ICON PLC (ICLR) 2012 Q1 法說會逐字稿

Good day and welcome to the ICON Q1 2012 results presentation conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Sam Farthing, Vice President of Investor Relations. Please go ahead, sir.

Thanks, Gwynne. Good morning, good afternoon, ladies and gentlemen. Thank you for joining us on this call covering the quarter ended 31st of March, 2012. Also on the call today we have our CEO, Ciaran Murray, and our CFO, Brendan Brennan.

I would just like to note that this call is webcast, and that there are slides available to download on our website to accompany today's call. I will now make the customary 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 statement whether as a result of new information, future events or otherwise.

In addition, the following commentary specifically excludes restructuring charges taken in quarter one 2011 amounting to $5 million. These charges relate to lease write-offs and headcount reduction costs.

As noted, this presentation includes selected non-GAAP financial measures. For a presentation of the most directly comparable GAAP financial measures, please refer to the press 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.

We will be limiting the call today to one hour, and would therefore ask participants to keep their questions to one each, with an opportunity to ask one related follow-up question.

I will now hand the call over to Brendan.

Thank you, Sam. Good day, ladies and gentlemen.

In quarter one 2012, net revenue was $252.3 million, compared with $229.3 million in the same period last year, which represents an increase of 10% year on year. Organic constant currency growth was $21 million, or 9%. FX had a negative impact of $4.2 million, so constant dollar revenue was $256.5 million.

In quarter one 2012, our top line represented 13% of revenue, in line with 2011. Our top five clients represented 43% of revenue, up from 37% last year. Our top 10 clients represented 59% of revenue, compared to 52% last year, while our top 25 accounted for 77% of revenue, compared to 69% last year. We continue to expect client concentration levels to increase in the short to medium term, given the shift towards deeper partnerships with our clients.

In quarter one, 57.3% of our revenue was generated from outside the US, broadly in line with last year. Our Asia/Pacific and Latin American regions' revenue was 11.7% of Group revenue, compared with 12.1% for 2011. This modest shift back to the US was predominantly driven by acquisitions during 2011. The absolute dollar amount of revenue from our Asia/Pacific and Latin America territories continues to increase quarter on quarter.

Our staff levels reached approximately 8,670 by the end of quarter one, up 205 from the levels reported at the end of Q4 2011. A large proportion of this increase related to the two acquisitions announced in quarter one, BeijingWits and PriceSpective.

We continue to see leverage on the investments in staff we made in the middle of 2011. Gross margins increased to 35.7% in the current quarter, up from 34.8% in Q4. SG&A amounted to $67.5 million in the quarter, or 26.8% of revenue. This compares to $67 million in Q4 2011, or 27.6% of revenue.

Depreciation and amortization was $10.8 million, which includes approximately $2 million related to acquisition related amortization. We would expect this quarterly amount of D&A to continue through the course of 2012.

Operating income in the quarter was $11.7 million. Operating margin was 4.7%, compared with 2.7% in Q4, driven by the aforementioned improvements in both gross margin and SG&A leverage. We expect to see incremental improvements in both these metrics, as we progress through 2012, and continue to target Q4 2012 margins in the range of 8% to 9%.

Interest charge was $37,000 in the quarter, consisting of interest income of $379,000, and interest expense of $414,000, which includes $236,000 in relation to non-cash finance charges associated with the contingent consideration on acquisitions. On average, I would expect a net charge each quarter of between $50,000 to $100,000 on the interest line as we progress through 2012.

The effective tax rate in quarter one 2012 was 23.3%, which, whilst a reduction from the 30% tax rate in Q4, was still higher than usual. The tax rate is currently evaluated -- sorry, elevated, due to the geographic mix of profitability in the business. We would expect our tax model to produce a similarly elevated rate in Q2 before reverting to the higher end of our targeted 18% to 20% rate in the second half of 2012. We continue to expect our longer term average tax rate to be in the 18% to 20% range.

Net income in the quarter was $9 million, equating to EPS of $0.15. At the end of March, 2012, our DSO improved to 37 days compared to 47 days at the end of December 2011. This was driven by better than expected collections during the quarter. Whilst we will continue to see quarterly volatility due to the timing of payments, given the contractual terms of our key partner relationships, we continue to expect our DSO average, over time, will remain in the region of 50 days.

Operating cash flow generated in the quarter was $61 million, elevated due to the improved DSO. CapEx for the quarter was $6.5 million. At the end of March 2011 (sic -- see corporation presentation), net cash was $186 million.

I'd now like to hand over the call to Ciaran, to talk about the business environment and our strategic plans and outlook.

Okay, thank you, Brendan, and good day, everyone. I'm very pleased to report that our gross business wins in quarter one was $485 million, and that's a record number of business wins in a quarter for ICON. Particularly satisfying is that these awards included two significant awards from outside our strategic partnerships, and I believe they arose from our successful differentiation strategy around our enhanced services and informatics offering.

As you know, we acquired Firecrest midway through last year, and combined with our internally developed Iconic system, we think we've constructed a differentiated service offering that can drive faster recruitment, better quality, and more efficient monitoring of clinical trials.

Cancellations in the quarter were $100 million, within the 3% to 5% range of opening backlog that we target. Net book to bill was just over 1.5, and the backlog at the end of the quarter was $2.4 billion.

In terms of the business environment, we continue to see satisfactory demand across our client base. RFP value in quarter one was up 8% compared to the same quarter last year, and up 9% on a sequential basis.

We also continue to see engagement by senior executives from a broad spectrum of biopharma companies, exploring how they can work with ICON across our services to transform their development model. There continue to be a number of significant discussions in this regard.

While we are achieving significant levels of new business awards, we do remain focused on driving leverage from our cost base, and efficiency across the service offerings. We saw a sequential improvement in both gross margin percentage and SG&A leverage in quarter one, and see this as a step towards reaching our normal levels of profitability.

I am pleased to note improvement across all of our divisions in this regard. As Brendan said, we continue to target a range of 8% to 9% operating margin for quarter four 2012, and then further expansion in 2013.

All of our businesses have performed in line with expectation in quarter one, and I would like to draw attention to a couple of specific matters. Our Central Lab is building on its return to profitability. It posted gross bookings of $32 million in the quarter. We did have one significant cancellation, so net bookings were $16 million. However, operating margin increased in the quarter to 8% on revenues of $19.4 million.

Our early phase business broke even in quarter one for the first time since Q1 2009, as it continues to drive increases in revenue and to control its costs. We also announced during the quarter that Roche has chosen to use our medical imaging system, MIRA, as its global repository for medical images.

We're not making any change to full year guidance. The business wins in the quarter were excellent, and include two significant studies, as I said, but these studies have longer than average duration, so we expect the backlog (burn rate to continue to be in the range of 11% to 11.5% for the remainder of the year. Our backlog continues to provide 76% coverage of the next 12 months' revenue expectations.

We've made notable progress over the past two quarters in driving new business awards and setting us on the path to return to our target profitability. The passion and the commitment of the whole ICON team has made this possible, so I would like to say thank you very much to all of the ICON team worldwide.

At this point, I will hand back to the operator and take any questions. Thank you.

(Operator instructions) We'll take our first question from John Kreger from William Blair. Please go ahead.

Ciaran, if you think about your current business mix, where do you think your EBIT margin can get back to? Do you still think you can get back to the sort of 12% to 14% range, and if that's feasible, how long do you think it will take to get there?

I do think we can get back to that range, John. It's about continuing to drive increases in the top line, and get leverage from the staff investments we've been making, and at the gross margin line. It's about leveraging -- the leverage the cost base for SG&A off our global business services model. So I do believe we can get back there. That's what we've been saying very publicly for some time.

On timing, I haven't changed my estimate of when we get there. The target for this year is to get to the range of 8% to 9%, and then to increase gradually to 2013. I would expect at some point to 2013 to approach the, certainly the bottom end of that target range, and then beyond that, we'll just continue to build on the business, to tweak the enhanced service offerings we have, to use informatics to drive more efficiency.

So we haven't really changed our outlook on that, that we would have articulated since, I suppose, the back end of last year.

Great, thank you. And then a quick follow up. What do you think a steady state operating margin can be for your Central Lab and Clinical Pharmacology businesses, assuming they continue to grow?

The Central Lab, I think, will move towards double digits during the course of this year, really, by increasing revenues through the fixed cost base and the incremental contribution from that. And I think at the scale that our lab is at, if I look forward, somewhere around that low double digit margin is probably a realistic expectation. We will continue to invest in that business. It's become an important part of our strategic account offering and our range of services. I think, as we see the market grow over the next couple of years in territories where our footprint isn't as strong in the lab, I think we will all see the need to invest, and particularly, I'm thinking of Asia/Pac to add to our capacity there in line with growth in the market.

So, I think double digit, low double digit margin while investing in the long term health of the Central Lab business is what we would expect to do, and what we would try to achieve.

On the early phase Clin Pharm business, it broke even in Q1, which was a tremendous milestone after some of the difficulties that it's had over the last few years. It has grown its revenue base. It signed a number of significant strategic accounts, which give some consistency to the flow of business. However, I think it's fair to say all of us thwho've worked in this business for long enough are wary of the level of volatility that you can get in the Clin Pharm business. It's like running a hotel business. We've a large fixed cost there. We provide the facilities. But it's not like a late phase business, with a big long duration backlog. Business tends to come in and start up more quickly. It is more subject, due to the inherent nature of some of the medical research in the first in human and drug availability and regulatory and ethical matters, it can be more volatile.

So I think it will continue to grow. It will move in this year towards profitability, but at modest levels, and it will still hold a little bit more volatility risk than some of our other businesses.

Great. Thanks much.

We'll take our next question from Tim Evans from Wells Fargo Services. Please go ahead.

Hi, thanks. Could you maybe just talk about what is causing the geographic shifts that are impacting your tax rate, and why you expect them to go back to -- to normalize?

Yes, of course, Tim. I mean, really, the function of tax rate is a function of where you were in your revenues, and the more revenues that we earn, given the tax model we have in place, the greater element of that comes into lower taxed regions.

And so, effectively, as the profits go back up to what we say would be historical levels, what Ciaran was talking about there, into the 8% to 10% -- 9% range that we talked about, we would expect that -- and again, no more -- even normalized structure in terms of how we would generate operating income. So the operating income would then go -- fall -- or, the additional or excess operating income would then fall into the lower taxed based countries.

And hence, you see where our margins are low, we're paying more tax in the high tax regions, the (inaudible) comes back. What effectively happens is, you're paying actually more of your profits in the lower taxed regions, and hence, the overall effective tax rate comes down.

Yes, okay. Could we just sneak one in on the headcount? It was a little bit lower than I was expecting. And given that most of those were acquisition-oriented, did you slow down hiring in the February-March timeframe? And is that something that we should expect to continue to stay low throughout the rest of the year?

No, Tim, we didn't particularly slow down hiring or do anything differently from our normal state of hiring. I think we all look back to last year, when -- in the first part of the year, we held excess levels of staff in anticipation of some onboarding of significant strategic work which we had expected, and then we hired very aggressively in Q3 for the ramp of that work, due to the particular structure of it.

But beyond those kind of unusual circumstances, we hired in line with forecast revenue, so -- and when we look at quarter one, we can see that the first place we start, we look at our staff, we look at the geographic mix of where people are, we look at where we can get productivity enhancements. And then, you know, in any quarter, some projects start up and some projects roll off, and we had a number of big enough projects rolled off in Q1, and therefore, it made staff available that could be absorbed into working on the new projects.

So it wasn't so much a conscious decision to slow up hiring, but we hired the right amount of people for the revenue that we had in Q1, and for the increase in revenue that we expect to have in Q2. As we look through this year, we are expecting to grow our revenue fairly significantly, quarter on quarter, in line with our forecasts. And as we do that, we'll have to make sure that we continue to hire in line with our forecasts.

So, it would really be that linear function of growing revenue. We'll need growing headcount. But we are conscious of getting leverage on our cost base, of deploying new technology where we can to help our productivity, and those are the factors that drive headcount growth.

Okay, thanks.

We'll take our next question from Steve Unger from Lazard Capital Markets. Please go ahead.

Hi, good morning. Can you hear me?

Yes, we can. Yes.

Oh, thanks. You know, Ciaran, you made a comment earlier in the presentation that I just wanted to elaborate on. It is the fact of the IT platform with Firecrest is differentiating yourselves in the marketplace, and allows you -- you know, enables faster recruitment. And I was wondering if you could just elaborate on that.

It's really -- without getting technical on this call, Steve, the Firecrest platform automates a lot of the site work and the training. It allows for easier administration of the trial at site level, and therefore, it's a great incentive for investigators to work on the trials and recruit in it and analyze for smoother processing of data as we bring it back into our data capture module. So it just improves the ease of use and the efficiency and the consistency and the quality across the site.

And that, combined with sort of back end engines like Iconic, which drives significant data on patient safety, on sites, and on staff performance, allows us to just speed up, to some extent, the trials to improve the quality and consistency of the output. And that's an attractive value proposition to our customers.

Got it. And then as far as IT expenditures, then, going forward, are you pretty much where you want to be as far as the overall IT infrastructure and data management?

Yes, is the answer. We've been investing pretty heavily in infrastructure over the last number of years. I mean, I go back to my time at ICON, it was even four or five years ago, we, with what now looks like foresight that may have just been serendipitous good fortune, you know, we invested about $8 million in our Oracle ERP platform that we've rolled out over the past number of years, and it gives us the ability to have good data, good systems, and right across all of our businesses. Last year and the year before, we ponied up about $12 million to invest in our labs, our [Lens] operating system in the lab, and we're seeing some of the benefits of that in the improved lab performance.

We've been investing across the whole business. Iconic we invested a good deal of money in, in the last few years, and of course, some of what we acquired was through the acquisition in Firecrest.

So we've been up -- sort of in or around what I would say is the run rate for our investment strategy, so I don't expect that in the nearer terms, that it will increase significantly. And by the nearer term, I mean in the next year.

That being said, information is always changing, it's advancing. I think the role of big data and data in clinical trials and where data meets medical science is going to be a significant driver in the future. And so we continue to stay abreast and ahead of the IT developments. But there's no significant uptick forecast in the time horizon that we're looking at.

Excellent. And then, just a follow up, on just the impact of currency and the acquisitions that were completed in the quarter. I didn't get that in the opening comments.

Sure, Steve -- what I said specifically on those points was that in organic constant dollar terms, we were up 9% year on year. In absolute constant currency terms, we would have been up 12% year on year, and then our actual -- the real number, I suppose, if you want, is up 10% year on year. So that gives you all the different percentages, so you can do the plus and minuses to get what the acquisition impact was.

Excellent. Okay, thanks.

We'll take our next question from Greg Bolan from Sterne Agee. Please go ahead.

Hey, thanks, guys. Can you give us an update on the -- kind of the plan for who will succeed Alan Morgan, now that he's going to be leaving here pretty soon?

Alan actually left back in October, Greg, and since then, Steve Cutler has been running the Clinical business for the last six months, and I'm happy to say, is running it very well, as we've seen by the performance tick up in both Q4 and Q1. So, that succession has happened, and it's going to plan, and we're very, very happy with it.

Got it. Clearly, asleep at the wheel on that one. Sorry about that. The related question, on Clinical, just kind of backing into Clinical operating margin, it looks like maybe 4% to 5%. Is that the correct way to think about it, Brendan?

Yes, it's in that region. I mean, it's such a large part of the business, it's usually reflective of the overall percentage, Greg.

And just curious, just in terms of where that margin would be, excluding possibly a drag from your larger strategic partnership. I guess the question would be, is the larger strategic partnership a drag on that margin, and how much could that -- I guess the biggest driver for you getting to 8% to 9% in the fourth quarter, is that kind of the drag -- I guess, loosening, if you will, throughout the year?

Yes, that's correct, Greg.

Okay. All right, thanks, guys.

We'll take our next question from Sandy Draper from Raymond James. Please go ahead.

Thanks very much, and good morning, slash, good afternoon. I guess, Ciaran, maybe just any color you could give us on the two deals that you said that were large, they were outside the strategic partnerships? I guess, are these things that you think down the road could lead to strategic partnerships, are these companies you've done a lot of business with, a little business with? Just any additional color on those deals, and why you think you won them would be great.

Yes. I mean, the first thing is, I'm really happy about those two deals, and it's always good to win a significant amount of business, outside of your kind of normal constituency. So one of them, I can't say too much, obviously, for confidentiality reasons, but one of them is with a company we've worked with periodically and do some work with, but this is significant in terms of just the size and the particular therapy that it addresses.

The other one's with a company that in Clinical, we haven't done any significant work with in the past, though we have worked with them in some of our other service offerings. So it's sort of new territory for us.

They're both substantial in size and duration, and I think our success there was around our differentiation strategy. And we've done a lot of work since we kind of launched back in quarter four 2010, and we launched our view of the world and our strategy. You guys might recall the Analyst Day down in Doylestown, in Pennsylvania. And we've invested a lot in our range of services. We've made acquisitions in technology and in Late Phase with Oxford Outcomes, with PSP. We've increased the footprint in China and Asia/Pac with KendleWits, and organic investment. We've ponied up and put a lot of focus on our internal informatics capabilities around the Iconic platform. And you know, we've done a lot of work on aligning our organization structure to be efficient and to support our strategy, and have the minimum amount of layers and the maximum amount of communication in the Company, both internally and with our customers.

And so, I think drawing all of those factors together and in our current value proposition, building it on the legacy of a company that for 21 years, given the odd speed bump on the way, has been a successful company in the CRO sector, and growing from small beginnings to be one of the leading players in the world, and has sort of got success and performance written into its DNA.

And so you add that heritage and that legacy and that confidence and pride to the current value proposition, to the current market, which is benign, due to the secular shift towards outsourcing, and I think we have a compelling value proposition there that we're articulating, and that has been successful so far.

But you know, we're forward looking, like everybody. I'm very happy with the quarter, but we've plenty to do. We're going to keep doing it, we're going to keep differentiating ourselves, and trying to deliver at the highest level, and look forward and take it forward from here.

Great, that's really helpful commentary, and our congratulations.

Thank you.

Thanks a lot.

We'll take our next question from Todd Van Fleet from First Analysis. Please go ahead.

Hi, guys. On the Clin Pharm business, it sounds like you hit a milestone this quarter, but because you mentioned the business is -- tends to be a bit more choppy. Are there any broad, I guess, developments in the marketplace that you think are going to impact you favorably or disfavorably moving forward, or it just kind of, you know, quarter in and quarter out, you kind of take it as it comes, like just kind of thinking about your -- I want to get your 12 month outlook, I guess, on the Clin Pharm biz. Thanks.

On the Clin Pharm biz? No, I think we take each quarter as it comes. I think the significant thing for us in the Clin Pharm biz, and it's more ICON-specific than it is really in really the market, is that over the past number of years, the management team in that business did invest in it. We built up our bed capacity. I think a few years ago, it was as low as 80 beds, and we've built it up into the 200s now. So we've got the better service offering. We've also added more scientific services around that. We've integrated it into a division with our biomarker and immunoassay labs and our biomarker strategy. But we've come up with a fairly compelling service offering in Clin Pharm.

And to the guys' credit, they've taken it to market over the last 12 months, won a number of significant strategic accounts, which gives them a more consistent revenue flow and a little bit more visibility than they had in the past, notwithstanding the inherent volatility. They've also been very successful in realigning the cost base over the period, and taking out costs, which of course, helps the profitability equation.

So it's really those factors. They've been the same factors that probably have been in place for the last number of quarters, since the middle of last year, and what we're seeing is just the revenue is picking up on the back of the account wins and the account relationships, and we expect it to continue to tick up over the medium term.

Ciaran, do you have any appetite to expand your exposure to that area? Maybe there's -- are there any attractive assets in the marketplace that have been circulating, from your perspective?

No, I think we're well set. Of course, if I had [thoughts], I wouldn't tell you on this call anyway. But -- in the interests of not letting everybody know what I was doing. But as it so happens, I think the work that we've done in this space gives us a service offering that we're comfortable with. I think as we take that forward strategically, it's about enhancing biomarker capabilities in our early phase. It's about looking at the impact of genomics, and the sort of personalized or stratified medicine approach.

So I think it's really about more a laser-like approach to what we add, in terms of service offering, rather than any larger scale appetite for more fixed cost asset.

Okay, thanks.

We'll take our next question from Jack Gorman from Davy. Please go ahead.

Thanks. Hi, Ciaran. Well done in the quarter. Just wanted to explore the earlier comments you made on win rates in a little bit more detail, if I can. Obviously, you flagged very, very strong win rates this quarter, and indeed, if you look back over the last three or four quarters, your net book to bill has been steadily increasing at a pretty decent four quarterly run rate.

You've also mentioned, obviously, some of the internal work you've done on creating a point of difference. Can I just maybe turn it on its head, and just get a flavor from you on what you see as the competitive dynamic out there? Has that changed much over the course of the last number of quarters? And has that, in a way, helped you outperform on the win rates? Or indeed, is outsourcing demand continuing to increase and helping you to do that, too? So, any color on that would be super.

Yes, I don't think there's been a significant change in the competitive landscape, Jack, notwithstanding that I suppose there was a good deal of acquisition and rollup activity in the sector last year. So some companies may be going through their own internal integration challenges. But we haven't seen any significant impact of that change in the competitive dynamic.

I mean, it's a factor, with a number of long-standing, high quality companies that perform. Our principal competitors are people whom we all respect, and who, for many years, have been delivering good quality clinical research and good quality business wins and financial results, more or less every quarter, quarter on quarter. And they're still continuing to do that, and we respect that, and we always will.

I think what we're seeing, in our own specific situation, is that the market has been driven by the increase in outsourcing, by the more strategic nature of it, and we've always performed well in terms of having long-term, deep client relationships. It's something that was always a core value of ours. And I think we're just seeing that we put together a service offering. It's based, really, on an enhancement of what we've always done. It's back to our basics and our core value, maybe what we believe in. And we've seen, I suppose, our trailing 12 month book to bill is about 1.48. So we've seen the benefit of it.

But I think it's a function of the outsourcing dynamic in the market, the concentration of that outsourcing to the top -- to all of the -- you know, between all of the top players, as people look for their financial muscle and the geographic reach and the range of services and the informatics capabilities to take clinical research forward.

So I wouldn't point to a particular competitive dynamic, no.

Okay. And just as a follow up, on, again, a broader question, do you think the -- while we accept, obviously, that the outsourcing market will continue to grow strongly, do you think the concentration level across the top players, as you described, do you think we're getting closer to steady state at that, at the moment?

It's hard to tell, is the honest answer. I mean, I think we said about three or four calls ago, or whatever, I put it in my commentary that given the way things looked, we expected more concentration in the top customers just as a dynamic in the industry and the large strategic partnerships. I think Brendan has that commentary in today.

Yes.

It'll continue to increase, that we know. Where the music stops, I'm not sure.

Yes, okay. Thanks.

We'll take our next question from Tycho Peterson from JPMorgan. Please go ahead.

Hi, guys, this is [Ramesh in for Tycho. I just -- thank you for taking the question. I just wanted to ask you about Pfizer associate bookings in the quarter, if that's been in line with your expectations, and if you see that sort of accelerating in the next two quarters from what we've seen in the last three or so.

Yes, I mean, well within, in line with expectations this quarter. That's the answer to your first question. And accelerating, the flow of the work, from accounts like this, is never completely linear, and in some quarters, as certain assets move into our space in the development cycle, the award comes into us. So I think it's fair to say that we're onboarding with Pfizer, we're onboarding them, they're onboarding us. We're working through the first number of waves -- we've talked about that at length in previous calls, where we talked about size, sort of startup waves that began last October, and the onboarding of those will go and continue. I think the last wave starts up in midsummer.

And on top of that, then, is the work that comes from new assets that are entering into -- starting with partners like us, as well as they transition wave.

So we're happy with how that account is going. We're happy with the relationship. The guys in Pfizer are working hard, and they're doing a good job, and we're working with them to onboard the work, and that will continue to flow in line with our expectations, albeit, it's not going to be, in our minds, as linear every quarter. But I'm very happy to say that's going -- so far, it's going according to plan.

Great. And just, on the cancellations on the $100 million. Is there anything to read into that? Was that -- you know, related to a specific, or a couple of specific customers? It was just a little bit larger than maybe we've seen in prior quarters.

Yes -- no, there's nothing to read into it. There were a couple of specific things, but nothing strange. That's work that had previously been scheduled and that was no longer going to be performed. I think if you look back to Q1 last year, it was probably a smaller dollar amount, because we have smaller revenue. But I think the cancellation rate was nearly 20% of the quarter's revenue -- the same this quarter. And if you look historically, 3% to 5% is our range of cancellations.

So there was nothing there that was unusual or noteworthy. It was just a couple of things happened in the quarter on top of the normal run rate, small things that you're always tidying up, that brought us to that number. So I wasn't concerned by it.

Okay. Thank you very much.

We'll take our next question from Robert Jones from Goldman Sachs. Please go ahead.

Thanks, guys. It's [Stephan] calling for Bob. Just a couple quick questions. First, on Asia/Pacific, you guys have done a couple acquisitions or partnerships there recently. How would you characterize your presence there, relative to your competition? And as you think about your future geographic mix, is that an area where you guys will remain focused on, on the acquisition front?

Well, on future geographic mix -- I'll take that first. Yes, if you look at the pattern of activity and development and plans that our customers would have for specific development objectives, just the general growth of economies and drug sales in the developing markets in Asia/Pac, you could safely say that it will continue to be a growth area, and that we'd invest in it as we need to, to maintain our position there.

I feel our position is good, in relation to the market. We have a very credible offering, right across our range of services. We have good scale, and with some of the acquisitions -- I mean, we have over 1,100, nearly 1,200 people in the Asia/Pac region there, in various parts of our businesses. And you know, we have some good leadership and talent that have come on board with the BeijingWits acquisitions.

So I'm happy that we're in a good place in Asia/Pac for where we are now. But I think it's fair to say that it is an important area that will focus in our growth plans. We continue to grow there as appropriate, and in a way that we have as a combination of organic, and we have the scale now to grow significantly organic. Whether there are future acquisitions or not will depend on -- opportunistically, on time or place in the market.

Thanks. And I'll just touch on your biotech plan (inaudible) really quickly. Last quarter, you mentioned a meaningful increase in opportunities there. Can you provide a little bit of color this quarter? Are you still seeing improvements in that customer base?

We've seen plenty of activity, yes, in the biotech market. We've seen some of our customers and some potential customers have an increase in funding, and there are people in the market, looking to spend money. So, yes, there's certainly plenty to keep us occupied. We'll always try and win business wherever we find it.

Great. Thanks for the questions, guys.

We'll take our next question from Douglas Tsao from Barclays Capital. Please go ahead.

Hi, good morning. Ciaran, I was hoping you could provide a little color in terms of the performance of Central Lab, as well as phase I, which is obviously -- both have seen some improvement recently. In terms of the customer concentration of those respective businesses, I know you've won some strategic deals in those segments. And just trying to sort of understand how broad based the success of the turnaround has been, and how you see that going forward. Thank you.

Hi, Doug. I'm not sure I can add much more color to what I've said on Central Lab and phase I. Phase I broke even in the quarter for the first time since quarter one 2009, and that was on the back of an increased revenue flow from strategic accounts that they won over the past year or so, and control of the cost base, and the result of some restructuring that was done last year. And the Central Labs had another good quarter of gross wins, of $32 million, though they had one cancellation which reduced the net wins for this quarter to $16 million. But they also did 8% operating margin, and did over 19 or just under $19.5 million in revenues.

So that's about the color in that. As for the customer concentration, when we win business, we find that the trend in the market is, at the moment, is the large ticket items around larger pharma and strategic deals. We've been performing there. I think we've been saying for some time that we expect the concentration metric to increase. That has come to pass. Well, (technical difficulty), as expected, that's really all I'm saying. You know, but -- (multiple speakers)

Ciaran, I was trying to sort of get color in terms of the customer concentration in respect to the Central Lab and the phase I business, and to the extent that those two -- you know, the turnaround has been dependent on just the small number of clients, or has the business been much more broad-based?

Yes, sorry. In specific to those businesses, well, I mean, in the smaller businesses, we've always had a higher concentration level than in the more broadly based clinical business. So what we've seen then, in both the phase I business and in the lab business over the last year, is that they've been successful. And I think as part of our overall strategic offering, we see each element having more importance in cross-selling. I think they've onboarded some customers in that year that would traditionally have been related to our larger clinical business.

So we've seen some significant volumes drive through those businesses from larger customers, who have chosen the labs that they didn't work for before, so there would be a higher level of concentration than you might see in the Clinical business.

Okay, great. Thank you very much.

We'll take our next question from Dave Windley from Jefferies. Please go ahead.

Hi, thanks for taking my questions. I did jump on a little late, so I apologize if these were touched on. But I was curious, when you talk about RFP values up, I believe you said 8%, how are you including in that business that is awarded to you outside of a competitive bidding process?

We don't include that, Dave.

Okay, so in cases where you have a strategic client that is directing business to you not through a traditional RFP, if we added those in, would that compare look even better? Is that fair?

It would be a little bit better, I suppose, compared to last year. But we did have a number of key strategic accounts at this time last year that we wouldn't have been including in those numbers.

Okay.

So, it wouldn't be quite like for like, but it would be close enough. It would be a little bit better, you're quite correct.

Okay, understood. I believe you're still viewing yourselves as on track, and working toward a 12% operating margin over the next four to eight quarters. I'd love it if you -- correct me if I'm wrong on the timing, but also, help me to understand how you see segments progressing, kind of dovetailing off Doug's question. But just curious what you're thinking the Central Lab and the phase I business need to do, or a range of what they need to do to support that trajectory. I assume it's not going to be all driven by Clinical.

Well, Clinical's such a large part of the business. I won't correct you. You're right on what I stated our margin target to be. Four to eight quarters -- the four might be a little bit faster than what I thought I said, moving to the 12% sometime in 2013. I don't really think -- it's mid-2013 and beyond, at this point.

Okay.

But the Clinical business is a big part of our business, the phase II to the phase IV. So it's ultimately what is going to decide the kind of -- the general parameters of the Group margin.

So, a lot of it's contingent on the recovery, they'll continue to grow top line revenue, continue to get leverage from the investments we've made in the business, the information technology and the staffing. And we've seen some of the benefits of that in the last couple of quarters.

But specifically, you asked on the segments. Our imaging business and our staffing business have been performing well, and need to just continue at the margin levels that they're at. Our phase IV business is growing, with the growth of Oxford and PriceSpective. So that margin will grow as the rest of the Clinical business grows.

And the Lab was at 8% this quarter, it will probably grow to low double digits, 10% or so during the course of this year. That would be fine. And margin -- I spoke about the Lab margin earlier. Our margin will stay around that level next year as we continue to invest in geographic footprint.

And we should see, as the phase I business is now -- it's come a long way from losing $2 million to $3 million a quarter to breakeven. It will start to grow its profits modestly, with a little bit of the inherent volatility. The guys there have done a good job locking down the cost base, and driving efficiency. But as we continue to grow, we'll also balance that with the need to invest in the long-term.

So ultimately, we'll see that the early phase margins move towards 10%. But I don't -- you know, they've made breakeven this quarter. They'll probably hold at around that level for the next couple of quarters, and then kick on from there later in the year.

Okay, that's very helpful. Thank you. I believe you commented that -- or I believe you were thinking that your, I guess, what you consider to be corporate overhead expense in $150 million, $160 million range is a number that you can hold flat in 2012. Is that still your thinking? And is it a number that you can hold reasonably flat again in 2013?

We can -- our plan this year holds it flat, and we've seen some of that benefit coming out of the SG&A this quarter. For 2013, gosh, you're dragging me way, way into the future. But yes. I mean, without saying too much, our thesis here is that we've made a lot of investments over the last couple of years. I mentioned earlier in the year, the ERP platforms, and Oracle; we've consolidated into shared services centers across a number of the support functions. I think we'll keep driving leverage into next year.

Whether it stays completely flat, I don't know, because we are in a good place, and the backlog is up 23% year on year. We're going to see revenue growth, we're going to see increased activity. We're still going to invest in the long-term future of the business, which means, enhanced intellectual capability, broadening our product ranges, making sure our geographic footprint stays relevant to the market.

So at some point, we may need to spend more on SG&A, but I think what we do know is that if it doesn't stay flat, it will be because our growth is very good, and it certainly won't grow at anything near the top line.

Okay. And last question, on client concentration and bookings, I believe you commented that a couple of the -- you had a couple of large wins that contributed to the higher bookings that were not with strategic clients. I'd be curious of, maybe a little bit more precision on the size of those wins, and then, how many of your top five or ten are not, kind of official strategic clients?

I won't get any more specific on the side of the wins, other than to say, they were large and significant, as we usually mean large and significant. And I'm not sure about your other question, how many of what?

Well, just so -- I guess the -- what is interesting to me is that your wins are not exclusive to strategic clients, and including big wins, such that your top five or top ten concentration is not dependent on strategic clients.

No, it's not. And -- though it's fair to say, these were two good wins to come in the same quarter, and they're not the sort of thing we get every quarter. But our top -- our concentration isn't dependent on strategic clients alone, no.

Okay. I'll drop out. Thank you.

Okay. Thank you, David. Bye bye.

Thank you, David, sure.

We'll take our next question from Nick Juhle from Baird. Please go ahead.

Hey, guys. Just a quick question around your guidance. I understand you're maintaining it. I can appreciate, even with the strength of your bookings this quarter, the longer tail that's on those bookings, why that might not provide a reason to change the guidance at all. But considering that you've done a couple of acquisitions since that guidance was initially provided, you know, BeijingWits and PriceSpective, I think would add about $20 million to the year.

Are there other things at play here, or other drivers at play, that would sort of offset the upside that we might expect, or might prevent a change in guidance today?

No, there aren't. I think -- when we gave the original, sort of preliminary guidance, an indicative guidance back at the end of October, we were already a significant way through our acquisition targets, and we kind of -- while not specifically including them, we would have been aware of the range of it. They're not large amounts, in the overall scheme of the guidance range of $1.07 billion.

So nothing has changed. What we're saying is, we did guidance at the start of the year, we did a plan. In the first quarter, we've delivered on it. It's early in the year, and there are a lot of projects there, and there's a lot of backlog, a lot of revenue to be driven to it. So we're just taking the view that it's too early to change that.

Okay, thank you.

We'll take our last question from Garen Sarafian from Citigroup. Please go ahead.

Hello. Thank you for squeezing me in. I am going to take another stab at getting more information on the two deals you won this quarter. I guess first, were these previously done in-house, that they were now outsourced to you, or were these currently done by other competitor vendors?

I wouldn't be able to talk about that, in terms of that customer confidentiality, and --

Got it. Understood.

But what we're happy about is that we won them, and we got chosen. It validates our performance and our strategy, so -- and I'm very happy about that.

Of course. And then, these were -- from what I heard, were, they're longer in duration, but of course, not considered officially strategic or a partnership. So, I'm wondering, was that ever on the table, and just something that the clients were not interested, either client was not interested in? Or -- could you elaborate on just what occurred there, and what could occur?

I can't really elaborate on that, no. We won two large business deals for trials that customers wanted to do, and people will look at their outsourcing strategy, and there are a variety of models and play in some of them, or a combination of other models, different people at different points in the cycle of deciding. Just because you're looking at reshaping your model to a strategic one doesn't mean you stop all your developments in the intervening period.

So these were good -- they were good wins to get, but -- and I really just don't know what to say beyond that, yes.

Understood, no. Well, congrats on the wins. I'll stop there. Thank you.

Okay, thanks very much.

Hi, Gwynne, are you there?

That will conclude today's conference call. Thank you for your patience. Ladies and gentlemen, you may now disconnect.