PRA Health Sciences, Inc.
Q3 2016 Earnings Call Transcript

Published: 6 Nov 2016

[Operator:]

Good day, ladies and gentlemen, and welcome to the Q3 2016 PRA Health Sciences, Inc. 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 is being recorded. I would now like to turn the conference over to might be Mike Bonello, Senior Vice President and Corporate Controller. Please go ahead.

[Michael Bonello:]

Thank you Amanda. Good morning and thank you for joining us for the PRA Health Sciences third-quarter 2016 earnings teleconference. Today Colin Shannon, Chief Executive Officer; and Linda Baddour, Chief Financial Officer, will discuss our third-quarter financial results. Following our opening comments we will be available to take your questions. In addition to our press release a presentation with additional financial information is available on our website at, www.prahs.com/investors. Before we begin, I’d like to remind you that our remarks and responses to your questions during this teleconference may include forward-looking statements. Actual results could 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 factor section of our annual report on Form 10-K, filed with the SEC on February 25, 2016. Such risk factors may be updated from time to time in our SEC filings. We assume no obligation to update any forward-looking statements. Certain other financial measures we will discuss on this call are non-GAAP financial measures. We believe that per might 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 most comparable GAAP measure calculated and presented in accordance with GAAP are available in our earnings press release and investor presentation, 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 and thank you all for joining the PRA Health Sciences conference call covering our third-quarter 2016 financial results. I’m pleased to report we delivered another quarter with double digit revenue, earnings, and net new business growth year-over-year. Established revenues for the quarter were approximately $400 million, which represents an increase of approximately 16% year-over-year at actual foreign exchange rates, and also on a constant currency basis. Adjusted net income for the third quarter was $41 million, an increase of 24% over the same period last year. Adjusted net income per diluted share was corresponding with $0.64, a 23% increase versus the third quarter of 2015. Adjusted net income per share included $0.01 of improvement when compared to the foreign-exchange rates and financial of guidance. New business continues to robust for the third quarter and increased 20% when compared to the third quarter of 2015. We recorded $519 million of net new business awards representing a book-to-bill of 1.3 times our service revenue. The concentration of our net new business awards also continues to be well diversified with approximately 70% of our new awards coming from the pharmaceutical sector and approximately 30% coming from the biotech sector. Backlog increased approximately 5% on a sequential basis to finish the quarter at approximately $2.8 billion. Our continued strength in net new business is a reflection of our broad and flexible service offerings, as well as our differentiation and we are positioned well to [indiscernible] sustain future growth. Our client base continues to be well diversified with our top five clients representing 46% of total revenue for the third quarter, and our largest client constituting 12% of total revenue for the quarter. The size of our customers from small development stage biotechs to large biopharma remains diversified and clinical trial activity among our biotech customer was steady. Now I’d like to comment on our previously announced strategic partnership with Takeda, where we will serve as a premier provider for phase I through IV clinical development, regular trade, serve pharma vigilance, and other operational services. This partnership is an innovative and transformational partnership aimed at improving operational efficiencies, driving globalization, and reducing fixed infrastructure costs. The partnership will enable us to utilize our internal resources and expertise to manage the care of the entire pipeline of studies. Approximately 225 Takeda employees have transitioned to PRA in the U.S. and Europe. We expect approximately 75 additional employees to join over the next two quarters. We continue to have ongoing discussions regarding the transition of employees in Japan. NQB Takeda only represented about 6% of our NDA, mainly from the transfer of employees to their strategic solution division, and there was a very negligible amount taken into product registration. As a result of our strong year to date performance, our partnership with Takeda and movements in foreign exchange rates, we are raising service revenue guidance for the full year 2016 to a range of $1.568 billion to $1.573 billion. We’re also increasing diluted adjusted earnings per share guidance for the current year to a range of $2.45 to $2.48 per share. Linda will provide additional details of that revised guidance for 2016 later in the call. I have been asked on numerous occasions to try to quantify the state of the Takeda partnership and unfortunately I still do not have any details as it is an ongoing process. However, together with our 1.28 year to date book-to-bill and our strategic alliance with Takeda, this has put us in a position to achieve mid-teen revenue growth for 2016. Sorry, 2017. Although we are not providing detailed guidance at this time, I wanted to share with you accordance to how 2017 is shaping up from a service revenue perspective. Finally I would like to take this opportunity to welcome our new colleagues from Takeda. And thank their entire staff for their continued commitment to PRA Health Sciences. We are proud of our strong financial results this quarter, we continue to deliver top quality service to our clients and are well positioned for the remainder of 2016 and beyond. I would now like to hand over the call over to Linda Baddour our Chief Financial Officer who will go through our quarterly financial results in more detail.

[Linda Baddour:]

Thank you Colin. Good morning everyone. For the third quarter of 2016, our consolidated service revenues grew 15.9% at actual foreign exchange rates and 16% on a constant currency basis. We recorded $399.8 million of service revenue for the quarter, compared to $345.1 million for the same quarter last year. Direct costs were $259.9 million in the third quarter of 2016, compared to $212.8 million in the same quarter last year. Direct costs were 65% of service revenue in third quarter of 2016, compared to 61.7% in the same quarter last year. The increase in direct costs as percentage of service revenues is due primarily to the favorable impact of reporting R&D credits that were related to prior years in the third quarter of 2015. Adjusting for the impact of these R&D credits, direct costs were 64.1% of service revenues for the third-quarter of 2016. On a constant currency basis direct costs increased $51 million year over year, as we continue to hire billable staff to support our current projects and our future growth. This increase in our cost base was offset by a favorable foreign currency effect of $3.9 million. SG&A expenses were $67.2 million or 16.8% of service revenue for the third quarter of 2016, compared to 18.3% of service revenue for the same quarter last year. The decrease in SG&A as a percentage of service revenue is primarily related to our continued efforts to effectively manage our overhead functions and we grow. Third-quarter adjusted income from operations grew 11.6% year-over-year to $68.3 million, a margin of 17.1%. Adjusted net income, which excludes certain items, this fluctuation from period-to-period does not necessarily correspond to changes in our operating results, increased 23.5% year-over-year to $41 million in the third quarter of 2016. Contributing to the adjusted net income growth where increased service revenues, lower interest expense, and a lower assessment tax rate driven by the geographic dispersion of our pretax income. Adjusted net income per diluted share grew 23.1% to $0.64 per share in the third quarter of 2016, compared to $0.52 per share in the same quarter last year. Cash provided by operations was $42.4 million for the quarter, compared to cash provided by operations of $42.2 million for the same period of 2015. Our net days sales outstanding was 23 days which was in line with our expectations. Capital expenditures were $8.1 million for the quarter, compared to $9 million during the same period of 2015. Our capital expenditures reflected our continued investment in information technology, as well as cost incurred in moving into our new clinic in the Netherlands. Our cash balance was $130.3 million at the end of the third quarter, of which $43.1 million was held by our foreign subs. Net debt outstanding defined as total debt less cash and cash equivalents at September 30, 2016 was $770.1 million, compared to 885.6 million at September 30, 2015. The overall reduction in our net debt is attributable to repayments made during the fourth quarter of 2015, and an increase in the amount of cash on hand, and the impacts of our March 2016 tender offer. Regarding the geographic concentration of our revenue, 59% of service revenues were earned in North America for the quarter. However approximately 84% of our client contracts were denominated in U.S. dollars, while 13% were in euros. At September 30, 2016, approximately 62% of our total expenses were denominated in U.S. dollars, 14% in euros, and 6% in British pounds. In comparison at September 30, 2015, approximately 83% of our client contracts were denominated in U.S. dollars, while 14% were in euros, and approximately 62% of our total expenses were denominated in U.S. dollars in 2015, 13% in euros, 7% in British pounds. Our remaining expenses were incurred in Asia Pac, Russian, or Latin American currencies. Now let’s turn to our 2016 guidance. We are raising our service revenue guidance to between $1.568 billion, and $1.573 billion, compared to our previous guidance of $1.53 billion and $1.57 billion. We’re also increasing our diluted GAAP earnings per share guidance to between $1.30 and $1.33 per share, compared to our previous guidance of $1.08 per share and $1.15 per share. We are also increasing our diluted adjusted earnings per share guidance as Colin mentioned to between $2.45 and $2.48 per share, compared to our previous guidance of $2.41 and $2.48 per share. The revised guidance incorporates our strong year to date performance, the impact of our partnership with Takeda, and movements in foreign-exchange rates. Our guidance assumes a Euro exchange rate of 1.12 and a British pound exchange rate of 1.31. All other foreign currency exchange rates are as of October 1, 2016. That concludes our prepared remarks at this time and we will be happy to take your questions. Operator you may now open the line for questions.

[Operator:]

Thank you. [Operator Instructions]. Our first question comes from the line of John Kreger from William Blair. Please go ahead. Your line is open.

[John Kreger:]

Hello, thanks very much. Colin, thanks for the early look at 2017, that’s helpful. I think in the last call you also talked about the fact that you were willing to let the cost structure to go up a bit to prepare for this relationship. Is there anything that you can add about what we should be thinking about, headcount, or just general cost structure as you bring that relationship fully on board?

[Colin Shannon:]

John, as you know, we have modeled that we’re going to see some basis points improvement over the year. However you are right, I did say that we are going to be investing partly in this relationship. And as we’re modeling it through, the reason I didn’t want to sort of signal any EPS or anything like that, is we’re building up and looking at the amount of staff we need to hire, the training programs, there’s a lot of work to be done, we’re investing in IT continuously as well and we’re having to accelerate some of our programs to meet our client needs. So there’s a lot of work that we’re still doing. Obviously we feel very good about where we’re going, but we can’t really share until we issue our formal guidance after our fourth quarter results.

[John Kreger:]

Okay thanks. My follow-up is, if you step back and think about the new business you’ve won this year, what does that tell you about client interest in more traditional hero work versus more FSB type structures?

[Colin Shannon:]

We’re seeing a nice mix. It’s actually more of a mixed model we’re seeing. Having the whole range of services gives a great position to take advantage of that. We’re already seeing very strong Q4. It’s really great to see such a booming market and we’re feeling really positive about where we are with Q4. We’re feeling very, very solid about what we’re seeing in the marketplace just now.

[Operator:]

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

[Tim Evans:]

Thank you. Thanks again for that look at 2017. I wanted to ask a similar question but a different spin. If we think about large partnerships in the CRO space going back a few years, I think the precedents would suggest that maybe there was a period of margin pressure for some of these deals, because, there was an underestimation of how long it would take the revenue to come on. Understanding that you cannot put firm numbers on it right now, how do you feel about your general visibility around the pacing of the revenue ramp versus what you intend to do on the hiring side?

[Colin Shannon:]

Everything is by project. We’re starting a project with the appropriate skilled people to meet the project need. So, as we are allocating projects, we are staffing up appropriately demand and start and take over some of these projects. Whether it is large clients or small clients, we have to start off with the right project team. We have of the staff and deliverables. And every single project, is run by the project manager and treated as an individual project. So we are not incurring huge ramp up costs, or infrastructural changes. As we look at the amount of awards that we have won, we have quite a large number of people that we need to hire to meet the growth needs. When you look at typical CRO with anywhere up to 15% attrition, and then another 15% of growth, that’s quite a number of people to add in any given year and you have to plan accordingly, have trained resources, so that we can make sure we continually deliver for our clients. If that is the challenges we face, it is a great problem to have, and we’re not seeing some of the situations that arose in the past. I think everybody’s learned from that situation and they’re conducting the new relationship so much, much better footing.

[Tim Evans:]

Okay, great. The last thing was, can you comment directionally about the strength of your bookings outside of the Takeda relationship? And I ask just because some of your peers have seen bookings quarters that haven’t been so great. I’m curious about what you’re seeing outside that particular partnership?

[Colin Shannon:]

I mentioned that the partnership, with Takeda is only constituting 6% of our net bookings. I think I said clearly. And that was all for the transfer of staff from [indiscernible] solutions division. You can see the vast majority of our bookings was not Takeda related. We’re starting to see that it will be ramping up over the next few quarters, which is great. But so far it’s been negligible, today so far.

[Operator:]

Thank you. Our next question is from line of Eric Coldwell from Robert. W. Baird. Your line is open.

[Eric Coldwell:]

Thanks very much. My real question here is with continued strong performance on the bookings, do you think any of the wins you are showing have possibly related to disruptions from a couple of your largest peers going through mergers with entities outside of the industry, or is the success you’re seeing is really just PRA getting more visibility with clients? Maybe doing a better job of cross-selling your growing businesses, maybe the RPS business. I guess what I’m trying to figure out, is your hit rate up, your pipeline up, because you’re getting more shots on goal? Or are you really seeing some clients that are saying they are going to take a wait-and-see approach with perhaps a couple of competitors are going through some disruptions at the moment?

[Colin Shannon:]

Eric, it is very hard to quantify that aspect. Obviously, we’re seeing more clients go with new RSPs. We’ve thought that that was mainly due to our skill and service offering. As we have moved into the operational ones of the CRO tiers, we have more visibility, and we are certainly being taken more seriously. It’s definitely opened more doors for us. Our headway is no doubt is probably high above that we’ve ever seen in the Company’s history. That’s obviously a credit to the staff and the defenses that we’re performing and the use of all of our tools. If that’s the cause of some of the disruption in the clients coming out, I’ll take it whatever way I can, but we’re feeling very positive about where we sitting at the moment.

[Eric Coldwell:]

If I could quickly shift gears. You continue to make really nice improvements with your leverage and your trending to levels now that I think arguably within the next year you can say would be sub optimal, a lot of capital that you could deploy perhaps over the next couple of years. What are your priorities at the moment? You have obviously not been active on the M&A front, haven’t done stock buybacks really, so what is the thought process here? How low are you going to let this leverage ratio go and do you see any priorities emerging for capital deployments that perhaps would be different than we’ve seen since the IPO?

[Colin Shannon:]

Well, the fact that nothing has happened doesn’t mean we haven’t been looking at it. We’re continually evaluating opportunities. We’re keeping our options open obviously, there’s nothing being actionable that we feel would make a big difference to us. It’s nice growing organically. And yes, we’ll continue to paying down debt, and we’re about to pay down some more imminently. So we’re obviously raising a lot of cash and our leverage ratio is dropping substantially. But it’s a nice position and it does actually allow us to have some allotted [indiscernible] if something arises. The team and the board are very ambitious. They’re willing to make a bold move if the right opportunity arises and we keep looking.

[Eric Coldwell:]

I’m going to leave it there. Really good job in the quarter. Congrats.

[Colin Shannon:]

Thank you.

[Operator:]

Our next question from the line of Donald Hooker from Keybanc. Your line is open.

[Donald Hooker:]

Great, good morning. I want to step back here at a high level, obviously Takeda has a lot of options [indiscernible] with some partners. Let me step back here, in your discussions why did they pick you guys?

[Colin Shannon:]

They basically see that. They basically reviewed it with the final three CROs. They’re looking for a cultural fit and where they saw that they could have a long-term relationship with a partner that had the same alignment to help share the success and ambition of what they were trying to do. They wanted a specific flexible model to help them achieve that, and that was the type of model we were able to offer them.

[Donald Hooker:]

Got you. And then switching gears, I’ve been following your investments in your IT. You closed next trials a couple of quarters ago or a quarter ago. Can you give us a update there, some interesting developments there?

[Colin Shannon:]

We’re looking to see how we can deploy next trials into more the streamlining, taking of data from any HER into an EDC solution. We’re starting up some investment there to make it more universal rather than the EDC that we currently have. So there’s some work getting done with that. On the predictive front, we continue to make inroads within that development. We had to change that slightly during the year. As our top priorities with some of our client work that needed to be done, and we had some resources behind that. We’re continuing this development, it’s going nicely. We’re feeling that 2017 could be a great year for us for getting some more operational efficiencies through the use of technology. We’re seeing some nice wins at the moment and we’re looking forward to when we get the position that it is all fully functional.

[Donald Hooker:]

Is it fair to think about your investments and predictive materially contributing to your booking success?

[Colin Shannon:]

Every little bit helps. Our investment in medical informatics and what we’ve been doing there has been a great factor. It’s the whole package. Directionally, it’s what clients have been looking to see. The overall direction and you’ll see the benefits, you are seeing the benefits as we are moving through the cycle.

[Operator:]

And next question is from Garen Sarafian from Citi Research. Your line is open. Please go ahead.

[Garen Sarafian:]

Good morning, Colin, Linda, and Mike. Official congratulations on the Takeda deal. On that deal, at a very high level, how are you envisioning the ramp to where they come on board? Even without a dollar amount, that’s too early to say. Over what time period are you expecting to fully take on you’re seeing now, and is it more back in waited, or how should we think about that?

[Colin Shannon:]

We’re working closely just now with all of the dedicated superiors within Takeda. We’re looking at all the projects. The synergy happens once the bulk of the work has been done by us. The quicker we can both get to that; a point is going to be obviously, the betterment of the relationship. We’re both looking at how quickly we can bring on studies, get them on track, even some of the studies we’re going to have to take over from the incumbents, because [indiscernible] end-to-end and we can start to manage the performance end-to-end and start to get the savings for Takeda that they’re looking to capture. It’s starting now, we’re working through, we’re doing a lot of the hard work with them just now. The typical start of any relationship. We’ll start to see a ramping up quite significantly really next year.

[Garen Sarafian:]

Okay. Any timeline as to how long it takes to fully take on what you’re seeing now?

[Colin Shannon:]

I think it’s just an ongoing process. One of their goals as well is to focus on new assets. And as they acquire new assets, we will be bringing them into the fold and we will continue to ramp up with that. It is an undefined story. It’s exciting to be a part of a company that has been quite bold and moving forward and sticking to their core competency and allowing us to do the clinical development program.

[Garen Sarafian:]

Fair enough. I think you alluded to my prior question but, in recent history execution there has been an issue in such large strategic deals. A two-part question, is there anything that makes this contract any different than prior deals, anything that makes it inherently different? And two, what steps can you take to mitigate the execution risk sort of learning from the sector’s mistakes in the past?

[Colin Shannon:]

I can only think of one that seems to be newsworthiness of pure execution, and that seems to be Pfizer. We have multiple large strategic partnerships that have actually been done very well, and I’m sure other CROs have as well. It’s magnitude seems to have caused a lot of noise. We feel very comfortable that we’ve not only done it in the past, but we feel very confident of where we are with the current relationship.

[Operator:]

Our next question is Jonathan Groberg from UBS. Please go ahead.

[Jonathan Groberg:]

Thanks and congratulations. I just wanted to spend a couple of minutes around backlog and policies. I think you said 6% of your net wins or bookings were due to Takeda. It’s looks like only about $30 million. I think a kind of early indication this type of deal could be 10 times that big. When do you move, what’s your policy from taking this win and moving it into backlog?

[Linda Baddour:]

This is Linda, I think one of the mistakes that our competitors did in the past is actually taking big new strategic partnership work into backlog too early. We are not going to repeat those mistakes. The work that we took in Q3 is related primarily to the strategic solutions headcount that we put in place that Colin mentioned in his remarks. We had 225 people start in October. Basically as we mentioned before, we usually take about a year’s worth of revenue for that into backlog. As we start bidding on projects and have a proposal together and a clear plan to start projects with Takeda, we will be taking those in just as we do with any other projects for full service and our product registrations business unit. That’s exactly how we’re going to do it.

[Jonathan Groberg:]

That’s helpful. This is a bit of a follow-up. Yesterday one of your competitors made big noise about how they want the whole industry to move toward backlog policy that only looks at contractually signed deals that are in place. If you moved in that direction, would that have a significant impact on how you guys book?

[Colin Shannon:]

We’re very prudent in the way we actually record our new business anyway. What we don’t want to do something that is very misleading. When you’re in tune with a business and know and understand the client mix, you’ll know when it’s appropriate to put it into backlog because a lot of times you are under staff up agreements, are waiting to sign a contract, you’ve got a full team on it and it would be silly to take on with a contracted amount which is a staffed up period. Depending on the client, that may be appropriate but in the majority of cases it is a timing issue. We need an assessment of the intent, of quickly getting to contract, and whether it’s valuable operating under the startup agreement while we’re negotiating the final contract. We have never seen a situation where we failed to get to a final contract. Being in the industry for 20 years I have never come across that situation. I think the way we do it is very prudent. And it gives good meaning and color for the analysts to gauge on what’s really happening in our business and the growth level that is expected to see from our new business awards.

[Jonathan Groberg:]

The thing that stands out to me in terms of trends recently in the industry is your cancellation rate actually was down, it was low relative to others. Do you attribute that to your policy? Do you attribute that to be lucky in terms of the therapeutic areas you’re involved in?

[Colin Shannon:]

We’ve had cancellations, we’ve done studies that don’t work. These things happen. We try to manage that carefully to ensure that any impact is recognized so that we don’t forecast any revenue from it when staffing looks risky and we do things appropriately. Cancellations is a part of doing the business. The whole idea of the portfolio studies is to mitigate that risk. I would say that we have had ours, but maybe the way we have been taking cancellations is appropriate. We’re seeing some of our cleanup of backlogs; we would push that through to cancellations. That is a great material fix. We don’t take things into backlog if we know eventually if it does not work out it’s going to be a cancellation.

[Linda Baddour:]

I think that’s why you haven’t seen us report it historically, the 1.8 and the 1.7 book-to-bills because if you were consistently reporting as some of our competitors have, those type of book-to-bills, you’d expect to see the revenue growth start to move toward that number.

[Jonathan Groberg:]

That’s very helpful. The daily sales outstanding are the highest they have been in the last few years. You said it was in line with expectations. I want to make sure I understand if there’s anything to call out there?

[Linda Baddour:]

We have been modeling an increase in DSO for every year. But typically Q4 is our best selection quarter, it has been for years. We’ll probably see that come down. As we move through the maturity of our backlog and we have additional work of Pharma we will see increase in DSO, and we model that in all of our projections.

[Operator:]

Our next question is from the line of David Windley from Jefferies. Your line is open.

[David Windley:]

Hello good morning. Thank you for taking my questions. Colin, I wanted to try to frame a margin question. As you look at the slide that you have in your deck on your adjusted margin progression last year 2015 was a steep incline, that’s leveled off in 2016. I think that as expected and understandably. I can think of three reasons, one you have some low hanging fruit coming out of the IPOs that you were attacking in 2015. Two, you don’t have quite as much FX volatility in 2016. And three, I think you have been hiring ahead of the curve in 2016. The last point I was hoping perhaps you could frame either the Delta in your utilization rates as you’ve kind of caught up and gotten ahead of the curve on hiring, or how many people do you have available, maybe not working, ready to start work on Takeda. Just trying to understand what some of the slack might be in the workforce because of your hiring activities and how that feeds into your preparedness for Takeda?

[Colin Shannon:]

Hello Dave. All sort of very appropriate points you’ve made. The most significant factor though had been the hiring, not only just the hiring, but also running the training programs and carrying cost while people are getting trained. I don’t want to be specific about numbers but we do have a substantial binge of trained employees to utilize. We probably don’t have enough to bring into Q1. So we’ll be actively hiring for the next few months as well to meet the needs and demands of our new business awards. And also to win new awards. We’re seeing no let up in the rate of hiring and investing in our training programs. But we’re seeing other opportunities where we can watch our cost a little bit better. As we’ve been building our infrastructure, we’ve carved a lot more SG&A than we typically do. Even our direct costs are up, excess travel and things like that. We will keep a closer eye on. I’m not going to be draconian on it, but we’re seeing quite a bit of room there and there’s a few other areas where we’re seeing the expansion has been growing. Which allows some creep in our cost, which we’ll start to shave off over the next couple of quarters.

[David Windley:]

Excellent. Thank you. I joined late so I apologize on some of this. I think you have quantified $30 million related to Takeda in the quarter. You had also talked in general terms about studies in the existing vendors that would be identified one by one, or excuse me, evaluated one by one, to identify which ones made sense to move. How long, it sounds like you’re expecting that some of that activity might really ramp up in the first part of 2017. Is that right? And how long does this process and evaluation take? Could it continue to feed studies into PRA’s backlog well into the middle of next year?

[Linda Baddour:]

Dave, I think we will see it build into our backlog in the middle of next year. We have not had any studies taken into backlog to date that are transitions from other clients. We’re still evaluating that. And also we’re bidding on new work. So as Colin mentioned, there’s quite a bit of cash available that they’re going to be acquiring assets. So all of that is going to be work that will be evaluated over the next few quarters.

[David Windley:]

Okay. My last question is getting back to the competitor’s attempt at quote unquote leadership around presentation of backlog and talking about contracted coverage 4-12 months. My memory was that was a number we talked about around the IPO but I don’t think you necessarily provided your 4 to12 month coverage on an ongoing basis. My memory is that it was 8% to 10% higher than what the competitor talked about yesterday. I wanted to ask if you might share what you’re either specifically or in general where you like to target your 4 to12 month coverage?

[Linda Baddour:]

Typically when we are giving our guidance into the next year, so when we do that around February, we’d want to be higher than 80%.

[Operator:]

Our next question comes from Greg Bolan from Avondale Partners. Your line is open.

[Greg Bolan:]

So, just looking at the updated 2016 guidance, it would look like the implied revenue for the fourth quarter I guess would actually imply a step down and backlog burn from the third quarter from around 15.1 down to around 14.5, 14.6 and so that would leave you around 60% annual burns for 2016. Thinking about the mid teens revenue growth that you guys were talking about for next year, obviously there’s assumptions around what backlog will grow at but it does imply that backlog burn will step up? If you could do a sanity check for me. If I am correct, the confidence that the burn will pick up in 2017?

[Linda Baddour:]

Typically Greg, we have quite a bit of CBO holiday in the fourth quarter so you’ll see our fourth quarter revenue will be a bit down. But we are actually of course predicting growth. We’ve done quite a bit of analysis on 2017. We see our backlog conversion rate back to the 15.5 and 15.6 range. So we are very pleased. And that’s what we were very comfortable in signaling this growth in 2017.

[Greg Bolan:]

Great. Colin, you mentioned win rate being the highest on record. What are the providers, what type of providers are you seeing win rate really excel in RSC bake offs? Is it the other tier one CROs, is it the smaller niche, where do you believe you are taking share mostly from, in terms of the type of peers that you’re typically competing against?

[Colin Shannon:]

Greg, I can only point out that we mentioned that 70% of our new business came from big pharma and 30% from biotech. We never really know all of our competitors in any given situation. The clients tend to keep that very confidential, one case may bump into them and it tells you, it all stays in place. Other than that, we never really know who we’re up against all of the time. Other than just serendipitously, I can’t give you a definite answer on that one. Only by looking at whose going after that type of business. And obviously, our win rate has been very high and we feel very positive, but I really don’t know who we’re taking share from. We watch with interest the results every quarter, and we’ve seen a very strong market and very, very good RSP volume. We’ve actually experienced a very solid quarter to date. So we’re feeling very good.

[Operator:]

[Operator Instructions] Our next question is from Erin Wilson from Credit Suisse. Please go ahead.

[Marc Wallagen:]

High this is Marc Wallagen for Erin. On the bookings in RP, appreciate the color you gave there, but specifically on the cancellation, I guess more broadly in the market, what’s the nature of some of the cancellations and project reworkings that you’re seeing? Does it seem to be more clients or CROs specific, is it just general increased complexly? Or is there something else you would call out there?

[Colin Shannon:]

I think it’s typically it a drug’s not working that the program will be stopped. Every project is at risk that whether from a safety reason or efficacy that they may actually stop doing work, it’s part of the risk of running a clinical trial. We make sure that we obviously monitor that closely. We look at any situation, and project any cancellations so that we forecast that into our forward looking numbers.

[Marc Wallagen:]

Okay. Thanks. On therapeutic areas, are you seeing particular frames in booking from any therapeutic area in particular area in particular different than broader trends than any different air between the large pharma and the biotech lines that you are seeing?

[Colin Shannon:]

Not really. It is typically the larger therapeutic areas which are pretty much standard. We occasionally get small studies that may be in the unique therapeutic area and we get a lot of work in rare diseases, which is just an animal as well. We’re actually being well renowned for doing work with some of our clients in rare diseases, which we actually enjoy very much. So lots of factors there, but there’s nothing major that comes across that’s different from the typical view of what’s happening from the general pipeline analysis.

[Operator:]

Thank you. At this time, I’m showing no further questions. I would turn the call back over to Colin Shannon for closing remarks.

[Colin Shannon:]

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

[Operator:]

Thank you again for participating in today’s conference. This does conclude today’s program. And you may all disconnect. Have a great rest of the day.