昆泰 (IQV) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the IQVIA Fourth Quarter 2020 Earnings Conference Call. (Operator Instructions) As a reminder, this call is being recorded. Thank you.

I would now like to turn the call over to Andrew Markwick, Senior Vice President, Investor Relations and Treasury. Mr. Markwick, please begin your conference.

Thank you. Good morning, everyone. Thank you for joining our fourth quarter and full year 2020 earnings call. With me today are Ari Bousbib, Chairman and Chief Executive Officer; Ron Bruehlman, Executive Vice President and Chief Financial Officer; Eric Sherbet, Executive Vice President and General Counsel; and Nick Childs, Senior Vice President, Financial Planning and Analysis.

Today, we will be referencing a presentation that will be visible during this call for those of you on our webcast. This presentation will also be available on the Events and Presentations section of our IQVIA Investor Relations website at ir.iqvia.com.

Now you may have noticed that when we issued our press release this morning, we inadvertently missed the quarterly P&L due to an administrative issue. We apologize for this error. This P&L will be made available in our slide presentation, and that will be posted to our website momentarily.

Before we begin, I'd like to caution listeners that certain information discussed by management during this conference call will include forward-looking statements. Actual results could differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company's business, which are discussed in the company's filings with the Securities and Exchange Commission, including our annual report on Form 10-K and subsequent SEC filings.

In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in the press release and conference call presentation.

I would now like to turn the call over to our Chairman and CEO, Ari Bousbib.

Thank you, Andrew, and good morning, everyone. Thanks for joining our fourth quarter and full year 2020 earnings call. We will review how we closed 2020 and discuss 2021 financial guidance. I'm pleased to report we finished the year with a very strong quarter. We delivered double-digit growth in all key financial metrics and once again reported results above our financial targets.

This is all the more remarkable since last year's fourth quarter was so strong. As you know, it was a difficult year. And as we navigated through the pandemic, we try to be as transparent as possible and provide visibility to our expected financial performance. In such highly unusual circumstances, the default reaction will normally be to withdraw guidance and watch from the sidelines. But as you know, we tried our best to share with you what we saw.

We did the same at the end of the third quarter when we decided to provide our 2021 outlook as soon as we had some visibility, which was a full quarter earlier than usual. Today, this outlook has become clearer, and we've decided to update and raise that guidance.

Let's start by reviewing our fourth quarter results. Revenue for the fourth quarter came in at $3.298 billion, which was $108 million above the high end of our guidance range. A little over 70% of this beat came from strong organic performance, less than 30% from favorable foreign exchange. Revenue growth was 13.9% on a reported basis and 12.2% at constant currency.

Fourth quarter adjusted EBITDA of $735 million grew 14.5%, reflecting our revenue growth and productivity measures. The $25 million beat above the high end of our guidance range was entirely due to the stronger organic revenue performance. Fourth quarter adjusted diluted EPS of $2.11 grew 21.3%. The beat here entirely reflects the adjusted EBITDA drop-through.

Our strong fourth quarter financial results were driven by numerous operating achievements during 2020. A little bit more color on those achievements, starting with technology. Demand for our technology offerings remained strong in 2020. 60 new clients decided to deploy OCE last year, bringing our total number of OCE client wins to 140 since launch. As you know, at the beginning of 2020, a top 15 global pharma client began deployment of OCE in the U.S. This client has now decided to begin global OCE deployment for their medical teams, namely their almost 2,000 medical science liaisons worldwide.

The same client is also expanding its use of IQVIA technologies through our HCP engagement management platform. We launched this platform during 2020. HCP engagement management works in conjunction with OCE to ensure global commercial activities are executed in compliance with all global regulations.

In addition to HCP engagement management, you would have seen that during 2020, we also launched OCE Optimizer. OCE Optimizer is a real-time map-based territory and sales rep alignment solution, which helps our clients plan their sales rep activity and improve their marketing plans.

Switching to our real-world business. Our real-world business has been relatively well insulated from the impact of the virus, and it has strong growth for the year. The business is advanced in the use of secondary data, remote monitoring and virtual research approaches, which helped the team pivot quickly to working in the new remote world at the onset of the pandemic.

Our rich clinical data assets are key to our real-world differentiation. The team has continued to invest in these rich clinical data assets, and these assets now include over 1 billion active nonidentified patients globally, and the team is busy integrating this rich clinical data into research.

In 2020, we launched CARE, our COVID Active Research Experience registry to help communities and public health authorities better understand the impact of COVID-19 on the population. We're leveraging this platform, along with our vast experience of registries and analytics, to partner with the FDA to support a better understanding of how people are affected by exposure to COVID. This work will help identify what symptoms individuals experience, the length and severity of symptoms and whether any medications or supplements they are taking affect the severity of those symptoms. It's a perfect application of our real-world capabilities.

Similarly, we have become the partner of choice around the world to assist various governments and health care authorities with large-scale diagnostic testing and monitoring of COVID patients. These new series of offerings, which leverages our connected capabilities, contributed incrementally to the strong sequential growth in our TAS segment.

Moving to R&DS. As you know, the R&DS team responded quickly in 2020 to support our clients with the development of vaccines and therapies for COVID-19. We've been involved in more than 300 clinical trials and studies for the virus, including 4 of the 5 vaccine trials that made it through Phase III and were funded by the U.S. government in Operation Warp Speed. To help speed recruitment, we leveraged our direct-to-patient solutions, which include the use of patient registries and IQVIA-sponsored advertisement. To date, we've recruited over 100,000 patients to COVID trials. The pandemic has accelerated the need for remote and risk-based monitoring in clinical research which, in turn, has accelerated the adoption of our virtual trial technology.

In total, we've won over 60 new studies using our Virtual Trial solutions across 10 therapeutic areas, including awards with 5 top 10 pharma clients. The technology suite combines eConsent, telemedicine, eCOA and digital communication and its platform on Health Cloud, the Salesforce platform that is purpose-built for health care and life sciences. This technology is being deployed to speed vaccine development and was an important factor in helping the team secure the 2 Phase III full-service COVID trials that we are working on.

The environment for R&D and outsourcing remains very healthy. Biotech funding remains strong, with the National Venture Capital Association reporting a record number of deals for the year. The pipeline of late-stage molecules continues to expand and is at an all-time high. It is this healthy environment, combined with our differentiated capabilities, that has resulted in strong new business awards for the R&DS team.

Our contracted backlog, including pass-throughs, grew 18.5% year-over-year to $22.6 billion at December 31, 2020. As a result, our next 12 months revenue from backlog increased to $5.9 billion, up 13.5% year-over-year. We continue to build on our strong momentum in the fourth quarter, with the team delivering a contracted net book-to-bill ratio of 1.41, including pass-throughs, and 1.42, excluding pass-throughs. We exited the year with an LTM contracted book-to-bill ratio of 1.53, including pass-throughs, and 1.44, excluding pass-throughs. We expect continued strong activity going forward as our pipeline of R&DS opportunities is growing double digits in both volume and dollars across a very wide range of therapies.

I'll now turn it over to Ron for more details on our financial performance.

Thanks, Ari, and good morning, everyone. As Ari mentioned, this was a strong quarter to close the year. Let's start by reviewing revenue. Fourth quarter revenue of $3.298 billion grew 13.9% on a reported basis and 12.2% at constant currency. Revenue for the full year was $11.359 billion, which was up 2.4% reported and 2.3% at constant currency.

Technology & Analytics Solutions revenue for the fourth quarter of $1.425 billion increased 17.4% reported and 15.1% at constant currency. The sequential bump in growth this quarter versus the 9.2% growth in the third quarter was due to the COVID-related work that Ari mentioned. Full year Technology & Analytics Solutions revenue was $4.858 billion, up 8.3% reported and 8.1% at constant currency.

R&D Solutions fourth quarter revenue of $1.684 billion was up 14.5% at actual FX rates and 13.2% at constant currency. Pass-throughs were a tailwind of 220 basis points to fourth quarter R&DS revenue growth due entirely to COVID work. But you should note that R&DS delivered double-digit organic growth on both the services and a 606 basis. Again, strong performance, especially considering the tough comparison to the fourth quarter of 2019 when organic service revenue also grew at a double-digit rate.

For the full year, R&D Solutions revenue was $5.760 billion, essentially flat on both a reported and constant currency basis. Excluding the impact of pass-throughs, R&D Solutions' full year reported revenue grew 2.2%.

CSMS revenue of $189 million was down 10% reported and 11.9% on a constant currency basis in the fourth quarter. For the full year, CSMS revenue of $741 million was down 9% at actual FX rates and 9.2% at constant currency. Demand for field reps continues to be soft in the current environment. As a result, business development activity has slowed. But the businesses performed modestly better than we expected as our clients have largely retained existing field reps.

Now moving down to P&L. Our adjusted EBITDA was $735 million for the fourth quarter, which was growth of 14.5%. For the full year, adjusted EBITDA was $2.384 billion. Fourth quarter GAAP net income was $119 million, and GAAP diluted earnings per share was $0.61. For the full year, GAAP net income was $279 million, and GAAP diluted earnings per share was $1.43. Adjusted net income was $411 million for the fourth quarter and $1.252 billion for the full year. Adjusted diluted earnings per share grew 21.3% in the fourth quarter to $2.11. Full year adjusted diluted earnings per share was $6.42.

Now as Ari highlighted, R&DS new business activity remained strong. Backlog grew 18.5% year-over-year, and it closed 2020 at $22.6 billion. We expect $5.9 billion of this backlog to convert to revenue over the next 12 months, which represents a year-over-year increase of 13.5%, and this provides the basis for our 2021 guidance, which I'll be discussing shortly.

Now let's go to the balance sheet. At December 31, cash and cash equivalents totaled $1.8 billion, and debt was $12.5 billion, so our net debt was $10.7 billion. Our net leverage ratio at December 31 improved to 4.5x trailing 12-month adjusted EBITDA, and that compares to a peak of 4.8x at the end of the second quarter and 4.7x at the end of the third quarter. And you'll recall that we've committed to deleveraging to between 3.5 and 4x net leverage as we exit 2022. And you can expect that we'll make good progress towards this target in 2021 due to our double-digit adjusted EBITDA growth and improved free cash flow conversion.

The cash flow continues to be a bright spot. Cash flow from operations was $750 million in the fourth quarter, up 29% year-over-year. CapEx was $176 million, resulting in free cash flow of $574 million. For the full year, free cash flow was $1.34 billion, up 61% year-over-year.

We resumed share repurchase activity during the fourth quarter, repurchasing $102 billion of our shares. Full year share repurchases were $423 million. We ended the year at 194.8 million diluted shares outstanding and currently have $918 million of share repurchase authorization remaining under our program.

As a result of our strong free cash flow performance, actions we took at the onset of the pandemic to access capital markets and capital allocation decisions during the year, we now have $3.3 billion of dry powder on our balance sheet between the undrawn revolver of $1.5 billion and the cash balance of $1.8 billion. We will continue to be judicious in how we use this liquidity, consistent with our goal of reducing net leverage.

Okay. Let's turn to guidance now. We're raising our full year guidance by $250 million for revenue at the low end of the range and by $300 million at the high end of the range. The new revenue guidance is $12.550 billion to $12.900 billion. A little under half of this increase is driven by a stronger outlook for the business, and the remainder is from favorable FX movements versus the guidance we provided on our third quarter call. I note that the revised guidance includes about 200 basis points of FX tailwind versus the prior year.

We're also raising our full year profit guidance. We've increased our adjusted EBITDA by $35 million at the low end of the range and by $40 million at the high end of the range, resulting in full year guidance of $2.760 billion to $2.840 billion. The change in FX versus our prior guidance actually had a slightly negative impact on profit due to the unusual mix of currency fluctuations versus a historic norm. So the adjusted EBITDA increase that you see in our guidance is more than entirely the result of the stronger organic revenue outlook.

We're raising our adjusted diluted EPS guidance by $0.12 at the low end of the range and by $0.13 to the high end of the range to $7.77 to $8.08. This represents year-over-year growth of 21% to 25.9%.

And let me go a little deeper to provide you with some color to help you with your models. First, when you're modeling quarterly revenue, keep in mind that the second quarter will be the easiest comparison, and the fourth quarter will be the toughest comparison. And within our adjusted diluted EPS guidance, we've assumed interest expense of approximately $415 million, operational depreciation and amortization of slightly over $400 million, other below-the-line expense items such as minority interest of approximately $50 million and a continuation of share repurchase activity. Our guidance also assumes that the effective tax rate will remain largely in line with 2020. Our full year 2021 guidance assumes that current foreign exchange rates remain in effect for the balance of the year.

Now before turning to first quarter guidance, let me give you a look at the segment growth rates for 2021. We currently expect Tech & Analytics Solutions reported revenue growth to be between 9% and 12%; R&D Solutions reported revenue growth to be between 14% and 17%, which includes a 100 basis point headwind from pass-throughs; and CSMS reported revenue growth is expected to be down about 2%, weaker early in the year and recovering later in the year.

Now as in the past, we're also providing guidance for the coming quarter. And this assumes that FX rates remain constant through the end of the quarter. On that basis, first quarter revenue is expected to be between $3.150 billion and $3.200 billion, representing reported growth of 14.4% to 16.2%. All 3 segments should deliver similar constant currency growth rates to what we saw in the fourth quarter.

Adjusted EBITDA is expected to be between $660 million and $675 million, representing reported growth of 17.4% to 20.1%. And finally, adjusted diluted EPS is expected to be between $1.81 and $1.87, up 20.7% to 24.7%.

So to summarize, we delivered strong fourth quarter results with double-digit growth in all key financial metrics, and that's on top of a strong fourth quarter in 2019. We posted mid-teens revenue growth for both our TAS and R&DS segments. R&DS backlog improved to $22.6 billion, up 18.5% year-over-year. We posted strong free cash flow for the fourth quarter and the full year of $574 million for the quarter and $1.34 billion for the year.

We closed 2020 with net leverage of 4.5x trailing 12-month adjusted EBITDA and a very healthy liquidity position, including an undrawn revolver and $1.8 billion of cash. And as we look to 2021, we see double-digit revenue growth, margin expansion, adjusted diluted EPS growth of over 20%, continued robust R&DS bookings activity and a further reduction in our net leverage ratio.

And with that, let me hand it back over to our operator for the Q&A session.

(Operator Instructions) Your first question comes from Robert Jones with Goldman Sachs.

I guess maybe just on TAS. It seems like record constant currency growth in the quarter from the segment despite the events management business, I'm assuming, not really coming fully back. And if I heard you correctly, Ari, it sounded like a good portion of the acceleration was driven by real-world evidence for the government. I'm just curious how sustainable some of that work might be into 2021, kind of what's assumed in this healthy guidance of 9% to 12% in TAS. And then just any thoughts on the other pieces of TAS outside of real-world evidence in the guidance would be helpful.

Yes. Thank you. Look, TAS, in general, has been more insulated from the impact of COVID during 2020 than R&DS or CSMS, right? So our data analytics, consulting, our real-world business were pretty much unaffected. And as you noted, the only pockets there that we had -- where we had issues were the events management business, which essentially came to a halt.

Now in the fourth quarter, the underlying TAS business returned to normal growth rate. It had already returned to normal growth rates in the third quarter. I think we posted 9.2% of constant currency growth in the third quarter. The sequential increase in that growth rate in the fourth quarter, which is about, let's call it, 600 basis points, was entirely new, as you noted, to the incremental work from COVID-related activities. So we expect this incremental contribution to continue about the same pace into the first quarter.

Now similar to R&DS, the COVID work in TAS has been faster execution, and the guidance that we give you for 2021 does include the COVID work that we have visibility to. But I can tell you, there's no COVID work in the second half of 2021 that's built into our guidance. It's still early in the year, so this could change, right? It's not going to stop abruptly. But right now, the bulk of what we see in terms of COVID work in TAS for 2021 is in the first quarter, similar as in the fourth quarter and a little bit of tail in the second quarter, and that's it.

What is that COVID work by the way? It's mainly related to projects for governments, essentially using our people and analytics to support authorities in the management of the crisis. There's the real work -- real-world work for the FDA that I described in my introductory remarks. We're also performing large-scale diagnostic testing and monitoring of COVID patients for other governments in Europe, in Asia, around the world. And we are assuming that's going to go away, certainly by the middle of the year in our guidance. But again, that could be -- that could prove to be -- I have an expectation -- again, it's not built in the guidance. I have an expectation that we will continue to have similar type of work as we've developed capabilities and really a new set of offerings, which we intend to go to market going forward.

No. That's helpful, Ari. And then if I could just ask one on the RDS (sic) [R&DS] side, similar question. I know the COVID work and the pass-through implications has been kind of a moving target. But just similar thoughts would be appreciated on how you're thinking about COVID versus non-COVID-related work in the RDS guidance for 2021.

Yes. So again, just as in TAS, COVID work did contribute significantly to R&DS growth, obviously. I mean look, mid-double-digit growth in TAS is not the new norm. We said TAS growth accelerated, but we accelerated to the high single-digit growth that we always anticipated pre pandemic. If you go back to the guidance we gave, the long-term guidance we gave you in June of 2019, we did expect TAS to reach high single digits, 8%, 9% and eventually 10%, but that's the underlying TAS growth business.

Now with R&DS, it also, of course, would be misleading to look at the R&DS business and say that's the new norm with mid-double-digit growth. Obviously, it's hard to -- it's harder to determine what we would have been without the COVID work because without the COVID work, there would have been other business that had essentially been pushed to the right, right, in R&DS, as you can understand. But by the way, even absent the large COVID trials that we've been privileged to work on, we would have had very strong underlying R&DS services growth in the fourth quarter as well.

Now we expect COVID work to be with us through 2021 and maybe also into 2022 because there's a need for vaccines from multiple manufacturers to meet global demand; there are new vaccines that are being developed for variants of the virus; there are alternative vaccines that are needed in case of adverse safety events or quality issues or manufacturing delays; there are novel treatment programs that are targeted at specific populations and conditions; and of course, there are postapproval commitments to regulators, all of which do require continued R&DS work.

Now look, we have a large backlog to execute, $22.6 billion at the end of 2020. We are -- look, we have to have the ability to execute on this existing backlog, and that ability will continue to improve. Site start-up and patient recruitment continues to improve. The next 12 months revenue from backlog has increased. So all of this provides the basis for our 2021 R&DS revenue guidance.

The pipeline of opportunities is very strong. If we exclude COVID opportunities, our pipeline is showing good growth. For example, the oncology pipeline is in the mid-double-digit growth. The CNS pipeline is up low double digits, 12 -- it's 12%, 13%. Cardiovascular and diabetes pipe is growing strong double digits, very, very strong double digits.

So if your question is suggesting that what happens post COVID, we're not falling off a cliff. We have -- the vast majority of the backlog is not COVID, obviously. If you look at our bookings in 2020, every quarter, except for the first quarter, obviously, COVID-related work represented between 15% and 20% of our services bookings. And for the year, I think it was exactly 15%, 1-5. So we continue to book very, very solid good business across all therapy areas. And we expect our strong growth in R&DS to continue even post COVID.

The next question comes from Tycho Peterson with JPMorgan.

Ari, sort of follow up on the first question, but I think previously, you talked about real-world evidence actually picking up as the pandemic lingers, just given that you need to understand why people have more severe symptoms, a lot of that seems to rush to market. So I'm just curious as to why you think that piece will drop off after the first quarter given, yes, there seem to be a growing need and most of your peers are talking about it being a pretty strong year for real-world evidence.

Yes. Yes. Well, go ahead, Andrew, yes, yes.

Yes. I guess I mean, Tycho, I think Ari was alluding to it earlier. I think he said that, look, it's still early in the year, and this could change. I don't think we want to get ahead of ourselves and bake anything into our guidance, but we don't have line of sight into our contracts. It's obviously a fast-moving environment with the COVID work and it's fast execution, and we saw very good growth in the first quarter, and we expect that to repeat in the second quarter for TAS.

Ari mentioned in his prepared remarks at the beginning, obviously, we're doing work with the FDA, and we're looking at how COVID is impacting the population and what kind of treatments and therapies have people been on or drug regimens have people been on that mean -- that their symptoms maybe aren't as severe as other patients. So we've obviously got a seat at the table here. We're talking to governments. And I think that means we're becoming kind of the company of choice with other governments around the world. But I think we just don't want to get ahead of ourselves here and think of anything else we're on the...

Yes. Yes, I would just add, Tycho, that we've included in our guidance what we have direct visibility to. But this is a very fast-moving environment, and things pop up all the time. So it could change.

I mean look, just -- we are delighted to have this COVID work, right? I mean we are super excited because the broader picture here strategically is that this crisis, as bad as it was for everyone, in terms of our company, we've been talking -- it's almost like this company existed for situations like this. All of a sudden, the sets of capabilities that we've spent so much effort and investment developing proved to be exactly what was needed to help our clients and to help governments, whether it's on the commercial side, on the real-world side or on the R&DS side. And our relationships with clients have been strengthened. The -- our sets of capabilities have been demonstrated, and we expect to continue to capture an ever bigger share of spend going forward into the very long term in the life sciences industry, and we really are very excited by the pipeline of opportunities, again, both on the commercial side and on the R&DS side.

Okay. That's helpful. And then just 2 quick follow-ups. I'm just curious on recovery trends. Where do you stand in terms of site accessibility? I think it was 70% coming out of 3Q. So where does that stand today?

And then separately, I didn't hear you mention OCT. I'm just curious how we should think about that rollout. And any potential synergies with OCE?

So your first question was...

Question was on site...

Yes. Okay. First question was on site access. And site access actually remains fairly close to the 70% number. We just learned ways to work around it, although we would expect it to improve gradually, yes.

I mean look, in the first -- when -- in the trough, in the -- at the worst moment of the crisis, we were like less than 20% on site access. And that really created huge headwinds for our R&DS business as you know.

Second quarter earnings call, we told you that we had gone up to 53% site access, and at the end of the third quarter, we were at about 70% site access. And the kind of bad news, good news here is that we have not improved that metric. It remains at 70%. However, we've learned to work around that. And the reason why it hasn't gone back to 100%, frankly, is because of all these new flare-ups, et cetera. But the good news here is that it's been all right because the -- it's not so much we found really the number of sites, but it's really other metrics. The main metric we looked at, at the beginning of the pandemic was site access because, again, without that, you've got nothing. But we found out that there is a critical mass of site access, which, again, we think is about the level where we are now, whereby our remote monitoring capabilities then prevent material disruption to the delivery of our services in general. We've got site networks relationships. We can work around sites that are not yet up and running for clinical research. And today, we can pivot much faster to remote monitoring versus when this pandemic hit.

Now if you look at start-up activity, which is another important metric that we were looking at, which had also come to a halt, it's now back to baseline levels pre pandemic. And that's extremely good news. And there hasn't been any major change from this due to the increases in COVID cases or the new variants of the virus. So start-up activity, people have room to work with the virus, and it's essentially back to prepandemic levels, and we don't see that changing.

Patient recruitment, another very important metric. Obviously, it usually lags site start-up, but essentially, those trends are very strong, and the patients are returning to sites essentially close to prepandemic levels. So again, we're very encouraged by that. You had another question on...

Orchestrated Clinical Trials, the OCT rollout and how do you think about that, yes.

Yes. Yes. Well, I mentioned that in my remarks that our Virtual Trial technology has been really brought to the front here in the context of COVID.

If you step back and think about what OCT is, there's really 4 blocks: there's a Digital Site Suite, which focus on the site portal, payments, eTMF; then there's a digital patient suite, with -- what the patient has to go through with eConsent, eCOA, that's where the Virtual Trial essentially is, the study hub; then you have the Digital Trial Management Suite with the CTMS, Risk-Based Monitoring; and then you have the compliance suite with RIM Smart and Vigilance. So the technologies in our site suite, the patient suite and the compliance suite went live during 2020. And the technologies in our trial management suite will be going live shortly, most likely end of the first quarter, beginning of the second quarter of this year. So again, of these 4 suites, the site, the patient and the compliance, they all went live during 2020. And the trial management suite will be live -- to be -- probably March, April time frame this year.

And we are seeing very strong interest from clients. We've seen an increase in RFP activity for the OCT platform, not just for individual suites or stand-alone products, but for the whole platform. We are seeing interest from all customer segments, large, mid and EBP. And stay tuned, we'll report more on that. But the answer to your question, we are live for most of the products, and it will be fully live and operational by the beginning of the second quarter.

Your next question comes from Ricky Goldwasser with Morgan Stanley.

So backlog conversion clearly improved even when we back the COVID benefit -- COVID product benefit. So when we think about 2021, when should we expect the backlog conversion to be back to that 7.6% pre-COVID level? Should we think about it as sort of second half of 2021? Or kind of like spills to '22?

And then the second question, I mean, Ari, you talk about patient recruitment and the fact that you're starting to see patients are coming back to sites at pre-COVID levels. Are you seeing any impact on how -- on trial designs? I mean clearly, right now, still a relatively low percentage of the population is vaccinated. But as we see more people vaccinated, would that impact how you think about trial design and potentially the pace of recruiting new patients to trial?

So Ricky, the line was pretty bad there. We were struggling to hear you a little. I think your second part of the question was around patient recruitment and are we seeing -- expecting, I guess, pickup in terms of the population getting vaccinated and people returning to sites. I think -- from what we are seeing...

So actually, the question is if we think about it, are -- as individuals are vaccinated, does that sort of change how you guys think about designing trials, i.e., someone has a COVID vaccine, does this mean that they might be compromised and can't participate in trials?

No. I don't think so. No, no.

No. I think it's all part of the general recovery that we're seeing and -- but the view -- with the...

It doesn't change anything to the design of the trials. I mean it's just another element that allows a patient to access offices, sites or interact with the health care professionals, but would have been the same with a negative test or somebody with antibodies. I mean that doesn't change anything to the design, no.

And then the second -- first...

What was the first part of the question, Ricky? I was -- we were really struggling to hear on our side.

So the first one was if you think about backlog conversion, clearly, backlog conversion impeded the quarter, even when we -- excluding COVID. So when do you expect to return to the pre-COVID levels, that 7.6%? Should we think about it when we model the second half of 2021 or in early 2022 time line?

Look, the backlog conversion is a really tough statistic to model out because it depends on backlog burn, because it depends on how much we're adding to the backlog in any quarter. So what we've tried to do is provide guidance to tell you how much we think is going to burn during the course of the year, the next 12 months revenue and allow you to take it from there. Yes, the COVID work does burn quicker than the other work. There's no question about that. But we don't guide to a particular backlog conversion rate because it's just too difficult to do because it depends also on how much you happen to be booking. If you're booking a lot, like we have been recently, and obviously, the backlog goes up and the burn rate goes down, but that's not a bad thing.

So yes, I would expect you would see a faster burn of the COVID-related work, which we mentioned was about 15% of our service bookings in 2020, and a more normal rate of burn on the rest of the backlog. And I think it still remains to be seen how much additional COVID-related work we're going to book as we go through 2021. That's still a question mark.

Your next question comes from Eric Coldwell with Baird.

I have one technical question and then a more strategic one. So first off, I'm getting a couple of inbound asks on the FX update. I'm just curious if you could maybe clarify, be more clear for us, people who missed it. The FX guidance for 2021, is it plus 200 bps tailwind for the full year in total? Or was the update today that, that's an incremental 200 bps since you first gave 2021 guidance a few months ago?

So when you look at the year-over-year FX impact, when you're looking at the growth rate, so ultimately, if you tie it back, our reported guidance and get to a constant currency guidance, it's a 200 basis point tailwind year-over-year. Similar to that in TAS and CSMS and a little bit lower in R&D, maybe about 100 basis points in R&D.

No. He's asking versus the previous guidance.

Yes. That would be the follow-on, is what was embedded in the guidance a few months back, so we could just see the delta.

Previous guidance was 100 bps.

Yes.

Yes. About half -- yes, so previous guidance at 100 basis points and this does close to the 200 tailwind.

Perfect. A little more interesting question, really positive trends here in the cash flow. And I know it's been -- Ron, I know it's been a big focus for you. We've seen some nice improvement here over the last few quarters. I'm just -- I'm hoping you can maybe break this into 2 pieces. First off, could you give us anything a little more specific or precise on what's really driving the improvement operationally, number one? And number two, perhaps parse out from that if maybe some of the timing on the COVID vaccine work and the higher pass-through tailwind that you did finally get here in the fourth quarter, was that -- how much of a contribution was that versus, let's say, core underlying fundamental improvement?

Look, it's a good question. The -- as you can see from our cash flow statement, the principal driver, in fact, pretty much the whole driver of our improvement in cash flow -- free cash flow in 2020 was due to improved collections performance. And that's a combination of collecting quicker but also billing in a more timely structure in our contracts so -- that we built earlier. And part of our collections effort, which we put a lot of focus on, was bringing down our overdue receivables. We took our eye off the ball on that a little bit and put a lot of focus on that. And we're able to substantially put a dent in our overdue receivables, which has helped quite a bit.

And I think a lot of the processes we put in place, all of them should persist into 2021. We have to continue to put emphasis on it, but we've improved our processes, and we expect that to continue.

Now you did identify something that's important, which is that the COVID-related work did bring some benefit in terms of customer advances and being able to bill in advance that helped our 2020 cash flow. I would -- so when you look at our 2020 cash flow as a percentage of adjusted net income, it was unusually high. We target more in the 80% to 90% free cash flow as a percentage of adjusted net income in a normal year. But cash flow is very lumpy. So it bounces around. We had a very strong year in 2021. It means as a percentage of net income -- excuse me, 2020 as a percentage of net income, it probably won't be quite as strong in 2020. But fundamentally, we've improved quite a lot in terms of cash conversion, and you should see continued benefit from that going into the future.

I think we're coming out close to the hour. But if we can take one more question, please?

Your last question comes from Dan Brennan with UBS.

Great. I guess a 2-part question. One was on OCE. Ari, so obviously, continued progress there. I'm just wondering, when do we begin to see OCE show up in revenues? I know you talked about the time table at which it gets deployed and then you begin to generate traction on that, with 140 wins to date. Any color about what's baked in the 2021 guidance? And if not, kind of when do we see it?

Yes. So again, we continue to see very good traction in the marketplace. Obviously, it takes time to deploy. We had 60 client wins in 2020. And I should point out, obviously, despite the difficult environment created by the pandemic, we continue to sell a total 140 client wins since the launch. We keep winning 2 out of 3 times against competition. We're deploying large clients, which we disclosed before. We have a global deployment with Roche. We have a global deployment with Novo Nordisk international operations, AstraZeneca U.S. deployment as well. We have another top 15 pharma deployment for a country in Asia, another top 15 pharma client that's globally deploying for their medical teams. So we already have -- I'm not sure if we should disclose this number, but we do have tens of thousands of users already.

Now does this move the needle? I mean $12.9 billion revenue company? No, not in 2021. But it is providing very significant growth and certainly, it is an area where we expect strong margin drop-through over time. As we complete implementations, as you know, it's a -- the drop-through becomes much more attractive when revenue is license driven. And we are starting to see that, but it will continue to increase as we complete deployments and implementation.

Now we continue to sell. So that also will require implementation. And the strategy overall is the same as for any technology company, which is the land and expand motto. And as you know, we sold HCP engagement management, I mentioned it. We sold the HCP compliance. We are launching additional modules and continue to expand. So it's not just OCE. OCE was kind of the start-up piece, and then it continues to grow. Ron, you...

Yes. Yes. I just want to -- I think sometimes investors have a tendency to equate our tech business with OCE because we've all talked about it a lot, and we have a competitor in that space that talks about it a lot as well. But we have a much broader tech business, as Ari was saying, and just that, I mean, across performance management, compliance, information management, social media, payer/provider, and then we have a growing clinical tech segment. So I just want to emphasize that tech is a lot more than just OCE for IQVIA.

Thanks very much, Dan. So we're at the top of the hour now. So thanks, everyone, for taking the time to join us today, and we look forward to speaking with you again on our first quarter 2021 earnings call. And we'll be available for the rest of the day to take any follow-up questions that you might have. Thank you, everyone.

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