Syneos Health, Inc. (NASDAQ:SYNH) Q4 2022 Earnings Call Transcript

Syneos Health, Inc. (NASDAQ:SYNH) Q4 2022 Earnings Call Transcript February 16, 2023

Operator: Good morning, ladies and gentlemen. Welcome to the Syneos Health Fourth Quarter and Full Year 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. I would now like to hand the conference over to Ronnie Speight, Senior Vice President of Investor Relations. Please go ahead, sir.

Ronnie Speight: Good morning, everyone. With me on the call today are Michelle Keefe, our CEO; Jason Meggs, our CFO; and Michael Brooks, our COO. In addition to the press release, a slide presentation corresponding to our prepared remarks is available on our website at investor.syneoshealth.com. Remarks that we make about future expectations, growth, trends, anticipated financial results and our expectations regarding transformation initiatives, expectations regarding the macroeconomic environment, the COVID-19 pandemic and the war in Ukraine constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995 and we disclaim any obligation to update them.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors. These factors are discussed in the Risk Factors section of our Form 10-K for the year ended December 31, 2022, and our other SEC filings. During this call, we will discuss certain non-GAAP financial measures, which exclude the effects of events and transactions we consider to be outside of our core operations. These non-GAAP measures should be considered a supplement to and not a replacement for, measures prepared in accordance with GAAP. For a reconciliation of non-GAAP financial measures with the most directly comparable GAAP measures, please refer to the appendix of our presentation. I would now like to turn the call over to Michelle Keefe.

Michelle?

Michelle Keefe: Thanks, Ronnie. Good morning, everyone, and thank you for joining us today. As you saw in our release, our results this quarter came in as expected and in particular Commercial awards were strong. We remain keenly focused on transformation and are encouraged by customer feedback and are seeing the very early signs of improvement in Clinical awards and positive impacts from our investments. First, I want to start by resetting the stage for our key priorities and my expectations for the future of the company. Let me also underscore that customers remain our top priority and I continue to engage directly with them to ensure that we are exceeding their expectations. As a leadership team, we are laser focused on driving transformation across the business with a particular concentration on Clinical operations, business development and cost structure realignment.

We are also investing in retaining and strengthening our talent and prioritizing how we resource projects to ensure optimal delivery on customer commitments. While these investments will continue to suppress margins in the near-term, I firmly believe this is a responsible approach to reestablishing our competitive strength in Clinical and building a foundation for long-term success. I would now like to review our results and discuss our demand drivers and net awards. Total company revenue declined by 1% for the fourth quarter compared to the prior year, while growing 1.7% on a constant currency basis. Clinical Solutions revenue declined 2.1%, primarily due to lower net awards and the impact of foreign exchange, partially offset by higher reimbursable expenses.

Excluding reimbursable expenses and on a constant currency basis, Clinical Solutions revenue declined 0.8% due primarily to lower net awards and backlog conversion delays, largely offset by growth in our large pharma business, including FSP. Commercial Solutions revenue grew by 2.5% compared to the fourth quarter of 2021, driven by high — higher reimbursable expenses and growth in Deployment Solutions. Excluding reimbursable expenses and on a constant currency basis, Commercial Solutions revenue increased 0.5%, driven by Deployment Solutions, primarily due to the contribution from the Syneos One portfolio. Our Commercial business continues to perform in line with expectations, although growth has slowed over the course of 2022 as the macro environment began to impact our SMID customers, particularly in communication and consulting.

Now let’s review our demand drivers. In Clinical large pharma, although we remain underweight in this segment, we are encouraged by progress on several new opportunities, particularly in top 20 pharma. In fact, we recently expanding a top 10 former relationship into a sixth preferred provider strategic relationship where we are now the lead of two providers across their portfolio, after helping them design an outsourcing model to consolidate 60-plus regional vendors into two global providers. While we do not expect this expanded relationship to have a material near-term impact on awards and revenue, this is an important example of how our new customer engagement approach, developing fit-for-purpose solutions with dedicated leadership is resonating.

Our existing preferred provider relationships also remain healthy. Although, we continue to see slower pipelines as these customers assess their R&D spending and Clinical outsourcing strategies. We anticipate incremental new awards from these customers over the course of 2023 weighted towards the second half of the year. With our existing Clinical SMID customers, we are beginning to see the very early returns on our operating model and business development investments. While RFP flow from these customers remains down on a TTM basis, fourth quarter RFP flow was at its highest level since Q3 of 2021 and included more high value opportunities. Additionally, we are beginning to see other early signs of improvement as our win rate with repeat customers increased compared to the third quarter, an important indicator of customer satisfaction.

However, we still have work to do to improve our overall win rate amongst SMID customers. We also recently won a preferred provider relationship with a larger SMID customer that has already generated multiple RFPs for early phase studies with future late-stage opportunities expected. While these early indicators have not yet materially impacted overall SMID awards, they reinforce our confidence that our investments will continue to drive a gradual recovery. Although we are encouraged by this progress, Clinical net awards for the fourth quarter continued to be impacted by the dynamics that affected us in the third quarter, including cancellation activity within our normal range. This resulted in a book-to-bill ratio of 0.39 times, excluding reimbursable expenses and 0.77 times on a TTM basis.

We have factored these recent trends in RFP flow and awards into our 2023 outlook for the Clinical business. The Commercial team produced the second highest quarter of net awards in our history, with a book-to-bill ratio of 1.43 times for the quarter and 1.05 times on a TTM basis, excluding reimbursable expenses. While the Commercial demand environment remains relatively healthy, we have seen some softening among our large pharma customers, where RFP flow remains up on a TTM basis, but has slowed sequentially. We believe this impact is temporary as these customers evaluate the allocation of their commercialization budgets in light of the Inflation Reduction Act, while looking for innovative commercial models to enhance efficiency. We have also continued to see slower TTM RFP flow from SMID customers, primarily attributable to the macroeconomic environment.

These recent trends were factored into our 2023 outlook for the Commercial business. Now I will provide an update on the two primary areas of investments we highlighted last quarter. First, we are making progress on transforming our Clinical operating model. In recent months, we have streamlined our organizational structure, consolidating roles and simplifying processes that provide an improved experience for customers and employees, while allowing us to better deploy fit-for-purpose solutions specific to each customer’s needs. Foundational to these improvements have been investment and accelerated development of Clinical development tools and data applications, ranging from statistical modeling for site performance and enrollment to use of AI machine learning to better detect risks and issues.

These investments are closing competitive gaps and showcasing our differentiators and proposals and bid defenses. For example, we recently won an opportunity that leveraged our statistical tools for site and enrollment modeling and feature compelling solutions for engaging patients and healthcare providers made possible by the unique blending of our Clinical and Commercial capabilities, all under the direction of trusted therapeutic experts. We believe further wins will materialize as we fully deploy these tools into our therapeutic areas and mature unique combinations of technology, data and Clinical to Commercial capabilities. We are also deploying a high-touch global to local country model for site and patient related activities, more effectively leveraging local knowledge about regulatory requirements, standards-of-care and site performance, while maintaining global standards of best practices.

Coupled with the Clinical development tools and applications I mentioned, our operating model is showing early signs of delivering more streamlined and automated startup, improved enrollment productivity, high quality data and an improved experience for sites, customers and employees. This new model has generated very encouraging feedback from customers and we expect its integration across our portfolio to be largely complete for new customers during the first half of 2023. Clinical employee retention is also turning at a two-year high, providing strong continuity for customers and enabling us to build momentum and operating performance, customer engagement, and ultimately, backlog conversion and net awards. We believe these investments in technology, the integration of Clinical and Commercial capabilities as bundled solutions to support better protocol design, faster enrollment and improved patient outcomes and strengthening our heritage of scientific and therapeutic expertise will be important factors in driving new business and long-term growth.

Our second area of focused investment is the transformation of strategic business development with Christian and his leadership team working closely with Michael and our operations teams to drive enhanced customer engagement. We continue to expand our BD talent, hiring seasoned veterans with relationships that are already bringing new opportunities. Clinical expertise is ultimately the key to customer’s decision-making process and we are expanding our therapeutic and scientific talent and bringing these leaders to the forefront of customer solutions to improve our delivery, account development and sales activities. Further, we have established dedicated organizations and leadership aligned to each large pharma partnership across full service and FSP enabling consistent, quality and efficiency, while allowing us to quickly adapt to each customer’s evolving outsourcing strategies.

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Another important aspect of driving Clinical awards is more fully leveraging our Commercial and Consulting expertise for account management, win strategy and sales enablement. To this end, we have increased the participation of our Syneos One Group to support customers with asset development and prioritization, funding strategies and shaping their Clinical outsourcing models. Based on recent engagements and awards, this expanded consultative approach is already creating more high value Clinical opportunities. Combined with the progress on our Clinical operating model, over time we expect our improved business development approach to increase win rates with new customers, while also generating incremental repeat business opportunities. We have also evaluated our cost structure to align with our current business and the evolving demand environment and to drive efficiencies, while continuing to invest and position our organization for long-term success.

I have decided to consolidate and integrate the various strategic projects underway within the company, including ForwardBound, Unify and Clinical Reimagined under Project Velocity, a single transformational effort that will bring value to customers and employees and drive long-term margin expansion. This combined initiative will be led by senior management and reports directly to me. Jason will provide further details, including how these initiatives will ramp and impact guidance. In summary, we believe the programs I have discussed will yield benefits through improved quality and scalability, while driving long-term margin expansion, enabling us to best serve customers and enhance performance over time. We remain confident in our strategy and senior leadership is relentlessly focused on this ongoing transformation to best position Syneos Health to capitalize on a compelling long-term market opportunity.

As this will be Jason’s last earnings call as CFO, I want to recognize and thank him for his dedication and contributions to Syneos Health over the last nine years, including nearly five years as CFO. We are all incredibly grateful for his commitment and leadership and we wish him the very best. Jason?

Jason Meggs: Thank you for the kind words, Michelle, and good morning, everyone. It has been an honor and a privilege to work at Syneos Health, particularly for these past five years as CFO. I have been supported by a great team and I am thankful to each of them and very proud of what we have accomplished together. With that, let me turn to our results. Total revenue for the fourth quarter of 2022 was $1.36 billion, down 1% as reported and up 1.7% in constant currency compared to 2021. Excluding reimbursable expenses and on a constant currency basis, revenue declined 0.4% compared to the fourth quarter of 2021. Clinical Solutions revenue for the fourth quarter was $1.02 billion, down 2.1% as reported and up 0.7% in constant currency compared to 2021.

Excluding reimbursable expenses and on a constant currency basis, Clinical Solutions revenue declined 0.8% versus the fourth quarter 2021, driven primarily by lower net awards and backlog conversion delays, largely offset by growth in large pharma. Clinical revenue was above our expectations during the fourth quarter, primarily due to higher reimbursable expenses and foreign exchange. Total as reported Clinical revenue includes an 80-basis-point tailwind from reimbursable expenses. Fourth quarter Commercial Solutions revenue was $336.6 million, up 2.5% or 4.8% in constant currency compared to 2021. Excluding reimbursable expenses and on a constant currency basis, Commercial Solutions revenue increased 0.5%. Growth in Commercial revenue was driven by Deployment Solutions, primarily due to the contribution from our Syneos One portfolio.

This growth was partially offset by headwinds in communications and consulting. Commercial revenue for the fourth quarter was above our expectations due to higher reimbursable expenses and foreign exchange. Total as reported Commercial revenue growth also included a tailwind of 450 basis points from reimbursable expenses. It is important to note that reimbursable expenses were higher than anticipated in quarter four, primarily due to two fast burning reimbursable expense heavy projects that ramped quickly. One project is in Clinical and one is in Commercial, and the reimbursable expense burn will continue to impact the first half of 2023. Adjusted EBITDA for the fourth quarter decreased 11.8% to $209.1 million, representing an adjusted EBITDA margin of 15.4%, a decline of 190 basis points compared to the fourth quarter of 2021.

The decrease in adjusted EBITDA margin for the fourth quarter was primarily the result of less favorable revenue mix, including reimbursable expenses and our investments. Fourth quarter adjusted EBITDA margin was below our expectations due to the impact of a less favorable revenue mix, primarily reimbursable expenses and foreign exchange. For the full year 2022, adjusted EBITDA increased 4.6% to $800.8 million. This represents 14.8% adjusted EBITDA margin and year-over-year expansion of 10 basis points. Excluding the impacts of higher than anticipated reimbursable expenses and incremental foreign exchange in Q4, margin expansion was 40 basis points. Adjusted diluted EPS of $1.23 for the fourth quarter declined 16.9% year-over-year, driven by the decline in adjusted EBITDA and higher interest and depreciation expense, partially offset by lower share count and tax rate.

Full year 2022 adjusted diluted EPS was $4.72, up 5.8% from 2021. Operating cash flow was healthy at $123.8 million for the fourth quarter and $427 million for the full year. Operating cash flow for the full year declined primarily due to increased DSO, coupled with higher cash taxes and interest. DSO increased from the prior year primarily due to higher concentration of accounts receivable and larger pharma customers, included the related timing of billing and collections. Capital expenditures were $23.6 million for the fourth quarter and $93.5 million for the full year, primarily due to increased strategic investments in data, technology and analytics platforms to support our operations. During the quarter, we expanded our accounts receivable securitization facility by $150 million, extended the maturity until October 2025 and voluntarily prepaid the same amount of our Term Loan A.

We also refinanced our primary credit facilities, expanding our revolving credit facility from $600 million to $1 billion to increase available capacity, while extending maturities to November 2027. The full Term A facility and $261 million on the revolver were drawn at the closing to pay off the previous term loan. Finally, we subsequently repaid an additional $140 million of our revolving credit facility. These transactions resulted in debt outstanding at year-end of $2.69 billion. Combined with unrestricted cash of $111.9 million, net leverage at the end of the quarter was 3.2 times. When our current interest rate swap matures at the end of Q1, we plan to continue to hedge a portion of our floating interest rate exposure with the target of making 45% to 55% of our debt effectively fixed rate.

We expect this to provide some additional certainty around anticipated interest expense for 2023 as market conditions continue to fluctuate. Our non-GAAP effective tax rate for the fourth quarter was 21.5%, bringing our effective tax rate for the full year down to 23%, driven by increased research and development credits, and a lower state tax rate. Before turning to guidance, I want to provide more details on the consolidated initiatives Michelle highlighted. Our near-term cost management efforts include right-sizing and realigning our workforce, while streamlining our organizational structure. We are also convincing our global facilities footprint, while deploying new approaches for local employee engagement that better align to a hybrid work environment.

Our longer term initiatives are expected to include partnering on certain functions, while utilizing our transformation and technology partner to drive innovation and automation across our business. In aggregate, we expect these activities to result in initial cost savings of $30 million to $40 million in 2023, net of funding the investments we have highlighted. We expect these net savings to increase to $100 million to $150 million in 2024, as Velocity activities continue to ramp up. To fuel these initiatives and investments this year and beyond, we expect to incur significant restructuring, transaction and integration costs as reflected in our guidance. Turning now to our 2023 guidance. Our guidance contemplates our current view of the estimated impacts of ongoing economic and geopolitical developments, and reflects foreign exchange rates as of February 13th.

We expect total revenue of $4.98 billion to $5.18 billion, representing contraction of 7.8% to 4%, including a foreign exchange headwind of $10 million. This includes an estimated net headwind of 100 basis points from reimbursable expenses. We expect our total adjusted EBITDA to range from $675 million to $725 million. This reflects an adjusted EBITDA margin of 13.6% to 14%, down approximately 100 basis points from 2022 at the midpoint. Lastly, we expect adjusted diluted EPS to range from $3.26 to $3.53, representing year-over-year decline of 30.9% to 25.2%. Our adjusted diluted EPS guidance includes interest expense of $139 million to $149 million, an increase of $63.2 million over 2022. This is based upon current market forecasts and reflects the maturity of our current interest rate swap on March 31st.

Our adjusted diluted EPS guidance also assumes a non-GAAP effective tax rate of 23.5%, a 50-basis-point increase over 2022, driven by an increase in the U.K. tax rate. Our guidance also reflects an estimated diluted share count of 104.8 million shares. We expect our net cash outlay for income taxes during 2023 to be approximately $50 million to $55 million. We expect first quarter revenue of $1.26 billion to $1.31 billion and total adjusted EBITDA of $136 million to $148 million. This reflects a revenue decline of 5.7% to 2%, and adjusted EBITDA decline of 21.7% to 14.8% compared to the first quarter of 2022. This revenue guidance includes a foreign exchange headwind of $17 million. Importantly, FX has the most significant impact on the first quarter as it changes to a tailwind during the second half of the year.

This revenue guidance also reflects a tailwind of approximately 200 basis points due to reimbursable expenses, largely driven by the projects that impacted us in the fourth quarter. The reimbursable expense tailwind attributed to those projects results in a year-over-year headwind of 50 basis points to our adjusted EBITDA margin. In addition to Q1 being a seasonally low margin quarter, the investments we have highlighted will impact Q1 more heavily while the benefit of our savings initiatives will ramp throughout the year. Finally, assuming Clinical net awards and backlog burn rate recovered during 2023 as reflected in our guidance and we do not experience further deterioration in the macroeconomic environment, we expect low single-digit revenue growth in 2024.

Given this revenue profile, the 2023 adjusted EBITDA margin reflected in our guidance, our investments and increased savings initiatives, we currently expect a rebound in adjusted EBITDA dollars to a level comparable to 2022. I am now going to turn it back over to Michelle for some final comments. Michelle?

Michelle Keefe: I am encouraged by the customer feedback on our enhanced operating model and differentiated strategy. In closing, I want to stress our continued focus on excellent delivery for our customers as the foundation for our future success. Our investments and other initiatives I discussed are designed to further accelerate our strategy, enhance the scalability and efficiency of our operations and drive new business awards. I want to thank all of my Syneos Health colleagues around the world for their energy and collaboration and is only together can we achieve the highest performance for our customers. I am proud of our ongoing transformation, our culture and the positive impacts we have on patients around the world. This completes our prepared remarks and we will be happy to answer any questions. Operator?

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Q&A Session

Operator: Thank you. And our first question coming from the line of Patrick Donnelly from Citi. Your line is open.

Patrick Donnelly: Hey, guys. Thank you for taking the questions. Michelle, maybe one — on one of the comments you made there. I think it was on the Commercial piece, just in terms of large pharma, maybe taking a little closer look at things kind of given the IRA. Can you just talk about what you are hearing from them, it’s definitely an interesting comment, I know it’s come up a few times under other peer calls as well? What the commentary is there? What the impact could be? And again, how much more deliberate are they being with kind of the spend and thought process given this new act out there?

Michelle Keefe: Patrick, thanks for the question. So our large pharma trailing 12-month RFP flow is up high-single digits but we have seen it sequentially slowing down from Q3 to Q4. And when we have these conversations around the macro environment and the Inflation Reduction Act, we are hearing they are just being really purposeful in looking at their portfolios, seeing where they want to invest in the portfolios based on the potential impacts of the IRA down into 2025. They know what the list of products are in 2025 and they are thinking through based on the portfolios they have or their business development activities, what types of products do they want to invest in, in the future. The good news is we are part of those conversations and our teams — we actually have a team that does a lot of work around this in partnership with pharma companies.

And so we think it’s temporary, we think as they think about their new Commercial models, how those models become more efficient in driving profitability of the assets they have today, as well as planning for what they are thinking about doing tomorrow, we think we are part of that solution and can take advantage of that, but we do see it slowing some of the decision-making right now for sure.

Patrick Donnelly: Okay. That’s helpful. And then maybe just on the Clinical side, bookings obviously remained a little bit soft in terms of the book-to-bill, but it sounds like you have had some at least signs of life with customers and customer conversations and are feeling like there’s a potential inflection of assortment. Can you just give us any metrics you have around kind of what gives you some confidence that that booking number is going to come back again, the book-to-bill can firm up a little bit? And then similarly on that IRA piece, is there a potential for that to impact Clinical down the road, just your perspective there would be helpful as well? Thank you.

Michelle Keefe: Sure, Patrick. So we have seen some green shoots. There are some very early indicators for Clinical awards. We did see an improvement in repeat customers that, as you know, we talked about that last quarter as really important to us as a measure. So we did see improved awards with repeat customers. We have seen our SMID RFP pipeline improved significantly. I think it’s the second highest SMID RFP flow that we have seen in Q4. We also had a really important win which was we had our sixth preferred providership for Clinical added. So we are excited about that. And there’s some really — we did some really innovative things there in regards to how we used our consulting team to partner with our Clinical operations team along with senior leadership, working on how to really consolidate 60 plus vendors and FSP down to global providers.

And so really excited about that integrated Clinical and Commercial Solution to drive future opportunity with that sixth preferred providership. So we are looking at repeat business, Patrick. We are looking at improving our RFP flow. But the feedback from customers has been very, very positive. I will turn it over to, Michael, who will maybe give you some even more specifics around what he’s seeing.

Michael Brooks: Right. So, Patrick, as we have been putting the investments into our Clinical data applications to help us better model out scenarios, as we have been looking to consolidate Clinical and Commercial capabilities into novel solutions for enrollment and data monitoring, we are getting positive feedback from customers. In fact, I was just talking to a CEO earlier this week who has been around the industry for a long time, and he remarks to me, love the strategy, love the project team. We will help Clinical and Commercial then combined together is what you are doing. And he’s really bullish on where we are going as an organization and we are seeing those green shoots just across the Board, how we are winning, how we are talking to clients is very different than it was at the beginning of last year.

Patrick Donnelly: Great. Thank you. And maybe just quickly on the IRA impact in Clinical, anything you see there, Michelle? Thanks.

Michelle Keefe: Sure. So we haven’t really heard it impacting anything on the Clinical side right now. That hasn’t been really the conversation. I think it’s more — you have the leadership at pharma looking at the impact of this long-term across their portfolio. But, no, we haven’t really seen it have any significant impact on the Clinical side to-date.

Patrick Donnelly: Appreciate it. Thank you, guys.

Operator: Thank you. And our next question coming from the line of Tucker Remmers with Jefferies. Your line is open.

David Windley: Hi. I think that’s me. It’s David Windley. Thanks for taking my question. Good morning. I wanted to, I guess, first understand around business development. I think I have heard it from enough people to believe that it’s probably true that, I think, Christian kind of cleaned house in your business development organization in September and maybe you could talk about what brought that about, meaning was it — you talked about the inability or the lack of bringing your full solution set to the clients and maybe that was a decision that was born out of that. But I guess, the magnitude of cuts in this development at a time when third quarter bookings were pretty critical is a pretty big decision to make and I wanted to understand the logic behind that, how you are backfilling those seats and where you feel like that team is today?

Michelle Keefe: Hi, David. So from a business development perspective, we took a step back and looked at what it’s going to take for us to put the right people in the right place at the right time to impact the different trends that we are seeing in different markets, right, whether it’s the SMID market, whether it’s the increasing FSP market, whether it’s making sure we have the right talent globally in different locations to take advantage of the opportunities. And so we did redeploy our own talent to different roles and to impact our business development opportunities. We have, as you have heard us say, talk a lot about how we are managing our large pharma relationships, building dedicated teams, making sure that we have strong partnerships at the most senior levels within large pharma, as well as really, it’s about the partnership between our BD team, our therapeutic experts and the project managers that really will help us with repeat business.

And so it was really around aligning our salespeople with our leaders within the business operationally. And so, by doing that, we believe that, that is why we are seeing the green shoots we are seeing, right? That’s why we are seeing the sixth large pharma partnership. That’s why we are seeing our repeat business improve in Q4 with SMID customers. And so, I would reframe it as we looked at what did the market need and what was the best way to mix our existing talent, along with bringing in new talent that has some of the capabilities that we needed to make sure that we could be extremely competitive. I think that’s how I would frame it.

David Windley: Okay. Thanks for that. And I guess, my second question is related around your consolidation of projects. I think investors will probably welcome the reduction in the number of names of projects that you are working on. So kudos for that. The — I guess, I will ask it this way, do you think Clinical Reimagine is now Project Velocity. What specifically about the Clinical operating model is changing that the customer will see? Michael, you gave an anecdote from a client that maybe bears on this. But is it simply reduction in spans of control and our expansion of spans and control, more direct reports to people or are there more fundamental changes to the Clinical operating model that the client would need to step back and evaluate that might have a further kind of depressing impact in the short run to bookings?

Michelle Keefe: So I will start and then I will let Michael give you more color. So the changes that we have made have really been under the umbrella of getting decision makers closer to the customers, right? That should be the, I think, the umbrella statement, right? We want to make sure that our customers have access to the decision makers who can do the things they need to do to make sure that we are able to achieve the goals of every single Clinical trial that we are running. So I think that’s the first thing. The second thing that we are doing that I think is really having a lot of impact is, bringing a lot of our technology solutions in earlier into each and every opportunity that is brought to us, as well as introducing them to existing customers where they make sense along the journey of where we are in that Clinical trial.

So we are seeing some really great positive feedback and some great results around patient identification, patient enrollment, feasibility, our relationships with sites, as well as our relationship with patients throughout the journey of the trial. So we are really using automation and technology solutions, along with some of the things — our StudyKIK business, as well as some of the things we have developed through RxDS. So we are bringing, I think, a much more streamlined approach to our customers and our feedback has been very, very positive. So, but I will let Michael maybe give you more granularity and color around how it shows up in front of the customer, because the feedback that I have gotten, David, is extremely positive from customers who have worked with us for a long time, as well as the brand-new customers.

So Michael?

Michael Brooks: Yeah.

David Windley: Okay.

Michael Brooks: So, David, as we have been implementing the changes over the course of last year and into this year. We have been doing it incrementally, introducing — first piloting and then introducing new capabilities that we believe bring benefit to our customers. Number one is, we did have some competitive gaps in things, like data visualization tools and some of our statistical modeling tools. We use RxDataScience to help us close those gaps very quickly. So in a period of nine months, they are able to get those closed for us. And so clients got a really good benefit from now having good data visualization, seeing into the projects and being able to see the modeling out of various things, like, site activations, enrollment and data.

By closing those gaps, let some of our differentiators really shine through. So how we take things like StudyKIK, some of our Commercial capabilities, bundle those into our enrollment solutions. Customers can see that better, because they are spending a lot of time talking about where we may have had gaps historically. We also use RxDataScience to help us look at our entire resourcing load across Clinical to help us look at where we may have had individuals over allocated to projects. We consolidate the allocations, defragmented our teams. So the benefit our customers now is a more dedicated resources, whether it’s at a country level or a functional level, which is a real benefit to them as well. And then, finally, we have really brought a therapeutic expert in the center of our business, not just through project management, but through our medical and scientific teams by having the much more involved both at the bid stage, the kickoff stage throughout the life of the project.

Our clients have seen the consistency of those therapeutic insights to help them make the pivot that they need to make throughout the life of the trial. So really it’s all upside, David — Dave from day one all the way through to where we are, and I believe by the first half of this year, we will have that really to a steady state where all of our customers are going to experience the good effect to Clinical Reimagined wherever they are in the journey with Syneos.

David Windley: That’s very helpful and encouraging. If I could ask one last question, which is around just kind of, I will call it, IR process. Is this call with 2023 guidance and even some comments on 2024, does that create a level of visibility or comfort confidence with where the company is that you can kind of dispense with this every three months appearance cadence and start being responsive to analysts and investors, is that something the lawyers are going to start to let you do?

Michelle Keefe: So, David, yes, we have made the decision that we will be doing one-on-ones with analysts and our investors today and tomorrow, and I think, we have some already scheduled for next week. And it’s our goal to ensure that we are getting direct feedback from our shareholders and from analysts, so, yes.

David Windley: Great. Good to hear that. Thank you.

Operator: Thank you. And our next question coming from the line of Eric Coldwell with Baird. Your line is open.

Eric Coldwell: Thank you very much. I wanted to kind of add on to David’s questions about the business development, account management turnover. It felt like you sort of skirted his question a bit. I also — I think everybody has heard about turnover and changes there. But could you maybe just get a little deeper into where you are in staffing with account management, business development teams, what kind of net turnover you have seen and where you are today versus where you want to be in terms of resourcing and staff in the business development functions? And then I have some follow-ups. Thank you.

Michelle Keefe: Okay. Eric, thank you for the question. So when we relooked at business development to make sure that we can be competitive in the marketplace. We looked much more broadly than just the people who are traditionally in the business developers. We really thought about what our approach is in regards to how we are going to work with customers. And I think the thing that we are seeing that’s having a lot of impact is marrying our business developers with our technical and scientific experts along with the local project leads to ensure that we have a fulsome understanding of what the customer is looking for and that we can meet them in their journey where they are at, whether it’s from a scientific expertise perspective, whether it’s making sure we deliver with quality and consistently, and whether they are looking for innovative solutions around technology and data, et cetera.

And so we really looked at it much more fulsomely along with our account management team, right? So we have these dedicated account management teams around our largest customers and how they work closely with, again, operations. We felt that, that was really important for us to be able to share with our customers this enhanced Clinical operating model, which we believe is truly differentiated and very competitive, right? And so, it was a relook at the whole market, we have realigns existing team members. So I just need to reiterate that our business development team, many of them are still the same people who have been here for a while and we value them greatly and we have also brought in some new people with some differentiated experiences, right?

So we wanted to make sure that we had both and that’s what we have been doing and I think that you always align your talent — the right talent against the right objectives and I feel really good about where we are at.

Eric Coldwell: At a high level and I know these forecasts can be difficult and I am not looking for necessarily specifics unless you are willing to give it. But do you have objectives for net book-to-bill for the two segments that you could share for — with us for this year? And I guess, bottomline, I mean, clearly, it’s going to be a ramp and it’s going to take some time, but do you see a positive book-to-bill as a potential in Clinical this year, whether it’s by the end of the year, in a quarter or even on a full year basis, is that even in the realm of possibility at this point? And then, similarly, with the commentary around Commercial, what is the new outlook on what a full year Commercial book-to-bill should look like, because obviously, the quarters bounce around a lot.

You have had some historical guidance on, I think, it’s around 1.1 for the full year, give or take. So I am just curious if you have an update on what you are anticipating and how you would steer the street in terms of thinking about the bookings this year?

Michelle Keefe: Sure. Eric, I am happy to give you some color on that. So when you look at — let’s start with Clinical. I think that’s a good place to start. We have always said there’s going to be a gradual recovery of our awards over the course of 2023 and we did have shared and have been consistent in sharing that. We believe a lot of the larger pharma awards are more geared towards the back half of 2023 and so we do believe that it will gradually improve over the course of the year. And that is contemplated in the guidance versus the guidance we gave you contemplates that as well. In regards to Commercial, we have traditionally set at 1.05 to 1.1 book-to-bill is the target range that we would like to be in. As you know, we are exiting 2022 with a 1.05 trailing 12-month book-to-bill.

But with what’s going on in the macro environment and some of the things that we are seeing in more deliberate decision making, the SMID — some of the funding issues that some of the SMDs are having, along with the deliberate decision-making within large pharma due to the IRA, we are just making sure that we align that guidance to reflect that decisions might take longer in 2023. But long-term, we believe that that is the right book-to-bill for the Commercial business, but we are just taking, I would say, a more prudent approach this year based on what we see going on in the macro environment.

Eric Coldwell: And then finally for me, the last quarter, there was a lot more detail on metrics around Clinical bookings and RFPs rates, delays, et cetera. Now we are looking at a couple of pretty tough quarters on Clinical awards, three quarters of negative book-to-bill in total. Can you talk a bit about share loss versus simply delays and timing issues? It clearly, at this point, is starting to feel like there’s some more obvious signs of share loss here. I am just curious if you can talk about clients that you have talked about six preferred deals with big pharma, but have you lost any deals?

Michelle Keefe: Eric, thanks for that question as well. So we know that the new model is receiving really positive customer feedback and we, I am sorry, I missed that. Eric, can you just repeat the end, I didn’t hear you clearly. I am sorry.

Eric Coldwell: Yeah. I mean, look, bottomline is, I am always a bit reluctant to call share loss after one bad quarter. But now we have two rough quarters in Clinical awards, three quarters ago wasn’t great. Feels like you are seeing share loss. We have heard about some new wins, but I am hoping you can give some stats or metrics on actually saying, yes, look, in fact, we have shared these aren’t just delays or timing issues, that it’s something more than that and I was hoping you could share your views on having customers that have actually tried it over the last few quarters? Thank you.

Michelle Keefe: Okay. So we have shared some of the green shoots, as you know, around our repeat business rate is improving with SMIDs and new large pharma partnerships. We are also seeing some rescues and so, we feel like we are going in the right direction. But we understand the position we are in and we know we have to improve our RFP volume. We have to improve our win rates and it’s really important that we add those large pharma partnerships. As you know, we have got one or two that we are looking at this year and that we are in contention for and that’s going to be really important and we need to convert the more high value opportunities. So we know those are the things we need to, to stay competitive in the marketplace.

Operator: Thank you. One moment please for our next question. And our next question coming from the line of Justin Bowers with Deutsche Bank. Your line is open.

Justin Bowers: Hi. Good morning, everyone. Michelle, could you provide us with a little more color on the six strategic partnership that you guys have won? I know that’s been a priority area for the company for several years, and I think you said, they will be consolidating 60 vendors into two. Just a little more, we just want to verify that. And then do you have a sense of, is this going to be FSP heavy or full service or hybrid and when — how should we think about the ramp for that and then related to that — yeah, I will pause there for now.

Michelle Keefe: Sure. Thanks for the question. So, yeah, we are excited about the six partnerships. So this was a top 10 customer for us. They — we were doing really well there and they had FSP vendors across the globe, like, they have some small regional vendors across the globe and they really want to think about how they could be more efficient and effective in deploying their FSP solution. And so, we brought our consulting team in to work with them to design what their outsourcing model should like and could look like from an FSP perspective, partnering with the manufacturer on what we could look like there and they made the decision to take that instead of that regional approach to a more global approach and it shows us as one of two vendors.

And I think that’s something that’s unique about us, right? The fact that we can bring that kind of expertise in from a consulting perspective to be able to help our customers make some of these decisions around their outsourcing strategy and then being able to execute and deliver against that strategy and so we are really excited about that. We don’t — it’s not — we don’t believe it’s going to impact near-term awards. We think it’s more of a long-term growth driver. But I think it was really important just to establish that having that kind of impact with our customers is what we are all about. And it’s really, really important that we continue to grow our large pharma partnerships, right? That’s our number one organic growth opportunity and we want to continue to focus on that.

I don’t know if, Michael, there’s anything else you want to add there?

Michael Brooks: It’s still early days. So we are in discussions with the customer around their plans for the consolidation, their plans for increasing any funding if they are going to increase funding. So as we get more details, we will update our 2023 plan, 2024 plan and share them as it makes sense. It’s just too early for us to have any more information on the impact.

Justin Bowers: Got it. And then one for Jason and the team. I think you said in the prepared remarks that some of the initiatives that you have underway would result in $30 million to $40 million of net savings in 2023 and then $100 million into 2024. Is that — are we understanding that correctly that it’s net of the restructuring cost that you will be incurring this year or is that what the restructuring costs will yield this year? And then, just the second part to that would be, I think, it’s exciting that you put out an initial framework for 2024. But can you help us bridge maybe the high level, like, how you anticipate getting back to growth and expanding margins just given where the bookings are trending at this point, like, is there an exit rate on the bookings, like, implied in that forecast?

Jason Meggs: Yeah. Thanks, Justin. So on the first question, the savings that were noted are net of the investments that we are making into the business that are above the line in the programs, not the restructuring charges that are below the line. So just for clarity’s sake on that piece. And those initiatives include the current short-term actions that we are looking at around the real estate footprint and our related employee engagement efforts and hybrid strategy there, as well as just streamlining the operations. And all the things that Michael has talked about around technology and data and how we implant that into the business and the impact that has on, what we need to streamline the organization, as well as Velocity and the longer term have we have with our technology partner there as we move that forward.

When you think about 2024 and the setup, and this goes a little bit back to Eric’s question, I think, that we absolutely inherent in our guide, and as I mentioned, have our Clinical bookings gradually improving throughout the year and getting back north of 1 in the back half of 2023 and into 2024. And there will be an increase in the burn rate when you think about 2023 throughout the year given the mix of business that we have won, whether it’s FSP or it’s faster burning studies within full service or our technology and data businesses, et cetera. So those things are all built into what we are looking at as we see the gradual recovery of bookings in the back half to above that 1, 1.2 even as we exit and then the exit rate on the savings, Justin, gets you to — as we exit Q4 of 2023, that puts you somewhat in line with that 2024 number when you do a full year annualized number.

Justin Bowers: Got it. Appreciate the detail there.

Operator: Thank you.

Jason Meggs: You are welcome.

Operator: And our next question coming from the line of Sandy Draper with Guggenheim. Your line is open.

Sandy Draper: Thanks very much. A lot’s already been covered. So maybe I will ask the first question on the Commercial side, when I just look at the slowdown we saw in the growth in the fourth quarter and then I look at backlog basically is flat on a year-over-year basis. I know you are not giving specific guidance by segment, but is it reasonable to think that Commercial is low to maybe mid-single-digit grower thinking about 2023 and just if this, again, coming off of basically 1% growth in backlog, it could be a little higher, but not a ton higher. So just any thoughts around that versus, because it sounds like you have been pretty positive and been growing double digits, but it doesn’t look to me based on the numbers you would be able to do that? So that would be the first question. Thanks.

Michelle Keefe: Sure. Thanks for the question. In our 2023 guidance, the assumption does assume that Commercial is flat to 2022 driven by the recent macroeconomic demand pressures that we outlined. So that is contemplated in the guidance for 2023.

Sandy Draper: Okay. Great. That’s really helpful. And then maybe just one quick follow-up just on — when I am thinking about the patterns, and Jason, you have given a lot of information, which I appreciate. It sounds like my inference is the first quarter is not the trough quarter, just all in, certainly, on the revenue, but it’s more like second quarter or third quarter. But just any additional thoughts on the pacing, I know you have given first quarter guidance in the fourth quarter, I mean, sorry, the full year, but just thinking about is there a specific quarter you would sort of project as the trough revenue quarter, and obviously, you have the offsets on the expenses, so it may not line up in terms of EBITDA? Thanks.

Jason Meggs: Yeah. Sandy, so we talked a little bit about the reimbursables that we had in Q4 that are going to impact Q1 in a positive way, primarily. A little bit in quarter two, but primarily quarter one. So when you look at total revenue, I think, sort of how you are thinking about it is in line with how we are thinking about it on the revenue side, given some of those dynamics. And then on the EBITDA side, we are making some investments earlier on in the year that will stay consistent throughout the year, we will continue to make investments, but some of them will sort of tail off from Q2 and Q3 onward given what they are, particularly around the Clinical business and Clinical Reimagined that Michael has talked about as we get through that first half and sort of get most customers into that new model and then the savings initiatives that we have start to pick up from Q2 onwards as well.

So think about EBITDA, seasonally low always in quarter one, has a little bit of extra headwind in it this year due to the investments and the cost savings not being ramped and then from quarter two onwards we start to see that ramp. And the exit rate of quarter four EBITDA is broadly in line with what we are talking about for that full year 2024.

Sandy Draper: Okay. Great. That’s really helpful. Thanks.

Operator: Thank you. And our next question coming from the line of Max Smock with William Blair. Your line is open.

Max Smock: Hi. Thanks for taking my question. Just wanted to follow up on some of the backlog conversion delays you discussed. I am curious how much of your 2023 guide for Clinical in particular is coming from existing backlog and how much visibility do you have into potential delays and cancellations moving forward?

Michelle Keefe: I can start. I mean I will start with cancellations. I mean our 2022 cancellation rate was lower than our 2021 cancellation rate. So we are right in line with where we have always said we expect our cancels to do. But maybe, Jason, you want to give a little more color on the backlog.

Jason Meggs: Yeah. I think, Max, you were asking the visibility of the backlog into 2023, is that right recovery?

Max Smock: Yeah. That’s right.

Jason Meggs: Yeah.

Max Smock: And how much of 2023 revenue is coming from…

Jason Meggs: Okay. Yeah. So roughly if you look at last year I think and the next 12-month backlog cover, I think, we are in around 90% or something and we are higher than that as we head into 2023. So you see good cover there. That doesn’t change the fact that we have to execute on the pipeline and the RFP flow in the bookings for the back half of the year and that’s what Michelle and Michael have talked about. So that’s what we see currently on the Clinical side. And that includes a very detailed bottoms-up review of every single project that we do every month as we come into the year and based on what we have seen in the past in terms of how our projects in backlog run out in a given 12-month period, we feel really good about that in terms of the accuracy and consistency.

Max Smock: Got it. Thank you for that. Just a quick one for me on Syneos One. I wanted to follow-up on your comment earlier this year about the more than 24 potential asset launches translating into, I think, you said, $2 billion in additional value if launched. Just wondering if you have ever kind of taken a stab at coming for the risk adjusted number for that $2 billion. That might be a little bit more practical for us to consider as we think about the Commercial revenue growth longer term here? Thank you.

Michelle Keefe: Yeah. So thanks for the question and the suggestion. We are consistently looking at how we can get better longer term visibility into which assets are going to come through the pipeline that are currently sitting in our Clinical business, right? So that we understand what percentage of them we actually think are going to become an opportunity for us to Commercialize. So there is still quite a large amount of assets under our leadership on the Clinical side that potentially will meet Commercial Solutions and so we feel really good that that’s going to continue to be an opportunity to feed the Commercial business. But I hear what you are saying, having better visibility into how much of that actually will impact Commercial, we are constantly looking at that.

I would shift to say a couple of things. We are starting to see some freight interest in Syneos One across the continuum of product development, right? So we are getting assets that are currently in Phase 3 that meet Commercialization. We just had one of our Commercial Syneos One customer award us a piece of business in Clinical in a different therapeutic area. So we are starting to see that. When we — no matter where we work with them along the line, it’s not particular to that one asset. We are starting to see them look across their portfolio and think about how they work with us in the Syneos One model. So I think that’s something additive that early days of contemplating Syneos One. We didn’t know that we were going to get that benefit and we are now seeing that benefit.

Max Smock: Got it. Very helpful. Thank you.

Operator: Thank you. And our next question coming from the line of Casey Woodring with JPMorgan. Your line is now open.

Casey Woodring: Hi. Thank you for taking my questions. So last quarter on the 0.3 book-to-bill other portion of that was related to push-outs that you are expecting to be recouped in 4Q and then even 1Q 2023. So just curious how much of those push-outs do you recoup in 4Q in the 0.39 number and then how much was pushed out to 1Q here and then how much of that work was ultimately lost?

Michelle Keefe: Thanks for the question, Casey. Of the Q3 delays that were designed in Q4, our win rates definitely stabilized. I think we still have more opportunity there and I think about half of them went to decision and it was about the normal, where we have normally been in regards to our win rate. We are continuing to see some deliberate decision making, but it’s definitely improved sequentially in regards to that decision making. We don’t think that the push-outs long-term are going to continue to be outsized. They are a little bit on the high side right now, but they are not the way they were in Q3. So we think that phenomena is stabilizing.

Casey Woodring: Got it. And then maybe just following up on one of the previous questions around share. Just when you look across your peer group in Clinical, IQVIA had a record bookings quarter in 4Q. Commentary from Thermo suggests that PPD also performing at a high level, same with ICON from a booking standpoint. So just curious as to what sort of confidence you have and the investments you are making in Clinical that allow you to think that you can kind of win customers back that you presumably lost to the larger scale players? Thank you.

Michelle Keefe: Thanks, Casey. So when — you have heard Michael speak a little bit today already about some of the key things that we are doing and how we are seeing green shoots in different areas. We are really confident in executing our strategy. We are absolutely concentrating on Clinical operations and business development and our cost structure realignment. And this investment that we are also making in retaining and strengthening our talent, having our retention being at a two-year high. We believe all those things are creating great experiences with our existing customers and with new customers, we are also creating a really compelling offering for consideration for Syneos Health. And so based on the things that we are doing, we believe that we are competitive, we believe that customers are going to continue to give us the opportunity to compete for business, and looking forward to that, as Jason just said, as the year goes on, we are predicting our book-to-bill will continue to rise in Clinical over the course of the year.

Operator: Thank you One moment please for our next question. And our next question coming from the line Luke Sergott with Barclays. Your line is open.

Luke Sergott: Hey, guys. Thanks for the question. Just one for me and it’s more on the EBITDA framework for 2024. I mean that’s a pretty big step up $100 million essentially coming out off of a low single-digit topline growth. And just kind of wanted to get a good sense of, one, where that’s coming from, and are you going to be cutting too much on SG&A that will hinder more business development, that there’s a risk to that? And then really kind of thinking about the 2023 guide, how much healthy conservatism is baked into that, where if you come in well above that $700 million at the midpoint, obviously, it makes it easier to hit that $800 million, just give us some way to think about that, please?

Jason Meggs: Yeah. Hey, Luke. It’s Jason. I will start. So on the 2024, when you think about the low single-digit growth and the incremental margin associated with that and then you add on the incremental savings from the initiatives and that can include topline growth as well that is inherent in that single digit at a better margin, that’s how you start to get to that year-over-year step-up, right, because you are $30 million to $40 million in 2023 of savings over 2022 and then you are up $100 million, $150 million in 2024. So that incremental savings plus the growth and margin associated with that. So that’s rough sort of orders of magnitude there of how we get there. On the business development side, we are not making any cuts, as a matter of fact, we are investing in business development, right?

And that’s — if you look at that through perhaps the CFO lens, you are like, wait a minute, bookings are down, BD costs are up, that doesn’t make any sense. Well, we believe though, that longer term that’s what’s going to drive the growth of the business and move it forward and we are staying very much committed to that and continue to invest around that, as Michelle has said. For 2023 and the guidance, we always start with our backlog build, start with our pipeline and everything that we talked about and then we work through our initiative, whether it’s been our synergies from the initial transaction back in 2017 and our ForwardBound initiative that we had a lot of success with and now we have our Project Velocity that’s sort of our new operating model as we move forward, where we have demonstrated we can execute these initiatives.

We have looked at all that in the exact same way and put a sort of margin of error on it that we typically would plus perhaps a bit more given the macroeconomic uncertainty that’s out there and just some execution risk type thing. So feel good about the guidance ranges that we have given for 2023 and you are right, obviously, the better we do that makes that step back up in 2024 easier.

Luke Sergott: Great. Thank you.

Operator: Thank you. One moment please for our next question. And our next question coming from the line of Elizabeth Anderson with Evercore. Sir, your line is now open.

Elizabeth Anderson: Hi, guys. Thanks so much for the question. I was wondering if you could comment a little bit more on how pricing is trending both in sort of Clinical and Commercial versus sort of earlier in the year? And then also on — secondarily sort of accounting cleanup question, does your interest rate assumption for the full year assume that the hedge gets put on again, I was just slightly unclear on that point, so if that would — if you could answer that, too, that would be helpful?

Michelle Keefe: Sure. So, Elizabeth, thanks for the question. In regards to — I will let Jason answer the interest rate question.

Jason Meggs: Yeah. On the interest rate side, the current guidance assumes that we move to 75% variable as of April 1. So it doesn’t assume we put on a new hedge, and it assumes the forward curve that’s currently out there for SOFR.

Michelle Keefe: And Elizabeth, can you just repeat the beginning of the question?

Elizabeth Anderson: Yeah. Absolutely. So just if you could comment a little bit more on pricing in both Clinical and Commercial and kind of sort of how that’s trending versus a quarter or two ago?

Michelle Keefe: Yeah. Right. Sure. Great. Thank you, Elizabeth. So I think you have heard us say in both Clinical and Commercial that we think we price for value and we price for the operating delivery that we believe is going to get you the best outcome, whether it’s Clinical or Commercial. And I think that stands true today, I don’t think we have seen anything different around anybody’s pricing approach. I think all these customers are making decisions that they believe are in the best interest of maximizing their asset value. So we haven’t really seen a change in that.

Elizabeth Anderson: Great. That’s really helpful. Thank you.

Operator: Thank you. I am not showing any further questions. I would now like to turn the call back over to Michelle Keefe for any closing remarks.

Michelle Keefe: Before I conclude the call, I wanted to take a moment to thank Linda Harty for her service on our Board of Directors. Linda has been our Board since — on our Board since March of 2017 and Syneos Health has been well served by her advice and her contributions. I also want to thank the entire Syneos Health team. I am motivated and inspired by their commitment to our customers, sites and patients. Despite the near-term challenges, we remain confident in our market positioning and our strategy, and we look forward to updating you on our continued transformation. Thank you for joining us today on our call and for your interest and investment in our company.

Operator: Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.