ICON Public Limited Company (ICLR) Earnings Call Transcript & Summary

Hi, everybody. Welcome to the JPMorgan Healthcare Conference. My name is Casey Woodring from the life science tools and diagnostics team here at JPM. I'm pleased to introduce our next company, ICON plc. With me, we have the management team here: CEO, Steve Cutler; CFO, Brendan Brennan; and Head of IR, Kate Haven. They're going to be doing their corporate presentation here, and then the Q&A session will follow, as most presentations have. So with that, I'll turn it over to Steve. Thank you.

Thanks, Casey, and good afternoon, good evening, everybody. Nice to be here at JPMorgan, and thanks for your attendance at our presentation of ICON, CRO in our world -- the world's leading CRO and we're powered by health care intelligence. Let me go through the forward-looking statement just to -- for your edification. I won't spend too long on that. And just to explain to you basically what ICON is. We're a partner with the biopharma industry, whether it be a biotech company or a large pharma company. And we partner with them to bring their drugs, devices to market faster and more efficiently. So we are an outsourcing partner. They work with us to run their clinical trials. We're probably best known for helping Pfizer and BioNTech move their COVID vaccine to market. We had about 1,000 people working on that back in 2020, 2021; helped get them to market in a year, which we're very -- obviously very proud of. It's something we stand behind. But that's the sort of thing we do on a regular basis, whether it be in a whole multitude of different therapeutic areas. In terms of CRO market, we did release our guidance today, and I'll come to that in a moment towards the end of the presentation. But we see a fundamentally constructive market in the outsourcing space. The drivers of demand, literally around R&D budget, and that's growing, we think, at around about 3% on a compound annual growth basis. And penetration in the market probably adds another 100 bps or so to that. So around a market growth of around about 4% is what we're seeing in the background. The penetration number there, as you can see, moving into the mid-50s, we think that can go higher. We believe that ultimately can get to around about the 70% mark. Obviously, that's over a long-term basis. So really the next 10, 15 years, we believe that will peak. But we believe there's certainly more growth to go in that space in the longer term. We are certainly impacted by a number of macroeconomic and geopolitical pressures. I won't go into all of them. You are all pretty much aware of what's going on in the space, whether it be geopolitical, Russia, Ukraine, continues to impact us. Both countries were significant patient recruitment areas for us. That, of course, has gone away over the last couple of years. The biotech environment, we believe, is stabilizing somewhat now. But there are still some challenges in that space, and there's still the need to continue funding. A number of companies that are in that space, we believe, will continue to be under some pressure going forward. We're certainly seeing something of a more muted response on the biotech RFPs over the last 3 to 6 months. But there's still, overall, a very constructive environment for us going forward. Biotech, of course, remains a critical source of innovation. You've seen a number of acquisitions from large pharma companies over the last few months, fueling their pipeline. And that, I think, is always going to be a major source of innovation for large pharma. And of course, that gives opportunity to us, whether it be to bring our services into that large pharma or to continue running the studies that we tend to be running for those biotech customers. There are, obviously, some pain points around efficient and being developed -- a development partner of efficiency. It's up to us to continue to drive the efficiency of the clinical trials. Cost and price of running clinical trials, getting drugs to market in the billions of dollars continues to be an issue of driving the pricing of drugs. We tend -- we want to be a solution to that challenge, and we expect and aim to be a solution to that challenge and getting patients into trials faster. And I'll talk about some of our differentiating capabilities in a moment in terms of how we bring patients to clinical trials in a manner that's faster and more efficient. Basically, we do provide that scale, though, and customers need those large-scale providers. There aren't many of us in the industry. There are probably 1,000, 1,200 CROs or companies that do contract research in the industry. There's probably half a dozen that have 50% to 60% of that market. So we're highly concentrated in that market. And obviously, it's ourselves and our immediate competitors that are the major players in the space. So overall, a good, solid, strong market and a market that we believe we can flourish in going forward. What are our key differentiators? There's a number of them, but it's obviously a very competitive industry. We sell what's between our [ ears ], essentially, to our customers in terms of running their clinical trials. But there are 5 areas that we would point out that we have some advantage over, over our competitors. And it's sort of the combination of all of those things that give us an opportunity and give us a reason for our customers to outsource to us. I'll go through all of these each in a little more detail in the next couple of slides. But global scale, access to sites and to patients, particularly, blended clinical delivery models. By that, I mean, there's a full service component where we do everything in a clinical trial: data management, clinical monitoring, project management, statistics, medical writing. And the model on the other end of the spectrum is where we provide more functional resource. We provide people for our customers to direct. And then there's something in between, the sort of hybrid models. We're able to provide all of those models. We're the largest of the FSP provider -- FSP providers, and we're also a very significant full service. So we have the capabilities, the expertise and the functional depth to be able to suit any model that any pharma customer wishes to ask us to deploy. Technology, AI, I'll talk a little bit about that. We've been deploying our DCT solutions, and we have some proprietary technology that we believe we can bring to our customers' trials to help them to get to market faster. And then I think importantly for us, we are focused in the clinical area more so than all of our other sort of major competitors. We focus Phase I to Phase IV. We don't get into selling or commercialization of the compounds. We're not in the preclinical or the animal business. We focus in Phase I to Phase IV, and all of our attention is in that space and we believe that gives us some real advantage. In addition, we have people who are dedicated to large pharma, people who are dedicated to the biotech segment and people who are dedicated to the device segment. So we don't try to mix and match. We really focus very hard on those 3 segments within that clinical space. In terms of global footprint, you can see, we're a very significant organization, over 41,000 people around the world, well spread in terms of North America and Europe, of course, the major drug development markets. But of course, 9,000 people out in Asia Pacific, including Japan. India is a major area for us. Korea, China, those areas are well resourced. Latin America, you can see, over 3,000 people down there. And even places like Australia, Africa, we also have offices as well. So we're well covered. Again, that scale and ability to run clinical trials in any part of the world at any time on a dime is very much part of what we do. You can see down the left there where we are from a terms of full service. Our Phase II and III were up there in terms of #1 and #2 in that space. We're global #1 in our functional service. That's where we're providing resources to our customers. We're a leader in the biotech segment. As I said, we have about 6,000 or 7,000 people deployed directly on biotech, and that's a key focus for us. Early phase is an important component of our business, not a large part of our business but an important part of our business in terms of bringing the customer to us and then helping the drugs get through the pipeline. And then on the late phase or real world evidence space, we're in the #3 spot, and that's an area that's been growing significantly over the last several years or so. So in terms of global scale, we have the numbers. We have the depth. We have the breadth of resources. In terms of our clinical focus, in terms of pharma, biotech and devices, as I said, we've recently evolved the organization to bring our ICON Pharma, that's our large pharma solutions group, together with our ICON functional or strategic solutions group, the large pharma or the companies who tend to do the functional type of work. And so we brought them together in a way that helps us to deliver those sorts of solutions and services in a way that best fits what they're looking for. Biotech, as I said, 6,000 or 7,000 people focused directly in the biotechs. I mean these are different customers, customers who do full-service outsourcing who need our advice, our expertise, our experience to be able to prosecute their clinical trials in an effective and efficient manner. And then our development and commercialization solutions. This is where we have our lab, our early phase solutions, our site -- our Accellacare Site Network, our home health care, whatever. It's the [ peri-clinical ] services that apply then to our full services group, our biotech or our large pharma group. That's the way we're organized. Underlying that, in that pink box there, global business services. I think we have one of the best global business services support groups in the industry. These are -- this is a centralized group of people, obviously, in our sales group, in our finance, IT. We leverage that very well. I think you'll have seen from our results over the last several years really the ability for us to leverage our SG&A expenditure in a way that helps us to drive improvement in our EBITDA percentages and EBITDA margins going forward. And then, of course, from an innovation point of view, we focus very hard. We spend around $150 million to $200 million. That's the plan certainly for going forward in innovation on a capital basis, and that's what we want to do in order to, again, drive forward important innovations and solutions to improve the way that we deliver clinical trials. This slide, patient access group, really what we're trying to do here is vertically integrate to a point where we ease the burden on sites, particularly. Sites remain to be a very important part of how we run clinical trials, going to medical practitioners to run these trials, to recruit these patients. It's not to say that we are increasingly able to access patients directly, but it's usually through and almost always through a site portal or a site point. And ultimately, investigators remain important. As we get into more decentralized clinical trials, that connection with patients will continue to be more and more important. But at the moment, sites and patients are both very significant for us. Our Accellacare Site Network is a network of sites that we either own or help to operate, and they recruit patients for us into our clinical trials. You can see, we get some significant advantage from that in terms of faster -- to being online and to being able to recruit patients faster, to contract faster, to approve, but also faster to actually recruit the patients as they come to the network and into [ our ICON ] clinical trials. And we have, through our Accellacare network, access to approximately 8 million patients. We're looking to build that. That's certainly an area of opportunity for us going forward. In terms of technology, AI and DCT solutions, some examples of our proprietary products there: OneSearch, Cassandra, ICONex and iSubmit. These are proprietary technology systems that allow us, again, in terms of OneSearch, to find the sites that are going to recruit the patients for us, that we have confidence that identifying and selecting those sites will give us access to sites that are engaged with the trial and will actually deliver for us. That's obviously important. The number -- the percentage of sites that you have on a trial that don't recruit in the industry is still significant, 20% to 30% in many cases. We've been able to drive that down to the mid-teens using our OneSearch network, our OneSearch technology. And so that's a very material saving for our customers in terms of how they -- the money they spend in bringing sites online. Cassandra, looks at our post-marketing study requirements. It's an AI-system that predicts what sort of trials a customer needs to do in order to move their study forward once they've got marketing approval and the sorts of trials that will give them most benefit. ICONex, again, identifies key opinion leaders for all therapeutics. And we need to go out and identify sites and identify opinion leaders to run these trials. ICONex helps us to do that. And then iSubmit for document management. You can see the bottom of that slide the sorts of benefits we've been seeing through the use of this technology. And we apply this technology predominantly, of course, to our full service work. But increasingly, we're also able to deploy it on our functional work as well, which allows us to improve the margins on that work and improve the sales numbers on that work. So it's technology that we believe is effective and deployable in a variety of different situations to allow us to improve and to deliver for our customers. ESG remains an important topic we're passionate about, continuing to care for patients, people and of course, the planet. We are on the EcoVadis score. We've improved that approximately 40% over the last couple of years, and that's an area that we continue to focus on. You can see the targets down there, whether it be around -- we're not a company that has -- that manufactures and has a smoking -- lots of smoke stacks or atmospheric sort of challenges. But we are a company that can improve and can -- things like -- as we send kits -- lab kits on our central lab to sites, the waste on those kits is -- we're focusing on to reduce. You send -- you may send a package of kits for 10 patients. You only recruit 2 of them, 8 get thrown out. Well, we're trying to work a way that there's more of a just-in-time solution. So practical solutions like that help us to improve our ESG score and of course, make our company, I think, a better one overall. In terms of our full year 2024 financial guidance and outlook, we've just this morning released that. And you can see 2024 guidance on a revenue basis, $8.4 billion to $8.8 billion in revenue for 2024. That's an increase of 3.2% to 8.1% on the top line. On an adjusted EPS basis, $14.50 to $15.30. That represents 13.5% to 19.8%. So approximately 17% increase in EPS on the bottom line. So that's, I think, a pretty substantial increase, and we're pleased with our ability and our guidance on that. We're expecting and planning to increase our EBITDA percentage by about 50 bps this year, notwithstanding some of the macroeconomic challenges that we have. But we do believe our cost discipline and our focus, particularly around our SG&A area, is going to enable us to improve our profitability. You can see the assumptions down there. Tax rate has gone up slightly given the global order of 15% now, and that's had somewhat of an impact on our tax rate in Ireland. Of course, we're an Irish-based company. Notwithstanding that, though, I think 16.5% is a solid tax rate. And you can see the other areas there. The cash flow there at $1.1 billion is 10% up on what we've done this year. We expect, of course, to move our DSOs -- continue to move our DSOs down to around about the mid-40-day mark. That's an area of focus for us. And you can see, importantly, interest rate in the range of $200 million to $230 million. That's a significant reduction on our interest rate bill for 2023 given our debt -- our opportunity for debt restructuring and continued pay down of our debt. We're about 2.3x EBITDA at the moment. And by the time -- by the end of the year, we'll be a lower number of that. Of course, we haven't reported quarter 4 yet. But we made excellent progress in paying down our debt following the significant acquisition that we made 2.5 years ago of our PRA Health Sciences. And that integration has gone particularly well in terms of us being able to tick off the boxes that we were -- we rationalized that deal on, particularly, around customer. Partnerships, financial ability to drive cost synergies, our ability to bring in technology -- our DCT technology that I talked about was really came in through that acquisition. And so on a number of fronts, that acquisition has done particularly well. And I'm very pleased and the team at ICON and the combined team at ICON has done a super job in bringing that forward. Just in terms of history, this is a slide we show each year. Now if you have any concerns about what we're saying we're going to do, you can see that our track record is pretty solid on that front, particularly around the adjusted EPS number. We've continued to drive that forward. Obviously, the big uptick there in '21 and '22 was related to the significant acquisition of PRA Health Sciences there. So that's not all organic. But I think it is testament to the fact that we deliver what we say we're going to do, and that's, I think, important for all of our investors. In terms of capital employment, as I said, our leverage ratio is about 2.3x adjusted EBITDA at the end of 2020 -- sorry, the end of Q3 '23. That will be lower significantly well, around about 2.1-ish at the end of Q4. So we made -- we continue to make payments on our debt there, and that's been a real focus for us. And that will continue to happen. And it was -- I talked about a reduction in our interest rates of approximately $100 million over the -- for this year. That will happen on the basis of paydown, on the basis of debt restructuring. It will just be -- there will be some differences in terms of how we deploy our capital in those 2 scenarios, but Brendan can talk a little bit more about that in the question session. In terms of M&A, key focus areas, we're back in the market now. We announced a small acquisition just recently with BioTel, an imaging group and a cardiovascular monitoring group, and that's -- it's relatively modest from a revenue point of view, but it just -- it brought us back into the M&A space. And we're keen to continue that progress and that momentum in that space and whether it be around sites and patients, as I talked about how important that is for our business. It could be around the late phase area, lab services. Our central lab is an area that's been doing well over the last few years, mid-teens in terms of growth. And while it's not a huge part of our business, it is an area that we think could potentially benefit from a little bit more scale and that growth could be continued. And then around data and analytics. Obviously, it's always an area that we're looking to improve our business on. Capital expenditure, we're looking to spend in the range of $150 million to $200 million there on innovative solutions, again, to drive our clinical trials and drive our delivery of our clinical trials, the focus, again, on technology labs, early phase segments, things that really do benefit our customers and benefit our customers' projects. We have that flexibility on our balance sheet now. So share repurchases will become an option, but they won't be first priority. Our first priority will be around the M&A space and building our capabilities and building our ability to execute and execute strongly. But given that we will have some -- we will be generating cash at a significant rate and our debt paydown will allow us to deploy that capital with some very -- with different options. And so we'll be probably opportunistic in terms of our share repurchase. But as I said, M&A will be our key priority. We are recognized as an industry leader. Some of the awards we've got over the last couple of years here. I won't pull out any one in particular. We're very proud of, particularly, our award on the Best Employers for Diversity. Diversity is an important component for us. 70% of our company are women, and we look to see the advancement of all our people on the basis of meritocracy. But we're very keen to make sure that our female population move forward and develop their careers, as we are for all of our people. But we're particularly proud of those awards. I'm going to finish off now, I believe, with a short video, which will hopefully keep you all awake as we get to the question time. So we're just going to hit that. I hope it works. [Presentation]

All right. Let's just, I guess, jump right in. So I wanted to touch first on the quarter. You reiterated the 2023 guide today with the 2024 guidance announcement. So just curious on how 4Q trended relative to expectations. Did book-to-bill come within the midpoint of the 1.2 to 1.3 range as expected? Any kind of color on RFPs between SMID and large pharma? Maybe just unpack the quarter for us.

Yes. We haven't announced our Q4 results, Casey. So we're not going to be too specific about what's happened in Q4. But we've seen a continuation of a constructive environment certainly on the RFP front. Overall, we've seen continued uptick, be it on a trailing 12-month basis. Biotech has been a little flatter in the latter part of the year, a little down, probably reflecting some of the challenges around the funding of those companies. But overall, and certainly in our large pharma, in our lab business, early phase, late phase, Accellacare, the business development performance has been solid. And we're pleased with where we've ended up. But as I said, there's always patches within the business, within the organization that are a little lackluster. And I guess biotech was probably a little bit on the muted side from an RFP and wins point of view in Q4.

Okay. And then just on the 2024 guide, you're calling for 3.2% to 8.1% revenue growth. I wanted to ask, first, why did you like to provide such a wide range, particularly on the revenue side? I think last quarter, it was a 350 basis point spread between the low end and the high end. This year, it's about 500. So just can you give us some color on the thought process behind widening the range and including that kind of low single-digit floor?

Yes, we looked at this coming into the year, and we were very clear that we wanted to give an idea of there is a wide range there. But it didn't [ come because there's ] a lot of ups and downs in our industry at the moment. We see a lot of positive signs. Steve made reference to the fact that we've got a good RFP environment, and that certainly drives the top end. But there's also -- there's some [ question marks ] around biotech funding. We talked about that. The R&D environment in big pharma is very solid. But again, some of them have -- some individual companies are going through some cost containment control issues as we know as well. So we wanted to just kind of give a reflection of some of the risk profile but opportunity profile as well. Hence, the range. We've always tried to guide towards people to -- if you're struggling, look at the midpoint, that's a good place to start. And that's certainly what we'd say about this year as well. So listen, it just gives -- the range gives an idea of some of the ups and downs that are there in the industry. We'll certainly try to manage towards that midpoint.

Okay. That makes sense. Just as a follow-up, what sort of visibility do you guys have into the 2024 targets from a backlog perspective? What does the 2024 guide contemplate from a book-to-bill perspective? And what are you kind of targeting for a backlog conversion rate?

Maybe I'll have a crack at that and then Brendan can jump in. I think on the conversion rate, we're probably seeing some attenuation from where we are at around about 9 -- in the mid-9s at the moment given -- the backlog conversion is really driven by our therapeutic mix. And we've been successful in the oncology and rare disease space, which a lot of the drugs that are being developed are in. And hence, those trials take some time. They can take significantly longer than a normal sort of trial there, I'd say, normal trial, whatever that is, certainly longer than a vaccine trial. So that tends to put a little pressure on the burn -- on the backlog burn. On the other hand, we've been solid in terms of business wins, 1.2 to 1.3 is this kind of range we expect to stay. And I don't think about a quarter so much as I look at the trailing 12 months to indicate how we're faring going forward. And our backlog in terms of the burn and the status of the backlog, I think, is in a solid shape. And we feel confident about what that can deliver in 2024 albeit -- although as Brendan says, there are some factors out there that could push us to the top end of that range or more to the lower end of that range. So I think at this stage, we're being appropriately cautious -- optimistic but cautiously optimistic in a way that allows us. And we'll narrow that range as we go through the year and we see greater visibility on the revenues.

Okay. And then just one on the long-term targets that you have in place and just putting that into context with 2024. So at the Analyst Day, you had contemplated CRO market growth of 6.5% from '22 to '25 with ICON kind of growing above market to get to that 7% to 9% long-term revenue growth rate. How should we think about those numbers now just given how the market has progressed since that Analyst Day? Is 2024 a situation where CRO market growth is materially lower and you're gaining more share? Or just maybe kind of walk through how we should think about '24 in the context of your long-term guide.

I think we've certainly seen the market perhaps become a little bit more volatile. We've had a few little headwinds, I think, in the most -- since the Analyst Day that have pushed us down a touch on the growth rates. The 6-ish percent from a midpoint point of view, I think, is the midpoint of our range. And I think that's a valid and a reasonable target. It's a little lower than perhaps what we were talking about at the Analyst Day, but I do think it's still a solid target given the market growth at around about 4% is what we see. I would highlight that our EPS growth is closer to 17%. And so we can talk about revenue growth all you like. We've been able to leverage that revenue growth and our cost base to get very significant EPS growth at around 17% at the midpoint. So I think that needs to be acknowledged and I think is an important component. But it's -- revenue is obviously going to help fuel the company, and we have a number of initiatives in place to drive that, to improve that, to deliver better on a full -- particularly on the full-service basis around our biotech clients. So it's a constant refrain for us to want to drive trials faster and burn backlog. Unfortunately, or depending on how you look at it, the therapeutic mix does tend to dictate that. And so if we can win some vaccine trials in the next little while or prosecute those vaccine, that will help. That will push us more towards the top or the upper end of the range on the backlog burn. If it tends to be more oncology and rare disease, that tends to be a bit of a headwind.

That's helpful. Maybe just one on the margins. So you've essentially pulled forward your 2025 margin target by a year, and you're now expecting 50 basis points of margin expansion in '24. Just can you maybe unpack why margin expansion has been so strong recently? And then how should we think about margin expansion over the long term? How much runway do you have for further expansion?

Yes. It's -- we've done a good job. We're very happy with how we progress from a margin perspective over the last number of years. It's obviously been part of the work we've done with the integration of the PRA acquisition, which Steve referenced. We've done a really good job, particularly in the last year, in developing our gross margin profile, and that's been a real shining point for us over the last year. And we've seen the SG&A leverage continue as well, and we expect a lot of the circa 50 bps that we talked about this year to come from -- more from the SG&A leverage side as we continue to push that down and leverage the good revenue growth that we're seeing in the organization. We've done that through standardization of process. We've done it through reduction of systems. We've done it through making sure that we have the right people in the right places executing on that work. But we've also done it by being really smart around our use of robotics and AI and machine learning in our organization. And that doesn't just apply to SG&A. But, of course, it applies to gross margin as well. So it's an efficiency right across our operating margin targets. In terms of our EBITDA outlook, as we said, we expect to be 50 bps up this year. As we look forward -- I suppose we're not calling out anything specific at this point and we're well ahead of the percentages we called out previously. But what I would say is that we will continue to drive, we'll continue to look for efficiency. We'll continue to share those efficiencies, of course, with our customers. But we'll continue to look for those efficiencies and drive our margin profiles. We're an organization that starts with a blank piece of paper every year and challenges ourselves, and that's exactly what we'll do as we get through '24. But our focus, obviously, clearly is on making that target for '24 first.

Got it. I want to just go back to some of the SMID commentary you talked about earlier and unpack it a bit. So was there some sort of weakness in a specific customer group, like selling gene therapy perhaps, in 4Q? And how should we think about SMID trends in 2024? Is access to capital improving at all? There's been some early positive signals around rates recently. Just talk about sort of how you're thinking about SMID performance in '24.

Yes, I don't think we're ready to call out any particular trend on the SMID performance. They remain a significant part of our backlog and of our revenue at around 15-ish to 20%. And so they have their ups and downs, but they tend to be full-service outsourcing customers. So that tends to be a benefit for us on a margin perspective. We tend to be able to partner with them in an effective way, and we've made some really good progress on the strategic partner in line. I think 2.5 years ago when we came together with PRA Health Sciences, we had about 60% of the top 20 companies on a combined basis as strategic partners. We've moved that forward now. We've certainly added 3 or 4 customers over the last couple of years, and those partnerships are starting to ramp up. So that's certainly an opportunity and certainly a potential upside for us in the medium to longer term on the large pharma. SMID as well have moved towards some of these strategic partnerships as well. And so we've been in a good position there, albeit we had a number of them already, but we've been able to secure a number of more strategic partnerships, albeit they're smaller numbers in terms of smaller amounts of revenue, but they're significant for us. And obviously, small to midsized companies can become large companies. I guess just ask someone like [ Novo ] or even Regeneron over the last few years. These companies grow, and they become very significant companies. And so being partners with them at an early stage of their development is a testament and an opportunity for us to grow with them, and that's what we like to do.

Got it. And then maybe just on the large pharma side, it sounds like it's expected to be resilient in 2024, this customer group. What's driving that strength? Is it your leverage towards later phase trials? Has the shift towards more FSP work driven more outsourcing or more share gains from ICON's perspective? Has the push towards multi-indication trials maybe driven some outsourcing penetration rates? Maybe just help us unpack the performance in large pharma and the relative strength there.

I think we have a strong franchise in the large pharma space. We've -- we grew up with that, and it's an area we know well. We've had a number of very good, very strong partners in the large pharma space over a number of years. And as they go through some challenges, and there's 1 or 2 of them that are going through some challenges at the moment, we're able to, I think, to work with them to understand what they're trying to do and how they're trying to save some money and facilitate that in many ways. So I think our ability to understand those partners, our relationship -- strong relationships over -- in many cases, we're a company that's 33-or-so years old. We've been working with several of these companies for 30 years. We know them well. And so that sort of understanding of their culture, of their -- helps us, I think, to deliver for them and to work with them even in times that are a little tough and when they're looking to save. So I don't know if there's any particular magic to that case, apart from the long-term relationships that we have with some of these partners.

I wanted to touch on the central lab. You mentioned it during the presentation. How large is that revenue base now for you guys? I think you mentioned it was growing. What was it? Teens? So just maybe talk about what's driving strength there. And then you also mentioned the business could potentially benefit from added scale. Would that be where your M&A focus is?

Yes. It's still a relatively smaller part of our organization. It's probably in and around that 5% mark in terms of our revenue proportionality. But it's been growing well. I think people are looking for alternatives in the marketplace. I think they want to see central lab offerings. And I think there is more connectivity between doing the Phase II, III trial now and actually having the central lab in the same place with data flows coming back to the same point and being able to communicate and project manage them in a more blended way than how it's been in the past. So I think all of those things are playing to our advantage. We talked about our really good portfolio with large pharmas. And certainly, that's been something where we've seen more traction in our central lab as well. So it's been a good profile of growth. I mean we want to see businesses that do well, continue to expand, and we want to be able to invest in them. So hence, the idea of looking at it from an M&A perspective. We're #3 in the marketplace, but there's a big gap between us and #2, nature of that market. And so we want to be able to continue to do that organically, but obviously then, use our balance sheet, which we think we'll have plenty of ability to do in the current year to be able to continue to build that out.

And then how would you characterize the pricing environment right now in the current market, particularly with the shift towards more FSP work and hybrid solutions that you've talked about?

I would say challenging, but not more so than it's been in the past. But perhaps we had a little bit of a COVID break, if that makes sense, from a pricing point of view. And I think our customers understood that resources were at a premium and they had to -- they were happy -- I don't know if happy is the right word, but it's -- they were comfortable [indiscernible] to pay for that. And so perhaps the pressure was a little less. But we're in a sharp pencil environment. We understand that, and we know we need to be effective and efficient in our pricing and our budgeting. And I'd say we're -- back in the mix, it's a relatively challenging environment. You're all aware there are 1 or 2 of the large pharma customers who are looking to reduce costs, and that's playing through a little bit with us. But on the other hand, there are some opportunities for us. As they recognize they need to spend more effectively and more efficiently, they consolidate spend. And we're in a position, as a scale player in the industry, to benefit from that consolidation. We can do it all. We have the ability -- it's not as though there's only some things we can do. There are things -- there's nothing really we can't take on, if that's -- and that helps us to provide them with more aggressive, I suppose, pricing and it helps them to save some money, but also helps us to improve our revenues.

Got it. Looks like we have about a minute here left. So just quickly, what are you most excited about for 2024? And maybe what's the most misunderstood part of the ICON story?

I think we're excited. I mean there's certainly some challenges ahead. It's -- the macroeconomic environment is challenging, the geopolitical challenges. I won't bore everyone with going through them. But there are some challenges. I think we're looking forward to lead the industry, to build our franchise, to be a real player in the industry in the longer term. We've come from 2 modestly sized companies, have come together extremely well. We've ticked a number of the boxes that we set out and objectives we set for ourselves when we made that acquisition. It's gone, from my perspective, extremely well. We're looking now to capitalize on that position as an industry leader and really start to move ahead and really give our customers the options and the delivery of service that allows them to increase the amount of outsourcing they do to us. We're very excited about the market. We're very constructive on the growth of the market and our ability to continue to deliver strong results for our investors.

All right. Well, I guess we'll leave it at that. Thank you, all, for joining us today. Thank you for coming. Enjoy the rest of the conference.

Thanks, Casey.