ICON PLC (ICLR) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen, welcome to the fourth quarter ICON PLC earnings conference call. My name is Cindy, and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (OPERATOR INSTRUCTIONS) I would now like to turn the presentation over to Mr. Ciaran Murray, Chief Financial Officer. Please proceed, sir.

Good day, ladies and gentlemen. I would like to thank you all for joining us today and this call which will cover the quarter and year ended December 31, 2006. With me here today in Dublin I have our Chairman, Dr. John Climax, and our Chief Executive Officer, Mr. Peter Gray. Before I hand the call over to John I would just like to note that this call is webcast and the slides are available and that the comments will follow the slide show. I will now make the customary statement in relation to the 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 revise any forward-looking statements, whether as a result of new information, future events or otherwise. Today's commentary refers to our calendar quarter, quarter four ending December 31, 2006.

I would like to also note that the comparable period is the quarter ended November 30, 2005. In the following commentary the U.S. GAAP financials for 2006 have been adjusted to exclude the non-cash stock compensation expense and the effect on the diluted shares of the adoptions of SFAS 123(R). We are excluding these as they do not these as they do not feature in the comparative numbers and we wish to ensure that we compare like for like. It should also be noted that onetime charges of $11.3 million primarily relating to the recognition of impairment of the goodwill associated with the central laboratory business and lease termination and associated exit costs in the U.S. have been excluded from quarter one of 2005.

Finally, ICON recently completed its bonus issue of shares effectively a 2 for 1 share split. The number of weighted average shares in this presentation reflects the share split, both the current and comparative figure. Having said all of that I would like to hand the call over to John.

Thank you, Ciaran. Good day, ladies and gentlemen. Overall 2006 has been an outstanding year for ICON. Quarter four was no exception to this. In the quarter net revenue grew 46% over the comparable quarter last year to $129 million. Of this growth 44% was organic. Full-year revenues were $455.6 million, representing growth of 33% over last year, of which 31% was organic. Excluding acquisitions growth in the U.S. was 34%, and Europe and rest of the world was 28%.

Operating income increased by 65% over the comparable quarter last year from $9 million to $14.9 million. Full-year operating income grew from $30.8 million to $51.9 million, representing growth of 69%. Group operating margins for the quarter was 11.5%, up from 10.2% for the comparable quarter last year. Full margins improved from 9% last year to 11.4%. Full margin in our clinical business was 12.2%, an improvement of 20 basis points over the previous quarter. Full-year clinical margins were 12.4%, an increase of 50 basis points over last year.

Our central laboratory business continued its improvements, contributing $0.8 million in operating profit on net revenues of $13 million in the quarter. This represents an increase of 61% or $4.9 million in revenues and an improvement of $2 million in operating income over the comparable quarter last year. For the full year the central laboratory posted revenues of $46.7 million and made an operating profit of $1.3 million compared to $27.8 million in revenues and an operating loss of $6.6 million last year. Needless to say, we are delighted with this turnaround.

Net income rose to $12.4 million from $7 million in the comparative quarter, representing 79% growth. EPS grew from $0.29 per share to $0.42 per share, a 75% increase over last year. The effective tax rate for the quarter was 21.5% compared with 27.2% for the same period last year. Full-year net income grew 74% to $42.4 million from $24.3 million last year. EPS grew from $0.86 per share to $1.45 per share, a 69% increase over last year. The effective tax rate for the year ended December 31, 2006 was 23.3% compared with 24.7% last year.

Cash flow generated from operations was $17.5 million for the quarter. We spent $0.2 million in relation to acquisitions and $12.3 million on capital expenditures, of which $6.6 million related to the extension of our headquarters. Full-year cash flow from operations was $50.5 million, and capital expenditure was $31.5 million. At December 31, 2006 net cash and short-term investments amounted to $97.9 million, up from $77.5 million in December 2005.

DSOs at the end of December were 53 days compared to 67 days last year and 57 days in the previous quarter. Gross business awards for the quarter to December 31, 2006 were again very strong, reaching a record level of $207 million. Cancellations were $36 million or 17% of our gross awards. Accordingly, net business wins for the quarter equaled our previous record of $171 million compared with $140 million in the comparable quarter. This represents an increase in net awards of 22% and a strong book-to-bill of 1.3. Full-year net bookings were $665 million compared to $469 million last year, an increase of 42%. These figures were after an average cancellation of 14% for the year. Book-to-bill for the full year was 1.5.

As a result, our total backlog at the end of December was $872 million, a 38% increase over last year. Of this backlog we expect $416 million to be earned in 2007, a coverage of approximately 76% of market expectations. 2006 has been a great year for the company. As I mentioned earlier, our central lab achieved a significant turnaround from losses of $6.6 million last year to profits of $1.3 million. We expect further significant progress in 2007.

Our clinical segment achieved very strong growth in 2006, and improved its margins from 11.9% in 2005 to 12.4%. We expect to achieve further margin improvements in 2007. The market for our services continued to be strong as evidenced by an increase in RSP volume of 15% over last year and an increase in its value of those opportunities of 32%. With a record backlog of $872 million we look forward with confidence to 2007.

Before handing the call over to questions I would like to congratulate and thank all our staff worldwide for the great contribution and to our continuing success. Can we please have the first question?

(OPERATOR INSTRUCTIONS) John Kreger.

Good morning. Thanks. Could you guys talk a bit about your gross margin trends in the quarter? It was, I believe, down a bit year-over-year. Can you just talk about what was behind that?

It is really just around utilization, John. Gross margins basically made up of that direct costs and salaries. Certainly looking at it wasn't anything to do with pricing effect, just what you see year on year is that we've been higher in (indiscernible)over last year, so that is going to affect resource planning and when you are growing at that rate, you're going to get some variations in how your staff utilization works it.

Ciaran, I think last quarter you talked a bit about your Phase I unit pressuring margins a bit and perhaps some spending in Japan. Are those still factors for this quarter, as well?

Yes, John as we were very open about identifying some of the areas where we saw potential for improvements and we saw improvement in both of those, in fact in the quarter, albeit both were still contributing modest losses. But certainly in the Phase I business we saw a significant improvement. But as they say, still a small loss there. And in Japan again the level of losses were reduced. We are expecting that as we go into 2007 the Phase I business should get a breakeven this quarter at least and Japan is budgeted to get to breakeven through 2007 overall although in the first quarter it is likely it will continue to contribute small losses.

Great, thanks. And one last question on your lab. Can you talk about your outlook for the lab in '07, perhaps how your new business was in the quarter? And are you starting to bump up against any sort of capacity issues in your New York facility?

A comment on the lab is, as John said in his comments, $13 million of revenues and about $800,000 of profit, which was a slowdown in the trajectory of revenue growth that we had seen obviously through the last year, which had been stunningly good. The awards in the quarter for the lab were just over $15 million, so they continue to have very good and robust book-to-bill and go down; again that 15 a little down on two previous quarters where they have been up around 20. But we are expecting the bookings outlook for that business to continue to be very strong. So we're very positive about the business outlook for the lab. And we are expecting that the revenue growth will accelerate a little over the next couple of quarters again having had something of a pause in the fourth quarter, largely due to a couple of projects that didn't move forward as planned and were slower to move than the lab had projected. That actually sounds negative when really the story here is a positive story of the lab is continuing to make progress. It's bookings continue to be well ahead of its revenues, and we are expecting to see it make significant further progress in 2007.

Thanks very much.

Steve Unger, Bear Stearns.

Ciaran first off, what tax rate are you expecting for 2007?

If you recall back in December, not that long ago, we guided 22%. So that is what we are expecting.

Is that a GAAP tax rate or is that a stock options --

22% will be GAAP tax rate.

And then for 2007 will you be quoting numbers excluding stock options expense going forward figures?

We will. Steve, why we quoted both this year was so we compare apples-to-apples as we have 2006 figures with the impact of SFAS 123(R). When we go forward into '07 we will be just quoting the numbers with the charge having gone through them. Now we will be comparing them to the apples of 2006.

Okay, so we got apples-to-apples in 2006 or 2007. Great. And then Peter, could you talk about the business that you are winning in the quarter in terms of type and size of contracts? Are you finding that you are winning more large contracts to support NDA filings or to do large CT studies?

That's always a difficult question to answer, Steve. (indiscernible) and I think I've talked about this on previous calls. The future of our progression over the last couple of years is every quarter now we have at least a couple of pretty meaningful wins. And in the last quarter we have one in excess of $30 million and another in excess of $20 million, so a couple of pretty big ones there. And then the usual range of wins from plus $10 million to plus $500,000. So there is a very broad range of wins there. I think it is fair to say that every quarter now we are seeing at least one or two significant wins that are the pivotal studies related to a potential NDA filing. So yes to that part of your question.

In relation to safety for these studies I continue to believe that is a feature that will emerge more as we go forward. But we continue to see more talk about such things and more discussion about how they should be designed than actual studies being connected at this stage. So in this quarter there is no major study there that we would characterize as a safety study.

Okay, and then you've characterized your margin expansion opportunity in the past, but primarily at least from what I can tell unrelated to just improving the profitability of Japan and Phase I clinic, is there a profit target for you outside of those two opportunities in 2007?

I think the one you're forgetting is we've also said that our mission is to improve the profitability of our U.S. clinical business, which historically has had a higher margin than it made during 2006. They made some progress in the fourth quarter in raising their margins, and their plan in 2007 is that they will continue to enhance their margin.

Excellent. And then what is the status of the facility build in Dublin? Are we halfway through it or when can we start to see some --.

Not even halfway. The way in which that project is structured is there are four separate units or blocks connecting into the existing building. Two of them are well toward completion but will not complete until about June, and the other two will not complete probably until June or July of 2008. So we are about one-third of the way through in terms of the construction program, albeit in spend terms I don't think we are even a third spend.

No, we're not.

Okay, so we are a third of the way through the spend. And when do you expect to start to --.

We're about a quarter of the way through the spend, I think.

One-third of the way through the project in time but a quarter of the way through the spend.

Quarter through the spend and when do you expect to do the leaseback?

We got our tenders in toward the back end of last year, and we've evaluated them, and we are working through the sort of usual contract process; you get enlarged property builds of this nature. So I would say another couple of months should see everything tidied up.

But the structure, Steve, is likely to be one of some cash flow in 2007 under that arrangement and some cash flow in 2008, as the different elements of the project complete.

So different phases of the cash flow then?

Obviously there are beds we can't sell until we complete them. And so that is going to decide that.

Okay. Great. Thank you very much.

Jack Gorman, Davy Stockbrokers.

Thanks very much. Just had two small housekeeping questions. Firstly and then one broader question on labs; firstly just the housekeeping. I think you mentioned previously that your plans were to increase staff numbers by between 500 and 600 [net] for 2007. Just wondering if you are sticking with that. And secondly on the housekeeping and accounts receivable on a year on year basis obviously grew by more than 50%, Ciaran. I am wondering if there are any additional drivers here apart from the typical growth related drivers that you would expect. And the broader question, the final question on labs, I think you may have alluded to it earlier in terms of the capacity and your ability to expand it in the U.S. facility. Just wondering if you have any thoughts or further thoughts on when you might consider further automation of any of the assembly functions or other functions within that site.

A lot of questions there, Jack. Let me take them one by one. On headcount, no change to our forecast in relation to headcount, albeit by the end of the year undoubtedly we will have hired a different number because we either have one more or less business and what we will do on obviously increasing headcount is be in flex in accordance with what our business wins are. So 500 to 700 people per year would be our best guess at this point, but that will obviously be determined by having those things (inaudible) for the rest of the year. We are pretty confident about the state of the marketplace right now. The RFP flow continues to be strong. The awards, in the early part of this quarter continue to be robust. So we would be positive still, and if anything at this point would see the potential for headcount to be at the top end if not a little above what you are talking about there rather than at the low end. That would be the view we have at this early stage of the year.

In relation to I will pass the AR question to Ciaran in a moment but let me go to your lab question. In relation to capacity, as you guys know, I omitted to answer that part of John Kreger's question earlier, so this gives me a good opportunity to answer it. As you guys know at the facility in Long Island is a pretty large facility and while our revenue has grown very strongly, there is still significant capacity within the unit in Long Island. We don't foresee any constraints there if the rate of growth that we achieved in 2006 continues through 2007. By the end of 2007 we might he looking at adding some additional space, small additional amounts of space in some of our areas there including and in particular in kit building. Which leads me into the second part of your question, Jack, which is in relation to the automation of kit building. We are looking at that at the present time; we have some external advisers looking at the whole process and giving us advice as to how we could begin a process of automation of kit building but it is unlikely that any moves in that direction would be in place before the end of 2007. I will pass over to Ciaran now to take that AR question.

I am not really sure, Jack what you're trying to get at there. Our AR is made up of three elements, AR unbilled and net (indiscernible) payments and that balance has gone up 29% over last year in a year when sales went up 33% and DSO at the end of the year was 53 compared to 67 last year. So we are happy enough with really where DSO and AR are at the moment; there is nothing unusual there that isn't just a function of the way the timing of our revenue and business flows.

Perfect. Thanks. Peter, maybe as a brief follow-up, just on the automation questions and you've talked before about a kind of a longer-term target to get margins in the labs business to kind of 12 to 15%. Do you think automation is a prerequisite or elimination of certain elements of the existing operation is a prerequisite to get there?

No, we would feel that based on our current cost base and obviously our current cost base would have to expand as our revenues expanded but in the absence of we believe we could still get to 15% margins, strain on the organization might be great so it is important, the automation is an important step to ensuring that we can retain quality and accuracy in our kit building.

That's great. Thanks very much, guys.

David Windley, Jefferies & Co.

Good morning, gentlemen. This particular questions, and congratulations on the quarter. First one, and this falls into the category of I apologize if I missed it, and that is the percentage of your revenue forecast or the markets revenue forecast that you believe you now have in backlog.

76.

76, okay. And then on headcount you talked about no change to the forecast. Did you mention what the exact ending number on '06 was?

No, we didn't.

I have 4300 --.

Just over 4300, yes.

Okay, and are you seeing -- is the labor market fairly stable? And maybe even more specifically as you talk about moving margins in the U.S. business back up to a more normalized level, are U.S. staff availability issue posing maybe a disproportionate problem vis-a-vis some of the developing countries of the world?

No, I'm not sure I fully understand what you are --.

I guess what I am saying, Peter, is I am assuming and maybe I'm assuming wrongly, but that your billable utilization in the U.S. is probably less of a problem than just revenue on your nonbillable infrastructure from a margin standpoint. Is that fair?

Now you have me really confused, David.

To get the normalized margins it is a matter of putting people to work that are billable but more a matter of having more revenue leveraging your fixed cost?

Sort of. Let me give you color on this. We mentioned and talked through 2006 about the fact that because we were hiring so rapidly and our growth was faster than the U.S. so the most rapid growth was actually in the U.S. That there were very significant costs associated with that in terms of recruiters and training and various support that we have to put in place as we bring in all those people. And that as that slows down, as the rate of growth of headcount in the U.S. slow down some of those costs would no longer be there and therefore our margins would be better. That was the first element of it.

Okay.

But beyond that our margins in the U.S. over the last couple of years have been lower than they had historically been, and our view is the reason that is happening is we're not managing our contract as well as we could, and we are not managing the billability so that is getting to your question -- we're not managing the recovery of all of the billable hours of our people as well as we historically had done. And that is an area that we just need to get smarter at and better at. And the team in the U.S. have a detailed plan as to how they're going to achieve that as we progress through to 2007. But this is not -- the issues that we're dealing with are complex, require a lot of attention to detail and won't all be fixed in 2007. We think the margin improvement in the U.S. will take a couple of years, at least, to reach its fruition.

Maybe asked a different way, where do you think -- and that does help me -- where do you think your fixed cost infrastructure in the U.S. is relative to the size of the business? Is it adequate, will it need more investment as revenue grows in '07 or is there room to grow on the existing fixed cost infrastructure?

I think there is room to grow on the existing fixed cost infrastructure, but to give credit to the management team in the U.S., they have been extremely good at bringing down their SG&A percentage relative to revenues as they have grown. So they are focused on leveraging the infrastructure they have. They are also focused on ensuring that we invest sufficiently in our infrastructure to support the growth in the business, which is a very important factor from ICON's perspective. As you know, quality is very important to us and delivering quality does require that you stay at least in line with the curve if not ahead of the curve in terms of our infrastructure and our support systems. And we have done that.

So again, I am perhaps not answering your question fully, but we think we are well invested in the states. They have been very good at bringing down their percentage of SG&A to revenues overall. John Kreger in his opening question pointed to our gross margin as probably in our gross margin, but the most leverage exists for improving the margins overall in the clinical business particularly in the U.S.

All right and last question, is there from an efficiency long-term efficiency of clinical research staff, is there anything on the, near to intermediate term horizon be it technology or change in trial structure? I am not sure that that would have much effect but maybe adaptive trials, things like that? Is there anything on the horizon that would have a market change in the amount of work that clinical research staff would be able to handle?

I think I gave you the Star Track analogy the last time you asked me this question.

I am going to keep asking it.

I do not think there is any step change or paradigm change that is likely to occur that is going to change the productivity of our billable staff, David. I think it is all about us managing our contracts and managing the billable hours of our billable people is how margins will be managed.

Thank you. Congratulations.

Eric Coldwell of Robert W. Baird.

Actually all of my questions have been asked and answered but Peter I would like to jump onto Dave's last question about gross margin and you went into a lot of detail on that. Very specifically ICON has historically had a theme of dedicated teams, and I've always questioned whether you can generate as much profitability as your peer group in a dedicated team model because perhaps the workforce isn't as productive as they could be if they were spread across multiple accounts. Is there any truth to that, or is it really just more of a function of making sure you are collecting on change of scopes and making sure that you are as productive as you can be with the people at hand?

It is the latter, Eric, rather than the former. The model we've used from the day we began 16, 17 years ago we have found it to be very flexible. It is very flexible, and it is not inherently inefficient provided, as you say, we manage changes of scope and manage our contracts effectively.

Peter, you're not the only company in the space that has had a change of scope issue here in the most recent quarter. And I'm not saying you had an issue, it was obviously a fantastic quarter, but is there something structurally changing in the way customers are outsourcing or managing their outsourcing relationships that -- what is the issue or is it simply that the CRO space has been growing so quickly for the last three years, that there have been some growth pains from the management side?

I wouldn't want anyone to go away thinking this is an issue here.

No. Not at all.

The questions that people have been addressing is how will we enhance our margins going forward? And enhancing our margins going forward is about improving our gross margin. And that is what any company will do to improve its margin is focus on getting greater leverage from SG&A or improving its gross margin. We can always improve our management of our contracts. We can always improve on getting maximum recovery from our billable hours. And the day we stop chasing that mission is the day we've become complacent. So I think it is important to say we are not talking about a change of scope issue here. What I am saying is that we, as we've gotten larger, and this is reflected somewhat in the question, as we have gotten larger and particularly with the rapid growth we've had over the last couple of years we've probably the systems we have and the ways we have of monitoring our contracts and ensuring that all changes of scope are sufficiently, robustly battled for, if I can use that term with our clients, that those things are done. And we probably need to develop our systems a little going forward to be as efficient and as good at that as we'd like to be. And that in turn will help us to enhance our margins.

(multiple speakers) it was a disappointing quarter. It was a fantastic quarter, and congratulations on another good year.

And I don't thing just to finish out that point, Eric, I don't think anything significant has changed in the industry. Outsourcing obviously has progressed as a discipline among our clients. The structure of contracts has developed over that time; increasingly there are units based contracts, and it is probably us learning to adapt to unit space contracts is part of what we are doing and what we need to do better in the future that I am alluding to here. But it is all about our internal management of our billable hours and ensuring that we are picking up all of the units that we are entitled to be charged for and where we are being asked to do units that weren't included in the contracts to ensure that we are discussing those with the client and getting appropriate reimbursement.

Christopher McFadden, Goldman Sachs.

Good morning. Here with Alex Alvarez. Relative, Peter, to the bookings momentum that you've had in central lab over the last several quarters, could you give us your best sense of which of those mandates have come from what we might think as sort of head-to-head types of contract opportunities. And what portion of that bookings have come from central lab services bundled into other types of clinical relationships with the sponsor? And then following up as a second question following up on the earlier discussion, there was I think one of the earlier questions talked a little bit about adaptive trials. And just at a high level I would just be interested in your thoughts on is adaptive trials a topic you are hearing your clients ask more about? Obviously FDA has made a couple of statements on the matter, and is it something that you are adding additional expertise or skill sets around to be able to respond to some of those inquiries? Thanks.

Your first question in relation to lab bookings and bundling, what we have seen over the last year or year and a half is the percentage of our revenues in the lab coming from trials where the CRO is also managing the trial and has risen from about 10% to somewhere around 17% to 20%. We have been making progress in the cross sell of our clinical business and our lab business. But it is still only somewhere a little short of 20%.

In terms of adaptive trials, yes, has been a lot of talk about adaptive trials. Clients are wanting to discuss whether adaptive trials can be applied, but there are very few clients that are yet willing to take the jump and initiate a trial that is based on an adaptive design. We have one or two such trials running currently, but it is only one or two out of several hundred trials that we are doing. I think the keen interest in this, we have expertise. We have very strong expertise within ICON in the area of adaptive trials, particularly among some of our statisticians, and we are in a constant dialogue with our clients in relation to it. But I think it's another one of these ideas that comes forward that holds promise for our more efficient, faster and perhaps cheaper execution of clinical trials. But until the agency's position on such trials and the appropriateness of such design is clearer, I don't think too many clients will be going there.

Interestingly, the European authorities have been somewhat clearer in their position on adaptive trials and if we -- if there is anything we are likely to see, it is some smaller, early stage trials perhaps being designed using adaptive designs in Europe before we see them certainly based on the current position of the relative agencies.

Very helpful. Thank you.

Ian Hunter, Goodbody Stockbrokers.

Good afternoon, gentlemen. Maybe return to the property development in Dublin and I am just wondering whether you could give us an idea you said there are four units being developed. I am just wondering how many of this will be occupied by ICON; what the timeline would be for those being completed and in your possession. And on a sale leaseback of those the timing of that. And I think really basically what I'm after is an idea of the impact it is going to have on the margins of the business, the leaseback element coming into the business model.

First of all just for the clarity of everyone listening in, we are a clinical research company, not a property development company in case anyone should be under any misapprehension in that regard. When I say four units it is the design of the building is there are four separate extensions of the existing buildings that are being built and we deliberately staggered them so that we could grow into that capacity. Our intention currently is that we will occupy all four. And it goes to say that the reason why we've staggered completion of them is to allow us to grow into them. It may be that one of them will be excess space at the time it is built in which case we will look at perhaps a short-term letting of it to a third party. But that is an issue we face in the middle to late 2008 and not before then so it would be too early to make that call.

Your question I think was what impact will it have on margins; again it depends on how the business grows. It could have and should have some small negative impact on margins. But on the other hand the cash coming in should increase our interest income so the net effect on the bottom line will at least be neutral, we believe. And if we invest the capital coming in in acquisitions, then that will flip it back up into the operating line, and we do not know what effect therefore that will have on operations. So again, it is very speculative at this point to talk about what impact it might have on margins. But our expectation is at the very least it will be neutral to pretax earnings and to after-tax earnings.

You just touched on my next question, of course, which was going to be on acquisitions, one of my favorites. You do have a favorite of cash there on the balance sheet and as you say, there will be some coming through again of course offset by the CapEx spent upfront. So I'm just wondering what you're going to be doing with the cash. Is there any thoughts on acquisitions? Is there anything out there at the right price at the moment?

There are many opportunities that we are evaluating currently. We obviously aren't in a position to talk about anyone of them or talk about where we might be in that process. But we have quite a significant roster of potential acquisitions that we are always looking at and that we are currently.

Thanks very much.

Doug Tsao, Lehman Brothers.

Thanks a lot, and congratulations on the quarter. I was wondering Peter or anybody could comment on project cancellations that took place in the quarter. They seem to be up a little bit. They seem very reasonable still, but do you think that -- were these isolated in a couple of projects or was it more widespread? And could any of them have any kind of negative drag on 1Q results?

No. They are pretty widely spread. I am not anticipating that any of them would have any impact on near-term results. The average for the year is 14%; we've always guided that we expect that we would expect calculations to be between 10 and 15. So we are inside that guidance, albeit in the last quarter I think the percentage Ciaran, was it 17%?

17.

Yes, in the most recent quarter yes, it is slightly higher spike. But nothing meaningful really.

Were you affected by any project delays? It seems like a lot of your peers were affected by project delays in the past couple quarters. Did you experience any delays, and if not, what do you think is sort of the reason that you seem to be immune from it?

We are not immune from it. There are plenty of projects that we have that are slower to start than was originally anticipated or that once started are ramping up more slowly than anticipated, but that is part and parcel of our business. And having a robust backlog and having continuing strong business wins is the key to ensuring that that doesn't affect our revenue growth going forward. If they all didn't have delays, we would just grow a heck of a lot more rapidly and thankfully, that doesn't happen. We have a nice balance.

And then again on the hiring, you sort of indicated that you're going to stick to the initial guidance of 500 to 600 or maybe 500 to 700 for the full year. Any sense on how that might flow in the first half, and you indicated when you gave guidance that you were a little ahead of the curve. Do you anticipate some moderation from the 300 that we saw added in 4Q?

Well, again, I think the comment I made on the guidance call was obviously this quarter we just reported growth is over 40% quarter on quarter, and we've guided for 2007 revenue growth of just over 20% or just around 20%. So you would expect that the growth in the first half of the year relative to comparative quarters will be greater, which means that toward the back end of the year the growth we're expecting the growth will slow down somewhat, if the bookings continue to be very strong then it might not slow down as much. And again I think we said all of that on the guidance call. So we wouldn't be changing our guidance in any way at this point, Doug.

I was referring to your hiring.

The two will go --.

Hand in hand, okay.

Because headcount growth has to be pretty much aligned with revenue growth.

And then did you give -- did I miss the customer concentration statistics for the quarter and for the year?

No, nobody has asked that question yet. John, do you want to take that?

It is moderating very well. The largest client is now 9.6%. If I compare with previous year our top five clients represent 35% as opposed to 39%; top 10, 51 as opposed to 61.

Was 61 last year.

61 last year. And our top 25 clients, 72% this year versus 38% last year.

80%.

80% last year and no single client is over 10%; the largest client is 9.6%.

Okay, great. And the final question, do you feel that as you continue to have success in the market that perception of scale in winning studies is becoming less of an issue vis-a-vis some of your larger competitors?

I do not think that has been an issue for us for a long time, to be honest. We are a 4000 plus person organization. We were a 3000 plus person organization a year ago; I think in the eyes of our clients that is sufficient scale for any project they may have. Projects that you hear talked about that are $100 million plus might require 40 or 50 people, or at the outside 80 people to assign to them in a 3000 person organization. That is a (indiscernible) it is easiest, we've got dots on the map all over the world. So I think for the last number of years we would have been seen as just as capable as anyone else of executing on even the largest project.

Okay, great. Thanks a lot.

Orla Hartford, NCB.

Thank you. Just specifically on Phase IV I just want to know about the last few quarters if you've made any significant investment in and Phase IV just in terms of people that you have hired and strengthening the services there? And just then do you have any significant plans for this year?

I suppose the most significant thing we did, was the acquisition of Ovation Research in Chicago, which is a specialist business in late phase clinical research, including Phase IV. A small enough business but the expertise involved in that business was a significant addition to our capability there. So that is the key investment that we've made. And in 2007 we intend to leverage that. So we don't feel that we need to make any more significant hires or investments certainly in the United States, although if a suitable and compatible acquisition appeared in Europe that was synergistic with Ovation, then we would certainly make that.

And just in terms of the split with the new employees from last year within clinical services, just specifically and the split between Phase II and Phase III.

The people that work in clinical research, whether it's in Phase II, Phase III or Phase IV are all the same. They would all have the same qualifications and they are interchangeable for us. So we get an RFP in for a Phase II study today we could be putting people forward on that who are working on a Phase IV study yesterday or who are working on a Phase III study yesterday. So the core skill base of project management and clinical research experience of CRA's have is interchangeable between all of the Phase II, Phase III and Phase IV. Phase I obviously these are specialist units where there are obviously doctors and nurses involved and employed in those, and that is different. But beyond Phase I the staff are perfectly interchangeable.

Fair enough. And then just the cash position, I mean I appreciate that you're spending in Dublin but just with the current cash position would you look at a special dividend in the absence of acquisitions?

No, we wouldn't. We have been fairly clear in saying to people that we have ambitions in relation to quite a number of areas for acquisitions, and at the size that we are now we are not chasing very small businesses, so any acquisitions we make are likely to be of reasonable size in terms of the capital that we would spend on making those. And therefore we could see a couple of acquisitions alone probably absorbing the cash that we currently have. And therefore it would be foolish of us I think to do a special dividend and then find that we are having to raise capital in other ways in order to fund our acquisition activity.

Fair enough. And just actually finally on employee turnover, I was curious to how you specifically manage the risk to minimize disruption and project delays on that front.

In light of the risk of staff turnover?

Yes, just to obviously there is a risk and within the sector and just how you minimize kind of disruption to the workforce and to the workflow and the projects.

I suppose staff turnover has been a feature of our business, and sadly our staff turnover has always been around the 15, 16%. I wish it was lower but the nature of our business and the nature of the people who come and work with us are generally relatively young in age profile. And there's a lot of travel involved in our business, and not everyone wants to spend their career doing extensive travel. So we have an inevitability about people who spend a few years with us and move on. So we manage that by constantly refreshing our workforce through hiring new people; often inexperienced people who we train ourselves. And that builds a loyalty that keeps them with us perhaps longer than the average in the industry. We understand that the turnover levels in some of our competitors would be significantly higher than ours. So I think we've got policies and a culture within ICON that is very supportive of our staff given the nature of our business. And we manage to keep the turnover down to levels below I think the average of the industry, and that is as much as we can do. Beyond that obviously we nurture the people we have. We try to make their careers as rewarding as possible. We pay them as well as we can. We give all of our management, every person at manager level and above at ICON receives stock options, and we have a number of different programs that are involved to try and ensure we have high employee retention.

Very good. Thank you very much.

(OPERATOR INSTRUCTIONS) David Windley, Jefferies.

I am going to see if I can make this one more complicated than the last. Actually hopefully it's fairly simple. A name that hasn't come up on this call for a while I don't think, is Sean Leech. And I wondered in regard to his roles, focus on integrating the various acquisitions that you've made over prior years and getting those kind of different brand operations to cross sell and talk to each other more specifically, can Peter you give an update on that and are you seeing any benefits from that so far? Or are there benefits that we might be able to look to in the '07 '08 timeframe?

I would be very flattered that you had identified him with all of these things. Yes, Sean has been working in that area. Our margins I think at a corporate level here and remind me, have gone from last year --.

10.2 to 11.5 quarter-on-quarter.

And year-on-year were -- I can't remember.

11.4.

The margins of the business, David, are improving. Specifically one of the areas that Sean has been working on the last year is in our staffing business at the MCS business we acquired in New York a few years ago. That coyly I think in the past I might have admitted had not been the most stunning success for us as an acquisition. But in 2006 its performance has improved significantly under Sean's guiding hand and some new management that we brought in. So I wouldn't want to get into too many specifics as to what Sean is doing, but rest assured there is a whole team of people including Sean Leech focused on how ICON can continue to expand its margin.

Okay. Thank you.

Ladies and gentlemen, this does conclude the question-and-answer portion of our call. I will now turn the call back to Dr. John Climax for any closing remarks.

Thank you very much for joining us today. We are very pleased with our performance in 2006 and look forward to 2007 with confidence. We will be conducting an investing information day on March second in New York for which invitations have already been issued to everyone on our database. We hope you will take the opportunity to joining us. Thank you again.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the presentation, and you may now disconnect your lines. Everybody have a wonderful day.