Q3 2020 ICON PLC Earnings Call
[music].
Thank you.
Welcome to the <unk> I called plc, Q3, Twentytwenty earnings Conference call.
This time, all participants are in a firm element.
I will be a presentation, followed by question and answer session.
Next time, if you wish to ask a question unique star and one on your telephone keypad and Mr.
Mr. Driving record is recorded today Thursday 20 seconds.
Twentytwenty I would now like temporary material speaker today Mr. Jonathan Cohen. Please go ahead Sir.
Thank you Tracy good day, ladies and gentlemen, thank you for joining us on this call covering the quarter ended September Thirtyth 2020.
Also on the call today, we have our CEO Dr., Steve Cutler, and our CFO Mr. Brendan Brennan.
I would like to note that this call is webcast and that there are slides available to download on our website to accompany todays call.
Certain statements in today's call will be forward looking statements. These statements are based on management's current expectations and information currently available, including current economic and industry conditions.
Actual results may differ materially from those stated or implied by forward looking statements due to risks and uncertainties associated with the company's business and listeners are cautioned that forward looking statements are not guarantees of future performance.
Forward looking statements are only as of the dates that they are made and we do not undertake any obligation to update publicly any forward looking statements either as a result of new information future events or otherwise more.
More information about the risks and uncertainties relating to these forward looking statements may be found in the FCC reports filed by the company.
This presentation includes selected non-GAAP financial measures for presentation of the most directly comparable GAAP financial measures. Please refer to the press release statement.
<unk> condensed consolidated statements of operations U.S. GAAP on orders as well.
Non-GAAP financial measures are not superior to or a substitute for the comparable GAAP measures. We believe certain non-GAAP information is more useful to investors for historical comparison purposes.
We will be limiting the call today to one hour and would therefore ask participants to keep their questions to one each with an opportunity to ask one unrelated follow up question I would now.
I would now like to hand over the call to our CFO Mr. Brendan Brennan.
Thank you Jonathan and.
In quarter, three we achieved gross business wins at $1.2 billion and record $190 million for cancellation. Consequently, net awards in the quarter were a record $919 million, resulting in a net book to Bill of 1.4 times with you there.
With the addition of these new awards and backlog grew to 9.4 million. This represents a year on year increase of 11.8%.
Revenue in quarter, three was $701.7 million as represents year on year increase of 1.2% or 1.9% on a constant currency basis.
Sequentially revenue increased by 13.1% from quarter two.
A top customer represented 12.4% of revenue for the quarter compared with 11.4% in quarter three 2019.
Five customers represented 38.4% of quarterly revenue compared to 26.2 last year.
Our top 10 represented 51.1% compared to 49.1% last year, while our top 25 represented 67.9%.
Prior to this end number 67.9% last year.
Gross margin for the quarter was 29.7% in quarter, three compared to 28.1% last year and 29.7% in the comparable quarter last year. The rest generically was 11.8% of revenue in quarter, three as compared to 13.5% last quarter and 12% in the comparable period last year.
Operating income for the quarter, three was $190.4 million, a margin of 15.4% as compared to 12.1% last quarter and 15.5% in the comparable quarter last year.
Net interest expense was $3 million for the quarter and the effective tax rate was 13% for the quarter.
Net income attributable to the group for the quarter was $91.6 million a margin of turning 0.1% equating to diluted earnings per share of dollars 72 cents. This compares to earnings per share of $1.20 in quarter, two and $1.74 in the comparable quarter last year.
The net accounts receivable were $500.1 million of Turkey. The September 2020. This compares with net accounts receivable balance of 490.2 million at Turkey. The June 2020.
On a comparative basis day sales outstanding were 45 days at September 32020, as compared to 52 days at the end of June 2020, and 56 days at the end of September 2019.
Cash generation from operating activities in the quarter was $112 million.
That's a cemetery get 20, so I see the company gross cash balance of $710 million and debt of $350 million, leaving a net cash balance of $360 million as compared to net cash of $244 million at June 32020, and net cash of $122 million at September.
Richard his 2019.
Capital expenditure during the quarter was $7 million.
During the quarter icon also completed the successful delayed drawdown refinancing of the existing private placement of $350 million senior notes maturing on December 15 to 2020. This transaction has been successfully priced over three and five year tenures at a blended rate of 2.41%.
Compared to the current private placement blended rate of 3.37% the drawdown of phones will coincide with the maturity of the senior notes in December 2020, but all upset and I'd like to handover the call to Steve.
Thank you Brenda and good morning to you all.
Despite the continuing industry challenges brought on by COVID-19 overall this was an excellent quarter for hanukkah.
Driven by positive market demand in conjunction with our ability to win COVID-19 related opportunities. We booked record levels of gross ended towards the $1.2 billion and $990 million representing book to bills of 1.68 and 1.41, respectively.
In doing so we were able to grow out backlog year over year by 12% to $9.4 billion. This gives.
This gives us a firm foundation to build upon next quarter and into 2021.
During the quarter, we delivered revenue of $702 million, a substantial improvement of 13% on last quarter and early.
Earnings per share of $1.72 up over 40% from $1.20 in quarter two.
Because it continues to test our industry. We have responded well to these challenges and I'm pleased with our strong recovery.
We remain confident that the sequential improvements in this quarter. We will continue as we return to more normal business conditions over the medium term.
The progress made in our financial performance mirrors. The recovery, we are seeing in the clinical trial environment.
The writer with sites continue to reopen remains consistent at around about 1% to 2% per week with approximately 40% of trial sites remaining impacted to some degree.
A clear improvement on the 60% impacted at the end of quarter two.
In addition, during the quarter site initiations remained strong with overall patient enrollment above pre coated levels, albeit with recruitment from our co the trials materially impacting that performance.
Notwithstanding the risk of a second wave impact we are expecting these metrics to continue to improve steadily but that it will be well into 2021 before we get back to pre pandemic levels on our non co the trial will.
The positive influence to their Cobra trials continue to have on these recovery indicators is important especially in the short term.
Sponsors continue to prioritize these urgent work and we continue to be successful winning substantial amounts of coated business and in getting these projects up and running quickly.
However, as development portfolios rebalance over the medium term and spending returned to more traditional therapeutic priorities. We are well placed to apply the lessons and opportunities from the pending and continue our progress in this area.
Earlier this month icon was awarded best clinical research organization at the vaccine industry Excellence Awards.
This award is recognition of the continued hard work and dedication the icon vaccines team that emphasizes a differentiated strings in this critically important therapeutic area.
Since February iPhone has mobilized its vaccine resources to address the COVID-19 global threat and idling is currently providing clinical monitoring and safety oversight on more than 100, COVID-19 trials for both the private and government sectors in a.
In addition, our ability to leverage our global sought network Acella care has been a key benefits to customers during the crucial stages of coated trials.
Until the kids dedicated trial support teams can achieve faster study startup for our customers through efficiencies gained in central process management, including budgeting and contracting which could otherwise be a source of delay.
Combined with Symphony clinical research and our patient centric global provider of at home kit and nursing, we're able to improve trial accessibility for patients, thereby broadening icons access to patients and accelerating the trial process.
This integrated approach is leading to increased engagement with investigators improve quality and better timeline compliance.
The outbreak of COVID-19 had a substantial impact on the conduct on the conduct of clinical trials with many ongoing trial has been disrupted and plan to trials being delayed.
As events unfold it became important to look at alternative solutions in many areas in order to minimize the impact of the pandemic.
The environment created by the COVID-19 pandemic has presented the industry with an opportunity to accelerate changes in the clinical monitoring process that.
The need for more agile and flexible approach to clinical monitoring and data review has he moved and this demand will fundamentally change the way in which trials are monitored going food.
In particular, the pandemic has highlighted the overreliance on traditional on site monitoring and provides the opportunity for sponsors NCR rose to accelerate the adoption of remote monitoring and other technology based approaches easy API machine learning and artificial intelligence I believe.
This will help us move towards a more efficient model over time that will allow more trials to be conducted and more innovative compounds to be brought to the market faster and more cost effectively.
As Brendan discussed earlier, our cash collection remained robust in quarter, three confirming the strength of our customer base and helping to maintain our balance sheet has the best in the industry.
This leaves us well placed to face any further pandemic challenges and in particular positions us well to take advantage of future M&A opportunities that may present over the near and medium term.
Going forward.
As we look to the end of this year, we are increasing our 2020 revenue guidance from a range of $2.65 billion to $2.75 billion.
To a range of $2.75 billion to $2.81 billion.
And narrowing our earnings guidance from a range of $6 to $6 52.
To a range of $6 35 to $6 50.
At this stage, we are planning to give guidance on full year 2021 at our quarter four earnings call in February.
Finally, I would like to thank all our employees for their resilience flexibility and understanding over the past eight months at the high.
At the heart of all we achieve an icon, our hardworking and dedicated employees.
Our focus during this pandemic remains on protecting this safety and wellbeing as well as continuing to deliver the important work we undertake on behalf of our customers.
Thank you everyone and we're now ready for questions.
Thank you, ladies and gentlemen, I can remind you if you wish to ask a question. Please press star one.
Keypad and wait for me to be announced.
First question today comes from the line of Dave Windley from Jefferies.
Hi, Good morning, Thanks for taking my question and good afternoon for you guys.
Steve You mentioned in your prepared remarks, you kind of got to run.
Recovery of the system in the medium term and and kind of the cycling of covert work into into Noncovered work I guess on the outside we see these dates the companies are expecting to report out data, but I don't know that we fully understand the CR rose involved.
Right and kind of the the duration of your trial as it relates to those public those public date can you give us a better sense of.
How your current book of work gates out over the next year or so and and when do you think that waning of co bid work is going to happen that that then the noncovered needs to to ramp up.
Yeah. That's a question we talk about internally, Dave on a regular basis and it's.
I think it's it's a little hard to be too definitive on that at the moment I think there are a number of scenarios that are going to pan out over could possibly pan out one is.
You know the current trials are ongoing find a a vaccine that is or treatment and both presumably that is exceptionally effective and the work.
Waynesville or decreases in the in the more near term I suppose and the other is and I think this is much more likely.
That the trials that are ongoing the model will fund a vaccine it will be partially effective but the authorities will be looking for more than one and then there will be a continued need and a continued desire to get a more effective vaccine. So the whoops I believe from a cold with perspective is going to continue probably for the next couple of years I think thats the most.
Most likely scenario.
And Thats the way with thinking of it at the moment and sold and so as we think about the code would work continuing as us over the next couple of years I think there's going to be a lot of a number of back.
A number of vaccine trials large scale vaccine trials that we'll need to to be.
To be apparel, and we certainly playing a part in that women on the non coated world as you as you indicated we are and as I indicated in my comments, we were certainly lower in terms of patient recruitment.
When we were pre pandemic and we do see that increasing and improving but I think it will largely some of that is the way that comes back will depend upon how the scenario with the computer pans out because because goodwill is having an impact on us on a number of sites and on the availability of investigators et cetera et cetera.
And of course, as we see potential reemergence of the virus.
No the industry in the fall that has an impact as well so.
I had to depend that so many different scenarios, but I think from a business point of view. The medium term is looking strong and looking good whether it be covered work and I think that will continue or.
Our non covered work sort of coming back to a more pre pandemic levels I think I think in either scenario looks reasonably strong reasonably good for.
Good for US got it I appreciate that so for my follow up kind of related Lee you talked about the relatively consistent pace of site Reopenings I think earlier in maybe in the summer that view is maybe something like you know two to four call. It mid mid 0.3% a weekend and today.
Hey, sounds like more like 1% to 2% a week.
And we're you know, we're certainly seeing and hearing about regional flares or spikes in some infection case data.
I I'm wondering one how have you seen some slowing and is it related to some of that regional flaring and just just how do you see that proceeding can can we avoid shutdowns essentially as we proceed through the fall.
Yeah.
We certainly have seen some slowing in the reopening.
Is this sort of the EPS in tali currency as it approaches the the top it is it is it is certainly slowing.
And so we don't see us getting back to your old saw its fully opened even with the current progress were making until as I well into 2021, that's that's still our expectation.
And the reason for that I think is a number of reasons, but I think as you as you know the the leaves US. These plays that have happened the the reemergence of the bars people are concerned about that.
I think we're seeing some patients still concerned about traveling to sites I think there's also an element of a number of these sites are involved in these in these large scale Tobin trial, that's taken some of their capacity wise. So.
There's a there's an element in solarcity its multi factorial, but we're certainly seeing a slowing compared to where we were even a couple of months ago, but it's not it's not zero and we are moving it forward and we do expect that certainly within the next two.
12 months or so outside while first half of next year, we will be assuming continued progress and consuming no major outbreak again.
We do expect that our thoughts will be back to you know to pre pandemic levels I appreciate the answers. Thank you.
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Thank you. Your next question comes from the line of Patrick Darby.
Great.
Great. Thanks, maybe just on the covert bookings I know you guys called it out you know about 20% last quarter you spoke about how that trended in Threeq you again, certainly feels like you have pretty good presence on that side given the vaccine, but just wondering in terms of percentage where the covert bookings are.
Yeah, Patrick as it was it was strong.
All these I'm not going to be we're not going to get into into into sort of specific percentages, but it was certainly.
It was a bit was where we were in Q2 and probably a little bit further ahead of that so we we had a good quarter from Cove is from a new bookings.
Point of view, that's you know that will translate into an increasing proportion of our revenues as we go into Q4, you know it wasn't a huge proportion of our revenue in Q3, but it will be more in Q4.
With us it was a good substantial part of our of our new new business wins and.
At least the power to honor and ahead of where we were Q2.
Okay, and then maybe on the margin side can you just talk through any of the cost control measures you guys put in place earlier this year coming back I know last quarter, you talked about normalizing some spend in the back half and then on top of that any margin profile difference of the co bid work relative to other trials, we should be thinking about over the next year or so.
Hey profit front of him I might take a ticket part of those are in terms of the cost normalization. Yeah. I think were accounted for as we as we finished out Q3, certainly we were in our most of the cost structure cases, where.
We're had moderated back to normal sales for the past across more of our work has been done remotely now so travel budgets, so thats required and the way it would have been in the past and that will persist into Q4 most of the most of the cost control elements have have been have been dealt with now and at any any pieces that we had done where we want to.
And I suppose and make it the whole or anything on those kind of issues from our perspective I dealt with so it shouldn't have a margin impact as we progress into quarter orders specific pieces, we've kind of taken care of that I think that that piece. The second piece out on your question around margin profile I think what we do see on vaccine trial.
The heavier elements of pass through costs as proportionality of the total and cost of the trial and therefore, we would expect yes on the sixth of six revenue basis and that there will be more proportional revenue on which we earn a little margin a lot with have a detriment.
Will impact to gross margins and so it's going to be one of the I suppose.
Challenges with these studies over the next couple of quarters, because obviously the purpose.
Obviously, the proportion of that revenue will be larger and we'll have that does not impact that said I think our earnings as we outlined at.
Very much as sum up what our thinking is and for quarter four in terms of EPS growth and we still see a decent trajectory on EPS growth.
That's really helpful. Thanks, Brent.
Thank you. Your next question comes from the line of Elizabeth.
Oh.
Hi, guys. Thanks.
Good question and I have a question on generic that gap.
Vaccine work and is there a different time.
Cancellations or how that kind of EPS flows through and just I'm just trying to think through the cancellation rate curve for next quarter, and then sort of broadly speaking for 21.
Yeah. It does it does.
I don't think we've seen of any sort of particular unique issue would trend around cancellations with vaccine work I think what we do see is that is you know is a large.
He is a large number of patients in a relatively short period of time and so you know projecting though revenues the resource usage has its as its challenges now that's what we do and so that's our core competence and so it's something that we obviously take.
Obviously take very seriously and we believe we you know we do that but it does certainly have more challenges in terms of how quickly that will burns and the right at.
At which we do the work on the time period over which we do the work has some pretty material impact on our on our business. So that would be I think the sort of more unique feature of lease with a large vaccine trials in any sort of issue around cancellations or anything like that we don't see any differences on that front.
Okay. That's helpful and I know on the cabinet deployment you guys, obviously had a very enviable cash position at this point, we since you're sort of looking at it as potential for M&A.
For M&A. It is as things change in that like how are you thinking about balancing that versus say share repurchases in event at 2021.
Our priority we've been we've been pretty clear on this yes.
The number is our priority is M&A appropriate M&A and that's where we that's that's what we're focused on and there are a number of opportunities out there in the market at the moment that we continue to assess on ongoing basis, ultimately turn to share buyback, we commit to doing a about a million shares each.
She is to do essentially buy back what we what we release.
We will continue we will we will continue to do that and we will be opportunistic is as a that allows where we see opportunities to jump into the market, but the the the focus for us is very much on.
M&A and on capital deployment around building, our systems and our organization things like home care that we've that we've set up what we've established a that JV. This this quarter and we believe that's an area that we can deploy our capital in effectively to get best benefit for our business.
That's very helpful. Thank you.
Good.
Thank you your next.
Question comes from the line of Robert Jan.
Great. Thanks for the questions maybe Brendan one for you on on this pass through dynamic that seems to be more pronounced given some of the dynamics around around the covert related work you know one of your peers discussed that.
That you know you could actually see 10 times as much pass through relative to a normal trial are you seeing anything similar or anything you can share on how pass throughs have impacted the quarter and maybe how you're thinking about our pastors for fourq.
Pass throughs for Fourq and next year.
Yes, we certainly have.
We certainly have volatility in our share of vaccine work on cost and it's certainly a a larger element of them all over the state I don't think that maybe those numbers spoken about where our what we've certainly been our experience something in the range of two to five times is probably more in line with our and our experience of these this onto.
A pass through all that said, although I hadn't really had an impact EPS, but the core it didn't really have an impact a year to date in terms of the mix shift in our revenue and I think thats, probably a visible in our margins help us as well when compared to last year. So I. We do feel that this is more of an issue for for Q4 I certainly at the line.
The Twentytwenty one when we might see more of that pass through coming through but at a lower margin profile and that will have a knock on the gross margin consequence, but as I said and it's kind of early days and these the nature of these trials are very very fast and so it will be a little difficult to to forecast that will be.
Your best job at really putting our thinking has been between now and as Steve outlined at the Q4 call in terms of making sure that we can give you a guidance here that that makes economic sense.
I guess, maybe just to follow up on that point, you know I think typically or at least recently you've been giving guidance in January you know one of your peers again.
Felt like they were in a position to give guidance for next year at this point in the year, you know thinking about mid teens type of growth. So obviously you know in their CRM segments, obviously more than average growth just given all that's going on with Covidien to work pushed out any any early thoughts just around how next year could look and then maybe just timing wise.
You know why February I know, it's splitting hairs a bit but why why why the fourq you call it not earlier.
Yeah, It's a it's easy Robert.
So let me let me comment.
Give you some sort of flight of the 2021 I mean, we we see some positive momentum going into 2021, a question about that our book to bills have been sold over the last.
Couple of quarters, even despite the pandemic, we've been able to win business. That's an area that really hasn't seemed to have Adam the pandemic hasn't seemed to Adam.
A major impact on the biotech funding environment, we continue to see very strong funding there.
Our RFP environment has been strong you know high single digit improvement year over year.
Certainly in the biotech space, but even in large pharma as well we've seen some some continued the development and continued growth in the opportunities we're saying it. So you know the business environment as overall been pretty positive and we see that will play into you know a strong performance for us in in 2021, the cobot opportunities as a.
As I said earlier in the call I think you're going to continue I think we're going to see more work I don't think it's just going to drop off the.
Drop off the off the cliff as we as we sort of get through these first tranche of trials I think there'll be more work to be done there. So that I think augurs well for us in terms of the opportunity and the differentiation. We can provide in terms of our vaccine experience.
So so it's it's looking strong and looking for that but we're not ready and they're also headwinds and potential headwinds as you all know I mean, the the viruses reemerging as we get into the full there are challenges and potential the slowdown of the site reopening has been referred to and we're not ready to issue guidance.
So really any real sort of sense of guidance at this point in time I think it's we need all the time that we will have in the next three to four months to assess what opportunities are coming through what success is a is moved through in terms of vaccines that are coming to market as we see potential vaccine that's going to be.
Positive I think for everyone, including at our sites in a clinical trial environment, but.
But we're not quite ready to go out and give definitive guidance on the market and we have pushed back on the amount, but we have pushed back.
What we usually do for the rest of the from January to February because we think will need all that time.
Tonight, the assessments and to see how these trials are going to play through so we might know apology for that that's the way it's going to be I think it's interesting that some of our competitors have done differently, but.
But that's a choice.
That's fair thank you.
Okay.
Thank you. Your next question comes from the line of George Hill from Deutsche Bank.
Oh, Hey, good morning, guys and thanks for taking the question. Steve I was just wondering if you could talk a little bit about digging into Cobi I guess the demand for vaccine related trials in the demand for therapeutics related trials I guess can you talk about the split there and kind of are there any margin or pricing implications, we should think about between the two.
Yes.
I'm not sure I considered definitively.
Give you that split George we're doing both the vaccine.
The vaccine obviously the vaccine trials are much larger.
In terms of patients in terms of contract size revenue burn right. Even is is higher so there are a number of different characteristics around these these larger trials and they probably have more of an impact on our forecasted on our quarterly numbers than that.
Treatment draws which tend to be smaller more hundreds of patients rather than tens of thousands of patients even though the vaccine trials you know it.
Price, it's not me, calling and patience is probably a little bit of a stretch because essentially the healthy volunteers, but they are there are a large number of them and the data work that goes with that is is very substantial so you know.
From a from that point of view the vaccine trials are more material to us in terms of growth in terms of finances not necessarily in terms of all you know operationally because this is the most important with doing.
Yes, we have I don't have the data right at hand in terms of numbers. The trials I think it's fairly evenly split at the moment.
But in terms of contract values and revenues the vaccine trials, a substantially larger and substantially more material to us.
Okay, and maybe if I could just have a quick follow up given that everybody is focused on the cobot work are you guys seeing anything meaningfully different in cancellation rate or what clients are looking to kind of press forward with or cancel as it relates to trial.
Sure the answer to that is no George were not you know, it's it's the sea our cancellation rate is.
This quarter was pretty much in line with what is normally the scenes.
So the so no we're not seeing any differences on the on the cancellations of about a restaurant.
Okay. Thank you.
Thank you.
Next question comes from the line of John <unk>.
Hi, Good morning. This is Jon Kaufman on for Chris here. Thank you for the time, just just thinking about the outlook for virtual trials. What are the factors that have historically prevented sponsors from moving a larger percentage of their trials to a more virtual model are the regulators on board, but the shift.
More virtual trials or is that still to come and understanding that large pharma has been piloting virtual trial tools for a couple of years now is your experience.
I guess how is your experience during the during the pandemic led you to believe that they are more willing now to actually come back more of their late stage trials in a in a virtual manner. Thank you.
Yeah. That's a that's a big question John I can probably take the data to answer that one but I'll try to do it in a couple of minutes I mean, I think the short answer is what you know the fact is sort of moving against virtual trials that they do relate to this an element of conservatism within our industry I think that certainly that and if we can.
Yes, I think the regulators certainly up till now have have not necessarily been 100% on board with that we did it and you know that the old question. We get is when we propose a comedy central also virtual drawl as well, you know which draw which drug did you get the market.
On the basis of a virtual trial and the answer is well that hasn't happened yet and so we revert and.
And that that's completely understandable from our sponsors point of view as far as I'm concerned. We you know we have we are hardly highly regulated industry and the need to.
You know to validate tighter and verified data and make sure patients received in a very safe and efficient manner is a is it always going to be there having said that I think we've certainly seen during the pandemic the regulators move very quickly in it.
It understanding the challenges that the industry faced and be accommodating with those challenges now that leads to play through obviously into the submissions over the next realistically couple of years to make sure that that happens because that you know there is always an element of the two.
Some of the people at the top we were riding the White papers say one thing and then the auditors who are actually at the Coalface or do something different. So there is an element of validating that approach, but certainly the overall guidance and output from the regulators as being very accommodating and much more positive with respect to how.
So the industry pivoted to be more remote oriented and I think that will continue and we certainly see some positives on that front.
In terms of going forward, you know weve seen it.
Essentially a seismic shift in the way trials are being monitored over the last six or eight months as I look at our own business is pre pandemic about 5% of visits of monitoring visits were off we're off sought in other words sort of virtu during the.
During the height of the pandemic that flips very quickly to about 60% of business being offset on virtual and ER and that was probably a little bit of an overstatement because I think a lot of these will probably telephone visits and those are these but as we've come through and has started to recover that's gone down, but it's still about 30, 30% or better.
Third the visits were doing at the moment are real.
Remote.
And the technology associated with those visits has a has really come to the full very effectively so we're able to in many it in almost all cases, though now evaluate E. Electronic medical records remotely. The systems are now in place at many sites to be able to do that and it makes it a much much more efficient approach so the movies.
Happening I don't think we're ever going back to where we were pre pandemic and really the remote monitoring is just a buyer.
A biomarker if you like for a move much more towards a virtual trials decentralized trials now we've seen unprecedented demand throughout symphony our home care services, that's it's really been.
Fantastic from our point of view, but were extremely busy in heavy and nurses go to patients.
Our homes to ensure that they stay in trials and they get the right treatment and they get the right attention and that is also playing into our defense was clinical trial offering as well. So I think the short answer. Your question is you know is it's been a challenge up till now, but the pandemic, there's always silver linings with these things and I think one of them.
Is that is a significant move towards a much more but.
You could draw environment, which is going to help all of us be more effective and faster.
Thank you much appreciated.
Thank you your next.
Question comes from the line of Evan right.
Great. Thank you me to several improving fundamental metrics here I just want to clarify you highlighted how did your RFP flow I believe it.
In a previous question.
He did that excluding Colgate related work right and this is not just that is gaining momentum here and then on I do have a second question. If you could speak to the trend because your central lab, they sit down in this environment.
Great. Thanks.
In terms in terms of our three year does include code were the the the whole.
High single digit sort of number and these these numbers bounce around a bit but you know in that is that certainly we including everything in that number I think I mentioned the biotech.
Small midsize pharma as we've seen a increase some of that being funded by government as a as you will know that governments are extremely interested in in these trials and some of that funding that we've sort of allocated to small and mid size in terms of our pace has really come from.
The government everyone everyone understands what the clinical trial is now in my mother understands what I do now for the first time in about 40 years. So that's it's the way in this I suppose of clinical trials in the in Society is Oh, I've never seen anything like it really everyone understands everyone knows what's happening the run rate for both types.
So that certainly plays into that.
Oops.
Hey, guys.
My second question just on Central lab.
I think you got turned into orders, but you're going to get a little slowdown on the site.
On the central EPS of answer, yes, and others have been trending well them and doing really well, we're very happy with their performance, obviously that is and they have been running on the hotels of covert work and we've seen that that's been a big part of the story there, but certainly our central labs are doing very well.
As our or indeed, there are lots as well.
Analytical.
Rollouts as well so it has been a strong performance for them during the course of the year.
I think it's fair to say very very much helped by the Oh by the way the Tailwinds.
Because of the work that the that they certainly have been from so yes Goodyear for them are they looking for one month.
Is that growing double digits hemoglobin.
Well, we're not quite enough ballpark because of course, you know we have the same situation, where you know a lot of the units were closed or you know what our samples were delayed and coming back in so when I say that it's very strong and really the strength is really coming now in Q3 and Q4, so year to date.
Still down year over year, because of some delays and samples are not coming in across the broader spectrum of our trials are excluding the code work, but I think the cover work is certainly helping it getting back on track at today's across the rest of the organization and so not not in line with the overall business performance at the top level certainly though.
Certainly that business was profile has been very strong and we're already starting to see them ramp backup welding in Q3 and into Q4.
Okay, great. Thank you.
Thank you. Your next question comes from the line of Dan Leonard from Wells Fargo.
Thank you. So first question can you comment on industry clinical trial capacity and in a scenario where co bid work maintains into 2021 in traditional trial work resumes are are there any bottlenecks that could limit the growth above and beyond what your backlog growth in others might might suggest.
You mean capacity at the site to let me know.
Exactly patient to patient sites et cetera.
Yeah, you know I would be I don't think we have any immediate concerns around the capacity to execute from a from an investigator and site point of view that.
That may mean of course that we need to bring on new invest the guidance.
And train up sites and an hour I don't get brings to the four hour of Silicon network and our onto kit network that we have you know sort of more more or less dedicated more dedicated to the club.
The clinical trial so so.
If we do see some constraints there you know we have a networks and our alliance such that we are ready to go to but I I think it would be a stretch may decide that we won't be able to electrical industry won't be able to execute on covered and non covered work because of capacity constraints certainly the investigators this.
Got something incredibly accommodating in taking on this covert work at very short notice and I think as I've commented on previous calls.
The speed at which we've been able to get the sites up and then these trials moving is unprecedented I've certainly seen nothing like it in my 30 odd years of doing this so you know there's there's an interest out there from sites and from investigators, particularly on the code would obviously.
But also I think we will see the the Noncovered work come back as well over the more more near to medium term and I guess I think they recognize again I think the the awareness of clinical trials now added from the public's point of view and from investigator sites, but it is also going to move in the right direction. So I don't have a a suit.
Significant concern in that in terms of capacity to two antitrust trial.
Okay. That's fair and then for my follow up can you comment on the performance of your your real world offerings, and you've talked a bit about.
The impact of the pandemic accelerating interest in virtual trials remote monitoring to does it impact the interest in real world offerings at all do you see a different appetite for maybe synthetic control arms weren't see where people are enrolling in traditional trials or is that a strategy did not really not that relevant.
I you know I think there's some theoretical opportunity then we certainly talk a lot about that when we've had conversations with customers around the real world impact and how we can implement the synthetic control arms you know I've been.
I would be I would not be telling you. The truth. If I said, we had a whole bunch of trials going on with synthetic control arms Oh, Yeah. That's just not the case that they are they remain more on the age I suppose the innovative age of a of a new trial design adaptive a new trial design. The regulators you know are getting on board.
Those in a certainly a pining on the appropriate use of the things that synthetic controls real world data to you know to get drugs to market. We certainly see it's a trend going for a little bit like the the decentralized virtual trials on the real World data. There's no question I think as we go forward, we'll do more of those trials they will be used as the base.
As for approval of new compounds going forward I think the pandemic. If anything is shown as you know there are different ways to you know to get drugs to market earlier emergency use authorization and follow up data et cetera et cetera. So you know we do believe there's there's a there's a significant.
A significant opportunity he going for but it's not going to happen tomorrow little bit about the decentralized trial, there will be a period of time that this will ramp up.
And they'll need to be some brave companies, who moved forward with the season and based the registrations on the real world data in another areas and that's what I think will will sort of start tipped the scale will move forward. So I think it's a it's a process and it's a it's a journey rather than it is it's going to happen immediately.
Okay I appreciate the thoughts thank you.
Thank you. Your next question comes from the line.
Oh.
Thanks, very much I've got a few here first off just a quick one the ER can you tell us who the JV partner is on on care.
[noise], yeah actually one of the.
The JV partner there was the cash value of the founder of and the a European based site based business that we just acquired a mini Nova which has been a great success. In addition to our overall organization, so and former CEO has stepped into the role of leading that joint venture and where.
We are happy to have it as part of a of that structure and he's obviously a great job of building. These kind of networks in the past so and he's got his brain that element of their mindset to add to drilling at that hour at global and oncology network. So a very very happy about that.
Hey, Brendan since since you're talking I'll stay with you and my second one cash flow good job there I'm curious was it.
Internal initiatives that drove this or perhaps.
Mix and timing of some of the work that's been coming in with Covidien, maybe somehow related to the the pass through revenue streams. So given the speed and the burn here I'm just I'm curious how you got where you got that fantastic improvement, India, So and and how sustainable you think that is.
I think it's a you know it's a year and a half of success over lifestyle story I'm, Eric we've been working on this one for the out year two to improve it and from from where we were this time last year and really are the guys on the team has done an excellent job and really improve.
Improving communication and between the project management teams and then finance organizations make sure that we're billing appropriately and timely manner and obviously you know the house of vans caching is always something that's there and so I think it's been you know it's been just a lot of a lot of good good good old fashioned hard work and teamwork I think theres been a little bit of that.
Little bit of a tailwind that's up to the boat on the uptick there.
Typically in the past 12 months all of these are vaccine trials, but not nearly as significantly as I would say just that the old fashion Heart hospital, a hard puzzle I should say a lumpy. So that there was credit therapy, given that I think it's really as the body by the same for the finance guys, who have done the hard work.
That's great last one for me.
On the comments that about 40% of sites remain impacted in some way shape or form.
I think thats pretty well understood. The question is.
Our all sites created equally you know on one hand, you might think well it was the weaker sites that haven't been able to reopen and on the other hand I could see this being.
You know very busy sites in urban areas, where you know the challenge.
The challenges are the greatest I mean, we're certainly seeing that in the U.S. where are the big cities are more impacted than the rural areas in terms of activity. So just.
Just hoping for your comments or the 40% of sites in fact impacted also correlated or equivalent to 40% of historic global activity from.
That that tranche of sites does that does that make sense.
Yeah, I think it does make sense.
Oh, I can opine, a little bit on that but I don't.
I didn't say I have any definitive date around on which of the 40% and what contribution they make to us in terms of ER patients into the <unk>.
Patients into the trial as you know I can say that.
We are from pre pandemic recruitment levels.
In our non coal would work you know we're still at around about 50%, 40% to 50% of pre pandemic level. So it's still materially impacted so from that you know this 40% of the thoughts or you would say that they are pretty important.
Fairly fairly significant component of that you know recruitment.
Supply I suppose on a on a on a weekly basis.
As I think I referenced in my comments it cools. The coated work is has really supplemented when at <unk>.
The point, where the sites.
We are well above our normal recruitment levels certainly over the last couple of months, we'd been why why above Rick.
Recruitment levels, but it's really been because of because it work and the sites are contributing to that.
With that I'd been obviously hand picked in selected to do that so it's always it's hard to be too definitive about the 40% who are still impacted they are impacted to a greater or lesser extent some of them. It's probably it's less than 5% now it's still closed.
But this is the vast majority of those impacted are impacted to some way shape or form so they're not taking on new trials.
The limited to just doing the trials that doing pace.
Patient visits are happening now much more than I would say back in the in the heart of the heel of pandemic, but there's still some impact and as I said, it's going to take I think at least another six or eight months for those two are those sites to come back to a point where that they fully contributing that this is why we you know we've gone forward with that.
Okay.
Joe Millionaire silicon it work because we are seeing less impact in those sites and again, a disproportionate contribution from those networks because were able to help them to get back to normal and help them to address the challenges of the pandemic end of the trials that they're recruiting.
Thanks very much.
Thank you your next.
Question comes from the line of Chuck.
Uh huh.
Thank you good morning, good afternoon.
Uncovered so I was looking at the revenue contribution from your largest client I thought it might be bigger this quarter, just given the pacing of vaccine trial enrollment you can see in the headlines is there any color you can provide on the shape how vaccine work is burning and how that will trend into the fourth.
First quarter 2021.
Hi, Chuck I'm I think some of those front end here and you know obviously that that's been an area of activity.
Where we have been ramping apart as you're right in terms of the speed of patient recruitment they're significant.
Jim I think you know there is and I think we referenced during the call that while you know there will be a proportion of that sort of always on certainly before the end of this year you know the follow up on the thing will go on for quite some time. There afterwards, so am I, so that would be missed.
It would be a misnomer to think with any possible filing.
That would go into that's the area that I would just be the end of our involvement in the fall process. So certainly that will bleed out over a longer period and then the last point in time and there will obviously be additional follow up work. So we're happy with the pace of revenue recognition has been on that trial specifically in the in the current quarter certainly I think it will certainly be a chunk of.
All the work that we do whatever debt in the fourth quarter.
As we work towards the backend of the year and as you referenced those important milestones for that customer and I think that's true all these other things at fort bearing in mind that even though there is the patient recruitment phase or the early part of the thought on the edge of the trial. It is quite short in terms of the dosage regime. There is you know consistent follow up.
That will happen over time, and I think Steve's point around and you know the pumping which isn't part of the landscape twice twice, while it is very volatile.
Great and you know, you're obviously doing a lot of hiring at the moment to support the new business wins can you talk about how relative wages are trending and you know maybe contextualize it for us in terms of the gross margin I'm, just how should we be.
Just how should we be thinking about that in the fourth quarter.
Yeah, Jack I think I'll take a crack at it again and you know we have seen a you know a lot of activity heavily on lets say in the Americas on that on that side of it.
We're doing a decent job I would say on on making sure our folks are.
Staying on board and we're continuing to recruit as we go through into the fourth quarter. So certainly building out the headcount and we'll get half of the profile of the organization as we go through the fourth quarter. I think you know we've made the point that you know what we're managing the cost base pretty well and we saw that particularly in margins in the third quarter I think the larger piece.
In terms of moving margin profile in the fourth quarter as problem in the proportion of revenue that we see that will be cost related.
In Q4, so I think that the bigger piece, but I think there will be certainly an element of a continued headcount growth.
In particular in North America, where a lot of that productivity is actually going to be happening so and that would be certainly it's a little bit.
Thank you Brian.
Thank you next question comes from the line.
Trey passenger.
Thanks, so much and good morning. Good afternoon, maybe just a lot of questions. You're obviously not maybe a quick one Brendan I didn't hear you get the constant currency organic growth number.
As well as solid Spanish havens, yes, I was wondering if someone's going to ask assets. So we agree with that year over year. It was 1.2% at constant currency is 1.9% it down obviously, given the context of the current quarter versus the Sinatra and constant dollar organic sandy that 3% down year over year.
Okay, Great and then my follow up there's been a lot asked about gross margins.
And as you pointed out it was it was a nice one nice returns I assume a lot of that just as revenue came up and there could be some near term impact because we think longer term you guys have sort of said the long term target is to hold hold gross margin steady, which when I read that it twice.
29% to 30% type gross margins is there anything coming out of coal that as you start to do maybe more remote trials at lower cost maybe have to travel as much.
Over adults the medium to longer term could suggest you could actually sustain above 30% gross margin or are there not enough big enough things to.
No really change the margin structure, we really should be thinking about holding the margin is a longer term goal. Thanks.
Yeah. So it's easy to Miss any I would I would say, there's certainly opportunities as we talk about the you know I talked about the switch towards more remote monitoring and using technology to to improve and to make our monitoring more efficient and data review more efficient we've been.
I will to progress our robotic process automation in fact, Oh, we do a team of the quarter here at icon each quarter funnily enough and the winner. This quarter was it was a team on our appeal reported who've been able to make significant profit progress around the data management and the law.
Yeah.
Pages. There. So you know that so thats. An example in a specific data management area, but that I think approach and similar approaches can be applied to our clinical operations group and I do think in the longer term there will be opportunities to to improve gross margin having said that.
There will inevitably be headwinds as well. So you know I think youre I think you're thinking around 29% to 30% is is probably the right way to go there'll be some opportunities to push that ahead there'll be some headwinds that will make that more challenging.
And so you know I think thats, probably I would not want to commit to a you know a significantly higher gross margin even in the longer term at this point I think this is a very competitive industry and we'll find that.
Costs and as I say headwinds will will mitigate the inevitable only all the obvious opportunities that we have through doing more remote monitoring do more technology based trial.
Trial management and data management. So it is a bit as I, probably the pros and cons headwinds tailwinds, but think of it as 20 on 30 being a reasonable continued tague.
Target to maintain.
Great I appreciate the commentary.
Just one.
Your next question comes from the line of Tom funding.
Great. Thanks, Thanks for taking the question guys.
Steve I wanted to ask a question on kind of when we get back to normal is it is it consistent with what you were saying last quarter I noted a few questions early on but I believe last quarter. You were thinking maybe early next year I'm not trying to put words union out, but now it sounds like the back half to kind of bomb Dave's question I think about the pace and I'm. Just wondering it has it has it changed since Q2.
The consistent.
[noise], they're not you know I'd have to say that if you know, it's it's raised insistent, but if anything it's probably pushed back a little bit.
We see back to Dave's, which is the pace of reopening of the thoughts has slowed.
And so we're thinking I'm thinking probably more you know into Q2 that I am into Q1, so it hasn't it hasn't changed dramatically.
No I never thought we'd be back everything this year I think it was consistent with that from the start but but we do see.
Our country and we do see continued program, but I think it probably is pushing back a little bit as as I said the reasons for that I think a multifactorial.
Part of it is because of the the code words, it's being that's ongoing so there are just not all negative there.
There is some there was some silver linings here out of this pandemic lease cobot draws a certainly a silver lining for us both on a treatment trial basis and on a vaccine basis, but in terms of the known co would do more when I say traditional portfolios. You know that's still got some way to go there to recover and so I'm thinking.
In Middle of next year is probably more the time from now than I did I thought perhaps six months ago.
Great. Thanks, and then and then just kind of on that same point I mean, if you could help it.
Is it more of the patients the inability to get patients to the sites because im.
The outbreak or is it really the sites not opening up or I know you earlier in the conversation with the question on capacity.
And you indicated that the name again, certainly you could train up more sites and this I'm just hoping maybe just to kind of create a little bit in terms of what what the main holdups are.
Or maybe if the sponsors maybe there so focus on running told me that they're just telling you to hold back on so many of the kind of the non covered works. If you can help just maybe parse through some of the key factors on that thank you.
Yeah, I've tried to give you a flavor it's a little qualitative we don't have any specific data on that and I would say, it's really decided but I'll tell you. It's all the above you know there is still an element of a patients not wanting to go to institutions not wanting to go to hospitals with pets.
Potentially the risk of any sort of infection, but a lot of it is is higher.
I think that's a component of it in terms of recruitment rates. We've certainly seen that I think there's an element of sites not wanting to take on new trials because.
Because they're busy with coated clinical work all they're doing.
Clinical trials.
Normal clearly clinical trials. So so there is a I think its multi factorial and I think you're going to find.
That sought impacted is a is not really we have seen our SATA initiation visits come back to normal a precise sellout EPS study sort of start up is coming back in terms of the number of sites were engaging in new trials going food, but there's no question, there's still an impact on on.
Of the covered a cohort of sorts with a current the portfolio within the current level is still impacted and I think it's for a multitude of reasons. There are opportunities as I said, we talked about our silicon network, where we say less impact in there. Okay that will be a that's a process, it's going to take a year or two to sort of really developed so we're not.
Ready to declare victory on that one yet, but I think there are things. We can do there are some opportunities I think to bring on new investigators and try not to invest in it that has its own challenges of course, that's not a panacea.
So the investment I think to be made the two to address some of these issues, but these you know this impact on sauces.
Every site is to some extent unique and they all have different focus most on different reasons and the you know the.
I'll try to give you a flavor for for some of those.
Great that's perfect. Thank you.
Your next question comes from the line of Brian <unk> from Bank of America.
Hi, Thank you I I.
I was juggling calls so I apologize if this was asked before about.
Covered related bookings for you have made up a decent proportion on some of the feedback that we've gotten is that covered bookings might be prone to a higher cancellation risk, especially after some of the pre eminent covered vaccine trials start announcing phase three data in the fourth quarter or later this year.
Do you agree with this notion and have you discount that you're covered bookings enough to account for this possible dynamics.
Yeah, you're right. Yeah. My question was asked a little earlier, but I'll answer it again.
He is that they are certainly our our bookings Q2, and Q3's coated bookings have been a substantial proportion of our wins at this stage, we haven't seen any increase in cancellations.
On that side.
You know they do tend to be sitting in a vaccine trial tend to be large material trials and the speed at which they burn as a a significant impact on us, but we haven't seen any increase in our cancellations. So we haven't taken any specific provision or any sort of actions related to that at this point.
Okay got it all right. Thank you I apologize for the yacht redundancy hopefully that African assets.
From London tackles, great. It was 13% this quarter about 100 basis points higher than what it's been typical for icon.
What caused the increase this quarter and it's your tax rate outlook in the out years is still about 12% I just want to confirm whether or not the blip up that we signed the quarter, whether or not it would have any long term implications for icon.
Hi, Ron or front end here.
I think we came into this year thing this indicator in the range of 12% to 13% a you know as as is always the case every quarter our tax rate dependent upon where we make our revenue and our operating income and you know I guess, it's just that the geographical shift of that little heavier towards North America and the last you know.
Last quarter, I think that will be the case in Q3 or Q4 as long. So I think Turkey is around right. This quarter is that for the next quarter and you know I think obviously, we'll give you more guidance in Colorado, the long term tax impact and when we get it into our guidance for next year, which we're going to do on the.
Before call, but you know 12, 13%, it's kind of you know exactly where we said it would be this year on that it looks like we'll be probably buying in the middle of that range from the half full year. So.
I think it's too early to say, if there's you know but.
If there's an all kind of a longer term tax implication that look at that and we've been solved it and that's what was that for a number of years.
Got it thank you and ever and ever since we reinstated guidance 2020 guidance could you just give us an updated outlook on what percentage of revenue your top customer supposed to account for our in 2020.
And funny enough I don't think it'll change really from the actual range. We gave at the beginning of the year, which was 12 to 14.
Yep got it.
Got it thank you I'll leave it there.
Hi, Scott.
And your final question today comes from the line of Tyco Peterson Okay.
Hey, thanks.
I'll start with one on operating margins I know you had a bunch of gross margins earlier and I know you don't provide operating margin guidance or just the question is you know you bounce back up to 50% this quarter and you had said earlier in the year you would see compression I think you can up to 2% you saw a little bit more in the second quarter, but as we think about the coated vaccine trials, having more pass throughs, which you know lower operate.
The markets, how do we think about that dynamic into the fourth quarter and 50% in ammonia.
And like I said it depends on the pace of those trials and how they ramp up during the course of the quarter, which will be a something that's difficult to measure sometimes and they are very fast moving trials that will be one piece of the terminal I think if they ramp up in line with our expectation right now it's kind of obviously we've guided.
The mid point, you're probably looking at about you know an impact it certainly wasn't impact on op income by I would say to in that channel and maybe a half to 1% on overall margin profile as it relates to that proportion of possibly coming through during the quarter, but again as I said. It does we're just really does depend on the quantum of.
That ramp up that we see in Q4.
Okay, and then they're in for Steve I. Appreciate your comments on the recovery and signed accessibility et cetera. I'm curious if there are things you can do as we think about kind of a second wave here to kind of minimize patient dropouts you know work around site closings. Our other proactive steps you guys are taking as caseload, you're going back up.
Yeah talk I know there are things, we could do I keep mentioning.
Keep mentioning network.
Well the care and altogether, we have a much better ability to influence there I think and so that's where we're trying to place a number of trials and they are making a significant contribution to our telecasts on making significant contributions to the to be trials, we're running at the moment, but there are other things, we can do to do more and oxides around.
Enrollment manages and clinical.
Managers, who can go to the sites and help to to deploy resources to help them with the you know with the work we have the Symphony group that it tends to be focused on patients and their and home care, but they also have the capacity to be able to go to sites as well and the support sites in in.
In what they are doing from a clinical trial point of view, whether it be helping to recruit patients hoping to see patients that don't qualify those is.
There were various things we can do around both covered and non covered portfolio to to help sites to deliver for US and then we're certainly doing that through the various functions we have an organization.
And then last one on Central lab I'm, just curious how much of that double digit growth. This quarter was catch up from last quarter and you had some delays. So you know how sustainable double digit growth in Central Africa again.
I think I think what we qualified our commentary around to say that we obviously were going to have the business wins in the central lab and that we're starting to see that pick up I don't think we're quite a double digit growth in central out in the in the current quarter, but we do expect good growth from them and in quarters for more than two I think a good proportion of dichrotec.
Okay.
Third parties are probably in line with maybe about a quarter of that growth is coming from those call back over to kind of hold us.
Okay. Thank you.
Okay.
For any closing comments. Thank you okay. Thank you operator, so thank you everyone for listening in today as the impact of the COVID-19 pandemic continue to vote on phone is focused on executing our strategy as we look to grow our business further and enhance our position as the C or a partner of choice I want to take this opportunity again to recognize our entire.
I will pools to thank them for their tireless efforts and ongoing resilience during what's been a very challenging period. Thank you everyone.
Thank you gentlemen that does conclude your call for today. Thank you all for participating and you may now disconnect.
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