Q3 2020 Earnings November 4, 2020
Forward Looking Statements and Use of
Non-GAAP Financial Measures
This presentation 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 the ongoing impacts of the COVID-19 pandemic, 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 Company may underprice contracts, overrun its cost estimates, or fail to receive approval for or experience delays in documenting change orders; the historical indications of the relationship of backlog to revenues may not be indicative of their future relationship; 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 could be subject to employment liability with its embedded and functional outsourcing solutions as it places employees at the physical workplaces of its clients; the Company may lose key personnel or be unable to recruit experienced personnel; changes in accounting standards may adversely affect the Company's financial statements; the Company's effective income tax rate may fluctuate which may adversely affect its operations, earnings, and earnings per share; the Company may be unable to maintain information systems or effectively update them; a failure or breach of the Company's IT systems could result in customer information being compromised or otherwise significantly disrupt the Company's business operations; 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 and the adoption of trade restrictions between the U.S. and other national governments; the Company may be unable to successfully develop and market new services or enter new markets; 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'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; if the Company does not keep pace with rapid technological changes, its services may become less competitive or obsolete; the Company's relationships with existing or potential clients who are in competition with each other may adversely impact the degree to which other clients or potential clients use its services; the Company may be unable to compete effectively with other players in the biopharmaceutical services industry; the Company may be unable to successfully identify, acquire and integrate businesses, services and technologies or to manage joint ventures; the Company may not realize the full value of its goodwill and intangible assets, and may be unable to use net operating loss carry-forwards; the Company's disposal of hazardous substances and waste could give rise to liability; the Company may be unable to protect its intellectual property, patent and other intellectual property litigation could be time consuming and costly; biopharmaceutical industry outsourcing trends could change and adversely affect the Company's operations and growth rate; current and proposed laws and regulations regarding the protection of personal data could result in increased risks of liability or increased cost or could limit the Company's service offerings; circumstances beyond the Company's control could cause industry-wide reduction in demand for its services; the Company has substantial indebtedness and may incur additional indebtedness in the future, which could adversely affect the Company's financial condition; the current COVID-19 pandemic could adversely affect our business and results of operations; 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 21, 2020. The forward-looking statements in this presentation speak only as of the date hereof, and the Company undertakes no obligation to update any such statement after the date of this presentation, whether as a result of new information, future developments or otherwise, except as may be required by applicable law.
This presentation also includes EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Income from Operations, Adjusted Income from Operations Margin, 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, Adjusted Income from Operations 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, Adjusted Income from Operations 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, Adjusted Income from Operations 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, Adjusted Income from Operations and Adjusted Net Income (including adjusted net income per diluted share) may not be comparable to similarly titled measures of other companies.
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.
2 | 11/04/2020 |
Q3 2020 Highlights
- $796.3 million of revenue; 2.0% increase at actual foreign exchange rates and 1.3% constant currency increase
- $91.3 million of GAAP net income; Net Income per Diluted Share of $1.41
- $84.1 million of Adjusted Net Income; Adjusted Net Income per Diluted Share of $1.30
- $148.3 million of EBITDA; $132.3 million of Adjusted EBITDA
Q3 2020 | Q3 2019 | % Change | |
Revenue | $796.3 | $780.7 | 2.0% |
EBITDA | $148.3 | $128.6 | 15.3% |
Adjusted EBITDA | $132.3 | $137.8 | (4.0)% |
Adjusted EBITDA Margin | 16.6% | 17.7% | |
Income from Operations | $124.2 | $95.8 | 29.6% |
Adjusted Income from Operations | $118.1 | $125.6 | (6.0)% |
Adjusted Income from Operations Margin | 14.8% | 16.1% | |
Net Income | $91.3 | $83.0 | 10.0% |
Adjusted Net Income | $84.1 | $87.2 | (3.6)% |
Net Income per Diluted Share | $1.41 | $1.25 | 12.8% |
Adjusted Net Income per Diluted Share | $1.30 | $1.32 | (1.5)% |
($ in millions, except per share amounts)
3 | 11/04/2020 |
Trailing Quarterly Performance
$800.2 | $783.7 | $796.3 | $136.2 | |||||
$780.7 | $125.8 | $125.6 | ||||||
$763.3 | $118.0 | $118.1 | ||||||
$110.5 | ||||||||
$717.6 | $729.6 | $722.0 | $729.9 | $106.7 | $98.9 | |||
$81.7 |
Q3-18Q4-18 | Q1-19 | Q2-19 | Q3-19 | Q4-19 | Q1-20 | Q2-20 | Q3-20 | |||
25% | ||||||||||
20% | 18.7% | 17.0% | 18.6% | |||||||
16.8% | 16.6% | |||||||||
15% | 16.2% | 17.7% | ||||||||
14.3% | 13.0% | |||||||||
10% | ||||||||||
5% | ||||||||||
Q3-18 | Q4-18 | Q1-19 | Q2-19 | Q3-19 | Q4-19 | Q1-20 | Q2-20 | Q3-20 |
Q3-18 | Q4-18 | Q1-19 | Q2-19 | Q3-19 | Q4-19 | Q1-20 | Q2-20 | Q3-20 |
$136.2 | $137.8 | $148.5 | |
$129.4 | $132.3 | ||
$120.9 | $117.1 | $112.1 | |
$95.1 |
Q3-18 | Q4-18 | Q1-19 | Q2-19 | Q3-19 | Q4-19 | Q1-20 | Q2-20 | Q3-20 |
4 | 11/04/2020 |
Backlog and New Business Awards *
$737.9
$701.6
$657.2 $667.3 $664.6 $670.7 $669.4 $658.9
$604.7
Q3-18 | Q4-18 | Q1-19 | Q2-19 | Q3-19 | Q4-19 | Q1-20 | Q2-20 | Q3-20 |
18% | |||||||||
17% | |||||||||
16% | |||||||||
15% | |||||||||
14% | 13.4% | 13.0% | 12.7% | 12.7% | |||||
12.5% | |||||||||
13% | 12.1% | ||||||||
11.8% | 11.8% | ||||||||
12% | 11.1% | ||||||||
11% | |||||||||
10% | Q3-18 | Q4-18 | Q1-19 | Q2-19 | Q3-19 | Q4-19 | Q1-20 | Q2-20 | Q3-20 |
$4,929.0 | $5,112.4 | 1.35 | ||||||||
1.30 | ||||||||||
$4,709.5 | $4,746.5 | 1.28 | 1.27 | 1.24 | 1.28 | |||||
1.22 | ||||||||||
$4,498.9 | $4,607.5 | 1.21 | ||||||||
$4,224.2 | $4,357.6 | 1.10 |
$4,076.6
Q3-18 | Q4-18 | Q1-19 | Q2-19 | Q3-19 | Q4-19 | Q1-20 | Q2-20 | Q3-20 | Q3-18 | Q4-18 | Q1-19 | Q2-19 | Q3-19 | Q4-19 | Q1-20 | Q2-20 | Q3-20 |
* Backlog and New Business Awards reported are only for our Clinical Research segment and exclude reimbursement revenue from the adoption of ASC 606.
5 | 11/04/2020 |
Debt Structure
September 30, | September 30, | Interest Rate at | Maturity | |||||||||||||
December 31, 2019 | March 31, 2020 | June 30, 2020 | September 30, | |||||||||||||
($ in millions) | 2019 | 2020 | 2020 | Date | ||||||||||||
Senior debt: | ||||||||||||||||
First Lien | $ | 1,191.5 | $ | 1,000.0 | $ | 993.8 | $ | 987.5 | $ | 981.3 | 1.66 % | October 2024 | ||||
Total | $ | 1,191.5 | $ | 1,000.0 | $ | 993.8 | $ | 987.5 | $ | 981.3 | ||||||
Revolving credit: | ||||||||||||||||
Swingline | $ | - | $ | - | $ | - | $ | - | $ | - | 3.75 % October 2024 | |||||
Revolver | - | 88.8 | 133.8 | 133.8 | 133.8 | 1.66 % | October 2024 | |||||||||
Total | $ | - | $ | 88.8 | $ | 133.8 | $ | 133.8 | $ | 133.8 | ||||||
Accounts receivable financing agreement | $ | 200.0 | $ | 170.0 | $ | 170.0 | $ | 170.0 | $ | 170.0 | 1.41 % | May 2021 | ||||
Total outstanding debt | $ | 1,391.5 | $ | 1,258.8 | $ | 1,297.6 | $ | 1,291.3 | $ | 1,285.1 | ||||||
Less cash on hand | (181.8) | (236.2) | (150.8) | (168.2) | (336.2) | |||||||||||
Net debt | $ | 1,209.7 | $ | 1,022.6 | $ | 1,146.8 | $ | 1,123.1 | $ | 948.9 | ||||||
Net Debt / LTM Adjusted EBITDA | 2.3x | 1.9x | 2.2x | 2.3x | 1.9x | |||||||||||
Covenant Net Debt / LTM Covenant Compliance | 2.5x | 1.6x | 1.9x | 2.0x | 1.6x | |||||||||||
EBITDA* |
*Due to the October 2019 refinancing of the Company's credit facilities, Covenant Net Debt for the periods ending after December 31, 2019 are total debt less amounts outstanding under the Accounts receivable financing agreement less cash on hand. The covenant requirement at September 30, 2020 was 4.25x.
6 | 11/04/2020 |
FY20 Guidance
Previous FY 2020 Guidance | Current FY 2020 Guidance | ||
(Aug 7, 2020) | (Nov 4, 2020) | ||
Low End of | High End of | Low End of | High End of |
Range | Range | Range | Range |
Revenue, in Millions | $3,070.0 | $3,130.0 | $3,120.0 | $3,150.0 |
GAAP Net Income per Diluted Share | $2.40 | $2.60 | $3.23 | $3.35 |
Adjusted Net Income per Diluted Share | $4.35 | $4.55 | $4.61 | $4.71 |
Annual Effective Income Tax Rate | 23% | 23% | 23% | 23% |
For further information regarding the reconciliation of non-GAAP measures to their corresponding GAAP equivalent please see our press releases from this and prior quarters.
7 | 11/04/2020 |
Appendix
8 | 11/04/2020 |
Backlog and New Business Awards*
($ in millions) | Q3 20 v | ||||||||||||||||||||||||||||||||||
Q3 19 | |||||||||||||||||||||||||||||||||||
2018 | 2019 | 2020 | % | ||||||||||||||||||||||||||||||||
Q3 | Q4 | FY | Q1 | Q2 | Q3 | Q4 | FY | Q1 | Q2 | Q3 | Change | ||||||||||||||||||||||||
Beginning Backlog | $ | 3,935.6 | $ | 4,076.6 | $ | 3,535.6 | $ | 4,224.2 | $ | 4,357.6 | $ | 4,498.9 | $ | 4,607.5 | $ | 4,224.2 | $ | 4,709.5 | $ | 4,746.5 | $ | 4,929.0 | |||||||||||||
Ending Backlog | $ | 4,076.6 | $ | 4,224.2 | $ | 4,224.2 | $ | 4,357.6 | $ | 4,498.9 | $ | 4,607.5 | $ | 4,709.5 | $ | 4,709.5 | $ | 4,746.5 | $ | 4,929.0 | $ | 5,112.4 | 11.0 % | ||||||||||||
Backlog Conversion % | 13.4 % | 13.0 % | 12.7 % | 12.7 % | 12.5 % | 12.1 % | 11.8 % | 11.1 % | 11.8 % | ||||||||||||||||||||||||||
Gross New Business Awards | $ | 767.9 | $ | 736.9 | $ | 3,023.6 | $ | 747.6 | $ | 780.5 | $ | 772.2 | $ | 723.7 | $ | 3,024.0 | $ | 657.9 | $ | 820.2 | $ | 851.7 | 10.3 % | ||||||||||||
Cancellations | $ | 110.7 | $ | 69.5 | $ | 378.8 | $ | 83.0 | $ | 109.8 | $ | 102.8 | $ | 64.8 | $ | 360.4 | $ | 53.2 | $ | 118.6 | $ | 113.9 | 10.8 % | ||||||||||||
% of Beginning Backlog | 2.9 % | 1.7 % | 2.0 % | 2.5 % | 2.3 % | 1.4 % | 1.1 % | 2.5 % | 2.3 % | ||||||||||||||||||||||||||
Net New Business Awards | $ | 657.2 | $ | 667.3 | $ | 2,644.8 | $ | 664.6 | $ | 670.7 | $ | 669.4 | $ | 658.9 | $ | 2,663.6 | $ | 604.7 | $ | 701.6 | $ | 737.9 | 10.2 % | ||||||||||||
Net Book to Bill | 1.28 | 1.30 | 1.29 | 1.27 | 1.24 | 1.22 | 1.21 | 1.23 | 1.10 | 1.35 | 1.28 |
* Backlog and New Business Awards reported are only for our Clinical Research segment and exclude reimbursement revenue from the adoption of ASC 606.
9 | 11/04/2020 |
Reconciliation of GAAP Net Income to
EBITDA and Adjusted EBITDA
($ in millions) | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||
2020 | 2019 | 2020 | 2019 | ||||||||
Net income attributable to PRA Health Sciences, Inc. | $ | 91.3 | $ | 83.0 | $ | 145.8 | $ | 168.2 | |||
Depreciation and amortization expense | 33.3 | 29.3 | 98.1 | 85.5 | |||||||
Interest expense, net | 10.7 | 13.0 | 36.1 | 37.8 | |||||||
Provision for income taxes | 13.1 | 3.4 | 37.0 | 56.3 | |||||||
EBITDA | 148.3 | 128.6 | 317.0 | 347.8 | |||||||
Stock-based compensation expense | 19.3 | 11.2 | 50.6 | 30.4 | |||||||
Loss on disposal of fixed assets, net | - | 0.3 | 0.2 | 0.9 | |||||||
Foreign currency losses (gains), net | 9.1 | (5.4) | 12.0 | (1.9) | |||||||
Other non-operating expense, net | - | - | - | 0.1 | |||||||
Transaction-related costs | (45.1) | 0.6 | (44.5) | 0.6 | |||||||
Acquisition-related costs | 0.3 | 0.7 | 1.6 | 4.3 | |||||||
Lease termination expense | - | - | - | (0.3) | |||||||
Non-cash rent adjustment | (0.7) | - | (0.1) | 0.3 | |||||||
Loss on modification or extinguishment of debt | - | 1.9 | - | 1.9 | |||||||
Other charges | 0.9 | - | 2.6 | - | |||||||
Non-operating income attributable to noncontrolling interest | - | - | - | 0.2 | |||||||
Adjusted EBITDA | $ | 132.3 | $ | 137.8 | $ | 339.5 | $ | 384.3 | |||
For further information regarding the reconciliation of non-GAAP measures to their corresponding GAAP equivalent please see our press releases from this and prior quarters.
10 | 11/04/2020 |
Reconciliation of GAAP Net Income to Adjusted Net Income
($ in millions, except per share data) | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||
2020 | 2019 | 2020 | 2019 | ||||||||
Net income attributable to PRA Health Sciences, Inc. | $ | 91.3 | $ | 83.0 | $ | 145.8 | $ | 168.2 | |||
Provision for income taxes | 13.1 | 3.4 | 37.0 | 56.3 | |||||||
Amortization of intangible assets | 19.0 | 17.1 | 57.2 | 51.4 | |||||||
Amortization of deferred financing costs | 0.4 | 0.5 | 1.3 | 1.4 | |||||||
Amortization of terminated interest rate swaps | 1.4 | 1.7 | 4.6 | 5.0 | |||||||
Stock-based compensation expense | 19.3 | 11.2 | 50.6 | 30.4 | |||||||
Loss on disposal of fixed assets, net | - | 0.3 | 0.2 | 0.9 | |||||||
Foreign currency losses (gains), net | 9.1 | (5.4) | 12.0 | (1.9) | |||||||
Other non-operating expense, net | - | - | - | 0.1 | |||||||
Transaction-related costs | (45.1) | 0.6 | (44.5) | 0.6 | |||||||
Acquisition-related costs | 0.3 | 0.7 | 1.6 | 4.3 | |||||||
Lease termination expense | - | - | - | (0.3) | |||||||
Non-cash rent adjustment | (0.7) | - | (0.1) | 0.3 | |||||||
Loss on modification or extinguishment of debt | - | 1.9 | - | 1.9 | |||||||
Other charges | 0.9 | - | 2.6 | - | |||||||
Non-operating income attributable to noncontrolling interest | - | - | - | 0.2 | |||||||
Adjusted pre-tax income | 109.2 | 114.8 | 268.4 | 318.8 | |||||||
Adjusted tax expense | (25.1) | (27.5) | (61.7) | (76.5) | |||||||
Adjusted Net Income | $ | 84.1 | $ | 87.2 | $ | 206.7 | $ | 242.3 | |||
Diluted weighted average common shares outstanding | 64.9 | 66.2 | 64.6 | 66.6 | |||||||
Adjusted Net Income per Diluted Share | $ | 1.30 | $ | 1.32 | $ | 3.20 | $ | 3.64 |
For further information regarding the reconciliation of non-GAAP measures to their corresponding GAAP equivalent please see our press releases from this and prior quarters.
11 | 11/04/2020 |
Reconciliation of GAAP Income from Operations to Adjusted Income from Operations
($ in millions) | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||
2020 | 2019 | 2020 | 2019 | ||||||||
Income from Operations | $ | 124.2 | $ | 95.8 | $ | 231.0 | $ | 262.5 | |||
Amortization of intangible assets | 19.0 | 17.1 | 57.2 | 51.4 | |||||||
Stock-based compensation expense | 19.3 | 11.2 | 50.6 | 30.4 | |||||||
Loss on disposal of fixed assets, net | - | 0.3 | 0.2 | 0.9 | |||||||
Transaction-related costs | (45.1) | 0.6 | (44.5) | 0.6 | |||||||
Acquisition-related costs | 0.3 | 0.7 | 1.6 | 4.3 | |||||||
Lease termination expense | - | - | - | (0.3) | |||||||
Non-cash rent adjustment | (0.7) | - | (0.1) | 0.3 | |||||||
Other charges | 0.9 | - | 2.6 | - | |||||||
Income from operations attributable to noncontrolling interest | - | - | - | 0.1 | |||||||
Adjusted Income from Operations | $ | 118.1 | $ | 125.6 | $ | 298.7 | $ | 350.3 | |||
For further information regarding the reconciliation of non-GAAP measures to their corresponding GAAP equivalent please see our press releases from this and prior quarters.
12 | 11/04/2020 |
Days Sales Outstanding
($ in millions) | 2018 | 2019 | 2020 | |||||||||||||||||||||||
Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | ||||||||||||||||||
Accounts Receivable, net | $ | 483.2 | $ | 435.0 | $ | 461.0 | $ | 493.3 | $ | 554.7 | $ | 509.3 | $ | 512.8 | $ | 566.0 | $ | 534.2 | ||||||||
Unbilled Services | 133.7 | 133.1 | 136.3 | 144.3 | 148.0 | 149.2 | 179.4 | 166.6 | 174.6 | |||||||||||||||||
Total Accounts Receivable and Unbilled | 616.9 | 568.1 | 597.2 | 637.5 | 702.6 | 658.5 | 692.3 | 732.6 | 708.8 | |||||||||||||||||
Services, net | ||||||||||||||||||||||||||
Advanced Billings | (479.7) | (441.4) | (432.5) | (434.8) | (475.0) | (505.7) | (534.2) | (549.4) | (580.2) | |||||||||||||||||
Net | $ | 137.2 | $ | 126.7 | $ | 164.7 | $ | 202.7 | $ | 227.6 | $ | 152.8 | $ | 158.1 | $ | 183.2 | $ | 128.6 | ||||||||
Accounts Receivable, net | 62 | 55 | 57 | 59 | 65 | 59 | 60 | 71 | 62 | |||||||||||||||||
Unbilled Services | 17 | 17 | 17 | 17 | 17 | 17 | 21 | 21 | 20 | |||||||||||||||||
Total Accounts Receivable and Unbilled | 79 | 72 | 74 | 76 | 83 | 76 | 80 | 91 | 82 | |||||||||||||||||
Services | ||||||||||||||||||||||||||
Advanced Billings | (61) | (56) | (54) | (52) | (56) | (58) | (62) | (68) | (67) | |||||||||||||||||
Net | 18 | 16 | 20 | 24 | 27 | 18 | 18 | 23 | 15 | |||||||||||||||||
13 | 11/04/2020 |
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PRA Health Sciences Inc. published this content on 04 November 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 05 November 2020 10:16:07 UTC