Ari Bousbib: Well, I don’t generally like to comment on competitors. But yes, there have been a number of disruptions sort of company is being acquired or spun off in the CRO space. And that always introduces some level of disruption. I mean some of these companies have been in trouble. The fact that, they’ve been acquired by private equity or conversely spun off in the public markets. Does that mean that they’ll be more competitive, less competitive? It’s hard to tell. It’s disruption often. Often, happens. If you take a longer view of this question, we believe that our merger seven years ago, significantly disrupted the industry and led to a large number of subsequent transactions which resulted from what we believe was reactions to the clear competitive advantage that we think we established that enabled us over the past few years to gradually gain market share. But other than that, I mean, I don’t have any further comments.
Nicholas Childs: Thank you, Shlomo.
Shlomo Rosenbaum: Thank you.
Operator: Your next question comes from the line of Tejas Savant from Morgan Stanley. Your line is open.
Tejas Savant: Hey, guys. Good morning. So my first question here is on the R&D side of things. Ari, can you help us think through just a shift in mix in FSP versus hybrid versus full service work and the margin implications of that? And similarly, sort of any shift in the mix of work as you head into 2024 on therapeutic area basis? And what that means — what that might for your backlog burn rates?
Ronald Bruehlman: Question was about the mix shift in margins between FSP and full service, correct?
Tejas Savant: That’s right.
Ronald Bruehlman: Yes. Look, FSP tends to be somewhat lower margin than full service. Now, take into account, though, that full service comes with pass-through — significant pass-through revenues that FSP doesn’t. And so when you look at the average margins, including passers, they’re not that different. But yes, in general, there has been — there is some margin degradation as a result of the shift towards FSP. On the other hand, this shift is a very gradual shift that’s going on. It’s — you’re talking about points of single points of shift, not huge — a huge flight to FSP, and it takes place over time, remember, the average trial for plus years to complete. So there really hasn’t been any dramatic impact on our margins as a result of that.
And, of course, we’re working all the time to optimize and take costs out and do things to improve our margins independent of whatever contracts we happen to be signing. So I would say, not a big impact there. And you see in our EBITDA margins, they’ve actually continue to improve overall and that’s with R&DS being over 50% of our revenue.
Ari Bousbib: And then your second question?
Tejas Savant: Yes. My second question, actually, I’m going to switch to the TAS comments, guys. I mean, are you encouraging to see expectations of a recovery in the back half of the year? And you talked about your detailed bottom-up pipeline build there. But I just want to put a finer point on it in terms of just the timing of the recovery, right? So, what gives you confidence comes through in 2H 2024 versus getting pushed to 2025? Is it something related to contracted work that you have clear line of sight to versus work that could be delayed? Or is it some large real-world evidence projects that you see coming through here in the back half?
Ari Bousbib: Yes. Thank you, Tejas. No, it’s not anything — any one contract or a specific level, as I mentioned, the overall sentiment bubbling up into a pipeline that I mentioned is the highest that we’ve had ever. Now, the pipeline doesn’t always translate exactly as it is. It’s probability adjusted and so on and so forth, but that’s a good indication from a metric standpoint that we should be up for the year. And we’ve built some level of cushion here because we’ve been burned/delayed last year. And so that’s what kind of gives us a little bit of confidence along with the conversations we’re having with our clients. Again, I wouldn’t — this is not like — we’re not seeing a sharp uptick all of a sudden, okay? Our clients are — especially large pharma, very, very focused on cost containment.
They’ve all announced significant cost reduction programs. Some of them in anticipation of really unknown impact of the IRA, some in anticipation of some LOEs coming soon in the next few years or other variables, but the fact is there are these large pharma cost discussions that we’re having with clients as well, and we are a significant vendor and therefore, those conversations have tended to be more difficult than they were in the past with respect to negotiations and pricing and so on. That is still there. The number of opportunities, the number of projects, the number of compensations, all of which translate into a pipeline, the request for proposals and so on that we’re having are clearly up. And given the life cycle of the sales processes as we know them, we are anticipating that those would concretize into sales towards the back end of the year.
Ronald Bruehlman: And Tejas, just one point of emphasis here, too. In the TAS business particularly is hundreds and hundreds of projects. You’re not going to have any individual project move the needle there. Thank you.
Tejas Savant: Thanks guys. Appreciate it.
Operator: Your next question comes from the line of Luke Sergott from Barclays. Your line is open.
