ICON PLC (ICLR) 2010 Q2 法說會逐字稿

Good day ladies and gentlemen and welcome to the ICON plc second quarter 2010 earnings conference call. For your information, this conference today is being recorded. At this time I'd like to turn the conference over to your host, Mr. Brendan Brennan. Please go ahead.

Good day ladies and gentlemen. Thank you for joining us on this call covering the quarter ended June 30 of 2010. Also on the call today we have our CEO, Mr. Peter Gray and our CFO, Mr. Ciaran Murray.

I would just like to note that this call is webcast and that there are slides available to download from our website to accompany today's call. I will now make the cautionary statement in relation to forward-looking statements.

Certain statements in today's call are or may constitute forward-looking statements concerning the group's operations, performance, financial conditions and prospects. Because such statements involve known and unknown risks and uncertainties and depend on circumstances and events that may or may not occur in the future, actual results may differ materially from those expressed or implied by such forward-looking statements.

Given these uncertainties and as forward-looking statements are not guarantees of future performance, 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.

This presentation includes selected non-GAAP financial measures. For a presentation of the most directly comparable GAAP financial measures, please refer to the press release statement headed Consolidated Income Statements (Unaudited) (US GAAP).

While non-GAAP financial measures are not superior to or a substitute for the comparable GAAP measures, we believe certain non-GAAP information is more useful to investors for historical comparison purposes.

Today's commentary refers to our second quarter ending June 30, 2010 and with all of that said, I'd like to hand you over the call to Ciaran.

Thank you Brendan. In the first quarter net revenue was US $224 million compared with $220 million in the same period last year, which represents an increase of 2% in our reported revenue. However in constant currency terms, quarter two 2010 revenue increased by 3% over last year and by 5% over quarter one.

In the first half of the year our top client represented 8% of revenue compared with 7% last year. Our top five clients represented 32% of revenue, up from 24% last year. Our top ten clients represented 51% of revenue compared to 39% last year while our top 25 clients accounted for 73% of our revenue compared to 59% in quarter two 2009.

As we indicated in quarter one, we believe that the percentage of revenue generated by our top 25 clients will increase, reflecting the importance of our strategic relationships.

In quarter two 43% of our revenue was generated in the United States compared to 51% last year, while in EMEA the proportion of revenue grew from 41% last year to 47% this year and in Asia-Pac and Latin America, the proportion of revenue grew from 8% last year to 10% this year. As we've been seeing for some time, increasing amounts of our revenue continue to be generated outside of the United States.

Operating income for the quarter was $25.7 million compared with $29.3 million last year. Operating margin was 11.5% of revenue in quarter two 2010 compared with operating margin of 13.3% in quarter two 2009. The movement in operating margin was principally driven by two factors.

Our gross margin recovered to 41.5% in Q2 compared with the 40.1% we recorded in Q1 2010. It was still down in Q2 2009 when we achieved a gross margin of 43.1%. This was a result of poor trading in our Central Laboratory and early phase businesses.

The lab continues its strong run of new business awards in recent quarters and actually achieved a record level of business wins in quarter two 2010, amounting to $32 million. However, as we have seen in the past, wins in the lab can be slower to convert to revenue and as a consequence lab revenue in quarter two was down by about $2 million compared to last year. This negatively impacted our gross margin by about 100 bps compared to quarter two 2009.

The early phase business improved somewhat on quarter one 2010 performance but still compares unfavorably with quarter two last year as the new translational clinic in Manchester did not become operational until the end of the quarter. The margin impact of this was about 60 bps compared to last year. If you were to exclude these items, our operating margin would have been in excess of 13%.

SG&A in the quarter was $58.9 million or 26% or revenue compared with $58 million or 26% of revenue again last year. This is in line with our expectations for SG&A as discussed previously in our quarter one call.

During the quarter we continue to see volatility between the US dollar, the euro and other currencies. And although the dollar closed at approximately $1.24 to the euro at the end of June, the average rate for quarter two was $1.30 against the euro compared with $1.35 in the same quarter last year. As a result, we saw very little exchange loss impacting earnings. Our constant currency operating margin was 11.8% in the quarter.

Net income for the quarter grew to $22.9 million from $22.8 million last year. Net margin for the quarter was 10.2% this year compared to 10.3% last year while our EPS remained at $0.30 per share in both quarters.

The effective tax rate on quarter two was 11.1% giving a year-to-date effective tax rate of 14%. We expect the effective tax rate for the remainder of the year to continue at broadly the same level that we've seen in the first half of the year.

At the end of June 2010 our DSO was 30 days which is three days better than at the end of March 2010 and a significant improvement on the 49 days reported at the end of June 2009.

We continue to generate cash and our operating cash flow was $35 million in the quarter of which we invested $7.5 million in capital expenditure resulting in free cash flow of $27.5 million, the amount of $221 million of cash in our balance sheet.

I'd like to hand over to Peter now to give you some overview on the quarter and to talk about the (inaudible) environment and the outlook.

Thanks Ciaran and good afternoon, good morning folks. I think the most encouraging aspect of the quarter was the strong new business awards and overall the gross awards were $410 million. And the cancellation number needs a little bit of explanation.

We had cancellations of $60 million which included a $20 million cancellation from a small biotech. These represent about 15% of gross awards and 3% of the opening backlog. On top of that we implemented a new backlog management system in the first half of the year, and as a result of that wrote off approximately $13 million of small residual balances on contracts which had been successfully completed but for which there were some small balances remaining. Essentially this was a backlog houseclean.

Net of these two items, the business wins were $320 million representing a book-to-bill of $1.4 million. And again, as Ciaran mentioned, within that, strong Central Lab net wins of $32 million were included.

So by the end of June our backlog had risen to $1.9 billion and of this we expect $664 million to be earned over the next four quarters which is about 71% of the expected revenue in those four quarters.

On the business development side, RFP volume in our clinical business was up again in quarter two with volumes about 20% higher than in the same quarter last year and in line, that is about the same, on a sequential basis, about the same as last quarter. RFP values were up by 10% on the same quarter last year and by 4% on the previous quarter, on our last quarter. This is encouraging but we remain cautious as decision cycles are still slow.

Despite these positive trends, we anticipate that revenue growth is not going to be as strong as we expected in the second half. Though the backlog is building well, the acceleration of revenue that should -- that this should drive is going to take longer as project startups and patient enrollments are slower than we had planned in all segments of the business. As Ciaran alluded to, the lab, but it's also true in our phase two to phase four businesses. Hence we've made the comments in the press release that we're now expecting our -- to come in at the lower end of the guidance that we gave in February.

Ciaran talked earlier about the margin pressures in our Central Lab and in the phase one business. Those of you familiar with ICON will recall that several years ago we found that strong awards in the Central Lab took a considerable period of time to translate into revenue growth and unfortunately we're seeing that again. We're very pleased with the new business momentum of the lab but we think we'll have to wait another few quarters before we see the rewards.

In phase one we're making steady progress. The new hospital based unit in Manchester is now operational, as Ciaran mentioned, which will significantly reduce our costs as we cease subcontracting to third party units. In Omaha, where we opened just about a year ago, activity is building nicely, while San Antonio is performing strongly again after a disappointing quarter one. We expect phase one will reach break-even this quarter and should return to profitability in the fourth quarter.

There are a couple of other important areas where we are investing for the future that I'd just like to mention. We're seeing more evidence that Japan is being included in global trials where in the past it was bypassed and separate trials were done there. In addition, the Japanese authorities are allowing data from a number of countries within the Asia region for submission in Japan which is leading to more studies being led out of Japan, which include a number of Asian geographies.

This anticipated shift was our rationale for establishing our own operations in Japan several years ago but having reached modest profitability in 2008, we've since been investing further to build more scale there and to add additional capabilities, which obviously has a cost but one which we believe to be strategically important so we're continuing to make those investments.

Similarly, one of our more creative strategic relationships which we've entered involve an upfront investment in new people and new processes which are not immediately recoverable but which we expect will be satisfactorily profitable once optimized. However, we probably underestimated the learning curve and as a result this work will take another few quarters to achieve its targeted margins.

From announcements during the quarter you'll see that we opened our joint venture Central Lab in Tianjin at the end of June and that we continue to add to our scientific and operational expertise with further important appointments. This is an ongoing process as we build science and expertise into the business to respond to the needs of our clients.

In April a new Senior Vice President of Global Quality and Compliance joined us from sanofi-aventis where he held a similar position which underlines our commitment to reinforcing and enhancing quality in the organization.

As we discussed last quarter and again today, 2010 is proving challenging. We're encouraged by the business wins being achieved and we're continuing to adapt to and capitalize on the changes taking place in the industry. We're confident these factors will drive our resumption of growth in 2011.

So with that, we'll end the prepared remarks and hand over now to questions, Tom.

Thank you very much sir. (OPERATOR INSTRUCTIONS) We will pause for a brief moment in order to assemble a queue. Thank you. We will now take our first question today which comes from Greg Bolan of Wells Fargo. Your line is now open. Thank you.

As it relates to backlog, just looking at the growing client concentration over the past year, how are you thinking about managing backlog risk? So as you look out at projected study start dates for projects in backlog, especially the longer tail strategic deals, have you applied more conservative assumptions around how these trials will ramp?

Greg, no I don't think so. I think we're using the same judgment as we've always used. And I wouldn't want to overstate, I wouldn't want people to get the impression that the reason why backlog conversion is lengthening is due to these strategic deals. There's nothing that we've put into backlog that is speculative or that may never start. We have fairly rigorous criteria for what gets included into backlog.

It's probably important to note that in the strong bookings of quarter two there are a couple of relatively large projects in excess of $50 million each that have longer than normal durations. We expect both of them will have a duration of around five years. They might even extend into six years. So that would be one of the reasons why you're not seeing the kind of acceleration in backlog conversion that perhaps we would have liked to have seen.

But other than that, we're not putting in a different type of project into backlog, but as I said on previous calls, one of the aspects of strategic -- of these more strategic deals is we're getting awards a little earlier and we're working with people in the design and planning of the projects at an earlier stage so the point at which they begin to generate revenue is probably a little further out from award than was the case in the past.

Right, right, that makes a lot of sense. And so just with regards to those two particular projects you called out, $50+ million, is it fair to say that the size, the ultimate size over the next five to six years is probably well north of the $50 million that you're putting into backlog today?

No. Again, I want to be clear, these are discreet projects. These are not a promise of a certain amount of work. The two that I'm referring to are discreet projects, studies that will run over that period of time because of the nature of them.

And if you think about what's happening with the regulatory agencies, for example, one of them in particular is effectively an outcomes study and outcomes take longer than a normal randomized controlled trial, so they therefore last longer. And I think we'll see more of such trials in the future as the agency looks for more reassurance on the safety and efficacy of drugs.

Okay, that's helpful. And then just moving on to Central Lab, thinking about your comments around the slow down or slowness I should say in Central Lab backlog conversion, as you're exposure to trials in Asia Pacific and the eastern hemisphere increases, do you feel like the driver there is just kind of the lack or the lack of capacity that the regulatory bodies have over there just in terms of getting clinical trial approvals moved forward and that patient enrollments are therefore more sluggish than you might have expected? And are you kind of -- is this just kind of a time of acclimating that type of environment?

Again, I wouldn't want to point the finger at Asia and say oh, that's why project startups or patient enrollments are slower. I think it's a worldwide phenomenon. It isn't regulatory agencies either. There are some very fast approval times in some countries around the world and obviously slower ones in others. It's a function of the indication.

More and more of the indications that are being pursued for the drugs that are being developed today are more challenging indications therefore review boards, ethics committees perhaps take a little longer to get comfortable with approving the design of the trials. But more importantly, it's harder to find the patients because of the smaller patient cohort that actually fits the criteria that the trial is seeking.

So a combination of factors make it slower to start up but go back to my comment earlier, it's also a function of us being in the game earlier because the award is coming to us earlier because we're participating in the earlier design phase.

Sure, that makes sense. And this is my last question. Ciaran, the tax rate obviously so quite a bit below kind of I guess the earlier projection of 18% for the year, how should we think about that for the remainder of this year? Is the 18% still the right number for the back half?

You might have missed that I actually said in my commentary that I expect the remainder of the year that the tax rate will be at about the same level that we saw in the first six months.

Okay, great, apologize for that. Thanks so much guys.

Our next question today will come from John Kreger of William Blair. Your line is now open.

Hi, thanks very much. Just a quick followup on that, Ciaran, do you think 14% is a tax rate that you guys can hold longer term?

No, I don't. I think what we're seeing now, John, is the fact that we originally implemented a new business model for our tax management strategy back in 2006 and in the intervening period we've increasingly got more certainty around our work. It's been through a number of rigorous audits in various jurisdictions and we are increasingly getting more leverage off it as you get more familiar with it, as it gets bedded down in various countries and there's more certainty around some of the normal uncertainties that come around tax. So we've seen it decrease.

I think our tax rate last year was about 20% and in 2008 it was 22%. In 2007 it was 25%. We had set a medium range target of about 18% to 20%. What we're seeing this year is the fact that we -- some of the old uncertainties back in 2006 that we were required to provide for have been resolved and so they're kind of rolling off the FIN 48 provisions. I think as we look to next year we would be looking at somewhere around 17% or 18% as being the sustainable go forward rate.

But it's still going to take a number of quarters, certainly the remainder of this year to work through some of the uncertainties. There are factors that are beyond our control. It's around just certain things rolling off the statute of limitations in some jurisdictions and in some countries it's about reaching an agreement with revenue and various rates and models and requiring them to audit it and get back to us. So this has been the year where we've made some progress on that and it'll continue in Q3 and continue in Q4.

And I wouldn't preclude that there still might be the odd low quarter in 2011 as well as certain things get resolved, but we're still holding that the 17% to 18% is the long term sustainable tax rate.

Okay. Great, thanks. And then an FX question, if rates stay the way they are today, can you just give us a little bit of guidance on how that will impact your P&L in the third and fourth quarters?

(Inaudible) covered that in saying that our expected outcome for the year, we've endorsed our original guidance at the lower end out of when, I think if we look at Q3, Q2 rather, as a model, and we saw a reported revenue go up 2% and our constant currency revenue go up by only 3%.

At these rates we saw a slight difference between a reported margin of 11.5% and constant currency margin of 11.8%, so the dollar today I think was adjusted at about $1.30, which was close to the average rate for Q2, so if it stays at those levels, I don't expect to see any significant movement or anything radically different from what we saw in Q2.

Okay, great, thanks. And then one last question, Peter, a little bit broader. As you get more and more experienced with these strategic deals, curious how far you think we are along in this process? If you looked at let's say the top 20 pharmas, are we halfway through the process of this kind of strategic partnering or more or less? And have you had any experience yet where one of your clients decides to not go with ICON, what it does to your business flow with them? Does it rapidly turn off or is there a pretty strong tail?

How could you even conceive of someone not choosing us, John?

It's hard to fathom, I know.

Obviously if one has a relationship with a client and they for any reason didn't choose to continue that relationship, the book of business that you had with them would go on because the projects that you're working on don't get transferred to somebody else. That's far too disruptive and far too expensive.

So in any situation like that, I think what you would see would be just a gradual slow down, probably over a couple of years given the way backlog, the length of backlog now. Over a couple of years you would see the proportion of revenues with that particular client gradually diminishing rather than a sudden switch off.

Would you still have opportunities to win business with a client like that or do you feel like the new business would turn on?

I think -- I don't think any client that I'm aware of has become totally monogamous or whatever even if it's down to two or three, whatever that's described as. I think there is evidence around the industry that even when a couple or three strategic partners are chosen, there's still a little bit of hedging of bets. There may be particular expertise that one or other outside CROs might have that enables them to win pieces of business.

So while it's intended to be that all business is concentrated with a smaller number, and that is probably what will happen, practically there are still crumbs that fall from the rich man's table I think even in those situations.

But I'm kind of speculating, it's early days -- it's early days yet and we -- I don't think there's enough evidence around, there's not enough time in these relationships to really be definitive about how they will work in the longer term and how exclusive they will be in the longer term to the chosen parties.

To the first part of your question about how far are we along in this process, it's hard to gauge but I would say maybe half of the top 20 pharmas have done something meaningful and the other half are thinking about it.

Very helpful, thank you.

Our next question today comes from Jack Gorman of Davy. Your line is now open.

Thank you for taking the questions. I had two questions please. You explained in quite a lot of detail the moving parts in terms of your margin progression through Q2. Just wondering in overall terms and given your own visibility at this stage for the second half whether we should view 11.5% I suppose as a trough margin for the year?

And second question really relates to your investment plans. And I know, Peter, you had planned at the start of this year a whole schedule of investments that you were making, essentially investing ahead of the demand curve and you've outlined a couple of them again today. Have you changed your view on any of those investment plans in light of what you've seen for the half two outlook or have you changed the timeline associated with any of those? Thank you.

Jack, Ciaran here. I don't know if I like that question. Do you view the Q2 margin as a trough? Gosh, I think we've been fairly clear on giving a lot of color to results of the quarter, to our take on the factors driving the business, to the movements and change in the strategic market and that's led us to point to us endorsing our guidance at the lower end. So I kind of think that covers it. Smart analysts like you can look at the future results and do the sums.

Margins should broadly be there. I mean, the logical conclusion of what we're saying is that our margin will be in and around the levels that we've seen in Q2. Whether that fluctuates up or down slightly from that depends on some of the specifics that we've talked about. Time will tell as we move forward through the year.

I think we're happy to endorse the guidance at the lower end and that probably gives our feeling on it

And Jack, in relation to the investment plans and your question on that, no, we haven't altered our investment plans. We continue to be very confident, very positive in the outlook for the business and for the industry and we think it's important to continue making these investments. The bookings number in the quarter, the bookings so far this year say that there is business out there.

The way in which it's flowing and the slowness in which it's ramping up is just a function of timing and as long as we can continue to have solid bookings then, as I said, the RFP flow is good, the value of RFPs is up, the indicators behind all of that noise are actually good so we absolutely are continuing to invest according to plan and suffering maybe a little bit of pressure on the margins in the meantime as we do that.

And planning, Peter, retaining staff like you're continuing to retain the same staff that you planned to in earlier calls?

Yes, yes, in fact our head count is up again by more than we had planned. We're hiring ahead of the curve again somewhat and that's a function of when you're getting visibility of projects earlier, you want to make sure that you are getting the people in place to service the business. The one side of strategic partnership is more business and earlier is visibility. The other side of it is delivery and making sure that you've got the resources available when the button gets pushed. So you'll see in our head count numbers that they're continuing to rise.

Super, thank you.

Our next question today comes from Ross Muken of Deutsche Bank. Your line is now open. Please go ahead.

As you think about some of the players in pharma and you said that sort of split amongst those sort of pursuing more of these quote-unquote strategic type relationships or preferred providers relationship, whatever you want to call them, as you've seen them move more kind of in that direction, do you see that there's some correlation between events in their business whether it's things that they're rationalizing at the head count level, things that they're rationalizing or synergy targets they're promising to the street or events that happen from a generic perspective, is there something that you can kind of key it on that is sort of a leading indicator of when potentially discussions may kick up for you or you may see more business or has it been more a function of just sort of as how their pipelines are progressing?

I wish it was all as scientific as that, Ross. No, I think there's an environment obviously across the industry of change and there are some clients, obviously some companies more under pressure than others with patent expiries, but I think all companies across the spectrum are looking at how change affects them and how they should be changing and responding to the change of environment.

So it isn't easy to draw a correlation between the companies that have the most pressure from patent expiries and where the most activity is taking place. It's a pretty broad based phenomenon that is happening at the pace that is workable within each company and depending on how they see it as to how they want to shape their future.

So that's a waffly answer to your question because there really isn't a solid answer to your question.

I guess what I'm getting at is so as we look to that other half of the pie, obviously there's enough business within those who are currently doing some outsourcing and certainly there is some degree of help by them shortening the list and maybe if you can kind of break out between increased outsourcing and if you can, shortening of the typical list as a function of kind of the improved environment from a wins perspective.

But for those who aren't undergoing it, I'm just trying to get a -- undergoing any sort of transition or kind of just waffling and staying with the traditional model, I'm just sort of curious as if there's any sort of common theme in those conversations or potentially there is no conversation being had.

I don't know how to answer the question. In fact, I'm not sure I understand the question.

I guess I'm trying to get a sense for like when you have a conversation or maybe you aren't having conversations with the other half of the players who aren't really aggressively doing anything right now, in terms of the --

Let me just correct that and John Kreger's question I think was how many have -- I think really the question is getting at are there are a certain number of the top 20 companies that have done whatever they're going to do and it's in place and are others who haven't yet. And the answer is I suspect about half have done something and the other half are getting ready to do something.

It's not to say that the other half haven't been outsourcing. It's only, it's changing the way in which outsourcing is done. It may mean more outsourcing, 'may' is the important word there. But it may mean lowering the number of companies, having a smaller number of companies with whom they work. It may mean a more creative way of doing outsourcing and using it and doing exactly the same amount of outsourcing but in a different way.

So there isn't a one size fits all. There isn't a single answer here and maybe the 50% divide, even that is a little misleading so I just want to be careful here that we don't give an impression or start talking down a line that has an implication that isn't there.

Okay, thank you, Peter.

We will take our next question today from Sandy Draper of Raymond James. Please go ahead.

Thanks very much. One question is only a clarification, Ciaran. The earlier comments you made on the 100 basis point impact from the last and 60 bps impact from early phase, was that relative to gross margin or operating margin?

Operating margin, pretty much gross margin.

Operating margin, okay.

In both of those businesses you have a fairly extensive level of fixed cost. The uncertain movements particularly (inaudible) or not in the short term before you have time to realign cost base or take various responses can fall straight through to the bottom line so I was specifically talking about operating margin with those numbers, but it wouldn't be widely different in gross margin.

Okay, great, that's helpful. And this next question, Ciaran, may sound like it's trying to be very picky but I'm trying to ask it in a very general way. When I look at the reaffirmation of guidance but it's at the lower end of the range, as I sort of think about your comments that you just -- that you and Peter said about the early phase in Labs versus the slower rollout of some of the clinical -- the later stage business, how would you categorize taking off the top end of the range? Is this more of an issue from the later stage business coming on a little bit slower, these other businesses impacting it or is it sort of a split type of impact? I'm just looking for maybe a general characterization.

I think it's a split kind of an impact. When we were giving the color on Q2 and some of the drivers in the business, I was pretty specific on the Lab performance and on the early phase performance and as you look out through the balance of the year, we've also talked about the various growth initiatives, about the revenue wins which have been very good and we're very happy with them but they have a longer tail, some of them, and they're not converting as quickly, so a lot of moving parts in what we get to when we opine on the outlook for the year.

So I'd say it's a split function and it's across a number of factors in our best view of them.

Although it's fair to say, it's fair to take from my comments, Sandy, that we're not expecting the Lab to be materially different in the next couple of quarters than it was in the second quarter. In my comments I said that we did expect improvement in the phase one business so infer from that what you will.

Great, thank you very much and I appreciate those comments Peter and Ciaran. I'll jump back in the queue.

Our next question today comes from Steve Unger of Lazard Capital Markets. Your line is now open.

Thanks, hi, good morning. Just first question, Peter, how is the small company environment today or in the quarter or both?

Are you talking about us or our clients, Steve?

Your clients.

Small company, you mean the smaller buyer tags, the small pharmas, the virtual type companies?

Yes.

Definitely more muted when you look at the way in which the data Ciaran gave in relation to backlog concentration and revenue concentration, so he gave it on revenue concentration, you can see that a smaller number of clients are contributing a larger proportion of revenues and I think that's a function of we've now had at least a year and a half of less activity coming from smaller companies.

So I think it's more challenging for the smaller companies and there's certainly less awards, less of our business wins are coming from the small companies and the small biotechs and the small virtual pharmas.

The sense we have is when you look at the RFP activity, there is more activity coming from those types of companies now but it hasn't translated yet into valid business.

Got it. And then if I were to look at your -- the color on the quarter anyway from a customer concentration standpoint was revenues and it went from I believe 24% last year to 32% for the half. What would that number be or what is that number for bookings for the top five?

For the top five. Don't have that. Don't have that analysis data I'm afraid. I can try to get back to you on it.

Does it --?

-- tends to be longer, Steve, and a little bit meaningless in terms of taking quarter two together so it's not a data point we --

Well I was looking at the first half and could I just characterize in the -- because there -- you book business and there's a time lag for the revenue ramp on new relationships that your bookings now exceed 32%?

I think it refers -- I said it Q1 and I said it again today when I was talking about the concentration, that we do see this as the start of a trend where if you draw the logical join the dots on strategic outsourcing, one of those lines will lead you to the fact that as the number of providers are reduced and as more outsourcing comes from the top companies, we will see the concentration metrics change. We said it in Q1, said it again today.

I think we will therefore I suppose (inaudible) in our comment is that bookings will exceed to some extent to say that we don't (inaudible) would exceed the revenue concentration and move to long term. It's (inaudible) that nobody knows where it will actually start.

Okay. And then just my last question, you mentioned that you were -- that you underestimated the learning curve on one of the strategic relationships. I'm assuming it's the Lily relationship, and that it would take a few quarters to get to a target margin. Can you quantify for us what that -- was that a margin drain then in the quarter, what that was, and do you have at least right now sort of a target margin for the company once both the Lily and the Bristol deals are up and running?

The first thing I'll say, we have a number of strategic deals, Steve, so you can't actually assume that we were talking about Lily.

Okay.

And I won't say who we were talking about. Was it a margin drain? No, I think the color that we're trying to give is that it was a slight drain on margin and it wasn't a significant driver versus performance last year or we would have covered it in the Q2 commentary when we looked at the significant drivers of margin change between 2009 quarter and 2010.

I think what we're trying to say here is that we're in times of great change in strategic outsourcing and everybody's learning new models so as we move forward and there will be speed bumps along the way. The good news are the level of business wins, the way the partnerships work in terms of visibility and planning. It just takes a while to get to them.

As for target margins, the Company, I think we've said in recent years that in the medium term we would see a path to 14% in our target margin. We came close to that at various points last year when some of our pieces were working better than they are now. I supposed specifically if you think of the Lab in phase one and -- but we're happy with the business wins in those businesses and we see them recovering as we absorb the fixed cost base through the revenue as those wins convert, so I think 14% is a medium term margin target that we still hold to.

We see a path to it but that path will be very much contingent on improving performance in the Lab and phase one business, working through some of the speed bumps and the timing as the models change, strategic models. And it will depend too on our investment strategy. We've been pretty robust this year in building out our footprint particularly in Asia-Pac but also in some other areas and across the clinical business with the new labs, also the imaging investment in Europe where it has its first European office.

So some of it, the exact timing when I say medium term will also depend on our take on the overall growth in the sector and where that growth occurs. And revenue in the US is much easier. We have our footprint there. Revenue in Europe much easier to deal with. Revenue in Asia-Pac, if the increase comes there it means we're back in the loop we were in in 2006 where we're building footprint. Then it was in Eastern Europe. Now it will be Asia-Pac.

So there are some of the moving parts that are harder to forecast so, but I think the overall 14% holds, just its exact timing will depend on some of those factors.

Got it. That's great color. Thank you.

Our next question today comes from Robert Jones of Goldman Sachs. Your line is now open.

Thanks. Thanks for taking the questions. I just want to go back quickly to the discussion around strategic partnerships. Obviously this has been a major focus across the industry and so far we've seen most -- it seems like most of the global clinical providers have benefitted as pharma narrows its provider list. Could you maybe just talk a little bit about what you're seeing from a market share perspective and specifically how it relates to the more small to midsize CROs out there?

Well obviously there isn't, Rob, there isn't industry data on market share. There's very little data that one can solidly latch onto to make meaningful comments around this. But the inevitable conclusion you have to come to is that smaller CROs must be finding it harder because as the large companies go through the process of -- and again I keep talking about this overused term of strategic relationships, but I probably started using it myself a few years ago so I can't escape from it now.

But as more companies are adopting the approach, whatever that approach is, it is inevitably in virtually every case reducing the number of CROs with whom they work. And the larger CROs are better positioned to take advantage of that than the smaller CROs. So I would suspect there is market share shift taking place from smaller CROs to larger CROs.

There was an earlier question about what are we seeing from smaller companies and the data that we've been quoting here today is showing that the percentage of our revenue is coming from a small number of clients is rising. You could hypothesize that could be two things. It could be that the smaller CROs are aligning with the smaller pharma companies and the larger CROs are aligning with the larger companies.

I don't think that's the case but we don't know. And so we can speculate as that one trend is taking place but we don't have the data to really be certain about that.

Sorry I can't help you more.

No, no, that is helpful. Thank you.

Our next question today comes from Dave Windley of Jefferies & Company. Your line is now open.

Great. I have several. I guess the first one I want to start on backlog. You've seen over the last I believe three quarters about a $50 million increase in your backlog. Your forward 12-month backlog that or your expected burn of that backlog in the forward 12 months has shrunk by about $35 million. And I wondered if that is a function of burning off some of that forward 12 month as each quarter passes and then seeing your bookings gait in later, not having as much of a near term component to them? Or is it also a function of revenue that you thought you were going to recognize in two quarters or three quarters being pushed out?

Hi Dave. Ciaran here. No, it's the former. It's not that we're pushing out revenue or that the things that have been forecast aren't coming through. Our revenue forecast from the existing backlog that burns off have been pretty solid, no more than the usual kind of swings and roundabout and ups and downs but pretty solid.

But yes, what we have seen increasingly over the last number of quarters is the mix that's changing. We're seeing a longer tail on the new work.

Okay.

A longer tail and also slower start up due to --

And --

-- as Peter talked about, being engaged much earlier because of some of the strategic process and just seeing things that maybe before you would have expected to start up within the end of one quarter now moving out two quarters and beyond before the significant revenue burn in from them.

So to clarify on that, not slower relative to an original plan, just slower relative to historical experience. In other words, they're not telling -- the client's not telling you we expect September 1 and then it comes along later and they say no, it's going to be November 1.

No, it's not because when we start our planning process at the start of the year and we make assumptions around where we think revenue's going to be, we're able to forecast reasonably securely off the backlog portion. But we're making a lot of assumptions around actual new business awards, not just the level of the win but the duration of the win and also the location, increasingly where the work will be performed an what impact that will --

Okay.

-- in terms of staff availability and regulatory approval time and things like that. So it's more just the planning assumptions around the future elements.

Okay. On these strategic deals, I guess I'm hoping because I get a fair number of questions about this, but I was hoping you could give us some general insight into how the pricing negotiations play out and I know probably each one is unique. I'm hoping Peter perhaps you could generalize around these things and is -- I presume one of the factors that the client is considering is if I give a certain vendor more work I'm going to expect a little bit better pricing for that work among many other factors, I understand.

But I'm interested in, from your perspective, is it -- do you expect to offset any additional discounts that you might provide with simply better SG&A leverage or would you also expect to be able to offset some of those concessions in the gross margin.

Yes.

Okay. So there's efficiency in delivery. I understand that.

Let me give you a few pieces of color I suppose, Dave. First of all, not all clients do things the same way. Yes, there are some clients that would hope that by increasing volume with a CRO that they could get a better, more favorable price position. One client had a great conversation with not so long ago who said to me we're not buying pencils and therefore just because you're churning out more pencils doesn't mean that you can give us a volume discount because what clinical research is very different to churning out pencils.

So some clients see that the increased volume hasn't got the same sort of impact in a clinical research business as it might have in a manufacturing environment, so not everybody looks for that. There are different ways in which the efficiencies are soft whether it's the way in which the model works. Sometimes the client is looking to get the efficiencies inside their own organization, that they're going to -- that they find they have too many people in their own organization overseeing what is being done by the CROs, and they realize that either the CROs have the experience and the expertise to do what's required or they don't. And if they do, then having a whole army of people looking over their shoulders is not an efficient use of their organization or their time and that's where they're getting their savings from.

Others are looking to cut out some of the processes that are involved in the normal CRO sponsor or the old CRO sponsor relationship and one that's frequently commented on is the bidding and bid defense process and trying to reduce that, trying to reduce the overhead associated with arriving at the right specification or the right prices.

The challenge there is good governance in a lot of companies requires that they do at least validate the pricing that they're getting so that they are not at risk of or being accused of having -- of not having got competitive quotes. So squaring those things -- two things can be challenging but there are various ways in which people are trying to approach that again to reduce costs on both sides so that the whole can be executed at a lower cost.

Within ourselves, within our own organization, there can be a lot of overhead associated with particular ways in which our client interacts with us and by sitting down with them and talking about how the processes could be redesigned and how the processes could be streamlined to reduce the burden for us in managing the client, we are able to give the client a lower price if they can fulfill their side of the bargain and streamline their processes to make the whole more efficient.

Again, I'm being -- I'm giving you different examples. There is no one size fits all here. Each relationship, each discussion is -- has its own features. We talked earlier about the fact that some clients have gone further than others. There are a number of clients who have had detailed discussions about wanting to change the way they do things and have seen how challenging it is and postponed really making radical changes while they investigated further, think about it more and think how they want to shape their organization for the future, because it's not easy.

And in the example I gave of where in one particular case we've made some very significant upfront investments to get up a learning curve, we've discovered just how difficult it is to climb that learning curve and get the efficiencies that we know are there but getting them delivered, making sure that our organization and the client's organization can adapt to enable them is quite a challenging process. But it's good. It's good for the industry. It's good for us and we're going through a period of profound change in the industry which I think will be positive for CROs in the long term but there are, as Ciaran says, bumps along the road.

Thank you. That's very helpful color. So sticking with some of these broader relationships, my understanding from some discussions is that some clients are as interested or maybe even more interested in certainty around what their expense is going to be. In other words, they outsource a program and it's $100 million bid and they know that $100 million is the number without change orders and without or not material ones and in to square that circle, they turn over more responsibility to the CRO around those things that can lead to change order so you have more control. You do the planning. If they -- if those things move, that's your risk, not the sponsor's risk.

You mentioned in your prepared remarks that slow enrollment was still a factor. I'm wondering how that country selection and site selection and things like that, those processes for which you now are probably taking on more risk, how that plays into your thinking.

Again, the final statement you've made there assumes that the model of fixed prices essentially, as you're talking about, is widespread and it's not yet. There's a lot of talk about it, but the challenge of true no change orders, therefore certainty of price, is around the elements that that requires the CRO to have control of. We can't be held accountable for example for a regulatory agency that doesn't like the tox package associated with a proposed drug that's going into studies.

We can't control quite a number of variables in the regulatory environment today. Many companies don't want the CRO to have exclusive or control over the choice of the sites that will be used in the study because for marketing reasons or other reasons they want to include sites that they're familiar with. And so the factors that enable a truly fixed price haven't -- are very difficult to arrive at and therefore fixed price contracts are the exception rather than the rule as we see it today.

I think everyone wants to get there but the change that is required and the modification to how the pharma companies see the conduct of trials and the control they have over it has to modify very significantly to turn that aspiration into a reality.

So I guess that that's my answer to your question. It's something that everyone wants to do. There's one or two companies have tried to embrace it. There are many that have looked at it and said no, that's not the way we want to do things. So it's still something that is in development.

Okay. I'll ask one more question and drop out. Your -- you -- we've hit on client concentration, revenue was relatively flat, concentration increased as you had predicted, so I'm wondering about the flip side of that coin. Who is -- what's the profile of the client that is declining in the revenue mix or perhaps even dropping out of the revenue mix and was that typically better priced or worse priced business in the past? Was it more crosshold business or less crosshold business for example? I'm curious about those folks that are no longer in the mix.

Well again, going back to some of the earlier questions and some of the answers. The level of activity with smaller companies, particularly the virtual type companies that have no revenues has declined, so as you see that concentration rising, what you're seeing is less revenue coming from smaller biotechs and small pharma/virtual pharma.

Does that work better priced? I don't think there's a simple answer to that but on broadly, yes, where the larger companies, where we would have had preferred provider agreements or some such agreements in place, probably we'd have been giving preferential rates to them anyway, so the pricing on those smaller pieces of business would have been slightly better, but they often are more complex to deal with because they're small companies. They don't have an infrastructure and it doesn't always work out as better priced means better profit. So I wouldn't see that as something that is concerning us or worrying us.

In terms of the cross-selling question, there's no doubt that in the past the cross-sell was easier with those virtual type companies because the idea of only having to use one vendor and only having to manage one vendor was attractive to them but one of the aspects of the much misused term, strategic partners, partnerships, is that many of those companies are seeing the benefits of a single vendor. Some of the savings that I talked about earlier in terms of less overhead in their organizations can be derived by working with a single vendor. So the level of cross-selling that we see in the organization if anything is rising at the moment.

Great, thank you.

Thanks for your patience.

-- to comment on that observation. Because the proportion has changed doesn't necessarily mean that there's been a significant drop out or those customers that you profile are having dropped out of the wins. We have $410 million of gross awards in quarter two and compared to say $320 million in Q1 and $260 million in Q4 so what you see change in there is also the proportion, that you could have the same amount of business coming from smaller companies in the quarter but because the gross wins have increased by say $150 million compared to Q4 it kind of distorts that concentration metric.

Right, but the concentration numbers that you gave are on revenue which was actually 2% different year-over-year so the revenue is relatively flat. Your concentration in that revenue increased pretty dramatically so in fact somebody did have to shrink.

As a proportion, yes.

No, in absolute numbers.

Okay, fine. Move on.

Our next question today will come from Tycho Peterson of JPMorgan. Your line is now open.

Good morning. Most of my questions have been answered. I just wanted to probe a little bit on some of the recent acquisitions you've done and your appetite for M&A more broadly. Can you just comment on the medical imaging business, how the [tenactel] has done and how you can kind of leverage that with your existing portfolio?

Hi Tycho. The (inaudible) was pretty small deal when we did it. It was a business with a couple of million in revenues so it's going to take a little bit of time to grow it into something significant that will move the needle. The leverage in the business there really is just about taking the service offering that we have in the US that works on certain global trials and put it in an infrastructure in Euros that will support at project management level more closely what they do so it's going to take some time to build that up. That's a slow burner.

Can you talk more broadly to your appetite for M&A right now and to the extent you have obvious gaps in the portfolio, how actively you're looking to fill them?

We're pretty active, Tycho. Obviously the balance sheet's in good shape. There are, I mentioned, we're trying to grow in Asia but our focus there is organic but we've done a couple of alliances in Asia that way -- as everyone knows that's the way things often work in Asia, that you work -- that you begin with a relationship and who knows how that might develop in time so that's one area.

But in phase one and in Labs we're continuing to look for opportunities in the staffing business. We're continuing to look for opportunities. We've been getting good growth in our clinical staffing business. Again, the economic environment and the changes that are taking place in the industry are probably favorable to the growth of that type of business.

And we're looking in other aspects of services that support clinical research and some of the changing shapes of clinical research so in late phase and post marketing and the post marketing area we certainly have an interest in building our scale there and adding in services through acquisitions so we have a pretty active search going on.

And then one last one with regards to your comments a minute ago on Asia, is this something you're seeing more requests from clients with regards to having a footprint there or are you trying to kind of build ahead and have a footprint there with the idea that the business will move there naturally over time?

There's a lot more interest in Asia and there is evidence of the interest being translated into actual activity. We've had our first couple of global studies where Japan is one of the countries involved in the global study as to being -- as opposed to being a separate country doing a separate set of studies for that particular compound.

So the reality is what we're following as opposed to the build it and they will come approach, although with so much focus on Asia at the moment, there has to be a certain amount of builders and they will come as well, so it's a combination of the two.

We don't want to over react. We don't want to knee jerk our way into doing rapid things there, hence alliances are an interesting avenue for us as we build our offices, as we grow our head count there and we have a variety of different approaches to building scale in Asia.

I'm a bit of a -- I have to say I'm a bit of a skeptic or a cynic myself on this because when I joined the Company 14 years ago, eastern Europe was the hot new thing. It was still the hot new thing about three years ago. India was the hottest hot new thing about three or four years ago and now Asia is the current hot new thing. So the focus of the industry on large population bases, large potential nave patient pools has been shifting for a considerable period of time and it takes a long time to translate that talk into real action on the ground.

It's interesting, Ciaran quoted at the beginning of the call that the proportion of our revenues coming from Latin America and Asia grew from 8% to 10% in the last year, so that's evidence of shift towards the emerging markets. But let's see it in its context. It's 8% to 10%, 90% of our revenues are still being generated in Europe and in the United States.

So we are -- we're very interested in ensuring that we increase our footprint in Asia. We think Asia will be increasingly important in the future. The Asian market for pharmaceuticals and particularly China, the Chinese market for pharmaceuticals is predicted to grow very strongly. We expect that clients will be emerging more and more from that region. We already have a number of clients in China and in other parts of Asia and of course many clients in Japan.

So we're building as we have built the Company in the past on a step by step organic basis with alliances and small acquisitions tucking in behind that to supplement it.

And then just lastly I guess on a competitive landscape over there, do you envision longer term, more competition from local CROs within -- specifically within China or how do you view the dynamic between them and the multinationals?

I think you have to recognize that there are different types of CROs just as there are different types of accounting firms and different types of law firms. The global studies which are being -- a major study being executed across 30 or 40 countries, the ICONs and the Paraxels, the PPDs and so on, have the infrastructure to support those. The Tigermed CRO in China has the capability of executing clinical trials in China but is not going to be in the market for a global clinical trial.

ICON has had the strategy over the last 15 years of pursuing global work, multinational work, not trying to chase local work where local CROs will be more competitive than we are because they don't need the same level of infrastructure as we do.

The exception to that 10 years ago was the United States, which was a local market but it was a hell of a big market and therefore one of course saw work in the US. I think China will be the same. I think there will be local work for the Chinese market that will be worth pursuing. We are trying to build our position in China to be prepared to participate in that. The alliance with Tigermed is to help us strengthen our position in that market but in time I think certainly China will become a market where we do pursue in-country work.

But there aren't too many other markets where we're doing that. Most of the time we're concentrating on global opportunities.

Okay, that's helpful. Thank you.

We will take our next question today from Todd Van Fleet of First Analysis. Your line is now open.

Good afternoon guys. I just wanted to give you a chance to talk about the bookings activity in Central Lab. I know historically given the way the customer mix has been shifting for the Company over time here, historically it seems like the Central Labs has been focused on maybe a smaller midsized customer so I wanted to give you the opportunity to talk about your sales, marketing initiatives to maybe your larger customer base in that segment, cross-selling initiatives, that sort of thing. Thanks.

Thanks Todd and yes, you're right, the Labs traditionally has had its customer base in the midsized company arena. Part of its acceleration and bookings is driven by a couple of relationships with larger clients. As I mentioned a few moments ago, the new relationships, the new types of relationships that we're developing -- I'm trying to avoid using that strategic word now --the new types of relationships that we're developing are creating more opportunity for cross-selling and the Lab is participating in that.

So the shape, again, of their bookings is altering somewhat and we are seeing well known household names on the list of clients with whom they're achieving significant bookings numbers.

Again, as Ciaran mentioned at the beginning of this call, about five hours ago it feels like, we've booked $32 million net in the Lab in the last quarter. That's a record for the Lab. They once before just got over $30 million in bookings so $32 million last quarter was pretty satisfying and that was after a $25 million - $26 million quarter the quarter before.

So we're very pleased with the progress that they're making. The offering that they have, their focus on more science has -- is paying off. The building of a global footprint over the last couple of years is paying off. There's still a long way to go but it's good to see and it's encouraging to see the way it's developing for us.

You know, Peter, just I guess a general question. It seems like that the Company is going through a pretty significant period of transition at this point. Obviously the macro factor is affecting the industry but it really seems with ICON in particular that there's a fair amount of transition going on inside the Company throughout the course of this year.

Is there a point or maybe a time frame by which you think the Company generally should have better visibility and less volatility perhaps or at least a reduction in the number of factors that can affect the quarterly results one way or the other? I guess as I think about it, we're kind of getting the worst of both worlds here from the perspective that we have pretty low top line growth for a variety of reasons. We have margin pressure again for a variety of reasons but at some stage here we're going to see the other side of this and so I'm just trying to get a sense as to how management is thinking about the evolution that's occurring in the industry and then its effect on the Company.

It seems like we're certainly going to be through this period of transition or at least going through it throughout the course of 2010 with the potential to bleed into 2011 a little bit, but 2011 we should start to see some runway, but I just wanted to get your sense as to how you guys are thinking about it.

You've summarized it nicely there Todd. I wouldn't characterize it as a period of massive transition in the Company. Clearly a couple of the businesses are suffering the hangover of weak enough bookings last years, particularly the Lab.

I'll be honest, we've been surprised by the Lab and the extent to which its revenues have disappointed. That surprises us a little and the phase one business hasn't been a surprise. We made a decision last year in relation to Manchester. We've been sucking up the pain there for the last 12 months essentially as we transitioned out of the old facility and invested in the new facility so we had to pay for a third party facility while we were doing that.

And at the same time last year we were committed to making an investment in expanding our capability in phase one so we bought some assets in Omaha and we've taken the pain of losses as we restart a business and begin to get a volume going back through it again.

So there are specific factors. There are actually decisions we made. The Lab, if we were making decisions to invest in it, the fact that its revenues have disappointed is a bit of a surprise but the bookings are very encouraging and we think we'll get that one back on track okay, saves one business. Very deliberate decisions made last year that we're working our way through right now.

And the strategic relationships and the bookings, the industry generally has gone through, I suppose, an 18 month period where it's challenging and bookings are slow to come or they're slower to start. I don't think we're unique in that respect. But what we're doing is we're focusing very carefully on what are the things that we need to change in our organization.

How do we adapt to a much different environment to the go-go times that we were enjoying up to the end of 2008, and if we're communicating a sense of transition and so on, yes, we're certainly looking very closely at how we're running the Company and one of the things we need to do to improve performance in the Company.

Then in some respects we're too honest. We're giving you a heck of a lot of color here about what's moving the margin. We could have just come on the call and said well, margins are down. It's tough. Revenue hasn't grown and it'll be all right next quarter or next year. What we're trying to do here is share with you the various moving parts of the organization, give you a flavor of what's causing it and more importantly give you a sense of how that can improve and should improve.

So our view would be 2011 will be the resumption of growth. The business requires revenue growth to achieve the improvements in margins and to get some of the underperforming parts of the business performing better, particularly in phase one and the Lab. It's all about throughput.

So as we drive those through, we would expect t6o see improvement in performance but unfortunately, it looks like it will be 2011 rather than 2010 as we'd originally planned before that becomes a benefit.

Thanks guys.

Our next question today comes from Ian Hunter of Goodbody Stockbrokers. Your line is now open.

Good afternoon gentlemen. I was just wondering maybe a couple of questions. I was wondering if you could give us an update on your interaction with the FDA on last year's warning letter.

And secondly maybe, Peter, you said that it's possible your new backlog management system, (inaudible) cancellations coming through was a write off of $30 million in small bits and pieces and I was just wondering if you could give us a sense of what this was made up of. Was it work that was completed and it was just a couple of million maybe not paid over at the end or one of the smaller contracts that were running through and were going to start and then didn't?

And maybe a breakdown of was some of that Laboratory business that was actually in there and you decided it wasn't going to clear license or revenue?

Okay on the last part of your question, no, it wasn't Laboratory business. The new backlog management was primarily focused on the clinical business.

And in my comments maybe I didn't make it entirely clear, Ian, as well, contracts that are satisfactorily finished, satisfactorily completed but there were small values left on the contract that couldn't be billed because we didn't -- there was some element of what the contract contemplated that didn't have to be done and therefore we didn't bill the client for it, so it was the writing off of residual balances on contracts that had been successfully completed.

Okay, that's great. And then -- that's just like a one off. That's been done. You're into the new system now so we won't expect that coming off there through any other sales.

Heads are being nodded as we (inaudible). Yes, that is correct.

I suppose we'll identify the same issues, Ian, but it will happen on a quarterly, real time basis and be absorbed in a small amount each quarter whereas this number reflected in Q2 was a build up over some period of time where we were unable to get sufficient analysis on it easily.

Okay, that's fairly clear. I was wondering what the situation was with the FDA, your interaction with them.

There's no real update there. I think as I said on the last call, we submitted a -- what we hope was a comprehensive, certainly a significant response to them back in January to the warning letter that they had issued to us, as you say last year. And we have not had a formal response from them to our response back in January.

We have had a number of discussions with them, various communications with them but as yet no response to our response. And we're not reading anything particularly into that Ian. Obviously our feeling would be if were it something that was of very high importance to the FDA, we possibly would have heard from them before now.

It's probably worth mentioning that we said at the time of this that we had over the years many regulatory audits. We've had an FDA audit since the letter was issued. We had an FDA audit in the last quarter in fact in Pennsylvania where it went fine. There were no observations from the FDA auditor so we continue to operate successfully. Obviously our bookings would suggest our clients are reassured as to the quality that ICON delivers but we continue to hope that we can work through with the FDA closure on the warning letter that we received, although there are indications, there are plenty of examples of situations where warnings letters just don't get closed out for one reason or another.

In our dialogue and conversations with the FDA they have indicated that there are many instances where because the circumstances occurred in the past, it may not be possible for them to close out on the specific issues and therefore we're still hopeful that we can reach some type of a conclusion with the FDA but at this stage we don't know more than we did last quarter.

Okay, that's fine. Thanks very much.

We will take our final question today from Douglas Tsao of Barclays Capital. Your line is now open.

Thank you. Good morning. It feels like it's afternoon already. Just quickly, in terms of the decision making with your comment that it continues to be slow, obviously this is a condition that's existed for some time now or several quarters. Are you seeing any patterns in the kinds of studies that might be getting awarded more slowly than others? Are there some studies that are getting awarded fairly expeditiously although there are others in which sponsors are really sort of dragging their feet?

I think probably due to exhaustion, Doug, I'm sure I have an answer to that question. No, is the -- I can't say that I can discern a pattern though I don't want to waffle on and say a lot of words that mean nothing so the simple answer to your question is no, I don't see any pattern.

Okay, and then just one other question. In terms of the winds that you're getting in terms of your strategical relationships, are these largely for just getting more of the same kinds of work that you've gotten in the past or are you getting different types of work and perhaps what you would characterize as higher value work?

No, a lot of it is the same type of work as we've got in the past. Maybe the way in which it is executed, maybe the way in which we participate in its design is different and as I've mentioned many times, being involved in the earlier stage of planning and design can assist in execution but it also can mean that you get an award early on and the net result is the actual execution of the revenue flow will be further out in the future because of the extra steps that have to take place once through planning and so on.

But the type of work is pretty much the same once that planning and design is done. As I mentioned also in my comments, there are some more creative types of approaches being taken that are not the same as what we've done in the past and those take a bit of a learning curve.

Okay, great. Thank you very much.

Thanks Doug.

As we have no further questions at this time, I would like to turn the call back over to Peter Gray for any additional or closing remarks. Thank you sir.

Okay, folks thanks very much indeed for listening. That was I think we've set a world record certainly for our conference calls. I've never been on one this long before. We're very pleased with the Company's performance in the first half of 2010 and the growth in earnings per share that was achieved in difficult circumstances. In particular we're encouraged by the stronger bookings and what appear to be improving market conditions.

We remain positive though cautious as we look forward to the remainder of the year and begin to think about 2011. Thanks very much indeed.

Ladies and gentlemen, this will conclude today's conference call. Thank you for your participation. You may now disconnect.