ICON (ICLR) Q1 2019 Earnings Call Transcript

ICON (ICLR 2.86%)
Q1 2019 Earnings Call
May. 02, 2019, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Jonathan Curtain

Good day, ladies and gentlemen. Thank you for joining us on this call covering the quarter ended March 31, 2019. Also on the call today, we have our CEO, Dr. Steve Cutler; our CFO, Mr.

Brendan Brennan. I would like to note that this call is webcast, and 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. The presentation includes selected non-GAAP financial measures. 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. [Operator instructions] I would now like to hand over the call to our CFO, Mr.

Brendan Brennan.

Brendan Brennan -- Chief Financial Officer

Thank you, Jonathan. From January 1, 2018, the revenue recognition standard, ASC 606, became effective for ICON. Consequently, current and prior-year period comments made by both Steve and I incorporate the impact of this revenue standard. From this quarter going forward, all business win and backlog-related financial measures will comprise of both direct fee and pass-through components.

Quarter one, we achieved gross-business wins of $1.04 billion and recorded $156 million worth of cancellations. Consequently, the net awards in the quarter were $885 million, resulting in a strong net book to bill of 1.31. With the addition of these new awards, our backlog grew to $7.9 billion. This represents a year-on-year increase of 10.5%.

Our top customer represents 9.1% of this backlog, down from 12.2% at March 31, 2018. Revenue in quarter one was $674.9 million. This represents year-on-year growth of 8.8% or 11.1% on a constant-currency basis. On a constant dollar organic basis, year-on-year revenue growth was 10.6%.

For the quarter, our top customer represented 14.8% of revenue, compared to 10.6% in the prior year. We expect revenue concentration from our top customer to remain in line with our previously stated guidance of 11% to 13% of revenue for the full year. [Inaudible], our top customer on a trailing 12-month basis remained robust. Our top five customers represented 39.9%, compared to 37.1% last year, our top 10 represented 53.1%, compared to 53% last year, while our top 25 customers represented 71.6%, compared to 71.9% last year.

Gross margin for the quarter was 29.5%, compared to 29.4% in quarter four and 30.6% in the comparable quarter last year. We continue to leverage our goal of business support model. And as a result, SG&A was 12.1% of revenue in the quarter. This compared to 12.2% last quarter and 13% in the comparable period last year.

Operating income for the quarter was $101.9 million, a margin of 15.1%. This compared to 15% last quarter and 14.8% in the comparable quarter last year. The net interest expense for the quarter was $1.6 million, and the effective tax rate was 12%. Net income for the quarter was $88.3 million, a margin of 13.1%, equating to diluted earnings per share of $1.63.

This compares to earnings per share of $1.62 in quarter four and at $1.42 in the comparable quarter last year, an increase of 14.8%. On a comparative non-GAAP basis, day sales outstanding were 59 days at March 31, 2019, with 57 days at the end of December 2018. Cash generated from operating activities for the quarter was $94.6 million. During the quarter, the group completed the purchase of MolecularMD for $42.3 million with capital expenditure of $7 million, and $25 million worth of stock was repurchased at an average price of $124.84.

At March 31, 2019 the company had net cash of $128.6 million, compared to net cash of $106.5 million at December 31, 2018, and net cash of $4.6 million at March 31, 2018. 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 day to everyone. Quarter one was another positive quarter for ICON and an encouraging start to 2019. The strong market demand for CRO services seen in 2018 has continued this year, and driven by our differentiated patient site and data strategy, operational quality and strong therapeutic capabilities, we continue to see an increased rate of opportunities over the last 12 months, resulting in robust business wins across all customer segments this quarter. In quarter one, we booked strong levels of gross and net awards of $1.04 billion and $885 million, representing book to bills of 1.54 and 1.31, respectively.

Consequently, we grew our backlog year over yearover-year by 11% to nearly $8 billion, with revenues expanding to $675 million on an 11% constant-currency basis. In addition to this growth, by continuing to focus on margin efficiencies and SG&A leverage, we increased our earnings per share by 15% from $1.42 last year to $1.63. Both new and existing customers are seeking to benefit from ICON's patient site and data solutions. This strategy increases the predictability and speed of enrollment while enhancing patient retention and improving data quality.

We continue to develop the potential of PMG and our healthcare alliances, and during the quarter, we successfully randomized 28% of ICON's U.S. patients through these networks, up from 25% in 2018. Furthermore, we see evidence that our PMG network and healthcare alliance sites provide an average recruitment benefit of 150% that of independent sites in the same trial. Recent data analysis of our trials has also shown that the use of our FIRECREST portal also improves patient screening and enrollment rates, as well as reducing data queries.

Metrics like this provide us with confidence, and there are significant long-term benefits to the strategy and we believe that further improvements in performance are likely. Moving forward, the expansion at our site network in North America and especially in Europe will be a key area of focus for us from an M&A perspective. In unison, the combination of ICON's data analytics expertise and access to research-grade patient data are helping us address complex clinical development challenges in the planning and implementation stages of trials. We continue to see the benefits of our innovative partnerships with TriNetX, Transmit and Practice Fusion.

Our access to patient recruits through Transmit continues to improve. The consortium now covers over 2.2 million lives across all disease areas, although oncology is a specific area of focus, with access to over 750,000 oncology patients, up from 500,000 last quarter. And they're heading to 1 million patients with 390 oncologists in over 200 healthcare locations, which include community practices, hospitals and academic medical centers. In addition, in early April, we saw the acquisition of EHR4CR by TriNetX, thus creating the world's largest clinical research network with more than 330 million patients.

In the same way the ICON was one of the adopters of TriNetX, we have also been involved in the creation and use of EHR4CR. And we are excited about the opportunities that leverage this combined platform going forward. These data sources used alongside our OneSearch data platform and in conjunction with our site network creates specific intangible benefits by helping to enhance engagement with sites, patients and healthcare providers, enrolling trials faster, reducing the number of nonperforming sites, improving data quality and increasing the predictability of success. All of this helps to take significant time and cost out of our customers' development programs.

Our cash flow and balance sheet remained strong and ready to be deployed as the right opportunities present. We remain focused on our string of pearls acquisition strategy, and in conjunction, we'll continue to look to repurchase stock opportunistically over the remainder of the year. During our quarter, we repurchased $25 million worth of shares at an average price of $124.84. And in quarter two to date, we have repurchased a further $7.6 million worth of shares at an average price of $129.91.

As we look forward with optimism, I want to take this opportunity to update our full-year guidance. We expect 2019 revenue to increase to a range of $2.76 billion to $2.84 billion, an increase of 6.3% to 9.4%; and earnings to increase to a range of $6.75 to $6.95, an increase of 10.8% to 14.1%. Before moving to Q&A, I'd like to thank the entire ICON team for all their hard work and commitment during the quarter. It was very pleasing to see that for the third consecutive year, ICON has been named as the top-ranked CRO in Forbes Magazine's America's Best Employers list for 2019.

I would also like to take this opportunity to mention all those who contributed toward ICON's success at the recent CRO Leadership Awards. Congratulations to all the recipient teams involved. Thank you, everyone, and we're now ready for questions.

Questions & Answers:

Operator

Thank you very much. [Operator instructions] The first question we have today comes from Juan Avendano from Bank of America. Please go ahead.

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

Hi. Thank you. Congratulations on the quarter and on the almost 11% organic revenue growth. I believe over the last three quarters that ICON has been actually the only large public clinical CRO to consistently deliver at least high single-digit organic growth.

I think there is always a lot of focus and market share speculations on the net book to bills. But I think that in organic revenue growth, that's where the rubber actually meets the road. So on this point, Steve, can you give us your thoughts on the net book-to-bill metrics now that you have also migrated toward, including pass-throughs? How subjective is net book-to-bill reporting? And what can we take from it reliably going forward?

Steve Cutler -- Chief Executive Officer

OK. Thanks, Juan, for the question. I think as we've been fairly vocal over, well, a number of years now around the inherent unreliability of the book-to-bill metrics and I could probably talk for days about that, I think including pass-through cost now probably makes that even worse, so makes it even more unreliable. So it's not a great metric, but it is a metric, of course, that the industry accepts and the industry uses.

We've reported ours at 1.31. We take a fairly conservative view on the book-to-bill metric. But we're also pleased with the way -- with what that's indicating in terms of the amount of work we've been able to win it on a direct fee net business win basis, we were up in sort of vicinity of sort of high single digits on a year-on-year basis. So we saw a nice increase in our direct fee basis.

So it's sort of taking out the pass-throughs. Now we're typically not reporting that or not going through that because we're asked now to report on a 606 basis, and that's what we tend to do. But our overall, I think, business development performance was very positive. We're very pleased with it.

We reported the 1.31. And although as I -- I think I've indicated that that is a metric that, I think, we can all poke some holes in it as we wish.

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

Got it. And a quick follow-up on that. I mean based on our channel checks, several of the larger CROs are gaining share, but this is primarily happening at the expense of the smaller private CROs. I think some people have the notion that a CRO share dynamics is essentially a zero-sum game, only among the top public four, five CROs.

So on this point, can you tell us explicitly whether ICON is at least maintaining or gaining share?

Steve Cutler -- Chief Executive Officer

I think without doubt, we're gaining share. I don't think there's any doubt in my mind that having posted solid book to bills now for the last six or eight quarters, we're well in advance of 1.25 and then 1.3. I think we're gaining share, and our revenue is starting to grow nicely. I think that's probably throughout the larger CROs, where probably we're gaining share mainly from the mid tier and smaller ones.

I think some of the partnership opportunities, if you look some of the more recent research, I think, we see the larger pharmas and the partnership opportunities really more -- almost always heading toward the larger CROs. And on that basis alone, I think we're gaining share. But I'm very confident that ICON is doing well in the market, particularly against the more midsize and smaller players.

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

All right. Thank you for the clarification.

Steve Cutler -- Chief Executive Officer

OK. Thanks, Juan.

Operator

Thank you very much. The next question today comes from the line of Robert Jones from Goldman Sachs. Please go ahead.

Robert Jones -- Goldman Sachs -- Analyst

Great. Thanks for the questions. I guess just on the revenue mix in the quarter, you guys highlighted clearly a bigger portion of growth, bigger portion of overall revenue from your largest client and what you guys had been trending at and probably what we were expecting. So just curious if you could talk about what drove that shift in the quarter? And I guess related to that, anything on the non-top client performance, obviously, conversely a little bit probably softer than what we were looking for.

And then as it relates to that mix just anything related to bookings if you saw a similar trend in bookings in the quarter, it'd be really helpful.

Steve Cutler -- Chief Executive Officer

Sure. Well, I think as you know, Robert, we certainly saw our top customer contribute very significantly to our quarterly growth. And that was really due to a number of programs, fast-learn programs that are ramping and applying very well at the moment. That's what's really driven that.

In terms of the revenue growth outside of our top customer, we tend to look back on a more 12-month basis. And if you look -- do that on a trailing 12-month basis, the revenue growth is still in the high single digits at around about 9%. So we still see it moving nicely forward. I think you can get -- don't want get too carried away with quarterly trends.

There can be fairly significant fluctuations within quarters when large programs move forward while other programs complete and finish. So really, I think it's looking at the longer trend, the trailing 12-month trend and avoiding the quarterly fluctuations that gives you a better picture. And we're very confident that the revenue outside of our top customer can continue to grow at the sort of trailing 12-month number that I quoted there. In terms of bookings, the bookings -- as -- well, let me just tell you.

As Brendan said in his comments, in terms of the backlog concentration, 9% for our top customer. We still see revenue staying within 11% to 13% for the ESO. I think what you'll see is it was a fairly -- it was a quarter where we had some couple of large programs really move forward fairly fast and that's what contributed to that. Bookings-wise, probably a little bit more like return normal service.

We got -- we had a reasonable level of bookings from our top customer, but it was more in line with the long-term concentration being at around 9% to 10% of our backlog. That's what we would -- that's how we would characterize it. So the revenue acceleration or revenue contribution was somewhat unusual in that. It was very much based on some large programs.

And we expect the programs and the customer growth outside of that top customer to continue and to accelerate going forward.

Robert Jones -- Goldman Sachs -- Analyst

Great. Thanks, Steve. Appreciate it.

Operator

Thank you very much. The next question today comes from the line of Ross Muken from Evercore. Please go ahead.

Ross Muken -- Evercore ISI -- Analsyt

Good afternoon, guys. So I guess maybe just on the cash flow generation and sort of maybe M&A pipeline front, you guys are now in a notable net cash position. I don't think your desire is to ultimately become a Irish bank. And so I know you've bought some stock, but M&A has, obviously, been relatively muted.

I guess what are you seeing in that environment? You, obviously, did a recent small transaction. Is there much consolidation happening? Are you seeing some interest maybe in data absence or on the site side. Just give us a flavor for maybe after what's been a somewhat quiet period even for you, can we see maybe a little bit of uptick in activity?

Steve Cutler -- Chief Executive Officer

Sure, Ross. As you correctly noted, we did close MolecularMD during the quarter. So that was a positive force. And we certainly see some more opportunities along those lines this year and in the reasonably near future.

And I certainly guys I alluded to in my comments to be around. Outside network, we're seeing some new good traction with that strategy, and we're anxious and hopeful to make some moves in that space within the next -- certainly within the next 12 months. But hopefully, a lot earlier than that. And then, as I said, from a string of pearls point of view, there are some other opportunities.

I think, it's the market in terms of M&A has opened up somewhat for the last sort of six months and we have a number of opportunities that are in discussion. They're in the pipeline so to speak, not ready, of course, to announce anything just yet. But we see certainly some -- a number of opportunities that fit nicely with our strategy of moving ourselves into the one or two position within the market segment as soon as we can and use the M&A to do that. And those opportunities are certainly out there.

So we expect to have some news in that area certainly over the next few months.

Ross Muken -- Evercore ISI -- Analsyt

And then quickly, just maybe on the revenue cadence, I don't think you broke out yet sort of the reimbursable versus the traditional business. I guess anything to be mindful of relative to how some of the pass-throughs, the cadence will work through the year? We've seen a number of players this quarter in the space kind of have mixed results, top line-wise, depending on sort of how pass-through timing comes out. Anything to be mindful of? Or do you think it will be a relatively straightforward year?

Brendan Brennan -- Chief Financial Officer

Hi, Ross. So it's Brendan here. I suppose -- well, the first thing I'd say is that you're looking at this is all around percentage completion now. All of these projects you need to look at how your total amount of hours in your projects.

So I think folks can get a bit overfocused on the investigator fee element of these projects. So you're looking at your total hours completed versus the total value of your project. So that's what -- that's how the math works. That's how the revenue recognition works.

And with that in mind, it should be around the normal activity on your project. If you could move that forward, you're going to have better percentage completion on that project and you're going to be able to recognize the revenues. So from my perspective, I think we have a couple of a little bit of getting used to this revenue standard. But the cadence should be more even possibly than we've seen in previous years given that we've moved away from that purely invoiced pass-through calls, more toward that total percentage completion on the contract.

So I would say that it should become more regularized and less seasonal as we continue on during the course of the year.

Ross Muken -- Evercore ISI -- Analsyt

Thanks a lot. Thank you.

Operator

Thank you very much. The next questioner today comes from the line of Stephen Baxter from Wolfe Research. Please go ahead.

Stephen Baxter -- Wolfe Research -- Analyst

Thanks for the question. Kind of a nuance one on the growth expanding on Robert's question a little bit. So if I took your top customer out of the top 25, the rest of the top 25 seems relatively flat year over yearover-year. And then it was really good growth coming from customers outside of the top 25.

So I know you don't want to get carried away with one quarter, but I was hoping if you could provide some insight into those trends and whether you might expect to see better growth in the rest of the top 25 throughout the balance of the year.

Steve Cutler -- Chief Executive Officer

I think on a trailing 12-month basis, yeah, the growth was slightly different. But I think it's still a pretty good number. On a trailing 12-month basis but not so much quarter to quarter. We see plenty of -- we won a lot of work from mid -- well, as I said, what customers for large pharma, midsized and the biotech.

And what we found is, certainly in the biotech segment some of those projects can start and can burn a bit faster. So to the extent that we've been able to be successful in that area, that will help out our growth outside of our top customer. And that's certainly I believe going to be the case as we go forward. So we feel optimistic and very positive about the growth given the revenue, given the backlog mix we have across large pharma, mid and biotechs.

And our ability to get those projects up and moving statement. It's a good environment. We feel very positive about it, very constructive about it. We have a number of initiatives.

Our patient site data strategy is really gaining some traction. So we believe we're in a good position to better prosecute those projects very well and get that revenue moving.

Stephen Baxter -- Wolfe Research -- Analyst

OK. Thanks. And as a quick follow-up, cancellations were a bit higher on a dollars basis during the quarter. Is that having to do with the incremental pass-through fees been associated with cancellations? Or were they up on sort of the core basis and if they were, I guess, how are you guys thinking about reflecting that in your guidance for the balance of the year?

Steve Cutler -- Chief Executive Officer

You just answered your own question. It's the first part of your answer, Stephen. The pass-through component of cancellations was what was really driving that dollar value on a dollar basis, without underlying increase in cancellation.

Operator

Thank you very much. The next question today comes from the line of Jack Meehan from Barclays. Please go ahead.

Jack Meehan -- Barclays -- Analyst

Hi. It's Jack. Can you hear me?

Steve Cutler -- Chief Executive Officer

Yeah, we can hear you.

Brendan Brennan -- Chief Financial Officer

We're glad we can. We were worried [Inaudible].

Jack Meehan -- Barclays -- Analyst

Something overseas with the connection. As a first question, Brendan, I was hoping you could just give us a little color on the gross-margin progression we should be looking for in 2019. And we've seen it come down throughout 2018. Do you think we can -- there's a path to getting back to closer to 30% or what are some of the investments that you're making on the hiring front?

Brendan Brennan -- Chief Financial Officer

Sure. Yeah. We've been active at the hiring front, obviously, in anticipation of the revenue growth that we've guided during the course of this call for the first quarter certainly. That has -- as you can see as well, sequentially, we are up a little bit from Q4 into Q1.

So we've managed to balance that hiring with the effective utilization of the organization to manage that. I think that, Jack, we're going to be in a similar ballpark is how I describe the margin profile. It might tip up a little bit or down a little bit from where we are, but I don't see any meaningful movements in percentage terms as we go through the course of this year. This is a growth year for us.

You've seen, I think, quite impressive revenue growth numbers. And so we're focused on really delivering that revenue growth and making sure that we have the investment in the organization and the headcount to be able to deliver that growth as we go through the remainder of the year. So yeah I think the margin profile, the gross-margin profile, certainly we're happy with in Q1, bit of an uptick from Q4 and similar ballpark as we go through the course of the year.

Jack Meehan -- Barclays -- Analyst

Great. And then, Steve, you talked a little bit in the opening comments about the expansion of the site network and leveraging that. Is there any additional color you can provide around where organically you might be putting some capex versus what some targets are that you might be looking for there?

Steve Cutler -- Chief Executive Officer

I think at this stage, Jack, we're focusing on really leveraging the page network that came into the PMG's setup last year. And making sure that we can access their capabilities, their capabilities. They are a significant network that give us oncology capabilities. And so we really want to make sure that we are investing.

And that it's not much capital investment is more allocating and hiring people to be at those sites and to make sure we're accessing those sites and not investigating and making easy as possible for them to part of our network and to contribute to our clinical trial. And that's the main focus. As I mentioned, on the M&A front, we're very focused in that area, and we're expecting and hoping to move forward on -- into some opportunities there in the foreseeable future, but that'll be the subject of our future discussions.

Jack Meehan -- Barclays -- Analyst

Understood. Thank you.

Operator

Thank you very much. The next question today comes from the line of Erin Wright from Credit Suisse. Please go ahead.

Erin Wright -- Credit Suisse -- Analyst

Great. Thanks. A couple of follow-ups to that. On the site network relationships, is this really emerging as a true kind of differentiator for you and driving kind of win rate? Is there any sort of metrics you could give us on that front? And you mentioned the investment kind of in that area.

Is this all through kind of acquisitions? Is there a small or large acquisitions? I'm just trying to get a sense of sort of size and magnitude of what you're even contemplating here. Thanks.

Brendan Brennan -- Chief Financial Officer

Sure, Erin. Let me take the first one. In terms of terms of a differentiator, I believe is it a differentiator, there are -- thing this is a multifactorial think. We talk about patient sites and data.

There's no one thing that we're doing that's a total differentiator, it's the combination of things. And I think I've said that a number of times on this call. It's how we integrate the approach to sites, the patients and, of course, to the data that applies to both of those groups and how we do that, the algorithms we use, the data sources we use, how effective we are at executing on those and starting, that's the sort of the secret sauce. There's no one individual component there.

And so we want to expand our site network. We want to be able to have more sites that we have people in that we can get absolute commitment from and get that additional, as I said, as I spoke about, that better performance from. But that's just one component of it. So the differentiation, as l said, comes from integration and the execution, the strong personal execution across those three components.

In terms of investment, you know yourself that there are not large transformational opportunities in the M&A field in this area. They tend to be smaller ones, and so we inevitably as we move forward, we tend to be looking at smaller sites, I mean smaller site networks and being able to bring those in and integrate them. DuPage is a good example. Anything else we do will also be relatively small and will be integrated within our PMG network.

So that's the sort of focus we're placing on it from a investment point of view. Obviously, geographically, it's probably the main difference. There we'd like to build a global network or certainly a network in North America and Europe. That would be our focus and use anything we found in Europe as a beachhead to build out further opportunities and possibly acquire further networks.

Erin Wright -- Credit Suisse -- Analyst

What sort of deal spend in dollars would you consider relatively small? Curious.

Steve Cutler -- Chief Executive Officer

I'll let Brendan have a go at that one.

Brendan Brennan -- Chief Financial Officer

In terms of -- sorry, is your question in terms of the revenue contribution or the compensation that we are --

Erin Wright -- Credit Suisse -- Analyst

Like deal spend, just in terms of incremental invested capital associated with acquisitions?

Brendan Brennan -- Chief Financial Officer

Incremental invested capital associated with acquisitions. So -- yeah, OK, I would say anything under $50 million of a consideration, I'll consider small from that perspective. If you're asking about what the additional capital consideration is post acquisition, we tend to spend a couple of million dollars usually on IT infrastructures to improve some of our acquisitions. I think that's what maybe you're getting at.

Erin Wright -- Credit Suisse -- Analyst

Yup. That's great. Thank you.

Operator

Thank you very much. The next question today comes from the line of Dan Leonard from Deutsche Bank. Please go ahead.

Dan Leonard -- Deutsche Bank -- Analyst

So thank you. One of your competitors this morning flagged increased cost consciousness at large pharma due to discussions in the media around Medicare for all drug pricing discussions, those types of things. Can you comment on what you're seeing -- are you seeing the headlines influence your large pharma customer base to any meaningful degree?

Steve Cutler -- Chief Executive Officer

Dan, I can't say that come up specifically. We will found out large pharma and there are small pharma customer's pretty cost-conscious quite frankly, no particularly news there. There've been under some pressure and I guess, potential pressure from a pricing point of view to some years now. So I can say it's a new.

But I don't think I would certainly wouldn't flag at. It's something because an additional consideration or something that's impacted on our pricing approaches or margins at this point.

Dan Leonard -- Deutsche Bank -- Analyst

OK. And just a quick follow-up, is it -- maybe I missed this earlier, but did you quantify the benefit from MolecularMD revenue, the contribution in the quarter? Or is it possible you could do that?

Brendan Brennan -- Chief Financial Officer

Well, I did call out, Dan, the organic and nonorganic numbers in terms of constant currency. So what we said was our absolute revenue growth year over yearover-year is 8.8%, constant currency, so including MMD with 11.1%. But excluding MMD on a similar or constant-currency basis, it was 10.6%. So in usual form, I'll let you guys do the hard work in coming up with the math.

Dan Leonard -- Deutsche Bank -- Analyst

I can solve that. Thank you.

Operator

Thank you very much. The next question today comes from the line of John Kreger from William Blair. Please go ahead.

John Kreger -- William Blair -- Analyst

Hi. Thanks very much. Steve, how is your DOCS staffing business going? Are you seeing that grow more or less than the consolidated numbers that you've given us today?

Steve Cutler -- Chief Executive Officer

John, I'd say on a trailing 12-month basis, that's -- certainly, the business is strong. Full -- fastest would be our two, three full-service business and our lab business, I would say. They -- those performed very well. The DOCS business made a very solid contribution to our overall business, but I would say the growth of it would be perhaps slightly below our two, three full-service business.

John Kreger -- William Blair -- Analyst

Great. Great. Thank you. And then you've talked about the site management business a lot.

Can you just sort of maybe clarify a bit more how that drives the traditional core CRO business? Is this access to patients? Is it access to data? Maybe it's all of the above. And when you affiliate with a site, do you continue to kind of offer them up to clients for projects where ICON isn't involved?

Steve Cutler -- Chief Executive Officer

Sure. So the site management business is really -- we really focus that around obviously our two, three business. To some extent, they're at early phase, but really, it's around two, three. It contributed in a number of ways.

One is in terms of starting upsides, the ability to -- we have MSAs. We have contracts with the sites. The ability to get the sites up and running is significantly faster. So we get more recruitment time at these sites.

They're also -- they also have their own staff so every patient who walks in the door is a candidate for a clinical trial and they disproportionately go into our trial. So as I said, we talk about our average, about 150%. So about a factor of 1.5 against the independent sites on the same trial. So they enroll faster.

They screen faster. We found evidence -- we were still collecting data, of course, but we found evidence that the quality, the number of queries that we have to answer is lower. And so the quality of the data is better. That also goes along with our FIRECREST portal as well.

It contributes there. So the site network, it's pretty simple, John. It comes up. They get up and running faster and they recruit faster.

And the quality of the data is generally better, in other words have less activity, less work required to clean the database. The PMG sites are available to other, particularly, pharma customers. That's the way it tends to work. But increasingly, we are taking the majority of their capacity.

I would say -- put it that way because we are preferentially placing trials there and getting that benefit. So while we don't say it's not -- you're not available to others, we do particularly focus, as I say, on our own trials and make sure we maximize the benefit for our two, three business.

John Kreger -- William Blair -- Analyst

Very helpful. Thanks. And Brendan, a question on your cost structure side. What are you seeing currently in terms of staff turnover? And are you seeing any pickup in wage inflation as you try to manage that? Thanks.

Brendan Brennan -- Chief Financial Officer

Thanks, John. We are seeing, I suppose -- we really are very good as an organization at staff retention. It's been pretty good consistent over the years. So I think we do a decent job there.

So we certainly haven't seen any out of the norm elevation in turnover, but there are always pockets of different staff elements where you need -- there's always a crunch in terms of -- in certain geographies. You'll always get in certain different roles. You'll always get an element of salary inflation. We manage it broadly as an organization.

We are 14,000 people across the world. So when you do see pockets of it, it is there just to add pockets and we still manage to manage our overall cost base. And we target somewhere to be in the region of 3% inflation on a salary basis on an annual basis. And that's what we managed to and have managed to manage to and continue to do that over the course of 2019.

John Kreger -- William Blair -- Analyst

Very good. Thank you.

Operator

Thank you very much. The next question today comes from the line of David Windley from Jefferies. Please go ahead.

David Windley -- Jefferies -- Analyst

Hi. Good morning. In the last -- I guess in the few months -- maybe think about year to date, your comment about demand trends particularly among smaller biotechs have, I think, fluctuated around maybe some modest slowing or softening, flattening but still a fairly robust environment. And Steve, I think your comments today sound fairly positive.

Should I interpret that as a continuation of a strong environment and, maybe overly interpreting the prior comments, still negative? Or has it, in fact, improved in recent weeks or months?

Steve Cutler -- Chief Executive Officer

Probably neither, Dave. I think we were -- we came out and we were -- basically, what we said was we didn't think the extraordinary funding environment was going to continue forever. That's what we said. And I don't -- I still think that's not -- that that will be the case.

Having said that, the environment continues to be strong. We've certainly felt it continuing to be strong and we benefited from that. And we still see very strong -- we see RFP values up in the biotech space certainly in the high single -- mid to high single digits. So that would indicate to us it's strong.

But I think increasingly, we should be a little careful about worrying about funding itself although, of course, that's important. But the fact is that there are a number of smaller and emerging biotech companies, yeah, that -- who are very well funded now, who have a lot of cash on their balance sheets and are ready to deploy that really over the next few years. And so I think overall, the environment for us as providers to those companies is a very solid one. The -- and importantly and I think it isn't something of a change in the clinical development landscape, we're seeing those companies want to take their products and their drugs right through to registration.

I think I saw something the other day about two-thirds of patents are filed by emerging biotech but they're now actually filing about half of those drugs. So we can all look back five, 10 years and say they'd go to proof-of-concept and then they'd sort of partner up or outsource or get out of it. These days, we see these companies with much greater ambition than that and wanting to take their compounds through. And as I said, their projects, we tend to have more ability to get involved with.

Our people enjoy working on those projects because they have more input in them, and they also tend to burn a bit faster as well because they award them, I suppose, later on when they're certain of funding and certain of the protocols. So I think the development landscape is changing with the biotech. As I said, a number of companies out there with a lot of money to spend, the funding environment is still positive. Now whether it's going to continue to raise money at the levels they've been raising over the last three, four, five years, I don't know.

But really, I'm not sure that that matters. It continues to be strong and they've got a lot of money to spend. So I think we're in for -- I think that way is going to continue for some time and we're certainly benefiting from that.

David Windley -- Jefferies -- Analyst

Appreciate that. A lot of perspective there. I want to pivot a little bit to some help on mix. I guess first of all, kind of on accounting, I think maybe midyear, earlier last year, we were getting used to 606, there was still an expectation that 2019 would see some provision of, like, the reimbursed costs in the P&L separate from service fee, direct cost.

And I'm not seeing that. So wondering if that's something that your auditors have told you not to do. And then kind of related that, how should we think about the mix of pass-through cost in bookings versus in revenue and how that's going to influence margin? Most of what I hear you say today is very smooth, like these metrics must not be changing very much, but it seems like they certainly have the potential to. So if you could help there, I'd appreciate it.

Brendan Brennan -- Chief Financial Officer

Yeah. I'll give it a crack, Dave, at those particular prayer points. I mean first off, when we think about revenue, the law of the land is 606, god knows. We didn't particularly want to go down this road, but that's the revenue number we have.

Splitting out pass-through cost was something we've discussed an awful lot in the organization. And we did feel that we needed to rip the bandage off and move to 606 revenue. And that's what we've done in terms of our book to backlog and booking as we go through the course of the year to stop the temptation of trying to fall back to the old revenue numbers. We decided that that was the correct force of action, and we did that as an organization.

So I wouldn't just put that down to the auditors. In terms of the mix of bookings, yeah, that's -- it's a solid question. We're very happy this quarter in terms of our mix, in terms of our pass-through and our direct fee elements that it can support the revenue forecast and indeed the revenue guidance that we put out today. So that's -- and it will be -- like any business wins, it will be not smooth.

It will be lumpy, but over the -- I suppose over a trailing 12-month period, some of that lumpiness should smooth out. So I imagine that as we see it and as we look at the past year, those lumps they might see from a quarter-to-quarter basis will probably smooth out in terms of the pass-through elements as we go through the year. Steve, do you want to add to that?

Steve Cutler -- Chief Executive Officer

I don't have anything else for that.

David Windley -- Jefferies -- Analyst

Yeah. Thanks. I'm not surprised Steve wants to stay away from 606. Thank you.

Steve Cutler -- Chief Executive Officer

I mean at the end of the day, Dave, we're complying with what the accounting standards are and we have to do that from an SEC point of view. So it is what it is. I'm sorry. We can -- we're as frustrated, we think, as you are sometimes, but that's the way it has to be.

Operator

Thank you very much. The next question today comes from the line of Tycho Peterson from J.P. Morgan. Please go ahead.

Unknown speaker

Hey, guys. This is Tejas on for Tycho. Thanks for taking the questions. Just to -- I'm sorry about this, but just to continue on that pass-through point, one of your peers this week called out a headwind in pass-throughs, which led to some sort of top-line headwind, but they actually pointed that as being a positive because it means there's more projects than the start-up phase.

So on that point, I just wanted to get a sense, if you're willing to provide it, just directionally, how are reimbursable expenses as a percent of total revenues trending for you over the last three to four quarters? Are they going up? Or are they going down? And is there anything meaningful to discern from that trend?

Brendan Brennan -- Chief Financial Officer

I don't think -- I mean coming right to the point, the proportions of our revenue, then you've seen it in the past that our pass-through represents -- have been fairly consistent. That's fairly consistent as an industry over time. So nothing has magically changed as we've moved into this. So those proportionalities have -- they really depend on the study and the number of investigator appointments that are during the course of the study.

So it's much more of a therapeutic mix. But as I say, if we -- if you assume consistent therapeutic mix, the percentage that we've seen as an industry are not dissimilar if you go back a couple of years and you compare different CROs. So again, there's nothing that -- you might see little movements from quarter to quarter, but over the longer term, I think this again smooths out of it.

Steve Cutler -- Chief Executive Officer

I think the other thing I'd add is while you have a greater preponderance of FSP work within a company, you're likely to have a lower proportion of pass-through cost but that -- and you know the company. You have large proportions of FSP work. You can work out what that could be. And as that flows through and as that -- I mean from a company-to-company basis, that would be different.

But really, it doesn't change too much, I think, if you -- on the -- in the fullness of time.

Unknown speaker

Got it. And then one quick follow-up for you, Brendan. DSO ticks up once again even versus the elevated levels last quarter. And I know you talked about sort of elongated cash collection and extended credit forms and so on.

Do you have any sort of perspective to share on how that metric will trend over the remainder of this year?

Brendan Brennan -- Chief Financial Officer

My CEO is telling me to say down. I -- we're certainly going to be working on decreasing that DSO as we go through the course of the year. We have a number of action items with certain of our customers. We have seen, as time has gone by, contractual terms elongating and also billing milestones being further apart as part of our contractual negotiations as well, both of which has -- have a negative impact on DSO.

But I think we're -- we did say that it may extend quite a lot last quarter. It didn't extend too much from where we were this quarter, two days obviously to the negative, but certainly, the focus is on moving that down during the course of 2019.

Steve Cutler -- Chief Executive Officer

And I think we were very pleased with the cash collection that happened during the quarter as well to offset that. So we do expect and we do -- we are planning and we do have a number of initiatives in place to move that DSO number down. Challenging, of course, that is, given the elongation of the projects that we have.

Operator

Thank you very much. The next question today comes from Eric Coldwell from Baird. Please go ahead.

Eric Coldwell -- Baird -- Analyst

Hello. Thank you. Nice job this quarter. I think you've been grilled sufficiently and I will cede the floor to someone. 

Brendan Brennan -- Chief Financial Officer

Thank you, Eric.

Steve Cutler -- Chief Executive Officer

Thanks, Eric.

Eric Coldwell -- Baird -- Analyst

Thanks, guys.

Operator

Thank you very much. [Operator instructions] The next question comes from the line of Sandy Draper from SunTrust. Please go ahead.

Sandy Draper -- SunTrust Robinson Humphrey -- Analyst

I'm not going to be quite as nice as Eric. I'm not going to grill you, but Steve, maybe -- look, a lot of focus on sort of near-term stuff. Maybe pull out your crystal ball. There's been a lot of talk -- or I've been hearing a lot of talk around AI, big data, etc., primarily from the technology vendors.

I'm just trying to get a sense from you. You guys have invested a lot of technology. You've got technology partners. When you think about the opportunity for AI and data, I mean to me, it seems like it's three to five, maybe five to 10 years out over that time period.

It's not going to happen in '19 and '20. But I'm just -- when you have conversations with your customers, are they sort of -- did they ever bring it up in sales? Did they talk about it and say, "Yes, we're going to do it in several years?" Or did something like that had to come from you guys? I'm just trying to think about how all of this is going to start to flow through the industry.

Steve Cutler -- Chief Executive Officer

Sure. Thanks, Sandy. I put it -- as I think you know and I think we've been fairly, fairly fulsome over the last, I suppose, six to 12 months, in terms of RPA, the robotic side of this, we're moving along a number of opportunities there or around our -- within our finance group, within our invoicing group, within our operations group. So that train has kind of left the station.

That's not AI. I understand that. But as I look at it, it's kind of the first step along that pathway. We then move into -- more on the machine learning side of things where we're starting to apply algorithms to data and we're starting to do that as we select sties.

We're doing -- we have a number of initiatives in that front and the AI stuff, where we're really taking data and looking at that and making conclusions that that's a world beyond just the sort of a machine-learning-type algorithm. I think -- I would certainly say it's several years away in terms of a really practical application. People will talk about it. People would say they're doing it, but I think it's more of an RPA and machine learning sort of approach than it is real AI, Sandy.

And so I think we're a little bit away to that. We certainly talk about it with our customers and they talk about what they're doing with it. There's a lot of talk and not a whole lot of action at the moment. We remain open to it and so in some of the partners.

In terms of the data companies we're looking at, we're looking at how we're looking at big data and what sort of algorithms we can apply and what sort of machine learning, RPA and AI-type approaches we can use. And it's really around prediction, looking at sites who's going to be able to recruit the best, who's going to be able to contribute the most, what sort of data quality are they and developing. And that's all fairly much in its early stages from our perspective. But we remain anxious to play with it, to look at opportunity because I certainly think that in three to five years' time, there'll be a lot of this around, but we're some way away, I would say, from real, practical application at this point.

Sandy Draper -- SunTrust Robinson Humphrey -- Analyst

OK. I appreciate it, Steve. Thanks.

Operator

Thank you very much. And the final question today comes from the line of Dan Brennan from UBS. Please go ahead.

Dan Brennan -- UBS -- Analyst

So Steve, I wanted to go back to -- Erin had a question earlier on your data strategy, where you spent a lot of time highlighting the site network and access to data assets and the impact on enrollments and things of that sort. Did you speak to, to what extent you're having success directly with this approach with clients, anything on win rates or anything of the sort?

Steve Cutler -- Chief Executive Officer

No. We didn't -- I didn't, yeah, specifically address that, Dan. There were certainly some -- a number of our customers who are -- who were very engaged in that -- in our approach on that front and have bought into that and we have been successful in selling projects and delivering projects, certainly increasing. We're now able to deliver projects in that space.

So as I said on my -- in my comments, we are getting significant engagement from customers. We've got, I think as you all appreciate, more to do in that area. We've been looking to develop that site network, but we are really, I believe, getting some strong traction on the site network place and then playing -- and seeing some metrics come through in terms of performance. And that's really what we have to do because to sell that to customers, we have to provide good metrics.

All our customers are smart. They are already entitled people. They understand. It's -- we can all talk about this stuff but they want to see performance.

They want to see enrollment rates. They want to see screening rates. And we're now increasingly able to provide that sort of information to them. And to that extent, they are really engaging significantly in that.

We want to develop our oncology network. That's a very important part of our force. But certainly, in the non-oncology area, we've made -- I'd say we have a lot of progress over the last 12 months and the data that we're able to generate now from that network is playing very well with customers.

Dan Brennan -- UBS -- Analyst

Great. And then maybe just as a follow-up or an unrelated follow-up, I know earlier in the call, there was a question on the trends outside of your top client. And obviously, you kind of want to take a trailing 12-month view just to reduce that inherent volatility. But it has been two quarters in a row that the growth has been kind of -- a kind of a step down from high single, low double down to this kind of mid single-digit growth around that.

So is there anything unusual to point out with the two quarters in a row? Or is it just more of the nature to your point that you have taken a long-term view on this? Thank you.

Steve Cutler -- Chief Executive Officer

Dan, I really think it is more taking the longer-term view on it. The trailing 12 months is around 9%. We see that continuing on that basis. As I said, we're optimistic on the progress of those customers outside our backlog, and our net win rate with those customers has been strong.

And so we -- and we want to cross the statement. So I do see there's no particular issue there. There's a little bit of quarter-to-quarter fluctuation for two quarters, but I do think if you take a longer view, we'll come out of it. I'm very positive.

It's unlikely, of course, that you'll see our top customer continue with that at the rate, but I do think other will come up and fill that gap and we'll be able to continue at the sort of growth rates that we're projecting and that we've outlined in our update guidance.

Dan Brennan -- UBS -- Analyst

Great. Thank you.

Operator

Thank you very much. There are no further questions. Please continue.

Steve Cutler -- Chief Executive Officer

OK. Well, thank you, everyone, for listening in today. And we're very pleased that quarter one was another strong quarter for ICON, and we look forward to building on this progress throughout 2019 as we consolidate our position as the CRO partner of choice in drug development. Thank you, everyone.

Duration: 58 minutes

Call participants:

Jonathan Curtain

Brendan Brennan -- Chief Financial Officer

Steve Cutler -- Chief Executive Officer

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

Robert Jones -- Goldman Sachs -- Analyst

Ross Muken -- Evercore ISI -- Analsyt

Stephen Baxter -- Wolfe Research -- Analyst

Jack Meehan -- Barclays -- Analyst

Erin Wright -- Credit Suisse -- Analyst

Dan Leonard -- Deutsche Bank -- Analyst

John Kreger -- William Blair -- Analyst

David Windley -- Jefferies -- Analyst

Unknown speaker

Eric Coldwell -- Baird -- Analyst

Sandy Draper -- SunTrust Robinson Humphrey -- Analyst

Dan Brennan -- UBS -- Analyst

More ICLR analysis

All earnings call transcripts