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Icon PLC  (NASDAQ:ICLR)
Q4 2018 Earnings Conference Call
Feb. 21, 2019, 7:30 p.m. ET

Contents:

Prepared Remarks:

Operator

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. (Operator Instructions) 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

Jonathan Curtain -- Vice President, Corporate Finance and Investor Relations

Thank you, Julia. Good day, ladies and gentlemen. Thank you for joining us on this call covering the quarter and full year ended December 31, 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 dated -- headed, Consolidated -- Condensed Consolidated Statements of Operations of U.S. GAAP Unaudited. While non-GAAP financial measures are not superior to or a substitute for its 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 we'd 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.

Brendan Brennan -- Chief Financial Officer

Thank you, Jonathan. As a reminder, from 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 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 times.

Full year gross business wins, excluding the impact of ASC 606 were $2.9 billion and cancellations were up $0.5 billion, 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 represents -- this represented 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 compares 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 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 and operating margin of 21.1%. This compared to 20.7% last quarter and 19.7% from 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-on-year increase of 14.2%.

DSO as at December 31, 2018 on a 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 31, 2018, the Company had net cash of $106.5 million compared to net cash of $142.3 million at September 30, 2018, and net cash of $11.6 million at December 31, 2017.

As a reminder, I have delved with the new revenue standards. Steve will focus his 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.

Steve Cutler -- Chief Executive Officer

Thank you, Brendan, and good morning or good afternoon to everyone. 2018 was another strong year for ICON, and we made excellent progress in a number of key areas. Core industry fundamentals continue to drive growth in the CRO market. RFP budget remained robust. Biotech funding levels hit record highs in 2018. And the FDA continue to play their part setting 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 times. 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. And 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. And 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 while 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 quarter four 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 continued to benefit from our commitment to invest in innovation and partnerships. We remained strongly focus 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 One Search 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 One Search 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 One Search, our partnerships with leading edge organizations including TriNetX, EHR4CR, Transmit (ph) 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 Transmit 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 Health Care Alliances. Our medium-term goal is to more than double recruitment rates at halved 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 a 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 employees 87 professionals from two laboratories in Portland, Oregon and Cambridge, Massachusetts. This acquisition enhances our laboratory offering in molecular diagnostic tests, a key area in oncology research and also brings to ICON expanded testing platforms, including next-generation sequencing and immunohistochemistry.

MolecularMD services also include companion diagnostics 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 1 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 make -- 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're now ready for questions.

Questions and Answers:

Operator

Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) The first question comes from the line of Dan Leonard from Deutsche Bank. Your line is open. Please go ahead.

Daniel Leonard -- Deutsche Bank -- Analyst

Thank you. So my first question, I was hoping, Steve, you could comment on -- congrats on the acquisition of MolecularMD. I was hoping you can comment on the acquisition funnel as you see it through the balance of the year.

Steve Cutler -- Chief Executive Officer

Sure, Dan. There are a number of things that we're looking at, that we continue to apply the usual discipline in terms of what we're going to pay and how they come in and fill gaps within the portfolio that we have. So, 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, that's because of the volatility around the share market or volatility in the macro environment going forward. So, we're optimistic that we can move forward in a couple of areas over the course of the next, but realistically couple of years, certainly this year. So, we feel that there are some good opportunities in the pipeline and that we are able -- we're going to be able to execute on them effectively.

Daniel Leonard -- Deutsche Bank -- Analyst

And 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?

Steve Cutler -- Chief Executive Officer

We're a pharma services group, Dan. So, we're really just getting on board with that -- with MolecularMD at the moment. We're going through the whole integration plan and what they are working on. There are some areas that are little outside what we've traditionally been involved in. We can make an assessment and evaluation of those areas, see whether there is something we want to pursue and then we'll make some decisions on that over the next quarter or two.

So, 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 operations as well, because we do have, I believe, some strong move -- 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.

And with this diagnostic opportunity, with the genotype, 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. So, 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.

Daniel Leonard -- Deutsche Bank -- Analyst

Thanks for all the color.

Steve Cutler -- Chief Executive Officer

Okay.

Operator

Thank you. Your next question comes from the line of Ross Muken from Evercore ISI. Your line is open. Please go ahead.

Ross Muken -- Evercore ISI -- Analyst

Hey, guys and congrats on a good quarter. So, I guess, maybe a little bit of detail on sort of the non-Pfizer related bookings activity. Feels like market is 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 percentage 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.

Steve Cutler -- Chief Executive Officer

Yeah, 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 is very positive. So, we've seen continued progress I think in that market. To relate that to the biotech market, not just the biotech market but the mid-sized market as well. We've done well, I believe, we won more than our fair share in that market. 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.

So, 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 market space, but large pharmas also contributed significantly as well. So overall, I think we're in a good market environment. We do recognize and 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. And we expect that that's not going to change in anytime soon. But we also see that we have to continue to win work right across a spectrum of customers and that's what we're focused on doing.

Ross Muken -- Evercore ISI -- Analyst

And 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?

Steve Cutler -- Chief Executive Officer

I'm not sure I'd put the two things together. We're very pleased to reup 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, very strong working relationship that we have with our colleagues in 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 and 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, and that's the way we will continue to press. So 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. And that's the way I think, well, I'd characterize any progress we'd like to talk on.

Ross Muken -- Evercore ISI -- Analyst

Great. Thank you so much.

Operator

Thank you. Your next question comes from the line of Robert Jones from Goldman Sachs. Your line is open. Please go ahead.

Jack Rogoff -- Goldman Sachs -- Analyst

Great. Thanks for taking my question. This is Jack Rogoff on for Bob. So it's encouraging to see backlog conversion stabilized in the quarter. Would you say you've reached the bottom yet? And 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?

Brendan Brennan -- Chief Financial Officer

Hi, Jack, it's Brendan here. Yeah. We are 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 kind of going into a year that you're in the -- at the absolute bottom. Certainly, we're going to -- we've stopped that in the past remaining in the 9%s and that being a focus for the organization. So we're going to work hard as we go to 2019 to ensure that that happens. But in absolute terms, a lot of these business, we're seeing now is three years and four years in duration and automatically that's lower than 9% on a quarterly basis. So the focus of the organization is very much to work on start-up 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 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 that's working well. And as you said, it's a faster burn portfolio, but 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. But the focus will still certainly be on our start-up processes in our large Phase II to III business.

Jack Rogoff -- Goldman Sachs -- Analyst

Got it. Thanks.

Operator

Thank you. (Operator Instructions) The next question comes from the line of Donald Hooker from KeyBanc. Your line is open. Please go ahead.

Donald Hooker -- KeyBanc Capital Markets Inc -- Analyst

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?

Brendan Brennan -- Chief Financial Officer

Well, we're not going to forecast the impact in the next Qs filing anyway, Don. But it's going to end up ballpark about $40 million.

Donald Hooker -- KeyBanc Capital Markets Inc -- Analyst

Okay. $40 million. And then the revenues and EBITDA that we should assume from that?

Brendan Brennan -- Chief Financial Officer

Revenues, I think, again, I would say, it's a strategic acquisition. So it's about a half of 1% of our revenue. So, it's contemplated in the guidance we put out there back when we issued our guidance in January. As Steve said, we signed this in-test (ph) deal in January as well. So it's all in there in the guidance.

Donald Hooker -- KeyBanc Capital Markets Inc -- Analyst

Got you. Yeah. I thought it was small. I just wanted to make sure. And then the -- you mentioned a partnership with Transmit, and 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?

Steve Cutler -- Chief Executive Officer

Yeah. Transmit, they're more focused, Don, on the oncology space. As I mentioned, they have around 2 million patient lives at around 120 oncology sites. So the partnership is really an alliance. 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 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. And their organization has come to life. They seem to have some interesting very useful technology, as I said, particularly in the oncology space, which is around about 45% of our backlog. So we're always looking to find ways of improving the burns, the recruitment rates in oncology. And Transmit, the relationship that gives us that opportunity.

Donald Hooker -- KeyBanc Capital Markets Inc -- Analyst

Thank you so much.

Operator

Thank you. And your next question comes from the line of Erin Wright from Credit Suisse. Your line is open. Please go ahead.

Erin Wright -- Credit Suisse -- Analyst

Great. Thanks. A follow-up to that last question. You spoke a little bit more in your prepared remarks around the HR data, 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? And can you remind us of your overall data strategy as it stands today? Thanks.

Steve Cutler -- Chief Executive Officer

Yeah. I think, Erin, certainly data is very important for us. But 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. It's not just the data. It's around patients -- directly with patients and engaging them. And it's around the sites where at the moment, most of the patients they're coming to clinical trials and are engaged. So we don't think of it as just data. All our data is very important. We think of it as patients, sites and data. And our strategy is integrated to reflect those three very important areas.

So 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 Transmit, EHR4CR and TriNetX is helping us to facilitate all of those good things. But then we need to engage those sites and that's through our PMG network and our Health Care Alliances. And 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.

And on the PMG network we've seen something like 50% or 60% increase in the number of patients coming into that network. So we've been able to attract patients into that network at a significantly increased rate over the past 12 months or so. So we're seeing some really good traction at those sites, the PMG sites and the Health Care Alliance sites, particularly through the work the sites are doing, but also through the facilitation that's being created by the data sources.

And then 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 database to patient and build direct contact with patients because we're increasingly going forward, we see that as a very important way to improve the way in which we do clinical trials. And, of course, as we move toward virtual trials, the engagement directly with the patient will be even more important. So, I hope that gives you a flavor a little bit of how we're integrating patients, sites and data as we go forward in terms of our strategy.

Erin Wright -- Credit Suisse -- Analyst

That's great. Thanks. And then what are you seeing in terms of the overall pricing environment across the industry that you continue to be relatively rational or more aggressive? And 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 growth margin trend as we head into 2019? Thanks.

Steve Cutler -- Chief Executive Officer

Sure. I think we'd characterize the pricing as being typically competitive. The pricing environment in our industry is always competitive. So, I think, I wouldn't say anything else. It's not ridiculous. It's not cutthroat. It's not -- we've not heard any road players out there at the moment. But we remain very focused on pricing our services in a highly competitive way, giving our customers best value. And 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're able to improve our efficiencies on an annual basis such that we can maintain that gross margin level. And we've shown, I think, we've been able to do that. And 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. So, 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 -- or wage pressure that comes through in our services businesses.

Erin Wright -- Credit Suisse -- Analyst

Okay, great. Thank you.

Operator

Thank you. (Operator Instructions) The next question comes from the line of Jack Meehan from Barclays. Your line is open. Please go ahead.

Jack Meehan -- Barclays Capital -- Analyst

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? And 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 on an annual basis moving forward? How is that going to work?

Steve Cutler -- Chief Executive Officer

Jack, there were no changes to the structure. There was no changes to the pricing. It was very a 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 the new agreement or even with the extension. So, 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. But they didn't have the option to go further two years and we're very happy with the approach, it's been taken and we're very happy with the relationship that we have with Pfizer.

Jack Meehan -- Barclays Capital -- Analyst

Great, thanks. And then, Brendan, I had one follow-up on the DSOs in the quarter were, I think up eight year-over-year to 57. I know there has been some changes with ASC 605 to 606, but if I look at the cash flow forecast, it's a little below our adjusted net income forecast. So just what's going on, on the receivables line? And anything to point out in terms of the free cash flow forecast?

Brendan Brennan -- Chief Financial Officer

Yeah, no. It was a -- 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 and that was particularly, I suppose, the number of some of our larger customers are now -- have moved toward more of a unitized billing modality. And that does take longer for the cash 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 the space. So, if I go back a number of years, Jack, you probably would have been seeing credit terms of 40 to 60 days. Now, you're as likely to see credit terms of 90 to 120 days. So 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 bit us 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. But those credit terms are there. They're not going away. And we're going to have to work proactively to make sure that we're getting the cash in on a quarterly basis. But certainly the big pieces were probably, as some of our largest customers moving to that unit-size model during the course of the year.

Jack Meehan -- Barclays Capital -- Analyst

Make sense. Thanks, Brendan.

Operator

Thank you. The next question comes from the line of David Windley from Jefferies. Your line is open. Please go ahead.

David Windley -- Jefferies LLC -- Analyst

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 kind of 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. Maybe you could clarify that? And then how have -- we're almost two full months into the year. What's the RFP volume look like in the -- excuse me, the early months of 2019?

Steve Cutler -- Chief Executive Officer

Okay. Let me try the first one, Dave. We -- I don't think we were saying that biotech dollars have flattened out. What I think we were trying to give you some indications, we don't think that the incredibly positive biotech funding environment would continue forever. That was the message we were trying to put across and that's a logical message, I think. No one makes these sorts of things.

We've seen certainly the biotech dollars on all quarter-to-quarter basis, at least at quarter three -- sorry, quarter four 2017 to quarter four 2018 basis go up significantly. We've seen it across 2017, 2018 the biotech dollars RFP was -- have gone up significantly. We're talking double digits, mid-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. So, we've seen very solid increases in our RFP opportunities dollar-wise. However, you may view it year-to-year relative quarter to relative quarter on a year-to-year basis. And that's been very positive for us. We've I think been successful in terms of the win rates. Our win rates have been solid, helped us to drive to record growth wins and record debt wins. So, all very positive from that.

However, as I -- and I'll say it again, we continue to have to work right across the market. We're not relying on biotech dollars. We continue to focus very much in the large pharma space and the mid-pharma space because we believe, obviously, in the longer-term you need to be very effective right across the statements of the market and that's what we're planning to do.

Second question was...

David Windley -- Jefferies LLC -- Analyst

Early read on RFPs in one month this year?

Steve Cutler -- Chief Executive Officer

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. So, we haven't put down -- I mean, it's early in the half or through the quarter. So I'm sorry, it's a little early to give any sort of read on what's happening in 2019.

David Windley -- Jefferies LLC -- Analyst

No problem. Maybe as a follow-up, just 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. If we -- I'm sure there surrounding in there, but if we use the concentration metrics that you provide and your 2% to 5% have been kind of consistent, 20%-ish year-over-year growers.

The 6-and-down was a very strong kind of group of performers in the first half of the year and then it's kind of moderated back down. Could you talk about maybe is there some shifting among these groups? Where your focus is? Where you think kind of the next wave of growth might come? Is Pfizer poised to kind of maintain a higher level for example? Or should we expect that 6% to 25% is actually kind of an area of next -- kind of next big growers?

Steve Cutler -- Chief Executive Officer

Yeah. I mean, I'm not sure I've analyzed it quite in that way, Dave, so it's all -- but I can give 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 that settled in at around $200 million, I think I've said $200 million to $225 million to $250-maybe million a quarter -- sorry, not quarter, a year. That was a Freudian slip. So at around about the 50% to 60% per quarter is the way we'd see it. And it was a little higher than that this quarter, but I think that's more just the way some projects were planning out.

In terms of the 6% to 10%s, yeah, we certainly see us gaining some traction in that sort of mid-sized, mid- to large-sized pharma company. And we've made some nice progress in that area over the last 12 months or so. And I think some of those companies will start to come through for us more in the revenue line. It will take a little bit of time, but we made, as I say, some good progress in that space. So, I think it's a little early to make the call, but we see some opportunity in that sort of large mid-sized, I'll call it, sort of space. And some traction with our business development, with our partnership offerings, with our technology and with our strategy and that's an area that we're certainly very optimistic about going forward.

David Windley -- Jefferies LLC -- Analyst

Okay, great. Thank you.

Operator

Thank you. And the next question comes from the line of Tycho Peterson from J.P. Morgan. Your line is open. Please go ahead.

Tejas Savant -- J.P. Morgan Chase & Co. -- Analyst

Hey. This is Tejas on for Tycho. Thanks for taking the questions. So my first question, Steve, would be around fixed price contracts. I mean, you've spoken in the past that one of your key differentiators is having the financial flexibility to offer that contract structure. How much uptick have you seen for that? I mean, has there been a noticeable pickup in that uptick over the last year or so?

And then, 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 start-up times to offset that mix shift?

Steve Cutler -- Chief Executive Officer

Sure. Let me take the fixed price. 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, some of that -- they may not have the financial stability and viability to be able to do it. But I think half a dozen 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 most -- being applicable to the particular circumstance and a particular project and a particular customer, various things that we take into consideration, of course. But, no, I don't think there has been sort of any 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 are, obviously, focused with a number of initiatives our site and patient data strategy, but particularly our start-up approach. We're focusing on our site ID, using our One Search 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.

So there is a number of initiatives I can talk for days about. There's a number of initiatives going on in the start-up 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, running over -- I used to think of a trial as running over 2.5 years. These days that number is becoming more like 3.5 years and can be even longer than that. So 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 shorter -- gets longer. And so, it's -- as I said, there's a number of puts and calls here. We're working hard to improve our operations to get us that study 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. So 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.

Tejas Savant -- J.P. Morgan Chase & Co. -- Analyst

Got it. And 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? And 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 diagnostics assays once the drug is commercialized?

Steve Cutler -- Chief Executive Officer

Yeah. 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 & Early Phase Services group is in the midst of looking at the whole integration of that business. And 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. And I talked about that CAR-T and our cell-based project expertise in the first-mover advantage we believe we have in that space and how that could be applied. Some of the companion diagnostics 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. So, as I say, that evaluation is ongoing and we'll take another probably three to six months I think to happen.

Tejas Savant -- J.P. Morgan Chase & Co. -- Analyst

Got it. Thanks so much.

Steve Cutler -- Chief Executive Officer

Okay. Good.

Operator

Thank you. The next question comes from the line of Juan Avendano from Bank of America. Your line is open. Please go ahead.

Juan Avendano -- Bank of America Merrill Lynch -- Analyst

Hi. Thank you. Regarding your net new business growth and wins. I know you've been having 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. So, is there -- so 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 was given your current capacity. What could make it go higher?

Steve Cutler -- Chief Executive Officer

Yeah. I don't think we're bumping up against any particular capacities limit, Juan. These things tend to go a little bit in bit and starts. We've invested some extra money this year in our business development and commercial groups. We've seen over the last couple of years, our gross wins go from the high $500 millions through the $600 millions and now we're well into the $700 millions. And so, from that point of view, our gross wins have gone forward. Cancellations aren't any more than that, have been over the last few. So, we've seen I think steady progress, albeit, we'd like to crack well through the $600 million. I believe that over the course of this year or next, we'll start to do that.

So, 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-sized companies because 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 are, in fact, probably more effectively.

And so, it's -- 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 and we're making good progress in that as well. So, as I say, there's no particular issue for us and we feel we're just going to -- the work we put into our backlog is well considered. We're fairly prudent in the way we do that. And so, essentially over the last 12 months, our contract-to-bill ratio has been pretty much the same as our book-to-bill ratio. So, I think that will 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.

Juan Avendano -- Bank of America Merrill Lynch -- Analyst

Okay. Thank you. And then 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 on -- in the prior year. So, 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 in this around high-single-digit organic growth on a normalized basis going forward? And what are the puts and takes? What do you rely on in order to get there? Will backlog conversion improve?

Steve Cutler -- Chief Executive Officer

I think there's a number of things we're working on. I mean, 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. So, yeah, 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.

And I think we have a developing strategy and a machine -- an operational machine that can improve on our operational excellence, the strategic initiative we have in that respect can improve on our backlog burn. And we've seen -- as I say, we've leveled out on that. I believe we can make some improvements on that over the longer-term. So, I remain confident that the guidance we gave at our Investor Day back in September is still on a par. You've seen in our guidance for 2019, we've reiterated that. Certainly, on an EPS basis, we're very confident that that's very achievable. So, I think we're in a good place, Juan.

Juan Avendano -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

Thank you. The next question comes from the line of Sandy Draper from SunTrust. Your line is open. Please go ahead.

Alexander Yearley Draper -- SunTrust Robinson Humphrey, Inc. -- Analyst

Thanks very much. Most of my questions have been asked and answered at this point. Maybe just a follow-up on Pfizer. If you're thinking about a member of when these guys were over pushing 30% or wherever they peaked out. And Steve you made a comment that both you and Pfizer were sort of uncomfortable with that level of concentration is I believe it was Dave pointed out you've finally seen a rebound. You're seeing some sequential growth, year-over-year growth. Is there -- you renewed your agreement, is there still a philosophy whether it relates Pfizer or anybody else, there is a limit you would want a single customer to be and you don't want to go back to a customer concentration? Or whether if it's Pfizer or somebody else, if someone wants to start give you ton more business, are you willing to take that on? This is more of a philosophical question than it is specific to -- is Pfizer going to get there? Thanks.

Steve Cutler -- Chief Executive Officer

Okay. Thanks, Sandy, for that one. We're not in the business of turning away customers who want to give us business. So, 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 are a good paying customer, we are not going to turn away business from them.

Having said that, I think we would all certainly around this time prefer not to be in a situation where we had a customer at more than 25% or 30% of our net revenue. It's not a particularly comfortable place to be and although, of course, that business is typically a cost often 10s and sometimes 100 projects. And so, sometimes we get focused in on the potential for cancellations that rarely would that happen in such a large group of customer -- of projects that would make a material difference.

So, having said that, of course, we'll recognize what happened back in 2016 with bococizumab. So, when you have those sort of situations, it's really not so much the customer. It's the project or the program. And no matter how the customer could be a relatively small customer, but have a large program and if that program goes down, you potentially have some issues. So, 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 corporately with us.

Alexander Yearley Draper -- SunTrust Robinson Humphrey, Inc. -- Analyst

Got it. Appreciate the commentary. Congrats on your quarter.

Steve Cutler -- Chief Executive Officer

Thanks.

Brendan Brennan -- Chief Financial Officer

Thanks, Sandy.

Operator

Thank you. And your next question comes from the line of John Kreger from William Blair. Your line is open. Please go ahead.

Courtney Owens -- William Blair & Company LLC -- Analyst

Hi, guys. Good morning. This is Courtney Owens on for John Kreger. So, just a quick question, you've 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 kind of -- and I would imagine so but it's kind of been fully abated by this point. And what tools, I guess, if any are you guys utilizing to kind of mitigate any potential labor inflation that you guys will anticipate maybe coming back later on down the line if the labor market kind of tightens up a bit again? Thanks.

Steve Cutler -- Chief Executive Officer

Okay. Courtney, I think we've seen -- we see pockets of labor cost inflation around the world. And when that happens in the large areas such as United States or in larger countries in Europe, it's going to have a material impact on us. But 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. And so, there's always challenges with bringing people, but we've been able to mitigate a little bit of those just challenges through a new graduate program both in the United States and we've done that in China, in Japan, now for the last couple of years brought in new graduates and trained them up and we've been able to grow substantially and particularly up in China and Japan through that. And that helps us to bring in people at a relatively modest cost. Obviously, they -- their labor costs inflate fairly quickly as they become experienced within our business, but we are usually able to watch that and mitigate that and to manage that fairly carefully, but that's one of the things we've done.

So I would point to places like China, some of the countries in Asia, a little pockets in the United States occasionally. But 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. I think within our clinical group and our CRA group, we have that group in a good place as well. So, overall, we feel that's being well managed by our operations team.

Courtney Owens -- William Blair & Company LLC -- Analyst

Great. Thanks, guys.

Operator

Thank you. And the next question comes from the line of Daniel Brennan from UBS. Your line is open. Please go ahead.

Daniel Brennan -- UBS -- Analyst

Great. Thank you. Thanks for taking the questions. Could you discuss revenue trend I know there were several questions on different size customers and trends you're seeing. But for your smaller customers namely those 25 and below, it look like revenues declined this quarter year-over-year for the first time in a while. So I'm just wondering what you are seeing from that kind of smaller customer base?

Steve Cutler -- Chief Executive Officer

I haven't got that information to hand, Daniel. So, I'm not sure I can make sort of a comment on -- was it customers 25 and below? Can you able to answer that?

Brendan Brennan -- Chief Financial Officer

I think really it's -- when the customers and the project sizes get that smaller it's just ebbs and flows depending on the actual projects and where the projects are. So, sometime you can see spikes on that because of relatively small movements in the dollar terms. So, I'm not sure there's anything thematically done, 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 at the marketplace.

Daniel Brennan -- UBS -- Analyst

Got it. Okay. And then maybe I know there was -- 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. But maybe could you just assess a little bit in terms of the existing capabilities what you have today? And is it really just execution right now, or are you looking to fill in any further capabilities whether it'd be more data assets or partnerships? Thank you.

Steve Cutler -- Chief Executive Officer

Sure. Well, I mean, I'll certainly start. We have our patient site and data strategy around our sites. Of course, we have our PMG and our Health Care Alliance networks and that's well established. We're certainly looking to expand that out. We have -- I think someone asked a question about opportunities in the M&A pipeline. We continue to assess the opportunities in that pipeline with respect to those sites and replicating what we believe is being a very successful or continues to be a successful PMG network strategy in other parts of the world, particularly Europe. So, 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 not. 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, because it's the analytics I think that is -- that we believe is the most important. So, the access to the data, we believe is something that we can achieve through other means. So 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. But the analytics side of things is something we keep an open mind for.

And then 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, but there are also areas there that we want to build out in terms of our strategy. So our strategy while I would say is nicely put together, we're still evolving in terms of filling in the gaps in terms of the capabilities to actually prosecute and execute that strategy as effectively as possible. So I believe we're making good progress with it, Dan, but there's certainly more to do there and more -- certainly more opportunity. But as I say, increasingly we're seeing patients come through into our trials through these sites and through our data -- using our data strategy, and that's -- I think that's gratifying to see. I think lets us know that we're on the right track.

Daniel Brennan -- UBS -- Analyst

Great. Thank you.

Operator

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.

Steve Cutler -- Chief Executive Officer

So thank you, everyone, for listening in today. We're very pleased with the continued progress ICON's made in 2018. And 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.

Operator

Ladies and gentlemen, that does conclude your conference for today. Thank you for participating. You may now disconnect.

Duration: 63 minutes

Call participants:

Jonathan Curtain -- Vice President, Corporate Finance and Investor Relations

Brendan Brennan -- Chief Financial Officer

Steve Cutler -- Chief Executive Officer

Daniel Leonard -- Deutsche Bank -- Analyst

Ross Muken -- Evercore ISI -- Analyst

Jack Rogoff -- Goldman Sachs -- Analyst

Donald Hooker -- KeyBanc Capital Markets Inc -- Analyst

Erin Wright -- Credit Suisse -- Analyst

Jack Meehan -- Barclays Capital -- Analyst

David Windley -- Jefferies LLC -- Analyst

Tejas Savant -- J.P. Morgan Chase & Co. -- Analyst

Juan Avendano -- Bank of America Merrill Lynch -- Analyst

Alexander Yearley Draper -- SunTrust Robinson Humphrey, Inc. -- Analyst

Courtney Owens -- William Blair & Company LLC -- Analyst

Daniel Brennan -- UBS -- Analyst

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