ICON PLC (ICLR) 2004 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the ICON plc first- quarter fiscal year 2004 conference call. During the presentation all participants will be in a listen only mode. Afterwards, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS). As a reminder this conference is being recorded Tuesday September 30, 2003. I would now like to turn the conference over to Mr. Sean Leech.

Good day ladies and gentlemen, and thank you for joining us on our first-quarter fiscal 2004 conference call (indiscernible) the results for the quarter ended August 31, 2003. On the call today we have Dr. John Climax, our Chairman, and our CEO, Peter Gray. Before I hand over the call to John, I would like to make the normal customary statement in relation to forward-looking statements.

Certain statements in these opening remarks constitute forward-looking statements concerning the Company's operation, performance, financial condition and prospects. Because such statements involve known and unknown risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Given these uncertainties, investors and prospective investors are cautioned not to place undue reliance on such forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statement whether as a result of new information, future events or otherwise.

And with that out of the way, I would like to pass the call over to John.

Thank you, Sean. Good day, ladies and gentlemen. Thank you for joining our conference call covering the results of the quarter ended August 31st, 2003. Before I begin, I would just like to point out that our acquisition of Globomax was completed after the end of the quarter, and therefore is not included in any of the numbers which I will refer to in these comments.

Net revenue in the quarter was $68.9 million, an increase of 47 percent over the same period last year. Of this, net revenues in the U.S. increased by 33 percent on the comparable quarter, while Europe and the rest of the world increased by 82 percent over the same period. Excluding the impact of our recent acquisitions, our overall net revenue growth was 30 percent.

Turning now to our costs. Direct costs were $37.7 million for the quarter, representing 54.7 percent of net revenue compared to 64.3 percent in the comparable period. SG&A and D&A costs were 34.2 percent of net revenues for the quarter, compared to 34.6 percent in the same quarter last year. As a result, our operating income for the quarter grew by 46 percent over the same quarter last year, from $5.2 million to $7.6 million. Our operating margin was 11.1 percent for the quarter, unchanged from the comparable period last year and up from 11 percent last quarter. This was achieved despite a disappointing performance from our central lab. The progress which had been made in this business in the previous quarter was sustained in June and July; however, the results for August were very poor, leading to an operating loss of $1.2 million. I'm pleased to report, however, that our clinical business, which represents over 90 percent of our revenue, performed very well in the quarter and grew with operating margins from 12.4 percent to 14 percent. This enabled us to achieve the overall improvement in margin.

Taxation was 26.9 percent of pre-tax income for the quarter, compared with 26.5 percent for the comparable period last year. As a result, net income for the quarter was $5.6 million, or 44 cents per share, compared to $4 million, or 33 cents per share, last year. As you will be aware, during the quarter we completed our secondary offering in which we raised approximately $44.3 million off the deduction of costs with the issuance of an additional 1.5 million shares at $30.25 per share. Cash used in operations was $0.2 million in the quarter and capital expenditure was $3.4 million. Our DSOs were 64 days at the end of the quarter, unchanged from May 31st, 2003. As a result of these factors, net cash at August 31st, 2003 was $51.4 million compared to $11.2 million at the end of fiscal 2003. Net new business awards were $134 million, compared with $88 million last quarter and $54 million for the same quarter last year. This represents a book to bill ratio of 1.9, which is unusually high. This is because, included in the award is an exceptionally large study valued at approximately $70 million. It should be noted that this study is off a five- year duration, compared to average studies which are of two to three years duration. Therefore, its impact is less dramatic than the headline number would suggest. If its value were to be adjusted to its value over two years, awards would have been approximately $92 million and the book to bill would be 1.3. Cancellations in the quarter were $2 million, which is less than 1 percent of our opening backlog.

In summary, at August 31st, 2003, we had $217 million of backlog, which will be earned in the next 12 months. This represents approximately 71 percent of current market estimates. That concludes the opening remarks. I would now like to open the call up to questions.

(OPERATOR INSTRUCTIONS). Christopher McFadden of Goldman Sachs.

If I could get you to talk a little bit more both about the backlog results in the quarter, and also environmentally what you are seeing in the marketplace right now. If we strip out the large contract, it still looks like, sequentially, improvement in backlog activity. Could you talk about the composition of the other contracts, the more normalized size contracts where you are seeing strength? As you're looking out to the balance of calendar 2004, what you are expecting with the particular (indiscernible) comment on the Pharmacia (indiscernible) Pfizer? If you could talk about the contracting activity with that particular customer?

A multifaceted question. General color on backlog in the quarter -- yes, as John has alluded to -- or not alluded to, has very clearly talked about, there's one very large award in there which seems to have been a poorly kept secret over the last couple of weeks as people speculated about it. Apart from that, there was the normal level of awards; nothing particularly large, except for one other project which was in excess of $15 million. All of the others were the normal run-of-the-mill, what I call the bread-and-butter contracts, in the 3 to $5 million range. The general sentiment in the market, if I can call it that, I think, remains positive. We have seen -- you've continued to see a very good flow of opportunities from a broad base of clients, both large pharma and biotech and specialty companies. Surprisingly, even during -- even in Europe, even during the months of July and August -- which everyone traditionally thinks Europe shuts down -- there was actually quite robust activity in RFP flows. So we see the market as continuing to be in (indiscernible) to good health, I think I'd call it. And the Pfizer Pharmacia situation I think is beginning to change. We certainly have seen some RFPs emerging from Pfizer over the last month or so. I don't think it's all worked its way through yet, but there's certainly more activity that (indiscernible) seeing in the last month or so than we have seen through all of the rest of calendar 2003. Does that cover your point?

That does. Thank you for the color. If I could ask a follow-up, which is -- I am intrigued to try to get a little bit more a sense of the central lab trends. Obviously, it looks like at least for a portion of the quarter, much better performance than August; maybe some seasonality. Can you talk about trajectory from here? Should we think about making a contribution in the upcoming quarter? And generally, could you talk about -- do you think you have worked out your forecasting relative to backlog translating into revenue for that business

I think the short answer to the last part of your question is no, I don't think we've quite that got that sorted out yet. Obviously, when August came along and surprised us somewhat -- we still have some work to do in getting our forecasting right. We're obviously disappointed, as John said, quite disappointed with the performance of the lab overall in the quarter. As a result of that, we are conducting a review of the cost structures in the lab, and plan to make some adjustments in the weeks ahead. We have made significant investment commitment to this business, and we continue to believe that those are appropriate and that the medium outlook is excellent for the business. The foundation of that belief is that business flows continue to be strong. And in the quarter -- again, giving you a little more color on the backlog -- in the quarter we've just announced, the lab had over $10 million of wins, which would represent a book to bill ratio of 1.5 for the lab itself. And into September, strong wins have continued for the lab. So the environment for the lab is good. The winning business -- what continues to disappoint us is that -- those wins turning into revenues in a timely fashion. We aren't suffering significant cancellations. So it's not a case of the revenues disappearing again, it just isn't flowing as quickly as we expected it to. In our most recent guidance, we indicated that we expected losses in the lab in quarter one, which obviously it has done, but more curiously than we expected. But that we expected improvement from quarter one leading to profitability for the year as a whole. The scale of the losses in quarter one makes that prediction look a little optimistic at this point, but we are going to complete our cost review; we're going to delve deeper into the outlook for that, and we will update our predictions on our next conference call. At this point, I think it would be premature to change our view. But as I say, the scale of the losses in quarter one have given us pause for thought, and we are doing a complete review, particularly the cost side.

Is there any sense, Peter, on how much from a cost perspective you think may be addressable without impacting the business?

I think that's a very good point. We're obviously very careful, particularly in circumstances where the business is generating good wins, not to do anything that would damage its ability to service that business and continue to grow into the future. So there's limitations as to what we can do, but nonetheless, it's important for us to carry out that review and trim wherever we can trim.

On Medeval, can you talk about what you saw in the quarter, and how much more gains or how much more traction do you expect Medeval as you move through the balance of the fiscal year?

Medeval had a quarter in line with what we would've expected. It is performing in line with plan. We are seeing the backlog continuing to build nicely there. We're beginning to get nice references across from clients of ICON into Medeval. So the momentum is growing there, and we feel very positive about how that business is performing and is likely to perform in the future.

Peter Folly, Marion Stockbrokers.

On the margins in the CRO (ph) business, what is driving the increase in margin quarter over quarter? And also, what your utilization rates are in Europe vs. the U.S.?

Obviously, given the strong performance in our clinical businesses, it is predominantly driven by strong recovery performance. In the quarter, we had recovery globally just a little over 87 percent. The (indiscernible) of that was about 89 percent in the US, and Europe was 83 percent, which gave us the overall 87 percent. Our actual core margins for the quarter, and obviously that would include Medeval, as well. So recovery doesn't quite apply to that. Our core margins for the quarter were actually 14 percent, as John has said, which was pretty strong. But that's directly as a result of the recovery and the strong performances in the other divisions, such as Medeval and consulting, etc.

Looking out over the future quarters, where -- do you see the overall group margins staying at the 11 percent mark, or is it going to gradually expand as you hope the lab's business turns around?

I think, as Peter has said, we're being cautious in terms of the lab until we've completed our review. I see our core business continuing to perform in line with what it has done in the current quarter over the remaining part of the year. But until we have completed the review of the lab, I think my guidance will be generally in around the 11.1 to 11.3 range.

Globomax, roughly, you talk about being mostly earnings accretive. Can we get a better flavor for revenues, margins and overall EPS impact?

In terms of the current year -- and obviously we only have it in from Q2 onwards, Peter -- I see it adding between 9 and $10 million of revenue in the current fiscal year, and that will add somewhere in the range of five to seven cents on EPS (multiple speakers) -- slightly better than modestly accretive.

What's your overall guidance for FY '04?

(indiscernible) uncomfortable (indiscernible) and I've seen ranges between 178, 180 and 182, and I suppose between 178 and 182 I'm happy with.

David Marshall with NCB Stockbrokers.

European growth was extremely strong in the quarter, and obviously Medeval is probably contributing somewhat to that. Are you seeing, or do you believe you're getting better market share gains within Europe vs. the U.S.?

Are you finished?

I might just follow-up with one.

On that one, I think as we have talked about before on these calls -- it tends to swing back and forth between high levels of growth in Europe and in the US. If you take out Medeval, the growth in Europe was 60-some percent this quarter. It's a one-quarter wonder, and next quarter I wouldn't be surprised if we saw a high level of growth in the US and not as strong a level of growth in Europe. I'm not making that as a prediction; I'm just saying that's the way these things tend to swing back and forth. Whether any of these things are market share driven or what they are, it's very difficult to define that. My crystal ball is a bit fuzzy in being able to figure that one out. But clearly we are experiencing strong levels of growth when maybe some of our competitors are not having as strong growth. And that could imply that we're gaining some market share, but I wouldn't want to speculate on that.

Sean, can you summarize the earnouts you're anticipating over the remaining three quarters this year?

The remaining three quarters I'm not expecting any earnout (indiscernible) the remainder of this year.

Ian Hunter, Goodbody's Stockbrokers.

Can you give us an idea of what the customer concentration is looking like at present, whether the big study is skewing that? An idea of it with and without the big study, and maybe without it are you continuing to see the top five accounting for less a percentage of your total business?

There's no real impact on the big study, but in terms of (indiscernible) concentration, we've been managing that pretty well. To give you some color on that, if I look at our top five clients, this time last year we had 58 percent of the revenues coming from them; now it's gone down to 47 percent. If I take the top 10 clients, we are looking at 62 percent as opposed to 72 percent in the comparable period. Does that answer the question?

Yes. Just going back to a question that Peter asked about the utilization rates in the staff. Are you seeing that the US is still better than Europe? And also maybe, (indiscernible) a feel for the (indiscernible) environment is at the moment in both the US and Europe for staff?

On that one, I think as Sean said, the utilization in the U.S. is currently better than in Europe, although Europe is improving and has been improving. I think (indiscernible) 89 percent in the states and 83 percent in Europe on average in the previous quarter -- in the quarter we just reported. The (indiscernible) environment in both sides of the Atlantic is good, I suppose, is the best way of describing it. We never make a big deal about this. We've grown the Company organically very strongly over the last 13 years in an environment where everybody kept telling us how difficult it was to grow the business because of the difficulty in getting people, and we've succeeded in growing the business and getting the people. And that continues to be the case. Perhaps it is fair to say that the US has been easier over the last couple of years than it had been, because I think people are more focused on job security in the last two years than perhaps they were in the 4 or 5 years prior to that. The environment in Europe has always been good and continues to be good.

Dave Windley, Jefferies & Co.

In the environmental or new business side, are there other or more what we might term mega or super contracts in the market right now?

I hope there are. Contracts, obviously, of the size that we have identified specifically are not that regular.

No, clearly not.

Although we have seen over the last -- the time I have been with the Company, the last seven years, probably seen two or three a year of significant size. I won't claim that we've won them all, but we have seen two or three of significant size. So I don't think it's outrageous or outlandish, the size of that particular project, and I wouldn't be surprised if there were others from time to time in the market. Whether there are any there at this moment, I won't hazard a guess.

I missed it if you gave it, Sean, the breakout in revenue between the Phase II or Phase I to IV business vs. central lab?

The lab did 6.5 million in revenues for the quarter, and the remainder, obviously, was the core business.

The timing -- John, you kind of narrowed in on what the nearer term impact of this bigger study would be. Does it ramp fairly soon? Will it begin to impact revenue in the next quarter, or is it longer to ramp up than that?

A large (indiscernible) like that, obviously, there's a lot of working out to be done. So where -- our expectation is that it will ramp up in this quarter, the quarter we are now in. But that is subject, I think, to change as we develop the execution plan with the client.

On cash flow, clearly, very solid quarter from a net income standpoint. DSOs did not move; total AR was only different by about a million. What consumed cash in operations?

I'll take that one. Broadly speaking, we paid our bills a little bit quicker than we did in the previous quarter. What impacted the working capital was a reduction in our AP balances, which reduced by about five or $6 million in the quarter.

Jack Gorman, Davy Stockbrokers.

My housekeeping questions have been variously answered already. Two broader questions, perhaps. You mentioned, Peter, Medeval. How crucial do you think a sizable or significant U.S. presence would be in that particular environment or arena, given I suppose (indiscernible) your overall global approach to your core clinical business? And secondly, just, again, a broader question. Do you believe there's a strategic need perhaps to accelerate your growth exposure to biotech, given perhaps the new product development that we are all aware of, but also perhaps the prospect of a funding window opening in that area over the next 12 months or so? Just wondering what your thoughts were on that?

I will take the first question. In relation to Medeval and its relationship with our presence (indiscernible) clinical group in the US, the only thing I can say about it is that 80 percent of the work that is done in Medeval is first (indiscernible). It's already (indiscernible) stuff, it's not feed and bleed type of work. There are a lot of Phase I units in the US with 300 beds, 400 beds, that specifically gear themselves to the generic industry and the bioequivalence type of work, feed and bleed type of work. There aren't a lot of units like ours in the US, and in Europe there are fewer of them. And I would suggest that a good number of our studies that we are getting in Medeval does come from the US. We're seeing more and more of our clients from the US whom we've been working with in Phase II to Phase IV, finding out about our capability in clinical pharmacology and coming to us. In terms of biotech, yes, our penetration into biotech has been increasing. And I believe our figures suggest 40 percent -- 24 percent, my mistake. 24 percent of our revenues came from biotech companies in the last quarter. Peter, do you want to add anything?

Your (indiscernible) the strategic part behind your question is generally how are we trying to address biotech; do we need to have a Phase I unit in the United States, and so on. I think our view is at the moment we do not need a Phase I unit in the United States, although, as you say, longer-term a global company sometimes may prefer to have Phase I work even first (indiscernible). Some clients may choose to want to have their first (indiscernible) work done in the United States; and therefore, it's something we certainly have an open mind about, in terms of perhaps acquiring or opening a Phase I unit in the US. In terms of increasing our exposure to biotech, absolutely that is part of our strategy. As John has said, we've gone from, I think it's 12 percent of our revenue -- less than 12 percent of our revenues a couple of years ago, to 24 percent of our revenues from biotech in the last quarter. The acquisition of Globomax, the building up of our consulting group is all around the strategy of making sure we have the capability to give advice as supposed to just execute projects to those types of companies. And therefore, yes, we are focused on growing the share of our business from biotech where that's available.

Two brief follow-ups to that. Is there a kind of threshold, Peter, that you would be comfortable with in terms of a revenue exposure to biotech? I don't know if you can talk of a figure above 24 or wherever. And secondly, am I right in thinking that you would consider establishing, setting up kind of a Greenfield unit on the Phase I side in the US?

To your biotech, I'll let John answer the second part of your question. On the biotech side, it's a bit like the (indiscernible) used get out over the years about how comfortable -- how far would I let any one customer go (inaudible) percent of revenues, or how far would I let anyone project go as a percent of revenue, and I don't think we have any feeling on it. If the market developed that 90 percent of our revenues came from biotech, provided that was widely spread and widely diversified among a lot of companies and a lot of different compounds, I think that would be fine. It would be great. In many respects from a strategic perspective, it would have a lot of attraction. Because the biotechs, particularly the smaller and emerging ones, look for a higher level of partnership and support from their COO's than a large pharma company, which has a lot of infrastructure and (multiple speakers) looking for execution. So we don't have a feeling on how much of our revenues should come from biotech, provided it's diversified. John, do you want to take the second part about the Greenfield?

It is an option alright, but at the current moment, Jack, what we are seeing is Europe has a time advantage as opposed to doing these clinical pharmacology type of studies in the US. And a lot of our U.S. customers are taking advantage of it. With time, with the EMEA guidelines about to be published on Phase I, the time advantage may not be that significant; we don't know yet, but the rumors on the street have said that there may not be that much of a difference between an IND and the process in Europe. So a lot of people who have Phase I groups, particularly clinical pharmacology groups, are looking into the US on a Greenfield basis (indiscernible) something up. Unless we can find something really spectacular from an acquisition point of view. We've been looking so far and I've not seen any. As soon as we get our Medeval acquisition well bedded and well founded, that is something that will certainly be our next project.

John Kreger with William Blair.

Sean, I think you had mentioned earlier that you were comfortable with the guidance in the $1.78 to $1.82 range for this coming year's earnings. I'm not clear -- did that include the 5 to 7 cents of accretion from Globomax?

Yes it does.

John, you were talking about concentration. Could you expand a little bit on that? If you think about the substantial wins you have reported in the last couple of quarters, as you build those out and look forward -- let's say -- four quarters or so, would you expect the concentration among your top five clients to be changing going up or down? Do you expect those clients to be any different? In other words, is the makeup of the top five changing?

The large contract -- and this probably goes back to answer another question that came in a different way earlier. The large contract when it's up and running at actual speed will still, because of the value and the duration if you think about it -- do the math; 70 million divided by five years is less than 20 million a year. And our revenues are somewhere heading towards 300 million. Therefore, even that project on its own will be certainly less than 10 percent of revenues. The client is not a client we've done significant work with in the past; therefore, it would or could impact on the top five clients, in that somebody new might move in somebody else might drop down out of the top five. It all depends on our rate of growth, John. No other significant wins that I see at the moment would have a material impact on the top five per se, but I do think -- as we have seen in this quarter -- as John said, the percentage of revenue coming from our top five went down from 50, 51 down to 47 just in the last quarter. I think that trend is likely to continue.

John, I think at the very end of your comments when you started this call you talked about your next twelve months of visibility. I believe you said at around 71 percent? Is that correct? Could you give us the makeup of that number? The expected revenue and also the next twelve months backlog?

I think John gave those in his opening remarks, John. It's 217 million to be earned in the next twelve months. 71 percent, as you said.

(indiscernible) that 71?

Yes.

Could you give us a little bit more perspective on the lab? I think when you bought that business it was losing money or breakeven; got to be quite profitable and now seems to be stubbornly down in the negative category again. As you sort of step back and try to diagnose the issue, can you give us some perspective on what is really causing it?

Not enough revenue and too much cost, if I can be facetious. As I said earlier, it been enjoying good levels of wins. Book to bill on average the last year has been 1.3, and that would tell that it should be seeing its revenues lifting, but it has not yet seen that. And that is taking cancellations into account; it's taking all those things into account. So they have, and rightly, invested in their infrastructure to support the level of business that they see coming through. The level of business is slower to translate into revenues than they had projected, than we all projected. I am confident it will come. But in the meantime, we are looking at what costs we can trim just to make sure we don't hemorrhage significantly as we wait for the numbers to turn. And again, in case you missed it, last quarter the lab went over $10 million worth of business. Which is a book to bill of 1.5. And in the current month, the month of September -- which isn't even finished yet -- they're tracking very strongly in their wins, as well. So we're very confident about the lab. We're confident it's going to come back. There's just a battening down of the hatches that we have to do for the next while until we see the turn in the revenue.

Stephen Unger, Bear Stearns.

One quick question housekeeping question. In terms of the currency impact in the quarter on revenues, how much was that?

In terms of -- the impact is what the growth would have been (indiscernible) we had growth of 47 percent. The impact on (indiscernible) on a year on year basis would have reduced the growth down to 40 percent in total. In terms of impact to the bottom line, it's a very small impact. I think probably 100, $150,000.

Moving to the second central lab, just quickly. Maybe this would be helpful. Could you give us an aggregate amount of revenue that have been booked, that you're waiting for the kits to come in, so we can get a feel for how much kind of -- you can call it a backlog of revenue that's out there?

Not sure I understand your question.

You've had four to five quarters now of bookings performance in the central lab that is about averaging somewhere in the 9 to $10 million per quarter range. Is that safe to say that there's been maybe $50 million of revenues there that you're waiting to come in?

The backlog currently is -- at the end of August is $34 million.

$34 million?

Yes.

Okay. What types of (indiscernible) are being added to the central lab each quarter? I think this quarter it was about $800,000.

Sean, do you want to take that?

(indiscernible) you get the relative kick. On a proportionate basis it doesn't look great, because obviously you have a reasonably fixed cost base in there. And the level of reagents on a proportionate basis doesn't quite add up. I think in terms of -- we have seen some increase in costs on kits, and we have seen some costs (indiscernible) increased costs as you would expect to see on an (indiscernible) people get their annual renewed.

So it's more the cost of kits and reagents, not staff? You're not adding staff?

No, we're not adding staff.

Could you give us some more color on this $70 million contract? Is this like a series of trials? Is this one large program? Does this have options attached to it? Maybe give us a sense for how this contract is supposed to roll out?

This is one large Phase III B study.

That is a global contract?

It's a global project with thousands of patients.

Thousands of patients. That's very helpful. My last question -- in terms of the new board member that you added, is that how you see him helping you with an entree into the Asian, specifically the Japanese market. I'm sure he's got some connections and contacts in the Japanese business community; is that what you see helping?

It's (indiscernible) having an entree, Steve, we are already in Japan. We do have an operational clear path there. What Mr. Higuci would do for us is that to give the board and our senior management some color as to how the Japanese environment is shaping up, particularly with the acceptance of (indiscernible) and lots of other stuff that's happening. But it will help us to gear ourselves accordingly to meet with the demands that the pharma industry in Japan would in terms of outsourcing.

Although, obviously, if we can use his relationships and contacts and knowledge in the marketplace, well that would be helpful to. But that's not what Board of Directors are for, they're actually to provide us a voice of wisdom at the board table.

What was the breakdown between Asia and European revenues in the quarter?

Asia (indiscernible) was about 3 percent (indiscernible) total revenue.

Jim Rice, Oppenheimer Capital.

I was just wondering if you could comment a little bit on what you're seeing in terms of pricing from competitors?

We're seeing nothing different, which is -- as I've always described, the process of bidding is, RFPs are sent out to a number of companies (indiscernible) send in a written response. You have to (indiscernible) the selection process is made around the experience of the team that each CRO is putting forward. And once that -- once somebody got comfortable, once a client is that comfortable with a particular team, (indiscernible) a little bit of haggling goes on, and a project gets awarded. That hasn't changed. We're not seeing any new aggression in the pricing environment.

In terms of the central labs, you said August was weak. Are you seeing any difference in September, or is it too early for you to tell?

While we can see what our bookings are in terms of new business wins in the quarter, it's more difficult to get the financial numbers or a view on the financial numbers. Volumes have been a little better in September -- (indiscernible) we can see volumes up, tests, volumes of kits and so on -- but not good enough for us to be feeling that hey, this is the term.

Is there any certain area within labs that was particularly weak in August?

Nothing in particular, it was just volumes were poor. You make your money on kits going out the door and tests coming in the door. And if the volumes in both of those are low, your revenue are disappointing.

Eric (indiscernible) with Robert W. Baird & Company.

A couple of quick housekeeping items. I'm sorry if I missed it, but did you provide an overall cancellation rate for the quarter?

Yes. In my opening statement, $2 million, which represents 1 percent of our backlog -- less than 1 percent of our backlog.

Sorry I missed that. Also, is there a headcount number -- a current headcount number for the firm?

We're a little over 2,500 as of today, and at the end of the quarter I think it was 2,410. And that excludes Globomax, which added another 80.

Final question here, and I think you have addressed this, but just want to make sure; the $70 million contract five years in nature -- is that contract fully represented in your bookings number this quarter? Or stated differently, is the contract actually larger in size than the 70 million and you've only chosen to book a portion of it at this point?

That is -- the 70 represents our current estimate of the value of the contract in total. But as I said earlier, there's a lot of discussion with the client. For something this large, there's a lot of working out of the specifications, how it will be executed and so on. And therefore, that is a somewhat moving target. At one point it was somewhat higher than 70, so I think we've been realistic, and perhaps a little conservative, in our assessment of the value. I hope we've been conservative in the assessment of the value.

(OPERATOR INSTRUCTIONS). David Windley, Jefferies & Company.

On backlog relative to biotech concentration, you gave 24 percent for the revenue contribution from biotech. Could you quantify backlog concentration for biotech right now?

I think you got us. I know we are reasonably good at getting out these numbers; I don't think we have that one, do we Sean?

No, we don't. Sorry, we would have to come back to you on that one.

I'll give you that one. The percent -- your coverage ratio has historically been one of the higher -- that is, backlog relative to forward forecast -- in the CRO group, and has trended -- gosh, as high as 80 I suppose -- but generally in the high 70 percent range. It's 71 percent now. How much of that if any is maybe a result of our current forecast -- our, the analysts, that is -- includes the Globomax revenue that closed after the end of the quarter; it's not in backlog yet, etc. -- is that part of that issue, or what other contributors are pushing that coverage ratio down a little bit?

I think you've hit them all. I'll recount them back to you. You're right, the 217 million does not include any forecasted revenues for Globomax, as that closed after. Although the percentage that we've estimated also does not include, so I think it's a like for like comparison. In terms of, (indiscernible) obviously (indiscernible) 78 percent last quarter, and you guys (indiscernible) at the mathematics, generally (indiscernible) numbers reasonably substantially when we were at those levels. And you're right, the business mix has changed. Obviously, the addition of MCS (ph) and Medeval -- 2 businesses that will burn through backlog much quicker than our traditional core business - - ultimately meant that our historical norms have been down scaled by about 4 percent. So the 71 -- to put a long story short, the 71 is probably equivalent to the 75 percent levels of the historical trend.

Can you break down headcount between core business and central lab?

Our central lab has 240 people at the end of the quarter.

Peter Folly, Marion Stockbrokers.

On your acquisition strategy going forward, obviously you have the line of financing and the (indiscernible) is being completed now. Are we still likely to see your strategy of bolt-on acquisitions in the 15 to 25 million category, or are you looking at the larger deals? And secondly, do you have any plans to expand your Irish operations (indiscernible) business (indiscernible)?

No, no change in strategy. Obviously, with a strong organic growth rate like we've had and continue to have, we don't feel the need to make any acquisitions (technical difficulty) to achieve good levels of growth. So we believe the right strategy for us is to continue that of bolting on sensible acquisitions that add something to us strategically, and continue to feel that any large acquisitions that would pose significant integration challenges -- both from a financial and a cultural perspective -- are not worth the risk. So the strategy has not changed. And as regards adding people in Dublin, we grow our business as our clients give us opportunities. And that leads to headcount growth in different areas as different geographies are important to different projects. We have no specific plans in relation to Dublin or anywhere else. We have now 31 locations around the world, and we've basically got capacity in most of those to meet the needs of our clients. And as opportunities arise, will add headcount wherever it's appropriate. I'm sure Dublin will grow along with the rest of the organization as we continue to grow our sales.

On acquisitions, given the corporate activity in the sector at the moment, is that freeing up some opportunities for your (indiscernible) on the bolt-on side?

No more so than over the last six or seven years. I think that there's been a good flow of opportunity -- there's been a steady flow of opportunity, none of it (indiscernible) -- not a lot of very good ones is what I'm trying to say, and I don't think that will change. And often the things that are for sale are the things you don't want to buy.

Jack Gorman, Davy Stockbrokers.

Apologies if you've answered this directly, or indeed indirectly. Just to harp back on the labs just for one moment. In the quarter you made an operating loss of 1.2, and obviously you're in the process of looking at the whole cost structure there. Is it fair to say, or can you even say at this stage whether you believe that that 1.2 is kind of the low point as far as operating performance is concerned? Or are you too early in the review process to be able to make that call?

This is where I put on (indiscernible). We haven't been particularly impressed (indiscernible) our forecasting on this business. Thank God it's only 10 percent of our business currently. I would prefer not to make a prediction on that. Obviously I would hope that we have seen the worst of the lab, but we've a lot of detailed work and a lot of detailed review to do to get ourselves (indiscernible) if that is the case. So I won't make any promises or rash predictions.

Do you think, Peter, that part of that process may or may not involve taking charges or once-off charges?

Don't anticipate that at this stage, no.

(OPERATOR INSTRUCTIONS). I'm showing no further questions at this time. Please continue with your presentation or any closing remarks you may have.

As there seem to be no more questions, I would like to thank all of you for joining us today. While we are disappointed with the performance of our lab business, we're very pleased with the performance in all other divisions, which together recorded an operating margin of 14 percent in the quarter. Our level of business wins in the market conditions we are experiencing continue to be very positive, all of which continue to reinforce our positive outlook for ICON. Thank you very much.

Ladies and gentlemen, that does conclude your conference call for today.