Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good afternoon, ladies and gentlemen, and welcome to the first-quarter 2008 ICON plc earnings conference call. My name is Stephie and I will be your coordinator for today's conference.
For the duration of the call you will be on listen-only, however, at the end of the call, you will have the opportunity to ask questions. (OPERATOR INSTRUCTIONS)
I am now handing you over to Ciaran Murray, Chief Financial Officer, to begin today's conference.
CIARAN MURRAY, CFO, ICON: Good day, ladies and gentlemen. Thanks for joining us on the call today covering the quarter ended March 31, 2008. Beside me today I have Dr. John Climax, our Chairman, and Mr. Peter Gray, our CEO.
Before I hand the call over to John, I would just like to note that this call is webcast. There are slides available and the comments will follow the slide show. I will now make the customary statement in relation to forward-looking statements.
Certain statements in today's call may constitute forward-looking statements concerning the company's operations, performance, financial conditions and prospects. Because such statements involve known and unknown risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements.
Given these uncertainties, investors and prospective investors are cautioned not to place undue reliance on such forward-looking statements. The company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Today's commentary refers to our first quarter ending March 31, 2008. Please note in the following commentary financials for both current and prior quarters and any reference to margin is after charging stock compensation expense and the effect on diluted shares of the adoption of SFAS 123(R).
And having said all of that, I'm going to hand the call over to John.
JOHN CLIMAX, EXECUTIVE CHAIRMAN, ICON: Thank you, Ciaran. Good day, ladies and gentlemen. We are very pleased to report another excellent performance by ICON in quarter one 2008.
The group's net revenue grew 48% from $136.1 million in quarter one last year to $201.3 million, exceeding $200 million a quarter for the first time. This is a significant milestone for ICON.
Excluding the impact of DOCS, the European contract clinical staffing business which was acquired in July 2007 and HCD, the U.S. Phase 1 unit which we acquired in February 2008, the organic growth rate was 40%. Excluding the impact of currency, the organic growth rate was 36%.
Operating income for the quarter after taking SFAS compensation charge of $1.3 million was $21.5 million representing a 46.4% increase over the same quarter last year.
Group operating margin for the quarter was 10.7% compared to 10.8% in the same quarter last year. However, excluding currency impact, margin would have been 12%.
The margin in our clinical business for the quarter was 11% compared to 11.3% in the same quarter last year. As a consequence of our rapid growth, we continue to invest in infrastructure, management and resources. Nonetheless, were it not for currency factors, margins would have been 12.4%.
The Central Laboratories revenue grew by 19.7% to $16.4 million and achieved operating margin of 7.5% compared with 6% for the same quarter last year.
Net business wins in the quarter were $27.1 million, representing a book-to-bill of 1.7. We are very pleased with the progress being made and are continuing to invest in this division.
Group net income rose to $16.9 million from $12.3 million last year, representing 37.7% growth. EPS grew from $0.42 per share to $0.56 per share, a 33.3% increase. The effective tax rate for the quarter was 19.8%.
DSOs at the end of March were 67 days compared to 66 days at the end of December 2007. The exceptional quarter-on-quarter gross revenue growth of 18% required significant investment in working capital, and as a result, cash flow used in operating activities was $12.3 million in the quarter.
In addition, we invested $16.5 million on capital expenditure, which is related to the continuing expansion of our global infrastructure in line with our growth. And we acquired HCD, a Phase 1 unit based in San Antonio for $11 million.
At 31st March, the company's net debt amounted to $20.2 million compared to net cash of $23.8 million at December 31, 2007.
Gross business award for the quarter was $440 million. Cancellations were $71 million or 16% of gross awards. Accordingly, net business wins were a record $369 million compared with $223 million in the same quarter last year. This represents an increase in net awards of 65% and a strong book-to-bill of 1.8.
As a result our total backlog at the end of March was $1.49 billion, a 54% increase over last year. Of this backlog we expect $690 million to be earned in the next four quarters, a coverage of approximately 82% of expected revenues.
As a result of this high level of coverage, we are revising our guidance. We now expect revenues for 2008 to be in the range of $840 million to $860 million, which brings our coverage ratio for the next four quarters back to 76%. We expect EPS for 2008 in the range of $2.35 to $2.45.
Quarter one represents an excellent start to 2008. RFP flows continue to be strong and we had record level of business awarded in the first quarter.
During the quarter we passed a further milestone, exceeding 6,000 staff for the first time. I would like to thank every one of our people in our 68 offices in 36 countries for their magnificent contribution to our continuing success.
Can we now have the first question please?
OPERATOR: (OPERATOR INSTRUCTIONS) The first question comes through from the line of Ian Hunter from Goodbody Stockbrokers. Please go ahead.
IAN HUNTER, ANALYST, GOODBODY STOCKBROKERS: Good afternoon, gentlemen. I was just wondering to what extent contracts are priced and/or won in euros, dollars and pounds. I can remember in the past you said most of it was in dollars and I was just wondering what the FX effect might be on the net new business wins that you have this quarter. And also maybe an idea of the operational exposure to the change effect, the currency exchange rates as they are now. I was just thinking of the euro exposure with the HQ here and your European operations.
CIARAN MURRAY: I'm trying to decipher the second part of your question, Ian, but let me address your first one first, which is around the currencies in which contracts are denominated.
As we indicated at the time of our guidance back in December, I think because of the globalization of clinical research, a significant number of our contracts are U.S. dollar denominated even though a significant proportion of the work is to be executed outside of the United States. And that is one of the headwinds that we I think identified as a risk when we were giving guidance, and that one of the headwinds that had impacted on us in the first quarter and has held back margins a little bit. …