ICON PLC (ICLR) 2005 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to the ICON fourth quarter earnings conference call. My name is Anne Marie and I'll be your co-ordinator for today. At this time all participants are in listen only mode. We will be conducting a question and answer session towards the end of today's conference. [OPERATOR INSTRUCTIONS].

I would now like to turn the presentation over to Mr Sean Leech, Chief Financial Officer. Sir you may proceed.

Thank you. Good day ladies and gentlemen and thank you for joining us on our fourth quarter fiscal 2005 conference call covering the results for the quarter and full year ended May 31, 2005.

Also on the call today we have Dr John Climax our chairman and our CEO Mr Peter Gray. Before I hand over the call 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 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 abide by any forward looking statements, whether as the result of new information, future events or otherwise.

And with that out of the way I'd like to pass the call over to John.

Thank you Sean, and good day ladies and gentlemen. Thank you for joining our conference call covering the results for our fourth quarter and full year ended May 31, 2005.

As a reminder in our third quarter we took a one time charge of $10.6 million after taxation. Given the one time nature of these charges all references to our income statement for the purpose of today's call will be stated excluding these charges.

Net revenue in the quarter was $86 million, an increase of 10% over the same period last year. Of this, net revenues in the US were essentially flat on the comparable quarter, whilst Europe and the Rest of the World increased by 28% over the same period. Excluding the impact of acquisitions our overall net revenue growth was 8%. Full year net revenue was $326.7 million, an increase of 10% over last year. Of this net revenues in the US were essentially flat on last year, while Europe and the Rest of the World increased by 25% over the same period. Excluding the impact of acquisitions our overall net revenue growth was 7%.

On the cost side in the quarter, direct costs were $47.5 million, representing 55.3% of net revenue compared to 54.2% in the comparable period. SG&A and D&A costs were $31.1 million representing 36.1% of net revenues compared to 33.4% last year. For the full year direct costs were $179.7 million representing 55% of net revenue compared to 54% last year, whilst SG&A and D&A costs were $117.1 million representing 35.9% of net revenues compared to 33.7% last year.

As the result our operating income for the quarter decreased by 24% over the same quarter last year from $9.6 million to $7.4 million. Full year operating income decreased by 13%, from $34.4 million to $29.9 million. Our operating margin was 8.6% for the quarter, compared to 12.4% in the same period last year. On a full year basis operating margins were 9.1% compared to 11.6% for the comparable period last year. This operating performance was in line with our expectations and represented a solid improvement over the previous quarter.

Our clinical businesses recorded net revenues of $79.8 million and an operating income of $9.3 million, giving an operating margin of 11.7%.

Our Central Lab business made an operating loss of $2 million on net revenues of $6.1 million. We continue to expect that the lab will return to profitability in the quarter to May 31, 2006, and we are confident that revenue growth will resume in the current quarter.

Taxation was 22% of pre-tax income for the quarter, compared to 25.8% of the comparable period last year. Full year taxation was 21.3% of pre-tax income compared with 25.7% for the comparable period. As a result net income for the quarter was $5.9 million or 42 cents per share compared to $5 million or 36 cents per share last quarter and $7.2 million or 51 cents per share in the same quarter last year. Full year net income was $24.1 million or $1.70 per share compared to $25.7 million or $1.88 per share.

Turning now to our balance sheet. Cash flow generated from operations was $13.2 million in the quarter, while capital expenditure was $5.3 million. For the year our cash flow from operations was $23.8 million, capital expenditure for the year was $15.6 million and we spent $9.8 million on acquisitions during the year net of cash acquired.

Our DSO at the end of the quarter was 63 days compared to 67 days at the end of February and 60 days at the end of May 2004. As a result of these factors net cash at May 31, 2005 was $78.4 million compared to $78.8 million at May 31, 2004.

During the quarter we were awarded net new business of $101 million up from $91 million of net awards announced for the same quarter last year. As a result we currently have approximately $262 million of next 12 months' revenue in book and awarded businesses. We estimate that this represents approximately 70% of our current market forecast.

Our total gross backlog at the end of the quarter was over $525 million, a 14% increase on the same quarter last year. Based on this backlog we expect net revenues for the coming four quarters to be in the $380 million range. This equates to an EPS between $1.95 and $2.05 excluding the impact of stock compensation expense.

As you are aware we also announced this morning that we will be changing our full year end to a full calendar year basis from January 2006. As a result of this we will extend guidance to cover the full year early in 2006.

That concludes our remarks and we will now open the call.

Thank you. [OPERATOR INSTRUCTIONS]. And your first question will come from John Kreger from William Blair. Please proceed.

Thank you. Could you please talk about the -- given that you're most of the way through your August quarter; just extend your new business commentary to what you've seen in the last few months. How do you characterize the environment as we go through the summer? And what's your conviction level that you can show further improvement in [inaudible]?

Good morning John. As you say we're two months through, our quarter ended August 31. The new business environment continues to be very good. In previous presentations and on previous calls we've talked about RSP volumes, and obviously we haven't got the RSP volume data from this quarter because we're only part of the way through it. But the numbers from the fourth quarter in terms of RSP volume was -- and I'm trying to find those numbers just here now John -- the RSP volume overall last quarter was 32% increase in volume and a 36% increase in value in RSPs for the quarter, end of May 31.

It feels like the volume continues to be strong, and the value of the opportunities, if anything has upticked a little. We're seeing more what I would call decent sized opportunities, that is opportunities in excess of 7 or $8 million in values up into the 20s in terms of value. So I would say the market environment continues to be sound. Despite the fact that we're in mid-summer, the flow of opportunities in Europe, as we saw last year, is continuing despite the miss of European vacations, business is good and business is very active in Europe.

And we are therefore at a point -- at this point in the quarter we'd be confident that we'd see a bookings level, certainly at least equal to and probably in excess of that which we've just recorded for the quarter, end of May. We recorded -- from John's comments and from our press release you'll have seen that we recorded 101 million of net bookings for the quarter, end of May. We'd be pretty confident that we can exceed that number in the current quarter.

And Peter, what was your cancellation rate that you experienced in the May quarter.

Those bookings, John, were 106 million, as a net 101, so the cancellation was about 5%.

And then finally, it seems like Europe has been doing much better than the US recently. Can you just talk a little bit about that, any new color on what's happening in the US and when you expect some growth to return to that region?

I would say that we'd have a pretty positive outlook on the US. We've gone through a year in the US absorbing the impact of those major [inaudible] a year ago now. And the US has been rebuilding as a result of that through the last 12 months. We are back hiring now in the US, and therefore we think the outlook for the States is growth from here, resumption of growth through this fiscal year.

Thank you.

And your next question will come from Jack Gorman with Davy Stockbrokers. Please proceed.

Thanks very much. I just have two questions please. Firstly Peter, or Sean indeed. I just wanted to get a sense of the Lab's performance during Q4, with the losses expanding a little bit, and just how you see that, how you reconcile that with your continuing guidance as regards profitability timelines.

And secondly, just in terms of the revenue, 370 to 380 million guidance looks due to be in or around the 15% growth rate. I was wondering if you can give us a broader flavor for that in terms of its components, maybe by division, by region or indeed by the time of year. Do you expect that growth to accelerate through the course of the year or how do you see it?

That's a loaded question. Peter, would you like to take that?

On Lab performance first of all Jack. Yes, the loss in the Lab was a little up in the quarter, end of May. A combination of factors there. Revenues were down another couple of hundred thousand dollars which obviously didn't help. But the good news and the bad news was the bookings in the Lab in the quarter were over $20 million, and as a result commissions were significantly higher than were expected in the Lab, but that's a good surprise to have, even though it's an expense in the short term.

So those two factors contributed to the loss being a little higher, but as John said in his opening remarks, we're pretty confident that we're going to see a meaningful rise in revenues in the current quarter and the trajectory continuing upwards through the rest of this fiscal year. I'm talking about our traditional fiscal year to May of 2006. Trajectory continuing upwards through the fiscal year to, as we have said now for a couple of quarters, to at least break even by the quarter end of May of 2006.

On the guidance, a little bit more color, as to where it's going to come from. Well as John, as my answer to John Kreger's question a moment ago would suggest, we're expecting to see the US resume growth and a significant improvement in performance in the US in the year ahead. Not that it had a particularly bad year, but no growth is very unusual in the US over the last eight years, and to see it return to growth is very satisfactory.

In terms of Europe, Europe's probably going to mark time. It's had a very, very strong year of growth in the year just ended, and it's probably going to see its growth relatively modest if at all in the year ahead. That's probably a good thing; it needs to consolidate a very, very rapid pace of growth over the last 12 months.

Outside of Europe in our rest of world region, we're expecting pretty strong growth. That reflects the continuing globalization of clinical trials, and more and more of the opportunities that we see are for global clinical trials. In addition to which our small operation in Japan is growing and gaining traction and therefore some of the growth in the ROW region will be fuelled by growth in Japan.

The Lab, as we've already said, we're expecting to see it grow; I think revenue growth, Sean, percentage-wise in the Lab we would expect to be in the --

Close to 30%

30% range, exactly. And that's pretty much it. Obviously the [grade one] will show good growth, Jack, because it's recovering from a disappointing year because of the new clinical trials directive, and overall the rest of the businesses, it's pretty much steady as you go.

But the better US performance, Peter, will that have implication in terms of tax rates?

Yes, we'd expect to see the tax rate beginning to come back up into the 27 sort of [inaudible] Sean?

About 27 to 28, Jack, is where I would go [inaudible] to tax for next year.

For the full year, Sean.

For the full year. It'll bump around a little bit as normal Jack as profitability mixes around the regions, but about 28% for the year.

That was great, thanks.

And the fourth quarter Sean, getting up to about 28 or thereabouts in the fourth quarter. So we wouldn't want anyone to read into that that it's going to go higher than that on a quarter by quarter basis, but by the end of the year it should be at about 28.

Right, that's great. Thanks guys.

And your next question will come from Chris McFadden with Goldman Sachs. Please proceed.

Thank you, this is actually [Alex Oliver] sitting in for Chris. a couple of questions. As I look at the SG&A expenses which have been trending up in the last few quarters, they seem to have stabilized this quarter. Is that more of a normalized level that we should think about going forward.

Yes, in terms of the guidance, for the next quarter or two it should be in or around those levels. You can expect, Alex, for it to come up a little. Obviously there are some regions growing ahead of others as Peter's just alluded to, ROW for example will continue to expand and probably have to put in more infrastructure in there. But I wouldn't say it was going to be completely flat. But essentially, for example in Q1 I would see it being close to the 27.7, 28 million mark, and rising then sequentially quarter-on-quarter. But what you should see, that would see the percentage of revenue drop off; in terms of the SG&A, the percentage of revenue as our margins improve coming towards Q4.

Just to clarify that, what you're saying is revenues would grow faster than SG&A.

Correct.

And one other question following up on the update in the market. Where does your win rate stand, and how do you expect that to trend forward?

You mean how does our win rate stand. 100 more million would probably see the wins. In what context is your question?

Sorry, do you locate your opportunities to bid? What percentage of those opportunities are you bidding successfully?

It's one of the things I talked about over the last couple of quarters, that our win rate has dipped in the last 12 months because we've seen a change in mix in the large pharma client base, because we got onto a lot of preferred provider lists that we're relatively new to those companies, we've been getting known within them.

And also we've been seeing a big increase in the number of opportunities from Biotech and specialty mid-sized pharma companies. So win rate is down maybe 8, 10% on what it was two years ago. But then two years ago we had a much higher client concentration. We are expecting that the win rate is going to trend upwards again over the next 12 months, because we've gone through the getting to know you period with quite a number of companies; we're beginning to see greater degrees of success with those companies, and therefore we see it coming back up towards historic levels of 25% or thereabouts.

Thank you.

And your next question will come from Steve Unger with Bear Stearns. Please proceed.

Hi, good morning. Just first off, the backlog comments that you made having -- you said over 325 million.

Said over 525.

525 million, sorry. What does over mean?

It's 528 million, Steve.

And then what was the impact of foreign exchange on your backlog?

Oh good question. Top of my head Steve, I don't know the answer. In terms of revenue it's had a minimal effect. In terms of backlog, I would estimate at about 5 or $6 million.

And then, you had previously mentioned that there might be some excess staff in Europe going forward; what's your utilization like in Europe now? It seemed like you had a better quarter maybe this quarter than you thought you might have in Europe.

Well I'm trying to digest what you just said. Excess staff would never certainly be used; I hope I never used terminology like that Steve, but our utilization in the last quarter was based at 3% in Europe which was lower than it had been earlier in the year, but still a very acceptable level of utilization; we're certainly not seeing ourselves as having "excess" staff. People focus on the fact that our SG&A in Europe had grown significantly, our SG&A overall had grown a lot during the last 12 months, and we had been pointing out that it was in Europe where our growth overall had been very strong. And as I said in some of my comments earlier, we're expecting Europe to consolidate in the year ahead. That doesn't mean that we'd expect any reductions in headcount; we do expect that we'll be maintaining 30 tight levels of headcount in Europe in the next 12 months, unless we win spectacular amounts of business of course. But not anticipating that we'll have any reductions in headcount, but we'll be holding at these levels in the absence of major wins.

Okay, good. So no reductions in headcount here. And then, the Central Lab, could you talk about -- you've done a great job of booking business over the last really two years, but we still haven't seen a tick up in the revenues.

Watch this space.

And your expectation is for 30% revenue growth, did I hear that correctly.

In the year as a whole, yes.

Okay. But you haven't seen any of those contracts then drop out?

No we have not. The backlog -- you can hear me flicking away in the background here -- the backlog is now 62.9 million which is a 53% increase on the backlog of a year ago, and we've had no significant drop outs or cancellations in the awards that we've been reporting. And anyway when we do report you a number, we are netting out cancellations out of that; those are net awards that you talked about. The 20 million plus that I mentioned -- I'd better clarify here -- the 21.9 million was the level of business that the Lab won in the quarter. That is net of any cancellation.

Excellent. And then just one last question. The CapEx number seemed to be a little bit higher than you've been doing over the last couple of quarters. Any major purchases? Is that a big [inaudible] purchase in there?

Sean, can you take it?

Yes, you do see some bumpiness in our CapEx Steve, and you'll note that Q2 and Q3 are actually well below what we would have typically seen. There is some cost associated with the development here in Dublin that are included in that, some preliminary work in that. And we would obviously expect some of that to flow through next year.

But that's sitting up the current quarters, and I should clarify on the development. We do plan to do some development work here in Dublin, in terms of the facility, which will take probably about 12 months to build, and at that stage we will -- and we will obviously finance that through our own CapEx. Our intention then is to refinance that when that development is complete.

Okay. Is that an expansion of the Lab in Dublin?

It's an expansion of the entire facility, inclusive of the Lab.

Great, thank you. Congratulations in the improvement in the quarter.

And your next question will come from Ian Hunter with Goodbody Stockbrokers. Please proceed.

Good afternoon gentlemen. I think most of my questions have been already asked, but just if you could give us a quick flavor of the client concentration. I'm thinking both in terms of the percentage revenue taken up by your main clients, and also the split between Biotech and mainline pharmaceutical companies, and how you see that going forward.

There is only one client that contributes in excess of 10%. And if I look at the top five clients, for the current year that passed, it's 42%. And if I take a look at the top ten clients it's about 65%. If I break out into Biotech, sort of non-top [inaudible] pharma companies, 37% of our revenues came from them and the rest from the larger companies.

Yes, okay. And I'm just wondering if you can give us a bit of a flavor; the answer to your last question on the CapEx. How the European laboratory business is developing and how you're going to be looking to move that forward over the next couple of years.

Sure Ian. If the European lab business is obviously not something that we -- we don't regard it at the European lab, regarded we have a global Central Lab with facilities in New York and in Dublin. You've been I think to New York, you've seen that we've a very large facility there. The facility in Dublin is a lot more modest, so the strategy has been to continue to win global business and gradually that will push volumes through both facilities which is what we're anticipating. Which is why -- one of the reasons why the expansion of the Dublin facility overall is taking place because we need to create more space for the Lab.

One of the things we did in the last year was we added sales people into Europe to try and drive more sales out of a European customer base, because most of the sales that were coming to the Labs heretofore was really driven out of US clients who were doing work on a global basis. And that has had a considerable amount of success, and we're getting solid bookings in Europe for Europe currently. But still, if you came and visited the Labs and looked at both, you'd see that the scale is much greater in the US than in Europe.

Okay, thanks very much.

And your next question will come from Eric Coldwell with Baird. Please proceed.

Thanks very much. Good morning. I'm curious about the Central Lab and net book to bill which was obviously incredibly strong. Did I miss this or were there any abnormal wins in the quarter in terms of size or duration. And perhaps if you could give us an update on the average duration of those contracts, and also the links to initiation on those projects.

You're talking just about Lab wins there?

Yes, the approximate 3.5 net book to bill in Central Lab.

Sure. There was nothing of extraordinary size in there. There was a very broad base of many projects. One of the features of the Lab, and I've talked about this in previous calls, is that two, three years ago, their wins were -- a big win was a $700,000 win, and nowadays as a matter of routine, each quarter they're winning projects of between $1 million and $2 million. So to get to 20 doesn't require too many of those, and looking at the quarter there were three or four that were well in excess of 1½ million. So that's a piece of color, not just on the quarter but in general, a commentary on how the Lab has been moving up the pecking order, or moving up the scale in terms of the type of projects it's been winning for some time now.

And the average duration and time to start on these projects?

Again something that we've talked about previously, and I've talked about over the last couple of quarters, both on these calls and in investor meetings, is that the Labs -- one of the reasons why the Lab hasn't been translating strong bookings now for well over a year into increased revenues is that the sales cycle has lengthened and we're seeing -- and the delay to commencement to lengthened. So whereas three years ago the average time between award of a project and start was about two and a half months. That has gone out to at least four and a half months now. And the average duration of projects used to be approximately 15 months and now it's somewhere north of 21 months and it seems to be continuing to lengthen.

The awards in the last quarter, there were a couple of 1.5 million plus awards that we [run] over 48 months and therefore let's not get too excited about the 22 million in the sense that there are a number of longer duration projects in there. But nonetheless we see that those bookings as being a great catalyst for the lab as it continues its quest to grow its revenues.

Now Peter, you and I have spoken before about over time seeing a greater cross sell in terms of clinical Central Lab perhaps bringing in IVRS and data management and various services. Where do you see that trend? We spoke about this a month or two ago but where do you see that trend now? And could you give us a sense on these very robust Central Lab bookings? How many were cross sold with your other services?

There were a reasonable lengthening and again I just have to be -- because these words have to be taken in the context of not a lot of cross sell happening here. There were a reasonable number of them and I don't have the exact number to hand Eric, but there were a reasonable number of them where the awards were given both to our clinical business and to our Central Lab. And it's something we're trying to do and we're getting some traction with a couple of clients and again I don't want to overstate this, but it's a handful of clients who are thinking that it makes more sense to place both the clinical and the lab with one vendor rather than having multiple vendors. But it's not something that I'm going to start saying is going to be a major influence on the business over the next year or two years. Longer term I think it is but longer term is over the next five years.

If I may shift gears, you mentioned that Continental Europe, Western Europe is perhaps slowing a bit over the next 12 months. I'm curious if that's a market dynamic that you're seeing, or is that ICON driven because you're running closer to optimal capacity there, and feel like you need to kind of catch your breath and make sure that you're providing good service to your clients in that market?

In very simple terms Eric our bookings through the last fiscal year, particularly the middle part of the last fiscal year in Europe were not as strong as they might have been simply because we were completely capacity constrained and so when we went to propose for opportunities we did not have strong themes to propose to the clients. And therefore as always happens in those situations our win rate was not as good as we would have liked it to be. As a result its backlog is not as robust. In the -- starting about now its backlog begins to fall off and it needs to have some pretty strong bookings numbers in order to continue to grow at a good pace.

In the guidance we've given we have not assumed that. We have assumed that they'll have a relatively normal level of wins and as a consequence we see their revenues staying reasonably flat over the next 12 months and re-accelerating towards the back end of the year.

The last question is we haven't had much of an update on the Beacon Bioscience imaging deal, I'm just curious if you could give us a sense of where that stands right now. And also just for clarification that deal annualizes I believe this month so your revenue guidance would be purely organic. Is that correct?

That is correct yes. The revenue guidance will be purely organic. It was in July of -- yes one month of overlap so it was in July, beginning of July last year that we acquired the Beacon business.

Right and just the status on that operation?

The status is going well for us. As you can see from the income statement it's contributed $84,000 after tax in the fourth quarter which isn't a spectacular result but it's respectable. Revenues are tracking around $8 million annually currently. We're expecting them to grow by a significant percentage, in excess of 40% in the year ahead. They -- again the business is gaining good traction with quite a number of major companies and therefore we're pretty pleased with how it's going. It was very much a strategic investment for us in a market area that we believe is going to grow in importance over the next number of years. And therefore how it's tracking right now is pretty good.

Sean do you want to add anything to that?

Sorry just the minority Peter refers to obviously represents 30% of their net income, they actually did $280,000 in their own right in the quarter.

Very good. Thank you so much.

And your next question will come from Robert Brisbourne with Merrion Stockbrokers. Please proceed.

I just have a couple of questions if I can on the net business wins. Obviously they're very strong in the lab but if you strip out the lab and the lab revenues and looking at the book to bill for the remainder of the business, I think it's probably just over 1.

I wondered if you could maybe give some color on how that breaks down between the regions and if there is any weakness where you see it recovering to?

Robert yes you're absolutely right it does work out a book to bill about 1 in the business ex-lab. No particular bias in that. Both Europe, US had about the level of bookings we'd expect. US possibly a little short of a book to bill of 1 in the quarter but against that in the quarter we're now in they're tracking for a very strong book to bill. So quarter on quarter you get that kind of variation, there's nothing there that's causing us any concern.

And what would be your long term goal or medium term goal in terms of book to bill in those businesses?

Well our medium long term goal is at least 1.2 to 1 and we've obviously done something close to 1.2 to 1 overall in the quarter that's just ended. We've had quarters well in excess of that and we've had quarters below that but on average we're expecting and targeting to achieve a minimum book to bill of 1.15 to 1 but expect probably to do better than that at 1.2 to 1.3:1.

Okay perfect, thanks.

[OPERATOR INSTRUCTIONS]. And your next question will be a follow up from Steve Unger with Bear Stearns. Please proceed.

Okay just a couple of quick follow ups. Peter how did the phase 1 clinic perform in the quarter?

Well as we had been saying we expected it to recover in the fourth quarter and it did. We returned to profitability in that business in the fourth quarter and its backlog is at record level so we're pretty comfortable going into this financial year that that business is back on track.

Good. And then in terms of your bookings, how are you doing in terms of, or could you characterize either your success or the mix or however you want to do it between pre-NDA type work and post marketing type work?

Okay sorry I was trying to digest what you meant by that. So in other words phase 2 and phase 3 versus phase 3B 4 type work?

Exactly.

It just so happens Steve that I have a piece of analysis here if I can find it.

I thought you might.

In terms of RFPs and I'm looking at RFPs here as opposed to wins for a second, last year, that is the fiscal year '05 16% of our RFP opportunities came in at phase 1. Now that's not for our phase 1 unit, that is companies that are doing inpatient initial studies at phase 1 particularly in oncology for example. So 16% of our RFPs were in phase 1; 32% were in phase 2; 43% were in phase 3 and 10% were in phase 4 and beyond. But you've got to remember that in value terms, sorry that is in value terms beg your pardon. That is in value terms. Now phase 3 what we've classed -- characterized there as phase 3 would include phase 3B where the drug is not yet approved or where the drug has been recently approved but these are studies that are for new indications.

So that is not -- I'm not giving you the answer to the question you asked there. It's very difficult based on what's in our databases to be absolutely sure what is a pre-NDA and what is a post-NDA phase 3 study. But that gives you an idea of how the mix has been.

In terms of what our wins look like and so on, I would say that in the last year it's continued to be the case that probably 50% of what we've won is in studies where the drug is either already filed as an NDA or is already on the market. But they're not phase 4 in the marketing style studies, they are new indications or additional safety data or whatever for a drug where the data will be submitted to a regulatory agent.

Would you say then that your greatest opportunity in '06 is to increase the amount of work that you're doing pre-NDA filing?

Again the interesting thing about that RFP data I just gave you is phase 2 opportunities represent 32% of our opportunities in '04 and they represent a 32% of our opportunities in '05. So no I'm not expecting some significant shift to take place. And you've got to remember that phase 2 are lower dollar value studies so -- and even a meaningful increase in phase 2 opportunities doesn't necessarily have that big an impact on actual revenues. And so I'm not anticipating that we'll see some mix of shift in the way that you're describing.

Okay but your win rate is higher for like phase 3B than it is for 3A, is that correct?

Never analyze that. I wouldn't say that that's the case; I would say that the reason you end up with 50% of your -- or the reason we end up with 50% or thereabouts of our revenues coming from 3Bs and 4s is because more dollars are spent on those. Those tend to be bigger studies, you get outcome studies that are $30/40/50 million in value and that then skews the revenue breakdown. But I don't think it's the case that we're more successful at a later stage, I think it's that more dollars are spent at later stage.

Okay I understand, thank you.

Thanks Steve.

Your next question will be a follow up from John Kreger with William Blair.

Thanks, two follow up questions. Can you just talk a little bit more about your employee base? I think you said at the beginning of the press release that your headcount's now about 2,700 but maybe talk to the higher end versus turnover statistics underneath that?

And then separately with the switch to the calendar reporting cycle, when will you actually move to that and what will be the next quarter that you report? Will you report an August quarter or will you shift to a September quarter and just have a one month [stub] to talk about?

Okay I'll let Sean answer the second part but let me handle the first part first. In terms of headcount as you say we have about 2,700 employees worldwide now. We're expecting that that's going to show reasonable growth over the next year. As I said we're hiring now in the United States and we haven't been hiring -- we've been hiring pretty modestly in the States over the last year because growth has been pretty flat there. So I think that's a very good sign.

In terms of Europe as I said we expect to hold that reasonably steady over the next year and in all other segments of the business I'd expect we will be hiring through the year.

In terms of staff turnover I think it averaged around 15/16% in the year just ended which is a touch up on the year previously but I think it's about a percentage point up; it's not dramatically different. Does that answer the question John?

Yes thanks.

Sean?

In terms of how we intend to report John, we will report numbers to the end of August and again to the end of November and therefore the switch will actually take place at that stage. We will drop December eventually and essentially start reporting new quarters for the first quarter of calendar '06 so our first -- under the new fiscal calendar will be March 31, 2006.

But we will be filing a 20F, an annual filing for the seven month period to the end of December?

Correct.

Okay but in terms of your quarterly reporting, the [stub] month will be December, okay I think I've got it. Thank you.

There's August, November and then March and June.

Great, thanks.

[OPERATOR INSTRUCTIONS]. Your next question will come from Dave Windley with Jefferies & Co. Please proceed.

Thanks for taking the question. Good morning gentlemen, I've joined the call very late, I apologize you've probably already answered this but a question or two.

Peter did you comment on the balance of wins Europe versus Rest of World? I'm sorry US versus Rest of World?

In the last quarter?

Yes please.

I sort of did; I probably avoided the question.

How about full year? Would you do it on that basis?

No I haven't got full year. On the quarter I did say that US had a book to bill in the quarter of just below 1 times which was a little disappointing in the US, but in the current quarter that we're now in they're recording very solid bookings in the US. So really what we're seeing is the normal ups and downs and give and take; they had very good bookings in the previous quarter so there's nothing troubling or worrying taking place in the US. It just happened that that quarter was softish but the quarters on either side of it look like they're going to be strong.

Okay and you did just comment too I think on Steve's question that you are now hiring in the US, your hiring had been modest. Would you characterize your hiring in the US as on the curve or ahead of the curve in terms of growth?

We are on the curve and probably need to get ahead of the curve, judging by what the pipeline looks like.

Okay and are you -- you said turnover had nudged up just a tad. Are you seeing -- is the labor market presenting normal challenges or above normal challenges for you?

Normal challenges. As I said it was a percent on the year previously, that's nothing -- in fact our turnover in the United States, staff turnover in the US was actually down in the last 12 months.

Okay and then I noticed in the slides, I'm just [inaudible] where I can get to those, your quarter year over year revenue growth US versus Rest of World?

Sean have you got that?

In terms of the US? In terms of the quarter it was up 8 -- sorry for the US it was essentially flat. Europe Rest of the World was up 28%. For the year Europe Rest of the World was up 25% and again the US was essentially flat.

Okay thank you very much.

Thanks Dave.

And there are no further questions at this time. I'd like to turn the presentation back to Dr Climax for closing remarks.

Well thank you ladies and gentlemen for joining us today.

In summary overall the results for the quarter were very satisfactory and in line with our expectations. The performance in our phase 1 business significantly improved in the quarter; margins increased; earning growth resumed. We won approximately $101 million of net new business of which $20 million related to our Central Laboratory business. And we completed fiscal 2005 with a total backlog of over $525 million, all this giving us a positive momentum heading into our new fiscal year. Thank you again.