ICON PLC (ICLR) 2017 Q4 法說會逐字稿

Good day, and welcome to the ICON plc Q4 and Full Year 2017 Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Jonathan Curtain. Please go ahead.

Thank you, Paul. Good day, ladies and gentlemen. Thank you for joining us on this call covering the quarter and full year ended December 31, 2017. Also on the call today, we have our CEO, Dr. Steve Cutler; and our CFO, Mr. Brendan Brennan. I would like to note that this call is webcast and that 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 risks and uncertainties associated with the company's business, and listeners are cautioned that the 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 U.S. 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. (Operator Instructions)

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

Thank you, Jonathan. In quarter 4, we achieved a new high of $718 million gross business awards, incurred $119 million of cancellations. As a result, net awards in the quarter were a record $599 million and net book-to-bill of 1.32x. Full year gross business awards were $2.6 billion, cancellations of $300 million resulted in net awards of $2.3 billion and a net book-to-bill of 1.29x.

Year-over-year, backlog has grown by 17% to $4.93 billion. Our top customer now represents 11% of ICON's backlog, down from 15% at the end of quarter 4 last year.

Net revenue in quarter 4 was $455 million. This represents year-on-year growth of 4.6% or 2.3% on a constant currency basis. During 2017, we transitioned well through the bococizumab cancellation, and [thus] the year-on-year group revenue on a constant dollar organic basis was 3.9% lower. Outside our top account, year-on-year constant dollar organic growth was close to 10%.

For the full year of '17, net revenue grew 5.5% to $1.758 billion. This represents 4.8% constant currency growth and remained flat on a CDO basis.

We introduced guidance under ASC 606 on this earnings call. This new treatment will have an effect on the timing of revenue recognition. We estimate this to be less than 1% of revenue in 2018. Accordingly, we are satisfied that the revenue and earnings guidance we are issuing on this call takes this into account.

Our customer concentration continued to improve in the quarter, with our top customer representing 13.2% of revenue compared to 23.8% last year. Our top 5 customers represented 36.9% compared to 44.1% last year. Our top 10 represented 51.8% compared to 57.3% last year, while our top 25 customers represented 67.3% compared to 73.1% last year.

For the full year, our top customer represented 18.4% of revenue compared to 26% in the prior year. The top 5 customers represented 40.3% compared to 44.7% last year. Our top 10 represented 54.7% compared to 57.7% last year, while our top 25 represented 70.9% compared to 74.9% last year.

This continued diversification of our customer base meant that outside our top account, revenue grew 19.2% over quarter 4 last year or 17.1% for the full year.

Group gross margin for the quarter was 41.3% compared to 42.2% for the comparable quarter last year. For the full year 2017, group gross margin was 41.6% compared to 42.3% achieved in the full year '16.

We continue to leverage our best-in-industry global support model, and as a result, SG&A was 18% of revenue in the quarter. This compared to 18% last quarter and 19.2% in the comparable period last year. Full year SG&A was 18.4%, 110 bps improvement from the 19.5% reported for the full year '16.

Operating income for the quarter was $89.7 million and operating margin of 19.7%. This compares to 19.3% last quarter and 19.5% in the comparable quarter last year. For the full year '17, operating margin was 19.7% compared to 19.2% for the full year 2016.

The net interest expense for the quarter was $2.5 million and $10.3 million for the full year.

The company recorded a nonrecurring tax expense of $7.4 million during the quarter, principally as a result of the mandatory repatriation provisions contained in the Tax Cuts and Jobs Act enacted during the fourth quarter of 2017. Excluding the nonrecurring tax expense, the pro forma tax rate was 10% for the fourth quarter and 12% for the full year.

Net income, excluding the one-off tax impact for the quarter, was $78.5 million, a margin of 17.2%, equating to diluted earnings per share of $1.43. This compares to earnings per share of $1.35 last quarter and $1.33 in the comparable quarter last year, an increase of 7.5%.

Full year net income, excluding adjustments, was $295.7 million, a margin of 16.8%, equating to diluted earnings per share of $5.39. This compares to earnings per share of $4.77 for the full year '16, an increase of 13%.

DSO in the quarter was 49 days, which compares to 50 days last quarter and 50 days in the comparable quarter last year.

Cash generated from operating activities for the quarter was $105.9 million and $383 million for the full year. Capital expenditure was $21 million in quarter 4 and $45 million for the full year.

At December 31, 2017, the company had net cash of $11.6 million compared to net debt of $88 million at December 31, '16 and net debt of $56 million at the end of September 2017.

With all of that said, I would now like to hand the call over to Steve.

Thank you, Brendan, and good morning to everyone. 2017 was another year of excellent progress for ICON. Driven by demand across all customer segments, we achieved our highest-ever level of gross and net business awards of $2.6 billion and $2.3 billion, respectively.

In quarter 4, we achieved our third successive quarter of net book-to-bill over 1.3x, driven by gross business wins of $718 million and net wins of $599 million. This continued strong business development performance means we grew our backlog by 17% year-on-year to nearly $5 billion and helped our revenue increase by 5.5% to $1.76 billion.

By focusing on operational excellence and proactive management of our cost base, we were able to exit the year with an operating margin of 19.7% and increased full year EPS by 13% from $4.77 to $5.39.

Looking at the overall market for our CRO services, demand fundamentals remain healthy and will drive CRO market growth during 2018. A background in growing R&D budgets, strong biotech funding, increased outsourcing penetration levels and higher FDA approval rates all indicate a positive environment.

Market share continues to shift towards larger CROs and -- that have the global footprint, breadth of services and patient access necessary to run increasingly complex global studies. As demonstrated by our performance in 2017, ICON is well-positioned to capitalize on these favorable trends.

We are pleased with the performance of all our service areas in 2017. ICON's clinical research business continues to benefit from our commitment to invest in innovation, and we remain strongly focused on our data-driven strategies and partnerships that can improve site identification, study placement and patient recruitment, all of which remain key industry challenges.

Our new one search data platform is helping improve our investigator site identification and selection process based on comprehensive and integrated internal and external data. A developing PMG network continues to improve patient access to trials, facilitating patient recruitment rates that are more than twice as fast as our standard sites.

And through our partnership with TriNetX, ICON is leveraging the capability to perform real-time scenario modeling, which enables more rigorous feasibility and study planning. Specifically, the predictive analytics capabilities allow us to better project the rates at which potential patients would enroll in our trials, thereby allowing more rapid trial completion and better resource planning.

Finally, we continue to identify and pilot new data sources and platforms that have the potential to substantially drive faster clinical trials for our customers.

Value-based health care continues to gain momentum globally with the World Economic Forum and leaders of pharma, health care providers, regulators and clinicians working together to understand how health outcome measurements can be used to better assess those drugs and devices, which are delivering value in healthcare.

As a sole CRO partner to ICHOM, ICON continues to support its scale-up initiative globally, and we believe this complements our overall real-world evidence strategy and focus on patient-reported outcomes and mobile health technologies.

ICON's ability to apply agile resourcing models, not only in full-service, but also FSP and hybrid outsourcing models, has led to further opportunities for our functional services business during 2017. During the year, we also saw strong business development and financial performances from our Central Lab and commercialization and outcomes businesses.

In July, ICON acquired the Mapi Group, a leading health outcomes research and commercialization company. Integration plans with our commercialization and outcomes group are underway and progressing well. This combined division has in excess of 1,400 professionals, operating throughout ICON's global network and enhances our key late-stage service offerings in real-world evidence, linguistic validation, health communications and market access. The additional scale and capabilities mean that ICON is the world's second-largest provider of late-phase services.

'17 was a year of transition for ICON. Outside our top customer, we delivered a book-to-bill of 1.4x and grew revenue by 19%. This helped reduce concentration levels to 13%. In addition, we added a number of new strategic relationships to our portfolio, which will begin to contribute to revenue growth during 2018.

Throughout 2017, we have consistently remained focused on delivering margin excellence. By leveraging our best-in-class global business service model, we were able to hold our SG&A costs flat for the fourth year in succession. As a result, SG&A reduced to 18.4% of revenue for the year. This improved performance compares favorably to last year when SG&A was 19.5% of revenue. And as we continue to grow our business, both organically and through M&A, I expect us to create further leverage in this area.

This strong performance helped us achieve an operating margin of 19.7%, which, along with an underlying effective tax rate of 12%, allow us to grow our earnings per share by 13% year-on-year to $5.39.

We continue to invest our available capital to maximize shareholder value. We remain focused on our M&A pipeline and executing our strategy of bolt-on, string-of-pearls acquisition targets to enhance and broaden our service offerings and grow our company.

In conjunction with this, we are continuing to repurchase shares under the previously announced $400 million share repurchase program. To date, we have repurchased $256 million worth of shares overall at an average price of $81.46 per share. Depending on market conditions and appropriate M&A opportunities, our intention is to continue to opportunistically repurchase shares throughout 2018.

As of January 1, 2018, ICON has adopted the new revenue recognition standard, ASC 606. As a result, we are issuing our full year 2018 revenue guidance at $2.52 billion to $2.64 billion. Earnings per share guidance remained unchanged in the range of $5.89 to $6.09, representing an increase of 9.3% to 13%. The impact of any 2018 share repurchases is not included in this guidance range.

Before moving to Q&A, I would like to thank the entire ICON team for all their hard work and commitment during 2017. In particular, I'd like to recognize the efforts and dedication of everyone as we were recently awarded the Best CRO Full-Service Providers at the 2017 Scrip Awards.

Thank you, everyone, and we're now ready for questions.

(Operator Instructions) We'll take our first question from Ross Muken from Evercore ISI.

So as we think about -- on the new business side, you guys have done a fantastic job, obviously, diversifying away from your top customer and growing that piece of the book well above market. And as you sort of look back over the balance of the year and think about some of the key themes or drivers or pieces you put in place that sort of allowed for you to get to this kind of elevated level, I mean, what would you sort of highlight as the key components of what sort of drove that resurgence and kind of acceleration? And how much of that is sort of sustainable in terms of the momentum as we head into '18?

Yes, Ross, it's Steve. I think there are a couple of things that sort of come to mind as you asked the question. The first is the progress we've made in the large pharma segment of the market. Our new relatively revamped commercial group has done a really good job in focusing and in building our business within our sort of top 30 pharma sponsors. So I'm very pleased with the progress we've made, and I do think that is sustainable going forward. The second is, yes, the continued move in the industry towards alliances and the ability, again, of our commercial group and our operations teams to broaden (inaudible) within the alliances that we have. We've been successful in doing that and continuing to build those partnerships. So I'd say those are sort of the 2 main things we've seen that have been able to help us to drive our business development performance. But I would say the biotech sector, as you know, is well-funded at the moment, and we've been successful on a number of fronts there as well. But really, it's the large pharma, the alliances and, to a lesser extent, I think the -- our success in the biotech sector has really driven our performance there.

And just in terms of, again, just thinking of new business, thinking through the more elevated level of M&A activity that some are thinking about. I mean, I guess, how -- as you talk to the decision makers on both sides, both in your strategic alliances and on the biotech front, I guess, how are you thinking about the cadence of new business in the context of maybe a more elevated M&A tape?

In the -- historically, we -- as the waves of M&A run through the industry, in the end, we've seen more outsourcing. So I -- M&A in itself doesn't concern us certainly in the long term. And as we talk to our customers, certainly, there's some talk out there about M&A and who they're buying, but they remain very much committed to the partnerships and to the outsourcing philosophy. And as I said, it tends to drive more outsourcing, I think, in the longer term. Particularly, I think, as customers recognize they don't want to be sitting there navel-gazing while they're doing the integration and continuing to outsource and even increasing it can help that. Sometimes there is some slowdown in decision-making. But the consolidation in our industry doesn't overly concern us from a long-term sustainable growth point of view.

We'll take our next question from Donald Hooker from KeyBanc.

A question on, I guess, backlog burn rates. Always -- we're always -- I guess, all investors were interested in tracking that. It looked like it was, by my quick math here, was a little bit lower in the fourth quarter. I understand there's a lot of drivers there, but I would love to hear maybe some commentary around how us on the outside should be thinking about ICON's backlog conversion over the next few quarters, given your current mix of business.

Don, it's Brendan here. Yes, it was 9.5 in the quarter. That's kind of as we signaled it would be, in that kind of mid-9 range. That has been ticking down during the course of this year. Some of that was obviously driven by the cancellation that we saw at the back-end of last year. But a lot of it has to do with our mix of business. We have been very successful, as you guys know, over the last 12 months in new business. A lot of the marketplace right now is oncology. And unsurprisingly, a lot of the new business that's been coming into our backlog is also oncology. So we do see that, even though it's hard to find patients, it's hard to start up. So it is going to be a factor as we go into next year. So I think, in those -- in the mid-9s, it's still our expectation, certainly at this stage, as we look out into '18, as we look to Q1, not terribly dissimilar from where we were in Q4. But there is still the fact that there -- that a lot of the market is going towards oncology space, and that does take a little bit longer to start up, as we historically know.

Okay. And then a quick question on your relationship with TriNetX, and then I'll hop off. What is the nature of your arrangement there? I mean, do you have them locked up in a long-term contract? I mean, it sounds like that's an important source of data for you. What is your -- what does that relationship look like right now in terms of sustainability?

Yes, we don't have a long-term exclusive contract with TriNetX. I'd say we're probably one of the first organizations to use, and we have some early experience with them, and we've been using them now for some time, Don -- Donald. So we have -- we've been able to bring them into our business process effectively. They're one of the number of approaches we use, including, as I mentioned, our new one search capability, which is helping us. But there's certainly no exclusivity that we have with TriNetX.

Our next question comes from Jack Meehan from Barclays.

I wanted to start with the Mapi acquisition. Just with Mapi, how that's performing and maybe talk about expected growth contribution there in 2018.

Yes, I'll start. Maybe Brendan might want to add a little on the financial side of things. I mean, we've -- I mean, it's relative early days. They came in, in July last year, so we're 6 or so, 7 months into the integration. They've -- we've been able to retain all of their key executives, which has been very important to us. They've now been sort of worked into our late-phase organization, and we've done that in a very objective way, in that we've been able to merge the key departments together. So we've made that -- we've made the organizational decisions there, and the Mapi folks have taken a number of those key posts. So it's been very much a kind of merger, if you like, rather than a takeover from a late-phase point of view. We found the Mapi folks to be extremely engaged. They have a very good name in the marketplace. We found, almost exclusively, customers have been very pleased with the acquisition, pleased with Mapi and the fact that we work with them, but also pleased that ICON has also come along. We've been able to bring some investment in terms of their IT infrastructure, in terms of the security of their network, et cetera, et cetera. So it's early days, but the initial indications are very good, both from a customer point of view, from an initial financial performance point of view. Certainly, the fourth quarter was a strong quarter for Mapi, and as we go into 2018, the business development groups are coming together nicely, working very collaboratively and cooperatively. And we're expecting a really strong year from the Mapi Group.

Yes. If I'd just add to that in terms of their financial contribution. They had a very good, solid quarter in Q4. We were very happy with their performance. As we look out to '18, I think we spoke about the fact that we expect our midpoint revenue to be about 8% up. I think if you look that down on an organic basis, it'll be probably closer to 6% or 6.5%. So Mapi, obviously, is the piece that's making up the 1.5% additional upside there. So that's in line with our expectation. Good growth as we would expect. That's the part of the market that's growing higher than our core CRO market. So that's very much our expectation for next year.

Great. And Steve, just wanted to follow up. You commented on the strong growth in the Central Lab. Could you give us an update on the size of that business and what the growth was in 2017 there?

Yes. The growth in the lab was in the low double digits, so we were very pleased to see that. We have combined that with our early phase group now under Jim Miskel, and that team is performing very well. We see some opportunity both in Central Lab, in the Bioanalytical lab, when the boco cancellation hit us a little on the Bioanalytical lab side of things. But the Central Lab growth was able to make up for that in the early phase group. Increasingly, the early phase work is being done in more academic settings rather than normal volunteer settings or CPU settings now. But that -- and that business has performed well. So overall, the lab, both Bioanalytical and Central, has a nice growth curve. And we believe, for 2018, it's a solid part of our -- but it's not a huge part of our business, but it's one that's around about 7%, 8% is the number from a revenue point of view. And it's making a very solid contribution, particularly on the gross margin line.

Our next question comes from Tycho Peterson from JPMorgan.

This is actually Julia for Tycho. First of all, just very quickly, could you quantify the FX impact that you've seen this quarter? And then regarding that guidance, I noticed that

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Just repeating my question. First of all, could you just quickly clarify the FX in the quarter? And then regarding your guidance, noticed the midpoint as it ticked lower from your previous guidance range. So just wondering the reason behind that. And are there any changes in the underlying conversion rate assumptions?

Sure, no problem. In the quarter, our FX, as mentioned, we have 4.6% total year-on-year growth. So at constant currency, that was 2.3%. So the delta, obviously, is the FX impact year-over-year in FX terms. On the guidance, we are modeling our book -- or I should say, an FX rate of the euro to the dollar of 1.20 at the moment. That's what we had included in the numbers. Our midpoint of our guidance, really, the only difference that -- what we've seen from what we talked about in January at your conference to what we're talking about today is really the element of pass-through costs that's included in the ASC 606 calculation at the moment. We're very much mindful of 606 when we're doing our guidance for -- back in January as well. So I think that covers all of those pieces.

Our next question comes from Dave Windley from Jefferies.

This is Jared Meggison on for Dave. I guess, I just wanted to kind of expand on the previous question about conversion and just how that relates to the pass-throughs now being in revenue. So have those pass-throughs been in backlog previously? Are you going to add them to backlog if they're not? And then how should we think about conversion with those included?

It's Brendan here. Yes, first of all, I suppose what we're talking about there in conversion is very much the way we would have expected to talk about it in the past as opposed to that based on net revenues. And that's the look forward when I talk about that in the 9.5. It will be excluding pass-throughs. Certainly, pass-throughs are an element of ASC 606. There's no question about that. We'll be reconciling our backlog in the first quarter when we talk to that. So we will be including pass-throughs in our backlog in Q1. However, as stated, the $4.9 billion that we spoke about earlier in the call, does not currently include pass-throughs. So when you look at forward to the pass-through or the backlog now when you look at conversion, we're still very, very much talking about 605 net revenue. But certainly, as we get into Q1, we'll give you a reconciliation of what the backlog will look like in the future, including pass-throughs. And then we'll be able to rework conversion on that basis.

Okay, great. And then just on Pfizer, it ended at 13.2% in the fourth quarter. I know your previous 2018 guidance had included 12% to 14% of Pfizer's. Is that still the expectation? Or is that really getting into a stable run rate now, and that 12% to 14% is more of a long-term number?

Yes, I think that's a reasonable way to look at it, [Jerry]. 13% is sort of -- hit right in the middle of the -- of what we indicated it would be, and I think we're at about a steady state now. So we would expect to be moving forward in that sort of range, certainly for 2018 and beyond. But Pfizer remains a very good partner of ours. They remain one of our top customers from a new business point of view, and that it's a very strong relationship that continues.

Our next question comes from John Kreger from William Blair. Next question comes from Erin Wright from Crédit Suisse.

I guess, can you speak to some of the new strategic partnerships kind of you spoke to in your prepared remarks, the nature and maybe those sort of relationships and when those will start to materialize or have a material contribution in terms of bookings metrics?

Sure. Yes. We don't typically name the companies, so I won't do that. But I will give you some flavor for them. They're all substantial players within the industry. And they're all companies with which we already have a relationship with. So you don't tend to go from 0 to 100 with these companies. Some are in more advanced form than others. Certainly, there's one of them who we are starting out, as noted, from a fairly low base, and we're sort of establishing the whole governance structure, partnership, looking at how the basis on which we'll be outsourcing. We are 1 of 2 in that one, again, a large pharma company. In another, we've been added to a number of partners that they already have. So we're 1 of 3 or 4. I'm not exactly sure how many it is, but it's no more than that. And in another, we have sort of reestablished ourselves in a company -- customer that we had a strategic partnership with a couple years ago that their portfolio, their pipeline was a little low over preceding years. But now they've come back and they've narrowed down the number of providers they're going to. So [I think] each one of them has certainly some specific and unique characteristics. In terms of contribution to 2018, we haven't -- there's only one of them in which we've actually taken any work into the backlog at this stage. So we tend to be fairly circumspective as these partnerships start out in terms of what work we've been talking about projects, we've been starting to bid on projects. But until we actually get bids out and get them accepted and move forward contractually, we haven't been putting those into the backlog. So we do believe there's some upside there as we get into this year. And certainly, towards the back end of this year, we do expect that they'll be making significant contributions to our revenue growth. But we're fairly, say, circumspect about that at this point.

Okay, great. That was really helpful. On -- and sort of a broader question here. But given sort of the investments that you've made here, how fast is the real-world evidence part of the industry growing right now in your view? And do you expect to continue to make more meaningful steps forward in that post-approval commercialization space?

Yes, that's an interesting question. There's certainly a lot of talk around real-world evidence. And certainly, the buzz around the industry is very significant in that area. Inevitably, in our business, in our industry, things usually don't move forward as fast as sometimes people expect them to. And so while I have no doubt that real-world evidence will become very much a very important part of the landscape in clinical development in the medium to long term, I think it'll be a little bit slower than we all expect. Having said that, we believe we need to position ourselves well in that space, because I fundamentally believe that the future of drug development will be very much dependent upon access to real-world evidence going forward. I do think there's, over the longer term, very fundamental changes in how we'll be registering new drugs and monitoring new drugs. And so we do believe we have to be active in that space and innovative and on the cutting edge of that space. So the acquisition of Mapi obviously helped us in that space. We continue to look in that area of the industry to make sure that we are able to stay ahead, not just in terms of other organizations that have access to real-world evidence or [to fill in] that space, but also around the technologies that -- I mean, we always have one eye on the technologies that we're looking to work with and looking to try out and what access they have to that real-world evidence space. So we're expecting solid growth from that part of the business going forward, but quite frankly, not spectacular growth at this point. I think that's really for the more longer term where we really get well into the double digits in terms of the growth from the real-world evidence basis.

Our next question comes from Juan Avendano from Bank of America.

You mentioned better organic growth outside of your top customer was 10% in the quarter. Could you give us an update on the net book-to-bill outside of your top customer and whether you think that a high-teens or even a low-20s revenue growth outside of your top customer is achievable and sustainable in the medium term?

Well, I think, as we said on the call, Juan, we're at about 1.4 for the year in the quarter outside of our top customers. So that would indicate -- that would support the sort of revenue growth that we talked about outside of our top customer, 17% for the year. Is it sustainable? I certainly hope so. That's certainly the aim. But we'll be -- as a Brendan indicated, a lot of the work that we've won is in the oncology space, and those trials are large and complex and do have -- just take a little bit more time to start. So that was a little bit of a headwind in terms of the therapeutic area we've been winning. On the other hand, we're optimistic that we can get out -- get those things moving, and we can continue in that ballpark, I would say, certainly, double digits around the -- excluding our top customer. So as I said, we think we've set ourselves up nicely for a growth year, but we now need to deliver on that, and the upswing will be, I think, over the next several quarters, obviously, as we get through the year.

Got it. And my follow-up is on SG&A leverage, which, once again, it was very good in the quarter. Can you give us an update on your operational initiatives, including off-shoring, and the opportunities that you think remain in this area?

I can give you an update, it'd probably take 3 days. We have a lot of initiatives going with our global business services group. But the first thing I would say about our global business services group is that they are very open to doing new things and changing the way they do their business. So things like off-shoring, of course, is a big part of it. But we're also looking at analytics, AI, robotics as well. And our folks in those groups continually push themselves to do things in a different way. So I would say, actually, our advantage in that is -- and certainly, we have advantages around off-shoring and technology and all that good stuff. But it's mindset. We have people who are open to doing things differently and open to being challenged. As I said, we've held SG&A flat for 4 years. I think that's a very strong -- I'd say, not at all due to me, I have to say. Obviously, Ciaran was in charge for a good part of that time. But we have people who are open to doing things differently and to leveraging that cost base and using their headcount in ways that allow us to amortize that across the business increasingly effectively. So I'll just -- I'll leave it at that. That's -- I think that's probably the best advantage we have.

(Operator Instructions) Our next question comes from Robert Amparo from Wells Fargo Securities.

Back to guidance. Since we're resetting for ASC 606, would you be willing to talk about what percentage of your annual revenue you expect to be recognized in Q1?

Proportionately, I suppose that -- yes, sorry, it's Brendan here, Robert. We don't traditionally carve out the quarters. We leave you guys to scratch your heads on that one a bit. And you've seen that we've given a $120 million range in our revenue. So there is a bit more up and down. I think we've already given 605 guidance on a net revenue basis. I mean, our 606 guidance is -- really just takes into account the pass-throughs. And as I said, we had one eye on 606 when we gave that original guidance back in January. So I think what I'd ask you to do is take a look back at your net revenue as The Street have it at the moment and then try to work out the additional elements on -- in the same proportion for pass-through. Without being too [descriptive] at this time, there will be a bit of bumpiness in terms of quarter-on-quarter revenue growth, given the inclusion of pass-throughs in the revenues at this stage.

Okay, that's helpful. And for my follow-up, can you just talk about how much margin expansion you're building into this guidance? Looks like 40 basis points has been normalized for all the noise. Is that correct?

In margin percentage terms, yes, it's in that ballpark. That's correct.

Our next question comes from John Kreger from William Blair.

Steven, as you think about the -- your bookings over the last year, have you seen any shift in mix between traditional awards and staffing, FSP-type [award]?

No, John, not so much. In fact, I think, more traditional awards have probably been a little bit on the up. So perhaps, a year or 2 ago, I would have answered that and say, "FSP was on the up." But I think that's probably turned around a little bit in the last 12 months. So certainly, the latter half of 2017, that was the case.

Great. And then another one with a little bit more concerns about inflation broadly. Are you seeing any pressures on wage trends and -- across the world? And if so, what regions are you seeing that in?

I think there are certain pockets around the world, yes, where we do see some push-up on wages. The U.S. CRA market is hotting up, I would say. I mean, it's been very hot a couple of years back and then cooling a little bit. It's hotting up a bit. So I'd say that's an area of heat. And there are other pockets around the world. But overall, we are able to keep our wage increases at a sensible sort of market-based level without letting it run away too much. So I would say, overall, it's not an area that -- that's not a particular area that keeps me up at night. I think we've been able to manage that recently well.

It appears there are no further questions at this time. I would like to turn the conference back over to Steve Cutler for any additional or closing remarks.

Thank you, Paul. So thank you, everybody. 2017 was another strong year for ICON, and we look forward to building on this progress during 2018 as we build on our position as the CRO partner of choice in drug development. Thank you, everyone.

This concludes today's call. Thank you for your participation. You may now disconnect.