ICON Public Limited Company (ICLR) Earnings Call Transcript & Summary

Hello, everyone. This is Eleni from the Life Science team. It is my pleasure to introduce our next company, ICON. Please note that we will be hosting a breakout session in the Olympic room following the presentation. And with that, I'm going to hand it off to Steve.

Thank you, Eleni, and welcome, everybody, to the ICON presentation. So I'll go through the normal forward-looking statement. You can all read that with interest. I'm sure you haven't seen that one before up till now. So the agenda today for us is to give you an overview on ICON, on who we are as an organization within the CRO industry. We're a major player along with a number of others. We feel we're in a very good position to continue to benefit from the positive environment that we see within the CRO industry at the moment. So we'll talk a bit about market trends and opportunity. We'll talk about our strategic focus, what we're doing, particularly around patients, sites and data to improve the clinical development process. We'll talk about our financial performance. What we've done, certainly over the last 12, 24 months or so. And even on the longer term and the track record of delivery that we've been able to provide to our investors. We released guidance this morning. Many of you will know, 2021, and we'll reiterate that and talk about that a little bit as well. And then overall -- an overall summary. I think we believe we have questions in the subsequent session across the hall. So ICON overview. What are we? Our mission is to help our customers accelerate, develop -- development of drugs and devices that save and improve the quality of life. We take that mission very seriously. It's a mission that our people engage in and feel very passionate about as we help our customers to move drugs through and devices through to the market to benefit our society. We've been involved with the development of something like 90% of the world's top-selling drugs. So 18 of the top 20 drugs, we've had some involvement with over the past number of years, and we continue to work on a number of new innovative compounds and entities that are helping to drive forward human health. I think most of you will have seen some of the data that came out recently around the improvement in the cancer death rates over the last couple of years, and certainly, I think the data was actually 1 year or 2 old, but certainly seeing some improvement there. And ultimately, I think that's what we're all trying to do as an industry. And we feel we're certainly playing a very important part in that very significant outcome from a societal health point of view. The journey so far, we're in our 30th year this year. So it's a landmark year for us. We were established in Dublin, in Ireland in 1990, 2 founders, John Climax and Ronan Lambe are still with us. Certainly, John is still part of our Board. So he brings that tradition. And that element of foundation, I suppose, to our organization, and it's a very important one for us. We're proudly Irish, based there. We benefit, of course, from the tax rates in Ireland. But we started there, as I say, 30 years ago, with about 5 staff, we're now well over 14,500 people around the world in about 45 countries and around 100 offices. So it's been a hell of a journey over the last 30 years or so, and we intend to continue that journey over the next 30 years. We are a global team. We are one of the global powerhouses in terms of CROs. We span, as I said, over 40 countries, 14,500 employees, and you can see from those dots on the map that we are very much a global organization. The majority of our resources in the United States and North America and in Europe, but we are well represented out of Asia Pacific, very much a growing region for us, in Latin America and Africa as well. So we feel we are well positioned to do all of the development programs that come our way from our customers and alliance partners. In terms of our service portfolio, you can see that we cover the full clinical spectrum of services. So we focus very much in the clinical space. That's an area we feel very strongly about is where most of the dollars are spent, and it's where we feel we can add the most value. So from our early phase services, where we have a CPU, clinical pharmacology unit in San Antonio in Texas through our drug development consulting services, our clinical research base, our Phase II/III services which is -- which are the majority of our revenues, but we also work in the functional space, and there's a nice synergy between our functional services and our clinical research services, the ability to move people in and out as we require, as programs ramp up and down, that gives us a nice flexibility. We have a lab business, which we've recently added to, and that's developing well and doing very nicely. And then finally, what we call our commercialization and outcome services, our late phase group, late phase and consulting group with work in pricing and market access, in consulting, in health economics, but also do registry studies, in our late Phase IIIb and IV work. So it's a comprehensive service offering that we bring to our customers, one that's globally scaled with an ability to really do whatever programs, clinical programs that our customers wish us to put our hand to. We leverage our differentiated technology solutions. We're a technology-based company and technology, obviously, is ubiquitous in our industry at the moment, along with data, and we're looking at the ways of best access the data that's available now to drive the efficiencies within our business. So from a patient identification point of view, our one search tool is our internal tool that utilizes a number of data sources across our company, be it our imaging data, our IVR data, our clinical data. Right through to our real-world offering where we tend to partner with a number of organizations, ICHOM, DRG, TriNetX, where we're actually able to access electronic medical records and real-world data in order to develop and to run programs and provide things like synthetic controls. It's a new innovation within the industry and we're able to provide that to our customers. Real-world data becoming a very much an increasing part of the clinical development landscape. We have analytics tools, again, with a number of partners and the number of internal platforms. And our own internal solutions, be they ICONIK for our risk-based monitoring approach, be our FIRECREST site platform where we give -- provide sites with the information and the support that they need to really provide a good service to our trials. ADDPLAN [ enable ] more specific technologies and software around adaptive trials, again, an important part of our industry and non-REM around our pharmacokinetic and pharmacodynamic analysis. So we are very much a technology-based organization that brings a strong focus on execution and delivery to our customers' programs. We aim to be the trusted partner in clinical drug development through a number of areas. We're really working very hard to partner and align with our customers and bringing them the solutions that they need to get their drugs and devices to market effectively and efficiently. We've been widely recognized as an industry leader. These are some of the more recent awards that we've been given, I'd highlight the Scrip Award that was given to us as the best CRO in 2019. We're very proud of that. And also, the award there, the Forbes award in 2019 as one of the best employers for women. We're committed to diversity. Within our organization, we have a number of initiatives that's moving forward that ability to bring women particularly, but also minorities through to give us the perspective that benefits the business as we go forward. We have delivered a history of strong growth, particularly from a shareholder point of view. You can see our annual revenues there over the last 20 years or so. I have gone the last 2 years, of course, on a 606 basis. So they're not in directly comparison -- comparable with the years up to 2017. We now add pass-through costs under that. But that is a pretty strong record of annual revenue growth. At earnings per share, as you can see, with a little bit of a blip from 2011, the last 8 or 9 years have been very significant growth at around about the 10%, 12% level from an earnings per share. And from our guidance this morning, you will see that we anticipate that that's going to continue at least for the next year or so. We're supported by our balance sheet, very strong balance sheet. We probably have the strongest balance sheet in the industry. We've deployed that in a number of ways, certainly internally, from a capital deployment point of view. We have an active program of investment in technology, particularly, but also our facilities and our service delivery around things like FIRECREST, ICONIK, ADDPLAN. Our laboratory, we've made some significant investments in over the past 12 months and we continue to invest, particularly in Asia. With our laboratory, we are developing some facilities in China. There, our robotics process automation, helping us to improve will continue to drive down our SG&A percentages and that's helped -- that's been one of the things, the main factors that's helped us to improve our operating income over the period of time I've been talking about. In terms of external investment, we have deployed almost -- just over $900 million in -- on M&A since 2008. We've continued to pursue our string of pearls approach where we've taken and brought to our organization smaller companies that then supplement resources or functions that we already have in many cases. And then when we continue to do that, it continues to be an important part of our growth strategy. And then in terms of enhanced returns, we've spent over $1 billion really over the last 5 years or so on share repurchases. And our guidance today indicates that we're really going to continue that, at least for -- to an extent of the 1 million shares that we bring back, we buy back every year to avoid any dilution from shares that are issued, anything above that will be further progressed. So we really deploy our capital in those 3 ways. Our priority is M&A where we continue to look for good deals that are well-priced that bring to us capability that we either don't have or that we're a little bit behind where we wish to be in terms of the market. And so that's very much our process. We've made some investments, particularly around our site group. So you'll know MeDiNova group has been an important acquisition that we brought on last year. Symphony, again, a home-based, a group that goes out to visit patients at home, again, helping to enhance the opportunity to develop our virtual trial approach. Again, staying on the cutting-edge of innovation in the clinical development space with acquisitions such as Symphony and MeDiNova. So [indiscernible] market trends and opportunity, a word or 2 on the macro environment, such as it is at the moment. We've seen, I think, over the last few years, really, certainly the last 5 over the time where I've been doing this presentation at JPMorgan, a pretty positive macro environment. If I start with the R&D spending growth, we know, we're seeing -- you can see the numbers there. They vary by company, of course. But generally, the trend is that we see is R&D budgets increasing somewhere between 2% and 6%. You can see the numbers there, around about 6%. It depends sometimes on the size of the company on this particular market segment, but generally low to mid-single-digit improvement or growth in R&D spending, and that's also -- that's, of course, helped to fuel our growth. The biotech funding, that is obviously a subject of much discussion and debate of this conference. Over the last few years has been -- it's been a tremendous environment there. We've seen a significant improvement and growth in our biotech business. You can see, I think, from that graph, that maybe it's attenuated a little bit, flattened off a little bit, but it's still well above the historical norms. We're working with companies that are very well funded. Many of them -- most of them, we see have more than 2 years cash in reserve. And so the biotech funding environment to us looks very healthy. And certainly, our backlog reflects that. FDA approvals, while maybe down a little bit on last year, which was a record year. I think I saw 45 or so approvals in 2019. Again, a very positive environment, helping to fuel some of the positive benefits to our society that I alluded to this -- at this -- the -- in my introductory comments, the 2.2% reduction in cancer deaths. Again, I think there's certainly a good deal that can be attributed to some of the new technology that the pharmaceutical industry is bringing forward, and we should all be, I think, very proud of that. And then on prescription drug sales, you can see they continue to grow. And that's also ultimately helping to fuel a positive environment from us. So to summarize, what I was saying there, we see the market growing by around about the 5% to 7%. We're going to be growing at a higher number than that, at around about 7.9% to 8% is our guidance. We see those -- that spend increasing in terms of penetration, 1% to 2% per annum with that expanding R&D budget. Again, it gets us to around that 5% to 7% mark. I think I've talked about the biotech funding and the cash reserves in place and the strong approvals and FDA. So overall, it's a good place to be for us. We feel strongly that our track record of growth and delivery will be how to continue, certainly in the short to medium-term as we move forward. From our strategic focus, we talked about our 4 pillars of partnership, operational excellence, talent and leadership development and enhanced capabilities. These are the things that are focused on everything we do within our organization is focused within one or more of these 4 pillars. We underpin that with our M&A strategy and our enabling technology. So it's an important component of our overall communication across our company. In this specific respect to our patient site and data strategy, this is the area we're spending a lot of time on a lot of effort in terms of our M&A approach, in terms of our executional approach. So whether it be data, whether it be sites, whether it be patients. Those 3 components, the 3 legs of that tool are a very important part of what we offer to our customers as we look to drive efficiency and we look to improve the cost or reduce the cost, improve the speed and maintain or improve the quality of our clinical development services. So getting to that in a little more detail in terms of accessing data, our approach has been to partner with a number of sites. We do have our internal -- on the left of that slide, we do have our internal one search tool that draws data from within our organization from a variety of sources. We then bring that together with multiple data sources in the middle of that slide, whether it be from TriNetX, from Syteline, from Trialtrove, a number of external data providers. There are many of them, and we look to pick the best of that. In order to select, first of all, the best sites to do the patient -- to do the studies we're looking at, but also, ultimately, to identify the patients within those sites. I'll find out where the sites are that have those patients. That's a very important first step as we plan our development programs. And then to work out how we bring those patients in. And as I go to the next slide, that's really where our global site network comes in. On our left, you can see both in North America and now with the MeDiNova acquisition in Europe, we have a site network on both sides of the pond, the integrated site network that has our people within those sites, making sure that all of those patients who come to those sites really get considered for ICON clinical trials. And there's a process there that not just reaches the patients who come into those sites, but reaches out based on the databases and the information that those sites have. And when you add that to the more external data sources that we have, we bring that together to make sure that these sites, and there's around a couple of hundred of them around the world now, really are fast recruiters for us. And they really recruit actively. They get up and running in a shorter period of time and the quality of the data that they provide is going to be a metrics that we are generating as an organization is validating that and our customers are certainly buying and we're getting some good traction with that. The health care alliances on the other side of that slide are really institutions that we have alliances with, but not necessarily our people sitting in all the time. So they've the next layer of the onion, if that makes sense. It's certainly important from particularly an oncology point of view. And they bring to us, again, an improved level of performance. We bring to them a level of commitment, a level of volume of work. And we allow them to drive and build their own efficiencies as well. So between our global site network, our health care alliances and then the more ad hoc site approach that we take inevitably, we're looking to recruit about 1/3 of our patients from each of those areas. And that's -- as I say, an area, we're finding, we're getting increased traction and capacity on as we go forward, but we are -- we're relatively early into that strategy and there's still more to do. Certainly, from a speed, cost and quality point of view, as you can see, these are the things we're trying to improve. We must -- we believe we must become a more efficient drug development organization. The cost of drug development, I think you've all heard, continue to spiral. Irrespective of the great work and the great advantages that the drugs bring to our society, the cost of developing them remains an issue. And it's something, I believe, as an organization, we need to be focused on in order to continue to grow our organization and to improve our market share. And then in the final -- the final component of our patient site and data is, of course, the patient side of things. And our ability to engage patients going forward, and it's traditionally a role the CROs haven't played so much in, but I believe it's very important going forward. Over the next few years, this is going to be an area of key differentiation for us, as we build a bridge to these patients, as we build databases, and we build a cadre of patients across the world and particularly near the sites that we have engagement with, there will be participants in clinical trials and participants in future clinical trials. The ability and the opportunity to have a cadre or a cohort of Alzheimer's patients who could be immediately or at least over a period of several months be moved into a clinical trial rather than a period of several years is what is -- really what happens now. It really gives us the opportunity and the ability to completely change the game in terms of how quickly we can do clinical trials. Just a couple of examples as the sorts of things we've been doing, whether it be in terms of centrally managed digital outreach campaigns. So on the global cardiovascular study. We're able to deliver about 30% faster in that -- in that 3 months. Our Site Engagement Liaisons, these are people who actually go after the sites and supplement the work of the study site coordinators and the investigators at the sites. The complaint I usually hear from investigators in terms of why they participate in one trial and not the next is the administrative burden of a clinical trial. We're hoping to alleviate that through our Site Engagement Liaisons and an example here of where we had some success in a nonsmall cell lung cancer study. Incidentally, our Symphony acquisition that we made last time also has a component of their resource that has enabled to go after sites on a more ad hoc basis, and again, support the sites to help them participate in the trial, not just participate in the trial, but to do a really good job of recruiting patients faster and with higher quality. And then as I say, the home care health visits, as I mentioned, Symphony, are going to be a very important part of that going forward. And we've seen already some success in that area. So a word or 2 on our financial performance. As I think I've alluded to, over the longer term, it's certainly been strong. And over the short term, you can see our backlog increasing around about 12% revenue at 9% earnings per share at about 13% over the last 12 months or so. In operating margin, we've continued to improve through a measure of offshoring of robotics and a very efficient global business services group that really gives us an opportunity to continue to drive our operating margin even where our gross margins can occasionally be challenged or can be relatively flat. We see a lot of leverage still available through -- in our operating margin through improvement and being more efficient in terms of our global business services group. From a guidance point of view, we released guidance this morning. So revenue in a range for 2020 full year at $2.972 billion to $3.092 billion -- sorry, yes $3.092 billion. EPS, $7.55 to $7.85, so a midpoint of $7.70, representing in terms of EPS, a year-on-year increase of between 9.7% and 14.1% and revenue between 5.8% and 10%. I think it's important to note the assumptions there. We have no acquisitions included in those assumptions. We have a top customer concentration, maintained at a steady state of around about 12% to 14%, not too different to where we were in 2019. The exchange rate, as you can see, effective tax rate, the benefits of being in Dublin, of course, 12% to 13% and something like $350 million to $370 million of free cash flow, we are expecting of capital expenditures around 55%. And as I said, 1 million shares to be repurchased over 2020. If we do any more than that, then that will represent some upside on that. So just to complete -- and to finish off and to emphasize what we are as an organization and the benefits we bring to the clinical development landscape, we do believe we -- and we have the scale, the capabilities, resources, to capitalize on what really is a very positive market environment. Whether it be health outcomes, cancer death rates, whether it be FDA approval rates, whether it be biotech funding, whether it be R&D funding. We believe we're in a good place at the moment, and we have the scale, capabilities and resources to benefit from that external and that macro environment. We are very focused on our patient site and data strategy. We believe we're trying to solve the major problem that our pharma sponsors have getting patients into trials faster, better, cheaper. That's really what we're trying to do. We're trying to make sure we do that. We do it effectively, and we find our strategy is really starting to build and getting some clear traction there. We have a clear strategy of organic growth. It is supported by targeted M&A by the string of -- our string of pills approach. We remain opportunistic about larger scale transformational, but our focus really is very much on M&A to deploy our capital and very much on bringing in capabilities that supplement and improve what we already have. Our balance sheet is strong. We probably have the strongest balance sheet in the industry and we have that flexibility to support whatever we want to do, whether it be on a share buyback point of view or from an M&A point of view or from an internal CapEx investment point of view as well. I mentioned our low tax rate, strong cash flow, benefits of being in Ireland. We are, as I said, planning to repurchase about 1 million shares in 2020. And we have, I think, importantly, as a few as investors, a very consistent growth rate and a very consistent track record of earnings per share growth over an extended period of time. If I look back 8, 9, 10 years ago, our operating income was probably in the mid-single digits. We're now in the mid-teens. So we've shown the ability to execute. I think the management team that I have on board are an excellent group of people, and they've shown consistently over that period of time, the ability to execute. And so I recommend, I come to you in terms of that and our guiding growth as I said, in terms of revenue and EPS, you can see there as well. Thank you very much.

Okay. Good morning, everybody. I'm Steve Cutler, the Chief Executive Officer at ICON and I'm joined by my colleague and Chief Financial Officer, Brendan Brennan and we're now ready to take questions.

I thought, we just start with just market trends. This time last year, you were one of few companies who called out some possibly step down in biotech funding. So just wondering what your thoughts are heading towards 2020?

So for those on the webcast, the question was around market trends and biotech funding and our call out last year. Yes, I think we should just be clear about the call out. I think we called out that it was unlikely that we were going to see biotech funding continue at the same rate that we saw last year and the last couple of years. So -- and I think that's actually played out. The trend was still very positive and still well above historical norms. It is not quite at the level it was, say, 12 months ago. So I think that was a reasonable call out. We tend to continue to be benefiting from the biotech funding that's available. As I mentioned in the presentation, the companies that we're working with have significant cash reserves. The companies that we're proposing to have significant cash reserves. So it's not just that they're able to raise money, they already have money, and they want to deploy it. So we see a positive environment within the biotech space. And no reason why that won't continue. I think if you look at where most of the new chemical entities and the new drugs are coming from, it is from the biotech area. The benefits of those entities and those drugs is clear, as I called out, they're reducing cancer rates. So it's a -- if you look at -- we're talking about values and outcomes and outputs. The outputs are in the pudding, are being proven, I think. And so that, I think, will lead to continue strong biotech funding, perhaps not at the record levels, you can't have a record every year. But I don't see there's any reason why biotech funding would fall away, given the value and the returns that investors are getting now.

But then in terms of your financial guidance for next year, you're now expecting your largest customer to comprise around 12% to 14% of your revenues, which is a slight tick-up versus what you were expecting for this year. So just wondering if you could talk about the dynamics there? And then also, revenue progression margin [ for that complete ] partition.

Yes. And just again, for the webcast, the question is around the progression of our largest customer year-over-year in terms of their percentage as part of the overall business. Yes, we've seen some modest uptick from 2019 into 2020 and what's forecast at the moment for our largest customer. I think that's an indication that, that's a very solid relationship that we have done well in terms of our business development from those guys. And then it represents proportionately a similar amount that we saw in '19 that it will do in '20. So I think it's a good sign from the overall relationship. As you guys know, that's been a relationship that's been very big in the organization since right back, since 2011. So it continues to be a very, very solid relationship. As we also know that we're going through renegotiation of that relationship as we go into 2020 and we see that as just another step in a long-term relationship. That's been very good to both organizations, I would say, over that period of time. The second part of the question was around margin progression specific to that relationship?

Yes.

Well, we don't split out margins by customer. So you can see that we -- I mean, obviously, they're a big part of our organization and our overall margin progress has been good. But that comes as part of our continued leverage of our cost base, particularly on our selling, general and administrative expenses. And we've seen good progress on that, and we continue to expect that as we go into 2020.

Go ahead.

I've a question [ right here ]. Are you seeing any sort of pricing pressure? It seems like the industry is getting more competitive. There's more tech out there. Can you speak to that at all?

So the question was around pricing pressure in the industry and the tech offerings and perhaps driving prices down. We haven't seen any irrational behavior from our competitors in terms of pricing. It is -- you all know, we live in a very competitive environment, and you need to be on your game. And certainly, you need to be delivering and hence our -- very much our focus on execution and accountability and delivering. As you deliver well, customers become less concerned about price. And more concerned that you can continue to deliver well. So perhaps, initially, when you're out there looking for a particular -- a new alliance or a new project, and you haven't got much experience or much track record with that customer, there may be more price pressure, but ultimately, as you deliver for that customer, and that's always our intention. The price pressure is -- it's always there, but it's not crazy.

Can you talk about any near-term risks of disruption given the Bristol-Myers and Celgene transaction and integration next year? And then if you're embedding any assumptions or conservatism into guidance as a result?

So the question was around near-term risk around BMS and Celgene and then whether we built that into the guidance. I'll answer the last part first. We look at all of the various headwinds, tailwinds, positives and build that into the guidance. So it is all built in to the guidance we've released. In terms of that specific relationship, certainly, typically, we see some slowdown in decision-making with the entity as it -- as they come together, and we're seeing that. That's, again, nothing particularly new there. In the longer term, we hope and certainly expect. And certainly, the evidence is that the outsourcing actually increases. So in the longer term, I think we are optimistic about how that progresses. But certainly, in the short term, we'll probably see some delays. That's normal, and we've built that into the guidance that we've released.

Steve, congratulations on a really consistent strong year, a series of years. I particularly like your Symphony acquisition, I know them best for North America, maybe a little bit less for their Europe performance. Is your thought to make that a global enterprise for you?

Yes. So the question was around the Symphony acquisition and they're in North America? And should we -- why we're looking to make that a global function? Well, the answer -- short answer is [ Tim ], yes. We do believe that accessing patients in their homes is a better way, ultimately going to be the way we're going to be doing clinical trials in the longer term. So it's a -- we've put our toe in the water there in North America. I think a global organization is the way we'd want to go. Of course, finding the right one to bring into our organization, always remains a challenge. And we talk a lot about virtual trials and the cycle-less trials. My personal opinion is that these things aren't going to happen quite as fast as some people think. And it will be -- it's really over the next honestly, the next 10 years of this -- these will go. So I don't see a rapid move into cycle-less trials. But I do -- certainly do see a move, and I do see a progression. And I do see the ability to deploy these sorts of resources in even Phase II and Phase III trials to help patients become and encourage them to be [ pattern ] to improve compliance and to improve retention. There's lots of benefits, I think, from having the capability within our organization. So we are looking and expanding it very much as part of the patient side of our patient side and data strategy.

So your guidance for next year for free cash flow is around $350 million to $370 million, incorporating around $55 million of CapEx. So just wondering about sort of how you arrived at that number and whether there's any upside potential there?

Yes. So the question is around the free cash flow, particularly the guidance to $350 million to $370 million. And whether there's any potential upside, I think, to that number. I mean, we look at, obviously, as you would do, you go through your guidance and your budget process and you estimate your cash flows over the coming year. DSO has been a moving part of the picture for us over the last number of years. We've seen it go out a little bit during the course of this year and certainly has improved in Q3. That's probably the most meaningful element of our overall working capital -- the cash flow part of our balance sheet, if you like. So the progress next year, we're saying is that, obviously, we want to see continued improvement on the [ DEA ]. So and I suppose the math we looked at there was maybe a little flatter. And so certainly, we're going to try to achieve that goal of $350 million to $380 million -- and $370 million, I should say, and that should be very doable. And if -- of course, if we can improve that DSO trend as we continue into 2020, there may be some small [ metros set ].

Can you comment around your long-term plan for data and technology, as the context of the largest players seems to be gaining share.

Sorry, which technology?

On just data.

Oh, data.

Technology in general. It seems like the largest players is gaining share with a smart-enabled trial. Other players [ commit and ] the big data organizations [indiscernible].

Well, our strategy has been pretty clear from the start. We are looking to partner with the best data organizations to identify, to look for that data and then to do the analytics around that data. And ultimately, to make decisions and gain insights from that data. We talk a lot about data and tools and all the rest of it. That's all fine. Ultimately, you need to [ find it ]. You need to get -- analyze that data, get key insights from that data and then take an action to improve what you're doing. And I think that's -- we sometimes forget that ultimately, there's an execution, approach there that needs to be done. So our approach has been partnering. There are hundreds of data organizations out there. There are hundreds that are different approaches. There are different ways that they access data. There's many, many different data sources. We're working through and identifying, which are the optimal data sources. And I think that, that's a very much a movable [ piece ] to a moving target and we want to be flexible and have the ability to move fast to identify and to get access to that sort of data. We're also very much focused on our internal data because we have a huge amount of internal data that brings -- that we can bring to bear to this particular problem. So our strategy is not to lock ourselves on one horse in this race because that horse may not win. And I want to be on the winning horse, ultimately. Yes?

Sorry, going back to the DSO question. You talked about DSOs, the situations were leveling out. What qualitatively has driven that? Is it being -- the pressures on pharma haven't changed. Your competitive environment hasn't changed. Why is the headwind to DSO [ sliding ]?

Yes, I think -- no, you're absolutely right. There's not only in the marketplace that says that all of a sudden pharma companies are going to give your shorter credit terms. That's certainly not the case. Now I think what we've seen over the course of this year was probably just more focus from an internal perspective in terms of making sure that we're really moving that unbilled balance to build invoices out the door and obviously, collected in terms of cash. So I'd be the first to accept that. That probably run up a little too high during the course of the first half of this year. As I said, well, I think we've made good steps in terms of addressing that in Q3. I think those steps will continue in Q4 and into Q1, indeed. And it really is much more around structurally managing that process and ensuring that when we hit those milestones, we get those invoices out the door and making sure that we're getting good cash collections. One of the things that we've often said in the past is that our balance sheet is a particular strength of our company. And our cash conversion cycle is probably still -- probably the best in the industry. So we have used that from a commercial perspective as well as an extra arrow, if you like, to ensure that we can -- when working with biotechs, obviously, cash is very crucial for them. And our good funded level of balance sheet has allowed us to be flexible from that perspective as well. So it is something that we will continue to use as we go forward. So nothing fundamentally has changed rather, it's just we've gone through a different process to ensure that we're improving internally.

[indiscernible] This study looks like [indiscernible] taking some balance sheet risk as it is taken [ through ] Some clients, [ I think ].

I would say that we use -- sorry, on the question again is are we taking balance sheet risk to gain some clients. I would say we're taking a reasonable approach, looking at our customer base. And yes, I think you are always taking some element of risk when you are entering a relationship with new customers. So -- but I think the risk is appropriate. And I think you can tell from the level of bad debts that we have in our organization, which is practically nonexistent, that it's not an undue risk.

Can you talk a little bit about margin progression and whether 30 to 50 basis points on an annual basis is the right way to think about it going forward?

Sure. I think if you look back over the last few years, we've been able to show good margin progression. Initially, perhaps, based both on improvement in the gross margin level and improvement with the SG&A. I think over the last 12 to 24 months, we've really seen most of the progression on the basis of continued SG&A progress. And so that's where I would expect most of that progress to continue the 30 to 50 bps sort of level. And I think that's an amount of increase and improvement that we can certainly get behind that we believe is sustainable and achievable. I do believe we have a very good global business services group that are very flexible and who -- through offshoring. We've done a lot of -- we've been able to improve our cost base. And there's still, I think, some opportunity in that area. We've talked a lot about robotics. And to some extent -- and our machine learning opportunities. We're actively pushing forward in a number of areas there to take away the much -- the more mundane routine tasks from our associates and allow them to focus on higher value-added tasks. So those are the sorts of areas that we think we can continue to get that sort of leverage, but it will be particularly on the SG&A line than on the gross margin line, where I think we'll be sort of pretty much sticking where we are.

What's your appetite for larger M&A. I think you -- on the slide, it was 980 over [ 2008 of ] that magnitude. Is that something that you're not likely to give out or?

Yes. Well, I mean, if you -- on the slide, I think everything we've done there, I don't know what the 980 would represent in terms of numbers, but it's probably 25 acquisitions in there.

Yes it's...

So it's a relatively modest size. And I think the question was around the appetite for large M&A. And we've been public about this before. We remain open to large-scale M&A. We remain opportunistic about it, but it would have to be the right deal. It would have to reward our shareholders much more than put our shareholders at risk. And then we may look at that over a -- there's a period of time here because there's a -- these -- these large-scale integrations would probably realistically take 3 to 4 years. So you have to do, have to look at the longer term, but we continually survey the landscape and look at what's out there. At the moment, there's -- we don't see any particular opportunity. And we, frankly, don't see any particular need. We feel that our company is growing nicely organically. And that's -- to me, that's the most solid growth. That's the growth that I want -- most want. However, if the right opportunity came up and we evaluated that opportunity and overall, the risks were outweighed by the rewards. In the longer term, we would be open to that. But that's a -- I think that's a scenario that we haven't seen there.

Do you expect any impact from the election on the business environment there in the year?

The question was, do we expect any impact from the election on the business environment. Gosh, if I could predict what our president was going to do or say over the next 12 months, I wouldn't be sitting here probably. Having said that, I think people talk about drug pricing reforms and those sorts of things. I think it's extremely unlikely that anything is going to happen before the election on that. However, it's probably very likely, there'll be a lot of talk about that. So I would expect some volatility over the next 12 months or so. And inevitably, there will be some things that will come up around that or some other issue. So I'd expect the unexpected would be my view on that one, whether it has a material impact on our business. I -- it's certainly a material long-term impact on our business. I'd be surprised if that's the case.

So you mentioned the string of pearls approach for M&A, especially in the near term. Just wondering what sorts of capabilities are you thinking about possibly strengthening or adding to [indiscernible]?

That's -- sorry, the question was around M&A, string of pearls and what sort of capabilities we'd be looking at adding. We are very focused around our patient site and data strategy. We think that's the way to really drive sustainable competitive advantage within our industry. And so areas of expertise and resource and capability around that patient sites or data are very much going to be the focus. Having said that, there are other segments of the business that we'd like to build up a little more. We keep -- we look in the government space. So we think that's an area for potential. The device space is an area that we think has some ramp going forward. So there are various sort of segments of our business, Asia, potentially, we look for geographic capabilities out there. But overall, we feel generally, we're well covered. As I showed in the slides where you know we have 14,500 people. We're big enough. We can do pretty much any program that comes in. We don't lose because we're not big enough anymore. That's not something that happens. But there are always areas that we can supplement and improve and become a market leader in. So we're not 1 or 2 in the market, as old Jack Welch would say, I'd like to be 1 or 2 in that market or at least in that market segment. And that's where our M&A focus would be.

The ownership of the sites, how would you rank your large competitors in terms of who is doing well or badly [indiscernible]?

In terms of the ownership?

Ownership [indiscernible] having sites and access to the sites.

So the questions is around having sites and access to sites and how would we rank our competitors. I don't take a lot of notice about what our competitors do. I worry more about what we do at ICON. That's very much the focus for us. Having said that, PPD are an organization that have gone down a similar track to us in terms of accessing site networks. So they believe that [indiscernible] and we certainly see that strategy playing out for them occasionally. In terms of our other -- I think we're well in front of our other competitors in terms of the site aspect of it. We don't -- just to be clear, we don't own sites, we have our people at those sites. And so it's a different model. We don't have the investigators or the bricks-and-mortar itself. But we are very much embedded in those sites, and hence, have a significant influence on how the work gets done at those sites. So I think ourselves and PPD are the ones that are pushing down that track and seeing some benefit from it. You'll have to talk to the PPD guys about how beneficial that's been for them. But for us, we certainly see some traction. We certainly see our customers engaging and endorsing that approach. And it's been helpful in terms of us being able to win business.

Can you speak a little bit to the trend of full clinical outsourcing versus FSPs? Has there been a shift [ In America there are ]...

Question is around full service versus FSPs? And is there -- has there been a shift? It's hard to say. I don't think there's been a fundamental shift one way or the other. Some organizations move in one direction. Certainly others are moving in the other direction. With the biotech funding, they're all full service. They just don't have the infrastructure. So that's fueling the full-service opportunities for us. And that's a strong business model, perhaps on the large pharma, maybe it's pushing a little bit on the FSP side a bit more, but I don't have any sort of specific data that would say to me FSP is becoming a more of our business. It remains an important component of our business, albeit at a lower margin, but certainly a very important driver. And as I said, operationally, a very important component for us because we are able to shift resources back and forward as the case may be and that gives us a level of operational flex, I think -- that I think is very beneficial in terms of avoiding having stranded resource.

You noted CRO R&D penetration is around the 50% level and you're expecting 100 to 200 basis points increase. Just wondering what's driving that? And in which particular segments are you expecting that to be displayed?

So the question is around penetration and we're projecting 100 to 200 basis points on an annual basis if you increase. What's driving it? A number of things, I think, an increased acceptance and belief that the CROs do it better from pharma. I think I could speak for the industry. When I say that, I think, certainly, the top-tier CROs, are very competent development organizations. They're much more so than we were 20 years ago, I would say. Having been in the industry 25, I can attest to that. So we're -- I think even the most hardened internal advocate from a pharma company would agree that we offer a very viable alternative now to them doing it in-house. And so competence and performance, I think, would be one. The biotech area, they don't have resources. They're never going to have that development infrastructure. So as they get funded and as they become a larger part of our industry, that also increases the amount that's being -- the amount of development spend that's being outsourced. So I think those are probably 2 of the main reasons why that penetration is going on.

Do you have a view -- in terms of the smaller players, like regional, smaller CROs. I guess the -- over the years, I always had a view that the big 6, big 7 kind of, would continue to take share from the [ 10 and ] maybe they could go out, just to go out of this is ultimately in the long run, but what's your thoughts on why it hasn't happened more maybe whether has been more from among the big 6, 7 platform is taking out the smaller guys.

So the question was around the big 6 versus the slow -- smaller, perhaps more midsize. I think there's room for everyone in our industry. And I think we have -- we have some very good competitors at the large powerhouse [ play ]. There are some very good, more niche providers, who -- people -- organizations there's a CEO, one sitting behind you who focuses in the rare disease area, extremely competent organization. There's always going to be a role for those sorts of players. If you're a midsized multinational that may be more of a challenge going forward? Because if you're neither a real focus on a rare disease or a niche -- and you're not quite a global player, then I suspect there may be some more challenges for you in that. So you really have to get very focused on what you do well and what you do better than your competitors. So perhaps there are some challenges there. But overall, I think there's room for us all in this industry. Especially...

Thank you very much. Our time has come to an end.

Great. Thank you.

Thank you.