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PRA Health Sciences, Inc. Reports Fourth Quarter and Full Year 2016 Results and Provides Q1 and Full Year 2017 Guidance

19:00 EST 21 Feb 2017 | Globe Newswire

  • Net new business of $587.3 million in the fourth quarter; Net book-to-bill of 1.42
     
  • $413.6 million of service revenue in the fourth quarter; 14.2% growth at actual foreign exchange rates and 14.6% constant currency growth compared to the fourth quarter of 2015
     
  • Fourth quarter GAAP Net Income per diluted share was $0.22 and GAAP Net Income was $14.0 million
     
  • Fourth quarter Adjusted Net Income per diluted share was $0.71 per share and Adjusted Net Income was $45.9 million

RALEIGH, N.C., Feb. 22, 2017 (GLOBE NEWSWIRE) -- PRA Health Sciences, Inc. (“PRA” or the “Company”) (NASDAQ:PRAH) today reported financial results for the quarter ended December 31, 2016.

For the three months ended December 31, 2016, service revenue was $413.6 million, which represents growth of 14.2%, or $51.3 million, compared to the fourth quarter of 2015 at actual foreign exchange rates. On a constant currency basis, service revenue grew $52.9 million, an increase of 14.6% compared to the fourth quarter of 2015.

Net new business for the quarter ended December 31, 2016 was $587.3 million, representing a net book-to-bill ratio of 1.42 for the period. This net new business contributed to an ending backlog of $2.9 billion at December 31, 2016.

“We are pleased to have delivered another quarter with double-digit revenue, earnings and net new business growth year-over-year,” said Colin Shannon, PRA’s Chief Executive Officer. “We are well-positioned to deliver at least mid-teens growth during the coming year, as evidenced by our record level of new business awards and backlog. We continue to stay focused on our key strategic objectives, our client deliverables and developing our people, and we look forward to delivering strong results in 2017.”

Direct costs were $274.4 million during the three months ended December 31, 2016 compared to $234.9 million for the fourth quarter of 2015. Direct costs were 66.3% of service revenue during the fourth quarter of 2016 compared to 64.8% of service revenue during the fourth quarter of 2015. The increase in direct costs as a percentage of service revenue is due to the continued hiring of billable staff to support our current projects and the hiring of additional staff to ensure appropriate staffing levels to support our future growth.

Selling, general and administrative expenses were $70.2 million during the three months ended December 31, 2016 compared to $63.6 million for the fourth quarter of 2015. Selling, general and administrative costs were 17.0% of service revenue during the fourth quarter of 2016 compared to 17.6% of service revenue during the fourth quarter of 2015. The decrease in selling, general and administrative expenses as a percentage of revenue is attributable to our ability to continue to effectively manage our sales and administrative functions as the Company continues to grow.

For the three months ended December 31, 2016, we incurred transaction-related expenses of $13.0 million. The costs consist of $12.7 million of one-time stock-based compensation expense related to the release of transfer restrictions on vested options and the vesting of certain performance-based stock options in connection with the November secondary offering. In addition, we incurred $0.3 million of third-party fees associated with the secondary offering.

During the fourth quarter of 2016, we also incurred a loss on extinguishment of debt of $16.7 million. This loss is associated with our refinancing on our first lien term debt, which included the write-off of $15.8 million of unamortized debt issuance costs and $0.9 million of other costs associated with the transaction.

GAAP net income was $14.0 million for the three months ended December 31, 2016, or $0.22 per share on a diluted basis, compared to GAAP net income of $28.5 million for the three months ended December 31, 2015, or $0.45 per share on a diluted basis. Our GAAP net income for the three months ended December 31, 2016 included transaction-related expenses and the loss on extinguishment discussed above.

EBITDA was $54.3 million for the three months ended December 31, 2016, representing a decrease of 22.0% compared to the fourth quarter of 2015. Adjusted EBITDA was $73.9 million for the three months ended December 31, 2016, representing growth of 8.8% compared to the fourth quarter of 2015.

Adjusted Net Income was $45.9 million for the three months ended December 31, 2016, representing 22.3% growth compared to the fourth quarter of 2015. Adjusted Net Income per diluted share was $0.71 for the three months ended December 31, 2016, representing 20.3% growth compared to the fourth quarter of 2015.

A reconciliation of our non-GAAP measures, including EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted Net Income per share and our 2017 guidance, to the corresponding GAAP measures is included in this press release.

Full Year 2016

For the twelve months ended December 31, 2016, service revenue was $1,580.0 million, which represents growth of 14.8%, or $204.2 million, compared to the twelve months ended December 31, 2015 at actual foreign exchange rates.  On a constant currency basis, service revenue grew $209.5 million, representing growth of 15.2% compared to the twelve months ended December 31, 2015.

GAAP income from operations was $162.3 million, GAAP net income was $68.2 million and GAAP net income per diluted share was $1.06 for the twelve months ended December 31, 2016.

Adjusted Net Income was $162.3 million for the twelve months ended December 31, 2016, an improvement of 28.6% compared to the same period in 2015.  Adjusted Net Income per diluted share was $2.52 for the twelve months ended December 31, 2016, up 26.0% compared to the same period in 2015.

Q1 2017 and Full Year 2017 Guidance

For Full Year 2017, the Company expects to achieve service revenues between $1.795 billion and $1.835 billion, representing constant currency growth of 14% to 16%, GAAP net income per diluted share between $2.46 and $2.56 per share, representing growth of 132% to 142%, Adjusted Net Income per diluted share between $3.08 and $3.18 per share, representing growth of 22% to 26%, and annual effective income tax rate estimates at approximately 27%.

For Q1 2017, the Company expects to achieve service revenues between $415 million and $425 million, representing constant currency growth of 11% to 14%, GAAP net income per diluted share between $0.41 and $0.46 per share, Adjusted Net Income per diluted share between $0.57 and $0.62 per share, and annual effective income tax rate estimates at approximately 27%.

All financial guidance assumes a EURO rate of 1.11 and a GBP rate of 1.35. All other foreign currency exchange rates are as of January 31, 2017.

Conference Call Details

PRA will host a conference call at 9:00 a.m. ET on February 23, 2017, 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 66572766. The conference call will also be accessible, live via audio broadcast, on the Investor Relations section of the PRA website at www.prahs.com/investors. A replay of the conference call will be available online at www.prahs.com/investors. 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 66572766.

About PRA Health Sciences

PRA (NASDAQ:PRAH) is one of the world’s leading global contract research organizations, or CROs, by revenue, providing outsourced clinical development services to the biotechnology and pharmaceutical industries. PRA’s global clinical development platform includes approximately 70 offices across North America, Europe, Asia, Latin America, South Africa, Australia and the Middle East and over 13,000 employees worldwide. Since 2000, PRA has performed approximately 3,500 clinical trials worldwide. In addition, PRA has participated in the pivotal or supportive trials that led to U.S. Food and Drug Administration or international regulatory approval of more than 70 drugs.

PRA has therapeutic expertise in areas that are among the largest in pharmaceutical development, including oncology, central nervous system, inflammation and infectious diseases. PRA believes that it provides its clients with one of the most flexible clinical development service offerings, which includes both traditional, project-based Phase I through Phase IV services, as well as embedded and functional outsourcing services. The Company has invested in medical informatics and clinical technologies designed to enhance efficiencies, improve study predictability and provide better transparency to clients throughout their clinical development processes. To learn more about PRA, please visit www.prahs.com.

Internet Posting of Information: The Company routinely posts information that may be important to investors in the ‘Investor Relations’ section of the Company’s website at www.prahs.com. The Company encourages investors and potential investors to consult the Company’s website regularly for important information about the Company.

Forward-Looking Statements

This press release contains forward-looking statements that reflect, among other things, the Company’s current expectations and anticipated results of operations, all of which are subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements, market trends or industry results to differ materially from those expressed or implied by such forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may constitute forward-looking statements. Without limiting the foregoing, words such as “anticipates,” “believes,” “estimates,” “expects,” “guidance,” “intends,” “may,” “plans,” “projects,” “should,” “targets,” “will” and the negative thereof and similar words and expressions are intended to identify forward-looking statements. Actual results may differ materially from the Company’s expectations due to a number of factors, including that most of the Company’s contracts may be terminated on short notice and that the Company may be unable to maintain large customer contracts or to enter into new contracts; the historical indications of the relationship of backlog to revenues may not be indicative of their future relationship; the market for the Company’s services may not grow as the Company expects; the Company may under price contracts or overrun its cost estimates, and if the Company is unable to achieve operating efficiencies or grow revenues faster than expenses, operating margins will be adversely affected; the Company may be unable to maintain information systems or effectively update them; customer or therapeutic concentration could harm the Company’s business; the Company’s business is subject to risks associated with international operations, including economic, political and other risks; the Company is also subject to a number of additional risks associated with its business outside the United States, including foreign currency exchange fluctuations and restrictive regulations, as well as the risks and uncertainties associated with the United Kingdom’s expected withdrawal from the European Union; government regulators or customers may limit the scope of prescription or withdraw products from the market, and government regulators may impose new regulations affecting the Company’s business; the Company may be unable to successfully develop and market new services or enter new markets; the Company’s failure to perform services in accordance with contractual requirements, regulatory standards and ethical considerations may subject it to significant costs or liability, damage its reputation and cause it to lose existing business or not receive new business; the Company’s services are related to treatment of human patients, and it could face liability if a patient is harmed; the Company has substantial indebtedness and may incur additional indebtedness in the future, which could adversely affect the Company’s financial condition; and other factors that are set forth in the Company’s filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K filed with the SEC on February 25, 2016. The Company undertakes no obligation to update any forward-looking statement after the date of this release, whether as a result of new information, future developments or otherwise, except as may be required by applicable law.

Use of Non-GAAP Financial Measures

This press release includes EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per share, each of which are financial measures not prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). Management believes that these measures provide useful supplemental information to management and investors regarding our operating results as they exclude certain items whose fluctuation from period- to period do not necessarily correspond to changes in the operating results of our business. As a result, management and our board of directors regularly use EBITDA and Adjusted EBITDA as a tool in evaluating our operating and financial performance and in establishing discretionary annual bonuses. Adjusted EBITDA is also the basis for covenant compliance EBITDA, which is used in certain covenants in the credit agreement governing our senior secured credit facilities and the indenture governing the senior notes. In addition, management believes that EBITDA, Adjusted EBITDA and Adjusted Net Income (including diluted adjusted net income per share) facilitate comparisons of our operating results with those of other companies by backing out of GAAP net income items relating to variations in capital structures (affecting interest expense), taxation, and the age and book depreciation of facilities and equipment (affecting relative depreciation expense), which may vary for different companies for reasons unrelated to operating performance. We believe that EBITDA, Adjusted EBITDA and Adjusted Net Income (including diluted adjusted net income per share) are frequently used by securities analysts, investors, and other interested parties in the evaluation of issuers, many of which also present EBITDA, Adjusted EBITDA and Adjusted Net Income (including diluted adjusted net income per share) when reporting their results in an effort to facilitate an understanding of their operating results.

These non-GAAP financial measures have limitations as analytical tools, and you should not consider these measures in isolation, or as a substitute for analysis of our results as reported under GAAP. Additionally, because not all companies use identical calculations, these presentations of EBITDA, Adjusted EBITDA and Adjusted Net Income (including diluted adjusted net income per share) may not be comparable to similarly titled measures of other companies.

EBITDA represents net income before interest, taxes, depreciation and amortization. Adjusted EBITDA and Adjusted Net Income (including diluted adjusted net income per share) represent EBITDA and net income (including diluted net income per share), respectively, adjusted to exclude  stock-based compensation expense, loss (gain) on disposal of fixed assets, loss on modification or extinguishment of debt, foreign currency losses and gains, other (expense) income, equity in (gains) losses of unconsolidated joint ventures, transaction-related cost, acquisition-related costs, severance costs and restructuring charges, prior year foreign research and development credits, lease termination costs,  non-cash rent adjustments and other charges. Adjusted Net Income is also adjusted to exclude amortization of intangible assets, amortization of terminated interest rate swaps, and amortization of deferred financing costs. EBITDA, Adjusted EBITDA and Adjusted Net Income are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income or other performance measures derived in accordance with GAAP or as alternatives to cash flow from operating activities as measures of our liquidity. EBITDA, Adjusted EBITDA and Adjusted Net Income have limitations as analytical tools, and you should not consider such measures either in isolation or as substitutes for analyzing our results as reported under GAAP.

Some of these limitations are:

  • EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;
  • EBITDA and Adjusted EBITDA do not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
  • EBITDA and Adjusted EBITDA do not reflect our tax expense or the cash requirements to pay our taxes;
  • EBITDA and Adjusted EBITDA do not reflect historical capital expenditures or future requirements for capital expenditures or contractual commitments;
  • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; and
  • other companies in our industry may calculate EBITDA and Adjusted EBITDA differently, limiting their usefulness as comparative measures.

Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as a measure of cash that will be available to us to meet our obligations.

Constant Currency

Constant currency comparisons are based on translating local currency amounts in the current year period at actual foreign exchange rates for the prior year. The Company routinely evaluates its financial performance on a constant currency basis in order to facilitate period- to- period comparisons without regard to the impact of changing foreign currency exchange rates.

 
PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
             
  Three Months Ended December 31,  Year Ended December 31, 
  2016  2015  2016  2015 
Revenue: (Unaudited)
      
Service revenue $ 413,613  $ 362,265  $ 1,580,023  $ 1,375,847 
Reimbursement revenue   58,773    66,682    231,688    238,036 
Total revenue   472,386    428,947    1,811,711    1,613,883 
Operating expenses:         —    — 
Direct costs   274,355    234,882    1,032,688    886,528 
Reimbursable out-of-pocket costs   58,773    66,682    231,688    238,036 
Selling, general and administrative   70,245    63,586    269,893    246,417 
Transaction-related costs   13,049    —    44,834    — 
Depreciation and amortization   17,260    19,735    69,506    77,952 
Loss on disposal of fixed assets   463    201    753    652 
Income from operations   38,241    43,861    162,349    164,298 
Interest expense, net   (12,388)   (15,683)   (54,913)   (61,747)
Loss on extinguishment of debt   (16,693)   —    (38,178)   — 
Foreign currency gains, net   14,765    5,251    24,029    14,048 
Other income (expense), net   692    73    607    (1,434)
Income before income taxes and equity in gains (losses) of unconsolidated joint ventures     24,617    33,502    93,894    115,165 
Provision for income taxes   10,625    5,663    28,494    30,004 
Income before equity in gains (losses) of unconsolidated joint ventures   13,992    27,839    65,400    85,161 
Equity in gains (losses) of unconsolidated joint ventures, net of tax   33    665    2,775    (3,396)
Net income $ 14,025  $ 28,504  $ 68,175  $ 81,765 
Net income per share attributable to common stockholders:            
Basic $ 0.23  $ 0.47  $ 1.12  $ 1.36 
Diluted $ 0.22  $ 0.45  $ 1.06  $ 1.29 
Weighted average common shares outstanding:            
Basic   61,294    60,108    60,759    59,965 
Diluted   65,001    63,581    64,452    63,207 
                 


  
PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES 
CONSOLIDATED BALANCE SHEETS 
(in thousands, except share amounts) 
  
  December 31,  
  2016  2015  
ASSETS       
Current assets:       
Cash and cash equivalents $ 144,623  $ 121,065  
Restricted cash   4,715    5,060  
Accounts receivable and unbilled services, net   439,053    415,077  
Prepaid expenses and other current assets   35,367    30,175  
Income taxes receivable   979    2,399  
Total current assets   624,737    573,776  
Fixed assets, net   87,577    80,691  
Goodwill   971,980    1,014,798  
Intangible assets, net   473,976    533,938  
Deferred tax assets   6,568    3,069  
Investment in unconsolidated joint ventures   284    1,288  
Deferred financing fees   1,762    2,490  
Other assets   23,507    18,693  
Total assets $ 2,190,391  $ 2,228,743  
LIABILITIES AND STOCKHOLDERS' EQUITY       
Current liabilities:       
Current portion of long-term debt $ 31,250  $ —  
Accounts payable   51,335    57,096  
Accrued expenses and other current liabilities   123,589    119,893  
Income taxes payable   25,524    19,262  
Advanced billings   332,501    333,729  
Total current liabilities   564,199    529,980  
Deferred tax liabilities   73,703    81,691  
Long-term debt, net   797,052    889,514  
Other long-term liabilities   26,185    24,836  
Total liabilities   1,461,139    1,526,021  
Commitments and contingencies       
Stockholders' equity:       
Preferred stock, $0.01 par value; 100,000,000 shares authorized, 0 shares issued and outstanding at December 31, 2016 and 2015, respectively   —    —  
Common stock, $0.01 par value, 1,000,000,000 authorized shares at December 31, 2016 and December 31, 2015; 61,597,705 and 60,245,009 issued and outstanding at December 31, 2016 and December 31, 2015, respectively   616    602  
Additional paid-in capital   879,067    828,347  
Accumulated other comprehensive loss   (224,686)   (132,307) 
Retained earnings   74,255    6,080  
Total stockholders' equity   729,252    702,722  
Total liabilities and stockholders' equity $ 2,190,391  $ 2,228,743  
          


  
PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(in thousands) 
  
  Years Ended December 31, 
  2016  2015  
Cash flows from operating activities:       
Net income $ 68,175  $ 81,765  
Adjustments to reconcile net income to net cash provided by operating activities:       
Depreciation and amortization   69,506    77,952  
Amortization of debt issuance costs and discount   4,433    5,983  
Amortization of terminated interest rate swaps   4,961    731  
Stock-based compensation expense   7,067    5,276  
Non-cash transaction related costs   42,166    —  
Unrealized foreign currency gains   (24,499)   (16,464) 
Loss on modification or extinguishment of debt   38,178    —  
Loss on disposal of fixed assets   753    652  
Change in acquisition-related contingent consideration   (527)   89  
Equity in (gains) losses of unconsolidated joint ventures   (2,775)   3,396  
Unrealized loss on derivatives   47    1,787  
Other reconciling items   (652)   443  
Excess tax benefit from stock-based compensation   (846)   —  
Deferred income taxes   (10,469)   (3,219) 
Changes in operating assets and liabilities:       
Accounts receivable and unbilled services   (31,313)   (83,211) 
Prepaid expenses and other assets   (10,071)   (11,675) 
Accounts payable and other liabilities   (1,474)   36,135  
Income taxes   7,308    9,958  
Advanced billings   79    42,830  
Net cash provided by operating activities   160,047    152,428  
Cash flows from investing activities:       
Purchase of fixed assets   (33,143)   (32,814) 
Cash paid for interest on interest rate swap   (913)   (302) 
Cash paid to terminate interest rate swaps   —    (32,907) 
Acquisition of Nextrials, Inc., net of cash acquired   (4,268)   —  
Acquisition of Value Health Solutions, Inc., net of cash acquired   —    (543) 
Payment of ClinStar, LLC working capital settlement   —    (1,693) 
Distributions from unconsolidated joint ventures   3,700    19,529  
Contributions to unconsolidated joint ventures   —    (23,000) 
Proceeds from the sale of fixed assets   10    44  
Net cash used in investing activities   (34,614)   (71,686) 
Cash flows from financing activities:       
Proceeds from issuance of long-term debt   625,000    —  
Proceeds from accounts receivable financing agreement   120,000    —  
Repayment of long-term debt   (822,559)   (40,000) 
Borrowings on line of credit   110,000    90,000  
Repayments of line of credit   (110,000)   (90,000) 
Payment of debt prepayment and debt extinguishment costs   (17,824)   —  
Payment for debt issuance costs   (7,713)   —  
Payment of common stock issuance costs   —    (525) 
Excess tax benefit from stock-based compensation   846    —  
Proceeds from stock option exercises   655    81  
Payment of acquisition-related contingent consideration   —    (2,000) 
Net cash used in financing activities   (101,595)   (42,444) 
Effects of foreign exchange changes on cash, cash equivalents, and restricted cash     (625)   (3,702) 
Change in cash, cash equivalents, and restricted cash   23,213    34,596  
Cash, cash equivalents, and restricted cash, beginning of period   126,125    91,529  
Cash, cash equivalents, and restricted cash, end of period $ 149,338  $ 126,125  
          


  
PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES 
RECONCILIATION OF NON-GAAP MEASURES 
(in thousands, except per share amounts) 
(unaudited) 
  
  Three Months Ended December 31,  Year Ended December 31,  
  2016  2015  2016  2015  
Net income $ 14,025  $ 28,504  $ 68,175  $ 81,765  
Depreciation and amortization   17,260    19,735    69,506    77,952  
Interest expense, net   12,388    15,683    54,913    61,747  
Provision for income taxes   10,625    5,663    28,494    30,004  
EBITDA   54,298    69,585    221,088    251,468  
Stock-based compensation expense (a)   2,127    1,642    7,067    5,276  
Loss on disposal of fixed assets, net (b)   463    201    753    652  
Loss on extinguishment of debt (c)   16,693    —    38,178    —  
Foreign currency gains, net (d)   (14,765)   (5,251)   (24,029)   (14,048) 
Other non-operating (income) expense, net (e)   (692)   (73)   (607)   1,434  
Equity in (gains) losses of unconsolidated joint ventures, net of tax     (33)   (665)   (2,775)   3,396  
Foreign research and development credits (f)   (197)   150    (197)   (8,346) 
Transaction-related costs (g)   13,049    —    44,834    —  
Acquisition-related costs (h)   2,192    49    2,434    233  
Lease termination expense (i)   33    354    (415)   3,270  
Severance and restructuring charges (j)   —    (220)   33    1,569  
Non-cash rent adjustment (k)   746    1,419    2,923    4,273  
Other charges (l)   —    743    —    2,416  
Adjusted EBITDA $ 73,914  $ 67,934  $ 289,287  $ 251,593  
              
Net income   14,025    28,504    68,175    81,765  
Amortization of intangible assets   11,113    14,179    45,368    56,751  
Amortization of deferred financing costs   919    1,161    4,433    5,983  
Amortization of terminated interest rate swaps   1,627    731    4,961    731  
Stock-based compensation expense (a)   2,127    1,642    7,067    5,276  
Loss on disposal of fixed assets, net (b)   463    201    753    652  
Loss on extinguishment of debt (c)   16,693    —    38,178    —  
Foreign currency gains, net (d)   (14,765)   (5,251)   (24,029)   (14,048) 
Other non-operating (income) expense, net (e)   (692)   (73)   (607)   1,434  
Equity in (gains) losses of unconsolidated joint ventures, net of tax   (33)   (665)   (2,775)   3,396  
Foreign research and development credits (f)   (197)   150    (197)   (8,346) 
Transaction-related costs (g)   13,049    —    44,834    —  
Acquisition-related costs (h)   2,192    49    2,434    233  
Lease termination expense (i)   33    354    (415)   3,270  
Severance and restructuring charges (j)   —    (220)   33    1,569  
Non-cash rent adjustment (k)   746    1,419    2,923    4,273  
Other charges (l)   —    743    —    2,416  
Total adjustments   33,275    14,420    122,961    63,590  
Tax effect of total adjustments (m)   (1,420)   (5,406)   (28,829)   (19,097) 
Adjusted net income $ 45,880  $ 37,518  $ 162,307  $ 126,258  
              
Diluted weighted average common shares outstanding   65,001    63,581    64,452    63,207  
              
Adjusted net income per diluted share $ 0.71  $ 0.59  $ 2.52  $ 2.00  
                  


  
PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES 
RECONCILIATION OF GAAP TO NON-GAAP GUIDANCE 
(in millions, except per share amounts) 
(unaudited) 
  
  FY 2017 
    Adjusted net income   Adjusted Diluted Earnings Per Share 
  Low High Low High 
              
Net income and net income per diluted share $ 162.0  $ 168.0  $ 2.46  $ 2.56  
Adjustments:             
Amortization of intangible assets   36.0    36.0    0.55    0.55  
Amortization of deferred financing costs   2.0    2.0    0.03    0.03  
Amortization of terminated interest rate swaps   6.0    6.0    0.09    0.09  
Stock-based compensation expense (a)   8.0    8.0    0.12    0.12  
Non-cash rent adjustment (k)   4.0    4.0    0.06    0.06  
Total adjustments   56.0    56.0    0.85    0.85  
Tax effect of total adjustments (m)   (15.0)   (15.0)   (0.23)   (0.23) 
Adjusted net income and adjusted net income per diluted share   $ 203.0  $ 209.0  $ 3.08  $ 3.18  
                  


             
  Q1 2017
    Adjusted net income   Adjusted Diluted Earnings Per Share
  Low High Low High
             
Net income and net income per diluted share $ 27.0  $ 30.0  $ 0.41  $ 0.46 
Adjustments:            
Amortization of intangible assets   9.0    9.0    0.14    0.14 
Amortization of deferred financing costs   0.5    0.5    0.01    0.01 
Amortization of terminated interest rate swaps   1.5    1.5    0.02    0.02 
Stock-based compensation expense (a)   2.0    2.0    0.03    0.03 
Non-cash rent adjustment (k)   1.0    1.0    0.02    0.02 
Total adjustments   14.0    14.0    0.22    0.22 
Tax effect of total adjustments (m)   (4.0)   (4.0)   (0.06)   (0.06)
Adjusted net income and adjusted net income per diluted share   $ 37.0  $ 40.0  $ 0.57  $ 0.62 
                 

(a) Stock-based compensation expense represents the amount of recurring non-cash expense related to the Company’s equity compensation programs, excluding transaction-related stock-based compensation discussed in footnote (g).
(b) Loss on disposal of fixed assets represents the costs incurred in connection with the sale or disposition of fixed assets, primarily IT equipment and furniture and fixtures. We exclude these losses from Adjusted EBITDA and Adjusted Net Income because they result from investing decisions rather than from decisions made related to our ongoing operations.
(c) Loss on extinguishment of debt relates to costs incurred in connection with changes to our long-term debt. We exclude these losses from Adjusted EBITDA and Adjusted Net Income because they result from financing decisions rather than from decisions made related to our ongoing operations.
(d) Foreign currency (gains) losses, net primarily relates to gains or losses that arise in connection with the revaluation of short-term inter-company balances between our domestic and international subsidiaries. In addition, this amount includes gains or losses from foreign currency transactions, such as those resulting from the settlement of third-party accounts receivable and payables denominated in a currency other than the local currency of the entity making the payment. We exclude these gains and losses from Adjusted EBITDA and Adjusted Net Income because they result from financing decisions rather than from decisions made related to our ongoing operations and because fluctuations from period- to- period do not necessarily correspond to changes in our operating results.
(e) Other non-operating (income) expense, net represents income and expense that are non-operating and whose fluctuations from period- to -period do not necessarily correspond to changes in our operating results.
(f) The foreign research and development credits are the result of a comprehensive analysis we have been performing across the organization to determine whether expenditures incurred qualify as research and development as defined by the respective jurisdiction.  The amounts recorded in this line item represent amounts recorded in the current period that related to a prior period.
(g) Transaction-related costs primarily relate to costs incurred in connection with the March, May and November 2016 secondary offerings and receivables financing agreement. These costs include $32.0 million of non-cash stock-based compensation expense related to the vesting and release of the transfer restrictions of certain performance-based stock options and $10.1 million of stock-based compensation expense associated with the release of the transfer restrictions on a portion of service-based vested options in connection with the announcement of our March, May and November 2016 secondary offerings. In addition, we incurred $2.7 million of third-party fees associated with the secondary offerings and the closing of our accounts receivable financing agreement.
(h) Acquisition-related costs primarily relate to costs incurred in connection with purchase of the assets of Value Health Solutions, Inc., the acquisition of Nextrials, Inc., and the integration cost for the Takeda joint venture, as well as costs related to other potential acquisitions to enhance our strategic objectives.
(i) Lease termination expenses represent charges incurred in connection with the termination of leases at locations that are no longer being used by the Company.
(j) Severance and restructuring charges represent amounts incurred in connection with the elimination of redundant positions within the organization, including positions eliminated in connection with the KKR Transaction and the acquisitions of ClinStar, RPS and CRI Lifetree.
(k) We have escalating leases that require the amortization of rent expense on a straight-line basis over the life of the lease. The non-cash rent adjustment represents the difference between rent expense recorded in the consolidated statement of operations and the amount of cash actually paid.
(l) Represents charges incurred that are not considered part of our core operating results.
(m) Represents the tax effect of the total adjustments at our estimated effective tax rate.

Contacts: 

Helen O’Donnell
Solebury Communications Group
Managing Director
203.726.1372
InvestorRelations@PRAHS.com or
hodonnell@soleburyir.com

Christine Rogers
PRA Health Sciences, Inc.
Director, Public Relations
919.786.8463
rogerschristine@prahs.com 

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