ICON PLC (ICLR) 2004 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q3, 2004 earnings conference. I will be your conference coordinator for today. At this time, all lines are in a listen-only mode with questions and answers to follow. (OPERATOR INSTRUCTIONS) At this time I would like to turn the call over to your host, Mr. Sean Leech.

Thank you and good day, ladies and gentlemen, and thank you for joining us on our third-quarter fiscal 2004 conference call covering the results for quarter ended February 29, 2004. Also on the call today we have Dr. John Climax, our Chairman and our CEO, Mr. Peter Gray. Before I hand the call over to John I would just like to make the customary cautionary statement in relation to forward-looking statements.

Certain statements in these opening remarks constitute forward-looking statements concerning the Company's operations, performance, financial conditions 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 statements either as a result of new information, future events, or otherwise.

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 for our third quarter ended February 29, 2004.

Net revenue in the quarter was $76.9 million, an increase of 30 percent over the same period last year. Of this, net revenues in the U.S. increased by 9 percent on the comparable quarter, while Europe and the rest of the world increased by 84 percent over the same period. Excluding the impact of acquisitions, our overall net revenue growth was 22 percent.

Year-to-date net revenue was $219 million, which represented a 37 percent increase over the comparable period. Of this, net revenues in the U.S. were up 22 percent and Europe and the rest of the world were up 75 percent. Excluding acquisitions, the net revenue growth was 24 percent for the first nine months of the year.

Turning now to our costs, the rent cost was $42.5 million for the quarter, representing 55.3 percent of net revenue, compared to 56.3 percent in the comparable period. SG&A and DNA costs were 33.3 percent of net revenues for the quarter, unchanged from the same quarter last year. Year-to-date direct costs were $120.3 million, which represented 54.9 percent of net revenue compared to 54.8 percent for the same period last year.

SG&A and DNA costs were 33.8 percent of net revenue for the nine months ending February, 2004, compared to 34.1 percent for the same period last year. As a result, our operating income for the quarter grew by 42 percent over the same quarter last year from $6.2 million to $8.8 million. Year-to-date our operating income grew by 40 percent over the same period last year from $17.7 million to $24.7 million.

Our operating margin was 11.4 percent for the quarter, compared to 10.4 percent in the same period last year. Year-to-date our operating margin was 11.3 percent, compared to 11.1 percent for the same period last year. Our clinical business, which represents over 90 percent of our revenues, performed well in the quarter and grew its operating margins from 13.3 percent -- sorry, operating margins to 13.3 percent from 12.5 percent in the comparable period.

Our lab business reduced its losses to a $0.5 million in the current quarter from $1.1 million in the previous quarter. This improvement was in line with our expectations, and we continue to expect that the lab will return to profitability in the first quarter of our next fiscal year.

Taxation was 24.7 percent of pretax income for the quarter, compared with 27.1 percent for the comparable period last year. Year-to-date our effective tax rate was 25.7 percent, compared to 28.2 percent for the same period in fiscal 2003. We expect our tax rate to remain at these levels for the coming quarters. As a result, net income for the quarter was $6.7 million or 47 cents per share, compared to $4.6 million or 38 cents per share last year. Year-to-date net income was $18.5 million or $1.39 per share compared to $13 million or $1.07 per share last year.

Turning now to our balance sheet, cash generated from operations was an excellent $24.5 million in the quarter, while capital expenditures was only $2 million. Our DSO's was 57 days at the end of the quarter, compared to 69 days at the end of the last quarter and 64 days at the end of fiscal 2003. As a result of these factors, net cash at the end of February, 2004 was $67.1 million.

New business awards were $101 million in the quarter, offset by cancellations of $10 million resulting in net awards of $91 million. As a result of these factors at the end of February, 2004 we had $241 million of backlog which will be earned in the next 12 months. We estimate that this represents approximately 70 percent of the current market forecast which is a significant improvement from our last quarter.

That concludes my opening remarks. I would now like to open the call up to questions.

Thank you, sir. (OPERATOR INSTRUCTIONS) Peter Frawley with Merrion Stockbrokers.

It's actually Marianne Stockbrokers and I wonder can I ask you about the profile of the backlog or the new business wins? Were there any particular one off items given significant financial improvement especially in light of I think at the last conference call you were saying that December was a weak month and February showed signs of improvement -- or January showed signs of improvement. Was February particularly strong or was it just that you signed a number of large contracts in the last week's of the quarter?

It's the wins in the quarter were pretty broadly based, as John said. Gross wins were 101, net wins, 91 and there were one or two above $10 million wins but by and large the wins were very broadly based across our different business units and across our different geographies. I think I should comment that the comments we had made about the tone of the market at that time, we were I think emphasizing that the U.S. had been somewhat quieter than Europe and that did continue through the quarter and we would be happy to give some more color to that question later, but the basic answer to your question is broadly based with a couple of over $10 million.

Okay and do you see the 90 plus level sustainable or do you expect to grow off this level if the quarters continue on -- do you have March fair to wealthy?

The tone of business is all good, yes, and what we expect is that again if you look at the kinds of wins we've had over the last number of quarters we have to expect that we're going to do somewhere from the mid-80s to over 100 in any given quarter. Obviously we see volatility from quarter-to-quarter, but we expect as we grow that the level of wins will continue to grow.

So the capacity issues in quarter 2 are largely put to bed?

I am not sure what you mean by capacity issues in quarter 2.

You know, the effect of the cancellations that came through and the large cancellation rate --?

That wasn't so much a capacity issue, Peter, as an issue of our capacity being apparently committed and then not being committed, and obviously that was something that occurred in a particular point in time, but on our last call I think we explained that it had been a transient situation that had been disruptive to us but had cleared at that stage and has continued obviously to be cleared in the meantime.

Okay great. Thank you.

Jack Gorman of Davy.

Thank you very much. Jack Gorman of Davy here. Well done on the quarter and on the business wins. Just a couple of questions -- one or two directed to Sean and then perhaps to John or Peter. First of all I just wondered how confident or otherwise you are of maintaining the cash balances in or around the level that you reported the end of Q3? Obviously this was a strong improvement quarter on quarter. I just wanted to get a sense of what was driving that and are they factors that will stay in place in the current quarter?

Secondly, Peter, you alluded to somewhat of a deceleration in U.S. growth and I was just wondering what your latest sense of hiring trends there are in the U.S. for you at the moment? Are you hiring staff at the moment?

And thirdly, again you alluded to it in previous question with Peter, the concept of ring fencing that perhaps constrained you a little bit in last quarter, has your view changed on that process? Has your view changed on whether you would do that again if it occurs again over the next couple of quarters? I just wanted to get your views or your opinions on that.

I will go first. It was a good quarter and primarily, Jack driven by as you probably expect by the improvement in DSOs, our DSOs at the end of the last quarter were 69. We have gotten back into the range that we've been guiding to for a number of quarters which is between the 55 and 60, so we have gotten within that range of 57 in the current quarter and that is primarily where most of the incremental cash generation has come from. The straight answer to your question is that if we maintain our DSOs at these levels our cash should stay at reasonably similar levels less obviously what we invest in CAPEX. Our CAPEX in the current quarter was low and I expect a reasonably low-ish quarter in the current quarter but I don't expect to stay at those types of levels on an ongoing basis.

The implication of that is are we going to basically stay at these total DSO levels? And the straight answer to that, Jack, is yes, I expect it to stay within 55 to 60 although we will obviously continue to eke out as much improvement in that as we can through more discipline, more process and just keeping an eye on the market as to how it's running in terms of the current T's and C's (ph) that are out there, so where I see it at the moment is between the 55 and 60 but we will obviously attempt to improve that as time progresses.

Sean, there weren't any one offs, even small one-offs in the quarter that we should be aware of on the cash -- from a cash point of view?

In terms of cash, Jack, I don't think there is such thing as a one-off. I think probably we just adjust (ph) things a little more correct than we have in previous quarters. We have been in the instance where four or five days after the end of quarter we would guess significant flows of cash obviously which can't be included. I think we finessed our processes sufficiently to get them the right flow to the quarter which is probably the only marked difference I could comment on.

Perfect.

The other two parts of your question, Jack, in hiring in the States and the (indiscernible) . Hiring trends in the States continue to be modest I think is the best way of phrasing this. We are -- just recently have reopened our hiring in the States but we're not aggressively doing so and as I alluded to in my answer to Peter Frawley's question, business has been very robust in Europe, continues to be robust in Europe and we're hiring in Europe and continuing to hire in Europe. In the States the quarter ended February was a fairly quiet quarter. We were disappointed with the level of activity in the marketplace, particularly in the period from mid-January through to the end of February, and that did not give us any encouragement to aggressively reactivate our hiring. I'm happy to say that the month of March has been very strong and it looks like what we were looking at in January/February was a temporary lull in market activity and that lull seems to be well and truly over if the evidence of the last four weeks is anything to go by. That doesn't mean of course that we immediately switch on the faucet in terms of hiring but it means is the opportunities are there for us and now we need to go out there and win those. And when we win them and as we win them, then gradually the dial will be turned up on hiring.

On ring fencing, I think the honest answer is no we haven't changed our view on that. We are in the business here of making commitments to our clients and of delivering projects for them. And when we win a project and the client gives us firm indications of what they want us to do, we have to reserve staff in order to meet our commitments to the client. What happened to us in the fall of last year was somewhat unusual. I think for a very large project in the future we perhaps would be little bit less aggressive in the ring fencing. We might ring fence 100 percent of what we need, we might ring fence 80 or 90 percent, but that still would leave us with some exposure to what happened to us late last year. But that is the nature of our business. We have to be prepared to commit to our clients and deliver for them and we can't change that.

And the client, Peter, can the client stipulate that 100 percent or "x" percent of staff could be ring fenced for a certain number of months or is that your decision?

That is our decision and obviously if they are paying, they have a right to expect that we will have the staff assigned to the project. In situations where we are in startup, contracts haven't been signed, but good faith statements are being made, that is obviously more difficult for us, but our view it is 90 percent of the time those good faith statements will come to pass and everything follows through from there and we would much prefer to be in a situation where the project is going ahead as planned rather than us making its excuses to the client, well, you haven't signed something for us and therefore we are a month late in getting started because it's all your fault. That's not a great way to service our clients. We have to be prepared to make commitments, that is one of the risks of our business.

And is it fair to say Peter, just as a final follow-up that that particular project in contract is up and running and going pretty well in line with what you expected now?

Yes, that is correct. It is up and running at full speed.

Ian Hunter of Goodbody Stockbrokers.

I was just wondering if you could give us a general breakdown of the relative performance of the different business units. I'm thinking of the Trials division (ph), the Medeval, Globomax and MCS, just how you felt they performed over the quarter and then if possible maybe a good (indiscernible) coming back towards profitability but maybe give us some idea of the steps you are taking to turn the business around into profit by the beginning of next year.

As you'd appreciate, Ian, we don't go into specific detail on how the elements of the clinical trials are performing. What I can say to you is all of them performed quite well in the quarter as you will have guessed or surmised from my comments, Europe had a particularly good quarter based on the robustness of the flow of opportunities it has had, it has performed better in the last few quarters that it has done for sometime and we are very pleased to see the progress Europe has made. In terms of the lab, the steps that we are taking and have been taking I think we talked about on the last quarter; we took some steps to reduce our cost base. We have had a couple of quarters of strong wins, so the improvement of performance in the labs is a combination of reduction in cost and an increase in revenues on the back of those strong wins that we've had for the last few quarters. And those are things we continue to do in the lab.

I think it's probably an opportune point to mention that at the end of the quarter in late February we moved our New York lab from its old three separate premises all reasonably close to each other but three separate premises none-the-less, into a new purpose designed purpose built facility. We did better designs to meet the needs of the lab and particularly to support its growth in the future. The benefit of that I think will come through in terms of improved efficiency and also improved confidence from our customers as they see the quality of the facilities and the capabilities we have within those facilities. The downside is until the premises we have moved out of have all been sublet we have an uptick in our cost base and that is why despite the strong improvements that we have reported in performance in the quarter ended February, we are not predicting a return to profitability until the quarter ended August of this year because in the current quarter we are taking on some additional costs related to move of premises, which will offset further improvement in the fortunes of a lab in terms of its revenue. How's that rather long explanation is clear.

Yes, I was just wondering if you could give us some flavor also of the Medeval and Globomax and MCS businesses?

They are doing fine, Ian, and they are part of the clinical segment and we are reporting them obviously as part of the clinical segment and we prefer not to get into the minutiae of how different $10 million piece or $2 million pieces of business happen to be performing at any point in time.

I will finally asked one other question which is minutiae as well maybe. Can you break out the revenue of the laboratory?

The revenue in a lab in the current quarter, Ian, was 7.2 million on the clinical business obviously.

Okay, thank you.

John Kreger of William Blair.

A question perhaps for John. Can you just give us an update on your Pacific Rim region? There's been more talk these days about the opportunities in India for example. How active are you there and are you planning any expansion?

Let me answer that in a very broad way. We have not really in the last year made any announcement of additional offices. We have in Eastern Europe we have opened two offices, one in Russia, Moscow, the other one in Budapest in Hungary. And this week we will open an office in Spain in Barcelona. In relation to the Asia-Pacific region, we made our foray into China with our first office in Hong Kong and we are keeping a watchful eye on another facility in Beijing in the near future. Our ROW region which is Latin America, Canada, South Africa, Asia-Pacific, has done extremely well and we are pleased in its performance.

A lot of people have brought up the issue of India. We do have a presence in India. At this moment in time it is clinical. A lot of people are looking into the possibility of doing some backroom work in India and we too are investigating those opportunities. We will perhaps be clearer perhaps in the coming quarters as to what we will or will not do in India. Does that answer your question, John?

It does. Thanks, John. A separate question, a follow-up on the lab business, how did the lab do in the quarter in terms of new business wins?

I was afraid you'd ask me that, John. The lab had a difficult quarter in terms of business wins. It won in the quarter itself it won $5 million worth of business, which was disappointing. However, the reason it was disappointing is because a number of things that we were expecting were delayed and what has happened is the month of March has been outstanding and they won just short of $7 million worth of business in the month of March. So I think overall the message would be the trends in the lab continue to be strong although within the confines of that awful 13 week period called the quarter -- the actual number was a disappointing $5 million, but in the four months until the end of March, the number is a much more respectable $12 million.

Okay, great. And then lastly, can you just give us an update on the concentration of your business in terms of revenue and new business and curious to see if your biotech mix of business is changing at all?

Okay, in terms of concentration, client concentration I don't believe we have that anymore except one client represents more than 10 percent. If I take the top five clients, they represent 41 percent in the current year, compared to about 51 percent last year. Again, I always qualify this with this lack of concentration because even if you take the five large clients that we have, the top five clients, we are working on 86 projects for them and 43 drugs, so there is not a concentration issue. If we go up further and look at the top 10 clients, we are looking at they contributing to date 58 percent of our revenues compared to about 67 percent in the same period last year. In relation to the split between biotech and small pharma and large pharma, we continue to see a growth in the biotech companies and the medium-sized companies. Forty-two percent of our revenues came from the non-top 20 pharma and if we break that down to biotech companies it is 27 percent of our revenues came from biotech companies and this time last year it was 12 percent. So there is a fair bit of growth in that sector.

And John, what would you say the forty-two percent would have been last year, your non-top 20 mix?

38 percent.

Great, thanks very much.

David Marshall of NCB Stockbrokers.

Good afternoon and well done. And just a couple of questions maybe if you could give a little more detail in regard to what you're seeing in terms of RFP volume, number of projects and value and perhaps then if you could split out the margins in the U.S. and Europe and the utilization rates you are seeing between the U.S. and Europe? That would be helpful.

The first one, David, in relation to volume, we gave this data last quarter and as always happens now you always asking for it. This quarter I will give it to you and we will see what happens next quarter, but in the quarter ended February our RFP volume on a global basis was up by 1 percent in volume terms and by 11 percent in value terms; however. As I think I indicated earlier, the way in which that breaks down between Europe and the U.S. is quite interesting. In the U.S., the volume was down 5 percent and the value was down 23 percent compared to the comparable period a year ago. Whereas in Europe, the volume was up 7 percent and the value with up 46 percent; so in line with what I had been saying earlier, Europe has been robust, very strong, and the States went through an unusually quiet period during the quarter itself. And again I will emphasize that the month of March has been quite a significant change in tone in the States and the flow of RFPs in the U.S. I haven't done the comparison because the month only ended yesterday and I haven't done the comparison on the data but I suspect the data is going to tell me that the volumes are up and the values are up in the United States in the month of March and what we're hearing in the marketplace is that there are plenty of opportunities the pipeline.

Okay and in terms of utilization rates in the recent past, in the past quarter between the U.S. and Europe in margins?

In terms of utilization, David, overall it was approximately 85 percent, in line with obviously the softer bookings last quarter. The U.S. is slightly below that at about 83. But again reflecting the market conditions, Europe is slightly above that in or around the 87, 88 mark, so slightly better in Europe at the moment or in the last quarter versus the U.S. on margin.

If I could just follow-up with one, I know you mentioned that there was a single client over 10 percent and I am just wondering in terms of client exposure to the potential merging parties within the sector, there has been some concern in the marketplace. Is it safe to say that Sanofi and Novartis event this would all be less than five to six percent of revenues individually?

That is correct. In fact, combined those two companies would be less than six percent.

Super, thanks very much.

Dave Windley of Jefferies & Co.

Congratulations on the quarter, gentlemen. Most of questions have been covered here. I wondered if I know you didn't want to break out results of individual operations in clinical. Can you talk about particular areas of maybe unusually high or low demand in terms of RFP volume or interest levels? I'm thinking about for example pursuit of Phase IV, Phase I activity, things like that that might be of some interest on an individual basis?

I don't have hard data, Dave, but I can give you color. In Phase I, I think it's fair to say that the opportunity pipeline continues to be robust and has been for as long as we've owned the business now, which is just over a year. I would not characterize it as being better than or certainly not worse than. It's been strong since we acquired the business and continues to be strong. In the main clinical, the Phase II to Phase IV business, I think it is difficult to discern any particular pattern. We are seeing lots of Phase II and Phase III and Phase IIIB opportunities and again just for clarity, what I mean by Phase IIIB is any study that is being done for regulatory purposes but not for main regulatory submissions, so for a new claim or for a new indication for a particular drug we would classify that as a Phase IIIB study. Some people would call that a Phase IV study. What we are seeing broad strengths across all those areas and difficult to say that it's better than or worse than other times because you tend to get waves and fluctuations between those on constant basis.

As a follow-up to that, there have been some announced fairly large deals. You won one obviously and then some other ones in business lines that tend to be more capacity and thick facet (ph) oriented, not necessarily areas that are your long suits, but are you seeing an increased interest in what might historically have been referred to as strategic deals or packaged services cross selling opportunities, things like that?

The short answer is no. What we'd see in our business in the segment we are in tend to be from time to time large, lengthy outcomes type studies and the major contract that caused all the excitement last year was one such study. And we're doing about five or six such studies in total in ICON today. We obviously as you greatly identify, are not in the fixed assets segment of the CRO business. Our lab is to some extent in that area, although the lab is very much a service based business as much as it is a facility based business. We are not seeing strategic deals in that sense. We are seeing however an unusual and have been seeing an unusual amount activity in the selection of preferred providers by major Pharma companies, which they would see as precursors to developing strategic partnerships with CROs, we would characterize it as we hope that it might develop into that but in the initial stages it's just they're reducing their supplier base to make it more manageable.

Okay and then a final question. In terms of acquisitions, I assume that you still have an appetite for that and what functional areas or I suppose even geographic areas, though John touched on that before, might be interested in?

There are a couple of opportunities out there but no specific targets yet this year. We have always maintained that it's going to be (indiscernible) and opportunistic and that continues to be the philosophy in the Company, but the areas that we will perhaps be looking at more closely will be more upstream type of organizations, specialty lab, imaging business and all that good stuff which would be nice to get into. At the same time we don't have to as I said to be opportunistic. The appetite is still there.

Super, thanks. I appreciate the interest.

Chris McFadden (ph) of Goldman Sachs (ph) .

It's Randall Stein for Chris. Congratulations on the quarter. Just a couple of quick questions. Peter, if I could follow up on your last comment on the preferred provider agreements, can you just talk about implications for your business? Is that something you would expect to increase the dollar size of your contracts going forward? Or could you maybe just comment generally on how you see that impacting your business over the next couple years?

Sure, as we go through these processes, Randall, and get selected as preferred providers, one major company that went through the process last year and revealed to us that they had identified as they went into the process that they had 159 CROs providing service to them and they went through a process of bringing that down to 8. Another had 72 and brought it down to 8; so the implications I think for our business is the potential to increase market share at the expense perhaps of smaller regional CROs which in turn should mean that the dollar volume of business that we get from our clients who have selected us as a preferred provider should increase. I don't thin it increased the dollar volume of any one given contract but what it should do is mean that the pie gets shared among a smaller number of vendors which means that those vendors should benefit at the expense of the vendors who have been excluded from the process.

And as I said, this has been happening to an unusual -- the activity in this -- in selecting preferred providers has been unusual in the last six months. I think we have gone through or are in the process of going through eight separate preferred provider selection processes and in the last two years prior to that I think we went through three, so obviously the last six months has been particularly active in that regard.

That's interesting and in terms off Pfizer Pharmacia I know last quarter you mentioned that the flood gates may have not opened quick up yet. Have you seen any change in some contracting activity of that company yet?

Some activity is better than no activity and we have seen some activity but I would not characterize it as sufficiently steady or robust to make a call on that as yet. It might be based on what we have seen that the doors are beginning to open, but it's much too early for us to make a judgment on that.

I understand and then Sean, I guess as you look out to F '05, are you still obviously comfortable with an organic topline growth of 20 percent? And as we complete our modeling exercise and look at some margin run rates, given the clinical -- I think it was 13.3 percent in the quarter and it was 14.2 last quarter, is that in the ballpark of what we should be looking at in F '05?

Yes, I think so. Although I would caveat by saying we give more firmer guidance but I think the historical assumptions still were at 20 percent revenue growth absolutely and I think our average core margin this year thus far has been around the 13.5, 13.7. So I think they are all very valid assumptions, Randall.

Great, thanks a lot.

Steve Meader (ph) of Bear Stearns.

: Just a quick question starting off. You talked about Europe being more active in the third quarter. Is that European local business coming out of local markets, or is that business that you are winning in the U.S. to be worked on in Europe?

Let me see what's right answer to that question. Is it coming out of the States? You know so many of the major companies have international operations, so some of them are coming out of U.S. headquartered companies but are coming out of their European operations. Some of them are coming out of European headquartered companies themselves, and some are coming from local midsize specialty companies and biotech companies, so it's hard to say. There isn't a pattern here that says the reason why Europe is stronger than the U.S. or was stronger than the U.S. is because the European companies were more active. No, that is not the pattern. A lot of the opportunities that we seen have come out of companies with headquarters in the U.S.

Are you finding that it is becoming cheaper for a customer to do trials in Europe relative to the United States?

Given the way the euro has gone versus the dollar I don't think so. If you'd asked me that question a year ago when the exchange rate was considerably different, I would've said I didn't understand why more wasn't being done in Europe, given the fact that it was probably less expensive in Europe. But perversely as the euro has strengthened against the dollar the flow of business seems to have strengthened in Europe, but certainly not for cost reasons.

And then in terms of your lab business, are you seeing pull-through from your clinical trials? Are you working on lab work but you are also working on your clinical trials? And then is that business particularly leveraged to the U.S. market? Should I look at it that way?

To your first question, yes, we get pull-through business. About six or nine months ago I think it was about 10 percent. In the last few quarters where we've been enjoying strong levels of wins, it's probably more than 10 percent of the wins that the business has been gaining. Our synergistic wins where we are also in the clinical, so I think that is something that's building and opportunities are building and we are working hard at cross selling. When we identify clinical opportunity, we are trying to interest the client in also placing the lab business with us and vice-versa. Is it U.S. driven? I think yes, because the biggest amount of infrastructure, the largest facility and capability that we have is based in the U.S. and the sales force in the States is larger than in Europe. At the moment a lot of the business being driven for the lab is being driven from the U.S. We have expanded a lab here in Europe and are building the sales team in Europe and I think in time that will change and develop, but I think it's a fair characterization to say that primarily at the moment the business is driven out of U.S. business.

Okay and just on the lab itself, you mentioned that there was some cost-saving initiatives that flowed through in the quarter. Could you maybe give us a little more color on that and then is it possible to quantify the amount of lease expense that is incremental that will be going away once or if you sublease the old facilities?

Sorry, the first part of your question was --? Cost savings. The primary savings that we achieved were unfortunately in headcount; we reduced headcount and brought down our costs in that way. That would be the most significant contributor. And in terms of the incremental lease cost, it's about 140 to $200,000 per quarter and that is the incremental cost that we are carrying at the moment.

One last housekeeping question. What was the impact of foreign exchange on revenues in the quarter?

The impact of FX was probably added about 5 percent to our overall growth and about $3 million in absolute dollars in revenue terms.

Great, congratulations.

(OPERATOR INSTRUCTIONS) Eric Coldwell of Robert Baird & Co.

I was hoping that we could get a little more specific detail on the top client as a percent of revenue.

15 percent.

15, thank you very much. Second question, Sean, let me add my congrats on the cash collections. Great job there. The bank overdraft, can you give me that figure in the quarter?

It was zero. We had no short-term debt in the quarter.

Sorry if I missed that, that's great. And finally this is a question that I am sure has nagged you over the last quarter given some comments from a few of your peers and I am hoping we can just get any comment or color you may have on pricing in Phase II, III North America and how that might or may not tie in with your comments about the U.S. business environment up through late February?

I was tempted to be like a quiz contestant there and answer your question before you asked it, Eric. I knew where you were going. Comments on the pricing environment again from ICON's perspective is they remain as they have been for the last number of years. And competitive, but no signs of anyone being out of control, no signs to us of silly pricing going on. In general as the environment is, as I say, competitive. The key point that we continue to make is we win or lose business on the quality of the experience of the teams that we put forward and in the quarter that we're reporting today, which was as I said a difficult quarter particularly in the U.S. in terms of the volume of opportunity, we were out trying to win every opportunity and we did not win every opportunity or anything like every opportunity that was available to us. And virtually every single time the reason we did not win was because -- not because of price but because as it was relayed to us by the client someone else was able to put forward a team that had some better experience or unique experience or whatever, and that is the way it has always been. I think we need to do a better job in communicating to you that the way in which our marketplace works is based on experience and if I cut the hell out of a price to try and win business, I might one day out of 100 actually win with that strategy but I won't win the other 99 because the what the client is interested in is experience and capability to deliver.

Very fair comments. Congratulations on a very nice quarter.

(OPERATOR INSTRUCTIONS) Peter Frawley with Merrion Stockbrokers.

Just a quick clarification. Just on the (indiscernible) , our consensus forecast for this year or next year, where do you see them moving after the robust backlog and the new business wins figure and the strong March out turn?

I can give you a really short answer to that, Peter. That is up to you. I think we're still comfortable with the guidance that we gave on the previous conference call. I wouldn't be suggesting any moves at this stage.

Great, thank you.

No questions at this time. I would like to turn it back over the presenters for their closing remarks.

Ladies and gentlemen, this has been a very good quarter. Our clinical research segment again performed very well. Our laboratory business showed a significant improvement. Our strong level of business awards has improved our backlog. But we will continue to be focused on our business development efforts to ensure that momentum will be maintained into the fiscal year. Ladies and gentlemen, thank you for your participation.

Ladies and gentlemen, thank you for joining us on the conference today. You may now disconnect your phone lines.