Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from David Windley – Jefferies & Co.
David Windley – Jefferies & Co.
Jim, at the risk of getting into technicals, the accounting changes, as I read them, for the ClinPhone, at least as they relate to the forward-looking treatment of not recognizing revenue during the start-up period of a contract, would seem to be something that would just kind of pick up revenue and push it out, push it into later periods. And so what I didn't quite follow is how some almost $17.0 million comes out of 2009, which would seem to flow into 2010, or perhaps even later, and yet the net effect to 2010 is still a decent size negative number. I was hoping you could help us to understand why 2010 continues to suffer negatively on revenue in EPS.
And also, in that, compared to what? Negative compared to what pre-established comparison?
James F. Winschel, Jr.
I certainly understand the question. The start-up period for an IVR study is about 5 months, and then the average duration of a study is 20 months and then we also have to take into account some estimate of an average extension period. And so with respect to start-up activities, about 30% of the revenue on an IVR study comes from those very, very important start-up activities. And you now have to take that revenue and recognize it over—first of all, you don't start recognizing it until the start-up activities are completed and then you have to recognize it over that 27 months period. I guess it's an additional 22 months period. And so there's a disproportionate impact from that.
Now the other thing about our IVR business, of course, is that it's a terrific business that is growing rapidly and we're very good at that particular work. And the combination of the fact that the business is growing along with the fact that all of the ClinPhone-related start-up activities that were completed prior to August 14 of last year, we're not allowed to take any of that revenue to offset those prior periods.
So normally, if this hadn't been an acquisition situation, we would have been getting revenue from start-up activities related to 2007, 2008, and 2009, and now with the acquisition of ClinPhone, it almost starts all over again. And that was what has caused the issues.
David Windley – Jefferies & Co.
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