ICON PLC (ICLR) 2020 Q2 法說會逐字稿

Ladies and gentlemen, thank you all for standing by, and welcome to today's Q2 2020 ICON plc Earnings Conference Call. (Operator Instructions) I must advise you all that this conference is being recorded today, Thursday, the 23rd of July, 2020.

And without any further delay, I would like to hand the conference over to your first speaker for today, Mr. Jonathan Curtain. Sir, please go ahead.

Thanks, Gino. Good day, ladies and gentlemen. Thank you for joining us on this call covering the quarter ended June 30, 2020. Also on the call today, we have our CEO, Dr. Steve Cutler; and our CFO, Mr. Brendan Brennan. I would like to note that this call is webcast and that there are slides available to download on our website to accompany 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 that they are made. 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 the SEC reports filed by the company.

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 -- condensed consolidated statements of operations U.S. GAAP unaudited.

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 today to 1 hour. (Operator Instructions)

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

Thank you, Jonathan. In quarter 2, we achieved gross business wins of $1.18 billion and recorded $170 million worth of cancellations. Consequently, net awards in the quarter were $910 million, resulting in a net book-to-bill of 1.47x.

With the addition of these new awards, our backlog grew to $9.1 billion. This represents a year-on-year increase of 11%. Revenue in quarter 2 was $620.2 million. This represented a year-on-year decrease of 10.8% or 10.3% on a constant currency basis.

Our top customer represented 12.1% of revenue for the quarter compared with 12.9% in quarter 2 2019. Our top 5 customers represented 40.9% of quarter 2 revenue compared to 36.9% of last year's. Our top 10 represented 54.9% compared to 49.5% last year, while our top 25 represented 71.2% compared to 69.5% last year.

Gross margin for the quarter was 28.1% compared to 29.3% in quarter 1 and 29.4% in the comparable quarter last year. Our SG&A was 13.5% of revenue in quarter 2, which compared to 12.2% last quarter and 12% in the comparable period last year. Operating income for quarter 2 was $75 million, a margin of 12.1%. This compared to 14.9% last quarter and 15.3% in the comparable quarter last year.

The net interest expense was $2.8 million for the quarter, and the effective tax rate was 12%. Net income attributable to the group for the quarter was $63.6 million, a margin of 10.3%, equating to diluted earnings per share of $1.20. This compares to earnings per share of $1.70 in quarter 1 and $1.69 in the comparable quarter last year.

Net accounts receivable were $490.2 million at 30th of June, 2020. This compares with a net accounts receivable balance of $585.9 million at the 31st of March, 2020. This reduction was in part driven by a positive movement in days sales outstanding. On a comparative basis, days sales outstanding were 53 days at June 30, 2020. This compares with 55 days at the end of March 2020 and 61 days at the end of June 2019.

Cash generation from operating activities in the quarter was $117.9 million. At June 30, 2020, the company had a gross cash balance of $594 million and debt of $350 million, leaving a net cash balance of $244 million. This compared to a net cash of $134.4 million at March 31, 2020, and net cash of $81.8 million at June 30, 2019.

Capital expenditure during the quarter was $9.9 million, and no shares were repurchased during the quarter. In addition to the significant cash profile, we currently have an undrawn revolving credit facility of $150 million available to use. Our robust cash generation and strong access to liquidity puts us in a very resilient position as we work through the challenges that 2020 brings.

During the quarter, we took a restructuring charge of $18 million as we continue to improve the efficiency of our operating model. This restructuring plan reflected rationalization across the business to improve resource utilization and our office footprint. As a result of this, our GAAP earnings per share were $0.90 compared to $1.20 on a non-GAAP basis.

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

Thanks, Brendan, and good morning to you all. During the quarter, we continued to see strong RFP flow and robust levels of demand in the market as customers across all market segments continued to outsource more of their development work to ICON. In particular, the biotech funding environment remains buoyant and the strong focus on COVID-19 work across our sponsor base is providing ICON with a solid foundation of fast burn or faster burn projects as we transition through this pandemic.

As a result, we booked strong levels of gross and net awards of $1.08 billion and $910 million, representing book-to-bills of 1.74 and 1.47, respectively. In doing so, we grew our backlog year-over-year by 11% to $9.1 billion.

As we predicted on our quarter 1 call, quarter 2 results were significantly influenced by the impact of the coronavirus pandemic on ICON's clinical operations. During the quarter, we delivered revenue of $620.2 million and a solid gross margin of 28.1%, while our well-executed cost optimization plan enabled SG&A expenses to be reduced from quarter 1 and held steady over the year, allowing us to deliver earnings per share of $1.20.

Over the course of the quarter, we've been dealing with a challenging clinical environment, which continued to evolve rapidly. Our Phase II to IV business remains the service lines' most impacted, with the second half of -- from the second half of March, we saw new trials starting to be put on hold, patient enrollment slowing and our sites restricting or stopping access for our CRAs. As the virus continued to spread, the effect worsened with well over 70% of all sites impacted at its peak in late April and early May.

Since that time, we have seen a recovery of between 2% and 4% per week in the number of sites reopening, with approximately 60% of sites currently impacted to some degree. We remain alert to the threat of a second wave in the fall or indeed to a continuation and escalation of the first wave as appears to be the case in the United States, where we have seen the pace of site reopening slow from 4% per week to 2% currently.

Nevertheless, although a full recovery is likely to be delayed until early next year, it does not reverse the positive trend so far. And consequently, the number of sites declining or delaying new studies due to COVID-19 is significantly reduced compared to what we saw during the peak. Encouragingly, site initiations have been particularly strong in recent weeks, mainly due to the large amount of COVID-related work we have won in recent months. And the backlog of sites, which will close during the peak of the lockdown.

In addition to those ongoing site dynamics, patient recruitment also remains a leading indicator of the pace at which clinical trials are recovering. At the peak of the pandemic in April, we saw an 80% to 90% reduction in patient enrollment compared to pre-COVID-19 levels. This was due to the combination of global site closures as well as patients avoiding hospitals and complying with travel restrictions and lockdowns.

Since then, however, we have seen a steady improvement in patient accrual to the point where enrollment levels are now closer to 40% of pre-COVID levels. And with some large trials starting, we expect this upward trend to continue. This improvement has been helped by our ability to leverage our at-home patient services delivered through our Symphony Clinical Research Group, which has seen an unprecedented surge in demand over the past 4 months.

In addition, through [AstellaCare], our global site network, we are able to provide a proven method to engage physicians and patients in clinical research programs. Our embedded staff have direct access to the site's database, which helps evaluate the patient population during the study feasibility phase, increasing enrollment and making clinical trial participation a much more efficient and enjoyable process for the physician.

In the meantime, we continue to proactively review and implement alternative trial monitoring approaches with customers on a study by study basis, including remote and risk-based monitoring. This pandemic has driven an accelerated need for remote monitoring, and we've adapted quickly, increasing remote monitoring from only 5% of our visits in quarter 1 to almost 60% in quarter 2.

However, significant impediments to remote monitoring as a total replacement of on-site monitoring can exist in some regions, particularly Europe, and in these cases, we have seen a steady return to on-site monitoring as sites reopen. Nevertheless, there is little doubt the pandemic will continue to be a significant catalyst for change in this space. And it is unlikely we will ever return to the pre-COVID days of exclusively on-site monitoring visits for some projects.

With respect to our other service lines, in our central laboratory, sample volumes received into our facilities have improved, with the current reduction in activity at around 25% of normal levels relative to the 40% drop we saw in quarter 1, with continued progress expected as the COVID work ramps up.

Further, our DOCS Functional Solutions business continues to perform very well. We are expecting strong year-over-year revenue growth in that unit. As we outlined on our quarter 1 call, we made the difficult decision to implement immediate and proactive cost reduction measures to protect jobs, maintain our business performance, and show that we were ready to move quickly when business conditions improved later in the year. These ongoing initiatives include hiring freezes in certain business units, the removal of some contract staff, the reduction of nonlabor variable spend in discretionary areas and a temporary salary reduction for employees.

These decisions were not taken lightly at the time and have since been under continuous review as part of our operational and financial forecasting process. In response to both the gradual improvement of global clinical trial activity and better visibility of the impact of COVID-19 on ICON's business for the remainder of 2020, we are pleased to announce that the measures related to staff salaries will be concluded at the end of August. I'd like to thank all of our employees for their resilience, flexibility and understanding over the last 3 to 4 months.

Our industry-leading balance sheet goes from strength to strength. We continue to make excellent progress. And this quarter, we further reduced our DSO to 53 days down from 61 days in the corresponding quarter last year. Consequently, at the end of quarter 2, we had a net positive cash balance of $244 million, which leaves us well placed to face any short-term pandemic challenges whilst positioning ourselves well for future M&A opportunities that may present.

As we look forward, although the impact of the pandemic continues to evolve, I want to take this opportunity to reinstate our full year guidance. We expect 2020 revenue to be in the range of $2.65 billion to $2.75 billion and earnings per share to be in the range of $6 to $6.50.

Before moving to Q&A, I'd like to thank the entire ICON team. Our focus remains protecting the safety and well-being of our employees and patients as we continue to deliver the important work we undertake on behalf of our customers. We feel we are fulfilling our vision and mission through the role we're playing in the search for vaccines and other treatments against COVID-19. And I'm incredibly proud of our entire workforce and I'd like to thank them for their tireless efforts and ongoing resilience during this unprecedented period.

Thank you, everyone, and we're now ready for questions.

(Operator Instructions) Our first question comes from the line of Luke Sergott from Evercore.

So I guess this is more of an industry question. With all the vaccine trials, all the COVID work that you've been talking about, and patient recruitment has always been a major bottleneck within the industry. And all of that COVID work that's going, do you guys think that there's enough patients out there for us to get a vaccine in the next, like, by early '21?

Yes. Luke, it's Steve. It's a good question. I'd split the trials into 2 parts. Treatment trials are one and prophylactic vaccine trials are the other. I think in the treatment trials, there is going to be a lot of competition within there -- tend to be within hospitals, and that will be trials that will be competing for patients who actually have the infection and are needed to be treated. On the other side of it, on more the vaccine side of things, we're looking for relatively healthy people who obviously are potentially going to be exposed to the virus and looking to track those. So they're large scale, many, many thousands of patients. And we're monitoring -- and we're obviously monitoring them.

I think those trials will be easier to recruit. They won't be easy, but they'll be easier to recruit, whereas the treatment trials, I think, will have a significant amount of competition. So I'd split it into 2 areas. The large-scale ones, probably easier, the treatment ones a bit more difficult. But there is a lot of focus on, obviously, on this area in terms of regulatory start-up and moving things along. So I do think these trials will burn faster than our normal sort of studies.

Okay. And then -- and I guess, more specific to you guys, where you're thinking about how growth will trend throughout the rest of the year? It looks like by your guidance, it's almost getting back to flat by the end of fourth quarter. And then you look at the work that's being pushed out, all the COVID work that you're doing now plus all the RFP and the contract work that you're signing to date that might start up in '21. Is there enough capacity for you guys to really make up all of the lost ground from 2020?

Yes. We certainly see our work ramping up in the second part of the year, as you mentioned, there is a fair bit of COVID work. And as the sites come back online, we see our studies coming back to normal. We're already seeing significant uptick in our site initiation. So some of that is COVID, but it's not all COVID. So site initiations and getting studies moving again are starting. Randomizations, as I mentioned, are still down. Enrollment is still down. But we still -- we do see that coming back to a more normal level, probably realistically early in the year, early Q1 next year. And we believe we can ramp up our resources appropriately. We haven't had any major reduction in force. So we have people ready to move, and we are -- we do believe we're going to be able to move that on and do the appropriate recruiting that we'll need to do in order to drive -- to complete that work and to do those sort of numbers.

The next question comes from the line of Bob Jones from Goldman Sachs.

Great. I guess just to follow-up on the COVID question. Obviously, a lot of focus there. Would you guys be willing to share what portion of the $910 million of bookings came from COVID-related work? And then as we think about what's in the pipeline, you guys obviously mentioned a very robust pipeline as we think about 3Q, any context you could add as far as just how much incremental COVID work you're seeing that could potentially show up in awards for 3Q?

Yes. Bob, we don't talk to the specific percentages, but it's reasonably substantial -- certainly above the 20% mark in terms of the work from the current quarter in COVID and so the pipeline is strong. The work has been coming in. We feel where -- vaccine work is one of our core competencies. We feel like -- we've won the awards for the best CRO in the vaccine space a number of times. We have some very good people in that area. And so we feel we're competitively advantaged in the vaccine space. And that, I think, seems to be playing through in some of these awards.

I think going forward, we're still seeing a number of opportunities, both in the treatment and the vaccine prophylactic area coming through. So we expect that sort of level to continue in the short to medium term. Obviously, as the vaccines and the trials come to fruition and decisions are made, there will probably be less work. But I don't think it's going to go away completely. I do expect to see work in this area continue for probably several years as the vaccines continue, and they look to improve the various vaccines, that I have no doubt will come through over the next 12 months or so.

No. That's helpful. And then I guess, maybe, Brendan, just one on the margins. I noticed you mentioned, excluding $18 million from restructuring charges. So I'm curious about what the maybe gross dollar cost savings was related to that. And then more importantly, how much cost savings is there assumed in the guidance? It does seem like the margins are implied to improve slightly throughout the back half relative to the first half.

Yes, Bob. There's probably -- for the remainder of this year or the way we're looking at it over the course of this year, you're probably looking at something in the ballpark of the mid-single digits in terms of millions of dollars for cost savings from those initiatives, as we see them going through.

I think your second part of your question was around the margin profile, the pickup in the back half, is that correct?

That's right, yes. It seems like it's implied to improve a bit. I was just curious how much of that was just leverage versus potential cost savings from these programs.

I think it's -- those cost saving programs were just more as we look at the flexibility and optimizing and utilization of our headcount and our office footprint.

So as we look to the back end of the year, and you've seen it in the guidance that we've reissued now, there obviously is an implied revenue ramp. And that's really what will push the margin in the right direction as we maintain our good cost control in Q3 and Q4, certainly. But I think the biggest predominant piece will be seeing the continuing progress that we have done at site levels in terms of reopening and in terms of randomization of patients continuing in Q3 and Q4. And if we can see that, I think the revenue should be there to be able to drive the margin profile significantly.

Next question comes from the line of Jon Kaufman.

If you guys take a look at your awards outside of the COVID work, have you sensed any differences in approach amongst large pharma versus midsized customers and small biotech? And in particular, we had heard inklings of large pharma delaying decision-making on starting new programs, but wondering if you've seen any of that in practice?

The short answer, I think, is no on that. We've certainly seen a strong biotech environment. I referenced that in my comments that the funding environment remains buoyant. Continuing what we've seen over the last few years, and that's reflected in our wins. But we still maintain a large component in our backlog of large pharma. And I'd hesitate to say we've seen any sort of significant delays in those awards at this point, Jon.

Okay. That's good to hear. And then can you just talk, I guess, higher level here, can you talk about the mindset of your large pharma customers in terms of whether the pandemic is causing them to rethink the outsourcing paradigm? In other words, are the conversations that you're having with customers who would typically lean more towards preferring in-house or FSP different today than they were before the pandemic? Or are you seeing FSP customers use more of your functional services and recognizing that we're nowhere near the point of being done with the pandemic, but coming out of it, do you think this period kind of moves the needle in terms of outsourcing penetration?

I think it's probably a little early to answer that question. And we've certainly seen a strong performance from our Functional Services Group. It's been significantly less impacted. I mentioned year-over-year growth, strong year-over-year growth in that area. We were able to secure a couple of very significant partnerships in that area. And those have continued to play out. So it's been less impacted. And I guess that's a decision customers have made. They are -- it's a business obviously based more on FTEs and resources than it is on activities. And hence, for reasons best known to customers, but likely related to continuation of those resources, they've continued that work.

So that's been a positive for us in our business. And I think that will continue as we work through the pandemic. But I think it's too early to sort of answer the question as to whether our larger pharma customers, particularly are rethinking outsourcing approaches. I think it's probably too early to think that they're pushing towards an FSP type of situation. Really, I can answer that question. It's probably going to take another year, I think, before that question can really be answered. We're in the middle of this at the moment. And everybody is trying to get done what we had planned and what we started and trying to reaccelerate the study. So it's a bit early, I think, to answer that.

The next question comes from the line of David Windley from Jefferies.

Can you check if you're on mute, David?

David Windley not saying anything, that's a new one.

Okay. Let's take the question of Jack Meehan from Nephron.

And I appreciate the Irish pronunciation of Meehan. So Steve, I was hoping you could just provide a little bit more color on the economics as -- well, first, some -- just a little bit more color on some of the work you might be doing related to COVID vaccines and what the economics might look like as some of these trials go from Phase II to Phase III. We've heard some of this work might be discounted, but I was also curious why that might be the case if we're trying to solve a global pandemic, don't you want to put all the resources toward this that you would want to?

Sure, Jack. I don't think I would call out any specifically difference around the economics of the work. If anything, our customers have been pretty clear to us that they need these studies resourced and backup resource. So we've been asked to have contingency plans in place that they're happy to pay for.

So I've certainly -- I would certainly contest any assertion that things are being discounted. If anything, we're being asked, as I say, to have contingency resources in place and have backup plans so that if anything happens, in terms of our staff or the site staff that we are able to step in and make sure these trials run on time, and the data gets delivered. Our customers are very, very serious about solving this crisis and about getting these vaccines to market. I've been around this industry now for 20, 30 years. I don't think I've ever seen the sort of urgency that I've seen over the last 3 or 4 months in terms of getting these sites up, and that includes regulators, sponsors, all of us, site staff. Everyone is very much pulling -- no real thought about discounts or anything like that. It's -- do whatever it takes to get it done is the attitude.

Great. And I was also hoping you could provide a little bit of color around the central lab business, just relative to the total company performance in the quarter. How did that do? And does the shape of the recovery look a little bit different here? Any color there would be great.

The Central Lab, I mean, Brendan can jump in on this one. The Central Lab is a relatively small part of our business, well under 10%. But it's an important part of our business and a business that's been growing nicely over the last few years. We bought on -- we acquired, as you probably remember, MolecularMD, and they've been a very, very successful acquisition, giving us some extra horsepower in terms of the oncology side of the histopathology, et cetera, et cetera.

So that's been an excellent acquisition and one that's really contributed very well to the growth of our Central Lab. We've been able to -- I think we've alluded to in the past, bring on some new significant customers and some relatively large partnerships in the lab side of things. The COVID opportunity, I'll put it that way, has also afforded us opportunities for growth. That's not to say that -- as I've said, we were down 40%. In example, [exceptions] early in the year. That's now back to more like 20% to 25%.

We do think the second half of the year is going to be significantly stronger for our lab group. And I think they'll come back, maybe not to year-on-year growth, but they'll -- we certainly believe they're going to be a large part of the growth story in the second half of the year and beyond that.

So I'm really pleased with the way the lab has performed, and it continues to perform, particularly with, as I say, the various -- the acquisitions we've done there and the new partnerships they've brought on. Brendan, did you want to add anything on that one?

No, I think you summed it up well, Steve. Maybe just to say, Jack. Well, I mean, the -- if you're looking in that business, as Steve said, it's less than 10% of the overall business. But its trend in terms of Q2 wasn't significantly out of line with the rest of the organization. So we called out that the group was down about 10%. They weren't significantly out of line with that. But we -- again, like the rest of the business, we do see them ramping back up significantly in Q3 and 4.

The next question comes from the line of Juan Avendano from Bank of America.

I apologize if this was asked before as I had to be on another call. But my first question is on the gross margin. Your performance there was better than expected. So can you remind us what are some of the cost containment measures that you've implemented? And how prepared do you think you are from a capacity and employee morale perspective for when things rebound in the fourth quarter or early next year?

Yes. Thanks, Juan. I'm going to start off on this one anyway, in terms of the gross margin. Obviously, we did about 28.1% gross margin in the quarter. As we talked about on the last call back in Q1 where we're talking in April, we obviously brought a range of different cost containment measures to the organization at that point, including, obviously -- there's no trouble. There is no -- we were looking very closely at our recruitment. We were really looking at contractor costs and other discretional cost items as well as some amendment to the salaries, and we spoke about that in the last call.

So I think the proportionality there, all of those measures have to, to some degree, during the course of the quarter. I think as we look to Q3 and Q4, and I think I made the point earlier on, it is much more around now kind of normalizing where we are as an organization from a cost perspective, but still maintaining a fairly solid amount of cost control. And of course, our huge focus is on ensuring ramping the business and ramping that top line, the revenue lines over the next 2 quarters.

So we feel we're in a good place to be able to achieve that. And still maintain and increase that margin profile as we go back to something that looks more like the cadence of normal margin profile that you would expect from us from a gross margin perspective. So something closer to 30% as we get towards the back end of the year.

And Steve, if you wanted to comment on what are our [views in there]?

Yes. I mean I'll jump in on the employee morale question, Juan. We've actually seen our retention tick up a little bit in the second quarter. Now it's obviously -- there's probably a COVID influence there in terms of the economy, et cetera, et cetera. But we were pleased to see that. We see our people on an anecdotal level being highly engaged, certainly the ones who are doing the COVID work, but the others as well. We don't just work in the COVID space. We're across a number of, obviously, programs around our portfolio. And our employees have -- to a man or to a woman have stepped up extremely well.

So I'm very proud of what they've done. And I expect that we'll be -- we'll come out of this nicely and go well into next year. So I think we're ready for the growth to restart and to continue well into next year and beyond.

And my second question, I guess, within the strength that you're seeing in FSP, how much of it is due to the sticky nature of the business given that employees are embedded in the biopharma customers organization in this type of business? And how much of that growth could be for -- from share gains?

I think it's probably a bit of both, Juan. As I alluded to, we won some significant programs and partnerships late last year, which we've delivered on extremely well. I believe our customers are very happy with what we've been doing there. So I think that's an important component of it. But I do think there's some stickiness in that area. As I say, it's more an FTE business. People build relationships with the customers, with the sites. And I think our customers are less -- less willing to sort of let that go even if there is a little bit of a downtime with sites being less accessible, et cetera, et cetera. So I think we've benefited on both fronts from an FSP point of view.

The next question comes from the line of Patrick Donnelly from Citigroup.

Maybe just one on the remote monitoring, virtual trial side. Clearly, it sounds like this is going to be a larger part of the market going forward. I know it's early, but are you seeing any increased interest in any particular areas for this type of work? And then also just wanted to confirm the profitability there, I believe, is a decent amount higher, but I just wanted to confirm that and any commentary there would be helpful.

Yes. I'll take the therapeutic side of things, and maybe Brendan can talk about the profitability line. In terms of remote monitor, as I said, we were something like 5% before the pandemic, went to 60%. Now it's kind of, I would say, normalized a little bit, back to around the 30% of our visits being on-site or being -- sorry being remote, 30% being remote.

And so it's moved around quite a bit. And in terms of the areas, we've typically seen this sort of work being in the more late phase areas. But I think the pandemic's really challenged us to work right across the therapeutic spectrum. And right across the geographies. It gives us a significant amount of flexibility in terms of the whereabouts of the people who are doing that. I can have people sitting in Europe doing remote monitoring for sites in the U.S. and vice versa, even in other parts of the world.

So it does give us some real geographic flexibility. We've pushed ourselves, and I think the industry is pushing ourselves in terms of the access to sites. Obviously, you do need to have access to the electronic medical records, and there are various, as you all know, privacy and HIPAA-related regulations, GDPR, that we have to fulfill there, and that's a very important part of it. And we've got to get -- there's more work to do in that area. I think I'd hesitate to say that's all completely sorted out. And a little bit -- we've seen in Europe a little -- that's a little bit harder to organize and to arrange than it has been in the United States.

So there are some various geographical constraints. But I think, as I say, the pandemic has really challenged us all to think a bit more differently, think outside the box as they say, and that's been, I think, a positive thing. Brendan might comment on the sort of potential margins in this area, but we certainly see more flexibility and more ability to adjust our resources there.

Yes. Thanks, Steve. Patrick, it's an interesting model because, obviously, the element of cost that goes back to the sponsor, be it that in relation to, for example, travel of CRAs is not there. So it is a more cost-efficient manner of doing those visits, if you like, than the traditional methodology. Then, no one trial, to Steve's point, will be completely remote. There will always be some element of proportionality of possibly both elements of physical and remote. But the margins, I suppose, when we look at them, aren't dissimilar when we carve out just the remote elements of those trials versus the actual when you're going to site, albeit that I suppose proportionately, there is less cost going back to the customer overall.

The margin profiles are not dissimilar. And as I said, each trial will have a mix of those on them. So we very much manage the margins on a by project basis. So we are seeing it there being a cost efficiency and not really impacting on our margin profile.

Okay. No, I appreciate that. Maybe just a quick one on the guidance side. Certainly encouraging to see you guys put that back on and sounds like delays are down and cancellations are down. Patient recruitment seems like it's stabilizing and good to hear the upward trend is going to continue. I was just curious on your visibility kind of sitting here today, how comfortable you are with kind of putting that guidance range back out there. Obviously, again, continues to be a lot of variables between the COVID recruitment and a potential second wave. So just wondering, again, on your level of visibility compared to past quarters and how comfortable you are with that range.

Yes. Well, it's -- certainly, we don't have as much visibility or certainty as we had in past quarters. I think that's clear. However, we've certainly got a lot more visibility than we had 2 or 3 months ago. So we do believe it's the right thing to do. We can see definite progress happening within our operational groups around, as they say, site accessibility, site initiation starting to really ramp up back almost to sort of normal levels and recruitment enrollment starting, certainly moving in the right direction on a week-by-week basis.

So on that basis, and we've been -- we obviously look at these metrics pretty assiduously on a week-to-week, even day-to-day basis. And we've seen -- it's not just a 1 or 2-week pattern. We've seen a consistent pattern of increased availability of sites over the last 10 or so -- certainly, 8 weeks or so from a pretty low base. And so on that basis, we do believe that we're able to offer guidance in the spirit. And it's a relatively broad range, I suppose. But we do recognize that there's potential for some volatility in the market, and in the clinical environment, given potential shutdowns here. But even allowing for that, we believe we're able to offer in that range and for it to be a realistic and a forthright set of figures there.

Brendan, do you want to add in there?

No, just to say, Patrick, of course, we have given a broad range. As he said, a space of 2 quarters, much broader than we would normally think about during that. And that actually gives you some idea that there is still risk in the rest of the range or the rest of the year and the profile of how that might come to pass.

Next question comes from the line of Tycho Peterson from JPMorgan.

I'll start with [more work coming in. I know that some had asked or some said] -- some of the commentary about some of the lab sales improving and the faster burn on COVID work, do you see backlog burn getting north of 8% here in the third and fourth quarter?

And then on the operating margin question, to Bob's question earlier, I didn't hear you quantify it. But previously, you talked about operating margin compression of 2% over the coming quarters. So in the context of that, can you just give us a sense of the magnitude that you're talking about on operating margins in the back half of the year?

I might take that one, Tycho. So I think -- it has been hard -- a little hard to hear you at the beginning, but I think your question related to burn rate, over the back half of the year, given that we have the COVID mix of trial work coming in.

So if you look at the midpoint of our guidance range, and you do kind of do the math quickly, it kind of indicates that we'll be coming back up towards that 8% range for the back end of the year, but probably not in excess of it. So our idea at the moment is that we got true [7 of 2 not at 8% though] by the end of the year.

Then on -- just on the margin profile as we go through the back 2 quarters, you're quite right, we did make that reference of the 2% of a range. Listen, as we get to the fourth quarter, obviously, we want to try to, again, come back to something that looks like a normal quarter for ICON. And obviously, that would be more like what you've seen historically from us in terms of that kind of margin range, certainly in the 15s. So obviously, that's a couple of percent from where we are today.

So that's exactly what we're trying to get to as we exit the year, certainly. It may not be the average for the whole year, but certainly, where we're trying to get to by the end.

And then Steve, I'm wondering if you can talk on share dynamics. One of your competitors yesterday was adamant that they're taking share in this environment. And as we think about the recovery, can you just talk to the extent you think you're picking up share here and any [other] you can take around pricing in this environment as well?

Yes. I think we are -- I referenced our competence and expertise in the vaccine space, Tycho. I think that's certainly playing well with our customers. And so from that point of view, that's helping us. Oncology remains an important part of our business as well, and we've been successful in that space, notwithstanding some of the delays.

So I think my perception is we are picking up share, particularly from the more middle, midsized companies, CROs, but it's -- it's early days, and we're in the middle of this pandemic at the moment. So perhaps a little early to sort of declare victory on that one, if we ever declare victory on market share. But my perception is, certainly, the vaccine space. We're a leading player, and we're playing those cards very well.

The next question comes from the line of Sandy Draper from SunTrust.

A lot of the questions have been asked. But maybe just putting a pencil to that expense line, Brendan. I think actually, Steve had mentioned on the -- in the prepared remarks that basically expected expenses to stay flat is for the year. I'm not sure if that was for the rest of the year, but then obviously, in August, you're going to push the compensation back up, which I'm sure is positively received by your employees, but maybe the offset of that is expenses.

I'm just trying to reconcile those 2 statements or I may have misunderstood something between those 2 comments.

No. I think, Sandy, you're quite right in Steve's comments, prepared remarks, he said talking about the end of August. We do expect the absolute cost base in dollar terms, probably, to inflate. As we go through the back 2 quarters, certainly, we'll be keeping a close eye to cost. But of course, it's in the context of a decent ramp on that revenue line and margins returning to something like, as I said in my previous answer, simply normal as we exit the year. So certainly kind of in that range of back up towards the 15s.

So I think it is -- one has to follow the other. We've been watching closely on cost base. I think the dollars will increase, but that will be very, very much offset by the ramp in revenue that we're expecting over the next couple quarters.

Okay. That's really helpful. And my hopefully quick and very unrelated follow-up. Brendan, I didn't hear you gave an acquisition contribution. I know it's not particularly meaningful. I don't think so. Was there any material contribution from the acquisitions this quarter?

Sandy, so the numbers were -- we were 10.8% down year-on-year in absolute terms, 10.3% in constant currency and 11.4% on a constant dollar organic basis.

The next question comes from the line of Donald Hooker from KeyBanc.

Great. Great. So you referenced -- you all referenced in your prepared remarks, success with the site network business. And I'd be curious if that has been -- maybe you can elaborate on that reference, has the site network actually proved to be helpful in this environment? I assume it's been open the whole time. So has that been helpful getting projects moved forward versus having to rely on independent sites?

So Donald, it's Steve. Yes, I would say the site network has been helpful. But I don't want to overstate it. It's certainly been impacted. And several of them have had to be closed. They've been in geographies and regions where we have had to close them down. So it hasn't quite had the impact that I was hoping overall. But generally, it continues to contribute disproportionately. And we're pleased with the progress we're making in that space. And in these sorts of pandemics having more opportunity to drive and to work with the sites because we have our people, has certainly been, I believe, an advantage, particularly for ongoing trials and for seeing patients who we want to keep moving along in those trials and making sure that the trials that we had, even if we weren't able always to initiate and start as quickly as we'd like, the ongoing trials have been kept in good shape, and that's been a very important component, I think, of what we've done.

So overall, positive, but they've certainly been impacted, no question about that.

Okay. And then maybe just a real quick follow-up. You guys referenced obviously working on COVID-19 projects several times. Did you ever -- can you maybe -- is it possible to sort of roughly quantify sort of the mix of your bookings this quarter from COVID-19?

I think I referenced to a previous question, was it Jon or Bob, that we were -- it was above 20% of our wins this quarter. So it's a good proportion of our wins. And again, it reflects, I believe, the expertise and competence we have in that space.

The next question comes from the line of Dan Brennan.

Was that Dan Brennan or no?

Yes, Dan Brennan.

Could you -- Steve, I think you may have mentioned in the beginning of your prepared remarks about pace of openings. And I know you've given some metrics throughout the call, but did any assumptions change from one -- from your first quarter call? I think you, back then, it felt 80% to 90% of the sites would be up and running by year-end. I know you're at 60% are impacted today. So maybe just speak through the pace of opening that's kind of assumed. I know you also mentioned enrollment is at 40%. Maybe if you can give us kind of how we think about the progression of those metrics in the year-end.

Yes. Dan, I think as I say, you're right, I called out on the -- I think it was the first quarter call, that we'd be sort of 80% by year-end. I don't have any reason to think that's going to be dramatically different. I think I said we'd be going into next year. And I still believe we're going to be going well into next year by the time where all sites are back. And that really assumes no significant shutdowns or lockdowns in the fall.

So we're kind of on track with that. As you said, we still have 60% of sites impacted in some way, 40% pretty much are back to normal. So the progress we're making would get us, I think, around the 80% by the fourth quarter, but we're going to be well into the first quarter next year and even perhaps into second quarter before we feel we're right back. And that's pretty much in line with, I think, what our -- what we've been planning and what we've been expecting.

The enrollment, I think, is a bit more volatile and as -- or at least a bit more adjustable as the sites come back, the enrollment. And I think there is a little bit of a pent-up demand there with projects coming back online. I think we'll see enrollment start to ramp up even a little faster perhaps than the site availability. So -- but I still think we're going to be into the first quarter -- well into the first quarter before we're back on at 100% of pre-COVID enrollments.

And then -- sorry, that's notwithstanding some bump we'll probably get from the vaccine enrollment. I think that will sort of cover a sort of a multitude of sins, if that makes sense, in the next couple of months because there will be some significant enrollment, I think, in the third and fourth quarter around vaccines. But the underlying sort of ongoing, I think, will take into the first quarter. Sorry, to drop in there.

Got it. Great. And then, kind of maybe related to that, so sounds like on the base business, that's when you get back to normal by the middle of next year, but obviously COVID on top. So I mean, when you put those 2 together, is it possible by '21, you could be back to where you were previously when you add COVID? Because obviously, I don't know where that 20% of -- 20-plus percent of backlog, really, probably could go further higher as we go forward in the next couple of quarters.

So I know just -- you're not going to give us '21 numbers now, but I'm just wondering, is that feasible that whatever you were thinking prior for your '21 revenues? Could that still be on the table if things play out? Or is that just unrealistic given how much catch up there has to be?

I'll have a crack at that, and then Brendan might jump in. I think whatever we were thinking prior is perhaps a bit of a stretch, Dan. I'm thinking at the moment of 2020 being a little bit of a lost year kind of thing, is the way I'm thinking of it. I hope to be proven wrong, and I hope that we'll move on, and 2021 will be better than what 2020 would have been, if that makes sense. And I expect that probably will be the case but I'm not ready to declare victory on that one yet.

2020 has been a challenging year. I think we've still got some challenges to work through. And although we certainly see some light at the end of the tunnel and some optimism in terms of reawakening and a reopening of the sites, there's plenty of risk out there that we have to be cognizant of and planning for.

And the COVID work, I think, gives us some opportunity to -- in the relatively short-term to move things along. But the underlying business also needs to move forward. And that's -- I think that can still be impacted, obviously, by this pandemic and further lockdowns.

Brendan, did you want to jump in?

No. I don't think I'd add to that, Steve. I think that's spot on. We've -- our focus is to get through the back end of this year and then deal with '21 as we see it. And the hope is that, yes, it will be looking back to the...

Next question comes from the line of George Hill from Deutsche Bank.

George has done a Dave. George, if you're on mute, you better unmute yourself quickly.

Operator, I don't think George is going to ask the question. So maybe we want to get to the next one. Operator, are you there?

Yes, sir. One moment, I'm having trouble connecting my line. Please bear with me.

(technical difficulty)

Operator, it doesn't sound like these questions are going to be able to be connected.

Okay. Well, in that case, on the basis of having technical difficulties, apologies to those who are on the line. We might go to the closing comments at this stage.

Yes. So yes, apologies for everyone on the line. To add, I'm not quite sure what's gone wrong. We'll certainly follow-up with George and Dave on those questions.

So just in concluding, I'd like to thank everyone for listening in today. As the impact of the COVID-19 pandemic continues to evolve, I hope we've provided some good information on that. ICON is focused on protecting the safety and well-being of our employees and patients, and of course, continuing to service the important work we undertake on behalf of our customers, and in turn, preserving the strength of our business.

So I want to take this opportunity, again, to recognize our entire workforce and to thank them for their tireless efforts and ongoing resilience during what's been an incredibly challenging period that we'll need to keep working through as well.

Thank you, everyone, and have a good rest of the day.