IQVIA Holdings Inc. Q2 2026 Earnings Call

Good morning, everyone. Thank you for joining our second quarter 2026 earnings call. With me today are Ari Bousbib, Chairman and Chief Executive Officer. Mike Fedock, Executive Vice President and Chief Financial Officer. Eric Sherbet, Executive Vice President and General Counsel. Clarissa Willett, Senior Vice President, Financial Planning and Analysis, and Katie Ward, Vice President, Investor Relations. Today, we'll be referencing a presentation that will be visible during the call for those of you on our webcast. This presentation will also be available following this call in the Events and Presentation section of our IQVIA Investor Relations website at ir.iqvia.com. Before we begin, I'd like to caution listeners that certain information discussed by management during this conference call will include forward-looking statements.

Actual results could differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company's business, which are discussed in the company's filings with the Securities and Exchange Commission, including our annual report on Form 10-K and subsequent SEC filings. In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in the press release and conference call presentation. As previously disclosed, we implemented a new segment reporting structure effective January 1, 2026. In conjunction with this change, prior period segment amounts have been recast to conform to this reporting structure. I would now like to turn the call over to our Chairman and CEO, Ari Bousbib.

Thank you, Kerri, and good morning, everyone. Thank you for joining us today to discuss our second quarter results. IQVIA delivered an outstanding second quarter with revenue, adjusted EBITDA, and adjusted diluted earnings per share, all exceeding the high end of our guidance. Importantly, the momentum we saw in the first quarter continued with improving market conditions and strong operational execution. Organic growth for the company as a whole accelerated to 6% year-over-year, which is three times the rate we delivered a year ago. Adjusted EBITDA margin began improving earlier than we had anticipated due to better operational performance. Let's look at the results for the quarter. Total revenue for the second quarter exceeded the high end of our guidance range, representing year-over-year growth of 8.7% on a reported basis, with FX much less of a tailwind than we had anticipated.

At constant currency, growth was very strong at 8.5%. Second quarter adjusted EBITDA was above the high end of our guidance as well, representing year-over-year growth of 9.2%. Second quarter adjusted diluted EPS of $3.15 also exceeded the high end of our guidance range and increased 12.1% year-over-year. The beat was driven entirely by strong operational performance. Let's discuss the results by segment. On the clinical side, R&DS delivered great results with revenue growth of nearly 9% and organically 7%. We had $3,150,000,000 in net new bookings, representing 19% growth year-over-year and 27% growth sequentially, with notable strength in full service bookings translating into a quarterly book-to-bill ratio of 1.22. If I may add, this 1.22 was in a quarter where our revenue was up almost 9% year-over-year, stronger than anticipated.

I want to point out that the improvement in bookings is not just from this quarter alone. As you know, I always remind you that we are a long-cycle business and it's more meaningful to look at trends over longer time periods. If you look at our last 12-month net new bookings, they have increased in each of the past four quarters. With $11.3 billion of last 12-month net new bookings as of June 30th, they are up 13% year-over-year. What these metrics point to is a consistently improving demand environment as well as improving win rates for our R&DS business. On the commercial side, organic revenue growth accelerated year-over-year to 5%, which is more than a full point higher organic growth than a year ago. This as clients launched newly approved products and expanded the breadth of services they utilize from IQVIA.

Notably, analytics and consulting grew organically high single digits year-over-year, the highest growth rate since 2022. Commercial engagement services and patient solutions both continued to grow double digits year-over-year, and our AI offerings gained further traction with increased customer adoption. With three consecutive quarters of strong, sustained, and improving results, and pipelines that remain at record levels, there is clear momentum in Commercial Solutions. Let me now give you a little more color on what we are seeing in the market environment. Let's start with forward-looking demand metrics in the clinical environment. RFP flow growth remains strong, with double-digit growth both year-over-year and sequentially, with improvements across all client segments. Decision timelines continue to shorten, and EBP funding continues to be very strong with the second quarter at $35 billion according to BioWorld, which is more than double the Q2 2025 number.

I want to elaborate on this EBP segment. In response to investor feedback and in reviewing publicly available information, we are taking the opportunity to update our own classification of customer segments to help you better benchmark IQVIA to our CRO peers. From now on, we are going to define large pharma by the top 20 companies by RX sales. Mid-size companies will be the next 60 pharma companies by RX sales. EBPs, everyone else. I want to give you the breakdown of R&DS revenue by customer segments as I just defined them. Large pharma represents approximately 50% of our R&DS revenue. Mid-size approximately 15%, one-five, of our R&DS revenue. EBP represents 35% of our R&DS revenue. I guess you can see that based on publicly available information, it is apparent that we have more revenue in the EBP segment than any of our CRO peers.

This is extremely important because emerging biopharma continues to be where much of the industry's innovation is coming from. A decade ago, EBPs represented about 45% of all clinical trial starts globally. Today, EBPs represent about 70% of all clinical trial starts globally. EBP R&D spend is also expected to grow at two to three times the rate of large pharma R&D spend. Of course, EBP trials are full-service outsourcing. All of this creates a meaningful opportunity for IQVIA, given we are the largest EBP provider. At the same time, large pharma continues to be a significant segment for us. In fact, we are benefiting from the strategic outsourcing partnership renewals by large pharma over the past two years, which we've been discussing several times in the past. We, as you know, have significantly expanded the number and the scope of our preferred partnerships.

As a result, we have seen our win rate with large pharma improve materially, leading to an expansion of our share of wallet with those partnerships. In several cases, replacing large CRO incumbent providers. Shifting now to Commercial Solutions. The market environment continues to improve, supported by a nearly 45% increase in new drug launches in the first half of 2026, versus the first half of 2025. As you know, this is important because launch activity is a significant driver of demand across our commercial portfolio, with roughly half of launch-related spending typically occurring in the first two years post-approval. Additionally, as we shared before, there is an increasing trend from our large pharma customers seeking to outsource the full commercialization of certain therapies in select geographies.

Given our global footprint and spectrum of capabilities across information, insights, and engagement, we have been winning a fair share of these opportunities. I want to take a moment to again remind you how to think about our Commercial Solutions business, especially in the era of AI. We help our clients in three main areas. One, understand their market. Two, plan their commercial strategies. Three, engage with their own customers. One, we help our clients understand the landscape, primarily through our information offering. Our information business represents about 30% of our Commercial Solutions segment, and revenue typically grows at low single digits. Two, we help our customers plan their commercial strategies primarily through insights from our analytics and consulting business. This business represents about 20% of our Commercial Solutions business, and it grows mid to high single digits.

Three, we help our customers engage with their own customers, that is, healthcare providers, distribution channels, patients, and payers. We do this through our patient solutions technology and commercial engagement services. That, in aggregate, is about 50% of our Commercial Solutions business and grows at high single digit to low double digits. We've continued to see increased demand for these services across the board, as is evident in our own commercial demand indicators. The pipeline continues to grow strong double digits year to date. Decision timelines continue to reduce double digits. Of course, we are also winning more, with win rates up double digits. When we think about future trends across both of our segments, clinical and commercial, we see the outsourcing market continuing to grow in 2027 and the years ahead.

In fact, we think AI will continue to contribute to this market expansion and will continue to fuel a strong tailwind for IQVIA. On the clinical side, clients are already telling us that AI in discovery will only increase demand for CRO services as more molecules with a higher predictable success are entering development. Additionally, IQVIA's leading AI solutions are further differentiating our clinical offerings and deepening our partnerships across all customer segments, large, mid, and EBP. Our AI-enabled capabilities, which as you know, we've been working on, training on, and refining for at least two years, are already improving study design, accelerating timelines, and reducing operational risk across complex global trials. Let me give you an example of how this is playing out with large pharma. One of our longstanding customers recently expanded its partnership with IQVIA to include our full-service clinical capabilities.

That expansion led to an end-to-end award for large, complex phase III stroke outcomes study. This client specifically told us that our AI-enabled capabilities in site start-up and enrollment, along with our therapeutic expertise and global execution model, clinched the deal because it will help manage risk and run these studies with greater predictability. In another example, an EBP awarded IQVIA a complex global phase III oncology study across multiple treatment arms. We won here because AI-enabled patient recruitment will help keep a complex study moving at higher speed with much better predictability. Another EBP selected IQVIA for a series of global autoimmune programs that bring together clinical, laboratory, and technology-enabled patient and remote solutions. Here, our AI-enabled patient-reported outcome capabilities made the difference because they help support patient retention, protocol compliance, and higher quality outcomes.

In commercial, we are seeing AI begin to contribute more directly to top-line growth as clients are moving beyond pilots and data foundation work. They're starting to deploy IQVIA AI agents more broadly. Let me give you an example of what that looks like in practice. A mid-size pharma client is expanding its use of IQVIA AI across an immunology franchise in 95 countries. We are combining our global syndicated pharmaceutical market data with our launch planning conversational AI agent to give the client an integrated view of market dynamics and help teams get to actionable insights in near real time. Again, the benefit here is speed, precision, and accuracy. Another example in commercial. We are working with a top five large pharma to deliver a complete AI-enabled enterprise analytics solution that seamlessly brings together data technology and advisory support.

This will deliver customized workflows that accelerate decision-making and improve quality and accuracy. Beyond these broad and deep relationships with our customers, governments and regulatory authorities around the world look to IQVIA for trusted healthcare expertise and insights. Recently, IQVIA was the only CRO invited to provide our perspective on clinical trial innovation at the clinical trials roundtable with the U.S. Department of Health and Human Services as part of their Operation Trailblazer initiative. We were subsequently invited to testify at the hearing of the House Energy and Commerce Subcommittee on Health regarding the FDA's role in creating a more efficient and accelerated path for early clinical development in the United States. We were the only CRO. Also, by the way, the only representative from the biopharma industry, to testify.

We are proud of the trust policymakers place in our leading expertise as they consider reforms to accelerate development timelines, modernize trials using AI, and strengthening U.S. competitiveness in biomedical innovation. Finally, I'd like you all to mark your calendars for the upcoming IQVIA Investor Day, which we are planning for December 2nd, 2026. Now to Mike for more details on our financial performance.

Thanks, Ari. Good morning, everyone. As a reminder, we implemented a new segment reporting structure effective January 1, 2026. In conjunction with this change, prior period segment amounts have been recast to conform to this reporting structure. Let's start by reviewing revenue. Second quarter revenue of $4.368 billion grew 8.7% on a reported basis and 8.5% at constant currency. Revenue growth within the quarter includes about two and a half points of contribution from acquisitions. Commercial Solutions revenue for the second quarter was $1.793 billion, up 8.6% on a reported basis and 8.4% at constant currency. R&D Solutions second quarter revenue was $2.575 billion, up 8.8% on a reported basis and 8.6% at constant currency. For the first half of the year, total company revenue was $8.519 billion, up 8.6% on a reported basis and 7.3% at constant currency. Commercial Solutions revenue was $3.547 billion, up 10.1% reported and 8.5% at constant currency.

R&D Solutions revenue was $4.972 billion, up 7.5% on a reported basis and 6.4% at constant currency. Moving down to P&L. Second quarter adjusted EBITDA was $994 million, representing growth of 9.2% year-over-year, while first half adjusted EBITDA was $1.926 billion. Second quarter GAAP net income was $256 million, and GAAP diluted earnings per share was $1.53. For the first half, GAAP net income was $530 million, or $3.14 of earnings per diluted share. Second quarter adjusted net income was $527 million, and adjusted diluted earnings per share was $3.15, representing growth of 12.1% year-over-year. For the first half, adjusted net income was $1.019 billion, or $6.04 per diluted share, up 9.8%. Turning to R&D Solutions. The R&D Solutions net new bookings in the quarter were $3.15 billion, a 19.3% increase year-over-year, resulting in a 1.22 book-to-bill, which, as Ari mentioned, is all the more impressive given revenue grew 9%.

I should also note that cancellations remained within the historical range. As of June 30th, R&D's backlog was $34.2 billion, and the next 12 months revenue from this backlog was $9.23 billion, which is up 7.5% versus last year. As discussed, given the long cycle nature of our business, it's more important to focus on the longer-term booking trends. In the quarter, the last 12 months net new bookings were $11.25 billion, an increase of 12.9% year-over-year. Importantly, this metric has been steadily increasing in each of the past four quarters and clearly points to momentum in our business. Let's turn to the balance sheet.

As of June 30th, cash and cash equivalents was $1.909 billion. Gross debt was $15.999 billion, resulting in net debt of $14.09 billion. Our net leverage ratio ended the quarter at 3.59 times trailing 12 months adjusted EBITDA. Second quarter cash flow from operations was $558 million, and capital expenditures were $198 million, resulting in free cash flow of $360 million, representing growth of 23% year-over-year. In the quarter, we repurchased $398 million of our shares, resulting in first half share repurchases of $950 million. This leaves us with approximately $2.8 billion of share repurchase authorization remaining under the current program. Let's turn to guidance. To reflect stronger organic revenue growth changes in the M&A and foreign exchange impacts. We are raising our full-year 2026 guidance for revenue, for adjusted EBITDA, and for adjusted diluted earnings per share.

We now expect revenue to be between $17.275 billion and $17.475 billion, representing year-over-year growth of 5.9%-7.1%. The new midpoint of the revenue growth guidance is 6.5%, versus the prior guidance midpoint of 5.8%. This new guidance includes approximately 100 basis points higher organic revenue growth and approximately 50 basis point higher contribution from M&A, offset by a foreign exchange impact that is 80 basis points less of a tailwind than in the former guidance. This revenue guidance now assumes approximately 200 basis points of contribution from acquisitions and only approximately 20 basis points of a tailwind from foreign exchange. We are also raising our adjusted EBITDA to be between $4 billion and $4.05 billion, growing 5.6%-6.9% year-over-year, reconfirming flat margins year-over-year at approximately 23.2%.

Finally, we are also raising adjusted diluted EPS to be between $12.80 and $13 up 7.4%-9.1% versus prior year, or 8.2% at the midpoint. Let me provide our third quarter guidance. For the third quarter, we expect revenue to be between $4.315 billion and $4.390 billion, which represents year-over-year growth 5.2%-7.1%. Adjusted EBITDA is expected to be between $1 billion and $1.02 billion, representing growth of 5.4%-7.5% versus prior year. Adjusted diluted EPS is expected to be between $3.19 and $3.29, which represents year-over-year growth of 6.3%-9.7%. Both this guidance and the full year guidance assume that foreign currency rates as of July 27th continue for the balance of the year. To summarize, IQVIA delivered outstanding financial results with second quarter revenue, adjusted EBITDA, and adjusted diluted EPS exceeding the high end of our guidance.

We accelerated organic revenue growth across both commercial and clinical segments. We delivered strong adjusted EBITDA margins in the quarter. We had strong free cash flow performance, up 23% year-over-year. The R&DS net new bookings were the highest since 2022 at $3.15 billion, growing double digits year-over-year and sequentially with very strong full service bookings. As Ari mentioned, the demand environment for both clinical and commercial has significantly improved, as reflected in our forward-looking demand indicators. We've raised our full year guidance for revenue, adjusted EBITDA, and adjusted diluted earnings per share, and we are planning a December 2nd investor day where we look forward to seeing you. With that said, let me hand it back to the operator for Q&A.

Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then 1 on your telephone keypad. We request that you please limit yourself to just one question so that others in the queue may participate as well. We'll pause for a moment to compile the Q&A roster. Your first question comes from the line of Eric Coldwell with Baird. Your line is open. Please go ahead.

Thanks very much. Almost feel like you ought to end the call now. That was a pretty positive update. We can only go south, I think. Last quarter you had some added disclosures around the bookings profile that I think helped people understand the dynamics and what was optically a lower net book-to-bill. This quarter, you're obviously putting up a bigger book-to-bill against a strong revenue growth rate. I do have to ask, were there any chunky awards or are there call-outs within those bookings? And you did mention FSO was very strong. What about FSP awards? What about pass-through mix in the awards? Any other notable call-outs that you'd like to share with us? Thanks very much. Well, good morning, Eric, and thanks again for your kind words.

Actually, you had a good call in your notes a few weeks ago. We had indeed a great quarter. I have to tell you, in over 25 years of reporting earnings in this or other companies, I've never had as clean a quarter as this one all around. I must tell you, there is absolutely nothing salient, unusual, abnormal, odd, awkward in our numbers anywhere. With respect to the question on the bookings per se, there were strength literally across the board. Nothing unusual. Pass-throughs were in the normal range. Cancellations were in the normal range. Good mix of large, mid, EBP. FSO was very strong, but again, similar to what it was before all the multiple crises erupted over the past two, three, four years.

Really good, strong outsourcing continuing from large pharma. Good EBP bookings. Again, strong around FSP. You asked specifically, low to mid double digits, kind of as usual.

Yeah. Percentage of total, Mike.

I mean, really Nothing to call out there Nothing to call.

I mean, it's a fair question because the numbers are so good everywhere. I have to tell you, in preparing for the call, we looked and said, "Well, is there anything we could point to?" There is nothing unusual. All very strong. Mike, anything else?

No, I was just going to add that the therapeutic mix and all that stuff Yes is in line with the trends.

Great job, guys. I'll leave it there.

Thanks, Eric. Thank you. Your next question comes from the line of Justin Bowers with Deutsche Bank.

Your line is open. Please go ahead.

Hi. Good morning, everyone. Ari, in your prepared remarks, you talked about outsourcing penetration potentially increasing over the interim. Is that comment broad-based, more focused on some of the conversations you've been having with your large and mid-size pharma customers? Just any more color there would be helpful.

Sure. Thank you. Okay. As you know, the EBP segment is 100% outsourced, by definition. Again, as I want to reiterate, we are the largest CRO provider to the EBP segment. I think it's very clear from the numbers now. That clearly is all outsourcing. Mid-size, pretty much similar, except for some of the larger ones that some of themselves are a little bit of FSP. Large pharma is really where you've had that debate, insourcing, outsourcing, et cetera. Look, I will tell you that large pharma clients are already telling us that because of the increasing expensive use of AI. By the way, use of AI by large pharma is not starting on July 28th with a press release. It's been going on for more than two or three years. Okay? The use of AI in discovery will only increase demand for CRO services.

Our clients are actually telling us and asking us to gear up capacity as additional molecule will enter development. Some of our large pharma clients are predicting they will double their study portfolio, and so they're asking us literally to add thousands of FTEs in anticipation of those studies. The additional demand with CROs is simply because, again, the dynamics of outsourcing remain the same. Some of these new molecules that are identified through use of AI are in adjacent therapies where the client may not have all the therapeutic expertise. The additional capacity required, no one is interested in adding more headcounts for specific trials. It's always more cost-effective to use a CRO. Then the global footprint helps.

The domain expertise, the regulatory and medical knowledge for study design, the site relationships and the network, the broad therapeutic coverage, the expensive data to land on the best design and successfully recruit more specialized patient populations, all of that lends itself to more outsourcing. The current outsourcing for large pharma will continue to increase as we look at our conversation with our clients and we model it out.

Thank you. That's it for me.

Your next question comes from the line of Michael Ryskin with Bank of America. Your line is open. Please go ahead.

Great. Thanks for taking the question. I kind of want to follow up on just the last one. Thinking about your future investment and your future opportunities there. Like you said, you have been talking about AI for a number of years now. You've talked up some of the benefits you're seeing from the solutions you developed internally. There's clearly some opportunity to partner externally or maybe do some M&A. There was a deal in the space maybe a week or two ago. Could you just talk about how you see the development of those solutions over time and where you're putting the incremental dollars? Thanks. Well, look, again, it's not news for us.

We've been doing this for some time. The idea of inserting intelligence in the design and performance of clinical trials to accelerate outcomes and improve outcomes is really what prompted our merger 10 years ago. Now, of course, with the advent of frontier models, et cetera, this has just been accelerating over the past two, three years. Just to step back, in terms of investments and where we continue to focus. As context, I've said this before, but I think it's worth repeating. There are at least three necessary requirements to effectively deploy AI models in our industry. Number one You need proprietary expert content that is globally sourced, de-identified, curated, fit for purpose, integrated, interoperable, and ready for extraction. That's proprietary healthcare data, and we've got that.

Again, it has to meet interoperability, relevance, completeness, traceability, reliability, and linkability standards under countless ontologies at a scale that has no comparison to any other industry. This is why our clients trust us to work with them on their AI journey. Actually, we recently read a quote. You might want to look at the book, if you haven't already, called "Empire of AI." The author says there, "Acquiring training data has turned into one of the most difficult, expensive, and legally fraught activities a frontier lab undertakes." There's a phrase going around now that the web is empty because the frontier AI models essentially are close to exhausting everything that's out there. You got to turn now to proprietary data. Again, we've got that, and that's where we are continuing to invest.

Number two, you need deep domain knowledge to read, understand, and interpret these highly complex data sets in their proper context. Of course, we've got that too. Number three, you need to operate within the significant regulatory compliance and privacy frameworks that healthcare requires. They vary across countries and geographies. Of course, we've got that expertise too. Our own agentic roadmap has continued to make great progress. In fact, we now have 294 agents deployed across 90 use cases. I want to remind you, an agent is not one model. An agent is built of multiple tasks that are all powered by different models. We work with every single AI company out there in this country and overseas. You build that. We've been building that with the help of NVIDIA very successfully.

In fact, many of our large pharma clients are recognizing all of this and the limits of AI frontier models. Instead, they are partnering with us to develop their AI roadmaps. Four of the top 10 pharma companies have already contracted with us to co-develop AI solutions, and 19 of the top 20 pharma companies have already deployed IQVIA AI solutions in their workflow. This has been and continues to be a priority area for investment and continues. We are seeing it in our win rates. Clearly differentiates us from the rest of the pack. We've been displacing incumbents in deal after deal, including large CROs. Thank you. Thank you. Your next question comes from the line of Michael Cherny with Leerink Partners.

Your line is open. Please go ahead.

Hey, guys. Thanks for taking the question. Maybe to build on that last comment, Ari, you had regarding displacing other CROs and competitive processes, can you give us a little flavor of what that looks like? When you go into these competitive RFPs or competitive displacements, what is the discussion looking like on price versus capabilities versus technology and AI functionality? If you can break those down to those three buckets. Thanks. Yeah. Thanks for your question, Michael.

We've shared before that large pharma, literally every single one of the top 20, went through a very significant process to renegotiate all of their partnerships. They opened up all of their preferred relationships. That process occurred over the 2024, 2025 time frame. We stated before that we were very happy with the outcome of those renegotiations. We both increased the number and the scope of those relationships. So when there is a specific RFP within the context of those partnerships, a large pharma typically invites the two or three partners that they have selected in that prior process. By the way, the rates have been typically negotiated during those relationships.

Yeah, I would say it's less on price on a specific RFP and more on delivery timelines, capabilities, technology, site networks, relationships, experience with that particular therapeutic area, the skill sets of the individuals involved, et cetera, and of course, our AI capabilities. Thank you. Your next question comes from the line of David Windley with Jefferies.

Your line is open. Please go ahead.

Hi. Good morning. Thanks for taking my question. I wanted to ask a clarification and then more of a content question. The clarification, I think, Mike, you quantified 2.5% of acquisition contribution. I was wondering if you could break that out between segments. Then Ari, you seem in the mood to talk about the expanse of the business. The company has kind of quietly started to build some discovery capabilities. You're talking a lot about AI. I wondered if you might expand the discussion to talk about what your thoughts are in investing in and building out capabilities in the early part of the development in the supply chain, and how you see that folding into your broader strategy leading into your clinical capabilities. Is there an AI angle there as well? Thank you. Well, David, sounds like you've been listening in in our highly secretive strategy session.

I wish. We are. All I can say is that, yes, we are working on those things, and I can leave it at that.

Again, you would expect us to do that simply because we have great relationships with our clients, and we are expanding upwards and downwards the set of capabilities. You saw us buy discovery assets. In fact, we completed the acquisition of the Charles River assets in the quarter. I guess that was the first part of the question to you, Mike. You want to say a word? That's basically what normally, our acquisitions, we have guided to a point and a half for the year. Now that we did, and it's going to add, what, about $75 million, $80 million?

Yeah. To this year's revenue.

Yeah, and Dave, normally, the acquisition impact is usually about two-thirds Commercial, one-third R&DS. It's about the same. Yeah.

About the same for this quarter as well.

Okay. Thank you. Your next question comes from the line of Jailendra Singh with Truist Securities.

Your line is open. Please go ahead.

Thank you. Congrats on a strong quarter. I want to follow up on your comments around EBITDA margin improving faster than you had expected. Can you elaborate on that? What were some of the key operational drivers there? Related to that, have you started to see any benefit from any productivity-related investments from AI?

Sure, Jailendra. I'll take that one. Let me give you some color on our EBITDA margins. Yes, they expanded, as we noted, 10 basis points. As we've started to provide a little bit more color on the composition, our operational and productivity programs are going exceptionally well. We've said that AI is just another lever in that toolkit. That drove about 90 basis points of operational margin expansion in the quarter, then obviously we have non-operational items like FX that were about 80 basis points of drag.

FX, you mean- Excuse me.

FX had zero impact. Pass-throughs of 80 basis points of a drag.

Clearly, our operational productivity programs are delivering value.

Just for context, Jailendra, if you recall, in the first quarter, we reported that we generated 60 basis points of operational productivity improvements, now margins, but that was offset by 120 basis points of negative impact from the stronger pass-through growth as well as FX.

Correct. In this quarter, we had no FX, virtually negligible, but we still had pass-throughs growth, and those created a headwind of 80 basis points.

We generated 90 basis points of operational underlying margin improvement, and that led to that small, I guess, 10 basis points of adjusted EBITDA improvements.

It's also important to remember that we get leverage off of our fixed cost base as we have stronger revenues.

That's true. Got it. Thanks, guys.

Your next question comes from the line of Sean Dodge with BMO Capital Markets. Your line is open. Please go ahead.

Yeah, thanks. Good morning. Maybe just adding a little bit more dimension to what you just talked about with the margins and the guidance. Mike, I think you said 80 basis points of non-operational headwind EBITDA margins in the second quarter. If you could just help us understand how FX and pass-throughs are going to progress in terms of non-operational margin headwinds in Q3 and Q4. Thanks. Yeah. In the full year, I think that was the context of your question.

We were pretty explicit in our guide, but you really have to look at all the moving parts that are in there. Obviously, FX tailwind reducing helps our reported margins. We added in M&A, which is primarily Charles River, which as you know, has lower margins. Then we have our strong productivity programs that are delivering incremental EBITDA margin and value that are helping offset. When you put all that together, that's where we're maintaining our flat margins for the year.

Just to be clear, FX is not helping margins. Less of an FX impact eliminates the headwinds to margins that we had when we started the year. FX, as you know, has changed dramatically over the course of the quarter. The main headwind, non-operational headwind to margins is the pass-throughs, which as you know, come with no profit. Thank you. One more question.

Your last question will be from the line of Shlomo Rosenbaum with Stifel. Your line is open. Please go ahead.

Hi. Thank you for squeezing me in. Hey, Ari, I want to ask you something. I'm not sure how quantitatively you can answer, but maybe qualitatively. You talked about 100 basis points of better organic revenue growth in the guidance. I'm trying to understand the whole market is getting better. You said that the market environment is strengthening. Are you able to give us an idea of how much of your guidance raised on the organic side is just a rising tide lifting all boats versus the better execution and the win rates that you're having? If you could give us some color on how we should be thinking about this.

Look, I mean, you need a good market to be able to perform. As you know, we've been facing a lot of headwinds, macro headwinds over the past years. There's no question, I shared some of the forward-looking demand indicators, no questions that the RFP flows, which we report or indicate to you as every quarter, have been improving. I don't quite recall top of my mind the RFP flow growth in probably one or two quarters, which if you go back and look, I'm sure they were good, probably mid to high single digits. That kind of reflects itself now in our bookings. RFP flows were up double digits in the quarter, strong double digits, actually, and I think that bodes well for the future. Of course, it's not enough to get an RFP. You also have to win.

You're right, our win rate has been ticking up significantly on the back of all of the capabilities we talked about, and on the back of the fact that the EBP segment in particular has seen very strong funding growth. That usually translates six months to three quarters after the funding into awards. Again, given our strong position in the EBP segment, we've been winning a fair share. That has also contributed. Anything else, Mike, you want to add?

No, I think you're covered.

Yeah. Next question, please. Yeah, sure.

Yeah. Your next question comes from the line of Elizabeth Anderson with Evercore ISI.

Your line is open. Please go ahead.

Hi, guys. Congrats on the nice quarter, thanks so much for the question. If we think about the guidance, particularly the revenue increase, how would you sort of allocate that between the improving demand environment that you're seeing in R&DS and CS, anything to call out in sort of either interest expense or tax rate or anything that changed versus what you were saying last quarter? Thank you. I'm saying no significant changes on the below the line assumptions there.

Clearly, when you talk about R&DS, it's a long-cycle business, the great bookings that we've had are really more of a 2027 and beyond indicator. We've been getting a lot of questions about our current bookings.

Yeah. Well, again, I think I answered an earlier questions about bookings and the fact that they were really broad-based. Again, there was nothing salient. I think it was generally very strong. I just want to mention, recently, several of you asked about bookings and bookings policy in light of some other people changes to their bookings policies and so on. I just want to again emphasize that we continue to have contracted bookings. That is that all the bookings need a signature, and to take a cancellation, we also need a signature. We feel that the signature is an objective criteria and removes judgment. We think that we're going to stick with that best-in-class policy. I'm just giving you that as a context for your questions. That again, broad-based bookings or contracted bookings.

Many of you, by the way, also, we received several inquiries wondering if we also have 15% or 16% of our backlog that's inactive trials. We asked the R&DS team to go back. Obviously, in our backlog, $34 billion, we've got thousands and thousands of trials, as you can imagine, accumulating over the years. We asked the R&DS team to review the backlog to identify so-called inactive trials. Just want to make sure to reassure those of you who asked, and several of you asked, about the quality of the backlog. Mike, do you have any comments on that? I saw there were preliminary results about that.

Yeah. I think the team is looking at it, and we'll finalize it in the third quarter. If there is an adjustment to our backlog for inactive trials, it's in the ballpark of 5%. Not this 15% metric that was out there by a competitor. I think that it's important to note that if we do make an adjustment, it will have zero impact on any historical financial results, guidance, the next 12 months revenue from backlog averages recorded zero. Again, it's something that we're looking into, and if we do something, we will talk about it in our third quarter call.

To your question about what is important, because as we reported this time, very strong growth in next 12 months revenue from backlog.

Correct. As you know, it's at a record level.

What's the number? $92 billion.

Seven and a half percent.

That's been also increasing quarter-over-quarter. We want to draw your attention also to the net new bookings last 12 months, quarter-over-quarter. If you go back and look over the past five quarters, that metric has been constantly increasing in a regular, steady pace, year-over-year, it's up 12.9%. All of that bodes well to your question about our revenue going forwards, not just guidance for this year, but the momentum into next year.

Specifically this year, we're seeing the acceleration growth in both Commercial Solutions and R&DS segment, Elizabeth. We feel good about the guide.

Okay. Thank you all. Thank you.

At this time, Mr. Joseph, I turn the call back over to you.

Thank you, operator. Thank you, everyone for taking the time to join us today. We look forward to speaking with you again on third quarter 2026 earnings call. The team will be available the rest of the day to take any follow-up questions you might have. Thank you. Have a good day.

This concludes today's call. Thank you for attending.