ICON PLC (ICLR) 2014 Q3 法說會逐字稿

Good day, and welcome to the ICON Q3 results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Simon Holmes. Please go ahead, sir.

Thank you. Good day, ladies and gentlemen. Thank you for joining us on this call covering the quarter ended 30 September 2014. Also on the call today we have our CEO, Mr. Ciaran Murray; our CFO, Mr. Brendan Brennan; and our COO, Dr. Steve Cutler. I would just like to note that this call is webcast and 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. Actual results may differ materially from those stated or implied by the 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. The Company's filings with the Securities and Exchange Commission discuss the risks and uncertainties associated with the Company's business.

This presentation includes selected non-GAAP financial measures. For a presentation of the most directly comparable GAAP financial measures, please refer to the press release statement headed Consolidated Income Statements Unaudited US GAAP. 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.

We will be limiting the call to one hour and we therefore ask participants to keep their questions to one each, with an opportunity to ask one related follow-up question. I would now like to hand over the call to our CFO, Mr. Brendan Brennan.

Thank you, Simon. Net revenue net in quarter three 2014 was $388 million. This represents year on year growth of 14.1%. And on a constant dollar organic basis, year on year revenue growth was 7%.

Year to date our top line represented [21%] of revenue compared to 25% in the comparable period last year. Our top five clients represented 52% compared to 53% last year. Our top 10 clients represented 64% compared to 65% last year, and our top 25 clients represented 79% compared to 79%, again, last year.

Consistent trend of gross margin expansion that we have driven over the past number of years continued in quarter three. Group gross margin for the quarter was 40.7% which compared to 39.6% in quarter two of 2014 and [37.1%] in the comparable quarter last year. We continue to achieve good headcount leverage and we ended the quarter with approximately 10,700 staff.

SG&A for the quarter was 21.8% of revenue compared to 23.3% last quarter. This includes a foreign-exchange revaluation gain that had a positive 100 bps impact. Excluding this gain, our run rate SG&A was 22.8%, which is in line with our expectation for the remainder of the year.

Operating income for the quarter was $59.4 million and operating margin of 15.3%. Again, excluding the revaluation gain on our operating margin was 14.3% compared to 12.8% in quarter two, and 9.8% in the comparable quarter last year.

The net interest income for the quarter was $109,000 and the effective tax rate was 15.5%. Net income for the quarter was $50.4 million, a margin of 13%, equated to earnings per share of $0.79, which compared to earnings per share of $0.64 in quarter two and $0.45 in the comparable quarter last year. Earnings per share excluding the revaluation gain that I mentioned in the quarter were $0.74.

DSOs in the quarter were 38 days compared to 40 days, which was achieved in both quarter two and the comparable quarter last year. At the end of September 2014, we had net cash of $249 million compared to $175 million at the end of March of this year. And, with all that said, I would like to hand over to Ciaran.

Okay. Thank you, Brendan, and good day, everyone. I am pleased that in the quarter three we have continued the good progress we made in the first half of 2014. Gross bookings in the quarter were $504 million. Cancellations were $36 million. This resulted in net bookings of $468 million, which is a net book-to-bill of 1.21.

These business wins now mean that our backlog stands at over $3.5 billion, a 19% increase compared to this time last year. The business wins in the quarter reflected continuing healthy levels of demand that we are seeing across all market segments. With outsourcing penetration increasing, and customers seeking partners with the broad capabilities and scale to manage global programs, we believe that ICON is well-positioned to capitalize on this market opportunity.

We have continued to make progress in improving our gross margin, which increased to 40.7% in the quarter, while reducing our SG&A costs to 21.8% of revenue. All of this resulted in an operating margin of 15.3% in the quarter. And, as a result of the strong margin performance in the quarter and the recent strength of the dollar over the euro, we are updating our full year guidance in 2014.

Revenue will be in the range of $1.495 billion to $1.515 billion and we are increasing our full-year EPS guidance from a range of $2.62 to $2.68 to a new range of $2.74 to $2.79. During the course of this year, we have deployed a considerable amount of our cash. In Q2, we acquired Aptiv Solutions for $143.5 million. And during quarter three we completed an initial $40 million share buyback.

Following that in September, we announced a further share buyback of up to $100 million and, to date, we repurchased shares worth $42 million of that amount. We're always looking for ways to enhance the range and debt through our services, and to ensure that we have innovative technology, and solutions in order that we can assist our customers to further improve the efficiency and productivity of the development effort.

So we will continue to pursue our successful M&A strategy of bolt-on acquisitions to add to our capabilities as we move forward. We will also keep all capital deployment options under review to ensure that our balance sheet is best used to drive long-term shareholder value.

Before I move to our Q&A, I would like to thank the whole ICON team for their hard work and commitment that has contributed to our quarter three performance. We are now ready for questions.

(Operator Instructions) Eric Coldwell, Robert W. Baird.

Nice result and I just have a couple of quick questions. First off, on the headcount, we noticed or it looked like it was actually down a little bit year-over-year or period to period, if I am not mistaken. I am just curious; was there anything unusual in that number in terms of perhaps a small riff or something related to the recent acquisition, or a certain geography or service area? Is anything you can point to on that headcount leverage that you mentioned?

Yes, it's Ciaran here. I would point to two things. Some of it is related to the recent acquisition and as we integrate the companies. We are eliminating areas of duplication, so there are some synergies coming through there. And some of it is just ongoing efficiency and improving our productivity, and in centralizing some of our support services and our global business model.

That makes sense. You had mentioned earlier this year that there had actually been some new strategic deal activity and that you had been successful in at least a couple of engagements, although certainly not named accounts. But, at one point, I was under the impression that perhaps we could see some growth from one of those newer wins later this year.

I am curious if you have had any success in either bookings or revenue with one of those newer strategic relationships, or if that is still something that really is on the come as we go into the fourth quarter and into next year. Thanks.

Yes. I think, at the time, when we talked about it, we felt that it was something that would most likely come next year. And it will be next year before we start to see any significant bookings or revenue from those accounts. But, we are working through them and building a relationship, and it is going the way it should go. It always takes time, in our experience, to do these things.

They're still targeting, perhaps, a start early in the year or any change in that schedule?

I couldn't say that precisely, whether it would be early in the year. The choreography of these things is that you reach agreements on terms, and then consent to planning and when people want to do the work, and exactly how their pipeline and their own scheduling goes. So there is no clear kind of cutoff or throw-over date on this kind of thing. It would depend on what studies people want to do.

It is that part of the year where our customers tend to be going through their budget cycle and prioritization of projects and things that they want to do next year. So we know the work will start to flow on the back of the accounts. Just the timing is always uncertain. But that is not new for us, so it doesn't cause us an issue.

Absolutely, okay, I'll leave it at that and thanks again.

Tim Evans, Wells Fargo Securities.

Thank you. Can we assume that you plan to use the share authorization -- share buyback operative authorization? It's not just kind of a placeholder -- opportunistic placeholder, in other words?

Well, given that we only announced it a short time ago and we have already used 42% of it, and that really means that we have been buying as prudently as you can in the market, yes, you can assume that we are going to use it. We are in the middle of the program. We are going to the market and by back when it is right.

Obviously, we have certain restrictions and we are prudent about how we do it, because we don't want to move market prices or do anything like that. So it has progressed since we announced it. There is hardly even a day when we haven't bought some level of stock at some price. So yes, that is why it's there.

Okay. Great. And, I wanted to understand the longer-term picture. Your revenue growth this year -- solidly in kind of the 7% range, which I guess I kind of view as the middle of industry growth range. Should we expect that to accelerate at all or just in the long-term, or should we kind of be thinking of this as the normalized growth rate going forward?

It depends on how much business we win, Tim. I think our recent commentary, we have tended to say in looking at our direct competitors that growth is in that kind of mid to high single-digits range. I think if you look at our last few quarters and strip out the impact of acquisitions and foreign-exchange, this is sort of a CDO 7% growth coming from it, looking at our backlog, current level of business wins, our trailing 12 months book-to-bill. That kind of feels about right.

But, of course, we do have a history of making bolt-on acquisitions, and we are seeing levels of consolidation of smaller companies in the sector and bigger companies adding service ranges and that. So I think that kind of feels like the right growth rate. It will be adjusted to some extent, depending on where the dollar exchange rate goes over the next year.

But, yes, it feels right. And then, as we have done in the past, we will probably amp it up a little bit by continuing our bolt-on acquisitions strategy, as I said in the commentary.

Okay, thank you very much.

John Kreger, William Blair.

You just mentioned FX. Could you just maybe expand a little bit on how the strengthening dollar will sort of flow through your P&L impact numbers, potentially in the next couple of quarters?

Well, the strengthening dollar tends to impact our revenue more than it does our earnings, generally. We're fairly well hedged at a cost revenue earnings level. So what we tend to find is that as the dollar strengthens, it doesn't really impact on the bottom line. But, what it does do is that the euro revenue stream that we have, which, in our business, is traditionally around 40% of our total revenue and historically there are times we have seen it at 50%. So it depends. It depends on the point in time, so there is a variable there.

As the dollar strengthens, those euros and -- turn into less dollars in revenue, so we have seen -- we tightened our guidance range to reflect that Q4. I think it was an impact of about $5 million, which represented the move from the kind of [134 rate] to probably a [127] at the current level. So it softens our topline growth by 100 or 200 bps depending on the exact quantum of the Forex movement and the exact quantum of how our dollar/euro revenue split.

But it generally doesn't have a significant impact on EPS. This year we picked up some one-time benefits on the EPS. It just was technical accounting by re-translating the various period-end balances on the balance sheet. And the difference flows through the P&L, but those kind of variances don't happen that often and they are rarely that significant.

Great. Thank you. Just one other question. If you think about your new business wins in this quarter, and maybe the last quarter also, any observations about any changes in business mix as we think about the next year or two, either in terms of client type or geography?

Yes. Some encouraging signs over the last couple of quarters for us in some of our larger accounts are maturing, so they haven't been contributing quite the same amount of new business as they might have done, say, this time last year -- earlier in the year. And, despite that, we are still posting good healthy numbers, because we have sort of expanded our customer base a bit and we -- a few new segments that we targeted over the last year or two that are starting to come to fruition.

We have probably a higher percentage of our wins now from the kind of biotech, midsize, small pharma segment than we did a year ago. And our business wins probably are splitting about 55%-ish large pharma, the balance biotech, small pharma. Whereas if you went back 12 months or more, that could have been 65%/35% or even 70%/30% at some points in time. We saw 70%/30%.

So there is some good trends in broadening the customer base and moving into new segments. That encourages. But nothing particularly on the geographic side -- that hasn't changed significantly over the past year.

Dave Windley, Jefferies.

Brendan, you had talked earlier in the year about wanting to dive deeper into the active backlog that you are inheriting, and get a sense for kind of quality and visibility of that. I think you have progressively become more comfortable. I just wanted to get an update on that. How does that look? How does it affect burn rate? And maybe also without breaking it out, just how has the addition of Aptiv influenced your pipeline and bookings traction?

Thanks, Dave. Yes, you're right. I mean, we were going to supposedly -- we brought in that acquisition last quarter and we were getting our heads around the backlog at that stage. I think we are pretty happy with it. It is performing well. It is in line with our expectation this quarter.

It is still a relatively small piece of the pie. I think we brought in about $200 million on a $3.5 billion backlog. So it doesn't really move conversion hugely, Dave, but I think we have seen that with that coverage number back up to kind of 75% now over the last couple of quarters. So I am happy that we -- it is in the right range now and it is bedding down well.

Actually, I might actually ask Steve to come in on how our customers are receiving that as a platform.

I think we are seeing a lot of interest from customers, particularly around the adaptive trial space. It is a watchword of the industry at the moment in terms of helping customers to make sure they plan their trials and get the best result out of the trials. So, the adaptive stuff we are getting a lot of traction with. Although, I'd have to say, we haven't had a huge number of significant wins, and there is always sort of burn, always sort of a lead time sort of stuff, but a lot of interest in that.

And the other area is the device area. We are seeing some interest -- a lot of interest in looking to develop that part of the business as well. So I think it has certainly brought a lot of -- a number of areas to us that we feel good about, and it is really supporting our business development strategy.

Super. If I can follow-up and just clarify one thing, Ciaran, you had talked about some of the larger accounts maturing. One of the competitors, as it has seen its very large accounts mature, the backlog burn rate has risen fairly steadily. You guys have said 11% to 11.5% and that is in fact where it was. I guess I am wondering is there an opportunity for that burn rate to rise as these larger accounts are maturing and those studies are getting into kind of their meaty revenue recognition stage.

I suppose the short answer, Dave, is no. I don't see that base in the composition of our backlog. We do fairly -- a very detailed analysis and forecasting at a project level. And when we talk of the accounts maturing, I suppose we talk about reaching steady-state levels of business, which is constantly replenished by new trials, which you start up all over again, and then understanding to the vagaries of what therapies you are working in and how long studies are, and the complexity.

So I don't foresee it at this stage any uplift in our run rate.

Okay, thanks for taking the questions.

Jeff Bailin, Credit Suisse.

Just a follow-up, Ciaran, on the point you made about some of the maturation with some of the larger clients. I guess, could you give any commentary on what has driven such seeming strength that your top client? Are they just seemingly outsourcing and accelerating the pipeline, or there are maybe any market share things going on there? And then if you look at clients two through five, what might be happening? The revenues there seem to be down a little bit year-over-year.

You know, Jeff, we don't talk about specifics client matters on the call. So from our perspective, it is really just a question of math. And our top client has been busy and has a lot of project activity come through the pipeline for where it is, and we are on-boarding the work and doing it.

Beneath that, as you find with all clients, there are just various timing issues about when certain projects are scheduled and where the pipeline is at any point in time. So there is nothing significant there. Our level of activity just reflects our client decisions on investment and budget and prioritization, and how the work flows through. So there is no real color I can give to you beyond that.

Fair enough; maybe just one quick follow-up. With several clinical CRO peers publicly filing for some IPOs, is there anything that you are noticing in terms of changing competitive behavior in the markets or anything around the pricing environment?

No, there is nothing that we have noticed.

Great, thanks so much.

Douglas Tsao, Barclays.

Ciaran, could you perhaps can you perhaps provide a comment in terms of the revenue performance as well as the margin performance in the central lab business right now?

Doug, we integrated that lab, I don't know, back in annals of time it seems like at this stage. And the logic behind the integration was to pull it much closer to the business, and to make it part of our integrated service and be able to cross sell it and integrate the data between labs and clinical trials. We don't really measure it at precisely at that level, but at the level we look at it, revenue is healthy. And its profitability is better than it ever has been before, because we are seeing some of the benefits of the rationale behind that integration.

So it is still a pretty small amount of our total revenue in any quarter. So it does not really move the needle, but we are happy with what we have done and we are happy with the results that the lab is doing, albeit it's not -- the revenue level it's earning at super precise at the contribution level. We are happy with what they are doing.

Okay. And then, can you provide a little commentary? And I know it is a challenge because you don't necessarily breakout exactly the possibility of each individual study. But when you think about the relative contribution that you could get from some of the smaller companies, which has become an increasing focus for your business development on a go forward basis and your growth on a go forward basis, do you find that work with those clients is as profitable with the big companies or more profitable, just given the kinds of -- types of mix of services that you are looking for? Any details you can provide there would be appreciated.

I suppose all I would say is all of our clients are equally important to us, Doug. It is like choosing between your children. So we try and have a very evenhanded pricing model, and we have long established relationships with our clients that are built on that kind of trust. So our cost and pricing model is really based on quantifying a bit of work and seeing how much work goes into that in terms of time and materials and hours, and pricing it that way.

So there is no fundamental reason why pricing would be different. What you might tend to see is, with certain larger projects, there would be inherent efficiencies to that project, just due to the fact that it might go on longer, you have more visibility, or resources can be deployed a little bit. But that isn't really changing the pricing. That is just productivity and efficiency.

So I would say at a kind of a pricing mix level, there is no real difference, but that on certain scale projects you can get certain economies of scale to flow through. But that is more down to the size and scope of the project rather than the customer. So, to us, it is pretty much equal across the board.

Robert Jones, Goldman Sachs.

I just wanted to go back, Brendan, to the comment you made around SG&A and the benefit, I think you said, is about 100 basis points. If I take that out and I look at operating margins, there is still a very healthy, somewhere around 14%, especially relative to your long-term guidance range. It would seem that the progression, even ex-that item, is still coming mostly from SG&A leverage.

I was wondering if you guys could just talk about if the 14% is the right starting point as we look at 2014 -- as we look at 4Q, I should say, and 2015. And then, maybe, if you could just share a little bit more about the trajectory and drivers of getting deeper into that long-term range, that would be helpful for us.

It's Ciaran here. Well, I talked about this in some detail on the last earnings call. So I will take this question, although you asked Brendan, and because I'm going to say to you exactly the same thing I said to you on the last earnings call.

Yes, the underlying margin this quarter was about 14% -- 14.3%, take out that FX benefit. In the last call, we said -- our guidance implied that we would exit the year at about 14%. Hence, we said 14% to 16% would be our sort of medium-term or longer-term ambition for the margin. We have arrived at 14% a little bit earlier than we perhaps expected this quarter due to better operation efficiency, substantially, and some SG&A control. So it is the starting point for next year, but I would say, pretty much, we are holding to the fact that our margin will be in that 14% to 16% range next year.

And we looked at it only a quarter ago and there is nothing fundamental that has happened to change that. Trajectory-wise, start at 14%. And I would point to our progress over the last couple of years of very gradual enhancement of the margin based on sort of fundamental changes in the way we do things, deploying the technology. Our managers perform very well and their skill sets and the focus and just the way we have organized the business, so nothing has changed there.

I think, too, you said that so far the margin growth has come from SG&A. I wouldn't say you are actually characterizing that correctly. I don't have the numbers exactly in front of me. But I would say, if you go back to a point in time to or three years ago, probably half of the margin growth has come from SG&A and the other half is coming from improvement in gross margin, which we saw back up to 40.7% this quarter, whereas I can recall it being down to, say, 35% or thereabouts in the Q4 2011.

So what we have seen is a mixture of cost control on SG&A and improved productivity in gross margin arising from the way we run and organize and manage the business. That is going to continue to yield incremental improvements; hence our kind of longer-term range. But, margin won't grow forever and we have made a lot of progress in the last three years.

So we will see it continue to increase in that range, but increase at a lower rate than it did in the past. Obviously, it went from sort of zero to 14% over the last three years and now we are saying we will go from 14% to 16% range over the next year or so.

That is helpful. And I guess just sticking with the theme of asking questions you get repeatedly, if I look at the balance sheet of about $250 million net cash, understanding you guys have been active with the buyback. You obviously have been active with bolt-ons.

I guess just curious, again, if there is any update. Why not get a little bit more aggressive on the deployment front, maybe even on the leverage front? Certainly have the capacity, it would appear, to do so.

I can tell you are a friend of the bankers there, Rob. Why not? The answer is, we believe that we have grown very sustainable shareholder value and progress over the last number of years. But (technical difficulty) strategy and that is to add long-term sustainable growth through the improvement of our capabilities and our services.

So, yes, I have said before, we are not adverse to leverage, but not leverage for leverage sake. $250 million of -- actually isn't a lot of money in a business this size. And you can see our last acquisition cost us $150 million. We have an appetite to continue. That was the most we had ever spent on an acquisition in our history.

And looking at where we are in the market, the capabilities we wanted to add, where the opportunities are, I would imagine it is not the last time we will spend money of that order, if not more. So we are still pretty active. We think there is an opportunity in the market at the minute.

The industry is still in a good place. We are outsourcing. Penetration is increasing. Our customer demands are evolving and changing. We have to constantly refresh and build an organization that is fit for purpose today, not last year or the year before. So while we have done a lot of work over the last few years, it is a never ending story.

So we just think we will drive more value by continuing to add to our capability, which will make us a very attractive top-tier CRO. We prefer to do that, historically, as we have done -- as we have always done. We prefer to do it by generating cash.

I think -- we have bought back $40 million of shares from the initial buyback scheme this year. We have already executed a further $42 million on the $100 million authorization. I imagine that will be finished sometime before the end of the year at the current rate that we are buying.

At that point, as I said on the call, we look at it. We want to drive long-term shareholder value. And we will do whatever we think is sustainable and is in line with our kind of values and culture that we have always displayed in the past, that have kind of worked this far. So we are reluctant to mess with them too much.

Steven Valiquette, UBS.

Congrats on another excellent quarter. So really, for me, I guess a quick follow-up question; first, on the currency exposure. I know you mentioned that shifts in the US dollar don't really impact your bottom line that much, which is obviously encouraging.

But if I am reading your 20-F filing correctly, the last one, just over the past few years it looks like overall currency translation helped your net income by $11 million in 2011. And it hurt your net income by $4 million or $5 million in 2012, and hurt by another $10 million or $11 million last year in 2013. And it looks like, unfortunately, these net income impact numbers are not provided in the quarterly 6-K's.

But just for that line that you disclose, that quote-unquote currency translation adjustment to net income, I guess is there any update on that the approximate number for that so far here in 2014 through the first nine months?

Yes. It's Brendan here; it's a fairly technical question, so I might come back off-line to get some kind of deeper down into the weeds on what line you are looking at in the 20-F on an annual basis. The revaluation impact that we talked about this quarter was a big enough number. It was 100 bps, as we said -- as Ciaran said and I said earlier on in the prepared remarks. And that is why we specifically called that out.

Generally, that line doesn't line doesn't bounce about too much. So it's $100,000 this way or the other, but it doesn't move around a hell of a lot. And so we specifically called it out this quarter because it had moved a bit more significantly. But that is really just, as we said, the revaluation of those third-party exposures on the balance sheet that are in (technical difficulty) the line currency. That is just a part of life, I suppose.

We account for it in the normal way within the SG&A line. I know some of our peers split that out separately. We're pretty sure we are in line with GAAP on this one, so we are happy with it.

It doesn't -- I mean, the quantums you are talking about, $10 million, $11 million on an annual basis, don't sound right to me. So I might just take that offhand. I wouldn't have thought we were more than that. Over the course of a year, maybe $1 million, maybe, but -- in our previous years. But those quantums seem a bit out of whack. So I will come back to you separately on that one, but that would be my initial reaction.

Okay, yes. We will follow up. There is definitely a difference on net income impact versus balance sheet impact, so we will do that off-line, obviously, easier that way.

And then the other just quick one for you, though, on the -- for your sales mix with your largest customer that somebody mentioned earlier, obviously it has gone up here a little bit. It was 28% back in June and now you are disclosing 31% year to date through September, which obviously implies an even bigger number in 3Q in isolation.

But, really, just my question around that is just simply, is that a fairly apples-to-apples comparison? Or does currency impact that in any material way? I just want to see if that is sort of a clean comparison as we look at -- try to look at that quarter to quarter.

It is a clean comparison, Steve.

Todd Van Fleet, First Analysis.

Just high-level thinking here, is there any -- what is on the mind of your customers these days? I mean, is there any shift over the past several quarters? Are they thinking more about reimbursement environments and how that is going to impact our pipeline and the development process? Just kind of looking for maybe some higher level industry topics that might affect how you guys are thinking about the business over the next 12 to 24 months. Thanks.

No. It is pretty much the same old, Todd, in the space that we work with our clients. The job is to execute high-quality clinical trials, do them as fast as we can, highest quality as we can, good value. Mind the budget, mind the cost, and if the trials are not working well, get good data which helps our customers kill it quickly and maximize their return on investment. So that is what we do.

Donald Hooker, KeyBanc.

Somebody asked the question earlier about the central lab. And I know you seem to be downplaying that. But I am thinking that there -- can you just maybe talk a little bit more about that business model? Insofar that -- I would assume that there is a lot of incremental drop-through as you are growing revenues from a couple of years back when you were reporting it separately. I would assume that incremental margin is pretty high. Am I incorrect in assuming that?

Depends on your volume; I mean, the lab comes to what, 5% or 6% of our revenue?

Just over 6%, yes.

Just over 6%.

6%?

So even if it does (technical difficulty) incremental margin, it doesn't really have much scope to move the overall needle. It has got more fixed cost in the lab than, say, the core clinical business. So, obviously, there is a marginal cost and impact that you can absorb overhead further when you get incremental revenue. But it is too small to move the EPS needle for the Group.

I just have one last quick one. The cancellations, obviously, were really low. And I know there is a lot of randomness in that, but I can't help notice that, for several years, it seems to be a pretty steady downward trend in cancellation rates. And can you maybe talk about that, because you mentioned some of the new adaptive clinical trial technologies you have, and maybe that is impacting that? Or is there something else?

I would love to think so, Donald, I really would. We love to think we would could get a handle on this and somewhat control it. I don't know what few years you are looking at, but I still have fresh in my memory some horrible quarters of cancellations in the last sort of four or six or eight quarters. They seem like yesterday. Maybe we remember the bad ones more vividly than we remember the good ones.

So, no, I don't see any change based on our data on the long-term cancellation rate. We are happy that this quarter was lighter, but we would be very foolhardy or brave, indeed, to say that is the start of a trend.

Tycho Peterson, JPMorgan.

This is Jordan on for Tycho. A lot of good questions have already been answered. I was just wondering if you could talk about Aptiv and if you have seen -- or how well you have seen that ability to kind of cross sell to some of your existing client base. And then, also, if you could just talk about the role of risk-based monitoring in terms of margin expansion. Thanks.

Jordan, it is Steve Cutler here. I will take that one. I think, as I said before, we have been able to say to our customers a number of the options that Aptiv bring us in terms of adaptive trials, devices, experience in regulatory medical, et cetera, well, and a lot of interest there. And, it is an ongoing discussion.

As I said, I wouldn't say we have won a huge amount of business because of it at this stage, but it is an area that we are engaging in, from both a strategic and a tactical level. So the Aptiv folks have come on board. They are contributing well. We have integrated them, I think, nicely within our businesses, within our alliance management group, within our business development group.

And the story they are telling and the story as it integrates with ICON's largest scale is a good one, and one that our customers are, I think, being very receptive to. So we expect over the next realistically 12 months that we will really get some traction in that area. Now, your second question has gone out of my head.

I was just (multiple speakers)

Yes, risk-based monitoring. And again, we work in a conservative industry. So there is a lot of interest, a lot of discussion, there is a lot of talk about it, and we are seeing a number of projects moving forward in that way. We think the margins in that area are potentially better, but that is yet to be proven as those studies are really just starting out.

And we are fairly early in the whole process. We have probably got around a dozen studies in that area. They tend to be our largest studies, and as Ciaran said, those tend to be our better margin studies anyway.

So it is certainly a potential for us to help to continue our margin expansion as we get more and more into risk-based monitoring. We see that process allowing our customers to do more trials, deploy their capital on more trials, to be more efficient and to get more productive. So it is clearly a focus for us and it is something that, as I said, we feel we are in a good place at the moment.

I would now like to turn the call back over to Mr. Murray for any additional or closing remarks.

Okay. We are pleased with our continued progress in Q3 and we are looking forward to keeping working hard for the remainder of the year, and keeping positioning ICON as the global partner of choice for the CRO industry. So thank you very much, everyone, for tuning in today.

Operator:

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.