PRA Health Sciences, Inc.
Q3 2017 Earnings Call Transcript

Published: 27 Oct 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to the PRA Health Sciences, Incorporated 2017 Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to turn the conference over to Mike Bonello, Senior Vice President and Corporate Controller. You may begin.

[Mike Bonello:]

Good morning, and thank you for joining us for the PRA Health Sciences third quarter 2017 earnings teleconference. Today, Colin Shannon, our Chief Executive Officer; and Linda Baddour, our Chief Financial Officer will discuss our third quarter financial results. Following our opening comments, we will be available for questions. In addition to our press release, an investor supplement with additional financial information is available in the Investor Relations portion of our website. Before we begin, I'd like to remind you that our remarks and responses 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 section of our Annual Report on Form 10-K filed with the SEC on February 23rd, 2017. Risk factors may be updated from time-to-time in our filings with the SEC. 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, are available in the earnings press release and investor supplement included in the Investor Relation portion of our website. I would now like to turn the call over to our CEO, Colin Shannon.

[Colin Shannon:]

Thank you, Mike. Good morning, everyone. And once again, thank you for joining the PRA Health Sciences conference call to discuss our third quarter 2017 financial results. I'm pleased to report that the third quarter of 2017 was another strong quarter for PRA, with double-digit revenue, earnings, and net new business growth. Service revenues for the quarter were approximately $495 million, which represents an increase of approximately 24% year-over-year at actual foreign exchange rates and 23% on a constant currency basis. Revenue growth for the quarter includes the acquisition of Symphony Health Solutions from the date of acquisition. Legacy PRA revenue increased approximately 19% year-over-year at actual foreign exchange rates and 18% on a constant currency basis. Adjusted net income for the third quarter was approximately $58 million, an increase of -- sorry, 41% over the same period last year. Adjusted net income per diluted share was $0.88, a 38% increase versus the third quarter of 2016. Adjusted net income per share included $0.01 of unfavorable impact when compared -- comparing actual foreign exchange rates to foreign exchange rates used in preparing our financial guidance. In addition, these results included the impact of Symphony Health Solutions from the date of acquisition. New business increased approximately 15% when compared to the third quarter of 2016. We recorded $599 million of net new business awards, representing a net book-to-bill of 1.26 times our service revenue. The addition of new awards has resulted in our backlog increasingly -- approximately 4% on a sequential basis and 22% year-over-year, finishing at approximately $3.4 billion. Our reported new business awards and backlog exclude the impact of our acquisition of Symphony Health Solutions, as we're still in the process of finalizing the methodologies that will be used to record and report both new business awards and backlog. The diversity of our new business awards continues to be consistent with previous quarters, with approximately 70% of our new awards coming from the pharmaceutical sector and approximately 30% coming from the biotechnology sector. Our client base also continues to be well diversified, with our top five clients representing approximately 43% of total revenue for the quarter, with our largest client representing approximately 10% of total revenue. We continue to serve a broad range of clients from small development-stage biotech to large biopharma and clinical trial activity amongst our biotech customer continues to be steady. I'm pleased to announce that we completed the acquisition of Symphony Health Solutions during the quarter and we have started the integration process. As we discussed on the last call, Symphony Health Solutions is a leading provider of integrated health data and analytics delivered as a cloud-based solution. PRA has been using patient data for almost 10 years, and our ability to identify data insights into patient access has helped our clients optimize their clinical trial equipment. As I referenced last quarter, prior to acquiring Symphony Health, we obtained data from a variety of sources, including Symphony Health and we're confident we can do more with Symphony Health in-house than we would have if it was still an outside source. I'm also pleased to mention that our data platform was reaching its capacity and would have required substantial investment to support our business and we'll now be able to leverage our new Symphony Health platform, which is state-of-the-art, first-class platform that they've just actually built. Symphony Health's agility and nimbleness to provide customized data solutions and the team's expertise in many therapeutic areas makes them a perfect fit at PRA. I am delighted to officially welcome them to the PRA family. As a result of the acquisition of Symphony Health and movements in foreign exchange rates, we are raising our service revenue guidance in the full year of 2017 to a range of $1.914 billion to $1.926 billion. We are also increasing our diluted adjusted earnings per share guidance for the current year to a range of $3.28 to $3.35 per share. Linda will provide additional details about our revised guidance later in the call. 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 the strong financial results this quarter and we're well-propositioned for remainder of 2017. I would now like to hand over the call to Linda Baddour, our Chief Financial Officer who will review our quarterly financial results in more detail.

[Linda Baddour:]

Thank you, Colin. Good morning everyone. For the third quarter of 2017, our consolidated service revenues grew 23.7% at actual foreign exchange rate and 23% on a constant currency basis. We've reported $494.6 million of service revenue for the quarter compared to $399.8 million for the same quarter last year. As Colin mentioned earlier, legacy PRA revenue increased 18.9% year-over-year at actual foreign exchange rates and 18.2% on a constant currency basis. Revenue concentration excluding Symphony Health Solutions' revenue in the third quarter of 2017 was consistent with prior quarters. We derived approximately 56% of our service revenues from large pharmaceutical companies, approximately 12% from small to mid-sized pharmaceutical companies, approximately 17% from large biotechnology companies, and approximately 15% from all other biotechnology companies. Direct costs were $326.9 million in the third quarter of 2017 compared to $259.9 million in the same quarter last year. Direct costs were 66.1% of service revenue in the third quarter of 2017 compared to 65% in the same quarter last year. The slight increase in direct costs as a percentage of service revenue is primarily related to our hiring of billable staff to support our current portfolio of studies and our future growth. The inclusion of Symphony Health Solutions did not have an impact on our direct costs as a percentage of revenue. On a constant currency basis, direct costs increased by $63.3 million year-over-year. This increase in our cost base included an unfavorable foreign currency effect of $3.7 million. SG&A expenses were $79.3 million or 16% of service revenue for the second quarter of 2017 compared to 16.8% of service revenue for the same quarter last year. The decrease in SG&A as a percentage of service revenue is related to our continued efforts to effectively leverage our selling and administrative functions. During the third quarter of 2017, we incurred transaction-related expenses of $12.7 million. These costs consisted of $6.4 million of third-party fees incurred related to our acquisition of Symphony Health Solutions, $5.3 million of stock-based compensation expense related to the release of transfer restrictions on vested options and $1 million of other expenses incurred related to our September 2017 secondary offering. It should be noted that we did not incur any transaction-related expenses in the third quarter of 2016. Adjusted net income, which excludes certain items whose fluctuation from period-to-period does not necessarily correspond to changes in our operating results, increased 41.1% year-over-year to $57.9 million in the third quarter of 2017. Contributing to the adjusted net income growth were increased service revenues and lower interest expense. Adjusted net income per diluted share grew 37.5% to $0.88 per share in the third quarter of 2017 compared to $0.64 per share in the same quarter last year. Cash provided by operations was $101.9 million for the three months ended September 30, 2017, compared to cash provided by operations of $42.7 million for the same period of 2016. The increase in operating cash flow was the result of an increase in our operational performance, reduced interest expense, and a decrease in working capital driven by an improvement in our days sales outstanding. Our net days sales outstanding was 19 days at September 30, 2017, compared to 23 days as at September 30, 2016, and 35 days at June 30, 2017. Capital expenditures were $17.3 million for the quarter compared to $8.1 million during the same period of 2016. The increase in our capital expenditures versus 2016 reflects our continued investment in information technology, enhancing our current facilities, and expanding our infrastructure to support our growth. Our cash balance was $193.6 million at the end of the third quarter of which $54.8 million was held by our-- Net debt outstanding, defined as total debt less cash and cash equivalents at September 30, 2017 was $1.17 billion compared to $770.1 million at September 30, 2016. The overall increase in our net debt is attributable to borrowings related to our acquisition of Symphony Health Solutions. Because of the increase in our debt position, there has been a shift in the amount of fixed debt versus variable debt. We are currently working to ensure that we reduce our interest rate exposure and anticipate having this resolved by the end of the fourth quarter. Regarding the geographic concentration of our revenue, 58% of our quarterly service revenues were earned in North America. At September 30, 2017, 82% of our service revenues were denominated in U.S. dollars and 60% of our total expenses were denominated in U.S. dollars, which is consistent with prior quarters and consistent with 2016 levels. Our euro exposure continues to be naturally hedged. Moving on to the remainder of 2017, we are updating our guidance for the impact of the Symphony Health acquisition, the impacts of our current foreign exchange rates and an adjustment to our annual effective tax rate. We are updating our service revenue estimates between $1.914 billion and $1.926 billion. This update includes service revenue of between $58 million and $62 million related to Symphony Health. We are also updating our adjusted net income per diluted share to between $3.28 per share and $3.35 per share and our diluted GAAP earnings per share estimate to between $2.31 per share and $2.38 per share. Our guidance assumes a euro exchange rate of 1.20 and a British pound exchange rate of 1.35. All other foreign currency exchange rates are as of September 30, 2017. Finally, we are updating our annual effective tax rate to 26% from 27%. That concludes our prepared remarks. And now we'd be happy to take your questions. Operator?

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Dave Windley of Jefferies. Your line is now open.

[Dave Windley:]

Hi good morning. Thanks for taking my questions. So, Colin, in your prepared remarks you mentioned that Symphony -- you talked about kind of capacity around data management and that Symphony had just completed a buildout there. Could you talk about how those things come together, how -- kind of the constraint that you were running into and how that helps to solve that constraint?

[Colin Shannon:]

Well, the constraint really is that the volume of data that we're acquiring and retaining was just becoming overwhelming. And you need quite a significant amount of infrastructure to actually hold all that data. And as it was starting to reach capacity, it wasn't just look at adding other servers or more capacity. You have to really relook at the whole structure and rebuild. And it's a cloud-based investment and it's very, very significant to go and move all into a new structure and very, very expensive. So, -- and Symphony had, actually over the last few years, made a huge investment so that they could have all of their data in one platform so that they can use it in a very agile way. They don't have silos or different product lines. They have got it all in one base. And you know what they've got much, much more capacity that allows us to then combine and use their resources, so it's a significant synergy for us.

[Dave Windley:]

Super. And then you also -- I think there was a comment about using patient data for eight or 10 years. I think you said 10 years. What do you think is -- what has that duration of experience provided for you that perhaps is important for us to understand? In other words, not just about the data, but how you use the data. What have you learned over that 10 years about how to use the data?

[Colin Shannon:]

Well, I mean I think the important is really reflected in our numbers. It's attributed to the growth that's probably more than double the next best CROs. So, we're very pleased that we're sustaining that growth and there's many factors that go into that. I don't want to just single out the data as the only source, but it's the way we're approaching the information and using evidence to support what we're doing and really challenging old traditional thoughts. We like to -- obviously what would our clients perceive we can optimize, their timelines, and make sure that they -- we spend the money appropriately. It's been a long journey. It -- we started off just using the data in oncology. And so we'd worked on that for a couple of years before we expanded into other therapeutic areas. And it's taken us quite a while to really master all and really understand the nuances and the different data sources needed to really help support some of the data analyses that we're doing. And we've continued to expand our group of data analysts that really spend a lot of time really looking at new ways of using data. We think that we're still in the early stages. There's a lot more we can do with data and a lot more sources, which is why we're very excited about the Symphony Health Solutions acquisition. I think that will help us really accelerate some of the things we're doing because we've got a lot of experience now and we just now need to continue to use that experience that can -- to take us forward in the future.

[Dave Windley:]

Appreciate that. One last clarification question

[Linda Baddour:]

You're correct. There is a ruling out there and we basically just had our audit committee to -- meeting yesterday to discuss that with them. We are still evaluating exactly how that's going to fall out, but we're prepared to report as according to what everyone is believing is going to happen now, that you will have to include that in service revenues. We've modified our revenue recognition systems and we're going to be ready to go on January 1. And certainly when we announce our guidance for 2018 in our February call of next year, we'll give you more clarification about how that's going to be managed. I think that you'll still be able to, as an analyst, be it -- pull out the true service revenues. So, don't think it's going to change the way you look at our business, it's just going to give it a little more complication. So, we actually have historically managed those and forecasted those in the way that the pronouncement is advising. So, for us, it's just a matter of moving it around. So, I think we're going to be okay.

[Dave Windley:]

All right, great. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Tim Evans of Wells Fargo Securities. Your line is now open.

[Tim Evans:]

Just a quick question, Linda, on where you're going to account for Symphony. Like, it sounds like you're not going to make it a separate segment. And I guess, why not? Because it's a fairly different business. And then secondly--

[Linda Baddour:]

Yes. Let me answer that for you first before you move on. We actually are going to have a segment disclosure. We'll be filing our 10-Q shortly after this call and you'll have a footnote that describes the -- reports the service revenue for two segments. One is clinical research, of course, which is the legacy PRA business and the other is data solutions. We will be reporting revenue and direct costs and gross profit, of course, but not SG&A or anything further because that's not how we're managing the business.

[Tim Evans:]

So, just to be clear, we'll get revenue for each, and then we'll get gross profit for each.

[Linda Baddour:]

That's correct.

[Tim Evans:]

Okay. And then on the booking side, a comment that you made on the prepared remarks made me think that you were going to kind of roll all the bookings together. Is that -- was that the right read of that?

[Linda Baddour:]

Currently, in what you've -- we've disclosed today, we do not have any bookings for Symphony or any backlog reported. We'll be evaluating that over the next three months. And certainly when we have our call in February, we'll be announcing how we're going to account for that moving forward. And so we've only had the acquisition for a few weeks, so we're not completely clear on how we're going to do that.

[Tim Evans:]

Okay. And then the last thing is can you just put a finer point -- last quarter, when we talked, I kind of had some general sense of what the Symphony margin was and how it would affect your business. But as we look into 2018, can you give us a sense of whether that -- before any cost synergies or anything, whether that Symphony margin would be accretive or dilutive to the overall PRA margin?

[Linda Baddour:]

It's pretty much on par with the PRA margin right now, a bit [Indiscernible].

[Colin Shannon:]

Accretive.

[Linda Baddour:]

Accretive, yes.

[Colin Shannon:]

We're actually just about to do a planning session in the next few weeks. And we just started the integration process. We haven't really sort of finalized the -- what we're looking for in our budget for next -- for 2018 because we'll obviously get -- allow the Symphony guys to really focus on finishing off the year. We'll be working closely with them. We're actually hoping to give a little bit more color to you in next call, but we're still working through it ourselves. It's showing a nice growth and the margins, you know what, there's still some [Indiscernible] investment -- leverage, so really we're looking at margins -- probably going to be a little bit higher than PRAs, but not too much and it's certainly for the first year.

[Linda Baddour:]

And we won't be disclosing that going forward because basically as we mentioned, we're -- we'll be able to manage to the gross profit line, but you won't really have visibility into what their actual operating margin is because we're going to be merging a lot of cost.

[Tim Evans:]

Yes. Okay, got you. Thank you very much.

[Operator:]

Thank you. And our next question comes from the line of John Kreger of William Blair. Your line is now open.

[John Kreger:]

Hey. Thanks very much. Colin, maybe just kind of sticking with that same theme, can you give us any kind of early thinking on how 2018 plays out from your perspective and maybe how the Symphony addition will impact it? Thanks.

[Linda Baddour:]

We're not really prepared to talk about 2018 revenue growth right now, John. We will again be providing that in February. So, I think the best thing for you to do when you're looking at your models is when it relates to Symphony Health--

[Colin Shannon:]

I mean I would always just start-off with something -- and they start off like low teens as a sort of good base to think about revenue growth for them next year. I think that's pretty conservative. We do expect them to have like low-teen growth and together we're going to go looking at plans how to take advantage of the situation. We're working together to accelerate that. But as we mentioned, we've not really done that yet. And it's still too early to give us like -- give a way idea of what 2018 is looking like. Although, you can see it from our consistent like $600 million net new business awards, we're building up a very substantial backlog, so things are looking pretty solid for us.

[John Kreger:]

That's helpful. And the low teens comment you just made, is that for Symphony or for kind of legacy PRA?

[Linda Baddour:]

That's for Symphony. If you want to look at Symphony Health moving forward, I would say that you would look at the low teens.

[John Kreger:]

Got it. And legacy PRA would sort of -- how do you feel about your ability to sustain kind of mid-teens?

[Linda Baddour:]

We're not going to comment on that at this point.

[John Kreger:]

Okay. And then one last one. If you think about the awards for the quarter that you just reported, how would you characterize those and just sort of looking at traditional awards versus FSP and kind of thinking about your strategic relationships versus other clients? Did you see any interesting new patterns in the quarter?

[Colin Shannon:]

No. I mean it's actually very steady. It was very similar to previous quarters. We've -- obviously, as you know, we have two new relationships, but they are -- they were not -- very, very variable about how the awards all kind of flushed out, but we do measure it closely. We've got a lot -- new clients starting -- new client awards this quarter. Europe did very well. Overall, it was a nice mix. So, we were very pleased. We also saw that our EDS sector has started to really perform and very, very good and strong quarter. I know it's a smaller part of our business, but across the Board, we're pretty pleased.

[John Kreger:]

Okay, great. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Erin Wright of Credit Suisse. Your line is now open.

[Hong Tran:]

Hi. This is actually Hong on for Erin. One last quick question on Symphony. How much contribution is currently embedded in your guide for Symphony this year? And has anything sort of surprised you about Symphony since you've closed the acquisition, like--

[Linda Baddour:]

I'm sorry. It's hard to understand--

[Colin Shannon:]

[Indiscernible] we're not able to hear you. I'm sorry.

[Hong Tran:]

Can you hear me now?

[Colin Shannon:]

That's much better.

[Hong Tran:]

Sorry about that. One last question [Indiscernible] Symphony. How much for your guidance is currently attributable to Symphony for the year? And surprise you about the business since you've completed the acquisition, like any potential additional synergy opportunities?

[Linda Baddour:]

We're still evaluating the business as far as like any surprises, but everything that we've seen so far has been very pleasant surprises, so pleasant information. And we're very optimistic about the integration going forward and the business itself. I did have in my remarks the revenue that we have in our guidance for Symphony Health was the update includes service revenue of between $58 million and $62 million related to Symphony Health. Those were my comments. We will not be commenting on earnings per share related to that business. As I mentioned, we'll only be measuring revenue and direct costs.

[Hong Tran:]

Okay, great. Thank you. And then one last question. How should we think about like backlog conversion moving forward? Do you think it's normalizing anytime soon in the future? Any comments on the underlying biotech funding environment or cancellation [Indiscernible] this quarter?

[Colin Shannon:]

I think that we're very, very pleased with our backlog conversion rate. And it's been showing that we're converting it to enable very good growth. It can vary some percentage points, depending on the mix of study startup. I mean high growth is causing a lot more studies and startup which actually really -- it doesn't convert as fast. So, when you start to see maybe the book-to-bills maybe slow a little bit and a more normalized rate, you'll start to see the conversion pick up back up again. And so we obviously model it very differently because we model it by study. And we look to every single study building up, so it's not a formulaic number and -- but we do try to work hard because we know that -- while you're looking at it to make sure that the backlog is converting and you can see from our story that it is converting is not coming into revenue and coming into catch.

[Hong Tran:]

Okay, great. Thank you.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Michael Baker of Raymond James. Your line is now open.

[Michael Baker:]

Yes, thanks a lot. One of the comments that we get when we talk to some of your customers is what they like is the clinical trial execution and the consistency around that. And earlier in the conversation, you pointed to what you've done on the data side. I'm curious as you -- if you could give us what you believe some of your differentiators are in terms of your operational approach to the business?

[Colin Shannon:]

Actually I was -- particularly mentioned that data was only one aspect. The -- our approach, we use good tools, but a lot of it is the culture we have created of a can do attitude and we make sure we deliver for the client. And we are very pleased to hear a number of our clients say that the reason that they choose us is that we always get it done. I mean it's a great testament to our team and our staff because that's the type of culture we want. It's that mentality of we [Indiscernible] how we get things done. It's hard to then express how that differentiates us because it's the way we've built our company and the way our culture is and set the tone by our executive team and we work very closely. We're a much more of a [Indiscernible] company and -- then a line and staff thing. We value our people and we care about our patients. We're very patient-centric. And we try to align our thinking with that of our clients with a much more top [ph] development mindset, so that we try to put ourselves in their shoes of what they want and how we can achieve it together. It's a very difficult question to answer because you're asking me to compare against others and all we can do is build a culture that we feel is best to fit the current demand and needs of our clients.

[Michael Baker:]

I also had another question and I thank you for the response to the first one and that is can you give us an update on overall labor inflation? And then specifically comment, on -- at the CRA level, what you're seeing?

[Colin Shannon:]

Actually, it's not been too bad actually. And we've I think seen in the industry that maybe the CRA hiring is actually resting a little bit. The market has certainly not been as tight. I mean part of our quite extraordinary growth is that we're going to be hiring almost 6,000 people this year. A lot of them are CRAs, but as we move more to adaptive monitoring, the burden on CRA hiring is resting a little. So, it's not quite as tight and therefore the inflation is -- wage inflation for that range has actually not been as bad as with previous years. So, we have been pleasantly pleased about that. We still have to hire ahead. It does impact us because we're cutting a lot more cost than we actually forecasted to meet the demands of our new trials that are about to start. And a part of the issue is when you -- when we start these new trials, we've got the hiring in place, but they're really idle for a number of weeks until we start getting patient enrolled in trials. So, there's a lot of ongoing brand new trials starting that's causing a little bit of pressure on that. So, there's lots of things that we're doing to -- the costs are actually pretty fair at the moment we feel.

[Michael Baker:]

Appreciate the color. Thanks.

[Operator:]

Thank you. Our next question comes from the line of Derik De Bruin of Bank of America. Your line is now open.

[Unidentified Analyst:]

Hi. Thank you. Congratulations on the quarter. This is [Indiscernible] on behalf of Derik. My first question is on the gross margin. And I wanted -- I was wondering if you could provide a little color as to where you are in the cycle, as far as the hiring ramp and whether or not you would expect to see continued gross margin compression.

[Linda Baddour:]

So, thank you for your question. With our excellent growth, it has been a challenge to keep the hiring on pace and not get ahead of ourselves, but we've had to get ahead of it. And we've also had to hire some contractors, which is affecting our gross margins. So, I would like to say that we're going to see that turn around in Q4, but it could still be a bit of a struggle in Q4. And then as we move into 2018, we'll hopefully see some expansion there. But that's -- so it's good -- a great problem to have, the fact that we have to hire ahead for all of those new business that we've won. There's also a little bit of FX, as I mentioned, a headwind around FX and we're -- we did have a bit of problem with the disasters in the U.S. in Q3. It wasn't enormous, but we did have maybe like a $0.005 effect from the different hurricanes around because we weren't able to visit sites. And I know that every other CRO probably had the same thing, but we were affected in Puerto Rico and in Florida and in Texas.

[Unidentified Analyst:]

Got it. Thank you. And then unlike the gross margin line, the SG&A line has been better than our expectations and you've been able to achieve SG&A leverage better than our estimates. To what do you attribute that? And if you could share some of the operational initiatives that you're undertaking in order to control operational costs as you continue to grow.

[Colin Shannon:]

Well, the nice thing about SG&A is we're able to leverage it with the growth. It's the one area we don't need to hire ahead from because they're not revenue producing. So, we do try to optimize that. And we see some further room for improvement and so we're pleased that we continue to leverage off our SG&A. We've obviously got an integration with Symphony [Indiscernible], but we are -- this was never really about integration costs and savings and SG&A. We want -- they've a good business. So, we're not expecting huge synergies there, but we do expect to continue to leverage our SG&A. I'm sorry, what was the second part of your question?

[Unidentified Analyst:]

Yes -- no, the -- you answered it. I mean what you were doing operationally in order to get SG&A leverage, but yes. And then lastly, if I can close with Symphony

[Colin Shannon:]

Well, we're still working through the Symphony piece. We are -- they've got more, like, timing and seasonal issues. So, the last few weeks of a quarter and the last quarter of a year are traditionally the better parts of the -- for revenue.

[Linda Baddour:]

So, I would actually take you back to my comments -- in the opening comments, around the update of our revenue guidance includes service revenue of between $58 million and $62 million related to Symphony Health. And that's for the rest of 2017. And then this afternoon when we file our 10-Q, you'll see that our data solutions segment which is only Symphony was -- is going to be $18.9 million for the few weeks that we owned it in Q3.

[Unidentified Analyst:]

Okay, got it. And lastly, I mean, the Symphony prior to being acquired by you was growing mid to high teens. And based on the commentary before, it seems like, for 2018, a low teens might be conservative. Any qualitative comment as to the attenuation in growth?

[Linda Baddour:]

As we mentioned, we're early on in our evaluation of that business, but at currently what we're looking at for 2018 would be low teens. But as we move and give more guidance in February, if we can update that for you further, we will.

[Unidentified Analyst:]

All right. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Rohan Abrol of KeyBanc Capital Markets. Your line is now open.

[Rohan Abrol:]

Yes, hi. Just a quick question from me. [Indiscernible] the other day, kind of commented on how they're seeing certain therapeutic areas such as oncology show a bit of a proclivity towards programmatic versus FSP. Are you seeing some similar trends there? And if not, can you just share some color on maybe some therapeutic kind of breakdown?

[Linda Baddour:]

So, basically we haven't really seen a lot of movement in our therapeutic areas, as they've been consistent with previous periods. And so as you look at our mix for the -- basically, this afternoon, when you get our 10-Q, you'll see that there's not really been a lot of change. Oncology has always been a strong area for us and continues to be, but also CNS and infectious disease are also very strong areas.

[Colin Shannon:]

Certainly not seeing any sort of [Indiscernible] client index have changed. So, it's something that we haven't observed and maybe we're just dealing with a different set of clients. I can't really answer that part of the question.

[Rohan Abrol:]

I appreciate that. Thank you.

[Linda Baddour:]

Thank you.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Michael Polark of Baird. Your line is now open.

[Michael Polark:]

Hey thanks. Good morning. I want to be crystal clear on the $58 million to $62 million from Symphony. You said $18 million in the quarter; does the $58 million to $62 million include that $18 million? Or is that--

[Linda Baddour:]

It does not.

[Michael Polark:]

Okay, so the $58 million to 62 million is the fourth quarter, so Symphony this whole year is really $76 million to $80 million. Is that fair?

[Linda Baddour:]

That's correct.

[Michael Polark:]

Okay, good. I think we got that one now. And then just technically, the tax benefit in the quarter, what drove that?

[Mike Bonello:]

It's just the geographical dispersion of our pretax income, Michael. We continue to look at it throughout the quarter and obviously, we had a view of where we thought it was going to be at the end of the year, but obviously, we have nine months data helps us out with that. So, we've just been able to move some pretax income to lower tax jurisdictions.

[Michael Polark:]

Good. Thank you.

[Operator:]

Thank you. And I'm showing no further questions at this time. I'd like to hand the call back over to Colin Shannon, CEO for closing remarks.

[Colin Shannon:]

Well, thank you everyone for participating in our call today. If you have any additional questions, feel -- please feel free to contact us. So, have a great day everyone. Thank you.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. That does conclude today's program. You may all disconnect. Everyone have a great day.