Steve Cutler: Sure. Well, you’re right. We have — we haven’t increased headcount dramatically. It’s been very flat over the last 12 months or so, and yet we have been able to increase revenue. A good part of the reason is our strategy around our efficiency. We’ve been able to bring in and use the bots. Machine learning/AI has been a significant contributing factor. Our IT group has done an excellent job in bringing that in. I think, we talked about 2 million hours of time last year and we’ve got a target of something like 3.5 million for this year. So, that’s a really important part of it. The optimization of the location of our workforce is also an important part of it. We have a terrific team here at ICON, who work really hard and who are very efficient and who understand the need to continue to be more efficient.
And that’s a really important part of what we do. And I think the other part of it is the systems and technology that we’re continually able to deploy around the organization has given our smart people the opportunity to be more efficient and to operate and to get more done within the same amount of time. So, all of those things, I think, have helped us to keep our headcount pretty flat. I think, it’s gone up 100 or so over the year, and it’s really allowed us to be continually more productive. We have to do that. We set ourselves a goal of being — of increasing at least several percent in productivity each year to allow us to be — to continue to be the efficient organization we can be. The other part of it, I think, that helped is on the retention.
Again, the team and the managers in the organization have done a terrific job in continuing to engage people in a way that’s brought our retention up to — it’s in the high-80s now, where I don’t know there’s a time we’ve had better retention in the organization. It’s quite extraordinary, really, the way it’s improved on a quarter-by-quarter basis, really over the last couple of years post-COVID. So, we’re well — we’re in much better retention than we had pre-COVID and probably better retention than we’ve had at any time in our history, I would have thought. And, again, I guess, it’s a tribute to the managers and the leaders of the organization who created an environment around here that people want to work in and people feel engaged in. So, I’d give them the credit on that front, but it’s all helped us to become more efficient and hence to avoid having to increase our headcount in line with our revenue.
Operator: Please stand by for your next question. The next question is from Patrick Donnelly at Citi. Your line is open. Please go ahead.
Patrick Donnelly: Hey, guys, thanks for taking the questions. Maybe on the back of that last one on the headcount piece, it’s probably one for Brendan. Just on the margin side, obviously SG&A has been a nice lever. Can you talk about — is that still heading towards 8% here in the relative near term? And obviously you guys are talking about 50 bps overall. But can you just talk about the margin dynamics? FSP, that shift has seemed to quiet down a little bit, I guess, it’s just because service has been strong for you guys, better margins on that front. But again, can you just talk about, I guess, the SG&A levers? Is it still right to think about that 8% near term? And then again, that FSP shift, it feels like you guys have that well under control, [let’s not] (ph) talk to that as well?
Brendan Brennan: Yeah. Patrick, well, I think from the — just maybe starting off with the gross margin piece and I think we kind of clearly indicated coming into this year that we still are targeting to be in around where we were in the current quarter in around that 30% mark for the full year. And that’s — obviously, there’s lots of moving parts underneath that. Steve made reference to our efficiency as an organization. You made reference to the fact that we were talking a little bit more last year about FSP, albeit full service has been much more impactful so far this year. And that obviously has a little bit of shift in the margin profile, but it’s taken account of in terms of our forecast gross margin there in around the 30% mark.
So, yeah, those pieces are kind of baked in, if you like, in terms of margin shift, and we feel that we can sustain that 30% gross margin in that profile. As I kind of mentioned on numerous of calls in the past, our leverage that we expect, we talked about 50 bps of expansion in 2024 is predominantly on SG&A. I think you can see we’re making good progress on that. I had referenced that was where we expected to see the margin leverage this year. And yeah, we always, we’re assiduous cost managers, as you well know, and we look to building efficiency using the same pieces that Steve referenced in terms of our gross margin efficiency. So, our technology, the use of systems and the use of machine learning, AI and robotics to ensure that we’re as efficient as an organization.
And people spend their time working on value added work as opposed to route or things that can be automated. So, that’s where we continue to look at. And I think that will probably predominantly be the large way we will be leveraging our margin and cost base, not just this year but into the future. So, yeah, we’re making good progress and would like to see that progress continue.
Operator: Please standby for your next question. Next question comes from Justin Bowers at Deutsche Bank. Please go ahead.
Justin Bowers: Hi. Good afternoon/morning, everyone. So, we’ll stick with large pharma here. Can you talk a little bit about the philosophy of decision making amongst the large pharma clients with respect to either new programs or the outsourcing approaches relative to last year and some of the concerns there? And then just with respect to outsourcing penetration, I think, historically we thought we’ve seen the industry grow, let’s say, one or two points per year there. Is that still intact for 2024 and the next couple of years?
Steve Cutler: Sure. Sure, Justin. I mean, I’ll answer your second part first. Penetration year, 1% to 2% a year, 1 to 2 — 100 to 200 bps, I think, is the way to think about it and that’s what we think about it. We think there’s still plenty of upside over the next decade or two. Maybe there’s no doubt. A ceiling maybe at 70%, 75%, but we’re probably only at sort of 50%, 55% now. So, I think, there’s still plenty of room for upside on the penetration side. And, of course, it varies depending on which company you’re at. In a large pharma, it’s going to be lower than it is in the biotech, where we’ll typically do pretty much everything for them. In terms of velocity decision, I don’t think we see any particular change in the velocity decision.
