Feb 25, 2016
Executives
Ronnie Speight - Vice President of Investor Relations Jamie Macdonald - Chief Executive Officer Greg Rush - Executive Vice President and Chief Financial Officer
Analysts
Robert Jones - Goldman Sachs Dave Windley - Jefferies Tim Evans - Wells Fargo Michael Baker - Raymond James Greg Bolan - Avondale Partners
Operator
Good morning, ladies and gentlemen, and welcome to the INC Research Fourth Quarter 2015 Earnings Call. At this time, all participants are in a listen-only mode.
Later, we will conduct a question-and-answer session and instructions will follow at that time. I’d like to hand the conference over to Ronnie Speight, Vice President of Investor Relations.
Please go ahead, sir.
Ronnie Speight
Good morning, everyone. The purpose of this call is to review the financial results for INC Research’s fourth quarter and full-year 2015.
With me on the call today are, Jamie Macdonald, our Chief Executive Officer; and Greg Rush, our Chief Financial Officer. In addition to the press release, a slide presentation corresponding to our prepared remarks is available on our website at investor.incresearch.com within the Presentations and Events section.
An archive version of this webcast will be available for replay on our website after 01:00 PM today. As outlined in our press release, there will also be a telephone replay of this conference call available for the next seven days.
Remarks that we make about future expectations, plans and prospects for the company constitute forward-looking statements for purposes of the Safe Harbor Provisions, under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors.
These factors are discussed in the Risk Factors section of our Form 10-K for the year ended December 31, 2015, as well as our other SEC Filings. In addition, any forward-looking statements represent our views as of today and should not be relied upon as representing our views as of any subsequent date.
While we might update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. During this call, we will discuss certain non-GAAP financial measures, which exclude the effect of events we consider to be outside of our core operations.
These measures should be considered a supplement to and not a replacement for measures prepared in accordance with GAAP. We believe that providing investors these measures helps them gain a more complete understanding of our financial results and is consistent with how management views our financial results.
For a reconciliation of the non-GAAP financial measures with the most directly comparable GAAP measures, please refer to Slides 17 through 22 in our presentation. As we will be limiting today’s call to one hour, we request that participants limit questions to one each with an opportunity to ask one follow-up question.
I would now like to turn the call over to Jamie Macdonald. Jamie?
Jamie Macdonald
Thank you, Ronnie. Good morning and thank you for joining our fourth quarter 2015 earnings call.
I am pleased to report that we had a strong finish to our first full year as a public company continuing to exceed our expectations. Our focus remains on providing high quality service and a superior experience to our customers through our therapeutic alignment, the trusted process, operating model and our strategic focus on sites and patients.
We grew our adjusted net service revenue by approximately 13% compared to the fourth quarter of 2014 and by over 14% compared to the full-year 2014. This was net of the substantial foreign exchange headwinds we estimate that the impact of foreign exchange on our revenue was approximately $9.5 million for the fourth quarter 2015 and $45.4 million for the full year resulting in constant current the year-over-year revenue growth of 17% for the fourth quarter and 20% for the full year 2015.
Our net new business awards for the quarter were $297.4 million compared to $316.3 million during the fourth quarter of 2014. Our net new business awards for the full year 2015 totaled $1.18 billion, an increase of 24% from the $949.8 million for 2014.
The continued strength of our net new of our net new business awards resulted in a net book-to-bill ratio of 1.2 for the fourth quarter and 1.3 for the full-year. We believe book-to-bill is best viewed over the longer term since new business awards will continue to vary from quarter to quarter.
Our net new business awards drove strong backlog growth during the year with backlog as of December 31, 2015 at over $1.8 billion up 14% from December 31, 2014. This growth occurred despite a reduction of backlog of $38 million during 2015 from the impact of foreign exchange.
As we reference in the third quarter we continue to invest in expanding our sales force and marketing activities to broaden our addressable market. We are pleased with our success to date in this area adding over 70 new customer relationships during 2015.
We are encouraged by the continued strong demand from our existing customers as well which represented 86% of the dollar value of our new awards during 2015. These factors have continued to help diversify our customer base with our top five customers representing only 34% of our revenue for 2015 down from 37% for 2014.
We continue our strong presence in areas where clinical trials are particularly complex. These areas represented approximately 68% of our backlog as of December 31, 2015 compared to 69% as of September 30, 2015.
We believe our continued strong position in these areas demonstrate the effectiveness of our therapeutically aligned project teams enhanced by the disciplined approach of our trusted process. We continue to receive third-party validation of our approach to providing a superior experience for our customers and investigator sites.
INC was recently named as best CRO at the 11th Annual Scrip Awards being selected from among several leading global CROs by a distinguished panel of life science industry executives. This award follows our earlier recognition as the top CRO to work with among large global CROs in the 2015 CenterWatch Global Investigative Site Relationship Survey.
During the fourth quarter we completed our long-term strategic planning process to ensure we are constantly evolving with our dynamic operating environment. The foundational of our evolving strategy is the focus of making INC Research the CRO of choice for all stakeholders including employees, customers, sites and investors.
Recently we announced the launch of our Catalyst program to enhance the level of our collaboration with clinical research sites worldwide. The focus is on supporting faster start-up and enhanced predictability of clinical trials for our customers.
As part of this program we have established a global network of high-performing sites including individual practices, academic centers of excellence and site networks. These sites are strategically and therapeutically aligned to our business and our customers.
In addition, we have established a catalyst community through an online forum representing a broader range of sites to support ongoing communication on the conduct of clinical trials, wider adoption of new methodologies and the sharing of best practices. We believe this will allow us to maintain our focus on our core offering of clinical development services while implementing innovative programs to enhance delivery for our customers and enable sites to maintain maximum choice and opportunity for patients.
In support of our global delivery for customers INC continued to expand our total employee base to over 6400 staff during the fourth quarter compared 6200 staff at the end of the third quarter and 5600 staff at the end of 2014. During 2015 we have made significant announcements to our talent acquisition and training and development programs to support our continued growth in a competitive labor market.
Highlighting our focus on these areas and our priority on the growth and retention of our employees, in the fourth quarter we launched the new Culture of Opportunity employee brand. Our overall goal is to be the CRO of choice not only for our customers, but for our employees as well.
Let me now turn it over to Greg Rush for more detailed comments on our financials. Greg?
Greg Rush
Thank you, Jamie and good morning everyone. I'd like to start by making some additional comments regarding our financial performance, highlighting some of the key metrics on Slide 3, which are presented with a more detailed view on Slide 4.
We are presenting our results on an adjusted or non-GAAP basis and have further normalized certain metrics for one-time benefits to improve comparability. These adjustments are presented on page 16 in the appendix.
As Jamie mentioned, we had a strong fourth quarter and full year 2015 in net awards and book-to-bill, which helped contribute to our strong financial performance. In fact 2015 was a record year for net awards with the fourth quarter representing one of the best quarters in our recent history.
This is a slide in fact where we reduced net awards by over $100 million during the quarter due to risk adjustments reflecting our concern as to whether the sponsors would proceed with the studies. This is consistent with our conservative approach to recording backlog and managing our allocation of resources.
Turning to revenue, we grew our adjusted net service revenue on a year-over-year basis by 13% to $241.4 million during the fourth quarter up from $213.7 million for the fourth quarter of 2014. On a constant currency basis, excluding foreign currency headwind of $9.5 million our net service revenue grew by 17% year-over-year in the fourth quarter.
On a full-year basis, we grew our adjusted net service revenue by over 14% from $800.7 million for 2014 to $914.7 million for 2015. Excluding the foreign currency headwind of $45.4 million our revenue grew by 20% compared to 2014.
Our direct costs increased 7% from $133.3 million for the fourth quarter of 2014 to $142.5 million for the fourth quarter of 2015 with gross margin expanding from 37.6% to 41%. For the full year 2015 direct costs were $539.6 million compared to $512.8 million for 2014 with gross margin increasing from 36% to 41%.
Our gross margin increased significant on a year-over-year basis and also continued to improve on a sequential quarter basis when compared to the normalized gross margin we outlined in the third quarter. In order to improve comparability across periods on Slide 3 and 4 we have also normalized the full year 2015 to exclude the effect of the one-time benefit that we do not believe are representative of ongoing operations.
These items which were highlighted in our third quarter earnings presentation are detailed on Slide 16 in the appendix. We continue to improve our margins through the strong execution by our operational team, our disciplined approach to cost management and our ability to better leverage the therapeutic management overhead as we expand our revenue base.
We also continue to see the benefit of the improved utilization of our facilities which has further increased to 82% as of December 31, 2015 up from 77% at the end of 2014 and additionally have already eliminated three of our five trial management systems exceeding our original goal for consolidation. I would like to again point out that we continue to add staff to better support new business acquisitions in our growing business including third-party contractors to supplement our existing workforce most of which will be a headwind in gross margin in the short term.
Lastly, the impact of foreign exchange reduced our direct costs by greater percentage than our revenue and therefore positively impacted our gross margin percentage by approximately 100 basis points for the fourth quarter and 115 basis points for the full year 2015. SG&A expense increased from $40 million in the fourth quarter of 2014 to $42.3 million in the fourth quarter of 2015or a decline from 18.7% to 17.5% in net service revenue.
On a full year basis our SG&A expense increase from $142.7 million to $153.8 million or a decline from 17.8% to 16.8% of net service revenue. We continue to be pleased with our disciplined approach around SG&A expenses as we have grown our SG&A cost at approximately 60% [ph] of the rate of our revenue growth on a year-over-year basis during 2015.
As we mentioned on our last earnings call, as expected we did see a slight sequential increase in SG&A expense during the fourth quarter as a result of higher costs associated with being a public company, increased other marketing and related costs and increased staffing to support our growth. Although we expect to continue improving our efficiency in SG&A in 2016 we intend to reinvest these savings into further expansion of our sales and marketing activities to expand our addressable markets.
This may limit further improvement in our SG&A margin in the short term. Our strong revenue growth, operational execution and ability to leverage our SG&A infrastructure resulted in an adjusted income from operations increasing 47% from $35.3 million for the fourth quarter of 2014 to $52 million for the fourth quarter of 2015 with the associated operating margin increasing from 16.5% 21.5%.
On a full-year basis adjusted income from operations increased from $123.7 million in 2014 to $203.2 million in 2015 with the margin improving from 15.4% to 22.2%. Adjusted EBITDA grew by 40% to $56.6 million for the fourth quarter of 2015 from $40.3 million for the fourth quarter of 2014.
Adjusted EBITDA margin improved to 23.4% for the fourth quarter of 2015 from 18.9% for the same period in 2014. For the full year 2015 adjusted EBITDA increased by 52% to $221.4 million up from $145.3 million in 2014 with adjusted EBITDA margin improving from 18.1% to 24.2%.
As mentioned previously, gross margin and SG&A expenses for 2015 were positively impacted by certain one-time benefits realized in the first and third quarters. As outlined on Slide 16 in the appendix these items also positively impacted our operating and EBITDA margins by approximately 85 basis points during 2015.
Excluding the impact of these one-time benefits, our income from operation margins and our EBITDA margin for 2015 were approximately 21% and 23% respectively. Foreign exchange had an impact of less than 1% on adjusted EBITDA for both the quarter and the full year.
However, since foreign exchange significantly reduce our revenue it positively impacted our adjusted EBITDA margin percentage by approximately 85 basis points for the fourth quarter and 95 basis points for the full year. Adjusted net income increased to $31.4 million for the fourth quarter 2015 from $15.2 million for the fourth quarter of 2014 and increased to $120.2 million from $44.6 million on a full year basis.
Adjusted diluted earnings per share was $0.54 and $2 for the fourth quarter and full year 2015 respectively compared to $0.26 and $0.83 for the fourth quarter and full year 2014 respectively. After normalizing for the one-time benefits discussed earlier our EPS was $1.92 for the full year 2015.
Diluted weighted average shares outstanding were 58 million for the three months ended December 31, 2015 and 60.1 million for the full year rest of which includes the impact of 2.3 million shares from equity based employee awards. At December 31, 2015 the outstanding share count was 53.9 million.
Slide 7 provides some key metrics demonstrating our strong cash flow and leverage position. Our cash flow from operations was $63.6 million for the fourth quarter of 2015 as compared to $14.1 million for the fourth quarter of 2014.
Cash flow from operations for the full year 2015 was $204.7 million, an increase of $73.3 million or 56% over 2014. These increases were driven by our growth in revenue and the margin improvements highlighted previously, coupled with ongoing work in capital management.
During the fourth quarter we executed a secondary offering of 6 million shares of common stock held by our sponsors reducing our ownership below 50% and thereby eliminating our control of the company staff. In conjunction with this offering we will purchase an additional 3 million shares directly from our sponsors reducing our outstanding share count.
This repurchase was funded with the combination of cash on hand and borrowings on our revolving credit facility. Accordingly, we ended the fourth quarter 2015 with $85 million in unrestricted cash and $30 million outstanding on our revolving credit facility.
Slide 8 summarizes key metrics related to our backlog. We believe one of the most important leading indicators of future revenue growth is backlog coverage which is presented in the bar chart in the bottom left quadrant on Slide 8.
As you can see we are maintaining a favorable position with 83% coverage of our 2016 revenue forecast as of December 31, 2015. This is within the range of the coverage percentages as of December 31, 2014 and 2013.
Lastly on Slide 8 you can see our backlog burn rate of approximately 13.7% for the fourth quarter. We believe our healthy burn rate is driven by strong operational execution, our conservative and disciplined approach to recording awards in backlog and our average study duration.
We have begun to see a slight slowing of backlog burn rate primarily driven by growth in our average study duration over the last several quarters. We believe this increase in study duration is primarily driven by the overall increase in the complexity of trials coupled with our growing average call size and the increasing mix of oncology trials which typically have a longer duration.
On Slide 9 we are providing our guidance with key financial metrics for the full year 2016. This guidance takes into account a number of factors including expectations for net awards during 2016, current foreign currency exchange rate, current interest rate and expected further reduction in our tax rate.
We expect our net service revenue for the full year 2016 to range from $1,005.0 million to $1,025.0 million representing a growth rate of approximately 10% to 12%. This takes into account foreign currency headwind estimated at approximately $7 million, a negative impact to our growth rate of approximately 75 basis points.
Accordingly, our constant currency growth rate is expected to be between 10.6% and 12.8%. Given the recent increases in interest rates along with some significant tax planning we completed in the fourth quarter, I wanted to comment briefly about our expectations related to interest and tax expense.
With regards to the interest expense and the expected increasing yield curve during 2016 we expect interest expense to range between $12 million and $13.5 million. As the tax expense we completed a reorganization of our international operations during the fourth quarter that we expect will be a springboard to further lowering our effective tax rate over the next two to three years.
During 2016 we expect our effective tax rate to be approximately 34%. We expect our adjusted diluted earnings per share to range from $2.30 to $2.45 representing growth of approximately 20% to 28% compared to normalized EPS of $1.92 in 2015.
Lastly, we expect to earn $1.69 to $1.84 per share on a GAAP basis. Included in our revised GAAP earnings per share guidance is an estimated $0.16 per share impact from stock-based compensation.
This completes our prepared remarks and we will be happy to answer any questions.
Operator
Thank you. [Operator Instructions] Our first question is from John Kreger with William Blair.
You may begin.
Unidentified Analyst
Hi, good morning guys. This is actually Robbie Fadda [ph] in for John today.
Thanks for taking the questions. If I can just focus on margins quickly, some of the comments you made here at the end was the tax rate coming down and interest and expense expected to moderate a little bit, and some of the other puts and takes in margins suggested, maybe EBITDA margin could actually be down next year as part of your forecast, are we thinking about that right?
Greg Rush
I wouldn’t necessarily say that. I think we feel like, last year I think the normalized rate was roughly 23% and we think it will be around EBITDA in that range.
I'm not going to say exactly 23% but then about 50 basis points plus or minus, I think in that range.
Jamie Macdonald
And Robbie it is Jamie, I think we have some opportunities for margin expansion, those activities we're still working on as we've talked about in the past. I think we're bringing Japan to critical mass that will allow profitability in our early phase business I think there is room for improvement there.
We continue to work on facility consolidation and system consolidation, but at the same time we are investing in the business as well. So it is things like the Catalyst site program, other activities in terms of improving our systems and usability and function ability for particularly our mobile staff will take some investment.
So I think sort of net out. So I think Greg sort of is trying to just give you that picture in terms of saying it is going to be in that range as we invest in the business to grow at top line growth as well.
And there we're coming out and make as you know we've been pretty prudent with CapEx over the last couple of years and we'll continue to be so. And so operating margin I think has more of an opportunity to expand over the next year or so given our prudent CapEx expenditures.
Unidentified Analyst
Great, that's helpful. And just one quick followup, you mentioned that you finished a long term strategic plan, what does that include for EBITDA margin expectations beyond 2016?
Greg Rush
So, it is more than just financial number. It is one of the things if you know about our focus is patients, it’s the size, it is acquiring new business, it is really been the choice to all of our stakeholders.
So one of the things that we are doing in 2016 is trying to continue to improve our relationship with sites and invest there. And then ultimately if we are able to get patients faster than our competition we think that will help lead to faster top line growth and that's built into our model for 2016, 2017 and 2018 and we would hope to be able to continue to provide the above market rates on the top line.
Jamie Macdonald
Yes, I mean Robbie it is sort of a comprehensive plan that covers sort of all aspects. So yes, growing top line, growing market share, sort of increasing penetration in key markets, it is also about investing in process and systems and tools, it is also about investing in our people from a retention and development standpoint it is a very competitive market and we want to make sure we've got an environment in which people want to join INC, stay with INC and build careers here.
And I think that all leads to just better delivery, more efficient, more effective, higher quality delivery that ultimately should have benefit on the bottom line from a net income and earnings standpoint.
Unidentified Analyst
Great, thanks very much.
Operator
Thank you. Our next question is from Robert Jones with Goldman Sachs.
You may begin.
Robert Jones
Thank you for taking the questions. Actually, one is around backlog conversion and then Greg I know you've touched on this a little bit in your prepared remarks.
It seems like guidance implies it is slightly lower conversion rate than what we saw in 2015 overall. You mentioned some of the reasons why in the latter part of 2015 why that slowed.
Your competitors have talked about this being more of a prolonged slowdown in conversion. I am just curious if you could weigh in and give us your thoughts on is this more just configuration of the type of wins or is it more of a new normal we should think about as far as backlog conversions?
Greg Rush
I think it is really more about the configuration of the words of our winning [ph]. So if you went back say almost three years ago, the average length of study in our backlog was approximately 30 months.
Part of that is the mix of the type of trial and here for example oncology studies are typically much longer than say immunization study or even some of the CNS studies that we have. So you have the mix of by therapeutic area as where our concentration is if you look at our backlog concentration we've moved to a lot higher on the oncology than we have in say CNS.
The second aspect of it is, today our average length of the study is around 40, one month I think 40 to 41. So we've seen that longer duration because of that.
The other piece is Phase 2 very Phase 3 trials and the mix of that has an impact. Part of that also is that each study itself has gotten longer due to the complexity.
I don’t believe it is anything to do with execution. We feel very good about our execution on the trials we're still getting trials as fast or faster than the industry and we feel good about that.
It is all to do with the composition of what's in our backlog. I think we've made those comments in Q3 that we certainly seen over the last year or two as older studies burned out they had shorter duration and we completed those studies.
Over the last couple of years they've been replaced with studies that are longer and that's been creeping up our average study length.
Robert Jones
Yes, that makes sense and I guess just a followup, looking at the slides here around the sorts of bookings, it seems like part of the win came from large biopharma outside of your existing top ten customers. I'm just curious if maybe you could talk about some of those relationships, are any of them more strategic in nature, just what are you seeing on the kind of new customer front would be helpful?
Thanks.
Jamie Macdonald
Yes, Bob, it is a good mix. I mean our repeat business rate remains pretty strong which obviously is to some extent the easiest business to win if you've got existing work and you are delivering and that leads to additional work that's obviously ideal.
But we also know that we need to expand our addressable market and bring in new customers. I think the new customers that are coming in is pretty consistent with what Greg has said in the past, they generally come in, in sort of smaller increments initially, smaller studies and then building from there and that continues to be the pattern that we're seeing.
There is nothing that I would necessarily call out. As you know, we are quite happy not have to talk about specific customers because it seems to recycle back around every quarter that we then have to talk about them again.
It's more about serving all our customers and having a degree of a quality across customers that they’re getting the right service and the right teams.
Greg Rush
Bob, one thing I made in my prepared remarks related to our bookings. We had a really strong bookings quarter in Q4 with regard to new out wins.
This is one of the better ones in our history. We talked about how conservative we are and what we record in the backlog.
We had over a $100 million as I mentioned in the prepared remarks of studies that were awarded that were not cancelled, but we chose not to take effectively in the fourth quarter, just because we had concerns as to whether this sponsor would actually proceed with the trial, whether it be funding issue or the customer is looking at the market for the drug. And yes, there is a mix of large pharma and tall biotech.
So, I think that speaks to the quality and the strength of our strong quarter and new business awards in the fourth quarter.
Robert Jones
Got it. Thanks so much.
Operator
Thank you. Our next question is from Dave Windley with Jefferies.
You may begin.
David Windley
Hi, thanks for taking the questions, good morning. Jamie, I was hoping you could elaborate a little bit on the reinvestment of your SG&A savings into sales and marketing activities.
I’m certainly familiar with your comments of extended period of time about expanding addressable market and that kind of thing, just curious about what some of your thoughts are and where that money is going to be directed?
Jamie Macdonald
Yes, so Dave I mean, a lot of we talked about this a number of times to back socializing INC's capabilities with these customers and assessing where those customers are in the cycle of vendors. Some of them have made recent choices and therefore we would think it would be a longer process to penetrate those accounts, others are coming up through cycles and considering reviewing or renewing their vendor pool and we want to make sure that long before we see the RFI or the RFP we at least have some established relationship that has socialized INC's knowledge at the therapeutic level, clearly capabilities operationally and the trusted process, the strength of our relationship with sites and even in some cases patients advocacy groups and networks, and really to position us to be highly considered in that sort of vendor selection process.
That’s generally for people that are making strategic decisions. There is still a lot of transactional business out there as well.
You are coupling that through conferences, a network physicians and researchers and scientists, writing white papers, there is a whole series of activities that are going on the sales side. There isn’t a silver bullet to bringing a new customer.
It usually is a relatively lengthy process and quite involved as you would expect, so we have pretty good plans at the customer level.
David Windley
Sure, thanks. So a followup to your answer there, the way you answered in terms of thinking about clients that might be approaching a vendor selection does, I can imagine that people are sitting on the other end of the phone inferring Pfizer from that, so not to bring up specific, but…
Jamie Macdonald
I think I'm not taking about talking about Pfizer.
David Windley
I know so, and I know I will get the question and so I want to re-ask the question, when you say that I interpret you to mean more generally, just to be clear I want to – the opportunity are you talking specifically about Pfizer?
Jamie Macdonald
It is more general. I think as most of you realize, Pfizer works with a myriad of CROs beyond the current two or three strategic providers that they have.
We certainly read all the transcripts from our colleagues in the CRO industry. So we know they are going through a review process.
There is nothing in our earnings guidance for 2016 that is dependent on additional business from Pfizer beyond what we currently have.
David Windley
Right, great, I appreciate that…
Jamie Macdonald
And that we're quite evasive but it is not one that we're putting a lot of stock on in terms of how we expect to perform in 2016.
David Windley
Thank you. I appreciate that.
So one last followup, so in terms of and Greg I appreciate that $100 million call out that you gave us, you’ve talked about being conservative about what you put in backlog. I think an extension of that statement has been that you believe that your backlog conversion rate would be more stable and more predictable than the peers i.e.
would not go down like the peers have seen theirs go down because of the way you book your backlog. To Bob’s question seems like some natural evolution of the composition of your backlog is bringing that conversion rate down.
I guess there is - I’m inclined to kind of say, are you finding, are you kind of learning things that you maybe didn’t foresee before that are part of INC’s maturation to a size that some of the other peers have already gone through, in other words theirs went down for a reason that you’re now experiencing?
Greg Rush
No, I don’t think so. I think you may have interpreted my comments in the past.
I think backlog conversion rate being high is an indication of the conservative nature of that and I think ours is still higher than the industry. I think that the thing that as I’ve said all along, there are many factors that go into the backlog.
If we had been awarded a billion dollar award on the last day of the quarter that would be great for future business, but our backlog conversion in the first quarter after winning that award is going to suck, it is going to be probably low single digits. But that doesn’t mean that we don’t have a great business and things are conservative and that we're turning revenue just this fast, part of it is timing, part of it is the mix of studies, and so I don’t think it’s anything that we’re learning differently on that at all Dave.
Jamie Macdonald
Dave, let me give you some comments on that, and I think Greg sort of covered it on the therapeutic side, but in terms of clinical endpoints nothing has really changed in the industry that would suggest that trials in themselves by therapeutic area are getting any longer. We still follow the same clinical development pathway.
I think where things are taking more time, is certainly in the startup area, getting sites initiated and then clearly patient enrollment. We’re prescribing a much more specific patient as evidenced by things like inclusion, exclusion requirements.
We’re getting towards, in some disease areas personalized medicine, particularly in oncology. So that’s not necessarily new news, it’s just an evolution of the science that means it sometimes is taking longer in startup.
What we’re going to do is level set with customers so they know exactly how long it’s going to take to initiate sites and then enroll patients, so that we’re meeting their expectations. I think we’ve done a very nice job as evidenced by repeat business offsetting reasonable expectations around timelines for study enrollment and delivery.
As you get into a different mix of studies little later phase studies, you are generally following longer endpoints on efficacy and long-term safety, on particularly in chronic disease areas. So if your mix the studies changes in that mix it will extend your backlog for longer and lower your burn rate.
But I think we are pretty much burning in line with backlog as you can see by our sort of quarterly performance we continue to burn the revenue that we thought we're going to burn.
Greg Rush
And Dave, one last follow-up, I think the biggest thing that changed in our backlog that we did not expect as much is oncology. We’ve done really well in winning a significant amount of studies there.
We’ve done better than we expected in that particular area. Those studies are longer.
Where we probably would have liked to have done a little bit better this past year is CNS and I think that has to do more with where some of our large customers are that are CNS customers and their pipeline and when they are giving awards versus us losing market share there is just the timing of those awards. So if over the next 12 to 18 months we start winning a lot more of the CNS awards and you see the mix of our CNS portfolio go up as a percentage of our backlog relative to oncology, so if you go back and look a year ago at our site I think CNS was our biggest piece of our pie chart.
Today it’s the second biggest probably because it’s still growing a little bit slower rate than we expected and oncology is growing at a much faster rate than we expected. So you see that mix turnaround, I think you will see the backlog burn take backup because this stage are typically shorter.
David Windley
Got it, thank you. I will drop out.
Thanks for the answers.
Greg Rush
Thanks Dave.
Operator
Thank you. Our next question comes from Tim Evans with Wells Fargo.
You may begin.
Tim Evans
Thanks. Greg, why is your stock comp going up so much in 2016?
Greg Rush
I think part of it is just, last year we did a grant mid-year, so last year only had half of that grant in it, so just much like our buyback of stock, Q1 of this year is going to have either most dramatic impact on the share buyback. We bought 8 million shares back last year, most of which were end of December.
So we’re going to have 8 million share comp better in Q1 than we did in Q1 of last year. Stock comp grant was in June of last year for the employees and this year we did that in Q1 in January in fact.
So you have basically a full year of the 2016 grant impacting that and you have half a year more on the 2015 grant.
Jamie Macdonald
And so Tim, just a couple of other items, we didn’t do a stock grant at the time of the IPO and you can see it in the public documents, so everything is certainly out there. But it’s certainly very much in line with what we believe is market not just within the CRO group, but within our competitive peer set that we obviously benchmark total comp against.
Tim Evans
So the 2016 level is probably going to be a level that you would see going forward?
Jamie Macdonald
It depends – it depends on growth and where we perform. Obviously there is recognition that we believe we have a management team that we want to retain and we want to make sure that we have the tools in place to do that.
Tim Evans
Okay.
Greg Rush
Yes Tim, the other thing to keep in mind, we had a really good performance on our stock and so if you look at – if you grant one share of stock in 2014 at $18 a share and then you grant that same one share to Jamie in June of last year when the stock was I think almost $50 a share, the stock comp associated with that one share in your financial records doesn’t change, it’s fixed when you grant it. So the 2014 share gives you $18 a share of expense and the 2015 gives you $50 a share of expense.
Yet you did nothing more to dilute shareholders in terms of and the number of shares granted.
Tim Evans
Okay, I understand. One other question, you've quantified your small to mid-sized biopharma exposure at 41% of revenue.
Can you just, I know we've discussed this before, but I think it bears repeating, can you drill down on that just a little bit to help us understand how many of the companies in that 41% or what the total pie I guess would be a better way to ask is call it unprofitable companies?
Greg Rush
I don’t know if we slice it from unprofitable, but we stay focused on is how much cash do they have to fund the trial. A company that has $1 billion in the bank and is losing $200 million a year still have five years of runway and so we focus more on what goes into our backlog based on funding.
And we believe that our customers that are in backlog are pretty prudent in terms of what we fit in there. I alluded to the example in Q4 where we had a $50 million award where we were a little bit concerned about their funding.
We didn’t put it in there and we don’t have it in our guidance – we don’t - didn’t include it in our guidance for 2016. If that customer ends up getting the funding and proceeds with the trial, we have upside to our guidance and we have increase in our backlog of $50 million.
Jamie Macdonald
I think at the end of the year we had a total backlog Tim, we had about 14% that was with what we would call pre-revenue biotech, but most of those are extremely well funded and obviously if we believe there is any restitute funding or their ability to pay for the trial not just the INC fees, but over third-party fees, the investigator fees, it wouldn’t work its way into our backlog. So I think the thing that I would point to is our bad debt expense over the last history.
So three plus years has been extremely low. So we have not taken on credit risk, if that is the sort of way your question is.
Tim Evans
Okay, thank you.
Operator
Thank you. Our next question is from Michael Baker with Raymond James.
You may begin.
Michael Baker
Yes, my follow up question is on the Catalyst program that you’re launching to try and gain some sense of performance variability amongst the sites that are now in the network and do you have set goals or targets on some key metrics or is it just kind of looser form of improvement on collaboration and sharing that you anticipate what kind of time frame or when we should see some of these impacts to the financials?
Greg Rush
Yes, Michael good question and there could be a very lengthy answer. I mean, the whole pharmaceutical development industry, so not just CROs are heavily dependent on motivated investigators with protocol eligible patients.
I mean, that is the crux of pharmaceutical development. You can have a great drug and a great protocol, but if you can’t find investigators that are willing to run that study and if those investigators don’t have access to patients that meet that protocol, you are going to see very long, very expensive clinical development.
So what the Catalyst site program is trying to particularly on the administrative side really move through that processes as efficiently and effectively as possible. And to initiate any site there is probably anywhere between 10 and 14 items that have to be in place including contracts, including ethical review, the drug brochure, putting in place the necessary sort of clinical ancillary devices and equipment on site and labs and drug supply and really just trying to improve the logistics and administrative side of that start up process.
And you should be able to do that though repetition of working with the sites, you know what their needs are, you know what their operating model is. And if you can initiate sites earlier in the process than you would normally, so reducing cycle time from final protocol to site initiation is something that we follow quite closely.
If you can do that, then you open a longer window for that site to enroll patients that should allow them to meet the enrollment targets that allowed you then to satisfy your customer's expectation around timelines. So that’s really that the genesis of it.
It is something that we have been doing really across the board, but we believe there are certain sites that are just more equipped to move through that startup process in a consistent efficient manner and really becoming that, that’s why we call it a Catalyst becoming that early adopter of the protocol. They are going to give us feedback very early on how that protocol is been received in an operating environment, the impact on their own staff and resource, the impact and feedback from patients as well and that early information will allow us to be better informed as we bring up other sites in other countries.
So that’s the real purpose out there. We do good work in startup feasibility site ID, but we believe we can continue to be better.
Michael Baker
Thanks for the color.
Jamie Macdonald
Thanks, Michael.
Operator
Thank you. [Operator Instructions] Our next question comes from Greg Bolan with Avondale.
You may begin.
Greg Bolan
Hey, thanks guys and congrats on a solid 2015. So, just wanted to kind of think about Greg, the wide space between what you currently have in backlog to obviously burn in revenue in 2016 and what you need to win between now and then.
And I know it's not a huge wide space, but what I guess I’m really trying to understand as RFP activity assumed during 2016 and is there any thoughts around your win rate as you think about kind of you’re - the movement you’ve been experiencing>
Greg Rush
Yes, if you look at Slide 8, I don’t think that there is a high degree of wide space there. I mean, if you look at our backlog coverage were 83% for 2014 when we grew revenue by 24% by the way in that year we were at 82.8 and last year we were at 86.5%.
So we’re right there where we have been in the past. One of the things that we took into account in our guidance was we had almost $10 million of revenue headwind since 12/31 and we’ve lost.
I think our guidance would have actually been about $10 million higher at the midpoint if we had not had that headwind since December 31. So and we feel pretty good about that.
Do we have to grow awards at a pretty good pace this year, yes the same as we had the last two years, so and we did that last couple of years. So we feel good about that, the amount of sites that we have to coverage as you can see at our midpoint is a little over $160 million, $170 million.
So given our pipeline and our discussions with customers we’re hoping to be able to do that.
Greg Bolan
That’s great thanks and then I guess just lastly, as you guys are kind of moving up the ranks and market share, I don’t know Jamie, can you may be describe kind of how your, how the, have you noticed any real change in terms of how the peers behave as of late as competition for CRAs all the way up to project managers what have you, intensifies, I guess if you've seen any real change behavior as it relates to hiring which you kind of addressed earlier which just kind of the ideas of elevating stock comp but then also how are they behaving as it relates to RFP bake offs that you guys are getting involved in really probably more so on the transactional side, if you could maybe give us a little color, that would be great?
Jamie Macdonald
Yes, Greg some good questions there. I think on the resourcing side, I think one of the things that we certainly benefited from is we’ve done a pretty good job of retaining our senior layer.
We've had a leadership meeting at the end of January where we were sort of rolling out the new strategy that we referenced and we really have very good retention in that team and I think that’s allowed us to be pretty consistent in our delivery and our interfaces with customers at a senior level, definitely competition for resource out there. There is some pretty hot market CRAs you've referenced, project managers I think geographically there is certainly some pressure on resource in some of the newer markets, particularly in Asia.
I think for us we believe we have a competitive offering. We’ve rolled out sort of campaign to better identify the culture at INC with existing employees and new employees as well and I think that’s benefiting us in the market.
But yes, we do have to be competitive. Compensation is important, so there is a little bit of pressure there, benefits are obviously important as well, but I think people are making choices on who they join for other reasons, to some extent it’s going to be job satisfaction.
It is the support they get from management and structure, it’s the tool, it’s the process, it’s the ease of use of systems and equipment and I think we do a pretty good job in that space, but we continue to invest in it that is one of the key initiatives under the strategy. You referenced sort of competitive markets.
I think competitors generally are being pretty consistent in the way that they approach opportunities. I think, not to call out Dave Windley too much, but I think Dave’s recent article on pharma buying is consistent with our own view.
It’s less about price and margin of the CRO. It’s more about other factors.
It is confidence in your selected vendor to be able to deliver the trial on time, on budget with the requisite quality. So that is about putting the right strategy, the right theme and then some evidence based assumptions around the number of sites you’re going to need, key countries for a particular study and enrollment rates.
And I don’t think that has changed too much and therefore it comes down to how do you differentiate more on value to the customer and less on price. I think we haven’t finished the analysis, but I think if you looked at CRO performance across all of 2015, we have seen good margin, we have seen margin expansion, we have seen pretty consistent performance in terms of new business and backlog growth and I think that is a reflection of a maturing, yet still competitive market and the market continues to grow which I think obviously benefits everybody in the space.
I think particularly the public, I think for smaller CROs, who don’t have the global footprint or breadth of geographic coverage or the latest tools and analytics, I think it’s probably more challenging in that space.
Greg Bolan
That is great, thanks for all the color.
Operator
Thank you. I’m showing no further questions at this time.
I would like to turn the call back over to Jamie Macdonald for closing remarks.
Jamie Macdonald
Thank you. Thank you, ladies and gentlemen for your attendance today and for your interest and investment in our company.
We look forward to reporting back to you on our next call with further progress made during the first quarter of 2016. Have a great day.
Operator
Ladies and gentlemen, this concludes today’s conference. Thanks for your participation.
Have a wonderful day.