The Ireland-based contract research organisation (CRO) unveiled the plan during its Q3 earnings call last week with CEO Ciaran Murray setting it in context of a wider early phase reorganisation that saw the firm consolidate US capacity into a single site in San Antonio.
“We continue to review our global capacity in the CPU in light of market conditions” adding - according to a transcript of the call - that “in the fourth quarter, we expect to move [to] further reduce capacity in our UK CPU as we focus on our new translational services business, which was based in Manchester.”
He explained that Icon’s early phase services business was weak in the three months to September 30 – continuing the trend seen in the second quarter - and predicted that it “will be weak for the remainder of 2013.”
Growth in Q3
Early phase weakness and impending UK cuts aside, Icon had a quarter of growth with net revenue of $340m (€246m), up 19% on the equivalent period in 2012. Operating Income reached $33.2m, or 9.8% or revenue, compared with $20.9m or 7.3% of revenue last year.
Murray attributed the gains to an increase in bookings and lower cancellations, telling analysts that: “Gross bookings for the quarter were $471m, cancellations were $56m. This gives us net bookings for the quarter of $415m, which is a book-to-bill of 1.22.
“Our backlog now stands at $2.97bn, which is 11% higher than this time last year and the backlog is currently given a 77% forward coverage the next 12 months revenue expectations.”
The firm also raised its full year guidance for the third time and now expects to end the year with revenue of between $1.3bn and $1.33bn and earning per share of 1.67 - $1.70.
Strategic growth
Analyst Ross Muken from ISI said Icon’s Q3 and revised guidance “make us increasingly confident in ICLR’s ability to execute on its strategy and create shareholder value” adding that catalysts include “momentum on strategic deals, which could drive backlog upside.”
He did inject a note of caution, suggesting that the spending needed to support work from larger strategic clients could impact earning in the near term.
Generally Muken was positive about Icon’s prospects, telling investors that: “Progress in the central lab remains crucial to ICLR’s medium-term goal of achieving double digit operating margins. Finally, we see incremental tuck-in M&A activity as a potential positive catalyst.”