- Net new business of $670.0 million; Net book-to-bill of 1.30
- $722.8 million of revenue; 35.4% growth at actual foreign exchange rates and 34.2% growth on a constant currency basis
- $575.0 million of revenue excluding the impact of ASC 606; 25.6% actual growth and 12.9% organic growth at actual foreign exchange rates; 24.4% growth and 11.7% organic growth on a constant currency basis
- GAAP net income per diluted share of $0.64 and GAAP net income of $42.0 million
- Adjusted net income per diluted share was $1.00 and adjusted net income was $66.1 million
- Updating full year 2018 revenue guidance between $2.87 billion and $2.92 billion, GAAP net income per diluted share between $2.92 and $3.02, and Adjusted Net Income per diluted share between $4.13 and $4.23
RALEIGH, N.C., Aug. 01, 2018 (GLOBE NEWSWIRE) — PRA Health Sciences, Inc. (“PRA,” “we,” “us” or the “Company”) (NASDAQ: PRAH) today reported financial results for the quarter ended June 30, 2018.
For the three months ended June 30, 2018, revenue was $722.8 million, which represents growth of 35.4%, or $189.1 million, compared to the second quarter of 2017 at actual foreign exchange rates. On a constant currency basis, revenue grew $182.3 million, an increase of 34.2% compared to the second quarter of 2017. On January 1, 2018, the Company adopted Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers,” or ASC 606, using the modified retrospective method for all contracts that were not completed as of January 1, 2018. The prior periods were not restated under this guidance and remain as previously reported. The primary impact of applying this new guidance on our statement of operations is that (i) we now recognize reimbursements from our customers for payments to investigators as revenue, whereas these payments and costs were previously recorded on a net basis, and (ii) we include all reimbursed costs in the total project costs when measuring our progress under our research contracts instead of recording these amounts on a separate basis.
The impact of the adoption of ASC 606 on the Company’s revenue is summarized below:
| Three Months Ended June 30, 2018 | Three Months Ended June 30, 2017 |
|||||||||||||||||||
| As Reported | Reclassification from adoption of ASC 606 |
Impact from adoption of ASC 606 |
Balances without adoption of ASC 606 |
|||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Revenue: | $ | 722,841 | $ | (658,263 | ) | $ | (64,578 | ) | $ | — | $ | — | ||||||||
| Service revenue | — | 574,981 | — | 574,981 | 457,942 | |||||||||||||||
| Reimbursement revenue | — | 83,282 | — | 83,282 | 75,782 | |||||||||||||||
| Total revenue | $ | 722,841 | $ | — | $ | (64,578 | ) | $ | 658,263 | $ | 533,724 | |||||||||
Excluding the impact of the adoption of ASC 606 and reimbursement revenue, revenue increased $117.0 million, which represents growth of 25.6% at actual foreign exchange rates and 24.4% on a constant currency basis. Organic revenue growth, excluding the adoption of ASC 606, reimbursement revenue and $58.1 million of revenue attributable to our Data Solutions segment, was 12.9% at actual foreign exchange rates and 11.7% on a constant currency basis.
Net new business for our Clinical Research segment for the quarter ended June 30, 2018 was $670.0 million, representing a net book-to-bill ratio of 1.30 for the period. Our calculation of the net book-to-bill ratio excludes the revenue impact of adopting ASC 606, excludes reimbursement revenue and excludes revenue from our Data Solutions segment. Net new business during the quarter contributed to an ending backlog of $3.9 billion at June 30, 2018.
“I am pleased with our second quarter performance, which included double-digit revenue, earnings and net new business growth when compared to the second quarter of 2017″ said Colin Shannon, PRA’s Chief Executive Officer. “We continue to stay focused on our client deliverables and our strategic objectives. We are pleased to continue to add new clients and believe we are well-positioned to drive future growth.”
Direct costs were $381.7 million during the three months ended June 30, 2018 compared to $300.6 million for the second quarter of 2017. The increase in direct costs was primarily due to an increase in labor-related costs of $36.4 million in our Clinical Research segment as we continue to hire billable staff to ensure appropriate staffing levels for our current studies and our future growth. In addition, our Data Solutions segment resulted in $41.6 million of incremental direct costs when compared to the second quarter of 2017. We also had an unfavorable impact of $5.3 million from fluctuation in foreign currency exchange rates during the three months ended June 30, 2018. Excluding the impact of the adoption of ASC 606 and reimbursement revenue, direct costs were 66.4% of revenue during the second quarter of 2018 compared to 65.6% of revenue during the second quarter of 2017.
Selling, general and administrative expenses were $91.2 million during the three months ended June 30, 2018 compared to $76.2 million for the second quarter of 2017. Excluding the impact of the adoption of ASC 606 and reimbursement revenue, selling, general and administrative costs were 15.9% of revenue during the second quarter of 2018 compared to 16.6% of revenue during the second quarter of 2017.
GAAP net income was $42.0 million for the three months ended June 30, 2018, or $0.64 per share on a diluted basis, compared to GAAP net income of $29.5 million for the three months ended June 30, 2017, or $0.45 per share on a diluted basis.
EBITDA was $102.6 million for the three months ended June 30, 2018, representing an increase of 55.9% compared to the second quarter of 2017. Adjusted EBITDA was $109.7 million for the three months ended June 30, 2018, representing growth of 28.5% compared to the second quarter of 2017.
Adjusted net income was $66.1 million for the three months ended June 30, 2018, representing 27.8% growth compared to the second quarter of 2017. Adjusted net income per diluted share was $1.00 for the three months ended June 30, 2018, representing 26.6% growth compared to the second quarter of 2017.
A reconciliation of our non-GAAP measures, including EBITDA, adjusted EBITDA, adjusted net income, adjusted net income per diluted share and our 2018 guidance, to the corresponding GAAP measures is included in this press release.
First Half 2018 Financial Highlights
For the six months ended June 30, 2018, revenue was $1,424.7 million, which represents growth of 39.5%, or $403.2 million, compared to the six months ended June 30, 2017 at actual foreign exchange rates. On a constant currency basis, revenue grew $380.6 million, representing growth of 37.3% compared to the six months ended June 30, 2017.
The impact of the adoption of ASC 606 on the Company’s revenue for the six months ended June 30, 2018 is summarized below:
| Six Months Ended June 30, 2018 | Six Months Ended June 30, 2017 |
|||||||||||||||||||
| As Reported | Reclassification from adoption of ASC 606 |
Impact from adoption of ASC 606 |
Balances without adoption of ASC 606 |
|||||||||||||||||
| Revenue | $ | 1,424,678 | $ | (1,294,624 | ) | $ | (130,054 | ) | $ | — | $ | — | ||||||||
| Service revenue | — | 1,134,901 | — | 1,134,901 | 885,022 | |||||||||||||||
| Reimbursement revenue | — | 159,723 | — | 159,723 | 136,462 | |||||||||||||||
| Total revenue | $ | 1,424,678 | $ | — | $ | (130,054 | ) | $ | 1,294,624 | $ | 1,021,484 | |||||||||
Excluding the impact of the adoption of ASC 606 and reimbursement revenue, revenue increased $249.9 million, which represents growth of 28.2% at actual foreign exchange rates and 26.4% on a constant currency basis. Organic revenue growth, excluding the adoption of ASC 606, reimbursement revenue and $114.9 million of revenue attributable to our Data Solutions segment, was 15.3% at actual foreign exchange rates and 13.4% on a constant currency basis.
Reported GAAP income from operations was $145.7 million, reported GAAP net income was $81.0 million and reported GAAP net income per diluted share was $1.22 for the six months ended June 30, 2018.
Adjusted Net Income was $122.3 million for the six months ended June 30, 2018, an improvement of 32.8% compared to the same period in 2017. Adjusted Net Income per diluted share was $1.85 for the six months ended June 30, 2018, up 32.1% compared to the same period in 2017.
Guidance
The Company is updating its full year 2018 revenue guidance to between $2.87 billion and $2.92 billion, representing as reported growth of 47% to 50%, constant currency growth of 18% to 20% excluding the impact of adopting 606 and reimbursement revenue, and constant currency organic growth of 10% to 12% excluding the impact of adopting 606 and reimbursement revenue. We expect GAAP net income per diluted share to between $2.92 and $3.02 and Adjusted Net Income per diluted share to between $4.13 and $4.23. We continue to anticipate an annual effective income tax rate estimate of approximately 24%, which includes the expected impact of the U.S. Tax Cuts and Jobs Act. Our effective tax rate may differ from this estimate, due to, among other things, changes to estimates of the geographic allocation of our pre-tax income as well as changes in interpretations, analysis, and additional guidance that may be issued by regulatory agencies as it relates to the U.S. Tax Cuts and Jobs Act.
Our guidance assumes a EURO rate of 1.20 and a GBP rate of 1.37. All other foreign currency exchange rates are as of June 30, 2018.
Conference Call Details
PRA will host a conference call at 9:00 a.m. ET on August 2, 2018, to discuss the contents of this release and other relevant topics. To participate, please dial (877) 930-8062 within the United States or (253) 336-7647 outside the United States approximately 10 minutes before the scheduled start of the call. The conference ID for the call is 9692658. The conference call will also be accessible, live via audio broadcast, on the Investor Relations section of the PRA website at investors.prahs.com. A replay of the conference call will be available online at investors.prahs.com. In addition, an audio replay of the call will be available for one week following the call and can be accessed by dialing (855) 859-2056 within the United States or (404) 537-3406 outside the United States. The replay ID is 9692658.
Additional Information
A financial supplement with second quarter 2018 results, which should be read in conjunction with this press release, may be found in Investor Relations section of our website at investors.prahs.com in a document titled “Q2 2018 Earnings Presentation.”
About PRA Health Sciences
PRA (NASDAQ: PRAH) is a full service global contract research organization, providing a broad range of product development and data solution services to pharmaceutical and biotechnology companies around the world. PRA’s integrated services include data management, statistical analysis, clinical trial management, and regulatory and drug development consulting. PRA’s global operations span more than 70 offices across North America, Europe, Asia, Latin America, South Africa, Australia and the Middle East, and over 15,800 employees worldwide. Since 2000, PRA has participated in approximately 3,700 clinical trials worldwide. In addition, PRA has participated in the pivotal or supportive trials that led to U.S. Food and Drug Administration or international regulatory approval of more than 75 drugs. To learn more about PRA, please visit www.prahs.com.
Internet Posting of Information: The Company routinely posts information that may be important to investors in the “Investor Relations” section of the Company’s website at www.prahs.com. The Company encourages investors and potential investors to consult the Company’s website regularly for important information about the Company.
Contacts:
Helen O’Donnell
Solebury Trout
Managing Director
203.428.3213
InvestorRelations@prahs.com or
hodonnell@soleburytrout.com
Christine Rogers
PRA Health Sciences, Inc.
Director, Public Relations
919.786.8463
rogerschristine@prahs.com
Forward-Looking Statements
This press release contains forward-looking statements that reflect, among other things, the Company’s current expectations and anticipated results of operations, all of which are subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements, market trends or industry results to differ materially from those expressed or implied by such forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may constitute forward-looking statements. Without limiting the foregoing, words such as “anticipates,” “believes,” “estimates,” “expects,” “guidance,” “intends,” “may,” “plans,” “projects,” “should,” “targets,” “will” and the negative thereof and similar words and expressions are intended to identify forward-looking statements. Actual results may differ materially from the Company’s expectations due to a number of factors, including that most of the Company’s contracts may be terminated on short notice and that the Company may be unable to maintain large customer contracts or to enter into new contracts; the historical indications of the relationship of backlog to revenues may not be indicative of their future relationship; the market for the Company’s services may not grow as the Company expects; the Company may underprice contracts or overrun its cost estimates, or fail to receive approval for or experience delays in documenting change orders, and if the Company is unable to achieve operating efficiencies or grow revenues faster than expenses, operating margins will be adversely affected; the Company may be unable to attract suitable investigators and patients for its clinical trials; the Company may lose key personnel or be unable to recruit experienced personnel; the Company may be unable to maintain information systems or effectively update them; client or therapeutic concentration or competition among clients could harm the Company’s business; the Company’s business is subject to risks associated with international operations, including economic, political and other risks such as compliance with a myriad of laws and regulations, complications from conducting clinical trials in multiple countries simultaneously and changes in exchange rates; the Company is subject to a number of additional risks associated with its business outside the United States, including changes in tax law, foreign currency exchange fluctuations and restrictive regulations, as well as the risks and uncertainties associated with the United Kingdom’s expected withdrawal from the European Union; government regulators or customers may limit the scope of prescriptions or withdraw products from the market; government regulators may impose new regulations affecting the Company’s business; the Company may be unable to successfully develop and market new services or enter new markets; the Company’s failure to perform services in accordance with contractual requirements, regulatory standards and ethical considerations may subject it to significant costs or liability, damage its reputation and cause it to lose existing business or not receive new business; the Company’s services are related to treatment of human patients, and it could face liability if a patient is harmed; the Company may be unable to successfully identify, acquire and integrate businesses, services and technologies or to manage joint ventures; the Company may be unable to use net operating loss carryforwards; the Company relies on third parties for data, products, services and intellectual property licenses could lead to an inability to access certain data or provide certain services; the Company has substantial indebtedness and may incur additional indebtedness in the future, which could adversely affect the Company’s financial condition; and other factors that are set forth in the Company’s filings with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K filed with the SEC on February 22, 2018. The Company undertakes no obligation to update any forward-looking statement after the date of this release, whether as a result of new information, future developments or otherwise, except as may be required by applicable law.
Use of Non-GAAP Financial Measures
This press release includes EBITDA, adjusted EBITDA, adjusted net income and adjusted net income per diluted share, each of which are financial measures not prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). Management believes that these measures provide useful supplemental information to management and investors regarding our operating results as they exclude certain items whose fluctuation from period- to- period do not necessarily correspond to changes in the operating results of our business. As a result, management and our board of directors regularly use EBITDA and adjusted EBITDA as a tool in evaluating our operating and financial performance and in establishing discretionary annual bonuses. Adjusted EBITDA is also the basis for covenant compliance EBITDA, which is used in certain covenants in the credit agreement governing our senior secured credit facilities. In addition, management believes that EBITDA, adjusted EBITDA and adjusted net income (including adjusted net income per diluted share) facilitate comparisons of our operating results with those of other companies by backing out of GAAP net income items relating to variations in capital structures (affecting interest expense), taxation, and the age and book depreciation of facilities and equipment (affecting relative depreciation expense), which may vary for different companies for reasons unrelated to operating performance. We believe that EBITDA, adjusted EBITDA and adjusted net income (including adjusted net income per diluted share) are frequently used by securities analysts, investors, and other interested parties in the evaluation of issuers, many of which also present EBITDA, adjusted EBITDA and adjusted net income (including adjusted net income per diluted share) when reporting their results in an effort to facilitate an understanding of their operating results.
These non-GAAP financial measures have limitations as analytical tools, and you should not consider these measures in isolation, or as a substitute for analysis of our results as reported under GAAP. Additionally, because not all companies use identical calculations, these presentations of EBITDA, adjusted EBITDA and adjusted net income (including adjusted net income per diluted share) may not be comparable to similarly titled measures of other companies.
EBITDA represents net income before interest, taxes, depreciation and amortization. Adjusted EBITDA and adjusted net income (including diluted adjusted net income per share) represent EBITDA and net income (including diluted net income per share), respectively, adjusted to exclude stock-based compensation expense, loss (gain) on disposal of fixed assets, loss on modification or extinguishment of debt, foreign currency losses (gains), other non-operating expense (income), equity in (gains) losses of unconsolidated joint ventures (net of tax), transaction-related costs, acquisition-related costs, severance costs and restructuring charges, prior year foreign research and development credits, lease termination expense, non-cash rent adjustment, adjustment to reflect amounts attributable to noncontrolling interest and other charges. Adjusted Net Income is also adjusted to exclude amortization of intangible assets, amortization of terminated interest rate swaps, and amortization of deferred financing costs. EBITDA, adjusted EBITDA and adjusted net income are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income or other performance measures derived in accordance with GAAP or as alternatives to cash flow from operating activities as measures of our liquidity. EBITDA, adjusted EBITDA and adjusted net income have limitations as analytical tools, and you should not consider such measures either in isolation or as substitutes for analyzing our results as reported under GAAP.
Some of these limitations are:
- EBITDA and adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;
- EBITDA and adjusted EBITDA do not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
- EBITDA and adjusted EBITDA do not reflect our tax expense or the cash requirements to pay our taxes;
- EBITDA and adjusted EBITDA do not reflect historical capital expenditures or future requirements for capital expenditures or contractual commitments;
- although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and adjusted EBITDA do not reflect any cash requirements for such replacements; and
- other companies in our industry may calculate EBITDA and adjusted EBITDA differently, limiting their usefulness as comparative measures.
Because of these limitations, EBITDA and adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as a measure of cash that will be available to us to meet our obligations.
Constant Currency
Constant currency comparisons are based on translating local currency amounts in the current year period at actual foreign exchange rates for the prior year. The Company routinely evaluates its financial performance on a constant currency basis in order to facilitate period- to- period comparisons without regard to the impact of changing foreign currency exchange rates.
PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Revenues | $ | 722,841 | $ | 533,724 | $ | 1,424,678 | $ | 1,021,484 | ||||||||
| Operating expenses: | ||||||||||||||||
| Direct costs | 381,655 | 300,611 | 763,087 | 588,123 | ||||||||||||
| Reimbursable out-of-pocket costs | 83,282 | 75,782 | 159,723 | 136,462 | ||||||||||||
| Reimbursable investigator fees | 63,885 | — | 128,452 | — | ||||||||||||
| Selling, general and administrative expenses | 91,169 | 76,195 | 182,871 | 150,463 | ||||||||||||
| Transaction-related costs | 450 | 35 | (11,128 | ) | 75 | |||||||||||
| Depreciation and amortization | 28,554 | 16,101 | 55,893 | 31,293 | ||||||||||||
| Loss on disposal of fixed assets, net | 50 | 150 | 36 | 232 | ||||||||||||
| Income from operations | 73,796 | 64,850 | 145,744 | 114,836 | ||||||||||||
| Interest expense, net | (14,612 | ) | (10,004 | ) | (29,437 | ) | (19,531 | ) | ||||||||
| Foreign currency gains (losses), net | 476 | (14,956 | ) | 393 | (22,210 | ) | ||||||||||
| Other income (expense), net | 66 | (65 | ) | (133 | ) | (205 | ) | |||||||||
| Income before income taxes and equity in income of unconsolidated joint ventures | 59,726 | 39,825 | 116,567 | 72,890 | ||||||||||||
| Provision for income taxes | 17,490 | 10,193 | 35,144 | 18,076 | ||||||||||||
| Income before equity in income of unconsolidated joint ventures | 42,236 | 29,632 | 81,423 | 54,814 | ||||||||||||
| Equity in income of unconsolidated joint ventures, net of tax | 46 | 26 | 74 | 68 | ||||||||||||
| Net income | 42,282 | 29,658 | 81,497 | 54,882 | ||||||||||||
| Net income attributable to noncontrolling interest | (305 | ) | (112 | ) | (539 | ) | (112 | ) | ||||||||
| Net income attributable to PRA Health Sciences, Inc. | $ | 41,977 | $ | 29,546 | $ | 80,958 | $ | 54,770 | ||||||||
| Net income per share attributable to common stockholders: | ||||||||||||||||
| Basic | $ | 0.66 | $ | 0.47 | $ | 1.27 | $ | 0.88 | ||||||||
| Diluted | $ | 0.64 | $ | 0.45 | $ | 1.22 | $ | 0.84 | ||||||||
| Weighted average common share
| ||||||||||||||||