On August 6, 2020 PRA Health Sciences, Inc. ("PRA," "we," "us" or the "Company") (NASDAQ: PRAH) reported financial results for the quarter ended June 30, 2020 (Press release, PRA Health Sciences, AUG 6, 2020, View Source [SID1234563041]).
"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."
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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.
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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.
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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.
Additional Information
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."