ICON PLC
NASDAQ:ICLR
Earnings Call Analysis
Q4-2023 Analysis
ICON PLC
The company has showcased a solid financial performance in the fourth quarter, with a notable increase in gross business wins to $2.99 billion and a net book-to-bill of 1.22x, indicating strong demand for its offerings. This positive momentum has resulted in a backlog growth to $22.8 billion, marking a year-over-year increase of 10%. Revenue in quarter 4 was up by 5.3% to $2.066 billion compared to the previous year, with a full-year revenue increase of 4.9% to $8.12 billion. Looking forward, the company has reaffirmed its full-year 2024 financial guidance, projecting revenue growth of 3.4% to 8.4% and adjusted earnings per share increase of 13.4% to 19.6%.
Improvements in operational efficiency are evident from the increase in gross margin to 30.4% for quarter 4, up from 29.8% in quarter 3. This trend extends to SG&A expenses, which remain flat quarter-over-quarter, indicating disciplined cost management. The full-year SG&A expenses improved by 80 basis points over the previous year, enhancing the company's overall profitability.
The company intends to capitalize on its strong balance sheet by considering strategic acquisitions while also gaining approval to spend up to $500 million on share repurchases over the next 12 months. This approach reflects a balanced strategy of investing in growth and returning value to shareholders.
Customer concentration has increased, with top customers accounting for a larger share of total revenue in quarter 4 compared to quarter 3. Whereas the top customer represented 8.9% of full-year revenue, the top 5 accounted for over a quarter, and the top 10 nearly half. This indicates reliance on a select group of key customers, posing a concentration risk.
Adjusted EBITDA for quarter 4 grew by a robust 10.7% year-over-year to $448.2 million, with margins improving across quarters. Similarly, adjusted operating income saw a growth of nearly 10% over the same quarter in the previous year, underscoring the company's effective management of its operations.
The company has managed to reduce the effective tax rate to 15.2% for the quarter, contributing positively to the bottom line. The quarterly adjusted net income grew by 10.5% with corresponding earnings per share growth. These improvements in tax efficiency and income generation speak well for fiscal management.
The company has improved its liquidity position with a decrease in net accounts receivable and net debt. Additionally, the leverage ratio now stands at 2x net debt to adjusted EBITDA, having paid down $250 million of its Term Loan B facility during the fourth quarter. This stronger balance sheet coupled with investment-grade credit ratings opens pathways for favorable debt refinancing.
The company maintains its guidance for the full year 2024 with an anticipated effective tax rate of 16.5%, a free cash flow target of approximately $1.1 billion, a planned CapEx of $150 million to $200 million, and expected interest expense of around $200 million to $230 million. This guidance provides clarity on the company's expectations and financial direction.
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Good day, and thank you for standing by. Welcome to the ICON Q4 and Full Year 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Kate Haven. Please go ahead.
Good day, and thank you for joining us on this call covering the quarter and full year ended December 31, 2023. 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 statement, either as a result of new information, future events or otherwise. More information about the risks and uncertainties relating to these forward-looking statements may be found in SEC reports filed by the company, including the Form 20-F filed on February 24, 2023. 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 measures, adjusted EBITDA, adjusted net income and adjusted diluted earnings per share excludes 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 1 hour and would therefore ask participants to keep their questions to one each with an opportunity for a brief follow-up. I would now like to hand the call over to our CEO, Dr. Steve Cutler.
Thank you, Kate, and good day, everyone. ICON delivered strong results in quarter 4 and for the full year 2023 as our team successfully navigated a dynamic environment impacted by several macroeconomic and geopolitical challenges. Through consistent operational delivery, increased scale and our comprehensive suite of solutions, we were successful in securing new partnerships and expanding existing relationships across our customer segments and with the world's top 20 pharma companies in particular. Overall, we continue to experience positive demand trends in our industry. In the fourth quarter, we did see some volatility in RFP activity across customer segments as small biotech was somewhat muted towards the end of the year with some companies continuing to be deliberate with their overall development spend decisions. With that said, we're encouraged by the improving sentiment among customers in quarter 1 as well as underlying trends from a funding perspective that suggests a stabilizing market as we've entered 2024. Within the large pharma segment, we continue to see a strong level of opportunities anchored by the strength of our new and existing strategic partnerships. In totality, across all segments, our overall trailing 12-month RFP activity increased in the high single digits in quarter 4, consistent with quarter 3 and this appears to be continuing or even accelerating early in 2024. Given this backdrop, and in line with our previous comments, we expect book-to-bill to be in the range of 1.2 to 1.3x on a quarterly basis in 2024 with an overall target of 1.25x for the full year 2024. In quarter 4, net bookings increased 8% on a year-over-year basis, driving 10% growth in total backlog over quarter 4 2022. We saw continued strength in demand across our large pharma segment for both full service and FSP solutions as well as excellent performance from our laboratory services business. Our innovative and scale offerings are resonating well with customers and strongly positions ICON for further traction in new and existing customer accounts. To this end, in quarter 4, we were awarded a new full-service strategic partnership with a top 20 pharma customers, creating significant new business potential in Phase I to IV studies across a number of therapeutic areas in their portfolio. Our depth of experience in long-standing and transformation of large pharma partnerships was one of the key criteria facility ICON as well as our collaborative approach in achieving meaningful efficiencies in their development programs. And reflecting back on the numerous accomplishments across our organization in 2023, there are several in particular that highlight our commitment to operational excellence. Our efforts in driving forward our ambitious automation agenda resulted in the achievement of greater than 2 million hours of automated activity in 2023 across a number of functions and processes. We have set another goal for automation in 2024, driving to deliver significant further improvement in areas such as critical study startup activities, further automation of our back-office activities as well as processes such as data ingestion and review with a target of 3.5 million hours for the full year. At the time of the acquisition of PRA Health Sciences in July 2021, we set ambitious targets for both synergy realization and total debt paydown. The following 2-year period was characterized by unexpected macroeconomic pressures and challenges in our market. Despite this dynamic, we remain consistent in our planned actions and we're able to accelerate both the full cost synergy realization as well as our target leverage ratio ahead of our initial time lines as we closed out 2023. This was all possible, of course, through the efforts of our over 41,000 employees across the world who have worked tirelessly to progress our customers' projects, many of whom have been recognized with prestigious industry awards for their efforts. Turning to review our financial performance in the quarter. ICON delivered a strong set of financial results with revenue growth of 5.3% over quarter 4 2022. Direct fee revenue growth continues to be robust and within the high single digits on a year-over-year basis, while pass-through revenue was slightly below our expectations due to the wind down of COVID-related trials in the quarter. With strong direct fee revenue growth and lower-than-expected pass-through revenue, we saw a notable uptick in gross margin on a sequential and year-over-year basis, resulting in a 30.4% margin for quarter 4. On this note, we do anticipate returning to a more normalized gross margin profile of approximately 30% for the full year 2024. On another positive note, ICON again delivered substantial growth on adjusted EBITDA in quarter 4 as SG&A expense was essentially flat on a sequential basis, resulting in a margin of 21.7%, well ahead of the midterm target we set back in early 2022. Given the revenue mix shift in quarter 4, our full year 2023 adjusted EBITDA margin of 20.9% was stronger than anticipated, an impressive 180 basis point growth in adjusted EBITDA margin in 2023 on a year-over-year basis. We expect an adjusted EBITDA margin expansion of circa 50 basis points on a full year basis in 2024. We continue to successfully execute our capital deployment strategy in the fourth quarter, closing the previously announced acquisition of Philips Pharma Solutions in October. While this transaction is a small contributor to ICON's overall revenue, it supplements our current medical imaging capability and adds cardiac safety solutions to our service offering, providing our customers with a more integrated service.
In addition, earlier this year, we closed the acquisition of HumanFirst, a cloud-based technology company focused on accelerating and improving digital health technology selection in clinical trials. The addition of HumanFirst will position us to become the industry leader in integrated clinical outcome assessment solutions, allowing customers to make evidence-based decisions to reduce patient burden and enhance data quality. Separately, we have a number of capital projects that are in development to bring additional efficiency to critical trial pain points and ultimately deliver more value to our customers. We're well underway in developing a comprehensive planning and oversight capability for site selection and activation that is coupled with improved resource forecasting, designed to deliver enhanced patient recruitment time lines. In addition, we continue to progress our investments in AI and automation. One example is the development of our Firecrest site and investigator database designed to provide in-depth insights to address industry challenges, such as investigator and site activity and their overall performance. We were very pleased with the upgraded credit rating we received from Moody's in December. ICON's second upgrade to investment-grade rating in the fourth quarter following the S&P Global ratings upgrade in October. This important milestone allows us the ability to refinance our variable rate debt and move forward toward a more favorable capital structure that will give us more flexibility from a capital deployment perspective, particularly in the second half of 2024.
We have a definitive plan that has been approved by our Board and will be executed in the first half of this year, allowing us to achieve the targeted total interest expense reduction of approximately $100 million on a year-over-year basis from 2023. In line with our strategy, M&A remains the priority as the optimal way to deliver shareholder value, and we fully intend to utilize the strength of our balance sheet to acquire companies that complement our current services and add to our ability to deliver faster and more efficiently for customers. However, we have also secured approval to opportunistically spend up to $500 million on share repurchases over the next 12 months. Given the positive trajectory from our performance in quarter 4 and current market conditions in the start of this year, we're reaffirming the full year 2024 financial guidance we issued in January. We expect revenue to be in the range of $8.4 billion to $8.8 billion, an increase of 3.4% to 8.4% over full year 2023. Additionally, we expect adjusted earnings per share to be in the range of $14.50 to $15.30, representing an increase of 13.4% to 19.6% over the full year 2023. I'll now turn it over to Brendan for further details on the financial results.
Thanks, Steve. In quarter 4, ICON achieved gross business wins of $2.99 billion and recorded $461 million worth of cancellations. This resulted in a solid level of net awards in the quarter of $2.53 billion, and net book-to-bill of 1.22x. Full year 2023 gross business wins were $11.77 billion and cancellations were $1.82 billion, resulting in the net business wins $9.95 billion and also a net book-to-bill of 1.22x. With the addition of the new awards in quarter 4, our backlog grew to a $22.8 billion, representing an increase of 2.4% on quarter 3 of 2023 or increase of 10% year-over-year. Our backlog burn was 9.3% in the quarter, slightly down from quarter 3 levels. Revenue in quarter 4 was $2.066 billion. This represented a year-on-year increase of 5.3% or 4.1% on a constant currency basis. Full year revenue was $8.12 billion. This represented a year-on-year increase of 4.9% or 4.6% on a constant currency basis. Overall, the customer concentration in our top 25 customers increased from quarter 3, 2023. Our top customer represented 9.5% of total revenue in quarter 4. Our top 5 customers represented 27.5%. Our top 10 represented 43.8% while our top 25 represented 66.8%. In the full year 2023, our top customer represented 8.9% of revenue. Our top 5 customers represented 26.8% of revenue. Our top 10 represented 41.4% while our top 25 revenue represented 62.9%. Gross margin for the quarter was 30.4% compared to 29.8% in quarter 3, 2023. Gross margin increased 50 basis points of gross margin of 29.9% in quarter 4 2022. Full year 2023 gross margin was 29.9%, and we anticipate this to be a similar level for the full year 2024. Total SG&A expense was $180.2 million in quarter 4 or 8.7% of revenue. So it's essentially flat on prior quarter. In the comparable period last year, total SG&A expense was $182.2 million or 9.3% of revenue. Full year SG&A expense was $732.7 million or 9% of revenue, representing improvement of 80 basis points over full year 2022 and a reduction in spend over $24.7 million. Adjusted EBITDA was $448.2 million for the quarter or 21.7% of revenue. The comparable period last year, adjusted EBITDA was $405 million or 20.6% of revenue, representing a year-on-year increase of 10.7%. Sequentially, adjusted EBITDA margin improved 70 basis points over quarter 3 margin of 21%. Full year 2023 adjusted EBITDA was $1,694.1 million or 20.9%, representing very strong growth of 14.5% on a year-over-year basis. Adjusted operating income for quarter 4 was $414.4 million, a margin of 20.1%. This is an increase of 9.7% of adjusted operating income of $377.7 million, a margin of 19.3% in quarter 4 of 2022. Full year 2023, adjusted operating income was $1.568 billion, a margin of 19.3%. This was an improvement of 14.2% on full year 2022. Net interest expense was $75.4 million for quarter 4. Full year net interest expense totaled of $315.3 million in 2023 compared to $209.6 million in the full year of 2022. The effective tax rate was 15.2% for the quarter. The full year 2023 effective tax rate was 15.5%, down from our full year 2022 effective tax rate of 16.5%. Adjusted net income attributable to the group for the quarter was $287.5 million, a margin of 13.9% equated to adjusted earnings per share of $3.46, an increase of 10.5% year-over-year. Full year adjusted net income attributable to the group was $1.058 billion, equating to an adjusted earnings per share of $12.79, an increase of 9% year-over-year. In the fourth quarter, the company recorded $9.7 million of transaction and integration-related costs, full year transaction and integration-related costs were $44.2 million, and full year restructuring costs were $45.4 million. U.S. GAAP income from operations amounted to $265.6 million or 12.9% of revenue during quarter 4. Full year U.S. GAAP income from operations amounted to $956.2 million or 11.8%. U.S. GAAP net income in quarter 4 was $216.4 million or $2.60 per diluted share compared to $1.42 per share for the equivalent prior year period. Full year U.S. GAAP net income was $612.3 million or $7.40 per diluted share compared to $505.3 million or $6.13 per diluted share for the full year 2022. Net accounts receivable was $1.088 billion at the 31st of December 2023. This compares with a net accounts receivable balance of $1.129 billion at the end of quarter 3, 2023. DSO was 47 days at December 31, 2023, a decrease of 2 days from September 30, 2023. Cash from operating activities in the quarter was $440.1 million. Free cash flow was excellent in quarter 4, increasing 24% sequentially and achieving our target of circa $1 billion for the full year. We were very pleased with the diligent efforts from our team in driving a 7-day improvement in DSO over course of the year. This now brings us back in line with our anticipated range based on our current mix of customers and their payment terms. We will continue to stay focused on billing levels and cash collections as we progress through this year. At December 31, 2023, cash and cash equivalents totaled $380.1 million and debt totaled $3.78 billion, leaving a net debt position, $3.4 billion. This compared to a net debt of $3.73 billion at September 30, 2023, and net debt of $4.36 billion at December 31, 2022. Capital expenditure during the quarter was $52.7 million. From a capital deployment perspective, we made a payment of $250 million in our Term Loan B facility in quarter 4 and ended the quarter with a leverage ratio of 2x net debt to adjusted EBITDA. We made payment on our Term Loan B facility of $950 million in full year 2023. As Steve mentioned, we're pleased to receive the upper grades in our credit ratings from both S&P Global Ratings and Moody's in the fourth quarter. With a return to an investment-grade rating, we now have the ability to more favorably refinance our debt and in turn, free up more capital to deploy opportunistically for M&A as well as potential share repurchase. Our preferred use of capital remains M&A, and we have a healthy pipeline of opportunities we're currently engaged on that are focused on adding scale and capability to strategic areas of our portfolio. Finally, our key assumptions behind the full year guidance remain in place, an effective tax rate of 16.5%, free cash flow target of circa $1.1 billion, CapEx spend in the range of $150 million to $200 million and interest expense of circa $200 million to $230 million, all for the full year 2024. Before we move to Q&A, we wanted to commend the dedicated employees of ICON for their efforts in delivering another year of solid performance and continuing to support our mission and bringing new therapies to patients around the world. Operator, we're now ready for questions.
[Operator Instructions] First question is from the line of Justin Bowers from Deutsche Bank.
Could you just remind us what the net service fee revenue growth was in the quarter? And then more broadly, is there a rule of thumb or heuristic that we can use to help better understand the sort of like what the top line headwind is from a shift to FSP? That's the first question.
I think that's true actually, Justin. But on a direct fee basis -- we're at about -- around about 8%. I think we're at high single digits. That's the number on a direct fee basis. So we feel good about that. We had slightly lower pass-throughs during the quarter. So that pushes back overall to the to the 5%. In terms of top line impact of FSP, that's hard to -- it's really hard to quantify that at this stage. This is a very gradual approach. FSP is a relatively -- it's not a relatively modest part of our business, although an important part of our business, and it contributes at the bottom -- the contribution level line, it's not too different, ultimately to our full service work. So while it may have some modest impact on overall margins as it increases. And we'll talk a bit about that as we go through the call around the trends on FSP. It's not as -- I think we talked about 2 or 3 -- 200 to 300 bps as a number in terms of impact on a headwind basis over the longer term. But that's -- it really depends upon the customer and upon the particular contract.
Yes. And of course, as we think about it, we talked about the fact that we saw that mix there last year. I think we've started off this year with very strong indications that our full service organization is going to grow well in terms of business wins this year. So -- and certainly, Justin, of course, it's included in our guidance as given and certainly, the midpoint there would include the mix shift, if you like, to the extent we see that during the course of the current year.
We'll now take our next question. And this is from the line of Jailendra Singh from Truist Securities.
So I wanted to follow up on your macro commentary. It seems you're encouraged by data points and trends you've seen in Q1 thus far, but you're maintaining your outlook, which assume slower CRO industry growth. So is it fair to say that you're not reflecting recent trends in your outlook? And if these trends continue, would you say that will be kind of upside to your expectations for the year?
Yes. I'd characterize it this way, Jailendra, that I think as we said early in January on the RFP front, biotech was a little more muted. Large pharma was strong. As we've gone into the first half of the first quarter of this year, we've probably seen the RFPs tick up and the environment sort of move up a notch. So overall, in terms of RFPs in the first quarter, again, in the first half of the first quarter. So we're not ready to claim victory. And I'm not reporting the first quarter today, but we're seeing sort of mid-teens growth on the RFP opportunity. A lot of that through strength in large pharma, some of the strategic partnerships we've talked about are bearing fruit in terms of opportunities. But we're also seeing a modest uptick around mid-single digits in the biotech space as well. So we talked about biotech stabilizing and improving. And that seems to be playing out in the first -- as I say, the first very early part of this year. So we're encouraged by that. We're not quite ready to change guidance or to get further -- to get too bullish on that at this point, but we're certainly very encouraged about the positive environment that we see in the first part of quarter 1.
Okay. And then a quick follow-up on the gross margin. It looks like, of course, you expect that to be flat at 30% year-over-year. I just want to understand the puts and takes there. Are you seeing any pricing pressure from your clients, which might be impacting trends clearly shift to more FSP versus a headwind, but it's very gradual, any offsetting factors you can highlight? Just give us more granular details about the gross margin trends this year.
Yes, I'll take that one. In terms of the margin progress and profile, obviously, we're very happy with how we ended up the year. And yes, we think that circa 30% is probably the right way to think about 2024. There are, of course, mix shifts in the absolute levels of business. To your point, they're quite gradual in terms of really having a significant margin profile impact. But we do a lot of work, as we've talked about in the past in terms of making sure we're an efficient organization. And that runs from making sure that all of our projects are highly utilized by our staff right down to the concepts of how we use our technology to continue automation and the use of robotics in our organization. And of course, that impacts not only on our gross margin, but on our SG&A as well. And so we look to continue that investment, and Steve made reference to that in his prepared comments as we go through the course of 2023, I suppose -- or 2024, I should say, all of that gives us confidence that even with shifting dynamics in our mix of business between full service and FSP, we should be in a good place to be able to maintain that 30% gross margin. And as we talked about, that is our kind of more of our medium-term target as well. So we feel good about that. And I think it's that diligence from a project management perspective and that use of technology, that really gives us the comfort on that particular point.
We'll now take our next question. And this is from the line of Luke Sergott from Barclays.
Just a follow up on that pricing. We hear about the competitive dynamics in the market. You always talk about the pharma industry always sharpening their pencils. But as you guys have shifted more towards large pharma, given the lack of biotech funding and RFPs out there, the large CROs are competing on fewer projects. So are you guys seeing fewer projects across large pharma? And then how is that pricing environment among these projects? And is anybody kind of getting a little aggressive on the pricing dynamic?
Yes. Thanks, Luke. Well, we're certainly seeing more opportunities in large pharma. No question about that. The RFP dollars that are coming through are very solid. And then driving that, as I say, that early '24 mid-teens increase in RFP on a trailing 12-month basis. And we're seeing more opportunities as well. I think that's partly because of the number of strategic partnerships we have across the industry. I think it's partly because of the number -- because of the fact that we're now a significantly scaled organization. We're a major player in the development space now, and we're part of the conversation every time. Now even if we're not specifically a strategic partner with a large pharma, we get that opportunity. So we're seeing more, we're seeing more dollars. It's always a very competitive pricing environment. We have to sharpen our pencils. We have to be smart in the way we structured project teams and put projects together and we do that pretty well. So the pricing environment hasn't changed dramatically. I would say that in our -- with our opportunities, because we're strategic with a number of these customers, our win rate tends to be higher in that part of the market as well. So we win a greater proportion of those dollars and we do in other parts of the market where we're competing with a number of different organizations and there are different perspectives on large versus small CROs, et cetera, et cetera. So we'd certainly like that large pharma space. Of course, there's always some challenges on pricing, but we believe we're well positioned to be able to accommodate those.
Great. And then I guess the follow-up there is kind of on the same vein there. You guys put out a -- the 1.25 book-to-bill guide. I don't remember you guys putting usually a hard target like that. So what's given you the visibility? Is it something from the customer class, like you said, like you could have a visibility on the biotech funding coming back or large pharma or some therapeutic index? Just give us some type of idea of where you're getting that visibility.
Well, I think first of all, it's a target rather than a guide. That is...
Sorry, I didn't mean to put words in your mouth.
Let's be clear. That's what we're shooting for. That's what we believe the market will support. So we're basing that on the opportunities we're seeing coming in the door on the build that we have on a more strategic level with some of these midsized and large pharma customers. We're basing it on the stabilization and the improvement as we see in the biotech funding space and our opportunity to win business area, there's a number of things there. We feel we're in a good place to be able to benefit from those opportunities. We feel the company has moved along nicely. We've made a lot of progress with the integration and union with PRA, much of that is behind us now. We feel very constructive about the long -- medium and longer-term future of the organization and the industry for that matter.
Sorry, I'll just maybe just tack on quickly in terms of the 1.25. That's really the average target that we're thinking about for the full year. So that's not on -- every quarter is not -- isn't necessarily to say it's 1.25 on the mark, but it's still that the range between 1.2 to 1.3 for the full year, which, of course, averages 1.25.
We'll now take our next question. And this is from the line of Eric Coldwell from Baird.
I wanted to hit on staffing and resourcing. I'm curious with the mid-single-digit revenue growth this year, what kind of hiring needs you might have? How does that look on a gross and net basis, i.e., is turnover improving? Can you get more with less, if you will? And then I know you've done a couple of smaller deals here recently. What -- where do you think you end up the full year, including the M&A in terms of headcount?
Sure, Eric. So on overall headcount wise, we didn't really increase this year. We were able to get the growth through improvement in efficiency of, as I say, the 41,000 very dedicated employees that we have in the organization. Part of it was I talked about the hours on the automation, 2 million hours winning there. That certainly helped us. And we're planning more of that. So resourcing was solid. Retention has been very good, in fact. We've seen retention improve month-to-month, quarter-to-quarter really for the last couple of years now. So we're down -- we're well above our retention levels pre-COVID now. And we feel -- so the pressure in terms of resourcing is lower than it was. That's helping us from an SG&A point of view. We feel the workforce is engaged and enabled and really making it very positive. So we're -- I would say we're a more efficient organization than we were certainly 2 years ago. And we continue on that push. As I said that the target was to move automation to closer to the 3.5 million hours, which represents a significant number of people, if you convert that to hours. But that's the way we see our sort of our workforce growing mainly through automation and process improvement than through actually adding headcount. Having said that, with the growth projection we have for this year, we will be inevitably adding people, but probably at a lower rate -- and certainly at a lower rate than we add revenue. So if you can work it in those sort of terms.
So we think we can continue with the efficiencies and with the improvement -- and the efficiencies with utilization, automation and the rest of it. And as we get back and step back in the M&A market, clearly, we'll be bringing on people as we acquire organizations and acquire companies, and we'll work that through, and we'll work them into the organization, but they'll be -- again, I think we can say that we'll be increasing revenue at a greater rate than we'll be increasing headcount or the cost of head count as we go forward.
That's great. If I could just throw in one follow-up here or a different question. The 1.2 to 1.3 book-to-bill range is consistent with what you've said in the past. I'm curious with this new publicly known contract with BARDA or opportunity with BARDA. Do you have expectations in your annual book-to-bill related to that? I assume they're fairly modest if so, but I'm just curious how much of that is -- I hate to use the term legacy or core because I think these are all core contracts, but non-BARDA work, how much of the net book-to-bill goal is more true, but I guess, traditional work versus this unique government opportunity? And I'll wrap it up there.
We see these -- we see the occasional BARDA contract coming along, Eric, but there's nothing in Q4. And although there may be some opportunities in the pipeline, we don't think they're going to materially have a major impact on our book-to-bills across the year. They may have some impact if they come in on a quarterly basis, but across the year, in terms of the aspiration and the target we have for new business awards, it will be very modest or minus.
So while they're important for our business, and obviously, they tend to be vaccine-related studies and they give us an opportunity to earn revenue faster than some of the other projects we do. And so from that point of view, particularly, they have some benefit for our organization, we don't think they're going to be particularly material on an annual basis and not necessarily going to drive that materially drive that book-to-bill number.
We'll now take our next question. And this is from the line of Patrick Donnelly from Citi.
Steve, I wanted to pick up on the burn rate that you just mentioned there in terms of just what's in the pipeline. Obviously, I know it varies between things like oncology. Obviously, you mentioned BARDA there. Can you just talk about how you're thinking about that burn conversion rate this year and where that trend line is going? And maybe, Brendan, I'm sure you can chime in as well, but just curious on how you're thinking about that piece?
Yes. Pat, I'll give you a bit of an opinion on that, and then Brendan can give you some more detail. I mean, we're at about the 9.3% this quarter. It's down -- a little down about 20 bps from last quarter. It's probably not going up anytime soon, I would say, given the portfolio mix that we have as we've moved away from those vaccine trials at COVID. So we're probably going to -- we're possibly going to trend down 10 bps or so that we're obviously working ways to avoid that and to speed up the current trials. We've done and we've had some success in doing that. But the trend is probably marginally flat or down, I'd say, in the sort of medium -- short to medium term. Do you want to add?
Yes. No, I think that's exactly it. I don't have to push that. It's probably as we go through 2024, we probably think about more in that 9.2%, 9.3% range and that's probably where we will be. And to Steve's point, of course, there's opportunities that if we can get more of that vaccine work in the door that might have a little bit of -- help us with a little bit of tailwind in the back half of the year. But at this stage, we're very much looking at the ranges that's outlined.
Okay. That's helpful. And then maybe just following up on one of the earlier questions, Steve, I know you said the RFPs, I think, it was mid-teens so far this quarter. I mean it clearly sounds a little more constructive than you sounded at JPM in January. Can you just talk about, I guess, what you saw over the last month, 1.5 months to kind of, I guess, come out with a little more constructive tone there? And again, it sounds like that, that would shape up well in terms of just how to think about the book-to-bill for 1Q, I guess, being squarely in that 1.2, 1.3 range. But I just wanted to talk through what you're seeing over the past month and change there?
Yes, Pat, I mean, I think we have to be a little careful here. RFPs are a marker for new business wins, but they're not a perfect marker. We all know that. And so -- but having said that, what we've seen, as I said, over the first 7 or 8 weeks of the year is a nice uptick on a trailing -- particularly a trailing 12-month and year-on-year comparison basis. As I said, mid-teens across the portfolio, but the majority of it is in the large pharma space. And that, to us, is good because as I mentioned, we have a better win rate in that. So more dollars and more opportunities and a better win rate means we feel good about where the large pharma space is going. Having said that, we're also seeing a more modest, but certainly an uptick in our biotech opportunities. And that's exciting for us as well, as we're kind of really making a push on our biotech profile in the industry. We have 7,000 people focused on biotech and they actually do focus on biotech. It's not a smoke and mirrors team with us. We have these people hardly -- totally dedicated to this space. And so we're doing a bit more talking about that with our customers, and I think that's starting to get some traction. And so overall, we feel we've kind of almost passed the -- got passed an idea, perhaps an idea was the fourth quarter, and we're starting to move. We've upped it a notch, I think. And it certainly feels to us like we're moving. The train's moved away from the station and we're starting to gain a bit of pace in that area. So overall, the same, I'm pretty constructive about it.
We'll now take our next question. This is from the line of Jack Meehan from Nephron Research.
I wanted to ask about some of the customer disclosures you provide. So just recently, you've had pretty good growth from your largest customer. I was wondering if there are any like themes you would call out or therapeutic areas? Just how should we think about the durability of growth here?
Yes. I think as you could see from the numbers we reported, the -- our largest customer did grow, that was specifically related to a couple of large projects that moved forward pretty quickly in the quarter. And so I don't think we're necessarily seeing that as a sustained trend. Alternatively, the 2 to 5 dropped a little bit. Again, as it relates to one particular customer in there where the mix shift was changing a bit. So -- these things change a little bit on a quarter-to-quarter basis, Jack, I wouldn't get too focused in on that as those are sort of long-term trends. We feel we're in a good place with our top 10, top 20 customers. They're all apart from 1 or 2 that they're growing. And the ones that aren't growing, it's more a mix shift change rather than anything else. And even so we're seeing more of the business that they're wanting to go into, albeit it's at a different revenue flow. So overall, we feel good. I've said it a number of times. We've made progress on the strategic front with a couple of customers and even others in the large pharma space, where we haven't necessarily become a strategic partner with them. We're talking to them about some significant opportunities. Some of them are having some challenges, as we all know. And that has led to probably more strategic discussions around what we can do and how we can help them to get through some of the short or medium-term pain that they have to endure. So I know we often think about when customers are having a hard time sort of financially that they necessarily cut costs or cut spending they can spend in different ways in my experience. And sometimes that can be a significant benefit for us in terms of what they do versus when they're running and growing and their revenues are going up as well. So hard times produce opportunity for us. And that's certainly proving the case in 1 or 2 areas on the significant large pharma space.
Great. And as one follow-up, what's the latest tone you're hearing around the IRA? I think there was a lot of maybe concern or uncertainty around that last year. Do you feel like customers have a greater handle around how that's going to impact our R&D spend plan?
I haven't heard a lot that's changed since last year. I do think there's some genuine concern from customers around how their organizations are going to handle that. We have a meeting in a couple of weeks with some of our largest customers, and that's a topic on the agenda to talk through with. We have some external people coming in, so I'll get a better handle for it then. But I don't think things have changed dramatically. I know that it's moved forward, they're negotiating the pricing. We haven't seen -- I don't think that's been necessarily a reason for any budget challenges that they have had at this point. These are changes that are going to take some years to work in. And so the short answer to your question, Jack, is not much changed, really. They remain, I think, concerned and somewhat challenged by it, but they're looking at different ways of developing drugs. And we talked about doing it in concurrent -- doing these developments concurrently rather than in series or -- and that gives us an opportunity to expand the opportunity to get them to market faster in multiple indications versus just waiting and doing it and as I say, sequentially. So again, sometimes these things and often these things give us opportunity because we represent a possibility of doing things in a different way.
We'll now take our next question. And this is from the line of Elizabeth Anderson from Evercore ISI.
I just wanted to follow up on some of the demand questions that have been asked before. I think, obviously, one thing people continue to be worried about is like the overall sort of pharma spending environment, whether it's IRA specifically related or something else. It's obviously nice that you have that new strategic partnership, that's nice to see. Can you talk about sort of the level of visibility on your strategic partnerships with large pharma and how kind of you -- maybe they help you get a sense of sort of where their pipelines are going, and can help give people a little bit more confidence in the trajectory there?
Yes. I mean, I think with our strategic partners, Elizabeth, we do get some visibility on their pipelines. And that's one of the advantages of that partnership. We know what's coming down the pipe. We know what therapeutic area we need to ramp up in and through -- I understand these -- in steering committee meetings, we're able to work out where we need to be as a partnership. I'm not hearing again at this stage any further concerns on funding or on their R&D spend. If anything, based on the RFP of opportunities we've got over the last couple of months and even last quarter, last year and the second and third quarter was strong as well, we're seeing more opportunities. So I guess I keep saying it, but as their budgets become perhaps a little bit more constrained or they watch where they're spending their dollars, they do appear to becoming more open to outsourcing and outsourcing even more than they're doing at the moment. So as I said, I can't add much in terms of where the budgets are and whether it's an increase or decrease. We see and we read the same data you do in terms of modest increases in R&D spending over the medium to long term. But it's how that money is allocated is really what's important to us. And if anything, I think we're seeing more opportunity in terms of the dollars that are outsourced and the opportunity to penetrate further that market.
We'll now move to the next question. This is from the line of David Windley from Jefferies.
I wanted to explore margin a little bit. First, just in talking about the FSP shift, you've highlighted that it is very gradual. I get that. I -- my sense is that at least what I'm aware of is that at the gross margin level, the margin difference between full service and FSP would be quite a bit wider and then at the -- maybe at the EBITDA margin level, you get to that 200 to 300 basis points of margin difference because the SG&A load on FSP is lower. You could correct me if I'm wrong there. So I guess I wanted to understand maybe if you could quantify from a percentage of revenue basis, how gradual is this shift to FSP, such that your -- you still think you can keep the gross margin at around 30%? I'll leave it there and come back with a follow-up.
Dave, why don't I take a crack at that one just to start off with. As you said, it is a gradual process. And as we think through the impact of this, and let's be honest as well and before to it, we said at the start of this year, actually, if anything, the scale is probably tipped more towards the full service piece in terms of the opportunity that's out there. So I don't think -- I'd start off by saying we've seen trends in moving from full service to FSP in the past. I don't know if this is structurally any different from the trends we've seen in the past, where some folks move in one direction, some folks move in the other direction. So that's probably the first important point to make. I think your commentary is not incorrect in terms of -- by the time we get to EBITDA, it's minimized. And we've talked about the fact that in excess of 20% of our business is in that kind of FSP share of our revenue portfolio. I mean, we don't see it moving materially enough, I suppose, to really shift the gross margin piece. Certainly, in terms of what we can do, as we've talked about, the efficiencies we drive through good utilization of our workforce through the use of automation in terms of balancing out that any kind of mix shift that we have there. So I think we're a good organization. We've been doing FSP for a long time. I think we're efficient at how we deliver on our FSP contracts to the point that we can manage this and manage that growth. But I do think it's important to note that I don't think -- I mean, I'm not even sure we'll see a material shift in terms of the percentage year-over-year from '23 to '24 in terms of the FSP, non-FSP business. So it is gradual and it will take time. And as I said, we've got other people going up to direction as well. We've got people moving away from FSP towards full service. So obviously, I'm not going to give you what maybe the granularity is like, but I do think we're very comfortable with, as we get through the course of this year, being able to maintain those gross margin profiles overall and being efficient as an organization and very accustomed to both models, to be able to drop that margin improvement that we talked about 50 bps to the EBITDA line.
Got it. Okay. And I did note that you said that the incremental partnership was full service. So that probably factors in. My follow-up question is around the automation. I mean, in so much as -- notwithstanding your answer, this trend of multiyear trend toward FSP offsetting that with automation seems particularly important, and the improvement in your hours of automation seems pretty strategic and critical to your margin expansion strategy over the long term.
So I've kind of a 2-parter here. One, could you give us a sense of the cost of an automation hour versus the cost of a labor hour? And two, in so much as you finished the fourth quarter of '23 higher than you expected. And so the full year, you in your quotes kind of pulled forward 20 basis points of margin expansion to 23 -- to the full year of '23 getting to 50 basis points is really more aggressive than -- or more aspirational than when you gave that guidance the first time? And maybe give us the comfort that you still think that full 50 basis points is achievable.
I'll start maybe, Dave, on -- as with the way we measure those hours that we were talking about there, the equivalent hours that people would do. So if this was job of work, we're talking about removing those hours from the organization. So when we talk about like the 2 million, we're talking about 2 million hours of kind of labor time removed from the organization. I don't know if I have a hour ratio for you that I can quickly give unfortunately. But what we're talking about is a very substantial amount of hours of our average labor costs removed from the organization, and that's a target we think about in terms of how we measure that as an organization and then also how we set a target. I mean, obviously, 2 million hours of people labor time, even if you say take a blended rate and look at our different geographies around the world. And even if you said that this was occurring in lower cost geographies is where you take the automation out. Even if you made all those caveats, you're talking about very substantial savings as a result of this type of automation. And so we do think you're absolutely right, it is an important and strategic element of our gross margin development and something that we will be continuing to focus on over time. On the second bit, and then I'm sure Steve will want to chime in as well. But on the second piece, I think you know us well enough, Dave, at this point to know that we generally don't talk about targets that we feel we can't hit. So we still do think the 50 bps is right. You're quite right. We ended up better than we thought we would. And so that's a more ambitious target. As I've said earlier in the call, I think it's more around kind of keeping that gross margin in that 30 ballpark and seeing continued leverage on our SG&A. And of course, you saw an absolute dollar decrease in '22 to '23 of $25 million on our SG&A. So we've got a great experience there and an amazing team that helps us deliver that leverage. And it's that kind of leverage we're looking for not quite that level of leverage. We don't need an absolute dollar drop as we go into '24. But we certainly need to see the vast majority of the leverage on the 50 bps come from SG&A over the course of the year. And I think we've got a good plan to achieve that. I don't know, Steve, if you want to add something.
No, I think everything is settled down.
You're right. I do know you to be very good at that. You're right.
We'll now take our next question. And this is from the line of Max Smock from William Blair.
Just a couple quick ones from me here. So on direct fee versus pass-through revenue, I think it's been a couple of quarters now where pass-through revenue has been a pretty meaningful headwind on the top line. Just wondering if you can give us direct fee revenue growth in total for 2023 versus pass-throughs? And then what you have embedded for each of these buckets in the top line guide for 2024? Now I'll just go ahead and ask my follow-up since it's related, how much of the margin improvement this year came from that mix shift to direct fee revenue? And then how are you thinking about the impact to margins from this potential mix shift in 2024?
Max, I'll -- maybe give a crack in terms of the '22 over '23 piece. Obviously, we talked about direct fee being more in the high single digits. And as you can see, you obviously can read what we did from a pass-through inclusive number for the full year. So yes, there was a continued headwind from pass-through as we came through the course of 2023. That has been somewhat of the consequence of the kind of vaccine and then moving more towards our more traditional, let's call it, therapeutic mix of more oncology, more orphan type therapies that have longer durations. And so we've seen that as a headwind over the last couple of years. It's not peculiar to '23. We do feel like we're coming -- we're getting to the shorter yards on that. We talked about our -- the mix of that probably still being, to some extent, a headwind as we go into '24, but not to the same extent as we've seen in 2023, particularly. And we've also talked about our expectation around our COVID, non-COVID mix is probably not dissimilar in the 3% to 4% range, both in '23 and in 4.
So yes, we would like to think it will step down a little bit in terms of a headwind as we go into '24. But of course, we'll see how that plays out during the course of the year, and we'll give you more granularity on that as we go through.
The second part of the question, sorry, I didn't scribble it down. Mix shift. We talked about -- yes, exactly. We'll give you -- I think as we go through the course of the year, that mix shift will give you a bit more granularity.
We'll now take our next question. And this is from the line of Ann Hynes from Mizuho Securities.
I just want to focus on capital deployment. I know in your prepared remarks, you talked about M&A. Do you have unannounced M&A in your guidance? It would be my first question. My second question would be maybe types of assets you're looking for that maybe you need to bulk up? And then with the share repo, that's not -- I know that's not in guidance. And how do you balance M&A versus share repo for this year?
Okay. And the answer to your question is no. And your first question anyway, we don't have any M&A in our guidance. So to be clear on that. In terms of...
New M&A, sorry -- new M&A. Previously announced M&A, obviously, is in there from Philips and...
That's right. Yes. Yes. Yes, that's in there. That's in there. Yes. Previously announced, yes, but there's nothing new in it. In terms of how we're looking at share buyback, we're at kind of a pivotal point with the organization. We've done, I think, a very good job in paying down our debt. We're 2x adjusted EBITDA. Now that's a good place to be. And quite frankly, we want to be -- we want to remain within kind of 1.5 to 2.5. So as we -- we have some potential -- we're still going to make another payment this quarter in terms of our debt. We will be working hard to restructure that and get ourselves into a situation of certainty on what our interest payments will be, and we talked about the $100 million improvement or reduction in interest rate fees from -- for 2024 versus 2023. And as we do that -- as we move from -- and particularly, as we get towards the second half of this year, the M&A area is going to be -- is becoming much more important. And so we're actively looking at the moment because these things take a little time at a number of areas on the M&A front. We've talked about being -- getting -- building Accellacare Site Network and being stronger in that space. The labs represent an opportunity for us, whether it be in the specialty labs or the central lab. So our lab is not within the top 3 at the moment. We'd like to be within the top 3. And so we see some opportunity. And then there are some other sort of ground sites and patients and services around concierge services around, so even areas like devices. There are a number of areas we're looking at very hard from an M&A. And that remains -- as we get and restructure our debt and move forward with that, the M&A becomes our priority for capital deployment. The share buyback is there, and we've, as I said, received authorization from the Board to do that. And we'll deploy that. We'll Use that as and when we see fit opportunistically. And particularly if we don't find anything on the M&A front that we feel we can execute effectively and at a reasonable price. But at the moment, we feel there are some opportunities out there to buy organizations and capabilities that really fit with our organization to fit with our capabilities and really allow us to prosecute clinical trials faster, better and more efficiently for customers. And that remains the absolute priority.
Great. And just on your revenue guidance, there is a wide range. And can you just go through what gets you to the low end and what gets you to the high end, what are the big variant factors?
Yes, I'll take that, Ann. There is a wide range, and we'll be narrowing that as we go through the course of the year without doubt, and we may even think about that in quarter 1 or quarter 2. I think we're still looking at a market, certainly when we set the guidance, that will have some elements of uncertainty in it. And we were trying to really reflect that. There are obviously some opportunities. Steve made reference to the fact that there could be some additional vaccine work that could burn quickly through that, and that might help us to get up into the higher end of the range. And likewise, there's always the risk of cancellations in this nature of the business. That's just the nature of the world, right? So as we get more certainty, certainly, we'll be narrowing that range as we get into the year. But certainly, I would always say to people when asked midpoint is as good a place as any, right? So if you're trying to do your modeling, that's where I'd send you to.
We'll now take our next question. This is from the line of Jack Wallace from Guggenheim Partners.
I'll keep this brief. I was just wondering, given the market dynamics and some of the pressures facing your customers, particularly the largest ones, if there's any incremental appetite utilizing risk-based monitoring? And if they'll follow up to that if some of your investments in AI could be an accelerant for them?
Okay. So Jack, as I understood your question, is there any incremental appetite for risk-based monitoring based on some of their financial challenges. I mean I wouldn't necessarily associate risk-based monitoring with financial challenges. I mean risk-based monitoring is part of what we do on a normal basis now, where we focus our attention and our resources on sites or patients or areas of the data collection process that has the greatest risk. And we use particularly off-site and our IT technology, some of our newest IT technology to identify data that perhaps needs further scrutiny. And it is a more efficient way of doing it. So to that extent, you're getting -- you're spending our customers' dollars more effectively and more efficiently. But I think of it in those terms rather than as a cost reduction way of doing things. It's just a more effective way of deploying dollars around the clinical monitoring processes is what I put it. Did that answer your question?
The monitoring on the risk? Yes. No, that does. I appreciate it.
Yes.
We'll now take the next question. This is from the line of Dan Leonard from UBS.
Just a couple of cleanups. First off, on the COVID work, can you remind me what percentage of your backlog at this point is COVID and how you expect sales to trend in 2024?
Dan, they're well aligned in terms of the backlog and the percentage of revenue in that range of 3% to 4% for the full year.
And the other cleanup, can you give an acquisition sales contribution figure in the quarter? If you did, I missed it from the deals you've already announced? And then how much is in that 2024 guide?
It's not huge. I mean, circa 10% in the quarter. It will be in that ballpark for the full year. In terms of 10% quarter, it's not far off.
We'll now take the next question. This is from the line of Derik De Brun from Bank of America.
This is Mike Ryskin on for Derik. Same thing, a couple of minor cleanups. One is just could you clarify exactly what the pricing assumption is for '24? I know you talked about price qualitatively, but if you could quantify it? And then also on the interest expense, the $100 million year-over-year, all that makes sense. And you talked about some of the payments coming over the course of the year. But just anything on pacing as we go through the year just from modeling, when should we -- when and how should we pace that through the year?
On the pricing piece, Mike, it very much depends. There's no straight answer to that one. Of course, we have inflationary increases in most of our contracts, and we have those negotiations with our customers at the start of the year. They obviously follow kind of CPI index in terms of inflationary pieces. So that's a conversation that happens every year. It's progressing around this time of the year again. But each new business will depend on the individual customer. On the $100 million of -- I mean, I would say probably more back ended, we want to try to get all of this sorted out in H1. So I would say stepping down quarter-by-quarter, but probably more dramatically in the second half.
And we have one more question. This is from the line of Casey Woodring from JPMorgan.
Great. A lot has been asked, but I wanted to follow up on the strategic partnership questions. Just wondering how many of those types of partnerships you have now and is there a way to size this new opportunity that you called out this quarter and then the total opportunity of those partnerships in aggregate? And then also just what gives your full service offering a competitive advantage in winning those types of partnerships?
Just a minor question at the end, Casey, is it competitive advantage of us over the industry? Let me start with the strategic partnership. We're not ready to sort of size it as such. We think of these things as being at least -- ultimately, at least the sort of $200 million in revenue annually. That's what our expectation is as you become a strategic partner with a top 20, top 30 pharma company. I don't have a number for what the entire strategic partnerships give us, at least not on the top of my head. We're what we would call strategic with a significant majority of the top 20 pharma companies at the moment. And I think we talked about when we got together with PRA 18 months ago or so, 20 months ago, I think we had 13 on. We've advanced that by several now, something like 16 or so. So we've made some significant progress there. And importantly, there are a number of companies. While we haven't necessarily signed an MSA or become a -- we're talking to them, and we're getting opportunities from them. So often, this is a process that can take 1 year or 2, not just to win the partnership or to be considered a strategic partner, but ultimately, as the business ramps up with this. So these are things that don't -- aren't going to have sort of an immediate impact on our revenues. But we're seeing certainly opportunities and they're to be quite honest, starting to drive those RFP improvements that I talked about. In terms of competitive advantage, we're a scale player now. And our union with PRA that's now, let's say, 20 months ago, is that -- well, more like 30 months ago, isn't it, middle of '21 is -- has made a major contribution to that. I would say the people that we brought on have made a major contribution to our organization. And as a scaled player within the clinical development space, we have the technology. We have that -- those resources, that depth and breadth of capability. We have the platforms, the decentralized platforms. And that really gives us a ticket to the table pretty much every time now. So there are very few of these sort of partnership discussions, where we excluded from. Whereas I can certainly look back 5 years ago and say, we probably didn't make it to the table in a number of instances. And so that's changed now in terms of specific advantages over our bigger competitors. I would say our site network is one that gives us some opportunity. And I think the technology that we have and that we've been able to deploy around our site network, be it One Search or some of the technology that we've been public about as well, has also given us some advantage over that. And then if you look at the mix of services, we have our functional services group, it's a significant one. Our full service is a significant one. The focus that we have in the biotech segment versus all of those things, I think, are important as we contemplate strategic partnerships with large companies. And as we compare ourselves against our competitors, our larger competitors, everyone has something, and in our business, it's a multifactorial sort of -- there's no one sort of key advantage that puts you ahead. There's no intellectual property or anything like that for us, unfortunately. We have to rely on our wits and our brains and the decisions we make in a number of factors, even down to the project manager who runs the project. So there are lots of things that are important for us as we go up, whether it be a strategic partnership or a normal project. But they're all important, and we think we compete very well in that space now. Okay. Okay. So I think -- thank you, operator. I think we're done with the questions. I appreciate the input and the questions from everyone. So thank you for joining the call today, your continued interest -- and for your continued interest in ICON. We're excited, certainly very excited for the opportunity ahead. We believe we're at a really pivotal point in our company's development now. And I think that's been evidenced by some of the things we -- some of the comments we've made today around those strategic partnerships and the opportunities that we have going forward. So thank you for the questions, and have a good day.
Thank you. This concludes the conference for today. Thank you for participating, and you may now disconnect.