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Good day and welcome to the ICON plc Q4 and Full-Year 2017 Conference Call. Today’s conference is being recorded.
At this time, I would like to turn the conference over to Jonathan Curtain. Please go ahead.
Thank you, Paul. Good day, ladies and gentlemen. Thank you for joining us on this call covering the quarter and full-year ended December 31, 2017. 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 discusses 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 statements headed Consolidated Income Statements Unaudited U.S. GAAP. While non-GAAP financial measures are not superior to or a substitute for the comparable GAAP measures, we believe certain non-GAAP information is more useful to investors for historical comparison purposes.
We'll be limiting the call today to one hour and will 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.
Thank you, Jonathan. In quarter four, we achieved a new high of $718 million of gross business awards incurred $119 million of cancellations. As a result, net awards in the quarter were a record $599 million and net book to bill of 1.32 times. Full-year gross business awards were $2.6 billion cancellations of $300 million results of net awards of $2.3 billion and a net book to bill of 1.29 times.
Year-over-year backlog has grown by 17% to $4.93 billion. Our top customer now represents 11% of ICON’s backlog down from 15% at the end of quarter four of last year. Net revenue in quarter four was $455 million. This represents year-on-year growth of 4.6% or 2.3% on constant currency basis.
During 2017 we transition well to the bococizumab cancellation and what is the year-on-year group revenue on a constant dollar organic basis was 3.9% lower outside our top account year-on-year constant dollar organic growth was close to 10%. For the full-year 2017 net revenue grew 5.5% to $1.758 billion. This represents 4.8% constant currency growth and remind flat on a CEO basis.
We introduced guidance on the ASC 606 on this earnings call, this new treatment will have an effect on the timing of revenue recognition. We estimated less than 1% of revenue in 2018. Accordingly, we are satisfied that the revenue and earnings guidance we are issuing on this call takes this into account.
Our customer concentration continues to improve in the quarter with our top customer representing 13.2% of revenue compared to 23.8% last year. Our top 5 customers represented 26.9% compared to 44.1% last year. Our top 10 represented 51.8% compared to 57.3% last year, while our top 25 customers represented 67.3% compared to 73.1% last year.
For the full-year, our top customer represented 18.4% of revenue compared to 26% in the prior year, our top 5 customers represented 40.3% compared to 44.7% last year, our top 10 represented 54.7% compared to 57.7% last year, while our top 25 represented 70.9% compared to 74.9% last year.
This continued diversification of our customer base meant that outside our top account, revenue grew 19.2% over quarter four last year or 17.1% for the full-year. Group gross margin for the quarter was 41.3% compared to 42.2% for the comparable quarter last year. For the full-year 2017, Group gross margin was 41.6% compared to 42.3% achieved in the full-year 2016.
We continued to leverage our best in industry global support model and as a result SG&A was 18% of revenue in the quarter, this compared to 18% last quarter and 19.2% in the comparable period last year. Full-year SG&A was 18.4%, a 110 bps improvement from the 19.5% reported for the full-year 2016.
Operating income for the quarter was $89.7 million and operating margin of 19.7%. This compared to 19.3% last quarter and 19.5% in the comparable quarter last year. For the full-year 2017, operating margin was 19.7% compared to 19.2% for the full-year 2016. The net interest expense for the quarter was $2.5 million and $10.3 million for the full-year.
The Company recorded a non-recurring tax expense of $7.4 million during the quarter, principally as a result of the mandatory repatriation provisions contained in the Tax Cuts and Jobs Act enacted during the fourth quarter of 2017. Excluding the non-recurring tax expense, the pro-forma tax rate was 10% for the fourth quarter and 12% for the full-year.
Net income excluding the one-off tax impact for the quarter was $78.5 million, a margin of 17.2%, equating to diluted earnings per share of $1.43. This compares to earnings per share of $1.35 last quarter and $1.33 in the comparable quarter last year, an increase of 7.5%.
Full-year net income excluding adjustments was $295.7 million, a margin of 16.8%, equating to diluted earnings per share of $5.39. This compares to earnings per share of $4.77 for the full-year 2016, and increase of 13%.
DSO in the quarter was 49 days, which compared to 50 days last quarter and 50 days in the comparable quarter last year. Cash generated from operating activities for the quarter was $105.9 million and $383 million for the full-year. Capital expenditure was $21 million in quarter four and $45 million for the full-year.
At December 31, 2017, the Company had net cash of $11.6 million, compared to net debt of $88 million at December 31, 2016 and net debt of $56 million at the end of September 2017.
With all that said, I'd now like to hand the call over to Steve.
Thank you, Brendan, and good morning to everyone. 2017 was another year of excellent progress for ICON. Driven by demand across all customer segments, we achieved our highest ever level of gross and net business awards of $2.6 billion and $2.3 billion respectively. In quarter four, we achieved our third successive quarter of net book to bill over 1.3 times driven by gross business wins of $718 million and net wins of $599 million.
This continued strong business development performance, means we grow our backlog by 17% year-on-year to nearly $5 billion and helped our revenue increase by 5.5% to $1.76 billion. By focusing on operational excellence and proactive management of our cost base, we were able to exit the year with an operating margin of 19.7% and increased full-year EPS by 13% from $4.17 to $5.39.
Looking at the overall market for our CRO services, demand fundamental remain healthy and will drive CRO market growth during 2018. Background in growing R&D budgets, strong biotech funding, increased outsourcing penetration levels and higher FDA approval rights, all indicate a positive environment.
Market share continue to shift towards larger CROs and that have the global footprint, breadth of services and tightened access necessary to run increasingly complex global studies. As demonstrated by our performance in 2017, ICON is well positioned to capitalize on these favorable trends.
We are pleased with the performance of all our service areas in 2017. ICON’s Clinical Research business continues to benefit from our commitment to invest in innovation and we remain strongly focused on have data driven strategies and partnerships that can improve site identification, study placement and patient recruitment, all of which remain key industry challenges.
Our new one search data platform is helping improve our investigator site identification and selection process based on comprehensive and integrated internal and external data. A developing PMG network continues to improve patient access to trials, facilitating patient recruitment rights that are more than twice as fast as our standard sites.
Through our partnership with TriNetX, ICON is leveraging the capability to perform real time scenario modeling, which enables more rigorous feasibility and study planning. Specifically, the predictive analytics capabilities allow us to better protect the rights, which potential patients will roll in our trials thereby allowing more rapid trial completion and better resource planning.
Finally, we continue to identify and pilot new data sources and platforms that have the potential to substantially drive faster clinical trials for our customers. Value based health care continues to gain momentum globally with the world economic forum and leaders of pharma, health care providers, regulators and clinicians, working together to understand how health outcome measurements can be used to better assess those drugs and devices, which are delivering value in health care.
As a sole CRO partner to ICHOM, ICON continues to support the scale up initiative globally and we believe this complements our overall real world evidence strategy and focus on patient reported outcomes and mobile health technologies.
ICON’s ability to apply agile resourcing models, not only in full service, but also FSP and a hybrid outsourcing models as lead to further opportunities for our functional services business during 2017. During the year, we also saw strong business development and financial performances from our central lab and commercialization, and outcomes businesses.
In July, ICON acquired the Mapi Group, a leading health outcomes research and commercialization company. Integration plans with our commercialization and outcomes group are underway and progressing well. This combined division has in excess of 1,400 professionals, operating throughout ICON’s global network and enhances our key late stage service offerings in real world evidence, linguistic validation, health communications and market access. The additional scale and capabilities means that ICON is the world’s second largest provider of late phase services.
2017 was a year transition for ICON. Outside our top customer, we delivered a book-to-bill of 1.4 times and grew revenue by 19%. This will produce concentration levels to 13%. In addition, we added a number of new strategic relationships to our portfolio, which will begin to contribute to revenue growth during 2018.
Throughout 2017, we have consistently remained focused on delivering margin excellence by leveraging our best-in-class global business service model, we were able to hold our SG&A cost flat for the fourth year in succession. As a result, SG&A reduced 18.4% of revenue for the year. This improved performance compares favorably to last year when SG&A was 19.5% of revenue.
And as we continue to grow our business both organically and through M&A, I expect us to create further leverage in this area. This strong performance helped us achieve an operating margin of 19.7%, which along with an underlying effective tax rate of 12%, allowed us to grow our earnings per share by 13% year-on-year to $5.39.
We continue to invest our available capital to maximize shareholder value. We remain focused on our M&A pipeline and executing our strategy of bolt-on string of pulls acquisition targets to enhance broaden our service offerings and grow our company. In conjunction with this we are continuing to repurchase shares under the previously announced $400 million share repurchase program.
To-date we have repurchased $256 million worth of shares overall an average price of $81.46 per share. Depending on market conditions and appropriate M&A opportunities our intention is to continue to opportunistically repurchase shares throughout 2018. As of January 1, 2018 ICON has adopted the new revenue recognition standard ASC 606.
As a result we are issuing our full-year 2018 revenue guidance at $2.52 to $2.64 billion. Earnings per share guidance remain unchanged in the range of $5.89 to $6.09, representing an increase of 9.3% to 13%. In impact of any 2018 share repurchases is not included in this guidance range.
Before moving to Q&A, I would like to thank the entire ICON team for all their hard work and commitment during 2017. In particular, I would like to recognize the efforts and dedication of everyone as we were recently awarded the best CRO Full-Service Providers at 2017 Scrip Awards.
Thank you, everyone, and we're now ready for questions.
Thank you. [Operator Instructions] We’ll take our first question from Ross Muken from Evercore ISI. Please go ahead.
Hi, good morning, guys. So as we think about on the new business side, you guys have done a fantastic job obviously diversifying away from your top customer and growing that piece of the book, well above market. I mean as you sort of look back over the balance of the year and think about some of the key themes are drivers or pieces you put in place that sort of allowed for you to get to this kind of elevated level. I mean what would you sort of highlight as key components of what sort of drove that resurgence and kind of the acceleration and how much of that is sort of sustainable in terms of the momentum as we had into 2018?
Hi, Ross. It’s Steve. I think there are a couple of themes that to come to mind as you asked a question. The first is the progress we've made in the large pharma single in the market a new relatively revamped commercial group has done a really good job in focusing and building business within a sort of the top 30 pharmas sponsor. So I'm very pleased with the progress we've made in that and I do think that is sustainable going forward.
The second is the continued move in industry towards alliances and the ability again of our commercial group and our operations teams to broaden and deepen within the alliances that we have we been successful in doing that and continuing to build those partnerships. So I would say those are two main things we've seen that have been able to help us to draw that business development performance.
I would say the biotech sector as you know as well funded at the moment we've been successful on a number of fronts there as well. But really it's a large pharma of the alliances and to a lesser extent on their success in the biotech sectors is really driven our performance there.
And just in terms of again - just again new business thinking through the more elevated level of M&A activity that that some are thinking about I mean I guess how as you talk of the decision makers on both sides both in your strategic alliances and on the biotech front and I guess how are you thinking about the cadence of new business in the context of maybe a more elevated M&A team?
Historically, the waves of M&A run through the industry, I mean we've seen more outsourcing, the M&A and itself doesn't concern us certainly in the long-term. And as we talk to customers, certainly there's some talk out there about M&A and his advisors, but they remain very much committed to the partnerships and to the outsourcing philosophy. And as I said, it tends to drive more outsourcing I think in the longer term, particularly I think as customers recognize they don't want to be sitting there. Navel gazing while they are doing the integration and continuing to outsource and even increasing it can help that. Sometimes there is some slowdown in decision making, but the consolidation in our industry doesn't really concern us from a long-term sustainable growth point of view.
Great. Thank you, Steve.
We got next questioner from Donald Hooker from KeyBanc.
Great. Good morning. Question on I guess backlog burn rates, we’re always I guess all investors were interested in tracking that. It looks like it was by my quick math here was a little bit lower in the fourth quarter. I understand there's a lot of drivers there would love to hear maybe some commentary on how on the outside should be thinking about ICON’s backlog conversion over the next few quarters given your current mix of business? Thank you.
Hi Don. It’s Brendan here. Yes, it was 9.5 in the quarter. That's kind of as we signaled that would be in that kind of mid-9 range. That has been ticking down during the course of this year, somewhat that was obviously driven by the cancellation that we saw in the back end of last year, but a lot of it has to do with our mix of business. We have been very successful as you guys know over the last 12 months in new business.
A lot of the marketplace right now is oncology and surprisingly a lot of the new business that’s been coming into our backlog is also oncology. So we do see that even though it's hard to find patients, it's hard to start up, so it is going to be a factor as we go in through next year. So I think in the mid-9’s is still our expectation certainly at this stage just we look out into 2018 as we look to Q1 not terribly dissimilar from where we were in Q4. But there is still a lot factor there, a lot of the market is going towards the oncology space and that does take a little bit longer to start up as we historically know.
Okay. And then a quick question on your relationship with TriNetX and then I'll hop off. What is the nature of your arrangement there? I mean you have them locked up in a long-term contract. I mean it sounds like that's an important source of data for you, what is your – what is that relationship look like right now in terms of sustainability?
Yes. We don’t have a long-term exclusive contract with TriNetX. I'd say we're probably one of the first organizations to use and we have some early experience with them and we've been using the now for some time, Don. So we've been able to bring them into our business process affectively they won a number of approaches we use including as I mentioned the new ones such capability which is helping us, but there's certainly no exclusivity that we have with TriNetX.
Thank you.
Our next question comes from Jack Meehan from Barclays.
Hi. And good morning, good afternoon. I wanted to start with the Mapi acquisition. Just with Mapi how that’s performing and maybe talk about expected growth contribution there in 2018?
Yes. I’ll start, maybe Brendan want to add on the financial side of things. I mean it’s relatively early days, they came in July last year, and so we’re six or seven months into the integration. We've been able to retain all of their key executives which has been very important to us. They’ve now been sort of worked into a late-phase organization and we've done that in a very objective way and that we've been able to merge the key departments together.
So we've made the organizational decisions there and the Mapi folks have taken a number of those key posts. So it's been a very much of a kind of merger if you like rather than the takeover from a late-phase point of view. We found the Mapi folks to be extremely engaged. They have a very good name in the marketplace. We found almost exclusively customers have been very pleased with the acquisition, pleased with Mapi and then the fact though work with them, but also pleased that ICON is also come along.
We've been able to bring some investment in terms of their IT infrastructure in terms of the security of their network et cetera. So it's early days, but the initial indications are very good both from a customer point of view, from an initial financial performance point of view.
Some of the fourth quarter was a strong quarter. The Mapi and as we go into 2018, the business development groups coming together nicely, working very collaboratively and cooperatively and we’re expecting a really strong year from the Mapi Group.
Yes, if I just to add to that in terms of their financial contribution, we had a very good solid quarter in Q4. We're very happy with their performance. As we look out to 2018, I think we start by the fact that are we expect our midpoint revenue to be about 8%. I think if you look at on an organic basis, it will probably because the 6% or 6.5%.
So Mapi obviously is the piece that's making up the 1.5% additional upside there. So that’s in line with our expectation. Good growth as we were expected – of the market that's growing higher than our core CRO market. So that's very much our expectation for next year.
Great, thank you both and Steve just one follow-up, you commented on the strong growth in the central lab. Could you give us an update on the size of that business and what the growth was in 2017 there?
Yes, the growth in the lab was in the low double-digits. So we were very pleased to see that. We have combined that with our really phase group now under Jim Miskel and that team is performing very well. We see some opportunity both in central lab and bioanalytical lab with the bulk of the cancellation give us a little on the bioanalytical lab sort of things, but the central lab growth was able to make up for that in the early phase group, increasing early phase work being done in more academic settings rather than normal volunteer settings or CPU settings now. But that – and that business has performed well.
So overall the lab, both bioanalytical and central has a nice growth curve. We believe the 2018, it's a solid part of our business – huge part of our business, but it's one that around about 7%, 8% is the number for revenue point of view and it's making a very solid contribution particularly on the gross margin line.
Great, thank you.
Our next question comes from Tycho Peterson from JPMorgan.
Hey, good morning. Thanks for taking the questions. This is actually Julia. First of all just very quickly, could you quantify the FX impact – quarter? And then regarding the guidance, I noticed that mid…
I’m sorry. We're struggling out here, and you couldn’t repeat the question. Could you? I’m sorry. We missed the question almost entirely. Could you repeat the question again please?
Not muted. Can you hear me?
Yes, could you repeat the question? We couldn’t hear the question.
Just repeating my question, first of all could you just quickly clarify the FX in a quarter and then regarding your guidance notice the midpoint as it take more from your previous guidance range. So just wondering the reason behind that and are there any changes in the underlying conversion rate assumption? Thank you.
Sure, no problem. In the quarter, our FX as mentioned, we have 4.6% total year-on-year growth. So a constant currency that would 2.3%, so the delta obviously is the FX impact year-over-year in FX terms. On the guidance, we are modeling a book. I should say an FX rate of the euro to the dollar of $120 at the moment. That's what we have included in the numbers.
Our midpoints of our guidance really the only difference is that what we've seen from what we talked about in January at your conference to what we're talking today is really the elements of pass-through cost and that’s included in the ASC 606 calculation at the moment we’re very much mindful of 606 when we're doing our guidance for back in January as well. So I think that that covers off those pieces.
Our next question comes from Dave Windley from Jefferies.
Hi, guys. This is Jared Meggison on for Dave. Thanks for taking my questions. I guess I just want to kind of expand on the previous question about conversion and just how the relates to the pass-throughs now being in revenue. So have those pass-throughs been in backlog previously are you going to add them to backlog if they're not and then how did should we think about conversion with those included?
All right. It’s Brendan here. First of all I suppose what we're talking about conversion is very much the way we would have expected to talk about it in the past. I suppose that based on net revenues and that to look forward when I talk about that and I don't know how it will be excluding pass-throughs. Certainly pass-throughs are an elements of ASC 606 no question about that, we reconciling our backlog in the first quarter when we talk to that, so we will be including pass-throughs in our backlog in Q1.
However, I stated the $4.9 billion that we spoke about earlier in the call does not currently include pass-throughs. So when you look at forward of the pass-through or the backlog now when you look at conversion we're still very much talking about 605 net revenue, but certainly as we get into Q1 we'll give you a reconciliation on what the backlog to look like in the future including pass-throughs and then we'll be able to rework conversion on that basis.
Okay great. Thanks for that. And then just on Pfizer at ended of the 13.2% in the fourth quarter I know your previous 2018 guidance had included 12% to 14% of Pfizer is that still the expectation or is that really going into a stable run rate now in that total 14% is more of a long-term number?
Yes, I think that's a reasonable way to look at it, [Jerry] 13% this is sort of right in the middle of what we indicated would be and I think we're at about a steady state now. So we would expect to be moving forward in that sort of range certainly for 2018 and beyond but Pfizer remains a very good partner of us. They remain one of our top customers from a new business point of view and that it's a very strong relationship that continues.
Our next question comes from Erin Wright from Credit Suisse
Hi, thanks for taking the questions. I guess can you speak to some of the new strategic partnerships kind have you spoke to in your prepared remarks to nature and mix of those sort of relationships and when those where start to materialize or having material contribution in terms of booking metrics?
Sure. Yes, we don’t typically nine the companies so I want to do that but I will give you some favorable in there. They're all substantial players within the industry and they're all companies with which we you know I already have I relationship with so you don't tend to go from zero to 100 with these companies.
Some are in furthermore advanced form and others certainly what this is one of them who we are starting out with at from a fairly low advise and we're sort of establishing the whole governance structure, partnership looking at the basis on which will - we'll be outsourcing we are one of two in that one again a large pharma company. And another we've been added to a number of partners that they already have so one of three or four I am not just you saw how many of these but we've been it's now more than that.
And in another where we have sort of reestablished ourselves in a customers that we had a strategic partnership with a couple years ago that their portfolio, their pipeline was a little low of preceding years, but now they've come back and they've narrowed down the number of providers. So I think each one of them has certainly some specific and unique characteristics.
In terms of contribution to 2018, we haven't done one of them which we've actually taken any work into the backlog of this stage. So we tend to be fairly circumspect as these partnerships start out in terms of what work we've been talking about projects, we've been starting to bid on projects, but until we actually get bids out and get them accepted and move contractually.
We haven't been putting those into the backlog, so we do believe there's some upside there as we get into this year and certainly towards the back end of this year. We do expect they’ll be making significant contributions to our revenue growth, but we're fairly circumspect about that at this point.
Okay. Great. That was really helpful. And sort of a broader question here, given sort of the investments that you've made here, how fast is the real-world evidence part of industry growing right now in your view? And do you expect to continue to make more meaningful step forward in that post approval commercialization space? Thanks.
Yes. That's an interesting question. Certainly, a lot of talk around real-world evidence and certainly the buzz around the industry is very significant in that area. Inevitably, in our business and our industry things easily don't move forward as fast as sometimes people expect them to. And so I have no doubt that real-world evidence will become very much – a very important part of the landscape in clinical development in the medium to long-term. I think it will be a little bit slower than we all expect.
Having said that, we believe we need to position ourselves well in that space because I fundamentally believe that the future of drug development will be very much dependent upon access to real-world evidence going forward. I do think this over the long-term very fundamental changes in how we’ll be registering new drugs and monitoring new drugs. And so we do believe we have to be active in that space and innovative and on the cutting edge in that space. So the acquisition of Mapi obviously helped us in that space.
We continue to look in that area of the industry to make sure that we are able to stay ahead not just in terms of other organizations that have access to real-world evidence or the deal in that space, but also around the technologies that I mean we always have one eye on the technologies that we're looking to work with and looking to try out and what access they have to that real-world evidence space. So we're expecting solid growth from that part of the business going forward, but quite frankly not spectacular growth. I think that's really for the more longer term where we really get well into the double-digits in terms of growth from the real-world evidence basis.
Excellent. Thank you.
Our next question comes from Juan Avendano from Bank of America.
Hi. Thank you for the questions. You mentioned that organic growth outside of your top customer was 10% in the quarter. Can you give us an update on the net book to bill outside of your top customer and whether you think that a high-teens or even a low-20s revenue growth outside of your top customers achievable and sustainable in the medium term?
Well I think as we said on the call, Juan we are at about 1.4 for the year and the quarter outside of our top customers, so that would indicate – that would support the sort of revenue growth that we talked about outside of top customers 17% for the year. Is it sustainable? I certainly hope so. That's certainly the aim, but we will be – as Brendan indicated a lot of the work that we won is in the oncology space and those trials are large and complex and do have – and just take a little bit more time to start. So that is a little bit of a headwind in terms of the therapeutic area we've been winning.
On the other hand, we're optimistic that we can get those things moving and we can continue in that ballpark I would say, it's certainly double-digits around the excluding our top customers. So as I said, we think we set ourselves up nicely for a growth year, but we now need to deliver on that and the upswing will be I think over the next several quarters, obviously as we get through the year.
Got it. Thank you. And my follow-up is on SG&A leverage which once again it was very good in the quarter. Can you give us an update on your operational initiatives, including off-shoring and the opportunities that you think remain in this area?
I could give you an update, it probably takes three days. We have a lot of initiatives going with our Global Business Services Group, but the first thing I would say about our Global Business Services Group is that they are very open to doing new things and changing the way they do their business, so things like off-shoring, of course is a big part of it. But we're also looking at analytics AI robotics as well and our folks in those groups continually push themselves to do things in a different way.
So I would say actually advantage in that is certainly we have advantages around off-shoring and technology and all that good stuff, but its mindset. We have people who are open to doing things differently and open to being challenges. I said we held SG&A for four years.
I think that's a very strong, I’d say not all due to me I have to say. Obviously Ciaran was in charge for part of the time. But we have people who are open to doing things differently and to leverage in that at cost base and using the headcounting ways that allow us to advertise across the business increasingly effectively. So I'll just leave it at that. I think that’s probably the best advantage we have.
Great, thank you.
[Operator Instructions] Our next question comes from Robert Amparo from Wells Fargo Securities.
Hi, guys. Thanks for taking my question. Back to guidance, since we're resetting for ASC 606, would you be willing to talk about what percentage of your annual revenue you expect to be recognized in Q1?
Proportionately, I suppose that is…
Brendan here Robert. We don't traditionally carve out the quarter. We leave you guys to scratch your heads on that one a bit. And you've seen $120 million range on our revenues. So there is a bit more up and down. I think we've already given 605 guidance on a net revenue basis. I mean our 606 guidance is really just takes into account the pass-throughs and as we said we had one eye on 606 when we gave that original guidance back in January.
And so I think what I'd ask you to do is take a look back at your net revenue as the street have it at the moment and then try to work as an additional elements in the same proportion for a pass-through and it is descriptive at this time. There will be a bit of bumpiness in terms of quarter-on-quarter revenue growth given the inclusion of pass-throughs in the revenues at this stage.
Okay, that's helpful. And for my follow-up, can you just talk about how much margin expansion you’re building into this guidance? It looks like 40 basis points has been normalized for all the noise, is that correct?
In margin percentage terms – yes, it's in that ballpark, that's correct.
Okay, thank you very much.
Our next question comes from John Kreger from William Blair. Please ensure, your mute function is turned off.
Hi, thanks. Do you think your bookings over the last year? Have you seen any shift in mix between traditional awards and staffing FSP type work?
No, John, not so much. In fact I think more traditional awards have probably been a little bit on the up, so perhaps a year or two ago, I would have answered that and say FSP was on the up. But I think that's probably turn around a little bit in the last 12 months and certainly a latter of half of the 2017 that was the case.
Great, thank you. And then another one with a little bit more concerns about inflation broadly, are you seeing any pressures on wage trends and across the world and if so what regions are you seeing that in?
I think there are certain pockets around the world. Yes, where we do see some push up on wages. The U.S. CRA market is hocking up I would say, having been very hot couple years back and then cooling a little bit. It's hurting up a little bit. So I'd say that’s an area of heat and there are other pockets around the world.
But overall, we’re able to keep wage increases at a sensible sort of market based level without letting it run away too much. So I would say overall it's not an area that that's not a particular area that keeps me up at night. I think we've been able to manage that reasonably well.
Great, thank you.
Thank you.
Thanks John.
End of Q&A
It appears there are no further questions at this time. I’d like to turn the comments back over to Steve Cutler for any additional or closing remarks.
Thank you, Paul. So thank you everybody. 2017 was another strong year for ICON. We look forward to building on this progress during 2018 as we build our position as the CRO partner of choice in drug development. Thank you everyone.
This concludes today’s call. Thank you for your participation. You may now disconnect.