On August 1, 2018 PRA Health Sciences, Inc. ("PRA," "we," "us" or the "Company") (NASDAQ: PRAH) reported financial results for the quarter ended June 30, 2018 (Press release, PRA Health Sciences, AUG 1, 2018, View Source [SID1234528665]).
For the three months ended June 30, 2018, revenue was $722.8 million, which represents growth of 35.4%, or $189.1 million, compared to the second quarter of 2017 at actual foreign exchange rates. On a constant currency basis, revenue grew $182.3 million, an increase of 34.2% compared to the second quarter of 2017. On January 1, 2018, the Company adopted Accounting Standards Codification Topic 606, "Revenue from Contracts with Customers," or ASC 606, using the modified retrospective method for all contracts that were not completed as of January 1, 2018. The prior periods were not restated under this guidance and remain as previously reported. The primary impact of applying this new guidance on our statement of operations is that (i) we now recognize reimbursements from our customers for payments to investigators as revenue, whereas these payments and costs were previously recorded on a net basis, and (ii) we include all reimbursed costs in the total project costs when measuring our progress under our research contracts instead of recording these amounts on a separate basis.
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Excluding the impact of the adoption of ASC 606 and reimbursement revenue, revenue increased $117.0 million, which represents growth of 25.6% at actual foreign exchange rates and 24.4% on a constant currency basis. Organic revenue growth, excluding the adoption of ASC 606, reimbursement revenue and $58.1 million of revenue attributable to our Data Solutions segment, was 12.9% at actual foreign exchange rates and 11.7% on a constant currency basis.
Net new business for our Clinical Research segment for the quarter ended June 30, 2018 was $670.0 million, representing a net book-to-bill ratio of 1.30 for the period. Our calculation of the net book-to-bill ratio excludes the revenue impact of adopting ASC 606, excludes reimbursement revenue and excludes revenue from our Data Solutions segment. Net new business during the quarter contributed to an ending backlog of $3.9 billion at June 30, 2018.
"I am pleased with our second quarter performance, which included double-digit revenue, earnings and net new business growth when compared to the second quarter of 2017" said Colin Shannon, PRA’s Chief Executive Officer. "We continue to stay focused on our client deliverables and our strategic objectives. We are pleased to continue to add new clients and believe we are well-positioned to drive future growth."
Direct costs were $381.7 million during the three months ended June 30, 2018 compared to $300.6 million for the second quarter of 2017. The increase in direct costs was primarily due to an increase in labor-related costs of $36.4 million in our Clinical Research segment as we continue to hire billable staff to ensure appropriate staffing levels for our current studies and our future growth. In addition, our Data Solutions segment resulted in $41.6 million of incremental direct costs when compared to the second quarter of 2017. We also had an unfavorable impact of $5.3 million from fluctuation in foreign currency exchange rates during the three months ended June 30, 2018. Excluding the impact of the adoption of ASC 606 and reimbursement revenue, direct costs were 66.4% of revenue during the second quarter of 2018 compared to 65.6% of revenue during the second quarter of 2017.
Selling, general and administrative expenses were $91.2 million during the three months ended June 30, 2018 compared to $76.2 million for the second quarter of 2017. Excluding the impact of the adoption of ASC 606 and reimbursement revenue, selling, general and administrative costs were 15.9% of revenue during the second quarter of 2018 compared to 16.6% of revenue during the second quarter of 2017.
GAAP net income was $42.0 million for the three months ended June 30, 2018, or $0.64 per share on a diluted basis, compared to GAAP net income of $29.5 million for the three months ended June 30, 2017, or $0.45 per share on a diluted basis.
EBITDA was $102.6 million for the three months ended June 30, 2018, representing an increase of 55.9% compared to the second quarter of 2017. Adjusted EBITDA was $109.7 million for the three months ended June 30, 2018, representing growth of 28.5% compared to the second quarter of 2017.
Adjusted net income was $66.1 million for the three months ended June 30, 2018, representing 27.8% growth compared to the second quarter of 2017. Adjusted net income per diluted share was $1.00 for the three months ended June 30, 2018, representing 26.6% growth compared to the second quarter of 2017.
A reconciliation of our non-GAAP measures, including EBITDA, adjusted EBITDA, adjusted net income, adjusted net income per diluted share and our 2018 guidance, to the corresponding GAAP measures is included in this press release.
First Half 2018 Financial Highlights
For the six months ended June 30, 2018, revenue was $1,424.7 million, which represents growth of 39.5%, or $403.2 million, compared to the six months ended June 30, 2017 at actual foreign exchange rates. On a constant currency basis, revenue grew $380.6 million, representing growth of 37.3% compared to the six months ended June 30, 2017.
Excluding the impact of the adoption of ASC 606 and reimbursement revenue, revenue increased $249.9 million, which represents growth of 28.2% at actual foreign exchange rates and 26.4% on a constant currency basis. Organic revenue growth, excluding the adoption of ASC 606, reimbursement revenue and $114.9 million of revenue attributable to our Data Solutions segment, was 15.3% at actual foreign exchange rates and 13.4% on a constant currency basis.
Reported GAAP income from operations was $145.7 million, reported GAAP net income was $81.0 million and reported GAAP net income per diluted share was $1.22 for the six months ended June 30, 2018.
Adjusted Net Income was $122.3 million for the six months ended June 30, 2018, an improvement of 32.8% compared to the same period in 2017. Adjusted Net Income per diluted share was $1.85 for the six months ended June 30, 2018, up 32.1% compared to the same period in 2017.
The Company is updating its full year 2018 revenue guidance to between $2.87 billion and $2.92 billion, representing as reported growth of 47% to 50%, constant currency growth of 18% to 20% excluding the impact of adopting 606 and reimbursement revenue, and constant currency organic growth of 10% to 12% excluding the impact of adopting 606 and reimbursement revenue. We expect GAAP net income per diluted share to between $2.92 and $3.02 and Adjusted Net Income per diluted share to between $4.13 and $4.23. We continue to anticipate an annual effective income tax rate estimate of approximately 24%, which includes the expected impact of the U.S. Tax Cuts and Jobs Act. Our effective tax rate may differ from this estimate, due to, among other things, changes to estimates of the geographic allocation of our pre-tax income as well as changes in interpretations, analysis, and additional guidance that may be issued by regulatory agencies as it relates to the U.S. Tax Cuts and Jobs Act.
Our guidance assumes a EURO rate of 1.20 and a GBP rate of 1.37. All other foreign currency exchange rates are as of June 30, 2018.
Conference Call Details
PRA will host a conference call at 9:00 a.m. ET on August 2, 2018, to discuss the contents of this release and other relevant topics. To participate, please dial (877) 930-8062 within the United States or (253) 336-7647 outside the United States approximately 10 minutes before the scheduled start of the call. The conference ID for the call is 9692658. The conference call will also be accessible, live via audio broadcast, on the Investor Relations section of the PRA website at investors.prahs.com. A replay of the conference call will be available online at investors.prahs.com. In addition, an audio replay of the call will be available for one week following the call and can be accessed by dialing (855) 859-2056 within the United States or (404) 537-3406 outside the United States. The replay ID is 9692658.
Additional Information
A financial supplement with second quarter 2018 results, which should be read in conjunction with this press release, may be found in Investor Relations section of our website at investors.prahs.com in a document titled "Q2 2018 Earnings Presentation."