Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to today's ICON plc Q4 and full year results 2018 conference call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. At which time, if you wish to ask a question, you will need to press star and one on your telephone and wait for your name to be announced. I must advise you the conference today has been recorded on Thursday, the 21st of February, 2019. Without any further delay, I would like to hand the conference over to your first speaker today, Mr. Jonathan Curtain, Vice President, Corporate Finance and Investor Relations. Please go ahead, sir.
Thank you, Julia. Good day, ladies and gentlemen. Thank you for joining us on this call covering the quarter and full year ended December 31st, 2018. 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 headed Condensed Consolidated Statements of Operations, U.S. GAAP, unaudited. While non-GAAP financial measures are not superior to or a substitute for the comparable GAAP measures, we believe certain non-GAAP information is more useful to investors for historical comparison purposes. We will be limiting the call today to one hour and would therefore ask participants to keep their questions to one each with an opportunity to ask one related follow-up question. I would now like to hand over the call to our CFO, Mr. Brendan Brennan.
Thank you, Jonathan. As a reminder, from January 1st, 2018, the new revenue recognition standard, ASC 606, became effective for ICON. Having adopted the cumulative effect transition method, prior year comparatives have not been restated under this new standard. Instead, we feel that providing comparable Q4 2018 and full year 2018 financial results under the previous revenue recognition standard is the best way to evaluate our performance during this transition phase. Whilst my comments may incorporate the impact of ASC 606, Steve will focus his comments on our performance, excluding the impact of ASC 606. In quarter four, we achieved strong gross business wins, excluding the impact of ASC 606, of $722 million, with cancellations of $115 million. As a result, net awards in the quarter were a record $607 million, resulting in a book-to-bill of 1.25.
Full year gross business wins, excluding the impact of ASC 606, were $2.9 billion. Cancellations were half a billion dollars, resulting in net business wins of $2.4 billion and a net book-to-bill of 1.27 times. With the addition of these new awards, our backlog, excluding the impact of ASC 606, grew to $5.4 billion. This represents a year-on-year increase of 9.7%. Reported revenue in quarter four was $679 million. Excluding the impact of ASC 606, net revenue was $484.7 million. This represents year-on-year growth of 6.5%, or 7.2% on a constant currency and CDO basis. Full year 2018 reported revenue was $2.6 billion. Excluding the impact of ASC 606, full year net revenue grew 7.9% to $1.9 billion. This represented the 6.9% constant currency growth and 4% constant dollar organic growth.
For the full year, excluding the impact of ASC 606, our top customer represented 13% of revenue, compared to 18% in the prior year. Our top five customers represented 39% compared to 40% last year. Our top 10 represented 53% compared to 55% last year. While our top 25 represented 70% compared to 71% last year. In quarter four, reported gross margin was 29.4% compared to 29.9% in quarter three. Full year 2018 reported gross margin was 30%. Excluding the impact of ASC 606, gross margin for quarter four was 41.4%. This compared to 41.3% last quarter and 41.3% for the comparable quarter last year. For the full year 2018, gross margin, excluding the impact of ASC 606, was 41.2% compared to 41.6% in the full year 2017. Reported SG&A for quarter four was 12.2% of revenue. This compares to 12.3% of revenue in quarter three.
Full year 2018 reported SG&A was 12.6%. Excluding the impact of ASC 606, SG&A was 17.2% of revenue for the quarter. This compared to 17% last quarter and 18% in the comparable period last year. For the full year 2018, SG&A, excluding the impact of ASC 606, was 17.2% of revenue. This compared to 18.4% in 2017. This reduction was driven by our continual leverage of our global business support model. In quarter four, we reported operating income of 15% or $101.8 million. This compared to 15% or $97.9 million in quarter three. Excluding the impact of ASC 606, operating income for the quarter was $102.4 million, an operating margin of 21.1%. This compared to 20.7% last quarter and 19.7% in the comparable quarter last year. For the full year 2018, reported income from operations before non-recurring charges was $385.8 million or 14.9% of revenue.
Excluding the impact of ASC 606, full-year operating income before non-recurring charges was $390 million, operating margin of 20.6% compared to 19.7% for the full year 2017. Reported net interest expense for the quarter was $1.6 million and $8.7 million for the full year. The effective tax rate for the quarter was 12%, and for the full year was 11.5%. Reported net income for the quarter was $88.2 million or 13% of revenue. This equated to $1.62 in diluted earnings per share. Excluding the impact of ASC 606, net income for the quarter was $88.7 million, a margin of 18.3%, equating to diluted earnings per share of $1.63. This compares to earnings per share of $1.55 in quarter three and $1.43 in the comparable quarter last year, a year-on-year increase of 13.8%. Full-year reported net income before non-recurring charges was $333 million.
This reflected a margin of 12.9%, equating to diluted earnings per share of $6.09. Excluding the impact of ASC 606, full-year net income before non-recurring charges was $337.4 million, a margin of 17.8%, equating to diluted earnings per share of $6.16. This compares to earnings per share of $5.39 for the full year 2017, a year-over-year increase of 14.2%. DSO as of December 31, 2018, on an ASC 605 basis was 57 days, which compared to 49 days as at December 31, 2017. Cash generated from operating activities for the quarter was $60.9 million and $268.6 million for the full year. Capital expenditure was $20 million in quarter four and $48.4 million in the full year. At December 31st, 2018, the company had net cash of $106.5 million compared to net cash of $142.3 million at September 30th, 2018, and net cash of $11.6 million at December 31st, 2017.
As a reminder, I have dealt with the new revenue standard. You will focus your comments on our performance excluding the impact of ASC 606. With all that said, I'd now like to hand over the call to Steve.
Thank you, Brendan. Good morning or good afternoon to everyone. 2018 was another strong year for ICON. We made excellent progress in a number of key areas. Core industry fundamentals continue to drive growth in the CRO market. R&D budgets remain robust, biotech funding levels hit record highs in 2018. The FDA continued to play their part, setting an all-time record for new drug approvals in 2018, with 59 novel drugs and biologics approved. During quarter four, these macro factors, in combination with ICON's operational excellence and market-leading global service offerings, resulted in record net business awards of $607 million and a book-to-bill of 1.25. This meant that during 2018, we were awarded our highest-ever gross and net bookings of over $2.9 billion and $2.4 billion respectively, delivering a net book-to-bill of 1.27 times and expanding our backlog organically by 10% to $5.4 billion.
This backlog growth helped our quarter four revenues to increase by 6.5% year-over-year to $485 million or 7.2% on a constant currency basis. Our full-year revenues increased by 8% year-over-year to nearly $1.9 billion. 2018 was another year where we demonstrated our ability to maximize our operational efficiencies, leverage our cost base, and drive shareholder returns. We exited the year with a gross margin of 41.4%, up from 41.3% year-over-year. For the fifth year in a row, we maintained a flat or lower dollar SG&A spend, improving our SG&A margin to 17.2% of revenue in 2018, down from 18.4% last year. We put this five-year timeframe in context. Revenue over the same period has grown in absolute terms by over 26%. We are effectively leveraging the industry's leading global business support model, focused on best-in-class delivery whilst maximizing proactive cost-saving initiatives.
As we move forward into 2019 and beyond, we will continue to look at new opportunities such as robotic process automation to further enhance efficiencies in all areas and continue the progress we've made. This expanded margin profile helped our EPS growth in Q4 by 14% year-over-year to $1.63, and for the full year by 14.2% to $16.16. Sorry, $6.16, I beg your pardon. All of this has created significant value for our shareholders, resulting in a 15% share price increase in 2018. ICON's phase II and phase III clinical services business continues to benefit from our commitment to invest in innovation and partnerships. We remain strongly focused on our patient site and data strategy, which is helping us improve site identification, study placement, and patient recruitment, all of which remain key industry challenges.
Our OneSearch platform helps us analyze a variety of key performance data to identify the right sites for a trial. This alone provides us with access to research-grade data from over 450,000 investigators and nearly 9,500 sites. We are beginning to see tangible benefits from using OneSearch across a number of key site and enrollment metrics. One example is its ability to significantly reduce the number of non-recruiting sites on studies. In 2018 alone, we were able to improve this by 9% over 2017. In addition to OneSearch, our partnerships with leading-edge organizations including TriNetX, EHR4CR, TransMed, and Practice Fusion allow us to access research-grade EMR data and real-world evidence to provide key feasibility and study information. TriNetX has grown its coverage to more than 300 million patient records across 16 countries. This is a threefold increase in the number of patient records during 2018.
EHR4CR now covers 32 million patients in 12 countries in Europe, and is used routinely across all our opportunities which have a European component. In addition, our newest partnership with TransMed provides us with access to over 2 million patient lives across all disease areas, with oncology being one of its specialist areas, where it has access to over 500,000 patient lives across 120 oncology sites. In unison with our patient site and data strategy, our integrated PMG site network provides sites with dedicated trial support teams, helping to improve patient access to trials. This facilitates patient recruitment rates that are more than twice as fast as our standard sites. Over the past year, we have seen over 25% of our patients randomized through our integrated SMO network and healthcare alliances. Our medium-term goal is to more than double recruitment rates and halve start-up times at these sites.
We firmly believe that this integrated approach to patient recruitment, sites, and data provides ICON with a clear and differentiated position on the key industry challenge of reducing development times. We will also continue to drive future growth and returns by further enhancing our service capabilities, and today we are delighted to announce the acquisition of MolecularMD, which we closed in January. Founded in 2006, MolecularMD employs 87 professionals from two laboratories in Portland, Oregon, and Cambridge, Massachusetts. This acquisition enhances our laboratory offering in molecular diagnostic testing, a key area in oncology research, and also brings to ICON expanded testing platforms, including next-generation sequencing and immunohistochemistry. MolecularMD's services also include companion diagnostic development, which will drive benefits across service lines and further enhance the competitiveness of our overall lab and clinical services offerings.
As an example, we see particular opportunities to strengthen our first-mover position in our CAR T and cell-based program portfolio, where we have already seen significant customer traction in these growing therapeutic specialty areas. One of the most important drivers of our growth and success over the past 29 years has been our acquisition strategy, which has delivered capabilities and enhances our service offerings and helps customers improve the efficiency and quality of their development efforts. Going forward, we will continue to use our strong cash flow and balance sheet to deploy capital in the pursuit of value-enhancing acquisitions. In conjunction with this strategy, we are continuing to repurchase stock. During quarter four, we spent $72 million repurchasing over 523,000 shares, which meant that over the course of 2018, we spent in total $129 million repurchasing over one million shares at an average price of $127.91.
Our intention is to continue to opportunistically repurchase shares throughout 2019, and to date, we have spent $25 million to acquire over 200,000 shares at an average price of just under $125 per share. We are delighted to announce today the extension of ICON's master services agreement with Pfizer. This agreement reflects the strong working relationship between both companies, and we look forward to continue to help Pfizer advance its development pipeline rapidly and efficiently. As we look forward to the end of the year, I want to take this opportunity to reaffirm our full-year guidance.
We expect 2019 to be another robust year of revenue and earnings growth, with revenue guidance in the range of $2.735 billion to $2.835 billion and earnings per share guidance in the range of $6.69 to $6.89, an increase of 10% to 13%. Before moving on to Q&A, I would like to thank the entire ICON team for all their hard work and commitment, not just in quarter four, but also over all of 2018. Together, we have built ICON into a world-class company, delivering global solutions to our customers in a proactive outcome-based manner. I look forward to the coming year with optimism as we continue to help our customers improve the speed and efficiency of their drug development programs. Thank you, everyone, and we are now ready for questions.
Ladies and gentlemen, we will now begin the question and answer session. May I remind you, if you wish to ask a question, please press star and one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A queue. This will only take a few moments. You can cancel your request at any time by pressing the hash key. But once again, that is star one if you wish to ask a question. The first question comes from the line of Dan Leonard from Deutsche Bank. Your line is open. Please go ahead.
Thank you. My first question, was hoping, Steve, you could comment on, congrats on the acquisition of MolecularMD. I was hoping you could comment on the acquisition funnel as you see it through the balance of the year.
Sure, Dan. There are a number of things that we're looking at, but we continue to apply the usual discipline in terms of what we're going to pay and how they come in and fulfill gaps within the portfolio that we have. I'm not going to be specific with anything, but we've seen actually, I think over the last few months, some more opportunities come into the pipeline, perhaps because of the volatility around the share market or volatility in the macro environment going forward. We're optimistic that we can move forward in a couple of areas over the course of the next, realistically, couple of years. Certainly this year. We feel that there's some good opportunities in the pipeline and that we're going to be able to execute on them effectively.
Just a quick follow-up on MolecularMD. I know they had some aspirations to broaden their clinical diagnostics business. Do you plan to still pursue that, or is this going to be strictly pharma services under your house?
We're a pharma services group, Dan, so we're really just getting on board with MolecularMD at the moment. We're going through the whole integration plan and what they're working on. There are some areas that are a little outside what we've traditionally been involved in. We can make an assessment and evaluation of those areas, see whether it's something we want to pursue, and then we'll make some decisions on that over the next quarter or two. I'm not going to make any announcements as to what we're going to continue or not continue to do with MolecularMD at the moment. They certainly enhance our capabilities.
I'm particularly pleased that we're going to be able to have them involved with our clinical operation as well, because we do have, I believe, a strong first-mover advantage in the CAR T space, as I mentioned, and some of the cell-based work that we've been doing, we feel we have some first-mover advantage in. With the diagnostic opportunity, with the genotyping immunohistochemistry, that's going to fit very nicely, I think, with those projects and help us to stay ahead and even get further ahead in that space. It's not just an enhancement of our lab capabilities. I believe it's an enhancement of our clinical operations and our clinical program management capabilities as well, which is particularly exciting.
Thanks for all the color.
Yeah.
Thank you. Your next question comes from the line of Ross Muken from Evercore ISI. Your line is open. Please go ahead.
Hey, guys, and congrats on a good quarter. I guess maybe a little bit of detail on sort of the non-Pfizer related bookings activity. Feels like market's still quite robust and it feels like at the margin, you guys are still gaining share. How would you sort of compartmentalize what areas you're seeing sort of the greatest activity level, and maybe I'll tie that into sort of just a general flavor for sort of biotech as a % of the mix versus where it was, just given sort of all the questions on sort of the end market there, given some of the volatility we saw in funding toward the end of last year.
Ross, I think in terms of the non-Pfizer, non-top customer market, it's been very strong. I think the quarter was strong, the year was strong. Book-to-bill's very positive. We've seen continued progress, I think, in that market. To relate that to the biotech market, not just the biotech market, but the midsize market as well, we've done well. I believe we've won more than our fair share in that market, and it's been a very positive one for us. We've also maintained our share, I believe, and even increased a little bit in the large pharma space as well. The market, as it comes in terms of RFPs, has been positive. We're talking low mid-double-digit numbers. Low double digits really, I think, is where we'd say the RFP dollars have come in.
A lot of that has been in the biotech and market space, but large pharma's also contributed significantly as well. Overall, I think we're in a good market environment. We do recognize it. I think we've made some comments over the past quarter that the biotech market is in an exceptional place, and we logically don't expect that's going to continue forever. However, we've certainly benefited from it as a number of our competitors have over the last, well, couple of years, really. It's not just the last quarter. We expect that that's not going to change any time soon. We also see that we have to continue to win work right across the spectrum of customers, and that's what we're focused on doing.
Just in terms of the Pfizer extension, congrats on that. How should we think about gross margin progression through the year and whether that was sort of contemplated initially in kind of the original guidance?
I'm not sure I'd put the two things together. We're very pleased to re-up with Pfizer to extend that. That was a very straightforward negotiation with them, and we're very pleased for that to happen, and I think it reflects, as I said, a very strong working relationship that we have with our colleagues at Pfizer. In terms of margin progression through the year, I think as we've said, we're looking to maintain on the gross margin line. Our operational groups have worked extremely well and very efficiently to do that, and we've got a little bit of leverage on our SG&A with our global business services. That's the way we'll continue to progress. The uptick overall on the margins has been really as a result of continued progress with our global business services group and our SG&A number.
That's the way I think I'd characterize any progress would likely come from.
Great. Thank you so much.
Thank you. Your next question comes from the line of Robert Jones from Goldman Sachs. Your line is open. Please go ahead.
Great. Thanks for taking my questions. This is Jack Rogov on for Bob. It was encouraging to see backlog conversion stabilize in the quarter. Would you say you've reached a bottom yet? Then maybe could you share a little bit about how core clinical conversion trended in the quarter versus some of the other areas like consulting?
Hi, Jack, it's Brendan here. We were happy with the conversion levels at 9.2%, obviously consistently over the back two quarters of the year. It's difficult to say you're going into a year that you're at the absolute bottom. Certainly, we've talked about it in the past, remaining in the 9s and that being a focus for the organization. We're going to work hard as we go to 2019 to ensure that that happens. In absolute terms, a lot of this business we're seeing now is three and four years in duration, and mathematically, that's lower than 9% on a quarterly basis.
The focus of the organization is very much to work on startup to make sure we're being as fast as we possibly can and make sure that we do stay in that 9 territory, as we've said we would, going into 2019. The mix of business in terms of therapeutics was good. As I said, we still see a lot of business coming into the organization with longer durations. We're also focused on our consulting business and making sure that's developing well. As you said, it's a faster burn portfolio. It is a relatively small part of our overall portfolio, so it's something we'll continue to focus on to help us try to move that dial a little bit as we go into 2019. The focus will still certainly be on our startup processes in our large phase II to III business.
Got it. Thanks.
Thank you. Once again, ladies and gentlemen, if you wish to ask a question, please press star and one on your telephone keypad. The next question comes from the line of Donald Hooker from KeyBanc. Your line is open. Please go ahead.
Great. Good morning. I assume the numbers are small, but just to verify, how much did you spend on MolecularMD? What was the sort of the cash that's outflow from that?
We'll have the full cash impact in the next Q's filing anyway, Don, but it's going to be in that ballpark of about $40 million.
Okay, $40 million. The revenues and EBITDA that we should assume from that.
Revenues, I think, again, we'll say it's a strategic acquisition, so it's about a half of 1% of our revenue. It's contemplated in the guidance we put out there back when we were with the original guidance in January. As Steve said, we signed this Intus deal in January as well, so it's all in there in the guidance.
Got you. I thought it was small. I just wanted to make sure. Then you mentioned a partnership with TransMed. I was just curious, maybe my last question would be, can you reference them, like who they are and how they're different than some of your other partners?
TransMed, they're more focused, Don, in the oncology space. As I mentioned, they have around 2 million patient lives at around 120 oncology sites. The partnership is really an alliance where we're working with them closely on a number of oncology projects at the moment. Looking to test the technology, test the data, see what difference it tangibly makes. It's a sort of approach that we've been implementing across a number of our partnerships over the last couple of years. They're an organization that's come to light that seem to have some interesting and very useful technologies, as I said, particularly in the oncology space, which is around about 45% of our backlog. We're always looking to find ways of improving the burns, the recruitment rates in oncology, and TransMed, the relationship there gives us that opportunity.
Thank you so much.
Thanks, Don.
Thank you. Your next question comes from the line of Erin Wright from Credit Suisse. Your line is open. Please go ahead.
Great. Thanks. A follow-up to that last question. You spoke a little bit more in your prepared remarks around EHR data assets that you can leverage via these partnerships that you have. Is this becoming increasingly important for you in terms of your competitive positioning and improving win rates? Can you remind us of your overall data strategy as it stands today? Thanks.
Yeah. I think, Erin, certainly data is very important for us. I would say that one of the areas that we think about is the problem of, and the challenge of getting patients into trials effectively, efficiently, and speedily is not just a data thing. It's around patients, directly with patients and engaging them, and it's around the sites where at the moment, most of the patients that come into clinical trials are engaged. We don't think of it as just data, although data is very important. We think of it as patients, sites, and data. Our strategy is integrated to reflect those three very important areas. Data facilitates the selection of sites, the identification of patients, the feasibility of projects, and the availability of data through the partnerships that we've talked about and that we mentioned.
You mentioned a couple of them, TransMed, our EHR4CR, TriNetX, is helping us to facilitate all of those good things. We need to engage those sites, and that's through our PMG network and our healthcare alliances. As I said, something like a quarter of the patients that we recruited in the last 12 months have come through those alliances in the PMG network. On the PMG network, we've seen something like a 50%-60% increase in the number of patients coming into that network. We've been able to attract patients into that network at a significantly increased rate over the past 12 months or so.
We're seeing some really good traction at those sites, the PMG sites and the healthcare alliance sites particularly, through the work that the sites are doing, but also through the facilitation that's been created by the data sources we've got. We're looking at ways in which we engage patients directly through the various channels, social media, patient portals, our FIRECREST facility as well, and being able to build databases of patients and build direct contact with patients. Increasingly going forward, we see that as a very important way to improve the way in which we do clinical trials. Of course, as we move towards virtual trials, the engagement directly with the patient will be even more important. I hope that gives you a flavor a little bit for how we're integrating patients, sites, and data as we go forward in terms of our strategy.
That's great. Thanks. What are you seeing in terms of the overall pricing environment across the industry? Does it continue to be relatively rational or more aggressive? Could you comment a little bit on sort of the impact to the gross margin and how we should think about the quarterly progression of that gross margin trend as we head into 2019? Thanks.
Sure. I think we'd characterize the pricing as being typically competitive. The pricing environment in our industry is always competitive. I wouldn't say anything else. It's not ridiculous. It's not cutthroat. We've not noticed any rogue players out there at the moment. We remain very focused on pricing our services in a highly competitive way, giving our customers best value. We'll need to continue to do that. It's, as I say, a competitive business. In terms of the impact on our margins, we believe we are able to improve our efficiency on an annual basis such that we can maintain that gross margin level, and we've shown, I think, that we've been able to do that. Any margin increase will come through continued leverage on our global business services.
We were able to increase our revenue per head in the low single digits over the last 12 months. Again, a testament to the efficiency and the effectiveness of our operational groups as they work through the business. If we can continue to do that, continue to become more efficient, I think we'll be able to offset any pricing pressure that comes through or other wage pressure that comes through in our services businesses.
Okay, great. Thank you.
Thank you, ladies and gentlemen. Once again, if you wish to ask a question, please press star and one on your telephone keypad. The next question comes from the line of Jack Meehan from Barclays. Your line is open. Please go ahead.
Thank you. Good morning, everyone. Steve, I was hoping to go back on the extension, the Pfizer master service agreement. Just a few questions on that. First, were there any changes in the structure in terms of the participants? Was there any changing in pricing? Then maybe just a little background, why was the decision to extend it by one year at this point? Do you think that this is what we should expect kind of an annual basis moving forward? How is that going to work?
Jack, there were no changes to the structure. There was no changes to pricing. It was a very straightforward negotiation between two parties who just wanted to move on with it. I think Pfizer clearly have had some changes in management going forward. They didn't want to spend, I think too much time going through the whole rigmarole of a new agreement or even with the extension. We came to a very amicable, straight-up agreement. There's nothing more to it than that, really. We've extended it out till June of 2020, where they then have the option to go a further two years. We're very happy with the approach that's been taken, and we're very happy with the relationship that we have with Pfizer.
Great, thanks. Brendan, had one follow-up on the DSOs in the quarter were I think up 8 year-over-year to 57. I know there's been some changes with ASC 605, ASC 606, but if I look at the cash flow forecast, it's a little below our adjusted net income forecast. Just what's going on on the receivables line and anything to point out in terms of the free cash flow forecast?
It's fair to say, Jack, it wasn't our best quarter of cash collection. We did see a slip in our absolute terms in DSOs, that was particularly, I suppose, the number of some of our larger customers now have moved towards more of a unitized billing modality. That does take longer for the cash to cycle through. I think that in combination with the fact that we do see extended credit terms in the industry over the last number of years
It's been part of the keen nature of the competitiveness in this space. If I go back a number of years, Jack, you probably would've been seeing credit terms of 40-60 days. Now you're as likely to see credit terms of 90-120 days. We have seen a fair elongation. I think we've done well, to be honest, to stay in the 40s up until this point, but it kind of faltered a little bit in the fourth quarter. We're going to focus on that. We're going to try to get that number down again as we get into 2019, certainly. Those credit terms are there. They're not going away. We're going to have to work proactively to make sure that we're getting the cash in on a quarterly basis.
Certainly, the big pieces were probably some of our larger customers moving to that unitized model during the course of the year.
Makes sense. Thanks, Brendan.
Thank you. The next question comes from the line of David Windley from Jefferies. Your line is open. Please go ahead.
Hi. Thanks for taking my questions. Good morning. Good afternoon. I guess I was wondering in the context of demand environment and, Steve, the comments you made around the fourth quarter. I think in our last conversation, you had talked about total biotech, maybe early-stage biotech RFP dollars had flattened out. I can't remember if that was a sequential comment or a year-over-year comment, so maybe you could clarify that. Then we're almost two full months into the year. What's the RFP volume look like in the early months of 2019?
Okay, let me turn to the first one, Dave. I don't think we were saying that biotech dollars had flattened out. What I think we were trying to give you some indication of is that we don't think that the incredibly positive biotech funding environment would continue forever. That was the message we were trying to put across. That's a logical message, I think. We've seen certainly the biotech dollars on a quarter-to-quarter basis, at least a quarter four 2017 to quarter four 2018 basis go up significantly. We've seen it across 2017, 2018. The biotech dollars, RFP-wise, have gone up significantly. We're talking double digits, mid-teens, double digits from a biotech point of view. Large pharma, probably more in the high single digits across those two areas.
We've seen very solid increases in our RFP opportunities dollar-wise, however you measure it, year-to-year, relative quarter to relative quarter on a year-to-year basis. That's been very positive for us. We've, I think, been successful in terms of the win rates. Our win rate's been solid. Helped us drive us to record gross wins and record net wins. All very positive from that. However, and I'll say it again, we continue to adapt to work right across the market. We're not relying on biotech dollars. We continue to focus very much in the large pharma space, in the mid pharma space because we believe, obviously, in the longer term, you need to be very effective right across the segments of the market, and that's what we're planning to do. Second question was?
Early read on RFPs in-
Oh, this year
this year.
Yeah, Dave, to be honest, it's a bit early, I'm afraid. We've been spending the last couple of months getting ready for this call. It's early in the year. We're halfway through the quarter, I'm sorry, it's a little early to give you any sort of read on what's happening in 2019.
No problem. Maybe as a follow-up, just in thinking about your client segmentation and revenue progression performance. Pfizer, your top client, kind of pops back up a little bit in the fourth quarter. I'm sure there's some rounding in there, but if we use the concentration metrics that you provide, your two to five have been kind of consistent 20%-ish year-over-year growers. The six and down was a very strong group of performers in the first half of the year, then it's kind of moderated back down. Could you talk about maybe, is there some shifting amongst these groups? Where your focus is, where you think the next wave of growth might come? Is Pfizer poised to maintain a higher level, for example? Or should we expect that six to 25 is actually an area of next big growers?
Yeah. I'm not sure I've analyzed it quite in that way, Dave. I can give you a little bit of a flavor for the way I'm seeing things. Certainly, Pfizer popped up a little bit in the fourth quarter, but I don't think that's going to be a trend. We think they've settled in at around EUR 200 million. I think I've said EUR 200 million to EUR 225 million, EUR 250 million, maybe, a quarter. Sorry, a quarter. A year.
A year.
That was a Freudian slip. At around about the 50-60 per quarter is the way we'd see it was a little higher than that this quarter, I think that's more just the way some projects were playing out. In terms of the 6-10, yeah, we certainly see us gaining some traction in that mid-size, mid to large size pharma company, we've made some nice progress in that area over the last 12 months or so, I think some of those companies will start to come through for us more in the revenue line. It'll take a little bit of time, we've made, as I say, some good progress in that space.
I think it's a little early to make the calls, we see some opportunity in that large mid-size, I'll call it, sort of space, some traction with our business development, with our partnership offerings, with our technology, with our strategy. That's an area that we're certainly very optimistic about going forward. Okay, great. Thank you.
Thank you. The next question comes from the line of Tycho Peterson from JP Morgan. Your line is open. Please go ahead.
Hey, this is Tejas on for Tycho. Thanks for taking the questions. My first question, Steve, would be around fixed price contracts. You've spoken in the past that one of your key differentiators is having the financial flexibility to offer that contract structure. How much uptake have you seen for that? Has there been a noticeable pickup in that uptake over the last year or so? The second part of that question is, in terms of the backlog conversion issues that the industry has seen as a whole, can you give us a quick sort of update on any progress you've made to shorten those startup times to offset that mix shift?
Sure, Tejas. The fixed price outcome contract is, we offer it. I think a number of our competitors offer it. I don't think it's necessarily a unique selling point for us against our key competitors. It may be against some of the smaller CROs that are around. They may not have the financial stability and viability to be able to do it. I think half a dozen, 10 CROs are all pretty much in the same place. I don't think we've seen any particular upsurge or uptick in requests from customers for fixed price contracts. We typically do them as we see them being applicable to the particular circumstance and the particular project and the particular customer. Various things that we take into consideration, of course.
No, I don't think there's been any sort of particular increase in their incidence or prevalence over the last 12 months or so. In terms of backlog conversion, it's something, as I think Brendan said it all, we're very focused on. 9.2% is where we were. That's the same. We sort of level it off from where we were in last quarter. We're pleased to see that. We're obviously focused with a number of initiatives, our site and patient data strategy, but particularly our startup approach. We're focusing in on our site ID, using our OneSearch capability to get better sites. We've been able to reduce the number of non-recruiting sites, which should help, but it's not going to make a major change to it, but it should help. There is a number of initiatives. I could talk for days about it.
There's a number of initiatives going on in the startup space to help us to get the project. However, against that, as you all know, we continue to be very successful in the oncology space, and these trials continue to be rather elongated. I used to think of a trial as running over two and a half years. Now these days, that number is becoming more like three and a half years and can be even longer than that. The trials are stretching out over a longer period of time. The recruitment in these trials is challenging. You're looking for patients who are extremely hard to find, and inevitably, that means the burn gets longer. As I say, there's a number of puts and calls here. We're working hard to improve our operations to get our site studies started up faster and to get patients in quicker.
On the other hand, the therapeutic modalities and the way these trials are run and set up is making that challenging to do. When you put it all together, it's a challenging situation that we're trying to make progress on, but I don't see it changing dramatically, certainly in the medium term.
Got it. One quick follow-up on MolecularMD. Looks like they signed a master collaboration agreement with Sysmex back in November. Does that still remain in place? What are some of the early wins as you roll this out across your book of business, and will you continue to offer the companion diagnostic assays once a drug is commercialized?
Tejas, I think as I said, we're going to do an evaluation of that business over the next couple of quarters. Jim Miskel, who runs our lab and early phase services group, is in the midst of looking at the whole integration of that business. One of the things we're going to be doing is evaluating everything they do. There are certainly some parts of the business that we look at and we think could be very nicely applied and synergized across our businesses. I talked about the CAR T and our cell-based project expertise and the first-mover advantage we believe we have in that space and how that could be applied. Some of the companion diagnostic is also, I think, potentially beneficial for us as we continue to develop oncology drugs.
There are other areas that we may take a look at and decide not to continue with. As I say, that evaluation is still ongoing and will take another probably three to six months, I think, to happen.
Got it. Thanks so much.
Okay, good.
Thank you. The next question comes from the line of Juan Avendano from Bank of America. Your line is open. Please go ahead.
Hi. Thank you. Regarding your net new business growth and wins, I know you've been having a record net wins over the last few quarters, but at the same time, it's been sort of flattish sequentially, and you've been hovering around the $600 million net new business wins on a quarterly basis over the last few quarters. Can you go over this apparent ceiling, or are you bumping up against your capacity limit? I was wondering if you get $650 million or $700 million in quarterly wins, could you take on that business given your current capacity? What could make it go higher?
Yeah, I don't think we're bumping up against any particular capacity issue there, Juan. These things tend to go a little bit in fits and starts. We've invested some extra money this year in our business development and commercial group. We've seen over the last couple of years our gross wins go from in the high $500s through the $600s, and now we're well into the $700s. From that point of view, our gross wins have gone forward. Our cancellations aren't any more than they have been over the last few. We've seen, I think, steady progress, albeit we'd like to crack well through the $600. I believe that over the course of this year and next, we'll start to do that. I do believe we're continuing to take market share, probably more from the mid and smaller size CROs.
I think all of the large group are probably taking market share from those mid-size companies. I do think with the biotech funding opportunity out there, biotechs are seeing an ability for the larger CROs to complete their projects and do their projects just as effectively as the small ones. These days, in fact, probably more effectively. There's no capacity issue for us. We have a good resourcing group. We have a strong operational team who are able to scale up, particularly when we win large chunks of work. The FSP market continues to be strong. We're making good progress in that as well. As I say, there's no particular issue for us in moving forward. The work we put into our backlog is well considered. We're fairly prudent in the way we do that.
Essentially over the last 12 months, our contracted to bill ratio has been pretty much the same as our book-to-bill ratio. I think that would indicate, too, that what goes into our backlog is very solid and should help to drive the growth of the company over the longer term.
Okay. Thank you. A follow-up, a different question, I guess. I believe in your prepared remarks, you said that the organic growth in the quarter was about 7.2%. It was a little bit shy of my estimate, given the negative 4% decline organically in the prior year. As we look forward, and given that you guided high single-digit organic growth on your analyst day on a long-term normalized basis, as the comps essentially become tougher, what is your level of confidence still around high single-digit organic growth on a normalized basis going forward? What are the plus and takes? What do you rely on in order to get there? Will backlog conversion improve?
I think there's a number of things we're working on. I think the short answer to your question is yes, we are confident given the business environment we're in. I talked about some of those things at the start of the call. Our customers are outsourcing. Their R&D budgets are increasing. The FDA is playing a part. The macro environment we're in, generally, notwithstanding the economic cycle and some volatility around the share market, the macro environment we're in is generally positive for our industry. I think we have a developing strategy and an operational machine that can improve on our operational excellence. There's a strategic initiative we have in that respect. Can it improve on our backlog burn? As I say, we've leveled out on that. I believe we can make some improvements on that over the longer term.
I remain confident that the guidance we gave at our Investor Day back in September is still on par. You've seen our guidance for 2019. We've reiterated that. Certainly, on an EPS basis, we're very confident that's very achievable. I think we're in a good place, Juan.
Thank you.
Thank you. The next question comes from the line of Sandy Draper from SunTrust. Your line is open. Please go ahead.
Thanks very much. Most of my questions have been asked and answered at this point. Maybe just a follow-up on Pfizer. Just thinking about, I remember when these guys were over or pushing 30% or wherever they peaked out, and Steve, you had made the comment that both you and Pfizer were sort of uncomfortable with that level of concentration. As I believe it was Dave pointed out, you're finally seeing a rebound. You're seeing some sequential growth, year-over-year growth. You've renewed the agreement. Is there still a philosophy, whether it's related to Pfizer or anybody else, there's a limit you would want a single customer to be, and you don't want to go back to a customer concentration? Whether if it's Pfizer or somebody else, if someone wants to start giving you a ton more business, are you willing to take that on?
I guess it's more of a philosophical question than it is specific to, is Pfizer going to get there? Thanks.
Okay. Thanks, Sandy, for that one. We're not in the business of turning away customers who want to give us business. I'll start with that one and say, if a customer and we have a good relationship and we work well with them and they're a good paying customer, we're not going to turn away business from them. Having said that, I think we would all, certainly around this table, prefer not to be in a situation where we had a customer at more than sort of 25% or 30% of our net revenue. It's not a particularly comfortable place to be, although, of course, that business is typically across often tens and sometimes 100 projects. Sometimes we get focused in on the potential for cancellations and others.
Rarely would that happen in such a large group of projects that it would make a material difference on our business. Having said that, of course, we all recognize what happened back in 2016 with bococizumab. When you have those sort of situations, it's really not so much the customer, it's the project or the program.
Right
A customer could be a relatively small customer, but have a large program, and if that program goes down, you potentially have some issues. As I say, it's a philosophical question, Sandy. I prefer not to be at 30%, but we will not be turning away business from any customer who wants to work engagingly and cooperatively with us.
Got it. I appreciate the commentary, and congrats on a good quarter.
Thanks, Sandy.
Thank you. Your next question comes from the line of John Kreger from William Blair. Your line is open. Please go ahead.
Hi, guys. Good morning. This is Courtney Owens on for John Kreger. Just a quick question. You addressed it a bit, a little bit earlier on in the call, but just wanted to follow up on it. On labor cost inflation and also just any labor pressures, have those, and I would imagine so, but kind of been fully abated by this point? What tools, if any, are you guys utilizing to mitigate any potential labor inflation that you guys will anticipate maybe coming back later on down the line, if the labor market tightens up a bit again? Thanks.
Okay. Courtney, I think we see pockets of labor cost inflation around the world. When that happens in our large areas, such as the United States or in larger countries in Europe, it can have a material impact on us. That's not the case at the moment. We're certainly seeing a very competitive labor market, as you know, and unemployment's probably at its 50-year lows. There's always challenges with bringing people in, but we've been able to mitigate a little bit of those challenges through a new graduate program, both in the United States and we've done that in China and Japan now for the last couple of years. Brought in new graduates and trained them up, and we've been able to grow substantially, particularly out in China and Japan, through that. That helps us to bring in people at a relatively modest cost.
Obviously, their labor costs inflate fairly quickly as they become experienced within our business, but we're usually able to watch that and to mitigate that and to manage that fairly carefully. That's one of the things we've done. I would point to places like China, some of the countries in Asia, little pockets in the United States occasionally. Generally, labor cost inflation has been reasonable, and we've been able to manage it. Our retention figures have been overall, across the company, around 85%, which I think is very strong. Even within our clinical group and our CRA group there, we have that group in a good place as well. Overall, we feel that's been well managed by our operations team.
Great. Thanks, guys.
Thanks.
Thank you. The next question comes from the line of Daniel Brennan from UBS. Your line is open. Please go ahead.
Great. Thank you. Thanks for taking the questions. Steve, could you discuss the revenue trends? I know there were several questions on different size customers and trends you're seeing. For your smaller customers, namely those 25 and below, it looked like revenues declined this quarter year-over-year for the first time in a while. I'm just wondering what you're seeing from that kind of smaller customer base.
I haven't got that information to hand, Daniel, I'm not sure I can make a coherent comment on the, was it customers 25 and below?
Do you happen to add to that?
I think really it's when the customers and the product sizes get that smaller, it just ebbs and flows depending on the actual projects and where the projects are. Sometimes you can see spikes on that because of relatively small movements in the dollar terms. I'm not sure there's anything thematically, Dan, I'd read into that. Certainly, those customers are in good nick, and we see lots of demand in that customer size as we look out at the marketplace.
Got it. Okay. Maybe, I know Erin asked a question earlier regarding your site network and data assets, and I think you said, obviously, it's not just about the data, it's about finding the patients and enrolling them. Maybe could you just discuss a little bit in terms of your existing capabilities and what you have today, and is it really just execution right now, or are you looking to fill in any further capabilities, whether it be more data assets or partnerships? Thank you.
Sure. I'll certainly start. We have our patient site and data strategy around our sites. Of course, we have our PMG and our healthcare alliance networks, and that's well established. We're certainly looking to expand that out. I think someone asked a question about opportunities in the M&A pipeline. We continue to assess the opportunities in the pipeline with respect to those sites and replicating what we believe has been a very successful, and continues to be a successful PMG network strategy, in other parts of the world, particularly Europe. That's an area we're looking to build out. On the data front, we continue to believe that partnering with organizations on that front is the way to go. Certainly, we don't need to own the data.
Having said that, we don't rule out some activity on the M&A front for companies or for a company that can help us with algorithms and analytics. It's the analytics, I think, that we believe is the most important side. The access to the data, we believe is something that we can achieve through other means. I don't want to be locked into one single data source and not have access to the variety of data sources that are increasingly available in this space. The analytics side of things is something we keep an open mind for. On the patient side, we already have a very strong patient recruitment services group. We have the FIRECREST portal, which again, engages with sites and with patients. There are also areas there that we want to build out in terms of our strategy.
Our strategy, I would say, is nicely put together. We're still evolving it in terms of filling in the gaps, in terms of the capabilities to actually prosecute and execute that strategy as effectively as possible. I believe we're making good progress with it, Dan. There's certainly more to do there and certainly more opportunity. As I say, increasingly, we're seeing patients come through into our trials through these sites and using our data strategy, and I think that's gratifying to see, and I think lets us know that we're on the right track.
Great. Thank you.
Thank you. At this time, I would like to hand the conference back to CEO Dr. Steve Cutler for closing remarks. Please go ahead, sir.
Thank you, everyone, for listening in today. We are very pleased with the continued progress ICON's made in 2018. Once again, I'd like to thank the entire ICON team for all their hard work and commitment. We look forward to building on this progress during 2019 as we continue to enhance our position as the CRO trusted partner of choice in drug development. Thank you very much.
Ladies and gentlemen, that does conclude your conference for today. Thank you for participating. You may now disconnect.