ICON PLC (ICLR) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ICON plc first-quarter 2015 earnings conference call. For your information, today's call is being recorded. At this time, I would like to turn the conference over to Mr. Simon Holmes. Please go ahead, sir.

Thank you. Good day, ladies and gentlemen. Thank you for joining us on this call covering the quarter ended March 31, 2015. Also on the call today we have our CEO, Mr. Ciaran Murray; our CFO, Mr. Brendan Brennan; and our COO, 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. Certain statements in today's call will be forward-looking statements.

Actual results may differ materially from those stated or implied by forward-looking statements, due to the risks and uncertainties associated with the Company's business. And listeners are cautioned that forward-looking statements are not guarantees of future performance. The Company's filings with the Securities and Exchange Commission discuss the risks and uncertainties associated with the Company's business.

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 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 Chief Financial Officer, Mr. Brendan Brennan.

Thank you, Simon.

Our revenues in Q1, 2015 were $388 million. This represents year-on-year growth of 11%. On a constant dollar organic basis, revenues grew 13% over Q1 last year.

For the quarter, our top client represented 34% of revenue compared to 31% for the full-year 2014. Our top five clients represented 52% compared to 53% last year. Our top 10 clients represented 64%, the same as last year of what our top 25 clients represented 77% compared to 79% last year.

We completed the MediMedia Pharma Solutions acquisition during the quarter. Which together with organic growth meant we ended the quarter with approximately 11,200 staff.

We continue to see gross margin expansion. For Q1, group gross margins increased to 41.3%. Compared to 41.1% in Q4, and 38.2% in the comparable quarter last year.

We delivered further operational efficiencies in the quarter. And as a result, SG&A, excluding a one-off foreign exchange gain, was 21.2% of revenue. This compared to 21.9% last quarter, and 22.6% in the comparable period last year.

Operating income for the quarter was $66.7 million, an operating margin of 17.2%. When adjusting to exclude the foreign exchange gain, the operating margin in the quarter was 16.4%. This compared to 15.5% last quarter, and 12.3% in the comparable quarter last year.

The net interest expense in the quarter was $3,000, and the effective tax rate was 16%. The net income for the quarter $56 million, a margin of 14.4%, equating to earnings-per-share of $0.90. This compares to earnings-per-share of $0.87 last quarter, and $0.57 in the comparable quarter last year.

Excluding the one-off FX revaluation gain in the quarter and the favorable tax adjustment we saw in Q4, earnings-per-share were $0.86 in Q1 compared to $0.82 in Q4 last year.

DSOs in the quarter were 47 days, an increase of 7 days over last quarter. While our DSOs over the last number of years have on average been closer to 40 days, the current quarter's performance is more reflective of our average credit terms across our customer base. As such, we anticipate that our DSOs will remain around this quarter's level for the remainder of the year.

During the quarter, cash generated from operating activities was $61.1 million, and capital expenditure was $10.7 million. In addition, we completed the acquisition of MediMedia Pharma Solutions for an initial cash consideration of $105 million. As a result, the Company's net cash at the end of March 2015 amounted to $172 million, compared to $216 million at the end of December 2014.

With all that said, I would like to hand it over to Ciaran.

Thank you. And good morning, and good afternoon, everyone.

We made a solid start to 2015, building on the progress made last year in 2014. Gross bookings for the quarter were $516 million, cancellations $62 million, and net bookings $454 million. This is a net book-to-bill of 1.17.

Our backlog increased 15% year on year, and now stands at over $3.62 billion. Which gives us a firm foundation to build upon during the remainder of this year.

We continue to see a greater share of outsourcing being won by larger CROs, and the partnership model becoming more widely adopted across mid-tier customers. We are pleased with the progress we are making in winning new partnerships in these market segments.

As we discussed on our call last quarter, we are making good progress in operationalizing these new relationships. And are starting to see sales flow from them, and we anticipate that these sales will start to convert into revenues in the second half of the year.

We remain focused on operational efficiency, and leveraging our SG&A costs. And have made good progress in these areas during Q1. As a result, our operating margins, excluding the FX gain, increased to 16.4%.

The dollar continued to strengthen during the quarter. And consequently, we are increasing our earnings guidance for the full year from a range of $3.45 to $3.60 to a range of $3.60 to $3.70. And we're decreasing our revenue guidance from a range of $1.61 billion to $1.675 billion to a range of $1.6 billion to $1.65 billion.

Alongside the financial progress we have made in the quarter, we continue to execute on our strategy. The acquisition of MediMedia Pharma Solutions that was closed in the quarter strengthens our leadership in the fast growing commercialization and outcomes market. And brings us new scientific communications capabilities.

The medical device and diagnostics market is a growing market segment. And we launched our Medical Device and Diagnostics Research group during the quarter.

This group provides innovative solutions that address the unique challenges of bringing devices and drug device combinations to market. It combines the medical device expertise we acquired with Optive Solutions with ICON's global clinical development and commercialization solutions. These service enhancements will help drive future growth, and bring greater diversification to our business.

We continue to innovate product development through patient-centric monitoring, adoptive trial designs, and by improving engagement with patients on site. This has enabled the buyer market leading Iconic, ADDPLAN and Firecrest technologies.

Leveraging our new innovation center, these technologies will be integrated into our next generation informatics hub. We recently launched the Firecrest eConsent solution that is a core component of this new hub. Our commitment to innovation is helping our customers improve their return on investment in R&D, and deliver better outcomes for patients worldwide.

Before moving on to Q&A, I would like to thank the entire ICON team around the globe for their hard work and commitment during the quarter. Thank you, everyone. We are now ready for questions.

Thank you.

(Operator Instructions)

Our first question today comes from Jeff Bailin of Credit Suisse. Please go ahead, sir, your line is open.

Good morning. Thanks for taking the questions. Ciaran, given some of the reported evolutions in the onsourcing strategy at your largest customer, I was wondering if you could comment on what that might mean for ICON? And what type of messaging the Company is receiving from that client around adding a third CRO to its group of partners?

Good morning, Jeff. This has been known for quite some time, Jeff. (Inaudible) probably relatively recently. It's something we've been working on with our customer for a considerable time.

I think it's fair to say that when we all signed up for this partnership, if we would have known the extent of outsourcing and the volume that we probably would have put three or suggested three [suppliers] there in the first place. At the moment, we don't see that it would have a significant impact in our business in the foreseeable future, and the pipeline is still strong in size.

We have a good flow of work. We have a lot of backlog with them, as you can imagine, which will pour into revenues over the next three to four years. So we think it's-- we always work in the best interest of our customers, and it gives them some flexibility. And of course, as you can see from our numbers, we have a considerable amount of business and there's a fair considerable backlog that will take us through.

So we are talking, and the messaging is that it's business as usual for us. And that we don't see a considerable change in the future.

But recognizing that we have on boarded all of the original Pfizer projects and the original transition and the work. So as we've been messaging for some time that the account is maturing and is not growing to the same extent that it did over the first few years. Which is entirely to be expected, and entirely in our forecast.

Got it. I appreciate all the colors there. And just a quick follow-up, in the last several months, two of your clinical competitors in Quintiles and Covient now have partnerships of varying forms with traditional clinical labs. And part of the strategic rationale seems to be focused on the value of lab data in aiding patient recruitment.

We know that Central Lab is a part of the strategy over at ICON. But just curious to get your perspective on the value of more traditional lab data, and what type of response ICON might have to some of the strategic actions of the competitors?

We are [fine] with and also about those developments in terms of what they do to our position. As you know, the lab has never been a significant, or certainly in recent years, hasn't been a significant element of our business. I think it accounts for probably mid to high single digits, somewhere around 7% or 8% there.

And so really the question centers more around what does this do for data, and how does it affect the greater business? There is lots and lots of data out there. There's lots and lots of data in the world.

I think you have to approach that and with the view that the data is only important when it's meaningful, and when it leads to conclusions and analysis, which provides actions and insight. We are pretty happy that we have got what is a niche customer focused high quality lab with good range of testing and assays, and we continue to promote that.

We've got a lot of tools and technology in our lab, which allows data from other sources to be integrated. And I think when it comes to data, it's not just about data, it's about your relationships, customers. It's about having smart people that can do something with the data and tools, and can consolidate and integrate the data.

We think we have a competitive offering there. And we just watch this base with interest. And maybe, Steve, you are closer to this.

I think that is absolutely right. I think the data has been out there for our competitors for some time. There is nothing new there.

So we don't see a particular use for it coming on board here. We see our strategy focusing in on having a niche provider, and utilizing and integrating the approach to our lab with our clinical operations as being the way forward.

Great, thank you.

Thank you. We would now move to our next question from Eric Caldwell of Robert W. Baird and Co. Please go ahead, sir.

Thanks, and good afternoon to you. First off, just technically MediMedia, I'm curious if you can give us the revenue contribution in the quarter, stub quarter impact?

Hello, Eric, it's Brendan here. What I will do is maybe run through these numbers again. The year on year growth was 11%. On a constant dollar organic basis, it was 13%, and on constant currency it was 14%.

So there's a 1% difference there, and that relates to MMPS. Just to make it clear, after it was so integrated in our business in the quarter, we are not calling it out separately. The only difference between the 13% and the 14% is MMPS.

I guess my problem with this is that you do have Aptiv, which has not annualized and doesn't annualize until May 8th. So I know you treat organic as a calendar year start to a new mix of what is organic and what is not. But that is not how the street looks at it.

And I'm just trying to -- I know it's very difficult to give a revenue contribution from Aptiv, and it's been very integrated at this point. But the fact is, that you did have a full quarter of impact that wasn't in last year's math. So, that's what I'm trying to figure out.

Eric, as I was saying, we have pretty much done a lot of work to integrate that. And I take on board your point, but as I said, it would be probably, possible, I'd be giving an inaccurate number it's so integrated.

I think that's the point really, Eric, is that we have integrated it so successfully and have got benefits from it that we would be giving a meaningless number, which would be no one's intention and wouldn't be any good to you guys and the street. I think if we'd look back, and it's not a material amount in the overall total of our revenue, so we don't think it's of that much significance.

That's fine. If we could shift gears to DSO. Your average DSO as reported over the last six years was 38 days. You are now saying 47 is the new run rate, it's about a 25% increase.

So I'm curious what specifically might be driving the increase in the DSO. Are we talking about a reset with some of the big strategic partners to new terms, or is it new business coming on at maybe a new market level, something we should be watching for the industry in total? What might be driving this increase in DSO?

Eric, it's Brendan again. Over the last number of years, we have seen our sponsors generally going out in terms of the amount of contractual days that are there. And what we are seeing now is really with some of the larger relationships fully ramped now, that waiting of those larger contractual terms coming to bare on the overall DSO position.

So, you're right, we have done an extraordinarily good job on DSO over the last number of years. I would have said, even over that period I would have expected 45 to be a more normalized number of days. And I think we've outperformed that. But given the overall weighting of our DSO debtor terms, I think this 45 to 50 territory is probably as good a call for the future as we can make it at this stage.

In the historical context, going back over the last couple of decades, it's still a very good level and no major concern there. It is a big increase from where you have been recently.

On Pfizer, thanks for the comments earlier on Pfizer. I tend to agree with everything you said. But I am curious, I think it was Ciaran in the prepared remarks or maybe in the early Q&A said something about Pfizer, growth slowing to more normal terms which would have been expected.

By our math however, Pfizer was up about 30% this quarter on a year over year basis. Given the increase in concentration and increased size of the company, it translates to a pretty big growth rate in Q1 specifically. Which by default would suggest that the rest of the customer base was much lower, in fact, maybe even down a bit.

So, I'm curious, based on comments coming out of last year, it sounded like the rest of the customer based bookings were growing, in fact, growing pretty substantially. But it looks like the revenue is not translating yet. I'm hoping to get a better sense of when we might expect that to occur, and why, why it's going to change now?

I think to take the first part of your question, Eric. I think it's fair to say that the level of Pfizer business has been pretty steady over the last number of quarters. I think this quarter it was the same as Q3, it was little bit less in Q4.

You would expect the ebb and flow of 125 projects conducted around the world to go up and down a little bit. I think that pattern that we've discussed is certainly intact of it maturing over the last number of quarters.

And with regards to the other business. I think if I look at this quarter, our book to bill and our other business was higher than target. So, that is a good sign.

We have also spoken about adding a number of what we believe will be significant accounts over the last number of quarters. It just takes time to get these open.

I think in my comments I said I would expect that the sales conversion to revenue to accelerate in the back end of the year. We have signed a few, I won't go into the specific accounts between Q3 and Q4 and Q1. And we are happy with that.

But as you know, the work that's involved from signing, developing the model, and the governing structures and how IT is going to in. And then looking just at the timing of when customers are going to start up new projects, it takes a little while for things to be planned out. It then it takes -- the awards start to come in.

And I think one of the features of these partnership models that holds across all of them is that compared to the past, you tend to be involved much earlier in the process. Which means that you are taking bookings a little bit earlier than in the past. In the old days of tactical stuff, it was purely tactical.

You could win an RFP on Friday, and be scrambling to start the project on Monday. And those kind of days are gone. I think you see that trend, and it's one of the things that drives the revenue conversion metric over the years.

I think if I look back to sort of -- or I'll say four or five years ago approximately, we would see conversion in 14%, 15% of opening backlog. Over those five years, longer, more complex, more challenging clinical trials. For instance, in oncology, increasingly take up more of the backlog.

Oncology is probably 35% or something like that of our backlog, compared to 25% two or three years ago. They're longer tailed trials. We see more outcomes work through the longer tailed trials, and then we see the fact that that work is going into the backlog earlier.

So now we have a conversion rate of around 11%, 10.9% this quarter. So it will be around 10.9% or 11% or 11.1% through the rest of the year. So, all that we are really seeing is that we are happy that we have been winning the business. We have been on boarding the customers. But that it's going to take time for that to flow through. So we would see the acceleration in Q3, Q4, that time of the year.

That is a good response and fair. Just the last one, Pfizer, you made the comment that revenue, at least since 3Q 2014, has been running in this high $120 millions low $130 millions range pretty consistently. Is that your outlook going forward?

I know there can be variances that can't be projected. But as you model this out and think about your overall guidance, are you planning on Pfizer revenue being at a relatively similar nominal level as we move through the next few quarters? Or is there any variance that we should be expecting in the near term?

And I hate to bring it up on a client specific basis, but the fact is it's a third of your revenue. And everybody's eyes are on this contract, especially with the formalization of a named third party. I just want to make sure that expectations are set in the right place.

Yes, I'm sure everybody is looking at it. And they are probably not happy with you, since this is your fourth question. Yes, as I say, we are forecasting for the rest of the year that it will be either at the level of this quarter, last quarter or somewhere in between depending on the ebb and flow.

We have a considerable amount of backlog in there that equates roughly to the same proportion as revenue that's going to burn to revenue over the next two or three, four years. So our forecast would have it. Maybe a little bit lower than this quarter.

But as we saw last year, we were forecasting numbers and we were beating them on that. So, I think the point is, the forecasts would reflect that it's broadly around where it is at that Q4, Q1 level.

When you have the most concise prepared remarks in the history of reporting companies, it's easy for a sell side analyst to ask four questions.

We like to make it interesting for you. We know you prefer it that way.

I will let you guys go. Thanks very much for the answers.

Thank you. We will move to Steven Valiquette from UBS. Please go ahead, sir.

Thanks. Just to I guess pile on and maybe on some of that same subject. I think for that one large customer, I think the current contract, I think does expire sometime early next year.

As far as just the timing of when a renewal may or may not be announced, is that something that will happen towards the very end of this calendar year or early next year, or could it be sooner than that? I'm just trying to get a sense for timing on when there could be some announcement of a potential the extension of that contract. Thanks.

The contract expires the middle of next year. And I suppose the current intention -- we have ongoing discussions, Steven, about these matters. We have got the strong government structure and meet regularly, and are constantly looking at new ways to add value to the account and work with the customer.

So, we will talk to them seriously about it, I suppose, towards the end of this year. And then it's really just a question of MSAs and how long it takes to cross Ts and dot Is.

But, yes, I would expect that to happen in the first half of next year. But if it happens sooner, we will be more than happy and we will let you know.

I guess the quick follow-up would be, should investors assume any sort of potential price change with that renewal? Or if you do renew it, is it just business as usual the way things have been progressing so far?

I think commercial negotiations always have an element of the unknown when you go in with them. I think it would be fair to say that the intent behind these larger partnership contracts are to constantly drive efficiency and more value.

But it doesn't come so much through pricing as smarter ways of doing things, eliminating areas of duplication, better planning, better performance, hooking up of technology and the systems that we use and working more seamlessly. All I can speak to really is our experience to date in similar situations. And pricing has not changed considerably, if at all, in the course of renewals.

But there have been other discussions around different ways of doing things. And some of them broadening services, how we work together, perhaps investment, joint investment in certain technology platforms or changes like that. But that will all be for discussion with the aim of improving the return on investment on our customer's R&D spend.

Okay. That's helpful. Thanks.

Thank you. Next we will move to John Kreger from William Blair & Company. Please go ahead, sir.

Hello, thanks very much. Ciaran, in looking at the slide that you guys posted. It seems like the backlog burn rate has been trending down over the last year. Can you just talk about that? Is that a trend, and what do you think is driving it?

I suppose I would really just point to what I said when I was talking to Eric. That the principle drivers, because if you go back here, we all remember when it was 15%, John.

The principle drivers over the last number of years, and it has been very gradual, have been more complicated trials in the backlogs, principally oncology. Which is to say that about 35% of our work and then in line with the amount of compounds in the market compared to 25% a couple of years ago and 20% before that.

So, they are longer trials, more outcome studies, and longer trials at the other end of the spectrum. And then the fact that a feature of the partnership models is that you get more involved earlier in the process. You are not just doing the RFP and winning it and scrambling to start work, so you get involved early.

You scope out the work, you contract it and do work orders. It goes into the backlog sooner than it would have in the past, and then it might take three or six months to start up or to start up in a meaningful way or more than that a year sometimes.

On particularly complicated ones where you could be delayed as you're working through -- you have the bones of the project, you have the protocol, but then have protocol provisions, and you're looking at where you want to do it and more feasibility and things like that. So it's really just a function of I think the compounds and the backlog, and then the fact that the earlier involvement with partners means that it's sitting there a bit longer.

Great, thanks. Can you give us an update on how the DOCS staffing business and maybe your clinical pharmacology businesses has done of late?

We can. Maybe Steve, do you want to speak to that?

Sure. Let's start with the DOCS. We have seen some nice progress in the DOCS, particularly around our larger FSP type relationships. We were able to win a couple of large projects of larger relationships last year that are starting to move nicely for us.

So that business has been growing well. We are pleased with the way that is developing.

As to say the FSP business remains and I think continues to be a very important part of the market. And we are able to leverage our strengths in the DOCS area around contract resource with our phase II, phase III business as well. So there's a nice opportunity to share resource, but independently, the DOCS business is doing well.

On the early phase business, our CPU business has stabilized nicely. We are making some progress there. The focus is on winning new business. We have our unit in Texas. And we are seeing progress there. We are still fairly early days. And it's very a small part of the overall operation, but it's a very important part of the operation from a strategic point of view. And so we are seeing some progress there, although there is more work to do certainly in the business development.

Great, thank you very much.

Thank you. We will now take a question from David Windley from Jefferies. Please go ahead, sir.

Hello, thanks for saying the questions. Good afternoon. Ciaran, I'm curious, or maybe either of you, Ciaran or Brendan, I'm curious about margin outlook.

Clearly, you've made some excellent progress there. I think a number of companies in the space over the years have told me that their largest clients are their best margin clients. As your outlook transitions growth leadership from your largest client to, say, new relationships that you are on boarding, is there any margin headwind there that we should be aware of?

No. The short answer is there's no margin headwind there that you need to be aware of. Our margins don't differ significantly across the client base.

I think where they might differ is -- they don't differ at the bottom line, and the return sometimes the gross margin might differ a little bit. Because you are making statements below the line, and then a particular client does need a lot of BD support or the work comes in, and things like that. But the actual operating margin profile is pretty consistent.

Okay. Does the, say, primary relationship overseer, I think I have this right. So essentially, is John Hubbard's departure from Pfizer, and now I assume you've had opportunity to interact with the person that stepped in to his seat. Do you think that has an influence on the flow of business and your mix of business within the relationship as we move to Steve's earlier question, move toward renewal next year?

I think we need to be careful not to over personalize relationships between companies and vendors. You look at a company like Pfizer with, I don't know, 100,000 people, or whatever. It's much greater than any particular one.

And you look at ICON with their 11,000 people. We interact with all the customers, not just that one at many touch points. And at the end of the day, we are all in business. Our customers are in business to develop better drugs, and do it economically, and make a return on it. We are there to help them.

And we don't see our history over the years that I've worked in business and certainly my current experience, is that does not have a great deal of influence. Life goes on, studies go on, and the relationship that you have is based on your respect and your performance.

And we are very happy with the current relationships that we have with Pfizer and our other customers. And the flow of work and business in Q1 has not been significantly different from the past, so there is no evidence that it's made any difference.

Okay. And just one hopefully quick one. The question was already asked about the lab and the data, extraction from the lab. I guess I'm more interested in just the core strategic reasons to be in the Central Lab business. Could you talk about your -- how the lab compliments what you provide to the customers?

What is your value prop or your go-to-market strategy with your lab? Because I'm sure it wasn't higher volume, lower cost before, so I assume it's not that now either even as the competitors are looking at leverage much higher volume.

You are right there, David. Our position hasn't really changed. And we were always a small lab compared to our larger competitors. So the relative position, it's still kind of the same. So, the value proposition, maybe, Steve, do you want to speak a little bit to that?

Yes, I think where we're seeing an opportunity to put a value prop to our customers, that is really through integrating our lab data with our clinical data, particularly with ICONIK. And the patient centric monitoring we're able to visualize data both in the lab and from the clinical setting in an integrated fashion. We are able to, I think, improve some of the efficiencies around site set up, site identification, and take out some of the white spaces.

So that has been out. That has been very much our focus. We have been able to generate some data to show customers that when you outsource a full project to us, both on the clinical and the lab side, you do get some benefits ultimately in terms of efficiency an cost time.

And that's where we see the opportunity to drive. We are also focusing in to many effectives and therapeutic areas and around oncology. We see some opportunity there.

But really it's around, I think, the most efficient clinical trial process you that can provide to customers. That's what we find our customers are interested in, and that's why I think with our integrated lab service were able to provide particularly in a patient centric monitoring setting.

Great. Thanks for taking the extra question.

Thank you. Our next question today comes from Tim Evans from Wells Fargo Securities. Please go ahead, sir.

I was also interested in that Central Lab question that Dave asked. Maybe just to bring it home a little bit, to what degree does Pfizer actually use your Central Lab?

Not to a significant degree as it happens, Tim.

So then, if your biggest customer isn't using your Central Lab, I guess the strategic rationale does become a little bit less clear. And I just wondered, have you actually explored options for that given that you are a very distant player now to the top -- what will ultimately be the top two?

We have explored options, and we are still of the view that for the reasons we have articulated that it is an important part of our business. We have more than one customer to judge this on in terms of data points. And particularly, if you look at it in terms of -- we have more than one customer, and there are of many sizes, and in many different segments, and different kinds of businesses.

So the lab plays a very significant part and a core part of the business that is growing quickly in terms of mid tier and biotech companies that we work with. I think it would be foolish to restrict the services that we can provide in a very large part of the market without just looking at one top customer, or even specifically a number of large pharma.

But a good 40% of our business, more than 40%, comes from outside the large pharma sector. And we have to service that too, and provide the services that we need for customers. And they are important contributors to our quarterly business wins, the generation of our revenue and to our future growth, and to the diversification of the business away from concentration.

So we have explored the options. And we are happy that we have a very compelling high quality service offering there that serves a significant segment of our customer base, if not quite all of them.

Okay, thank you.

Thank you. Sandy Draper from SunTrust has our next question. Please go ahead.

Thanks very much, and good morning, guys. Just a few housekeeping ones, as most of the bigger picture ones have been asked.

Brendan, I didn't catch it if you said it. Were there any shares repurchased in the quarter?

No, Sandy, not in the current quarter, no.

Okay. And second, and just want to make sure I've got the math right. Looking at the SG&A, the dollar amount was down. Was that, if you go look at sequentially and it was basically flat year over year, was that all due to FX? And is that where the revaluation on the FX went in? I am just trying to think of what a more normalized SG&A line looks like. I just want to make sure I have got that correct.

Sure, Sandy, all of that one-off gain that I spoke to is included in the SG&A. And which you exclude that, the normalized percentage of SG&A is 21.2%.

Okay. And when you think about going forward, is that either on a dollar amount or percentage where you are targeting? Are there other areas to either bring down costs, or do you think that -- are there investments that would start to drive SG&A back up?

I think -- no, as we look at over the remainder of the year, we are looking to continue to make sure we are efficient at how we support [carl's] base work. So we'd look to drive that -- continue to drive that down.

Okay. Great, those are my two questions, thanks.

Thank you. Our next question comes from Donald Hooker of KeyBanc Capital Markets. Please go ahead.

Good afternoon, good morning. So I wanted to see if I could beat on you a little bit more on the Pfizer. Is there a way -- in the prior quarters, you gave some good color around bookings around Pfizer. Maybe can you describe your bookings composition, how much of that is Pfizer in your backlog composition and how much of that is the large customer versus the rest of your business?

We don't disclose that. But what we could say in terms of color, is that we know that Pfizer is 30% odd of our revenue, and it's broadly that I think I said in terms of backlog. And bookings in the quarter were satisfactory, they were above 1 anyway.

So it's still implying future growth, albeit, but not at the levels we would have seen 4, or 5, or 6, or 7, or 8 quarters ago when all the projects were transitioning in booking. So we are happy -- the composition of our bookings is that our non Pfizer business was slightly above target around 1.2, so the Pfizer number was a little lower than that, but not materially. And so yes, it was nicely balanced, and it keeps us on target for where our forecasts are for the foreseeable future.

And maybe my follow-up would be another general question you get a lot. But you all certainly have a lot of cash sitting there on your balance sheet.

And we are all very interested, as always, of how you are thinking about that, acquisition, share repurchases. The prior questioner asked about share repurchases. Can you talk a little bit about your balance sheet and how you think about that now?

We think the balance sheet in terms of just the overall delivery of shareholder value, which we have seen over the last number of years. Our intention is to deploy it in the way that we think delivers shareholder value, and make sure that it delivers sustainable long-term shareholder value.

So if you look at last year, we certainly have a lot less cash now, Donald, on the balance sheet than we had a while ago. If you look at last year, we spent about $140 million on Aptiv. And there was MediMedia, that means we spent about $250 million or $260 million. On top of that, we did [140 million] of share repurchases at the back end of last year, that was $400 million of our cash.

So when we look forward, we still feel there is opportunity in our sector as the market grows to invest in areas where we would like to enhance our capability or our skill, always with the view of making sure our offering stays competitive to win business in the market. And the market changes, so we always have to be conscious that we have to adapt and evolve as we go forward.

So there will still be more M&A in targeted areas that we feel will drive our competitiveness. And I think we are in the right quarter saying it's still our intention to progress share buybacks opportunistically over the period to make sure that we don't dilute the shareholders over time as options get issued to staff.

So I think there is no change in our strategy over last year. It's steady as she goes with a mixture of some buybacks and some more acquisitions. But you can never control the timing of those acquisitions. You want to see quality assets that add value, and you look at things and sometimes they happen and sometimes they don't happen for a while, and then sometimes they all come at once and you do a number of them.

So that's how we're going to look at things going forward. And in addition to cash, we would also be comfortable with modest levels of debt on the balance sheet, provided we have the opportunities to invest it properly in a way that drives shareholder return.

Okay.

Thank you. Douglas Tsao from Barclays has the next question. Please go ahead.

Hello, good morning. I think most of the questions that we get asked have been already asked and answered. But just curious in terms of, obviously, FX has been a factor in terms of your results.

Just curious when we think about your largest client and the rest of your business, how that revenue is distributed in the US versus globally. So were there any factors or did that contribute to the sequential increase that we saw in the Pfizer book of business this last quarter?

It did modestly, Doug. A, you're on the money there. More of that account is denominated in dollars than in the rest of our portfolio. So it would have made -- caused a modest increase in the concentration. But I don't know modest, 100 bps, 150 bps, something like that.

Okay, great. Thank you very much.

Can we take the next question, please.

We will now take our next question from Bob Jones of Goldman Sachs. Please go ahead.

Thanks for the questions. Ciaran, I guess just a big picture question on cost structure. If I look at SG&A over the past several years as a percent of sales, you guys have whittled it down from 26%, 27% range. Even if you adjust for the Pfizer on boarding period to what looked like below 21% in this quarter.

So, obviously, real nice job managing costs relative to the top line growth. If we look at some of your highest margin competitors, both now and over time, you guys are really getting close to those levels, best industry levels. I'm curious as you think about a more normalized top line and booking environment, how much more leverage do you really see in the cost structure in the SG&A side of the business?

Of course it depends, Bob, what term you look at. I think it would be fair to say that we still see continuing leverage in the rest of this year moving down towards the 20% mark would be our target. And then as you go into the future, the world is always changing.

If you look at what drove the leverage over the past number of years, some of it was new technology that we could deploy to centralize better, existing resources that we had and eliminate duplication. We used to operate in a more number of more separate business units, so we brought all of that together on a global platform.

Some of it has been where we relocate resources, and the benefits that technology allow in terms of putting stuff offshore and then being able to use tele presence instead of travel and systems to make things more efficient. So technology always changes, and the world always changes. So if you look over time, costs tended to come down from the 1980s to the 1990s to the [naugties] to this decade.

So I think we are happy enough that we can continue to drive the number down over the next year or two. And then beyond that, you just look -- or we get paid to think of smarter more efficient ways to do things that maybe nobody has thought of yet, but we'll all have to think about in about two years from now. So that is really how we look at it.

That's helpful. I guess a similar question on the top line. You guys talked about entering into a more normalized period. Book to bill seems to be hovering around that 1.2 level.

Obviously, subsequent revenue growth I would imagine would be in a more normalized level because of that. Is there a way you think about reaccelerating the top line growth as you move forward? Or is this a plateau that we have been working for several years and this is the state of the business as you see it over the next, I don't know, two to three, three to five years?

I suppose we're always working to accelerate the top line. And we have a number of options to do that. You have what goes on in the market, specifically with your customers.

So some of our revenue profile throughout the partnerships and more collaboration between CROs and our customers. Our top line is driven in the first instance by the specific pipeline activity and principal customers. And they ebb and flow, and they go up and down through cycles. So we look at that.

We then also look at other parts of the market, bio techs and mid tier and other opportunities to make more partnership developments, or do we look at more tactical places. We also then look at adjacencies. Is it time to look at things that we are not as strong in at the minute, and either grow them organically, or then accelerate the top line through acquisitions.

So when we look forward, we see a mixture of organic growth based on the market, and also the opportunity to use our balance sheet where it makes sense. In terms of services that are close to what we do, that we have acknowledged, that add to our core strength, that add to the competitiveness of our offering.

So I think the book to bill is one indicator in the medium term. It would sort of indicate, as you say, more normalized growth for the next year or 18 months. But beyond that, the truth is that it's very hard to see and that we do have some influence over it by the opportunities that we've pursued to explore new areas.

That's helpful. Thanks for the questions.

We will now move to Todd Van Fleet from First Analysis. Please go ahead.

Hello, guys, just two quick ones on Pfizer here. Does the full year revenue guidance assume any change in the contribution from Pfizer either increasing, decreasing or no change? And then secondly, is there any notable difference between the burn rate for the Pfizer business versus the rest of the book business? Thanks.

No. Do you mean contribution in terms of revenue?

Yes, revenue contribution, yes.

I think I said earlier that we expect it to be around the same level that we have seen in Q1 and Q4. Q3 was higher. Q4 dipped a bit. Q1 went up again.

So it moves up and down, but it's broadly in that range. And that's what we are looking at for the rest of the year. And the contribution from Pfizer and or the conversion, was it, from Pfizer.

Yes, backlog conversion, the burn rate.

We have a couple of big long-term projects in there which is good, because they last much longer. And they were converted at a little bit lower rate than the rest of the book. But then there's 125 projects in Pfizer. So I'm not sure. I'm not sure that over the whole portfolio if it's materially different.

Okay. Thanks, guys.

We will now take our final question today from Tejas Savant of JPMorgan. Please go ahead.

Hey, guys. It's actually Tycho on. I want to make sure I understand the margin commentary. Just because you are above your 2015 targeted exit rate of 16%. Is there any reason why margins shouldn't be up sequentially going forward from here, maybe at a slightly slower pace? But just trying to understand some of the gives and takes in the operating margin for the rest of the year.

I suppose that the [steer] at, there would be no reason, Tycho. But as we forecast throughout the area there's some studies in there and lots of moving parts.

We've all tended to be prudent in how we look at this. We have a number of new customers that we are in the middle of onboarding and ramping up. I think I said we expect those to -- sales to convert to accelerate conversion in the back end of the year.

So it will depend on the timing of that. So, there are certain timing factors that have kept us thinking that range that we targeted 15% to 17% is still the appropriate range, albeit 16% to 17% is probably the range now given where we've started.

Okay. And then on MediMedia, I appreciate the revenue color that you provided. Can you maybe just talk about whether to the degree to which you are getting incremental business wins, and whether you are bundling around that? Just curious as to how much cross selling is going on with that business now that you have it.

Tycho, Steve Cutler here. At this stage, limited -- we are just starting that process out. And we are seeing some opportunities, and they are in customers in they're segment that we are not in so much in the 2, 3 segment. So that we see opportunity, but I would not be able to say to you we have had any significant successes on that front. At this stage, it's too early yet.

Okay. So you are still assuming about $0.10 on the bottom line from the deal?

Yes, as we said last quarter.

Okay. And then just last one, what are you projecting now for FX? I think you talked about a 200 basis point headwind in February. How should we think about just given the currency moves, what is embedded in guidance?

Our current re-guided numbers are at the current prevailing dollar, euro rate. So, only as the dollar strengthens more do we get any headwinds, otherwise it's what we have seen in Q1. If that makes sense to you.

Okay. And actually, just one last one. As we think about the mix evolving and maybe incremental interest from some of the biotech customers, can you comment on the degree to which you are able to cross sell Firecrest and ICONIKS and some of these higher value add services? I'm just trying to understand how often that comes up in your discussions with customers.

I think certainly with our strategic customers and Partners, we are able to cross sell very effectively with those areas, Tycho. With the biotech, it tends to be a little more of an ad hoc proposition. So in some cases, we can't because they don't have the infrastructure.

They don't have the resources, and so we are able to put our labs in there. We're able to put our imaging group in there; Firecrest, ICONIK. ICONIK of course is related more to the patient centered monitoring. And so that's more an approach, it's not necessarily a biotech oriented, one that all customers are looking at.

And if we do a patient centered risk based monitoring type approach, ICONIK is the tool we use. And we always use it. So it varies across the segment. But we are generally feeling happy with the approach we are being able to take. And the uptake that those biotech customers, and indeed all customers are taking in terms of to cross sell.

Okay. I appreciate it. Thank you.

Thank you. Ladies and gentlemen, that will conclude the question-and-answer session. I would like to turn the call back over to Mr. Ciaran Murray for any additional or closing remarks.

Thanks very much, everyone. I will conclude by saying that we are pleased with the solid start that we've made to 2015, that we look forward to building in this progress during the rest of the year as we seek to become the CRO partner of choice for our customers in drug development. Thank you very much.

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