IQVIA Holdings Inc. (IQV) Q2 2026 Earnings Report, Transcript and Summary

Good morning, everyone. Thank you for joining our second quarter 2026 earnings call. With me today are Ari Bousbib, Chairman and Chief Executive Officer, Michael J. 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 Kerri Joseph, Vice President, Investor Relations. Today, we will 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 Presentations section of our IQVIA Investor Relations website at ir.iqvia.com. Before we begin, I would 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, 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, 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&D has delivered great results with revenue growth of nearly 9% and organically, 7%. We had $3.15 billion 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. 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 is more meaningful to look at trends over longer time periods. And 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 30, 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 four-point higher organic growth than a year ago. And 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 3 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 And 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 EBT 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. Midsize companies will be the next 60 pharma companies by Rx sales and EBPs everyone else. I want to give you the breakdown of R&DS revenue by customer segment, As I just defined them. Large pharma represents approximately 50% of our R&DS revenue. Midsize approximately 15% of our R&DS revenue. And EBP represents 35% of our R&DS revenue. I guess you could 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. And 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. And, 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 have been discussing several times in the past. And 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. And 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 the 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. In addition, 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. And 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. And Three. Engage with their own customers. So one, we have our client 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. And three, we help our customers engage with their own customers that is healthcare providers, distribution channels, patients, and payers. And 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. Now we have continued to see increased demand for these services across the board. As is evident in our commercial demand indicators. The pipeline continues to grow strong double-digits year to date. Decision timelines continue to reduce double-digits. And, 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. And in fact, with AI, we 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, as you know, we have 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 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 startup and enrollment along with our therapeutic expertise and global execution model, clinch the deal because it will help manage risk and run these studies with greater predictability. In another example, an EBP awarded IQVIA complex global Phase III oncology study across multiple treatment arms. And 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 home 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 to more directly to top-line growth. As clients are moving beyond pilots and data foundation work, and they are starting to deploy IQVIA AI agents more broadly. Let me give you an example of what that looks like in practice. A midsized pharma client is expanding its use of an IQVIA AI 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's 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 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 and also by the way, the only representative from the biopharma industry to testify. We are proud of the trust policymakers placed in our leading expertise as they consider reforms to accelerate development timelines, modernize trials using AI, and strengthening U.S. competitiveness in biomedical innovation. And finally, I would like you all to mark your calendars for the upcoming IQVIA Investor Day. Which we are planning for December 2, 2026. And 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. Now 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 250 basis 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. Then moving down the 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. And for the first half, adjusted net income was $1.019 billion or $6.04 per diluted share, up 9.8%. Now turning to R&DS bookings. 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 already mentioned, is all the more impressive given revenue grew 9%. I should also note that cancellations remained within the historical range. As of June 30, our R&DS backlog was $34.2 billion and the next 12-month revenue from this backlog was $9.23 billion, which is up 7.5% versus last year. And as discussed, given the long-cycle nature of our business, it is more important to focus on the longer term booking trends. In the quarter, the last 12-month net new bookings were $11.25 billion, an increase of 12.9% year-over-year. And importantly, this metric has been steadily increasing in each of the past four quarters and clearly points to momentum in our business. So let's turn to the balance sheet. As of June 30, 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 3.59x trailing 12-month 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. And in the quarter, we repurchased $398 million of our shares, resulting in first half share repurchases of $950 million. And this leaves us with approximately $2.8 billion share repurchase authorization remaining under the current program. Now let's turn to guidance. To reflect stronger organic revenue growth and changes in 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% to 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 points 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% to 6.9% year-over-year, reconfirming flat margins year-over-year at approximately 23.2%. And finally, we are also raising adjusted diluted EPS to be between $12.80 and $13.00 up 7.4% to 9.1% versus prior year or 8.2% at the midpoint. Let me provide our third quarter guidance. For the third quarter, we expect revenues to be between $4.15 billion and $4.39 billion, which represents year-over-year growth of 5.2% to 7.1% Adjusted EBITDA is expected to be between $1 billion and $1.02 billion representing growth of 5.4% to 7.5%, versus prior year. And adjusted diluted EPS is expected to be between $3.19 and $3.29 which represents year-over-year growth of 6.3% to 9.7%. Both this guidance and the full year guidance assume that foreign currency rates as of July 27, 2026 continue for the balance of the year. So to summarize, IQVIA delivered outstanding financial results. The 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, 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 and $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 have raised our full year guidance for revenue, adjusted EBITDA, and adjusted diluted earnings per share, and we are planning a December 2 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 the number one 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 will 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 are ending the call now. That was pretty positive update. We can only go south, I think. So last quarter, you had some added disclosures around the bookings profile that helped I think, people understand the dynamics and what was optically a lower net book-to-bill. I am this quarter, you are obviously putting up a bigger book-to-bill against a strong revenue growth rate, But I do have to ask, were there any chunky awards or other 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 callouts that, that you would 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 note. Few weeks ago. We had indeed a great quarter. I have to tell you, in over 25 years of reporting earnings in these or other companies, I have never had as clean a quarter as this one. All around. I must tell you, there is absolutely nothing salient, unusual, abnormal, odd, untoward in our numbers. Anywhere. With respect to your question on the bookings on the bookings per se, there was 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, I mean, really, FSO was very strong, but, again, FSO back to what it was before all the multiple crisis erupted over the past 2, 3, 4 years. Really, good, strong outsourcing continuing from large pharma good EBP bookings, again, strong around FSP. You asked specifically you know, low to mid double-digits kind of as usual. Percentage of total, Mike. I mean, really not going to call it. There is nothing to call out. I mean, it is a fair question because the numbers are so good everywhere. I have to tell you, we look and say, what is there anything we can point to, and there is nothing unusual. All very strong. Mike, anything else?

I was just gonna add that the, you know, therapeutic mix and all that stuff is associated with the trends.

Great job, guys. I will leave it there. Thanks again.

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, I would outsourcing penetration potentially increasing over the interim. Is that comment broad based, more focused on some of the conversations you have been having with your large and midsized pharma customers just any more color there would be helpful.

Sure. Thank you. Okay. So as you know, the EBP segment is 100% outsourced. By definition. Again, as I wanna reiterate, we are the largest broad CRO provider to the EBP segment. Think it is very clear from the numbers now. So that clearly is all outsourcing. Midsized pretty much similar except for some of the larger ones that some of themselves and at least in large pharma is really where you have had that debate in sourcing, etcetera. Look. I was going to tell you that large pharma clients are already telling us that because of the extensive increasing extensive use of AI, And by the way, use of a hyper large pharma is not starting on July 28 with the press release. it has been going on for more than two or three years. Okay? So the use of AI in discovery will only increase demand for CRO services. And our clients are actually telling us and asking us to gear up capacity as additional molecules will enter development. Some of our large pharma clients you know, are predicting they will double their study portfolio And so they are asking us literally to ask thousands of FTEs in anticipation of those studies. So the additional demand with CROs is simply because again, the dynamics of outsourcing remain the same. Some of these new molecules are identified through use of AI, are in adjacent therapies where the client may not have all the therapeutic expertise. The additional capacity required, you know, no one is interested in adding more headcount for specific trials. it is always more cost effective to use a CRO. And then our global footprint helps you know, the domain expertise, the regulatory and internal knowledge, for study design, the site relationships, and the network to broad therapeutic coverage, the expansive data to land on the best design and successfully recruit more specialized patient populations, all of that, you know, lends itself to more outsourcing. So the current outsourcing for large pharma you know, will continue to increase as we look at our conversation with our clients and we model it out.

Thank you. that is 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 there, you know, you like you said, you have been talking about AI for a number of years now. You have talked up some of the benefits you are seeing from the solutions you developed internally. there is clearly just 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 are putting the incremental dollars? Thanks.

Well, I mean, look. We have. It is, again, not news. For us, we have been doing this for some time. The idea of inserting intelligence in 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 advantage of frontier models, etcetera, this has just been accelerating over the past two to three years. Just to step back in terms of investments and where we continue to focus at IQVIA. I have said this before, but I think it is 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 is proprietary healthcare data. And we have 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. And this is why our clients trust us to work with them on their AI journey. Actually, we recently read a quote from you might wanna look at the book, if you have not already, called Empire of AI. And the author says acquiring training data has turned into 1 of the most difficult expensive, and legally fraught activities a Frontier lab undertakes. there is a phrase going around now that the web is empty. Because the Frontier AI models essentially are close to exhausting everything that is out there. And so you gotta turn to the proprietary data. And, again, we have got that is what we are continuing to invest in. Number two, you need deep domain knowledge to read, interpret these highly complex datasets in the proper context And, of course, we have got that too. And number 3, you need to operate within the significant regulatory compliance and privacy frameworks that healthcare requires. And they vary across countries and geography, and, of course, we have got that expertise too. So our own agentic roadmap has continued to make great progress. In fact, we now have 294 agents deployed across 90 use cases. I wanna remind you an agent is not 1 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. And you build that. We have 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, and instead they are coordinating 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 solutions in their workflow. So 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 have been displacing incumbents, including the 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 had regarding displacing other CROs and competitive processes Can you give us a little flavor of what that looks like And 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. You know, we have 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 and that process occurred over the 24, 25 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 partner process and then the discussion, by the way, the rates have been typically negotiated during those relationships. So, yeah, I would say it is less on price on a specific RFP and more on delivery timelines capabilities, technologies, site networks, relationships, experience with that particular therapeutic area the skill sets of the individuals involved 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. So the clarification, I think, Mike, you quantified 2.5% of acquisition contribution I was wondering if you could break that out between segments. And 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 are 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 you know, supply chain and how you see that folding into your broader leading into your clinical capabilities? And is there an AI angle there as well? Thank you.

Well, David, it sounds like you have been in listening in on our, you know, highly secretive strategy session. I bet. All I can say all I can say is that, yes, we are working on those things, and you know, I kind of leave it at that. And, again, you would expect us to do that simply because we have great relationships with our clients and we are we are expanding you know, 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 address it.

So and that is basically with normal acquisitions we have guided to a point and a half for the year. But now that we did and it is gonna add what? About $75 million to $80 million? Yeah. Like, this year's revenue. Mhmm. Yeah. And, David, normally, our acquisition impact is usually about two-thirds commercial, one-third R&DS. it is about the same. Yeah. About the same for this quarter as well.

Thank you. Your next question comes from the line of Jailendra Singh with Truist Securities. Your line is open. Please go ahead.

Thank you, and 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 was in the key operational drivers there? And related to that, have you started to see any benefits from any productivity related investments from AI?

Sure, Jailendra. I will take that one. So let me give you some color on our EBITDA margins. Yes, they expanded, as we noted, 10 basis points And as we started to provide a little bit more color on the composition, our operational productivity programs are going exceptionally well. And we said that AI is just another lever in that toolkit. So that drove about 90 basis points of operational margin expansion in the quarter. And then obviously, we have nonoperational items like FX, that were about 80 basis points of drag. that is FX, and pass-throughs. Excuse me. Pass-throughs, that is zero impact of pass-throughs in past periods, an 80-basis-point of a drag. So clearly, operational productivity programs are delivering value.

Yeah. I mean, just for context, Jailendra, if you recall in the first quarter, we reported that we generated 60 bps of operational productivity improvements in our margins, but that was offset by 120 bps of negative impact from the stronger pass-through growth as well as FX. Correct. Now in this quarter, we had no FX virtually negligible but we still have pass-through growth. And those created a headwind of 80 bps. Now we generated 90 bps of operational underlying margin improvement. And that led to that small, I guess, 10 bps of improvement. Yeah.

And it is also important to remember that we get leverage off of our fixed cost base as we have stronger revenue. that is true.

Got it. Thanks.

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

Yes. 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 nonoperational headwinds EBITDA margins in the second quarter. If you could just kind of help us understand how FX and pass-throughs are going to kind of progress in terms of, like, nonoperational margin headwinds in Q3 and Q4? Thanks.

Yeah. So in the full year, I think that was the context of your of your question. I mean, we were pretty explicit in our guidance. You really have to look at all the moving parts that are in there. So 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. And then we have our strong productivity programs that are delivering incremental EBITDA margin and value that are helping offset. And we put all of that together, that is where we are maintaining our flat margins for the year.

Yeah. Just to be clear, FX is not helping margins. Less of an FX impact eliminates the headwinds to margin that we have. When we started the year. FX, as you know, has changed dramatically over the course of the quarter. The main headwind, nonoperational headwind to margins is the pass-throughs. As you know, came with 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 wanted to ask you something. I am not sure how you can answer, but maybe qualitatively. you can answer, but maybe qualitatively. You talked about 100 basis points of better organic revenue growth in the guidance. And I am trying to understand the whole market is getting better. You said that the environment market environment is strengthening. Are you able to kind of give us an idea of how much of your guidance raised on the organic side is you know, just a rising tide lifting all boats, versus the better execution and the win rates that you are having? And if could give us some color on how we should be thinking about this?

Well, look, I mean, you need a good market to be able to perform. As you know, we have been facing a lot of headwinds, micro headwinds, the past few years, but there is no question I shared with you some of the forward-looking demand indicators. No question that the, you know, RFP flows which we report or indicate to you at every quarter have been improving. I do not quite recall that on my mind, the RFP flow growth. It is probably one or two quarters, which if you go back and look, I am sure they were good probably mid- to high-single digits. And that kind of reflects itself now in our bookings. Now our RFP flows were up double-digits in the quarter, strong double-digits, actually. And I think that bodes well for the future. Now it is not enough to get an RFP, you also have to win. And so you are right. Our win rate has been picking 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, very strong funding growth, that usually translates, you know, six months to three years after the funding into awards. And, again, given our strong position in the segment, we are winning a fair share. So that has also contributed.

Anything else you want to add?

No. I think okay. Next question.

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, and 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 are seeing in R&DS and CS and anything to call out sort of either, like, interest expense or tax rate or anything that changed versus what you were saying last quarter? Thank you.

Well, I am seeing no significant changes on the below the line assumptions there. And clearly, when you talk about R&DS, it is a long-cycle business. So the great bookings that we have had are really more of a 2027 and beyond indicator. So we have been getting a lot of questions about our clinical Yeah.

Well, I think I think, though, 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. And I just wanna mention, I you know, in the in the recently, several of you asked about bookings and bookings policy in light of some other people's changes to their bookings policies and so on. And I just wanna, again, emphasize that we continue to have contracted bookings. That is, you know, all the bookings need a signature and take a cancellation. We also need the signature. You know, we feel that the signature is an objective criterion, and that removes judgment. And we think that we are going to stick with that best-in-class policy and just giving you that as a context for your questions. 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 is inactive trials. And we asked the R&D team to go back. Obviously, we have you know, in our backlog of $34 billion, we have got thousands and thousands of trials, as you can imagine, accumulating over the years. And we asked the R&DS team to review the backlog to identify so-called inactive trials. And just wanna make sure that to reassure those of you who asked a several of you asked, about the quality of the backlog. Mike, any comments on that?

I would just say they were preliminary results.

I think the team is looking at it, and we will finalize it in the third quarter. But, you know, if there is an adjustment to our backlog for inactive trials, it is in the ballpark of 5%. Not this 15% metric that was out there by a competitor. And I think that it is important to note that if we do make an adjustment, it will have zero impact on any historical financial results, guidance, the next 12-month revenue from backlog average, as reported, zero. So, again, it is something that we are looking into. And if we do something, we will talk about it on our third quarter call. But to your question about the next what is important?

Because we reported this time very strong growth in next 12-month revenue from backlog. And then as you know, it is at the record level. what is the number? Over $9.1 billion. 7.5%. 7.5% growth, and that is been also increasing quarter after quarter.

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

And specifically this year, we are seeing the acceleration of growth in both commercial solutions and R&DS segments, Elizabeth. So we feel good about the guide. Thank you all.

Thank you. At this time, Ms. 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 our third quarter 2026 earnings call. The team will be available for 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. You may now disconnect.