Simon Holmes - EVP Investor Relations and Corporate Development Ciaran Murray - Chief Executive Officer Brendan Brennan - Chief Financial Officer Dr. Steve Cutler - Chief Operating Officer.

Tim Evans - Wells Fargo Securities Dave Windley - Jefferies Eric Coldwell - Baird Steven Valiquette - UBS Donald Hooker - KeyBanc Ravi Fadah - William Blair Robert Jones - Goldman Sachs Todd Van Fleet - First Analysis Douglas Tsao - Barclays.

Good day. And welcome to the ICON Quarter Two Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Simon Holmes. Please go ahead, sir..

Thank you, Sophia. Good day, ladies and gentlemen. Thank you for joining us on this call covering the quarter ended June 30, 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 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 two were $389 million, up 3.4% from a same quarter last year and 0.1% on last quarter. Year-on-year constant dollar revenue growth was 9%, constant dollar organic growth excluding the impact of MMPS and Aptive in the quarter was 4%.

For the quarter, our top client represented 20% of revenue, compared to 24% last quarter and top five clients represented 51%, compared to 52% last quarter, our top 10 represented 65%, compared to 64% last quarter, while our top 25 clients represented 78%, compared to 77% last quarter. We ended the quarter with approximately 11,300 staffs.

We continue to see gross margin expansion driven by efficient resource management across our project teams and good cost management. For quarter two, group gross margins increased to 42.1%, compared to 41.3% in quarter one and 29.6% in the comparable quarter last year.

We have delivered further support cost efficiencies in the quarter and as a result, SG&A reduced to 20.9% of revenue from 21.2% last quarter, which excludes our one-off FX evaluation gains and 23.3% in the comparable period last year. This represents a significant progress towards our goal of 20% SG&A levels.

Operating income for the quarter was $68.1 million and operating margin of 17.5%, compared to 16.4% last quarter, again excluding the one-off evaluation gains and 12.8% in the comparable quarter last year. The net interest expense for the quarter was $10,000. The effective tax rate was 14%.

For the full year 2015, we expect our effective tax rate to remain at 14%, and believe we can sustain this rate on an annual basis going forward. Net income for the quarter was $58.6 million, the margin of 15.1% equating to earnings per share of $0.95.

This compares to $0.90 last quarter and $0.64 in the comparable quarter last year on increase of 48%. DSOs in the quarter reduced to 45 days from the 47 days in quarter one and as I mentioned on our last call, we anticipate that our DSOs will remain around these levels for the remainder of the year.

During the quarter we generated $28.1 million of cash from operating activities, had capital expenditure of $13.4 million and bought back $58 million of shares. As a result, the company’s net cash at the end of June 2015 amounted to $132 million, compared to $172 million at the end of March 2015.

With all that said, I’d now like to hand over to Ciaran..

Okay. Thank you, Brendan, and good morning, everyone. Quarter two was a good quarter despite a backlog conversion been a little bit lower than expected. We booked a record level of new awards growing our backlog by 8% over last year and the concentration of our largest client reduced to 30% from 34% last quarter.

Our operating margin expanded to 17.5% and we beat earnings reporting $0.95 of EPS, so we raised our full year earnings guidance by 8% to range of $3.90 to $4. Continuing our policy of deploying capital to best drive long-term shareholder return, we are expanding a share repurchase program by up to $400 million.

Now I’ll talk a little bit about each of these things and have a look at the quarter in little bit more detail. We continue to see healthy levels of activity in the market.

Overall, biopharma R&D spending is growing in the low to mid single-digit range and this has been driven by significant increases to biotech funding and the adoption of more partnership type model by mid-sized biopharma companies. We have also above market growth in the sales force and post approval markets.

All of these will provide a platform for future growth opportunities. In quarter two, we posted growth of new business awards of $571 million and net new business awards of US$486 million and this is a nice book-to-bill of 1.25.

It’s also the highest level of quarterly bookings ever recorded by ICON and as a result of this, our backlog increased by 8% over last year to US$3.7 billion. The development of new relationships is an important part of our strategy to grow revenues and to reduce customer concentration.

Encouragingly, a high proportion of this quarter’s business win were delivered from the new customer relationships developed over the past three quarters. Around 50% of our year-to-date awards have come from outside our traditional large pharma customer base and our trailing 12-month net book-to-bill from mid-sized and biotech customer is 1.3x.

Overtime this will serve to further reduce our customer concentration. Revenue in the quarter was $389 million, which is an increase of 4% over last year in constant dollar organic terms, but little bit less than our expectation at the start of 2015 and this results from slower conversion of our backlog this year compared to past year.

Backlog conversion in quarter two was 10.7%, compared to 11.5% this time last year. The backlog is converting more slowly than expected due to higher proportion of larger more therapeutically compact trials in that backlog and the fact that projects tend to be awarded earlier under our partnership model than they were in the past.

These awards will start to convert to revenue in the second half of the year. Our investments in people, process and technology over the past number of years continue to yield results. In the quarter two we have seen further expansion in gross margin and reduction in SG&A costs.

This is resulted in an operating margin of 17.5%, another company record and drove the earnings fees of $0.95. Over the past few years, we've redesigned the structure of our service areas to better meet our customer needs and to better leverage our global support infrastructure.

I am happy with the progress we continue to make and in quarter two all service areas performed in line with expectation.

We are pleased with continuing integration of the Aptive acquisition, the core CRO business is fully integrated into our clinical research services and we have delivered the cost synergies expected, we continue to integrated the adaptive trial technology into our informatics platform and we are receiving very positive feedbacks from customers.

The addition of Niphix business that we acquired from Aptiv is giving us a very competitive offering in Japan and we’ve seen sustained improvement in our business there and posted record Japanese business wins in the quarter. We also added MediMedia Pharma Solutions to our Commercialization Group last quarter.

This brought us additional capability to help demonstrate evidence of product value for payors and regulators and it expand our customers’ relationships into functions such as medical affairs and marketing. The business has integrated well into ICON and has enhanced acquisition of the market leader into Phase-IV improved approval segment.

One of the most important drivers of our growth and success over the past 25 years has been our string approach strategy of acquiring capability that enhances service offering and helps customers improve the efficiency and the quality of the development efforts. We will continue to deploy capital, execute capability, enhancing acquisitions.

The strong cash flow and balance sheet, we believe we can execute that strategy and continue our recent policy of increasing shareholder value through the use of share buyback program.

Since 2014, we’ve repurchased just under $200 million of shares and we put approvals in place that allow us to expand this program to repurchase up to a further $400 million of shares. We expect that the buyback will be executed over the next two to three quarters. The impact on the current shares earnings will be modest around $0.03.

However, we estimate that the program will have an accretive annual impact of $0.35 to $0.40. This will be funded from cash and bank debt. Looking at the remainder of 2015, we expect our strong margin performance to continue and as a result, we are raising our full year earnings guidance by 8% from a range of $3.60 to $3.70, to a range of $3.90 to $4.

This represents an increase of 36% to 39%, compared to 2014 earnings. As a result of a slower revenue conversion, we expect our 2015 revenue to be in the range of $1.57 billion to $1.6 billion, compared with our previous range of $1.6 billion to $1.65 billion. This represents a constant dollar organic growth increase of 3% to 5% compared to 2014.

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

Thank you, sir. [Operator Instructions] We will take our first question today from Steven Valiquette of UBS. Please go ahead..

Hi, Steve. Hello..

Mr. Valiquette, please go ahead. Your line is open. Please ensure that the mute function is de-pressed..

Maybe we will take the next question, Sophia..

Okay. We will move on to our next question from Dave Windley of Jefferies. Please go ahead. Please go ahead, Mr. Windley. Your line is open. Mr. Windley, please make sure that the mute function is not pressed on your telephone..

Can you maybe check if that questionnaire is working correctly?.

Okay. Just bear with me one moment. Okay, one moment there, please gentlemen. Okay, Mr. Windley, your line is open. Can you hear us? Okay, gentlemen, almost there..

Do we want to move down and you will just ask and try the next question?.

Okay. Just one moment, gentlemen. Okay. Mr. Tim Evans from Wells Fargo Securities. Please go ahead. Your line is open..

Am I the lucky one to get through here?.

And that’s really, Tim, I’m I glad. Never been so hard to hear your voice, Tim..

Maybe I missed this but can you just break out the FX impact on revenue for us?.

I sure can, Tim. We started off with that on the beginning of our call. In case for those of you missed it, we said we were 3.4% up year-over-year on an absolute basis. We said we were 9% up in constant dollar terms and then in constant dollar, organic terms when you exclude the year-on-year impact of MMPS and Aptiv, we were 4% up year-over-year..

Okay. Got it. That’s very helpful. Thank you.

And can you [Technical Difficulty]?.

Actually, in terms of just to clarify again, Tim, last quarter, we did see about an 80 bps uplift in our margin as a result of a valuation gain due to the relatively stable levels of euro dollar. In the current quarter, we didn’t have a revaluation gain coming into the numbers. It was very -- it was negligible basically, so didn’t have an impact.

Is that what you are speaking to, Tim?.

No, I’m speaking more just on the difference in the [Technical Difficulty]….

You are breaking up a little bit there, Tim.

Could you just repeat that?.

[Technical Difficulty] I guess, call it the translation basis, what would be the headwind, the impact of the margin?.

Okay. Tim, if you look at the dollar to euro rates of that 1.35 that we saw last year, now we are in an environment obviously of about 1.10 to the euro. We would estimate that that full year impact is probably about a 100 bps on our margin. So that’s about our best estimate for a full year impact..

Okay.

My last question is, what does your earnings guidance for the year contemplate for use of that new share repurchase authorization?.

That contemplates about $0.02 to $0.03. $0.03, I think I said in my commentary. It’s going to take. We will start the authorization in the period when the shares open up again in the market. It’s probably going to take two, three quarters. As you know, we are elected to buying about 15% of the day’s trading based on the average of the last six months.

So it’s not as if we can buy out one. So, we see that we will probably be buying over in next two to three quarters. So this year’s impact will be modest. As we said, it was $0.03. It was a full year impact for the year around $0.35 to $0.40..

Great. Thank you..

Thanks, Tim..

Thank you. We now move onto our next question from Dave Windley of Jefferies. Please go ahead..

My apologies for the miss before.

Wondered if you could talk to, or maybe elaborate on some comments that you made in your prepared remarks about the studies that you have been gratified to win from new strategic relationships and the ramp up of those studies, and the visibility that you have to them really hitting in the second half of the year?.

Thanks, Dave. Good to talk to you. I was getting a bit worried there. They offered me in the last 30 minutes. We’re doing the call from New York today, so we’re not in our usual environment, so I was starting to get jumpy.

Yes, I mean, if you go back to -- we’ve been working hard on the kind of concentration and building up our other sources of business over the past 12 to 18 months. And we started to see that really pay dividends towards the back end of last year.

And I think if I look back to sort of the end of Q3 through Q4, and that is first of this year, we’ve probably added about 10 significant new customers to our bench, which is very gratifying, I think validates a lot of the things that we do. So we’re particularly happy about that.

So what we’ve seen is that, I think I said in my remarks about 50% or probably a little more than 50% of our business is coming from outside of our traditional customer base.

So what we’re seeing is that with money going into biotech funding and mid-sized and some of the complex therapeutic areas in the market that these studies are just a bit harder to do. So we have a combination of two things. You’re working with customer.

So we did forecast at the start of the year around startup assumption and it takes a little while to get things up and running and put models in place and get the details sorted out. Simultaneously some of these, they are difficult enough in therapeutic areas. So it can take longer.

Once we get the partnership or the relationship sorted out, it goes into backlog.

Then it’s taken a little bit longer to get protocols finalized, the complicated studies, to get regulatory approvals, and to get sites, so that the studies are staying a little bit longer in the startup period than we might have expected when we get our forecast towards the back end of last year.

But the visibility is good, I mean they are all real studies, they all are starting up. It’s just a question that you find. Once you get over the initial obstacles, things start to gain momentum and they start to fill through into revenue and we are seeing some of that starts. And maybe ask Steve, you are closer to this..

Well, I think that’s all true. I think the other thing there is that they tend to be awarded in terms of assets or programs which we thought, which we think is very positive because we can start the plan, the efficiencies around those programs But of course those programs take sometime to roll out and sometime it’s a sequential work to be done.

So that’s the other component I suppose which probably slows backlog..

All right. Thanks for that. I appreciate that. Are there capabilities or maybe even human resource expertise that you need to add to the stable to address some of the growing complexities? It seems like this is probably a trend in the industry that’s here to stay.

I wonder if there is a new capability or perhaps a target acquisition that you need to add to your stable that will break down some of those bottlenecks..

We certainly look at that on a constant basis around how we start up studies, how we recruit patients into trials. There is a lot of effort in our organization go into those sorts of areas. We are making I think some significant progress in that area. So it’s a combination I would say of capability and technology.

We are able to deploy those in a way that that combination sort of allows us to accelerate. But there is only so much we can do if we’re depending upon a protocol coming through or development program coming through. So there is a limited amount. Once we get the green light, we go hard. But in many cases, this is what we’re seeing.

We have to wait for that green light. We have to wait for the regulators to approve the trials. We have to wait for the protocols to come through and then manufacture it, all that sort of things to happen.

So there is -- to some extent, we can strain within that environment, but we are certainly looking very hard at what we can do to accelerate the key cost of these trials and the running of the trials..

Great. Thanks. And one, sorry go ahead..

I am just going to add Dave that over the last 12 to 18 months in terms of our kind of in-house capability and Brain Trust we have added a fairly significant number of senior positions around things like patient recruitment in specific therapeutic areas that are starting to gain traction in the markets..

Okay.

And my last one is just, you commented on how much share repurchases adding to your guidance, I wondered if you could comment if you have an already what margin assumption you’re making in guidance for the back half of the year to get to your new numbers?.

We haven’t commented on that, Dave. We will exit the year. Our guidance terms, we will exit the year at the margin of around 18%..

Okay. Thank you..

Thank you. We now move on to our next question from Eric Coldwell of Baird. Please go ahead..

Thanks very much. And very good job on the margin performance. I guess first off, on the SG&A goal of 20%. I am curious what your timing is to get there. And I assume that’s a durable rate once you do get there..

Hi, Eric. It’s Brendan here. Yes, we think that’s something that as we grow the organization that we can stick to that 20% in the longer term. Certainly, we see actions are going to help, obviously the margin regression Ciaran just mentioned that we expected to be around the 18% during the year.

So that an element that certainly will come out through SG&A as we go through the course of the year. And as we look out, I suppose probably we will take the guidance, but we are at 21% at the moment, 20.9%. We see a good junk of our SG&A helping the margin now to the back order.

So we really are probably in the kind of territory of 50 or 60 bps after this year..

Yes. I think if you look, we’re 29% when we started and we’ve come down to just under 21%. So it’s not too far off is that what you are asking. All right, we’d expect to hit that target from time and of course the next year..

I guess you’ve done a great job there. I mean, there is absolutely no doubt. I guess what I am really struggling with is ICON is in new unchartered territory compared to your history.

And when I look at the history of this space in total, on a similar sort of GAAP reporting methodology, current accounting adjustments over time, etcetera, etcetera really the peaks we have seen in the group have been at least of the public zeroes with the relative similar mix, the peaks been in the kind of best cases ever low 20% area.

And I am just curious do you -- with this current margin target I think a 15% to 17% which I believe is still your formal guidance, you are now saying maybe 18% at the end of the year.

At the end of the day, just how much more is left and do you see some vision of perhaps moving to levels that the industry really hasn’t been at before? Do you think you can get into the low to mid 20s and stay there on this GAAP reporting basis, because you’ve just done a great job? And I am -- I guess I am just struggling with how much more is really left and don’t want to doubt you, you’ve shown margin improvement every quarter since 3Q '11, so it’s hard to fight the tape on this, but at the same time it seems a little bit, almost too good to be true..

Yes. As you know, we’ve always been very cautious in how we’ve characterized our margin target from that period. I think I remember the first call back in would have been the Q3 earnings call in 2000. And as you remember, we had just had a bad quarter there where we broke even or post small GAAP loss.

I think I remember setting our margin target of 6% to 8% or something like that initial range, people looked at me and thought how are we going to get there in the short term. And I think what has changed over that time is couple of things.

When you look at compare to the past and what gives the opportunity to move forward and as they every scene becomes a floor. I think if you look at our margin improvement over that time, about half of it, as these rough numbers has been from SG&A, and about half of it from gross margin.

And if just focus particularly on the SG&A component, because there is a lot of new stuff there that we -- and opportunities in SG&A that we did not have five years ago or 10 years ago. We’re at different points in the past cycle.

When I go back 10 years to when I joined ICON as CFO, we effectively ran what has changed and we ran about six different business units, each loaded up with their own support structure and SG&A.

And over time, we have managed to come up with an extremely efficient global business model, which supports our tax administration and supports our everyday SG&A. And we have the advantage there.

As you look at the technology that we use in that and we use fairly sophisticated ERP platforms because they are very scalable and are very common in the marketplace when it comes to hiring and training staff. They are very familiar with them. And we’ve also -- we've consolidated everything done into one unit.

It runs off technology platform instead of having staff scattered throughout the world with the bulk of the staff concentrated in a few locations around the world, principally in Ireland and India and the chunk in the U.S.

If you look at the mix of staff over time compared to 10 years ago, we’ve many more of our support function because of the advantage of technology and communications and videos. We’ve a lot more staff and regions where the cost of running these things isn’t so much. And over time, we’ve been able to constantly change and improve our mix.

And we still think there is certainly opportunities to do that as we look forward into future. I don’t see any reason why won’t we get to our 20% target as we stop. We’ve better procurement practices when we had this as a small company. Only about 22 months ago, we set our first formal procurement office.

And that’s made huge efficiency difference in how we purchase things and how we do things. So the point I make is yeah, we’re able to look back in the past and see, yeah, there were cycles and there were limits.

But I think we have different tools at our disposal and certainly on the SG&A, which have been into, which will help continue to drive efficiencies. I think on the gross margin side, we constantly seek to improve what we do again through deploying technology and new opportunities in the IT space, which just didn’t exist five or 10 years ago.

So I’d be optimistic that as we’re on the business, we won’t see the same rate of improvement where our margin has gone up so significantly in the short period of time. But we’ll continue to see cost efficiencies that will help drive margin.

And we continuously grow the topline and grow the company to see modest leverage efficiencies to and just the benefit of scale. That’s the way we’re looking at it as we go forward..

That’s a very thorough response. I’ll leave it at that and again congrats on the great margin performance..

Thank you..

Thanks Eric..

Thank you. We now move on to Steven Valiquette of UBS. Please go ahead..

Hi. Thanks. I’m not sure what happened at the beginning, I was talking but nothing was happening. So apologize for whatever happened there. But my question was actually kind of similar to the last one, but was maybe a bit more optimism.

My question was just going to be -- I think now you have the industry leading EBIT margin and just the simple question was, should we still generally assume EBIT margin expansion over the next couple of years. We recognize there are lot of moving parts.

So should we make that general assumption? And also I mean, there are a couple of other late-stage CROs that went on hiring spree in the first half of ‘15. And just kind of confirm, do you think everything is kind of appropriately allocated from a staffing percentage within ICON and the way things stand right now? Thanks..

Yeah. I mean, I think when we look forward towards longer term margin, we will certainly be targeting. We will exit this year at about 18% of the margin, I think we said that. And we’ll be targeting 18% to 19%. We went into more detail when we went into guidance and more formal guidance.

But at this stage our stated ambition for next year is to start the year at about 18% and to finish at about 19%, that’s from some of the things I spoke about their benefits that we can see coming through an SG&A. And then of course, gross margin, which is little bit more complex. And of course, there are other things.

So we’re generally optimistic about that. On the hiring spree in the market, maybe I’ll hand that one over to Steve..

Yeah. I think we look at this very carefully Steve. We have a very strong group in the resource planning area that analyzes our backlog and analyzes new wins on a case-by-case basis in great detail. They were good, stronger -- we’ve invested in that area to make sure that we don’t get ahead of the curve but we don’t get behind it as well.

And our people work very hard and they’ve done a great job in terms of improving efficiency and productivity. So that combination I think has allowed us to really keep very close to the requirements from a resource planning point of view. And I don’t anticipate any change there. I think we can continue to do that. We continue to do well..

Okay. That extra color is helpful. Thanks..

Thanks Steven..

Thank you. We now move onto Donald Hooker of KeyBanc for our next question. Please go ahead..

Great.

Can you hear me?.

Yes..

Great. Good.

Just to be clear, I was taking note, your class comment was, you’re looking for 2016 operating margins to grow from 18% and 19% in 2016?.

That’s correct. Yeah..

Okay..

We’re saying we would finish this year around 18% and then obviously starting 2016 18% as a floor, we’ll be seeking to move it up to 19% from there..

Okay. And then other couple, I thought I picked up on some confusion on the forward looking comments with guidance and what not. Did timing of the share repurchases as it looks $400 million is a big number? And I think one initially was going to all happen in the second half.

And then I think somebody mentioned that was going to be a little bit next year as well.

So my question, when we think about forward-looking performance for ICON, can you talk about the timing of the share repurchases and also why is the tax rate stabilizing now at 14% like that something changed that makes that tax rate lower?.

Okay. I’ll address on the guidance and then Brendan can talk about some of the changes that have brought the tax rate lower. And I don’t think there’s any confusion but what I was trying to say there was that we will start the buyback now in the second half of the year. But we will see only modest benefit in 2015 from this buyback around $0.03.

But the buyback will continue over the next number of quarters that being Q3, Q4 and most likely into Q1 in 2016. We estimate this full-year impact of the buyback was $0.35 to $0.40, that will be 12 months impact. Obviously, it depends on how much of it slips into 2016 that will determine that number exactly.

But I think we would assume that high percentage of the buyback will be done by the end of the year although it won’t be complete. And really it’s just around the practicalities of the certain restrictions upon us and how many shares you can buy back. We’re restricted to buying not more than 15% of space trading less than six month average.

This is going to take a little bit of time to buy back 6 million shares or thereabout.

And on the tax, Brendan?.

Yeah, sure. Thanks Ciaran. Don, as you know, we kind of came into the year saying that we were at 16% for the effective tax rate. GAAP tax rate for us two years has actually been 15%.

The big driver I suppose and what gives us comfort that we can move to a 14% raise and that we can sustain as we look at the year is actually the margin improvement that has come true in the organization over the space of last 12 months.

Our global business, transfer our pricing model that we have in place to ensure the efficiency of our tax model basically means that as our margin performance grows, more of that margin comes through into Ireland, which obviously is our home territory where we signed a lot of our contract and consequently where we pay a lot of our tax which is up to 12% rate.

And then it’s the blending of that, proportionally that growing and over time, it can decrease the overall rates. And that’s why we see now that we feel comfortable saying that 14% is a good raise to look for. I think it’s great as we look forward..

Got it. And if I could squeeze one last one in, in terms of everyone’s focused on the margins, so when I think about situations where you guys within your project portfolio, were you able to most aggressively drive your informatics solutions, remote monitoring or patient-centered monitoring or whatever you call it and things like that.

Are there ways to think about kind of the pockets of projects where you have higher margins, so they can kind of think about high kind of a target if you can really drive better use of informatics?.

I think there are opportunities within that model. We certainly spending, investing a lot of money in our ICONIK solution, developing better algorithms to make sure that we’re efficient for our customers. It’s all about getting cost better and cheaper and we understand that. We are driving those technologies through Firecrest, through ICONIK.

And there are certain projects that lend themselves better to a risk- based monitoring type approach and allow us to essentially give our customers better pricing but also maintain or even improve our margins. So it’s a challenging but a good place for us to be in that sort of space..

All right. Thank you..

Thank you. We now move on to John Kreger of William Blair. Please go ahead..

Hi. Good morning, everyone. It’s actually Ravi Fadah in for John. Thanks for taking the question.

Just a follow-up on that last point on risk-based monitoring, do you have an updated statistics that maybe tell us what percentage of new trials are initiated with some sort of risk-based monitoring associated with them?.

I don’t have that number right at hand. But it tends to be the larger study and it tends to be with certain customers. So I don’t want to speculate on the percentage in terms of numbers. It’s a significant number but certainly not the majority of studies. I would say, but it is a number, it is a percentage that is increasing as we go forward.

We’re certainly seeing benefits not just in terms of the efficiency and the cost of doing those trials but we actually started the season in terms of the quality of the information, the quality of the management and reporting and actions that we can take on those trials.

So we’re able to identify areas of concern and challenges earlier than we’d normally got to do in a traditional way and our customers are being able to see that. We’re increasingly able to quantify what our technologies able to bring to a trial in terms of reduced protocol violated, in terms of improved or reduced queries.

And as we quantify that we get our customers to buy into that and to be much amenable to applying these source of approaches to their new trial. So it’s a slow but a constant process and we’re seeing some good progress here but it certainly not the majority of trials..

And I think it’s fair to say, Ravi, that’s the way we tend to see new technology and new solutions adopted in the industry. It’s a conservative industry and rightly because of what we do. And adoption of these things tends to start slowly and then gather momentum and pickup.

So we’ve seen it in the gathering momentum phase and I’m sure, we’ll continue to do that..

Great. Thanks for that. And one last one, I may have missed this before so I apologize if I did. But as we think about the backlog conversion rates and how it slowed over the last few quarters, I may have missed any comments about forward looking conversion.

And if you expect that to stabilize as these new partnerships that are starting to ramp up or if you think it will continue to slide for the next several quarters? Thanks..

No. You didn’t miss that Ravi. Looking forward, we would expect our conversion to stabilize. It should be around the same in Q3. It maybe even pickup a little bit in Q4 as we see some of these new wins and new relationship start to kick-in. But I mean, if you look back, I think we were 11.5% this time last year.

I think we’ve seen lot of the adjustment from where we are in the backlog, so we’re expecting it to outline from here..

Excellent. Thanks very much..

Thank you. Our next question comes from Robert Jones of Goldman Sachs. Please go ahead..

Thanks for the question. I guess, just on the biotech funding, I think, both public and private funding, it’s fairly well documented, it has been very strong and that ties in with you guys comments in the prepared remarks.

I guess, there is some debate on where those dollars actually are in the pipeline today? Ciaran, I’m just curious, if -- are you actually seeing those dollars showing up in the results of -- in the form of Phase II and Phase III trials today or do you feel like we’re still early days on the boldness of the biotech funding really flowing through the late-stage clinical trial part of development?.

No. We’ve seen those dollars in our rewards in the quarter in Phase II and Phase III projects to say and we’ve had a good couple of quarters in winning new customers and they tend to be from mid-sized and biotech companies.

I think more than around 50% for business this year it’s from the mid-sized and biotech sector and that those funding dollars that are coming through..

And based on what you're seeing from these clients specifically, does it feel like there is a pretty long runway on the ramp from that customer segment?.

I’m not sure what you mean by long runway on the ramp from the customer segment for these….

Well, it just seems like if we look at biotech funding the last few years, it’s -- every quarter it's actually setting new highs, both in the public and private funding markets.

And so, the question, I think, people are trying to figure out is just, if the strong bookings in part is coming from these clients, where are we as far as that funding showing up in development? I mean, are we early days or we kind of middle innings, late innings? Just trying to get a sense of how much more we should expect from new business wins coming specifically from the funding ramp we’ve seen?.

Okay. Well, yeah, its interest because, again, we are sort of neutral actually here. I think it's fair to say that what we are seeing is much more commitment from the providers of finance to back biotech companies to take compounds right through development.

In other words, perhaps, in the past they took from to an earlier milestone and then we saw it acquisitions, licensing deals and things like that. So early enough I would think.

It’s got a momentum as the funding goes in and as a success of these things starts to come through and we’re seeing really good times in terms of drug approvals or things in the market. And I’m looking at our pipeline, that there is still plenty of stuff there, so we’re expecting it to continue..

I agree. I think, it also reflects a confidence in CRO industry, because the biotech now have an increasing vehicle to take their compounds through and a vehicle they can be confident on. We’ll get the drugs to market. And we’re also seeing other areas of sort of funding from other most of the new top arrangements as well.

So there is a number -- I mean, the money is coming into the industry in different ways now. It’s not all coming in through larger pharma. I think it’s an interesting dynamic below that reality. But I think the whole CRO industry and we’re obviously be part of that is benefiting from it, we’ll benefit from it, because we are delivering well..

No. That’s helpful. And I guess, just the second question would be around the conversion rate.

Ciaran, I know you just talked about this, but I guess, I’m just still a little bit confused on why the conversion rate would be kind of permanently lower than where you guys were say year ago? Its sounds like what's driving it lower, if I'm hearing you correctly is the fact that some of these new relationships there still kind of early days in that -- the pipelines from these relationships aren't at a run rate yet? And then I know you also mentioned that the trial complexity is also leading to slower conversion.

So, I'm just trying to get my head around.

If it's really just the ramp in new customers, wouldn’t we at some point get back to historical conversion rates, or is it really this dynamic of more complex trials that's driving this dynamic more permanently?.

Yeah. You’ve kind of answered this for me. So the complex trials are driving it to the more permanent lower rate..

Okay..

Combined with the fact that just generally, I mean said in the slide that new customers will come up to speed and then settle at a rate you’re right in that, but that’s not a the principal driver here. Principal driver is nearly 40% of your backlog, complex oncology.

As we go forward in the world of medical research and medicine trials, are becoming more complex and will continue, kind of all the easy curers have been found. So if you look at the mix and our backlog compared to years ago, it’s just more complicated stuff and it takes longer to get it through. So that’s really what’s driving it.

So, I mean, if you look at our conversion rate compared to the market value, it’s by no means unusually low and it’s probably one of the higher ones. And that really just comes down to, how you look at your backlog and you’re your awards and just the mix that you have at a point in time.

But I think it’s fair to say that there has been a trend over the last five years. It’s probably come down from 14% every year. And that’s just reflecting more complicated medical research and trials taking longer..

Got it. That makes a lot of sense. Thank you..

Thank you. We now move on to a question from Todd Van Fleet of First Analysis. Please go ahead..

Hi, guys. Nice job on the quarter by the way. I’ve heard what you’ve said about the margin expectations for this year and next.

But as we think about possibility of seeing some revenue, growth acceleration over the course of the next 12 months, how do you think about the operating margin leverage within the business for the cost structures that’s in place today, i.e.

if revenue growth accelerates, would you expect to see the margin profile for the business accelerate or improve incrementally? I guess more quickly as well, that’s the first question.

The second question is around sensitivity of interest rates at all -- I’m sorry, Forex rates but I will reserve that?.

Okay. If you look at the past, Todd, you can see that over the last four years we’ve been able to post fairly decent revenues growth rate while improving our margin.

So, I think at the scale and the maturity level that the business is at and the way we had structured, or kind of overhead function and the technology that we have around expertise around resource planning and hiring, we used to outsource hiring number of years ago.

At one point, we had the critical mass where we had our own recruitment centre of excellence, the global 50 people that kind of hires permanently and does a very good job. It does it cheaper. It does it faster and gets better quality. So, we are in a different place in the world to where we were say a number of years ago.

So as we look forward to growth at modest rates and what we always described modest was sort of anything up to 10%, sort of 12%. It’s pretty much -- we are set up to do that without any unnatural impact on the viability of sustainable long-term margins.

And you may considerably get a quarter where you certainly have to hire a bunch of people or something really spiked up and decide anomaly, but that would iron itself out after quarter.

So I don’t see any significant change or impact to the cost structure or the margin structure from accelerated growth unless growth goes back to the old days of 25% and stuff like that. I think that’s when we used to point back and say at those growth levels it could make the margin a bit lumpy.

But on a steady trajectory now, it’s much better managed..

That’s helpful. But on the Forex front, I think you said about 100 basis points impact on margin year-over-year and I think the euro has declined about 20% from last year. So I know you guys have run the sensitivity analysis internally.

But I’m just wondering if you can tell us, is that the way we should think about the business and the impact of Forex, the sensitivity of the margin profile to Forex that is maybe 50 basis point impact for every 10% move the euro has against the dollar either way?.

Yes. I think that’s broadly correct, Todd. That’s what we were thinking about when we did comparative analysis from the '14 into '15, and that’s when we came with the 100 bps.

So, yes, I mean, given the only thing that swings out, obviously, Todd, as you know is the overall proportion of revenue that we are doing in dollars versus euro and that can change depending on the mix of business. But other than that, I think your math should be broadly correct..

Thanks, guys..

Thank you, Todd..

Thank you. We will now take our final question from Douglas Tsao of Barclays. Please go ahead..

Hi. Good morning, guys. Just in terms of the customer concentration, obviously we saw -- by my math sort of the sequential decline for the Pfizer business. Just curious, less of a point there, but if you think about the ex-Pfizer business, it was pretty solid on a sort of sequential basis, probably little less growth on a year-over-year basis.

Should we think about that sort of the quarter-on-quarter trend is the most indicative of how that sort of ex-Pfizer business is trending right now in terms of sort of backlog conversation and bookings etcetera?.

Yes, we should, I think quarter-on-quarter is the important number there, Doug. What we’ve seen I just say in the first half of the year is a lot more business coming from [indiscernible] and from mid-sized and biotech.

So with the trailing book to bill of 1.3, 12 months trailing book to bill of 1.3x outside that kind of large cohort of customers we have. And so we are going to see that business grow faster as we go forward. The maturing of the big Pfizer was expected and that was in line with our forecast.

I think what has happened is that the new business that we’ve won over the last two or three quarters is the stuff that’s starting up a little bit more slowly and that’s what’s going to counteract the decrease and some of the larger kind of stuff..

Okay. Great. Thank you very much..

Thanks a lot..

Thanks, Doug..

Thank you. That will conclude today’s question-and-answer session. I would like to hand the call back over to you, Mr. Murray for any additional or closing remarks..

Okay. Thanks, Sophia. Okay. Thanks very much everyone. We got off to a rocky start there. We were relieved to hear your questions. So thanks again. And we are really looking forward to building on what we think was a solid quarter and quarter two.

I’m sure the rest of the year we are going to continue to drive our position as the CRO partner of choice in drug development. Thank you very much..

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