Steve Cutler - CEO Brendan Brennan - CFO Jonathan Curtain - VP, Corporate Finance and IR Andrew Wald - Barclays.

Elizabeth Anderson - Evercore ISI John Kauffman - William Blair Tycho Peterson - JPMorgan Robert Jones - Goldman Sachs Juan Avendano - Bank of America Dan Brennan - UBS Sandy Draper - SunTrust David Windley - Jefferies.

Ladies and gentlemen, thank you for standing by and welcome to the Q3 Results 2019 Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation, followed by a question-and-answer session. [Operator Instructions]. I also must advise you that this conference is being recorded today.

And I would now like to hand the conference over to your first speaker today, Mr. Jonathan Curtain. Thank you. Please go ahead, sir..

Thanks, John. Good day, ladies and gentlemen. Thank you for joining us on this call covering the quarter ended September 30, 2019. Also on the call today, we have our CEO, Dr. Steve Cutler; and our CFO, Mr. Brendan Brennan.

I would like to note that this call is webcast and that there are slides available to download on our website to accompany today's call. Certain statements in today's call will be forward-looking statements.

Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company's business, and listeners are cautioned that forward-looking statements are not guarantees of future performance.

The company's filings with the Securities and Exchange Commission discuss the risks and uncertainties associated with the company's business. This presentation includes selected non-GAAP financial measures.

For a presentation of the most directly comparable GAAP financial measures, please refer to the press release statement headed, Condensed Consolidated Statements of Operations US 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. From January first, 2018, the revenue recognition standard ASC 606 became effective for ICON.

Consequently, current and prior year comments made by both Brendan and Steve, incorporate the impact of this revenue standard. All business win and backlog-related financial measurements comprise both direct fee and pass-through components. This is consistent with financial measurement presented in quarter one and quarter two of this year.

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

Thank you, Jonathan. In quarter three, we achieved a gross business wins of $1.079 billion. We recorded $148 million worth of cancellations. Consequently, net awards in the quarter were $931 million, resulting in a strong net book to bill of 1.31. On a trailing 12 month basis, our net book to bill was 1.32.

With the addition of these new awards, our backlog grew to $8.4 billion. This represents a year on year increase of 12%. Revenue in quarter 3 was $710.4 million. This represents year on year growth of 8.5%, or 9.5% on a constant currency basis. On a constant dollar organic basis, year on year revenue growth was 8.4%.

Year to date revenue in quarter three was $2.080 billion. This represents year on year growth of 8.5% or 10.3% on a constant currency basis. On a constant dollar organic basis, year on year revenue growth was 9.4%. Our top customer represented 11.4% of revenue for the quarter, compared with 14.1% in quarter three 2018.

We expect revenue concentration from our top customer to remain in line with our previously stated guidance of 11 to 13% of revenue for the full year. Growth outside our top customer on a trailing 12 month basis, remained robust. Our top 5 customers represented 36.2%, compared to 40.5% last year.

Our top 10 represented 49.1% compared to 55% last year, while our top 25 represent 67.9% compared to 71.2% last year. Gross margin for the quarter was 29.7% compared to 29.4% in quarter two, and 29.9% in the comparable quarter last year. As revenue growth continues, we continued to leverage our global business support model.

As a result, SG&A was 12% of revenue in the quarter. This compared to 12% last quarter, and 12.3% in the comparable period last year. Operating income for the quarter was $110 million, a margin of 15.5%. This compared to 15.3% last quarter, and 15% in the comparable quarter last year.

The net interest expense for the quarter was $1.5 million, and the effective tax rate was 12%. Net income attributable to the group for the quarter, was $94.8 million, a margin of 13.3%, equating to diluted earnings per share of $1.74.

This compares to endings per share of $1.69 in quarter two, and a $1.54 in the comparable quarter last year, an increase of 13%. On a comparative non-GAAP basis, days sales outstanding were 56 days at September 30, 2019. This compares with 61 days at the end of June 2019.

The primary reason for our improvement this quarter can be attributed to the conversion of billed receivables into cash. During the quarter, cash generated from operating activities, was a strong $160.7 million. We remain focused on all elements of our DSO, particularly the transition of unbilled revenue to billed debt.

And we feel confident that our full year cash from operations, will be in the range of 320 to 360 million dollars. As you will have seen from the press release last night, during the quarter, the group completed the acquisition of Symphony Clinical Research. This was for an initial payment of $31.6 million.

In addition, during the quarter, capital expenditure was $13.7 million and $76.5 million worth of stock was repurchased at an average price of $151.80. At December 30, 2019, the company had net cash of $121.7 million, compared to net cash of $81.8 million at June 30, 2019, and net cash of $142.3 million at September 30, 2018.

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

Thank you, Brendan, and good morning everyone. Quarter three was another quarter of excellent progress for ICON. During the quarter, we delivered record gross and met business wins, leading to a very healthy quarterly book to bill of 1.31, or 1.32 on a trailing 12 month basis.

ICON’s continuing positive business development performance, means we grew our backlog by 12% year on year to nearly $8.4 billion, and recorded a robust revenue increase year over year of 9.5% on a constant currency basis.

As with recent prior periods, we continue to expand relationships and revenues from customers outside our top 10, which grew by over 20% on an annual basis. As we develop these new customers, we expect to see further revenue growth from as we move into 2020.

We believe this diversification leaves us well positioned for consistent and sustainable future growth.

The backdrop of a strong outsourcing landscape, and continued biotech demand, offers possibilities to broaden our existing customer base, and we are pleased to see new strategic alliance opportunities opening up across our clinical research, functional solutions, and laboratory service lines.

These customers are looking to leverage ICON’s operational excellence, flexible time shift model, and depth of therapeutic expertise across our global footprint, all underpinned by our differentiated patient, size and data strategy.

In anticipation of our operational delivery requirements, a significant proportion of our 2019 headcount hiring, occurred during the earlier months of this year. This meant that during quarter three, we were able to improve utilization and expand our gross margin to 29.7% of revenue.

Moving forward, we will continue to closely assess our hiring requirements, in line with our project pipelines, and we’ll ramp our recruitment accordingly, in line with project needs. As we balance revenue growth with our requirements for additional project resources, we continue to leverage our global business support model.

During the quarter, we saw further evidence of this, with SG&A remaining in line with the prior quarter at 12% of revenue, down from 12.3% last year. As we have demonstrated over the years, our SG&A leverage remains a key industry leading strength.

We have developed a strong positive culture within our support structure that is focused on best-in-class service delivery, and appropriate cost saving initiatives. As we move forward into 2020 and beyond, we will continue to balance our investment needs with these savings opportunities in these areas.

This continued focus on operational excellence and the proactive management of our cost base, resulted in an operating margin of 15.5%, up from 15% last year. This led to an EPS increase of 13% year over year to $1.74. We continue to develop our patient side and data strategy.

And at this time, I'm delighted to announce the acquisition of Symphony Clinical Research, a provider of site and patient clinical trial support services. This acquisition, concluded in late September, further enhances our ability to help solve our customers’ key challenge of getting patients into clinical trials faster, and more efficiently.

The acquisition of Symphony, complements on the existing PMG and MeDiNova site networks in the US and Europe. Importantly, it means ICON can now offer patients at-home trial services, which will make it more convenient and accessible for patients to participate in clinical trials.

This patient centric approach helps reduce the travel burden of patients, broadening ICON's recruitable population, and providing patients access to clinical research studies in which they may not have otherwise been able to participate. At-home trial services will improve our ability to recruit and retain patients in traditional studies.

And crucially, it will also enhance our ability to conduct virtual trials as we move forward. Innovation and the ability to execute effectively in this emerging area, will be a key differentiator in the future. In quarter three, we repurchased $76.5 million worth of shares at an average price of $151.80.

This means in total, we have spent just under $141.6 million year to date, repurchasing a million shares at an average price of $141.57. During the quarter, we also generated strong cash flow options, helping us to achieve cash from operating activities of $161 million. This helped drive our DSO down to 56 days from 61 days last quarter.

While the industry trends of customers looking for fewer billing milestones and elongated credit terms remain, we are committed to working with our partners to proactively improve our cash conversion cycle, and lower this metric further over the medium term.

As we look forward with optimism on the business environment and confidence in our ability to continue to execute our strategy, I want to take this opportunity to update our full year guidance. We expect 2019 revenue to increase to a range of $2.79 billion to $2.83 billion, an increase of 7.5% to 9% year over year.

And earnings per share to increase to a range of $6.81 to $6.95, an increase of 11.8% to 14.1% year over year. Before moving to Q&A, I would like to welcome all the Symphony staff to ICON, and of course thank the entire ICON team for all their hard work and commitment during the quarter. Thanks everyone, and we’re now ready for questions. .

Thank you. (Operator instructions). And we’ll now take our first question, and this comes from the line of Elizabeth Anderson. Your line is now open. Please go ahead..

Thanks guys. Good morning. Congrats on a good quarter. I just had a question.

How should we think about the acquisition contribution from Symphony going forward?.

Hi Elizabeth, and welcome back to the analyst group. This is very much a strategic acquisition. So it will be relatively small in terms of quarterly contribution. And so really, you're really looking at a couple of million dollars on a quarterly basis.

So we do see it as very, very important from a strategic perspective and obviously being there to really augment the patient experience, but it is relatively small in (those) terms. .

Okay, perfect. And then one sort of more broader question.

Have you - could you comment a little bit on the - new changes and perhaps like site network competition in the quarter, or any sort of changes in your offerings and the future margin opportunity there?.

From a site network point of view, Elizabeth?.

Yes. .

No real changes. We’re bringing the PMG and the MeDiNova site network together, and then we’ll overlay that to the services that Symphony offer us from a patient point of view. So that whole patient and site network is coming together. We’re in the process of doing that.

We’re starting to see some good traction in terms of the increase in the proportion of patients recruited, the numbers of patients recruited into our trials. But there’s no particular changes in terms of the cost base at this point, and we anticipate we’ll get some efficiency as we complete those integrations.

That’s certainly the aim, but really it's around how we get patients into trials faster. That’s the focus of that group..

That makes sense. Thank you very much..

Thank you, and we'll now take our next question, and this comes from the line John Kreger. Your line is now open. Please go ahead..

Hi. Thanks. Good morning. This is John Kauffman on for Kreger.

I realize that you haven't completed budgeting for 2020 yet, but do you have any broader observations on how you're thinking about next year?.

I believe that John, no. we're looking at that business. We’re actually just starting to go into our budgeting season. So we're going out to our business looking at the markets, getting some input from various parties, and we've got nothing to announce right at this stage.

Although we expect our business to continue to grow as we ramp into 2020 and beyond. .

Okay.

And then if you look across all of your client segments, are you seeing any signs of caution? And if so, is that coming from large pharma, mid-size clients, or perhaps the smaller biotech cohort?.

We've seen - I mean, demand for our services across all of those segments, continues to be very solid, certainly in the biotech space. We look at our year to date trailing 12 month numbers, the dollars are there. The dollars are up sort of mid-single digit basis. So we feel good about that marker.

I recognize that as we look at - we look at (indiscernible) received from a funding point of view, and probably the growth there has come off a little bit from where it was perhaps a couple of quarters or a year ago, we see that.

But in terms of the opportunities we’re seeing in that segment, over a period of a year or so, we continue to see opportunity. We continue to see growth. Certainly our backlog has benefited from that..

Okay, great. Thank you. .

Thank you. And we'll now take our next question, and this comes from the line of Tycho Peterson. Your line is now open. Please go ahead..

Hey, thanks. Wondering if you can talk to the DSO improvement. In the past, I think you've talked about longer times and extended credit terms.

So can you maybe just talk to some of the drivers of improvement in DSOs, and how sustainable you think that trend is?.

Hey Tycho, it’s Brendan here. Yes. No, it was a good - very good quarter in terms of improvements. We would say we still have a lot of work to do and a lot of focus to put on there. I think we were particularly, as I mentioned in my prepared remarks, good at getting cash in on bills or at the door in the current quarter.

So it was very much focused on making sure that we were collecting it as efficiently as we could, and that's where a lot of the equivalent came from.

As we've spoken about in the past, those commercial pressures are still there around folks looking for those fewer milestones and those being pushed out further into the contract, and that is something that is still a pressure point as we look at our DSO and the makeup of our balance sheet.

But as we've said, it is something that we're very focused on. It is something that we're working with our customers on particularly to ensure that we are seeing a good level of traction and pull through of our cash conversion cycle. But that said, it was a good quarter. We are very happy.

As I said, $161 million of cash from operations this quarter, gives us a very, very good cash conversion ratio of nearly 90% year to date on net income. So good pull through from that perspective, but still work to be done, particularly on those debt sizes..

Okay. And then one more for you, Brendan, before I hop over to Steve. Just plans for a further share repose now that you’ve hit kind of the target for the year..

Yes, Tycho. We’ll keep our eyes to the market. It's been a funny trading patterns over the last little while. I think opportunistically, we’ll still look at the market in the four quarter, and if an opportunity presents itself, we will go beyond the million shares already done again in Q3 and get back in the marketplace, if the need arises. .

Okay. And then, Steve, we've seen a little bit of a resurgence on the Alzheimer’s front here with the Biogen news.

Can you just talk a little bit about your pipeline and CNS more broadly, how robust that is?.

Tycho, I'm not trying to get too carried away with Biogen now coming back into the submission state. I think there’s certainly still some challenges there with regard to that. So I'm not going to get too carried about the research and the analysis on this market based on one sort of re-submission.

However, if I look at our CNS portfolio, it continues to grow. It’s - in the neurology space and psychiatry space, it’s an area we continue to invest in in terms of bringing in new medical experts and approaching managers. We feel we have a good network of sites that can do these sorts of trials.

Remember, the sites that we have in our network are also skilled in the CNS area. So we feel we’re well placed to be able to benefit from any uptick in Alzheimer’s trials or any other sort of neurological conditions, or psychiatric conditions as they come through. It’s a big strength of ours and one that we’re looking to bring forward..

Okay. Thank you. .

Thank you. And your next question comes from the line of Robert Jones. Your line is now open. Please go ahead..

Hey, great. Thanks for the question. I guess, Steve just to go back to where maybe some of the growth or what you're seeing in the different cohorts on the demand side. Clearly, bookings very strong in the quarter, as you guys highlighted. Cancellations, I know you guys characterized as normal. But I mean, maybe just to parse those out a bit.

Did you see anything in particular from the smaller biotech cohort, that either A, drove the incremental booking strength in the quarter, or maybe had a disproportional contribution to the cancellation side of the equation?.

Yes. Hi Robert. No. it was - I mean, some of the growth, as we mentioned outside our top 10, was very strong, very substantial. But sometimes you’ve got to naturally think that outside of our top 10 customers, they typically are biotech customers. That’s actually not the case.

So the growth we drove in that total, that outside top 10, was across the spectrum. Certainly there were some smaller customers in there, but there were also some large and mid-sized customers in there as well.

And that’s why I was particularly pleased with that, except one or two of the partnerships that we did have a little wind over the last year, nine months or so, have moved into that - and are moving up the league table, so to speak. So we’ve got - I think we've got growth across the segments in that space.

The global biotech - actually close to biotech businesses has grown reasonably substantially within our portfolio over the last - really over the last couple of years I suppose, 18 months or so. Certainly they’re a larger part of our backlog now than they were a year ago, although still very much a minority around 20, 25 of our cash flow.

So there’s the growth. What I was pleased about was the growth was fairly broad based across the segments of our customer segment, and that was I think as good for us.

And it certainly gives us plenty of optimism in the future in terms of establishing while continuing to develop the relationship with companies who have a portfolio and have a budget that is not just around one or two projects, but around something much more sustainable..

Maybe just to add to that quickly Bob, I think specifically on your point around cancellations in the quarter, I don't think we really saw it skew towards small biotech or large. It was a pretty normal mix, some of the reasons for operational pieces, some for none.

So there was nothing there I think from a therapeutic or a company size perspective that would indicate anything specific. .

No, that's helpful. Good to hear. I guess just on - I know you guys are not in a position yet, as you mentioned, to give specifics around 2020, but just so I can think about the way things have trended so far this year, it looks like you're pointing to about somewhere north of 8% topline growth this year.

You're on pace to grow the backlog in a similar range to what we saw last year.

Is there anything unique or different about the type of wins or the progression of the type of wins that you've seen this year that we should think about as we look forward as far as it relates to conversion from backlog?.

I think broadly speaking, no. the portfolio that we’ve won, as I said, it’s been over the last 12, 24 months has been I think a larger proportion of biotech work in there. But we have I think a good spread of work across the segments. Large pharma remain a core foundation of our backlog. That will continue.

Mid-size pharma is very strongly represented as is biotech. So there's been nothing I think in the win profile over the last quarter or two that’s going to mean we’ll drive a different sort of profile as we get into 2020 and beyond..

Great. Thanks so much. .

Thank you. And your next question comes from the line of Juan Avendano. Your line is now open. Please go ahead. .

Hi. Thank you. Regarding the point on the cancellations, I mean, I'm calculating a 1.8% cancellation rate in the quarter, which is really low on historical terms.

Am I looking at it correctly?.

That’s opening backlog, Juan. Yes. No, that sounds like it’s the right - around the right percentage..

Yes. Low teens I think with gross. Yes. I think these are around our expectations. I don’t think it was (indiscernible)..

Yes, that was true..

Okay, got it. No, just wanted to clarify that. And so cancellations are actually historically low.

I guess staying on the backlog, could you share with us what your gross win growth rate on a reported basis was year over year in third quarter and what it's been year to date?.

Yes. Gross wins were in the low double digit range from a growth point of view, Juan. We’re happy enough with that. It was a little higher on a mid-basis, but we go back to some comparisons that we didn’t provide that both the comparison again. So we were happy with the sort of low double digits on a gross basis. .

Good. All right. Thank you. And then have you noticed any changes at all in recent months in the pace of bookings from Bristol Myers Squibb? We don’t comment on specific bookings from specific customers, Juan. And I’m not going to talk about any specific customer. I think we've seen continued progress across our large pharma cadre of customers.

It is a matter of public record, but we’re a supplier to Bristol Meyers. We continue to have a good relationship with them. We continue to work hard with them and that relationship is ongoing. But I'm not going to comment on specific customers and specific bookings..

All right. Okay. Thank you. And lastly if I may.

Can you give us an update on the percentage of patients that you are recruiting within your integrated site network in the quarter?.

Yes. It was - we certainly increased that on a year on year basis. It’s up around 30% from last year. So we’re happy to see the input. It did come down a little bit in terms of the proportion of patients recruited. That was partly because no more - there were fewer vaccine studies this quarter. So it came down a little bit to closer to around 20, 25%.

But on a year over year basis, it’s gone up. So we’re continuing to see traction in that. and I think with Symphony coming on board, we'll get more traction around that because these guys - Symphony folks will be helping to support and helping to expand that (indiscernible) in our network.

So I’m really pleased to see those three companies, I said there’s three equities that’s come together with our site patient recruitment group to really solidify that offering and really make that a key part of what we do. .

All right. Thank you..

Thank you. And your next question comes from the line of Dan Brennan. Your line is now open. Please go ahead..

Great. Thanks for the questions. I wanted to start off with strategic alliances. I think it was mentioned during the prepared remarks, you see some new opportunities.

Maybe could you just elaborate a bit outside of your top client, how much of your business today is made up of what you would consider to be strategic alliances, and any light in sight - or excuse me, any line of sight on these new opportunities which you mentioned. .

Sure. I mean, we're not going to comment on specific negotiations, Dan, that we're having at the moment, but I've been delighted with the opportunity that things like the MeDiNova acquisition have allowed us - got us into some discussions with some large pharma, potential strategic alliance customers on the lab front.

So we continue to have those discussions ongoing. And as we all know, these things take some time to come to fruition. And certainly take some time before revenue starts to flow and wins start. But so we're still in the discussion, negotiation phase, but we have good reason to believe that we are very well positioned on the lab front.

Our functional services group, we’re also in discussion with a couple of large, very large providers. We’ve got large alliance partners, one of which would be very much a new customer to us. So we're very optimistic about that. But again, I don't want to get too far ahead of myself on that front.

And then the ICR, our phase 2, phase 3 business, has also been able to make some progress in that area. Again, I think you see some opportunity there. So we think strategic alliances, I would say make up around about a quarter of the revenues we do in that sort of vicinity. I'd like it to be a little higher than that.

We certainly see some opportunity to be - for that to be a bit higher going forward. It might be up to 30% I think as we go forward. So it’s not a figure I actually hold in my head.

So I have to sort of think a little bit off the top of my head, but I think it's around about a 30, 25 to 30% mark, maybe a third, and we see some opportunity I think to move that upwards, and that's certainly what we're looking to do as we go forward. .

Great. Thank you. I wanted to - second question on kind of your customer breakdown, and understanding that customer is moving in and out of the buckets that you kind of define when you release.

But nonetheless, I think clients numbers 2 through 5, I think those were growing nearly 30% the last two years, and year to date I think they're up low single digits.

So anything specific to call out there? I know you're not going to mention a customer, but just trying to understand that bucket, which looks like it was a meaningful driver in the past. .

Yes. you know what, I think one on that one, we’re I think slightly up in terms of the last quarter or so, but I think (indiscernible) they tend to go - a little bit of customers jumping in and out of them.

I think where we’re seeing most of the progress is on the - as I said, beyond our top 10, which is really where I want to see most of the progress. We’re moving some of those customers up, as I say, up the lead table. Two to five remain obviously an important component of where we are. .

And just to add to that. Typically, Dan, they’re obviously more mature relationships and they’re kind of in that more mature relationship phase. So you probably wouldn’t expect to see quite the level of growth. We’ve done well, as you said, with an accelerating over time, but as Steve says as well, we want to see more bands in our organization.

So that’s where we’re looking..

And then maybe - just maybe just a few more quick ones. Just on the backlog burn, looked like it was reasonably stable. I think it was down maybe 10 bps I think if I kind of look at the model right now on the fly.

But how do we think about that? I mean, is this the right zip code, do you think from here given the backlog and kind of how things are progressing?.

Yes, I don't - I think it's one we constantly look at. And to the extent that we win more biotech and small pharma business, then we have the opportunity to increase the burn. So that's - but that adversely causes a tailwind from a backlog burn point of view. And less so with large pharma and less so with sort of the mid pharma.

So that remains the bulk of our backlog and the bulk of our win still. So I would anticipate that we'll probably continue in around about the level we’re at, 8.7 I think was the percentages this quarter. I don't - we're trying to push that up.

I'd like to think we can push it up over the next 12 months or so, but with the proportion of oncology business we're getting, that is such an important part of such a large part of the landscape at the moment, and that's always a headwind for us.

So there’s puts and calls on this, I would say we’ll be looking to maintain maybe as opportunism slightly increase. But I’d say at this stage, I wouldn't expect too much of an increase in the burn rate..

Terrific. Thanks a lot. .

Thank you. And your next question comes from the line of Jack Meehan. Your line is now open. Please go ahead..

Hi. Good morning. This is Andrew Wald on for Jack.

Just looking at the quarter, how would your growth have compared under the old accounting standard? And were there any notable changes from reimbursed expenses?.

Hi Andrew. I think we mentioned in the past, there's only one type of revenue, Andrew, and that's the 606 revenue reported, and that's why we talk about it year over year and have set these terms. So I don't think it’s useful trying to parse the revenue at different elements.

We have to look at our projects in totality and work our percentage completions on that basis. So we're happy with the progress we've made. As we've said, 8.5% year over year, and I think that’s the number we should probably stick to and think about as we think about revenue growth..

Okay, understand.

And on the deal environment, what areas are you looking to add additional assets for the seg network?.

I mean, that's - we're looking around that. I mean, obviously the Symphony acquisition move is more towards patients, which has been a very specific and a very concerted move. We do believe the virtue of trial environment is going to be important going forward.

So we want to be able to position ourselves well to not just follow and take advantage of that, but to actually get ahead of innovating in that area. So as we look at M&A, we'll continue to look at organizations that facilitate the connection with patients.

We’re continuing to look at how we develop our data resources, particularly in partnership with the various groups we've talked about in the past. That’s certainly an area. But around recruitment directly to patients, there’s immediate opportunities there I think to perhaps acquire.

But it'll be around - most of it, I’m sorry, will be around our patient site and data strategy. That’s what we've done certainly this year with the acquisitions we’ve made. MeDiNova the lab was a little out of that, but the PMG and the MeDiNova and now Symphony, very much in line with our patients on there.

And there are organizations around that that we’ll continue to look at in order to fill particularly that patient connection going forward..

Thank you..

Thank you. And your next question comes from the line of Sandy Draper. Your line is now open. Please go ahead..

Thanks very much, and a lot of my questions have been asked and answered. So maybe just a quick one. I missed it Brendan. The constant dollar organic growth number, I got the constant dollar, but I missed the constant dollar organic..

Hey Sandy. The constant dollar organic in the quarter was 8.4%. Year to date constant CDO, same basis was 9.4%..

Okay, great. Thanks. And then maybe for Steve, a follow up to one of the earlier questions about the broader dynamics in the market. Just more specifically, have you heard any feedback from customers in their discussions around the DC issues around drug price controls, et cetera? There's certainly some uncertainty there.

If I look back to 2016, there was some noise around the election because some people had paused. I'm just curious if customers are bringing that up or if you have that - hear that out there in the market, people are saying hey, drug price controls come in, we have to sort of rethink how we do business. I'm just curious your thoughts on that. Thanks..

Yes. Sandy, we don’t get much of that feedback from customers, to be honest. That’s not to say that they don’t have a wish to do things more efficiently and more cost effectively. That’s certainly the case. But it’s not really on the basis - at least not expressed to us on the basis of drug pricing.

I know it’s a topic of the conversation within the pharma industry, a topic of conversation about how that potentially evolve going forward. But it really doesn't. They don’t say it to us, at least not to me. So for my eagle’s line of point, sorry, I can’t give you much joy there, or at least much information there..

Okay. No, that's helpful. Thanks..

Thank you. And your next question comes from the line of (Michael Pollack). Your line is now open. Please go ahead..

Hey, good morning. I was going to ask for more detail on where we stand in the patient engagement site network evolution, but Steve, I think you've addressed a lot of that. So I will shift gears to a couple of others that I had. So one for Brendan. We infrequently talk about debt with ICON because you have a net cash position and generate a lot of cash.

The debt you do have is due December of next year. A note, I’m curious what opportunities you see. Rates have obviously continue to grind lower for the most part. Should we consider that refinance as a opportunity for accretion rolled over, pay it down, pay some of it down? Any initial thoughts would be useful. .

I think Mike that we’ll certainly be looking to at least roll over. So we had a good experience in the - as you know, it’s a private placement last time out, and it’s a market we’re well familiar with. So we'll certainly roll it over. We haven't as well completed our conversations around whether we extend or decrease.

I think at the very least, we’ll keep it at the similar levels and look opportunistically again with what we could do with those dollars as we go into I suppose - you say quite rightly, at the end of 2020. So it's really more of a time conversation, what we might do in early - late ‘20, early ’21.

So rollover, good PP market there, good interest rates at the moment. So we're pretty happy that we’ll do at least that and then we'll explore I suppose further opportunities as we go through 2020 as to whether we extend that position or not..

Maybe a follow up also for you, Brendan. So you've been asked and answered the question on DSO many times, and I think the response has been consistent and makes a lot of sense. You're presenting a non-GAAP DSO now.

Can you remind us why it's a non-GAAP DSO? What are we missing? What are the pieces that we can dig up every quarter to align our calculations, which we were doing say last year and the years previous to the new calculation?.

Yes, sure, Mike. I mean the reason we're doing it that way is purely because part of our direct cost base now is something that previously would have been included in getting to our net revenue position, which is obviously investigator accruals. But investigator are an element of our direct cost now.

And as a result, don’t go into a DSO calculations, and I've kept those separately on the balance sheet. So that's why it is different. That’s now sitting in a different line in the balance sheet so it doesn't impact and doesn't decrease our DSO in the same way would have done in the calculation previously.

I think that's appropriate from an accounting perspective, but obviously those have this impact. We’re showing the DSO on a like for like basis to give people more historical comparisons of where we were in the past and where we are now.

We're going to continue to work on it, but I think working from a calculation off the balance sheet now that would give you a higher number of days, is equally valid. I think what we're focused on is making sure that the trajectory of where both of those numbers are going, continues to be in the right direction.

So we're very focused on making sure that if we bring a non-GAAP DSO down by one day, the GAAP number is down by one day as well. So we're very focused on actually making sure that we're moving in the right direction, regardless of what the number is.

But the number where we quoted at the moment, is very comparable to what it was in the past to give people some context, given that it changed..

Appreciate it. Thank you. .

Thank you. And your next question comes from the line of David Windley. Your line is now open. Please go ahead..

Hi. Good morning, good afternoon. Thanks for taking my question. I'm catching up. I’m reading notes. I don't think this question has been asked. Your gross margin has been under some pressure for a little while and ticked up sequentially in the third quarter. Still down year over year, but maybe at a slower rate.

Wondered, is that just a tremble of the needle, or is that actually a signal that some pressures have abated and maybe gross margin can stabilize or even turn higher?.

David, it’s Steve here. Yes. I think from our point of view, gross margin has been under a little bit of pressure. And like I said in my prepared remarks, we recruited fairly actively, particularly in the second quarter to prosecute the work that we won really over the last couple of close - 12 months or so.

And that had a bit of an impact on our gross margin. I think we have attenuated or mitigated a little bit the hiring rate in the third quarter, and very actively look hard at that. And that was what led to the uptick I think by 20 bps in our Q3 line.

I would expect our gross margin to remain at around that level over the next - sort of in the immediate future. We continue to see some challenges there. We’ve recorded now book to bills at 1.3 for the last I think three or four quarters.

And so we've got work to do, and we need to recruit people to do that, and we want to make sure we do a really good job, because a lot of this work that we're doing, doing it well brings us (indiscernible) and of course more - even more than that, brings us the opportunity to form strategic alliances and partnerships with these customers.

So it's important obviously that we do this work. Well, that's a try statement. So, and I do think, as I say, I think we've said publicly for quite a while now, the gross margin is about where it's going to be.

We may go up or down a little bit 10, 20 bps on a quarter to quarter basis, but I don't see much long term progress in terms of that going back to 30 plus percent. I think that will be a jump.

Where we’re seeing an opportunity to improve our overall operating income of course is we’ll continue to leverage the SG&A in our global businesses service group, and we were able to do that this quarter. We see some continued opportunity there in the medium to longer term.

And we certainly intend to keep pushing down that road, whether it be continued offshoring, robotics, process reengineering, all of those good things we talked about quite extensively in the past..

That's fair. I appreciate that, Steve, and you kind of stole the thunder on my next question, which was to ask, how much runway do you think you have? I think ICON’s increasingly viewed as one of the best, if not the best, operating manager of its SG&A.

You mentioned robotics and off shoring are - is it - I hate to ask the trite baseball analogy, but still a lot of lot of innings left in that path..

We’ve got a lot of innings, but I don’t think we’re at the end or not. So I would characterize it, to use your baseball term, I’m more a cricketer, David, than a baseball, but I’ll give you a baseball for that. I would say we’re at the top of the fourth round, around that end of the fourth. I think we’re halfway through.

I think there’s still plenty of opportunity to continue to do that. And who knows? Maybe there’s a double header here as well, (indiscernible) analogy, and I think as we see further opportunities, we’ll keep trying them..

And one last one before I drop.

The - I think you declined to answer questions about any specific clients, but as you think about maybe by client cohort, bookings and demand in your large pharma, your larger clients versus the small mid, is it kind of consistently balanced, or are you seeing some rotation there? I would characterize that and say, within the large pharma cohorts, it’s stable.

We’re seeing obviously plenty of demand or stable demand, I would say. I think you’d have to say most of the growth has been in the biotech, the smaller customers.

But certainly the mid-size ones are also, I would think some opportunity, and I think I alluded to some of the partnerships that we brought on in the last 12, 18 months, are now starting to really ramp up from a growth point of view. So that growth outside of the top 10 is not all biotech customers.

It’s a significant number of more niche side I would say customers. I think - to paraphrase it all, I’d say large pharma, pretty stable. Biotech certainly moving on the up and mid-size, sort of somewhere in between..

Okay. I appreciate that. Thank you very much. .

Thank you. No further questions that came through, sir. You may continue..

Okay. Thank you everyone for listening in today. We are very pleased. Quarter three was another strong quarter for ICON and we look forward to building on this progress throughout 2019 as we consolidate our position as the CRO partner of choice in drug development. Thank you everyone. .

Thank you. That concludes our conference for today. Thank you all for participating. You may now disconnect..