ICON PLC (NASDAQ: ICLR), a global provider of outsourced development services to the pharmaceutical, biotechnology, and medical device industries, reported its third-quarter earnings for the period ending September 30, 2024. The company experienced a slight decline in revenue and gross business wins, attributed to cost pressures, slower biotech activity, and vaccine project cancellations. Despite these challenges, ICON's backlog grew to a record high, and the company announced stock repurchases while maintaining a focus on strategic partnerships and capital deployment.
Key Takeaways
- Q3 revenue was $2.03 billion, a 1.2% decrease year-over-year.
- Gross business wins for Q3 totaled $2.832 billion, down 7.3% from the previous year.
- Backlog increased to $24.3 billion, a 9.4% rise year-over-year.
- Adjusted EBITDA stood at $418.8 million, representing 20.6% of revenue.
- The company repurchased $100 million in shares and authorized an additional $250 million for buybacks.
- ICON has reduced its full-year guidance, projecting low to mid-single-digit revenue growth.
Company Outlook
- ICON anticipates low to mid-single-digit revenue growth for the full year.
- The company plans to provide specific guidance for 2025 in January.
- Strategic partnerships and M&A, especially in lab services and the Asia Pacific region, remain a priority.
- Management remains cautious about the biotech segment's recovery over the next few quarters.
Bearish Highlights
- The company reported slower recovery in the biotech segment and significant vaccine project cancellations.
- There was an increase in cancellations totaling $504 million during Q3.
- Revenue growth for the upcoming year is expected to be at the lower end of targets set during Investor Day in May 2023.
Bullish Highlights
- ICON secured strategic partnerships post-merger with PRA, which could offset headwinds.
- There is an increase in large opportunities entering the pipeline.
- The company has a strong RFP flow and pipeline across both large pharma and biotech sectors.
Misses
- Q3 gross business wins and revenue fell short of the previous year's figures.
- The company is adjusting its cost structure to align with current workloads while managing expenses.
Q&A Highlights
- Steve Cutler addressed the impact of big pharma partnerships on the company's wallet share and the shifting development models.
- The company has seen increased activity and secured three new large partnerships in the last year.
- Risks were deemed to have outpaced opportunities in the recent quarter, an atypical situation for ICON.
- Management confirmed that issues with large pharma clients were specific to certain significant customers but were not indicative of broader industry trends.
ICON PLC continues to navigate a challenging market environment with strategic focus and operational adjustments. The company's robust backlog and ongoing partnerships suggest resilience despite near-term headwinds. Investors and stakeholders will be looking forward to the specific guidance for 2025, which is expected to be provided in January, to better understand ICON's position and prospects in the evolving pharmaceutical services landscape.
InvestingPro Insights
ICON PLC's recent earnings report and market performance align with several key insights from InvestingPro. The company's stock has taken a significant hit, with InvestingPro data showing a 24.9% decline in the past week and a 25.2% drop over the last month. This aligns with the company's reported challenges, including revenue decline and slower biotech activity.
Despite these short-term setbacks, InvestingPro Tips highlight that ICON is trading at a low P/E ratio relative to its near-term earnings growth, with a PEG ratio of 0.83 for the last twelve months as of Q3 2024. This suggests that the stock may be undervalued considering its growth prospects, which could be of interest to value investors.
The company's profitability remains strong, with InvestingPro data showing a revenue of $8.31 billion and an EBITDA of $1.69 billion for the last twelve months as of Q3 2024. This financial stability supports ICON's ability to continue its share repurchase program and focus on strategic partnerships, as mentioned in the earnings report.
It's worth noting that InvestingPro lists 11 additional tips for ICON, providing a more comprehensive analysis for investors seeking deeper insights. These tips, available through the InvestingPro product, could offer valuable context for understanding ICON's market position and future potential in the pharmaceutical services industry.
Full transcript - ICON PLC (ICLR) Q3 2024:
Operator: Good day, and thank you for standing by. Welcome to the ICON PLC Q3 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] And please also note that today's conference is being recorded. I would now like to turn the conference over to Kate Haven. Please go ahead.
Kate Haven: Good day, and thank you for joining us on this call covering the quarter ended September 30, 2024. Also on the call today, we have our CEO, Dr. Steve Cutler; our outgoing CFO, Brendan Brennan; our incoming CFO, Nigel Clerkin; and Senior Vice President of Corporate and Commercial Finance in Reliance. I would like to note that this call is webcast and that there are slides available to download on our website to accompany today's 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 date 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 information about the risks and uncertainties relating to these forward-looking statements may be found in SEC reports filed by the company, including the Form 20-F filed on February 23, 2024. This presentation includes selected non-GAAP financial measures, which Steve and Brendan will be referencing in their prepared remarks. For a presentation of the most directly comparable GAAP financial measures, please refer to the Press Release section titled Condensed Consolidated Statements of Operations. While 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. Included in the press release and the earnings slides, you will note a reconciliation of non-GAAP measures. Adjusted EBITDA, adjusted net income and adjusted diluted earnings per share excludes stock compensation expense, restructuring costs, foreign currency gains and losses amortization and transaction-related and integration-related costs in their respective tax benefits. We will be limiting the call today to 1 hour and would therefore ask participants to keep their questions to one each in the interest of time. I would now like to hand the call over to our CEO, Dr. Steve Cutler.
Steve Cutler: Thank you, Kate. Before I begin my remarks on the quarter, I wanted to briefly welcome and introduce our incoming CFO, Nigel Clerkin, who is joining us on the call today. Nigel is an accomplished executive with excellent experience across both biopharma and pharma services organizations in a public and a private setting. We are thrilled to have him join our executive team at ICON. In addition, I want to extend my sincere thanks to Brendan, as this will be his last call with us, concluding a highly successful career at ICON. Thank you, Brendan for your partnership and many contributions. Moving to the results for the quarter. Simply put, ICON's results for the third quarter were not in line with expectations we had previously anticipated. As in any period, we forecast, we have a number of risks and opportunities that are identified across our business that generally counterbalance as we progress through and close out the quarter. In this most recent quarter, the identified risks materialize to a greater extent than expected. And despite our efforts, the identified opportunities did not offset this impact resulting in a greater deviation from forecasted results than we would typically see. This was due to three main reasons. First, we are seeing a small number of top customers, who are experiencing continued cost pressures and are implementing actions to manage their development spend more tightly. Second, within our Biotech business, slower decision-making and capital allocation led to award delays and slow trial starts. And finally, we had a large number of project delays and cancellations late in the quarter within our fast burn vaccine area that materially impacted revenue. To provide more detail on each of these challenges, the first was attributable to lower than anticipated revenue contribution from two of our largest customers that are undergoing development model transitions, which we have been supporting them with since the start of the year. As we have previously highlighted, we are seeing an increasing emergence of hybrid development models amongst our large pharma customer base, which has uniquely positioned ICON to win a disproportionate share of these large partnership opportunities. Heightened focus on portfolio prioritizations leading to tighter development spend emerged through the quarter delaying the expected ramp-up of new work that was forecast to begin in their new models. What this has resulted in is studies closing out in their previous model without the counterbalancing revenue from new studies as expected. While this creates pressure from a revenue perspective in the near-term, which we have reflected in our full year revenue guidance, we do believe this is an isolated impact that will be increasingly offset by growth outside of these two accounts as we move forward, and is underpinned by the revenue growth we've seen outside of these customers, which we expect to be in the mid-single-digits on a year-over-year basis for full 2024. The second issue was slower than expected activity in our Biotech segment. Both from a business development perspective, which impacted our total level of new awards as well as in operational prioritization decisions, which resulted in negative study modifications and delays in study startup that occurred in the quarter. While we continue to see a positive level of overall opportunity flow in this segment, customers continue to operate with caution in terms of the overall use of their capital. This is impacting the speed of decision-making on both award of new work and how quickly customers are starting new trial activity. We saw several decisions on large award opportunities delay into quarter four, as customers required additional time to review final scope specifications before making award decisions, which are anticipated to take place this quarter. Lastly, we saw an outsized level of vaccine-related cancellations in quarter three, totaling approximately 20% of overall cancellations, which combined with slower COVID activity is also contributing to the lower than expected revenue in the second half of this year as these programs are fast burning in nature and were expected to start in the quarter. While we are dissatisfied with the performance this quarter and the reduction in guidance for the year, the factors contributing to the results are well understood by our team and we are taking decisive action to manage them appropriately. We will deliver on one of our strengths, which is expertly managing costs. This includes aligning our resources in the right locations globally to best support our customers and their critical projects as we continue to act as a strategic partner and deliver on our commitments for not just the short-term, but their long-term needs. We have already implemented players to improve processes and reduce overall costs across the organization and we expect to see some benefits of these actions in quarter four and more fully as we move into 2025. This includes accelerating actions we already undertake as an organization with 40,000-plus employees assessing spans and layers across our organization to determine optimal levels of oversight and utilization to drive efficiencies. Finally, we continue to increase our adoption of automation and the use of technology across our business to leverage our scale and center of excellence model. We remain confident in the underlying health of our business. The progress we are making in building critical partnerships and our continued ability to deliver for our customers. In our large pharma business, we have been successful in renewing all strategic partnerships this year, and I'm very pleased to announce the award of another Top 10 strategic partnership, which was finalized in quarter three. ICON was selected for the breadth and depth of our capabilities including our therapeutic experience and expertise as well as our innovative approach in addressing challenges across the development continue. The addition of this new competitive win brings our new strategic partnership count within the Top 30 pharma to three in the past 12 months. clearly showing our momentum in gaining market share in this important space. These relationships are already delivering increased opportunity flow to our pipeline and new awards to our business. We are seeing a notable increase in therapeutic areas such as cardio and metabolic diseases with new award growth increasing over 50% on a trailing 12-month basis, which is helping to offset the drop-off in vaccines. In quarter three, we had solid growth in our total backlog of 9.4% on a year-over-year basis with strength in new awards from laboratory and early phase services. However, there was an increase in total cancellations in the quarter driven by an outsized number of vaccine programs relative to our normal expectations. Relative to when we started this year, we saw more meaningful transitions in our business than anticipated with a significant level of COVID-related work moving out of this calendar year. Two of our large customers undergoing more significant development model shifts with resulting cost pressures and the biotech market that is taking longer to recover and remains cautious. Despite these circumstances, we have still managed the business to drive revenue growth of 5.6% excluding COVID-related revenue and adjusted earnings per share growth of 13.5% both on a year-to-date basis. We remain encouraged that opportunities across the totality of our business continue to track positively given the contribution from new strategic partnerships as well as increased opportunity flow from biotech, which we believe is still supportive of holding at least a 1.2 times net book-to-bill ratio on a trailing 12-month basis. Fundamentally, our view has not changed in our mid- to long-term outlook for our industry and the opportunity for ICON. We continue to deliver for our customers across all segments of our business and will appropriately manage our business as we transition through what is a more challenging environment in the near term for specific customers and as a result for ICON. As we look forward to 2025, we are not yet issuing specific guidance for the full year, but plan to do so, as we normally do in January when we present at the JPMorgan (NYSE:JPM) conference. At a high level, provided the opportunity levels continue through the balance of the year, we would anticipate continuing to target a book-to-bill of 1.2x to 1.3x on a trailing 12-month basis. We would note that we are seeing an uptick in pass-throughs, as a more meaningful component of total trial costs, even in non-vaccine areas of the portfolio which is expected to start to reflect in our overall revenue mix next year. While there are certain large pharma customers in our portfolio that remain challenged in their spending outlook for next year, our initial view on growth outside of these specific customers is positive and indicative of our overall development spend growth. While recovery in the biotech segment has been slower than we anticipated relative to the start of this year, large opportunities have been increasingly moving into the pipeline. And our performance this quarter from a business development perspective will be an important determining factor to growth in this segment for ICON next year. In totality, we will anticipate revenue growth in the low to mid-single-digit range for the full year, which takes into account the expected headwinds, which we expect will have a greater impact in the first half of the year. We continue to be extremely well positioned to take market share and grow in new and existing accounts, as evidenced by the recent strategic partnership wins we have accumulated since our union with PRA. The potential for these new partnerships to offset the aforementioned headwinds is very real, as we move into 2025 and this in addition to the growth of our strategic customers gives us confidence that ICON will emerge from this transition period even better positioned and diversified across our customer base. We remain committed to our capital deployment strategy which is focused on executing M&A in the areas of the portfolio we would like to strategically expand our capability and presence. Principally in our ancillary businesses such as laboratory services, site and patient solutions as well as select geographic areas such as Asia Pacific. We have opportunities in our pipeline that we are actively engaged on that could be executed in the short term. In addition, we have stated we would opportunistically evaluate deploying capital towards share repurchase which we did late in quarter three totaling $100 million worth of stock repurchased. We have recently secured authorization for a further $250 million for share repurchases which gives us a total of $650 million now available for further repurchases. We anticipate remaining active in opportunistic share repurchases through the balance of this year and beyond. Before I hand over to Brendan, I want to extend my thanks as always to our hard-working and dedicated employees across the globe that are committed to driving our mission and supporting our customers in accelerating their development programs. Brendan?
Brendan Brennan: Thanks, Steve. In quarter three ICON achieved gross business wins of $2.832 billion, a decrease of 7.3% on a year-over-year basis. In addition, we recorded $504 million worth of cancellations resulting in net awards in the quarter of $2.328 billion and net book-to-bill of 1.15x. With the addition of the new awards in quarter three our backlog grew to a record $24.3 billion, representing an increase of 2.1% on quarter two of -- quarter three of 2024, or an increase of 9.4% year-over-year. Our backlog burn was 8.5% in the quarter, down from quarter two levels. Revenue in quarter three was $2.03 billion. This represents a year-on-year decrease of 1.2% or 1% on a constant currency basis. Overall, customer concentration in our top 25 customers increased from quarter two 2024. Our top five customers represented 24.8% of revenue in quarter two. Our top 10 represented 4.6% while our top 25 represented 62.9%. Gross margin for the quarter was 29.5%, a decrease of 40 basis points on quarter two, 2024. Gross margin decreased 30 basis points over gross margin of 29.8% in quarter 3 of 2023. Total SG&A expense was $180.4 million in quarter three or 8.9% of revenue. This is an increase of 20 basis points on the prior quarter of 8.7% of revenue. In the comparable period last year, total SG&A expense was $180.1 million or 8.1% of revenue. Adjusted EBITDA was $418.8 million for the quarter or 20.6% of revenue. In the comparable period last year, adjusted EBITDA was $422.5 million or 21% of revenue, representing a year-on-year decrease of 3.2%, a contraction of 40 basis points in margin. Adjusted operating income for the quarter three was $383.8 million, a margin of 18.9%. This was an decrease of 4.3% on adjusted operating income of $401.1 million, a margin of 19.5% in quarter three of 2023. Net interest expense was $49.4 million for the quarter. We continue to expect the full year interest expense to total approximately $200 million to $210 million in 2024. The effective tax rate was 16.5% for the quarter, and we continue to expect the full year 2024 adjusted effective tax rate to be approximately 16.5%. Adjusted net income for the quarter was $279.2 million, a margin of 13.8%, equating to adjusted earnings per share of $3.35, an increase of 1.5% year-over-year. In the third quarter, the company recorded $7.9 million of transaction and integration-related costs US GAAP income from operations amounted to $285.4 million, or 14.1% of revenue during quarter three. US GAAP net income in quarter three was $197.1 million or $2.36 per diluted share compared to $1.97 per share for the equivalent prior year period, an increase of 19.8%. Net accounts receivable was $1.172 billion at the 30th of September 2024. This compares with a net accounts receivable bonds of $1.198 billion at the end of quarter two, 2024. The DSO was 52 days at September 30, 2024, an increase of three days from quarter three, 2023 and an increase of one day from June 30, 2024. Cash from operating activities in the quarter was $402.7 million and free cash flow was $359.4 million in the quarter, an increase of 15% on a year-over-year basis. We saw a nice improvement in cash collections in quarter three despite the ongoing dynamic present with our customers, particularly large pharma organizations looking to hold on to cash longer and seeking competitive credit terms. Despite this dynamic, we remain on track to achieve our original full year guidance of cash flow of circa $1.1 billion. At September 30, 2024 cash totaled $695.5 million and debt totaled $3.4 billion, leaving a net debt position of $2.7 billion. This compares to net debt of $2.9 billion at June 30, 2024 and net debt of $3.7 billion at September 30, 2023. Capital expenditure during the quarter was $43.3 million. We ended the quarter with a leverage ratio of 1.6 times net debt to adjusted EBITDA. Our key assumptions behind the full year guidance are largely unchanged and effective tax rate of 16.5%, free cash flow target of circa $1.1 billion, CapEx spend of circa $100 million and interest expense in the range of $200 million to $210 million all for the full year 2024. With all of that said we'll now open it up for questions operator.
Operator: Thank you. [Operator Instructions] We are now going to proceed with our first question and the questions come from the line of Elizabeth Anderson from Evercore. Please ask your question. Your line is open.
Elizabeth Anderson: Hi, guys. Thanks so much for question. Welcome Nigel. Can you maybe provide us with a little bit more color on sort of your confidence around Pharma 2025 budgets in terms of your top customers like -- are they -- are you feeling to have good visibility at this point that they've all sort of set their spending in cut levels for those of them who are reducing spending in certain areas do you feel like you have a good grasp on that. I just want to kind of understand that a little bit further as we think about sort of -- the sort of fourth quarter and then into 2025? Thank you.
Steve Cutler: Sure, Elizabeth. So I think overall we see the large pharma market in totality to be growing at a reasonable rate in the sort of low to mid single-digits. Obviously, we're more exposed in a couple of cases to a couple of large customers and that it's somewhat of a different story. We do believe I think as we get into 2025 that we'll see the bottom of that -- of the slowdown with those particular customers that we have and we'll start to move upwards probably more towards the back end of 2025. So we do have some visibility. Certainly in terms of one of them we -- I think we have some clear visibility we're probably at the bottom as we are towards the end of this year. The other is a little less clear to be very honest. But we do think we're approaching that point. And by the middle of next year we will be sort of moving on the upslope away from some of the declines we've seen with those particular customers. So overall I think we see the large pharma market is net positive as I say at 3% to 4% 3% to 5%. And so we believe we can benefit from that particularly with the strategic partnerships that we've been successful in winning over the last couple of years really. And so overall we see it as a medium to long-term positive. But we've got some -- a transition period to work through over the next two quarter to three quarters.
Operator: We are now going to proceed with our next question. The questions come from the line of Michael Cherny from Leerink Partners. Please ask your question.
Michael Cherny: Good morning and thanks for taking the question. Maybe if I can follow on a similar trend to Elizabeth's question, but tied to biotech demand. You're not the only company that's signaling any type of concerns or worries about the state of decision-making the biotech market. As you think through the various different constituencies that you work with across biotech is there anything that you can glean about various pockets of strength and weakness versus disease state versus status of where these companies sit from a venture funding perspective. Similar to the pharma question where does that comfort factor lie about the pacing of biotech recovery given that obviously market wide it's been a bit slower than we all would have anticipated?
Steve Cutler: Yes, Michael that's probably we're probably a little less certain in terms of biotech. We've been calling the end of the biotech challenge for several quarters now. And clearly as we've seen in this quarter we're not there yet. We see the same data you do in terms of their funding they had a good start to the year, that it went slow in the middle of the year, and then September seemed to be positive. And we're getting the same sort of vibes from our customers in terms of their allocation they seem to be able to raise capital particularly for good science. But allocating it they have been -- they have delayed decisions. They have delayed awards descoped projects and there has been some uptick in the cancellation side of things. So, I don't think we're ready to quite call the end of the challenges in the biotech segment just yet. We do believe I think long-term, the -- it will be positive and we'll move back to a very solid position. And I think there's certainly data that would support that. But I think the next -- again, the next two to three quarters it remains somewhat uncertain. We do see, as I say, some optimism in the segment in terms of the RFPs numbers we're seeing through. They're solid. They're certainly solid enough. There's plenty of opportunity. in our pipeline, but it's nailing that opportunity down and converting even those awards into our projects that start and the burn revenue at the rate and to the extent that we expect is where the challenges lie. And I think we're not quite at the bottom of that yet. So, I'm sorry if I'm not able to give you sort of a definitive answer on that but we continue to find that one probably the most challenging aspect of our business.
Operator: We are now going to proceed with our next question. The questions come from the line of Luke Sergott from Barclays (LON:BARC). Please ask your question.
Luke Sergott: All right. Great. Thanks guys. I guess as you think about the recovery here and into 2025 and the market kind of being that low single-digit growth and you guys typically growing at the high end of that. Is that still a safe assumption here as we think about 2025? And then as you also think about the margin implications here the flexibility of your model and like that model one/hybrid business that you can provide allows a lot of flexibility to scale up and down resources pretty quickly. So, given this was late in the year understandable hits in 4Q. But how do you right-size those and how we think about that margin progression as the business starts to ramp back up?
Steve Cutler: Yes, Luke, I think we said pretty clearly on the call, we're not going to provide any sort of guidance for next year. We're looking hard at the business certainly over the next three or four months and we'll provide that guidance in January as we normally do. Having said that, we do believe we can grow next year. It's probably going to be more in the low to mid-single-digits at this point. That's kind of our -- certainly our expectation. We're not making any projections on margins at this point. You know how the mix of our business is changing with the vaccine studies coming through and some uptick in the functional work being counteracted and offset by some progress on the full service, particularly with these new strategic partners that are coming in on a full-service basis. So, there's puts and calls from a margin point of view in both -- on both ways. We do -- as I say, we do expect revenue growth. That's what we'll be working for. But at the moment, we're not going to be too specific about that we will be as we say as we get to JPMorgan in January.
Operator: We are now going to proceed with our next question. The questions come from the line of Justin Bowers from Deutsche Bank (ETR:DBKGn). Please ask your question.
Justin Bowers: Hi. Good afternoon. And just pivoting back to large pharma a two-part question. On the development model changes in the replenishment cycle, how much visibility do you have into this dynamic persisting? Or is this a step change in that funnel? And then, is the messaging there that these two customers will sort of be a headwind into 2025 and then the rest of that customer cohort the Top 20 would then grow?
Steve Cutler: To answer your second question first, Justin, I think that's a reasonable way to characterize it. We certainly see growth outside of our Top 2, I think of the extent of around 6%. And we're happy to see that and that's fueled in many cases by more full-service work better margin work. And so, we think there's a nice offset on that front. In terms of the more functional, is that a permanent? These things are never permanent. These things tend to wax and wane depending on who's in charge of the company and what the operating model dejour is. We have some opportunity I think to work in both models, effectively in both models. We talked about our hybrid model and our ability because we are the largest functional provider to provide hybrid functional and full-service components of any sort of development program or portfolio. So, we do believe we're very well positioned no matter which way the market goes to be able to prosecute and to win that work. But as I say, at the moment, we're seeing that push towards a more functional approach persisting, at least in several of our top customers but it is being offset to some extent by some movement towards full service in other parts of the business. And of course, our biotech customers are all full service. So, as always, there's puts and calls, and there's an offset tailwinds and headwinds on this thing. I mean generally, we feel the market overall will progress nicely if we can prosecute and execute our projects as we believe we can, we believe we can get some modest margin uptick but that all remains to be seen. And as I said, we're not going to be specific about 2025 will be on just at this point.
Operator: We are now going to proceed with our next question. The questions come from the line of Ann Hynes from Mizuho. Please ask your question.
Ann Hynes: Yes. Good morning. Thank you. Just the long-term goals you provided at the recent Investor Day to 2027, it seems like the environment has changed. Do you think it's still possible by 2027 what you see now to at least hit maybe the low end? And if you can't do it on the revenue side, would you commit capital to share repurchase to at least hit the EPS goals?
Steve Cutler: Yes, that's a question we're looking at very hard. We certainly will be looking at very hard over the next couple of months as we come towards the end of the year. But to give you a high-level answer on that, we do believe we're well positioned to be able to achieve those goals. Perhaps towards at the lower end of the range and perhaps towards the end of 2027 might be the caveats I would give you. But we certainly haven't given up on those goals. We believe we're as I said well-positioned in the marketplace to gain market share. We do believe we're gaining market share particularly with these strategic customers. And as we move through this transition period as I said the next two to three quarters, we believe we're going to be in a good place to be able to accelerate our growth in the more medium term and move back towards achieving the goals we put out at our Investor Day in May. As I said perhaps more towards the lower end and we're certainly prepared to utilize our balance sheet to prosecute the share buyback options and we also are very much in the market on the M&A side of things where we can bring in components of the business to supplement what we already have and to improve the performance of what we already have. That's certainly the push on the M&A side of things. So we do believe we've got the tools in the toolkit. We do believe we've got the balance sheet and we do believe we've got the people and the strategy to achieve the goals that we set out.
Operator: We are now going to proceed with our next question. The questions come from the line of Patrick Donnelly from Citi. Please ask your question.
Patrick Donnelly: Hi guys. Thank you for taking the questions. I wanted to follow-up. I think with Luke's question on some of the margin stuff. I know you guys talked a little bit about some cost actions. Can you frame up what you guys are going to do on the cost side if the magnitude is possible that would certainly be helpful? Basically just trying to figure out when you look at the second half year implying EBITDA margin somewhere above 20%, is that a fair number to think about next year? And just the cost out piece would certainly help contextualize that. Thank you guys.
Steve Cutler: Yeah, Patrick, in terms of cost I think it has been noted, we've acted fairly quickly to realign our cost base with the work that we have in the backlog and the work that's proceeding in the backlog. Absolute priority for us is to make sure that our customers have the resources they need to get their critical projects done. That is priority absolute number one. And we we're very focused on doing that. Having said that, we do recognize that an adjustment on the cost base is important and we're pulling a number of levers whether it be spans of control, whether it be looking at where we have an excess of people in certain areas but we are looking very hard at doing that and taking fairly decisive actions. So I'll leave it to that. I do believe it will have some impact on quarter four not a huge impact but really that impact will be as we get into 2025. And I do believe we have some other areas we can look at as well and it's not just a one-off. We're going to continue to look at what we need to do on a cost base. And we do it well. It's something I think you would all know is one of our key strengths. We manage our costs very well. We don't wait around and then hope for the best. We actually take action and we're doing that right now. And I think that's an important component and something you should take some confidence in that we will address that. Brendan you want to address on that?
Brendan Brennan: No, I think just from my perspective here, obviously, this is a big services organization. It takes time to move that ship in terms of cost base. And I think it's appropriate with Steve's comments in terms of ensuring that we have delivery to customers. That's, obviously, of paramount importance to us as an organization. This is kind of a -- it's a bit of an odd quarter for me because it's a very effective quarter as well as everything else. But over the 19 years I can tell you definitively it's not one or two people that focus on the cost base in ICON it's everyone. So I think that's something to bear in mind, as you go forward here that this organization will continue to challenge itself continue to push itself. And as Steve said in his opening comments that, it has the quality and the strategy to do that. So I think that's probably -- we're not going too far into giving indications on what guidance is next year, but I think that's the point you need to recall.
Operator: We are now going to proceed with our next question. And the questions come from the line of David Windley from Jefferies. Please ask your question.
Q – David Windley: Hi, good morning. Thanks for taking my question. I wanted to come back to big pharma with a little different angle. Steve with the partnerships that you had at the time of the PRA acquisition or merger and the ones that you've won since as you highlighted this morning, you got a pretty broad footprint across Top 20 or Top 25. I guess my question is, twofold. One is that is, how much of the wallet do these partnerships avail you of and maybe that's mixed in different categories or whatever, but I'm just interested in what cases are you kind of paying the client and in what cases might you only be in one therapeutic area or only in one service or something like that. And then, with that footprint and that opportunity to interact with those clients at that higher level, and to the point that you made about development model changes, how much of this is kind of major adjustment by big pharma to the outlook that they have loss of exclusivity cycle, a new pricing dynamic in the US and really reevaluating returns on invested R&D, and repositioning or pivoting pipeline. And the bottom line on this part of the question really is, is it just these two? Or are we only kind of midway through a lot of big pharma clients doing these types of things? Thanks.
Steve Cutler: Right. Okay. That's quite a question. Let me start with the first one. In terms of the sort of share of wallet for what we do with the strategic -- it really does vary. I would say in most cases, we are selected as either one of one, one of two or one of three perhaps on the floor, but it's usually in the sort of up to three -- one or two cases where the sole provider, but that doesn't happen very often. More cases, it's more one of three, and we do get access to their entire outsourcing portfolio. And so we have the opportunity to bid, and we bid usually against the other one or the other two. And -- if we've been doing the work in Phase 2, we have an inside run. And if we've been in a good job in Phase II, it's almost a noncompete, if that makes sense. And so obviously, it behove us to execute and prosecute our trial as well with those strategic partners and we build those partnerships and get that work almost on, as I say a noncompete base. In terms of -- there are one or two where it's more therapeutically focused or if you like. but in that case there's probably less competition. So we may be allocated the cardiovascular side of things or the oncology side of things or the metabolic side of things. And in that case, we'll get to bid and unless our pricing is well out of whack or there's some questions. We won't be in a competitive situation. We've already negotiated rate card terms and conditions, et cetera. So it's a less competitive situation although, we're probably -- we are working within a more narrow slice of their portfolio. In terms of whether these models that we're moving to and we've seen over the last couple of years moving to a part of a major adjustment in response to pricing challenges IRAs patent clips, et cetera. That's a hard one to answer Dave. It really is. We do see these sort of models tend to be correlated with certain managers and certain leadership styles. And when new people come into organizations they tend to apply the management or the outsourcing model that they've seen work before that they like. And so it may be as much to do with the individuals in charge of the development spend and the development organization in the pharma than it is on any sort of particular price pressure or patent cliff, et cetera, et cetera. We do see – we see things going both ways to a more functional approach, some customers the more recent wins have been to a more full service approach, again offsetting any pressures on a margin line from the functional. And so it goes both ways. I don't think there's any sort of particular tsunami or any sort of trend or that's moving across the industry one way or the other quite frankly. And so we take it in those terms. In terms of customers responding to some of the regulatory challenges that they face inevitably they talk about those and they work through some move in a more functional basis and some are moving more full-service spaces. And some it's because their pipelines are so full or their requirement to develop drugs is so critical because they're growing so fast that they are tending to outsource and that tends to be in a more full service base. So I think it's a long way of telling you that, it's not particularly correlated with any particular regulatory or external factor. It's a multitude of things and each customer or each pharma has their own set of circumstances and they pick their models based on those.
Kate Haven: I think I'd just add quickly, Dave that it has presented us though with a lot of opportunity. I think it's fair to say over the last 18 months we've probably seen more activity, right? That's been caused by some of these concerns from a macro perspective, whether it be IRA or some of the other issues that have come up and caused large pharma to take a hard look at how their development organizations are structured and where they need to get to over time. Obviously, the outlooks are going to be different on a customer-by-customer basis. But that gives us an opportunity to go in and really fight for or continue to defend our position in existing partnerships and have an opportunity to win new ones. And obviously, we've been successful winning three new large partnerships in the last 12 months and that's critical in terms of our growth outlook for the future. So it's not necessarily a negative in terms of these customers looking at – looking harder around their development spend and opportunities.
Operator: We are now going to proceed with our next question. Questions come from the line of Max Smock from William Blair. Please ask your question.
Max Smock: Hey, good morning. Thanks for taking our question. I just wanted to make sure I understand the drivers behind the miss on gross bookings versus the miss on revenue here because of all the factors you mentioned at the top of the call, the only one that really struck me as being more tied to new bookings and that burn rate was the award from small biotech. So – can you just walk through kind of what are the key drivers for that shortfall in net bookings, specifically? And if it really is just small biotech slowing down on the front end, is it fair to assume that that cohort has taken a meaningful step back over the last couple of months here. Just given the size of that booking step down that we saw in the third quarter?
Steve Cutler: Yes. I think if you had asked me for one the major reason Max on the bookings shortfall it is the delay in decisions particularly from the smaller and biotech customers. They -- despite the fact the -- we know the capital markets have been a bit uncertain and a bit volatile and that's up and down every month seems to be a different one. But they -- even the ones that have been able to raise capital -- they seem to have there are delays and they do seem to be reprioritizing even some of their current programs. So it really -- I think it really did come down to slowness in decision-making in the biotech segment as the main reason we fell a little short of our target 1.2 to 1.3. Having said that as I indicated in my comments -- there are some good opportunities in the pipeline. And the RFP flow continues to be solid across both segments of our market both large pharma and biotech. And so is it I'd like to think it's a one-off and a short-term issue. But as I said previously again the biotech segment is bit volatile at the moment. And I'm not quite sure we're ready to call the end of that volatility or uncertainty. So that may well continue. But I do think that going forward as I say 1.2 to 1.3 on a trailing 12-month basis is a very achievable goal for us.
Operator: We're now going to proceed with our next question. The questions come from the line of Michael Ryskin from Bank of America (NYSE:BAC). Please ask your question.
Michael Ryskin: Great. Thanks for the question. This might be related to your last point just now on net bookings and some of the volatility in biotech. But earlier in your prepared remarks you kind of talked about two things that happened in the quarter both risks materializing to a greater extent and some of the opportunities not offsetting -- so just trying to think about the revised guide for 2024 and your comments about low single digit, mid-single digit for 2025. Maybe putting it this way are you more worried about the risks being more protracted and thinking about the two pharma that you talked about the reprioritization there? Or do you feel less confident in some of the opportunities offsetting? Which of those two components that you adjust more when revisiting the guide?
Steve Cutler: That's a good question Michael. In our business there are always risks and there are always opportunities. And as I said in my prepared remarks in this quarter for the first time in probably 55 or 60 quarters that I've been involved in the company. There really was a very substantial difference in what played out. The risks well outweighed the opportunities. I think going forward we'll reformulate and relook at what those risks and opportunities are and be able to be a little bit more accurate if that's the right word in terms of how we think the work is going to go and how it's going to come in. Quarter three as you all know is probably the most challenging quarter in the year given that August is very quiet. Our customers are away, sites are away. It's sometimes difficult to get the information you're looking for. And then everyone comes back in September and down to a number of key decisions as to whether you cure book-to-bill number or not. And so it is a challenging quarter. And when things don't hit and they don't go as we'd expect that the very short-term impact plays out as it has for us in this quarter. I don't see going forward that we're going to have this sort of quarter. In fact, I would hope we're not going to see this sort of quarter on a regular basis. We've got a pretty good track record as I said over the last 50 quarters or 60 quarters. So we've been reporting at least that I and Brendan have been involved in reporting. And we feel our track record is pretty good. I don't think one quarter changes that. I recognize some disappointment. And certainly, the quarter as it is, it's not up to our expectations. But I don't think our process is fundamentally broken. I think we need to just look at ourselves a little bit more closely and make sure that we are projecting and forecasting in a way that is reflective of those risks, but I don't see the risks necessarily outweighing the opportunities more so going forward than they have in the past.
Kate Haven: I think importantly, Mike, we are -- we have reflected that in the forecast for Q4 in terms of that impact, obviously, from those issues we saw that came up in Q3 continuing in Q4. And obviously, we've anticipated that in terms of the updated guide. So we haven't made any different assumptions around opportunities outweighing that in a different way than what had played out this quarter.
Operator: We are now going to proceed with our next question. The questions come from the line of Dan Leonard from UBS. Please ask the question.
Dan Leonard: Hi. Thanks. Another question on large pharma demand, which I think is similar to David's, as we're all trying to guess who is customer number two, we can come up with half a dozen names that fit the descriptor in your press release, which is what begs the question on whether this issue is really isolated or not. So are there some examples you can share where perhaps the headlines that we're reading aren't really mapping to your experience and your revenue growth with the customers. And if I can ask a second part, same question. Elsewhere in the R&D supplier landscape, looking at equipment suppliers, for example, they've been talking about large pharma weakness for a good 18 months now. So what comfort do you have that there is some pig through the python phenomenon going on here where you're just getting hit with a lag. And we could be talking about this for a good while longer?
Steve Cutler: Dan, I'm not quite sure I understood your first question. Do you want to run that for me again, please?
Dan Leonard: Yes. Yes. The first question, so you mentioned two customers in large pharma, right? And one of them, I guess, we can presume as Pfizer (NYSE:PFE), and we're all trying to guess who is customer number two. And we're looking at your descriptors around pipeline prioritization and development models and just trying to map those to headlines, there's half a dozen names that investors can readily come up with, which is what is begging the question whether or not the issues are isolated. And I wonder if one of the ways to address that is perhaps you could share examples where there have been some negative headlines, but you're still growing despite that because of all the reasons you talked about earlier, if that would help add some comfort.
Steve Cutler: Let me have me correct that. We're not going to -- we don't talk about specific customers, at least, we just name specific customers. You know that. But I think it's we believe the issues that we have with these customers are isolated to them. And it's not that they are the only ones moving in the direction they are, whether it's changing their development model or moving towards a more functional approach. It is -- the issue for us, of course, is that they are very significant customers for us, and they're both going in the same direction at a similar rate of knots. And so that's the specific issue that we have. And to be a bit more specific, as they changed their model, we certainly anticipated a decline in revenues from a certain part of their business in terms of their full service work. What we also expected was a much more significant uptick in their functional business. And that's really where the -- what hasn't happened so much. And so the sort of differential, if you like, has become much more expansive or much more expanded than we had anticipated at the beginning of the year and even as we went midway through the year. So it's that differential of what they -- they would award us versus what they have in what that. And that's really because they haven't been doing that work because of the budget cuts. I think they've been cutting back on their pipeline. And so it is very specific. We do believe it is somewhat -- it is totally isolated to these. So it's not that others aren't moving in -- are not doing similar things, but they're certainly not having the sort of impact that they have on our portfolio and our level of work. So I hope that helps you to clarify that. In terms of the other -- some other customers or other, sorry, companies in related industries, and they have commentary on the large pharma models. I can't comment specifically on their businesses or what they do. We don't see this as a sort of something that's going to extend further. We do see it as a relatively isolated issue that's happening, as I say, with two of our largest. We work, though, with all of the large pharma customers. And across the totality, as I said, of the business, we feel pretty good about where that's going, and we certainly feel pretty good about the opportunity to gain market share. We believe we're doing that. And we believe going forward we'll be able to do that more, and we'll reflect that more in our growth rates in the more mid-to-long term than we will in the short term. We're still working through, as I said, this transition period, as we move that pig through the snake, to sort of coin your analogy. We believe we're going to be in a good position to grow the entirety of that segment in a more consistent and a more long-term manner. So overall, I'll keep saying it: we see medium-to-long-term constructive and positive on the market and on our ability to grow within it. It's a transition period here for two quarters that we're working through. And as you've seen from our guidance, we've got a challenging quarter in Q4 to deliver, and we're going to do that. And then we'll move into next year, and on the basis of what we've got in January, we'll give you a flavor for what's going to happen there.
Operator: We are now going to proceed with our next question, and it comes from the line of Jailendra Singh from Truist Securities. Please ask your question.
Jailendra Singh: Thank you, and thanks for taking my questions. Just a quick clarification, which could be just a nuance: that low-to-mid single-digit growth rate for 2025, is that just organic? Or are you including M&A there? And then my main question: on backlog burn rate, it declined up 60 basis points sequentially. Can you share some details around how much of this drop was driven by business mix versus, like, some of the non-vaccine-related opportunities not converting to revenues in the quarter? And how do you think about these non-vaccine opportunities coming back in the future? Just trying to understand, how should we think about burn rate beyond Q4? Clearly, Q4 looks like it will be similar to Q3, but just thinking about the long-term burn rate expectations.
Steve Cutler: Yeah. Okay. So as I think about low-to-mid, Jailendra, yeah, we think about organic on that front, so I will just be straight up with you on that one. That's our expectation. That is not guidance. All right, I want to reiterate that is not guidance. We haven't done that. We'll do that in January, so hold your horses on that one. But that's where we normally place our expectations. In terms of vaccines and burn, you know as I see from our previous call, we pushed out some significant vaccine work into next year. That has, I guess, some positives and some challenges for us. As you know the mix of direct fee and pass-through changes, the pass-throughs go up quite substantially with that work which has some pressure on our margins in the -- certainly in the first half of the year as that work burns through. But then on the positive side, of course, it does burn quickly, significantly faster than our sort of normal rate of burn. And so with that in mind, we would expect and look to see a modest -- a very modest overall improvement in our burn rate assuming that work happens. That work has been a bit volatile and it's been pushed back. And so at the moment it's happening. The initial stages of those trials are underway. We are recruiting patients albeit in a fairly modest way. And that was always the plan. So that work is -- has started and we do expect it to come into next year. But as I say vaccine -- this vaccine work is notoriously volatile and challenging, but it does help us very much from a burn point of view and an ability to push a reasonable growth rate in 2025. I hope that answers your question.
Operator: We are now going to proceed with our next question. And the questions come from the line of Eric Coldwell from Baird. Please ask your question.
Eric Coldwell: Thank you. Why is unbilled revenue up 45% year-over-year? And have you sold receivables this period or year-to-date. And then my follow-up or other add-on here is what company did you buy at the end of 3Q? And what is the impact of that? Thank you.
Brendan Brennan: Hey Eric, it's Brendan here. I might take the first part of the -- first two parts of that question. Just in terms of the unbilled position this is just -- part of this is the market we live in now. We've seen a lot of -- and obviously this is predominantly driven by the large pharma customers as well in relation to their new contracting procedures over the last 12 months. We have seen them pushing out the milestones again trying to have fewer milestones in contracts. And sometimes try on new work that definitely has impacted us from an absolute perspective in terms of that unbilled level. I think you see from the cash receipts in the quarter obviously we're still in good nick and still targeting to make the free cash flow target for the year. But absolutely it's a matter of focus for the organization as we go forward. I think one of the other compounding factors is we have seen less upfront elements of pass-through payments. When they're looking at balance sheets of our size, you don't get that many people that are kind of volunteering this piece. In terms of -- listen we manage our debtor book appropriately over time. I think that is fair. I think we have done a decent job at that. Some of the large customers have payment methodologies that immediately put you into looking at things like customer programs effectively that has some elements of cost to them. That is fair. But that's just the way they're operating at this level now and we've seen that from a couple of our large customers. So, to that extent we operate with them in those models albeit it's not widespread across the book of business. And I think then on the second…
Steve Cutler: Yes, I mean I'll take that. We did make a relatively modest-sized acquisition relating to an organization in Eastern Europe to supplement our Eastern European capabilities. They work in the biotech segment, they work in the Functional segment. They made an immaterial contribution to Q3. And frankly, it's a relatively small contribution to Q4 as well. But that's the source of the majority of the increase in headcount. We also see an uptick in our functional services group, and we brought on some billable or revenue-generating people from our functional group in the quarter and that's also part of that increase in head count. So I hope that explains that to you Eric.
Operator: We are now going to proceed with the next question. The questions come from the line of Matt Sykes from Goldman Sachs (NYSE:GS). Please ask your question.
Matt Sykes: Hi. Thanks for taking my question. Maybe just going back to the identified opportunities that didn't materialize in the quarter. Were there any specific themes to why those didn't materialize? Was it price? Was it reach? I mean anything that you can kind of call out that the reason, why those didn't materialize or there was really a case-by-case basis? Thank you.
Steve Cutler: Matt, every case is different. I think if there was one theme, it was really around the biotech segment and some uncertainty about whether they were able to get in some cases get the funding for the work and that's always a factor -- well, it's often a factor with some of these companies. They're cautious with what they have. They're looking to look at their development programs and make sure that they're developing in the right indication and there's some delays around that. As I say delays around funding or gaining funding from it as well. So it really as I said, it was more a biotech thing and it was probably more around the availability of finance. We obviously talk to our customers before we take awards and certainly before we start projects and make sure that they are well funded that they have the capital to do that. We're very cautious about that making sure that their balance sheet and they have that money that we didn't sort of hold up or not taken a wall on that basis at all, but it really is I think reflective of the continued challenges within the funding environment biotech that caused those delays.
Operator: We are not going to proceed with our next question. The questions come from the line of Jack Meehan from Nephron Research. Please ask your question.
Jack Meehan: Thank you. Steve, a question for you. As you look at the large pharma pressure, do you think any of this relates to customers assessing their concentration of work with ICON. So I look back when you did the PRA deal, it was probably the most seamless CRO acquisition I've ever seen. But there's been this question of whether maybe sponsors are rightsizing their budgets maybe Icon (NASDAQ:ICLR) is seeing some disproportionate pressure because of the concentration went up with PRA, even though you're a few years in the deal. I was curious if that's come up at all. And then one question for Brendan. Can you just -- the comment on the growing role of pass-throughs in 2025? Is there a way to think about what that might mean in terms of a drag relative to revenue growth? Thank you.
Steve Cutler: Yeah. Jack in terms of the concentration of customers, I think it would be fair to say that one or two have looked at if PRA and ICON were significant providers in the previous mix and now we've come together. They've looked at that and they've been in one or two cases brought on another competitor. I think that's what we expected. And that's happen in most of the cases, it in the cases I can think of that that's happened. We've continued to outperform and we've continued to deliver on that -- it probably has been the source of some challenge in terms of continued revenue growth within those customers. But we feel like, we've continued to develop. But yeah, so as you do these unions and you get access to other customers through the scale that we've been developed and we've been pretty clear in upfront about the new strategic partners we brought on. There has in one or two cases, I think, been an extra competitor brought in. It's not that we've gone out as an extra competitor has brought in, which has made increased or at least made the competition to continue. Do you want to?
Brendan Brennan: Yeah. I think, Jack, your question probably relates to my answer on the last one, which is we're not seeing the same quantum of both from payments on pass-throughs anymore, but that doesn't change the quantum of pass-throughs, it just changes the cash flow. So in terms of how that impacts next year. We haven't seen a decrease in the absolute quantum of pass-throughs that we're seeing as an organization. And as a consequence, there's no additional drag as a result of change in mix of pass-throughs. That remains relatively consistent. The only thing that pushes that up and down, of course, as we've talked about a little bit is vaccines and particularly cover studies, which obviously might have an impact depending on the timing of some.
Operator: We are now going to proceed with our next question. The questions come from Casey Woodring from JPMorgan. Please ask your question.
Casey Woodring: Great. Thank you for fitting me in. Just curious to hear what you guys are seeing in terms of the preclinical and discovery pipeline working its way through to clinical here in this current volatile environment. Wondering, if this is really just a two to three quarter dynamic or transition period as Steve, you kind of referred to it as working through several customers rightsizing budgets? Or if this is really the start of a longer slowdown in pipeline progression just based on what you're seeing on the preclinical side? Thank you.
Steve Cutler: Yes. Sure, Casey. No, unequivocally, we believe this is related to our those two larger customers and the biotech uncertainties and the vaccines, it's not something we're seeing flowing through from preclinical with the link between preclinical and our particularly large Phase 2, Phase 3 business is pretty tenuous in the short to medium term. Perhaps in the very long-term, you might get some sort of -- but there's such an attrition rate of compounds from the preclinical into the early clinical and Phase 2 that you've got to have an enormous impact on preclinical. I think really to impact the clinical stage work. So I would completely reject any thesis that that's playing into this. It really is we believe a fairly isolated and relatively short-term issue that they're working through here and we expect that within the next two to three quarters we'll be moving well through it.
Kate Haven: Yeah. And I'll just add quickly, actually in the early phase, more in the Phase 1 space, it's actually been quite good in terms of overall activity, particularly on the award front. We called that out, obviously, in addition to labs being a nice performer for us in the quarter. So actually, we're not seeing that even on the early and early stages of our business.
Steve Cutler: Good point.
Kate Haven: Thanks.
Operator: We are now going to proceed with our next question. The questions come from the line of Charles Rhyee from TD Cowen. Please ask the question.
Charles Rhyee: Yeah. Thanks for squeezing me in. Just, Steve, you mentioned earlier about capital deployment and you're looking at a bunch of opportunities in the short-term. Can you give us a little bit more sense would these be more material than the one that you just talked about in Eastern Europe? Maybe -- and I guess the follow-on to that is anything to suggest that you couldn't do both M&A and buyback shares given where your leverage is currently?
Steve Cutler: I'll answer your second question first, Charles. No, we believe we can do both. We believe our balance sheet is -- and our cash lease has been excellent this quarter. So we believe we're in a strong position from a balance sheet point of view to be able to deploy either in M&A and or in share buyback and we'll be opportunistic certainly on the share buyback side of things. The size of the M&A opportunities we're contemplating. They're not are transformational. They are similar size to the one I described previously. We are looking to supplement and to improve our current operations. So whether it be in the lab space, whether it be in the patient or site potentially in late phase real world, those sorts of areas are the areas that we think we can make a sensible acquisition that can actually improve our overall performance. So it's more than just what we bring in from a revenue and EBITDA point of view. It's what can -- what we can synergistically get from a revenue and obviously from a cost, but from a revenue and a performance point of view, if we can prosecute our projects better for our customers, we are able to burn revenue all that good stuff. You all know about that. So, those are the sorts of areas we're looking at areas where we can really turbocharge if you like our clinical operations particularly in the Phase II, Phase III area and burn that work get that work done for our customers more effectively and more efficiently. So those are the areas we look at.
Operator: In the interest of time, we will end the question-and-answer session. And I would like to hand back to Steve Cutler for closing remarks. Thank you.
Steve Cutler: Okay. Thank you, operator, and thank you all for attending the call today. We're not where we anticipated to be at this point of the year. And when you look at the underlying business excluding the factors that we outlined, we are continuing to outperform the market and our market position does continue to get stronger as we expand the number of partnerships we have within the top 30 pharma group. And we are obviously very focused on continuing to help our customers, who are under pressure to structure their development organizations in a more efficient way for their pipelines of the future. So overall we remain very constructive on our midterm growth prospects and optimistic that we can progress our performance over the short term very effectively. Thanks all for attending.
Operator: This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.
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