Jonathan Curtain - Vice President, Corporate Finance and Investor Relations Steve Cutler - Chief Executive Officer Brendan Brennan - Chief Financial Officer.

Robert Jones - Goldman Sachs Ross Muken - Evercore ISI Tim Evans - Wells Fargo Securities Jack Meehan - Barclays John Kreger - William Blair Eric Coldwell - Baird Donald Hooker - KeyBanc Michael Baker - Raymond James Erin Wright - Credit Suisse Dave Windley - Jefferies Tycho Peterson - JPMorgan.

Good day and welcome to the ICON PLC Quarter One Call covering the quarter ended March 31, 2017. Today’s conference is being recorded. At this time, I would like to turn the call over to your host today, Mr. Jonathan Curtain. Please go ahead, sir..

Thank you, Sarah. Good day, ladies and gentlemen. Thank you for joining us on this call covering the quarter ended March 31, 2017. Also on the call today, we have our CEO, Dr. Steve Cutler and our CFO, Mr. Brendan Brennan.

I would like to note that this call is webcast and that there are slides available to download on our website to accompany today’s call. Certain statements in today’s call will be forward-looking statements.

Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company’s business and listeners are cautioned that 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 statements headed Consolidated Income Statements Unaudited U.S. GAAP.

While non-GAAP financial measures are not superior to or a substitute for the comparable GAAP measures, we believe certain non-GAAP information is more useful to investors for historical comparison purposes.

We’ll be limiting the call today to one hour and would therefore ask participants to keep their questions to one each, with an opportunity to ask one related follow-up question. I would now like to hand over the call to our CFO, Mr. Brendan Brennan..

Thank you, Jonathan. In quarter one, we achieved gross business awards of $580 million and incurred $59 million of cancellations. As a result, net awards in the quarter were $521 million and net book to bill of 1.21x. Net revenue in quarter one was $432 million. This represents year-on-year growth of 7.8% or 8.3% on a constant currency basis.

On a constant dollar organic basis, year-on-year revenue growth was 4.5%. For the quarter, our top clients represented 24% of revenue compared to 29% last year. Our top 5 customers represented 45% of revenue in both this quarter and the comparative quarter last year.

Similarly, our top 10 customers represented 58% same as last year, while our top 25 customers represented 74% compared to 75% last year. We grew operation margin in quarter one, while effectively leveraging our existing headcount and ended the quarter with approximately 12,300 staffs.

Group gross margin for the quarter was 42%, which compared to 42.2% in quarter four and 42.9% in the comparable quarter last year. We continue to leverage our global business support model. And as a result, SG&A was 18.8% of revenue in the quarter. This compared to 19.2% last quarter and 20.2% in the comparable periods last year.

Operating income for the quarter was $85.7 million, a U.S. GAAP operating margin of 19.8%. This compared to 19.5% last quarter and 19% in the comparable quarter last year. The net interest expense for the quarter was $2.62 million and the effective tax rate was 14%.

Net income for the quarter was $71.4 million, a margin of 16.5%, equated into diluted earnings per share of $1.29. This compares to earnings per share, excluding a one-time tax benefit in Q4 of $1.26 and $1.12 in the comparable quarter last year, an increase of 15.2%.

DSOs in the quarter were 47 days, which compared to 50 days in quarter four and 47 days in the comparable quarter last year. Cash generated from operating activities for the quarter was $159 million and capital expenditure was $8.3 million. During the quarter, we spent $96 million on share repurchases with a further $12 million to-date in quarter two.

This means to-date, we have spent $218 million of the $400 million share repurchase program we announced in July 2016. At March the 31, 2017, the company had net debt of $30 million compared to net debt of $100 million at March 31, 2016 and net debt of $88 million at the end of December 2016. With all that said, I would like to hand over to Steve..

Thank you, Brendan and good morning or good afternoon to all of you. Quarter one was another positive quarter for ICON, an encouraging start to 2017, driven by our operational quality, differentiated technology platforms and strong therapeutic capabilities we continued to win business across all customer segments.

Record quarterly net business wins of $521 million representing a net book to bill of 1.21, resulted in year-on-year backlog growth of 9%. Particularly encouraging was this strong growth in our backlog, while our top customer concentration reduced by 500 basis points.

In addition and outside our top customer, year-over-year revenue increased by over 15% and new business award levels remained very strong, delivering a trailing 12-month book-to-bill of over 1.4. As we transitioned through 2017, we believe this diversification will leave us well-positioned for consistent growth.

CRO market demand fundamentals remained healthy driven by R&D pipeline spending expectations, a strong biotech funding environment and increasing outsourcing penetration.

These trends were reflected in the mix of our business wins in the quarter, which included increased awards from large customers as well as good activity within small and midsized specialty pharma.

Both new and existing customers are seeking to leverage ICON’s operational excellence, depth and breadth of therapeutic expertise, flexible partnership models and our global footprint.

All these capabilities are underpinned by our differentiated technology platforms, ADDPLAN, Firecrest and ICONIK, which are enhancing sponsor development programs by reducing development time and costs and improving data quality.

We continue to make good operational progress across our service areas as evidenced by the continued progress in our margins.

ICON’s clinical research business continues to benefit from our commitment to innovation, which encompasses ongoing investment in our core data and analytics platforms and collaborations with partners who can help us address the industry’s key challenges.

We are particularly focused on how we can expedite study startup and employ more data-driven and scientific approaches to identifying the right sights and patients.

Recent examples of our work in this area are our collaborations with goBalto, TriNetX, and EHR4CR, which are being used in conjunction with our internal study feasibility tools to tangibly drive our project execution.

We are also seeing a significant amount of customer interest in the field of wearables and specifically how data from these devices can be used to provide new insights into the impact of treatments on patients in both the trial process and real world settings.

We have significant expertise in this area and our dedicated team is working with our customers on some very interesting proof-of-concept work to evaluate the suitability of wearables across various therapeutic areas.

ICON’s ability to successfully manage project under a variety of flexible and hybrid outsourcing models has led to further new opportunities for our functional services business. This service area has grown strongly year-over-year and we are well-positioned to benefit from further growth during 2017 and beyond.

The quarter also saw strong performances from our central lab and commercialization and outcomes group, whilst our medical device group continues to make excellent progress in this burgeoning field of outsourcing. Year-on-year growth of 7.8% and careful management of both our direct and SG&A costs enabled us to expand our operating margin to 19.8%.

This combined with good use of our balance sheet resulted in earnings per share of $1.29, which is a 15% increase over the same quarter last year. We continue to invest our available capital to maximize shareholder value.

We remain focused on our M&A pipeline at executing our strategy in bolt-ons string approvals acquisition targets to enhance and broaden our service offerings. In conjunction with this, we are continuing to repurchase shares under the previously announced $400 million share repurchase program.

We completed a further $96 million in the quarter, which together with repurchases completed in 2016 and those completed to-date in quarter two, meaning we have spent overall approximately $218 million or 55% of the $400 million total.

Depending on market conditions and appropriate M&A activities, our intention is to continue to opportunistically repurchase shares throughout 2017.

In light of this share repurchase update, we are increasing our 2017 earnings per share guidance to a range of $5.06 to $5.26 and reaffirming the full year revenue guidance in the range of $1.7 billion to $1.75 billion.

And I look forward to rest of the year, we will continue to transition the business, further reducing our client concentration and building a more diversified and balanced business that will deliver future growth. Before moving to Q&A, I would like to thank the entire ICON team for all their hard work and commitment during the quarter.

And in particular, I would like to recognize the efforts and dedication of the ICON vaccines team who were recently awarded Best Clinical Research Organization at the Vaccine Industry Excellence awards. Thank you everyone. And we are now ready for questions..

Thank you, sir. [Operator Instructions] We will now move to our first question today from Robert Jones of Goldman Sachs. Please go ahead sir..

Thanks for the question.

Just thinking about the progression of Pfizer revenue, obviously as expected it was down as a percent of revenue, but it did pick up sequentially and if I look at the drop-off implied in the full year Pfizer guidance, certainly we would call for a pretty big drop-off from the starting point, so I guess just curious how the quarter played out relative to your expectations as far as the roll-off of the large cancel versus new business.

And then maybe you can just walk us through the cadence of that for the balance of the year?.

Yes. Sure Robert. It’s Steve. The quarter played out exactly as we plan. We didn’t expect to have much impact of the large cancellation on our first quarter revenues. That will play into the remainder of the year. And we have that well scheduled into our forecast.

We expect to be ahead of overall concentration for the year around 15% to 17%, that hasn’t changed. And so there will be a ramp down on the Pfizer revenues, but it will – and it will be in line with what we have said before.

Brendan, do you want to add to that?.

Yes. I think Bob, just to maybe give an overall color to the sequential revenue procedure in the course of the year, obviously we are very pleased with our revenue as we started off in the first quarter. I think the market expectation is that we will be the same ballpark in Q2, with the drop falling in Q3.

And that’s really, obviously as a result of that big cancellation. And I think that pattern that the market has settled on at the midpoint is still pretty valid, as we look at our revenue over the course of the remainder of the year..

That’s helpful.

And then I guess just a follow-up on the cadence of revenue and where it’s coming from, not that this is new, but clearly you are calling for a lot of growth from the clients outside of the top five, it seems like a lot of your peers are also focused on kind of that small to mid-sized biopharma cohort, so I am just curious if maybe you could share a little bit about the competitive landscape you are seeing in that group, given that it seems to be a focus for many of the clinical providers?.

Yes. I am not sure we are seeing any more competition within that group than we are across the other segments of the industry, Robert. We work in a very competitive business and the pricing environment is competitive, but not cutthroat. We believe we are able to differentiate with our service offerings and offer good solutions.

So while it’s competitive, it’s certainly not silly. We were very pleased in the way we have been able to make progress outside of our number one customer in terms of the business wins year-to-year. We are up close to 18% on business wins.

We are up over around 15% in terms of revenue, so I think that’s good evidence that we are accessing those customers well and providing them with solutions that they can buy. So we are pleased with that and we don’t see that the market being overly priced competitive in that area if you have a good, strong differentiated solution to offer..

Got it, alright. Thanks so much..

Thank you. Our next question now comes from Ross Muken from Evercore ISI. Please go ahead..

Hi, good morning guys and congrats.

Can you just expand a little bit on your commentary on FSP and sort of how that piece of business is trending and sort of the client preferences there and whether that’s garnered incrementally more interest, more recently and if so why in your opinion?.

Sure, Ross. We are certainly seeing interest in the FSP market and where we feel we are well positioned to able to take advantage of that. I don’t think we are seeing [indiscernible] we are seeing a fundamental shift in the industry.

We have been able to pick up a number of contracts and we have been successful in that business over the last 12 months through accessing further look within customers, who traditionally have that sort of model and that’s well known within the industry, the companies who advocate and who have that model, we have been successful with those companies.

But I don’t see companies transitioning or transferring from more of a full service business to a FSP business. We do see most companies, in fact employing some sort of hybrid model, most of them have some sort of FSP component and some sort of full service component.

Even the companies who are well known in the industry as being FSP top companies also have full service capability or full service outsourcing. So we are seeing good trends in that part of the business. Our IFS, our functional services component of our business is benefiting from that and they are certainly performing extremely well.

And we are very pleased to see that. We feel as an organization, we are well positioned to be able to benefit from it, there is a trend, from that trend and because our service areas work well together.

And so we have resource opportunity, I will put it that way in one part of our business, we are often able to transfer that across to our for functional services business and gives us the opportunity to very quickly ramp up sort of projects that we get in those areas.

So it’s a – we feel very, very good about that market and I am pleased to have benefit from it..

And maybe in terms of some of the chatter and that number of non-traditional players in the industry also looking at potentially moving into the space, you guys obviously have had to view it be more independent, what’s the conversation like with the clients around those sort of discussions just because I would think, if I was a customer, it would be relevant to me if I thought my zero or getting acquired or we are having a new owner and so I am just curious, how much you think that’s kind of gardened the client level and how, if at all that’s affecting any of the conversations you are having, given you guys have been more in the camp of sort of remaining, obviously independent?.

We haven’t heard from our customers any sort of reservations or concerns around external providers or external competitors traditionally outside of the industry coming in. I think they have recognized it, just because it’s FSP, it doesn’t mean it’s sort of simple straightforward.

There are certainly nuances within that business and understanding the business, understanding the roles, the domain knowledge I guess is what I am trying to say is very important from an FSP point of view, as it is of course, from a full service point of view. So we still believe that we have an advantage in terms of that domain knowledge.

We may not always have the scale of some of the players outside of the industry, but we have the domain knowledge. And so we have a significant advantage over there, I believe and our customers I think understand that, believe that and that we have been able to deliver well for them.

So while we are always aware of external players and other organizations and we look to collaborate with them as appropriate and look to put the best solutions forward, we are not overly concerned about that and we do believe that the offering we are able to put forward is still very compelling from a customer point of view..

Great. Thanks..

Thank you. We will now move to our next question from Tim Evans of Wells Fargo Securities. Please go ahead..

Thank you.

Brendan, did I hear correctly that you expect your top client revenue to still be somewhere in the same neighborhood as Q1 and Q2?.

We expect – when I said want to be very clear was we expect obviously our top customer, we said will be in the range of 15% to 17% of full year revenue – for the full year, that’s what we talked about last quarter and that’s what I am reiterating this time.

Obviously, if you look at that in terms of quarter-over-quarter, there will be a sequential decline as we would expect with the cancellation from last year. So no, I mean, the dollar amounts will be the same as well as in Q1, but it’s 15% to 17% is the guidance we are giving for the full year..

Okay.

I am just trying to get a sense of the – is the big step down coming in Q2 or Q3?.

I think it will be – we are seeing over the course of the two quarters, Tim, where I see some elements certainly in Q2 and that will continue in Q3. So, I think if you are doing your math on your model, I’d spread it over to the two..

Okay. So with that in mind, let me try to frame the debate that I think everybody is having a little bit and get your response to this. If we just look at the run-rate of your revenue outside of your top client from first half of 2017 to what would seem to be implied in the back half of 2017.

It’s got to step up something on the order of magnitude of about $100 million from first half to the second half. And looking back historically I don’t think revenue outside of your top client has ever seen that kind of step up in two sequential half year periods.

What is it that gives you confidence that you can do that? Is it that the business is sitting in the backlog? And if so, are you confident that it will burn out this year? Thanks..

I mean, we – Steve called it out at the beginning of the call and we have been talking about that strength outside of our number one customer in terms of our business win for quite some time. We have developed a lot of very, very strong new strategic relationships.

And you can see that very meaningful – meaningfully in our top two through five customers, if you look at their increase year-over-year, it’s been very significant.

So, we are comfortable that we have done a good job in expanding and diversifying our backlog and that growth that we have seen in the backlog will flow-through to our revenue during the course of the year. I wouldn’t like to be probably going to ask about this and say it’s going to be an easy transition it is a year of transition.

However, we feel that we have got a strong customer list and a strong backlog that can help us deliver on that. Maybe I will hand over to Steve..

No, I would concur. I think the evidence is we have grown our backlog outside our top customer at over 20% over the last 12 months. And it’s now contingent upon us to get those projects moving and we have a number of initiatives in place to make that happen, Tim. So no one is pretending it’s going to be easy.

There will be plenty of challenges there, but we are confident in our guidance and we are confident in our ability to make that happen..

Thank you..

Thank you. We now move to our next question from Jack Meehan of Barclays. Please go ahead..

Hi, thanks. Good morning and good afternoon. I wanted to ask about some qualitative commentary around the new business awards in the quarter.

Are you seeing any longer duration trials coming through and just how does that impact the quarterly pacing of revenues through the remainder of the year?.

Jack, I think the short answer is I don’t think we are seeing any particular trend in terms of longer duration trials. We continue to see – we continue to win large scale complex trials. That’s not a new trend. That’s been in the industry for some time. Oncology is a large part of our portfolio.

We have some large cardiovascular trials also in there, some opportunity, of course, to replace the cancellation with some of those trials. It’s something also we are very focused on in order to help us to drive that business wins. But, no, we don’t see any particular trend towards longer term trials I don’t know..

Great. Thanks for the color. And then just one for the guide, you talked about the commitment to share repurchase still a lot remaining on the authorization.

Does guidance include any future deployment capital or is that still expected to be upside?.

There is no – there is no the share buyback – any future share buyback is not included in guidance. So if that happens, that would be upside, yes..

Great, thank you..

Thank you. The next question now comes from John Kreger of William Blair. Please go ahead..

Hi, thanks very much. Steve, could you go back to the FSP commentary from a few minutes ago when you are getting a new opportunity to go after.

From your perspective, is that sort of work that would have been previously being done? And how – or is it more of a kind of a vendor replacement type of opportunity or is it maybe work that would have typically been traditionally outsourced and now the clients thinking more about an FSP type of structure.

Just sort of curious where that spend is coming from? Thanks..

John, I would answer that in saying that in our experience certainly over the last 12 months – 12 to 18 months in terms of the work we wanted, it’s really been replacement of vendors. In other words, we won work from other FSP providers albeit on our model and have competitive offering. That’s the bulk of it.

We occasionally see work coming to us in that area that has been done in-house. It’s not going the other way. We certainly don’t see any right trend to do things more in-house and of course the full service to FSP, not really seeing any particular trend there either. Our full service is still a very vibrant and we see growing part of the market.

FSP is also that. As I sort of indicated in my commentary, the hybrid model is probably – if there is anything the companies are doing both and looking at certainly they are more centralized services as being key components of FSP data management statistics programming.

But the monitoring, project management, those sorts of various study management startup still tends to be done in many of those models on a multiple service basis or a more project program-orientated basis. So, if there is a trend in the market, it’s possibly towards more of those hybrid models.

But I say our experience and our success I think in that market has really been through replacement of vendors..

Great. That’s helpful. Just one other last question, if you think about your largest client, it’s obviously trending down because of the cancellations this year. If you think a little bit more long-term ‘18, ‘19, do you think about that as being sort of a flattish dollar volume or continuing to decline.

Do you have any visibility on that yet?.

That’s a question we are asking ourselves internally. I would say that our top revenue customer continues to be an important and a very significant – one of our new wins in our top echelon if you like of new business wins. So, they continue to be a very important part of that.

So on the basis of that sort of cadence of wins we expect that the revenue run-rate will, by the end of the year, essentially reach steady state and we would like to think it will continue in that sort of frame. So, we don’t see further dramatic declines. We see it reaching a solid steady state.

Certainly, a little lower than where it is at the moment, but they continue to be – they will continue to be our top customer we thought for some time to come..

Great. Thank you..

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

Hey, thanks very much. Good afternoon.

OpEx down 130 plus bps year-on-year, about 40 bps quarter-to-quarter, headcount down 200 to 300 over the last couple of quarters, I am not really sure how that splits between direct and indirect account, but maybe you could speak to that? And then also just talk a little bit about maybe give us some anecdotes on tools you are using to get this OpEx down and to control it the way you have? And also maybe the impacts of things like FSP mix or currency or anything exogenous that might be relevant to the good performance you are showing on controlling operating expenses? Thanks so much..

I am on my way on that one, first Eric. Obviously, you can see when you look at the margin profile is done on OpEx that it is continuing – a large chunk of it is continuing to lever our SG&A base, which is very much around our global business services model.

We have seen that being something where we have really successfully brought in terms of the excellence there and obviously use our geographical footprint to leverage the average salary costs there, but it’s the continuing team that’s probably the biggest driver in terms of our SG&A leverage that we are seeing.

Also I think we have been very far over the last number of years in terms of our facility footprint and we really utilized the space that we did rent extraordinarily well. That continues to be the theme. I think it will continue to probably to be one of the margin drivers as we go forward through the course of the year.

And so that’s probably one of the biggest pieces. I think you referenced the headcount drop quarter-over-quarter.

Obviously, we are coming into a period where we need to be very focused on our margin profiles that was through attrition, that headcount drop and I think the split was probably it was probably weighted equally in terms of our existing proportions of headcount, which is probably about 80-20, billable, non-billable.

So I think that headcount drop was probably weighted equally and that 200 headcount drop is very deeply and not same proportionality 80-20, billable and non-billable. So I will hand over to Steve maybe on some of the technology pieces that we used in our direct costs..

I think on the direct costs Eric, around gross margin, we have been able to mitigate any reduction in the gross margin on the basis of couple of these. One is we are using increasingly the technology that’s available.

We find that our customers like it because they get a better quality review of their data or they get early access to their data, they can check the quality of it. I think that’s a good and where I am taking a lot of essentially reduced price. But we can maintain or even potentially improve our margins in that area. So that’s another thing.

The other thing I think for us is, we have been successful over the last 12 months or so in winning some larger projects and so the portfolio that we had has shifted a bit more towards larger projects and with larger projects you do get an opportunity to gain those sort of efficiencies and economies of scale.

So any sort of press down from the mix of business changing FSP wise full service is being mitigated by some efficiencies we are generating through technology and through those larger projects.

And then as Brendan said, on the SG&A side, we are also able to – we have been successful in moving that along and I think there is still some opportunity for us particularly on the SG&A side going forward and that’s an area that we continue to be focused on and put plans in place to benefit from..

Thank you for the very thorough answer. That was fantastic.

Could you maybe last follow-on, just give us a sense on how low can it go for doing the – the game here, a little game of limbo, how low are we going to go on OpEx over the next I don’t know 3 years, 5 years, what’s the ultimate target?.

Brendan is looking very nervous. I don’t think we are going to put out a specific target on that one, Eric. Suffice to say that our margin, we believe on a GAAP basis is our industry leading and so we are very proud of that and that’s something that we want to continue.

I think maintaining that will be – will have its challenges, but will be something that we are certainly very focused on doing and I think we can do it. [indiscernible] through the combination of continuing to drive the technology and continuing to deleverage our SG&A.

So I am not going to set a target, but at least on publicly, we will be continuing to look at that very hard. And I do think we want to maintain at least overall operating income margin and hence we will do that in a combination of ways that I think I have outlined..

That’s great. Thank you for the details..

Thank you. We will now move to our next question from Donald Hooker from KeyBanc. Please go ahead..

Okay, good morning.

Kind of I wanted to echo a question from an earlier questioner, you all had a wonderful free cash flow and a great balance sheet, do you think that you will complete your share repurchase authorization before your next Shareholders Meeting, I guess this summer?.

No, we don’t, Donald..

You don’t..

I will give you straight no on that one. I think that’s not going to happen. We have approval from our shareholders to spend that $400 million over another 15 months or so. So I certainly don’t think we will be completing it by the June meeting..

Okay, that’s great.

And then I guess you all commented on your capabilities in the area of informatics and you gave a few examples, I was wondering where over time you see sort of the line between what you are doing internally with software and analytics versus what you are procuring from third-party vendors?.

We constantly ask ourselves that question and our philosophy certainly is where there is strong third-party vendor who can provide us with the sort of technology software applications that can get us the data and can get us the analysis of the data that we want, we would certainly go to them.

We are not a software developer in-house and we have no intention of becoming one. However, we are at the cutting edge of Big Data in this industry and we need to reflect that.

We need to reflect that and there is always a need to provide these optimal solutions to our customers in a way that allows us to deliver those solutions effectively and in a timely manner. And so where there is competitive advantage in us delivering or us developing the sort of software, the analytic piece, we will do it. And we have done.

ICONIK is a very good example of that. It’s a very well accepted and very strong piece of software application that we are benefiting from on a risk – particularly on a risk based monitoring point of view, but not just risk based monitoring in terms of review of data and the ability for our customers to get access to the data on a real-time basis.

So we looked at each of the areas not in isolation, but we look at them in a way that we make that decision as we see what’s out there in the marketplace. So it’s a hard question to answer in terms of just one straight answer.

We don’t have software in-house, we are not going to be one, but we do believe that there is a need to develop these solutions quickly and effectively. And we have a lot of very good people and a very strong IT group. We have done this in the past and can do this in the past and they are able to offer these sort of solutions.

I hope that answers your question..

It’s very helpful. Thank you very much..

Thank you. We will now move to our next question from Michael Baker of Raymond James. Please go ahead..

Yes. Thanks a lot.

I was looking for an update on a labor rate inflation, particularly at the CRA level, if you are seeing, what type of change, if any you are seeing there?.

You want to answer that one?.

Yes. I think we have been – we are pretty disciplined around that. Michael, we have seen kind of in that ballpark of 2.5% to 3% being kind of global inflation rate from a salaries perspective. Obviously, there are pockets where you see that being higher, but also areas where you see it being lower.

I think what’s important to us as an organization in controlling our overall salary cost is the overall number in that 2.5% to 3% range over the last couple of years and I think probably towards the 2.5% range in the current year.

As you said, CRA sometimes in pockets can be a little higher and we have seen that over the certainly – probably going back to six months, nine months ago, now you have seen a little bit of pocket of that is particular in the U.S. But these trends do come and go and I think for us, really margin the overall position is what’s important..

Yes, I agree. And as Brendan had said, it’s the pockets of inflation do get above that occasion and particularly in certain functional areas CRA has been a good example.

But we look to broaden out how we train our people, it’s just not around salary, career path, opportunities to develop particularly in a CRA to clinical trial manager or to a project manager, that’s at least as important I think as CRAs for most forward-looking young professionals these days.

And we are working very hard on that within our organization..

That’s helpful. Thank you..

Thank you. We will now move to our next question from Erin Wright of Credit Suisse. Please go ahead..

Hey, thanks. Can you speak to your opportunities with your med device customers, do you anticipate that being a more meaningful driver for you with any sort of larger projects there and what would be the typical profit profile of a med device project for you and what are your competitive advantages in that category? Thanks..

Sure, Erin. We have – I mean as you probably know, we developed our medical device group through the acquisition of Aptiv 1 year or 2 ago now. And we have a strong group in that area. And we have actually – I didn’t call out in my commentary, we have seen some very strong business, new business wins in that area.

We have seen the market growing substantially certainly double digits in the market from a devices point of view. And increasingly, we are seeing some of the big medical device customers become much more attuned to the outsourcing environment.

I would suggest they are probably, I don’t mean to be dismissive but 10 years behind the pharmaceutical, the drug industry from an outsourcing perspective, but they learn fast. And I think increasingly embracing the outsourcing mantra and we are the beneficiary of that and we have a strong as I said medical device group.

Our advantage really is around the people that we have. Some very experienced people who have been doing this for a number of years, who have an excellent track record, they are able to combine some of technology that we have and the customer relationships that we have to put forward a strong case.

And so customers, perhaps non-traditional customers so to speak, who haven’t done much outsourcing are very much in treat and very much interested and we are engaging in a number of conversations with those sort of customers about the outsourcing of their device requirements.

I would – I don’t want to overhead, so I would say it’s still a relatively small part of our business, albeit one that’s growing nicely. I do see reports in the industry – around the industry that the market is substantial one and I would fully concur with that.

I think it is one that’s essentially feeling underserved and we intend to put ourselves in a position where we can benefit from that. As I say, it’s a burgeoning industry, a burgeoning market and one that we feel we are well positioned to take advantage of..

That’s great. Thanks. And how would you characterize the current pricing environment, are you seeing any sort of shifts or outliers in this space or for is everyone behaving relatively rationally out there? Thanks..

You will be talking medical device specifically or just in general?.

No, more broadly?.

Well, broadly, I would say in general, rational behavior is the norm. We are not seeing any crazy stuff.

Having said that, project-to-project that can change or relationship-to-relationship that can change, but overall, I would say the pricing environment is – it’s normal competitive, so I would say, but that certainly doesn’t mean it’s cutthroat or silly..

Right. Thank you so much..

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

Hi, good afternoon. Thanks for getting me in.

I wanted to tie a couple of earlier questions together, I guess this is our understanding that as part of a broader shift or evolution that your top customer is kind of rebuilding an internal clinical ops team and so as that becomes a reality, that creates say a fifth CRO or a fifth execution team for them to look to do work, it’s also our understanding that there are number of projects to led right now is a relatively low and so I wanted to come back to the earlier – your earlier discussion, kind of Tim’s question about the run rate, if I assumes that Pfizer drops off a little in the second quarter and then kind of completes the leveling in the second half, it would look like you would be roughly maybe a $200 million run rate Steve, I know you have mentioned that you think that that’s a reasonable run rate going forward, but in light of kind of low award opportunities and kind of the possibility that some of that work stays in-house, how should we think about how that progresses, I would appreciate if you could comment on these things? Thanks..

So, thanks Dave. I would say that the Pfizer model continues to evolve and continues to develop and the folks there have an approach that we are able to work in well with and we have worked in well with really over the last 5 years. So we don’t see any huge fundamental shift in what they are doing. It will be the first point I would make.

There is no I think particular push to bring work back in-house. As such, they have a strong team within their organization that oversees their partners, that I know is fundamental tendency of their outsourcing strategy, as it should be. We work well with that. So I don’t see a great change in what they are doing.

In terms of run rates for work, we see plenty of opportunity still coming from that top customer. They are open to us. We did have a very strong relationship with them. We look to continue to build that and to make that as good as it possibly can be. A number of our business wins that we reported this quarter were from them.

As I have mentioned, [indiscernible] of new business awards. So we feel that there is – we are getting to a steady state. We are getting to a solid run rate, but we believe this is sustainable and substantial quite frankly. So the figure that you mentioned, I would say is within the ballpark of what we believe is likely to be the case.

Obviously for us, we need to continue to deliver well. We don’t expect to win much work from them if we don’t deliver well and we would expect to win a little more, if we delivered way ahead of expectations. So our focus really is on delivering the work that we have from them as effectively and as cost effectively and as fast as we can.

And we believe we are in a good position to do that. The relationship continues to grow. We continued to get better and we – as I said, we are feel very optimistic about that long-term future, specifically pessimism around this place in terms of what that is likely to look like as we really get that steady-state position..

Excellent. Thank you. I appreciate that.

And then I think Eric asked kind of a cost question, as you think about this transition and particularly as earlier questions of trying to put a finer point on how it progresses through the year and some of your answers have been around using technology to kind of mitigate business mix shift pressure on gross margin and things like that, is there anything we should know about the kind of quarter-to-quarter progression of margin, which heretofore has been very stable and consistent in its path upward, is there any disruption to that as you see a more, say major shift in the revenue contributions from you top customer to your growing non-Pfizer portfolio?.

I would say broadly speaking, no major shifts. We don’t see any sort of push approaching or particular transformational issue that’s going to drive any sort of major change on the margins. As with everyone in the industry, we continue to see a pressure and a requirement to drive efficiencies.

And then part of that, as the shifting portfolio, slightly shifting portfolio, our FSP business is going to put a little pressure on our gross margin, but we believe we are able to mitigate that through as I mentioned the technology and around continued leverage of our SG&A.

And so maintaining that OpEx is certainly our goal and I believe a very achievable one. So the short answer Dave is we don’t see a major shift coming, whether it will be from our top customer or anybody else for that matter.

The business, I think as long as we continue to work hard and we continue to drive the efficiency in our business and challenge ourselves to maintain the sort of margins we have, we anticipate that that will happen..

Got it, okay. Thank you very much..

Thank you. We will now move to our final question today from Tycho Peterson from JPMorgan. Please go ahead..

Hey. Thanks.

We have heard a number of comments from your peers on delays that have come up pipeline reprioritization, even some hints around maybe some more insourcing, you guys have largely avoided that, obviously you had the Pfizer cancellation, but can you maybe talk to why you think you have avoided some of those pitfalls in the market and as we think about your mix shift, moving more towards biotech, is there more risk there?.

Well, I don’t guess it all works out in a wash like it doesn’t I mean we have had our share of cancellation particularly last quarter, so I think we will – I am not sure we have been totally lucky in that respect. I think there is an element of fortune with these sorts of things.

Of course, we see the largest – some of the larger projects that they are not as fast to startup as we would like them to be. We have been able to mitigate that to some extent through some initiatives around startup group again some of the technology that we have been able to use fully employed to get studies moving and get them going.

That doesn’t mean that we won’t have potentially in the future those sorts of issues. We are doing more and more complex trials, no question about that. Large scale [ph] oncology trials, looking for patients that are very hard to find these days, that’s a really common refrain within the industry.

I know our peers have said that and that will certainly be something that we would concur with from that point. We have been able to avoid it to some extent – to a large extent up till now, but of course we know we have come to couple of others, which we are very familiar with, so it’s a matter of how you manage the business.

And I don’t think we have a very strong operational team within our clinical research business and within our ICON business and they are very much on top of these things to able to move them forward as appropriate..

And then as we think about FDA dynamics, are you hearing anything from your customers just in terms of FDA adding a lot of resources trying to accelerate approval timelines, I mean how do you think that plays out vis-à-vis your relationship with your customers?.

I think we are hearing the same thing that you are hearing in terms of FDA. The mantra from the new administration around reducing bureaucracy and regulation and we are hopeful that that would lead to increased approvals and reduced times for approvals of new trials as well as new drugs that’s obviously in all of our benefits.

I think the evidence sort of like from last year with the FDA was that the number of approvals was a little down. But the evidence this year so far is that they are up, at least on a first quarter basis.

So it seem to me moving forward, we are very optimistic about the benefits to the 21st Century Cures Act can bring particularly on a real-world evidence, real-world databases. We believe we are going to be – we are well-positioned to be able to benefit from that.

We do see the clinical trial environment moving, shifting over and this is not going to happen over the next few months, but shifting over the next few years to being much more within that naturalistic real-world evidence type of environment. And a lot of drugs where I believe will be approved based on – more based on evidence.

So we are preparing ourselves for that sort of shift. We want to make sure the organization is able to get ahead of and benefit from that sort of shift. But I think the feedback we are getting from FDA and the regulators is really along those lines and these things as you well know don’t happen overnight.

It’s a question of trying to anticipate them and then state to where the puck is going to be and we think we are in the process of doing that..

Okay. And then just last one on backlog conversion.

It’s held pretty steady at about 10.2, 10.3, is that kind of the normal run-rate you think going forward or any reason that would kind of deviate from that as you ship more towards mid-cap biotech?.

I think, Tycho, its Brendan here. If you kind of excluded obviously our cancellation impact of the [indiscernible] cancellation, that will obviously have an impact as we look forward to the next couple of quarters. I think that’s kind of really what’s played out in the numbers there.

So, it will probably come little closer down into the 10 number as we go through the next couple of quarters. That said, I mean it’s kind of a one-off event, so there is possibility we’ll be able to spend back over there upwards..

Okay, thanks..

Thank you. Ladies and gentlemen, that concludes today’s Q&A session. Dr. Steve Cutler, I’d like to turn the call back over to you for any additional or closing remarks. Thank you..

Think you, operator. We have made a positive start to 2017. And we look forward to building on this during the rest of the year as we build on our position as the CRO Partner of Choice in drug development. Thank you, everyone. Appreciate your questions..

Thank you, sir. That will conclude today’s conference call. You may now disconnect..