ICON Plc Stock

Good day, and thank you for standing by. Welcome to the ICON plc Q2 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Kate Haven. Please go ahead.

Hello, and thank you for joining us today. I'm joined on the call by our CEO, Barry Balfe; and our CFO, Nigel Clerkin. 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 guarantees of 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 relating to these forward-looking statements may be found in the most recently filed annual report on Form 20-F. This presentation includes selected non-GAAP financial measures, which Barry and Nigel will be referencing in their prepared remarks.

For a presentation of the most directly comparable GAAP financial measures, please refer to the section of the press release dated July 29, 2026, titled Consolidated Statements of Operations.

While non-GAAP financial measures are not superior to or substitute for the comparable GAAP measures, we believe certain non-GAAP information is more useful to investors for historical comparison purposes.

Included in the press release and the earnings slides, you will note a reconciliation of non-GAAP measures. Adjusted EBITDA, adjusted net income and adjusted diluted earnings per share exclude amortization, stock-based compensation, foreign currency gains and losses, restructuring, transaction, integration-related and other adjustments, transaction-related financing costs, fair value movement on investments and equity, goodwill impairment, loss on disposal of subsidiary undertakings, impairment of nonfinancial assets and their related taxation effect.

In the interest of time, we ask participants to keep their questions to one each. I would now like to hand over the call to our CEO, Barry Balfe.

Thanks, Kate, and thanks, everybody, for joining. ICON delivered solid second quarter results, characterized by a positive demand environment, strong bookings and disciplined cost management as we navigated the business mix headwinds discussed on our last call.

While pass-through activity continued to benefit reported revenue and net bookings, underlying business performance delivered further sequential earnings progression during the quarter. Direct fee bookings also remained strong, resulting in a direct fee net book-to-bill ratio of 1.2x. Overall, our second quarter results were consistent with the trends we have highlighted in recent quarters, measured progress supported by sustained evidence of an improving demand environment.

We remain focused on delivering for our customers, executing with discipline and investing in capabilities that strengthen our competitive position.

Turning to bookings performance. Q2 gross business wins were $3.7 billion, an increase of 24% year-over-year and 13% sequentially with strong performance across the portfolio. Cancellations totaled $562 million, broadly in line with expectations, resulting in net bookings of $3.1 billion and a net book-to-bill ratio of 1.51x.

Awards were broad-based across customer groups and were supported by further improvement of win rates in large pharma, where we also saw the addition of some meaningful FSP programs to existing relationships.

But we also saw strong performance elsewhere, midsized and biotech companies representing 8 of our top 10 customers by awards in the quarter.

I was also encouraged by the scale and diversity of awards secured during quarter 2 with our largest 13 individual business wins, each exceeding $50 million in value sourced from 11 different customers spanning large, midsized and biotech sectors.

Against this backdrop, the overall customer demand environment remains generally constructive, notwithstanding expected seasonal impact over the summer months. In quarter 2, RFP flow increased 22% sequentially and 16% on a trailing 12-month basis.

Following 2 quarters of particularly strong activity, large pharma RFP flow moderated somewhat in the second quarter, but we saw a marked increase in biotech during the same period.

This is consistent with our strategic objective of addressing more of this important market, albeit that came with a higher proportion of ballpark proposals and a reversion to historical win rates in biotech as we engaged with certain customers for the first time.

Staying with pipeline quality, average proposal values continue to increase across the full-service portfolio, while Phase III opportunities represented approximately 50% of total opportunity volume in the quarter compared with an average of roughly 40% a year ago, a sign that customers are increasingly bringing assets into the later phases of development.

Taken together, these data provide further evidence that our focused commercial strategy is delivering results. We continue to focus on 3 clear priorities: expanding opportunity flow in biotech, diversifying our sales channels within large pharma and increasing our market share with midsized pharmaceutical customers.

While these efforts will take time to impact the P&L directly, we are seeing tangible progress across all 3 areas as our scale, capabilities and differentiated innovation strategies continue to resonate with customers. Turning to financial results for the quarter.

Revenue increased 1.2% year-over-year and 1.4% sequentially to $2.1 billion, benefiting from higher pass-through activity. Adjusted EBITDA of $327 million and adjusted EPS of $2.56 were in line with our expectations for modest sequential progression and reflected strong cost control across the business.

Elevated pass-through contribution impacted margins during the quarter and may continue to do so in the back half of the year as therapeutic mix and site location dynamics increase the volume of pass-through dollars that we expect to burn on certain studies.

Based on our year-to-date performance, we are reaffirming our full year 2026 financial guidance, reflecting both the results delivered in the first half of the year and a balanced view of the opportunities and risks that remain in the second half.

While our near-term focus remains on execution, on margin progression and on delivery against our financial commitments, we continue to invest in strategic initiatives that support our long-term growth, differentiation and competitive position.

AI has become a foundational element of how we operate, how we deliver clinical trials and how we create value for customers. Our investment strategy is different to others. We don't see value in going all-in on chips or on enterprise licensing of generic applications.

Rather, we are focused on advancing domain expertise through targeted investments in architecture and frontier models that enhance our capabilities, accelerate our trials and help us to monetize our existing data assets. In that respect, the multiyear collaboration with Anthropic announced this week represents an important milestone for ICON.

Combined with our partnership with Microsoft, this collaboration strengthens the technology architecture underpinning our clinical trial delivery platform and supports 3 core priorities: enhancing the intelligence layer powering Orbis, our Agentic AI platform, deploying advanced AI capabilities to improve productivity and developing domain-specific agents embedded directly within ICON's clinical trial management workflow.

For customers, these capabilities have the potential to streamline study design and planning to accelerate protocol development and trial execution, enhance patient and site engagement and reduce administrative burden throughout the clinical development process. These development projects are increasingly moving from the planning to the execution phase.

One example being Meridian, our multi-agent clinical monitoring platform, which brings AI-enabled tools directly into the day-to-day workflows of our global monitoring organization. Leveraging ICON's proprietary data assets, domain expertise and delivery experience, these purpose-built agents make us better, giving teams greater insight into trial status and enabling rapid decision-making in the field.

Standing back from the detail, these initiatives reflect our core approach to AI. That is to say we're combining leading technology partnerships with ICON's domain expertise, proprietary assets and clinical delivery capabilities to create meaningful value for customers, strengthen our competitive position over time and recognize value accordingly.

Alongside AI, we continue to invest in targeted growth opportunities across the business with an emphasis on expanded capabilities and accelerated growth.

In China, for example, we've seen notable improvement in demand over the last 12 months, and we continue to expand our capabilities there, including significant laboratory expansion that adds specialty biomarker testing and pathology.

This builds on the investment in Singapore highlighted last quarter and reflects our commitment to further strengthening our lab footprint across the Asia Pacific region.

These investments were rewarded during the quarter with the addition of a new partnership with a leading Chinese biotech company supporting global development programs across a broad range of full-service capabilities, including laboratories and imaging.

And these outcomes reinforce the value of continuing to invest in attractive growth opportunities while maintaining a disciplined approach to capital deployment. Our strong cash generation in the quarter further strengthened our financial position and supports our balanced capital allocation framework.

We remain focused on investing in the business, pursuing strategic growth opportunities and particularly returning capital to shareholders. In closing, I'm satisfied with the steady progress that we're making across the business.

Strong bookings, a constructive demand environment and disciplined execution provide a solid base as we move through and beyond some underlying challenges in business mix and to navigate the dynamic pharma sourcing trends of recent times.

We remain focused on what we can control, delivering for customers, executing with discipline and investing in the capabilities that will strengthen our competitive position and support sustainable long-term growth.

These factors underpin our confidence in ICON's ability to continue taking share, deepening customer partnerships and capturing the significant opportunities that lie in front of us.

Finally, I would like to thank all of my ICON colleagues for their continued commitment, energy and focus on delivering for customers as we partner with them to bring forward new options for the millions of patients who need them. Now I'll hand over to Nigel to take a more detailed look at the financials.

Thanks, Barry. Revenue in quarter 2 was $2.1 billion, representing a year-on-year increase of 1.2% or an increase of 0.4% on a constant currency basis. Compared to the first quarter of 2026, revenue increased by 1.4%, while our adjusted EBITDA expanded by 3% to $327 million, resulting in an adjusted EBITDA margin expansion of 30 basis points to 15.9%.

While these results were broadly in line with our overall expectations, we did see higher pass-through activity than anticipated with a consequent positive impact on revenue and dampening effect on margin relative to our previous expectations.

Based on year-to-date activity, there is an increased potential that pass-through activity levels may exceed our prior assumption of being approximately flat year-over-year.

As we saw in Q2, this can benefit revenue while impacting reported margin percentages. Our focus remains on delivering EBITDA dollars and driving sequential improvement in both EBITDA dollars and margin in the second half with the actual reported margin percentage ultimately dependent on pass-through mix.

Overall customer concentration in our top 25 customers was aligned with quarter 1, 2026. Our top 5 customers represented 24% of revenue. Our top 10 represented 40%, while our top 25 represented 65%.

Adjusted gross margin for the quarter was 23.8% compared to 29.1% in quarter 2 2025. Adjusted SG&A expense was $164.5 million in quarter 2 or 8% of revenue compared to $174.8 million in quarter 2 2025 or 8.6% of revenue.

Adjusted SG&A expense in the quarter did benefit from certain items, including R&D tax credits, which we do not expect to recur in the second half of the year. As I've already mentioned, adjusted EBITDA was $327.2 million for the quarter or 15.9% of revenue. This compares to $417.8 million in quarter 2 2025 or 20.5% of revenue.

Adjusted net interest expense was $43.4 million for quarter 2. In the comparable period last year, net interest expense was $46.6 million. The effective tax rate was 18.4% for the quarter. We continue to expect the full year 2026 adjusted effective tax rate to be approximately 17%.

Adjusted net income for the quarter was $198.4 million, equating to adjusted earnings per share of $2.56. U.S. GAAP income from operations amounted to $137.8 million or 6.7% of quarter 2 revenue. U.S. GAAP net income in quarter 2 was $72.6 million or $0.94 per diluted share.

From a cash perspective, quarter 2 had cash from operating activities of $281.3 million. Capital expenditure was $42.4 million, resulting in free cash flow in the quarter of $238.9 million.

At June 30, 2026, cash totaled $928.4 million and debt totaled $3.4 billion, leaving a net debt position of $2.5 billion.

This was a decrease on net debt of $2.6 billion at March 31, 2026, and $3 billion at June 30, 2025. We ended the quarter with a leverage ratio of 1.8x net debt to adjusted trailing 12-month EBITDA.

Our balance sheet position remains strong and was further supported by solid cash generation in quarter 2. We remain committed to returning capital to shareholders through share repurchases while continuing to invest in the capabilities, technology and solutions that reinforce our market-leading position. And with that, I believe we are ready to open it up for questions.

[Operator Instructions] And your first question comes from the line of David Windley from Jefferies.

Barry, the demand environment seems to continue to improve. Appreciate the detail that you're providing there. It seems like a meaningful part of it is pass-throughs.

So I wanted to understand, I guess, on both sides, the kind of progression of your customer cohorts, large pharma sounds like it advanced a little bit. biotech maybe stepped back a tad in the quarter.

And on the direct fee side of that and how that's advancing. And then on the pass-through side, understand the mix is maybe running a little hotter on pass-through. Is that also helping the revenue to run higher overall? I note that you didn't raise revenue guidance, but it would seem like the heavier pass-through could maybe push revenue above the range.

Thanks, Dave. There's a bit in there. So maybe I'll start, and I'll ask Nigel to expand a little bit. I guess to start with your question on the demand environment, look, the demand is pretty healthy across the business.

That is sure. But the reason we've given the color we've given is I think it's important. While 1.5 is an exceptional book-to-bill, it is driven by particularly high pass-throughs. That's been a trend of late, but we've seen some high pass-throughs in the revenue line. We've seen some high pass-throughs in the bookings line. I think that's really just a function of therapeutic mix, very honestly.

That's certainly how I interpret it and somewhat to do with the geographic footprint and where our customers seek to deploy trials and where we're advising them they can get those trials done.

But I wouldn't -- maybe I misunderstood, but I wouldn't have said demand stepped back in biotech in the quarter. It actually accelerated pretty markedly in the quarter. After 2 very strong quarters of RFP flow in pharma, that stepped back a little bit, moderated somewhat over the quarter, nothing unusual there. But it was a notable uptick in biotech demand.

Now when you're trying to branch out into different parts of a very large market where you haven't been before, what do you want to see? Well, you want to see that you're generating opportunity flow.

I'm happy to see that. And frankly, we probably expect a higher proportion of ballpark or water testing proposals while we do that. And we certainly saw that in quarter 2. There was an uptick in the volume of ballpark. It's not to say they don't have inherent value, but the rate at which they convert is certainly different.

And that's as a population true and always has been. So I think the demand is pretty healthy. But it is volatile quarter-over-quarter. Like I said, you see some bouncing around on what's FSO, what's FSP, what's biotech, what's pharma. What I'm heartened by is the quality of that pipeline.

The work that we're bidding on, the rate at which we're being successful in competitive RFP bidding process of converting those into wins and the solidity of the pipeline is somewhat encouraging. So we know there's a lag on these things, but I'm generally encouraged broadly by the demand environment. You do see a few little aberrations in there.

You'll see some ups and downs in areas like early phase, and that can be somewhat problematic as you step around the corner on whether it's cancels or whether it's or people or whatever. But by and large, very, very encouraging. Nigel, you might want to pick up from there.

Dave, yes, to your question on pass-throughs and the impact on the revenue guide for the year. So look, obviously, we published our guidance revenue and EPS for the year 2 months ago now.

We've reaffirmed it this morning. And look, both of them are a range, and so let's see where we land within the range ultimately.

But we did talk before about -- if you look at that range, one of the factors anchoring it was an assumption that pass-through activity would be broadly stable, broadly flat year-over-year. So we have seen that be a little bit more pronounced in Q2, as we've mentioned. And obviously, you've seen the impact on our top line and bottom line. So to your point, we are tracking that to see how that evolves over the rest of the year.

So it is possible that if pass-throughs continue to run stronger that, yes, that would impact obviously, where we would land within that revenue range and with a consequent impact likewise on the margin evolution as we go through the year.

But just to reiterate, as I said earlier, what we are focused on is progression in EBITDA dollars as we go through the year. So again, pleased to see that in the second quarter that we tracked where we anticipated we would. But again, to your point, yes, if pass-throughs continue to run stronger, that could obviously impact us in terms of where we land within the range.

The other thing to remember when you look at that range for the full year, I do recall -- I do remember, please, that we did divest Symphony in the middle of the second quarter. So that will be a drag on revenue year-over-year in H2 that wasn't there in H1 to [ H3 ].

Our next question today comes from the line of Ann Hynes from Mizuho.

Great. I know on the last call, getting to the margin question, you thought you would land, I think, in the mid-16% range. And now given the higher pass-through, is there a new range that you would like models to go to?

And then secondly, I know that a lot of the cost actions you're taking are back half loaded. Can you remind us the amount of that and how that's tracking?

Ann, it's Nigel. I'll take both of those. To your point, yes, we talked about that at the last time out. When you look at the guidance range that we put out for the year, at the midpoint of top line and bottom line, just to take that for modeling discussions, that would get you to approximately an EBITDA margin of 16.5% for the full year. To your point, if it were the case that pass-throughs ran faster through the balance of the year, and let's say, we ended up at the higher end of the range, well, again, mathematically, if you're at the top end of the revenue range, but the midpoint of the EPS range, if that's where we landed, that would lower that 16.5% down to something closer to the low 16% and obviously would impact the exit rate potentially as we head into next year for the same reason.

Again, we're focused more on the dollars than the margin percent, but just mechanically, that would be the case. your point on the cost impacts, et cetera. Look, again, that's part of how we operate as a company, constantly adjusting our resourcing.

So we did talk about -- we've obviously continued that in H1 as well. And that is part of the EBITDA progression that we anticipate seeing in the second half that is built into that guidance range for the year.

Our next question comes from the line of Michael Cherny from Leerink Partners.

Maybe if I can dive in a bit, Nigel, on your EBITDA dollars focus. I appreciate that as well. I'm just trying to reconcile the components to make sure we have it correct. You had a step down sequentially in gross margin, which we know about, but gross margin dollars obviously were impacted as well.

You delivered with SG&A performance that was -- seem quite impressive. As you think about going to Ann's question as well, the sustainability of those SG&A dollars, like how do you view that relative to what you put up in this quarter against the backdrop as well as of the mix dynamics that obviously, as you've noted, are somewhat out of your control?

Yes, Mike, I'll take that one again. Good question. And yes, the SG&A, you're right, was lower in Q2 due to the timing of some things that won't recur in H2, as I think I commented on earlier. So to be frank, I would think our Q1 SG&A number is a better run rate to think about for the rest of the year rather than the Q2. So the implication of that, of course, being where do we see the margin progression as we go through the balance of the year will be more on the gross margin line as we see the benefits of that mix effect, as we talked about and as well as obviously, the cost actions that we have taken. So continuing still to expect EBITDA dollar progression as we go through the year, but it's going to be more on the gross margin line than the SG&A line.

Our next question comes from the line of Elizabeth Anderson from Evercore.

So I guess if we had to think about -- you said pass-throughs potentially running a little bit above flat year-over-year, which is your prior assumption on the full year expectations. I guess, can you help us maybe narrow that down? Are you thinking up a couple of percent, like just if you could help with that a little bit. And then could you also please confirm your sort of share repo plans now that you are caught up with reporting?

Elizabeth, I'll take both of those. I guess the whole point about pass-throughs is we gave you a range, and we're acknowledging some volatility in the underlying landscape. So for me to pick a number higher or lower, about the same would be somewhat tricky. So I'm going to say we're sticking with the range for the obvious reasons.

But when you see some strength on the pass-through line, it is obviously possible that we might see some pull-through on that. But I don't have an updated model for you on that one. And on buybacks, no change. I think I mentioned in my prepared remarks that we were keen to get back into the market, having been out of the market for a number of quarters. That remains the plan.

And I look forward to updating you guys on that when we next speak, but we certainly have some plans for Q3 and the back half of the year in general.

Elizabeth, maybe I might just add on your first question. Maybe a way to think about it, if it's helpful, is you remember last time, we talked about Q1, our margin was 15.6% we anticipated seeing that rise by approximately 0.5% to approximately 16% for Q2.

We obviously did see it rise to approximately 15%, but we came in a little below rather than a little above, right? So just to kind of frame it for your context, we're probably talking a 20 to 30 basis point impact on the quarter relative to previous expectations.

Your next question comes from the line of Sean Dodge from BMO Capital Markets.

So you're coming off 3 really strong quarters of bookings now. In terms of composition, Barry, you called out before a bigger proportion of Phase III trials in Q1. I think you said also that you'd expect that to step up even further in Q2. If we kind of consider that? And then maybe any other directional cues you can give us on therapeutic mix and FSO versus FSP, how that's just how -- if we kind of take all of that, how should we be thinking about maybe burn rates from backlog heading into the back half of the year and into next year?

Yes, there's a bit in there, Sean. So let me start. Look, there's more Phase II trials out there than anything else, if you look at global data, where I was talking about an uptick in the proportion of Phase IIIs was in the RFP flow.

And I think it's indicative of what we talked about, which is more assets coming into the later phases of development. That's a good thing, right? That's good for patients. That's good for pharma, that's good for CROs simply because the survival rates of compounds get higher, the further you go into the development cycle.

So we think that's an encouraging thing. It's also driving average deal size up. So there's some ancillary benefits there. In terms of the business mix, nothing major to report. We said before that direct fee and FSP is growing ahead of direct fee in FSO, and that's just part of the underlying business mix dynamics that we've talked about. But I don't see any major departure from that other than to say, as I mentioned on our last call, these very strong book-to-bill numbers we've been looking at are driven by outperformance in FSO rather than FSP, where the numbers tend to correlate much more with revenue growth.

So there is some encouragement there. But I don't think there's anything dramatic in the sector. And in terms of TA, honestly, no major change. Oncology remains the single largest part of the book in terms of revenue, albeit -- when you look at recent opportunity flow and recent awards, certainly, cardiometabolic for ICON at least is broadly comparable.

They're both very large sections of the book at the minute. We're fortunate to have a real depth of experience in that domain, and we tend to win the significant majority of what we touch. It's also interesting to note the proportion of cardiometabolic research that's ticking up in biotech.

That wouldn't necessarily always have been the case, but there's obviously a lot of attraction to obesity and obesity adjacent areas in recent times. But broadly, in terms of the diversity, I mentioned 8 of our top 10 customers by awards in the quarter were either midsized or biotech. I find that encouraging, not because we're doing less in pharma, but because we determined we wanted to do more in those sectors. So that's good.

And in large pharma, as I mentioned, we've made a priority out of diversifying our sales channels. That is don't sell them one thing or the other, sell them both. And we did add a number of partnership strands to existing partnerships in large pharma with a couple of notable program additions in FSP, which is broadly encouraging as well.

But nothing really to add beyond that, Sean. I think it's sort of iterative quarter development rather than anything transformational in Q2.

Your next question today comes from the line of Jay Lewis from Baird.

You've been talking a lot about these -- the pass-throughs that have remained elevated so far this year and potentially could in the back half. And we've seen the book-to-bills in the first quarter and the second quarter run higher on the pass-through side than the direct fee side. Usually, you talk about the bookings taking quite a while to translate into revenue given they're on the initial award.

Do you think that we should be expecting a further acceleration in pass-through revenue as we're starting to move into 2027? Or could you give any color around that and how these bookings could end up phasing into revenue?

It's a dangerous game predicting the shape of awards you don't already have, Jay. But it certainly wouldn't be unexpected if we saw some sustained strength in that relationship for some time.

I mean, not to repeat the answer I gave to Elizabeth, it's not unusual to see pass-through book-to-bill run ahead of direct fee book-to-bill in an environment where the market is trending towards things like oncology and large-scale metabolic disease. I don't think that's unusual.

I certainly wouldn't forecast it, but I would reiterate our commitment to come back to the market and give as much color as we can as these things progress because it's relevant. I've said a million times, I don't particularly mind whether the pass-through carry on a study doubles or halves. I care a really great deal about our ability to find that study, bid on that study, win that study and then deliver that study in a profitable and sustainable fashion.

What we do need to give due regard to the pass-through, Carry, because for you guys and for investors more broadly, it does affect how you look at the difference between top line, bottom line, margin percent versus EBITDA dollar, for example. So we'll give as much color as we can. I think it would be a very brave person who sought to define it.

I tend to look at it in 2 different respects. Are we seeing and converting as much of that market? And how are we comparing to others in the space? This is at least the third consecutive quarter where our book-to-bills are industry-leading. I think our net book-to-bill on a 605 basis is probably as good as anyone else is on a 606, and I'll take that in the short term.

Our next question today comes from the line of Justin Bowers from DB.

If you will, are you able to provide us with a book-to-bill, call it, like for the first half of the year on a 605 basis? And then on EBITDA dollars, is -- should we be thinking about the sequential step-up in 3Q similar to what we saw in 2Q over 1Q?

Justin, yes, so Q1, the direct fee book-to-bill was 1.3 and obviously, 1.2 in Q2. So roughly about 1.25 for H1. I don't have the number right in front of me, but it will be somewhere in that order of magnitude.

And then obviously, in terms of EBITDA dollar step-up as we go through the balance of the year, Again, we've obviously laid out a range. I'm not going to give you a point number. But just to reiterate, we are focused on sequential improvement as we go through the year.

So you obviously saw a reasonable uptick from Q1 to Q2, and we're focused on continuing that progression as we go through the rest of the year.

Our next question comes from the line of Jailendra Singh from Truist.

So I wanted to follow up on your comments around cross-selling initiatives I think you called out in your presentation. Which areas are you seeing the most tangible traction? Is it on central labs, specialty labs, like FSP, FSO expansion? Just curious if you can expand a little bit more about these cross-selling initiatives you're focused on?

Yes. I think it's a really good question, Jailendra, because it can be interpreted in a number of different ways.

I mean, on the one hand, you could argue when I talk about opening up the sales channels in large pharma to sell more than one service, that's a version of cross-selling for sure. Perhaps the most impactful though, is the latter inference you make in biotech, where customers are less likely to have locked-in partnerships for certain ancillary services like central labs, like bioanalytical, like medical imaging, like cardiac safety, like site and patient support.

So one of the things I talked about over the last 18 months was making sure that we were giving the best holistic offer to those biotech customers to make sure we were upselling as many of our capabilities as made sense for the customer, not to say we're pushing capabilities at them that they don't want, but to make sure that we're effectively working across our own organization to join the dots.

That's seen a significant uptick in the proportion of biotech proposals, for example, and in Labs, just to take your example, that was probably running in the high 50s a little over a year ago. It's now somewhere in the mid-70s.

So that's, I think, indicative of the organization working holistically across internal departments to bring the right capabilities to these customers under one roof.

The next question comes from the line of Charles Rhyee from TD Cowen.

I know people asked about sort of your expectations on pass-throughs within the guide. Maybe can you just give us a sense on what's your assumption for direct fee revenue progression maybe through the rest of the year relative to what we've seen so far in the first half?

And then, Nigel, I think you said earlier that SG&A should step back up from 2Q -- and so then EBITDA dollar progression is driven by gross profit growth. I understand that 2Q is impacted by pass-throughs, but what are sort of the other things driving then the improvement and I would imagine gross profit dollar growth sequentially.

Maybe help us understand what's going to drive that given the fact that you're talking about a higher pass-through environment on the top line.

Yes, Charles, happy to take those. Just to bring you back, as a reminder, the full year guide, when we set that, we talked about, again, just for modeling purposes, if you take the midpoint of the range, say on revenue, that essentially reflects an underlying direct fee decline year-over-year organically of around 2%, if you recall that conversation. We also then have an inorganic drag from the divestment of Symphony.

We had currency movements and the assumption at the time was pass-throughs will be roughly flat. But the direct fee component of the overall movement was about a 2% decline year-over-year. That's still, again, the guidance that we've reconfirmed this morning.

When you look at H2, where do we see the margin progression, it is from, again, as we spoke about before, as we go through H2, some of those mix effects that we talked about that are impacting the margin year-over-year compared to last year mitigate somewhat as you go through the second half of the year.

And then, of course, we've also spoken about the cost actions that we've taken as well that will kick in, in a much greater degree in the second half. So it's that operating discipline around cost control as well as, again, improving mix effect as we go through the rest of the year that will drive the gross margin expansion that we're expecting to see.

Your next question comes from the line of Jack Meehan from Nephron Research.

I want to ask about the guidance range through the lens of EPS. If you look at years 2024 and earlier, the range is always a lot tighter. So I understand like the pass-throughs can have these dynamics on the top line and margins.

But just where we sit today, just any comments around where you think you're trending within the EPS range? That's one question. And the second is you have this cash hoard growing on the balance sheet. Sorry if I missed it earlier, but just timing for getting back to buyback.

Yes. Thanks, Jack. Second thing on buyback, yes, we did touch that earlier on. It remains our intention to get back in the markets as we had outlined previously. The strong cash collection in the quarter improved the financial position, and we'll be pleased to do that. Returning capital to shareholders is a priority. I think your point on the EPS guide is well made. The pass-through question obviously drives significantly more volatility on the top line than it does on the bottom line.

To Nigel's earlier point, we do choose our ranges very, very carefully in reiterating them. We're mindful of the same considerations. And while I wouldn't point to specific numbers, what I would say is for modeling purposes, the ranges we gave you are the ranges we're giving you again, and we put a lot of thought into it before doing that. But as always in this business, there's a lot of work to do.

We've talked about step-wise progression. -- quarter-over-quarter, one foot in front of the other. The bookings on the top line are encouraging. The conversion into revenue. Somebody asked me about burn rate a minute ago, and maybe I didn't touch on it.

The burn rate itself is naturally just mathematically suppressed a little bit by the strong book-to-bills we've been posting, but I'm concerned with the underlying burn rate, how effectively are we burning those studies that are running such that we're generating revenue and then obviously, very, very careful management of our costs to ensure we do that incrementally more profitably than previously.

So nothing new to give you on the EPS guide. I appreciate it is a reasonably wide range at this point in time. It's also -- just about 2 months since we issued the guide. And I think I would set that expectation with you guys that we're probably not going to rush back and revisit guide every 10 minutes, albeit I do appreciate having only issued it relatively late in the year, it is a somewhat extraordinary period.

But comfortable reiterating it to you and comfortable with the steady progress we're making in undertaking the actions we need to deliver on those expectations.

Your next question comes from the line of Casey Woodring from JPMorgan.

I wanted to go back to the comment about RFP flow moderating in large pharma in the quarter, Barry, I think you said there was nothing unusual there. So just curious if you could elaborate on that piece and the outlook for large pharma in the back half.

And then as a follow-up, you guys mentioned investing more in China, talked about the partnership you signed in the quarter with the Chinese biotech for your expanded lab capabilities in the region. Can you maybe just frame up the opportunity in China here more broadly speaking? And is the lab business an area that you think you can win in that region?

Yes. Two good questions, Casey. I guess I raised the moderation of pharma proposals in the context of saying I tend not to look at minor movements in intra-sector RFP flow quarter-over-quarter. It's inherently volatile, right?

It's not so much that I would point you to an empirical conclusion rather than I would talk you away from one. We did see some fairly sustained very large value RFP flow in the last couple of quarters, and it's down a little bit this quarter. Certainly not out of historical ranges and certainly not a cause for concern. It just so happens that the biotech comparable numbers are up substantially in the quarter.

And just given the quantum, I felt it was important to qualify that I think that is indicative of underlying demand, but it's also indicative of a pretty thoughtful strategy about seeing more of that market, meeting that market where it is, going through the motions of some early bidding and continuing to grow our footprint, not just of what we're bidding on, but of what we're closing.

So I think that's nothing earth shattering in RFP, but I hope that's clear. China, I hope I didn't create the impression that, that deal we talked about was just a lab deal. It's not. It's a full-service deal plus labs and imaging.

The bigger point on China, I suppose, is it's obvious to all the significance of the surge in Chinese innovation for governments in the West, for biotech and pharma in the West. It's not necessarily as obvious what that means for CROs in the West, given that a molecule born in China that gets developed out of Boston or the Bay Area, it doesn't particularly matter where the molecule was born. However, year-over-year and indeed quarter-over-quarter, whether we look at H1 over H1 or Q2 over Q1, there was a notable uptick in opportunity in China, really quite significant uptick there. Our headcount is probably up 5 points, I think, year-over-year.

On a full year basis, while China remains a relatively modest part of our revenues, revenue in China might be up as much as 20% full year '26 over full year '25. So we think it's an important market anyway, still trying to understand where we think that market goes in terms of critical mass.

But for us, it's less important that we understand the end state in 2035 and more important that we build on the very solid footprint we have there, over 1,500 people in country and that we're able to partner in any 1 of 3 ways.

Western companies seeking to run global trials in China, Chinese companies seeking to run global trials in China or like the example I gave you, Chinese companies going global who require a global partner to bring them beyond their own borders and into the global drug development market. And I'm pretty pleased with the progress we're making there.

Your next question comes from the line of Michael Ryskin from Bank of America.

Maybe a quick one back to pass-throughs, just sort of like a high-level one. You talked a number of times about how elevated they are, why you think they're elevated. I want to kind of go back to that therapeutic mix component. Is there anything else that you think could be driving this?

Or is it really just the therapeutic mix of where the studies are coming in? I know it's outside of your control, but just the 1.51 number is just sort of optically a crazy high number throughout the entire history of the industry and what we're seeing from peers.

So just wondering if there's anything else besides therapeutic mix in terms of how studies are structured or just sort of like what's behind that, just put context on, again, why the pass-throughs are still elevated. And then for my follow-up, I want to pivot a little bit back to your announcement from Tuesday, the multiyear collaboration with Anthropic. You touched on it a little bit in your prepared remarks, but would just love to hear more from you on what you think the fruits of that would be, when we could see that, how that could impact the business and the model over time?

Just sort of like walk us through what you think that will look like in a number of years.

Yes, happy to, Mike. Look, that's the kind of peer comparison that doesn't keep me awake at night. That's the kind of peer comparison I spend all day trying to have.

So I'm okay with it. I think the drivers, though, are beyond TA mix, which is significant, a couple of things we talked about maybe 2 calls ago. When you look at the rate of inflation in the cost of running clinical trials, -- it's not so much CRO cost.

It's much more driven by health care inflation and particularly health care inflation in the U.S. We're living in a time where companies are being heavily incented to run a greater proportion of their trials in the U.S., which is not just an expensive market, it's also a market where expense is growing quite rapidly.

So when we think about the cost of procedures, what it costs now to get an MRI versus what it cost 5 years ago in an environment where a lot of sites, particularly major academic institutions are saturated with requests for clinical trials to run, there is something of an inflationary cycle taking place.

And I think that's certainly a part of it, particularly around some of the more cutting-edge research and complex therapeutics where we are very heavily represented. It's not everybody can run those trials. So I think we are going to see some of those -- but the TA mix is significant.

I mean if you just look at the patient carry and the investigator grant carry on obesity, on diabetes, on NASH, these are expensive programs to run, and they will drive up those costs fairly rapidly.

The Anthropic deal happy to talk about it. I think it needs to be spoken about, though, not in isolation. I mean this forms part of a broader AI strategy. An AI strategy isn't about announcing a partnership or managing by press release or counting widget. This is about a strategy to disrupt the clinical trial life cycle by embedding frontier capabilities within superior workflows. We've got to keep our eye on the prize here.

How do we generate shareholder return? We do it by creating value for customers. How do we do that? We do it by generating better insights faster, driving speed and quality of decision-making, taking cost out and driving predictability up. That's what we're about.

So when you think about AI, I tend to break it down into 4 key buckets. There's machine learning that helps us predict better. There's generative AI that helps us create and draft documents better.

There's the large language models that are the engine of that generative AI and then there's the agents, which we can delegate whole processes, things that act on our behalf. So when you think about the Anthropic and Microsoft partnerships in that regard, they're not adjacent to what we've been doing before.

It's not about what's new. It's about what's next. So these are building on top of infrastructure we have already built. And I would put it to you that the Microsoft partnership is a lot about the platform. I mean there's other productivity tools and Copilot and all that good stuff.

But it's about creating the data lakes, having the unified ontology, having the data mastered such that you can then drive insights from structured data using these frontier AI models. That's really a lot of what the Microsoft partnership is about. It's the foundation.

The Anthropic partnership is about building a better intelligence layer. Claude will be the frontier model that is embedded in those workflows. And this is a key point. We try and differentiate not just from our competitors, but from our customers.

I don't think once an adoption of generic technologies rolled out to 40,000 people is the way to go. You've heard a lot of companies, including a lot of pharma companies say they're burning way too many tokens and demonstrating way too little value.

What we're about is using these models to embed the back end of work processes. So take Meridian, I talked with you about before, Mike, the CRA agent, having a CRA doing tons and tons of paperwork before they go to site or being able to log on to a customized homepage who knows who they are, what their workload is, what documents they have access to and point at risks, help them draft documents, help them streamline their interactions with the site, help them have better insights on how long they need to go for, whether they need someone to come with them or what risks they need to bottom out when they get there.

That's what we're doing here.

But that's just one example, right? We're digitizing protocols that help us automate the creation of documents and databases around the company. We're upgrading things like OneSearch, which are predictive models that tell us which sites are best suited to which programs.

Smart Graft will now have a Claude back-end that helps us build on the progress we've already made, taking 30% out of the time of negotiating clinical trial contracts as well as a range of functions in the back office, which are really more directly related to productivity than capability. So as I say, it's not about what's new. It's about what's next. It's targeted, it's embedded, it's customer-centric. And ultimately, it's better. That's really what we shoot for.

Our next question comes from the line of Ryan Halsted from RBC Capital Markets.

Maybe just a follow-up on that last point about a broader AI strategy and realizing that AI is being deployed throughout the value chain, beginning with your pharma partners in the drug discovery cycle.

Just curious if you are having dialogue with your customers about this potential increased flow and need for increased capacity to handle what could be a deluge of new molecules and new drug targets. Just curious if that's something that you're seeing happening or having dialogue now and/or if you see that having an impact over the near term?

There's a lot in there, Ryan. First thing I would say is I'll repeat what I've said for some time, which is I think the impact of AI in drug development may be most evident in discovery in the long term. I think it would be a very naive person to misread this landscape to suggest that there will be a deluge of capacity determining responses from advances in discovery, which take years to get in the clinic anyway. I think that distracts from the reality of these targeted investments around what AI means now and frankly, in the years immediately following now.

This isn't about having to have a transformational overnight upending of the spectrum. I don't think it's realistic, and I don't know anybody credible who believes it. It's also not about the amount of things you are using. We don't measure success by the amount of systems we use. We measure it by how few, not how many, if anything.

We don't measure success by how many times our customers have to click a button to get an insight. We measure it by how few. So this is about power. This is about insights we can generate today and the interoperability question with customers actually involves sitting at the nexus of work they do themselves, work we do for them within their environment and work we do for them within our environment and helping data and data insights flow into the hands of people who need them.

I think that's central to understanding the power of AI in the near and indeed in the medium term. Discovery is a very, very exciting space, but I think it will be a while before we see transformational changes in the development operations landscape from things that have yet to be proven in discovery.

We will now take our final question for today. And the final question comes from Luke Sergott from Barclays.

This is Anna Kruszenski on for Luke. If we could just go back to burn rates and what is embedded in your guidance for the rest of the year after the past 3 quarters of such strong bookings.

Can you talk about how we should directionally be thinking about burn rates in the second half relative to the 9% in 2Q?

Anna, it's Nigel. So look, I think, obviously, we've reiterated the guidance range this morning. The burn rates, look, they likely will tick down a little bit just given what we've seen in terms of the commercial performance in H1, obviously, has impacted already.

So it will fundamentally depend on what we do in terms of book-to-bills in H2. I would say, is probably the bigger impact. So I wouldn't want to give you any specific numbers on that, but it's going to be driven by that probably more than anything.

This concludes the Q&A, and I will now hand back to Barry.

Thank you, Sharon, and thank you, everybody, for joining today. We appreciate your continued support and the questions today. It remains a process of incremental transformation, both on the strategic side and also good quarter-over-quarter diligence and discipline as we continue to close out on the plans that we've discussed today and described today, and we look forward to come back to you in due course and update you on the next steps. Thanks, everybody.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the ICON plc Q1 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Kate Haven, VP of Investor Relations. Please go ahead.

Hello, and thank you for joining us today. I'm joined on the call by our CEO, Barry Balfe; and our CFO, Nigel Clerkin. 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 guarantees of 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 relating to these forward-looking statements may be found in the most recently filed annual report on Form 20-F.

This presentation includes selected non-GAAP financial measures, which Barry and Nigel will be referencing in their prepared remarks. For a presentation of the most directly comparable GAAP financial measures, please refer to the section of the press release dated June 23, 2026, titled 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. Included in the press release and the earnings slides, you will note a reconciliation of the non-GAAP measures.

Adjusted EBITDA, adjusted net income and adjusted diluted earnings per share exclude amortization, stock-based compensation, foreign currency gains and losses, restructuring transaction, integration-related and other adjustments, transaction-related financing costs, fair value movement on investments in equity, goodwill impairment, impairment of nonfinancial assets and the related taxation effect.

In the interest of time, we ask participants to keep their questions to one. I would now like to hand over the call to our CEO, Barry Balfe.

Thank you, Kate. ICON's results in quarter 1 were in line with our expectations and reflected sustained progress in commercial performance alongside the expected impacts of previous demand and conversion dynamics on financial results for the quarter. Commercial excellence has been a central priority for me and for the team. So I'm encouraged by the progress that we've seen over multiple quarters now.

We prioritized diversification of sales channels in large pharma, expanding our footprint in the midsized segment and increasing RFP flow and win rate in biotech. So it's gratifying to see significant progress in these areas, reflecting our strategy in action and its resonance with our customers.

Quarter 1 gross bookings were $3.3 billion, matching the strong performance in quarter 4 2025 and up 22% year-over-year. Cancellations were also in line with the improved levels seen in quarter 4, a total of $383 million for the quarter. For transparency, we have also provided cancellations under our old methodology, although notably, there was very little impact of the methodology change on reported cancels in the quarter.

With that being said, cancellations are inherently volatile on a quarterly basis, and we consider it likely that the future cancellation run rate may be somewhat higher than these levels as intra-quarter cancellations in quarter 4 and quarter 1 were lower than historical averages. Strength of gross bookings and cancels resulted in net business wins of $2.88 billion in the quarter, an increase of 42% year-over-year and a net book-to-bill of 1.42x.

Encouragingly, we again saw a solid contribution of direct fee versus pass-through awards with our book-to-bill on a direct fee basis in excess of 1.3x for the quarter. This strong bookings performance was broad-based and supported by particularly strong RFP flow in both our Pharma full service and our Development Solutions businesses. RFP flow also increased low double digits sequentially in the biotech full-service business.

Win rates remained strong in both large pharma and biotech full service, sustaining the step-up seen in quarter 4. Therapeutic mix continues to favor oncology and cardiometabolic areas of the portfolio. Importantly, within cardiometabolic, we've seen good diversification in awards in the last 2 quarters in terms of both of the number of customers that we're supporting and the distribution of indications, including areas such as MASH, obesity and kidney disease. In large pharma, ICON is positioned as a scaled integrated partner with leading capabilities across full service and FSP models as well as a broad range of adjacent functions.

Our capacity to hybridize FSO and FSP models remains central to our value proposition as customers increasingly require the best of both solutions, while ensuring seamless interoperability with their internal functions. As I mentioned earlier, we continue to see meaningful opportunity to deepen established partnerships by increasing the range of services we provide to large pharma customers.

One strong example of this in quarter 1 was the award of a central labs partnership from a top 5 pharma customer, where we had limited labs business in the past. Flexibility, strong project management, our kit operations strategy and long-standing delivery in other functions were cited by the sponsor as key factors in that award.

Moving on to midsized pharma. I previously emphasized the importance of increasing our relatively low level of penetration in this important market. While win rates remained flat in that sector in the quarter, opportunity flow is improving, up high teens on a year-over-year basis with several strategic partnership discussions underway.

In quarter 1, ICON's global execution capabilities, commitment to strategic collaboration and focus on digital innovation were central to securing a new midsized partnership and displacing the incumbent large CRO provider. In biotech, the market environment remained generally positive. ICON sustained the improved win rates seen in quarter 4 with a good balance of repeat business and new customers contributing to awards in the period.

Commercial performance continued to be aided by our evolved biotech strategy with consulting engagements and early development projects continuing to drive demand into Phases 2 and 3, supported by enhanced therapeutic and medical expertise. Now turning to our financial results for the first quarter. Performance in the quarter was in line with the expectations we detailed on our most recent earnings call in May. Revenue of $2 billion was up approximately 1% year-over-year on a reported basis, but down 1.9% on a constant currency basis, reflecting challenging prior demand dynamics, including elevated cancellations in earlier periods.

Quarter 1 adjusted EBITDA margin of 15.6% increased 10 basis points sequentially, consistent with our prior indications. While margin performance was primarily impacted by organic revenue decline, we also saw pressure from mix shifts in favor of functional versus full service revenue, foreign exchange and to a lesser degree, the flow-through of pricing dynamics from previous periods.

We continue to anticipate that we will see modest sequential margin improvement throughout the year as our commercial strategy delivers increased full-service direct fee revenue as a proportion of the overall mix and as we continue to drive disciplined cost management in the business with incremental benefits throughout the year. Importantly, this margin trajectory is driven by actions that are already in flight, not by future assumptions.

As such, our financial guidance for the full year 2026 remains unchanged, with revenue expected in the range of $7.85 billion to $8.15 billion and adjusted diluted earnings per share in the range of $10 to $11. In terms of the macro demand environment, we continue to see things broadly as we outlined on our May call. Biotech funding remains constructive with ongoing activity in larger follow-on capital raises supporting late-stage clinical programs.

In large pharma, customers continue to invest in their clinical pipelines with encouraging deal flow suggestive of incremental opportunity for ICON. We remain encouraged by the quality of opportunities in our pipeline in key areas we've identified for further expansion as we focus on converting demand into high-quality profitable revenue.

Against this backdrop, we continue to make targeted investments that support our growth ambitions, including talent and capabilities in key functional and therapeutic areas. We are expanding our central laboratory facility in Singapore to support 2 strategic objectives: a focused effort to expand our laboratory offering in addition to accelerating our growth in Asia.

In addition, oncology remains a core therapeutic area and our innovative solutions are strengthened by ICON's growing Accellacare site network. We recently expanded its oncology research capabilities through our partnership with the Brian Moran Cancer Institute in the U.S. By establishing this flagship oncology site, we're working to address persistent industry challenges, particularly in patient recruitment.

Historical industry data suggests that the overall number of clinical trial sites conducting oncology research in the U.S. is declining with access to trials highly concentrated as nearly 70% of U.S. counties lack active oncology trials for patients. At the same time, regulators and sponsors continue to target 20% of global patient enrollment from U.S. sites. Our expanded Accellacare footprint across the U.S., including community-based cancer centers, along with our partnership with Advara to support research naive sites will help to expand patient access to cancer therapies, ensuring that more individuals benefit from innovative treatment options.

Separately, we continue to execute on our innovation strategy as we evolve ICON's digital architecture to an intelligence-led platform. Through our recently announced partnership with Microsoft, we are building on the strong foundations already in place to deliver on 3 key strategic priorities in this area. Firstly, we are developing the intelligence layer that powers Orbis. This is ICON's Agentic AI platform, connecting our expertise, data and AI across the trial life cycle to enable seamless navigation and facilitate teams to make better decisions faster for our customers.

Secondly, our focus on driving incremental efficiency is supported by an enterprise-wide deployment of Copilot embedded in key workflows, allowing our employees to automate repetitive activity and shift their focus to higher-value work. And finally, perhaps most importantly, by combining Microsoft tools with access to frontier models from other leading providers, ICON will continue to develop and deploy best-in-class domain-specific agents embedded directly into clinical development workflows, powered by our deep expertise and execution capabilities.

In summary, while 2026 will require us to navigate the near-term headwinds we've discussed, we are executing well on our strategy and the underlying momentum in our business gives me confidence in our trajectory. Before I close out my comments, I want to extend my thanks to our dedicated team at ICON for their continued efforts in delivering for our company, for our customers and for patients in need.

Now I'll hand you over to Nigel to take you through our results in further detail.

Thanks, Barry. Revenue in quarter 1 was $2.0 billion, representing a year-on-year increase of 0.9% or a decrease of 1.9% on a constant currency basis. Overall, customer concentration in our top 25 customers was aligned with quarter 4 2025. Our top 5 customers represented 25% of revenue in the quarter. Our top 10 represented 40.3%, while our top 25 represented 63.4%.

Adjusted gross margin for the quarter was 24.4% compared to 28.4% in quarter 1 2025. Adjusted SG&A expense was $178.5 million in quarter 1 or 8.8% of revenue compared to $173.4 million in quarter 1 2025 or 8.6% of revenue. Adjusted EBITDA was $317.7 million for the quarter or 15.6% of revenue. This compares to $398 million in Q1 2025 or 19.8% of revenue.

Adjusted net interest expense was $44.7 million for quarter 1. In the comparable period last year, net interest expense was $44.3 million. The effective tax rate was 17.2% for the quarter. We continue to expect the full year 2026 adjusted effective tax rate to be approximately 17%. Adjusted net income for the quarter was $192.9 million, equating to adjusted earnings per share of $2.50.

U.S. GAAP income from operations amounted to $173.8 million or 9% of quarter 1 revenue. U.S. GAAP net income in quarter 1 was $104.8 million or $1.36 per diluted share. From a cash perspective, quarter 1 had cash from operating activities of $167 million. Capital expenditure was $30.8 million, resulting in free cash flow in the quarter of $136.2 million. At March 31, 2026, cash totaled $765.2 million and debt totaled $3.4 billion, leaving a net debt position of $2.6 billion. This was a decrease on net debt of $2.8 billion at December 31, 2025, and $2.9 billion net debt at March 31, 2025.

We ended the quarter with a leverage ratio of 1.8x net debt to adjusted trailing 12-month EBITDA. Our balance sheet position remains strong, reflecting our disciplined approach to capital deployment and solid cash generation in our business. While returning capital to shareholders through share repurchases remains our top capital deployment priority, we will also continue to invest in expanding our capabilities and solutions to support future growth and strengthen our leading market position.

And with that, I believe we're ready to open up for questions.

[Operator Instructions] And your first question today comes from the line of Eric Coldwell from Baird.

I just wanted to check on the spread between backlog and performance obligations. It did widen this period. I just wanted to confirm that, that was due to growth in new awards that are not yet contracted as opposed to any adjustments to the realizable value of contracted awards or for some other reason?

Eric, it's Barry here. It's 2 things. As you rightly say, it's strong book-to-bill, right, back-to-back. So you're going to see some drag there. The other side of it is seasonality-wise, Q1 isn't always the strongest quarter for signings. I will tell you that Q2 is looking like a very strong quarter for signings. So I'd expect a significant shift in that number in the Q2.

[Operator Instructions] And the next question today comes from the line of Michael Ryskin from Bank of America.

Congrats on the quarter. You had a comment earlier in your prepared remarks on cancellations and just something along the lines that you wouldn't be surprised to have higher cancellations going forward because intra-quarter cancellations in 4Q, 1Q were lower. Could you expand on that a little bit, sort of what drove that lower cancellation? Is that just noise? And is that indicative of what you've seen in 2Q so far because you are 2/3 of the way through the quarter? Just maybe give us an update on that.

Yes, Mike, it's 2 things, honestly. If you look at Q4 and Q1, we gave it to you both ways, right? So if you look at Q4, there was some benefit to the methodologies change at the end of Q3, albeit the underlying cancels were significantly down. In Q1, there's not really any material benefit from the methodology change, but it is a notably low cancels quarter. My comment really is only intended to reflect that I don't think anyone should take an exceptionally low cancels quarter and call it par by default.

Regarding your question about Q2, Q2 will pick up a bit, certainly nothing like the concerning levels of cancellations we saw in the past. But as I've been saying for a while, if cancels bounce around between, I don't know, $500 million and $600 million, I don't think that's going to be out of the ordinary for a business of our size. But my comment was really more broad-based than that. It was simply looking at, I think it was $383 million in the quarter, looks conspicuously low. and I certainly wouldn't want to anchor off that as guaranteed for go-forward quarters.

Your next question today comes from the line of David Windley from Jefferies.

I wondered, Barry, if you could expound on the quality of pipeline that you're referring to on -- it sounds like diversity is reasonably good, but I'd be interested in a little more color on how much are labs contributing? How much are you pushing Phase 1? And within that, is quality also reflected in the pricing that you're seeing in the awards that you're chasing and winning?

There's a lot in there, Dave. I'll do my best. I think the point about qualitative pipeline flowing into quality of opportunities, quality of awards and quality of backlog is exactly the point. I mean the way we think about demand is not simply volume of demand. We're focused on convertibility of the pipeline we see quality opportunities we can turn into significant revenue that drives significant profitability.

We're reasonably encouraged to be candid. I mean adding a new midsized partnership in the quarter, a labs partnership in large pharma in the quarter, albeit they didn't particularly contribute to awards in the quarter, I think, is encouraging. We continue to see good opportunities to grow our labs business. That's no surprise. I've called it out in the past. I would also say the skew towards Phase III in recent quarters is interesting. So I think the number of Phase III trials in the Q2 awards were up around 38%, 39% average skews from 29% to 45%. In Q2, that's going to be substantially higher as I understand it. Obviously, we haven't closed that just yet, but that's encouraging.

But the area where caliber of pipeline would have been a question 12 or 18 months ago was in biotech, and that's where I'm perhaps most encouraged. We've talked about getting the RFP flow up in certain quarters. We've talked about getting the wins up and the win rates up and sustaining on those. So that's pretty encouraging, to be honest. So we feel pretty good about it. These things are inherently volatile, right? I mean pharma had a particularly strong quarter in Q1 for RFP flow that probably dropped a little in Q2. And then biotech has a notably strong input in Q2 RFP flow.

So these things will bounce up and down. One of the metrics I look at is the percentage of RFPs that are ballparks. So for example, in quarter 1, that bounced from about 12% in quarter 4 up to about 17%. But interestingly, those ballparks skew heavily towards our Development Solutions business. Now I think that's actually expected and welcome. What we're looking at there is a stated objective to bid on development solutions businesses, whether it's early dev, whether it's specialty labs, central labs, bioanalytical, whatever may be that we weren't bidding on before. And sometimes you got to jump through hoops before you get to really productive work there. So that's not unexpected.

Likewise, in biotech, I think we'll see a tick up in the proportion of biotech RFP flow that's ballpark in quarter 2 with very significant increases in RFP volumes there. So these things bounce around, but I would characterize the pipeline environment as positive and really focusing on taking a qualitative approach. We're looking to drive volume where we want to drive volume, and we're looking to convert wins where we need to convert wins. And so far, the teams have been doing a good job with that.

On pricing, I mean, I would see as a separate question. I'm not sure if you're intending to link them. My views on pricing haven't really changed. There's never been a quarter where we weren't wrangling with pricing dynamics. There's never been a quarter where pricing expectations -- sometimes where pricing expectations we didn't want to meet.

Our business really is to try and understand what problem customers are trying to solve. And where we can meet them in a place where our ways of working, our strategy, our technology, our teams, our superior expertise in particular functions and indications can drive cost out of their business. Well, there are customers that we think we can create significant value for. And when they meet us there, they tend to profit from it.

There will always be quarters, and this quarter is no different, where people want to get all the way home in terms of rate negotiations or discounts and whatever else you have. And while I respect the needs of our customers, my consistent feedback to them and to my own team is that you can't cut your way to victory. The way to do it is to work smarter, to work with better teams who've done the work before and know how to execute in a superior way. So that's where we are. No underlying change in the pricing environment, Dave, I would say. It's the same knife fight it is every quarter.

Your next question comes from the line of Michael Cherny from Leerink Partners.

Maybe if I can go back, I think there was a comment you made, Barry, regarding margins and the in-flight opportunities. As you think about the embedded ramp in guidance over the course of the year, how do we think about the confidence intervals and the split between direct costs versus SG&A and the biggest proactive opportunities you're taking versus areas where it could be a mix-related contribution?

Mike, it's Nigel. Why don't I take that? So look, obviously, we reported 15.6% EBITDA margin in Q1. Right in line, slightly above actually what we had flagged 4 weeks ago as to where we thought that would land. And nothing has fundamentally changed, Mike, in terms of our outlook for margin through the course of the rest of the year. And just as a reminder, what we talked about then was, obviously, when you look at our guidance range for the year, it is a range. But just taking the midpoint for modeling purposes for a moment, that implies an EBITDA margin for the year of 16.5% approximately.

So looking at where we see that evolving, we are very much focused on EBITDA margin dollars much more than EBITDA margin percentage. We've talked about that before, where pass-through that volatility, frankly, can impact the margin percent. So we're much more focused on margin dollar gradual improvement as we go through the year. Having said that, looking at Q2, particularly, where we are now at this stage in the quarter, we would anticipate some continued margin progression in the second quarter, somewhere in the order of about 0.5% or so. So EBITDA margin for Q2 is somewhere in around 16%. And then from there through the balance of the year, we will continue to focus on executing.

And as we said before, the drivers for that margin expansion through the course of the year will be, one, that mix impact mitigating somewhat as we go through the year as we see further progression in direct fee growth through the back end of the year and the mix of that between full service and FSP that continues to be the expectation.

And then secondly, on cost actions and managing the P&L efficiently, that we would also expect to contribute more heavily in the second half, as we mentioned, just given that the actions that Barry mentioned that are already in flight come to fruition and flow into the P&L. So it will be a mixture of both, Mike, but nothing changed in our fundamental expectations from a month ago.

Your next question comes from the line of Charles Rhyee from TD Cowen.

Barry, I just wanted to go back to, I think, your comment earlier, you mentioned that in 1Q demand, pharma was particularly strong. I think you're saying in 2Q, biotech has been stronger. If we think about the balance between those, now that we're basically at the end of the quarter. So can you give us a sense on how to think about 2Q demand in the sense that if I think about from a gross bookings dollar or maybe from a gross awards perspective, our understanding is 1Q is maybe more seasonally -- like a step down from 4Q and 2Q tends to be a step up as people kind of ramp up, you kind of suggested that in terms of contracting. But maybe can you give us a sense on how to think about where 2Q demand is shaking out a little bit and more relative to what we saw in 1Q?

Yes. Demand broadly comparable. It's always dangerous to do quarter-over-quarter comparisons on numbers like RFP flow, Charles. There's an inherent volatility in it. So I tend to look at it over multiple quarters. But quarter-over-quarter, not much to say in terms of broad demand dynamics. As I said in my prepared remarks, we see the world broadly as we did 3.5 weeks ago when we came and spoke to you guys.

In terms of outlook, I'm always a little bit reticent to call quarters before they're closed, but very reticent. But I see no reason why performance shouldn't be broadly in line. That's certainly what we're shooting for. And if you think about the things that matter to us, and I've spoken about what we want to do in large and mid and biotech, I want to continue to lead and diversify our sales in large pharma. I want to continue to add partnerships in midsize. I want to continue to sustain a good win rate in biotech. These are the things we've got to do.

I also -- in terms of that demand environment, we've had 2 notably strong quarters in terms of the direct fee contribution as part of that overarching book-to-bill. I wouldn't necessarily expect it to stay that high. But if the direct fee book-to-bill stay up in the 1.2x territory, that's indicative of good potential for future growth. And I haven't seen anything in the quarter that suggests that isn't achievable for us in Q2.

And honestly, then thoughts turn immediately to Q3 and the incredibly condensed quarter, it always is. It tends to be much more back-ended into Q3. So while the teams are busily locking out Q2, we're planning for next quarter in the back end of the year. And that's, frankly, business as usual on our side, Charles.

The one thing, Charles, I might just add into that would be just coming back to the guidance and the financial outlook for the balance of the year. We've obviously just reiterated the financial guidance for the full year with an EPS range of $10 to $11. So again, nothing has fundamentally changed in our outlook for the balance of the year in terms of the P&L performance. It's great to see that commercial traction.

The Q1 book-to-bill print that we've seen, we obviously had already factored into the guidance for the year. The outlook for the balance of the year, we talked about before, the guidance is based off a book-to-bill assumption for the balance of the year of somewhere around 1.0 actually. That said, if we continue to see commercial traction flowing in stronger, that's more of a, hopefully, a tailwind as we head into 2027, but wouldn't change materially our outlook for the balance of this year. So we continue to feel that range of $10 to $11 is appropriate and nothing has massively changed in our view on that since a month ago.

Your next question comes from the line of Patrick Donnelly from Citi.

Nigel, maybe a follow-up on the margin piece. Can you just talk a bit -- I know, the pass-through and pricing dynamic is kind of ongoing. Can you just talk about how that plays out as the year goes and how that plays into the margin bridge? And then a follow-up on that, just on the cash flow front, how we should be thinking about the cadence there throughout the year after the 1Q results?

Yes. Sure, Patrick. So firstly, on the margin, so Q1 lot came in pretty much bang on what we had flagged a month ago. That in terms of pass-throughs, we did talk about back then, pass-throughs were especially high in the fourth quarter. They did come down by about $100 million roughly in the first quarter versus the fourth quarter. So -- and we talked about a month ago, pass-throughs being broadly stable at the midpoint in our guidance year-over-year. So obviously, where we end up in the range and that guidance depends on both direct fees and pass-throughs. Pass-throughs inherently are a bit more difficult to forecast and are a bit more volatile. Our sort of central case planning assumption at that midpoint would be that pass-throughs are broadly stable quarter-to-quarter as we go through the year, so similar to Q1 levels, okay?

But clearly, as we go through each quarter, we will absolutely flag to you any deviations from that up or down and what impact that had on our central sort of perspective on the midpoint that I walked you through on margin evolution. Again, we're much more focused on margin dollars than margin percent for that reason. And again, I'll refer you back to my comments earlier on margin dollar evolution through the course of the year.

On cash flow, obviously, free cash flow in Q1 was down about $100 million, sorry a bit of interference on the line [Technical Difficulty] on cash flow, free cash flow, obviously, in Q1 was about $100 million lower than Q1 last year. That's broadly consistent with the EBITDA decrease year-over-year as well, which is about $80 million Q1 to Q2 and/or Q1 to Q1, I should say. As we go through the year, I would just at a macro level, focus on that EBITDA movement year-over-year. We had an expectation last year of free cash flow in the $700 million to $800 million range.

We outperformed that in the end with $862 million. So again, a range is a range, but at the midpoint, our EBITDA is forecasted to be about $200 million lower than last year. So I just point to that as a sort of an anchor point, and then we'll obviously talk about where we end up on that plus or minus depending on how we perform. For Q2 specifically, Q2 free cash flow is generally lower than Q1 because we have -- in terms of the timing of interest and tax payments. So that's likely to be the case in Q2 as well.

And your next question today comes from the line of Elizabeth Anderson from Evercore.

Given the strong book-to-bill performance and you talked about the continued strength in oncology and metabolic, how do you think about the conversion of bookings primarily maybe in the last 2 quarters, but in terms of conversion into revenues? Is that kind of on like a typical like maybe you start to see it in 6 to 12 months? Anything you would call out on that front in terms of the conversion of these bookings?

Yes, Elizabeth, it's Barry here. It's kind of in line with the usual story. With the burn rate on a study in the quarter you win it is about 0%. And the subsequent quarters might be 1%, 3%, 4% and 6%, right? So it's a while before you get to those 9% and 10% burn rates. But it is also a bit of a mix. It depends on whether you're winning FSP, you're winning labs, you're winning stand-alone work. I mean to your point about oncology and Cardiomed, they burn at different speeds once they're up and running, but you also have to get them started.

Oncology probably skews a little bit further ex-U.S., so it might burn a little bit slower. So nothing particularly unusual other than to say the increase in the full service book-to-bill in quarter 4, quarter 1 and what I hope will be sustained in quarter 2 are much more relevant for 2027 than they are for 2026. I mean it's part of the story of where we'll see some direct fee and some full service direct fee business mix uptick in the back end of this year, but it's not particularly material for 2026.

I think the #1 indicator for sustained growth on the top line will be can we sustain anything like that level of commercial performance and then we'll see it start to tick up as we get to the back end of '26 into 2027 and beyond. But I'm afraid I don't have a super exciting answer for you. That one is just kind of the plumbing. It takes a while to push it all through the pipes.

Your next question comes from the line of Sean Dodge from BMO Capital Markets.

Maybe, Barry, just to kind of clarify one of the last points you made there on the bookings and some of the dynamics, anything you can share just kind of overall on like FSO versus FSP mix? Are you still seeing the pendulum kind of shift toward FSP in terms of what's going into backlog? And then -- and just like what is the mix now on FSP in backlog and revenue?

So Sean, the disproportionate presence of FSP, if you like, is a comment on revenue in the quarter. I mean book-to-bill is honestly the opposite. If you think about the Q4, Q1 and early expectations for Q2, where you're seeing very strong book-to-bill ex-FSP. FSP is a funny one just in terms of the math insofar as we only take 12-month values into backlog. So you're never going to see especially on a footprint as large as ours, you're never going to see wild oscillations in book-to-bill.

So when you see significant uptick performance in book-to-bill, you can assume that not being driven by FSP. That's going to be driven primarily by full service, but also other areas like the lab. So that's where we are. The overarching business mix doesn't change much quarter-to-quarter. We said FSP has been growing a little faster. Full service direct fee revenue has actually declined a little bit. So no change there. But were we to sustain these kind of book-to-bills, obviously, that changes in time, which is part of the math as it relates to the back end of '26 and the longer-term prognostications for direct fee revenue flows and associated margins in 2027 and beyond. But yes, apologies if we confused you.

The reference to business mix was in revenue in the quarter, but the book-to-bills that we've been talking about are being driven largely at strong book-to-bills in both pharma and biotech. And -- that's sort of the encouraging piece, right? There's no sponsor in here that's over 10%. The number of Boulder deals over $50 million are up again in Q1 on what was already a good Q4.

I said a year ago, I wanted to see more repeat business in biotech. But of course, you want to see lots of new business as well. So it was good to see a mix of new and repeat customers in the quarter. So this is a little bit like what I was talking about with Dave earlier on, where it's not just volume of opportunity, it's growth quality.

We're going to drive margin, we're going to drive top line growth. We want to see what the mix is like in that pipeline because pipeline becomes RFP flow, becomes awards, becomes backlog, becomes revenue. So good Phase III presence in the mix is to be welcomed, good full service presence in the mix is to be welcomed, good therapeutic distribution in the mix is to be welcomed. And obviously, the direct fee component is particularly significant. So we're reasonably pleased with how that panned out over the last couple of quarters.

Your next question comes from the line of Ann Hynes from Mizuho.

I know you don't have any share repurchase in your guidance. Can you remind us just how you view any share repurchase potential in 2026 and 2027?

Ann, it's Nigel. So you're right, the guidance excludes any benefit from buybacks. So as a reminder, we currently are not able to do buybacks because of the delay in publishing our year-end results has meant we have not actually been able to enter into an open period yet, and we're still in the close period until we publish our Q2 results. But we would anticipate being in a position of being able to go back to start buybacks again in the third quarter.

To the point on magnitude or order of magnitude, I would just point you back to what our track record has been. So last year, we spent pretty much all of our free cash flow dollars on buybacks. And we continue to see share buybacks as a very strong desire from a capital allocation perspective in the current environment and at the current share price. So hopefully, that gives you some sense of what we're thinking.

Your next question today comes from the line of Justin Bowers from Deutsche Bank.

So 2-parter, maybe just following up on the prior question. Is there any -- are you still constrained by free cash flow in the period given the sort of like the moratorium in the last few quarters and the accrual of cash on the balance sheet? And then is that also -- are you constrained from M&A as well?

And then the other part, just going back to your prepared remarks, Barry, on the mix shift in the back half of the year. Is that pointing to like a return of growth in service fee revenue of the year or more of the pass-throughs declining as a percentage of mix and/or a shift in favor of more FSO versus FSP? Just directionally, that would be helpful to understand the comments.

Yes, Justin, I'll take the second one first and then hand you back to Nigel. I mean we've said that we anticipate top line revenue to be broadly consistent throughout the year, but the business mix improves as we go through the year. So I guess you can do the math on the direct fee versus pass-through components there.

As I said, the FSP business has been growing very nicely. I mean I'm very pleased with how that business has been progressing. But because of the relative mix of FSP and FSO revenue, that obviously creates a certain amount of margin pressure. So as we think about incremental margin performance over time, it's not just cost action, it's not just pass-through mix. It's also about making sure we return to sustainable levels of growth in those FSP business. That will take some time, as I was just explaining to Elizabeth, that takes time to bleed through into the P&L.

So perhaps not massively material to 2026, but certainly something that these book-to-bill suggest is on the agenda longer term. Nigel?

Yes. And just to underpin that point, for sure, part of the margin evolution over the course of the year, the improvement we anticipate seeing as we go through the quarters is, as we said before, an improvement in that -- those mix dynamics in the later part of the year, which obviously includes the FSP, FSO relativity on the back of, again, some consistent quarters of performance on good gross wins.

So that, again, is a factor that we're obviously not getting into 2027 guidance yet, but that should be hopefully a trend that continues to be supported if we continue to execute on our commercial strategy over the next few quarters. So that's certainly a factor. The range, again, part of the reason for the range is pass-throughs, as I said before, are inherently a bit more volatile. And so the exact margin percent would be impacted by the pass-through composition. It's a bit more difficult to forecast. And best we can do there is we guide you as best we can as we go and give you the granularity when we see it where it's impacting margin quarter-to-quarter.

But fundamentally, FSO, FSP ship should improve a little bit as the year goes on from where it is today. On your first question, yes, you're right. So there is a bit of pent-up capacity from not being in the market currently for the last -- for the first half of this year. So that's helpful certainly in terms of free cash flow capacity as we come into the third quarter and are able to get back to the market. So it's not -- we're not constrained by free cash flow in the quarter. It's cumulative essentially.

And likewise, in M&A, M&A, we do have constraints in Irish company law rules around share buybacks from a free cash flow perspective and from a leverage perspective. Not so in M&A. We could look at M&A without being constrained by free cash flow as such. Barry would bring you back to our comments before on strategic priorities and where we would focus. And we do continue to look opportunistically for those areas. So at the moment, again, our priority from a capital allocation perspective is buybacks, but we do continue to look at M&A opportunities as well.

Your next question today comes from the line of Luke Sergott from Barclays.

Just on the quarter, with that $100 million sequential reduction in pass-through benefiting 1Q, is that a function of part of the cleanup that you guys had done prior in 4Q? And like is that kind of the new steady state we should go forward? Or is it more of a function of just kind of how the trials were shaking out at that time?

Luke, so this is Nigel again. So yes, that decline in pass-through, it's roughly $100 million decline in pass-through revenues from Q4 to Q1. So that's the main driver why revenue increased from Q4 to Q1, just to be clear. And as I said, guidance is a range, but at the midpoint of the guidance, the working assumption is that pass-throughs would be broadly stable at that Q1 level through the course of the rest of the year. That is currently our expectation for Q2 also.

So that's really what's driving that. I think if you refer to the investigation, again, there's no real material impact from the other factor we talked about in Q4, the $50 million decrease in Q4 revenue related to full service complete estimate changes. Obviously, there's a bounce back effect from that in the first quarter because that decrease isn't there, but there's no material bleed of that into future quarters. It will come in gradually.

Our next question today comes from the line of Casey Woodring from JPMorgan.

So you said you sustained the improved win rate you saw last quarter here in 1Q. Can you just maybe elaborate on that? Did win rates accelerate from last quarter? And was strength more in pharma or in biotech from a competitive perspective? And then maybe just comment on any sort of changes that you've made in the commercial strategy here over the last few months that is really driving that step-up in win rates. It sounds like maybe you're focusing a bit more on driving labs work, for example. So maybe just unpack the win rate comments, please.

Yes. The win rates were broadly consistent in both pharma and biotech full service, Casey, which was notable, I think, within 1% for both of them, maybe up 1%, and down 1% the other, but in very impressive levels sustained in IPH and that improved level -- or in pharma rather and that improved level sustained in biotech. So that's largely a product of what the teams have been doing over the last 5 or 6 quarters.

We talked about making sure that we're mapping the market better, both in terms of old-school customer engagement, but also in terms of some of these newer technologies that allow you to better map the molecular landscape, if you like, in early development to make sure you're engaging with these entities as early as possible or at least just in time rather than too early. That's important.

I talked before about needing to be a little bit less efficient sometimes to be more effective in biotech. And I don't really mean less efficient, but what I do mean is that the way you do business with a very small nascent entity is very different from the way you do business with a very large alliance partner you've been working with for 35 years. So reflecting that in our go-to-market approach, making sure we have the right level of regulatory and scientific consulting available to these potential customers, making sure that we triage all of those biotech opportunities like their gold dust, knowing that not all of them are today, but by treating them all that way, we'll certainly be more effective at planning for gold when the opportunities arise. That's certainly important.

Making sure we break down any silos internally so that we're selling holistically to our large pharma customers. I talked to you, I think, before about not selling A or B, if you're buying both, I want to be partnering with you for both. So these are all parts of the process. A huge piece of it, though, is about when you meet the customer, making sure that you're in a position to advise them well on strategy, whether that's at the level of a development plan, at the level of an asset or program or at the level of a particular study.

So that means getting your feasibility right, getting your intel right, making sure there's an expert-led sale there, particularly for biotech customers and making sure we put that effort in upfront because that's how we can create value for the sponsor and extract value for ICON at the back end. That's really what we're talking about it's entirely consistent with what we said back in Q1 of 2025, we talked about sharpening up that commercial focus, setting out specific objectives that were clean and clear for everybody internally in each of those sectors. And really then it's just about the marching, right? It's good, disciplined commercial hygiene moving through the process. And I have to say, I give the teams a lot of credit in how they've executed on that.

Your next question today comes from the line of Ryan Halsted from RBC.

I just wanted to follow-up on the business mix line of questioning and just go back to your comments about how you've been hybridizing your offering. So I just wanted to maybe kind of reconcile how that strategy has impacted your mix and why that kind of is leading to your view that you expect a greater proportion of direct fee going forward?

They're slightly related and slightly different questions, Ryan. Sometimes I worry that I'm boring you guys on this topic. It's a hot topic for me. I know lots of other people with it. Look, bottom line, I was with a customer last week who really prioritizes internalized development supported by FSP, but they also have certain criteria for when they're going to outsource fully. And somewhat counterintuitively, when they outsource fully, they really outsource fully, like completely everything.

So with a customer like that, who has a highly internalized model with whom you're an established FSP customer, but over the last year or so, we started winning significant volumes of either full service or stand-alone things like labs work, it's really important that you can optimize the interfaces and you don't come with a rigid CRO playbook. Honestly, the playbook for customers like that is a white page every time you go to a governance or every time you go to a pitch meeting and you sit down and say, how can we make this work more seamlessly for you?

And sometimes it's as simple as saying, we've just run a large full-service study for you. That team is now available, but we're a massive supplier of functional resourcing to you, isn't there an economic and strategic value to recycle that legacy team into whatever way you're partnering today. So you get that continuity of experience that we keep the experts involved. They know the molecule, they know the ways of working across both businesses.

Other times, you'll get customers who are doing a lot of outsourcing but want to move a particular function to an FSP platform for standardization purposes. So we might be 1 of 2 or even 3 CROs, each of whom are running full-service outsourcing studies, but we might be doing their start-up across the whole portfolio or doing investigator grant negotiations or doing data management or doing whatever it may be, certain functions that way horizontally across the portfolio rather than perfectly at a study level.

So for me, it's about not taking anything off the table. Perhaps the most topical way of thinking about this for FSP customers is the CRO industry for far too long had a nasty habit of saying, you don't get my toys if you're not outsourcing the way I want you to. You don't get anything but the people if you're in an FSP model. And we think that's math. I think I said on our last call that we don't just want to be the best delivery engine in the business. We want to be the best partner in the business. And that's really at the core of how we try and differentiate Beyond the anatomical differences between CRO and -- CRO A and CRO B, my way of thinking about this is if you can work out what's important to your customers, if you can deliver it brilliantly in the way in which they wish it to be delivered, you are much more likely to be top of mind when a new piece of work comes to mind.

And honestly, that's what happened with the labs provider ship in Q1. This was a customer we've been delivering really, really well for across a range of other functions. They obviously weren't happy or whatever. They had other considerations in their labs business, and we were invited in to add that stream to our partnership Bow. And that's traditionally what's underpinned our whole partnership philosophy going back 35 years.

We will now take our final question for today. And the final question comes from the line of Josh Waldman from Cleveland Research.

Two-part question. First, I wondered if you could provide more context on where you're seeing the strength in Q2 signings. I think you mentioned Q2 is looking very strong. Is it just biotech -- or is large pharma also improving? And then it sounds like you had assumed that H1 bookings would be stronger than H2 bookings. If so, what was the reason for that assumption in the initial guide? And when do you think you could start to get more confidence that H2 bookings could come in like 1H, if that ends up being the case?

I'll give you the answer to part 2 first, if that's okay, Josh. I think what we were really saying is when we were guiding, we were already through Q1. So we knew what the Q1 book-to-bill was going to be. And therefore, while we were taking a conservative outlook to full year commercial numbers, it seemed prudent to include the actuals for quarter 1 that we had in hand at the point at which we were guiding. So that's really what was behind that.

To your point about commercials for the back end of the year, I'm sitting here uncomfortable calling Q2, and it's over in a matter of minutes. I'm certainly not going to call the back half of the year. But if the spirit of your question, is whether or not we feel like there's at least an opportunity to avail ourselves of an opportunity where the overarching demand environment seems relatively more benign than it did a year ago and where the teams are incrementally executing well on our commercial strategy.

I mean one of the main pillars of our strategy here is commercial excellence. So if you're asking me if we think there's a shot at putting those 2 things together and doing better than a 1.0 book-to-bill in the back half of the year, I certainly hope so. Really, we were just giving transparency on how the guide is constructed. The only thing I'll repeat at the risk of being boring is that we could add 20 basis points or take 20 basis points off the book-to-bill in the back half of the year and it won't have much impact on the financials for the balance of 2027.

In terms of signings, this one is perhaps not as anomalous as it sounds. Quarter 4 tends to be a strong signing quarter, whether that's to do with annual purchase order budgets or whatever within pharma. So there was a pretty strong signing quarter in quarter 4, a little less so in quarter 1. And what I suspect will be a notably strong signing quarter in quarter 2. Again, when you think about the way the book-to-bill works, it's often the same with respect to work orders.

FSP work orders often have annual extensions on them, which sometimes disproportionately skew Q4. Sometimes they just top up as they go through the quarters, but there's often an element of seasonality to FSP work orders. So where you see significant movement between Q1 and Q2 signings, that's likely to be disproportionately ex-FSP. So think about Q2 signings as being a product of Q3 and Q4, probably Q2 and Q3 actually awards from last year.

It's just a function of seasonality of signatures being heavy in Q4 and a little lighter in Q1, but also you would expect it to tick up based on the increase in gross bookings we saw as we moved through 2025. So there's no particular alarm about it. I guess we're only talking about it because someone asked a smart question, why did unsatisfied obligations only move up about $100 million in a quarter where your non-GAAP backlog moves up much more. Again, it's just a function of the [ plumbing ]. There's nothing particularly exciting there.

Thank you. I will now hand the call back to Barry Balfe for closing remarks.

Well, thank you, Sharon, and thank you, everybody, for joining today. We're pleased to have had the time to answer your questions. We're pleased with the print today. It's largely in line with expectations. We were with you only 3.5, 4 weeks ago. So I guess it would be a problem if there were any major surprises. Pleased that we were not pleased with the work the teams have done. And I guess I would just reemphasize, the demand environment is what it is, but our job is to understand it qualitatively and to execute on it selectively because that's what drives high-quality growth. That's what will drive top line expansion in the longer term.

And as we take the actions we need to take, improve the underlying margins. These things are going on in parallel at ICON. So continuing to invest on the strategic side, continuing to execute on the near term, but encouraged by the underlying momentum in the business that gives us confidence in the trajectory. Thank you all very much.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the ICON plc Q4 and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Kate Haven. Please go ahead.

Hello, and thank you for joining us today. I'm joined on the call by our CEO, Barry Balfe; and our CFO, Nigel Clerkin. 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 guarantees of 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 relating to these forward-looking statements may be found in SEC reports filed by the company, including the Form 20-F filed on May 27, 2026.

This presentation includes selected non-GAAP financial measures, which Barry and Nigel will be referencing in their prepared remarks. For a presentation of the most directly comparable GAAP financial measures, please refer to the section of the press release dated May 27, 2026, titled 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.

Included in the press release and the earnings slides, you will note a reconciliation of non-GAAP measures. Adjusted EBITDA, adjusted net income and adjusted diluted earnings per share exclude amortization, stock-based compensation, foreign currency gains and losses, restructuring, transaction integration-related and other adjustments, transaction-related financing costs, fair value movement on investments and equity, goodwill impairment, impairment of nonfinancial assets and their related taxation effect.

In the interest of time, may ask participants to keep their questions to one each. I would now like to hand the call over to our CEO, Barry Balfe.

Thanks, Kate. Last night, we released our Q4 and full year 2025 financial results, our 2026 guidance and also reported the findings of the recent investigation into certain accounting practices and controls. We have a lot of ground to cover today, but before we begin, I want to take a moment to recognize the significant efforts of the teams across ICON in recent months, in particular, the dedicated team that supported the completion of the investigation, but also the 40,000 strong workforce that stayed focused on delivering best-in-class research, supporting sites and patients and delivering for customers. Throughout a challenging chapter for ICON, these teams exemplified our partnership mentality, and I'm grateful for their dedication and efforts towards advancing our mission.

Now before turning to our results, I'd like to address the investigation directly. The process was initiated in October 2025 after the management team raised concerns to the Audit Committee of the Board. The Audit Committee initiated an investigation, which was conducted by external legal counsel and supported by forensic and technical accounting advisers. This was comprehensive in scope, assessing not only the revenue recognition practices in our full service businesses, but also areas including billing and recording of cash.

The investigation determined that from quarter 3, 2023 to quarter 4, 2024, improper adjustments were made to the clinical services revenue of the company. This impacted the timing of revenue recognition, though not quantum. The company also identified errors in certain inputs related to revenue recognition, specifically estimated cost to complete, the assessment of realizable value and certain manual adjustments in respect of clinical trial services contracts covering the same period and into 2025.

We also identified presentation issues with unbilled and unearned revenue for contract assets and liabilities eligible for offset were not fully identified. The issues identified resulted in an overstatement of $65 million or 0.8% of full year 2023 revenue and $93 million or 1.1% in full year 2024. There was no impact on our customers nor was there any impact on our reported cash flow.

As part of the investigation, we identified material weaknesses in ICON's internal controls over financial reporting. Entity-level controls, including the tone from management were not sufficient to enforce the monitoring and maintenance of a proper control environment. And the company did not design and operate effective internal controls to prevent material errors in revenue and related accounts.

Extensive measures have been taken to ensure the accuracy of our financial statements, and we are implementing a comprehensive remediation plan, which Nigel will discuss in detail. Myself and the rest of the management team take very seriously our obligation to maintain reliable, rigorous controls. We are reassured to have identified and addressed these issues swiftly and effectively, and we are committed to ensuring they do not recur.

I'd now like to turn to our results. Having previously called out improved execution on our commercial strategy as a core priority, I'm very pleased with our strong commercial performance in quarter 4. Low double-digit increase in RFP flow, win rates up right across our business, gross bookings of $3.2 billion and significantly reduced cancellations combined to yield net bookings of $2.9 billion, an increase of 19% year-over-year.

Importantly, our direct fee book-to-bill was in line with our overall reported book-to-bill of 1.36x, an improvement on the mix in recent quarters. Commercial excellence has been a key strategic focus across the organization, and we are seeing clear evidence of progress across a range of measures. While win rate improvement was broad-based across the business, I am particularly pleased with a 5-point sequential uptick in biotech win rates, a personal priority that I laid out in prior calls.

More broadly, we saw solid traction across customer groups with no single award value above $150 million. A critical enabler of our success has been our ability to flexibly meet our customers' needs across both service, functional and hybrid models of development, particularly as their preferred models change over time.

In quarter 4, we saw a solid contribution of awards from existing long-term partners alongside an increasing ramp from more recent large and midsized partnerships. Cancellations in the quarter were $365 million, down meaningfully from the elevated levels seen in quarter 2 and quarter 3 last year and were broadly balanced across customer groups.

It's important to acknowledge that while we have made changes to how we capture cancellations, the improved quarter-over-quarter performance is evident under both new and old methodologies. As I committed previously, the change to cancellation and backlog methodologies provides for increased transparency by providing investors with enhanced visibility into intra-quarter dynamics that are relevant to assessing our current and future financial performance.

Nigel will take you through the detail of the changes to our policies and resulting impact when he covers the financials in detail. In terms of financial results for quarter 4, we saw stronger-than-anticipated revenue, driven by a marked increase in pass-through revenue. This was partially offset by findings of the investigation. Specifically, the changes made to cost to complete and realizable value estimate in our full-service business impacted earnings by over [ $50 million ] in the quarter.

After a thorough review process, we believe these changes appropriately reflect the expectations for future performance across full-service contracts. These dynamics significantly impacted margin performance in the quarter, resulting in an adjusted EBITDA margin of 15.5% in quarter 4.

Moving to our outlook for 2026. We issued our full year financial guidance of revenue in the range of $7.85 billion to $8.15 billion and adjusted earnings per share in the range of $10 to $11. These ranges reflect the importance of appropriately conservative estimates at this time and sustained quarter-over-quarter and year-over-year improvements, especially with respect to earnings.

The guidance range also reflects the divestiture of the Symphony Health business, which impacts full year revenue by approximately 2%. We expect a headwind to revenue this year due to the challenging bookings environment we experienced from 2024 through the first 3 quarters of 2025 and in particular, the elevated cancellation activity in recent quarters. Pass-through revenue is projected to continue at similar levels on a full year basis to 2025.

As we indicated on our last earnings call, our 2026 margin profile will be impacted by business mix, specifically FSO/FSP dynamics and sustained levels of pass-through revenue. There is also an impact from pricing pressures from prior quarters as previously awarded projects convert from bookings into revenue. We will continue to work to offset these factors through efficiency gains from automation activity and advanced technology deployment in addition to overall cost management with a focus on optimizing resource cost and location based on customer requirements.

In parallel, we will continue to invest in expertise, prioritizing high-growth businesses like labs and early phase as well as therapeutic areas with potential for accelerated growth, such as advanced hematological diseases and women's health.

Our Functional Service business continues to perform strongly as we support a number of partners that have adopted hybrid development models. We anticipate that phased evolution of sourcing models will continue, positioning us well to benefit from this key element of our differentiated offering. While 2026 will be a year of navigating near-term headwinds, the leading indicators that we monitor, bookings momentum, pipeline quality and the maturation of key partnerships give us confidence in accelerating growth as we move towards 2027.

Looking now at the broader environment, we have been encouraged by indications of strengthening demand over several quarters. Biotech funding has been positive with particularly strong capital generation in the last 2 quarters. There has been notable activity [Technical Difficulty] stage clinical programs, a key focus area for ICON Biotech.

In large pharma, development spending has been supported by customers continuing to invest in their late-stage pipelines. Opportunity flow through quarter 4 last year increased in the low double digits on a trailing 12-month basis, led by activity in large pharma and particular strength in TA such as cardiometabolic and oncology.

Across the business, we have seen the quality of opportunities improve through quarter 4 and indeed into this year with an increase in the average value of opportunities advancing to decision. These quarter 4 trends have sustained into 2026, and we expect that quarter 1 awards and cancels will be broadly in line with quarter 4. In addition, the commercial environment in quarter 2 is similarly encouraging. We look forward to reporting these Q1 and Q2 numbers in June and July, respectively.

Moving on to strategy. Since [Technical Difficulty] I've been actively reviewing our portfolio to identify areas where we can generate the most value for our stakeholders. We are focused on opportunities where growth can be accelerated in priority areas of the business through investments in our people, capabilities and technology that will better enable our teams and further differentiate our offering.

As a result, we have reallocated investments to our laboratory services business, increasing automation across our labs as well as expanding our testing menu, where we have recently added over 100 new biomarker assays. We also invested in the expansion of our early phase clinical footprint, opening a new purpose-built Phase I clinic in San Antonio, Texas with over 130 beds, along with satellite outpatient centers in Houston, Texas and Lawrence Campus.

These facilities are specifically designed to support first-in-human studies as well as healthy participants and patient cohort trials and expand our capability in this high-growth area. We announced a partnership with Advarra, integrating ICON's technology with Advarra's systems across a broad network of research sites. By connecting workflows and data more effectively at the site level, we can support faster and more predictable trial execution, improve operational visibility for sponsors and reduce the burden for our site partners. This partnership will better enable sites to perform clinical research, accelerate study start-up and increase patient recruitment.

Additionally, during quarter 2, we completed the divestment of Symphony Health to HealthVerity, a health care technology business with significant access to data assets across health care claims, EMR and pharmacy sources. ICON will retain access to an expanded pool of health care data assets without the need to own the assets outright, thus advancing our strategy in real-world data while reallocating capital to priority growth areas.

We will also have an established partner, who is focused in this area and [Technical Difficulty] to navigate the inherent opportunities and potential risks that AI presents to the commercial data segment. Together, these moves reflect a sharpening of ICON's strategic focus, deliberate prioritization of high-growth opportunities and decisive management of the portfolio with disciplined allocation of capital.

In parallel with reviewing the portfolio, we have been refining and progressing the company's AI strategy. Recent advances in the capabilities of large language models, in particular, have been rapid and are facilitating global businesses to move from AI's experimentation to AI as core infrastructure. While large-scale adoption across industries will be phased, the opportunities for drug development are relatively clear.

In the first instance, the area with the single largest potential for transformation is in drug discovery. While it has not yet manifested in industry, we will see the emergence of tools that help to better design and synthesize new molecular effect on target diseases and disease pathways. The result will be a greater number of targets, increased predictability, lower failure rates in the clinic and reduced uncertainty.

In the aggregate, these trends are net positive for society, for drug development and for CROs. For ICON, our focus is in 3 primary areas. In the first instance, ICON is building the intelligence layer that connects expertise, data and AI across the trial life cycle. This enables teams to turn information into knowledge and data into insights, allowing for better decisions faster. Examples include an integrated control tower for project teams that facilitates next best action.

Secondly, there are a range of productivity gains to be found through AI-enabled automation as Agentic capabilities accelerate and improve high-volume, highly repeatable processes across our business. These agents [Technical Difficulty] human expertise to be redirected to higher-value activities. Examples include enterprise adoption of the deployment of digital assistants that support routine site queries.

And thirdly, we continue to develop domain-specific agents that are embedded within clinical trial workflows. Our proprietary Orbis capability functions as an agent of agents that facilitate seamless navigation across disparate data sources. Our proprietary contracting agent accelerates study start-up and our new CRA agent will increase the time and expertise available for site management and patient recruitment.

So while there's obviously potential for AI to dilute certain revenue streams over time, for example, the automation of clinical study reports or the reduction of human effort in programming, the opportunities presented by AI are likely to offset these risks. It's also worth noting that CROs like ICON with the necessary scale to develop industry-leading platforms and the expertise to leverage [Technical Difficulty] proportionately from this shift.

Finally, a word on capital allocation. In short, our approach to capital allocation is consistent with 2025, disciplined, guided by a defined framework and with a clear priority to return capital to shareholders through share repurchases while continuing to invest in our capabilities. Let me now hand over to Nigel to take you through our results in further detail.

Thanks, Barry. Let me start with an overview of the remediation actions we are taking in the light of the investigation findings. Our plan is focused on 4 main areas: one, organizational and personnel changes in key roles and enhancements to our compliance programs; two, revised policies and procedures related to revenue recognition; three, training; and four, enhanced internal controls over manual adjustments. These actions are underway [Technical Difficulty] implemented in 2026. A full description of the material weaknesses and the remedial actions we are taking is included in our 20-F filing.

Turning to the changes we have made to our backlog and cancellation policies. As Barry set out, these changes have been made in response to specific dynamics within our business that were influencing our backlog metrics. Our policy and approach to gross awards reporting will be consistent with prior periods, which recognizes awards upon written confirmation from our customers that have a defined value within the quarter of notification for those awards are expected to start generating revenue within 12 months.

Additionally, each award must have evidence of sufficient funding to support the intended development program to be included in backlog. We believe this approach provides stakeholders the best visibility to our current business development performance regardless of timing related to contracting or [Technical Difficulty] with regard to cancellations, we have modified our policy such that reported quarterly cancellation amounts now reflect in-period contract cancellation notifications from customers in addition to studies that have been identified by management as at risk for cancellation.

This change in policy will more accurately reflect current cancellation activity in comparison to our previous approach of reporting cancellations when only termination or study closeout agreements were finalized with customers for contracted studies, which can take a significant amount of time.

Additionally, this change allows for adjustments for inactive or on hold studies that are unlikely to proceed, which did not occur under the previous policy. Our treatment of FSP awards and their recognition into backlog is unchanged from our previous policy, which includes the expected revenue under the award. [Technical Difficulty] The changes made to our policy resulted in an adjustment to our backlog of approximately $3.9 billion at October 1, 2025.

We are confident that these changes provide investors enhanced transparency on awards, cancellations and our overall backlog, allowing for a more accurate assessment of our business. The unsatisfied performance obligation or our backlog in accordance with GAAP will continue to be reported on a quarterly basis, reflecting the total value of contracted awards adjusted for realizable value calculations in accordance with GAAP.

Now let me turn to the financial results for the fourth quarter and full year 2025. Revenue in quarter 4 was $2.1 billion, representing a year-on-year increase of 2.5% and an increase of 1.3% on quarter 3 2025. For [Technical Difficulty] $5 billion, an increase of 0.8% over 2024. Our Q4 revenue was approximately $100 million higher than the expectations underpinning the midpoint of the Q4 guidance we provided at our Q3 results call last October.

This mainly reflects 2 things. Firstly, pass-through revenues came in over $150 million higher than we had anticipated as the increasing proportion of pass-throughs we had seen through the year accelerated further in the fourth quarter. Second, in connection with the investigation, we performed a comprehensive review of our cost to complete estimates across the full service portfolio.

This resulted in the correction of some errors in previous periods, but also led to updates to estimates that impacted our Q4 results and resulted in direct fee revenues for the quarter [Technical Difficulty] lower than previously anticipated. This mix shift had a consequent and significant impact on our Q4 EBITDA margin and adjusted earnings per share with both coming in materially lower than the Q4 guidance midpoint.

Adjusted gross margin for the quarter was 23.7% and 27.1% for the year compared to 30.9% and 29.3% in quarter 4 2024 and full year 2024, respectively. Adjusted SG&A expense was $174.5 million in quarter 4 or 8.3% of revenue. For the full year, adjusted SG&A expense was $701.9 million or 8.5% of revenue.

Adjusted EBITDA was $327.1 million [Technical Difficulty] -- this compares to $387.7 million in Q3 2025 and $455.9 million in Q4 2024. For the full year 2025, adjusted EBITDA totaled $1,530.7 million or 18.6% of revenue. This compares to $1,670.4 million or 20.4% of revenue in 2024. Adjusted net interest expense was $46.5 million for quarter 4 and $184.4 million for full year 2025.

On a full year basis, net interest expense declined $20.7 million or 10.1%. The effective tax rate was 19% for the quarter. The full year 2025 adjusted [Technical Difficulty] with a similar rate expected for 2026. Adjusted net income for the quarter was $195.1 million, equating to adjusted earnings per share of $2.52. This compares with adjusted earnings per share of $3.86 in quarter 4 2024 and $3.20 in quarter 3 2025.

For the year, we have recorded adjusted earnings per share of $12.53. This compares with $13.37 for full year 2024. U.S. GAAP income from operations amounted to $207.8 million or 9.8% of quarter 4 revenue. U.S. GAAP net income in quarter 4 was $149.2 million or $1.93 per diluted share per [Technical Difficulty] diluted share for the equivalent prior year period.

For the year, we recorded U.S. GAAP net income per diluted share of $2.90. This compares with $8.90 in 2024. From a cash perspective, quarter 4 had cash from operating activities of $234.2 million. Capital expenditure was $59.3 million, resulting in free cash flow in the quarter of $174.8 million, bringing our total year-to-date free cash flow to $862 million.

At December 31, 2025, cash totaled $647.3 million and debt totaled $3.4 billion, leaving a net debt position of $2.8 billion. This was broadly in line with net debt at September 30, [Technical Difficulty]. We ended the quarter with a leverage ratio of 1.8x net debt to adjusted trailing 12-month EBITDA.

Our balance sheet position remains very strong, which affords us the flexibility to continue to strategically deploy capital. We are focused on an approach that balances further investment in our business as well as future growth, while also prioritizing our return of capital to shareholders. We made significant share repurchases in the year totaling $750 million at an average price of $167 per share. And with that, I believe we're ready to open it up for questions.

[Operator Instructions] We are now going to proceed with our first question. And our first question comes from the line of Elizabeth Anderson from Evercore ISI.

It's nice to be speaking with you guys again. Thanks so much for all the updates on the company. I guess one of the questions I have sort of a combo short, long-term question is that like short term, it seems like sort of the bookings looks great even on the alternate of the new standard. Can you talk about how much of that you think is sort of market-driven in terms of like the funding cycle starting to recover and maybe some idiosyncratic things going on customer versus any sort of new strategic initiatives on your part or any additional focus areas or share gains?

And then two, I think one thing that broadly speaking, investors are wrestling with in terms of the CRO industry more broadly is sort of like what -- given all these kinds of push-pulls, how to think about the long-term growth rate. So I don't know, it's -- obviously, there's a lot of things that are in flux. I don't know if you're fully prepared to comment on that. But like how -- I guess, maybe even conceptually, how you would think about any of those longer-term pushes and pulls as well?

Thanks, Elizabeth. It's Barry here. I'll take the first one, and Nigel might want to expand on the second one. I guess the short answer is it's both. It's evident that there's an improvement in the underlying market conditions. You can see uptick in RFP flow. And it's not just quantitatively, it's qualitatively.

The number of those proposals that are going to decision is higher. The proportion of those proposals that are ballparking or pricing exercises is lower. The win rates on those proposals are higher in the quarter. And we've been pretty consistent over the last 15 months or so about making a priority out of improved commercial execution. So good that there's superior flow, but I think the teams have done particularly well to execute on those.

And as you know, we made a virtue out of saying we had great win rates in pharma, which I'm happy to say upticked in the quarter, but we needed to diversify our sales channels into those by cross-selling, things like labs and early phase services. So good to see that progress. But particularly in biotech, we wanted to see more of the market, which we had been doing, but we also wanted to see a win rate uptick, certainly up above the 30% range.

And I was pretty open about that not having happened in quarter 2 and quarter 3. I'm pleased to say it did in quarter 4. I've indicated in the remarks today that we'll be giving you similar news around quarter 1, and we feel pretty good about quarter 2 based on where we are roughly mid-quarter. So I think it's a combination of both of the 2.

On longer-term growth rates, sectorally, I think there's been a lot of noise in the commentary. And you'll forgive me if I don't give you '27 guidance 5 seconds after giving you '26 guidance. But I think the fundamentals are ultimately what will drive it. Do we see a sustained investment thesis from large pharma as they tackle an LOE cliff? Yes, we do. Do we see a normalization of biotech raise and deployment of capital? Yes, we do. And do we see broad improvements in the underlying dynamics that are germane to things like cancellations as well? Yes, we do.

I'm sure we'll talk about AI at another point on the call. But I think as long as those underlying fundamentals remain strong and we see normalization in some of those disruptive forces, we should be set for more normalized growth rates as we move on.

[Operator Instructions] And this question comes from the line of Patrick Donnelly from Citi.

Barry, maybe one for you, just on the bookings updates here. Can you just talk about how stringent the bookings policy is going to be? I mean, obviously, you guys took a deep look at it here. You removed the $3.9 billion. Cancels were quite low. It's just hard to tell with -- given that $4 billion, the cancels, what's going where. But can you just talk about how you approach this bookings policy? Is the effort here to make that book-to-bill correlation to growth a little bit higher?

I know that's been a pushback in the industry for a while. It seems like you guys want to have kind of the "cleanest" bookings policy here. So I would love just a little more color as to what went into this analysis. And then again, how to think about the cancels number given the backlog adjustment, what went where? It would be helpful just to get a little more color there.

Let me take the second one first, Patrick, because it's the easier of the 2. We gave you the cancellations under the new and the old methodology. So the underlying rate of cancellations dropped in the quarter in either methodology. That's nothing to do with the methodological adjustment. That's just what's going on in the market, which I think we'd heralded from a quarter or 2 ago as something we expected towards the back end of the year. So we'll let that one stand on its merits.

The broader issue though was around intent. I think I've been pretty consistent in saying that there was a bolus of studies in the backlog that weren't performing as expected and that I wouldn't be doing my job in the first quarter and seat if I didn't look at whether or not our methodology was contributing to that. And I thought it was. The reality is when you look at that backlog adjustment, less than 4% of that adjustment came from awards that were made in 2025.

In fact, more than 75% of it was 2023 or older. So the company had a long-standing policy of only taking cancels out of backlog when there was a written notification of cancellation or termination. And there's all sorts of things that can fall through the cracks in that context. I don't think that's the best way of doing things. We already gave a GAAP backlog that speaks to when things are contracted and how they're going to realize over time. I felt it was also important to give non-GAAP measures that gave relevant information about intra-quarter dynamics.

So you can see what we were awarded during the quarter. You can see what was canceled during the quarter, not just papered as canceled. Either we became aware that a study was not going ahead because the customer notified us or frankly, we were no longer satisfied ourselves that it was going to go ahead. There are instances in the biotech community, for example, where if a study encounters long-term potentially existential delays, it's not often in the customers' interest to paper that officially for whatever commercial reasons they may have themselves. We don't want to wait for that. We want to make sure that investors have a solid understanding of the real intra-quarter dynamics and the quarter-over-quarter performance of the business. So that's really what was driving the change.

And sorry, to close out on the answer, the answer is absolutely in terms of rigor. It will be applied to the letter of the law. As was the old policy, I just think the new policy is a better law to apply in the first place.

[Operator Instructions] And this question comes from the line of Ann Hynes from Mizuho Securities.

And can you let us know what EBITDA margin is implied in 2026 guidance? And should we assume from a modeling perspective that margins improve through the year. So maybe Q4 2026 margin is much higher than what was reported in Q4 '25?

Ann, it's Nigel. I'll take that one. And so Q4 '25, let's start there. Obviously, we walked you through where we ended up with an EBITDA margin of 15.5% for where we finished last year. When you look at the guidance for 2026, obviously, it's a range. So it will depend exactly where we come out in the range on both top line and bottom line. But just for simplicity, if you take the midpoint of that guidance, which would imply revenue of around $8 billion, and EBITDA of somewhere around $1.3 billion, that's an EBITDA margin for the year of approximately 16.5%.

So roughly 1% higher for the year than where we were in Q4. Where we would see that building as we go through the year, broadly on the top line at this stage, we'd expect revenue to be broadly stable as we go sequentially through the year. But we would expect to see incremental improvement on that margin evolution and to end the year at an exit run rate then obviously that would be higher than that average 16.5% for the year.

And likewise, similar dynamics in the EPS metric as well, where obviously Q4, we did $2.52, Q4 '25 that is. So we'd anticipate Q1 '26 broadly similar to that, and we should see growth as we go through the year and exiting obviously at a higher run rate heading into next year would be the anticipation.

[Operator Instructions] And this question comes from the line of Sean Dodge from BMO Capital Markets.

Maybe just on the revenue restatements. With the impact of 2025 being positive, and it looks like as of the third quarter of '25 and into Q4 kind of increasingly positive. Is there anything you can share just for like purposes of 2026, like what the impact of the restatement is going to be to this year? How big is the contribution lift to 2026 revenue you're getting from that kind of all else equal?

Sean, it's Nigel again. Let me take that. I would say, directionally, not huge. So I wouldn't look to that as a broad factor. When you look at the guidance we have given, again, at the midpoint, just to take the midpoint within the range, -- that suggests a revenue decrease of about 3%. Within that, there is actually an FX tailwind of about 1%. So on a constant currency basis, it's actually about a 4% decline.

Roughly half of that is from the divestment of the Symphony Health business and the other half is underlying organic decline in revenue. As Barry noted as well, within that, our pass-through revenues are expected to be approximately flat year-over-year. So we are looking at an underlying decrease in our direct fee revenue through the course of the year.

[Operator Instructions] And this question comes from the line of Justin Bowers from DB.

And pardon the potential redundancy, some of the prepared remarks broke up. But Nigel, could you discuss the $50 million callout from 4Q and the impact on the direct fee revenue? And is that all -- is that sort of all catch-up cost? And then just wanted to clarify one of the comments in Q&A on the margins. Were you saying that 1Q jump-off point is going to be similar to 4Q '25 and then it will progress throughout the year?

Justin, yes, so me again. So on the first one, so again, as I mentioned, look, related to the investigation, we did conduct a broad review of our cost to complete estimates across all of the full service portfolio. So flowing out of that, we did update our estimates. In some cases, that did identify some errors that we corrected in the previous periods, and that's part of the restatement analysis that we've laid out. But in some cases, it did lead to changes in estimates in the fourth quarter for the future cost to complete across a number of studies.

So that's what we're getting at there, Justin, it's around what is the expected cost to complete across that portfolio of studies from here through completion of the studies. And then on the second question on the margin evolution. So again, yes, we'd expect EBITDA margin to be broadly probably similar in Q1 to where it was in Q4 and then to progress through the course of the year and exit the year at a higher run rate than the average for the year. I don't know, if you wanted to add anything to that, Barry.

Yes. I would just point you, Justin, to the remarks I made when we launched the investigation and when we updated you guys on it -- for me, while the investigation focused on GAAP accounting, it was very, very important to look more broadly and make sure that all of the assumptions pertinent to revenue were on point, were solid and provided the correct baseline for go-forward revenue recognition. And there is a certain degree of subjectivity under ASC 606 in those long-term full-service clinical trial service agreements. So we did a very broad review either to identify errors or, frankly, assumptions that we felt just warranted being revisited. So that's really what the impact was on Q4. And we thought that was important to do this now, to do it once and to do it transparently.

[Operator Instructions] And this question comes from the line of Luke Sergott from Barclays.

I think like -- and this is not just with you guys, but I think a big question across CROs in general is just on the pass-through dynamic, I understand with the dynamics that you guys had in the [ idio ] stuff from 4Q and how that's going to shape out through the year. But I think right now, where investors are just kind of staying on the sidelines is like we don't have a lot of visibility into what the actual P&L looks like and what's coming in through the backlog.

So anything you can give us from a pass-through perspective on how the bookings and the conversion is going to perform over the next 12 to 18 months, just gives us a little bit of visibility or comfort that like, all right, this jump-off point of 15.5% is where we can go and model from there. Otherwise, it's just going to be kind of finger in the wind, if you will, trying to figure this out.

So Luke, you have my sympathy. It's a confounded data set, and it can be difficult to extrapolate one line item like the impact of pass-throughs. You know what, when we gave guidance on earnings, much like when we gave an upper limit for the impact of the investigation, we choose our numbers carefully. We want to make sure that we give you guys a point from which you can bottom out and move on from there. And that's consistent and will continue to be the case across the board. But on pass-through significantly, I am mindful of the challenge you're describing.

Pass-throughs aren't a factor in certain parts of the business. They're a large factor in other parts of the business, and they are volatile across those parts of the business. That is the nature of research. Pass-throughs are dominated in the full-service space by investigator grants in the same way that they're dominated in the lab space by things like lab kits and reagents and so on.

And where and when and how patients are recruited, where and when and how they do visits, where and when and how they incur things like lab costs, is subject to the recruitment dynamics on these trials. And if that was perfectly predictable, honestly, we'd have put all the other CROs out of business already. There is a certain amount of volatility in there, and that remains. But to your point, that's why we called out the elevated level of pass-throughs, which is, to a certain degree, a function of the therapeutic mix in recent quarters.

It's why we called out the fact that the 1.36 book-to-bill is broadly consistent, in fact, almost identical across a 605 and 606 basis in quarter 4. That's encouraging. That's certainly an improvement on recent mix. And we are open to providing more color on those direct fee and pass-through dynamics as we move forward where we think that's appropriate. So I can't give you a perfect model on that. There isn't one to give, but I do think that the numbers we've given you in terms of guidance we've given you from a position of confidence, and we are obviously mindful of things like the impact of pass-throughs on those numbers. Nigel?

Luke, I might just add as well that we fully, fully appreciate the challenge that, that presents, as Barry said. So look, we'll obviously try to provide as much commentary as we can around that to help you. Look, we've obviously laid out guidance for this year, and I've walked you through where we think the cadence of that is as we flow through the year. We've touched on before and Barry talked about the factors driving that EBITDA margin evolution this year versus last year.

Equally, I do think it's important, Barry touched on, we do continue to focus, obviously, on being disciplined on cost control on where we're making targeted investments and so on. And also, given the commercial performance over the last few quarters, while it's obviously far too early to talk about guidance for 2027, we just got guidance for 2026. We are encouraged by what we've been seeing in terms of that commercial performance. And frankly, again, we've talked before about the operating leverage that exists in a business like this. And we are seeing, to some degree, our margin evolution this year being in part a function of negative operating leverage.

The reverse should also be true as you get back to growth. So again, as we look towards the back end of this year and into next year, we'd hope to see that dynamic changing. Obviously, pass-throughs will be what they will be, but we're clearly much more focused on underlying profitability and driving progress in earnings per share and actual EBITDA dollars over time.

Our next question comes from the line of Eric Coldwell from Baird.

Unfortunately, you cut out on me a few times during the prepared commentary. I missed the dollar impact of the cost to complete estimate change in the fourth quarter and how you were guiding that impact to continue through 2026 and beyond. So if we could just get those numbers again would be great.

And then how long would the cost to complete estimate change take to -- does it work through? Does it wind down over time as you work through this book of prior awards contracts underway where you've made the estimate change? Does it eventually go away? Or is this more of a structural or permanent adjustment that you expect would continue to be a rate limiter to margin in the distant future as compared to the past?

Both fair questions, Eric, and apologies if there was issues on the line. The impact to Q4 was north of $50 million. And the answer is those dollars get redistributed across the lifetime of those projects. These are not revenue dollars or margin dollars that disappear. They simply get rephased across what are relatively long-term contracts.

So there was a follow-up question on what's the impact of the investigation on 2026. In the context of an $8 billion midpoint and you're talking about $50 million of impact being rephased over multiyear long-term contracts. The answer is the impact in any of those subsequent years is likely to be muted.

[Operator Instructions] And this question comes from the line of Jailendra Singh from Truist.

Barry, you called for it. So let's talk about AI. Clearly, this has been overhang for the group this year. I would love to get your thoughts on how you think about the AI impacting the industry in terms of pricing, in terms of in-sourcing versus outsourcing from pharma companies.

Do you see AI as a net revenue tailwind or net revenue headwind for your business? And any color from your current conversation with pharma companies? Are they pushing for discounts on AI efficiencies or not? Just give us more color like how you think about the impact over the short term and also long term.

Happy to give you an update on that now, Jailendra, and thanks for the question. I think it's something we're going to return to in much more detail actually on subsequent calls. I think the industry has done a bad job speaking to both sides of the ledger.

Until we acknowledge that we've managed to automate a huge amount of the human effort and things like CSR generation or that we're not going to be coding databases in 2030 the way we were in 2020, then I think it's difficult for everybody to hear the other side of the ledger. So of course, there will be areas where AI is net revenue dilutive to particular functions of the business. The 2 examples I gave you are not particularly material, but it's there. It's a real thing.

That's not unique to drug development, though. I think we have to see that in the context of industrial scale adoption of large language models, in particular, that will help across a range of high-volume, high repeated processes in industry and across commerce generally.

For drug development, you may have heard my earlier remarks, I think the biggest single tailwind to drug development will be when we take uncertainty out of the model, when we increase the number of shots on goal and the strike rate of those shots on goal in drug development, I think that reduced uncertainty increases capital flows into the space. It increases the number of targets. It increases the number of new medicines, and that's net good for just about everybody.

Where we are today is if you think about the rate of improvement in the last, I mean, literally 9 to 12 months, you see a tremendous difference in the capability now. So we've talked openly about deploying now that which works now, experimenting now with that which may work tomorrow, but staying aligned with the really transformational changes that will require multiyear evolutions over time.

So that's why we went out and we talked to the NVIDIA of this world about CPU to GPU migrations. That's why we work -- signed up a deal with Anthropic to embed Claude in certain core workflows and to enable our coders and developers to bring new agents to bear in our own environment. That's why simple things, simple productivity tools like Microsoft Teams with Cloud-enabled back ends are really, really important.

But it comes back to what customers value. When we talked to customers about the CRA agent we developed, very honestly, we went out, we said, what's the best CRA agent in the market and should we buy it or license it. And the teams came back and said, with these new tools, we don't have to buy it because we can beat it. We can spin up a superior platform, have it active in 2 to 3 months and get customers on board, not just with co-development, but with adoption.

What customers care about is, can you give me time back of those site-facing resources to spend on higher-value activities? I don't need them shuffling through paper or worrying about which element of SDV or SDR they need to do more of. I need them talking to investigators and coordinators about where the patients are, is the right study for that site? Are we reducing patient burden in such a way that we don't just do better at patient recruitment, we do it more predictably.

The other element of your question, I'm a little bit amused at times about AI as the big driver of in-source, outsource dynamics. If you take a 30-year view, we always had project management, so did our customers and yet they outsourced. We always had monitoring, so did our customers and yet they outsourced. We always had clinical data science and so did our customers and yet they outsourced. We'll always have AI tools, so will our customers, and yet they will partner with companies like us to outsource and to in-source and to help them move forward.

And this is the key point about these tools. They're based on what are largely becoming commercially available large language models, but the expertise required to turn data into insight, to turn information into knowledge is still based on that human capital. It's still based on drug development expertise and drug development operations expertise. So we can help customers to take time, to take cost, to take fixed cost and to take predictability or unpredictability out of the model.

So I don't see it as a particular driver. I think we will see, and I said it in my prepared remarks, I think I might have said it in the PR, we will continue to see conversations back and forth about what the development of hybrid models look like. And very soon, I think we'll stop talking about hybrid models. We'll just call them models. I genuinely don't know any large pharma, who aren't doing some stuff in-house, some stuff in-sourced, some stuff outsourced. Our job is to optimize at the interface of those 3 models and to make sure that we create value by doing so.

[Operator Instructions] And this question comes from the line of David Windley from Jefferies.

Barry, I sure hope that last answer, thanks for that one, but that last answer sinks in. I sure hope it does. The question that I have for you is around, I'll call it, client traction. One of the concerns, I think, stemmed from the higher level of cancellations, other speculation about ICON's position at some large clients. Your book-to-bill in the fourth quarter and your call out on large pharma, in particular, makes it sound like those are either improving or perhaps never were as bad as we feared.

And I wondered if you could elaborate on that a little bit. And relatedly, if I could sneak this in on the multiple questions on the $50 million those sound to me like essentially, you're changing your cost to complete estimate for the balance of the study in the context of assuming -- correct me if I'm wrong, assuming that, that change in the cost to complete is not going to be covered by change order value.

So changes in the margin on those projects, but those changes in estimates would be overweighted to the period where you make those changes, so in the fourth quarter. Am I right there? Or is there some amount of this change in estimate being related to Olive branches that you're offering to clients related to certain projects. And again, getting back to my core question about the client relationships. Sorry for the convoluted 2 questions, but hopefully, you can answer those, please.

Dave, you were so nice about the AI question. I'm going to have to answer both of yours. Look, I actually hope your second question is the one that sinks in. No, it's nothing to do with all of branches. And yes, you understand it correctly. When you think about revenue recognition on a cost to complete model, the 2 things that you're measuring are what percentage of the current contract value you expect to realize and how much cost you expect to burn to drive that current scope.

It doesn't take account of future out of scopes that may or may not be coming, that may or may not be expected in terms of upscopes. So yes, you're absolutely right. You get a disproportionate disruption in the immediate term and then you phase it out over the long term over the balance of the project. But in the context of a cleanup, in the context of surplus of caution to make sure that I'm not talking about revenue corrections forever more, I felt it was really, really important to throw the blanket wide and to go really, really deep.

I cannot emphasize enough the extent to which we put operational teams and finance teams through the ringer to scrub every single one of those assumptions on every single full-service contract across the business. So yes, you are right. On client traction, I read these notes about, oh, is there a problem in large client S and large client B. And it's maybe the only time where I'm disappointed that we don't comment on single customer-specific dynamics because, frankly, they don't resonate for me.

I think the market is broadly aware of ICON's penetration around large pharma. I think the market is broadly aware of what our incumbency looks like. And I think the numbers speak to progress capturing share and continuing to execute really, really well there. We know what the revenue drivers have been. We know what the margin drivers have been. Happy to talk about them more. But customer acquisition and customer retention has not been part of this story, and I don't anticipate that it will be part of this story.

So I don't think our position is changing with respect to clients other than for the better I got to keep a few bits of powder dry for Q1 and Q2 Day, but we'll talk about new customer acquisition in the new year and some of the segments we've talked about, not just large and biotech, but also in the midsize, which is an important area for us. So I'm going to go with opt and see, not as bad as certain people seem to worry out loud, but that's not to be complacent, Dave.

We've been really pleased with the level of engagement with our customers. I said in January of last year, it was probably February of last year on the call that a major priority for me was not just being the best delivery engine in the business, but being the best partner in the business. That's about being flexible in how you formulate and blend your capabilities to meet the needs of individual customers. That message continues to resonate. Where we need to get better now is making sure that we offer those customers access to the broadest array of ICON capabilities possible to make sure that we maximize the operational value to them and we maximize the degree of that value that we can capture in return.

[Operator Instructions] And this question comes from the line of Michael Cherny from Leerink Partners.

I just want to dive in, Nigel, if I can, on the margin side. As you think about the comments you made regarding the progression over the course of the year, how do you see the visibility maybe at the midpoint, maybe wherever in that margin progression? And how much of it is your expectations on mix shift versus your expectations on operational efficiencies, other components that I would say are more within your control?

Yes. Thanks, Mike. Good question. It's a bit of both, frankly. So obviously, Barry touched on the composition of the Q4 wins and being broadly similar, whether on a 605 or a 606 basis. That has been a shift, as you said, from the previous few quarters. So that's encouraging in terms of the quality of those wins.

And again, we touched on, we will always continue to focus on operational efficiency. And so we do continue to expect to make further progress as we go through the year. So it is a bit of both, Mike. And again, look, we feel obviously good about the guidance range we put out and the likely cadence of that as we go through the year. I do think at this stage, revenues should be broadly stable quarter-over-quarter, but we should see margin progression as we go through the year and exiting on a higher run rate then going into next year.

I would second that, Mike, when we think about how we manage those things that are within our control, we structure our investments accordingly. We make sure that we're reallocating capital to the highest priorities, but also to ensure that this company isn't just doing what we said we'd do, we're doing it incrementally better on a quarter-over-quarter basis. And we very much had that in mind when we set the expectation of progression quarter-over-quarter and indeed into next year.

[Operator Instructions] And this question comes from the line of Max Smock from William Blair.

I wanted to follow-up on Dave's questions around competitive dynamics. One of the things that really stood out to me in your prepared remarks was your commentary around the win rate improvement that you saw, particularly among small biotech. So just hoping you can give us some more color on what you think is driving that improvement.

Obviously, it sounds like you're benefiting from more of a concerted effort to see more opportunities in that space, but again, also winning significantly more of those opportunities. So just curious your thoughts on what is driving the latter there in particular.

Thanks, Max. I want to be careful on winning significantly more. I said from the middle of quarter 1, I wanted to win more. And we saw a 5-point jump in Q4. We didn't see progression on that number up to then, quite frankly. We were bidding on more, but we're winning a similar percentage of it. So progression in Q4 that was sustained in Q1 and it's looking pretty good for Q2. But I just want to be careful about talking about some sort of transformational change in the biotech win rate. It's an important step in the right direction. 5 points is quite a lot, but it's 5 points.

To your broader question, I said when I came into the COO seat in January of 2025 that I thought ICON had an outstanding biotech offering, but it wasn't perhaps configured probably or properly. And I didn't think that the go-to-market story had been put together optimally and not just the story, but the package. So what have we done since?

We've looked at the structure of our biotech organization to make sure that biotech customers aren't getting the flexibility they need. There's a trade-off in large CROs, who have pretentions of being leaders in the biotech space. If you overindustrialize process, you dehumanize the customer experience, and that's bad. And I've openly said, I think ICON maybe went a little bit too far in that direction in '23 and '24.

So we've rightsized that. We brought back a lot of dedicated customer-dedicated focused headcount in areas like project management, in areas like medical affairs, in areas like reg, in areas like study start-up to make sure there's a highly personalized and expert-led service for our biotech customers. So some of that's organizational. Some of it, honestly, is personnel. We brought in some outstanding leaders from inside and outside ICON on the project delivery side and on the executive side to engage better, particularly in some key markets. You think about Boston, you think about the Bay, you think about China.

We've done some really good work to put the right people in the right jobs. And that's also true in commercial. I'd have to give tremendous credit to our commercial teams. I think they've done really, really well to feed back to the organization what is required to win in my market and then to advocate for that change.

In biotech, as in all markets, but particularly in biotech, the CRO game is largely predicated on being a better advocate for your customers in-house than it is for being a better advocate for your customer or for your company within your customers. So there are some of the big ones. The other ones, very honestly, is about choosing where to play. We said we wanted to bid on more of the market, but we also need to prioritize those areas of the market where we want to win. Within that increased win rate, the average size of opportunity that we're winning is going up.

So we're winning a higher proportion of the dollars even than we are a proportion of the proposals. And that says you're getting better at winning the ones that matter. In fact, the number and proportion and value of what we call bolder opportunities, north of $50 million increased significantly in quarter 4. And that's important to me.

It's all well and good to win 1 in 3x or 1 in 2x or 2/3 of the time in pharma, but you got to make sure you're winning where you want to win. So investing in the right therapeutic, operational, executive and commercial expertise is key to being able to make that a very strategic strike on the opportunities you need to win rather than treating them all as equal. So there's a lot going on there, Max, but there are some of the key themes.

[Operator Instructions] And this question comes from the line of Michael Ryskin from Bank of America.

Great. Sorry, the audio was cutting in and out. So I apologize if this is beating a dead horse, but I want to go back to the 4Q margin and EPS number and sort of make sure I'm thinking through that correctly.

I appreciate the color, but that's a jumping off point for 2026. You talked about going from 15.5% in the fourth quarter to 16.5% for '26 and sort of like the progression through the year as you go through that. But that's such a big departure from the margins we have for prior years, even post restatement, I want to make sure I understand that correctly.

So you called out the $50 million in cost to complete. You also have the higher pass-through revenue mix. So question one, I guess, is, were those the only 2 factors impacting 4Q margins?

And then the second question, I guess, a bigger part of that is if this cost to complete adjustment that you're sort of implementing in terms of your estimate and your review process in terms of setting more appropriate expectations, like should the margin in prior periods have been lower as well?

I guess I'm trying to get at is like what is the more appropriate underlying margin for ICON? Because if that is the case that you're being too aggressive in some of those assumptions, shouldn't prior period margins have been lower, too? Just to get to that point, like what is the more appropriate underlying.

Yes. Michael, it's Nigel. I'll take that. And look, yes, we did get a lot of reports going through the call that what there did seem to be some interference with the landline we were using. So we actually redialed in on Kate's cell phone here for the Q&A. So anyway, it was what it was through the call. But just to repeat on Q4 specifically, what we did say in the prepared remarks was Q4, there were 2 impacts on the revenue line that then also impacted on the margin and EPS.

One was pass-through revenues did come in north of $150 million higher than we had anticipated. And then on the other hand, direct fees were impacted by north of $50 million from the cost to complete estimate changes that we talked about. So just for the numbers. In terms of your comment on the back periods, no, obviously, we've gone through a comprehensive review of the historic periods. We have corrected the errors that were there.

And so the reported margins that you see for the previous periods are the reported margins for those periods. When you look into this year, what we're seeing, again, just to go over again, we -- it's the factors we spoke about before. Firstly, pass-throughs obviously ended the year higher and will be broadly similar in 2026 as 2025. So pass-through as a proportion of the overall revenue mix is a factor versus previous years, for example. And then we've talked about the mix within the direct fee decline.

So again, I talked about overall on an organic basis, revenue being down about 2% year-over-year with pass-throughs flattish. That is obviously all in direct fee, and that's a factor. Then you have the mix effects between FSO versus FSP. That's obviously an impact as well. And then we have touched on the pricing pressures, et cetera. So that run rate that we see for this year, which, again, we've put out a range in guidance.

So the midpoint, I just picked for ease of reference, is about 1% higher at the midpoint versus 2025. We do expect to end the year within that at a higher run rate than that average for the year. And again, getting back into the outlook for next year, it is obviously early to call '27. But the commercial traction we're seeing would encourage us that in terms of the growth dynamics as we head into the back end of this year and into next year. So we should get back into operating leverage and enhanced margins as we go through into '27 and beyond. But hopefully, that helps.

[Operator Instructions] And this question comes from the line of Casey Woodring from JPMorgan.

Can you guys just hit on the pricing in the quarter and how that trended both in RFPs and awards? And then can you just walk us through the decision to keep the treatment of gross awards projected but not contracted and backlog the same? And just like what your updated thoughts are in terms of that visibility into, I think it's close to $7 billion of difference between the $22 billion in reported backlog and the $15 billion of unsatisfied performance obligations.

I'll take the second one first, Casey, if that's okay. We're winning about $3 billion a quarter, and it takes a couple of quarters to get these contracts signed. So that delta is almost exactly where you'd expect it to be. I mean there's not huge mystery to that, to be honest with you. The reason for not changing the inclusion criteria is because I don't think there's anything wrong with them.

In the context of already giving the GAAP numbers, if we only give contracted numbers, you're going to see everything in lag. You're going to see everything in disproportionate lag at different times of the year where there's seasonality in contract signatures based on customer budgets, et cetera. And it will become less transparent for investors. Investors will know less.

When we did the adjustment, I actually went back and had a look and said, was there anything in there that should have failed at the point in which it was included in backlog? And the answer, honestly is no, not materially so. You can always argue there was 1 or 2 subjective ones 4 or 5 years ago, but we're really, really careful about what goes into backlog. The difference is that when life happens to an opportunity, I don't think the old methodology was sufficiently discerning in when to remove them. And that's what we've corrected.

That will be applied to the letter of the law. And I firmly believe that is by far the most transparent of the methodologies of anybody in the space. You can simply tell more about what's going on with gross bookings, with cancels, with net bookings and with contracting cycles. So that's the answer on that one.

On pricing, I don't think there's anything material to note about pricing in the quarter. I think as an industry, we saw some volatility in '24, maybe into early '25, and then that's been largely stable ever since. What we are talking about is a period of time where those awards at those new levels, and we're talking about pricing differences at the margin here, but it does take time for them to equalize into the P&L and find some equilibrium.

So that's what I think we're seeing play out. But the factors that Nigel described are much more relevant to pricing -- or to margin rather in the quarter. It's about mix. It's about the investigation. It's about FSO, FSP dynamics. It's about pass-throughs. It's all of these other things. So nothing material to report on pricing other than to say there have been times in the last 2 years where large customers have come and said, in this part of the portfolio, we want price point X or else. And we've chosen else. There have been times when even in large functional partnerships, people will come and say, we think your pricing in country X can be undercut by 20%. And the answer is a very candid and civil, if you could do that, we think you should. We just don't think you can do that.

And there have been times where they've executed on that option. And within those, there's been some times where they've come back to us and said, [indiscernible], that wasn't doable. And we've actually done okay on those partnerships, too. So nothing new in that, but I think price discipline is going to be central to what we do on a go-forward basis. We are in the business of creating value for customers, not in the business of racing to the bottom on a sticker price.

[Operator Instructions] And this question comes from the line of Lucas Romanski from TD Cowen.

This is Lucas on for Charles Rhyee. I wanted to ask about the $3.9 billion adjustment to the backlog. How much of this adjustment is related to the new criteria that canceled the project when management makes the determination that the study is at risk as well as how much comes from the new criteria that contracts that are deemed inactive?

And then digging in on the criteria for studies that have been identified as being at risk. Can you provide more detail on how this methodology works in practice and how that determination will be made?

Yes. So the $3.9 billion, Lucas, if you look at the difference between the 2 methodologies, and I think we included a table in the slides that we provided to accompany the call that calls us that the delta is where we'd either been notified that a study wasn't going ahead, but it hadn't been officially papered or where we simply didn't believe it was going ahead.

And that might be because it was active and became inactive or it may simply be awards that never started. So I don't have a breakout of that for you. It's pretty broad-based. I think the important point to note is less than 4% of it was from 2025 awards and more than 75% of it, certainly more than 74% of it was 2023 or earlier. I think that is important to note.

Going back to the second part of your question, I sort of answered it in the first. If a customer comes to us and says, a study that we awarded in January that was due to start in July is now going to go on 12-month hold. Well, now it no longer meets a criteria for starting within the next 12 months, and I'm going to take it out under the new methodology.

If a customer comes to me and says, hey, we had the funding, but we've decided to reallocate it to another program and now we're looking for funding for that program, then it no longer meets the award criteria to sit in backlog. If a customer comes to us and says we've had manufacturing issues [indiscernible] and we don't know if we can run the study, then it no longer meets the criteria.

And as I say the last part, yes, there's some discretion here, but it's only discretion in the conservative direction. If a customer goes quiet on us, if a customer doesn't have definitive answers, but we no longer have evidence that the study meets the criteria it needs to meet to be in backlog, then we will unilaterally take it out, notwithstanding an official notification from a customer. So I hope I've addressed the nature of your question there, but by all means, please let us know...

We are now going to take our last question. And this question comes from the line of Ryan Halsted from RBC.

My question is just on the burn rate. Q4 burn rate was much higher than trend and kind of higher than maybe some of your peers. But can you just elaborate on this 10% burn rate? Is it sustainable? Or how much of that is derived from maybe the updated backlog policy changes and/or the pass-through dynamic? Any clarity on that would be helpful.

That's a good question, Ryan. A couple of points, maybe 3. The first one is, obviously, it's a function of different things. When you think about the backlog adjustment being a function of historic awards that were sitting in backlog at 0 or close to 0 burn rate, then it stands to reason that by removing them, we should return to more normal historical burn rates north of 9%, which is what we saw in the quarter. I think that's important.

When you think about it going forward, yes, our burn rate might be a little bit higher than others, but things like FSP, we only take 12 months into backlog. I know others take 5-year MFAs at estimated revenues into backlog. We don't do that. We only take 12 months. So the largest FSP business in the industry is sitting in there burning at about 25% per quarter, right? So there's a significant uptick in there. And I think that's notable and important.

The other thing about the go forward, yes, there's nothing inherently there that I think should slow it down. The only thing is when you have very strong book-to-bill, you are going to be adding to backlog faster than you're burning it. So if you're taking along at a 1.0 book-to-bill, that's one thing. If you're taking along at a 1.36 or even a 1.4 book-to-bill, then you're going to see, over time, some volatility in that backlog number.

But organically, the main drivers here are the simple weight of math in terms of what went on with the backlog, how fast we're burning the studies, the nature of our business and book-to-bill on a go-forward basis will be what determines it for the most part.

There are no further questions for today. I will hand the call back to Barry Wolfe for closing remarks.

Well, I'll just close by thanking you all for staying with us. I do apologize if there were issues on the line. We'll make sure to get a transcript out to you guys so you can follow on the prepared remarks.

And thank you for staying on what was something of a marathon call. I know there was a lot of ground to cover today. We wanted to give as much granularity and as much transparency as we can. And we do have the opportunity to come back with Q1 numbers in June and Q2 numbers in July. So more than happy to deep dive on some of those areas of interest that we probably covered in summary form today. So thank you. We appreciate it, and have a good day.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

All right. Good morning, everybody. Hope you're well. Hope you got a good night sleep. Maybe go out and drink a few glasses of wine, hit the pillow. Appreciate your attendance here at Jefferies London Healthcare Conference. I'm Dave Windley. I'm based in the States and equity research.

I'll tell this tired joke again, but I've covered CROs for a long time in ICON since way back in the 1900s. So the management team has heard me say that too many times. I'll have to come up with something new next year. Very gratified to have the ICON management team here with us, Barry Balfe, who's recently assumed the CEO role in the late summer, early fall and Nigel Clerkin, the CFO, who also is relatively new to the management team, but comparatively long in the seat to Barry's CEO role for just a few months.

So thanks so much for having us -- or for being here with us, I mean to say. And let me just get you started off with questions on demand. We've talked about in our breakfast this morning and kind of an improving RFP flow environment and gross bookings progression through the year. Maybe you can comment on what you see as the drivers of that, the sources of that and the kind of sustainability of that?

Thanks, Dave, and thanks for hosting us. And thank you all for joining. I suppose the first thing to say is that had we been having this conversation a year ago, we would have been talking about whether a demand uptick was on the wind. Were we having it in quarter 1, we perhaps had some suspicions that a demand uptick was in the wind.

And thankfully, the quarter 2 and quarter 3 data and certainly, while we haven't called quarter 4, what I've seen quarter-to-date in quarter 4 would suggest that we are in a period of inflection. RFP flows are up across the book, at least mid-single digits, stronger than that in biotech for sure. And of course, there are questions about sustainability, et cetera. But if you put up there sustained increase in RFP flow, outstanding win rates in pharma, flattish win rates in biotech, which I think we can build on, it certainly feels like we are at that point of inflection or at least going through a point of inflection, which is positive, as you say.

As to why, I think the same factors we talked about a year ago in hypothesizing around a recovery, I don't know what the cure is for loss of exclusivity other than timely efficient development. So if you're pharma, yes, there were external pressures, macroeconomic, geopolitical pressures, which have all abated to a certain degree, I think. But we joked, I think, a year ago about the 4 stages of grief around panic, pause, a little bit of pondering and then some positive actions.

So I think we've started to see balance sheets put to work in large pharma. I think we've started to see deal flow tick up, which is certainly positive. And we've started to see what I believe is a normalizing of this environment that was characterized by unusually high levels of pipeline reprioritization. So that's broadly where we see it in pharma.

In biotech, we talked not only about the relative constraint of the funding environment over the last number of years, but also a lag between raising funds such as they were raised and actually deploying them. And I think on both of those metrics, we've also seen a softening of the environment in recent quarters. Yes, the last couple of months of funding data are encouraging, but we do see biotechs putting the capital they've raised to work more assertively.

And again, I think that's interesting and broadly positive for the sector, for the industry and for patients. And of course, the forgotten sibling in the middle, those sort of midsized companies, there's been quite a lot of activity in there, both in terms of licensing and in terms of trial starts. So there's certainly a real bolus of attractive opportunity to be shot at in that mid-tier as well.

Maybe while we're on that demand trend, we've talked a little bit about pricing there's an element of -- well, first of all, I should allow you to level set on when we talk about price, it's perhaps not as direct as labor unit rates, but rather design of trial and how do we create more efficiency and perhaps brevity in the protocol and things like that. But you've been through a cycle of pricing in the '23, '24 time frame that may be rolling through revenue today. I'd ask you to comment on that a little bit. But then also as demand is improving, is that price pressure abating? Is the pricing environment firming a little bit?

So I'm grateful for the clarification, actually. I think I've been giving that lecture for a couple of years. So it's nice to hear it come back.

I learned. It takes me a while, but I've learned.

We'll come back to that. If I may, though, I might start upstream on pricing. I mean any pricing pressure in the CRO domain is derived from pricing pressure to one degree or another in the pharma domain. And I think it's been interesting that the politics around drug pricing have started to clarify and perhaps depoliticize to a degree in recent months. I think that's a positive.

I said this morning over breakfast, the sooner we get drug development off the front pages and back into the business pages, the better, both for us as an industry and for patients in need of new therapeutics. So I think that's a positive, certainly in the U.S., that's something that we see as having at least reached something more normal in terms of the environment. And hopefully, that is something we'll see trickle through.

As regards to pricing in the CRO domain, you're right. I do always say that the cost of a clinical trial, the over-under on the cost of a development program is far more related to design, to strategy, to clinical development now standardized to the rate per hour or rate per unit that a CRO is charging. But it's also true that there has been pricing pressure in the sector, no surprise. Biotechs in a funding-constrained environment, pharma in an environment where top and bottom lines are under pressure.

We certainly saw a period of extensive, in fact, unprecedented renewing, refreshing and rebidding of preferred providerships in large pharma. I can't name you off the top of my head a top 20 pharma that didn't renew relationships over the course of '23 and into '24. When you think about these largely as 5-year partnerships, some of those partnerships were 1 year into a 5-year term when they sought to re-up exactly to address the kind of pricing dynamics you're talking about.

The reason I like your intro is that takes time to bleed in. So if you renew a partnership in 2024, that's setting the terms or renewing or refreshing the terms for a 5-year alliance, that will obviously start to bleed into awards in that partnership over time. So we did see some increased competitiveness around pricing for sure. But ultimately, we're all aligned, I think, across the sector that drug development is too expensive. It takes too long. There's too much risk and too little certainty associated with it.

So I'm fine with the challenge of taking time, cost and risk out of drug development. That's frankly the only reason we exist. I think what we're starting to see is a reversion to value-based economics rather than haggling over the last $0.10 per hour on the cost of a project manager, let's go and talk about whether or not we can take 20% out of a $1 billion development program. This is where CROs like ICON exist. It's why we exist.

And actually, when you think about it, traditionally, people say that's more in the full service, the project outsourcing space. If I say FSO, that's what I mean. But truthfully, in the FSP space, it's exactly the same. I was with some bankers yesterday morning, and they were talking about 10 of the top 20 CEOs in pharma, giving them feedback that their management teams wanted to double down on internal development augmented by FSP, but they couldn't see the ROI.

Now as someone who's been in the FSP business for 25 years, I think that's actually a really healthy conversation because the best FSP partnerships are those where we partner with a company to say, what are you good at? Can we help you optimize it? Can we augment you with headcount? What are you not good at? Can you devolve some responsibility to us in a functional outsourcing model rather than a "staffing model where we can actually make a difference.

And Dave, I think you and I spoke before about an example where a top 5, top 10 pharma who was already in an FSP model, we could look at them and say your clinical development group is about 30% less efficient than it should be, and we'll underwrite the first 20. So I think sometimes there's a myth out there that FSP opportunities don't give the CROs the opportunity to drive efficiency, and I reject that totally. I think there's a real opportunity across the spectrum, FSO and FSP to move beyond cents on the dollar in terms of the rate you're charging and really start underwriting value-based gains, whether that's time, whether that's efficiency, whether that's overarching spend. And the over-under on that is orders of magnitude greater than any margin-based or pricing-based conversation we're going to have.

It's very interesting because you created the question I was going to ask, and I'm glad you did. But can we double-click on that FSP comment to understand better -- I mean, it is my understanding that a lot of FSP arrangements are FTE-driven and therefore, an FTE times a rate driven, but I'm also aware that there are delivery based, be it data tables, biostats, things like that. How would you frame our thinking about an FSP arrangement that would still allow you to bring -- as you kind of alluded, but still allow you to bring value proposition from more of a strategic sense to the client?

At the risk of geeking out operationally too much, I'll try and simplify. If you think about -- I mean, let's go back to the example I mentioned. There's a pharma that's running a largely in-house clinical development model augmented by a couple of thousand people in an FSP model. And I'm talking about clinical monitoring and project management at the moment. So out in the world, in the countries, running and monitoring the sites with the investigators.

If you just layer more people on top of bad process, it doesn't really matter if they're your people or my people, it's bad process. So when we took a look at it, and it was one of those great opportunities where there was no RFP actually. There was just an outreach to say, we think you're spending too much money on the wrong roles in the wrong places doing the wrong things.

And we made an offer, and we actually started one region at a time, right? We started with North and South America. We went in and said, we are willing to underwrite that we can do that quantum of clinical oversight and monitoring for at least 20% less than you can in the aggregate. Don't ask me to do one study, functional resourcing is function by function, not trial by trial. We could separate and stratify the roles if you've got senior people doing junior things, that's inefficient.

If you've got people doing things in L.A. that could be done in a lower-cost market, that's inefficient. If you've got people doing things manually that could be done on a more automated basis, that's inefficient. And the key to answering your question, Dave, is saying, we require some delegation of responsibility in order to underwrite the savings. If we go to you and say, we can take 20% out.

So it's not about me earning less, it's about you spending less, but I want control over the resourcing algorithms. I want to be able to stratify the roles that these guys do study start-up all the time. They're specialized, they're standardized, they're centralized and they're good at it. And now let's free up the clinical monitors in the field to work with these investigators to help monitor what's going on at sites.

Ultimately, you're getting to a place where you're saying, I'll underwrite the first X percent, but I want a share of the remaining Y percent of the savings. Now true to form, 2 or 3 years later, they come back and you're talking to a procurement person who wants to erode your share of those gains, right? But that's the game. Our job is to continually reinvent the clinical trial paradigm. Increasingly, that's about technological disruption. There's not a single pharma company out there who can afford to dip their toe in all of the pools of digital disruption and innovation.

So part of our job, and we'll deploy perhaps $300 million over the next 3 years around disruptive digital innovation, mostly in the AI space. It's our job not just to deploy new capabilities, but to co-develop new capabilities to share risk across development portfolios worth billions of dollars in pharma so that we can codevelop and share in the upside, spread the risk.

And consequently, for our biotech customers, we've got best-in-class capabilities that have been developed elsewhere that can then be deployed on a bespoke basis. These are the kind of synergies you see between the FSO and FSP and also between the biotech and the pharma landscape. I think what we're talking about is a higher bar to playing at the cutting edge of drug development, and it's somewhere where we're very pleased to invest.

So this is just -- we could just peel and peel and peel. So in these FSP relationships, I guess the first question I would ask as a follow-up to that is, you've given us this very interesting compelling example. How -- to what extent have you been able to proliferate that?

I think one of the -- someone said to me years ago that a brief history of time, the Stephen Hawking book was the book that everybody had on their shelf, but few had read and no one had understood. I think there's a bit of that around FSP. Too much of this market has been based on it's fashionable, let's internalize, let's rent bodies on a capacity management basis rather than truly on a functional outsourcing basis.

So FSP is not a controlled term, and I could give you the good, the bad and the ugly of the market. I think the people who are winning in FSP models, the people whose successes have driven others to experiment with the model are those companies who have partnered well to understand where they have core competency internally, the systems, the process, the people, the oversight to say, you know what, we're going to do 60% of the clinical or whatever function biostat may be. We're going to do 60% ourselves and then augment with an FSP partner for flexing with demand versus those who say, well, they did that and it works, let's in-source all these people, but we're not sure how to develop them well.

The short answer to your question is, I think there's too much poorly informed capacity management model out there where we're haggling over the price per FTE without really having value-based discussions. If you ask me what's the biggest change between the last 2 years and the last 6 months, I think it's that people have seen there's been limited ROI on penny pinching on the rate.

And now we're starting to get back to, okay, my CFO wants to know why that didn't work. Can you move the needle, at least double digits in the near term and orders of magnitude of that over time when we think about some of these disruptive technologies. And all of a sudden, we're back to a little more like 2015 through 2019, where we're talking about innovative, customized hybrid sourcing where pharma are doing something in-house, something in-sourced and something outsourced, and we optimize at the interface. That's sort of how I'd characterize it.

I want to -- another question on this is you're describing a, say, a 30 -- in this example, a 30% spread on their inefficiency and your willingness to essentially take some risk on the first 20 -- underwrite the first 20. I want to give you the opportunity to explain that a little bit and one, ensure that people understand like this -- you're not taking equity risk in the molecule, things like that.

But from an operational standpoint, it does sound like you are effectively taking a little bit of margin risk, and we talked about pricing pressure. And so in thinking about the cadence of taking that -- like, for example, you underwrite that 20%, can you take that cost out pretty quickly? Or as you ramp up that relationship with the client, you're driving that efficiency over time, and therefore, there is a little pressure in the early part of the assumption of that relationship.

I think it's a really good question. I mean the example I gave you went from 0 to $350 million, $370 million in 2 years, right? That's not a room you walk into blindly. You don't take on a deal like that, walking into a room, you don't know how to walk out of.

The reality is we're able to look at the metrics and say, why are you getting 2 to 3, 3.5 units of output per clinical monitor per month, and I'm getting 9.5. It's because of how you're structured. It's because of how you're managing, it's because of your data flow, it's because of role stratification. And the terms and conditions that go with underwriting a deal like that are pretty explicit. They're simple, but they're pretty explicit.

We're talking largely in the large pharma space now, and we can talk differently about how it manifests in biotech. One of the challenges in companies as large and as complex as these pharma companies is that they have traditionally, at least in my 25 years of doing this, really struggled to measure true internal cost allocation, where it went and what the cost per output was. Everybody knows the cost per input, but what was the cost per unit monitoring, per unit stats deliverable, per unit medical writing. And I think when you look from the outside in, we're better able to do that and to support that.

One of the corollaries of that, though, is that where well, frankly, for a long time, but certainly 3 years ago, we were still seeing a lot of these bonus penalty clauses in these contracts. If you overperform, we will give you 5% more. If you underperform, we will give you 5% less. Now I'm happy to do those. But the truth is, if we get punished a 5% penalty for being late, I think I said it yesterday in a meeting here, that's the worst money pharma will ever save, right?

There's absolutely no incentive or upside to them in me earning 5% less on a trial that's now delayed 2 years and it's going to cost them orders of magnitude of that cost. So much more of what we see now is let's take those dollars that we were willing to put at risk and let's co-invest them in something that might bring this thing in early.

Another interesting trend in the full service outsourcing space is that even 2.5 years ago, we were probably 60% unit-based contracts. You got paid X for every unit of work you did. That 60-40 has completely flipped towards milestone-based contracts. You get paid when the work is done. If you did it more efficiently, we're happy for you to share in that benefit. If you undercall the amount of work that was required, that's going to cost you money, CRO. It's not going to cost me money in pharma. I'm really happy to play in that space, because if we can get away from a sort of procurement-led model that's about value destruction and get back towards a co-invested model that's about value creation, then I think there's real incentives for partnerships.

And actually, it's really interesting. A lot of the biotechs are leading the way. A biotech CEO or Head of R&D does not care if we manage to bring the trial in 6 months early and share in the upside. There's no natural large corporate function whose job it is to eliminate profitability in the sector. They're just delighted that we're able to do it faster, more cost effectively and with a higher probability of success. So a lot of pharma talk about moving back towards biotech type thinking and agility, and this is one of the areas where we've seen some traction. We're certainly not declaring victory there.

We've explored a lot of this is more large pharma. I think one of your other goals is to try to extend your success, your strategies in top 20 or top 25 into the next, pick a number, 20, 40, 60 in what we might call the mid-tier. Maybe talk about the traction, the conversations that you're having and where you think the opportunity is?

So sure, happy to. I mean, maybe to put it in some context, we've gone from partnerships with 13 of the top 20 to 17 or 18 of the top 20. I think we're working with all of them, but strategic alliance partnerships with 17 or 18 of the top 20. That's good. We need to broaden and deepen in that space. We've said we need to partner with more of the biotechs, and we've probably seen opportunity flow up 25%, 26% over the last year or so. So that's positive. And we just need to work on our win rate in that space, which is broadly flat, I think, over the last 4 or 5 quarters. So that's an opportunity.

But the data I look at, and it's all dirty data, actually says that ICON's share of wallet is lower in companies 20 through 60 by R&D spend than it is either in the top 20 or in biotech. So I've been saying for some time that a priority for me and a priority for the company is to partner better in that space. And these are really interesting companies. I mean, the upper reaches of that 20 to 60 bracket, these are companies of real scale, really innovative science in the space, a lot of licensing activity going on. And we frankly need to do better as an organization.

So we've had a number of really interesting wins there, but 2 or 3 incremental partnerships in that space, they're obviously not as large as the top 20. I want to see 12 and 13. I'd certainly like to see 4 to 6 over the next 18 months. So we're pretty pleased with the progress we're making in that space, but I would call it out as an area where we can and must do better.

So I'm going to try to incorporate, Nigel, a question here so he doesn't fall asleep. We've talked about pricing pressure the cycle of reprocurements in '23 and '24 and then the lag of that to awards to study starts. And so the revenue and the P&L feels it at a lag. So we talked a little bit over breakfast that some of the factors that have, I think, prompted you guys to begin to message a little bit of margin trajectory out into next year. Talk us through those factors, please.

Yes. Sure, Dave. So look, let me start with this year, actually. So if you think about the factors that impact our margins at a higher level, first of all, you have operating leverage. Obviously, that's been a drag on margins this year, given our revenues decreased versus last year, expected to decrease versus last year. Second is pricing, to your point.

We obviously have seen a lot of those large strategic partnerships be renewed over the last couple of years, as Barry touched on. And we're starting to see the awards onto those partnerships now flow into revenue next year. So that will obviously be a negative impact on our margins going through into next year. Probably a bigger factor, and we've touched on this in our Q3 call commentary, in particular, is we obviously -- and we're not alone in this, but we have seen an increasing proportion of pass-throughs as a composition of the overall mix of our revenue.

And that's driven in part by, obviously, the increased complexity of studies more generally and then therapeutic area mix as well as we've seen that sort of further strengthen that mix shift impact. So that certainly also will be a factor as we move into next year as well.

Now going the other direction, we have and will continue to mitigate those issues with continued cost discipline, frankly, and continued focus on efficiency. You've seen that, for example, in this year, when you look at our headcount at the end of Q3 versus year-end last year, it's about 5% lower. In part, that's reflecting, obviously, our response to the current lower demand environment, but also as well the efficiency gains that we've been making through good use of technology, as Barry touched on.

So obviously, we're a little bit early in terms of guiding for next year, Dave, but we did feel it was important to sort of frame out for people the puts and pulls that are there. There is -- as we talked about as well, obviously, there is a lag effect, too, between when you start to see an uptick in the commercial demand environment and when that starts to flow into the P&L. So what is encouraging for us, obviously, that we've seen 2 quarters now of good gross wins, and we've seen a good uptick in RFP flow in Q3.

We've talked about that as well. Obviously, it's too early to talk about Q4. We'll report in Q4 when we do. But look, if we continue to see that demand environment be supportive and getting to a sustained pattern of gross wins continuing, there is obviously a lag from wins from awards through to starting activity. But as you -- if that starts to flow through, well, then you should somewhere down the line from here, get back to a place of -- obviously, operating leverage has been negatives to us in this current year.

But as that demand environment continues to improve, you should get back to a place where operating leverage turns to be a tailwind rather than a headwind. So yes, 2026, there are certainly -- there will be a bit of an uptick in the pricing dynamic for the reasons we talked about and pass-through mix continues to evolve. We will continue to mitigate that as best we can. And then longer term, if we see the demand environment come back, that should be supportive to ultimately margins expanding again.

So Nigel, you talked us through over breakfast, the start of the year anticipated about 100 basis points of margin pressure, I think, largely on revenue being down and the deleveraging effect of that. And then over the course of the year, pass-throughs have outpaced the expectations. So the mix issue of pass-throughs added another 50 basis points or so to the margin delta.

In this current year.

In the current year.

So yes, exactly. So look, last year, obviously, our EBITDA margin was 21%. And at the start of the year, we anticipated that would be about 1% lower, reflecting negative operating leverage offset by the sort of efficiency actions we were taking. That has evolved as we gone through the year. So now when you look at our updated guidance, we would expect it to be about another 50% -- 50 basis points roughly lower again, mainly driven by the pass-through mix impact.

And is that -- given the continuation of factors and the lag that you talked about, the uptick in demand, but that will take a little bit of time to get to the P&L. Is that order of magnitude of margin pressure something that we should be thinking repeats itself?

I think it's too early, Dave. I mean we're obviously not guiding today. So look, it's a useful framework in terms of what we saw as we went through this year and just to give some sense of magnitude. But that said, it is too early. We'll obviously give you a better perspective on that when we get to guide for next year.

All right. I'm going to cheat. My 25 years of tenure gives me this latitude, I believe. So I'm going to ask you one more. Competitively, strategically, your top peers in the space are looking a little different. And I'm thinking about IQVIA has competed in the commercial space as well as CRO. Thermo, PPD goes to market with a DMO CRO now acquiring Clario. Is the definition of a clinical CRO changing?

I think it's always been changing. I mean when I look at ICON and how diversified a business it is compared to the business I joined 20-plus years ago, you've clearly said something really exciting, Dave. We're going to a lot of extra people in the room. I think it's massively different.

When I think about the opportunities for us to continue to expand in the lab space, which is doing really well in the early development Phase I and bioanalytical space, which is growing very nicely. When I think about real-world evidence, the [ colo ] work that we do, I think the definition of clinical partners and CROs in the main has broadened to the point where we're really looking at relatively diversified life sciences companies. And I think that's a trend we may see continue.

All right. I think we better yield the floor to our friends at GSK. So...

Thank you.

Thank you.

Good day, and thank you for standing by. Welcome to the ICON plc Q3 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Kate Haven, VP of Investor Relations. Please go ahead.

Hello, and thank you for joining us on this call covering the quarter ended September 30, 2025. Also on the call today, we have our CEO, Barry Balfe; our CFO, Nigel Clerkin; and our former CEO and non-executive Board member, Steve Cutler.

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 guarantees of 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 relating to these forward-looking statements may be found in SEC reports filed by the company, including the Form 20-F filed on February 21, 2025.

This presentation includes selected non-GAAP financial measures, which Barry and Nigel will be referencing in their prepared remarks. For a presentation of the most directly comparable GAAP financial measures, please refer to the Press Release section titled 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. Included in the press release and earnings slides, you will note a reconciliation of non-GAAP measures. Adjusted EBITDA, adjusted net income and adjusted diluted earnings per share excludes stock compensation expense, restructuring costs, foreign currency exchange, amortization, transaction related and integration-related costs, goodwill impairment and their related tax effects.

We will be limiting the call today to 1 hour and would therefore ask participants to keep their questions to 1 each in the interest of time.

I would now like to hand over the call to our former CEO and Non-Executive Director, Dr. Steve Cutler, for opening remarks.

Thank you, Kate, and good day, everyone. As I reflect back on the last 14 years I've spent at ICON, I feel a strong sense of pride for what we've accomplished over that time, growing for the company of 8,500 employees that was #6 in the industry to 40,000 people worldwide and are ranking in the top tier of global CROs. It's been an honor to lead this organization. And I have no doubt that the future opportunity for ICON is robust and the leadership team in place is the right 1 to move it forward. I want to sincerely thank all my colleagues and friends at ICON for their partnership and dedicated efforts that have fueled our success over the years. I also want to thank our customers for their partnership and loyalty in working with us to deliver their projects through some external challenges, including COVID and several geopolitical contracts.

Finally, I want to thank the analyst community and our many loyal shareholders who have come to know well and who have supported our company and its evolution in my time here, particularly as the CEO. I look forward to continuing to support Barry and the rest of the ICON team in my role as a Non-Executive Director, and I remain confident in the continuing success of ICON over the longer term.

Barry, I'll now hand it over to you.

Thank you, Steve. And I'd like to start by expressing my gratitude to you for your partnership in ensuring such a smooth transition period and for your leadership and support over many years. On behalf of the whole ICON team, I wish you the very best in retirement and look forward to your continued engagement and contributions as a valued member of our board.

Turning to our results for the third quarter. our performance was broadly in line with expectations as we successfully navigated a mixed market, characterized by known challenges and emerging opportunities. We executed well on the encouraging level of RFPs that went to decision in the quarter. Similar to quarter 2, overall gross business awards were strong, totaling $3 billion and were up mid-single digits on a year-over-year basis. Encouragingly, these awards were broad-based across large, midsized and biotech customers with notable strength in the areas of oncology, cardiometabolic disease and FSP. Revenue increased on both a sequential and year-over-year basis in the quarter with therapeutic mix driving strong pass-through revenues.

Our overall burn rate was flat sequentially in quarter 3 at 8.2% in line with our previously communicated expectations. While quarter 3 results reflect continued strong cost control across the business, our overall margin profile was negatively impacted by the higher pass-through revenue mix. Adjusted EBITDA margin was 19.4%, a 20 basis point sequential decline. During quarter 3, we bought back $250 million in shares, bringing our total share repurchases to $750 million year-to-date. This all translated into adjusted earnings per share of $3.31, a 1.5% increase over quarter 2. Additionally, we generated strong free cash flow totaling $334 million in the quarter and $687 million on a year-to-date basis. While I'm particularly pleased with gross business awards in the quarter, our net book-to-bill of 1.02x was negatively impacted by elevated cancellations of $900 million, broadly flat with quarter 2 levels with a bias towards previously awarded studies that were canceled prior to commencing enrollment.

Looking to the remainder of the year, we expect largely similar conditions to persist in the market and have assumed this in our updated guidance. I am particularly encouraged by our strong pipeline of actionable opportunities, reflecting our continued focus on commercial excellence and broader and deeper market penetration across customer groups. A notable area of strength in quarter 3 was in the biotech sector with a significant increase of RFP flow on a year-over-year and sequential basis. However, despite recent improvements in biotech funding, the environment remains mixed regarding the time lines for conversion of opportunities to award and contract. We have amended our full year guidance range to reflect the nature and phasing of business wins and cancellations as well as stronger pass-through revenue activity. We now expect full year revenue to be in the range of $8.05 billion to $8.1 billion and full year adjusted earnings per share to be in the range of $13 to 13.20.

While we're not providing 2026 guidance at this stage, our outlook for the year will in part be influenced by the extent which we can sustain the positive trends of the last 2 quarters regarding RFP flow and gross bookings, transition to more normalized levels of cancellations in 2026 and optimize the burn rate of studies that are actively enrolled. Accordingly, we remain focused on executing our strategy with an emphasis on accelerating top line growth, rigorous cost management the deployment of novel technologies to enhance our offering and a balanced approach to capital allocation.

Regarding revenue, our plans prioritize expansion of opportunity flow and win rates in biotech. of our revenue streams in large pharma, increased share of market in the important midsized segment and further acceleration of strong growth in our labs, early phase and FSP business. ICON continues to manage costs effectively, and our investments in enhanced resource demand management and allocation technologies continue to play a key role in our ability to scale our workforce rapidly and effectively in line with business needs. While revenue mix and pricing pressure are expected to weigh on gross margins in the near term, we continue to differentiate primarily based on capability, expertise, solution design and technological disruption of the clinical trials process. This enables us to take time and cost out of the development cycle while creating and capturing value.

A key priority for me is the deployment of innovative technologies that allow for greater speed and predictability as well as enhanced efficiency. We're building on the significant progress that we've made in the area of process automation and will accelerate investments in AI-enabled technologies and external partnerships that enhance our capabilities and provide for seamless analysis and interpretation of clinical trial data. We continue to see value in returning capital to shareholders while our strong financial position also gives us latitude to invest organically in our capabilities and to consider opportunities for inorganic growth in the right circumstances.

In summary, while recent cancellation levels are a headwind to revenue growth in the immediate term, ICON's global scale, industry-leading capabilities and financial strength provide us with an excellent platform for growth. The recent demand dynamics provide significant grounds for optimism regarding the midterm trajectory as we move beyond a period of volatility and returned to normalized levels of growth. I'm excited by the path ahead given the strong market position we've established and how we can continue to evolve our offering to better serve our customers and patients around the world.

I'll now hand it over to Nigel for a more detailed review of our financial results.

Thanks, Barry. Revenue in quarter 3 was $2.043 billion, representing a year-on-year increase of 0.6%. Revenue was up approximately 1.3% sequentially on quarter 2 2025. Overall, customer concentration in our top 25 customers was broadly aligned with quarter 2 2025. Our top 5 customers represented 24.6% of revenue in the quarter our top 10 represents 39.8% and our top 25 represented 66.6%. Adjusted gross margin for the quarter was 28.2% compared to 29.5% in quarter 32024 and down 10 basis points on quarter 2 2025. Adjusted SG&A expense was $179.2 million in quarter 3 or 8.8% of revenue. Relative to the comparative period last year, adjusted SG&A was down by $1.2 million in quarter 3. Adjusted EBITDA was $396.7 million for the quarter an increase of $0.7 million sequentially.

Adjusted EBITDA margin decreased 20 basis points over quarter 2 2025 to 19.4% of revenue. Adjusted operating income for quarter 3 was $356.9 million, while adjusted net interest expense was $47 million. The effective tax rate was 16.5% for the quarter. We continue to expect the full year 2025 adjusted effective tax rate to be approximately 16.5%. Adjusted net income for the quarter was $258.8 million, equating to adjusted earnings per share of $3.31 a decrease of 1.2% year-over-year or an increase of 1.5% on quarter 2 2025. U.S. GAAP income from operations amounted to $86.6 million or 4.2% of quarter 3 revenue. U.S. GAAP net income in quarter 3 was $2.4 million or $0.03 per diluted share compared to $2.36 per share for the equivalent prior year period.

From a cash perspective, quarter 3 had cash from operating activities coming in at $387.6 million. This resulted in free cash flow in the quarter of $333.9 million, bringing our total year-to-date to $687.2 million. Overall, cash collections were solid in quarter 3 with our free cash flow higher than quarter 2, reflecting the timing of interest and tax payments as well as restructuring expenses. At September 30, 2025, cash totaled $468.9 million and debt totaled $3.4 billion, leaving a net debt position of $2.9 billion. This was broadly in line with net debt at June 30, 2025, of $3 billion. We ended the quarter with a leverage ratio of 1.8x net debt to adjusted trailing 12-month EBITDA.

Our balance sheet position remains very strong, which affords us the flexibility to continue to strategically deploy capital. We are focused on an approach that balances further investment in our business as well as future growth while also returning capital to shareholders. We made significant share repurchases in quarter 3, totaling $250 million at an average price of $175 per share, bringing our total share repurchases year-to-date to $750 million.

With that, we'll now open it up for questions.

[Operator Instructions] We will now go to your first question. And your first question today comes from the line of Elizabeth Anderson from Evercore.

Congrats, Steve, and congrats, Barry. -- excited for the next steps for both of you. Maybe turning to the question. Could you maybe dive a little bit more into the cancellation dynamics. I appreciate that the cancellations in the quarter came spot on with what Steve previewed on the 2Q call. So how do you kind of think about those trends going forward? Are you sort of saying maybe we'll see elevated levels in fourth quarter and then you kind of that should taper down? Is there something other kinds of dynamics that are sort of driving some of that? Just a little bit more color there would be helpful.

Elizabeth, it's Barry here. I'll take that. I think as you say, cancellations came in broadly in line with where we projected there was a balance of cancer across the group, some significant activity in pharma, it has to be said, within the quarter. And as I mentioned in my prepared remarks, there was a bias in those cancellations towards studies that had been awarded prior to quarter 3 and were canceled prior to commencing enrollment. And I suppose that addressed your question in the context of the profile of cancel. These were not by and large studies that were in flight and burning at a good clip so perhaps moderately preferable in that regard. I still think that as we reflected in our guidance, we expect conditions to remain broadly similar throughout the rest of the year but I also think we will see this moderate as we move into 2026, certainly over the course of the year.

So I'm not quite sure where the high watermark and the low watermark is, but I do think we're certainly closer to the end of the period of elevated cancels than to the...

The question comes from the line of Michael Tony from Leerink Partners.

Maybe if I can dive in a little bit on some of the gross margin commentary you had. I think the dynamics on mix and pass through clearly were in place. Is there anything that you're working on proactively from a gross margin side to try and offset some of those dynamics? And especially on the pricing side, how you think about firming up price in certain markets, areas where you'll compete where you won't compete. Anything more you can give on that front would be great.

Michael, why don't I start and then, Barry, obviously, feel free to chime in. So you are right in terms of the gross margin picture. Obviously, earlier in the year, we had hoped to exit the year out of margin closer to where we exited last year in terms of EBITDA margin. Clearly, as we've gone through this year, we have seen an increase in the proportion of pass-throughs. We've talked about that as we've gone through the year. So that is certainly weighing on the margin outlook for the balance of this year and frankly into next year as well. We've also, of course, talked about the increasing pricing competitiveness that we're seeing in the market generally. Barry can touch more on that. which again is not so much of an impact for this year, but it's a factor that might weigh on margin outlook for next year.

Having said all of that, you're absolutely right. ICON, of course, always has had a very long track record of managing its cost base appropriately. And we've continued to do that through the course of this year. That is partly through adjusting our resourcing to the demand environment that we see out there. And you can see that, for example, in our staffing numbers are about 5% lower now than they were at the end of last year, just as an example of that. But also, and Barry touched on how we are leveraging technology as well. for sure in terms of efficiency and how that can help in terms of margin profile, but also in terms of effectiveness on how we deliver to our customers as well for all the reasons you mentioned. And Barry, I don't know if you want to add in, in terms of how we can use that to help deliver for our customers and ultimately improve our own margins over time, too.

Yes. I think it's a fair question, Mike. I mean the first and obvious thing you do is you're try and win more opportunities with heavy direct fee on them. I don't want to give back any of the opportunities that have high pass-through mix. I just want to augment them with even more direct fee awards, and that's our focus in terms of driving commercial excellence, making sure we can see more of this market and convert more of it into wind. That's important to us. We'll continue to do that. I'm certainly pleased with our progress in quarter 3 in that regard. In terms of technology, Nigel's point is well made. We are looking to enhance the technological ecosystem here at ICON.

We'll continue to do that. the deployment of agents to whom we can delegate workflows rather than simply ask questions is really important to us. Of course, in parallel, we do manage the processes that underline those workflows, manage our geographical footprint and as I mentioned in my remarks, utilizing some of our existing technology to resource just in time and appropriately identifying those projects that will burn faster when they benefit from some additional resources or, frankly, areas of the organization where we might have a surplus of resource migrating those resources where they can be more impactful.

On your last point about pricing, I suppose there's a degree to which that will always bleed into the gross margin line. But we remain really focused on how we win. We're not going to put our way to victory in terms of pricing. We've never done that. We're not going to do it now. We do tend to differentiate. When we win -- we win by virtue of superior capabilities, greater expertise, scientific and operational and frankly, better solution design, being able to bring a study in faster and more cost effectively is a function of those things more than pricing. So they're all factors, but they're some of the top level to.

Your next question comes from the line of Justin Bowers from Deutsche Bank.

And also Echo Liz's sentiment, Stephen, Barry. So Barry, can you maybe discuss the industry environment a little bit and bifurcate between pharma and biotech? And maybe more specifically around the tenor of those conversations in light of what seems to be regulatory and trade environment of increasing clarity?

Yes, it's a good question, Justin. There's a lot in there. So I'll certainly do my best. I think the first thing to say is I understand why people have been looking very carefully at biotech funding and taking some heart from the Q3 numbers, albeit it is a single quarter. Likewise in pharma, I think we're pretty clear on why the markets reacted positively to some of the news over the course of the quarter and from Bar and the interactions with pharma in that regard. So there is certainly a sense that we may be getting closer to a point of some consistency. And I think we said this before on the call, good policy or bad consistent policy, certainty, dealing with some of the uncertainty that our customers have been facing is certainly net good for the sector. Whether or not that's what has driven the significant double-digit increases in RFP flow, whether that's what's trickling down into the successes we've had over the last couple of quarters in terms of gross bookings.

It's a little early to see, but we're certainly glad to see it. What I would say just in terms of balancing that, though, is we said for a while, we would expect to see improvement on those leading indicators like RFP flow and gross bookings being trailed somewhat by follow through onto the revenue and earnings line. So some positive indicators in terms of the environment, some interesting signs that perhaps deal flow is starting to tick up around large pharma as well. They're encouraging signs. But of course, we're still untangling the consequences of the last couple of years of volatility. So I think we should characterize the environment as encouraging, but still somewhat mixed.

Your next question comes from the line of Selandra Singh from Truist Securities.

I want to get more color on the competitive pricing environment. You gave some flavor of that. Has this got worse than what you guys have talked about in the past? Is it across the board? Or are there any particular market segments you're seeing it? And based on your observation, are you seeing pricing pressure more driven by clients looking to squeeze extra dollar? Or is it more driven by your competitors trying to win more business?

It's a good question, Glenda. I don't think it's gotten worse for sure. I think what we've talked about over the last couple of quarters is that the prevailing environment in '25 is more competitive than in certain prior years -- but I don't think that's something that we've seen continue to deteriorate by any means over the course of the year. I think that's fair to say. I think it's also fair to say that just given the structure of the relationships we have in large pharma that that's where a lot of the pressure comes from which is not to say that our biotech customers don't require significant support, not just getting to the right price, getting to really good predictability about that price. And this is a significant priority for us at ICON. We invest not just being in cost-effective, high-quality and speedy, but we also invest carefully to make sure we can be predictable.

Our biotech customers really need to know when their studies are going to start when their patients are going to be enrolled and when they're likely to so that's certainly something we've focused on. So I don't think it's something that's gotten worse over the course of the year. But I would characterize it as a particularly competitive environment. And to the last part of your question, I think when the boat is smaller, the dogs are hungrier to a certain degree. So I think 1 feeds the other. We certainly see a heightened level of competitive activity among our competitors, but I think that's driven by the upstream dynamics that are impacting our customers.

Your next question comes from the line of Patrick Donnelly from Citi.

Maybe on that kind of following up with some earlier ones in terms of the pricing and pass-through environment. I know you guys don't want to talk '26 too much. But just in terms of what those impacts could look like on the moving pieces on margins into next year. It seems like higher past-dues will continue a little bit on the pricing that you've talked about. So can you just talk about just the levers on margins as we get into next year, just high level in terms of moving pieces? Again, obviously, pricing capacities are impact but just trying to think about potential offsets and the opportunity to keep those flat to potentially up. Is that on the table?

Patrick, it's Nigel. So yes, no, look, I think you've touched on the key major moving pieces there. And again, just as Mike asked through earlier, so you're absolutely right, pass-throughs and the increasing component of our composition of pass-throughs within the overall revenue mix is certainly going to be a weighing factor for next year? The pricing environment, to Barry's point, it has been tougher through the course of this year than perhaps previously. That's not so much going to impact us really too much this year, but it certainly would be more of a weighing factor as you go through next year. And again, titrating that, all of the stuff that ICON has always had a long track record of doing managing the business efficiently investing in technologies that allow us to be more efficient as well as being more effective for our customers, all of the above.

So exactly what that means in terms of margin outlook for next year, Patrick, you can understand we're not going to walk through today. We will provide that when we provide our guidance for next year in January or February when we get to there. So appreciate your patience as we work through that ourselves.

Your next question today comes from the line of Jack Meehan from Nephron Research.

I wanted to follow up on kind of the margin question. I was wondering if you could provide more color on the level of pass-throughs. I'm not sure if there's any metrics you can share like as a percentage of gross revenue, where it was in 2024, where it's tracking in 2025? And based on what you look at the backlog now, like how much that could shift in 2026. I think just trying to get a sense for where gross margins can start to bottom out. Do you think 27% is close to a floor.

Jack, yes, Nigel, again. I'll take that. So yes, look, we report revenue in aggregate. So we don't obviously break that out between pass-throughs direct fee all we can really do is give you qualitative commentary around that as we have done in terms of that increase in proportion of pass-throughs. So -- and likewise, in terms of margins, I think we've touched on the various factors that are weighing on margins next year and also how we can hopefully help mitigate some of that challenge. So again, it's premature for us to give you any guidance on margin outlook for next year. Again, we'll do that when we get to there. I don't know if you wanted to add anything else to that?

No, I think you covered it really well. I mean there's multiple different puts and calls, but 1 of the big ones is business mix. the degree at which awards in different therapeutic areas manifest into revenue. It's not always linear and it's not always obvious. But as an indicator, over the last year, our level of RFP activity and indeed, our level of awards in an area like cardiometabolic, which carries a very significant pass-through load have increased by more than an order of magnitude. So when we see significant shifts in pass-through heavy TAs. This is good news. These are gross bookings that will drive direct fees, that will drive margins in time. But they do also make us consider what the pass-through load will be. So takes time to work how that works through the flow, and we'll certainly be taking that into account when we set guidance early in the new year.

Your next question comes from the line of Eric Coldwell from Baird.

I am curious when looking at backlog and bookings, you've always had an approach of taking written confirmations as opposed to formally contracted awards, which is a bit unique versus the rest of the group, but you've been clear about that. How have those ratios changed over time? And when you parse the higher cancels that you're facing today what percent of those cancels are coming from the noncontracted bookings, the ones that don't have formally legally bound terms and conditions in them. I'm just curious what that -- again, the ratio of noncontracted in bookings and backlog and then how that ratio has changed and then where the cancels are coming from?

Eric, maybe I'll take that, and Barry, obviously, feel free to add. I can't really comment on what others do, frankly, in terms of highway book awards. I'll leave you to assess that on what they do. You are right, our practice has been to take bookings on award on the rather than our contract and the logic for that is that, that is closer to now, if you will, in terms of what's happening on the ground commercially because obviously, there is a lag from award to signing a contract that can be several months. So it is a more real-time measure, if you will, of what's happening in terms of commercial demand.

On your question on the trending of that over time or the pattern of awards and councils I think Barry touched on the point that the predominance of the cancers that we've seen have been in awards that haven't yet moved to enrollment. So that is a mixture of both. Frankly, I don't have my fingertips the mix of that between the 2. But it is reflective of, again, the factors that we've seen and touched on over the last few quarters around counts being elevated because of reprioritization decisions because of, for example, in the biotech arena, funding environment and companies hoping to raise money or haven't raised money or have been delayed and so on and reprioritizing where they spend and likewise in large pharma. So it is a mixture, frankly, and that's what we've seen so far.

Your next question comes from the line of Charles Rhyee from TD Cowen.

Maybe if I could follow-up to Eric's question. When you look at the backlog, and I'm sure you've done sort of analysis of the backlog itself. I mean, do you feel comfortable that maybe we've gotten through most of the potential projects that could that you think could get canceled? Or I mean, do you have a better sense of what the quality of that -- of the remaining backlog that you're looking at today? And then a follow-up, Barry, at the beginning, you kind of talked about good RFP flow in biotech. Any kind of additional information you can kind of give us in terms of sort of win rates in biotech and how your market share has changed in -- has that increased during the third quarter or in 2025 versus 2024? And maybe sort of what you're seeing there?

Expertly managed 2 parter, Charles. I'll do my best to address both. I think on the backlog, look, as we said, there are a mix of reasons why studies canceled, whether it's emerging clinical data from an ongoing study, whether it's reprioritization of the portfolio or other reasons. And there are a mix of contracted and ongoing pre contract, et cetera. So there are really a mix. What I would say is that to the degree that the turmoil of the last couple of years did result in some delays and some disruption in terms of awards proceeding to contract and contract proceeding to study start. I am confident we are closer to the end of that process than the beginning.

Now who knows what normal looks like in this business. But as I said earlier, I do anticipate that we will return to more normalized levels of cancels, which I think is germane to the question that you're asking about backlog. I'm also encouraged by the profile of the awards that are going into backlog of late. I do think there's a much healthier association between the awards that are coming in now and in the last number of quarters, then perhaps those that are coming out of backlog or these those that are driving us above historical norms for count. So I'm encouraged by that for sure. In terms of biotech RFP flow, I mean retrospective rationalization is a dangerous thing. We know biotech funding has improved somewhat. We've spoken repeatedly that's sort of a 2-sided coin. There's the level of funding, but there's also the amount of the allocated funding that gets deployed.

And I think that's probably the underdiscussed side of the argument. We do see a number of our biotech customers, not just moving forward to deploy capital. But to deploy in indications where they're running larger studies, relatively deep into the development cycle. Is that good for us? Yes, I think it is. So it mean occasionally you see some larger cancels come out of that biotech organization or that biotech field. Yes, it does. But I think in the main, I am optimistic and encouraged. We made a strategic priority out of seeing more of the biotech market. We are being successful in that regard. We're looking at very significant increases in RFP flow quarter-over-quarter, year-over-year trailing 12 months. That's a good thing. We also, in balance, said that we wanted to see a significantly higher win rate in biotech, and that's materially flat on a quarter-over-quarter basis. So there's work to do for ICON there.

In all honesty, there's areas of the biotech market where ICON wasn't historically as present or as focused as I want us to be and as I believe we are now. And if that means we show up on other people's radar more than we did in the past. And I think that's a really good thing and the focus of the team will be converting that elevated RFP flow into sustained hire book.

Next question comes from the line of Mika skin from Bank of America.

Great. I love the when the ball is smaller dogs are hungry metaphor. It's a great way of putting it. I want to sort of go back to that and maybe come at the pricing and the pass-through component from another angle. Just curious, there's obviously fluctuations in therapeutic mix, customer mix, pricing dynamics pass-through. This all happens on a regular quarter-to-quarter basis. Just maybe you could say in terms of what you're seeing now. Is it how short term is it? Is it a little bit more cyclical, more structural. As you look forward longer term, just any visibility or any comments you can make on the duration of this dynamic and when you think things could sort of normalize a little.

I think I said on our last call, Mike, that history makes pools of us all. So I'm going to be careful of prognosticating around what the pricing environment might be like a year or 2 or 5 from now, I think the important thing to note is that it's stable. -- right? It is an elevated competitive market. And I've always said, good companies have great competitors, and that's a good thing. So there's an onus on all of us to realize that drug development is too expensive and it takes too long. And the over under on more cost-effective drug development skewed substantially towards better process, more effective interaction with regulators to reduce the onerous burden on patients and our drug developers and on the deployment of technologies to move this whole industry in the right direction. I think that will drive up net spend in the sector actually. I don't think it will drive it down. I just think we'll get more research done per dollar spent. So I don't want to overstate the impact of pricing per se. on the cost pressures that are actually creating those pricing dynamics in the first place.

So it's stable. Is it competitive? Yes. Do I think that's a function of the upstream dynamics, be they regulatory, geopolitical or LOE related for our customers? I absolutely do in pharma, Likewise, funding for our biotech customers. I said a few times now, we didn't get to where we are in a heartbeat, and I don't think we'll get back in a heartbeat. But as things begin to normalize in terms of funding, in terms of deployment of capital, in terms of a clearer regulatory and political picture, I imagine we will see things graduate back towards more normalized levels right across the sector. But I'm afraid I'm not going to throw out a number and a date for you. I think that would be a little previous.

Our next question today comes from the line of David Windley from Jefferies.

Best wishes to Steve and Barry for your next phases. I wanted to try to combine 2 of the major themes here margins and bookings together and ask the question, how do you balance labor force stability and the benefits of that in both productivity and also perceptions of clients of stability of their project teams and things like that. With the defensive margin I figure over multiple years, ICON has had several risks, both synergy driven by PRA and the market environment, demand driven so again, how do you balance that stability of workforce and the external perceptions that, that can create?

It's a pretty broad question, Dave. And I think I appreciate where you're coming from, albeit I'm not entirely sure how to answer it to be candid. Maybe the easiest way is to say that our headcount moved by about 100 FTE over the course of the quarter. which in a 40,000-person organization isn't substantial. I think our trailing attrition remains near historic lows. And that's been a good number for us, pretty much in a straight line since the coveted where the whole industry saw a bit of a peak. So we focus on really driving efficiency, making sure we have the right resources in the right roles, in the right locations at the right times. And that's not so much a function of bookings actually as it is a function of what is required to move these studies forward.

I talked earlier on about a more algorithmic approach to resource management. Part of that is being able to spread your risk over your portfolio. You remember earlier in the year when we talked about some very large studies coming in than going on hold, some canceling some renewing and then stopping. And we didn't see massive swings in the labor force. We didn't see massive swings in the margin dynamics we didn't see massive disruption of the customers on the other studies that were in the book. So I think the answer is we pull all the levers that any professional service company does, we continue to invest in the best talent. I believe we have the best expertise in the industry. It's absolutely vital to me that we sustain and improve that position. But I don't really see it as a trade-off of margin and bookings.

It's more about making sure that we give our customers the best people, and we give our people the best environment in which to be successful.

Our next question comes from the line of Dan Leonard from UBS.

This is Kyle on for now. Then it sounds like you expect cancellations to moderate in 2026, given your current view on the backlog. But is there a risk that elevated cancellations related to order not yet started studies will persist throughout 2020. separately, could you provide an update on BARDA-funded COVID-related trials that you continue to service?

I'll take the second one, Dan. I mean I think we've talked about 1% to 2% COVID revenue. So not much of a lift to fall off there, more of a curb?

On a full year basis.

Yes. I think to any change there is to the upside, very honestly. In terms of cancels. I mean no 1 can never say there's not a risk of anything happening probabilistically. I think it's unlikely. What we think we're seeing at least my sense of it is, we are seeing the consequences of the last couple of years. You've got the confluence of a couple of issues, funding pressures, LOE, driving reprioritization. Perhaps some of the signs that got funded when money was cheap and abundant not perhaps being followed through. And that has put a different light on some of the studies that were planned awarded and in some cases, started. Am I confident that we will see a return to more normalized level of cancels in 2026. Yes, I am. Am I willing to sign on the dotted line and say that will be linear from January 1? No, I'm not.

But I do think we're closer to the ninth inning than the first on the basis of how we interpret the backlog and the basis of how we speak with our customers and on the basis of the broad demand dynamics across the industry, I think that's a reasonable assumption. How far, how fast and how soon I think it's a little early to say. But as we've said, we do consider them likely to remain elevated in quarter.

Your next question comes from the line of Luke Sergott from Barclays.

I just want to talk a little bit about the burn rate and the -- it's been relatively stable here. Your 4Q basically the midpoint kind of implies like a little bit of a step down there. Talk about the recent bookings that you're getting, what's coming out of the backlog and just the visibility that these burn rates will stick around this like 8 to 8.2 level as we think about kind of modeling in the toggles for 26?

Luca, it's Barry here. I'll start, and Nigel might want to elaborate a little bit. I would point you first in my remark that the council that we took during the quarter not entirely, but they did skew disproportionately towards studies that had not yet started that were sitting in the backlog effectively at a 0% burn rate I'd also point you to the increase in gross bookings, which in the immediate term actually are a drag on burn rate as studies take time to ramp up. So I think there are some of the primary dynamics, but Nigel, you might want to expand.

Yes. Look, I think you -- look, again, you're right. Obviously, we had expected burn to be approximately stable at approximately 8% through the course of the year, and that is what we have seen. In fact, a little better than that, as you've noted, year-to-date. Let's see exactly where we land in Q4, but in around 8% was what we anticipated and what we are seeing. Going into next year, absolutely, it will be a function of, of course, what happens in terms of cancels, as Barry touched on and importantly, gross wins as well, but also on all the initiatives that we are driving, frankly, to enhance and improve that burn rate over time. Look, again, that's also, of course, 1 of the important components of how we frame our guidance for next year, which we will provide you more color on what we get to there.

Your next question comes from the line of Max Smart from William Blair.

It's Christine Ramon for Max. I wanted to echo the congratulations to both Steve and Barry. In terms of our question, hoping you can discuss if you're still seeing strength in early phase work that you called out previously? Or if there's been more of a shift towards late phase work.

Thanks, Christine. Appreciate your good wishes. The answer is yes. We continue to see good activity in our early phase business with strong growth, both on a year-over-year and a sequential basis. That's a business that's grown at double digits on a year-over-year basis, and that's growth that we intend to sustain and improve.

Your next question comes from the line of Casey Widing from JPMorgan.

Yes, Steve Barry, congratulations. So just quickly, 2 quick ones. First one, any more granularity on the trial mix that drove the higher pass-throughs this quarter? Was it all cardiometabolic and then just 1 on the cost management side. Automation has been a theme you've called out in the past as a margin driver. Going back to your last Analyst Day, you talked a lot about the advancements you've made there on taking man hours out. So just curious on kind of the progress you've made on that front and how much you can offset pricing pressure there via automation and AI?

Casey, I'll start on the trial mix. Certainly, that is a factor. And Barry touched on the strength we're seeing there in terms of opportunities and wins. Of course, you touched on the COVID study as well or the vaccine study that was ongoing that was particularly active in the third quarter was a particular impact there. But in general, the comments we've made before around pass-throughs being an increasing proportion of our revenue over a more sustained period is not so much that. It's more around the therapeutic mix as we've talked about. On automation, you're absolutely right. That is, of course, 1 of the levers that we lean into always in terms of driving more efficiency and it's something we will continue to do. I don't know if there's anything you wanted to add to that in terms of -- I know you've touched on already our priorities there.

Yes. I think it's dealt with as well. I mean at the end of the day, Casey, our customers depend on us to take time and cost out of the development cycle and create value in that regard. We get to share in some of that value. That's the basic premise of our partnerships. So when we think about cost management, there's puts and coal there in terms of what we say and what we share but certainly, technology is a huge part of it. And I've talked before the importance to me of leaning more assertively into some of these AI-enabled technologies. We just actually progress the project to roll out an end-to-end project management workflow management system, which is a really important evolution for us to be able to bring all the data together, put it in the hands of the PMs and inform more rapid and accurate decision-making. We're obviously engaged in a range of external partnerships where these technologies allow us to recruit patients more effectively, more quickly to manage patients, both in terms of their care and the site that they're paid more effectively.

Our clinical trial management systems with our external partners and indeed, risk-based quality management. One of the big areas that will drive efficiency is actually in the area of agentic AI. So we started deploying over the course of the last year or so, agents across our business to help us delegate workflow and process to these agents rather than simply information gathering via large language models, et cetera. And 1 that I would call out as a proprietary technology we developed by the name Orbis, which is effectively a multi-agent digital assistant. If you think about multiple agents across the Icon landscape, this is the front door through which employees can go in and relate to multiple agents at the same time without needing a PhD in the organization's digital infrastructure to access that information to effectively an agent of agents that allows you to run multiple analyses, source multiple different data points from multiple different agents across the system.

Now that's early days. That's exactly the kind of thing that would create and, I hope, capture value for the company and its customers.

We will now take our final question for today. And the final question comes from the line of Rob Cathal from Cleveland Research.

I guess I want to dig back into the margin and potential benefit from technology investments that both Barry and Nigel, are you focused on to help offset some of the price and pass through margin pressure. Can you just share how some of these customer conversations are developing as it relates to how you balance sharing the savings with customers versus capturing the savings to help your margins in the near term? And when you expect these potential efficiency savings to begin to flow through for you all into 2026 or 2027?

It's a good question, Rob, but a multifaceted one. I guess I wouldn't I wouldn't encourage you to think about it as a single day on which we start managing margin through technologies or otherwise. That's an organic process that's been going on for the 20 years I've been here, and it's continuing. The other thing I would point out before I get to the heart of your question is we are calling out sustained margin pressure in the immediate term. It's not like we're calling out massive upside in the immediate term because of a particular technology that's going to solve all of our problems. But to your question about the customer conversation, 1 of the interesting things that's cropped up, as we're developing and in many instances, codeveloping, these transformational technologies and capabilities with our customers, it forces us to think in the context of long-term relationships, about whether our pricing and commercial arrangement now will be reflective of the situation by the sign those relationships come to maturity.

So if you're signing a 5-year partnership 10 years ago, you probably agreed your terms, plus or minus inflation. Now we're very much building into those discussions. Go, here's how efficient we believe we can be together based on the nature of that relationship but let's build into the governance model, a forum and a format where we can recognize efficiencies as these new capabilities come on stream, that's a big part of the attraction of working with a company like ICON. We're going to get incrementally more efficient with you, through you and for you, and we want to be in a creative conversation about how we share the benefit. And that co-development piece, it's actually quite a high bar because there's a huge level of IT and technological investments between ourselves and probably 1 or 2 others and the larger customers in the space, but we are very much having conversations with them about how we will revisit commercial terms as the clinical trial paradigm gets disrupted and as we become more efficient as a company. Nigel, I don't know if there's anything you want to add to.

Yes. No, I think you line as well. Rob, I guess the only thing that I would add is that as Barry just went through, that's a clear example of the benefits of scale that, frankly, we can bring to those conversations. We are able to we have the capability of making those investments, providing that sort of longer-term perspective. And secondly, the only other thing I would add is that point of how do we share these benefits together. It's a great question, but also it's fundamental, frankly, to the philosophy culture that you should have as a service organization to your customers in the end, it is about delivering better service to them more effectively and more efficiently and jointly sharing in that. And that is how we always have and we'll continue to approach these topics.

I would now like to hand the call back to Barry Balfe for closing remarks.

Well, thank you very briefly before we close out, I would like to extend my thanks to our 40,000 dedicated employees across ICON for their continued commitment and outstanding delivery for our customers and the patients we all serve. And for all of you joining us on the call today. We thank you for your support. We look forward to connecting again over the course of the coming quarters.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.