ICON PLC (ICLR) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ICON Q4 2012 earnings conference call. For your information, today's conference is being recorded.

At this time I would like to turn the conference over to Mr. Sam Farthing. Please go ahead, sir.

Thank you, Luke. Good afternoon, good morning, ladies and gentlemen. Thank you for joining us on this call covering the quarter ended December 31, 2012.

Also on the call today we have our CEO, Mr. Ciaran Murray, and our CFO, Mr. Brendan Brennan. I would just like to note that this call is webcast. 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.

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, Audited, 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 would now like to hand over the call to our CFO, Mr. Brendan Brennan.

Thank you, Sam. Revenue in quarter four 2012 was $300.2 million. This represents the year-on-year growth of 23.7%. On a constant-dollar organic basis, growth equated to 23.8%. For the full year, revenue was $1.115 billion, up 17.9% compared to 2011.

Concentration levels have risen throughout the year, with the top client representing 17.7% of revenue in 2012 versus 12.8% in 2011. Our top five clients represented 48% of revenues, up from 37% last year. The top 10 clients represented 63% of revenue compared to 52% last year, while our top 25 accounted for 75% of revenue compared to 69% last year.

To support our revenue growth we added around 250 heads in Q4, closing out the year with 9,500 staff, up from 8,470 at the end of 2011. In addition, we added approximately 550 heads with our acquisition of the clinical division of Cross Country Healthcare, leading to approximately 10,050 heads at present.

In quarter four, Group gross margin continued to improve to 36%, up from 34.8% in Q4 2011 and up from 35.8% in Q3 2012. For the full year, Group gross margin was 35.6%.

SG&A leverage continues, amounting to 24.4% of revenue in Q4, compared to 27.6% in Q4 2011. On a full-year basis, SG&A equates to 25.2% of revenue, compared to 27% in 2011.

Operating income was $24.4 million and operating margin of 8.1%. For the full year, the operating margin was 6.6%. Also in the quarter, EBITDA was $25.9 million or 8.6% of revenue.

The interest charge was $278,000 in the quarter, and the effective tax rate was 14%, a little lower than expected due to the quarterly geographic mix of our revenues. Looking ahead, we continue to model long-term tax rates between 18% and 20%.

Net income in the quarter was $20.7 million, equating to EPS of $0.34. The lower than expected tax rate added about [$0.01 to $0.015] to EPS; but this was offset by costs associated with the listing realignment that occurred during the quarter. On a full-year basis, EPS equated to $1.00 per share.

Turning to the balance sheet, DSOs were 40 days compared to 47 days in the same quarter last year. At the end of December 2012, net cash was $190 million, up $10 million from September. CapEx for the quarter was $8.4 million, and we spent $3.8 million on earnouts related to recent acquisitions.

I would like to hand over now to Ciaran to talk about the business environment and our strategic plans and outlook.

Good morning, everyone. I thought I would start today with a brief review of 2012 and look at how our performance there positions us as we go forward into 2013.

For 2012, we guided that our revenue would grow by about 16%, our Q4 exit margin would expand to between 8% and 9%, and our earnings would be somewhere between $0.90 and $1.10. I am happy that we achieved those targets -- revenue growing 18%, Q4 exit margin was 8.1%, and our earnings for 2012 were $1.00.

This was a milestone year for ICON, the first year where our revenues exceeded $1 billion. We also had a year of record net bookings of $1.6 billion, which is a book-to-bill of 1.42, and the strong booking number meant that our backlog grew by 20% to close the year at almost $2.8 billion. I was also pleased that all of our business units reported profits in each of the four quarters of 2012.

We continued to enhance our capabilities this year in line with our strategic plan, and we closed two acquisitions -- BeijingWits to increase our scale and capabilities in China, and PriceSpective to fit with our Phase IV consulting capabilities. We also continued to invest in our differentiating, innovative technologies and further developed our biosimilar and biomarker offerings. We also continued to see the benefits of the leverage coming from the cost base through our new global business services model.

ICON is a people business, and a number of initiatives in 2012 were undertaken to increase the investment in our leadership and talent to make sure that we continue to attract, develop, and retain the right caliber of professional staff. We have developed the ICON Business Academy, in partnership with the Smurfit Graduate Business School at University College in Dublin, to further development our management capabilities. And we're also developing a number of clinical postgraduate programs for our staff.

Finally in 2012, we aligned our listings in order to have our ordinary shares fully listed on NASDAQ.

So, what does all of this mean for 2013? Well, as a result of this progress that we have made in 2012 and the level of booking and backlog growth, we entered 2013 with some momentum and a 12-month forecast revenue coverage of 77%.

When you look at the market, the shift in it towards more outsourcing through strategic relationships has often been discussed on these calls. We see that trend continuing as we work with existing and potential partners to bring innovation to the drug development process, to reduce cycle times and costs, and improve the quality and productivity of drug development.

While the development of these relationships may require some short-term investment, we believe that in the longer term they result in benefits for both ourselves and for our customers. The RFP flow for our transactional business also continues to be healthy.

We will continue to execute our strategic plan in 2013 to ensure that we have an organization with the right scale of geographic coverage, range of services, leadership, and talent to deliver differentiated and competitive high-quality solutions for our clients. We aim to provide these solutions under a range of flexible models; and with that in mind we announced today that we have closed the acquisition of the Clinical Trials Division of Cross Country Healthcare.

This acquisition gives our successful contract resourcing and FSP division, DOCS, a truly global footprint by significantly increasing its US presence. The combined organization will be a top-tier global player in this space.

At our investor day in December we provided 2013 revenue and earnings guidance. Today I would like to update that guidance to reflect the impact of the acquisition. 2013 we now expect our revenue to be in the range of $1.26 billion to $1.29 billion and our earnings per share to be in the range of $1.44 to $1.60.

Before we move to Q&A, I would like to take this opportunity to thank all of our team, who contributed to such a significant and successful year for ICON, and to welcome our new team members who join us from Cross Country Healthcare. Thank you, everyone, and I will now hand back to the operator for questions.

(Operator Instructions) Sandy Draper, Raymond James.

Thanks very much. Congratulations on a really nice quarter and finishing on a good year.

I guess the first question is just a detail question. On the -- is Cross Country in the backlog number, and in the backlog expected to earn over the next 12 months? Did you put that in there? Or since it closed in the first quarter will we see a change to the backlog when we see that in the first-quarter numbers?

I guess it is certainly on -- when Ciaran referred to 77% from backlog over the next 12 months Cross Country would have been included in that number, Sandy. So we won't see a massive uptick.

Okay, great. That's really helpful. Second is, can you give us the details on the segment breakouts in terms of revenue and margins for Central Lab and Clinical Research? Is that something you guys are willing to talk to right now?

Yes, absolutely. The Central Labs did about $23 million in the quarter, and they did about 4% operating margin; so simply to their prior quarter. And then, obviously, the balance of the business is -- I will let you do the math on that.

You can see the numbers clearly in terms of what the total business was. But good progression in the rest of the business.

Okay, great. Well, I will respect the two questions and I will jump back in the queue. Thanks, guys.

Eric Coldwell, Robert W. Baird.

Yes, thanks. I was actually going to ask on Central Lab as well. Maybe I could just have a quick follow-on to Sandy before my question, which is -- could you give us a sense on what the bookings look like in Central Lab in terms of mix of net and cancelled?

I can, Eric. It is Ciaran here. In quarter four gross book into the Lab were nearly $30 million, so they had a strong quarter in terms of winning new business, which continued the trend that we have seen throughout the course of last year for the Lab. However, they did pick up one large cancellation in Q4. And also, with it being the end of the year, in the Lab we tend to take a very rigorous view of going through the backlog and cleaning it up; so we will report or we are reporting a net bookings number of $3 million, which means that the book-to-bill for the year in the Lab was about 1.1.

Did that change your outlook for the mix? I assume it does change your outlook for the mix of Central Labs versus Clinical, the rest of the Company, as we go into '13. Can you give us a high-level thought on how you see Central Lab growing and where you could see the margins heading in 2013?

Yes, the short answer -- it doesn't really change our outlook for 2013. If you recall, we talked on quarter three about some of the work we were doing in the Lab to continue our housekeeping and taking out the kinks that we have seen there in the past. So we were sort of positioning for this level of growth throughout quarter four, and would have been reflected in what we guided back in December.

So when we look at 2013 I think what we can see is that revenue growth will be modest coming off the year's book-to-bill of 1.1. I think the revenue growth will be the maybe mid single digits for the Lab. But part of that reflects our concentration on margins.

So we would expect certainly in the first half of the year, margin to be in the region of 6% to 7%, which is recovering from the low points that we have seen in Q3 and Q4. So we see some pick-up.

But we are certainly positioning the Lab for a level of controlled, high-quality growth. I think if you look at where the Lab has come from, the trend over the past number of years, back in 2010 they lost almost $13 million; and back in 2011 they posted losses again, of about $3 million. This year, with modest margin performance they have made a profit of about $5 million, so a turnaround of $8 million on last year.

So we're going to continue that steady progress, continue to make sure we invest appropriately in their quality and their delivery, continue to work on growing the backlog. So steady as she goes, but modestly improving margin year is what we expect for the Lab.

Okay, I will wrap up there. I will jump back in later if I need to. Thanks.

Dave Windley, Jefferies.

Hi, good morning. Thanks for taking the questions. Starting with strategic deal discussions, I am wondering if you could elaborate a little bit on what the state of play is there, pace of discussions that you are having.

And then to dovetail off of the last couple of questions, if you could talk about any increase in the cross-selling of the Lab into those either existing or new strategic deals, I would appreciate it. Thank you.

On the strategic deals discussions are ongoing. There is not much I would add to what we spoke about either in the last earnings call or in the Investor Day in December.

I think they broadly fall into two categories when you look at it. With your existing customers, we are constantly working on trying to develop these models, to look at the scope of them, to provide innovation, help our customers. So the constant dialog around the business that you already have -- where you're going to take it, how you're going to work with the customer, drive continuous improvement, further integrate how we work together on technology, and on process and standard operating procedures.

And that is going well. There are always plenty of interesting challenges in clinical development. But those discussions are good and constructive. I think the tone of them supports the feeling that there is more of a partnership approach that we work together.

Then out in the broader market I think it is fair to say that, with the well-discussed and documented pressures on biopharma companies -- in terms of cost management, and productivity, and quality, and regulatory hurdles -- that there are quite a few discussions ongoing in relation to how people would approach this, and how they will select suppliers, and what way they want to work, and what particular models. But these are long-term transformation, change-management programs.

So I would say the discussions are good. There's plenty of them. There's plenty of interesting things to talk about.

But they have been ongoing for some time, and I consider that they will continue to be ongoing. They are just sort of a permanent feature of the evolution of these models.

As for cross-sell in the Lab, I think last year was a good year for Lab. Part of the success that's come from turning around from the low point in 2010, there has still been a decent backlog. I think the backlog they'll have has over $200 million.

Some of that is from cross-selling through our strategic deals, but I see more opportunity there, I think. As we stabilize the Lab performance, as we have done, we integrate it more closely with our colleagues in Clinical. And I see plenty of opportunity there with some of our other Clinical customers to try and harvest the relationship and drive volume through the Lab as we move forward.

So my follow-up, to talk about your acquisition of Cross Country Healthcare, I am assuming you fold that into the DOCS unit; but if you could confirm that.

And talk about how having the staffing business does or does not help you in flexing -- I won't try to pronounce that word -- in flexing your staff up to meet the needs of the core Clinical business? Are you able to use your DOCS staffing business to do that? Or are they already claimed on client projects such that you have to go outside of the organization for contractors?

I suppose the answer to your first question, or indeed possibly your third, is it is in the DOCS business, Dave. Part of the rationale here is that DOCS has a strong brand.

We acquired it, I think about 2006. They had a strong presence in Europe; they had some presence in the US through a previous acquisition back about 2002 of ICS. And then we have been growing our Asia-Pac offering for DOCS organically over the last 18 months or so.

So the acquisition of Cross Country managed to scale up the US footprint of DOCS. So it isn't a change to anything that we do, but it goes into the DOCS division and gives them full global reach and a certain scale and provides a good, compelling offering for our clients there, with a global footprint, makes it a top-tier player.

As I have said, since the staffing business is a little bit of both of what you say, our history with DOCS, so nothing is going to change here. It just give us a bigger arm in the US.

But our history with DOCS is that they successfully recruit and perform their own contract staffing in the FSP model business for their customers. And we also use them as a recruiting engine to add to our clinical staff, and we have been quite successful at that.

But we also recruit contractors and clinical staff outside of DOCS. I mean, it is a competitive market; we are always on the hunt for talent.

We have added organically over 1,000 people in 2012. We'll probably add the same again [order] growth in 2013.

So it is a very useful source of good, quality staff for us, but it is not exclusive. We also recruit [set] in the marketplace. But we find that it has worked well with DOCS in the past, and we are looking forward to it giving us a boost to some of our recruitment efforts in the US in 2013.

Great, thank you.

Tycho Peterson, JPMorgan.

Hey, thanks. First one. I just want to follow up on it Dave's earlier question on just strategic. You had highlighted at the Analyst Day maybe more interest from small to midsized biotechs. Can you comment on your outlook there, in particular among the biotech customers?

Yes, I can, Tycho. It is pretty much the same story. We are in discussions with a number of midsized and smaller pharmas. They are looking at -- because up to now a lot of the strategic deals have been driven by large pharma. As they are selling down, as people are seeing how they work, we have seen more interest from the middle market. We continue to see that and talk to people.

But I think, as I said, to deal with things, they move slowly. And our history in some of these deals is that discussions can be ongoing for quite some time while people work out exactly what models they want and how they want to implement a change and transformation program.

We have had a good second half of the year. I think we were successful in broadening our wins. We were happy with some of the progress we made in biotechs. But our work in the biotech sector has been more transactional over the last couple of quarters.

Then if we go back to the Analyst Day, you guys obviously spent a lot of time talking about the IT investments. As we think about ICONIK and Firecrest and some of these other initiatives, I guess for starters, are you starting to see them drive larger wins?

And then ultimately how do we think about the flowthrough to the bottom line from some of the incremental IT investments?

I think if you look at 2012, it was our biggest year of business wins ever. It was $1.6 billion. I think that is a reflection of our success in winning certain strategic accounts, but winning those through having innovative tools and leveraging information, to help take cycle time and cost out of the development cycle, to help improve quality. So I think they will continue to do that. But I'd point to the fact that those two have been helpful in the past year in driving business wins.

When it comes to margin, I think we haven't seen a significant impact on the margin profile of that business. They're still in early days.

As we look forward, I think they will enhance margin as we deploy technology and we do it on more scale and perhaps a broader footprint. But then, of course, they also take time and cost out of development for our customers, so we could also see them cannibalize some of the revenues at some point as well.

But our experience so far is that they are helping us win large volumes of business, and they are delivering margin around the normal profile of margin. They are not significantly changed.

Okay, thank you.

(Operator Instructions) Todd Van Fleet, First Analysis.

Hi, guys. As we look to margin improvement over the course of 2013, just thinking about the interplay here between the gross margin and the balance of the P&L. Is it likely that we will see the margin improvement come through leveraging -- or rather I guess improvement in the gross margin? Or will it be more in the SG&A side?

I guess I am just thinking in the context of the acquisition here, maybe a slightly different mix to the revenue. Just what are your thoughts on that?

I think it will come from both. I mean if you look through 2012, I would characterize 2012 as the year that we stabilized some of the business from 2011. And 2013 we will consolidate those gains.

Last year we saw an improvement in gross margin. I think it was about a 34-point gain at the end of 2011, and moved through to 36% by the end of 2012 while our SG&A moved from about 27% to 25%. So I think we will continue to see both of those things occur this year.

Our gross margin will increase gradually and modestly throughout the quarter, each quarter. We will continue to get leverage.

I think you look at Cross Country, it is not a full year's revenue. So I think in our guidance we have assumed between $48 million and $52 million out of what is nearly $1.3 billion in guided revenue. So I don't see it having a significant impact on the margin mix at that level.

Ciaran, just one more then. How much of the margin improvement over the course of this year do you expect to come as a result of just general maturity of some of the larger strategic deals that the Company has been involved in over the past couple of years, versus just maybe ongoing efficiencies that you are bringing to the business?

I would say that it is a little bit of each and would be impossible to parse that into the complexity of the equation. You have improved efficiencies as you settle down on certain strategic accounts, but then we are constantly winning new business.

Our trailing book-to-bill last year was 1.4. We are expecting revenue to increase somewhere between 13% and 16% next year. So there will be efficiencies coming from strategic accounts that have been ongoing; and there will be inefficiencies as you set up new ones and do new work.

So I think we look at it more holistically here. Gross margin is driven by how much you deploy technology and metrics and measure performance; it will also depend on the mix of our business. We are operating now in -- we have offices in over 40 countries; we operate in a lot more than that.

So a lot of moving parts to that, Todd. So I think what we say is that we are driving process change and efficiency throughout the organization, and that is what will increase the gross margin. And I wouldn't like to parse it any farther than that.

Okay, thanks.

Ross Muken, ISI Group.

Hi, this is James filling in for Ross. Just wanted to touch on -- if you could touch on the OM expansion from a division perspective a little bit.

Sorry, I missed that question. (multiple speakers)

You spoke about the operating margin expansion. I am wondering if you can give some color between the two divisions, specifically.

I think I said I'd expect the Lab to be between 6% to 7% this year, expanding modestly from where it is. And Clinical is the balance.

Yes.

On a going-forward basis, can you provide any color?

Not really more than that, no. We are planning to expand the margin modestly quarter-on-quarter. I think that is implied in the far end of the guidance.

I suppose if you look to 2012, we expanded operating margin quarter-on-quarter; we won't expect the expansion to be as aggressive this year. It will be much more modest.

But I think you look at the Lab, it is a business that does $90 million or $100 million out of the total $1.3 billion, which is Clinical. So it is in terms of mix, it's a very modest impact. So that most of the margin expansion that will come next year comes through, through improvements in the Clinical business.

I would agree. Just to add to that, the implied margin in our guidance is in and around the 8% to 9% for the full-year '13. So if you are moving then from 6.75% last year to that you'll see, as Ciaran pointed out, steady quarterly progression.

Okay. Then if I could just quickly, bigger-picture-wise, you have seen some of your competitors citing a slowdown in business development, and this isn't really obvious in your bookings this quarter. Just wondering if you could talk about where you are seeing outsize strength within the business.

Where we are seeing what? Sorry, I didn't catch the end of the question there.

I was wondering what is driving the strength in bookings for the quarter, relative (multiple speakers)

Nothing in particular. If you look at the course of last year, it was actually weaker than the previous three quarters. But that being said, it was still better than the previous Q4.

Q4 is often a quarter where people defer decisions, so we often see lower bookings; obviously lower cancellations as well, as all decisions are deferred. But there is no particular factor in that, that drove the bookings in the quarter, nothing different from what we have seen throughout the course of the year of working on our strategic accounts and our transactional business and harvesting them. So I wouldn't point to anything in particular in the quarter outside of the norm.

Okay. Thank you.

Tim Evans, Wells Fargo.

Hi, thanks. I jumped on a little bit late, so I apologize if I am retreading ground here. But could you talk a little bit about your outlook for capital deployment, specifically on the M&A front? And also maybe the potential for share repurchases now that you have officially moved to the NASDAQ.

I think we have said on the M&A front we are committed to building an organization which helps our customers improve the development effort to be competitive. In that, we look at scale and range of services.

Traditionally we have looked at bolt-on acquisitions of certain size. Of course this quarter we have spent $55 million or thereabouts on Clinical Trial out of Cross Country.

So as we go forward through the year, opportunistically we will look at any opportunities that are in the M&A market. But I wouldn't point to anything specific at the moment.

As for share buybacks, we have always taken the view that we are here to run the business and maximize shareholder value. So it is just part of the equation when we look at growth. The possibility of returns through our investment in running a business versus buybacks, the models will speak for themselves. But there is nothing imminent on that front other than the buyback program that we put in place a couple years ago.

Okay, I mean I guess what I am driving at is -- you've got a lot of cash on your balance sheet. How are you looking at that right now? Is it something you want to keep dry powder for the M&A? Or do you feel like you could achieve a more optimal capital structure?

I would say we don't have that much cash on the balance sheet. If you look at it, there is about $190 million at the end of the year. Well, the Cross Country acquisition will account for $55 million of that this quarter.

We now have about $45 million or thereabouts in contingent payment commitments in relation to the acquisitions we made last year, and some the year before -- PriceSpective, BeijingWits, Firecrest. All of those businesses are performing well, so I would expect we'd be paying that out.

And then a chunk of the cash on our balance sheet is from our customers in advance payments, if you look at the prepayments line. We always feel that it is prudent to make sure that we have cash in order to match the advance payments that our customers have given us.

So that is really how I'd look at it. And there is probably nothing more to add to it than that.

Okay, great. That's helpful. Thank you.

John Kreger, William Blair.

Hi, good morning, guys. It's actually [Robbie Fada] in for John today. You guys had a pretty solid growth on the top line this quarter; and excluding the acquisition there was no really no change to the underlying top-line growth guidance that you provided at the Analyst Day. I was just wondering if you could just remind us what will drive the slowdown that it seems like your guidance implies as we move throughout the year. And maybe what that would imply for a contribution from some of your larger strategic partners.

I suppose -- we gave the guidance back in December. There is a billion moving parts, Robbie, in the way we generate revenue with 10,000 people going out every day, billing on hundreds of projects in dozens of countries. So I think we always look at this in a prudent manner.

I think in quarter four, we had a couple of projects that came through a little bit more strongly than we expected, and that was good. But I wouldn't read too much into that as we move through the year. We're sitting here in February, the middle of February; it is a long way to the end of the year.

As we move through the year, we'll look at the revenue trends, and we'll look at what has happening with strategic accounts, and we'll look at what that means for forecasts. But at the minute I wouldn't be pointing to any fundamental change in the assumptions that we made back in December.

We always look at these things and we always forecast them in detail, and then -- no plan survives first contact with the enemy as they say, and as you go throughout the year. So I would say we will just watch it is we go through the year and keep you posted.

Great. Thanks very much.

Greg Bolan, Sterne, Agee.

Thanks, guys. Can you talk about the interplay between Central Lab operation with that of the Clinical business when it comes to winning new strategic deals? I guess really my question is around -- has the Central Lab become an increasingly important sweetener to lock in strategic deals?

Not particularly, Greg, no. It hasn't really changed in its profile over the last couple of years. We find when you go into strategic deals at that level it is about the sum of all of the parts that you provide, not just particularly the Lab.

I mean it plays its role, and I think it is important that we have a full range of services. So that means Phase II to Phase IV; it means good data management, good technology, a Central Lab, Phase I clinic, scientific support, biomarkers and genomic strategies, market access and [less base]. So all of those things play their part in the best full strategic offering.

We find that that is what is important to the strategic business, and particularly the ability to bring innovation and to look at cycle times and cost and quality of the overall development effort. So the Lab is an important element of that, but it is just one element, I think, of the overall offering.

Okay, that's great. Then I guess just sticking with Central Lab, on the esoteric side of the equation, any plans to, with the cash on hand, build out your offerings on the esoteric side of the equation?

We have a fairly decent offering, I would say. The thing about the esoteric side -- well, it is called esoteric for a reason. (inaudible) [piece of string].

But we have a decent offering between -- our Central Lab footprint is from -- we have labs in the US, in Europe, in Dublin, in Singapore, Beijing, in Bangalore in India. So we have offerings across that footprint, particularly in Dublin and in the US in Long Island.

On top of that, of course, then, we have our bioanalytical and immunoassay labs up in New York and over in the UK in Manchester. So we have a fairly decent panel of esoteric tests.

But I think it's science and it develops. So we have an R&D group that works across there. We have people that look at it and keep on top of where that kind of test is going, what it means for drugs that are in the development pipeline and molecules.

So we are constantly investing in it and renewing it. But we have no special initiative attached to it beyond our normal approach to it.

Okay, great. Thanks, Ciaran.

(Operator Instructions) Sandy Draper, Raymond James.

Thanks very much. Just a follow-up modeling question. Brendan, D&A has been fairly steady here, around $10.6 million the last couple quarters, not modulating a lot. With the acquisition, what type of step-up should we be looking -- thinking about for D&A? Do you have a number for the year that we should be thinking about?

I think we will see a mix of things happen. There will be some amortization obviously come on for the acquisition, and I would imagine that will be in the circa $100,000 to $200,000 a quarter. But we should see some falloff during the course of the year as well, Sandy.

So I don't think it will be massively moving. It will trend up initially, but it might come back in a little bit toward the back end of the year. So as I say, a couple of hundred thousand initially, but some of our intangible assets will amortize out during the course of the year.

Okay, great. That was my follow-up. Thanks.

Tim Evans, Wells Fargo.

Thanks, one quick follow-up. Did you guys put a hard number on what your margin would have been in the quarter if you exclude the legal fees? Anything that was really one-time?

I think it would have been about 20 or 30 bps higher, Tim.

Okay, thank you.

presentation (Operator Instructions) Dave Windley, Jefferies.

If we get to recycle, we might as well get back in the queue here. I wondered if -- there has been some questions on margin, but in terms of long-term expectations I think you have talked about a model that would have gross margin overall at about 40% and EBIT moving to double digits, with SG&A targets in the lower half of the 20s anyway. I wondered if you could comment, broad brush, about how you see the margin structure evolving in the long term?

I think you may have done it for me there, Dave.

Okay.

I was always particularly fond of your analysis. Yes -- no, I think what we have seen is, as scale comes along, we drive certain efficiencies; are constantly looking to optimize how we deploy technology to take out resources.

So I would just say over the long term we will modestly expand that gross margin line in the way we have been doing. It is just more of the same -- efficiency, resource planning, the leverage of scale and the benefit of scale, and the global business model. The SG&A side gives us opportunities to consolidate and offshore and maximize efficiencies.

So I think it is just steady as she goes. I think the point is that in our business progress is relatively slow. We have seen 2012 we made recently rapid progress, coming off a low bit. We won't minimize that.

And as we look forward into 2013, we have guided a further significant increase in earnings. But it has been driven by small, incremental gross margin increases and SG&A decreases. Very much a game of inches and keeping doing more of the same thing.

Our revenue comes from a people model, so there is no silver bullet to do things quickly. I just see us continuing to play the game of inches. And quarter-upon-quarter the gross margin needs to improve modestly and the SG&A needs to come down; so I've nothing really beyond that.

So a follow-up then, Ciaran. I think coming into 2012 you talked about a corporate overhead number, somewhere in the mid $100 million to $150 million, $160 million kind of number that was corporate, and I presume probably also encompasses some of these regional support service centers that you've established, and that in 2012 you expected to be able to hold that constant. Were you successful in that?

Can you give us a sense? I'm hoping to drill in a little bit further. Is that something that is a stable number in 2013 as well, or grows a little bit but slower than revenue? How should we think about that?

And how do the technology rollouts and service center development -- where do those fit in that progress in? What inning are you in relative to moving to that regional support center model?

I think, Dave, in 2012, we were successful in holding the central costs pretty flat. As we move forward, we are still looking at top-line growth in double digits. So we will see increases in our support costs, but those increases will be much lower than top-line growth. So single-digit, mid single-digit costs increase.

The technology stuff, that is just the bread and butter of how you run finance and HR. We have pretty decent systems in there. I think if you look where most of our technology focus at the minute, it's actually at the front end of the business in terms of the development cycle.

So we have our ERP platforms in place. They cover quite a lot of our support functions. We are enhancing our HR systems and upgrading them this year, but it is just business as usual. That is what you do when you are running support costs.

I think the kind of major initiatives took place over the previous few years, and now it is just about a question of running the model and hammering down the costs and getting the benefit of some of the platforms that were put in place.

Okay, great. Thank you.

That will conclude today's question-and-answer session. I would now like to hand back to our speakers for any additional or closing remarks.

Okay, well I would like to thank everyone for taking the time to join our call today. We look forward to continuing to make ICON the global CRO partner of choice for our biopharma customers and to the industry through 2013 and beyond. We are going to remain focused on professional execution and delivering best-in-class information solutions and performance to assist our customers in their global development initiatives. Thank you very much, everyone.

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