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Edited Transcript of PRAH earnings conference call or presentation 21-Feb-20 2:00pm GMT

Q4 2019 PRA Health Sciences Inc Earnings Call

RALEIGH Mar 10, 2020 (Thomson StreetEvents) -- Edited Transcript of PRA Health Sciences Inc earnings conference call or presentation Friday, February 21, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Colin Shannon

PRA Health Sciences, Inc. - Chairman, CEO & President

* Michael J. Bonello

PRA Health Sciences, Inc. - Executive VP, CFO & Corporate Secretary

* Thomas Byrne

PRA Health Sciences, Inc. - VP of Legal Affairs

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Conference Call Participants

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* Alexander Yearley Draper

SunTrust Robinson Humphrey, Inc., Research Division - MD of Equity Research

* Daniel Gregory Brennan

UBS Investment Bank, Research Division - Senior Equity Research Analyst of Healthcare Life Sciences

* David Howard Windley

Jefferies LLC, Research Division - MD & Equity Analyst

* Eric White Coldwell

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Erin Elizabeth Wilson Wright

Crédit Suisse AG, Research Division - Director & Senior Equity Research Analyst

* Jack Meehan

Barclays Bank PLC, Research Division - VP & Senior Research Analyst

* John Charles Kreger

William Blair & Company L.L.C., Research Division - Partner & Healthcare Services Analyst

* Juan Esteban Avendano

BofA Merrill Lynch, Research Division - Associate

* Patrick Bernard Donnelly

Citigroup Inc, Research Division - Research Analyst

* Robert Patrick Jones

Goldman Sachs Group Inc., Research Division - VP

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the PRA Health Sciences Fourth Quarter 2019 Earnings Release Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Tom Byrne, Vice President of Legal Affairs. Please go ahead, sir.

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Thomas Byrne, PRA Health Sciences, Inc. - VP of Legal Affairs [2]

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Thank you. Good morning, and thank you for joining us for the PRA Health Sciences Fourth Quarter of 2019 Earnings Teleconference. Today, Colin Shannon, our Chief Executive Officer; and Mike Bonello, our Chief Financial Officer, will discuss our fourth quarter and full year financial results. Following our opening comments, we will be available for questions.

In addition to our press release, an investor supplement with additional financial information is available in the Investor Relations portion of our website.

Before we begin, I'd like to remind you that our remarks and responses to your questions may include forward-looking statements. Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with our business, which are discussed in the risk factors included in our annual report on Form 10-K filed with the SEC on February 28, 2019. Our risk factors may be updated from time to time in our filings with the SEC. Please note that we assume no obligation to update any forward-looking statements.

Certain financial measures we will discuss on this call are non-GAAP financial measures. We believe that providing these measures helps investors gain a more helpful and complete understanding of our financial results and is consistent with how management views our financial results. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measure, calculated and presented in accordance with GAAP, is available in the earnings press release and investor supplement included in the Investor Relations portion of our website.

I would now like to turn the call over to our CEO, Colin Shannon.

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [3]

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Thank you, Tom. Good morning, and thank you for joining the conference call covering our fourth quarter and full year 2019 financial results.

I am pleased to report that our fourth quarter results produced solid revenue and earnings growth. Revenue for the fourth quarter was approximately $800 million, which represents an increase of approximately 10% year-over-year. Adjusted net income was approximately $99 million, an increase of 14%, and adjusted net income per diluted share was $1.54, an 18% increase when compared to the prior year.

I am pleased that we continued to hit our objective of expanding our operating margins and also our double-digit growth and adjusted net income and adjusted net income per diluted share.

Consistent with prior years and prior quarters, our client base continues to be well diversified with our top 5 clients representing approximately 38% of revenue for the quarter, and no single client representing more than 10%.

For the fourth quarter of 2019, we reported $659 million of net new business awards, which represents a net book-to-bill of 1.21. For full year 2019, with another record level of $2.7 billion of net new business awards, representing a full year net book-to-bill of 1.23. Our full year book-to-bill inclusive of reimbursement revenue was 1.40.

Although our new business metrics have lagged when compared to prior years, I am very pleased with the amount and quality of our new awards. And in fact, we continue to significantly outperform the models that were established at the time of our IPO. The addition of our fourth quarter new business awards resulted in an increase in our backlog of 11% year-over-year and 2% on a sequential basis, with backlog finishing at approximately $4.7 billion at year-end.

Our full year 2019 financial results continue a trend of consistent and strong growth. We reported solid revenue growth and improved our overall operating margins. We delivered full year revenue of approximately $3.1 billion, representing growth of approximately 7% at actual foreign currency exchange rates and 8% on a constant currency basis.

During 2019, we continued to make investments in our business and enhance our service offerings. We have added a significant amount of new leadership talent in most of our business areas during the year. In addition, we were able to implement key IT systems as planned.

We believe that we have established a foundation that will allow us to provide long-term and sustainable growth and believe we are well positioned to offer a wide variety of services to our clients.

Regarding our Data Solutions segment, as you're aware, we faced some challenges heading into 2019, and we instituted significant changes to enable the long-term success of this business. The leadership changes we made in the first quarter have been embraced by the entire organization, and we continue to add talent to the team. We also continue to evolve the business by investing in new offerings, enhancing integration with the Clinical Research segment and continue to look at opportunities to expand our service offerings. We remain focused on the continued build of our commercial team, and we believe we are in a very good position to have a strong 2020.

In our view, the environment for research spending and CRO outsourcing remains stable, and we continue to see a healthy flow of RFPs. We believe, with the management changes we made during 2019, we are in a position of strength heading into 2020.

Moving on to our 2020 guidance. We are anticipating high single-digit revenue growth and also expect adjusted earnings per diluted share between $5.77 and $5.97 per share, representing double-digit growth when compared to 2019. Mike will provide additional details about our 2020 guidance.

In closing, I would like to thank our entire staff and our clients for their continued commitment to PRA Health Sciences. We have a very strong business, and I believe we are well positioned for 2020.

I would now like to hand over the call to Mike Bonello, our Chief Financial Officer, who will go through our financial results in more detail.

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Michael J. Bonello, PRA Health Sciences, Inc. - Executive VP, CFO & Corporate Secretary [4]

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Thank you, Colin, and good morning, everyone.

For the fourth quarter of 2019, our consolidated revenue grew 10%, both at actual foreign exchange rates and on a constant currency basis. As Colin stated previously, we reported revenue of $800.2 million in the fourth quarter of 2019 compared to $729.6 million in the fourth quarter of 2018.

The Clinical Research segment reported revenue of $725.1 million for the quarter, while the Data Solutions segment reported revenue of $75.1 million, increases of 11% and 2%, respectively.

We derived 56% of our service revenue from large pharmaceutical companies, 6% from small to midsized pharmaceutical companies, 16% from large biotechnology companies and 22% from all other biotechnology companies. These concentration metrics exclude our Data Solutions segment and reimbursement revenue and are in line with what we've reported in previous quarters.

Total direct costs were $386.1 million in the fourth quarter of 2019 compared to $365.7 million in the fourth quarter of 2018. The increase in our direct cost continues to be driven by increased labor costs in our Clinical Research segment as we continue to add staff to support growth in the business and increased data costs in our Data Solutions segment as we add more data assets and as we see slight increases in the renewal rates we are being charged on our current data contracts.

Direct costs also include a favorable impact of $4 million from fluctuations in foreign currency exchange rates. Direct costs were 48.2% of revenue in the fourth quarter of 2019 compared to 50.1% in the fourth quarter of 2018. The decrease in direct costs as a percentage of revenue is primarily due to the favorable currency exchange rate fluctuations and increased utilization of our staff.

Selling, general and administrative expenses were $103.5 million or 12.9% of revenue for the fourth quarter of 2019 compared to 13.2% for the fourth quarter of 2018. The decrease in selling, general and administrative expenses as a percentage of revenue is primarily related to our continued efforts to leverage our selling and administrative functions.

Adjusted net income, which excludes certain items whose fluctuation from period-to-period do not correspond to changes in our operating results, increased 13.6% to $98.7 million in the fourth quarter of 2019. Adjusted net income per diluted share grew 18% to $1.54 in the fourth quarter of 2019 compared to $1.31 in the fourth quarter of 2018. Adjusted net income and adjusted net income per diluted share include the impact of a reduction in our effective tax rate from 24% to 23%. The decrease in our effective rate was driven by the geographic distribution of our pretax earnings.

For the 12 months ended December 31, 2019, our consolidated revenue grew approximately 7% at actual foreign exchange rates and 8% on a constant currency basis. We finished the year with approximately $3.1 billion of revenue compared to $2.9 billion in 2018.

Cash provided by operations was $187.6 million in the fourth quarter of 2019 compared to $131.2 million in the fourth quarter of 2018. The increase in operating cash flow was primarily a result of an increase in cash inflows from working capital, driven by a decrease in our days sales outstanding. Our net days sales outstanding was 18 days at December 31, 2019.

For the 12 months ended December 31, 2019, cash provided by operations was $253.6 million compared to $329.8 million for the 12 months ended December 31, 2018. The decrease in operating cash flows was primarily due to the inclusion of $83.2 million related to the final earnout payment for Symphony in April of 2019 compared to a similar payment of $35 million in the prior year.

Capital expenditures for the fourth quarter of 2019 were $13.1 million compared to $15.8 million for the fourth quarter of 2018. Capital expenditures were $74.3 million for the 12 months ended December 31, 2019, compared to $55.9 million for the 12 months ended December 31, 2018.

As we've discussed in prior quarters, the increase in our capital expenditures continue to reflect our investment in information technology and the expansion of our infrastructure to support our growth.

Our cash balance at December 31, 2019, was $236.2 million, of which $87 million was held by our foreign subsidiaries. Net debt outstanding, defined as total debt less cash and cash equivalents at December 31, 2019, was $1 billion compared to $942 million at December 31, 2018.

As we've previously discussed, during the fourth quarter, we finalized the refinancing of our 2016 credit facility. Our new credit facility consists of a $750 million revolving line of credit and a $1 billion term loan, both of which have a maturity date of October 28, 2024. The term loan has scheduled fixed quarterly principal payments of $6.3 million through September 2024, with the remaining balance due at maturity.

Regarding our currency concentration, excluding reimbursement revenue and expenses, 84% of our revenue and 61% of our expenses were denominated in U.S. dollars, which is consistent with prior quarters and 2018 levels. Our euro exposure continues to be naturally hedged. As we've discussed in prior quarters, we continue to have exposure movements in the GBP as less than 1% of our revenue is denominated in GBP, while approximately 6% of our expenses are denominated in GBP.

Turning now to our guidance for 2020. We are estimating revenues between $3.23 billion and $3.36 billion, representing as reported and constant currency growth of 5% to 10%. We are anticipating GAAP earnings per diluted share of between $4.01 and $4.21, and adjusted earnings per diluted share of between $5.77 and $5.97.

Our full year guidance includes the impact of investments we are making in new data assets, pricing increases we are anticipating on current data contracts and increased depreciation expense as we continue to invest in information technology and the expansion of our infrastructure to support our growth.

Our full year guidance also includes a significant investment in our government contracting business as we are seeing an increase in RFPs from governmental agencies, and we need to ensure that our infrastructure is at an appropriate level to align with the number of awards we are anticipating winning.

We also anticipate that our annual effective income tax rate will be approximately 23%. Our effective tax rate may differ from this estimate if the geographic distribution of our pretax earnings changes from what we have estimated or if there's changes in the interpretation analysis or if additional guidance is issued by regulatory agencies.

Consistent with prior years, we are including Q1 guidance to ensure a sequential quarter earnings growth are in line with our expectations. We are estimating revenues between $765 million and $787 million, representing as reported and constant currency growth of 6% to 9%.

Our Q1 2020 revenue growth is being impacted by cancellations that were taken in the fourth quarter of 2019 that we expected would be replaced. However, the start of the new program has been delayed by the sponsor until later in 2020. We are anticipating GAAP earnings per share of between $0.59 and $0.69 per diluted share and adjusted earnings per diluted share of between $1.05 and $1.15. Similar to our full year guidance, we expect our effective income tax rate to be 23%.

Our Q1 guidance also includes the impact of the seasonal revenue in our Data Solutions segment, investments we are making in new data assets, increased pricing we're expecting on our current contracts -- data contracts and investments we are making in our government contracting business. It also includes the impact of first quarter recurring expenses, such as payroll taxes and employee benefits and expenses incurred related to internal organizational meetings that are annually held in the first quarter. It should be noted that our guidance assumes a euro rate of 1.15 and a GBP rate of 1.30. All other foreign currency exchange rates are as of January 31, 2020. Our process for determining exchange rates is consistent with prior years, where we use multiple bank resources to evaluate expected rate movements for the next 12 months.

That concludes our prepared remarks. And now we're happy to take your questions. Operator, you may now open the lines.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Eric Coldwell with Baird.

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Eric White Coldwell, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [2]

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First question, I think you might be the only CRO to date not to mention coronavirus or any impact in Q1, unless I just somehow missed that. So I guess, I'll start with that one. What are you seeing? And any color or commentary there would be great.

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [3]

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Yes, we have to obviously consider the implications of that in our Q1. We obviously are, just as everyone else, being concerned about it and the effect on new business. But we've obviously adjusted that in our outlook for the -- not only for the first quarter, but tried to gauge it for the year. We've managed to also stay in very close contact with all employees. And fortunately, everyone remains in good health, and we've managed to avoid anybody being caught up with the virus. So it's something that's top of mind for us. But obviously as we are looking forward to guidance, we have tried to weigh up all of these issues and reflect in our Q1 numbers.

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Eric White Coldwell, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [4]

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So Colin, is there something implicit in here because I didn't hear it mentioned in the list of things impacting Q1? Could you maybe...

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [5]

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It wasn't such a huge variance that I'd mention it significantly because it didn't impact -- it was kind of -- it wasn't material enough to single out. The other factors that we mentioned had some material effect. And Mike will talk, maybe, a little bit more about them.

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Michael J. Bonello, PRA Health Sciences, Inc. - Executive VP, CFO & Corporate Secretary [6]

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Yes. Yes, certainly. Go ahead, Eric.

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Eric White Coldwell, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [7]

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No. Go ahead, Mike, and then I'll do my original question after you.

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Michael J. Bonello, PRA Health Sciences, Inc. - Executive VP, CFO & Corporate Secretary [8]

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Yes. I think we had pointed out kind of the 3 or 4 key things that are impacting the first quarter on the revenue side. There's a couple of cancellations that came through for Q4 that are resulting in the programs being pushed out. And the data cost and the investment that we're making from a government perspective are having a bigger impact in the quarter than we had expected. The data increase is about -- I'd say, about $0.04 to $0.05 higher than we had anticipated as we were building 2019 and working through 2019. And there's about $0.03 to $0.04 impact in the quarter from government contracting costs that we're going to need to incur. So that's why we had broken those out separately because they were slightly bigger from a materiality perspective than the impact from the coronavirus.

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Eric White Coldwell, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [9]

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Okay, that's really helpful. My original question before the Q&A -- or the management discussion was around Symphony actually. Definitely hear you on the data cost, not a big surprise there. But if we're not mistaken, I think your fourth quarter gross margin in Symphony was maybe the best since the deal; at least, it was up, if I'm not mistaken. And I'm curious, is that just due to 4Q revenue strength and some incremental margin there? Or is this -- somehow you're offsetting these data costs with other -- through other venues?

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Michael J. Bonello, PRA Health Sciences, Inc. - Executive VP, CFO & Corporate Secretary [10]

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It's really the fourth quarter revenue, Eric, that's driving that more. We're seeing some renewals because obviously those renewals happen over the course of the year. Those renewals had less of an impact in Q4 and are going to have more of an impact in the first half of this year.

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [11]

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And just -- and also last year, we -- as you know, there's a lot of changes we made in Q1. And this year, we're starting with a rather new team. So we're seeing the beginning to a stronger Q1 than we did in the past. So we've reflected that as we're building out our Q1 outlook.

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Operator [12]

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Our next question comes from John Kreger with William Blair.

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John Charles Kreger, William Blair & Company L.L.C., Research Division - Partner & Healthcare Services Analyst [13]

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Just before we totally leave the coronavirus issue, could you guys give us a sense about what China would be as a percent of revenue? I'm guessing that's quite small, but maybe more broadly, if you think about a typical trial, what percent of patients and sites would China reasonably represent, if you happen to have that metric?

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [14]

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The bulk of our work in China has mainly been through our Strategic Solutions. And as you know, we're reasonably small in China. It's one of the areas that we had been looking to expand, and we've been growing organically. So I think that that's why it's been more neutral from us versus other competitors who are much larger in that area.

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John Charles Kreger, William Blair & Company L.L.C., Research Division - Partner & Healthcare Services Analyst [15]

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Got it. Okay. And then Colin, you made some very interesting remarks about the Strategic Solutions plan kind of evolving. Can you just add to that? If I recall back when you purchased RPS, you were basically -- you had mandates with most of the large pharmas, and the question is, could you sort of lever that into traditional awards? Is that still the strategy? And can you talk about maybe whether or not the number of mandates has changed or the size of the typical mandates is changing? Just how does the strategy likely to look going forward versus what it's been in the last few years?

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [16]

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John, we actually -- we come back, we wanted to make sure that there was -- we're seeing it to support the Strategic Solutions work and actually not go in and aggressively pursue product registration, typical project work, because we wanted to support the client that made these choices. But we also wanted to offer these services where appropriate. And we saw that as we've continued to mature our relationships, we do get opportunities to discuss other service offerings that we have. That still happens. Obviously, we're continuing to expand our Strategic Solutions business this year, and we're feeling very optimistic about a lot of the changes that we saw last year and the recapitalization of staff to other parts of the world has all happened.

We see that it could expand this year. Well, we've been fairly modest in our outlook because there's a lot of potential things happening with big pharma in an election year. So we didn't want to be too bullish in our outlook. So we've been looking at it as a way of we can see things in demand, but we were just careful about how much growth we're expecting. So all in all, we've been pretty conservative in that front. And we still see obviously other opportunities arising from the relationships we've had in that area.

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John Charles Kreger, William Blair & Company L.L.C., Research Division - Partner & Healthcare Services Analyst [17]

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Okay. Just -- so net-net, should we view Strategic Solutions as sort of a flattish business in '20? Or growing but maybe growing less than the overall?

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [18]

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A very modest growth.

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Operator [19]

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And our next question comes from Juan Avendano with Bank of America.

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Juan Esteban Avendano, BofA Merrill Lynch, Research Division - Associate [20]

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Colin, I believe that you mentioned that including reimbursed expenses or pass-throughs, your net book-to-bill on a trailing 12-month basis was 1.40. If that is correct, I believe that this is much better than most of your CRO peers. So related to this, could you share with us whether or not your net bookings including pass-throughs have been growing at all? And if so by how much?

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [21]

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Well, as I see it, that is the fact. We, as you know, feel like the old 605 basis is much more appropriate in evaluating the growth levels of the business. It's what we're using to model our growth for the year. But since everybody else is reporting, we wanted to make sure we gave apples-to-apples comparison. I think it just helps you draw your own conclusions. I'm just reporting it to allow you to have full information. What we've done is modeled out our growth potential. We weigh out what we're seeing in the marketplace with its strong RFP flow and volume. So we look all factors to consider where we're going to be after the year, and we want to deliver good high single-digit growth. And in some of our areas, it's actually getting into double digit. I think the only area that we've been really modest in the growth level is our Strategic Solutions that I mentioned earlier.

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Juan Esteban Avendano, BofA Merrill Lynch, Research Division - Associate [22]

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Got it. So on an apples-to-apples basis, explicitly, are you seeing growth in net bookings including pass-throughs on a year-over-year basis?

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Michael J. Bonello, PRA Health Sciences, Inc. - Executive VP, CFO & Corporate Secretary [23]

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Yes, Juan, while we should, I don't have the exact number, but we should be seeing growth in those numbers, yes.

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Juan Esteban Avendano, BofA Merrill Lynch, Research Division - Associate [24]

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What magnitude, whereabouts?

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Michael J. Bonello, PRA Health Sciences, Inc. - Executive VP, CFO & Corporate Secretary [25]

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I don't have the number off the top of my head. So I'd hesitate to give you that number because I don't want to mislead you.

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Operator [26]

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And our next question comes from Jack Meehan with Barclays.

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Jack Meehan, Barclays Bank PLC, Research Division - VP & Senior Research Analyst [27]

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I wanted to stick with 605 because I agree with you, Colin, I think that's the most appropriate way to look at the business. And obviously, 1 quarter doesn't make a trend. But now when we look at the past year, new awards were only up 1% year-over-year. So I was wondering if you can maybe just talk about what you're seeing either in terms of RFP flow or some of your strategic partnerships, whether there's been any changes? And maybe just what's going on in terms of the level of growth? It just seems surprising to me given the health of the end market that there hasn't been more growth in terms of new awards.

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [28]

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Well, I mean as you know, I've mentioned about a lot of changes that we were going through in the year. I've been adding a lot of leadership to augment our current situation. So we were managing our current book of business while adding new business.

As we're looking in Q4, we had targeted a higher book-to-bill. We just -- we're just unfortunate that one of the key things that we had prepared for and had the team ready for, the protocol had to be revised. It's not getting done now until mid this year. So it was one of the pieces that shifted dramatically. And -- but we had to make sure that we had the team, and we couldn't really replace that. So we continue to sort of keep that and watch how that manages out.

We've obviously been keeping a close eye on the new business and making sure that we continue our growth. We're winning at the rate that we can sustain. I had to deliver some absolute key systems last year. And in the previous years, our growth had to take precedence because we are having to deal with things for clients. This time we were able to deliver these systems and build the foundation to allow us to take advantage of that for future opportunities. We're already seeing that happening in Q1. We're seeing things, they're kicking off. So I feel like we are -- we've actually spent a lot of time really building up our infrastructure to get to the next level and allow us to start really focusing on a more rapid growth.

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Jack Meehan, Barclays Bank PLC, Research Division - VP & Senior Research Analyst [29]

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Yes, that's all fair. I did want to just follow-up on the strategic partnership side. Last year this time, there was a lot of focus on one of your big customers had a merger. I was just curious if you could talk about now that we're at year-end, what -- if there's been any changes in terms of that relationship? Whether you're winning more business? Or if there's been any changes in terms of how that's impacting your awards or growth?

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [30]

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We look at -- I mean I have tried to explain this, that we have a very, very well diversified book of business. We are still like 50-50, biotech and pharma. We find that we've got to maintain that diversity. And we are still getting work from our partners. The merger did have an impact last year, absolutely. They have expanded the number of CROs that they're working with, which is absolutely fine with us. We continue to work very closely with them. We have helped them strategically with a lot of their initiatives and helped them get to where they need to be. We continue to support them, and we continue -- and we will continue to support them in their initiatives. We're performing a lot of work with them just now, and we are happy that we've continued to see new awards on a regular basis.

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Operator [31]

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And our next question comes from Sandy Draper with SunTrust.

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Alexander Yearley Draper, SunTrust Robinson Humphrey, Inc., Research Division - MD of Equity Research [32]

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And I apologize, I don't think this got covered in the prepared remarks, but I had to jump off and jump back on. When I look at the growth in the -- the reimbursables have been ramping up pretty substantially as we go over the course of this year and have been growing faster than the 605 or sort of net revenue numbers. I'm just trying to think, how should I think about that in terms of the trending? Is that an indication that net revenue is going to accelerate? Is that just a function of, as you pointed out Colin, a 1.4 book-to-bill, much higher with pass-through revenue and so that's what's showing up there? I'm just trying to think if there are trends that we should be considering as that is ramped up? Or is there anything that you can sort of call out as to that and how it impacts the overall net revenue -- I mean the overall revenue number going forward?

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [33]

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Well, we've actually noticed it's been really quite erratic and hard to plan because from quarter-to-quarter, we're seeing quite a bit of variance in just the type of studies that are coming through. It depends on a number and magnitude of the pass-through element. I had mentioned last quarter, we had quite a substantial divergence away from our traditional 605 book-to-bill. And this quarter, there was much less. I think it was -- the quarter was 1.25. Was it?

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Michael J. Bonello, PRA Health Sciences, Inc. - Executive VP, CFO & Corporate Secretary [34]

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Yes.

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [35]

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So 1.25, it was -- so it was actually quite a modest amount of reimbursables this quarter. So it had quite a lot of variance. I think we called out the whole year 1 because I think that does smooth it and allows us to look at it on an annual basis. I've not saw any unusual patterns yet. So I think that we've been pretty -- looking forward, we'll be pretty conservative about the way we'll be taking our view on pass-throughs, but we know it certainly causes some variances.

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Michael J. Bonello, PRA Health Sciences, Inc. - Executive VP, CFO & Corporate Secretary [36]

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And Sandy, from a guidance perspective and what we're expecting to see in 2020, we've assumed, at least at this point that that percentage of pass-through revenue to total will stay basically flat in 2020. But as Colin said, it will all depend on the awards that come through and what the relationship of those awards are from the service component to the pass-through component to the total.

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Alexander Yearley Draper, SunTrust Robinson Humphrey, Inc., Research Division - MD of Equity Research [37]

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Okay. And so when you say percentage, are you -- when I look at that number, I do it on a reimbursables as a percentage of net revenue, not the total revenue. So that's about 30%. Is that the way you guys look at it?

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Michael J. Bonello, PRA Health Sciences, Inc. - Executive VP, CFO & Corporate Secretary [38]

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That's correct. That's correct.

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Operator [39]

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Our next question comes from Erin Wright with Crédit Suisse.

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Erin Elizabeth Wilson Wright, Crédit Suisse AG, Research Division - Director & Senior Equity Research Analyst [40]

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How should we be thinking about the quarterly progression of the Data Solutions business? Can you remind us of the seasonality there? And on the investment side in the data assets, is that all related to Symphony? Or what else is in that incremental investment there?

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [41]

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The -- firstly, the progression, it really starts ramping up towards the latter part of Q3 and all of Q4 where the clients are utilizing their end-of-year budgets to get analysis for the following years. And once again, we saw that pattern repeat this year. And what the team are now looking to do is hope to have more consistency quarter-to-quarter by [easing] an out-of-service offering, and that's why we're always looking for new offerings that we can help support in a much more timely manner, instead of waiting through the end of the year.

So we're seeing that, in Q1, for example, where we've noticed that that's obviously a good improvement from last year. But that also is partly due to the full team being available from the start of the year and no distractions. So we're pleased to see that early progress is getting -- going to get off to a good start.

So regarding investments on the data -- the data piece of our business. Yes, the investments, obviously our biggest asset there is buying data. And we have many, many, many contracts that are renewed annually, and we're seeing some price escalation in that part of the business. We're also looking to expand our international offerings. And we're trying to do that mainly with partnerships and arrangements with other parties so that we can actually minimize expense and allow our clients to benefit from a combined service offering. So we feel like we're taking a good position there. But also expanding our client mix and looking at other tangential types of organizations that use data and so we are -- and that helps us -- has given us ways of smoothing out the quarterly progression. Most of your...

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Michael J. Bonello, PRA Health Sciences, Inc. - Executive VP, CFO & Corporate Secretary [42]

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Yes. I agree with that, Erin. It's the back half of the third quarter and the fourth quarter is where you start to see the ramp and that would be consistent with what you saw this year.

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Erin Elizabeth Wilson Wright, Crédit Suisse AG, Research Division - Director & Senior Equity Research Analyst [43]

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Okay, got it. Great. And then on the government agency business, I guess, that you alluded to, can you elaborate on the opportunity as well as the associated spending and hiring on that front?

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [44]

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Sure. For many years, we've actually been wanting to get everything organized so that we're completely validated to do government work and be a primary contractor. We had components of our business that are actually already primary government contractors for Clinical 6, for example. But we've recently just been -- took in a lot more volume, and it's now allowed us -- it's really kind of pushed us to accelerate getting ready for it. So we're actually having to deal with that getting finalized in Q1. So Mike, maybe if you want to just go through some details.

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Michael J. Bonello, PRA Health Sciences, Inc. - Executive VP, CFO & Corporate Secretary [45]

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Yes, we've historically been, at least for the larger PRA business, just a subcontractor. So we're trying to get ourself in a position to be the prime contractor, as Colin had alluded to, and it's mainly driven around making sure we have the resources to make sure we can pull -- get proposals appropriately, we have the accounting systems set up appropriately, because the last thing we want to do is be in a position to not be CAS-compliant as these awards come through. So we're making the initial investment upfront. The majority of the investment is in the first quarter. That's why I pointed it out as a bearing on why our midpoint of our EPS is where it is. But we expect that the majority of that spend will be in the first half of the year, and then we should be in a good position to be ready as these awards come through.

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Operator [46]

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And our next question comes from David Windley with Jefferies.

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David Howard Windley, Jefferies LLC, Research Division - MD & Equity Analyst [47]

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I wanted to kind of focus on revenue, I guess. I -- in light of the cadence in Strategic Solutions going back a year or so my thought was that your fourth quarter would have been against a fairly easy comp and that those would -- that would continue into the first half of 2020. Can you clarify for that? So what I'm getting at is your comments that you only have modest growth. How much did Strategic Solutions grow in the fourth quarter? And am I right that you have some easy comps in the first half? Is it higher growth in the first half and then not much growth in the second half for Strategic Solutions in 2020?

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [48]

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No. The whole year, and I've kind of mentioned this a lot that we were seeing a lot of hires within the Strategic Solutions, but they were in much lower-cost countries. We started to see that switch towards the end of the year, but it didn't have a material effect on the growth. And as we've projected this forward-looking year, we're seeing -- we've just chosen to do a modest growth for many factors. Firstly, there is -- obviously, there could be pricing issues arising from big pharma as we approach and get into an election year. So we -- that could be a potential worry later on in the year. And the second thing was -- is that, we've -- although the comps are maybe lower, it's because the infrastructure is still there. I mean like we've got to look and see where the work is going to be added as we continue to expand the Strategic Solutions part of the business. We are seeing a demand pickup. We've got a lot of outstanding vacancies. But that is quite a geographical dispersed situation.

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Michael J. Bonello, PRA Health Sciences, Inc. - Executive VP, CFO & Corporate Secretary [49]

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Yes. And Dave, I think when we talked about Strategic Solutions previously, that was after the Q2 call when we started to see some of the shifting in the geographic distribution. So the back half of the year did have more revenue growth in '19 than it did earlier. So the first half of this year or at least, in particular, the first quarter, you would see a little bit more growth. When Colin's talking about flattish growth for Strategic Solutions, that's for the whole year in total.

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David Howard Windley, Jefferies LLC, Research Division - MD & Equity Analyst [50]

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Right. Understood. So does that mean are you actually expecting Strategic Solutions to be down in the second half of '20?

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Michael J. Bonello, PRA Health Sciences, Inc. - Executive VP, CFO & Corporate Secretary [51]

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No. I'd say relatively flat.

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David Howard Windley, Jefferies LLC, Research Division - MD & Equity Analyst [52]

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Okay. And then what growth assumption is embedded in your guidance for Data Solutions for 2020?

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [53]

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It's low double digits.

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David Howard Windley, Jefferies LLC, Research Division - MD & Equity Analyst [54]

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It is low double digits?

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [55]

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Yes.

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Michael J. Bonello, PRA Health Sciences, Inc. - Executive VP, CFO & Corporate Secretary [56]

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Yes.

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David Howard Windley, Jefferies LLC, Research Division - MD & Equity Analyst [57]

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Okay. Interesting. And then last question, more conceptually. I think Juan asked this question a few quarters ago that your gross bookings have been in a range for a couple of years. And I think you talked earlier about -- you had expected that the fourth quarter would be a little bit better, but some things slipped. How would you characterize the growth in dollars of RFP that you're seeing and your win rate against those opportunities? Would you say that kind of the inability to break higher in gross bookings is not seeing enough RFPs or that your win rate is slipping?

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [58]

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Our win rate for -- we categorize it into opportunities that we think are -- obviously got strong chance of us winning and our win rate for these opportunities are pretty high. And there's -- obviously, when you're breaking into new clients, there's always -- it's much more difficult than obviously with clients that we work with. But as we've mentioned to you, the real big issue in the last year or so has been -- the Strategic Solutions has been very flat. And it really has dragged down the growth. Our growth in product registration has been very, very solid. And so the win rate for our typical product registration work has been excellent, and we continue to do that, and we're continuing to see really good growth.

So I thought I made that clear a number of times that Strategic Solution has been lagging and are showing a modest growth this year, and it's really quite impacting the overall new business awards.

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Operator [59]

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And our next question comes from Patrick Donnelly with Citi.

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Patrick Bernard Donnelly, Citigroup Inc, Research Division - Research Analyst [60]

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Maybe just on the booking split between biotech and pharma, I think it continues to trend around 50-50, the shift towards biotech versus the historic trend. Can you maybe just talk about the internal focus to increase that exposure on the biotech side? And I think it was either last quarter or a couple of quarters ago, you called out the biotechs have been a little faster to move forward with on-time starts, large pharma has been shifting things around. Does that continue to be the case out there?

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [61]

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Well, it does. And our business development team have really been focusing on that because we're finding that biotech is moving faster. Obviously, I mean one of the things that did split was, I think, biotech. But protocol, design and acceptance, I mean you're still dealing with FDA and you still need approval. So things can happen that can cause alterations. So when that happens, obviously, it can cause delays. But we are finding that biotech does move a lot faster. And we've continued to really focus on that. It's actually been a core strength of us for many, many, many years, and we continue to utilize that strength to make sure that we continue to look at that more innovative side of the -- of working within the business.

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Patrick Bernard Donnelly, Citigroup Inc, Research Division - Research Analyst [62]

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Okay. And then maybe just on the M&A side, on the pipeline. I know assets tend to be running a little bit expensive in the current market, but how active is the pipeline? What are you seeing in terms of the cost of attractive assets out there?

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [63]

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There's always lots of things going on. We always -- we're always looking. Things are quite expensive just now. So obviously, we've got to proceed with caution. But we certainly see a lot of really interesting things. We've been focusing on the little tuck-in things. And last year, we had to pass up on a sort of quite a large late-stage opportunity. Just -- we're looking to really buy in strong leadership. And we saw a great opportunity to dovetail in with our Data Solutions business. We saw that it would work really nicely, but we just -- at the time, we just needed to really focus in on building our leadership team and making sure that we didn't distract anything because we really hard to focus on getting everything bedded done and getting the infrastructure in place before we do that's anything of major importance.

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Patrick Bernard Donnelly, Citigroup Inc, Research Division - Research Analyst [64]

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How should we think about that in the priority versus repurchasing in 2020?

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [65]

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The repurchasing, we obviously listened to our investors last year. We did actually -- we've kept some dry powder in the event of anything happening in the marketplace that whether we move into recession, if something happens that allows us the opportunity to take advantage of that situation. So we wanted that dry powder. We continue to explore ways to enhance our offering and meet the growing innovative needs of some of our clients.

And we've obviously -- we're focusing in on some of the new hybrid trials using our mobile technology platforms, and we continue to see success there. It'll be a long time before it becomes mainstream, but we continue to expand and look for ways that we can actually get things done in a much more cheaper and quicker way to get approvals.

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Operator [66]

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Our next question comes from Dan Brennan with UBS.

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Daniel Gregory Brennan, UBS Investment Bank, Research Division - Senior Equity Research Analyst of Healthcare Life Sciences [67]

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I guess the first question, Colin, would be around the new management hires and the infrastructure investments that are going to enable you to improve your 605 net bookings growth. Could you just review kind of these key hires? I mean not to go through them all, but like what are the key ones? What evidence, maybe some early evidence that they're having an impact? And then as well on the infrastructure investments, can you provide a little more color on what these are and the impact they're expected to have?

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [68]

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Sure. Well, I mean we went really across the board because I'd mentioned that at the end of -- it was -- when we got to November 2018, it was the end of a 5-year period with KKR, where all of our employee options vested and a lot of people left, they cashed in. And so we had to do a lot of rebuilding work in 2019. We've obviously started the process in the summer of '18 anticipating that to happen because we had been warned. KKR had that experience that they were able to mention to us. We see this with every company that goes through this, albeit on the way out. But there's long noncompetes that we had. And so where we're seeing huge difference, I mean obviously, we've augmented. We've got a lot of talent that we chose to make sure that we could retain the people that were going to help drive us to the next stage as well. So we've augmented our current base with new hires in many divisions.

So if you look at Strategic Solutions, we added a couple of new very senior executives to help really take that and drive that forward with bringing in lots of experience and new connections to help look at that business. And even though we've chosen to forecast modest growth, we see real opportunity there, and we want to really explore using these new senior executives to help drive new business. But it may take a little bit of time. These types of opportunities typically take -- there's a long lead time in getting them closed.

On the product registration side, we've added new executives. But more importantly, we've added a number of new key hires across many of the areas. We've completely revamped certain areas within our organization. We've added key leaders within our product registrations, within general partners group, operations. We've even added to SG&A functions, including IT overhaul and various other areas. So we've really strengthened a lot of areas by augmenting our existing talent and adding where we needed to really get ready for future growth.

So we are feeling in a much stronger position with -- and I'd also couple that by mentioning some key systems that we've implemented that were really essential for allowing us our next stage of growth. So yes, I feel really solid about all the additions we've had. We've progressed on to even being able to hire some of the top business development teams who are coming on board and had left competitors because they see the opportunity here.

So overall, we feel in a very strong position. We had our annual sales and leadership meeting just a few weeks ago, where we had the whole company together, and we felt like everybody was bonding. All of the divisions were coming together. So we are talking about the interrelationships between all of the different offerings. We had a substantial number of people coming along from Symphony Health, and they interspersed with all of the teams. So they get the first real feeling of the scale and magnitude of what PRA has to offer. And I think it went a long way to help make them realizing that we're into a different type of business with a different culture. So overall, we came out of that meeting feeling very, very positive, very optimistic, and we're seeing a lot of drive for 2020.

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Daniel Gregory Brennan, UBS Investment Bank, Research Division - Senior Equity Research Analyst of Healthcare Life Sciences [69]

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Great. And then maybe as a follow-up, just on Strategic Solutions and your product registration full-service offering. What did the full service or the product registration business grow in '19? And then maybe just related to Strategic Solutions, it looks like a lot of issues there have been, as you just alluded to, like your own staffing issues. So I was hoping you could just maybe zoom out and give us some color about that market, kind of what's the overall market growing at? And how would you characterize the competitive dynamics and pricing situation?

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [70]

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We don't actually break that down and publish that. I've just been giving you a flavor of what's going on in the businesses. I pointed out last year, we've noticed that the trend of the switching of all of the Strategic Solutions, that the hiring has been changing to different geographies. We've been observing that and then saw that it was just becoming -- that was a number of clients all shifting, and it caused -- flattened a lot of the growth. And we're seeing that -- I mean obviously, it's been continued, not the growth, the change. But obviously the staff has been retained in these areas. So we're still supporting a lot of low-cost areas. So looking forward, it's kind of -- Mike, do you want to maybe add as well?

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Michael J. Bonello, PRA Health Sciences, Inc. - Executive VP, CFO & Corporate Secretary [71]

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Yes. And Dan, we'll be filing our 10-K right after this call that will have all our segment disclosures in there. So you'll be able to see what the Clinical Research segment grew and what the Data Solutions segment grew year-over-year.

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Daniel Gregory Brennan, UBS Investment Bank, Research Division - Senior Equity Research Analyst of Healthcare Life Sciences [72]

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Got it, Mike. And then just kind of -- sorry, the last one I -- is the environment getting more competitive for Strategic Solutions in terms of pricing? Or kind of how would you characterize the overall kind of competitive dynamics in that?

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [73]

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I mean as is always, it's really about pricing and productivity, and we're looking at how can we affect that dynamic in our cases. We've been able to utilize a lot of our tools and systems we've developed in product registration to augment some of the things that we're doing in Strategic Solutions. Also remember that we started off with a very large base. And because RPS was what was the -- one of the leaders and that's -- that was our whole business. So when we acquired that, it was a very significant portion of our business, which is a large base to grow from. And so when we're going through a lot of these changes, we're probably more affected than others, which actually is why we're -- as we're looking out for the year, we've been modest in our projections for the growth.

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Operator [74]

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And our next question comes from Robert Jones with Goldman Sachs.

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Robert Patrick Jones, Goldman Sachs Group Inc., Research Division - VP [75]

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Colin, I know you've commented on this a bit, but as I've heard your answer, I just want to make sure I understand, the bookings on a 605 basis, probably a little lower than what people were expecting. If I'm hearing you correctly, it sounds like maybe a large portion of that is coming from the lack of a replacement of a large cancellation from one of your top clients and less so from missing out on RFPs competitively versus your peers. Is that the right way to think about kind of what played out on the new business wins in the quarter?

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [76]

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Yes. In the quarter, we -- you've got to get teams ready and earmarked for a particular indication, and it was an expectation that we had everything done and dusted. But it was one of these unfortunate circumstances that the client just wasn't ready to do the award because it still had to get some substantial protocol amendments following some of the results that came through. So we couldn't proceed. And to actually ensure that we get that work, we're trying to obviously make sure that we keep these well-qualified personnel available to them because obviously, it's been a long-term -- a very, very long-term client that we've been working with, and we want to make sure that we actually give them the resources that they need to conduct the trial. It was just -- it was one of these things that is unexpected, but it could have made a big difference.

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Robert Patrick Jones, Goldman Sachs Group Inc., Research Division - VP [77]

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No, that makes -- go ahead, Mike. No, that makes sort of sense. I guess just to stick with the larger customers, you mentioned, Colin, again, that no one client makes up more than 10% of revenue. You guys, I think, last quarter were nice enough to share that the top client represented 9.5% of revenue. I'm just curious, is that still around the same ballpark as we think about 4Q and probably more importantly, 2020? And I guess maybe within that, has the top client changed over the last year or is expected to change in the coming year? Or is it still kind of the same rank order as far as your largest customers that you're working with?

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Michael J. Bonello, PRA Health Sciences, Inc. - Executive VP, CFO & Corporate Secretary [78]

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I would say that you are correct on that 9.5%, that's the range of 10%. I think it's on -- I think it is 9.5% to be exact. And in terms of -- I think our top client has been the same, but we still continue to see a fluctuation within the rest of the top 5. So people kind of moving in and out depending on how we're working through their studies on a quarter-to-quarter basis.

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Operator [79]

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And I'm not showing any further questions at this time. I will now turn the call over to Colin Shannon for any further remarks.

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Colin Shannon, PRA Health Sciences, Inc. - Chairman, CEO & President [80]

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Well, thank you, everyone, for participating in our call today. If you have any additional questions, please feel free to contact us. We hope you have a great rest of your day. Thank you.

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Operator [81]

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Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.