PRA Health Sciences, Inc. Reports Second Quarter 2020 Results and Provides Third Quarter and Full Year 2020 Guidance
- Net new business of $701.6 million; Net book-to-bill of 1.35 excluding reimbursement revenue
- Net new business of $1,083.3 million; Net book-to-bill of 1.62 including reimbursement revenue
- $729.9 million of total revenue; representing a decrease of 4.4% at actual foreign exchange rates and 3.8% on a constant currency basis
- GAAP net income per diluted share of $0.22; GAAP net income of $13.9 million
- Adjusted net income per diluted share was $0.86; Adjusted net income of $55.2 million
- Full year 2020 revenue guidance between $3.07 billion and $3.13 billion, GAAP net income per diluted share between $2.40 and $2.60 and adjusted net income per diluted share between $4.35 and $4.55
RALEIGH, N.C., Aug. 06, 2020 (GLOBE NEWSWIRE) -- PRA Health Sciences, Inc. (“PRA,” “we,” “us” or the “Company”) (NASDAQ: PRAH) today reported financial results for the quarter ended June 30, 2020.
“Considering the very difficult circumstances, I was delighted with our second quarter financial results. We reported revenue and earnings that were better than the revised guidance we provided in May and had record levels of gross and net new business awards. Our second quarter results were obviously impacted by the pandemic, but our team did an excellent job delivering to our revised forecast,” said Colin Shannon, PRA’s President and Chief Executive Officer. “For the remainder of 2020, we will continue to manage our business in a fiscally responsible manner and continue to look for ways to provide innovative solutions to our customers. I would like to thank all of our employees for their hard work during this challenging period.”
Net new business for our Clinical Research segment for the three months ended June 30, 2020 excluding reimbursement revenue was $701.6 million, representing a net book-to-bill ratio of 1.35 for the period. Net new business for our Clinical Research segment for the three months ended June 30, 2020 including reimbursement revenue was $1,083.3 million, representing a net book-to-bill of 1.62 for the period. Consistent with the first quarter, we did not experience any material COVID-19 related cancellations during the second quarter. Net new business, excluding reimbursement revenue, contributed to an ending backlog at June 30, 2020 of $4.9 billion.
For the three months ended June 30, 2020, revenue was $729.9 million, which represents a decrease of 4.4%, or $33.4 million, compared to the three months ended June 30, 2019 at actual foreign exchange rates. On a constant currency basis, revenue decreased $28.8 million, a decrease of 3.8% compared to the second quarter of 2019. By segment, the Clinical Research segment generated revenues of $667.3 million, while the Data Solutions segment generated revenues of $62.6 million. The decrease in revenue for the quarter was attributable to the impact the COVID-19 pandemic had on our business and the global economy. We saw a decrease in billable hours and volume-related clinical activities, primarily driven by a lack of access to investigator sites and an inability to screen and enroll patients due to stay at home orders and travel restrictions.
Direct costs, exclusive of depreciation and amortization, were $395.3 million during the three months ended June 30, 2020 compared to $386.2 million for the three months ended June 30, 2019 at actual foreign exchange rates. On a constant currency basis, direct costs increased $16.8 million compared to the second quarter of 2019. The increase in direct costs continues to be driven by increased labor costs in our Clinical Research segment and increased data costs in our Data Solutions segment. Direct costs were 54.2% of revenue during the second quarter of 2020 compared to 50.6% of revenue during the second quarter of 2019.
Selling, general and administrative expenses were $110.0 million during the three months ended June 30, 2020 compared to $98.8 million for the three months ended June 30, 2019. Selling, general and administrative costs were 15.1% of revenue during the second quarter of 2020 compared to 12.9% of revenue during the second quarter of 2019.
GAAP net income was $13.9 million for the three months ended June 30, 2020, or $0.22 per share on a diluted basis, compared to GAAP net income of $41.1 million for the three months ended June 30, 2019, or $0.62 per share on a diluted basis.
EBITDA was $65.4 million for the three months ended June 30, 2020, representing a decrease of 38.9% compared to the three months ended June 30, 2019. Adjusted EBITDA was $95.1 million for the three months ended June 30, 2020, representing a decrease of 26.5% compared to the three months ended June 30, 2019.
Adjusted net income was $55.2 million for the three months ended June 30, 2020, representing a decrease of 32.4% compared to the three months ended June 30, 2019. Adjusted net income per diluted share was $0.86 for the three months ended June 30, 2020, representing a decrease of 29.5% compared to the three months ended June 30, 2019.
First Half 2020 Financial Highlights
For the six months ended June 30, 2020, revenue was $1,513.6 million, which represents an increase of 1.9%, or $28.3 million, compared to the six months ended June 30, 2019 at actual foreign exchange rates. On a constant currency basis, revenue increased $38.2 million, representing an increase of 2.6% compared to the six months ended June 30, 2019. For the six months ended June 30, 2020, our revenue growth was impacted by the COVID-19 pandemic. We saw an increase in billable hours during January and February, however, from mid-March through the end of June billable hours were impacted by limited accessibility to investigator sites and an inability to screen and enroll patients due to stay at home orders and travel restrictions.
Reported GAAP income from operations was $106.8 million, reported GAAP net income was $54.5 million and reported GAAP net income per diluted share was $0.85 for the six months ended June 30, 2020.
Adjusted Net Income was $122.6 million for the six months ended June 30, 2020, a decrease of 21.0% compared to the same period in 2019. Adjusted Net Income per diluted share was $1.90 for the six months ended June 30, 2020, down 18.1% compared to the same period in 2019.
Full Year 2020 and Q3 2020 Guidance
The full extent of the COVID-19 pandemic and its impact on the Company’s 2020 operations remains uncertain. Specifically, the duration of the pandemic, the geographic location of specific outbreaks, and the length and scope of travel restrictions and business closures imposed by the governments of impacted countries could impact our financial results in the second half of 2020. These uncertainties could impact the assumptions used in the Company’s 2020 guidance if they result in business interruptions, such as the closure of our Phase I clinics, a slowdown in recruitment activities, or limited access to sites worldwide. However, the Company has used its best efforts to estimate the impact of COVID-19 on its business and the resulting impact on financial performance for the remainder of the year.
For full year 2020, the Company expects to achieve total revenues between $3.07 billion and $3.13 billion, GAAP net income per diluted share between $2.40 and $2.60 and adjusted net income per diluted share between $4.35 and $4.55, with an expected effective income tax rate of 23%.
For Q3 2020, the Company expects to achieve total revenues between $754 million and $784 million, GAAP net income per diluted share between $0.58 and $0.68 and adjusted net income per diluted share between $1.09 and $1.19, with an expected effective income tax rate of 23%.
Our actual effective tax rate may differ from our estimate due to, among other things, changes in 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.
Our Full Year and Q3 2020 guidance assumes a EURO rate of 1.15 and a GBP rate of 1.30. All other foreign currency exchange rates are as of June 30, 2020.
A reconciliation of our non-GAAP measures, EBITDA, adjusted EBITDA, adjusted net income, adjusted net income per diluted share and our full year and Q3 2020 guidance to the corresponding GAAP measures is included in this press release.
Conference Call Details
PRA will host a conference call at 9:00 a.m. ET on August 7, 2020, 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 7368954. The conference call will also be accessible, live via audio broadcast, on the Investor Relations section of the PRA website at investor.prahs.com. A replay of the conference call will be available online at investor.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 7368954.
A financial supplement with second quarter 2020 results, which should be read in conjunction with this press release, may be found in the Investor Relations section of our website at investor.prahs.com in a document titled “Q2 2020 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 90 countries across North America, Europe, Asia, Latin America, South Africa, Australia and the Middle East, and more than 17,500 employees. Since 2000, PRA has participated in more than 4,000 clinical trials. 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 95 products. 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.
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 the current COVID-19 pandemic has adversely affected and may continue to affect adversely our business and results of operations; 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; 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 and retain experienced personnel; 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; if the Company does not keep pace with rapid technological changes, its services may become less competitive or obsolete; the Company may be unable to successfully identify, acquire and integrate businesses, services and technologies or to manage joint ventures; the Company’s business is subject to economic, political and other risks associated with international operations, including foreign currency exchange rate fluctuations; the Company may be exposed to liabilities under anti-corruption laws due to the global nature of its business; the Company’s failure to perform services in accordance with contractual requirements, certain laws and 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’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; 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 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 suppliers may increase its costs to obtain, restrict its use of or refuse to license its data, or the Company may otherwise be unable to continue to obtain products, services and licenses from third parties; 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; government regulators or customers may limit the scope of prescriptions or withdraw products from the market; the U.S. and international healthcare industry is subject to political, economic and/or regulatory influences and changes, such as healthcare reform; 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; the Company has substantial indebtedness, some of which have interest rates pricing using a spread over LIBOR, and may incur additional indebtedness in the future, which could adversely affect the Company’s financial condition; circumstances beyond the Company’s control could cause industry-wide reduction in demand for its services; 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 release speak only as of the date hereof, and the Company undertakes no obligation to update any such 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 share on a diluted basis) 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 share on a diluted basis) 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 share on a diluted basis) 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 share on a diluted basis) 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 adjusted net income per share on a diluted basis) 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, 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 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.