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PRA Health Sciences Inc (PRAH) Q4 2018 Earnings Conference Call Transcript

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PRA Health Sciences Inc  (NASDAQ: PRAH)
Q4 2018 Earnings Conference Call
Feb. 28, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the PRA Health Sciences Fourth Quarter 2018 Earnings Release Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host for today's call, Mr. Tom Byrne; Vice President of Legal Affairs. Mr. Byrne, you may begin.

Thomas Byrne -- Vice President of Legal Affairs

Great, thank you. Good morning and thank you for joining us for the PRA Health Sciences Fourth Quarter of 2018 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'll 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 during this teleconference 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 22, 2018.

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 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'd now like to turn the call over to our CEO, Colin Shannon.

Colin Shannon -- President, Chief Executive Officer and Director

Thank you, Tom. Good morning and thank you for joining the conference call covering our fourth quarter and full year 2018 financial results. I am delighted to report that the fourth quarter was another strong quarter for PRA which produced solid revenue growth and double-digit adjusted net income growth. We also continue to see strong growth in our new business awards and our backlog.

Net new business increased approximately 3% when compared to the fourth quarter of 2017. We had $667 million of net new business awards, representing a net book-to-bill of 1.3 times revenue. Continuing our consecutive quarter run of net book-to-bill equal to or greater than 1.2 times revenue.

For full year 2018, we had a record level of $2.6 billion of net new business awards, representing growth of 10% and a net book-to-bill of 1.29 (ph) times. As we have previously discussed, our new business awards and calculation of net book-to-bill ratio excludes the revenue impact of adopting ASC 606, excludes reimbursement revenue and excludes revenue from our Data Solutions segment. The addition of our new awards has resulted in our backlog increasing approximately 4% on a sequential basis and 20% year-over-year, finishing at approximately $4.2 billion.

As we previously disclosed, our backlog does not include our Data Solutions segment. And in addition, we exclude pass-through and investigator revenue from backlog. The diversity of our new business awards continues to be consistent with previous quarters with approximately 58% of our new awards coming from the pharmaceutical sector and approximately 42% coming from the biotech sector.

Revenue for the fourth quarter was approximately $730 million, which represents an increase of approximately 11% year-over-year at actual foreign exchange rates and 12% on a constant currency basis. Revenue growth, excluding the impact of the adoption of ASC 606 and reimbursement revenue was approximately 4% year-over-year at actual foreign exchange rates.

Adjusted net income for the fourth quarter was approximately $87 million, an increase of approximately 26% over the same period last year. Adjusted net income per diluted share was $1.31, a 26% increase versus the fourth quarter of 2017. Our client base continues to be well diversified with our top five clients representing approximately 36% of total revenue for the quarter and our largest client representing approximately 9% of total revenue. Both metrics exclude the impact of adopting ASC 606.

Our full year 2018 financial results continue to trend of consistent and strong growth. We reported solid revenue growth and improved our overall operating margins. We delivered full-year revenue of approximately $2.9 billion, representing growth of approximately 27% at actual foreign currency exchange rates and 26% on a constant currency basis. Organic revenue growth, which excludes impact of the adoption of ASC 606, reimbursement revenue and our 2017 acquisitions, was approximately 10% year-over-year at both actual foreign exchange rates and on a constant currency basis.

During 2018, we made significant investments in our business and enhanced our service offerings. We believe that we've 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.

Due to our solid performance in 2018, we are anticipating 2019 adjusted earnings per diluted share between $4.93 per share and $5.08 per share. Mike will provide additional details about our 2019 guidance later in the call.

During 2018, many of you raised questions about the status of studies that were cancelled -- heading into 2018, the impact of the pharma industry M&A activity on our business and the integration of our Symphony business. I would like to take a moment just to provide a brief update on each of these items. Regarding the canceled studies, as I've mentioned in the past, these were replaced and have been up and running since the later half of that 2018. And as we've mentioned previously, our client had prioritized their pipeline and as a result canceled and then subsequently replaced their studies. The replacement studies were of a similar value but have a longer duration than the general studies.

As you are aware, the Takeda and (inaudible) transaction closed in January 2019. We don't anticipate the closing of this transaction to have an impact on studies that are currently running for Takeda and we are optimistic about the impact of transaction will have on our new business in the future. We look forward to continuing our partnership with Takeda as it heads into S4 (ph) of our relationship.

Regarding our Data Solutions segment, I am pleased that we have finalized the (inaudible) and we are now in a position to complete our integration plans and expand on our service offerings. As anticipated, we saw the unusual -- sorry, the usual seasonality in this business and we are able to meet our forecast for the year.

In closing, I would like to thank our entire staff and our clients for their continued commitment to PRA Health Sciences. We are delighted with our strong financial results and believe we are well positioned for 2019. I would now like to hand over the call to Mike Bonello, our Chief Financial Officer, who will go through our quarterly and full-year financial results in more detail.

Michael J. Bonello -- Executive Vice President and Chief Financial Officer

Thank you, Colin. Good morning, everyone. For the fourth quarter of 2018, our consolidated revenue grew 11.2% at actual foreign exchange rates and 12% on a constant currency basis. We reported revenue of $729.6 million for the fourth quarter of 2018 compared to $655.9 million for the fourth quarter of 2017. When comparing recorded revenue to our third quarter guidance, fourth quarter reported revenues negatively impacted by foreign currency fluctuations of approximately $3 million and lower than forecasted reimbursement revenue of $8 million.

Our guidance assumed reimbursement revenue of approximately 28.5% of ASC 605 revenue, while actuals came in at 27%. Revenue excluding the impact of the adoption of ASC 606 and reimbursement revenue increased 3.6% at actual foreign exchange rates and 4.2% on a constant currency basis.

Revenue by segment for the fourth quarter of 2018 was $655.6 million for the Clinical Research segment and $74 million for the Data Solutions segment.

Regarding revenue concentration for the fourth quarter of 2018, we derived 54% of our service revenue from large pharmaceutical companies, 11% from small to mid-sized pharmaceutical companies, 16% from large biotechnology companies, and 19% from all other biotechnology companies. These concentration metrics exclude our Data Solutions segment, the adoption of ASC 606 and reimbursement revenue, and are in line with what we've seen in previous quarters.

Total direct costs were $365.7 million in the fourth quarter of 2018 compared to $368.9 million in the fourth quarter of 2017. The decrease in direct costs was primarily related to a favorable impact of $8.6 million from foreign currency exchange rates, which was offset by an increase in labor-related costs in our Clinical Research segment as we continue to ensure appropriate staffing levels and an increase of $1.6 million in our Data Solutions segment. Excluding the impact of the adoption of ASC 606 and reimbursement revenue, direct costs were 62.1% of service revenue in the fourth quarter of 2018, compared to 64.9% in the fourth quarter of 2017.

The decrease in direct costs as a percentage of service revenue is primarily due to favorable currency exchange rate fluctuations discussed earlier and an increase in utilization of our staff. SG&A expenses were $96.4 million, or 16.4% of revenue, excluding the impact of the adoption of ASC 606 and reimbursement revenue for the fourth quarter of 2018, compared to 16.2% for the fourth quarter of 2017. The slight increase in SG&A expenses as a percentage of service revenue is primarily related to an increase in stock-based compensation during the current year. The increase in stock-based compensation expense is primarily related to the initiation of our annual grant program and the adoption of our employee stock purchase plan and is consistent with the trend we saw in the third quarter of 2018.

During the fourth quarter of 2018, we incurred transaction-related expenses of $3.1 million compared to $75.9 million during the fourth quarter of 2017. Both amounts were primarily related to changes in the fair value of earn-out liabilities associated with our acquisitions.

Adjusted net income, which excludes certain items whose fluctuation from period to period does not necessarily correspond to changes in our operating results increased 26.4% year-over-year to $86.9 million in the fourth quarter of 2018. Adjusted net income per diluted share grew 26% to $1.31 per share in the fourth quarter of 2018 compared to $1.04 per share in the same quarter last year.

For the 12 months ended December 31, 2018, our consolidated revenues grew approximately 27% at actual foreign exchange rates and 26% on a constant currency basis. Revenue, excluding the impact of the adoption of ASC 606 and reimbursement revenue increased 18% at actual foreign exchange rates and 17% on a constant currency basis. We finished the year with approximately $2.3 billion of revenue excluding the impact of the adoption of ASC 606 and reimbursement revenue compared to $1.9 million (ph) in the comparable prior year. Cash provided by operations was $131.2 million for the three months ended December 31, 2018 compared to cash provided by operations of $102.6 million for the three months ended December 31, 2017.

For the 12 months ended December 31, 2018, cash provided by operations was $329.8 million compared to $220.4 million for the 12 months ended December 31, 2017. The increase in operating cash flow was the result of an increase in operational performance and optimization of our working capital. Our net days sales outstanding were 16 days at December 31, 2018, compared to 20 days at December 31, 2017.

Capital expenditures were $15.8 million for the three months ended December 31, 2018, compared to $22 million for the three months ended December 31, 2017. Capital expenditures were $55.9 million for the 12 months ended December 31, 2018, compared to $61.3 million for the 12 months ended December 31, 2017. Our capital expenditures continue to reflect our investment in information technology and the expansion of our infrastructure to support our growth.

Our cash balance was $144.2 million at the end of the fourth quarter, of which $63.2 million was held by our foreign subs. Net debt outstanding, defined as total debt less cash and cash equivalents at December 31, 2018 was $942.3 million compared to $1.16 billion at December 31, 2017. During the fourth quarter of 2018, we made additional voluntary principal payments of $110 million. During 2018, total principal payments on long-term debt were $224 million. Regarding currency concentration at December 31, 2018 excluding the impact of the adoption of ASC 606 and reimbursement revenue, 84% of our revenue were denominated in US dollars and 62% of our total expenses were denominated in US dollars, which is consistent with prior quarters and consistent with 2017 levels.

Our euro exposure continues to be naturally hedged. As we've of discussed in prior quarters, we have exposure to movements in the GBP as less than 1% of our revenue was denominated in GBP of 5% of our expenses are denominated in GBP. We continue to look at ways to reduce this exposure.

Turning to our net guidance for 2019. We are estimating revenues between $3.09 billion and $3.2 billion representing as reported in constant currency growth of 8% to 11%. On an ASC 605 basis we're estimating revenues between $2.475 billion and $2.57 billion representing as reported in constant currency growth of 8% to 12%. We are anticipating GAAP earnings per diluted share between $3.65 and $3.80 per share and adjusted earnings per diluted share of between $4.93 and $5.08 per share.

We anticipate that our annual effective income tax rate will be approximately 24% which incorporates the expected changes from the US Tax Cuts and Jobs Act. Our effective rate may differ from this estimate with the geographical distribution of our pre-tax earnings changes from what we have estimated or if there are changes in the interpretation analysis or if additional guidance is issued related to the US Tax Cuts and Jobs Act.

Regarding Q1, 2019 guidance, we are estimating revenues between $720 million and $740 million representing as reported growth of 3% to 5% and constant currency growth of 4% to 7%. On an ASC 605 basis, we're estimating revenues between $575 million and $595 million representing as reported growth of 3% to 6% and constant currency growth of 4% to 7%.

As a reminder, we reported organic revenue growth, excluding ASC 606 and reimbursement revenue in the Data Solutions segment of 17.8% on an as reported basis and 15.2% on a constant currency basis in the first quarter of 2018. We are anticipating GAAP earnings per share between $0.74 and $0.79 per share and adjusted earnings per diluted share of between $1.05 and $1.10 per share. Like our full year guidance, we expect our effective income tax rate to be 24%. Consistent with prior years, we are including Q1 guidance to ensure the expectations around sequential quarter earnings growth are in line with our expectations. This guidance includes the impact of the seasonality in our Data Solutions segment and the impact of first quarter recurring expenses such as payroll taxes and employee benefits and expenses incurred related to internal organizational meetings.

Finally, our guidance assumes a euro exchange rate of $1.15 and a British pound exchange rate of $1.35. All other foreign currency exchange rates are as of January 31, 2019. Our process for determining exchange rates was consistent with prior years where we use several bank resources to evaluate expected rate movements for the next 12 months.

That concludes our prepared remarks and now we'd be happy to take your questions. Please provide your name and affiliation when asking a question.

Operator, you may now open the line for questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question comes from David Windley with Jefferies.

David Windley -- Jefferies -- Analyst

Hi, good morning. Thanks for taking my questions. I wanted to focus on revenue first. Colin, I think you had talked about the replace -- the canceled and then replace studies from your one of your key clients as having had or expected to have an impact in 2018, particularly in the second half and we see that in the growth rates. And then in your guidance for the first quarter, it looks like that growth rate is beginning to improve, but still somewhat depressed, and so I wanted to get a perspective on how your conversion rate, how the backlog is flowing into revenue and what will drive the acceleration of your revenue growth through 2019?

Colin Shannon -- President, Chief Executive Officer and Director

Thanks, Dave. With that mentioned obviously the cancellations had an impact. There was some studies as well during the summer that we said was seeming to start a little bit slower than we anticipated. But the teams have been doing a phenomenal job watching costs, but then as we're approaching Q4 we needed to completely change our goals and start getting into the hiring -- very, very rapid hiring mode. Our company had to hire over 300 net new people a month. And it was hard to switch that back on again after such conservative cost constraints and we managed to hit over 300 net new hires per month, which is great stuff but we could have done more and it's been taken us a little while to really get back in drive again. And it's only really -- now we're starting to hit on all cylinders. So we're moving pretty much rapidly again. So we'll start to see that improve as the year goes on. Everything starting to go nice again, we are smoothing everything out. So we remain optimistic. Obviously we are setting ourselves up nicely with -- see the Q1 was still getting a little bit of after effect as we ramp up. So, we are pleased to see that it starts to improve as we get down later on in the year.

David Windley -- Jefferies -- Analyst

Okay, thank you. Second question might be for Mike. So my follow up is around 606 and 605 and you guys as it appears are choosing to continue to give guidance on both, which I'm sure we all find interesting. I guess the two part would be, if you could help us to understand how your systems allow you to continue to provide guidance on both and kind of as a read through, do you -- I guess do you feel comfortable that you're going to be able to file your 10-K cleanly, given some headlines lately?

Michael J. Bonello -- Executive Vice President and Chief Financial Officer

Yes, sure Dave. So, from a revenue perspective we were on an input based methodology prior to the adoption of 606. So we've always been able to forecast the service component of our revenue unlike some of our competitors. What we've been able to do is we've been able to separate out how we phase service and how we phase investigator and pass-through. So we're watching those separately and that's what allows us to be able to give you guidance on a 606 and 605 basis.

David Windley -- Jefferies -- Analyst

Yes, go ahead.

Michael J. Bonello -- Executive Vice President and Chief Financial Officer

Regarding the 10-K, we're planning on filing as soon as the call is over.

David Windley -- Jefferies -- Analyst

Okay, great, thanks. And no internal control weaknesses that we should be anticipating?

Michael J. Bonello -- Executive Vice President and Chief Financial Officer

No.

David Windley -- Jefferies -- Analyst

Great, thank you.

Operator

Thank you. Our next question comes from John Kreger with William Blair.

John Kreger -- William Blair & Company -- Analyst

Hi, thanks very much. Colin, can you just expand a little bit about your comments around Data Solutions as the earnout period ends? Just sort of refresh our memory, what kind of synergies do you see across the two businesses? And maybe if you could give us a preview on sort of product expansions that you mentioned as we move through '19? Thanks.

Colin Shannon -- President, Chief Executive Officer and Director

That's great. Thanks, John. There's a few things in that question because some of them are not quite related to the Data Solutions. By then on the Data Solutions, the first thing that we are -- we moved the location, the Philadelphia location into our Blue Bell office. So the team is better integrated with our main team is one of our largest offices that we have -- the largest office we have in the company is our Blue Bell. And so that's helped with the integration. And we've made some adjustments to leadership just to help with the integration and culture shift because the way we're seeing with synergies it was not about cost savings it's raising new opportunities and working in collaboration together. We see great opportunities and we've had to make sure that we had the right fit to make sure that we enabled all these connections to work within the organization. These things have been put in place the beginning of the year as I said I would do, and we're looking forward to building on that basis for the rest of the year.

I mean, regarding our service offerings. We've been continuing to enhance what we're doing on the (inaudible). As you know vested in Parallel 6 and the C6 platform and is taking a lot of traction. We're seeing a lot of interest from clients who are really want to be more innovative and do things differently, except the same old ways of getting things done. So we're excited to be where that is taking off and it is helping us with bringing new offerings to clients with new solutions. We still utilize -- updates a very definitely from our competitors that again is giving us new insights and ways of working with them. We see great opportunities on the more on the commercial side, where we can start linking things together and we take advantage of some of our Symphony data assets and the acquisition of that company. We continue to pursue some opportunities in that direction.

All in all, we feel very nicely positioned that we're helping to shift the mindset and even look definitely and actually offer differ solutions to our clients.

John Kreger -- William Blair & Company -- Analyst

Great, thank you. And maybe just a quick follow-up, how are strategic solutions doing and are you seeing the mix of your awards shifted out toward either full services or the staffing business? Thanks.

Colin Shannon -- President, Chief Executive Officer and Director

That's a very good question. Interestingly, we are much -- we're seeing much more solid growth on the old traditional product registration part of the business. And you know, as part of our build-out for our guidance -- I do admit for being slightly more conservative on our strategic solutions part of the business. I mean part of that, as you're well aware with that, you know the pricing discussions going on with the same -- with the Capitol Hill (ph) and with that biopharma's testifying -- that always seems to cause a little bit of an issue with expenditure within the biopharma companies. We've been generally a little bit cautious knowing that there might be squeezing the budgets and things like that, so we wanted to make sure that we conserve that as we're preparing our guidance.

John Kreger -- William Blair & Company -- Analyst

Thank you very much.

Operator

Thank you. Our next question comes from Eric Coldwell with Baird.

Eric Coldwell -- Robert W. Baird & Co. -- Analyst

Hey, thanks very much. The two smart guys asked a couple of my questions but I'll just -- I'll follow up with maybe a couple of easier ones hopefully. Good answer on Data Solutions. I'm just curious if you can tell us what your growth outlook is for this year, is it 5%? Is it 10%? And then second one, I'm curious if a couple of your peers have thrown out provocative terms or said, hey, maybe there was a little bit of softness in the market at a certain point in the third or fourth quarter. I'm just curious, did you see any of those air pockets maybe with a certain client cohort or in a certain geography or was your pipeline in RFI activity pretty similar as the year concluded?

Colin Shannon -- President, Chief Executive Officer and Director

Okay. Well, on the Data Solutions side, I'll have to come back to you on where we're seeing the growth. We're just in the process of planning, we just finished our business development meeting with the new leadership team and so I'd really like to give them a little bit more time to really look at how we can build that plan together. We'll set some pretty tough objectives and so think it was a little bit going through the first few weeks of the year. But I expected to make up and more because we're going to be utilizing the whole organization behind them. So if you don't mind I'll get back to you on that aspect as we finalize some plans. I will just completed the and what's our visibility and really looking at opportunities where we want to see what we can do that.

Regarding RFP flow and you know I didn't notice anything that was majorly different. You know I -- say going into the beginning of the call, a little bit soft in one of the months and started recoveries. The trend-wise, it's still kind of upwards and strong. We are seeing new opportunities, which are always more difficult for us to win because you're always got to displace an incumbent. You know, but that's always gets us exciting opportunities, we like to have these discussions to offer our new approaches and we like that challenge. We've been excited about the flow, we are seeing new progress. You know, all in all, I think that things are holding up nicely. I mean I would obviously have competitors we're seeing a little bit of weakness on the biotech and maybe they are looking at different level of the maturities of the biotech or whatever, I don't know the answer, but we are seeing regular decent size opportunities and we know that there is still a lot of fun sitting within biotech that they need to spend on later-stage development.

Eric Coldwell -- Robert W. Baird & Co. -- Analyst

Yes. Colin, that's really helpful. Just one quick one that came to mind, I did hear recently that maybe there was a little bit of softness in Asia Pac, specifically China due to some of the deal, well let's say between our two governments. Are you seeing any change in growth in Asia Pac, any change in client interest in China, in particular, and if so, how is that impacting you? How are you responding ?

Colin Shannon -- President, Chief Executive Officer and Director

We've always mentioned that as one of the areas that we feel like we have been a little bit behind in our growth levels there. So it's really not impacting us because we are still growing and we still have a lot of vacancies. So we kind of a little bit sheltered from that at the moment because we have been, we are still building our infrastructure. We have -- really solid operations guy, we have got good leadership there and we're growing it very nicely. We chose to continue the organic growth and so far we are still continuing to hire quite rapidly and that will -- that area.

Eric Coldwell -- Robert W. Baird & Co. -- Analyst

That's super helpful. Thanks so much. I'll cede the floor here.

Operator

Thank you. Our next question comes from Donald Hooker with KeyBanc.

Donald Hooker -- KeyBanc Capital Markets -- Analyst

Great. Good morning. Curious with Symphony Health, we'll wait to hear back from you on some of the growth outlook objectives there. But are you needing to put more capital into that business to kind of to grow at overseas, or add in new solutions, how should we think about maybe capital in 2019 ?

Colin Shannon -- President, Chief Executive Officer and Director

Yeah, we certainly are considering. Now we've got a couple of initiatives ongoing just now -- one of them we're looking how to expand within Canada, the other and some overseas opportunities and we certainly are looking to make sure that we did that in a discipline format, but yes, we see a lot of opportunities, a lot of enhancements, and you know we are excited about the growth potential within that area. So we continued to evolve and look at that as an opportunity.

Donald Hooker -- KeyBanc Capital Markets -- Analyst

And then my follow-up question similar to that is, is it fair to think that there could be maybe some upside in gross margins as you can integrate some of those data assets and tools and as you get more aggressive synergizing that acquisition is, how should we think about that impacting gross margins over certainly next 12 or 36 months?

Colin Shannon -- President, Chief Executive Officer and Director

We're kind of sort of guided to where we feel things are going to be. We've typically mentioned some improvement every year and we don't see any dramatic change this year. You are absolutely correct that as part of that in the lighting we do see that there is opportunities. We're still in the investment phase just now and building out and there's lots of opportunity. We want to add and get the growth back and track the way that we'd like to see it going. So that takes a little bit of investment. So at this point we're going to be making sure that while we adding appropriate staffing, getting the right ingredients from the country mix and various other things that we're looking at. So this year we're really concentrating really on expansion.

Donald Hooker -- KeyBanc Capital Markets -- Analyst

Thank you.

Operator

Thank you. Our next question comes from Sandy Draper with SunTrust.

Alexander Draper -- SunTrust Robinson Humphrey -- Analyst

Thanks very much. A lot of my questions actually just got asked by four smarter people than I am. So my question, I guess Colin, would really be around the hiring and the cost? As you said, you're putting your foot on the pedal for hiring 300 people a month is a lot, are you seeing any wage inflation and when you hire to speed it up, does that mean you're going to have to spend more or what do you exactly to hire faster and are there sort of hiring marketing cost that you have to undertake ?

Colin Shannon -- President, Chief Executive Officer and Director

We've actually got a really good machine and it's not just our talent acquisition group, it takes the whole organization because a lot of interviews and a lot of time and effort and that's 300 net new employees. So it's way over 400 that we're hiring in a month. So there's a lot of work to do that. And so it's a good question you're asking because when the inflation part is mainly can be geographical, it depends on which country you're looking at, you might see a little bit of spike in certain areas. I think the only area within the U.S. we saw some problems was highly qualified oncology specialists and we had to actually -- in January make a decision to use an agency to speed up some of the hirings to augment what we're doing because we were real pinched to get quite a number of well-qualified people on board very quickly to meet our client needs. So, yes so sometimes it can cost a little bit more to bring them on board. But overall it's within plan and we have the engine now, a lot of it was just getting it going again and getting back into the right cadence.

Alexander Draper -- SunTrust Robinson Humphrey -- Analyst

Okay, that's helpful. And I guess maybe just a follow-up to that. When you're in the hiring process and then it is, get down into the leads, how often are these people sort of playing you versus, ICON versus IQVIA, the multiple CROs and just trying to pick the highest pay versus -- maybe different way to think about it, how do you sell PRA is the place you want to work besides just hey, we're going to pay a little bit more money?

Colin Shannon -- President, Chief Executive Officer and Director

Well, that's a big question, if you got a day to spare off. You know, if you want me to watch a little about PRA, you probably be long time. Obviously, call it acquisition people are very well up to speed on all the things and differences that we bring to a potential candidate. We just focus very much on -- bring the right people on board. People willing to understand that we are very patient focused than driving signs and result was to ensure that the well-being of patients is the goal. And they'll find a good warm reception within our organization and we obviously at the rate we are growing, continually gets opportunities. So people can see that as a good place to join because out of expansion has a lot of people to be promoted and continue to grow within the organization. So we do have a lot of offerings. In some of the regions we are in, we are still relatively small in comparison to others, which again gives rapid growth and opportunities for these people as well joining us, so I think we've got a really good story.

And we continue to and focus on innovation and doing things in a different way. People are excited with that prospect, it helped particularly where you got more senior people here and don't wanted the same old same old and they see that as an opportunity to help as we define and help transform the industry. So that's kind of where we are driving and the type of messaging that we're bringing to the organization.

Alexander Draper -- SunTrust Robinson Humphrey -- Analyst

That's really helpful. Thanks.

Operator

Thank you. Our next question comes from Jack Meehan with Barclays.

Mitchell Petersen -- Barclays -- Analyst

Thanks, this is actually Mitch Petersen for Jack this morning. So maybe one for Mike. Guidance assumes some pretty nice operating leverage in 2019. I was hoping, obviously the color has been really helpful on the hirings side but I was hoping we could put some numbers behind that just your expectations between leverage on the gross margin line and the SG&A line in 2019? I would imagine, just given the commentary, it's more going to be on SG&A line, but I wanted to get your thoughts?

Michael J. Bonello -- Executive Vice President and Chief Financial Officer

Well, there's going to be some gross margin improvement as we have communicated previously, we're looking for 50 basis points of overall improvement. The majority of that is going to come from gross margin, Colin's point, will start to leverage those people as the revenue ramps toward the back end of the year. From an SG&A prospective, this probably maybe 20 bps or 30 bps coming from that as we continue to leverage our SG&A team. So we're looking at kind of 50 bps to 60 bps of total.

Mitchell Petersen -- Barclays -- Analyst

Got it. And then maybe just as a follow-up, could you expand on your capital deployment expectations for 2019 and absent any M&A should we assume to have repayment or is share repurchase going to be on the table in 2019?

Michael J. Bonello -- Executive Vice President and Chief Financial Officer

We've obviously -- we were looking for any interesting opportunities to help augment our Data Solutions, which we alluded to earlier and that is some exciting things out there that we would like to see how that would take us. Nothing is eminent for sure but we certainly are having that active discussions with some really nice opportunities. And absent that, we have been paying down debt. Yes, you're correct, at some point we'll have to rethink about what should be our rate leverage ratio and S&A problem to have and we'll certainly consider that with the Board and shift some of these other things we're looking at not be fruitful.

Mitchell Petersen -- Barclays -- Analyst

Great, thank you.

Operator

Thank you. Our next question comes from Erin Wright with Credit Suisse.

Erin Wright -- Credit Suisse -- Analyst

Great, thanks. I'm curious to what you're seeing in terms of the mix of business coming in. I think you've commented a little bit on the full service versus asset FFP (ph). But as it relates to therapeutic class or any abnormally disproportionate demand dynamics around large versus small pharma, biotech and an overall success in when we win rates there on. Thanks.

Michael J. Bonello -- Executive Vice President and Chief Financial Officer

Yeah, there hasn't been that a big shift. I think as we talked about kind of concentration from a large Pharma versus biotech, that revenue coming in is relatively the same and I think Colin commented on the mix of NVA and that's been consistent quarter-over-quarter. We are seeing from an awards perspective, a concentration or around oncology and immunology. If you compare 2018 to 2017. So that mix has changed slightly and that also references Colin's point earlier about the elongation of some of those studies because of the types that we're getting.

Erin Wright -- Credit Suisse -- Analyst

Okay, got it. And then a random question here, but how is the early development business performing? What percent of that is your business now as a percentage of revenue? Thanks.

Michael J. Bonello -- Executive Vice President and Chief Financial Officer

It's performed very well in 2018. It's still roughly -- it's probably less than 10% of our business right now but it has performed very well.

Erin Wright -- Credit Suisse -- Analyst

Okay, great, thanks.

Operator

Thank you. (Operator Instructions) Our next question comes from Juan Avendano with Bank of America Merrill Lynch.

Juan Avendano -- Bank of America Merrill Lynch -- Analyst

Hi, thank you. Regarding your gross wins, they did decline 6% year-over-year despite a very strong CRO industry backdrop. Can you tell us what drove the decline? Was it just prior difficult year comp? And then talk to us about your ability to actually book business on an incremental basis from now on?

Michael J. Bonello -- Executive Vice President and Chief Financial Officer

Well, we did have quite large comps as you say, and that's a pretty fair point. And you know, as we're looking into the year there was a number of typical larger clients that we knew that would be -- have a much stronger 2019 that they were coming to the end of some of the cycles of the current work last year and that we'd be doing new updates this year. We've mentioned that we had at one in your prefer our partnership and Q2 last year. And we had anticipated what is coming in -- and on that toward the end of the year. And that's actually didn't get all finalized until the end of the year. But just recently we got our first decent sized work from that new clients. So we're starting to see all the things that we put in place starting to come through. The (inaudible) way exactly the timing is going to happen. We always hope that when things will take -- we were very pleased with the way things progressed. It gave us time to consolidate things within our organization and what's the cost bringing new systems and tools, help with things that we were having to in the back burner while we're focusing on bringing in all the people and training and getting them working on the study so. And it helped us really solidify our foundation again and get ready for growth which I feel really good about.

Juan Avendano -- Bank of America Merrill Lynch -- Analyst

Good, thank you. Appreciate the color. The other data point I guess regarding bookings was that of the cancellation rate was the lowest that you've had over since your IPO, at 1.7. That did help the net book-to-bill. And so did you take less proactive write-offs on your backlog this quarter, or if that was not that and can you maybe talk about the quality of your backlog and what drove the super low cancellation rate this quarter?

Michael J. Bonello -- Executive Vice President and Chief Financial Officer

I actually think the low cancellation really drives home the quality of our backlog. We have been careful about what we take into backlog and you know anything that has been and looking access there's any risk. We've been plus of the prop measuring that very carefully and watching it very closely. So it's nice, yes, we are more in the pudding side and I'm sure you can realize that we could probably at some point have taken in larger amounts of new business, but we probably more prudent and we want to build up a sustainable growth business and we want to make sure that what we are reflecting to our investors is things that we feel confident and we could achieve and we don't at this swings and roundabouts where we've got high gross NVA followed by large cancellations.

Juan Avendano -- Bank of America Merrill Lynch -- Analyst

Got it. And just one quick one. Can you reassure us that the net book-to-bill is not necessarily going to decline throughout 2019 as perhaps you know according to my model unless you do over a $100 million in gross wins and about 750 (ph) on average on a quarterly basis that net book-to-bill would be declining.

Michael J. Bonello -- Executive Vice President and Chief Financial Officer

Well, when we did our IPO we modeled that and said these are great really long-term view would be some uplift to -- somewhere between 1.1 and 1.15, which would actually provide very decent growth. What we've been seeing just not as quite exceptional time. So, no, I can't guarantee anything, I mean I think that we had a nice position with good offerings that we can continue to win a good opportunities and we set lay our goals that are very strong and we are optimistic that what we are putting together that is going allow us to continue this type of high book-to-bills. And a lot depends on the marketplace and what's going on there but we feel that we've got good product offering. We have got nicely positioned for growth and we've got a lot of the good dynamics and and we're certainly setting targets are very aggressive.

Juan Avendano -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

Thank you. And our next question comes from Dan Brennan with UBS.

Daniel Brennan -- UBS Investment Bank -- Analyst

Great, thanks. Thanks for taking the questions, Mike. So I just wanted to go back if you will, back to one of the earlier questions just on our conversion rates throughout the year. So, Colin, I just want to make sure I understand. Is it basically you talked about the aggressive hiring that you had to do and it sounds like kind of maybe being a little bit behind on that. Now that you're ramping that that effectively is what's going to enable you to kind of see this conversion rate go up, having the right people in place at the right kind of -- at the right time?

Michael J. Bonello -- Executive Vice President and Chief Financial Officer

Well, there's a couple of things there. Yes. That certainly will help. You know, as we've been watching the trends evolve, part of the issue is that, as you know, our strategic solutions division we are very prudent on the way we recognize our new business. We only take 12 months of any new contract. And as that proportion of our revenue is starting to -- I always think with the other pieces, it's more active it's not growing quite as fast as the traditional project work. You're getting that 12-month period that's in backlog reducing and therefore causing a market adjacent to the conversion rate coupled with the more complex studies, I have to remind that everybody seeing, giving work bidding longer term, more like more complex oncology trials, etcetera. So that's having an effect as well. And we are being modeling it through and we obviously our conversion rate as a good metric but we are looking at in much more detail by study. Our planning is all about the resources we need to perform everything and the growth is actually much more predetermined. The conversion rates are good proxy for you guys.

And I mean at time we continue to manage and look at it. And it throws and even more issues when we're looking at 606 the issues there because we know that 606 is roughly adding an extra 28% but in Q4 only added 27%. So we still getting to grips with the true flow of that and how that works and how we can make sure that we get really good at forecasting that. I think that what we've done with our systems and processes has helped us really understand a lot quicker than most. But even we still trying fine tuning and understanding the complexity there. But overall as we start to see the trends, as stabilize, at least we'll certainly give an indication, at this moment there is still lot of the erratic and looking forward. There is no real pattern that we're seeing. This is the reason why our conversion is changing and that it's just a mixture of mix both between strategic solutions and product registration and complexity of trials. The hiring of people getting in top of things would certainly be helpful as well.

Daniel Brennan -- UBS Investment Bank -- Analyst

Great, thank you. And then maybe just as a follow-up just on the -- I think back there was a question on Data Solution, so we'll wait obviously as the team and yourself come out with more details about the plan. But could you at least just maybe speak to the opportunity or how you've characterized it in the past to incorporate what Symphony offers back in your core clinical CRO offering, is that something that we should be -- shouldn't be surprised to see a more forceful push in 2019, or is that something you think that evolves over the course of the next couple of years in terms of integrating that data into how you're delivering your CRO business? Thank you.

Colin Shannon -- President, Chief Executive Officer and Director

We absolutely have the data part with our Symphony that we utilized within our Seattle piece has been fundamental for the last 10 years. If you recall, part of the reason that we acquired Symphony was to secure that data because we became so dependent upon it for our core service delivery. It was important that we capture the sources and that we could actually have that data available. The nice thing is that by owning Symphony we get all that data to use and expand upon and it gets this new looks and new ways of actually and helping our clients. Regarding the push, we also made sure that Symphony would be able to stand alone and at least meet all our goals of trying to get double-digit growth and we feel that there's a strong potential even organically. So adding on any potential future acquisitions that may help support the data from international offerings, et cetera., we just see some more upside. As I've mentioned, a lot of the planning is still got to be put in place but back to our original remit which is what we've got we see a nice runway of good double-digit growth for the next few years. There's a lot of work to get that done but we do see opportunities and we do see other new opportunities that we can expand within what of dividends and others, which helps us get and going to markets that we've never really been present before.

Daniel Brennan -- UBS Investment Bank -- Analyst

Great, thank you.

Operator

Thank you. Ladies and gentlemen, thank you for participating in the question-and-answer session of today's call. I would now like to turn the call back over to management for any closing remarks.

Colin Shannon -- President, Chief Executive Officer and Director

Okay. No questions. 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 very much.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program, you may all disconnect and have a wonderful day.

Duration: 55 minutes

Call participants:

Thomas Byrne -- Vice President of Legal Affairs

Colin Shannon -- President, Chief Executive Officer and Director

Michael J. Bonello -- Executive Vice President and Chief Financial Officer

David Windley -- Jefferies -- Analyst

John Kreger -- William Blair & Company -- Analyst

Eric Coldwell -- Robert W. Baird & Co. -- Analyst

Donald Hooker -- KeyBanc Capital Markets -- Analyst

Alexander Draper -- SunTrust Robinson Humphrey -- Analyst

Mitchell Petersen -- Barclays -- Analyst

Erin Wright -- Credit Suisse -- Analyst

Juan Avendano -- Bank of America Merrill Lynch -- Analyst

Daniel Brennan -- UBS Investment Bank -- Analyst

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