ICON PLC (ICLR) 2006 Q1 法說會逐字稿

Good day everyone, thanks for joining us on this call covering the period ended March 31, 2006. On the call with me today, I have Dr. John Climax, our Chairman, Mr. Peter Gray, our CEO and Mr. Sean Leech our EVP of Commercial and Organisational Development.

Before I hand the call over to John, I would just like to note this call is webcast. There are slides available under the comments will follow the slide show. In addition, I will make the customary statement in relation to forward-looking statements.

Certain statements in these remarks constitute forward-looking statements concerning the Companies operation, performance, financial condition and prospects. Because such statements contain 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 whether it is a result of new information, future events, or otherwise.

Today’s commentary refers to a new calendar quarter, one ending March 2006, and with the exception of our comments on business wins does not include December 2005 numbers, which have been published in our recent 20-F. Also, please note, that the comparable period being used is the quarter-ended 20-F, February 2005. And the following commentary the US GAAP financials for the current quarter have been adjusted to exclude the non-cash stock compensation expense of $0.9 million and the effect of the new base of calculations of the diluted shares due to the adoption of the new accounting standard in stock compensation SFAS No. 123(R).

For the comparable period we’ve excluded the impact of one-time charges of $11.3 million, primarily relating to the recognition of an impairment of goodwill associated with Central Laboratory business and lease termination, and associated exit costs in the US. With that said, I would like to hand the call over to John.

Thank you Ciaran. Good day ladies and Gentlemen and thank you for joining us. I’m now pleased to present the first quarter results. Our Quarter One performance across the group has been very strong. Net revenue for the quarter was $98.5 million, representing growth of 19% over the comparable quarter last year, and 12% over the last quarter. Net revenue in US increased by 27% over the last year, while Europe and the rest of the world increased by 9%.

Operating income for Quarter One 2006, increased by 82% over the comparable quarter last year, from $6 million to $11 million. Compared to the last quarter, operating income grew by 22%.

Our group operating margin continued to improve this quarter rising to 11.2% from 7.3% for the comparable quarter last year, and 10.2% for the last quarter.

The core margin in our clinical business was 13%, an increase of 280 basis points on last year and an increase of 20 basis points on our last quarter.

Our Central Laboratory business had significantly improved its performance by reducing its operating loss from $1.8 million in the same period last year and $1.2 million last quarter to under $600,000 on net revenues of $9.3 million. This represents a 46% increase in revenue and a 67% improvement in operating income over last year and an increase of 15% in revenues and a 51% improvement in operating income over the last quarter.

We are delighted of this strong revenue growth and expect it to continue. As a result, we expect breakeven to be achieved in the third quarter of this year, rather than the fourth quarter as previously indicated.

I would like to take this opportunity to thank the management and staff of this division for their tremendous efforts in achieving this turnaround.

Net income rose from $5 million in the comparative quarter, to $8.5 million this quarter, representing a growth of 69%. The EPS therefore, has grown from $0.36 per share to $0.59 per share, representing a 64% increase over last year and from $0.49 per share last quarter, representing 20% growth.

Cash flow generated from operations was $10.5 million in the quarter. Of that, we spent $4.5 million on capital expenditures. Net cash and short-term investments were $85.3 million up from $79.2 million in the previous quarter.

DSO for the quarter, reduced significantly to 56 days from 67 days of both the comparable quarter and the last quarter.

Net business wins for the four months; from December 2005 to March 2006, were $208 million. Excluding December, net new business for Q1 was the remarkable $171 million, compared with $106 million in the compatible quarter and $140 million for the last quarter. This represents an increase in net new awards of 41% and 21% respectively and a current book-to-bill of 1.7.

Total cancellations for the quarter were $15 million. This gives an overall cancellation rate of 8% based on gross the board for the quarter and 2% of opening backlog. As a result, our total backlog at the end of March 2006 was $707 million; a 39% increase over the compatible quarter and a 12% increase over last quarter.

With our backlog at record levels, continuing good business flows, and with our first quarter well ahead of our original expectations - I’m please to upgrade our guidance for the rest of the year. We now expect that 2006 revenues will be between $395 million and $410 million with EPS in the range $2.35 to $2.45, excluding the impact of expense in stock options and based on an average diluted share number of $14.5 million for the year.

We estimate that we have approximately $307 million of the next twelve months revenue in booked and awarded business, which represents approximately 76% of our upgraded revenue forecast.

Before I conclude, I would like to thank our three thousand two-hundred staff, who are based in 41 offices across 27 countries, round the world for this truly outstanding performance.

Thank you, I would now like to open the call to your questions.

[OPERATOR INSTRUCTIONS] Our first question comes Dave Windley, from Jefferies & Company. Please proceed.

John, you commented on US and then OUS revenue growth. Obviously, the US is responding pretty nicely. The OUS number has slowed and I think you had guided to that. Could you dig into that a little bit more as to say Western Europe versus some of the other emerging areas and how their performing.

Yes, we had previously guided to the fact that we expected growth in the US to accelerate and growth in Europe to slow down. And, if you remember this time last year, Europe was going close to 30%.

Right.

What that led to at the time was that affected the capacity constraints, particularly in our ability to present [18] to our clients. That led to the backlog not growing as fast for Europe as it had been doing and that’s why the revenues now are not growing quite as quickly as they are in the United States. And the converse was true in the states at that time.

Okay.

So, there’s nothing troubling here for us in fact, the environment is extremely good. And, the business wins overall obviously, for Company were very, very strong in the last quarter, they were very strong in Europe as well. So we’re putting the base in place now for a reacceleration of growth in Europe in the coming quarter.

And, to your specific -- specifically you were asking about Western Europe, Eastern Europe and so on. And the trend of globalization in clinical trials continues. And, we’re seeing more and more opportunities that are looking for those trials to be executed, not just in US and Western Europe, but in Eastern Europe and Latin America. Sometimes in Africa, certainly in Asia and there’s no change in that trend and I believe it’s continuing and I believe it’s going to accelerate. So we are seeing more demand for Eastern Europe, so on our headlines, revenue growth in Europe looks like it’s down to 9%. The underlining demand is still very strong and as I say, the bookings in the last quarter in particularly in Europe are particularly strong and nothing has changed in that regard.

Okay. Would you be willing to comment on which of those areas Eastern Europe, Africa, etc. are seeing -- where you’re seeing the fastest growth. What’s the fastest emerging area for you?

I think there is no question that Eastern Europe is the most popular let’s call it emerging area for want of a better term. More clients are comfortable to go to Eastern Europe on a consistent basis than anywhere else. Latin America is also very strong and growing and Asia has been surprising strong albeit from a low base, over the last couple of quarters. So again, emphasizing the point, globalization is a rapidly increasing trend.

Our next question comes Jack Gorman from Davy. Please proceed.

Two questions please, if you don’t mind guys. Firstly, on wins overall and I noticed that you’re doing extremely well from the prospective and over the last couple of quarters. Can you just give us a little bit more flavor as to whether your win rate is increasing in overall terms or whether you’re seeing your win rates increasing in any particular client segments? And by that, I mean as apposed to the traditional pharma versus the specialty biotech’s that you had before. And maybe, just to fill that out then just to talk through the recent wins this quarter as to the spread, the mix, and maybe contract duration, etc.

Jack, I’ll take that one as well. First part of your question was just the win rate. The win rate has probably improved a touch, but you know you’re talking about percentage points, so not a significant influence. I think that’s not a surprise given that everyone in the industry or almost everyone in the industry certainly is experiencing very strong bookings and obviously therefore, they must be experiencing very strong opportunity flows. So I think what’s driving our win rate is a little bit of an improvement in the actual win rate itself, quote an underlying strength in the flow of opportunities to everyone in the space. Segments of clients, in the quarter 40% of our revenues have come from the non-traditional if you like Jack, not Top 20 pharma companies. That’s similar to last year, so that hasn’t particularly changed. But when I look at our bookings and almost 45% of our bookings came from such companies, I think it was between 45% and 48% of our bookings came from biotech companies in the last quarter, and therefore there is a trend upwards in the mix between biotech’s and the larger more established pharma companies.

Is that again a function of underlying market or do you think you’re winning share in that area?

I think it’s a function of underlying market. When one looks at the data on funding flows into biotech and when you consider that a lot of biotech companies are relatively small and are using CRO’s as their development arm, then it’s not surprising that the acceleration is coming more from biotech than from large pharma. And then, you asked about the spread of the actual awards in the quarter. There were one, two, three, four, five in excess of $10 million in value. Two of those were actually excess of $20 million in value and then you have the usual pretty broad distribution of sizable awards from in the hundreds of thousands offers.

We’re with a normal distribution as regards normal duration as well Peter, is it?

Yes. There is nothing in there that is like a 7 year outcome. I think the longest duration that I am aware of in that mix is about 3 to 3 ½ years.

And our next question comes from John Kreger from William Blair. Please proceed.

Guys, I think you just touched on this a little bit but could you give us the precise mix of revenue of your different client types in the quarter?

Yes. What I just mentioned there, John, was 40% from the non-top 20 to 60% from the top 20 type pharma business.

John Kreger The 60 -- the 40% on top 20 to 60% top 20.

Yes.

What would that have been a year ago? Do you happen to have that?

It’s about the same, John. There might be a percentage point in the different but, again, because of our change of year-end, I’m not precise on that but it is pretty much the change.

And then -- how about -- can you give us your top client and your top 5 clients?

Well, I’d rather not do that but I can tell you 9 of the clients are about 10% from a percentage point of view. The top 5 clients -- it’s gone down. Last year was 42% and now it’s 37%. So from a client concentration point of view, we have improved. And you wanted to look at the 10 top clients we have, at this time last year, they contributed 61% of our revenue and now 53% of our revenues. So we are slowly easing ourselves out and, as I said, none of them are significant from a concentration point of view, it’s not -- it’s not significant.

[Indiscernible] as sort of congratulating ourselves in this and that we’ve been gradually broadening the mix of clients, John, and that is very satisfying for us to see top 10 clients now down to 52%.

Definitely. Shifting gears. Can you talk a little bit about the lab. You’ve seen a very nice pickup in business. How is that operating group handling the pickup in volume? How do you feel about your infrastructure at this point and are you at a point where you increase revenue [indiscernible] bottom line or do you need to think about cranking up spending. And a related question, if you look at the business -- the new business wins and lab, can you talk about the cross though with your clinical business?

The middle part of your question, John -- The first part was how are they coping with the volume. The middle part of your question is [cranking up] spend -- I wasn’t sure what you meant. Could you elaborate on that?

Well just -- Are you finding that your infrastructure that’s in place today is adequate to handle the higher revenue flow or do you have to think about adding some assets to that business at this point?

They’re coping with the volume very well. I was there last week and spent a couple of days with them. They’re obviously pleased with themselves because they feel pretty confident they’ve turned a corner and we share that view. They’re coping with the volume very well. They have done a lot of restructuring and re-engineering over the last couple of years to put themselves in the position to deal with this kind of volume and they’re dealing with it comfortably. So no issues there.

And in terms of infrastructural spends, no issues there either. We’re not anticipating at these levels or even a significantly increased levels of revenue from here that there is any major infrastructural spend required. The lab in Dublin, which I think you’ve seen John in the past is relatively small compared to the lab in Long Island. We are doing some expansion in that lab but, again, we’re talking of a spend of, Sean, less than a million dollars, it’s about $500,000 to $600,000 that they’re expanding so nothing significant, John.

And to the third part of your question that I missed, cross sell.

As I mentioned to the previous question that 45 to 48% of our bookings in the last quarter were to biotech type companies. We are seeing more traction in terms of selling lab and clinical services combined to such clients. I don’t have the percentages of how much of the lab’s revenue is now shared on projects where ICON is doing the clinicals. So I cannot update you on that but intuitively and anecdotally I would say we are seeing some increase in cross sales direction.

And then lastly, Peter, can you give us a sense about what the lab bookings were in the quarter?

12.5 million net in the quarter, which was -- which was pretty good. The book-to-bill just over 1.3 to 1 and the way they’re tracking at the moment, this quarter we would be anticipating they’ll have another strong quarter, probably stronger than that in the quarter we’re now in. So we’re very happy with how they’re booking the tracking. Back log is continue to grow.

And our next question comes from Eric [Hartwell] from [Baird]. Please proceed.

Thanks. Good morning. Peter, it would probably just be easier if you would publish your entire customer list. You know I was actually --

Maybe next quarter, Eric.

That’d be great. I’d like to edit that for you. You know, therapeutic class growth. Could you give us a sense on where you are with your customers in terms of what therapeutic areas you are seeing the greatest demand and maybe just a quick rundown of where you are seeing the most incremental marketing log.

Yes. A bit of a history for you. Last year, and that’s our last financial year ended May of 2005, 26% of our revenues came from cardiovascular, 19% from GI, 14% from endocrinology, and 10% each from anti-infective, CNS and oncology.

In the last 2 quarters, 23% of our bookings have come from the oncology area, so therefore, we are expecting that oncology revenues over the next 12 months are likely to increase at least into the mid-teens in terms of revenue share. However, I think it’s probably -- and the other areas that I’ve mentioned are all growing I think relatively proportionately there’s no major changes taking place.

I did mention on our last call that in the previous quarter we had very strong bookings in the metabolism area and endocrinology area, diabetes and obesity in particular. So, each quarter the balance is a little bit different. Overall, all of our areas are drawing in common with, I think, most other CRO’s oncology is growing the strongest but that’s indicative of the pipeline.

I think it is worth saying that our strategy as a company is to be a broad-based therapeutic CRO. We are not trying to be a specialist in any particular niche and given the size we are now, we’re approaching an annual run rate of $400 million. We don’t think it would be appropriate to be a specialist. We are, obviously, trying to ensure that in all therapeutic areas we build our depth with experience so that we can CAGR for all of the opportunities that come our way.

Right. That’s great. It sounds like oncology is -- if you have to parcel one out, oncology would be the hottest area?

It’s the hottest area at the moment certainly.

Okay. When you’re negotiating with customers, you know, this theme of preferred providers kind of ebbs and flows, we haven’t used that term or heard that term a lot in the last quarter or so. I’m just curious, what is the outlook there? Are you seeing big pharma continue to narrow it’s list of preferred providers? And what are the themes in terms of pricing right now across various stages of development? Where is pricing the toughest? Where is it easing up if at all and what are the big sticking points in terms of negotiations with your customers?

That’s an old chestnut question there.

Yes, it is.

Preferred providers. There was a lot of noise about that about 2 years ago because a lot of companies were going through a process [inaudible]--

Right.

That’s pretty much done and, yes, from time to time, one of those companies reviews its list or a company that hasn’t officially created a preferred provider list creates an official list. But, by and large, the jostling for position, I think, has taken place. And there may be minor changes back and forth with some companies but it’s not as noisy, not as active as it was a couple of years ago. So, no significant change there.

Would that be a driver of why we’re seeing, as a sector, why we’re better cancellation rates in a pretty linear fashion here. Is it the jostling for partnerships is kind of behind us now so contracts are a little more stable between CRO and their best partners?

I would be surprised if that was the explanation, Eric. You know the factors that cause projects to be canceled are more to do with operational budgetary issues rather than with a “I don’t like that guy so let’s not give it to him, let’s give it to somebody else”. That didn’t tend to happen. Honor was generally observed and if something was awarded to a CRO that commitment was generally honored.

The cancellations in the past, I think, were driven by [indiscernible] and operational issues, sometimes budgetary issues. And I don’t think that’s changed. So I don’t have an explanation for why cancellation rates may have come down. Overall, in the industry, but if you look at our cancellation rates, it hasn’t really changed. Our cancellation rate fluctuates between 2 and 4% of opening backlog, between 7 and 15% of the awards in a given quarter, and that’s been the case for us now for about 4 or 5 years.

Yes. So you guys have always been at the -- kind of in the upper echelon for good results there, so some of your peers have shown some improvement.

Central Lab. If I missed this, I apologize. Was -- Can you give us an update on where you expect to break even in the lab in terms of revenue?

Last quarter, we indicated we thought it was about 10 million. That hasn’t changed.

So, it’s still at 10 million. Okay. In Central Lab, specifically, could you give us a sense on if there are any customer concentration issues. I realize that you’ve done a great job as a firm and that you have no customer larger than 10%, but what about within the lab specifically? Both in terms of revenue as well as backlog.

No, happily, the largest client in the lab, I think it accounts for about 11% of its revenue, so there is no -- there is no concentration issue there either.

That’s great. And final question, I have to go into some nit-picky FAS work here. Could you give us the after tax FAS-123® expense in the quarter, in dollar terms?

In dollar terms, it was $930,000.

That was pre-tax.

Pre-tax, yes.

After taxes, do I apply the corporate tax rate here?

We just apply the effective tax rate here, which is 26.8%.

Yes. Okay. And then, I’m curious, if you could give us a sense of direction in terms of allocation between the two reporting segments and also allocation between COGS and SG&A and how you’re looking at that in the future.

We’re allocate that based on -- actually have the option to grant it. We have that information in our data base but it will be done as a proportion of the total that’s our business unit.

Could you give us -- could you give us a sense of where it is between COGS and SG&A?

Well, I think it’s all in SG&A, isn’t it? We’re not allocating any into direct costs.

At the moment, it’s all in SG&A.

All -- 100% in SG&A. Great. And then in terms of quarterly progression, we’ve seen some pretty extreme lumpiness in some of our other coverage list based on when grants are given. When we look forward over the next four quarters, do you have a sense for us. Is this going to be a linear amount through -- you know, ratable through the year, or would there be any one particular period where we might expect a bit of a spike in that number?

It should be linear. We do an annual grant. You know, one major annual grant. That has already been done. Has been taken into account in the calculations so should amortize fairly linearly over the rest of year.

And then final question. Trend beyond calendar ’06. Would it grow -- Roughly grow with the Company’s growth, or would there be steps in place at the Company to mitigate that impact in the future?

At this point, I would say it would grow in line with the Company’s growth. I mean, we haven’t adjusted our policy on that. We believe share options are important in a professional services business and quite widely distributed here.

Great.

That [speaks] to the culture and success. I don’t see any change at this time but we keep it under review.

Thanks for answering all my questions and let me just congratulate you. This was an absolutely fantastic quarter. Good job.

And our next question comes from Ian Hunter from Goodbody Stockbrokers. Please proceed.

Well, most of my questions have been answered, actually, but let me – if you could just give us a broad reasoning behind your self-registration that you did recently. And any reason behind the particular timing. I am not going to ask the usual question acquisitions. I am going to say are there any changes in the type of acquisition you might be going for?

Okay. The filing first of all. We will shortly celebrate our 8th anniversary as an NASDAQ quoted company, which startled me when I think about it because I feel I’ve only been here about 2 years. We have grown revenues from 45 million at that time to approach $400 million now. While the strong cash balance has been good cash flow, we’re ambitious to continue growing the Company. The shelf filing, any shelf filing is a matter of prudent housekeeping I think, and many, many, many companies have done and have shelf filing. We are putting ourselves in the position to rapidly respond to opportunities if and when they arise.

In addition, obviously, in our own case, the founders still own 17% of the Company and they, too, should be given the facility to efficiently sell some of their shares if and when they wish. Rule 144 is not particularly [indiscernible] in that respect particularly as the volume of trading in our shares have been disappointing at best. We’re hoping, obviously, in the next year or so that we will see an improvement in that but effectively the rationale behind the shelf filing is a matter of efficiency for the Company and the major shareholders in the Company to enable us and them, you know, make decisions and execute on things in a rapid fashion. Nothing, there is nothing more specific than that. And then, in relations to acquisitions, still the same targets. Our priorities would be to continue to look for opportunities to expand our therapeutic and geographic coverage and to acquire Phase I, particularly in the United States or North America. And to build our late phase capability and particularly Phase IV capability and we are looking at acquisitions in that area as well. All the same things that we have said in the past.

And we have a follow-up question from Jack Gorman from Davy. Please proceed.

Thank you. Actually, if I may, I have three very small follow-up questions. Firstly, just, we have seen a couple of your peers and talking about hiring costs. I was wondering if you could give us some flavor on your own experience there? And, back to a concentration question. We were just wondering if you could give us a flavor of the contract concentration within the current quarter and in terms of revenues? And then finally, I am just wondering if you have seen any changes in the environment overall or demand for safety related business and safety related projects and in light of I suppose the environment of the FDA over the past couple of months?

Okay. Hiring costs first Jack. In an environment where there is very strong demand for services which in turn creates some demand for people and you would expect that there is always and there always has been in our industry some inflationary pressures on employee salaries. But there is nothing again in our experience to date that is different at the present time than that which has prevailed for the last couple of years. And like I say, I could rattle on Jack, but that is essentially the message.

Yes.

Yes, there is strong demand. Yes, we are actively looking for good, experienced people, as are a lot of other companies. Yes, that means it is a competitive marketplace, but, no, it has not become steady in our experience.

Okay.

In terms of contract concentrations, John, maybe you can answer this one.

Yes. If you take out the top five signs, Jack. We are working on 86 projects with them covering about 38 different drugs. And ten of them giving us more than a million a quarter.

In drugs or ten projects, John?

In ten projects.

Ten projects.

And one, only one, giving us more than one, more than 2 million a quarter.

2 million.

So there is not really a contract concentration as you call it.

Okay.

And as regards safety related demands, I think I have said on previous calls that we do not anticipate that that blatant demand is going to, is going to manifest itself and rapidly, that it is going to slowly build. Because the guidance from the FDA in particular is still, is still being developed. But we -- that having been said, we certainly have seen a couple and we are talking to clients about a couple of other significant-sized [safe release] studies that are being discussed and planned. But I think there is a long way to go before those turn to reality because there will also be ongoing dialogue with the FDA about, in light of those studies. But, yes, I think it is beginning to happen. I think there are signs of it beginning to happen. But concrete projects are still, I think, a distance away.

We have a follow-up question Dave Windley from Jefferies and Company. Please proceed, sir.

A follow, in the Central Lab, Peter, could you talk about how the transition you elaborated last quarter on, the preferred provider agreement which had you assuming some responsibility for the customer’s lab. How is that transition going? I presume it did go forward and total cost in the lab is now reflecting the assumption of that customer’s lab.

Yes, absolutely. Again, I think, just for the benefit of everyone else listening, that to recap on that, this was, we took on a small number of people within a Phase I unit of one of our clients to run, the safety of the lab aspect of that Phase I unit. And it was part of, if you like a quid pro quo for us becoming a preferred provider for that, for that client. Overall, in their lab we were already a preferred provider for clinicals in their lab business. It has -- the transition has taken place, Dave. The costs are fully absorbed and we do not anticipate increases in the costs related to that little unit. And in revenue terms, they still have not reached peak in terms of the revenues they contribute, so in the quarter that we have just reported, there was still a very small loss made by that unit. We’re anticipating in the current quarter that it will actually be making a small positive contribution to, to contributions.

In the transition, or even looking forward, is there any opportunity to streamline the cost of that lab or is it, is it pretty lean already?

We took it over on the basis of a lean -- of taking over something that was lean.

Okay. And is there longer term -- well, I guess the other side to that is how has the business flow as a result of that quid manifested from that preferred provider agreement?

I would hate to, I would hesitate to use the word excellently, but it has certainly manifested itself very satisfactorily. And I think I actually mentioned last time we were talking about it that we already had received $4 million of award for our General Central Lab and that number has been built upon in the last quarter. I do not have the exact figure, but it has been added to, in a meaningful way in the last quarter.

Okay. Last question. You talked about acquisition targets. Can you describe your -- I mean now that you have some sense of relief around having the lab firmly in the right direction, is your sense of urgency to pursue new acquisitions, new extensions of the platform a little higher now? What, what is that urgency to put cash to work?

I am going to be smart here Dave and say you probably have the sense of relief. We always knew we were going to turn this way.

Yes, right. You are right, I do.

It hasn’t changed our, it has not changed our disposition towards acquisitions in any way. I think we’ve been, we’ve been pretty active looking for acquisition opportunities in the last few quarters. We continue to be so. It is, you know, it is a frustrating and slow process. But, we would have been looking for acquisitions that add to our platforms, across all of the, across all of the businesses and divisions and, and our emphasis would not have changed in the last quarter or two. It is still the same as it was.

[OPERATOR INSTRUCTIONS] And our next question comes from Orla Hartford from NCB. Please proceed.

Great. Thank you for taking my question. Just as a change to guidance, I just want to clarify that has been primarily been driven by the performance in the lab business.

Well, it is a combination Orla, of the lab and obviously the strong bookings that we’ve experienced in the last quarter which we think is going to drive top line a little, a little further than we had originally anticipated.

All right. So it is a combination of both there?

Yes.

And just [in the future], one of your periods mentioned recently that the markets was the most robust that they had ever seen and obviously the winds are very strong, but would you share that view that it is the most robust that has ever been out there?

Well, I am only with the company 9 years. John has, John has been here 15 because --

Right.

We started with five people, so I will let John answer that one.

It, it, it has been very robust. Very volumed over the last couple of quarters and we believe that this will continue.

Yes, I think, or certainly my experience here is that the mid-90’s and the later 90” when I first came on board, was a very robust period, as well. And that was the time that all of the CRO’s, all of the public CRO’s were growing very, very rapidly at that time. So, I will not, I would not be so bold as to say it is the best ever, but it is certainly as strong as it was back in the hay days in the mid-90’s.

All right. And just, just talking of the lab there, just, you may have covered this. What percentage of the lab business comes from the clinical side? Would it be 20, 25%?

It would be less than 20%. I think that earlier questioner asked about that. I do not have the exact figures, but certainly, the -- anecdotally I was saying that I believe the percentage is growing but it will still be under 20%. You have to remember that all the lab, all central lab work is outsourced whereas all clinical trial work is not outsourced, so the lab is addressing a market of let us say 100 units. Clinical trial business is addressing a market of 30 units. But there will always be a, it will always be a less than 50% share of the lab business and will be trials that ICON is open to doing clinical research on, or at least will always be, as long as outsourcing of clinical trials is at 30% or over.

And our next question comes from Craig Leighton from Lord Abbett. Please proceed.

Just a couple of real quick questions. First thing, I am wondering if you might comment on what you expect the clinical operating margin could be exiting the year?

We, I think we have indicated Craig, that exiting the year we expect to be around 13.5%.

Okay, so you still expect the same, same range?

Yes.

Okay, great. Also, do you have any Central Lab cancellations number?

Yes, it was 2.5 million, I think it was 2.5 million. Okay, yes, 2.5 million of cancellations in the quarter, so the gross bookings were 15, plantation 2.5.

Was that one project or, or --?

No, it was three or four, three or four smaller projects.

Okay, terrific. And then, just lastly, wondering if you might comment on the Japanese business specifically and your thoughts on profitability this year?

What we’ve targeted for Japan this year is very even. It has done so in the first 6 months. We are continuing to invest in it Craig, so I do not anticipate that it will do better than breakeven. And as we invest and make decisions about how best to advance that business, it might make a small[off] in the course of the year, but it would be rather insignificant.

And our next question comes from Rob Amin from RK Capital.

Yes, can you talk a little bit about long-term where you think the Central Lab margins could go as we look out beyond this year?

Do not get carried away here, Rob. You know, we are turning the corner here. We have always said we, we, our target would be to achieve margins in excess of 15% in our Central Lab business and our view on that would not have changed. Once we have got to 15%, we will see what the benchmark we set beyond that. We certainly seen the boundaries that can make margins in excess of 20%, but I would be very happy if we got the lab to 15% margins and were then were able to start looking beyond.

Can you help bring expectations for bookings as you look forward in terms of what an acceptable level would be to support your, your growth plans going forward?

Overall in the company?

Correct.

Well, you know, if you are going to -- we have grown 19% in the last quarter and mathematics says that if we could achieve a book-to-bill on average of 1.2 to 1, we should be able to grow at between 15% and 20% ground. So what is an acceptable level of bookings, I think a book-to-bill on average of 1.2 to 1 is a very acceptable level of bookings, which in the current quarter would be bookings in excess of 120, around 120 million or in excess of 120 million. Given the buoyancy of the market place at the moment, I wouldn’t be surprised if we exceeded that. But from the long-term perspective, I think 1.2 to 1 would be what we are targeted.

At this time, there are no more questions. I will turn it back over to the speakers for closing remarks.

Thank you, ladies and gentlemen. The quarter to March 2006 has been an outstanding start to the year. Net revenue has grown by 19%. Income from operations increased by 82%. EPS has grown by 64%. And we have booked record new business of about $171 million. With continuing strong business flow, we look forward with confidence to the remainder of 2006. With that said ladies and gentlemen, thank you.