ICON PLC (ICLR) 2006 Q2 法說會逐字稿

Good day ladies and gentlemen and welcome to the second quarter 2006 ICON PLC ADS Earnings Conference Call. My name is Sharon and I will be your coordinator for today. [OPERATOR INSTRUCTIONS] I would now like to turn the presentation over to one of your hosts for today, Mr. Murray. Sir, please proceed.

Good day ladies and gentlemen. Thanks for joining us in this call covering the period ended June 30, 2006. With me here today on the call, I have Dr. John Climax, the Chairman, and our CEO, Mr. Peter Gray.

Before I hand the call over to John, I would just like to note that the call is webcast and there are slides available and that the comments will follow the slide show. I will now make the customary statement in relation to forward-looking statements. Certain statements in these opening remarks constitute forward-looking statements concerning the company's operation, performance, financial condition and prospects. Because such statements involve known and unknown risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements.

Given these uncertainties, investors and prospective investors are cautioned not to place undue reliance on such forward-looking statements. The company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Today's commentary refers to our calendar Quarter 2 ending on June 30, 2006. But I'd like you to please note that the comparable period is the quarter ending May 31, 2005.

In the following commentary the US GAAP financials for 2006 have been adjusted to exclude the non-cash stock compensation expense and the effect on diluted shares of the adoption of the new accounting standards, SFAS 123R. It should also be noted that one time charges of $11.3 million, primarily relating to the recognition of an impairment of the goodwill associated with the Central Laboratory business and lease termination and associated exit costs in the US have been excluded from Quarter 1 of 2005.

With all of that said, I would like to hand the call over to John.

Thank you Ciaran. Good day ladies and gentlemen. Now, getting into our results for the quarter. The growth and performance of the group in Quarter 2 has been exception. Net revenue for the quarter was $107.4 million, representing growth of 25% over the comparable quarter last year. Revenues surpassing $100 million a quarter is another milestone in the growth of ICON. Year-to-date, revenues were $205.9 million, representing growth of 22% over last year. It's important to note that all this revenue growth is organic.

Operating income for Quarter 2 2006 increased by 68% over the comparable quarter last year from $7.4 million to $12.4 million. Year-to-date, operating income of $23.4 million represents growth of 75% over last year.

Our group operating margin continued to improve rising to 11.5% from 8.6% for the comparable quarter last year. Year-to-date, margins improved to 11.3% from 7.9% last year. The core margin for the quarter in our clinical business was 12.5%, an increase of 80 basis points over the comparable quarter. We incurred significant costs in the quarter in relation to the hiring and training of over 400 staff. Year to date, clinical margin were 12.7%, an increase of 170 basis points over last year.

Our Central Laboratory business for the fourth consecutive quarter significantly improved its performance, returning a profit of $400,000 on net revenues of $11.5 million. This represents an increase of $5.4 million in revenues and an improvement of $2.4 million in operating income over the comparable quarter last year. We expect the profitability to continue to grow over the coming quarters, and we believe that margins of between 12% and 15% are achievable by the end of the 2008.

Net income rose to $10.3 million from $5.9 million in the comparative quarter, representing 75% growth. EPS grew from $0.42 per share to $0.71 per share, a 69% increase over last year. The effective tax rate for the quarter was 22.1% compared with 22% for the same period last year. Year-to-date, net income grew 71% to $18.8 million from $11 million last year. EPS grew from $0.78 per share to $1. 30 per share, a 67% increase over last year. The effective tax rate for the half year was 24.3% compared with 21.1% for the same period last year.

Cash flow generated from operations was $19.8 million in the quarter. We spent $6.3 million on capital expenditure, of which $1.4 million related to the expansion of our Dublin facility. Year-to-date, cash flow from operations was $30.4 million and capital expenditure was $10.1 million, including $2.3 million invested in the Dublin facility.

Net cash and short-term investments were $101 million, up from $85.3 million in the previous quarter. DSO for the quarter reduced significantly to 51 days from 63 days for the comparable quarter and 56 days in our previous quarter.

Gross business awards for the quarter to June were again very strong at $189 million. Cancellations were $23 million or 12% of growth awards and 3% of opening backlog. Accordingly, net business wins for the quarter were $166 million compared with $101 million in the comparable quarter. This represents an increase in net awards of 64% on last year and a book-to-bill of 1.55.

Year to date, cancellations are running at 10%, which is at the lower end of our guidance range of 10% to 15%. As a result, our total backlog at the end of June 2006 was $772 million, a 46% increase over the comparable quarter. With our backlog at record levels, continuing good business flow, declining tax rate and the Central Laboratory reaching profit earlier than forecast, we are once again pleased to upgrade our guidance for the rest of the year. We now expect that 2006 revenues will be between $425 and $440 million.

As a result, we expect EPS to be in the range of $2.70 to $2.80, excluding the impact of expensing stock options and based on an average diluted share number of 14.6 million for the year. Currently, the impact of expensing stock options is $0.06 per quarter. We estimate that we have approximately $360 million of the next 12 months revenue in booked and awarded businesses, which represents approximately 77% of our upgraded revenue forecast.

This quarter has been particularly strong, not only in terms of financial performance, but also in terms of the pace of activity in the business. We opened new offices in three additional countries -- Poland, Lithuania and China. We added over 400 people to the organization worldwide. We launched our Oncology Solution, which is a new integrated approach to the support of Oncology Clinical trials. And we agreed to acquire Ovation Research, which will be integrated into our late phase group. We expected this acquisition to enhance our ability to address the growing demand in the market for long-term safety studies.

Finally, I would like to take this opportunity to thank our staff across the globe for their continuing contribution to the development of the company, and I would particularly like to thank the staff of our Central Laboratory for their commitment through difficult times, which has contributed to the lab's return to profitability.

I would like to open this to questions.

Sharon?

[OPERATOR INSTRUCTIONS] And our first question will come from the line of Eric Coldwell from Baird.

Yes thanks, it's Eric Coldwell of Baird. Good morning gentlemen or good afternoon. First question, tax rate much lower than we had modeled. There had been some signals that the company might have some strategies in place to lower the tax rate. Nonetheless, a good beat without it.

Can you just give us a sense of the drivers of the tax rate, what to look for over the next couple of quarters and then longer terms where you expect that number to fall out?

Hi Eric it's Ciaran here.

Hi.

Yes, I mean the first thing that impacted on the tax rate this quarter was the turnaround in the lab. In previous quarters we were incurring losses in the laboratory but we weren't getting any tax credits for those --

Right.

-- because of the structuring of our operations in the US. We weren't offsetting them against other US profits. And with this sort of that, it wouldn't have been prudent to agonize any deferred tax assets on the losses because of the trading situation of the lab.

So this quarter we've got the [inaudible - accent] instead of the loss dragging the profit down, we have the labs making money and we're able to use the past tax credit against that. And so that's been the first thing that's helped the effective tax rate. Secondly, as the business is globalizing and we are operating in more and more countries, we're just getting leverage off our business model and different tax rates in different areas.

And so that's why we're at 22% this quarter. We would except -- that was a good quarter, we're modeling about 24% going forward for effective tax rate this year I think compared to the original guidance which we have given, which would have been around 27.5%.

Ciaran, is that quarterly or is that for the full year total?

That is quarterly. I think the average – we will probably come out at about 24. We were higher in Quarter 1, we were 22 in Quarter 2, so two quarters at around the 24% mark should bring us in on an average of around that for the year.

The one thing that will cloud that going forward we do have considerable losses forward on the lab. And as it continues to trade profitably on the accounting conventions around the prudent concepts allow us to change our view, we may be able to take someone one-off benefits by recognizing those losses on the deferred tax asset line, but we're certainly going to keep that under review and look at it over the next few quarters as the lab profitability and become consistent.

And then longer term, I know you're not giving 2007 or '08 guidance, but longer term at the tax level, would you consider a low 20% range to be a consistent model?

Insofar as you can look that far ahead, Eric, yes, we would be modeling towards the low 20s and yes, that would be fair to say that.

Okay. I have several other questions, I'll just ask one and let others jump in. Obviously the lab played a role in the tax rate issue, which is nice to see the recovery in the lab. Could you give us the segment breakout both at operating profit dollars and operating margins for the two reporting segments?

Eric I'll take that, it's Peter here. I think John shared that in his comment, but I'll repeat some. The core margin of the clinical business was 12.5% in the quarter, and the lab at a margin I think of 3.5% they made $400,000 on revenues of $11.5 million in the quarter. And John added some additional color to that core margin number by saying that we did incur significant costs in the last quarter in relation to the hiring and training of over 400 new staff, which is an unprecedented number of new hires of us, and that obviously has costs associated with it.

Sorry, I was momentarily disconnected and I must have missed those comments. So, thanks for clarifying.

You're very welcome.

I'll jump out, let others jump in. Thanks.

Thanks Eric.

Okay. Thanks.

And our next question will come from the line of John Kreger from William Blair. Please proceed.

Thanks very much. Peter can you just give us some perspective on the lab. For a long time we've been talking about why that unit was not delivering on your expectations and it certainly did the opposite this quarter. As you look back, what are you doing differently now, what's really allowing the numbers to pick up so markedly?

I wish I could say, John that we had waived a magic wand in the last couple of quarters and magically everything had turned for us. I think as John has said and I would preface any remarks I make here by complimenting the management team and the staff of the lab who've just battled, as John said through tough times and have contributed usually to the business working its way through disappointing performance and turning it around. So people and management and commitment were significant factors in it.

That being said, we have been reporting, bookings levels on average of probably 10 or 11 million for about three years now in the lab. So at long last the revenues have come up to match where the bookings levels have been. So, I would say we haven't done anything different, we've been solidly working away at this business delivering strong booking numbers. We have watched the backlog grow from three years ago $28 million to over $90 million now.

And it took an agonizingly long time to see that success in bookings turn into revenue, but at last it has happened and obviously it's happened relatively quickly now over the last four quarters. And another piece of color that I can share with you is the bookings in the quarter that we're reporting here for the lab were just over $21 million, so they've had another outstanding quarter of bookings as well, which is why we're confident that they will continue to make progress from here, although the pace of growth John is likely to be less dramatic than it's been over the last four quarters, which is why John suggested that our expectation is we will get to 15% margins.

But it's more likely to be 2008 before we get there based on our current forecast and also based on I think reasonable prudence given the fact that high bookings in the past have been slow to translate into that same level of revenue. But the short answer to your question is this is a result of solid work. The reason why we persisted with the lab and believed we should stay with the business was because we were achieving those bookings and the bookings have at last translated into revenue.

Great. And a follow up on that, Peter, as you look at the -- the revenue pick up in recent quarters, would you characterize that as coming from existing clients and doing more work with them or lots of new clients being added to the list?

Repeat business in the lab is about 80, running about 87%, 88%. So a lot of business, repeat business coming from existing clients. But obviously the 13% is indicative of, they are adding new clients on a continuing basis, and so it's a nice mix, John.

That's great. Thanks very much. And then one other question, if you look at your clinical business it sounds like the profit margins were impacted some what in quarter by the, the very high rate of hiring. As you look out longer term, do you have a longer term goal for where you think you can take margins in the core clinical business?

We're comfortable with the idea that we can get to at least 14% margins, and when we get there, my favorite phrase on this is, when we get there we'll look at raising the bar further. I think beyond 14 is possible but we'd like to get ourselves to 14 and show that we can do that on a consistent basis before we start making more aggressive predictions.

Great, thanks very much.

And our next question will come from the line of Ian Hunter from Good Body Stock Broker. Please proceed.

Good afternoon gentlemen. Maybe, one part of my question was answered on the net new business wins. Am I right in thinking that the split between the lab and the core was 166, well no, 145 million and 21 million, that is core versus laboratory. And then I'm just wondering whether you can give us an idea of what the, the breakdown is between Europe, the US and the rest of the world for new business coming in?

It's strong across the board, Ian. We don't particularly want to break it down to that level of granularity, but again I think that the correct answer, broad answer to you is, wins have been strong across the board in all geographies and in all of our divisions. So there isn't a bias in any particular direction.

Okay, and then maybe, if you could just -- I'm wondering if it's possible to break out on the net revenue growth that you show here, I'm just wondering if you can give us an idea of how much was in the US and how much was non-US?

Revenue growth, sorry Ciaran.

I mean, it was strong in both regions --

It was less strong in Europe.

-- in Europe yes. I suppose in the US we had about 39% revenue growth and in US and rest of world, it was 8% (indiscernible) in Europe and rest of world, it was 8%. That was against strong comp last year when Europe was performing very well, and they had a good quarter in terms of business wins and that so we expect to see that improve over the next quarter.

Yes, we're currently modeling that growth in Europe will be high teens or perhaps even up as high as 20 through the rest of the year.

Okay, thanks very much.

And your next question will come from the line of Craig Leighton from Lord Abbett. Please proceed.

Yes hi. Most of my questions have been answered already but just a quick question to get a little bit of nuance on the margin improvement in the research business over time. You talk about 14%, I think that's a longer term goal or at least 18 month kind of goal. But over the next couple of quarters, I guess you'll start to absorb some of the increased labor costs, so should we still expect about a 13% operating margin ending this calendar year?

We originally were suggesting, Craig that we would exit the year at 13.5. I think if the rate of growth continues and again the bookings are very strong this quarter, maybe 13 is a more realistic number to target for the end of this year. But it's difficult to predict at this stage, but it's going to be somewhere between 13 and 13.5, I think by the end of this year and as you say our longer-term 18 month target would be to 14%.

Okay, terrific. And during the remarks you mentioned the oncology solution, I guess I'm just interested in a little bit of detail there, and what that is and how this might affect your business?

Well, I'll take that. The oncology solution in the past, most companies used to do things in bits and pieces, taking different CROs to get different services done. We have worked on a number of oncology programs and we have also a lot of [surrogate] markets in-house and what we are providing to the clients now is a kind of an expedite development in oncology therapy so that the processes that we are offering them will make it more efficient in getting their trials done and to take a look at some of these [surrogate] markets, particularly imaging way well in advance of - in the development cycle. And this has gone down extremely well with quite a number of our clients.

Is this considered a new product offering or just a sort of a revitalized offering where you've put some of what you already have together in one package?

It's effectively, it's a bit of both, Craig. It's - we have - we've had the elements of this service, but we've put some processes and procedures and tools in place to enhance the integration of them so that from the clients' point of view they don't see any of the joints between the different services. It's a seamless service that's part of the objective here.

Because imaging is now so important to oncology trials. integrating the whole process of capturing the images and interpreting the images and planning it early in the - in the set-up of the trial is different is new, the FDA only issued guidance on this back in April of last year. And therefore integrating that at an early stage into the whole process and providing the client with information across what's going on in the study, including the - including in relation to the images is - is what we're trying to do here and it is a new product offering in that sense.

Terrific and then just lastly I think in the past you have provided the win distribution by size of contract and I'd be interesting to hear that again.

Three projects - that we were awarded [over the course of] the quarter were in excess of $10 million, and the rest then were broadly spread between 0 -- between $1 and $10 million. But there were three in excess of $10 million.

Great. Thank you.

And we have a question coming from the line of Jack Gorman. Please proceed.

Thank you. I've got two questions please. Firstly wondering if you can give us a sense of the absolute amount of costs associated with the - the additional hiring and training that you mentioned as the business expanded.

And secondly, going back to John's original point on the end '08 margins within the Labs business, at what point, maybe it's a little premature, but at what point will you have to start looking at capacity within that division? I know it's a pretty quick change from losses into profit to expansion, but maybe you can give us some sense of your thoughts on that at the moment.

Sure. The absolute amount Jack is -- it was difficult to quantify on an incremental basis, but around $1 million is probably a good proxy.

Okay.

And in terms of lab capacity, we have a lot of lab capacity, I think you've already visited that facility in the past, you've seen the size. However, we're -- we are some what capacity constrained in Dublin and our plans would be in due course to set up a small satellite laboratory in Singapore. So we will have to make those investments as we go forward, but they're relatively modest. I think in Dublin the cost of expanding, we're using the existing facility and the cost of expanding is probably an incremental $1 million or maybe $2 million and any investment in Singapore is probably going to be around $1 million, so we're not talking about major, major expenditures to enhance our capacity. But the facility in Long Island itself is capable probably of servicing $100 million dollars of revenue.

Okay. And any particular reason why Singapore has been chosen, Peter?

I suppose, think of the geography Jack.

[inaudible - cross talk] the Far East?

Exactly, yes. If we have a -- we have one in Europe, we have one in the United States and the other major geography is obviously Asia and Singapore is a primary hub for Asia.

Maybe just as a quick follow on and I know you've mentioned before -- kind of traditional pharma versus specialty pharma and biotech has split in terms of your wins and your revenues. Are you still seeing the same trends there?

I'll take that Jack. Yes we are -- 38% of our revenues came from the non top 20 pharma companies compared to 34% last year.

Okay.

And if you just took biotech companies alone for Quarter two 32% of our revenues for Q2 came from biotech compared to 30% last year. So we're seeing a trend.

Okay. That's higher, obviously, as regards business wins?

Yes.

Right. Thanks guys.

And your next question will come from the line of [inaudible - technical difficulty. Please proceed.

Congratulations on a great quarter. Can you talk a little bit about some of the cost pressures with a scale of hiring, are you beginning to see any sign of insipient wage inflation or challenge finding [truly] qualified people to add to the ICON family?

I suppose the short answer to that is -- is no. In an environment where we've managed to hire 400 people in the course of the last quarter where we've hired 600 people in the first six months of this year, we're finding the people and successfully supporting the level of growth in the business.

As regard to insipient wage inflation, we're not seeing any real evidence of that. Of course when the strong demand in the industry and when all of our competitors or many of our competitors are also experiencing strong demand, well then everyone is out looking for people and that can create some competition for experienced people. But a large number of the people that join ICON and our competitors are relatively inexperienced and at that level there isn't any wage inflation. There's a -- a sort of an industry standard for what those people receive coming into the organization and they have to build their experience before they begin to get paid more significant amounts of money. It is at the experience level that there can be some competition but there is nothing happening in the marketplace at the moment that will trouble us.

Great. In terms of the pace and scale of growth are there any significant step ups in spending either on internal systems or additional facility expansions beyond Singapore except for that you've talked about that we should be aware of over the next 12 to 18 months?

Well as we've I think previously had discussed we have an expansion taking place here in Dublin and we've explained that the intention is to do a sale and lease back on that in due course. So while that will have a negative cash flow, or will have a significant cash flow associated with it over the next year we anticipate that after the sale and lease back is completed we'll have a cash inflow more than compensating for that outflow.

And in systems terms, I mean, our underlying capital expenditure per quarter, Cairan runs at about $4 million excluding the facility expenditure. And the vast majority of that is on IT related expenditures whether that's the 400 PCs that we have to acquire this quarter for the new people that came in and all the associated software of that, or whether it's new servers to support our network or more importantly new systems that we're putting in place. We mentioned, for example, that with 400 new hires, there were significant training costs.

We are implementing it in the course of this year an e-learning system in the company that we're rolling out in the latter half of the year. That will be an important tool for us as we continue to expand. And obviously those types of systems do not come at zero cost. The overall cost of that system is probably going to be somewhere on the order $4 or $5 million by the time we have it fully implemented. And there are other examples of that -- I won't list them all but I think the picture is ongoing capital expenditures per quarter around 4 million, maybe 4.5 million as we get larger and a one time expenditure going on this year on our facility expansion in Dublin.

Great. And final question, you're suffering the high quality problem of generating large amounts of cash, what are your priorities in terms of use of that cash, thoughts about further acquisition versus share buyback versus other corporate uses?

Our focus is on -- is on using that cash for growing the business and further enhancing the services that we provide. We made a small acquisition or we announced a small acquisition in the last quarter, it completed early this quarter, but that was only an expenditure of $8 million. We are looking at a number of other acquisitions in the arena of Phase I in some geographic expansion and in a number of other areas. And our anticipation is that we will invest all or a significant part of that cash that we currently have over the next 12 to 18 months on opportunities that we know are there for us.

And just to clarify, the guidance you gave does not assume any further acquisitions other than the ones that have been announced today.

Yes, that is correct.

Great. Again, congratulations on a wonderful quarter.

Thank you.

And our next question will come from the line of Steve Unger from Bear Stearns. Please proceed.

Hi, good morning. First I just want to congratulate the company on the central laboratory turnaround -- I know you took a lot of heat from the Street on that, and I want to congratulate you guys. Secondly, I missed - I apologize, I missed the opening remarks, was there EPS guidance for 2006?

Yes, there was Steve. The guidance is in the range of $2.70 to $2.80 excluding the SFAS 123R impact and we said that's about $0.06 per quarter currently.

Okay, great. Thank you. And then when it comes to operating cash flow it looks like you finally turned the corner to become a much more consistent cash flow company. Is there a target for 2006?

A target of cash to be generated?

Operating cash flow target, yes.

There isn't a formal target Steve. There's not a figure I'd give you that I'd tie my hat on and then let you take that hat off so you can beat me about with it at the end of the year. This, it has got better quarter-on-quarter for the last few quarters and what we did at the moment was what you should see going forward at an operational level. But then as we go later in the year, we will see the timing impact of the Dublin facility expansion.

So that -- that will then be offset by the sale and lease back, but that not might not be tied up until late in the year or early next year. So I'd take the sort of -- the level we have this quarter going forward and reduce it by about 15 million for this year's expenditure on the building, 15% to 20% depending on how quickly the project goes. Otherwise it's nothing unusual to look at.

Okay. And then, finally just on the new office locations, it looks like you added some offices in the quarter. Could you comment as to where those are and talk about the incremental facilities cost absorption that that entails?

Sure. Again, John in his comments mentioned we have opened new offices, four new offices - well, he didn't say four new offices, we opened three offices in additional countries -- Poland, Lithuania and China. We also opened an office in San Diego, which is an additional office in the United States. The incremental costs, Steve, are pretty minimal.

We're taking small amount of space, a small number of people initially and we're leasing that space. So this -- we would not attribute the increase in our costs in any meaningful way to be to the -- to be due to those new openings. The -- again in John's comments what he was saying was the incremental cost that we did incur was the cost of hiring 400 additional people both in recruiter fees, in training fees -- training costs and so on. And that has impacted -- that has been a meaningful impact on our costs in the quarter.

Great. Okay, thank you. Congratulations.

Thanks Steve.

We have another question coming from the line of Mr. Eric Coldwell. Please proceed.

Thanks again guys, and I apologize, I've had a couple of connection issues here, hope I didn't miss this. I know we got a little bit of customer concentration data by sector, i.e., biotech versus pharma. I'm curious if we could get more detailed customer concentration in terms of your top accounts, top one, five, 10 and also if you could give us a sense of the largest projects that you have in backlog. One of your very close peers this morning had a massive cancellation out of backlog and I think the Street's going to probably be asking some questions about what your compound concentration is as well?

I'll take the first part of your question Eric. No clients -- we don't have a client concentration, we have no client contributing in excess of 10%. If I take the top five clients it's currently for the year running at 37% as compared to 42% last year. If I took the top 10 clients the revenues contributed for the year was 53% compared to 64% last year. And your second part of the question I'll get Peter to answer.

Yes, the largest project in backlog, Eric, is approximately $35 million.

Peter, is that kind of a standalone venture or would you say you have a kind of grouping of projects in that size range? And if so approximately how many?

I think that would be the largest by a significant margin I think the next largest after that would be somewhere in maybe the low 20s and there might be one or two of those and then you'd have a cluster in -- somewhere in the teens.

That's very reassuring. Great, thanks. And again I'll reiterate what Steve Unger said -- great quarter, great results in the central lab, Congrats. It must feel good. Thanks guys.

Thank you.

And our next question comes from the line of Dave Windley from Jefferies & Co. Please proceed.

Hi, good morning gentlemen. Ditto on the prior two congratulations. I wanted to comment -- I missed if you said what the geographic growth rates looked like, I was looking through the slides and I didn't see that in there.

Yes, we have growth of just over 39% in the US and 8% in Europe and rest of world.

Okay. Is it possible to, Ciaran to divide that out between Europe and rest of world. I know coming into this year there was expected to be pretty flat performance in Europe by itself because of the hot performance over the last year or two. Is Europe flat and rest of world is a little better than that or are they both performing about at that 8% level?

They're both performing well I mean Europe is considerably bigger than rest of the world region so if the composite rate is 8% Europe is pretty close to that.

Okay. If I turn to backlog, are the trends in backlogs still pointing towards similar disproportionate growth in the US?

No it's not Dave. Again you probably missed the earlier comment I made is we're expecting in the back half of the year that Europe's growth rates is going to accelerate into the high teens and perhaps as high as 20%.

Okay, I'm sorry I did miss that. And then drilling into the questions on concentration Peter could you give some color on the phases that are driving the bigger contracts? Is it fairly logical, are you seeing more activity in say post marketing safety surveillance Phase III v. IVs or are you actually seeing some of these big opportunities in pure Phase III-A type stuff?

Most of this Dave is Phase III-A stuff. The larger price -- certainly the wins in this quarter and the wins in the last quarter which were both record quarters for wins comprise largely Phase II and Phase III awards. Late phase and the kind of big safety studies that you're thinking of were not a significant feature.

Okay. Are you thinking that -- are you still working to get your seat at the table for some of those opportunities or -- give me a sense of are you seeing RFP flow for those or not and are you expecting that you might see some improving win rate given the recent acquisition in that space?

We are seeing RFP flow in the area and we have a lot of dialog with clients about things that they want to do and ideas they have for some safety studies. So we -- what we see is the opportunities that are going to emerge for us are still in the -- I thought -- in the planning stage.

And the acquisition of Ovation, I think, is going to be a tool for us in helping to meet the needs of our clients, but it wasn't essential for us to capitalize on later phase studies. We've done a lot of late phase studies over the years, and currently 20% of our revenues are still being generated from Phase III-B, Phase IV-type studies. So I think we're well positioned there as - the awards the last couple of quarters haven't included any of those, but the RFP flow is there and we're seeing visibility on some opportunities -- some good opportunities later in the year.

Okay, great. So great and can get even better, I appreciate that.

Oh, David, we wouldn't possibly say anything as foolish as that.

I'll say it for you. That's okay.

Thank you. And Mr. Murray at this time you have no further questions in queue.

Sorry, Sharon, can you repeat that?

Yes sir, Mr. Murray at this time you have no further questions in queue.

Since there are no more questions I'd just like to summarize the quarter. The second quarter to June 2006 has been exceptional. Our Central Lab returned to profitability a quarter earlier than forecast. Net revenues, income from operation, net income and EPS increased by 25%, 68%, 75% and 69%, respectively. Net bookings were 166 million while business flows continued to be strong. And we acquired a business which we believe will strengthen our position in late phase markets. Ladies and gentlemen, thank you for joining us today.

Thank you ladies and gentlemen for your participation in today's conference. You may now disconnect.