ICON PLC (ICLR) 2017 Q2 法說會逐字稿

Good day, and welcome to the ICON plc Quarter 2 2017 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jonathan Curtain. Please go ahead, sir.

Thank you, Lynn. Good day, ladies and gentlemen. Thank you for joining us on this call covering the quarter ended June 30, 2017. Also on the call today, we have our CEO, Dr. Steve Cutler; and our CFO, Mr. Brendan Brennan. I would like to note that this call is webcast and that there are slides available to download on our website to accompany 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 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 discusses the risks and uncertainties associated with the business -- 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 U.S. 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'll be limiting the call today to 1 hour.

(Operator Instructions) I would now like to hand over the call to our CFO, Mr. Brendan Brennan.

Thank you, Jonathan. In quarter 2, we achieved gross business awards of $649 million and incurred $86 million of cancellation. As a result, net awards in the quarter were $563 million and net book-to-bill of 1.31. Net quarter -- sorry, net revenue in quarter 2 was $431 million. This represents year-on-year growth of 5% or 6% on a constant currency basis. On a constant dollar organic basis, year-on-year revenue growth was 2.6%.

Our client concentration continued to improve in the quarter with our top client representing 19.9% of revenue compared to 28% last year. Our top 5 clients represented 42% compared to 46% last year. Our top 10 represented 54% compared to 59% last year, while our top 25 clients represented 72% compared to 77% of last year.

This continued diversification of our customer base meant that outside our top account, revenue grew 17% year-on-year. Group gross margin for the quarter was 42%, in line with quarter 1 and the same quarter last year. We continued to leverage our global business support model and as a result, SG&A was 18.8% of revenue in the quarter, as compared to 18.8% last quarter and 19.5% in the comparable period last year.

Operating income for the quarter before nonrecurring charges was $85.8 million, an operating margin of 19.9%. This compared to 19.8% last quarter and 19% in the comparable quarter last year. The net interest expense for the quarter was $2.6 million and the effective tax rate was 14%.

Net income for the quarter was $71.5 million before nonrecurring charges, a margin of 16.6%, equating to diluted earnings per share of $1.31. This compares to earnings per share of $1.29 last quarter and $1.14 in the comparable quarter last year, an increase of 15%.

DSOs in the quarter were 53 days, which compared to 47 days last quarter and 46 days in the comparable quarter last year.

Cash generated from operating activities for the quarter was $9.1 million and capital expenditure was $6.9 million. During the quarter, we spent $11.7 million on share repurchases.

At June 30, 2017, the company had net debt of $34 million compared to net debt of $97 million at June 30, 2016, and net debt of $30 million at the end of March 2017.

During the quarter, we also took a restructuring charge of $7.8 million, as we continue to improve the efficiency of our operating model. This restructuring plan reflected rationalization across the business to improve resource utilization.

With all that said, I'd now like to hand the call over to Steve.

Thank you, Brendan. Quarter 2 was another strong quarter for ICON with a number of very positive trends continuing. We continued to see healthy levels of demand in the market, as customers across all market segments looked to outsource more of their development work to ICON. We made progress on our goal to develop our strategic customer alliances, and as a result of this and a strong performance by our BD and operations teams, quarter 2 net business wins were a record $563 million, representing a net book-to-bill of 1.31. We also grew our backlog by 10% year-on-year.

Particularly pleasing is the continuing strength of our business wins outside of our top-revenue customer, which on a trailing 12-month basis have a book-to-bill of 1.42. Net revenue grew by 5% year-over-year and over the same period, revenues outside of our top account grew by 17%. Consequently, revenue from our top customer reduced to less than 20% in the quarter for the first time since quarter 2, 2012. Further, backlog concentration for the same customer is now around 11%. Hence, we expect revenue concentration to reduce moving forward, as we continue to grow and diversify our customer base.

We remain focused on operational efficiency by leveraging our global business support model and made further good progress in this area during the quarter. As a result, our operating margin increased to 19.9% from 19% this time last year. Through this combination of revenue growth and margin improvement, our earnings per share grew from $1.14 to $1.31, an increase of 15% year-over-year. We continue to strengthen and broaden our service capabilities and today, I am delighted to announce the acquisition of the Mapi Group, a leading health outcomes, research and commercialization company. With over 700 employees in 12 countries, Mapi has over 40 years of experience in helping biopharma and medical device companies to gain maximum value from their drugs and devices.

The late-phase market is valued at around $10 billion and is projected to grow at something like 10% per annum over the next 3 years, as customers face greater scrutiny by regulators and reimbursement bodies around the product value and safety. Our new combined late-phase group will have in excess of 1,400 professionals operating throughout our global network and will significantly enhance our key offerings in real-world evidence, health economics and market access, language services and strategic regulatory services. The additional scale and capabilities means that ICON will be the world's second-largest provider of late-phase solutions. This acquisition is part of our continuing string of pearls strategy that focuses on improving our market position in key segments.

However, we will remain opportunistic when an asset meets our criteria delivering increased shareholder value and improved solutions to customers. We continue to advance the use of innovative data and technology solutions that will take time and cost out of clinical development. During the quarter, we were awarded a number of projects with large pharma customers, focused on the collection and management of patient data using wearables and other mobile devices. We are also accessing a growing set of patient data through our collaborations with EHR4CR and TriNetX. And we are utilizing this data to enhance the trial process, particularly around feasibility and site selection. The combination of having access to electronic health records as well as associated site networks enabled us to identify specific patient populations that are eligible for our trials. Through our acquisition of the PMG Network, we have seen the benefits of this model as, importantly, these patients are already connected to the physician and health practice, which enhances recruitment rates.

While the effective tax rate for the quarter 2 was 14%, we estimate that our full year tax rate will be 12%. And as a result of this and the acquisition of Mapi, our full year guidance is being updated with earnings to be in the range of $5.18 to $5.38 and revenue to be in the range of $1.74 billion to $1.77 billion.

Before moving to Q&A, I'd like to thank the entire ICON team for all their hard work and commitment during the quarter. In particular, I'd like to congratulate the FIRECREST team, who recently won an eLearning and digital animation award at the recent Scrip International Awards. And the ICON and Regeneron teams, who won the Best Partnership in Clinical Research award from PharmaTimes. Thank you, everyone. And we're now ready for questions.

(Operator Instructions) And we will now take our first question from Ross Muken from Evercore ISI.

So I guess, maybe first on the strategic front. So help us sort of understand in your mind -- obviously, you did another tuck-in deal today. And historically a string of pearls has certainly been the strategy. Help us understand, what a larger transaction would sort of have to bring to the table in your view to make that something that would be interesting and something that certainly would add value to the business and balance the risks?

Hi, Ross. It's Steve. I think the larger transaction, I think, we've -- I mentioned it on the -- in my prepared remarks. It would need to, obviously, bring significant shareholder value. It would need to bring solutions and better solutions to our customers and potentially growth opportunities to our employees. I mean, we remain, as I said, opportunistic about larger transactions. That's certainly something that I'm and the team here are happy to look at, and (inaudible) you look at. However, our core strategy really is around, as I said, string of pearls. We don't -- we look at all of the opportunities that come to the market. We assess them with the criteria that we have, and we make a judgment on those criteria.

It's helpful. And maybe today, obviously, large pharma company, Astra had some pretty mixed data on their MYSTIC study. There's been a lot of volatility in the IO space, which is clearly one that's pretty important, in general, for the pharma companies. Help us understand, when these sort of events happen, obviously, whether you have exposure or not, it sometimes has greater implications across the category. Help us understand how that sort of translates within a business because, obviously, we just -- we went through a period of more elevated cancellations, we're hoping to kind of come out of that. Is this an event that could cause volatility again? Or is it more sponsor and pharma specific in some of the cases?

I haven't caught up with the specific result that AstraZeneca came out. But I understand they've -- they failed. There's been a failure on they're -- in terms of the drug. So we have -- I do not have a specific information on time. I'm not really able to call it --comment apart from that to say that we have very limited exposure to that particular situation. And I don't see that the failure or the issues with one particular compound is going to necessarily set off a class cancellation or impact across the business. These areas are complex. The way oncology, as you know, is treated these days is in -- typically in combination with a number of drugs that the checkpoint inhibitors are an important class, immuno oncology is certainly going through a revolution, not an evolution. And there's a lot of work being done on it. We are doing significant work in that area. But I don't certainly see the challenges with one particular compound necessarily impacting the whole class. This is much broader than one particular class of compounds.

We will now take our next question from Jack Meehan from Barclays.

Want to follow-up on the Mapi acquisition. Congrats there. Just -- and I think I caught 1,400 professionals. Could you just, from a revenue perspective, give us the size there? And great to see you continue to broaden the offering. Is this an area that you think you'd like to continue adding to in terms of tuck-in M&A?

Yes. Okay. Thanks, Jack. The group brings to us a number of areas that, I think, I've mentioned, particularly around the real-world evidence, data analytics around real-world evidence. And that's where the bulk of the people are. However, they have a significant chunk of their business in the strategic regulatory space, which complements very nicely with what we have. We have a language services group. They have a languages services group, but that is a market that's growing as well. So we feel good about bringing in a team of professionals and experts that Mapi represent going forward. They bring us to #2 in the market. They really fill us out in Europe, particularly, where we don't have quite the footprint that we do in the U.S. from a late stage point of view. So as we come together, we have a really strong global group around these key areas. And so it's an area that we feel, as I say, very good about. We have an integration process being planned. We have right people in that. We have retention agreements in place with their key executives. So it's a process we've been planning for some time, where we believe we get some complementarity on the customer base as well. There's not a lot of overlap certainly in terms of the work that they've been doing with their customers and what we've been doing in late-phase space with our customers. So we feel there's some really nice connections there with some large pharma customers in the late-phase space. And so it's an area that we are extremely interested in growing. We'll be #2 in the market. We certainly have the #1 segment -- #1 company in the market in our sight. They're not that far ahead, as we understand the market in the late-phase area. And this late-phase market is , as I said, a growing market, one actually, I think, that can actually grow very significantly going forward. So we think there's lots of opportunity. There's good growth. We have a strong offering now. And we're looking forward to really making that work very well.

And Jack, if I just add one clarification to your comments -- your opening comments there. Our combined organization will have 1,400 people. So the Mapi organization are bringing about 700 of those into the organization.

Great, that's really helpful. And then, I just wanted to follow-up on the top client. Obviously, you're working through the ramp down of PCSK9 through the end of the year. But it's a little early to give 2018 a look. But could you maybe talk about the new awards there? Is this perhaps something that -- you're one of the few members of a strategic partnership. You talk about the commitment to that. You could actually see that return to growth in 2018 in your mind from a revenue prospective?

From a revenue perspective, I doubt it will grow in 2018, Jack. I think we're on a -- we've been on a little bit of a ramp down, as you know, on the -- on our top customer. We expect that will probably continue, not -- perhaps not quite as fast as in 2017, but we'll reach our steady state, I think, as we come out of the back end of this year at a sensible level. And the new business wins that we've had over the last 12 months from that customer kind of reflect that steady state at around about what we'll exit the fourth quarter at. So we feel good about our relationship with that customer. We are one of a very small number. We have a good partnership with them. We work very well with them. And they've indicated that they're comfortable with the -- and happy with the partnership as it stands. So we believe we're in a good place with them. Obviously, the work we're doing has reduced over the last couple of years. And I think that's certainly been a strategic point that they wanted to implement, and we've been happy to move along that path. But the -- we have some very significant trials with them. We continue to win work from them, but we think it will flatten out at about the, as I said, the exit level for 2017.

We will now have our next question from Tycho Peterson from JP Morgan.

Obviously, lot of moving dynamics in this space right now, as multiple mergers in process or set to take place. Just wondering to the degree to which this disruptions kind of opened up the door to newer customers for you guys, maybe partners you historically haven't done a lot of work with. Can you talk to the degree of maybe share shift in this market and the degree which you're engaging with customers may be you hadn't had a dialogue with before?

Yes, we ask ourselves that question too, Tycho, fairly regularly. I would think, if I just look at the lab space, we -- our lab business has benefited from the consolidation in the lab -- in that space over the last couple of years. So I don't think it's unreasonable to hypothesize that we could have some benefits from the clinical and the larger mergers that are happening. However, -- and I think the evidence we have is from our connection with customers, from the customers we're talking to now in terms of new work and from the work that we brought into the backlog. We feel we're in a good place there. I don't think it's all because of some disruption or consolidation in the market, but there may be a factor there. I do think actually, even probably more of it, is because we've invested in and ramped up our business development organization. We've brought in some good people. The people who are in that business are also performing extremely well. And that combining very well with our operations. And so we've taken a view that we're focusing in on the largest part of the market around -- and we've doubled down, particularly in our large -- in the large pharma space, while we've continued to win business in the midsize and small biotech. We see solid uptake in terms of the RFP, dollars that are coming through to us. And so I'd like to think it's at least as much, if not more, our performance and our effort and our investment in the space and in winning business as it is anything external.

And anything different on the pricing front you could call out. We've heard a little bit more about competitors experimenting with fixed-price deals, being on the hook for time cost overruns that are kind of inherent in a fixed-price structure. Are you seeing any of that in the market from some of the competition?

Yes, we're seeing the outcome-based type contracts, fixed-price contracts. It's something that we are happy to engage with customers in, and we believe we have the financial scale and stability of the operational now, ultimately, to deliver on those contracts. We feel confident that we can do that. So we think that's a differentiator. And we can certainly play in that space. In terms of the pricing environment as a whole, no, I don't think we see anything particularly different to normal. We, as you all know, work in a very competitive space, and that will continue. We need to be on our game, and we need to be continually driving efficiencies for our customers, which we certainly aim to do. And that continues, but there's nothing -- we don't see anything cutthroat, particularly, in the market from a pricing perspective at the moment.

Okay. And then just last one on the restructuring. I know you kind of called that out. Are you kind of done at this stage? Or is there kind of an ongoing process here on the reorganization front?

Hi, Tycho. It's Brendan here. Yes, as you saw, it related to as kind of rightsizing our organization, as we're coming in to the back end of this year, particularly with the revenue profile, as I suppose we've talked about it earlier in the year. You guys are aware of the fact that we were still ramping down through boco in the first half of the year. And that, I suppose, is a bit of a tidy operating, it's how I'd describe it in terms of the restructuring that we did do, really kind of just make sure we're rightsize as we go into Q3. And, obviously, then we'll be ramping back in Q4 from a revenue perspective. So I think it's done. I think we should be done at this stage. I don't think there's any need to be doing more during the back end of the year.

(Operator Instructions) We'll now take our next question from Donald Hooker from KeyBanc.

So you guys are having great success in the small, midsize biopharma space, it sounds like, in recent quarters. Are you -- can you maybe walk through what you're doing different there? Because I always think of that part of the outsourcing market as being more kind of interested in working with smaller CROs. It seems like you guys have had some success as a larger CRO competing for those smaller sponsor relationships. Is there kind of a changing appetite or dynamic there? Can you talk about that a little bit?

Donald, I think that's a bit of a miss that the small CROs like to pedal, to be honest, to justify their existence. So I think this -- inevitably there is occasionally you do hear that from customers, but we've been able to be very successful in that segment. Not just in small pharma, but in large pharma as well. So our success, just to clarify in terms of new businesses, is not just in small pharma. We've been very successful over the last -- the last quarter or 2 in the larger pharma space. To the extent that we've been able to connect well with the smaller customers, it really comes down to having the right project team in place, having our key executives engage with them, so that they don't feel lost within -- we're a relatively large company. If there is a criticism, I suppose, that smaller companies tend to put towards larger CROs, it's they get lost, and they don't get the attention. We found a way to be able to have our key executives connect with the smaller customers, and they feel comfortable in awarding us a significant amount of their business. And, of course, that makes it very much worthwhile for us. So there's various things. There's a multitude of things that you do when you're engaging with a smaller company and a smaller customer. They typically have only 1 or 2 compounds, and you need to make sure that they get the sort of visibility within your organization that allows them to feel comfortable with outsourcing their babies to us. And that's how we seem to be able to make that happen. So it's, as I say, a multitude of different things, and I'll probably need an hour or 2 to explain them all.

Okay. And you do feel like you're gaining share there. So it's not just the market growing, but you're gaining share, I mean, it seems like, from the growth rates you're putting up. That would be a fair assumption, right?

I think we're gaining share in all of the segments. It's not just in the small and medium size. It's in the larger areas as well. I think, for us, as a large organization, it's important that we build, build in terms of the alliances that we bring on board, in terms of the larger companies that come to us who, of course, have got many alliances with some -- with our competitors. And so that's a very competitive market as you can appreciate. The smaller customers and the smaller companies have opportunity in that they typically aren't aligned exclusively with one or other CRO. So that's -- there's plenty of opportunity. But we are making good progress in those areas. But we're making good progress across the board.

Real last quick tack-on question. In the medical device space, how big is that business for you? Can you provide some color because I think that's another rapidly growing area?

We don't typically call out specific segments, Donald. But I would say it's a growing -- very fast growing. We've been -- we have a very good group on board that came in through the Aptiv acquisition. And they've done an extremely good job for us, not just in winning new business but in starting to build that business. So it's a relatively small part of our portfolio, but certainly a significantly growing part of our portfolio. And again, I would say the outsourcing market in that area is relatively nascent and is building and maybe 10 years behind the pharmaceutical companies as such. But they certainly are getting it very quickly and looking to outsource increasingly. And so we're aware of the beneficiaries of that because we -- as I said, we have a very strong group in that area. So I'd say it has been a very significant part of our business, but it is relatively small at the moment, just growing fast.

Our next question comes from Erin Wright from Credit Suisse.

Can you describe kind of the mix of new business wins in the quarter in terms of size or type or therapeutic area? Were there any sizable contracts that would -- you would point to?

I would say for this quarter, again, we were strong across the board, Erin. We certainly did well in the large pharma space. Certainly some of our key customers were very generous with us in terms of awards. But that it was also the case in the midsize and the biotech. So it was pretty uniform across the board, if we see. We certainly see RFPs and opportunities increasing across the board at a sort of the low -- at a benefit of 10% to 15% rate. We've seen the dollar value increase. So we're seeing opportunity, again, across the board. But I think, if you like to sort of be very specific on quarter 2, large pharma was very strong for us. And that's where -- we were happy to be very much in that area.

Okay, great. And then, what's embedded in your guidance in terms of share repurchases? And a quick question on 2018. What sort of normalized tax rate should we be taking out to?

Hi, Erin. I'll deal with those ones. Brendan here. In terms of the buyback at the moment, embedded in guidance we -- obviously, we did $108 million in first chunk of the year. You saw a little bit of that in Q2. There is no additional upside EPS-wise from what we did in the first quarter. As you recall, we raised our guidance at that point to take account of that share buyback. In terms of the tax rate then, you also saw that we're moving to a 12% rate for the full year. So that obviously indicates, first half we are at about 14%, so maybe back half we'll be about 10%, which you know at this stage we'd call it kind of equally -- evenly over Q3 and 4. So that kind of hopefully gives you a bit of color as to what we're thinking about for '17 at this stage.

Our next question comes from David Windley from Jefferies.

This is a follow-up to clarify on Erin's question there. Is that 12% or even 10% durable beyond 2017 on tax rate?

Yes, yes. Hi, Dave. How are you? (inaudible) the quick question is it's a dynamic changing environment. Certainly 12% is the lowest we've seen. And I think one other thing, I would say, Dave, is over the last couple of years -- actually, in most years for the last couple of years, we've actually ended up at lower than 14%. And so we've had an idea that we might be able to move down a bit. So -- and so it's early days, Dave. We certainly think 12% is the right rate for '17. And looking ahead into the future, we'd probably like to keep it at that range, but, of course, we'll give you more color on that as we go through the year.

Okay. So broadening out, Steve, around M&A, I think -- my sense is you obviously announced one today, which I would view as very much like your historical -- ICON's historical pattern string-of-pearls-type acquisition. I think your commentary, expressions from management in general, and Steve, you in particular, has been somewhat more welcoming of more aggressive acquisition activity. Obviously, Simon is kind of dedicated to that activity full-time instead of -- handing the IR hat off to Jonathan. I guess -- I'd be interested in your comments about whether that is a more frequent periodic acquisition strategy of smaller deals like Mapi? Or whether your appetite is to move into, say, fewer larger acquisitions?

Yes. Sure. So let me try to clarify a little bit. I would say to you that we will be continuing the string of pearls, the frequent, more modest-size deals, I would say. That is something that I'm certainly committed to. However, and I think I've made this clear a number of -- when I've spoken a number of times in conferences. We do remain opportunistic in terms of larger transactions. And so we will certainly consider larger transactions, as they come to the market and as they offer an opportunity for us to demonstrate clear value for our shareholders and clear value for our customers, ultimately. We recognize each transaction has its different opportunity and risk, and we intend to evaluate each of them in -- on the basis of its merits. And so I hope that gives you a flavor. We are going to continue with the Mapi-type deals. That is something -- and we're going to focus on the key segments, and the key segments where we would like to be stronger. This is a perfect example in the late-phase area. We have a strong late-phase group, but we weren't as strong in Europe as we would like them to be. And we've now moved up to be #2 in the market. So that's an area we feel strongly that it's a good place to be, and the acquisition is a really good one for us. However, as I said, we'll be opportunistic because there are large deals that come up. We will certainly evaluate them on their merits and make a decision as to whether we want to be involved. Because certainly from an M&A point of view, we are anxious to deploy our capital in that way. And we probably do that more so in the M&A area than we will, in the longer term, on the share buyback side of things. But...

That helps a lot. If I could just follow-up on the topic. So I think people well understand and appreciate the desire to deploy capital and drive toward, what we might view is, a more efficient balance sheet. I think the questions that I get from time to time are, how are we to interpret the perceived change in tone about the operational challenges of acquiring a bigger deal? My sense is, I'm trying not to put too many words in your mouth, but my sense is that ICON has spent many years investing in an operational structure and SG&A support structure that is now matured to a state that perhaps is more ready to take on bigger chunks of revenue. But I'd ask you to correct me, if I'm wrong there.

Well, I think that's part of it, Dave. Yes, I'm a different leader as well. Ciaran was part of the company and led the company very well through a different phase. And I think, as I believe we're moving into a different phase now, where we have a strong global business services group, we have a strong infrastructure. And we have the opportunity now to consider larger acquisitions, notwithstanding the risks. And we all know there are risks involved in larger transactions, but there are risks involved in small transactions. It is to say that 5 small transactions isn't just as risky, if not more risky, than perhaps one large one. So we look at it in terms of what we believe we can drive in, in terms of value, what we believe we can take on where our strengths are, where our weaknesses are and the stage of development that our company is at now. We believe we're in a good place. We have a strong management team. We're able to -- we have a strong balance sheet. We have a great tax rate. We have lots of good reasons financially to make these deals, and we also have some great opportunities, and we will assess some great opportunities that are out there in the marketplace.

Next up, we have Tim Evans from Wells Fargo Securities.

This is Robert Amparo, on for Tim. So it looks like you took up your revenue guidance by about $30 million at the midpoint. How much of this is Mapi? How much is FX? And how much of it's organic?

Hi, Rob. I think it's -- it's Brendan here. I think -- listen, the primary driver of that was the Mapi acquisition. We haven't remodeled our P&L account too much for FX at this stage. It's a continuing dynamic. We'll keep a look at it, as we get into the third quarter. It wouldn't really significantly move the dial from what we're -- what rates we're seeing now. Obviously, it's continuing to seem to be one-way traffic on the FX rates. So we'll keep a close eye as we go into Q3. But right now, it's not having a big impact there. So the predominant driver there was the acquisition at the midpoint. You can see at the midpoint we're going up by $30 million. And, as I say, that was mainly in relation to the Mapi acquisition.

Got it. And apologies, if you mentioned something on this earlier, but a couple of larger pharmas have recently announced some pipeline reprioritizations. Do you anticipate this will impact the business at all?

Rob, well, pharmas are always reprioritizing their pipelines and portfolios. It's a regular day to day event for us. So I don't anticipate that it's going to have any major impact on our performance going forward.

Our next question comes from Robert Jones from Goldman Sachs.

This is Adam Noble, in for Bob. Just -- congrats on the really stellar book-to-bill in the non-Pfizer revenue segment, which you've been putting up for a while at this point. Just wondering, I mean, when you look at your pipeline, I mean, how sustainable is a 1.4 level? Would you expect it to moderate pretty soon? Or do you think that there is business out -- enough business out there that you can keep that momentum for the foreseeable future?

That's a -- I don't have my crystal ball handy at the moment, Adam. But we -- as you say, we've been posting these number for several quarters now. We are very focused on that. We, as I said, made some investments in our business development team, who are performing extremely well and working very well with our operations team. And that business, as you know, it's not just business development. It's how our operational folks connect and the people we put in front of them. We have some great executives and some great people on that front who get out there every day and do a terrific job in this area. So I'm confident that we can continue that. There's no indication really from our RFP volume -- of opportunity that, that would fall away. We're certainly seeing plenty of growth on the RFP front. We're certainly seeing plenty of opportunities in terms of strategic deals. We're being successful in both of those areas. We're being successful, as I said, across the board, large pharma, midsize and small. And so I do anticipate that we'll be able to continue. Of course, it depends upon that solid execution, that foundation of execution and delivery, and we're very focused on that at ICON. It's something we talk about every day. We measure what we do, and when we're not doing as well as we want to, we go away and fix it. So there's a number of things that we do. And I think that's -- but there's no reason to suggest that the 1.4 or so that we've been delivering on that front won't continue. So I'd certainly set that -- I certainly set that challenge to my guys every day, and they've been responding very well to it.

Terrific. And just ask around the cadence on the -- on both revenue and margins for the back half of the year. I know you talked about 3Q being the trough from a top line standpoint. I'm just wondering if that's still the case? And considering you did expand operating margins in the second quarter, are you expecting a decline next quarter? Or do you think you could hold margins steady for the remainder of the year?

Hi, Adam. It's Brendan here. We did indicate that the market had -- I suppose, if you go back to revenue prior to the Mapi acquisition, the market had done a good job on really working out that there is a trough coming in, in the third quarter. I think it's something we've spoken about and as the boco cancellation really the work on that concludes out during Q2. So I don't think that's fundamentally changed from what we spoke about last quarter. Obviously, you'll need to stagger in on top of that the Mapi acquisition, which will have a positive impact in the quarter. But as I said, that's 5 months the remainder of the year, and it's most of the uplift on revenue. So I'm sure you can do the math on that quite simply to work out where -- how that's going to uplift the back end. And when you do see a revenue drop-off, it is -- we are a flexible business, and we'll certainly look to maintain or maximize our ability to drive our margin profile. But even in our gross margin terms, you would imagine that if you had a drop off of revenue, that it will have a kick-on effect. We'll minimize that as much as possible when it gets to the bottom line, but, yes, I think that's not an inappropriate way to look at it. But again, we'll see that recovering with revenue, as we go into the fourth quarter.

(Operator Instructions) We will now take our next question from John Kreger, William Blair.

Steve, if you look at the recent awards you had or even some of the RFPs that are still out there, are you seeing any interesting shift between kind of traditional full-service work and FSP work?

John, the short answer would be, no. If anything, I think, whether the last quarter or so, we're probably seeing a bit more of a shift back towards full-service work, rather than the FSP work. That's not to say that our FSP-type business, our DOCS business is not doing well. They're growing in mid-teens year-to-year -- on the year-to-year basis. So that -- they have had some very wins -- big wins. It does tend to be a little lumpy, as you can appreciate some of these large FSP contracts that we win, coming one quarter and then not the next. But I don't think we see a significant trend towards FSP or away from FSP. I think the market is, it continues to develop. FSP is a very important part of the market. We service it well through our ICON Functional Services team. But, as I said, more recently the full service work has been very strong. So we see customers even moving perhaps -- who've been traditional FSP users, if that's the right word, are shifting back towards more of an FSP work. And then others who're going the other way. So yes, all in all, net-net, I would say it's munching the munchies. I don't see much of a trend going either way, to be honest. I do see, overall though, the opportunities increasing in the market, opportunities increasing.

Great. And then can you update us on your efforts to improve kind of clinical trial efficiency. I'm just curious what you're finding to be working and resonating with clients, some of your sort of data sources perhaps or your site management initiatives. Just what's working and do you think there's a lot of additional opportunities you think over the next couple of years?

Yes, as I indicated, John, in my comments, we're seeing progress on our piece of EHR4CR and the TriNetX sources of data. They are particularly -- have been particularly helpful for us. We're seeing opportunities through our goBalto approach, our application around startup. We've been improving our startup times. So there's a number of those sort of technologies that have been increasingly used, and we've been successful with. We're also evaluating a number of others. It's a bit early to be able to say and talk about those until we've fully evaluated those, but we are doing that. I would say our PMG network is growing and is building year-on-year in terms of number of patients recruited and the connections we're able to make with our technology and the PMG network, and making sure that those patients come into our trials in a timely manner is really starting to pay dividends. We'd like to expand that and obviously build that, but that's proving to be successful. And then on the wearable side of things, as I mentioned, we've had a lot of interest, and we believe we're one of the industry leaders in the wearables category. There's a lot of interest around that from a number of large pharma companies, and they're engaging us in sort of consulting agreements as well as implementing the wearable approach on their clinical trials. Given the -- given some of the challenges with, particularly, in the CNS area on movement disorder-type indications, the wearables are a real opportunity there, and we see those trials as being very significant revenue drivers for us coming up. Our CNS business is on the move up. We typically do a lot of oncology work, of course, but our CNS business is on the move. And we're seeing, as I said, significant opportunity there. So the technology that we're deploying, we're seeing -- starting -- really starting to bring some advantages, our PMG network bringing some advantages to us. There is a lot of opportunity out there from a technology point of view, and we look to evaluate all of it and to work with and develop further relationships with the ones that work for us. We're not going down one particular track or betting on one particular horse. We have a number of horses in the race, and we'll hopefully stay on the winners or stay on the ones that are appropriate for the particular situations and the particular indications that we tend to do most work in.

As there are no further questions, I would like to turn the call back to Steve Cutler for closing comments and remarks.

Okay. So thank you all very much. We believe quarter 2 was a very strong quarter for ICON, and we look forward to building on this during the rest of the year, as we build on our position as the CRO partner of choice in drug development. Thank you, everyone.

Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.