ICON PLC (ICLR) 2013 Q3 法說會逐字稿

Thank you. Good day, ladies and gentlemen, thank you for joining us on this call covering the quarter ended September 30, 2013. Also on the call today we have got CEO, Mr. Ciaran Murray; our CFO, Mr. Brendan Brennan; and our Group President Clinical Research Services, Dr. Steve Cutler.

I would just like to note that this call is webcast and there are slides available to download on our website to accompany today's call. I would 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 condition 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.

We will be limiting this call today to one hour and 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, Simon. Net revenue in quarter three 2013 was $340 million; this represents a year-on-year growth of 19%. On a constant dollar organic basis year-on-year growth was 11%.

Year to date our top client represented 25% of revenue compared to 18% for the full year 2012. Our top five clients represented 53% of revenue compared to 48% for the full year 2012. And our top 10 clients represented 65% of revenue compared to 63% for the full year 2012 while our top 25 clients accounted for 79% of revenue compared to 76% for the full year 2012.

We added around 130 new staff during the quarter to bring our headcount to approximately 10,300 staff. In quarter three group gross margin was 37.1%, which compared to 35.9% in quarter two of 2013 and 35.8% in the comparable quarter last year. SG&A for the quarter was 24% of revenue compared to 23.2% in quarter two and 24.8% in quarter three, 2012.

Operating income for the quarter was $33.2 million and operating margin of 9.8% compared to 9.3% in quarter two and 7.3% in the comparable quarter last year. The net interest charge for the quarter was $56,000 and the effective tax rate was 16%. This tax rate added about $0.01 to the quarterly earnings compared to a normalized 18% effective tax rate.

Net income was $27.8 million equated to earnings per share of $0.45 compared to earnings per share of $0.43 in quarter two 2013. DSOs in the quarter were 40 days compared to 33 days in quarter two 2013 and 38 days in the comparable quarter last year. This is in line with our expectation given the contractual terms of our key partner relationships.

At the end of September, 2013, we had a net cash of $219 million compared to $184 million at the end of June 2013. And all of that said I would now like to hand over the call to Ciaran to talk more about our performance in the quarter and the general business outlook.

Thank you, Brendan. We continue to make progress against our strategic plan and we've built on the momentum we generated in the first half of 2013 with another good performance in the third quarter. Gross bookings for the quarter were $471 million, cancellations were $56 million, this gives us net bookings for the quarter of $415 million which is a book to bill of 1.22.

Our backlog now stands at $2.97 billion, which is 11% higher than this time last year and the backlog has currently given us 77% forward coverage for the next 12 months revenue expectations.

Looking across our individual business units, I'm happy that each one of them continues to perform to expectations. Our Phase II to Phase IV business had another good quarter, procured healthy levels of new business and continued to expand operating margins. The integration of the Central Lab into our Phase II to IV business which we talked about some time ago is going to plan and the lab continues to improve its operating margins.

The docs staffing and FSP business completed the integration of the ClinForce and the (technical difficulty) acquisitions during the quarter and this business is performing in line with plan.

On previous calls we have talked about the changes we are making to our early phase business. During this year we consolidated our US capacity into single sites in San Antonio. We continue to review our global capacity in the CPU in light of market conditions and in the fourth quarter we expect we will further reduce capacity in our UK CPU as we focus on our new translational services business which we based in Manchester in the UK.

Our early phase business performed in line with expectations during the quarter which is to say that it was weak and will be weak for the remainder of 2013, but all of this is reflected in our guidance.

Looking out at it at the rest of 2013, I think during the quarter we saw our revenue continue to grow albeit at a more moderate pace as some of our strategic accounts matured into more steady state, which allowed us to get more leverage on the operating model. And we expect this leverage to continue into Q4.

Consequently we are raising our 2013 guidance. We now expect revenue to be in the range of $1.325 billion to $1.33 billion and our earnings per share to be in the range of $1.67 to $1.70 for the full year 2013.

Before commencing the Q&A session I'd like to thank all of the ICON team whose continued commitment to delivering excellence has enabled us to have another successful quarter. Will all of that being said, I will now hand back to Holly to begin the Q&A.

(Operator Instructions). Douglas Tsao, Barclays.

Just if we step back and think about where you are seeing demand in terms of new business, I was just curious in terms of the composition between large and small companies. And also if you could perhaps provide some color in terms of the size of the awards that you are seeing from smaller companies. Are they of similar magnitude or are they typically pursuing smaller companies -- are smaller companies typically doing more limited trials?

Hi, Doug, it is Ciaran here. I think the composition of our business between large and small companies hasn't changed substantially over the recent times. On quarter to quarter there can be a slight difference if certain (inaudible) and certain don't. I think traditionally our large pharma business has been in that sort of 60% number with the balance being made up of smaller pharma companies and midsize pharma companies and biotechs.

And in Q3 we saw broadly the same pattern with maybe a little bit more in that quarter in the biotech section or sector where we saw a little bit more activity than in the previous quarter. But I think that is just the circumstances of the deals that are in the market.

As to the size of the deals, it doesn't really so much depend on the company as in the drug they are developing and the phase of the trial that they are in. We get many small projects from large customers and we get large projects from small customers. And it's very much the devil is in the detail of the particular circumstances.

We have won a number of large projects from smaller and biotech companies when the drug has reached the Phase III stage. They need to conduct the trial that they need to conduct. So it is not really about the size of the company that will determine that. So we were happy with the quarter in terms of the quantum on the balance of the business and what we saw. So I think that answers your question.

And then just one quick follow-up along those same lines. As you noted, it depends a lot on sort of the phase of the study and the product that you are working out for the client as well as the therapeutic area. Just generally are you seeing any broad trends? A few years ago sort of a lot of topic was the sort of mega trials, elephant trials; however, you want to characterize them.

That seems to be a little bit less of a point of discussion recently in terms of the dialogue the Company has been indicating with the Street. But that could just be since it's become the new normal. Or have you seen a little bit of a downtick in terms of the scope of projects which perhaps reflects a little bit of the kinds of areas the companies are investing in right now?

I think in general terms -- I might ask Steve maybe to talk specifically. But in general terms, Doug, I think what we are seeing over compared to what we might have said years ago, two things have changed. We are much bigger than we were then; we are going to guide just over $1.3 billion this year compared to legacy days and we would've talked about larger and elephant trials.

And of course there is a lot more outsourcing now over time and we are involved in a number of exciting strategic deals which draw large volume. So I think what might have been exceptional a few years ago tends not to be exceptional now in the kind of macro picture. But the more specific level, Steve, do you see anything on that?

I think we are seeing a number of significant opportunities coming through, large trial opportunities in the biotech space. They seem to be better funded; they seem to be having access to funds and that seems to be playing through into their strategy to bring their compounds to market.

So we see a number of -- we see very significant large trials coming through in the [marketspace], and that has been the case over the course of this year. We are also seeing some large trials in large pharma as well. We feel pretty happy with the way the biotech market is developing for us and the opportunities that they are bringing forth.

Okay, great. Thanks a lot, guys.

Tim Evans, Wells Fargo Securities.

I wanted to ask a question about client concentration as it is kind of ticked up now here. I know you would like to bring that down and the question is, how does that happen? Is it that the dollar value of revenue of your top client stays the same and then everybody else below that gets bigger? Or do you actually see the dollar value of your top clients in terms of revenue going down in the future?

A bit of future gazing there. I think the answer is in broad terms; the short answer is the former. We will see the dollar value of other business increase at a quicker rate than the dollar value in our large accounts. The concentration is high but it is not unexpected. We have been forecasting it and speaking about it for some time.

And really what it reflects is that as you penetrate accounts -- an account over the first couple of years, you will add dollars very quickly. But it reaches a natural state then and matures and at that point activity in the future should continue to grow if the client continues a healthy robust pipeline and is spending money. But it doesn't grow at the rate that it would have done in the early days of the account.

So from here on what will happen to dilute the concentration is adding more accounts. And we have added a few new customers to the roster this year whose volume will ramp up in the future. It's really about growing other revenue sources to reduce valuation.

Okay, great. And a quick one -- have you seen an uptick in interest in risk-based monitoring?

I think Steve probably wants to talk about it.

What we have seen -- we are seeing a letter of interest in risk-based monitoring and we feel we are well-positioned to help it. I think it is one of the reasons we are starting to see some uptick in our margins as we see opportunity in that area. We feel we have some strong technology in that area that is going to allow us to help to move our organization forward from an efficiency point of view.

So, yes, there are plenty of opportunities there, it is relatively nascent within the industry, there is a lot of people talking about it. Not a lot of people doing it yet. But we feel we are in a good place with that in respect to risk-based monitoring. And it's an opportunity I think to reduce some of the costs for our competitors without necessarily reducing our margin. So I think it could be, dare I say it, a win-win for both of us.

Okay, great. Thank you.

Sandy Draper, Raymond James.

A couple of questions. I missed the beginning part of the comments. I don't know, Brendan, did you talk about an organic number or segment out the impact of the acquisition?

I talked about -- I did, Sandy, I talked about a constant dollar organic revenue of 11% versus a top-line 19% year on year. Just speaking specifically then on segmenting as the acquisition if you look at this constant currency it will be 15%. So the acquisition (inaudible) the difference between 15% and 11%.

Okay, perfect. Second question, and I know I did this last quarter. I am trying not to split hairs too often. But just when I look at that guidance for the year implied in the fourth quarter, the low end would assume you have a step down in revenue.

Was there anything -- sort of any one-time revenue in the quarter in terms of billings or anything that would lead to something falling off or just sort of normal starts and stops of trials? I'm just trying to understand was there anything in the quarter that would lead to necessarily a sequentially down quarter in the fourth quarter?

For a fellow that is trying not to split hairs, Sandy, you are displaying a remarkable talent for it. So no, there is nothing that would lead to -- nothing specific that would lead to that conclusion. I think I have talked about it before, kind of when we go to do guidance we have a big model there with over 1,000 contracts in it and progress and much activity. And then you run the model and we make assumptions and we run it again.

So it is really just a function of we model what might happen and what might not. And then so this time at least we have the benefit of only one quarter to look at so there is less variation in our ranges. But there is no specific item that we would point to that would lead you to that conclusion.

Okay, great. Thanks very much on that. And then maybe just one higher level thought. We have seen a couple of the big pharma guys talk about some pretty big reductions around R&D headcount, etc. When you are thinking about -- there are discussions with customers today versus maybe a couple of years ago. Is there a difference since -- I mean I think Doug talked about this a little bit that going towards a couple of years ago the megadeals, etc.

But just thinking about the conversations across the board with both pharma and biotech, is there acceptance or willingness to try to push more outsourcing increasing anything changing broadly out there? Just it seems like there is another sort of shift around the mindset of pharma to change -- get more aggressive on change. I am trying to understand is that changing their interactions with you at all or is it pretty much the same as it has been over the last 12 to 24 months?

Yes, I would say you have a point, Sandy. But I think that is correct. I think I'd point to the fact that the general tone and pace of change has increased incrementally over the last couple of years. And I think I have always held that the shift to more outsourcing and concentration into the bigger CROs and the more strategic deals would come over a longer period of time than perhaps you would like for you would expect at the start because it -- and it's one of my hobby horses. It is really about the change management and the mindset and the culture of that kind of buy in.

So I think it is fair to say that if I were to look at our experience in existing accounts, we are seeing customers talk a little bit more, embrace more change. I think we are constantly driving an innovation of trying to bring more -- an agenda, more innovation and more to take out time and cost, improve the quality of trials and deploy new technology. And as it becomes developed, and of course based on FDA guidance, on risk-based monitoring.

So as we enter (inaudible) we tend to see more appetite for change. But, and then when we look in the marketplace at potential deals and customers that we are currently talking to, our potential customers, they definitely arrive more armed for change now perhaps with more appetite for it than a couple of years ago at a similar point of discussions in what has subsequently turned into strategic deals.

I do see that the pace of picking up an ability or willingness to embrace change, but it still takes time because we are talking about large organizations. You are also -- we talk about one customer, you talk about pharma as if it is as a homogenous block and it is not. It's many customers and cultures. And when we talk about our customers sometimes it is a homogenous single entity. But it really constitutes many hundreds of thousands of decision-makers and people with different philosophies.

And you can see the pace of change go more quickly in the same customer and one therapeutic group than the other because of just the style of management in one place or the other. But it is definitely -- it is warming up, but I wouldn't want to overstate the rate that it will continue warm up at. Because of we have learned anything from the past it is that these things to be slower than you would expect.

Fair enough. I appreciate the comments, Ciaran.

Dave Windley, Jefferies.

Around, kind of segueing from Sandy's commentary, I was wondering if you could comment after now you have signed we believe a couple of your bigger important renewals for this year, what have been, if any, the additional asks or the goals to be achieved in the next -- in version 2 of those relationships beyond what was achieved in version 1?

Yes, we have concluded and signed two particular renewals that people were asking about before. And there has been no significant change in the substance of the deals. I think what we have seen in version 2 -- I think part of the learning would be that these accounts can be sticky when both parties work on them and invest and get them right, that has been a good experience.

And I think what you're probably seeing in version 2 is the same principles that you saw in version 1. But now, people being people and having worked together, it comes with a level of enhanced trust and experience. So perhaps some of the things that were more theoretical in version 1 and more aspirational start to actually turn into real things.

So the Holy Grail is around the same things -- we work with our clients to do faster and higher quality more efficient trials and reduce the cost of developing a drug, improve the chances of it being successful. And then we also work with them earlier on to make sure that there isn't money wasted on hopeless targets. And so they kind of kill it quickly if it isn't going to work, so save money that could be spent elsewhere.

And those are the same things, you know, still what technology to deploy and how you harmonize and streamline SOPs and work together. And how you get to a faster outcome with perhaps a little bit more certainty. But I mean, would you add anything to that, Steve?

No, I think that is right. I think the expectations go up a little in the version 2, but I think we are able to meet them. And I think we start to generate some efficiencies, some more efficiencies and we are tangibly able to do that I think with customers. And I think that, again, increases the stickiness and it is a good thing for us. So I think we -- version 2 is a better version for both of us, really, I think that is the way we find them.

If I could follow up on the technology investment remark there. We have just -- a couple of us have just come off a call with Medidata where they are investing significantly in additional tools and capabilities beyond the basic electronic data capture. And you have invested in some tools inside ICON or in ICONIK and those areas, Firecrest, etc.

How are you thinking about where you want to or need to invest in capabilities that are not being satisfied by the technology vendors? And where do you think maybe you shouldn't bother because it is going to end up being duplicative of a fully integrated call it Medidata solutions system?

None of our investment would start really with (inaudible) where we are with client requirements. Some of it is almost account specific in the way we look at it with larger accounts. And some of it is more general or some of it starts account specific for a client need and then we are able to make it more generic and use it.

And so, I mean, we would always look to the market first and see if there is something there. But what you find is a lot of what we do is so -- it is so project specific, it is so dependent on the protocol design and what you're trying to measure what you are trying to do. That -- out-of-the-box solutions aren't as readily available and may not be as perhaps another discipline.

A lot of what we do when we talk about technology we are really talking about look, we are -- we should probably say technology enabled services might be a better way to put what we do. And a lot of it is really the process as much as the particular software, the tools that we would use. We build very specific things but we tend to use -- we recognize platforms to build them on that would come out of the box.

So I think it is about customer expectation and it is about looking at our own capabilities. We don't too much future gazing into what technology standards may or may not be able to deliver in the future. There have been many (inaudible) down there and we have learned that what we are doing is very much geared at our projects and our programs and our processes for getting through in shorter time horizons. And I'm going to call on Steve again here (inaudible).

No, I think that is right. And, Dave, I think the difference we bring is we have a lot of domain knowledge in these areas in particular along with the partnership that we have. In many of these cases we are able to bring I think solutions that can better fit in many cases.

So I think we have -- I'd like to think we have an advantage in that area that we can use the knowledge that we have in developing drugs and solving customers' key challenges. And wrap our services around the technology development that we bring to the market. That is really the philosophy with ICONIK where we have taken an establish platform and developed a technology on it that we think solves a fundamental need and that is what our customers are telling us.

Very good. Thanks very much.

Robert Jones, Goldman Sachs.

Hi, it is Adam Noble calling in for Bob. I just want to ask a little bit more around the gross margin. Definitely very strong, I think the strongest since 4Q 2010. Are there any specific areas to call out for the performance there? And then I guess kind of looking forward do you see this is kind of like a baseline that we should look at for gross margin going forward? And do you think given the fact that you been able to ramp up a lot of these strategic contracts at this point do you view the business as returning to sometime in the future a 40% gross margin? Do you think that is an achievable long-term goal?

I mean there are no specific areas, Adam, that I would call out what we've seen as gross margin has been improving incrementally over the last couple of years as we grow revenue and we have done various bits of works in terms of resource planning and how we do things. We have also been hiring heavily and accounts are maturing into the headcount. So nothing specific or unexpected in the current number.

Don't really -- future gazing, I think we -- if anything we probably got to this level of gross margin quicker than we originally expected when we talked about longer-term or medium-term numbers a couple of years ago or even when we did guidance last year. So I would continue to see our gross margin to improve gently and incrementally. But I think we have had a fairly steep recovery here, so we'll see the pace of improvement moderate and we will be gentle going forward.

Where it ultimately goes will depend on too many factors for me to opine on right now. And in steady state I am happy it will continue to grow, it is good. But, you know, you can't preclude the fact that that business arrives in lumps and it just takes one fantastic new account win in which some level of investment is required over a couple of quarters in terms of loading up the staff and getting ready. We've seen that in the past.

So factors like that would retard gross margin growth or even cause it to flatten out at some point in time. So I think the key point here is that we expect to sustain very gradual improvement as we go into next year. And as to your 40% question, well, sure -- some day in Jerusalem it could be, how long is a piece of string?

We'll always strive to have an ambition to return gross margin towards historic level. But so much of that will be dependent on the circumstances of the market and business at that time, it is too hard to say anything specific to that point.

All right, great, that is technically very helpful. And just one follow-up -- quick follow-up on capital allocation just specifically kind of with the cash balance right now. Any thoughts on your current M&A pipeline, any specific areas or geographies that look particularly interesting right now?

Yes, I think we have been very -- we have been active in the M&A space indeed over the last number of years. And our strategy has been very much in terms of adding assets when they seem appropriate that will fill out our service line and our geographical spread. And we will continue to look in that area where we have seen a lot of action on our late phase business over the last couple years, we will continue to look there.

But we will continue to look in our core business as well to see if there are, as you say, we will stay opportunistic if there is acquisitions that either have geographic or therapeutic expertise that we feel is additive we will bring those on over time. But it is very much still that string of pearls type acquisition policy.

Great, thanks for the questions.

John Kreger, William Blair.

Ciaran, I am sure you are still in your planning process for next year, but could you share any early thoughts on 2014? It looks like your fourth-quarter revenue guidance implies maybe high single-digit organic revenue growth. Would that be appropriate for a longer-term trend too? And if you think about margins, what are the biggest areas that you have remaining to continue to drive EBIT margin higher at this point?

Okay, John, we're actually going to do our guidance for next year, most likely in the first week of January, 2014. But I will make some comments in terms of what I would term high-level sort of outlook and then very much preliminary based on where we are now.

I think pointing to Q4, if I deal with revenue first, it's probably a good place to look. I think if you look when it comes to us finalizing our revenue outlook for next year we look at the fact that our constant dollar organic growth was 11% in Q3, with a trailing book to bill of 1.22 over the last 12 months.

And then we could try and factor in assumptions around where the 4X rate might be. We have seen a good deal of the dollar has weakened over the last while for reasons we know well. And of course through the remainder of the year we still have our excellent BD team out there burrowing away trying to land another quarter of business wins. So that is still an unknown when it comes to our variable.

So in revenue terms it does have the feel of high single-digits, perhaps very low double-digits depending on where the foreign-exchange rate goes. So I think you are spot on in that comment and that is where we will start to look. And that then will be change in the course of the year by significant sort of -- if you added another particular strategic account that drove volume or indeed as we look forward and see consolidation in market share and consolidation in the industry with smaller companies, the top-line might pick up again due to that.

On the profit side, I think we have done a very good job in driving the leverage of the global business model and SG&A supports buying that we both there about three years ago. We still can see continued opportunity as the Company grows to get leverage off of that cost base. We have had a number of initiatives around gross margin as well and efficiency and better deployment of technology.

So as I said to Adam on the last one, I see not revolutionary gross margin growth but very gentle and incremental enhancement to the margin just through efficiencies in our organization and the way we run a footprint, the way we run a business. And so, I look to next year and sort of see profit going in 15% -- maybe more than 15% -- 15% to 20% range as we continue to get leverage compared to this year of those.

So that is the kind of feel as 2014 at this stage. But it is really enough and we will do the formal guidance call in January.

Very helpful. Thanks, Ciaran.

Ross Muken, ISI.

Hi, this is Elizabeth Anderson in for Ross. Congrats on a great quarter and I just had a question. You mentioned earlier about how biotech -- the biotech financing environment was expecting bookings. But I just wondered if you would be able to comment more specifically on Phase I bookings?

Sorry, Elizabeth, on which bookings?

On Phase I.

Phase I bookings, yes, I think I kind of covered it in my general comment at the start. Specifically (inaudible) they were weaker as we have expected. And as we've seen over the course of this year where we have done quite a lot of work and repositioning in our Phase I business and on capacity. So Phase I is still an area of the market that we are finding on the weak side of things.

Okay, and in going forward into next year you would expect sort of a continuation of that?

It is kind of early to say. Phase I business, unlike Phase II to Phase IV, which have got very long-term projects and there's a lot of Phase I business comes in early and burns through early. They are projects of shorter duration. That is always a more difficult area to forecast. I think really the discussion is about that the alignment of capacity and capability in Phase I and the fact that some of the market trends are shifting from traditional kind of volunteer-based Phase I activity into more translational medicine and patient populations and hospitals and that.

So I think Phase I and early phase is one of the areas that we are looking at strategically, as I said in my comment. I think we are developing, as we said on the last earnings call, kind of a new translational services kind of approach. So at this stage it is a question of aligning the cost base to what is in the market.

And we will see as we go into next year the changes that we make and the translational capability that we build, what it will do to the business wins then. But you have got to remember Phase I is a very small percentage of our business. So it is not something that tends to move the needle.

Great, thank you very much.

Tycho Peterson, JPMorgan.

Just a question on pricing dynamics. And Ciaran, I appreciate your comments earlier on some of the renewals. But particular as you go to renew some of these contracts can you talk about some of the pricing dynamics around these deals?

Yes, I mean they haven't change, Tycho, is the short answer. I think what is really driving the deals, it's not so much the price per hour for a CRA that is going to materially impact a study, it is really about how you take out two things. How you take out costs from the projects and around the time and the effort and how you deploy technology and just reduce the whole sort of totality of the work effort.

So the discussion isn't so much about pricing dynamics in these renewals that our experience has been. It is about at a holistic level efficiency and innovation and deploying technology and streamlining SOPs and making a project, a specific project shorter. It is also about enhancing the quality and maybe getting data quicker by the deployment of technology and thus helping your decision making through it.

So the good thing about these strategic deals is that compared to transactional business they tend to be, as it says in the 10, a little bit more strategic in nature. And the focus really is around the management of the totality of a portion of the client's budget rather than specific pricing issues. So we haven't found any change in pricing dynamics. And we have continued to find that -- as we did in the past, that it is really all about that level of managing projects and time and quality and speed.

And then as we think about some of the investments you are making, you called out some of the headcount additions in your comments. Can you just talk geographically where those are being added? And then you talked to the level of investment that are still required for ICONIK and some of the other IT investments?

I mean I think we added 130 heads or something to bring it to 10,300. They are just -- they are everywhere, there is no specific geographic thing there. And on ICONIK, did you want to talk about that, Steve?

Yes, we continue to invest in ICONIK. We see a number of new applications coming through. We have had I think, as I mentioned, good response from customers, the risk-based monitoring sector is a lot of interest there. But we have other applications not just around risk-based monitoring, around safety and around lab that we are also trying to integrate into the platform so that we get a really pretty much integrated service. And that is also getting some traction. So there is a lot we are doing in that area and around that Firecrest platform as well.

I think in financial terms, if you are wondering, Tycho, just we don't expect -- I mean our CapEx on average depends on the year runs $30 million -- $35 million. I don't expect significant variance from those run rate of CapEx over the next couple of years. And that will be sufficient to continue our investment program.

And then just a follow-up to that, are ICONIK and Firecrest driving any share shift or kind of new wins? Or should we think about them as kind of larger wins with existing customers?

I think both, actually. You know, as I say, I think they started to drive some new wins. We are starting to -- we are certainly out there in the marketplace very active; a number of our competitors are as well. So we're seeing a lot of interest and some new wins. But they are also being applied to our current partners and we are able to broaden and deepen within those partners using some of this new technology. So I would say both, Tycho, to answer the question.

Okay, thank you.

Greg Bolan, Sterne, Agee.

This is Mike Ward in for Greg this morning. We were just hoping to get an update on your discussions with procurement into the end of the calendar year? Do you get any sense that budget flushing will occur or is occurring at this point?

No, we haven't seen any sense of that specifically. And I'm not sure we've particularly -- it is a factor that we would have seen in the past, either of us. With our customer base and with so much of our accounts coming from the strategic partnership base, you tend to have visibility into budget and spend over a longer period of time. So we haven't particularly seen any attempt to rush money through in Q4.

Okay, (multiple speakers). All right, thanks. Just a quick question, we have heard that several of your Phase I strategic partnerships are performing well. And we were just wondering if there has been any uptick in cross-selling Phase I services into existing Phase III partnerships?

Don't know where you've heard that. Phase I is only 2% of our business so it is not -- our Phase II to Phase IV strategic partnerships are performing well and our Phase I business is more transactional than strategic, it has a small strategic element that is a result of cross-selling from the Phase II and Phase III business into that. But that is our business model.

Great, thank you.

Steven Valiquette, UBS.

So my question earlier about the big pharma cuts in R&D and that leading to more CRO outsourcing and you mentioned that with some of the large pharma may actually just take some time, slow changing acceptance, etc. I guess for me I kind of think big picture. it would seem fairly evident by now that the potential savings for large pharma are tied to greater CRO outsourcing should be fairly clear I would think.

So I'm just curious, do you see anything changing that might accelerate large pharma's thoughts around this? Or is it just simply a function that if they are going to do more outsourcing it involves potential shifting of employee base internally and that is why it takes a longer time. Just curious to get more color on the factors in that slowness and could that change?

I mean part of the slowness is -- I mean if you look at any client budget and if you look at the nature of our business, it is very long projects, they are in various states of completion, they are heavily regulated. It is hard to switch some things over with the middle. So if you make a decision today on next year's spend, 80% of the dollars you spend next year or coming through from projects already in existence.

So there are good reasons why people have to proceed slowly. And you just combine that with normal change management and human factors. So I don't see anything materially changing in that regard compared to task. I do think we see more focus into the clinical development side of the C-Suite. And you are right, the argument to do it is compelling so there is mine share at that level, but there has been for the last few years when these strategically are started.

But I think just a function of tradition, of human factors. And our clients have thousands of patients and trials getting drugs, safety issues. It is not a business that you can just throw a switch on, nor that you would want to and change that quickly. So it takes time for these decisions to come through in a material way. Would you add anything to that, Steve?

No, that is pretty much exactly what I would say.

Okay, that is good color. Thanks. All of my other questions were answered so, thanks, and also congrats on these solid results.

Thanks, Steven, nice to talk to you.

Thank you. That will conclude today's conference -- Q&A session. I would now like to turn the call back over to Mr. Ciaran Murray for any additional or closing remarks.

Okay, Holly, thank you. The progress we've made in the first half of 2013 continues into quarter three and we are looking forward to working hard for the remainder of the year as we position ICON as the global CRO partner of choice in the industry and deliver the best in class information and solutions and performance. Thanks you very much, everyone. Good day.