that segment of the market.

Patrick Donnelly

Thank you.

Operator

The next question comes from the line of Jack Meehan from Nephron Research. Please ask your question.

Jack Meehan

Thank you. And good morning. Was hoping you could talk about the gross authorizations in the quarter, by my math, they were down 2.5% year-over-year on a pro forma basis, but I'm not sure if that's totally apples-to-apples. So was wondering if you could comment on pro forma for PRA, what the trend was, and what might have impacted the rate of growth in the quarter.

Steve Cutler

Yes. I don't have that exact number in front of me, Jack. Now this time [Indiscernible] have been down slightly year-on-year, and part of it was the significant awards we got last year. Again it's lapping and we, you know, we talk about lapping the revenue number in the first half of this year. Well this quarter -- last quarter, we were lapping the awards number. So, we had some very significant awards go into quarter full of 2020, and that's -- that comparison was probably a little bit down, more because of the somewhat extraordinary, the high number as you saw back a year ago, and we didn't have that sort of level of award, particularly around the vaccines and the pastures [Indiscernible] business. So I think it was slightly down on a quarter-by-quarter basis, but for the year, it was up nicely, and we've got to look across the full-year.

Jack Meehan

Great. Thanks for clarifying. And then, Brendan, as a follow-up, I was just looking at the balance sheet, the unbilled revenue in the quarter increased about $75 million sequentially. I think historically, this has been flattish or down slightly into year-end. I know there's probably some moving parts with PRA, but was just wondering if you could comment on why that might have increased in the year-end.

Brendan Brennan

Nothing really terribly strange, Jack some harmonization of how we obviously recognize revenue and make sure that we're looking at the pass-through, particularly investigator payment settlement, that is accounted across the organization. Bit of harmonization on that front, I don't think it's a long-term trend. We're going to see there. And obviously we will be making sure that we continue to bring not true and get a build and we still have that kind of 25 to 30 days total DSO range in our heads. So, that's very much where we are targeting and you can see in the cash flows -- in this very strong cash flows in the back-half of the year and into Q4. So, still happy before that footwear that's going to [Indiscernible] outs trending.

Jack Meehan

Thank you, Brendan.

Operator

Thank you. The next question comes from the line of Dan Leonard from Wells Fargo. Please ask your question.

Dan Leonard

Thank you. I wanted to circle back on small biotech. Can you speak to bookings in RFP trends specifically in that mid-teens portion of your business from companies with less than a $100 million in R&D?

Steve Cutler

No, Dan. I can't. To be honest with you, we don't we don't track to that level. What I can speak to is to the Biotech segment as a whole, for us we have that, that's the 75 and below in terms of prescription sales, that was extremely strong in Q4, quarter-to-quarter, year-on-year and across the year. So I mean, as I said within that about approximately half of those very small three revenues and our applied assumption is that is also strong, but I don't have that specific number from a win’s basis available. Overall, the Biotech market was very strong and continues to be strong.

Dan Leonard

And, Steve, I heard your comments around no issues or concerns on cash collections or rising bad debt with that small biotech group. But folks I speak with are more concerned that they'll meter out the cash they have differently in the current environment. They're not concerned they don't have cash if it could get metered out differently. So I don't know if there's anything you can speak to on that front.

Steve Cutler

I'm not quite sure I understood the question.

Brendan Brennan

I think it's a slowdown in what they're going to do with our cash. I think that one of the big pieces here is obviously development is still crucial to the organization. So I don't know that they're going to start pulling back on that particular element of spend in their overall working on their balance sheet. Indeed, when you look at people who are looking to get capital funding, it's because they want to make sure that they continue their development process. So we certainly don't see them looking at their cash balances in a different way other than to continue to fund their development opportunities.

Dan Leonard

Appreciate this, [Indiscernible], thank you.

Operator

Thank you. The next question comes from the line of Luke Sergott from Barclays. Please ask your question.

Luke Sergott

[Indiscernible] for me. So again, on the midterm targets, you have high singles in the DAC and that's what you said at the JPM and time of PRA deal. But then Steve, you just said mid-singles to high singles. I just want to make sure that you're -- are you walking that back or is the mid-to-high? It really what you're talking about for '22, but then beyond that you're looking for high singles.

Steve Cutler

What's over that mid-to-high for 22, and ongoing from there.

Luke Sergott

Okay, so mid-to-high ongoing through, you know going forward, okay.

Steve Cutler

Yup -- yup. That's it.

Luke Sergott

Alright. And then the other clarification here is on the RFP volume. You said it was up mid-singles, the [Indiscernible] Biotech segment was up mid-singles at the JPMorgan conference and then you're talking about it being up low doubles, so just trying to get the difference there, what you guys are seeing.

Steve Cutler

Well, it was in -- overall, it was high single, I suppose, from our overall RFP low doubles. It was in that range, eight to ten or so. It was a bit higher in the biotech space and a little lower in the large pharma space. So overall, it was in that high singles and low doubles range. I mean, these things can -- we don't get too focused in on one particular quarter. Overall, the year was up -- it was up nicely in that double-digit low double-digit range. And on a quarter-to-quarter year-on-year basis, low double-digits. And that's what we saw on the RFP. So we feel that the market's moving in the right direction. Probably Biotech area, it continues to be strong. And that was a little bit higher in the biotech and a little bit low in the Large Pharma. That's how it played out.

Luke Sergott

All right. Great. And then just really quick, if I can squeeze one in here more long term, so you've talked about the new indications and demand for then, RFP's, like kind of filling the funnel here, has are you seeing the return to the pre -COVID levels where you're seeing monoclonal antibodies and like ADCs, really take a lion's share of those RFP. Are we seeing the new market for selling gene therapy and mRNA really starting to take off and starting to fill that RFP and backlog funnel?

Steve Cutler

I mean, I think it's a little early to make that call, Luke to be honest. We're certainly seeing activity in the cell and gene therapy area. We're starting to see more activity in the mRNA and R&A area for that matter, and drug conjugate. So those are the rare diseases always that's coming through, is it a tidal wave? No. But we're certainly seeing some moves in that direction around. As I said, the science and the technology that's really becoming available on what, whether it be out of the pandemic or in other areas. I would say, we're certainly seeing a move towards it. It's -- I would hesitate to call it a tsunami of opportunity. But it's certainly a nice tailwind if you like, with this new sort of science displaying applied to -- to just particularly in the Biotech and small pharma space.

Luke Sergott

Great. I really appreciate the color. Thank you, as always.

Operator

Thank you. The next question comes from the line of Derik De Bruin from Bank of America. Please ask your question.

Derik De Bruin

Great. Thank you for taking my question. Just two quick ones. What's embedded, in terms of your thoughts on M&A? A lot of your competitors includes some capital deployment into their top line growth. I mean, yours looks like -- more like you're talking about on organic basis. And I've got a follow-up.

Brendan Brennan

Yeah.

Steve Cutler

So let me check on the -- our -- I think as we've been pretty specific, Derik. Our priority for capital deployment is on pin down the date, in the short-term. But we're making such good progress on that, that we are -- and we will particularly we get to the back end of this year, start to think about what other opportunities there are in the M&A space. So there's a number of areas we feel we could potentially in the more -- I suppose more medium-term, next to 12 [Indiscernible] months.

Look at around some of the technology, around home-health, the whole Decentralized Trial area, patient recruitment, our labs. There are some areas that we feel we could potentially invest in further and build for that inquisitive point of view. But I would emphasize that we want to get to that 2 and a half times as a focus. That's the plan as we get into next year. And so that's very much the priority at the moment.

Derik De Bruin

Great. And just one follow-up. Obviously, China has been in the news lately. Some questions from the FDA on some of the clinical trials being run there. I thought your comments on diversity are interesting and through that increasing, how do you see this opportunity with potentially some of the concerns your questions on the China base trials. And how does that sort of factor into your outlook? You've talked about your over -- your China exposure, in particular, earnings, were like gives us an opportunity for you to help gain a little bit more business there. Thank you.

Steve Cutler

Sure. It's funny you asked about China. I thought you'd be asking about the Ukraine and Russia, given the current situation. But let me address - let me address Ukraine and Russia, we have resources there. We have offices there, it's less than 2% of our populations just to allay any fee is their operations that continuing, site visits a continuing the recent very recent developments have an impacted that at all, and we're obviously hopeful that that continues, it's a fluid situation but our operations in good place there and we feel like we can continue to monitor our trials but we are -- we have less than 2% of our oil precedent.

In terms of China, China reminds of an important market for us, an important focus both from a local, a more functional point of view and from a deliverer of full-service trials. There have been some challenges and they continue to be some challenges with the SFDA in China. It's -- it is a situation that we constantly need to be vigilant, in terms of what they are expecting and what we need to be delivering for them. And we have a strong organization now. That they are now, we have over 1000 people over there in China now, as the two combined organizations.

We have many hundreds of sites and they make a major contribution to our full-service work, beating the Biotech Small Pharma market rolling out in a more of our large pharma or as I say, on a functional basis, so you have a big operator. It's one we take a lot of interest in. We monitor very carefully the regulatory requests out there, and the relations with the regulators out there to make sure that we're doing the right thing by them. But it's one of the more challenging environments that we work within. I will just leave it at that and say that, as I said, it remains a key area for us, particularly in terms of a long-term growth. We see a number of companies out there that have ambitions to move east, to develop drugs in the east, and we're starting to engage with those companies, more so perhaps than some of those other companies who just want to do work in China. So there's an increasing opportunity out there, and I think over the next five to 10 years, it will be an increasingly important part of our business.

Derik De Bruin

Thank you.

Operator

Thank you to the participants, for all your questions. I would like to hand the conference over to our speakers for closing remarks.

Steve Cutler

Thank you, Operator. Thank you for listening in today. We are pleased to have delivered a record quarter and year as the new ICON. And I'm proud of the support provided to our customers in the development of life-saving drugs and devices, I want to take another opportunity to recognize our entire workforce, their unwavering commitment and efforts over the past quarter and in 2021. Thank you all, and have a great day.

Operator

That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a nice day.

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