Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from the line of Steven Crowley - Craig-Hallum Capital Group.
Steven Crowley - Craig-Hallum Capital Group
My question is related to service margin. You had a very nice quarter in service margin but obviously that is where the model is feeling the hit over the short term with these acquisitions. First of all, is that the correct inference from all the information you threw out at us and what are the implications of these acquisitions for your long-term service growth profit margin?
Christopher Menard
I think when you look at the services margin, there are really three factors and first, we are still very enthusiastic about the core business in the short term and how that service business is doing. As we look at the drop in the third quarter, I think we are seeing is first in the base business, we are ramping up the base business to make sure we are properly staffed with the demand we see in the second half of the year. In addition, we have also seen some FX headwinds particularly with the pound sterling which has strengthened against the dollar by about 14% since the last time we gave guidance about 90 days ago and then in regards to the acquisitions, both Covance's business unit and Maaguzi are actually losing money at a gross margin level.
At Covance side, it is because we are switching the revenue recognition model. They have been doing their work on a percent complete basis and we are putting on the ratable model that we employ with the rest of our business and on the Maaguzi side, it is more just that business is just ramping out. It is relatively small. We did not buy them for their revenue run rates. There was more for the technology and right now, it is still on a loss mode.
Steven Crowley - Craig-Hallum Capital Group
And my follow up, it looks like Clarix had a particularly impressive quarter. Was that a function of the bundling of InForm with Clarix or is this still a reflection of Clarix' growth on its own and the bundled story is largely in front of us?
Christopher Menard
I would say that the majority is based on the growth on its own and the bundling that is still on front of us.
Steven Crowley - Craig-Hallum Capital Group
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