PRA Health Sciences, Inc. - FORM 8-K - EX-99.1 - EXHIBIT 99.1

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8-K - 8-K - PRA Health Sciences, Inc.	a2018q38-kcover.htm

FOR IMMEDIATE RELEASE

PRA Health Sciences, Inc. Reports Third Quarter 2018 Results and Updates 2018 Guidance


•	Net new business of $657.2 million; Net book-to-bill of 1.28


•	$717.6 million of revenue; 23.3% growth at actual foreign exchange rates and 24.0% growth on a constant currency basis


•	$572.9 million of revenue excluding the impact of ASC 606; 15.8% growth at actual foreign exchange rates; 16.3% growth on a constant currency basis


•	GAAP net income per diluted share of $0.02 and GAAP net income of $1.5 million


•	Adjusted net income per diluted share was $1.13 and adjusted net income was $74.8 million


•	Maintaining 2018 revenue guidance between $2.87 billion and $2.92 billion, updating GAAP net income per diluted share to between $2.21 and $2.26, and updating Adjusted Net Income per diluted share to between $4.22 and $4.27

RALEIGH, N.C., October 31, 2018-- PRA Health Sciences, Inc. (“PRA,” "we," "us" or the “Company”) (NASDAQ: PRAH) today reported financial results for the quarter ended September 30, 2018.

For the three months ended September 30, 2018, revenue was $717.6 million, which represents growth of 23.3%, or $135.6 million, compared to the third quarter of 2017 at actual foreign exchange rates. On a constant currency basis, revenue grew $139.7 million, an increase of 24.0% compared to the third 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. Prior periods have not been 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 September 30, 2018										Three Months Ended September 30, 2017
	As Reported		Reclassification from adoption of ASC 606			Impact from adoption of ASC 606			Balances without adoption of ASC 606		Three Months Ended September 30, 2017
Revenue:
Revenue	$	717,596	$	(650,514	)	$	(67,082	)	$	—	$	—

Service revenue	—		572,930			—			572,930		494,550
Reimbursement revenue	—		77,584			—			77,584		87,459
Total revenue	$	717,596	$	—		$	(67,082	)	$	650,514	$	582,009

Excluding the impact of the adoption of ASC 606 and reimbursement revenue, revenue increased $78.4 million, which represents growth of 15.8% at actual foreign exchange rates and 16.3% on a constant currency basis. Organic revenue growth, excluding the adoption of ASC 606, reimbursement revenue and revenue attributable to our Data Solutions segment, was 7.7% at actual foreign exchange rates and 8.2% on a constant currency basis.

Net new business for our Clinical Research segment for the quarter ended September 30, 2018 was $657.2 million, representing a net book-to-bill ratio of 1.28 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 $60.6 million of revenue from our Data Solutions segment. Net new business during the quarter contributed to an ending backlog of $4.1 billion at September 30, 2018.

"We are delighted to have delivered another quarter with strong financial results on many fronts” said Colin Shannon, PRA’s Chief Executive Officer. “Our key financial metrics continue to improve, as highlighted by our new business wins, our strong revenue growth and our expanding margins. Our financial performance reflects our commitment to client delivery and the efforts of our employees.”

Direct costs were $371.4 million during the three months ended September 30, 2018 compared to $326.9 million for the third quarter of 2017. The increase in direct costs was primarily due to an increase in labor-related costs of $11.1 million in our Clinical Research segment as we continue to hire billable staff to ensure appropriate staffing levels. In addition, our Data Solutions segment resulted in $29.4 million of incremental direct costs when compared to the third quarter of 2017. We also had a favorable impact of $6.1 million from fluctuation in foreign currency exchange rates during the three months ended September 30, 2018. Excluding the impact of the adoption of ASC 606 and reimbursement revenue, direct costs were 64.8% of revenue during the third quarter of 2018 compared to 66.1% of revenue during the third quarter of 2017.

Selling, general and administrative expenses were $92.6 million during the three months ended September 30, 2018 compared to $79.3 million for the third quarter of 2017. Excluding the impact of the adoption of ASC 606 and reimbursement revenue, selling, general and administrative costs were 16.2% of revenue during the third quarter of 2018 compared to 16.0% of revenue during the third quarter of 2017.

GAAP net income was $1.5 million for the three months ended September 30, 2018, or $0.02 per share on a diluted basis, compared to GAAP net income of $48.2 million for the three months ended September 30, 2017, or $0.73 per share on a diluted basis.

EBITDA was $64.4 million for the three months ended September 30, 2018, representing an increase of 6.7% compared to the third quarter of 2017. Adjusted EBITDA was $120.9 million for the three months ended September 30, 2018, representing growth of 29.6% compared to the third quarter of 2017.

Adjusted net income was $74.8 million for the three months ended September 30, 2018, representing growth of 29.3% compared to the third quarter of 2017. Adjusted net income per diluted share was $1.13 for the three months ended September 30, 2018, representing growth of 28.4% compared to the third 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.

Nine Months Ended September 30, 2018 Financial Highlights

For the nine months ended September 30, 2018, revenue was $2,142.3 million, which represents growth of 33.6%, or $538.8 million, compared to the nine months ended September 30, 2017 at actual foreign exchange rates. On a constant currency basis, revenue grew $520.3 million, representing growth of 32.4% compared to the nine months ended September 30, 2017.

The impact of the adoption of ASC 606 on the Company’s revenue for the nine months ended September 30, 2018 is summarized below:



	Nine Months Ended September 30, 2018										Nine Months Ended September 30, 2017
	As Reported		Reclassification from adoption of ASC 606			Impact from adoption of ASC 606			Balances without adoption of ASC 606		Nine Months Ended September 30, 2017
Revenue	$	2,142,274	$	(1,945,138	)	$	(197,136	)	$	—	$	—

Service revenue	—		1,707,831			—			1,707,831		1,379,572
Reimbursement revenue	—		237,307			—			237,307		223,921
Total revenue	$	2,142,274	$	—		$	(197,136	)	$	1,945,138	$	1,603,493

Excluding the impact of the adoption of ASC 606 and reimbursement revenue, revenue increased $328.3 million, which represents growth of 23.8% at actual foreign exchange rates and 22.8% on a constant currency basis. Organic revenue growth, excluding the adoption of ASC 606, reimbursement revenue and revenue attributable to our Data Solutions segment, was 12.6% at actual foreign exchange rates and 11.6% on a constant currency basis.

Reported GAAP income from operations was $184.6 million, reported GAAP net income was $82.5 million and reported GAAP net income per diluted share was $1.24 for the nine months ended September 30, 2018.

Adjusted Net Income was $197.2 million for the nine months ended September 30, 2018, an improvement of 31.4% compared to the same period in 2017. Adjusted Net Income per diluted share was $2.98 for the nine months ended September 30, 2018, up 30.7% compared to the same period in 2017.

Guidance

The Company is maintaining its 2018 revenue guidance of 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 ASC 606 and reimbursement revenue, and constant currency organic growth of 10% to 12% excluding the impact of adopting ASC 606 and reimbursement revenue. We are updating our GAAP net income per diluted share to between $2.21 and $2.26 and Adjusted Net Income per diluted share to between $4.22 and $4.27. We continue to estimate our annual effective income tax rate at 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 guidance from regulatory agencies related to interpretation, analysis and guidance of the U.S. Tax Cuts and Jobs Act.

Our guidance assumes a EURO rate of 1.17 and a GBP rate of 1.33. All other foreign currency exchange rates are as of September 30, 2018.

Conference Call Details

PRA will host a conference call at 9:00 a.m. ET on November 1, 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 9668676. 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 9668676.

Additional Information

A financial supplement with third quarter 2018 results, which should be read in conjunction with this press release, may be found in the Investor Relations section of our website at investors.prahs.com in a document titled “Q3 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

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 September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Revenues	$	717,596		$	582,009		$	2,142,274		$	1,603,493
Operating expenses:
Direct costs	371,422			326,865			1,134,509			914,988
Reimbursable out-of-pocket costs	77,584			87,459			237,307			223,921
Reimbursable investigator fees	65,133			—			193,585			—
Selling, general and administrative expenses	92,553			79,307			275,424			229,770
Transaction-related costs	43,837			11,741			32,709			11,816
Depreciation and amortization	28,270			18,853			84,163			50,146
(Gain) loss on disposal of fixed assets, net	(15		)	8			21			240
Income from operations	38,812			57,776			184,556			172,612
Interest expense, net	(14,423		)	(11,557		)	(43,860		)	(31,088		)
Loss on modification or extinguishment of debt	(454		)	(3,089		)	(454		)	(3,089		)
Foreign currency losses, net	(1,809		)	(12,794		)	(1,416		)	(35,004		)
Other (expense) income, net	(68		)	5			(201		)	(200		)
Income before income taxes and equity in income of unconsolidated joint ventures	22,058			30,341			138,625			103,231
Provision for (benefit from) income taxes	20,248			(18,241		)	55,392			(165		)
Income before equity in income of unconsolidated joint ventures	1,810			48,582			83,233			103,396
Equity in income of unconsolidated joint ventures, net of tax	44			24			118			92
Net income	1,854			48,606			83,351			103,488
Net income attributable to noncontrolling interest	(359		)	(401		)	(898		)	(513		)
Net income attributable to PRA Health Sciences, Inc.	$	1,495		$	48,205		$	82,453		$	102,975
Net income per share attributable to common stockholders:
Basic	$	0.02		$	0.77		$	1.29		$	1.66
Diluted	$	0.02		$	0.73		$	1.24		$	1.57
Weighted average common shares outstanding:
Basic	64,261			62,730			63,891			62,185
Diluted	66,506			65,872			66,258			65,683

PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(in thousands, except share amounts)

(unaudited)



	September 30,			December 31,
	2018			2017
ASSETS
Current assets:
Cash and cash equivalents	$	127,517		$	192,229
Restricted cash	318			661
Accounts receivable and unbilled services, net	616,940			627,003
Other current assets	75,649			57,131
Total current assets	820,424			877,024
Fixed assets, net	149,535			143,070
Goodwill	1,501,620			1,512,424
Intangible assets, net	725,009			783,836
Other assets	54,032			41,692
Total assets	$	3,250,620		$	3,358,046
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of borrowings under credit facilities	$	—		$	91,500
Current portion of long-term debt	—			28,789
Accounts payable	59,794			64,635
Accrued expenses and other current liabilities	380,851			317,481
Advanced billings	479,686			469,211
Total current liabilities	920,331			971,616
Long-term debt, net	1,191,511			1,225,397
Deferred tax liabilities	107,207			112,181
Other long-term liabilities	51,195			112,371
Total liabilities	2,270,244			2,421,565
Commitments and contingencies
Stockholders' equity:
Preferred stock (100,000,000 authorized shares; $0.01 par value)
Issued and outstanding -- none	—			—
Common stock (1,000,000,000 authorized shares; $0.01 par value)
Issued and outstanding -- 64,914,921 and 63,623,950 at September 30, 2018 and December 31, 2017, respectively	649			636
Additional paid-in capital	940,444			905,423
Accumulated other comprehensive loss	(150,298		)	(136,470		)
Retained earnings	183,048			161,182
Equity attributable to PRA Health Sciences, Inc. stockholders	973,843			930,771
Noncontrolling interest	6,533			5,710
Total stockholders' equity	980,376			936,481
Total liabilities and stockholders' equity	$	3,250,620		$	3,358,046

PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



	Nine Months Ended September 30,
	2018			2017
Cash flows from operating activities:
Net income	$	83,351		$	103,488
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	84,163			50,146
Amortization of debt issuance costs and discount	1,619			1,480
Amortization of terminated interest rate swaps	5,478			4,931
Stock-based compensation expense	20,469			7,686
Change in fair value of acquisition-related contingent consideration	32,868			(924		)
Non-cash transaction-related costs	773			5,294
Unrealized foreign currency (gains) losses	(131		)	35,406
Loss on modification or extinguishment of debt	454			3,089
Deferred income taxes	17,499			(27,340		)
Equity in income of unconsolidated joint ventures	(118		)	(92		)
Other reconciling items	52			190
Changes in operating assets and liabilities:
Accounts receivable, unbilled services and advanced billings	(12,552		)	(51,883		)
Other operating assets and liabilities	(319		)	(13,643		)
Payment of acquisition-related contingent consideration	(35,029		)	—
Net cash provided by operating activities	198,577			117,828
Cash flows from investing activities:
Purchase of fixed assets	(40,086		)	(39,287		)
Proceeds received (cash paid) for interest on interest rate swap, net	125			(763		)
Proceeds from the sale of marketable securities	183			—
Proceeds from the sale of fixed assets	43			55
Acquisition of Symphony Health Solutions Corporation, net of cash acquired	—			(522,581		)
Acquisition of Parallel 6, Inc., net of cash acquired	—			(39,561		)
Acquisition of Takeda PRA Development Center KK, net of cash acquired	—			2,680
Acquisition of Takeda Pharmaceutical Data Services, Ltd., net of cash acquired	—			(142		)
Net cash used in investing activities	(39,735		)	(599,599		)
Cash flows from financing activities:
Payment of acquisition-related contingent consideration	(79,663		)	(400		)
Borrowings on accounts receivable financing agreement	60,000			20,000
Repayments on accounts receivable financing agreement	(10,000		)	(20,000		)
Proceeds from issuance of long-term debt	—			550,000
Repayments of long-term debt	(114,395		)	(26,875		)
Borrowings on line of credit	—			30,000
Repayments on line of credit	(91,500		)	(30,000		)
Payments for debt issuance costs	—			(5,512		)
Taxes paid related to net shares settlement of equity awards	(5,337		)	—
Proceeds from stock issued under employee stock purchase plan and stock option exercises	19,273			6,457
Net cash (used in) provided by financing activities	(221,622		)	523,670
Effects of foreign exchange changes on cash, cash equivalents, and restricted cash	(2,275		)	3,041
Change in cash, cash equivalents, and restricted cash	(65,055		)	44,940
Cash, cash equivalents, and restricted cash, beginning of period	192,890			149,338
Cash, cash equivalents, and restricted cash, end of period	$	127,835		$	194,278

PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP MEASURES

(in thousands, except per share amounts)

(unaudited)



	Three months ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Net income attributable to PRA Health Sciences, Inc.	$	1,495		$	48,205		$	82,453		$	102,975
Depreciation and amortization	28,270			18,853			84,163			50,146
Interest expense, net	14,423			11,557			43,860			31,088
Provision for (benefit from) income taxes	20,248			(18,241		)	55,392			(165		)
EBITDA	64,436			60,374			265,868			184,044
Stock-based compensation expense (a)	7,771			3,449			20,469			7,686
(Gain) loss on disposal of fixed assets, net (b)	(15		)	8			21			240
Loss on modification or extinguishment of debt (c)	454			3,089			454			3,089
Foreign currency losses, net (d)	1,809			12,794			1,416			35,004
Other non-operating expense (income), net (e)	68			(5		)	201			200
Equity in income of unconsolidated joint ventures, net of tax	(44		)	(24		)	(118		)	(92		)
Transaction-related costs (f)	43,837			11,741			32,709			11,816
Acquisition-related costs (g)	275			274			665			3,179
Lease termination expense (h)	1,378			127			1,446			152
Severance and restructuring charges (i)	—			—			804			—
Non-cash rent adjustment (j)	602			1,299			1,134			2,450
Other charges (k)	—			—			449			—
Non-operating income attributable to noncontrolling interest	318			185			846			253
Adjusted EBITDA	$	120,889		$	93,311		$	326,364		$	248,021

Net income attributable to PRA Health Sciences, Inc.	$	1,495		$	48,205		$	82,453		$	102,975
Provision for (benefit from) income taxes	20,248			(18,241		)	55,392			(165		)
Amortization of intangible assets	17,867			11,346			53,978			29,515
Amortization of deferred financing costs	546			516			1,619			1,480
Amortization of terminated interest rate swaps	1,868			1,753			5,478			4,931
Stock-based compensation expense (a)	7,771			3,449			20,469			7,686
(Gain) loss on disposal of fixed assets, net (b)	(15		)	8			21			240
Loss on modification or extinguishment of debt (c)	454			3,089			454			3,089
Foreign currency losses, net (d)	1,809			12,794			1,416			35,004
Other non-operating expense (income), net (e)	68			(5		)	201			200
Equity in income of unconsolidated joint ventures, net of tax	(44		)	(24		)	(118		)	(92		)
Transaction-related costs (f)	43,837			11,741			32,709			11,816
Acquisition-related costs (g)	275			274			665			3,179
Lease termination expense (h)	1,378			127			1,446			152
Severance and restructuring charges (i)	—			—			804			—
Non-cash rent adjustment (j)	602			1,299			1,134			2,450
Other charges (k)	—			—			449			—
Non-operating income attributable to noncontrolling interest	318			185			846			253
Adjusted pre-tax income	98,477			76,516			259,416			202,713
Adjusted tax expense (l)	(23,634		)	(18,632		)	(62,260		)	(52,705		)
Adjusted net income	$	74,843		$	57,884		$	197,156		$	150,008

Diluted weighted average common shares outstanding	66,506			65,872			66,258			65,683

Adjusted net income per diluted share	$	1.13		$	0.88		$	2.98		$	2.28

PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP GUIDANCE

(in millions, except per share amounts)

(unaudited)



	FY 2018
	Adjusted net income				Adjusted Diluted Earnings Per Share
	Low		High		Low		High

Net income and net income per diluted share	$	147.0	$	150.0	$	2.21	$	2.26
Adjustments:
Provision for income taxes	75.0		76.0		1.13		1.14
Amortization of intangible assets	72.0		72.0		1.08		1.08
Amortization of deferred financing costs	2.0		2.0		0.03		0.03
Amortization of terminated interest rate swaps	6.0		6.0		0.09		0.09
Stock-based compensation expense (a)	28.0		28.0		0.42		0.42
Loss on modification or extinguishment of debt (c)	1.0		1.0		0.02		0.02
Foreign currency losses, net (d)	2.0		2.0		0.03		0.03
Transaction-related costs (f)	33.0		33.0		0.50		0.50
Lease termination expense (h)	2.0		2.0		0.03		0.03
Non-cash rent adjustment (j)	1.0		1.0		0.02		0.02
Adjusted pre-tax income	369.0		373.0		5.56		5.62
Adjusted tax expense (l)	(89.0)		(90.0)		(1.34)		(1.35)
Adjusted net income and adjusted net income per diluted share	$	280.0	$	283.0	$	4.22	$	4.27


(a)	Stock-based compensation expense represents the amount of recurring non-cash expense related to the Company’s equity compensation programs.


(b)	(Gain) loss on disposal of fixed assets represents the costs incurred in connection with the sale or disposition of fixed assets, primarily IT equipment and furniture and fixtures. We exclude these (gains) losses from adjusted EBITDA and adjusted net income because they result from investing decisions rather than from decisions made related to our ongoing operations.


(c)	Loss on modification or extinguishment of debt relates to costs incurred in connection with changes to our long-term debt. We exclude these losses from Adjusted EBITDA and Adjusted Net Income because they result from financing decisions rather than from decisions made related to our ongoing operations.

(d)

Foreign currency losses, net primarily relates to gains or losses that arise in connection with the revaluation of short-term inter-company balances between our domestic and international subsidiaries. In addition, this amount includes gains or losses from foreign currency transactions, such as those resulting from the settlement of third-party accounts receivable and payables denominated in a currency other than the local currency of the entity making the payment. We exclude these gains and losses from adjusted EBITDA and adjusted net income because they result from financing decisions rather than from decisions made related to our ongoing operations and because fluctuations from period- to- period do not necessarily correspond to changes in our operating results.


(e)	Other non-operating expense (income), net represents income and expense that are non-operating and whose fluctuations from period- to -period do not necessarily correspond to changes in our operating results.

(f)

Transaction-related costs for the three and nine months ended September 30, 2018 and 2017 consist of fair-value revaluations of acquisition-related earn-out liabilities, stock-based compensation expense related to the release of the remaining portion of the transfer restrictions on vested options, fees associated with our secondary offerings and fees associated with the amendment to our accounts receivable financing agreement.

(g)

Acquisition-related costs primarily relate to costs incurred in connection with due diligence performed in connection with contemplated acquisitions, the acquisition of Symphony Health, the acquisition of Nextrials, Inc., the acquisition of Parallel 6, Inc., and the integration cost for the Takeda joint venture, as well as costs related to other potential acquisitions to enhance our strategic objectives. Integration costs primarily consist of professional fees, rebranding costs, the elimination of redundant facilities and any other costs incurred directly related to the integration of these acquisitions.


(h)	Lease termination expense represents charges incurred in connection with the termination of leases at locations that are no longer being used by the Company.


(i)	Severance and restructuring charges represent amounts incurred in connection with the elimination of redundant positions within the organization, including positions eliminated in connection with acquisitions made by the Company.


(j)	We have escalating leases that require the amortization of rent expense on a straight-line basis over the life of the lease. The non-cash rent adjustment represents the difference between rent expense recorded in the consolidated statement of operations and the amount of cash actually paid.


(k)	Represents charges incurred that are not considered part of our core operating results.


(l)	Represents the tax effect of adjusted pre-tax income at our estimated effective tax rate.

PRA Health Sciences, Inc. - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - October 31, 2018

Attached files

PRA Health Sciences, Inc. Reports