Executives: Ronnie Speight - Vice President of Investor Relations Alistair MacDonald - Chief Executive Officer Gregory Rush - Chief Financial Officer Christopher Gaenzle - Chief Administrative Officer and General

Counsel
Analysts: Robert Jones - Goldman Sachs Erin Wilson - Credit Suisse Tycho Peterson - JP Morgan David Windley - Jefferies John Kreger - William Blair Tim Evans - Wells Fargo

Securities
Operator: Good morning, ladies and gentlemen and welcome to the INC Research/inVentiv Health Third Quarter 2017 Earnings Conference Call. At this time all participants are in a listen only mode. Later we'll conduct a question-and-answer session and instructions will follow at that time. I would now like to hand the conference over to Ronnie Speight, Vice President of Investor Relations. Please go ahead, sir.

Ronnie Speight: Good morning, everyone. The purpose of this call is to review the third quarter 2017financial results for INC Research/inVentiv Health. With me on the call today are Alistair MacDonald, our Chief Executive Officer and Gregory Rush, our Chief Financial Officer. Also available for questions, will be Chris Gaenzle, our Chief Administrative Officer and General Counsel, who is also leading our integration transition management office. In addition to the press release, a slide presentation corresponding to our prepared remarks is available on our website at investor.incresearch.com.

An archived version of this webcast will be available for replay on our website after 1 PM today and there will also be a telephone replay available for the next 7 days. Remarks that we make about future expectations, plans and prospects for the company, including statements related to our backlog and pipeline, constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors. These factors are discussed in the Risk Factors section of our Form 10-Q for the quarter ended September 30, 2017 and our other SEC filings. In addition, any forward-looking statements represent our views as of today and should not be relied upon as representing our views as of any subsequent date.

While we might update the forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. During this call, we will discuss certain non-GAAP financial measures which exclude the effects of events and transactions we consider to be outside of our core operations. In addition we'll be presenting these results on an as reported basis, which includes inVentive Health as of August 1. We will also be presenting them on a combined basis as if the merger has been consummated as of the beginning of earliest period. These measures should be considered a supplement to and not a replacement for measures prepared in accordance with GAAP.

We believe that providing investors these non-GAAP measures helps them gain a more complete understanding of our financial results because management uses such measures for operating, budgeting and financial planning, decision-making and reporting. Furthermore, we believe that also presenting the results on a combined basis provides investors with valuable information for comparing periods and assessing trends. For a reconciliation of the non-GAAP financial measures with the most directly comparable GAAP measures, please refer to the appendix of our presentation. As we will be limiting today's call to 1 hour, we request that participants limit questions to one each with an opportunity to ask one follow-up question. I would now like to turn the call over to Alistair MacDonald.

Alistair?

Alistair MacDonald: Thank you, Ronnie. Good morning and thank you for joining our third quarter 2017 earnings call. I'm really excited about our progress on integration and our go-to-market strategy. But first I wanted to start by saying a huge thank you to all of our incredible collogues that have continued to drive outstanding delivery to our customers. We have assembled a cross functional team of professionals to lead our integration efforts.

Their commitment to our shared vision has been truly remarkable. Our dedicated transition management office is driving the integration process with an aggressive cadence, working with our teams to deploy best practices and execute on our communication strategies. For example, we announced our first three levels of global leadership by the time we closed the merger on August 1. In addition, all new full-service projects utilize the Trusted Process and where appropriate we're also applying this discipline to our larger relationships from the inventive customer base. We continue to receive great feedback on the benefits of the Trusted Process from both our customers and our new collogues.

I'm also really pleased with the integration from a customer service and employee retention perspective, with no customer delivery issues of note and our voluntary clinical employee attrition rate actually declining by 20% during the third quarter of 2017, compared to the same quarter of 2016. I'm also happy to report that turnover amongst our top leadership and key personnel have been less than 2.5% since the announcement of our merger. This is a remarkable achievement and I think it shows the power of the new combined organization and the excitement that our teams are experiencing as we take our new scale and model to the market. Further, we have executed our first global sales and global leadership meetings as a combined organization, helping to establish goals and expectations for everyone along with bringing alignment and focus within our businesses fairly quickly. We also remain on plan to achieve the $100 million target that we laid out for annual cost savings by 2020, including the initial 25 million for 2018.

We also expect to have our clinical business fully operating on the same systems and processes during the first half of 2018 and expect to consolidate the five ELP systems and numerous dispro processes within our commercial business by late 2018 or early 2019. Although, we have a lot of work to do, in order to optimize the integration and realize the synergies, achieving these milestones on aggressive timeline represents a key step to unlocking value. For our go-to-market strategy, we have already developed an integrated sales and marketing approach including proposal responses, pricing and bid dependent strategies. I'm also pleased that we launched our integrated solutions group in order to capitalize on our cross-selling opportunities for clinical and commercial services. The integrated solutions group is a dedicated, experienced team from clinical and commercial operations consulting in real world late phase.

This teamwork started in concert with our business development team, alliance management experts, and corporate leaders to provide a comprehensive and innovative approach to meeting customer needs, utilizing the full spectrum of our services and delivery platforms. I am pleased to report that there is significant interest for our unique combination of service offerings and insights, particularly in the small to midsize market segment. This includes interest in a comprehensive suite of multi-phase clinical work and the ensuing real world and commercialization services for the same compounds. We believe that if we can demonstrate our value proposition to customers at a time when their own clinical development is underway, we can ultimately enable all of our customer segments to achieve their commercial outcomes and goals. In then clinical market, an important part of our strategy is to reinforce our focus on the strong site relationships and improving the sustainability of their participation in clinical research.

I'm pleased to report that INC Research/inVentiv Health was recently honored with the Eagle Award in the best CRO category by the Society for Clinical Research Sites. The Eagle Award recognizes the CRO that best exemplifies outstanding leadership, professionalism, integrity, passion, and dedication to advancing the clinical research profession through strong site relationships. The Eagle Award comes on the heels of being ranked the top CRO to work with in the 2017 CenterWatch global investigative site relationship survey for the third consecutive time. This obviously strong evidence of the care and attention we provide to the sites we utilize gives us a true competitive edge by delivering industry-leading enrolment predictability through consistently identifying the right size to deliver the right patients for the right protocols. Turning to the performance of our Clinical segment, we continue to extend our momentum from the first half of the year with another strong quarter of gross and net awards.

On a combined basis using historical reporting methods, third quarter net awards totaled $755 million representing growth of 25% compared to $606.2 million during the third quarter of 2016. This resulted in a net book to bill ratio of 1.4 for the quarter, 1.3 year-to-date and 1.3 on a trailing 12-month basis. These awards were well diversified with strong performance across top 20 pharma and small to midsize biopharmaceutical companies along with a diverse mix of therapeutic areas and delivery platforms. We believe that highlights one of the compelling strategic benefits of our merger, leveraging the complementary customer bases, delivery platforms, and market approaches of both companies. The strong year-to-date awards continue to build a robust backlog, particularly for the full year 2018.

It is important to note that we have made certain updates to our awards and backlog policies as part of our integration to align the legacy companies' backlog policies and to move to industry-leading reporting. Greg will outline these changes in further detail later in the call. In the Commercial segment, we continue to believe that this market has significant long-term growth opportunities for two reasons. Firstly, the commercial market is only approximately 15% penetrated as of today. And secondly, we have the market-leading differentiated offering.

We also continue to strengthen our executive team within the commercial division with the recent hires in our communications business. We believe our highly differentiated offering is a compelling and attractive platform for industry-leading talent and we will continue to attract the best talent in the industry and deepen our leadership team. As we have mentioned in the past, we believe there is an indirect correlation between the level of new drug approval activity by the FDA and the overall size of the outsource market for the Commercial segment. Year-to-date 2017 new drug approvals stand at 37 versus 22 approved in all of 2016. As we look to the future based on our own and industry experts' forecasts, we expect 40 to 45 new drug approvals per year through 2021.

We believe this provides a strong foundation for sustainable growth. Accordingly, we are beginning to see the signs of this market turning with recent wins within our selling solutions and consulting offerings, a robust future sales pipeline, and an increase in our proposal volume. While in the short run, we certainly faced a number of headwinds, which I will address in a moment, we continue to believe that our long-term growth rate in the mid-single digits for the segment is achievable. As a reminder, from 2013 to 2016 the legacy inVentiv Commercial division grew at a CAGR of 15%. And the growth challenges in 2017 and 2018 are significant.

These challenges include, one, unprecedented levels of cancellations of drug programs by our customers in late 2016 and again during the third quarter of 2017; two, lower new drug approvals during 2016, which have negatively impacted 2017 revenue in particular; and three, the loss of a run rate of approximately $30 million of annual revenue beginning in mid-third quarter 2017 from our largest advertising customer as a result of across-the-board reductions in their outsourcing spend. Clearly, it's up to us to drive this business and we believe we're off to that challenge. The ability to bring our customers' product development and commercialization goals to reality is a big differentiator for us in a highly competitive market. It is a message that is resonating with our customers and we are enthused by the possibilities that lie ahead of us. Let me close again by expressing my gratitude to the thousands of our colleagues that continue to work tirelessly on their highest priority, serving our customers with the highest levels of professionalism and integrity.

They are helping us create a truly unique organization that is unmatched in terms of capabilities and service excellence. Now let me turn it over to Gregory Rush for more comments on our financials. Greg?

Gregory Rush: Thank you, Alistair and good morning everyone. To hear Alistair's theme on our integration efforts, I am pleased with the progress we are making in our integration efforts, including progress in consolidating our financial teams, accounting policies, processes, and systems. Before I begin, I wanted to take a moment to thank all of the finance staff who have spent countless hours compiling all of the conformed and combined financial data included in our earnings presentation.

I will not go through all of the changes to our processes and policies on this call. I do want to highlight a few of those changes starting with those that we made to our awards and backlog policies. Our new backlog policy can be found on Slide 12. The significant changes to our backlog policy are

as follows: Awards must have an expected start date within the six months after the end of the quarter in which the award was received versus our previous policy requirement of one-year. We also no longer record the full value of an FSP award; often include only the first year of the award.

We will book the incremental value on a rolling quarterly basis, so we maintain approximately one-year in our backlog at any given time. We also now disclose our backlog into subcategories. First, we will disclose the portion of our backlog that's gone to contract, which we refer to as contracted backlog. We believe this portion of our backlog should be comparable to some in the industry that only report backlog on a contracted basis. Secondly, we will also disclose the portion of our backlog that has been awarded that has not gone to contract, which we refer to as awarded backlog.

It is very important to note that awarded backlog goes through numerous steps on its way to contracted backlog. For example, a significant portion of our awarded backlog has moved from a written award to a small startup contract to allow us to contractually begin work on the study prior to completing that. Also I want to remind you that we have historically had a higher cancellation rate than the industry due to our policy of removing previously awarded backlog when we determine that the awards are probable of being cancelled, probable of not converting to revenue or ceased to meet the conditions for inclusion in backlog. We believe we are one of the few in the industry, if not the only one, that takes this practice step to remove previously awarded backlog. We will continue this practice and then apply all of the above criteria to invent this backlog obtained in the merger.

Given our conservative stance on FSP awards and the risk adjustments that we make each quarter, we expect these changes to our backlog policy will result in a more conservative book to bill relative to the industry on a go forward basis. On Slide 13 we've provided a reconciliation of our backlog and net awards for the third quarter under our old and new policies, showing the impact of each of these changes. I want to point out that we do not expect the adjustments to backlog to have any impact on our expectations or revenue as the adjustments for FSP and chart relative [ph] studies were already appropriately faced in backlog coverage. Further the majority of our risk adjustments and contingent studies removed from inVentiv backup were previously identified in due diligence and were not considered in our expectations of their future revenue. In addition, on Slide 14 we provide our historical view of the combined companies' net awards and book to bill as originally reported compared to the book to bill under our new policy for the full year 2015 and each of the quarters in 2016 and 2017.

Now, let me turn to our results for the third quarter. All of our results are on an adjusted or non-GAAP basis as if the merger closed on January 1, 2015 as defined on Slide 3. In the appendix of our deck, we have provided numerous reconciliations to help bridge previously reported inVentiv results through our accounting and disclosure policies. While I will not discuss those in detail, I did want to point out those results of conforming inVentiv to our policies. We have eliminated certain addbacks to one-time benefits from the incentives previously reported adjusted EBITDA resulting in reductions of $10.2 million and $22.6 million for 2016 and year-to-date 2017 respectively.

The majority of these adjustments relate to one-time benefits such as R&D tax credit benefit that we highlighted on our second quarter call. Slide 32 provides a detail of our adjustments and exclusions. Our total net service revenue for the third quarter of 2017 was $766.6 million, a decline of 6% compared to $815.2 million for the third quarter of 2016. This revenue decrease was driven by a 21% decline in our commercial segment, which fell from $295.5 million in 2016 to $233.2 million, primarily due to the impact of cancellations at the end of 2016 and further cancellations in the third quarter of 2017 coupled with a lower new drug approval activity during 2016. This deterioration was partially offset by growth of 3% in our Clinical segment, which increased from $519.8 million in the third quarter of 2016 to $533.4 million in the third quarter of 2017.

The growth in our Clinical segment was due to our strong bookings in 2017, partially offset by continued customer delays. These customer delays were particularly acute within our small to midsize customers. Foreign exchange had a negligible impact on our revenue decline for the third quarter. On a year-to-date basis, our net service revenue declined by 4% from $2.425 billion to $2.332 billion. This was comprised of a 15% decline in our commercial revenue from $887.3 million to $752.9 million, which was partially offset by 3% growth in our Clinical segment from $1.538 billion to $1.579 billion for the reasons I previously highlighted.

This decline in total revenue includes a foreign exchange headwind of $14.2 million. Our gross profit decreased by 7% to $249.1 million in the third quarter of 2017, compared to $237.6 million in the third quarter of 2016 with the slight decrease in our gross profit margin from 32.8% to $32.5% respectively. On a year-to-date basis, gross profit for 2017 decreased by 5% to $757.8 million from $793.4 million for 2016 with gross profit as a percentage of revenue decreasing slightly from 32.7% to 32.5%. Foreign exchange had a negligible impact on gross margin for the third quarter, while having a positive impact of 60 basis points in the year-to-date period. The decrease in our gross profit was primarily driven by a decrease in revenues and to a lesser extent and an increase in underutilized personnel resulting from the excess staff that I discussed during our second quarter earnings call along with the negative impact on staff utilization from customer delays.

We expect to complete the reduction of these excess staff by the end of 2017 with many of those actions already having taken place in the third quarter and further reductions in early November. SG&A expenses decreased from $114.4 million in the third quarter of 2016 to $110.3 million in the third quarter of 2017, increasing from 14% to $14.4% of net service revenue. While we had a modest decline in total SG&A cost, SG&A increased as a percentage of revenue due to our revenue decline at a faster pace within our commercial segment than anticipated. On a year-to-date basis, SG&A expenses decreased from $353.9 million in 2016 to $333.4 million in 2017 with the related margin decreasing slightly from 14.6% to $14.3%. Adjusted EBITDA for the third quarter declined from $153.1 million in 2016 to $138.9 million in 2017 with the associated margin decline from 18.8% to 18.1%.

On a year-to-date basis, adjusted EBITDA decreased from $439.4 million in 2016 to $424.5 million in 2017 with the associated margin improving slightly from 18.1% to 18.2%. The decrease in EBITDA was primarily due to this decline in revenue from our commercial segment partially offset by lower incentive compensation expense. Specifically, both our direct cost and SG&A cost benefited from reduction in incentive compensation as our performance has not met our expectations. Foreign exchange had a negligible impact on adjusted EBITDA margin during the quarter, while having a positive impact of 70 basis points on a year-to-date basis. Adjusted net income increased to $56.5 million for the third quarter of 2017 from $49.2 million for the third quarter of 2016 and increased to $164.2 million for the year-to-date period in 2017 from $135.2 million in 2016.

Adjusted net income increased in each of these periods despite a decline in adjusted EBITDA primarily due to the significantly lower interest expense stemming from the refinancing of the combined companies' debt at the time of the merger. Adjusted diluted EPS grew by 15% from $0.47 in the third quarter of 2016 to $0.54 in the third quarter of 2017, while also increasing from a $1.28 to $1.56 on a year-to-date basis. Slide 11 provides key metrics related to our cash flow and leverage position. During the nine months ended September 30, our operations produced $109.7 million of cash on an as-reported basis. Our combined net DSO for the quarter was 38 days consistent with our revised mix of customers.

We expect our DSO will vary quarter-to-quarter based on seasonal trends in collections and billings and to range from the high 30's to mid 40's over time. We ended the third quarter with $304.3 million of unrestricted cash and total debt outstanding of $3.05 billion. Slide 15 provides you with additional backlog metrics. This includes an updated view of our backlog conversion rates, which have been restated historically on a combined basis under our revised backlog policies. We expect to provide a complete view of our traditional backlog metrics beginning with our next earnings call once we complete our review filing of the backlog obtained from inVentiv in the merger.

On Slide 16, we provide our guidance for the fourth quarter. Our guidance takes into account a number of factors, including our existing backlog, current sales pipeline, trends in cancellations and delays, and our expectations for commercial sales in the fourth quarter. Further, our guidance is based on current foreign exchange rates, current interest rates, and our expected tax rates. We expect our net service revenue for the fourth quarter to range from $750 million to $780 million with the midpoint of $765 million. We expect our adjusted EBITDA to range from $137 million to $147 million.

Lastly, we expect EPS on a GAAP basis to range from a loss of $0.25 to a loss of $0.14 per share and we expect to earn $0.52 to $0.60 on a non-GAAP basis. We based our updated adjusted earnings per share guidance on among other things and the expectation of the interest expense will range between $29.5 million to $30.5 million and effective tax rate of 35% and adjusted EBITDA margins of approximately 18% to 19%. We expect our fully diluted weighted average share count for the fourth quarter to be approximately 106.7 million shares. Although we are not providing 2018 guidance into our fourth quarter call, I do want to give some color for 2018. As a reminder, these views are preliminary and are subject to continued strong new awards, normal levels of cancellations, and return to normal levels of study delays versus the high rate we experienced in 2017.

Based on existing accounting standards for revenue, we are cautiously optimistic that our consolidated net service revenue may grow in the mid-single digits, which takes into account the following expectations within each of our segments. For our Clinical segment, we continue to build our backlog for 2018 and accordingly we believe that we have line of sight to achieve mid-single digits growth in 2018 for the segment with potential upside to the high-single digits. For our Commercial business, while we don't have the same levels of visibility as our Clinical segment, we are cautiously optimistic that our revenue would be roughly flat with our 2017 revenue levels with a potential path to low-single digit growth. To achieve these expectations, we need to continue the high win rates within selling tuitions, avoid any additional significant cancellations, and limit the impact of an expected $30 million revenue decline from our higher margin advertising offering. Next to our 2018 profitability metrics, I simply want to remind you of several comments we have made in the past that may impact your assumptions.

First, the mix of revenue has a significant impact on our EBITDA margins. As I noted above, we'll be facing a headwind in the EBITDA margin expansion in 2018, as a result of our expectation of a decline in our higher margin advertising revenue. Our ability to maintain or expand EBITDA margins will depend in part on our ability to offset this headwind. One source of potential offset of this head win is the benefit from our expected 25 million of synergies in 2018. Second, we expect our non-GAAP tax rate to continue to be approximately 35%.

Thirdly, on Slide 37, in the appendix, in order to provide more visibility and to our interest cost, we have provided the current components of our annualized interest expense assuming current LIBOR rates and no additional debt payment. Finally, we expect our total diluted weighted average share count to be approximately 108.5 million shares during 2018. This completes our prepared remarks and we will be happy to answer any question. Operator?

Operator: [Operator Instructions] Our first question comes from Robert Jones of Goldman Sachs. Q -

Robert Jones: Great, thanks for the question.

I guess Greg, lot a comments at the end around next year, but from looking at the weaker clinical base line, but you had the really book-to-bill year-to-date - to look at clinical growth next year, if I heard you correctly I believe you said mid-single digits for next year. Could you just may be help us square that, I would think just given that some of this is delays and obviously the book-to-bill either under the old or new methodology has been really strong, tough to kind of see how that only results in mid-single growth. Could you maybe just help us square that.

Alistair MacDonald: Hi, Bob its Alistair. I will start you off and then pass it over to Greg.

I think when we look at the backlog we're having, as you mentioned, we've got three quarters very strong net awards, Q3 was good as well from net awards as the first quarter as a combined organization. Our pipeline is strong, and I think those combined kind of do support that high single digit performance that we talked about before. But in 2017 we have a big piece of our work coming from the small to mid. And they - we've experienced delays in getting them through and into the revenue generating pieces of the project. That's not - [indiscernible] thinking of regulatory delays, protocol, waiting on protocols, troop supply, things like that - they are really outside of our control and for some reason in 2017 that we have been hit by that three or four times with small customers with bigger projects.

They are still all in the backlog, they are still moving forward, they just keep slipping. So what we've done is for our kind of projections for 2018, we're starting to factor that in because they will still be a big part in what we do. We are still focused in the organization to engage with those small organizations and the high touch kind of small to mid-sector. We like the work in there, it's always very exciting, it's always great science, seize is a key and patients in need of this kind of - this development. And I think some of these factors contribute to the delays because they are hardest to get approval and they're hardest to get protocols on line is the hardest to get up and going.

So we just to be prudent with that and we just want to pull that back a little bit, so that we counter some of that as we go into 2018 as well.

Gregory Rush: So Bob, just two data points you should take from this. Our back log does support really strong growth next year high single digits. We are trying to be prudent on the assumption of growth if you - in my prepared remarks I did say that mid-single digits was outside to high single digits. We are trying to acknowledge that the pure math would say the high single digits but - and we also want to be prudent and from February we have to be able to tell you that the delays are back to normal and give you a different number, but right now we wanted to be prudent.

Robert Jones: No, I appreciate that. I guess just one other follow up. I know there is a lot of moving pieces within the P&L with some of the changes, but if I just look at 4Q EPS at the mid-point of the guidance is $0.56. Is that a fair run rate jumping off point to then build upon the synergies, the 25 million that guys have stuck with and some of the growth that you talked about or is there anything specific within 4Q that we should acknowledge that would make that mid-point of the 4Q guide not a good starting point?

Gregory Rush: There is two or three things you should keep in mind. We did get a little bit more of the conservative policy on reporting than to the previously and done that will be an all over numbers and maybe what Wall Street expected that is high at a penny or two impacting Q4 from what - if you just take in what and that have done previously so keep that in mind in our guide that we are being negative impacted by high penny or two.

Going forward, I think we do have extra capacity in Q4 to deliver more revenue without adding costs as Alistair mentioned, we had customer delays in Q3 and Q4 as a result our staff are - not as utilized and not as efficient. The revenue per head is probably lower than we would like to do so I certainly believe we can expand if the back logs are turning, we will be able to expand revenue with very little incremental cost particularly in SG&A but also even at the cost of progress line. So I do think that there is EBITDA margin expansion if we can stop - if we can get to the delay. So if I am talking to you on, in February I am telling you that the delays are not there as much, and I am up in revenue guidance you should see incremental EBITDA margin expansion too because a lot of that would drop straight to the bottom line as we are delivering.

Robert Jones: Okay, great.

Thanks.

Operator: Our next question comes from Erin Wilson with Credit Suisse.

Erin Wilson: Great thanks. And so can you pass off some of the moving parts in the commercial side of the business and how you can get to maybe some better visibility on that segment. What sort of tangible data point can you track internally to help us or to help you sort of manage expectations around that segment.

I guess you are getting to potentially the mid-single digits longer term growth, but far growth I guess in plan in 2018, but I guess broadly speaking on a consolidated basis, do you think kind of a high single digit long term growth rate for the consolidated business is still achievable?

Alistair MacDonald: Erin, this is Alistair. Thank you. I think we - let me look at the metrics on the commercial side and as you know you guys now we're still kind of still grappling with all areas of our business. We are looking at a couple of different sectors that feed like commercial business overall. Obviously one of the metrics we talked about in the prepared comments was the number of drugs going through the approval cycle.

2016 was a low. We are looking at 2017, now we are at 35 to 36, I think in the as far as number of drug approvals. And as we look forward to those drugs going into the pipe now through NDA, BLA submissions, we see that trend for 2018 as well and may be even higher and 2019. So, you are looking at like 40 to 45 new drug approvals or submissions at least through the next two years. We are seeing that - saw it turn through in Greg's comments I think and in mine also an uptake in - we track a bunch of different metrics into each of the business lines.

Number of meetings people are having, number of our piece - values of those piece we rank them in terms of how each kind in a quality assessment scoring of how real they are and how we feel, we will engage with them and we are implementing all those things into the commercial business as well now. So bringing in a much stronger sales approach across that business and making sure that we will succeed that approach to our small to mid-sector. So we are working pretty hard right now across that groove also look at how do we take them from clinical through the whole continue upside. How do we compare them from a clinical customer into a clinical evidence consulting and commercial customer deployed a new group called the integrated solutions team and because of the model we are having is very complex? We need a specialist group effectively that understands the very broad view of the way that we do consulting with customers explaining it very clearly and identify the needs that the customers have. So what they have and what they are going to do themselves how we plug into that, how we surround them with the services and build a big solution for that customer.

So we have a lot of those discussions on going the various stages of the kind of sales pipeline. Some of them are going very well, some of them in very early stages and I think there is two factors, been able to go out up again small drug approvals being able to engage us more to mid customers and draw those through and having a more solution oriented to the approach with the customer on a longer-term basis for all things that will help us to run business well.

Erin Wilson: Okay, thank you, that's really helpful. And, can you speak to me of some of the elements of conservatives I mean you need backlog assumptions and what is it in prime terms of long term non-voice book-to-bill number, thanks?

Gregory Rush: This is Greg, a couple of things, there are two main changes from INC's policy was first anything less than six months, we are not including trials that start within six months or less, previously it's 1 year. That doesn't impact our revenue expectations at all, because as you know backlog coverage rephrased trials when they are supposed to start, they were supposed to start in nine months, didn't give much impact to the backlog coverage at all, because it was only three months quote in the next 12 included.

So, again no impact on our revenue expectations but it does lower book-to-bill, there's some slides in there, reconcile that. The other thing on FSP basis, basically in the industry I believe everybody books the full value in FSP. So, if you were at a three-year FSP contract at a 100 million a year, people with 300 million in the backlog. The one exception that is PRA, since they have gone public it all included one year's works. So, they would include the 100 million in my example of the 300.

Given that they have roughly 500 million of FSP and we have roughly 500 million, everyone else is I think probably half back were the two market leaders. We wanted investors to have a comfortable comparison of our investors down in that reporting, so, we are only now including one year. That's part of the biggest adjustment to our backlog if you look; we took another brilliant out of that part, half of that came from pulling out all the FSP out. So, as a result I think, other answer point is that PRA's book-to-bills always lower than those people in the industry; because of that power free ours will be lower than people in the industry, because of that. The other thing that we have always done is we risk adjust our backlog, I think we are the only one in the industry that does that and typically that results in the better point 1 or more haircut to our book-to-bill.

So, if you kindly compare our book-to-bill to any other company, those two policies put together, the FSP and the Cancellation, our book-to-bill routed to others will always be point 1 or more lower than the others. No hike in revenue but again our 1.2 is not the same as the industry's 1.2. So, that point 1 lower.

Erin Wilson: Okay, that's really helpful. Thank you so much.

Operator: Our next question comes from Tycho Peterson with JP Morgan.

Tycho Peterson: Okay, thanks. Alistair, I'll go back to the questions on commercially, I understand there's how much you can do on drug cancellations delivered for the most part. Anything you can do to improve visibility on the ad spending side, or mitigate the $30 million impact from your largest customers? Can you also mention margin implications; I think the ad pieces add the margin, and how do we know this is a one offer so as the broader secular trend on the Ad side?

Alistair MacDonald: Okay, alright good question. Thanks, Tycho.

So, on the Ad side of the commercial solutions, we probably make some changes to this, we get a little bit more focused in and around the advertising pieces that handles all the PRP. So, it kind of roughly breaks that communications business, breaks down into those two different sectors. So, a lot of work we are doing in clinical and converting those small timid into clinical commercial customers. That starts with naming their drugs to high probability when we get to that point or when we start working with them in naming their products, that it converts to more spend across communications and then into some installations. So, we have taken a much more integrated approach to that model and I think historically invention does not always capitalize on that.

So, one of the things we are trying to do is, kind of change the way that we feed business into the commercial side from the clinical side, big focus on club ration, big focus on the more communicative fidgeting around with whatever dimensions and helping to drive all that through. We've made, we've added I should say, some significant talent to that commercial group that was already in process as we went into the merger. We have two or three new leaders in that communication space, around on the road, that's in the fresh, totally because they are driving our business. So, we did give a $30 million kind of hick on a single customer, I think that is related more to that customer although, I think we've seen former coming under more pressure in that commercial space. And that is actually, one of the drawbacks in our merger because with that commercial - about spending pressure on commercial verbalizing that cost is actually plays into our model a bit more.

So, I think there might be some headwind in some of the accounts, but the approach that we're taking now, more clarity, more feed from the clinical side, to think about. We try to really devote the clinical pipeline in front of commercial of all the things that we have torched, that enables us to pass more through Hercules. So, I mean those fighters will help us pull back business up and it can help us take some headwind down. Some of the customers have reference before, I think adding this question at around those small timid customers, they have nothing internally to deliver that communication package themselves. So, they are kind of a prime target for us, as we help people transition from clinical into the commercial space.

Tycho Peterson: Okay and then the follow-up is on margins, your margins in clinical look like they could be, they constraint with the shift order FSP obviously on the commercial side some of the revenue headwinds make their margins, since we think about EBITDA margins for '18, can you just maybe provide a little bit of color as to how you're thinking about it?

Gregory Rush: Yeah, I'm, I don't want to add any more than what we said in the script. Do you think that - if you look forward to our backlog billing, the biggest amount of growth in the future and the delays were ahead of revenue this year in the full service offering which have higher margins in the FSP. So, I do believe if we have the revenue growth that we are articulating on this call in clinical that would be primarily in a higher margin, for service business. Our biggest headwind for EBITDA margins for the total company is in the commercial business. Even, if revenue were to stay flat, to grow slightly I think you'll see two things happen next year.

One, the mix of our selling solutions business will be higher because you certainly see sort of the early turns in the growth rate is in that business. That's how our lowest margin piece of our commercial offering, advertising we got that $30 million headwind. So, everything else is constant if we do the same revenue, you may even see the decline in EBITDA margins in the commercial next year because of that headwind in advertising. We're aware of that and that's what all of our book says, if we can get that advertising dollar decline be smaller than the 230 million and maybe even the flat, you have that slide in the EBITDA margin.

Tycho Peterson: Okay, thank you.

Operator: Our next question comes from David Windley with Jefferies.

David Windley: Hi, hopefully you can hear me. I want to sort of on a couple of things here, the bookings number is the change in policy - I suppose I mentioned you guys earlier, I'm on the move and not able to look at the numbers closely. But, I wondered how much giving your change from 12 months to 6 months, how much does that cost bookings that you had previously recognized in the first to second quarter to follow them into the third quarter?

Gregory Rush: We have reconciliation on 513, were there is not much in the net impact was what we booked - what we took out of Q3 that would have been under an old topic, I think the net was 20 of our hurt. We actually had a bigger heard having that toll-free in place net-net.

So, that's on 513. And it includes turnout, the net impact is actually heard now, where we did get a pickup, net-net, we only took out 35 million for the FSP, so we had very small amount of FSP awards in Q3, were we took out the year two or beyond. With that roll-over impact from prior quarters, we've took out on the roll-on quarter we had a $75 million pick-up on the combined company basis. So, the Net of the FSP change was actually a positive to our booking of about 40 million bucks. So, that's where we did get a little bit of a positive, manually applied the risk adjustments positive, we have.

And I think this is where I get the turn of 0.1 and more. Investors did not previously; they waited till they got a cancellation order from the customers to take it out of the backlog. We don't do that, most of our risk adjustments are not even related to anticipate cancellations, it's more of a we got a $40 million study and now we think that the value, because where we are in study certain place are going to be initiated or whatever we're going to finish early that the 40 million has turned in to 38 million, there's 2 million of backlog that does not exist, and we take that 2 million out. We bought the total of 85 million of reduction in the bookings not probably cancellations, but just risk adjustments in the current quarter, so net-net in the policy was a heard, mainly because of the risk adjustments.

David Windley: Thanks, on the delays related to your small mid clients, are those, I mean we talked about just more complex and heard that started but, are those funding related clients with ultimately small, because you don't have the funds in place or are they simply like volunteering regulatory and things like that.

Alistair MacDonald: It's not funding issues, I think. We had that in the backyard in the first place. If we don't believe it's funded, its one-to-one guidance backlog and, it's not funding issues. It's pretty well capitalized but we it comes down to actually the prediction of the drug and getting, the finalized particle, I mean, some of these work has been moving to the right 2017 is really very ground-breaking treatment scenarios and become new classifications. So, it takes longer to get those ports closed, developed, completed, the drug actually manufactured and distribute besides, allow these drug components treatment are very sensitive to different environmental factors has shown a lot of different supplied changes issues starting to stick in the backlog which is good, which will see a start developed deliver in our revenue in 2018.

And, I think just to recap, really over the last three quarters and particularly in Q3, I think we are particularly pleased with the way the model has been received by not just small to mid and expanding that into the commercial side, but also the larger customers those who came incremental seems very happy with the service price volume that can now point in front of the scale matches and we start to see that come through certainly in the pipeline. But, also, I mean we had a really nice strong bookings quarter in Q3 and we hope to capitalize on that.

Gregory Rush: Let me give you two real examples that delays, one of them is one of our smaller mid who wanted to handle, not all, but center portion of the Pasteur calls themselves and negotiation. And, they underestimated the cost of the comparative drug. They think they can get it a discount from the other pharmaceutical company, their assumption.

And they held out the trial start date, but we can't start a trial without the comparative drug. And, they continued that negotiation trying to get a better price and that delayed the study by two to three months. Finally, the trial started, and they're paying higher price. That's an example. A bigger problem probably, what if known that and you wouldn't have an issue with that and those would think we'd try to help the smaller mid's if they give us the consulting work, we can help them to understand that.

The other example, our biggest delay was a project we thought we would get 10 million of revenue on this year in the second half. And the study started, we are working on it, but now our current forecast is 2 million and that is - part of the issue is, one of the countries that we're going into, they are abandoned in and they had protocol issues and their own contractual issues, with all the people, it started, but it causes 8 million revenue this year and very well up to do with any of our operational issues.

David Windley: Yeah, last question, is there any ability, I don't think I've heard you comment too much specifics but, is there any ability to accelerate the synergies fourth quarter and into 2018 beyond the 25 million run-rate. It seems like that would be a level that's more in your control?

Gregory Rush: Yeah, we're going to introduce you to Christopher Gaenzle, he's our Chief Administrative Officer.

Christopher Gaenzle: So, Dave thanks for the question.

I think given the August 1 close, we've got the benefit of having commenced our synergy play really in the year, so we get full credit for that one in part of 17 but all 18. I think more broadly, I am very pleased with where the company is moving directionally with regard to each of the three-year synergy target commentating with the $100 million 20-20 synergy. We are very aggressive results denoted, going back to the main announcement we had in place our transition management office, by early June we announced our first three levels. By August 1, which gave us great stand of control, quarter topped 200. And we've now commenced on both the labor and non-labor synergy play starting in August.

So, I think we forget about where we are at, and don't think we are prepared to give any additional guidance with regard to the revenue savings, but we are very confident that we will hit those numbers.

David Windley: Okay, thank you.

Operator: Our next question comes from John Kreger with William Blair.

John Kreger: Hi, thanks very much. Alistair, could you maybe just help us better understand the 21% decline on the commercial side in the quarter.

Was that sort of a broad across the board or was it in one of the, I think you identified three or four buckets within commercial. Just wanted to see how we should think about the breadth of that?

Alistair MacDonald: Yeah, it comes in two flavors, you know in 2016 there was a lower number of products coming to the market, while documenting I think it was 22, is the number 22? Yeah, this year we are back at 35, 36 right now and then projected to be at you know, the next forty products going through that kind of pipe. That lack of market for the selling solutions business in 2016 of slain packs 2017, so that's a big part of revenue decline year-on-year.

John Kreger: Does that impact all the different portions of commercial that you've mentioned the communications, the selling ship solutions?

Alistair MacDonald: It does to some degree, yes, because a lot of that communications work is obviously also incorporated in the lone juvenile product. So, the communications piece also takes a hit with that.

In fact, it simply drives a piece of all of those groups plus commercial. But, it's more accurately felt in the selling solutions sector because, 55% of revenue falls out into that. It's a bucket. So, and then second piece a big cancellation, a big reduction in the spend, I don't think really, we'd look at this as extra for cancellation. But, I would definitely understand from one of the major customers in kind of mystery key trade, which, and it's not like a clinical trial, obviously where you know you got ethical and medical concerns when you switch trial off.

You still have to monitor the patients, close it all out, there's room on revenue. In commercial when I say stop, you stop immediately, so that revenue falls out immediately. And, that we have to do a better job, I think, loading a broader customer base around that, bringing them a small timid, having more contracts that consult with an impact when that happens and drive outside. You know, when it's in a year when there's more drug approvals going through. So, it comes in a couple of flavors and the revenues switches off very quickly but on the converse, obviously if you win a contract, today we could be starting that revenue on Monday, which in the clinical trial you don't get either.

Gregory Rush: Hey, John, one of the things that we are going to try to do and I am not going to make a commitment that we will be able to do it? It's obviously one of the things that we're getting the hang along is, what are the best way in the indicators of revenue growth. Obviously, in the clinical space we always back our coverage, book-to-bill is an indirect indicator what future could be, nearer to get the indicators back on coverage. So, year is a hang out in the space or used to on the serious side back our coverage. Book-to-bill used to net awards growth; it's all indicators of what revenue growth could be. Obviously, our investors and some of them relying on the commercial, what are the things I would tell you, we thought this year even though new drug approvals are apt and probably going to be in those low 40s.

The mix of those drugs that are proved are smaller compounds and are not producing some of the big sales teams that we saw even in '16. And, I may have said that wrong, to use this one about sales directional, but I think last year we had, there was four or five hundred plus sales teams that went out to bid to the industry. So, there's only four, five proposals last year, whereas in the year before it's much greater than that, two were actually awarded to us last year and we lost three, so we had a 40% kit rate last year. I believe this year is only been two that have even gone up a bit to the sector, and both of those were awarded to others based on price and we are going to match the price and our competitors are well going to do with that and they had their own reasons for going to those prices, but also you only two versus five and we are up to two. So that's one of the reasons why also tempered our expectation rating.

We had expected commercial to have double digit growth next year in our original proxy filing, but that's not going to happen right because we have a one of those hundred plus selling teams this year. That we would have expected to.

John Kreger: That's very helpful. Maybe just one quick follow up on same topic so I think you communicated that you think commercial will be about flat in '18. Help us understand the buckets there so it sounds like your advertising business will be down materially.

It's selling solution flat and what about PR?

Gregory Rush: When I take communications PR and advertising, we basically think of as four pieces, selling solutions about 55% and 60% to 65% of our revenue typically. Communications which is the advertising and PR that combined is usually 25 to 30 and then our consulting make up 10 in the balance and equally weighted. So the communications piece is going to be down next year based on that one customer probably down $20 or $30 million. Selling solutions we expect - and we are starting figure when there and we think that probably will be up and - but that business is absolutely turning better slower margin. Consulting has been strong this year and is an area we are investing in and it's an area where we can connect the commercial and clinical and that's going to be an area focused and if we are able to that successfully and that would pay in a long term to wins in both of the units as we also mentioned are - integrates selling solutions group.

So hopefully consulting will be a growth and [indiscernible] is really more of a business that we try to use of the tip of the spear to win selling solutions and advertising. It gives us a lot of incredible data insight data projecting. Alistair will address that.

Alistair MacDonald: I think the business is interesting. I just want to touch on that communications business again because I think because of this head win coming out from the one large customer there, but I think that we are always seeing the pipeline for that work we need to win to replace so we will be aggressively working on that through Q4 to get that work awarded in the backlogs for next year.

So the business for me it's kind of the fuel that drives a lot the way that we can deliver and not just in commercial but also as we connect through reward and back into clinical. We have compensation to make them a huge play on data and that's great. You need the data to drive, we look for patients and available solutions that you can bring to bid. We have a lot of that data, we have lot of that information. We have invested in a group that looks at how data access how we are using data to use cases, how we deploy that through clinical and commercial and we are able already to pose on that data across and share with clinical customers what their landscape looks like, where they are at in the development space, but also where they are at in the potential commercial spaces that bring that through forward.

So they know what their expectations are around that delivery and I think that power that we have with that and also the connection that we have with the size and we can combine those two things together find of the right protocols knowing where to fish for patients with the data and the relationships with the size because it's one thing to have all that information. But if you can't convert into a highly functioning highly efficient clinical trial, it's a sensitive data. So we are trying to make sure that we use all our assets to improve the clinical business, its connectivity to commercial through reward and consulting and drive the whole model and I think we are very excited about that.

John Kreger: Great, thank you.

Operator: Our next question comes from Tim Evans with Wells Fargo Securities.

Tim Evans: Thanks. I was hoping to take a big step back here and look at the forest instead of the trees. When you closed this deal or when you announced the deal you sounded like you had a very high amount of confidence in the CAGR numbers that you gave for 2017 to 2020 the 9% offline 14% EBITDA and what you are telling yesterday I think is going to shake our faith in those numbers. What has - what are the two or three that have really changed since that point in time to day?

Gregory Rush: I will take the first and let Alistair address. I think clinical nothing has changed in terms of booking they come in row we thought there are going to be.

Our backlog is building exactly what we thought to be and again those numbers were in May, so seven have passed and all of our competitors have modified their numbers with new information, but clinical - I would say not much other we have tried to be prudent giving 2018 guide of delays, long term we still believe high single digits is where this company will at the long term and that has not changed. And when we gave that 9% it wasn't by a year, we didn't say every was going to be 9% we articulated that commercial and particular has a higher data and that and the variability in that will not be straight into the right. In fairness 2018 is not going to be as strong as we would have thought initially and that's all in the commercial side. I think that we had expected commercial to be to finish this year quite honestly above a billion in revenue, right now this guide would say it's going to below a billion, but we expected that to finish this year little higher and it did. And next year a part to be a high - low double-digit growth and the lack of the wins of the hundred plus sales teams and the $30 million a head they were taking in advertising.

That's two points on a gross rate right there. 2 to 3 points on commercial and solid 1 point on the total counting growth that one customer wants. So we still say mid-single digits and you can - I will take you where exact to be 4,5 or 6% and we it's what think that help whole company, but the down turn from the 9% is almost solely within commercial.

Alistair MacDonald: Yeah, I used to work here with INC before it was INC/inventive, the CEO would tell me all the time, conditions change, and we have seen that we have the cancellation, we have the head win commercial, running when we look at where we are heading with clinical how we are connecting that with all the other parts of the business now. We have a very, very strong, very functional, high performing clinical business.

We have had three great quarters of net awards that are trying to build out backlog nicely and we will compare those, and I think that stream of work that comes out of clinical obviously some of it doesn't make you all the ways commercial that's the nature of our business. And those pieces that we are working on that are model - moving towards commercial we have practice, we have the methodology to get with those customers at the right times, drive more pipeline into commercial to bring that business out. And that connection from clinical through commercial I think makes us stickier with the customers because they a see longer term feature and a longer-term path way with one organization where they can get more buying power because they are spending more with us and relationship gets deeper, longer and stronger. And I think that will help us drive to where we stay we would. I think is a great question Tim, and I think it's the great way to think about the overall and it helps us how we - we are very confident in the overall not just now but in the future as well.

Tim Evans: Okay. Thanks for the context.

Operator: And I am not showing any further questions at this time. I would like to turn the call back over to Alistair.

Alistair MacDonald: Okay, thank you.

Thanks, everybody for joining us today and for your continued interest and investment in our company. Have a great day. Thank you very much.

Operator: Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.