Syneos Health Inc

F:8IN

Earnings Call Transcript 2021-Q3

[Operator]

Good morning and welcome to the Syneos Health Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time.

I would now like to hand the conference over to Ronnie Speight, Senior Vice President of Investor Relations. Please go ahead, sir.

[Ronnie Speight, Senior Vice President of Investor Relations]

Good morning, everyone. With me on the call today are Alistair Macdonald, our Chief Executive Officer; Jason Meggs, our Chief Financial Officer; Michelle Keefe, our President of Commercial Solutions; Paul Colvin, our Chief Business Officer; and Michael Brooks, our Chief Development Officer. In addition to the press release, a slide presentation corresponding to our prepared remarks is available on our website at investor.syneoshealth com.

Remarks that we make about future expectations, plans, growth, anticipated financial results and prospects and our expectations regarding the COVID-19 pandemic, constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995 and we disclaim any obligation to update them. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors. These factors are discussed in the Risk Factors section of our Form 10-K for the year ended December 31, 2020 and our other SEC filings. During this call, we will discuss certain non-GAAP financial measures which exclude the effects of events and transactions we consider to be outside of our core operations. These non-GAAP measures should be considered a supplement to and not a replacement for measures prepared in accordance with GAAP. For a reconciliation of non-GAAP financial measures with the most directly comparable GAAP measures, please refer to the appendix of our presentation.

I would now like to turn the call over to Alistair Macdonald. Alistair?

[Alistair Macdonald, Chief Executive Officer]

Thanks, Ronnie. Good morning, everyone and thank you for joining us today. I am delighted to report another quarter of strong results, demonstrating the enthusiastic customer response to our differentiated product development strategy and our continued market momentum.

We again exceeded the midpoint of our guidance across all financial metrics for the quarter. Our integrated offerings, those where we work across the product life cycle, fueled strong awards and backlog growth in both segments during this quarter; both clinical and commercial continued their robust year-over-year growth in the quarter and we now anticipate 2022 revenue growth rates above the midpoint we outlined during our investor event in December 2020. The demand environment remains very healthy with strong pipelines ahead of us across our business in terms of RFPs, relationship discussions, new drug approvals and demand for our innovative models based around the Syneos One approach.

Now for three key highlights from the quarter. First, overall net awards grew by 35.1% year-over-year. This performance drove third quarter book-to-bill ratios of 1.30x for Clinical Solutions and 0.89x for Commercial Solutions, resulting in robust TTM book-to-bill ratios of 1.39x for clinical and 1.16x for commercial. Second, we are enthusiastic about the continued strength of our Commercial Solutions business and the success of our integrated solutions approach as demonstrated by revenue growth accelerating to 18.7% and Deployment Solutions backlog growth of 24.9%. Third, we are pleased to have recently closed the acquisitions of StudyKIK and RxDataScience, enhancing our patient engagement and data science capabilities. Both companies expand our dynamic assembly network to bring further innovation and technology-enabled service offerings to our customers.

Now, moving into further details on our results. We continue to see recovery from the impacts of COVID-19 and our total company year-over-year revenue growth remained strong at 22.7% compared to the third quarter of 2020. Clinical Solutions revenue grew 23.9% compared to the third quarter of 2020. Our organic growth was driven by our full-service portfolio, including the continuing ramp-up in our larger pharma relationships, particularly in oncology as they gain full scale and efficiency. This was accompanied by rapid growth in our real-world and late-phase businesses. Our clinical team also closed another strong quarter of awards, particularly in the SMID segment. Driven by these strong sales, record ending backlog that is up 22.3% year-over-year and a record pipeline of new opportunities, Clinical Solutions remains well positioned for robust revenue growth into 2022 and beyond.

Before I discuss our recent acquisitions, we are sharing an update that will drive further growth across Clinical Solutions and our broader organization. As we continue to focus on our product life cycle model, we're rotating executive leadership across the organization to drive deep connections. Michael Brooks, our current Chief Development Officer, will now lead our Clinical Solutions organization. Michael has a 25-plus year track record across clinical development and commercialization, setting strategy and driving business transformation. Paul Colvin will transition into Michael's former role and take his customer-focused approach to lead our go-to-market ecosystem as Chief Business Officer. Paul's deep customer relationships and product development mindset will accelerate deploying high-value solutions to the marketplace. We believe this partnership will be powerful, aligns to our customers and is a competitive advantage for Syneos Health.

Shifting to our recent acquisitions; we are constantly enhancing our approach to the way we engage with sites, patients, physicians and communities. And as the clinical trial landscape evolves, we are placing increasing focus on decentralized trial capabilities and patient recruitment. We continue to expand our Dynamic Assembly network as service, data and technology providers to bring additional innovative solutions to our customers. We are very enthusiastic about the advanced patient engagement capabilities added by the acquisition of StudyKIK. Through their global network of patient communities and advanced technology platform, StudyKIK expands our ability to accelerate site start-up as well as patient enrollment engagement, helping to improve patient retention and access.

Innovative capabilities include eConsent, telemedicine and improved patient accessibility to enhance experiences for both patients and sites with the goal of reaching more diverse patient populations and reducing the burden of clinical trial participation. In addition, patient concierge services and site support capabilities remain a key focus for our Clinical Solutions organization. We see a unique opportunity to connect the service support platforms of StudyKIK with our home health technology platforms, PatientGO and SourceGO, creating a compelling patient and site support ecosystem. PatientGO is an integrated patient concierge service and application facilitating patient travel, reimbursement and caregiver support. SourceGO is a recently released application that enables our mobile nurses to securely capture high-quality patient data in real time during home health visits. Combining these technology-enabled capabilities with our home health services further positions Syneos Health as a leader in decentralized clinical trial delivery.

We also recently acquired RxDataScience, a specialist organization that helps biopharma customers solve challenging problems via advanced analytics, data management and AI. RxDataScience is well aligned to our lab-to-life model, offering advanced analytic solutions across the entire product development spectrum, from clinical through real-world late phase and commercial. Combined with our existing data science and analytics capabilities, including Kinetic, our modern engagement capability, RxDataScience will allow us to accelerate delivery of cutting-edge analytical solutions for customers. These solutions help to drive increased performance in areas like clinical trial diversity, clinical trial protocol insights, decentralized clinical trials, real-world evidence generation and omnichannel analytics. As biopharma companies increasingly harness data to address their most difficult challenges, RxDataScience offers excellent AI capabilities, helping to structure and organize massive data sets and rapidly develop prototypes of solutions that drive value.

I'm excited about the significant strides we continue to make in bringing the latest innovation and technology-enabled services to our customers to further our goal of shortening the distance from lab to life.

Turning now to Commercial Solutions; we saw accelerating year-over-year revenue growth of 18.7% compared to the third quarter of 2020. Growth in our core business outpaced this level, partially offset by the headwind from the 2020 divestiture of our medication adherence business. This growth continued to be broad based across our commercial services. Deployment Solutions had another high-performing quarter of new team starts, driving the number of deployed resources and ending backlog to a 4-year high. Consulting had the highest growth rate of our commercial businesses and we also experienced impressive growth in the public relations and medical communication specialties within our communications business. In addition, full-service commercial gross awards are up over 70% on a year-to-date basis compared to 2020. We expect the success of this integrated model to further enhance commercial revenue visibility and drive more consistent growth as customer adoption continues to increase.

The market for our commercial services remains strong, driven in part by the pace of innovation, new drug approvals and the biotech funding environment. We expect Commercial Solutions performance to continue in the fourth quarter with growth again in the high teens.

Our commercial expertise continues to fuel innovation across the product development spectrum with dynamic capabilities such as Kinetic. Kinetic is designed to optimize HCP engagement in commercial and accelerate patient referrals into clinical trials through advanced targeting and digital capabilities. Our early case studies across clinical and commercial indicate that Kinetic is producing, on average, a 15% improvement in these activities. We believe this unique suite of capabilities, along with our other innovative solutions, continue to differentiate Syneos Health and are key factors in driving new business awards.

Syneos One, our end-to-end product development methodology, also continues to differentiate Syneos Health, particularly with our small to midsized customers. During the third quarter, we began the first commercial launch among the 23 assets currently managed by the Syneos One team. This marks a significant milestone for our team, demonstrating the success of this unique offering and is only the first of these launches. We have also initiated planning activities for two additional Syneos One commercial launches expected during the first half of 2022, subject to final regulatory approval. This quarter, we also expanded one of our largest Syneos One relationships beyond the U.S. product launch to include the European and Canadian launch activities for the same asset. We anticipate these launches will start contributing to awards and backlog in the second half of 2022.

Expanding the geographic reach of an existing asset demonstrates yet another way that Syneos One can drive revenue growth and also diversify our commercial pipeline. We expect the Syneos One portfolio to increasingly contribute to commercial awards and revenue over the coming years with an expanding diverse group of product launches in multiple therapeutic areas, indications and regions around the globe.

Lastly, I wanted to highlight the recent publication of our 2020 sustainability report. This marks our third annual report which showcases our commitment to creating a diverse, equitable and inclusive workplace for our employees while making a positive social impact. It also outlines our pledge to reduce the company's environmental impact. I am proud that these continued ESG efforts and commitments represent the fabric of our culture. I want to thank the entire Syneos Health community for their passion and commitment to these important issues while they work tirelessly to provide excellent service to our customers, sites and patients worldwide.

Jason will now provide additional comments on our financial performance and guidance. Jason?

[Jason Meggs, Chief Financial Officer]

Thank you, Alistair and good morning, everyone.

Our total revenue for the third quarter of 2021 was $1.35 billion, up 22.7% and 22% in constant currency compared to the third quarter of 2020 which was impacted by the COVID-19 pandemic. Our Clinical Solutions revenue for the third quarter was $1.04 billion, up 23.9% or 23.1% in constant currency compared to the third quarter of 2020. These increases were driven by growth in our full-service portfolio, including higher reimbursable expenses, the ramp in our larger pharma relationships and strength in our real-world and late-phase business. This total growth includes a 975 basis point contribution from acquisitions and a 750 basis point tailwind from increased reimbursable expenses.

Our third quarter Commercial Solutions revenue was $310.8 million, up 18.7% or 18.4% in constant currency compared to the third quarter of 2020. Growth in commercial revenue was driven by broad double-digit expansion across our core commercial businesses, with particular strength in consulting and includes a 180 basis point tailwind from reimbursable expenses. This growth also includes the impact of a 310 basis point headwind from the 2020 divestiture of our medication adherence business.

Adjusted EBITDA increased 10.8% to $202.6 million, representing an adjusted EBITDA margin of 15%, a decrease of 160 basis points compared to the third quarter of 2020. The decrease in adjusted EBITDA margin for the third quarter was primarily the result of increased costs from the expiration of temporary savings programs instituted in 2020 and a less favorable revenue mix. These impacts were partially offset by the benefits of revenue growth and the cost management initiatives in our ForwardBound program. Adjusted diluted EPS of $1.22 for the third quarter increased by 17.3% year-over-year, primarily driven by the increase in adjusted EBITDA and lower interest expense.

Our operations generated $48.5 million in cash flow for the third quarter, in part due to the timing of billing and collections. Our year-to-date 2021 cash flow from operations has been solid, reaching $264.3 million, driven primarily by our net income as the impacts of the pandemic subside. We expect improved operating cash flow in the fourth quarter and have already seen strong billing and collections activity in October. DSO for the quarter was 48.3 days, returning to a more normalized level as revenue growth resumed, driving increased accounts receivable and unbilled revenue. Our capital expenditures were $7.6 million for the third quarter. We ended the quarter with $122.4 million of unrestricted cash and total debt outstanding of $2.95 billion, resulting in net leverage of 3.9x.

As Alistair highlighted, we closed our acquisition of StudyKIK during the quarter. Given the related utilization of cash and a $30 million draw on our revolving credit facility, our net leverage ratio increased slightly compared to the second quarter. We currently expect our net leverage to be slightly higher than our prior expectations that remain below 4x through the end of this year. In addition, in October, we expanded our AR securitization facility by $35 million which will serve to reduce our overall cost of debt and we used the proceeds to reduce our outstanding revolver balance. Our non-GAAP effective tax rate for the third quarter was 24%, consistent with our expectations for the full year 2021.

Turning now to our updated 2021 guidance; this guidance contemplates our current view of the estimated impact of COVID-19 on our business, recognizing that factors related to COVID-19 are outside of the company's control and subject to change. We are narrowing our expected range of full year 2021 revenue to $5.2 billion to $5.28 billion, representing growth of 17.8% to 19.6%. This growth includes an estimated contribution from acquisitions of 560 to 580 basis points and a headwind from our 2020 divestiture of approximately 110 basis points. We're also narrowing our expected range of total adjusted EBITDA to $755 million to $775 million. This continues to reflect an adjusted EBITDA margin of 14.5% to 14.7%, up 30 basis points from the 2020 midpoint. Lastly, we are increasing our expected adjusted diluted EPS to a range of $4.35 to $4.49, or a year-over-year growth of 27.6% to 31.7% to reflect lower expected interest expense and depreciation. Our guidance incorporates interest expense of approximately $80 million, a non-GAAP effective tax rate of 24% and an estimated diluted share count of 105.1 million shares. Further, we now expect our net cash outlay for income taxes during 2021 to range from $30 million to $35 million.

As Alistair highlighted, based on our strong trailing 12-month awards, backlog and pipelines in both segments, we expect our 2022 growth to exceed the midpoint of the 7% to 10% range we communicated at our Investor Day in 2020. Importantly, we expect notable contributions from both clinical and commercial, particularly considering the ongoing strength in commercial. Given our expectation of a somewhat higher mix of reimbursable expenses and increased contribution from commercial, we now expect our adjusted EBITDA margin to expand in the range of 30 to 50 basis points for the full year 2022 compared to 2021.

This completes our prepared remarks and we would be happy to answer any questions. Operator?

[Operator]

[Operator Instructions] Our first question comes from Patrick Donnelly with Citi. Your line is open.

[Patrick Donnelly, Citi]

Great, thanks guys. Alistair, maybe starting on the '22 commentary there, it sounds like you guys are pretty confident going into next year. Can you just talk about the visibility to set up, again, your confidence level? It sounds like maybe a little above the midpoint is the right way to think about some of that long-term guide but would love your -- a little deeper on the setup there.

[Alistair Macdonald, Chief Executive Officer]

Okay. Yes, I'll start and Jason will add. Thanks for the question. So yes, I think where we sit right now, good kind of backlog visibility through the whole year with both the increased backlog that's coming through from clinical. We mentioned that we're winning a lot of oncology work. Obviously, that sets up for a long view of the pipe of the backlog, so you got a lot more visibility with that. Also from commercial, with the backlog that we're seeing coming through on the deployment side and really, the trend also around that deployment work and the fact that we're winning full-service commercial gives you a longer view through that commercial pipe and also the amount of new products getting approved and the style of those new products getting approved. So I think in 2021, more than 50% of the products that have been approved are going to market with the SMID owner still in the seat.

And obviously, the Syneos One model and the integrated commercial solution that we have is a very good model for those folks to take those products through to the market. So I think we see all that. We also see very strong pipelines in terms of RFPs, discussions we're having with customers, work that's coming our way in terms of FSP. So it's really a nice setup right across the business. We're seeing it accelerate. And I think we just have a better look at 2022 in a healthier picture than we would normally see at this point. So we're happy to let that confidence come through a little bit in bringing the guide a little touch for 2020.

Any thoughts, Jason, can you add?

[Jason Meggs, Chief Financial Officer]

No, that's a good summary.

[Patrick Donnelly, Citi]

That's really helpful. That's encouraging to hear out there. And then you touched a little bit on the RFP side but maybe can you just talk about the flows there. I mean the site activation sounds like it's going well, kind of above pre-pandemic levels. And then just a quick update on the COVID composition of the backlog and revs would be great.

[Alistair Macdonald, Chief Executive Officer]

Yes. So I think the flow that we're seeing, RFP is strong across the board, both large pharma and SMID. We've been really working on strategies to drive more penetration into the large pharma. That was one of the imperatives of the merger right to get that scale to get into large pharma, where that scale is important. So we're seeing that. We, I think, have the most compelling SMID offering in the market and it's a healthy part of the market. There's fluctuations always in the biotech funding index but the SMID customer has got a lot of cash on hand and we don't see that as an issue as we go forward. And certainly, from the pipe that we see, that is certainly not an issue that they see either. So I think that setup is good. Site activity is strong, I think and continues to recover. There are still issues in some therapeutic areas with immunosuppressed patients and things like that, they're still a little bit cautious. So enrollment, I think, in some of the therapeutic areas still lags a little bit but it's coming back. So as that rolls forward, we've got those patients to pull through. And I think that's very encouraging. I think some of the improvements that we've made in study start-up, StudyKIK is in addition to that.

A lot more technology around those for the start-up and patient engagement processes which bodes well for what we do. I mean our goal is actually not to just hit projects, time lines but to accelerate them. So we continue to look for processes and investments and technologies and changes in the way that we conduct our business to accelerate start-up, to get patients into site faster and get ahead of projects. And I think we're starting to see that more and more in the projects that we're delivering.

[Jason Meggs, Chief Financial Officer]

Yes. And then Patrick, on the COVID side, we're continuing to win work there. I think we're up to 180 projects won across the business. The vaccine trial that we had in clinical, that was ramping in quarter two, did continue to ramp in quarter three. It's a bit higher in terms of contribution in quarter three than in quarter two. And then with some changes there and just burning that revenue down, the backlog of COVID has come down to about almost slightly under 2%, I think, for clinical. So good mix there, not any super heavy concentration; so we're happy with that.

[Patrick Donnelly, Citi]

Very helpful. Thanks, guys.

[Operator]

Thank you. Our next question comes from Tycho Peterson with JPMorgan.

[Tycho Peterson, JPMorgan]

Hey thanks. Alistair, I'm wondering if you could talk a little bit more about the recent deals, StudyKIK, RxDataScience. And as we think about kind of your decentralized strategy, how did you fit in with Illingworth and kind of the broader approach? And what percentage of your backlog you think goes decentralized over the next couple of years?

[Alistair Macdonald, Chief Executive Officer]

Yes. Good question, Tycho. So we talked about this, I think, in the last earnings call, might have been the one before but -- so we're looking at how we drive the business forward based around the patient, right? So it's -- whichever channel you go down, whether it's decentralized, traditional trial, whether you go direct to patient, you always end up with a patient. So we're looking at technologies and we're looking at capabilities that take us to the patient regardless of those channels. So StudyKIK, great addition for the team. We've worked with StudyKIK for several years. The receptiveness from our customers has been tremendous. They see this as a great addition to what we do. It enables us not only to engage sites, they have a big site network that they work with that adds to the catalyst networks that we have but also their capabilities in terms of patient identification, patient engagement, their ability to deliver telemedicine, their abilities around some of the elements of decentralization are all key elements that fit together with Illingworth. We can -- the strategy that we're putting together, what we're executing on not putting together, the strategy that we're executing on around this around pivoting around the patient. We can identify and engage a patient through StudyKIK help the sites get up quickly and then deliver Illingworth services to patients.

I think it's a great setup. It puts us right at the forefront of that. It's not just talking about decentralized trials, actually delivering them properly. I was at an Illingworth event a couple of weeks ago and they were telling me about a patient that they recruited delivered all the services for that was -- lived 800 miles away from the site but they were attached to out in Russia somewhere. And that's brilliant. A rare disease patient, that patient would have been lost to the trial if we weren't able to engage them, enroll them and then deliver the services in their home and that's what decentralized trial is and should look like. You're taking all that barriers down and you've taken the trial to them. Things like SourceGO, PatientGO enable us to deliver that with technology, makes -- takes the burden down on the patient and the visiting nurse. So, all that strategy starts to really accelerate because we can actually deliver these trials.

[Tycho Peterson, JPMorgan]

That's helpful. And then, a follow-up on FSP. If we go back to last quarter, you noted some big wins, a couple of competitive wins, multiyear deals. Can you just talk on with the momentum there continuing, how much of this is being driven by Synteract? And what are you seeing given kind of the consolidation in the background from a competitor standpoint?

[Alistair Macdonald, Chief Executive Officer]

Yes. Not much of the FSP work has been driven by Synteract. They had a couple of small FSPs that have been absorbed into the big team now. We did add another FSP relationship, I think, in Q3. Early Q3, we added another one. I think it was in the safety team. So yes, the demand, I think, for FSP is good. It's not just the new FSPs. I think it's the expansion of the current ones as well. We're seeing a lot of flow there. As resources are more and more difficult to find, I think FSP plays a part in that as well because we can deploy more rapidly through FSP. If a customer loses a resource from another relationship or loses somebody internal, we're able to backfill that from as quickly as we can. So yes, I think that FSP -- well, the FSP market is here to stay right with the larger pharmas. But I think what we've got with the scale that we have which is -- I think is one of the key elements of being one of the largest CROs is that you can deliver these models quickly from a large resource pool in -- well, I won't say random locations but when a customer comes along and says, I need a CRA now and it needs to be here, we have a much better chance of being able to fill that, particularly with the resourcing networks.

We have the teams, we have a recruitment agency internally, Taylor Strategy Partners that is able to help us find needles in haystacks if we need to. But we have a big pool of people that we work with on a regular basis, contractors as well. So I think we're very compelling in the FSP space. I think the FSP 360 model that we launched a couple of years ago has worked very, very well and we'll continue to drive good growth in that sector.

[Tycho Peterson, JPMorgan]

And just on the competitive front, given all the consolidation in the background, are you kind of seeing any change on the ground?

[Alistair Macdonald, Chief Executive Officer]

That's probably a question I've asked Paul and Michael. I mean are you guys seeing -- well and Michael's here today. He's moving over to run clinical. Paul is moving over to run the overall go-to-market strategies. So any thoughts on those two, guys?

[Paul Colvin, President of Clinical Solutions]

I think we're continuing to see that with the consolidation, some impacts of other partners that are having some disruptions. But overall, all the competitors are still out in the marketplace. I think we're just continuing to differentiate ourselves with our service offerings, especially in DCT but the competitors remain strong. I think we're just competing against them with some differentiated service offerings right now.

[Michael Brooks, Chief Development Officer]

Yes, I agree. Many of the questions I am receiving around culture and how stable is our culture, how engaged our executive leaders, with our employees and with our clients which, of course, we are very focused around that, protecting that employee life cycle, making sure we're very focused on our customers as our top priority in the current environment.

[Tycho Peterson, JPMorgan]

Thanks, guys.

[Operator]

Our next question comes from David Windley with Jefferies. Your line is open.

[David Windley, Jefferies]

Hi, good morning. Thanks for taking the questions. Alistair, your prepared remarks as well as Jason's emphasized ramp in large pharma relationships, I know this has been kind of an ongoing point of emphasis. I guess I wanted to try to better understand if you were seeing expansion in some of the early wins that are maybe two or even perhaps three years running or if you're winning some fairly large call-out-type new pharma relationships in the portfolio.

[Alistair Macdonald, Chief Executive Officer]

Yes. It's a bit of both. It's -- I think when you get into a large pharma relationship, especially when you're new, so if you remember back in -- I was going to say it back in the day but a couple of years ago, we won these new entry points to large pharma, you still have to prove yourself operationally. And I think we've done that and now we're starting to get the tailwind from that a little bit as well. So we saw in Q3 some nice big oncology awards come through from a couple of those relationships that we established back then. They've seen us perform, they've seen us get start trials up and running. Of course, 18 months of that two year relationship has been through the teeth of COVID. So I think we conducted ourselves very well and delivered very well through COVID. So we kind of not only got the hunting license and those early wins, now we're getting the repeat business, if you like, pulling through and be entrusted with bigger and bigger programs. So that's what's happening in those established wins.

And we are penetrating more and more of the top 50. We deployed the Global Client Solutions team a couple of years ago, brought in executives from some of our competitors who have been able to establish us in some of those new -- in additional accounts, in additional relationships and that work is starting to come through. Now we haven't announced anything that we've got a new preferred providership etcetera, because we're getting to that point where they've given us a go. We're getting a couple of trials here and there, we're picking up a couple of rescues here and there. And you prove yourself and then you move on to the hunting license list and then preferred provider list. So yes, we're pleased with that, how it's going with the ones that we want and how we're moving forward in some of those newer relationships.

[David Windley, Jefferies]

Excellent. It's kind of a related question but flipping over to commercial. You mentioned at your Investor Day from last year in your prepared remarks as well and that was a time where you did spend a fair amount of that time focused on some of the opportunities that were percolating in your commercial business, including full-service launch. I think the first of those was supposed to launch at the end of the just closed quarter maybe about right now. I'd be curious about your comments on how that's going and if it's playing out in the beneficial ways that you anticipated for the commercial business.

[Alistair Macdonald, Chief Executive Officer]

Yes. Well, we've got Michelle grinning from ear to ear, Dave. So she's jumping in a bit to tell you but I'll kick it off. I mean I think there's been a lot of skepticism about how our commercial business fits together with everything else that we do. But I think we're really starting to see the full fruition of that now and the strategies that we put together as we came out of the inVentiv merger. We put Syneos One together as a model, as an idea to run with customers. Christian and his team have built a pretty hefty following 23 assets that we're pushing through, lots of conversations going on. This year, we've got -- we're seeing 50% of those products come into market are in that SMID sector. We've always targeted SMID with Syneos One. And now we're starting to see that pipeline of work, that backlog of work that we've won but haven't booked starting to come through into Michelle's domain. So yes, we are in the teeth of that launch and I'm going to hand you over to Michelle and she'll tell you a bit more about it.

[Michelle Keefe, President of Commercial Solutions]

So David, I was counting on you asking me the question, so I'm excited to answer it. So Alistair shared with you just the success we're having with the Syneos One asset starting to layer into the commercial division. And we did go to our first launch. I was there, I was actually in Park City, Utah over the summer. And we're having a lot of success with that team and what that team is going to be able to do. As you know, our second major launch coming from Syneos One which we've announced publicly in a joint press release, that approval is in early January and we believe that we'll start really deploying that team in Q1 of 2022. So we're very, very excited about that.

There's three things that we have to do in commercial to make sure that we continue to have the success we're having currently. The first is make sure we manage the Syneos One assets flawlessly and bring those to fruition. I think we're doing a great job with that. The second thing is to continue to win in the commercial integration area and we're up 70% on awards there. And the third thing is the individual businesses, cross-selling and being best in class in consulting, in communications and Deployment Solutions. And I think you've seen -- it's very impressive that all three of those businesses are growing double digits through Q3. So all the things we're counting on for long-term commercial success are all firing on all cylinders right now. And so it's just very exciting for our teams to see the success they're having.

[David Windley, Jefferies]

Great. Congrats on that. I will leave with that.

[Operator]

Our next question comes from John C. Kreger with William Blair.

[John Kreger, William Blair]

Hey, guys. Another one for the commercial business and Michelle. Now that things seem to really be picking up, can you just expand a bit on two things? One, sort of what's the makeup of the business right now across those three buckets? And particularly with the kind of commercially integrated contracts starting to ramp, should we be thinking about this business as sort of mixing up or mixing down?

[Alistair Macdonald, Chief Executive Officer]

Yes. Good question, John. I'll kick it off. I think across clinical -- not across clinical, sorry, we'll start that again. Across the Deployment Solutions, communications and consulting, I think we're seeing good strong growth in all three. Now that's from their individual go-to-market work as well as their integration work. And I think the real kind of catalyst, accelerator that we're seeing is from the commercialized -- is from the commercial integration, picking up the commercial end of the Syneos One launches and the work that goes into getting them to the launch, the planning, the communications, consulting, etcetera but also then the delivery. So I think it's a bit of both.

All three businesses going well. Michelle has been bringing in new leadership over the last couple of years to help drive that new talent engagement with customers earlier in the life cycle. So I think it's a combination of individual kind of business line success but then integrating them into a package. As Michelle said, it's up 70% year-over-year and it was up pretty heavily last year as well. So definitely seeing, I think, a market trend that's taken us towards that delivery of the integration.

Michelle?

[Michelle Keefe, President of Commercial Solutions]

Yes. So the only thing I will add is we've been working really hard to diversify our backlog, right, across customers and across types of customers. And I think we're being very successful in doing that. We have great relationships with the SMID customers and you're seeing that really flow through commercial integration and Syneos One opportunities but you're also seeing us do really great work with top 50 pharma. So I think it's really important that our backlog is diversified. You're not seeing any one customer or any one team or communications relationship dwarf the rest. So I think that that's been really important for this business from a visibility perspective. And I think we feel really good about that.

We still say Deployment Solutions backlog is probably the strongest metric that we have for the commercial business because we have much better visibility into that. And you saw the numbers in the script. The Deployment Solutions backlog is up over 24%. But it really matters the complexion of that backlog and that backlog is very much moving into a different kind of group of folks, right? So field teams are moving to be not just sales reps anymore. We've had this conversation before. They're hybridized. We're seeing nice growth in the med affairs, the MSL space, in reimbursement. And so the fact that Deployment Solutions isn't a CSO, we've been saying this for a while, it's not a CSO and I think that that's a big part of the success that we're going to continue to see moving forward. So hopefully, that gives you a little more color.

[John Kreger, William Blair]

It does. And just one quick follow-up. So given all the success that you're seeing, what are you guys currently thinking about the ability to drive margins up in the coming one or two years?

[Michelle Keefe, President of Commercial Solutions]

So I think I'll hand that over to Jason.

[Jason Meggs, Chief Financial Officer]

Yes. So you'll see in the numbers that commercial had a good move in margin sequentially during quarter three and we anticipate that we'll continue to see that as the business grows. When you look at moving into smaller teams away from your traditional reps in the Deployment Solutions side of things which is still the largest component of the segment, those are higher-margin opportunities that we see and that will continue to come through over time. And then as we get Syneos One assets in there as well as the full-service commercial launches that Michelle's team wins stand-alone but it's across services, it's multiservice, those will tend to be higher margin over time as well. You can have certain points in time whereby you might stand up a traditional team where it could be good growth, a little bit of a margin headwind but then over time, it's all going to come back around as well.

So, we see the opportunity to continue to grow margins there and they're also a key contributor to ForwardBound, our program around optimizing our operating model on a global basis and getting everything we can more efficient, whether it's via automation or using lower-cost resources. So we see an excellent opportunity and then they also finally get good SG&A leverage out of that business.

[John Kreger, William Blair]

Sounds great. Thank you.

[Operator]

Our next question comes from Donald Hooker with KeyBanc Capital Markets. Your line is open.

[Donald Hooker, KeyBanc Capital Markets]

Great, good morning. I was intrigued by, I guess, Alistair, you had mentioned you threw out a metric that was intriguing, that 50% or something. I think you mentioned 50%, one of the earlier questions of small SMID biopharma sponsors are taking the product all the way to commercial. Is that a reference to your own Syneos One portfolio? Or is that a sort of an industry metric? And can you maybe elaborate on what you're seeing there?

[Alistair Macdonald, Chief Executive Officer]

Yes. I think -- yes, it's a good question, Don. Thanks. I think the Syneos One portfolio is -- other than three or four of the assets is actually all SMID. So for us, it's actually a higher percentage than 50%. So I mean what would that be four over 23. You guys are the math guys, you work that out. But I think the 50% reference is the actual marketplace, Don. So if you look at those products coming through, over 50% of the products launched this year are outside the top 50. So for us targeting those customers in the SMID who are hanging on to their assets longer, they are resisting the temptation to sell them. They have taken them to the market, specialty medicines, personalized medicines. And I think the Syneos One platform, the way that we think about product life cycle delivery through clinical, through med affairs, through all the planning and then the full execution of the commercial strategy, whether we're building a team to somebody else or we're delivering it completely is where the market is moving to. And that's kind of what we built five years -- was it five years, four years ago. And I think we, at the time, said we were going to put something together that would be where the puck was going and I think the puck is approaching us. So I'm very pleased with where we put the organization in that sense and the fact that we've had the time to build and learn how to deliver it and that's all starting to come through.

I think it's a good validation of the model that we've -- Michelle is on stage out in Utah launching the first product that we've pulled all the way through that model. So it's a good validation of the proof of concept that we had. And now we have a line of products that are moving through that as well. So yes, I think the markets where we predicted kind of it would be, with the access to capital and people determined to put their own products on the market and then go develop the next one and that positions us very well.

[Donald Hooker, KeyBanc Capital Markets]

Interesting. And then, maybe one other more mundane financial question. In terms of the cash taxes, I think it looked like it's actually going to be even lower this year. So you guys are burning through some NOLs. When are those NOLs going to expire and you're going to get a more normalized cash tax rate at this point?

[Jason Meggs, Chief Financial Officer]

Yes Don, it's Jason. So we've been working on that and looking at how we can maximize and optimize and think it's probably going to push out into 2023 in terms of when we'll use the final component of the NOLs. However, as we move forward into '22, cash taxes will go up. It's just I don't think we'll burn through all the NOLs until 2023.

[Donald Hooker, KeyBanc Capital Markets]

Okay, thank you so much. Have a good day.

[Operator]

Our next question comes from Elizabeth Anderson with Evercore.

[Elizabeth Anderson, Evercore ISI]

Hi guys, thanks so much for the question. I know you talked about a little bit about the percentage of the '22 margin outlook. I was just wondering if you could specifically comment on the hiring environment and wages and sort of what you're seeing in there vis-à-vis what we're just hearing in the news about sort of broader inflation trends in wages and then also specifically about the competitive environment given all the changes at some of your peers.

[Alistair Macdonald, Chief Executive Officer]

Okay. We'll unpack that a little bit. Yes. The demand environment is strong, right? And I think it all starts there. So you have the COVID bubble that's passing through. It's still there but it's starting to ease a little bit. I think we have seen an easing in the demand environment, in the hiring environment a little bit because of that as well. So I think we're an attractive organization that people want to come and work for. We've got a different model. It's about product life cycle delivery and people are engaged by that and we hear that a lot. We've got a good culture. People are engaged by that and we hear that a lot. I think we had something like 500 people at the last count that I remember, who left the organization and have come back pretty much instantly which is also great. That shows that the grass is not always greener. There's been some disruption in the market that's driven people into that space. But it is -- we are seeing inflationary pressures on costs, particularly, I think, in a few areas.

And then there's unusual hotspots, oncology, some areas of Asia, some of the communications positions, etcetera. I think we've managed to add, if I remember the last count, it's about 3,000 incremental heads through the year. So we're keeping up with the demand that we need to and be able to deliver. But yes, that cost comes through. Now we have the ability to go back to customers and pass that through in probably the majority of contracts. We get the inflationary reviews. And obviously, a big part of our inflation is the cost of the personnel we're bringing in. Now with the ForwardBound efforts and the Syneos operations network that we have, we're able to take some of those tasks off of people and move them to lower-cost jurisdictions, we're able to handle the price pressure a little bit by that as we defer that out.

So there's a multitude of strategies that we've got going on always and it's not just us, right? I think all the other CROs do the same thing, all the other service businesses do the same thing where we're shifting costs to lower levels and we're shifting costs to lower-cost countries.

Any thoughts, Jason?

[Jason Meggs, Chief Financial Officer]

Yes. I would just say, as we look forward, I would say the Syneos operations network has been a real success for us. We will continue to maximize that right across both businesses as well as the G&A side of things and even in certain selling side of things where we can. But probably the single biggest opportunity for us as we think about '22 and beyond is going to be automation and just simplifying things and getting more efficient within the organization to be able to scale. So we're very focused on that. We're getting more and more focused on that and that will just help us as we move into '22 and beyond.

[Elizabeth Anderson, Evercore ISI]

Got it, that's super helpful. And then with some of the acquisitions that you just announced, like StudyKIK and the RxDataScience, etcetera, how long is sort of the integration process for some of those assets in terms of being able to plug them into your current portfolio?

[Alistair Macdonald, Chief Executive Officer]

Yes. That's a good question. And we've worked with StudyKIK for several years. So the processes and the engagement, particularly across the sell side of our business is pretty much there already. I think there are several use cases that we are looking at where we can also attach other bits of technology that we have, PatientGO, SourceGO, some of the connectivity that we have around concierge services that will need to be connected together. So that will take, what -- the actual connecting of those things is quite quick. But then obviously, rolling those out to customers and pushing those into the market takes a little bit of time. I think on the RxDataScience side, that's really -- we have a data science team. They're the people who built Kinetic and have driven that to success.

We'd say those two groups are coming together. That's in play right now. But RxDataScience do different things to what our traditional -- I don't think traditional is probably the right word for data science but anyway, what we've done in data science in the past, where RxDataScience is going out and working with customers individually on really complex, large data questions that they have. I mean some of the work that Rx have done, I look at it and almost -- it was just like, wow, this is very cool stuff. But using their capabilities, using their platform to just handle insanely difficult questions and be able to -- I mean some of the work they've done, being able to put people, get label extensions from just looking at massive data sets and identifying where products could be used without running further trials.

So for us, that adds a lot of value to our model because we're able to step into a new arena, we're able to do that with an incredibly high reputation company that just has a different service line. Now we've got to train the BD guys to get that in the door and who the customers are and that kind of thing. And Paul, Michael, Michelle, the rest of the team are working on that because it's something we can apply right across clinical and commercial. So we're very excited about that. But it will take some time. It will take some time for us to optimize it in the way that we deliver it to customers.

[Elizabeth Anderson, Evercore ISI]

That makes sense. Thank you.

[Operator]

Our next question comes from Luke Sergott with Barclays.

[Luke Sergott, Barclays]

Hey guys, Thank you for taking my question. So you guys didn't do a buyback in the quarter. Can you give us an update on the capital allocation priorities and if the M&A is starting to become a bigger part of your story? Just thinking out over the next like 6 to 12 months.

[Alistair Macdonald, Chief Executive Officer]

Yes. So priorities are the same as before. We're looking to continue to pay down debt, get the leverage down, where I think we believe the target that we started out to hit. So we're happy to keep bringing that down. When we look at M&A, when we look at continuing in this pattern of tuck-ins that we've been doing, it's about differentiation. StudyKIK, RxDataScience, Synteract, we did Illingworth, again, looking at how we invest around the patient, how we invest around new services that bring us new entry points into customers and that's what we continue to do. And then we've done all the buybacks that we have planned to do this year.

So Jason, any thoughts?

[Jason Meggs, Chief Financial Officer]

Well, just to put a finer point on it, I mean, debt paydown delevering. I mentioned it will be a bit higher than we -- than the three to 3.5x at the end of the year but still focused on being below 4x. Then yes, I mean, M&A is something that's always been in our mind, a second priority and tuck-ins and that's what you see coming through. But as we move into next year, we'll continue to look at those share repurchases to prevent dilution. We've just already done that through the first half of this year.

[Luke Sergott, Barclays]

All right, that's fine. And then lastly, I mean, with all the recent COVID and vaccine work that you guys have been winning, that seems to be picking up. Can you give us a sense of the reimbursables contribution in the quarter? And then on your '22 outlook where you guys raised it, how much of that, if at all, was due to higher reimbursable?

[Jason Meggs, Chief Financial Officer]

Yes. So during the quarter, we did see that our vaccine trial -- well, I guess let me back up. So the majority of our trials in clinical are normal sort of burn rate and mix between reimbursable expenses and directs given their therapeutics. But we did have the one large vaccine trial that we've been talking about that ramped during quarter two and quarter three, where it did have that normal multiples, higher reimbursable expenses than directs. And that is starting to come down, right? We've ramped that and it's going to start coming down. Not a hard landing but it's going to come down into quarter four and into 2022.

When you look at the 2022 update to the guidance, as I mentioned in the prepared remarks, there is some relative increase on the reimbursable expenses that puts a little pressure on margin. But nothing too significant and that's how we're still going to be able to get to 30 to 50 basis points of margin accretion out of the year.

[Operator]

And there are no further questions. I'd like to turn the call back over to Alistair Macdonald for closing remarks.

[Alistair Macdonald, Chief Executive Officer]

Thank you. Again, our sincere thanks to the entire Syneos team for all they do to continue to manage through challenging circumstances while delivering for our customers. We remain confident in our market positioning and look forward to continued strong growth and profitability, particularly in 2022 and beyond.

Thanks for your attendance today and thank you for your interest and investment in our organization. Please be safe. Have a great day and be good. Thank you.

[Operator]

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