Good day, ladies and gentlemen. Thank you for joining us on this call covering the quarter ended June 30, 2018. Also on the call today, we have our CEO, Doctor. 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 statement headed Consolidated Income Statements, Unaudited U. S. GAAP. While non GAAP financial measures are not superior to or 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 1 hour and would therefore ask participants to keep their questions to 1 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. A reminder, at January 1, 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 Q2 2018 financial results under the previous revenue recognition standards is the best way to evaluate our performance during this transition period. Whilst the comments may incorporate the impact of ASC 606, Steve will focus his comments on our performance excluding the impact of ASC 606.
In quarter 2, we achieved strong gross business wins excluding the impact of ASC 606 of $720,000,000 with cancellations of $120,000,000 a result, net awards in the quarter were a new record $600,000,000 resulting in a book to bill of 1.27 times. This means our trailing 12 month book to bill is a very healthy 1.29x. With the addition of these new awards, our Q2 2018 backlog, excluding the impact of ASC 606, grew to $5,200,000,000 representing a year over year increase of 16%. Our top customer represents 10.4% of this backlog, down from 11.3% at the end of quarter 2 last year. Reported revenue in quarter 2 was $641,600,000 Excluding the impact of ASC 606 revenue was 473 $900,000 This represents year on year growth of 10% or 8% on a constant currency basis and 2% on a constant dollar organic basis.
Excluding the impact of ASC 606, our customer concentration with our top customer in the quarter represented 13.5% of revenue compared to 20% of revenue last year. Our top five customers represented 39.1 percent of revenue compared to 41.2 percent of revenue last year. Our top ten represented 54.2 percent of revenue compared to 55 percent of revenue last year, while our top 25 customers represented 70 0.2% of revenue compared to 73.4 percent of revenue last year. In quarter 2, reported gross margin was 30% compared to 30.6% in quarter 1. Excluding the impact of ASC 606, group gross margin for the quarter was 40.9%.
This compared to 41.2% last quarter and 42% in the comparable quarter last year. Reported SG and A for the quarter was 12.6% as compared to 13% in quarter 1. Excluding the impact of 606, SG and A was 17.1 percent of revenue. This compared to 17.5% last quarter and 18.8% in the comparable period last year. This was as a result of our continued leverage of our global business support model.
In quarter 2, we reported operating income before nonrecurring charges of 14.7 percent or $94,400,000 This compared to 14.8 percent or $91,700,000 in quarter 1. Excluding the impact of ASC 606, operating income before non recurring charges for the quarter was $96,000,000 and operating margin of 20 0.2%. This compared to 20.1% last quarter and 19.9% in the comparable quarter last year. As reported, net interest expense for the quarter was $2,300,000 and the effective tax rate for quarter 2 was 10%. Net income reported before nonrecurring charges was $82,900,000 or 12.9 percent.
This equated to $1.51 in diluted earnings per share performed on recurring charges, a 6.3% increase on Q1 EPS of $1.42 Excluding the impact of ASC 606, net income before non recurring charges was $84,300,000 a margin of 17.8 percent, equating to diluted earnings per share of $1.54 This compares to earnings per share of $1.44 last quarter and 1 $0.31 in the comparable quarter last year, an increase of 17.6%. DSO in the quarter was 49 days, which compared to 51 days last quarter and 53 days in the comparable quarter last year. Cash generated from operating activities for quarter was $32,700,000 and capital expenditure was $8,900,000 At June 30, 2018, the company had of $23,900,000 compared to net cash of $4,600,000 at March 31, 2018 and net debt of $33,800,000 at the end of June 'seventeen. During the quarter, we took a restructuring charge of $12,500,000 as we continue to improve the efficiencies of our operating model. This restructuring plan reflected rationalization across the business to improve resource utilization and our office footprint.
As a result of this, our GAAP EPS was $1.31 compared to $1.51 on a non GAAP basis. As a reminder, I have dealt with the new revenue standard. Steve will focus his comments on our performance excluding the impact of ASC 606. And with all of that said, I'd like now to hand over the call to Steve.
Thank you, Brandon. Fueled by strong outsourcing trends and volumes in the funding environment market fundamentals remain very positive for the CRO industry. The momentum we saw during 2017 has continued into 2018. And during quarter 2, we have again seen strong levels of market demand across all of our business segments. Our backlog in the quarter grew 16% year on year, driven by a record net business award level of $600,000,000 This delivered a net book to bill of 1.27 times for the quarter or 1.29 times on a trailing 12 month basis.
Our backlog now stands at $5,200,000,000 which gives us a firm foundation to build upon during the remainder of the year and beyond. We continue to broaden our customer base with both new and existing biopharma companies seeking to leverage ICON's operational excellence, flexible partnership model and depth of therapeutic expertise across our global footprint. Since our foundation in 1990, we have strived to work as a trusted partner to our clients, collaborating, innovating and finding new ways to improve outcomes together. Underpinning our business strategy is a deep understanding of our industry landscape, enabling us to work closely with our clients and allowing us to be competitive at a time when technology, regulations and client needs are changing. We have the global scale and flexibility to organize our resources around their requirements and adapt our delivering models as their strategy dictates and evolves.
Icom's ability to successfully manage projects under a variety of integrated and flexible outsourcing models has led to new opportunities for both our full service and functional services businesses during the quarter. We are very pleased with the continued progress being made in this area on an integrated basis with other service areas and as a standalone offering and we believe this is becoming another differentiator for Icon in the market. Access to patients continues to be a key challenge for the industry. ICON has developed an integrated site and patient solution that makes it easier for sites and patients to actively participate in a trial and increase the predictability and speed of enrollment and retention. Leveraging our PMG network, which now includes the recently announced DuPage network, we are helping customers to enhance clinical trial feasibility, while also giving patients access to a broader range of care options through clinical trials.
Our innovative partnerships with Intel and SAMA as well as our collaborations with TriNetX, EHR4CR and most recently Practice Fusion within the Late Phase segment continue to be used successfully in conjunction with our OneSearch data platform. These partnerships are all helping to enhance engagement with sites, patients and health care providers to take significant time and cost from our customers' development programs. We also continue to work on a series of internal projects to evaluate the potential opportunities with robotics and process automation. We believe that there are several areas in the clinical trial process, which lend themselves to further efficiencies through the use of robotics process automation, starting with the digitalization of protocol and the creation of the data capture tool as well as the testing and validation of applications. We also believe there is application for robotics in the conduct of routine tasks within our global business services environment, which help us to continue to leverage our spend across these key support groups.
A consequence of our strong business development performance means that we need to ensure we have appropriate staff members in place to cater for the ramp up in operational activity levels. During the quarter, our headcount grew to nearly 13,650 employees, an increase in staff of over 1300 employees year over year. The identification of the successful recruitment of best in class talent are keys to ensuring the continued delivery of our customers' projects. Upon joining ICON, a clear onboarding program is communicated to directly engage employees with ICON's mission, vision and values, which center on integrity, collaboration, partnership and accountability and delivery. We also focus on retention of our staff in the longer term by engaging and helping them map out their own individual career plans in our internal career hub.
This provides an opportunity for each employee to create their own career framework and how to develop their experiences, abilities and competencies over time. The result of this is that approximately 10% of our employees will be promoted within ICON each year, recognizing their performance, skills development and increased level of experience and helping to retain them long term for the benefit of our customers. Our approach allows us to continue to pursue our goals of attracting and retaining the best talent in the industry ultimately driving long term performance at an individual and company level. As recognition of this, we were proud to be included in Forbes Magazine's America's Best Large Employers list for 2018, which is a ranking by employees of the best employers across 25 industry sectors. This is the 2nd consecutive year that Icahn has been named 1 of America's Best Employers and we're also the top ranked CRO for the 2nd year in a row.
As a result of the ongoing execution of our strategic plans, our year on year revenue growth was 10%. Careful management of our cost base enabled us to expand our operating margin to 20.2%. This strong operational performance along with an effective tax rate of 10% allowed us to grow our earnings per share by 17.6% year over year to $1.54 During the quarter, we repurchased $16,000,000 worth of shares under our share repurchase program, bringing the total repurchase value to date to $297,300,000 worth of shares at an average price of $85.36 As we look forward to the end of the year, I want to take this opportunity to update our full year guidance. We expect 2018 revenue to move from a range of $2,520,000,000 to 2,640,000,000 dollars to a range of $2,560,000,000 to 2,640,000,000 and earnings to move from a range of $5.91 to 6.11 dollars to a range of $5.98 to $6.12 Before moving to Q and A, I'd like to thank the entire ICON team for all their hard work and commitment during the quarter. In particular, I'd like to recognize the immense contribution of Doctor.
Ronan Lam, ICON's co founder and father figure with Doctor. John Climax, who after 28 years of service retired this year this week from our Board. We thank Ronan for the hugely positive influence he has had on shaping ICON into the industry leader it is today and we wish him well in his retirement. Thank you everyone and we're now ready for questions.
Thank And we'll now move to our first question today from Robert Jones of Goldman Sachs. Please go ahead, sir.
Great. Thanks for the question, Steve and Brendan. You guys have been pretty upfront that gross margins will experience some pressure as you onboard people to handle all the new projects that you've been winning. I guess maybe it'd be helpful if you could lay out how we should think about your ability to kind of maintain the type of gross margin we saw this quarter. And then if there's any timeline you could provide as far as when you might start to again see some leverage against the infrastructure that you're currently building?
Yes. Robert, it's Steve here. I think you're right. We have been upfront around the pressure on gross margin. Obviously, as we build the business, we bring in new people.
There will be inevitable pressure in that area. We're offsetting that to some extent by looking at how efficiently we're running our operations. Our start up approach to our clinical trials is under plenty of attention and scrutiny and we're looking at how we are improving our resourcing and our process there. Also looking at how we can bring in automation in that area as well. So there are various offsets if you like on the gross margin side of things.
And of course, I think as we said before, we're also trying to offset any pressure on gross at the SG and A line. And I think you can see we've been successful in doing that again this quarter. And we continue to I think ultimately maintain our operating margin based on some offset at the SG and A line. And we believe we can continue to do that. So we see our margins certainly at the operating level being maintained, possibly increased slightly, but we're working very hard to do both on both those areas.
And then I guess just on a follow-up to that Steve. You mentioned SG and A. You guys closed in on this goal of 17% of the 606 revenue pretty quickly, looking at the results from this quarter. Anything you would call out there as far as what drove the progress? And then is this the type of SG and A as a percent of revenue level that we should think about for the rest of the year?
I think in terms of what drove the process, we continue to look at it very hard. We continue to look at our process. We continue to offshore appropriate parts of that business where we've been able to do so. We continue to challenge our business service leaders to hold their costs tight and to be as effective and efficient. And we've as you said, got to our target a little early than we thought.
We think there's still some further upside or at least further progress to be made there over the next probably longer term than medium term. And I think I referenced in my comments robotics automation has been a particular component of that. We'll talk a bit more about that at our Analyst Day in New York in a couple of months. So we believe there are there is some further progress we can make in that space, albeit probably not at the same rate as we've made over the last couple of years.
Great. Thanks for the questions.
Thank you. We'll now move to our question from Tycho Peterson of JPMorgan. Please go ahead.
Hey, thanks. I want to start with backlog. I'm wondering if you can comment all on mix, biotech versus pharma, to what degree also fixed price contracts are a part of that backlog? Thanks.
I didn't get the second part of the question. The type of contracts, Tayo?
Fixed price contracts. How much of the backlog today are fixed priced?
Okay. So let me start with the biotech versus pharma. Certainly over the last 12 months or so we've seen I think we've all seen a very strong funding environment around biotech probably unprecedented I would say. And that can certainly continue this quarter. So biotech and midsize has certainly increased in proportion in our backlog.
We still remain a very significantly large pharma CRO that continues and that certainly continues as well as part of our strategy. But the funding environment within the biotech has pushed that part of our backlog up. In terms of fixed price contracts, I don't quite understand what that's all about. I mean we will all of the large CROs do fixed price contracts. There's nothing particularly novel or new there.
Our customers expect us to put a budget down and fix the price according to the expectations and the scope of that project recruitment rates etcetera, etcetera, particularly as we become and we continue to become better in terms of our processes and our feasibility, we're able to nail our colors to the past and actually fix the price in terms of what a recruit that is. But no CRO and I don't care what they tell you, no CRO is going to be held to a fixed price if things like drug is not available or the FDA puts a hold on the contract or the project or those sort of things. So we all operate to fixed price where it comes to operational parameters like recruitment and us believing we can get the patients etcetera. But there are always limits to that fixed price and I don't believe anybody in the industry is operating outside of those
Okay. That's helpful. And then two quick follow ups. Pfizer, you had a sequential increase in the overall contribution. So should we assume that this is going to continue for the remainder of the year?
And then on the hiring point, back to Bob's question, where are you in kind of the overall process of hiring? You said 1300 employees over the past year. I guess how far down that path are you at this point?
Let me take the Pfizer one first. We saw a slow a bit of a bounce and uptick on our Pfizer revenues this quarter. We think we're we've reached pretty much a steady state with Pfizer. They remain our largest customer. And we believe we're at about the regular sort of cadence of quarterly revenues annual revenues in the 220 to 270 sort of mark that sort of number.
So I think we're in a good place there. Certainly, we won work from them this quarter at around about slightly under a one book to bill. But I think overall last 12 months, we're at about a one book to bill. So I think we're in a good place there. In terms of hiring, as I said, 1300 people came in and about half, but a bit more of those came in through the MAPI acquisition.
So we continue to bring on board new people as we need to win the work. You can see the backlog has gone up 16% year on year. So I don't know I don't expect we'll be increasing necessarily 16% of that people wise year on year. But we certainly have our HR machine and recruitment machine ramped up to be able to bring those people in efficiently and effectively. That's an ongoing process as we continue to win more work than we're burning.
We expect to grow and we expect to bring the people on at about the rate of revenue growth that we're going to be seeing. So that's a process that's working well. I think we feel we were able to bring them on at the right time. We're not bringing them on too early and having them sit around. And we're not bringing them on too late and leaving revenue on the table.
That's the challenge we have as an organization. I believe our operational people are handling that very well.
Okay. Thank you. Thanks, Saket.
Thank you. We'll now move to our next question from Ross Muken of Evercore. Please go ahead.
Good morning, guys, and congrats or good afternoon for you. Maybe just on sort of the revenue cadence for the rest of the year and then into next year. I mean, it feels like you've had very strong bookings momentum now for some time. Obviously, the backlog is growing at an elevated rate as you spoke. We're starting to comp against some of the easier compares from last year given some of the trials that fell off.
And so how are you thinking about sort of that burn rate and your ability to sort of get back to more of the normalized growth we were used to seeing from you at least on a core basis? Because it feels like we're kind of hitting into this inflection period into the back half of this year into next year where we can get back to sort of the top line expectations we're used to seeing given how strong you've done from a new business perspective?
Yeah. Ross, I'll have a crack at that and then Brendan might jump in as well. I think we're seeing puts and calls on the burn rate. We were 9.4 this quarter. We were 9.4 last quarter.
So we do think we're starting to approach the NAVI. The pressure down is we continue to win as a number of our peers do oncology work which is long complex, long term and certainly without any question of a doubt burn slower than other trials. And that is an increasing part of our backlog. We reflect the clinical development landscape there. So that is that does put pressure on the burn.
On the other hand, as I outlined, we're looking at how we can get better and faster and more efficient at starting our clinical trials up. The focus on our start up approach is starting to yield some benefits in terms of our operational metrics and time to get to 1st site initiated. We're seeing some certainly some progress there. We obviously wherever we can look to win work that can burn a bit faster, but to some extent we're constrained by what's out there. So I think there are let's say, puts and calls on that.
And we do think we're approaching the Nadeel. We are looking to try to bring that up, but that's I think more of a longer medium to longer term approach. Do you want to add?
Yes. Ross, I think one of the points you're making in your question there was obviously we've had some tough comps in the first half of the year from a revenue perspective on the mix really of the Pfizer and non Pfizer book of business. As we go into the Q3, obviously by this time last year in Q3, we were through the vocazizumab cancellation. So I think the revenue guidance for the full year.
And what I'd do
is I'd point you towards our revenue guidance for the full year, which is in that kind of 7% to 10% range now as we pushed it up in this current quarter. Certainly, we'd like to be seeing CDOs that are certainly in that range as we go into the next couple of quarters.
That's helpful, Brent. And then maybe just if you guys give a little color, there's a lot of strategic deal activity, a number of key renewals went on or going on. I mean, how are you thinking about the conversations for some of the larger contracts? Obviously, so much has been time has been spent on sort of all the biotech business, just given what demands look like in that environment. How would you kind of characterize the conversations there?
And what else is still left out there for the remainder of the year at least that's big and chunky?
Yes. I think we look at our performance. I think with these strategic deals, you look at more over the longer term what you win and what you're able to renew. Certainly, we've been able to renew a number of hours. We've completed very hard I think in these areas.
And we win I think more than our fair share. We've been successful over a longer period of time in these deals. And they take some time to sort of mature. They take a little bit of time to evolve. There's 1 or 2 of them that we won in the last 6 months that are starting to move very significantly and certainly contributed very much on a new business wins perspective in this quarter.
Limited though in revenue, really the revenue takes something like 12 months sometimes even longer to start with these particular the newest strategic deals. So we're starting to see the wins come in and we expect to see the revenue will start to burn later this year and certainly into 2019 and beyond. These things take a little bit of time. And as I say, we believe we have good offering in the area. We're able to engage.
We have a lot of experience. We've been part of the largest partnership in the industry for a number of years. That has given some credibility and some experience in this space. We're able to bring that experience to some of these newer partners. We're also seeing some of the perhaps more midsized companies become interested in these more partners.
If you know, midsized companies who may be outsourcing of course less in terms of dollar terms, but if you can win the vast majority of that or be one of 2 partners in that sort of you can secure yourself a very good revenue stream. So we don't just look at the top 10 or 15 companies on the partnership side of things, Ross. We're looking a bit more broadly in building partnerships, building relationships and going out proactively and approaching customers more in the top 30 to 40 who still have a substantial amount of work to outsource and a willingness increasing willingness to do it with organizations like us. So we feel the environment there is good, Strongly feel we're competing very well and our offering has been well received.
Thank you, guys.
Thank you. We'll now move to our next question, which comes from Jack Meehan of Barclays. Please go ahead, sir.
Thanks and good morning. Steve, I was hoping you could elaborate on the comments you made related expansion plans with the PMG network. And just specifically there, what are your plans regionally? Are there any partnerships you could use to expand there? And what level of investment should we expect to build that out?
Yeah. Interestingly, Jack, we have expanded the PMG network. I mentioned the DuPage network sites that we brought on. We have and we've taken over that the clinical trials capabilities within that network without having to pay anything. It's been something that we've assumed responsibility for.
Obviously, we've seen the cost and we assume the benefits, but it's not been something we've actually had to pay for. There are other there are 1 or 2 other networks in the same sort of state in North America. So we're looking at that not costing us a lot of money. It's costing us obviously resource and we're building in our infrastructure and adding that and building that in the PMG network. So the expansion in the North America is really limited cost, but it's and it takes some time and effort of course investment for us to build that out.
What we want to go next is to Europe and we've been actively looking in Europe for a network that we've been able to acquire. We've had a couple of 1 or 2 false starts. We're fairly disciplined in terms of making sure we acquire an operation that has a very high quality of service and is very well thought after or thought at as a good reputation. And so we've had a couple of a little bit of stop start in Europe where we continue to look very actively there. And I think you could expect certainly in the next 12 months and I hope earlier than that some progress on that front.
But our site network is still very much a fundamental part of our strategy combining with the analytics and data strategy that we have around our EMR and EHR records and analytics driving patients to the site. So it's fundamental to us and it's something that we feel we can continue to develop and make progress on.
Great. And maybe one for Brendan. Could you just confirm the 2018 targets related to cash flow? And can you help us with the pacing going into the back half of
the year? It just looks
a little bit more back half weighted than you've historically posted.
Yes. That's probably fair, Jack. We kind of we were in that kind of, I suppose, dollars 300,000,000 level of expectation on cash flow. As you guys know in the past, we do have a pretty high percentage cash conversion cycle. I would agree with you.
It is more back half related. And obviously, we'll be looking to deploy that capital either predominantly on our M and A strategy as I think we've outlined over the last year or so. So yes, it is definitely more back end related. So we expect probably I think we've done about 100 years a day, maybe just shy of that and probably the rest in the back half. Great.
Thank you, Brendon.
Welcome, Jack.
Thank you. We'll now move to our next question, which comes from Donald Hooker of KeyBanc. Please go ahead, sir.
Great. Good afternoon to you. Good morning for us. On the continue everyone's continues to be impressed with your discipline around SG and A expenses. I was just wondering, is there a risk that you guys might be somewhat under investing in your business?
I mean, do you feel
like there are areas where is there a
risk that you're under investing in the business where that could come back and bite you down the road?
Donald, yes, you've always got a balance up between the investments efficiency you're trying to get and how you leverage that investment. So I mean is there a risk? There's always a risk, but I don't believe we are doing that. We are disciplined in the way we look at our cost. We're very focused in that area and we have a very good group of people looking out there particularly on the global business services side of things who are not just able to take up a challenge when it comes to being efficient and make maximizing the value of the spend that they have, but being open to new ideas and new ways of doing things.
And that's it's a state of mind that I think that our leaders in that group have that sort of differentiate them perhaps from others. They are open to doing things differently be it robotics or process engineering or different ways of organizing their group or different ways doing the work that they're supposed to be doing or different locations for those people and how that works into our overall business and how it supports our overall business. So I think I'm lucky in that we have a strong group of people who are not just on the Global Business Services, but also in the operational area who are creative and innovative and open to new ideas. And so I don't think we are underinvesting. I think we're appropriately spending the money that we have.
We're challenging ourselves where we need to spend it. So things like the security IT security side of things. We've made significant investments in that area over the last 6 to 12 months, particularly given the environment we're all in now and the threats we're under with cybersecurity. So we've made solid and very significant investments in there as we brought the MAPI organization in. We isolated them, quarantined them, sorted them out from a security point of view and then brought them into the fold.
So I believe we're spending the money appropriately. We're spending it in a way that it's maximizing the value of that money, but we're also being creative and watching our pennies.
Great. And certainly impressive to see. So my follow-up question will be more specific. I was curious specifically on the recent announcement with Practice Fusion, your relationship there. Can you how does an how do the economics of that obviously, I think I understand what you guys get, but how do we think about the other side?
What is practice what are Practice Fusion's economics in that relationship for you?
Don, I have to be absolutely honest with you. I'm not absolutely familiar with the detailed economics of it. We they are an organization that has patient records and an ability to access patient records and a database of patients. They're helping put in place electronic medical records in, I think it's around 20,000 practices. So it's a large number of practices and they use those practices use those electronic medical records in those practice and we then are able to have access and we pay a fee to have access to those records.
These patients have all opted in. So they're not de identified, a very important distinction I'd have to say between us and some of them between this relationship and opportunities. And our late stage group, our ICON commercialization group is running a couple of pilots with them. I don't have to say the economics of the relationship in the pilot is probably going to be a certain way and different to how it will work out if we industrialize this, put it that way. So we will be paying some sort of fee to access those records.
They'll be making those available to us. We'll be then using that data or finding those patients to bring those patients into the trial. That's the way it's sort of broadly work. I need to if you need any more detail on that, I think we'll take it offline. But that's the way it's working.
Okay. Thank you for that. Have a nice day.
Thank you.
Thank you. Our next question now comes from Erin Wright of Credit Suisse. Please go ahead.
Great. Thanks. I guess, can you give us an update on MAPI, how that transaction is progressing relative to your internal expectations at this point? Did you break out the contribution as well from acquisitions or MAPI in the quarter? That would be great.
Thanks.
Hi, Ernst. Brandon here. Yes, we're pleased with the integration of MAPI. As you guys know, we bought it actually around this time last year. And I've been working hard on the integration since.
We're pretty much through 95%, I would say, of the integration process at this stage. And so we're happy with the overall performance of the business unit. At the beginning of the call, I called out there just the I suppose, if you like, the revenue contributions from the different elements. So I did say that the CDO revenue growth was about 2% versus a constant currency growth year over year, about 8%. So obviously, it's the 6% and the difference coming from the MAPI organization.
So little ahead actually in the current quarter versus last quarter. So good progress from our perspective at this stage.
Okay, great. And then on the capital deployment front, I guess, where are there holes in your offering? Or where are you seeing kind of opportunities in the M and A pipeline? Would you focus or target more post approval, pharmacovigilance, Asia or I guess you were mentioning earlier investments in site networks? I guess where are your priorities today?
Thanks.
Aaron, you've pretty much answered your own question. You've outlined a couple of areas there that we would certainly be looking at and we are currently looking at in terms of M and A and capital deployment. It's not that we I think we feel we're particularly weak in those areas, but we have an ambition to be in the top echelon in each of the segments we operate in as with all companies in this space. So there are a couple of areas there. Certainly, we already talked about the site network and expanding that.
We fundamentally believe that's the right strategy. We're starting to get some traction with it. And so that's an area, particularly in Europe. As I said, we've broadened out. We are broadening out in the United States.
Our aspects of Asia, Japan is an area, I think, I've mentioned before that we're looking to actively deploy capital in. And so those and then you look at some of the functional areas. Pharmacovigilance, I believe in the industry is right for some consolidation. So I think there's some opportunity there to build an organization in that space. And we've got a good pharmacovigilance safety group.
We're implementing some new software and applications there to really move them along. And at that point, I think that might be a good time to look at that space. So those are the areas that we are actively looking at. We have a number of opportunities in our sites at the moment and we expect to be able to execute on at least 1 or 2 of those within the foreseeable future, medium term, next I'd say 6 to 9 months.
And size of those transactions, I guess what sort of size would you be targeting? I guess, it was this time last year, there was news of a potential larger acquisition. So I just kind of wanted to get a sense of what you were thinking. Thanks.
As I say, I think, again, we've been public in terms of being opportunistic on larger transactions. But what I think what we're talking about is our string of pearls strategy, which has traditionally been what we've been focused on. And those acquisitions I think as you probably know range from anything $50,000,000 $30,000,000 $50,000,000 maybe even smaller if they're strategic. Some of the site networks aren't that big up to $150,000,000 $200,000,000 That's the sort of range you'd expect in that sort of with that sort of approach.
Excellent. Thank you.
Thank you. We'll now take our next question from John Kreger of William Blair. Please go ahead.
Hey, Steve. Just a question to expand on your comments around site network. What percentage of your active projects would you say you're using some sort of a site network strategy at this point?
John, I have to be honest and say I don't have that specific number in my head. I would estimate at about 25% possibly up to 30% of our of it would be currently using. Having said that, I would say 75% of our new 75% of new projects would be going into that network. We actively promote our site network approach for all of our new projects. And that doesn't mean that every one of them is suitable or appropriate.
But we certainly have a higher proportion of new projects going into that strategy or that approach than we do traditional with our backlog, so to speak.
Got it. Interesting. And then you mentioned a number of sort of new technologies in your prepared remarks. If you kind of step back, do any of them stand out to you as particularly exciting in terms of a value add for you or your clients and any that you could call out? And even just generally, do you see bigger opportunities sort of externally around maybe trial design and site ID or more opportunity in terms of internal operational efficiency?
Thanks.
That's a broad question, John. We probably spend days talking about that. Certainly from a technology point of view, you're aware of what we're doing from the electronic medical records and that's certainly a focus for feasibility and how we find patient. That will we're trying a number of forces and trying a number of tracks and we believe that's the right way to go. Some are more successful than others.
But we're certainly seeing some traction in the areas we're working in and getting some benefits and quite frankly learning a lot as we go along. If you if I look at things like robotics and we'll talk about a bit more this our Analyst Day on September 10th in New York because we are hoping to have some demonstrations of some of the technology there around our robotics and automation approach. But we see some very exciting things. I mean, I get excited about it, some people may not. It's around our trial master file and how we I was seeing a demonstration yesterday with from our IT guys in terms of how we're improving the designation and categorization and filing of follow-up letters to monitor reports simple thing.
And a robot can do this in a minute. It takes we calculate it takes our people 6 minutes to do. And we have a lot of people. You think we add a lot of paper across our organization with the 500 clinical trials that we have running. And so that is a material that can be a material impact in terms of how we more effectively and more efficiently file put documents into files for the regulatory authorities to and for the auditors to look at.
Again, a relatively simple thing, but something that we're processing and moving forward. And we have a number of our folks including myself very excited about the benefits that that can bring to us. Not just in terms of reducing cost and being more efficient, but being faster and being more up to date for audits gives us a quality angle as well as efficiency angle. So there are a number of things happening there. And then if we look at the adaptive trial design, then that continues to be important for us.
It continues we continue to focus on. It has perhaps got the take up on the uptick as much as I would have liked to see in the industry. But there are certain customers who are very engaged in it. Certainly some of our alliance partners are very interested in what capabilities we have and that and how they how we can apply those sorts of new designs to their development program. So I think on a number of fronts be it applications, be it software, be it IT, be it process, be it statistics.
We're looking at driving forward innovation and technology and bringing those sorts of solutions and new ways of doing things to our customers.
All right. Very interesting. Thank you.
Good. Thanks, Tyler.
Thank you. We'll now move to our next question from Sandy Draper of SunTrust. Please go ahead.
Thanks very much and good afternoon guys. Just maybe a very quick question, just thoughts on any updated thinking on stock repurchases, obviously did a bunch last year, it sort of slowed down as you anticipated. As you build up cash, there's a balance of M and A opportunities versus stock buyback. But just thinking about the last couple of years, you've taken points of being aggressive. Any thoughts on how you feel philosophically about stock buybacks?
Has that changed at all? Or is it still pretty much the same thought process? Thanks.
Hi Sandy, it's Brandon here. I don't think fundamentally we are shifting from where we have certainly been over the last 6 to 12 months in terms of our buyback mentality here. I think we've been very clear that our primary use of capital is going to be around the M and A side of things. That's definitely what we want to do. By the end of this year, we want to see a couple of deals in the door, and we're actively working towards that.
In terms of the buyback program, it's not gone away. You've seen it there, chunking away through the first half of the year. We did again continued it in Q2. I think one of the things that we are mindful of is making sure that, that stock dilution that we get from the exercise or the issue of shares to employees during the course of the year is impacting. And that's about 1,000,000 shares a year.
So that in itself is a chunk of change that's going to be used and we will continue to use. So I think that's probably the best way to think about it in terms of our balancing our M and A portfolio and capital deployment around that and our buyback procedures.
Okay. Thanks. That was my only question.
Thanks, Andy. Thanks, Andy.
Thank you. We'll now move to our next question from Juan Avendano of Bank of America. Please go ahead.
Hi. Thank you and congratulations on the quarter. A lot of my questions have been answered, but I do have one. With regards to customer specific trends, revenue growth in your top 10 customers has picked up, particularly among customers 6 through 10. Can you tell us what's driving that or what's happening with those relationships?
Then also what was your net book to bill outside of your top customer? Thank you.
I'll have you go to the first one, Juan, in terms of what's driving revenue growth trends across our top ten customers. I think Brendan can answer your second one in terms of book to build outside of that. I think for us, we one of our strategic pillars is around partnership and what we bring to a partnership. And as I mentioned, we have a lot of experience in this area and it's something we take very seriously in terms of where we're going with our organization. And I think we've been able to bring that partnership approach to those I mean, the top ten customers do tend to be our partner customers, our alliance partner customers.
We've been able to wrap a solid execution and delivery around them. We dedicate specific and very competent resources to those customers. We get to know them very well. We spend time with them. And we look at it in terms of a very much a long term relationship.
And a number of those alliances have really moved to the next level now and we're securing very significant annual revenues from those customers. And it's not just within say our full service business. It's now broadening out across again as I mentioned in my comments across other parts of our business. And other parts of our business our docs or IFS group is also bringing in opportunities for our pool service. So there's a cross fertilization if you like across the various service areas and functions within a customer within our across our company is also helping to drive the accumulation of significant revenues and broaden out the partnership and the relationship across those large alliance customers.
So it's I think it's been a very positive experience for us. And I think they're also seeing the benefits of that partnership as well in terms of solid delivery, good operational metrics. We track the performance of those partnerships in terms of what we're doing on a day to day basis, how fast we're starting studies, how quickly we're completing the studies, are we on time performance wise, etcetera. Quality is a very important focus as well. So with all of that, I think we gained further credibility and we build the relationship with those partners and it goes from strength to strength.
It's a good news story. Obviously, we look to deploy it on as many on new partners as well and new customers as well. In terms of the book to bill, Johan?
Yes. Obviously, one, I suppose we don't call out that number specifically anymore because our biggest customer is now at a level that we think is a sustainable number as we go forward. And I think Steve mentioned that we have a better one of a book to bill with them over the last couple of quarters. So excluding them, it's not a huge difference between what we actually report, the $1,290,000 that we reported sorry, the 1.28 that we reported for the first half of the year. So excluding them, it's about 1.31, 1.32.
Thank you. We'll now move to our next question from Justin Barras of Bloomberg Intelligence. Please go ahead, sir.
Thank you. Good afternoon and good morning. So just wanted to follow-up on the robotics and digital strategy and some of the investments that you've made and kind of the plan going forward. And I realize that these things take more than a few quarters to really affect the business. But if we were to look out, let's say, 1 to 2 to 5 years, how would you guys measure success from the broader digital strategy?
Would this translate into market share gains like an increase in the burn rate, for example? And then is that something that you're going to continue to do organically or with some of your existing big tech partners or is that going to include some external kind of organic efforts as well? And then I have a follow-up.
Okay. That's a pretty broad question, Justin. But in terms of our robotics and digital strategy, I think we see a number of advantages or endpoints or measures of success. I would say, obviously, margin I'd probably say margin maintenance. Our margins are solid now and strong.
Maybe we can tick them up a little bit, but we do see the digitalization and robotics process automation really helping us to maintain margins overall and probably improve them in or improve our SG and A leverage spend particularly around more routine tasks and having our people move up to more higher value tasks. So I think that's certainly one area of it. And I think in doing so, we can make sure that our value the value we offer customers from a pricing point of view is continues to be solid. And I think if we do that well, we should be able to take market share. Now that's a longer term play, but it's certainly within our strategy and it's certainly something we want to focus on.
We believe I fundamentally believe that the clinical trial process is too clunky and too expensive and we do need to be able to we need to be part of the solution there in making it more efficient and more effective. And I think the robotics is just one aspect of what we can do to improve that and we have a responsibility and I think an obligation to do it. And I think if we can we'll be very successful. I don't think it's a matter of reducing margins. In fact, I think anything we'll be maintaining or possibly even improving them if we do it really well.
Now we've got to execute on that and that's always the challenge. In terms of who we partner, our strategy at the moment is to work with different partners, particularly around the data strategy and the site in patient EMI EHR strategy. That's very clear. We've been very upfront with that for some time. In terms of robotics and automation, I think, again, we'll be looking at who's out there.
We're already doing some pilots. Again, we'll talk about a bit more about that on September 10. But we're looking at who are the right partners and what are the right organizations and what are the right technologies to be and let's be honest here, we're fairly early in the process here. This is not something that's necessarily going to be implemented within the next quarter or 2. As you say, there's a it's a medium to longer term play.
But we do believe it has a fundamental role to play in our continued success. We're embracing it. Our leaders are embracing it. And we believe it's going to be strong that the exact strategy in terms of who we partnership or what sort of organizations and how we do that is being worked out as we
Got it. Thank you. And then the quick follow-up is it sounds like I mean funding has been strong all year, but it sounds like there's been kind of an improvement this last quarter and I would say maybe even now versus the Q1 in terms of the RFP activity and the opportunities out there. Is that a fair characterization and even a little more activity from the small to midsize?
I think that's a fair characterization. Yes. I think everyone is aware that the funding environment's been very strong, not just this year, but certainly over the last few years really. The public markets have been opened and we find the biotechs are well funded and ambitious. They as I say, 10 5, 10 years ago they might have been looking to partner less so these days.
So we find they have large programs and projects that they are ready to fund and able to fund themselves. So funding environment great. We've seen I would say modest to mid single digit sort of uptick in our RFP opportunities. We have a strong business development group who've been able to take advantage of that. And our win rate if anything has been increasing as well.
So you get more opportunities and you get a stronger win rate. It adds up to a pretty solid formula from a business development point of view.
Got it. That's all. Thank you.
Great.
Thank you. And now we'll try our next question from David Windley of Jefferies. Please go ahead.
Hi, good morning. Thanks for taking my questions. The perhaps intersecting with the robotics discussion, I'm wondering, Steve, as you see this demand increase and I think you're pretty aggressive in adding staff in 2Q. How do you see yourselves positioned to service the growth? How fast do you need to be continuing to add headcount?
What does the labor market look like? So how is the pool of available talent to service that or to feed that headcount add? And then how much are you able to alleviate your need to add headcount through some of this robotic and automation investment that you're making?
Yes. Interesting question, David. I think it's premature for me to sort of declare that we could alleviate our headcount requirements on the basis of robotics at the moment. We're moving on this, but it's going to take a little bit of time. And we're doing some pilots.
And I think it will be at least a couple of quarters before I'm in a position to even answer that question or have an make an attempt to answering that question in terms of what impact that's going to have. I would say we can see some we're very optimistic. We can see some bright spots and some real possibilities quantifying it. I think it's way too early to do that at the moment. In terms of the labor market, it remains tight, particularly around CRAs and project managers, particularly with oncology experience.
As you'd expect, we have a number of approaches to build our own. We have a number of graduate new graduate programs going certainly in Asia. In Japan, we brought on 50 new graduates and then we train them and literally we sit them in the office ourselves for the 1st 6 to 9 months and train them up. And then gradually are able to assign them to work. So that's an investment we're making.
We're also doing that in the United States. And a couple of other European sorry, Asian countries, particularly as well, China. So we're alleviating some of those headcount or labor market challenges through things like that training our own resources. Our retention has been very good over the last 12 months. It's improved fairly not dramatically.
It was always sort of fairly good. But it's I think we're at an all time high in terms of retention now. So that always helps you. You don't lose as many people. You don't have to replace as many.
But I think we're in a good position in terms of the work we've got coming in and managing the just in time process of bringing in those resources to do the work. As I said, not leaving revenue or work on the table, but not bringing it in so early that people don't have enough to do. It's a fine balance that we have to strike. But I think with the tools we have and the competent folks we have running these groups, we're able to tread that fine mind there.
That's super. I appreciate the answer. On just thinking about the revenue base, the totality of revenue and folks I know may include it still thinking kind of Pfizer and ex Pfizer and I know you probably want to get away from that. But I understand earlier I've jumped on late. I understand earlier in the call you said you think Pfizer's kind of normalized around maybe 260 or 260 to 270.
I think that number in and of itself has bounced around a fair amount as we've tried to find the bottom on Pfizer post bocacizumab. I guess I'd just be interested in hearing your answer again on the visibility that you have to the run rate from Pfizer. And then given a steady book to bill outside of that, as you described, is that ex Pfizer book of business something that you think can still generate continue to generate double digit growth? Could it even be mid teens as it was in the Q1? How should we think about that ex Pfizer book of business converting out of backlog and growing going forward?
Thank you.
Yes. I'll have a crack at that. And then I think I'll get Brendan to add. In terms of Pfizer, I think as you've seen, the revenues have come down over the last few quarters. I think this quarter, we actually bounced up a bit to around the $60 something million in it.
And I do think so I do think we are reaching a steady state in that hour, whether it's 260, a little higher, a little lower, I don't think it's going to be materially different to that. I think that's a good number for us to be at. I think that's a number that they'll feel comfortable with. We certainly feel comfortable in delivering at that level of work. We have a good pipeline of opportunities with them.
The work we've won over the last 12 months as I mentioned, is in about the 1.0 on the book to bill. So we figure that's about the right number and that's a good number for us to be. In terms of ex Pfizer growth, certainly, we've seen on a book to bill basis very solid numbers posted and very solid revenue growth x, y, z. And I do think that will start to as Brendan said start to really play in as we get towards the back end of this year and into next year. I'm not sure about teens, but I would have thought high single digits maybe low double digits is the sort of number we'd be actively looking at for 2019 beyond.
Dave, we think the work we brought in, the quality of the backlog we brought in notwithstanding a lot of it is oncology. So I put that out as a little bit of a warning. But the quality of the backlog we have and we won particularly through our alliance partners and the newer midsized biotechs is such that we believe we can get this moving and get to those sort of numbers. So we're optimistic and certainly very positive about the revenue growth potential for the company over the next couple of years really. Do you want to add to that?
Yes. The only thing I would add is that Dave is just to say really quickly, we guided at beginning of this year 12% to 14% of concentration from that customer. 1st quarter, we were 12% 2nd quarter, we were 13.5%. So we're in the range. We'll jump around a bit.
It's a customer like any other customer. So I think the expectation I'd say is just be careful on a quarterly basis if you're expecting absolutes. Look at it on a 12 month basis is how I'd say it. And I think we'll definitely be in that 12% to 14% range.
Thank you very much.
Thank you.
Thank you. As we have no further questions, I'd like to turn the call back over to you gentlemen for any additional or closing remarks. Thank you.
Thank you, operator. Quarter 2 was another very strong quarter for Icon. We look forward to building on this progress throughout 2018 as we consolidate our position as the CRO partner of choice in drug development. We look forward to talking with many of you at our Investor Day at the NASDAQ Market Site in New York City on Monday, September 10. Thank you, everyone.