Good day and thank you for standing by. Welcome to the ICON Q4 and Full Year 2022 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.

Thank you. Good day and thank you for joining us on this call covering the quarter and full year ended December 31, 2022. Also on the call today, we have our CEO, Dr. Steve Cutler; and our CFO, Mr. Brendan Brennan. I would like to note that this call is webcast and that there are slides available to download on our website to accompany today's call. Certain statements in today's call will be forward-looking statements. These statements are based on management's current expectations and information currently available, including current economic and industry conditions. Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company's business, and listeners are cautioned that forward-looking statements are not 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 March 1, 2022. This presentation includes selected non-GAAP financial measures which Steve and Brendan will be referencing in their prepared remarks. For a presentation of the most directly comparable GAAP financial measures, please refer to the press release 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 the earnings slides, you will note a reconciliation of non-GAAP financial measures. Adjusted EBITDA, adjusted net income and adjusted diluted earnings per share exclude stock compensation expense, restructuring costs, foreign currency gains and losses, amortization and transaction-related and integration-related costs and their respective tax benefits. We will be limiting the call today to one hour. [Operator Instructions] I would now like to hand over the call to our CFO, Mr. Brendan Brennan.

Thank you, Kate. In quarter four, ICON achieved gross business wins of $2.7 billion and recorded $355 million worth of cancellations. This resulted in net awards in the quarter of $2.35 billion, a net book-to-bill of 1.2x. Full year 2022 gross business wins were $10.99 billion. And cancellations were $1.54 billion, resulting in net business wins of $9.45 billion and a net book-to-bill of 1.22x. With the addition of the new awards in backlog grew to a record $20.7 billion, representing an increase of 2.4% on quarter 3 of 2022 or an increase of 8.7% year-over-year. Our backlog burn was 9.7% in the quarter, in line with quarter 3 levels. Revenue in quarter four was $1.962 billion. This represented a year-on-year increase of 4.3% on adjusted revenue, or 7.6% on a constant currency organic basis. The revenue impact from year-over-year changes in foreign country exchange rates resulted in a headwind of approximately $63 million in quarter four. Full year revenue was $7.741 billion. This represents a year-on-year increase of 41.2%, or 45.4% on a constant currency basis. Revenue from our top 25 customers, consisting of a range of customer sizes, increased from quarter three. Concentration in our top customer represented 9.2% of revenue, and our top 5 customers represented 29.3% of revenue. Our top 10 represented 44.5%, while our top 25 represented 67.8%. In the full year 2022, our top customer represented 8.8% of revenue and our top 5 customers represented 28.3% of revenue. Our top 10 represented 42.7%, while our top 25 represented 63.1%. Gross margin for the quarter was 29.9% compared to 29.5% in quarter three. Full year gross margin was 28.9%. Gross margin strength was driven by continued direct fee revenue growth and improved resource utilization in quarter four. Total SG&A expense was $182.2 million in quarter…

Thank you, Brendan. And good day, everyone. 2022 marked another year of success for ICON as we continued our journey to become the world's leading health care intelligence organization. The year was certainly not without its challenges, as effects from the war in Ukraine, ongoing pandemic-related issues and several macroeconomic headwinds impacted our operations and financial results. Against this backdrop, ICON continued to deliver consistent and predictable results for our investors through the deployment of our comprehensive clinical services, strong customer focus and rigorous cost management. We recognize another important milestone for ICON this week as we approach the two-year mark of the announcement of our union with PRA Health Sciences. We made significant progress on creating a unified employee experience through the harmonization of systems, processes and facilities across the organization. Our approach in utilizing the best of both companies has benefited our teams and most importantly our customers as we evaluate every decision through the lens of how we can optimally position ourselves to deliver our expanded capabilities efficiently and effectively as one ICON. Progress towards achieving our synergy targets has continued, as previously communicated, with the expectation to realize the full $150 million of cost synergies in 2023, one year ahead of our initial target time line. Our revenue synergy of $100 million exiting 2024 remains on track after continued success in securing cross-sell awards, which exceeded $100 million for the full year 2022. The fundamentals of our industry remain healthy as demand for efficient patient-centric clinical development services continues across biopharma customer segments. We have seen consistent trends with regard to overall RFP activity as well as out-resulting business development performance, as mid and large biopharma customers have continued to show strength across these areas. In the emerging biotech segment, we have seen sponsors continue to…

[Operator Instructions] And your first question comes from the line of Sandy Draper of Guggenheim. Please go ahead. Your line is open.

Great. Thanks very much. I guess, first question, and I'll try to keep it short, just on, Brendan, if you can just remind me the change in the billing terms. Was that dictated by the customers? And is that related to the current macro environment? What caused you to change that? It sounds like you expect DSOs to come back down. And I think you're still targeting over $1 billion of free cash flow but just trying to understand again what happened there and then how we should think about the improvement over the course of the year in terms of the cash flow.

I don't know if it was that complex, Sandy, to be honest. We did a lot of integration work during the course of 2022. Certainly some of that distracted us. The billing levels were probably a little lower than I would have liked earlier in the year, but as I said in my prepared comments, we really saw a significant improvement in our billing levels in Q3 and Q4 particularly. And we do see that having a positive cash flow impact in the first half of this year. So I would say it was more of that. I think our billing, our contractual terms or commercial terms are relatively consistent. Our mix of business is we have a lot of -- we have a good mix of customers in terms of large and small and mid, so it hasn't really changed significantly, but I think what we have seen, as I said, very strong billing in Q3 and Q4. And I'm very much hoping that, that will have a positive impact as we go through H1; and as a consequence then, get us back on track in terms of that cash conversion story that you'll be very familiar with.

Got it. Okay, that's helpful. And then I think this is a related follow-up. In terms of capital deployment, it sounds like, Steve, you commented it's really focused on debt paydown. You haven't bought back any stock in the last three quarters. My assumption just to see if it's a fair one, is a pretty low probability of share repurchases given the interest rate environment and the focus on paying down debt. I just want to make sure that's I'm reading that right or hearing that right.

That would be a very accurate assumption, Sandy, yes. We will focus on debt paydown. And share buybacks at this point, while you never rule them out, but at this point, really are not high on our agenda.

Okay. I'll leave the floor. Thanks.

Thank you. We will now go to our next question. And your next question comes from the line of Justin Bowers from Deutsche Bank. Please go ahead. Your line is open.

Hi, good afternoon, everyone. Just a few on the background. Could you -- sorry, the backlog. Could you characterize the solutions that large pharma are requesting, let's say, as we enter 2023 and how that shifted as we entered endemic state? And then can you remind us on your backlog policy for the FSP business; and whether the mix has increased or decreased over the last, let's say, 18 months or so?

Sure. I'll take the question on large pharma, Justin. Maybe Brendan can talk about the backlog shift. We see large pharma talking to us about a number of different models. And when you see -- sometimes I think we think that companies have very pure models. Most of them have a component of the various services that we offer, whether it be functional, whether it be full service, whether it be some sort of mix. And so most of them do that. There are certainly some of the larger pharmas we are talking to more about the hybrid models or more about a functional. Others are continuing down the full service, the mid-sized pharmas probably more, down the full service, as are the biotechs. We -- I don't think we see any sort of major push one way or the other at this stage. And that suits us fine because being so well positioned in the functional group with a leading purveyor of those services in the market and also well positioned in the we feel we can offer either of those solutions or a combination of those solutions. And so if there's any trend, I suppose, it's probably more towards that combination and that hybrid model where they want functional for certain areas, but they're very cognizant of the benefits of full service for others as well. And so if anything, it's probably moving towards -- perhaps a bit more towards a hybrid, but really all of those particular large pharmas have a combination of those sorts of models in place already. And so the trends are minimal. Do you want to talk that one?

Yes. In terms, Justin, of the actual how we book it into backlog those FSP contracts functional staffing contracts, we're very much fairly conservative around that. They're based on renewals, those, on an annual basis, so we look at 12 months out in terms of how many heads we'll have on billings for that period. And then we'll make sure we've always got kind of a 12-month period in front of us in backlog. We don't go beyond that. They can't have MSAs, obviously, that go over three or four years. We generally wouldn't take anything more than 12 months directly in front of us. In terms of the movement in the mix of backlog year-over-year, let's say end of year '21 to end of year '22, I wouldn't say that we've seen a significant increase in the FSP proportional to the full service outsourcing. In fact, full service outsourcing had a very strong year in 2022. So to Steve's point, it's always a blend. It's never straightforward but certainly no massive shifts that would impact on the backlog in terms of the mix.

Got it. And then just a quick one on the guide and then Steve's commentary. Does the range reflect some M&A? Or would that be incremental to the top line guidance?

The guidance was given with the assumption that there is no M&A in it, Justin. So there would be some upside potentially if we're able to execute in the back end of the year, but that remains to be seen.

Understood. Appreciate it.

Okay. Thank you.

Thank you. We will now go to our next question. And your next question comes from the line of Patrick Donnelly from Citi. Please go ahead. Your line is open.

Good morning. Thank you for taking my questions. Steven, maybe one just on the biotech versus kind of mid to large pharma. It sounds like the biotech RFPs for the second half were a little softer. It sounds like you're expecting that to continue here for a little bit. Can you just talk about, I guess, the conversations you're hearing from customers, visibility into maybe that ticking back up? And then on the back of that, just the confidence level in terms of the mid to large remaining strong enough to kind of offset that in the near term. Would just be curious to hear kind of the different conversations going on with customers there.

Yes, Patrick. With the conversations we're having with biotech -- certainly the environment is more muted, I think, as I indicated in my comments, than it was, say, 12 months ago. They are being more careful and more deliberate in their spending and in their allocation of their capital. Interestingly, we've seen a reasonable uptick in the number of RFPs that we've received, but the value has been slightly down or certainly better than flat. So that would sort of indicate smaller projects again, perhaps focusing on asking specific questions or answering specific questions in their development programs and get them to a point where they can raise further capital. So it's more cautious and more deliberate on the biotech space. On the other hand, in the mid and large pharma, we've seen some pretty -- that's some pretty positive conversations around partnerships, about being more strategic; about being a greater part of their spend, a more focused part of their spend. Certainly there are discussions around cost control and saving money there, but as a major player in the industry, we're able to go back to our larger pharma partners and talk about the sort of savings we can generate if we can have or if we receive a greater proportion of their spend. And we're able to cover a greater portion of the spend because we have the capability. So it's a different tone of conversation with our large pharma. And overall we've seen the opportunities in that large and midsize particularly sort of push upwards. It hasn't quite countered some of the downturn on the biotech, but as I look at biotech in the long term, we're coming back to a position on the long term that's sort of more in line with the longer-term average, as I've said a number of times on these calls. We had the of a year or two ago and we're coming back down to a -- perhaps a more normal run rate. I do expect that we'll -- we kind of and we'll be moving on and up going forward. I'm optimistic, but I think the next six to 12 months will be pretty much steady as she goes and much the same in the Biotech segment.

Okay, no that's helpful. And then maybe one for you, Brendan and just on the margin piece, nice to see you guys be able to pull forward the synergies. Can you just talk about, I guess, the moving pieces this year in terms of some of the wage inflation pressures and then the offsets obviously being the synergies, maybe a little bit on pricing? Just trying to get a feel for obviously you pulled forward the synergies, pulled a big lever there? What's kind of left beyond this in terms of as you think about the model not necessarily in '24, but just the '23 moving pieces and then again the comfort that there's continued expansion beyond this after pulling the synergies forward? Thank you, guys.

Yes, I think that CNS - I think one of the things we said from the commencements of the deal was that - we hadn't fundamentally changed our spots. So we're always very careful cost managers. I think that's been apparent, obviously, since we completed the transaction as it had been before. I think one of the things as we go into 2023 and indeed out through 2024, and we look at that margin progress. We obviously want to see the good progress, the very, very good progress that we made in '22, in the back end of '22, sustained and developed as we go through '23. So I think it's more of that story. It's about slow development during the course of the year. I mentioned on the start of the call and in my prepared remarks that SG&A, for example, in quarter one, but we had similar dollar level to what we saw in quarter four. So thematically again it's about controlling cost base while leveraging that top line. Very happy with the gross margin progress, obviously, in Q4 as well. It's very, very solid. So for me, 2023 is about establish and stabilizing those levels and making sure we're considering and staying at those levels as we walk towards our kind of more mid-term goal of getting to 21%. I mean obviously, as you can see with the progress we made through 2022, we're well ahead of that target. I think, in all honesty, when we think about the further leverage that's left in the organization beyond that point, we never really put a ceiling on our ambition. So we think about the 21%. We're going to move towards that certainly during the course of this year. And then it will be for us to have another look at the organization and see where we can go from there. I won't predestine that at this point in time, but I would say we would continue to be ambitious about further margin expansion beyond that point.

Great, thank you guys.

Thank you. We will now go to the next question. And your next question comes from the line of Eric Coldwell from Baird. Please go ahead. Your line is open.

Thank you. I have two. I'll start with just conceptually on the revenue guidance. I know in the prepared remarks there was a mention of some activity on the preferred provider front. If I'm not mistaken, I believe, later last year, there were comments that - or maybe early this year, there were comments that, if some of the larger opportunities in the pipeline emerged, it could bias your revenue towards the higher end of the range as you exit this year? I'm just curious. Are there any updates on the pipeline for larger preferred deals, perhaps how many you're looking at or in negotiations on? And what kind of timing might be available if some of those do materialize?

Yes, Eric, thanks for the questions. I'd be hesitant to get too far ahead of ourselves in terms of pushing towards the upper end of the range at this point. These preferred - we've always said these preferred provider discussions take a while. They typically award you some work and they expect you to deliver it well before they sort of fall into a full sort of a partnership mode. We're in that sort of mode with a number of customers. I will say we've been able to engage with a number of significant large pharma players on partnership discussions that wouldn't have happened had we not formed the union with PRA. So we feel the - one of the key rationales for the deal was to be in those conversations that we are, but as always, these things take a little bit of time to come through. So I wouldn't necessarily push us towards the high end of the range of our revenue guide at this stage. That may change if we look in the next quarter or two, but we'll certainly be ready to update you on one of these calls if that's the case.

Yes, that's very fair. And then my additional question is around the comments on M&A. I'm curious if you could share with us what your current thinking is on areas of interest, what the pipeline of opportunities looks like, thoughts on sponsor or seller valuation at this point. And then just a confirmation or a commentary around, the old string-of-pearls approach that ICON undertook versus perhaps something a bit larger and meatier been in the pipeline or in the consideration here? Thank you so much.

Sure. So you mentioned the string of pearls. That is really out, so we're sort of back to that sort of operational sort of modus operandi, if you like, on M&A. We don't see any - seen real transformational type big deals in the pipeline. I think we've done that. We're very happy with the progress we're making in that area, but I don't think we're going to go down that track again anytime soon. We are looking - it's the usual areas. There are some technology plays. There's some real-world evidence. We've seen great progress in the real world evidence group. Our late-phase group has done very well over the last 12 months. We've made significant progress there. And so, we feel there's some opportunity to continue the growth in that space. Our labs, we still believe we're a little behind where we'd like to be ultimately in the lab space, so that's an opportunity. There are some - and there are some areas around some of the sort of building on some of the previous acquisitions we did around Mapi and those sorts of areas. So there's, a number of tuck-ins and areas that we feel we can meaningfully contribute to our top line particularly and of course, the bottom line as well. In terms of pricing, I don't think it's fair to say. We haven't seen much of a decline. The pricing is still fairly frothy and the market is still fairly frothy in that space, and so we're going to be sensible and careful with how we allocate. Obviously, we can still continue to focus on the debt paydown. And so, I'm very cognizant of wanting to continue the good progress we've made there, but - so I think we'll look at all of the opportunities in the context of where we can best apply the capital that we have. And we won't be doing anything crazy from a pricing or from a multiple point of view or from an overall cost point of view, but it's something that we're actively looking at and believe we'll have some opportunities come through in the next, well, six to nine months probably [ph].

That's great, thank you very much.

Thank you. We will now go to your next question. And your next question comes from the line of Luke Sergott from Barclays. Please go ahead. Your line is open.

This is [Salem] on for Luke and thanks for the question. So just one on 1Q and pacing for the year some of your peers are guiding to a lighter 1Q compared to the remainder of the year. Just wondering if you're seeing a similar trend, so any color there would be appreciated and on the free cash flow story in 4Q, anything else to call out there other than the billing process? Thanks.

Yes, I might take those ones. In terms of 1Q, I think we made reference to the fact that it probably is the toughest comp on the foreign currency side of things as we go into the quarter. And we're all long-term contract businesses, so the contracts you're working in Q4 are pretty much the same ones you're working on in Q1, so I think the moral of the story is about the incremental growth obviously, But there's obviously a very, very hard FX comp with the dollar, where it's obviously significantly moved during the summertime of 2022. So I think that's probably - it's true of Q1, Q2. So I think totally, Q1, Q2, the comps will be definitely higher obviously, in Q3, Q4, they should improve. That's the way we'd be looking at it, but nothing outside of that, I suppose, in a Q1 perspective. On the free cash flow as well, yes, it was disappointing. The vast majority of that related to the DSO in Q4. As I said on my comments to Sandy, I do think that was more around really making sure that we were back on top of billing. I think that slipped a little behind earlier in the year and it kind of caught us then as a consequence in the back end of the year in terms of cash collections. So we're looking. And I said we had very good quarters of billing obviously in Q3 and Q4, look to capitalize on that in the first couple of quarters. That said, there was obviously some additional payments that we are making. And certainly we're going to make sure that we're on top of all of our payments to our different investigators and other elements of the critical path in terms of clinical research which are very, very important to the whole process. So certainly, I think the combination of those factors had that negative outlook on cash flow. Again as we go into the course of the year, we haven't changed our expectations, our forecast in terms of the free cash flow, so still ambitious about getting back on top of that cycle and seeing good cash flow conversion as we go through all of the quarters of '23.

Great, that's it from me, thanks.

Thank you. We will now go to the next question. And your next question comes from the line of Casey Woodring from JPMorgan. Please go ahead. Your line is open.

Great, thank you. So a few of your peers are going through some notable reorganizations here. One is putting a new team in place ahead of the spin-off. Another has sort of reshuffled their business development team. Curious as to what employee attrition looks like from your perspective. And then on the same point, can you maybe touch on the competitive landscape, particularly in SMID biotech? Have your win rates increased or decreased at all over the last several months?

Sure, Casey. Our attrition rates - have actually been - I'm delighted with them. We've actually - I think, as I mentioned in my comments, we've improved retention month-on-month as we went through '22. So we've got our retention right back to where it was pre-pandemic levels now. I think we see continued trends of improvement there. That may be -- maybe that's partly because of some of the challenges that our competitors have been having. I don't know. You'll have to allude [ph] that one to them, but we're very pleased with the way our retention has been improving. We've been investing heavily in that space. And our employees overall have been doing a terrific job in delivering for our customers. In terms of the biotech space and the competitive nature there, it remains - it's always a competitive space. And our win rates have held up pretty well. We feel good about what the opportunity - if anything, in terms of some of the challenges on the sales side, it's really because of these and they haven't been quite as much to bid on. And - but we feel our win rates and our engagement with these customers has been strong. I do think, in the longer term, we'll have some opportunity to gain market share in this space. As you noted, there are -- some of our competitors have some challenges. And we feel we're going to be ready and able to make the most of those sorts of opportunities, but win rates have been solid. They tend to be a little volatile up and down. We don't, of course, always have the close relationship with the smaller customers that we do with the larger ones. And of course, they come and they go a little bit, but overall we feel we have a good model that works well with that market. We feel the biotech companies and customers trust us and they feel willing and able to work with ICON that is a large organization. And we feel that the focused effort and the focused attention and resources we put in biotech - we have about 8,000 people focused entirely in the biotech space, really gives them some reassurance that they're not lost in the company and that they get the services and they get the results and ultimately the outcomes, which is what they need, that they need and that they deserve.

That's helpful. And then maybe if I can just squeeze one more in, there's been some noise around the Inflation Reduction Act and its potential to impact large pharma R&D spend. Just coming out of our conference, it sounded like many of those pharma companies that would be impacted are expecting to increase R&D spend this year, but just wanted to get your thoughts on if the IRA has come up in your conversations with pharma and if that could be a risk at all? Thank you.

The IRA hasn't come up much in our conversations with large pharma regards there is some puts and calls with respect to that. And we're generally seeing, as - I've indicated, that the large pharma markets, mid-market is - sorry, the mid-sized market large pharma is on the uptick, is very positive for us, counteracting a little bit some of the more muted approach in the biotech space. So IRA, I mean, there are some challenges. My understanding is that those are going hit several years down the track. We're talking really three, four years down the track before they really impact our customers. And at that point, there may be some impact with us, but overall, at this stage, it's having no impact on our business.

Thank you. We will now go to the next question. And your next question comes from the line of David Windley from Jefferies. Please go ahead. Your line is open.

Hi, thanks for taking my questions. I wanted to weave kind of some follow-ups in the topics that have already been touched upon. From a cadence standpoint and thinking about operating expenses, Brendan, you talked about the SG&A. And margin has commonly kind of stepped out of fourth quarter into first quarter pretty similarly, if not better? Your fourth quarter in '22 ended on a very significant positive spike in margin. And so, I wondered if - beyond the SG&A, if you can just talk more precisely about how you expect the overall EBITDA margin picture to look as you enter '23 relative to where you're ending '22?

Yes, I suppose my comments will start off by - that the usual health warning that, subject to the euro dollar rate - remaining pretty consistent with where it is at the moment. So engage your crystal ball for that one, but I - we're pleased with the work we've done in terms of our cost control during the course of 2022. I think one of the things and some of the points we made during the course of '22 was we were doing large-scale infrastructure projects that would allow us to take a step in terms of some of the pieces and particularly the SG&A costs. You saw - I think you saw that specifically as we went through particularly from Q3 into Q4 in terms of 2022 and how that's trended. We are, I suppose, planning for that level to remain very much the same in nominally in dollar terms as we go through the course of 2023. So that certainly is a significant year-over-year advantage, if you like, in terms of margin profile. I think your point to the sequential nature of it was it's about maintaining the good progress that we saw in Q4 into Q1 and then throughout the course of '23. So while I think you - maybe the margin expansion from Q1 to Q4 of '23 may not be as spectacular as we saw in during '22, the full year-over-year margin profile will have stepped up quite nicely off the back of the work done during '22, kind of delivered in quarter four, 2022 and then sustained and built on in a more - in a smaller way, but still building quarter-over-quarter as we go through '23.

In those infrastructure points that you're making, I know one of the things that is kind of core to ICON's cost management strategy is offshoring some of your HR, legal, accounting, finance functions. Is that essentially what disrupted the billing activity that you're kind of dismantling the domestic U.S. PRA finance function and moving those activities over to, I presume, India?

Well, I mean, Dave, any time you're doing significant integration work, there's always a bit of an issue around that, so it would be no, even me to say, no, nothing happened on that front at all. I mean there was an element of that. However, I do think we have a structure now that is well suited to what we need to achieve. We've got a great organization in place and we've got the systems in place now. So we did an awful lot during the course of '22. We looked at where our staffs were. We looked at the implementation of the Oracle project across the organization. I think those two things taken together were probably an awful lot to bite off and chew in the course of the year. We're delighted we got there. And now the focus in the first half is obviously getting to make sure we get the cash in the door.

Okay. And then maybe a second follow-up to just come at this topic slightly differently on the revenue front, so hear you on the dollar/euro. I don't have the math in front of me, but I'm thinking the headwind is the highest in the first quarter for '23 but wouldn't be any worse than the fourth quarter faced. And so I'll ask it one of two ways is that right? And/or from a burn rate standpoint, should we be thinking about the burn rate hanging in pretty consistently with the fourth quarter or is that something that kind of steps down toward that 9.5% number that you're looking at for the full year?

I think, on your FX comments, yes. I think, fourth quarter into Q1, it shouldn't be materially different. We haven't got the average rates in those quarters at this point at least. It's fairly consistent, so it shouldn't be so that was - the constant currency uptick that we talked about in Q4 shouldn't be materially different in quarter one. Again that's assuming we don't move around too much between now and the end of the month -- or at the end of the quarter, I should say. On the conversion rates, I think there's two parts at play there. There's obviously we talked about we're still seeing the vaccine work being a lesser part, obviously COVID, I made reference to that, coming back a bit over the course of last year. We probably expect that to continue a bit as we go into this year. So it's still rolling around, mix of business going back to that more traditional model, I'll call it. So yes, I think, Dave, that's something you probably will see a bit of a step down. And we've guided that, the full year, we're thinking about 9.5%, so I would expect a little step down on that one from Q4 to Q1. As always, we'll do our absolute best to try to maximize it as we go through quarter-by-quarter.

Okay, that's great, thanks for the perspective.

Thank you. We will now go to the next question. And your next question comes from the line of Elizabeth Anderson from Evercore. Please go ahead. Your line is open.

Hi, guys. Thanks so much for the question. I was just wondering if you could talk a little bit more about the $100 million in cross-sell. What are you cross-selling? Like which -- is there a predominant sort of directionality on the cross-sells? And sort of where do you see that opportunity now sort of 18 months plus post the transaction?

Elizabeth, the cross-sell, we monitor the cross-sell pretty carefully. It's not just anything that comes in the door. It's really looking at what we're selling in services that we have in the legacy ICON organization to -- particularly to the legacy PRA organization or essentially our biotech group that they didn't have. So the best example of it is in the lab business. We've sold a lot of -- that's the predominantly. It's not just labs, but that's the predominant sort of the $100 million we sold last year. Lab business because the legacy PRA group didn't have a lab, so all we're now proposing and selling our ICON lab into their biotech projects, which is a positive. Then there's things like our imaging group. Again imaging is being sold in there. IRT is being sold in there. FIRECREST is being sold in there. Our Accellacare Site Network is being sold. So lab being the biggest, but there's a number of other sort of more varied services that are now coming into the organization or coming into our biotech group that wouldn't have done in the past. And we've measured that fairly carefully. And as I said, the results are solid. Now it's going to take a little while, of course, for that work to come in and allocate and then burn. And we don't anticipate being at that revenue synergy until we exit '24, but we feel we're well on track to make that progress. And the selling is happening.

Got it. That's very helpful. And one last question, just sort of cleaning up on the COVID commentary before. Do you expect that sort of 4% revenue total to be kind of like a go-forward rate at this point? I mean I know it's hard to say, but -- or is it kind of some discrete projects before the end of year? And do you think going forward it's sort of more half that or some other amount on an ongoing basis?

Yes, it's more the latter scenario that you painted, Elizabeth. So I would say 4% is where we are the moment. We don't -- we didn't win a lot of COVID work in the second half of last year, so it's going to be a declining part of our portfolio, I think, going forward. There will probably always be for a long time several years be component of COVID work, treatment work, whatever, long-term follow-ups, but it will certainly decline from the 4% level from what [was last].

Got it. Super helpful. Thank you.

Thank you. We will now go to our next question. And your next question comes from the line of Dan Leonard from Credit Suisse. Please go ahead. Your line is open.

Thank you for taking my question. Just a clarification. The net bookings were down the last couple of quarters year-on-year. And I know foreign currency is a driver, but do you think these trends are a reflection of aggregate industry RFP value? Or has strength in the mid-to large pharma part of your business been enough to overcompensate for small biotech caution?

I think that's probably a bit of both, Dan, if I can put it that way. We've certainly seen strength in the midsize and the large pharma, and that has counteracted some downtick on the biotech space. Overall we see -- we're about flat on the RFPs going forward and on a trailing 12-month basis, but they're still at pretty healthy levels. And it allows us -- when we do that, we can we focus on our win rates. And our win rates have been solid and strong and we believe we can improve them even going forward. So I think, as I said, the market has been changing, changing quite fast and quite dynamically over the last 12, 24, even 36 months. And we certainly see, as I say, a more muted biotech segment, but we're very pleased with the opportunities we're seeing in the large and midsized pharma. And we're taking advantage, full advantage of those; and that part of the business is doing very well.

Understood. And just a quick clarification on foreign currency, for Brendan. Brendan, I think, before, you had discussed a 1% foreign currency headwind in the '23 guide. Is that still the case? Because it seems like currency could be a tailwind in the back half of the year.

I suppose, Dan, we should put a wager on this one. Well done on predicting what the FX rate might do. Yes, 1% is where we were thinking coming into the year. It probably has softened a little bit from the 1%, but it's still probably the best part of 1%. So I don't know if I'd really say it's materially moved enough to call out a different perspective, it's probably a little better than the 1%, so under 1% at this point but, as I said, not materially.

Got it. Thank you.

Thank you. We will now go to our next question. And your next question comes from the line of Jack Meehan from Nephron Research. Please go ahead. Your line is open.

Hello, everyone. First question -- both my questions are sort of margin related. The first is on pricing. I was wondering if you could give us an update on the rate card; and just in the inflationary environment, if you've had any more success on putting price through.

I'll take that one, Jack. We've had -- I think we've had success in pushing forward rate increases, certainly above what the normal inflation rate is, although I would say it's probably a -- it's more of a negotiation with our customers now than it was, say, a year ago. And so customers are happy to see sort of above inflation -- I'd say happy. That's maybe a bit of an overstatement. They understand above-inflation moves on rate cards, but if you're coming back two, three years in a row with that, those discussions probably do get a little bit more challenging. Shall I put it that way? So we do -- our customers do understand that we want to keep our employees competitive on a salary basis and all have good stuff. And that's to their benefit, of course, as well, so we -- the discussions are always constructive, but the pricing environment is becoming probably a bit more competitive than it was, say, 12 months ago, particularly with those, as I say, some of the challenges that some of our competitors are having. So it's an area we watch carefully, but we feel -- as I say, it's constructive discussions but probably a little more challenging.

And then for Brendan, what are you thinking on gross margin progression for the year? And can you just provide some color on how wage growth and attrition trended throughout 2022?

Jack, I mean, I'm super happy with where we ended up in Q4 on margin progression. And I've said for a long time now, if we can we can keep that in the ballpark of 30%, I'll be happy. As we see the kind of competing elements of that coming through the course of the year -- Steve made reference to a bit of a sharper pencils in terms of pricing. There still is salary inflation there in 2023, so again I suppose our story for 2023 is really about maintenance on that gross margin line, as much as anything -- sorry, Jack. The second part of your question was....

Attrition.

Sorry. No -- so it was manageable during '22. As we said, we saw -- there's always two parts to wage growth. There's the underlying merit increase. And then there's the attrition piece, which is kind of the hidden increase, if you like. We've seen, as Steve commented a couple of times, every month was better from a retention perspective. If you can work that down, you can certainly manage your cost base efficiently as well because obviously the new staff coming in are at a higher price. So I think that the blend of those things is still no worse than it was last year for '23 certainly and certainly still workable within the margin profile. So we'll be looking at that in terms of '23, but it worked well, as you can see, from the margin profile during the course of '22. And I think the improved retention rates should offset some of that inflationary impact on salaries as we go through '23.

Thank you, Brendan.

Thank you. We will take our last question for today. And your last question comes from the line of Derik De Bruin from Bank of America. Please go ahead. Your line is open.

Hi, good morning. Thank you for fitting me in. So since a lot of things have been asked, I'll try to come up with something here. So a lot of the -- we get asked a lot from investors about ex-COVID growth rates. I mean some of the CROs report numbers differently and you've got some companies saying they're in 20% like this. You called out a 10% sort of like ex-COVID growth rate in 4Q. What is sort of your ex-COVID core growth outlook, organic outlook, for? Just trying to get some impact on the headwind that comes in.

So you're looking for guidance essentially on our --

Yes, yes, basically what's your guidance would be ex-COVID, yes, yes, yes, your core underlying growth, yes.

What our guidance would be --

Yes. So Derik, it's a -- we called out was about sort of a 200 basis point headwind year-over-year from '22. The full year ex-COVID revenue constant currency growth was about 14% in '22, so you can, I think, between those two get to what that looks like for '23.

Great. That's what I wanted. And I've had some investors asking -- obviously there's been some issues in the early stage there in market with [NHPs]. I don't think that's going to have a fall impact to the late-stage players like ICON, but we've had a number of investors asking which sort of like a future your thoughts on do you see the sort of the potential and study delays in the early stage flowing through to the late stage. Thank you.

Derik, we haven't had any of our customers express any concerns about that in terms of the projects they're outsourcing to us. The are really focused in on, I think, on the preclinical CRO. I think they're the one that got to deal with that. So it's not something that's really come up in discussions with our customers. And I don't anticipate it will impact certainly our late-stage business but even our early-stage business we're not seeing any impact at this point.

Okay. Thank you very much.

Thank you. I will now hand the call back to Steve Cutler for closing remarks.

Thank you, Operator. Thank you, everyone, for joining the call today. We look forward to updating you on our continued performance as we progress through this year and again recognize our employees for their continued dedication to ICON and our important mission in advancing drug development. Thank you all and have a good day.

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