Simon Christopher Holmes - VP-Investor Relations & Corporate Development Brendan Brennan - Chief Financial Officer Ciaran Murray - Chief Executive Officer & Executive Director Stephen A. Cutler - Chief Operating Officer.

Jeffrey Emerson Bailin - Credit Suisse Securities (USA) LLC (Broker) Eric W. Coldwell - Robert W. Baird & Co., Inc. (Broker) Steven J. Valiquette - UBS Securities LLC John C. Kreger - William Blair & Co. LLC David Howard Windley - Jefferies LLC Timothy C. Evans - Wells Fargo Securities LLC Sandy Y. Draper - Suntrust Robinson Humphrey, Inc. Donald H.

Hooker - KeyBanc Capital Markets, Inc. Douglas D. Tsao - Barclays Capital, Inc. Robert Patrick Jones - Goldman Sachs & Co. Todd Van Fleet - First Analysis Securities Corp. Tycho W. Peterson - JPMorgan Securities LLC.

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'd 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 U.S. GAAP.

While non-GAAP financial measures are not superior to or a substitute for comparable GAAP measures, we believe certain non-GAAP information is more useful to investors for historical comparison purposes. We'll be limiting the call today to one hour.

I'm going to 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. Net revenues in quarter one 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; while 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 quarter one, group gross margins increased to 41.3% compared to 41.1% in quarter four and 38.2% in the comparable quarter last year.

We delivered further operational efficiency 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 was $56 million, a margin of 14.4% equating to earnings per share of $0.90. This compares to earnings per share of the $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 quarter four, earnings per share were $0.86 in quarter one compared to $0.82 in quarter four 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'd now like to hand over to Ciaran..

Okay. Thank you, Brendan, 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 in one of our 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're 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 quarter one. 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're 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 $1,610 million to $1,675 million to a range of $1.6 billion to $1.65 billion.

Alongside the financial progress we've made in the quarter, we continue to execute on our strategy. The acquisition of MediMedia Pharma Solutions that 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 Aptiv 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 drug development through patient-centric monitoring, adaptive trial designs and by improving engagement with patients and sites. This is enabled by our market-leading ICONIK, 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 onto Q&A, I'd like to thank the entire ICON team around the globe for their hard work and commitment during the quarter. Thank you, everyone, and we are now ready for questions..

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

Good morning, and thanks for taking the questions. Ciaran, given some of the reported evolutions in the outsourcing strategy at your largest customer, I was just 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..

Yeah. Good morning, Jeff. Yeah, I mean, this has been known for quite some time, Jeff, although it was only announced publically relatively recently. It's something we've been working on with that customer for a considerable time.

I think it's fair to say that when we all signed up for this partnership, if we'd known the extent of outsourcing and the volume, that we probably would have put, as suggested, three suppliers there in the first place. So, at the moment, we don't see that will have significant impact in our business certainly in the foreseeable future.

The pipeline's still strong in Pfizer and we've got a good flow of work. We've a lot of backlog with them, as you can imagine, which will burn to revenues over the next three years to four years.

So we think, we always work in the best interests 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, as I say, a considerable backlog that'll take us through.

So we're talking and the messaging is that it's business as usual for us, and 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, 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 kind of forecasts..

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 Covance 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 requirement.

And we know that Central Lab's 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're 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 digit, somewhere around 7%....

7% or 8%, yeah..

7% or 8% there. So really, the question centers more around what does this do for data and how does it affect the greater business. I mean, there's lots and lots of data out there in labs. There's lots and lots of data in the world.

And I think you have to approach that with a view that the data's only important when it's meaningful and when it leads to conclusions and analysis, which provides actions and insight. We're pretty happy that we've got what's a niche customer-focused, high-quality lab, with good range of testing in that space. 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 with customers; it's about having smart people that can do something with the data and tools, that can consolidate and integrate the data.

We think we've a competitive offering there, and we'll just watch this space with interest and maybe, Steve, you're closer..

No. I think that's absolutely right. I think the data's been out there for our competitors for some time. There's nothing new there. So we don't see a particularly new threat coming on board here.

We see our strategy focusing in on having a niche provider and utilizing, integrating the approach to our lab with our clinical operations as being the way forward..

Great. Thank you..

Thank you. We will now move to our next question from Eric Coldwell of Robert W. Baird & 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?.

Hi, Eric. It's Brendan here. What I'll do is maybe run through some of these numbers again. The year-on-year grow 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.

And just to make it clear, after it was so integrated in our business in the quarter where we're not calling it out separately as you know; the only difference between the 13% and the 14% is MMPS..

Yeah. And I guess my problem with this is that you do have Aptive, which has not annualized and doesn't annualize until May 8. So I know you treat organic as sort of a calendar year start to a new kind of mix of what's organic and what's not, but that's 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..

Yeah, Eric. As I was always saying, we've 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 – I mean, possibly I'd be giving an inaccurate number, it's so integrated so..

I think that's the point really, Eric, is that we have integrated it so successfully and 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 were to look back, it's not a material amount in the overall total of our revenue.

So we don't think it's of that much significance..

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

Hi, 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're seeing now is really with some of the larger relationships fully ramped now, that waiting of those larger contractual terms is coming to bear 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 the last 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 kind of 45 days to 50 days territory is probably as good a call for the future as we can make a distinction..

Yeah. And, I mean, in the historical context, going back over the last couple of decades, it's still a very good level and no major concern there. I just – it is a big increase from where you've 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, or 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, 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 base, bookings were growing, in fact, growing pretty substantially, but it looks like the revenue is not translating yet and 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?.

Yeah. I think to take the first part of your question, Eric, I mean 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 a little bit less in Q4.

You'd expect the ebb and flow of 125 projects and 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. With regards to the other business, I think if I look at this quarter, our book-to-bill in our other business was higher than target.

So that's a good sign. We've 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'd expect the sales conversion to revenue to accelerate in the back-end of the year.

I mean we've signed a few, but I won't go into specific accounts, between Q3 and Q4 and Q1. We're very happy with that.

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

Then 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're taking bookings a little bit earlier in the past.

In the old days of tactical stuff and this is purely tactical, you could win an RFP on Friday and be scrambling to start the project on Monday. And those kind of days have gone. And I think you see that trend in – it's one of the things that drives the revenue conversion metric over the years.

I think if I look back to sort of four – I'll say four years or five years ago, approximately, but we would see a 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.

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

So, now, we've a conversion rate of around 11% – 10.9% this quarter, but it'll be around 10.9% or 11% or 11.1% for the rest of the year, so all that we're really saying is that we're happy that we've been winning the business. We've 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 kind of time in the year..

That's a good response and fair. Just last one, Pfizer, you made the comment that revenue, at least since 3Q 2014, has been running in this high-120s, low-130s 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 one-third of your revenue and everybody's eyes are on this particular contract, especially with the formalization of a named third party.

I just want to make sure that expectations are set in the right place?.

Yeah. I'm sure everybody's looking at it and they're probably not happy with you, Eric, since this is your fourth question there you know. But, yeah, it's – as I say, we're forecasting the rest of the year that it'll be either at the level of this quarter or last quarter, somewhere in between, depending on the ebb and flow.

As I say, we have 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 years or three years or 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 forecast would reflect that it's broadly around where it is at that Q4, Q1 level..

Hey, 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..

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

All right. I'll let you guys go. Thanks very much for the answers..

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

Thanks. Just 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, I think, sometime early next year.

And as far as just the timing of when a renewal may or may not be announced, so that's something that'll happen towards the very end of this calendar year or early next year or could it be sooner than that? Just trying to get a sense for timing on when there could be some announcement of a potentially sensitive contract. Thanks..

The contract was far as middle next year, I suppose the current intention, and we have ongoing discussions Steven, about these matters. We've the strong governance structure and meet regularly and are constantly looking at new ways to add value to the account and work for 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 yeah, I would expect that to happen in the first half of next year. But if it happens sooner, we'll be more than happy and we'll let you know..

I mean 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 sort of business as usual, the way things have been to sort of progressing so far?.

Look, I think commercial negotiations always have an element of the unknown when you go into them. I think it would be fairer to say that the intent behind these kind of 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 technology and the systems that we use and working more seamlessly.

So 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 all the 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'll all be for discussion with the aim of improving the return on investment on our customers' R&D spend..

Okay. All right. That's helpful. Thanks..

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

Hi. Thanks very much. Ciaran, I'm looking at the slide deck 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's driving it?.

I suppose I'd really just point to what I said when I was talking to Eric, that that – the principal drivers, because if you go back, yeah, we all remember when it was 15%, John.

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

So they're kind of longer trials, more outcome studies and longer kind of 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're not just doing the RFP and winning it and scrambling to start work, so you get involved early. You scope out the work.

You kind of 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 months 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 the bones of the project or the protocol, but then have protocol revisions 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 in 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 that have done of late?.

We can.

Maybe, Steve, do you want to speak to that to here?.

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

And so that businesses have been growing well, and we're pleased with the way that's developing. As I 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 strength in the DOCS area around contract resource within our Phase II, Phase II 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're making some progress there. The focus is on winning new business. We have our unit in Texas and we're seeing progress there.

We're still fairly early days, and it's a very 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're seeing some progress there, although there's more work to do certainly in the business development terms..

Great. Thank you very much..

Yeah..

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

Hi. Thanks for taking the questions. Good afternoon. Ciaran, I'm curious, or maybe either of you, Ciaran or Brendan, 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're on-boarding, is there any margin headwind there that we should be aware of?.

No. The short answer, 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 in the total return, sometimes the gross margin might differ a little bit, because you're making savings below the line and that are particularly fine, doesn't 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 an opportunity to interact with the person that stepped into his seat, do you think that that has an influence on the flow of business and kind of your mix of business within the relationship as we move – to Steve's earlier question, move to a renewal next year?.

I think we have to be careful not to over personalize relationships between companies and vendors.

And 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, where there are 11,000 people, we interact with all of our customers, not just that one, at many touch points.

And at the end of the day, we're all in business, our customers are in business to develop better drugs and do it economically and make a return on it. We're there to help them. And we don't see our history over the years that I've worked in this business and certainly, my current experience is that 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's 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 kind of the core strategic reasons to be in the Central Lab business.

Could you talk about your – how the lab complements what you provide to the customers? What's your value prop or your go-to-market strategy with your lab, as I'm sure it wasn't higher volume, lower cost before? So I assume it's not that now either, even as the customers or the competitors are going to leverage much higher volume?.

No, I mean, you're right there, Dave. Our position hasn't really changed and we were always a small lab compared to our larger competitors. So their relative position is still kind of the same as the value proposition.

Maybe, Steve, do you want to speak a little bit?.

Yeah. I think where we're seeing an opportunity to put a value prop to our customers, Dave, 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're able to, I think, improve some of the efficiencies around site setup, site identification and take out some of the white spaces. So that's been very much our focus.

We've 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 and cost time. And that's where we see the opportunity to drive.

We're also focusing in some anti-infectives and therapeutic areas around our anti-infectives and around oncology. We see some opportunity there, but really, it's around, I think, the most efficient clinical trial process you can provide to customers. That's what we find our customers are interested in.

And that's what I think with that integrated lab service, we're able to provide particularly in a patient-centric monitoring setting..

Great. Thanks for taking the extra question..

Okay..

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

Yeah. 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..

Yeah. So, then if your biggest customer isn't using your Central Lab, I guess the strategic rationale does become a little bit less, Ciaran.

I just wondered have you actually explored options for that, given that you're a very distant player now to the top what, ultimately, will be the top two?.

Yeah, we've explored options and we're still of the view that for the reasons we've articulated, that it is an important part of our business. We've more than one customer to judge this on in terms of data points.

And particularly, if you look at in terms of we've more than one customer and they're of many sizes and in many different segments and different kinds of businesses. So the lab plays a very significant part in a core part of our business that is growing quickly in terms of mid-tier and biotech companies that we work with.

And 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. A good 40% of our business or 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 our customers and they're 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've explored the options and we're 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 sort of 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, no. 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. If you could look at sequentially and it's basically flat year-over-year, was that all due to FX and is that where that revaluation on the FX went in? I'm just trying to think of what a more normalized SG&A line looks like.

I just want to make sure I've got that correct..

Sure, Sandy, yeah. No, all of that one-off gain that I spoke to is included in the SG&A. And when you exclude that, the normalized percentage of SG&A is 21.2%..

Okay.

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

I think – no, I mean, as we look out the remainder of the year, we're looking to continually do – to make sure we're efficient on how we support (38:01) base work. So we 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 sort of 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, how much of that is the large customer versus the rest of your business?.

No, I mean, we don't disclose that specifically, Don, 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. Bookings in the quarter were satisfactory.

They were above 1 anyway, so it's still implying future growth, albeit not at the levels we'd have seen four quarters, or five quarters, or six quarters, or seven quarters, or eight quarters ago when all the projects were transitioned in the bookings. So no, we're happy.

The composition of our bookings is that our non-Pfizer business was slightly above target, about 1.2. So the Pfizer number was a little bit lower than that, but not materially. So, yeah, 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 kind of another general question you get a lot. But you all certainly have a lot of cash sitting there on your balance sheet, and we're all very interested, as always, is how you're thinking about that; acquisition, share repurchases, the prior questioner asked about share repurchases.

Can you talk a little bit about kind of your balance sheet and how you think about that now?.

Yeah, we think the balance sheet in terms of just the overall delivery of shareholder value, which we've seen over the last number of years. So, 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've certainly a lot less cash now, Donald, in the balance sheet than we had.....

Definitely..

Than we had a while ago. I think look, at the 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 a $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's 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'll still be more M&A in targeted areas that we feel will drive our competitiveness, and I think we're on the record as 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 and as options get issued to staff.

So I think there's no change in our strategy over last year. It's steady as she goes with the mixture of some buybacks and some more acquisitions. But you can never control the timing of acquisitions.

We 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 then in addition to cash, we'd also be comfortable with modest levels of debt on the balance sheet, provided we had the opportunities to invest it properly in a way that drives shareholder return..

Okay..

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

Hi. Good morning. I think most of the questions that we could ask 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 U.S. versus globally.

So were there any factors, did that contribute to the sort of sequential increase that we saw in the Pfizer book of business this last quarter?.

It did modestly, Doug. Yeah, you're on the money there. More of that account is denominated in dollars than in the rest of our portfolio.

So it would've made a – caused a modest increase in the concentration, about, I don't know, modest 100 bps?.

Yeah..

150 bps something like that. Yeah..

Okay, great. Thank you very much..

Can we take next question, please?.

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

Thanks for the question. Ciaran, I guess it's 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 had whittled it down from 26%, 27% range, even if you kind of 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 kind of getting close to those levels, kind of best-in-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?.

I suppose 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 number of more separate business units, and we brought all of that together on a global platform.

Some of it has been where we locate 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 I mean if you look over time, costs have tended to come down from the 1980s, to the 1990s, to the 2000s, to this decade. So I think we're happy enough that we can continue to drive the number down over the next year or two.

And then beyond that, you just look – we get paid to think of smarter, more efficient ways to do things that maybe nobody's thought of yet, but we'll all have to think about eventually, two years from now. So that's really how we look at it..

No, that's helpful. And I guess just similar question on the top line. You guys have talked about kind of entering into a more normalized period, book-to-bill seems to kind of be hovering around that 1.2 level. Obviously, subsequent revenue growth I'd 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 kind of a plateau that we've been working for for several years and this is kind of state of the business as you see it over the next, I don't know, two years to three years, three years to five years?.

I suppose we're always working to accelerate the top line and we've 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, growth of partnerships and more collaboration between CROs and our customers.

Our top line is driven in the first instance by the specific pipeline activity in 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 cases.

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 kind of 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've a knowledge 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 – by the opportunities that we pursue to explore new areas..

That's helpful. Thanks for the questions..

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

Hi, 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 of business? Thanks..

No.

Do you mean contribution in terms of revenue?.

Yeah. Revenue contribution. Yeah..

I think I said earlier that we expect it to be around the same level that we've 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're looking at for the rest of the year.

On the contribution from Pfizer or the conversion was it from Pfizer?.

Yeah..

Yeah. Backlog conversion, the burn rate..

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

Okay. Thanks, guys..

Thank you. 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 kind of the margin commentary, just because you're above your 2015 targeted exit rate of 16%.

And is there any reason why margin 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 on the operating margins for the rest of the year..

I suppose there's theoretically no reason, Tycho. But as we forecast throughout the year, there's some studies in there and lots of moving parts; we've always tended to be prudent on how we look at it. We have a number of new customers that we're in the middle of on-boarding and ramping up.

I think I said, we expect those, the sales, to convert to accelerate conversions the back-end of the year, so it'll depend on the timing of that.

So there are certain timing factors that have sort of kept us thinking that, 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 – the degree to which you're getting incremental business wins and whether you're bundling around that? Just curious as to how much cross-selling is going on with that business now that you have it..

Yeah. Tycho, it's Steve Cutler here. At this stage, limited.

We're just starting that process out and we're seeing some opportunities and they are in customers in that segment that we're not in so much in the two segments, three segments, so that we see some opportunity, but I would not be able to say we've had any significant successes on that front at this stage, too early yet..

Okay.

So, you're still assuming about $0.10 in the bottom line from the deal?.

Yeah. So yeah, as we said last quarter, yeah..

Yeah..

Okay. And then just last one, what are you projecting now for FX? I mean I think you talked about a 200 basis point headwind in February.

How should we think about just given the currency moves what's embedded in guidance?.

Well, our current re-guided numbers are at the kind of current prevailing dollar-euro rate. So....

Yeah. Yeah..

So, only if the dollar strengthens more, do we get any headwinds. Otherwise, it's what we've seen in Q1.

Does that make sense to you?.

Okay..

Yeah..

And actually, just one last one. As we think about kind of the mix evolving and maybe incremental interest from some of the biotech customers.

Can you comment on the degree to which you're able to cross-sell kind of Firecrest and ICONIKs and some of these kind of higher value-add services? I'm just trying to understand how often that comes up in your discussion with customers?.

I think certainly with our strategic customers and partners, we're able to cross-sell very effectively and 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 because they don't have the infrastructure, they don't have the resources.

And so, we're able to put our lab 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 orient (53:05); it's one that all customers are looking at.

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

Okay. I appreciate it. Thank you..

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

Okay. Thanks very much, everyone. I'll conclude by saying that we're pleased with the solid start that we've made to 2015, that we look forward to building on 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..