PRA Health Sciences, Inc.
Q4 2016 Earnings Call Transcript

Published: 23 Feb 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to the PRA Health Sciences, Inc. Fourth Quarter 2016 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 to you at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host for today Mike Bonello, Senior Vice President and Corporate Controller, you may begin.

[Michael Bonello:]

Thank you, Shania. Good morning and thank you for joining us for the PRA Health Sciences fourth quarter 2016 earnings teleconference. Today Colin Shannon, Chief Executive Officer; and Linda Baddour, Chief Financial Officer, will discuss our fourth quarter and full year 2016 financial results and provide our 2017 guidance. 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 the most comparable GAAP measure calculated and presented in accordance with GAAP are available in the 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, everyone. I’d like to thank you all for joining the PRA Health Sciences conference call covering our fourth quarter and full year 2016 financial results. I’m delighted to report that fourth quarter of 2016 was one of further progress for PRA across a whole host of financial and operating metrics. In our two-plus years since our IPO we have made significant investments and positioned the company to be able to take on clients with any size and provide a wide variety of services. We have laid the foundation for long-term sustainable growth. With the fourth quarter of 2016, we have delivered another quarter with year-over-year double-digit growth for revenues, earnings and net new business. Service revenues for the quarter were approximately $414 million, which represents an increase of approximately 14% year-over-year at actual foreign exchange rates and approximately 15% on a constant currency basis. Adjusted net income for the fourth quarter was approximately $46 million, an increase of 22% over the same period last year. Adjusted net income per diluted share was $0.71, a 20% increase versus the fourth quarter of 2015. New business continued to be robust in the fourth quarter and increased 28% when compared to the fourth quarter of 2015. We recorded $587 million of net new business awards representing a book-to-bill of 1.4 times of service revenue. For the year-ended December 31, 2016, we booked approximately $2.1 billion of net new business awards resulting in a full-year net book-to-bill of 1.31 times service revenue. The concentration of our net new business awards also continues to be well diversified with approximately 60% of our new awards coming from the pharmaceutical sector and approximately 40% coming from biotech. Backlog increased approximately 6% on a sequential basis and approximately 20% year-over-year to finish at approximately $2.9 billion. Just a reminder, PRA adds new clinical business to backlog after we received written or electronic confirmation of an award. For strategic solutions, our backlog included only revenue we expect to realize over the next 12 months. Our continued strength in net new business is a reflection of a broadened flexible service offerings as well as our differentiation. As you recall, we previously announced a transformative partnership with Takeda in which PRA will manage an entire pipeline of studies across Phases I-IV, as well as provide operational services. We view that Takeda relationship is a great example of where PRA can be integrated partner in research and development. Although it is still early in the partnership and although we have not added meaningful revenue or backlog, we have added staff in some areas as we prepare to take on additional business. We are delighted with the progress of our Takeda relationship. However, it is only one success story for 2016 and while new business from Takeda started to pick-up, it’s still only represented approximately 10% of our gross new business for Q4 2016. We had previously indicated that with so many studies in start-up, we were hiring aggressively and maintaining a much bigger bench than usual. We were fortunate to secure another major new client relationship at the beginning of 2017 and although this client did not contribute to our NBA in Q4, they will be one of our top NBA producers for 2017. Q1 2017 is going to be another strong quarter for NBA and as such we had to continue our aggressive hiring on building substantial bench strength to meet the needs from not only our current book of business, but for our future new awards. We have provided additional guidance for Q1 2017 reflecting additional staffing required to meet these needs. Our full year 2016 financial results continued a trend of consistent performance and strong growth. We reported solid revenue growth and improved our overall operating margins. We delivered full year service revenues of approximately $1.6 billion, representing actual growth of approximately 15% over 2015 and 15% on a constant currency basis. Our client base continues to be well-diversified with our top five clients representing approximately 45% of total revenue for 2016 with our largest client contributing approximately 11% of total revenue for the year. I’d like to point out that this client is not the same client that represented 11% of 2015 revenues. We have healthy growth among all of our top five clients. The size of our customer from slow development stage biotech to large biopharma remains diversified and clinical trial activity among our biotech customers was steady. As a result of our solid 2016 performance, we are anticipating our 2017 diluted adjusted earnings per share between $3.08 and $3.18 per share. Linda will provide additional details of our 2017 guidance later. Finally, I would like to take this opportunity to thank our entire staff for their hard work and continued commitment to PRA Health Sciences. We are delighted with our strong financial results this quarter, we continue to deliver top quality services to our clients and we are well positioned for strong growth in 2017. I would now like to hand over the call 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 fourth quarter of 2016, our consolidated service revenues grew 14.2% at actual foreign exchange rates and 14.6% on a constant currency basis. We reported $413.6 million of service revenue for the quarter, compared to $362.3 million for the same quarter last year. During 2016, we made a move to a paid time-off policy that virtually eliminates any carryover of vacation time over year-end. While this change in 2016 brought our policy move in line with our peers, it did, however, affect our billable hours for Q4 as employees utilized their bank of vacation instead of losing it. Now that we have made this policy change, we do not expect any further financial impact. As Colin mentioned earlier, our client concentration continues to be well diversified. We derived, 52% of our service revenue from large pharmaceutical companies, 14% from small- to mid-size pharmaceutical companies, 19% from large biotechnology companies, and 15% from all other biotechnology companies. Direct costs were $274.4 million in the fourth quarter of 2016, compared to $234.9 million in the same quarter last year. Direct costs were 66.3% of service revenue in the fourth quarter of 2016, compared to 64.8% in the same quarter last year. The increase in direct costs as a percentage of service revenue is due to our continued hiring of billable staff to support our current projects and to ensure we have appropriate staffing levels for our future growth. On a constant currency basis, direct costs increased by $44.5 million year-over-year. This increase in our cost base was offset by a favorable foreign currency effect of $5 million. SG&A expenses were $70.2 million or 17% of service revenue for the fourth quarter of 2016, compared to 17.6% 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 as we grow. During the fourth quarter of 2016, we also incurred $13 million of transaction related costs. These costs consisted of $12.7 million of non-recurring stock-based compensation expense related to the release of transfer restriction on certain vested options, the vesting of certain performance-based options in connection with our November secondary offering. Fourth quarter adjusted income from operations grew approximately 9% year-over-year to $67.8 million, a margin of 16.4%. Adjusted net income, which excludes certain items, who’s fluctuation from period-to-period does not necessarily correspond to changes in our operating results, increased 22.3% year-over-year to $45.9 million in the fourth quarter of 2016. Contributing to the adjusted net income growth were increased service revenues, lower interest expense, and a lower effective tax rate driven by the geographic dispersion of our pretax income. Adjusted net income per diluted share grew 20.3% to $0.71 per share in the fourth quarter of 2016, compared to $0.59 per share in the same quarter last year. For the 12 months ended December 31, 2016, our consolidated service revenues grew 14.8% at actual foreign exchange rate and 15.2% on a constant currency basis. We finished the year with approximately $1.6 billion of service revenues compared to $1.4 billion in the comparable prior year. Cash provided by operations was $93.3 million for the three months ended December 31, 2016, compared to cash provided by operations of $81.1 million for the same period in 2015. For the 12 months ended December 31, 2016, cash provided by operations was $160 million, compared to cash provided by operations of $152.4 million for the same period in 2015. The increase in operating cash flow was a result of operational performance improvement and a reduction in interest payments partial offset by an increase in working capital primarily driven by slight increase in our days sales outstanding. Our net days sales outstanding was 19 days at December 31, 2016. Capital expenditures were $7.5 million for the quarter compared to $6.8 million during the same period of 2015. Capital expenditures were $33.1 million for the 12 months ended December 31, 2016, compared to $32.8 million for the previous year. Our capital expenditures reflect our continued investment in information technology. Our cash balance was $144.6 million at the end of the quarter, of which $54.3 million was held by our foreign subs. Net debt outstanding defined as total debt less cash and cash equivalents at December 31, 2016 was $691.8 million, compared to $792.9 million at December 31, 2015. The overall reduction in our net debt is attributable to repayments made during the fourth quarter of 2016, an increase in the amount of cash on hand, and the impacts of our March 2016 tender offer. During the fourth quarter, we refinanced our 2013 credit facility to obtain a lower interest rate. We entered into a new credit agreement with a syndicate of banks for an aggregate principal amount of $625 million of first lien term loan and $125 million revolving line of credit. The new credit facility has no LIBOR floor and the applicable LIBOR rate is based on our ratio of total debt to EBITDA. As a result of the refinancing, we expect to save approximately $9 million of interest expense depending on the interest rate environment. Regarding the geographic concentration of revenue, 59% of our service revenues were earned in North America for the quarter. At December 31, 2016, approximately 84% of our client contracts were denominated in U.S. dollars, while 62% of our total expenses were denominated in U.S. dollars, which is consistent with 2015 levels. Our euro exposure continues to be naturally hedged. Now let’s turn to our guidance for 2017. We are currently estimating service revenues $1.80 billion and $1.84 billion, representing constant currency growth of 14% to 16%. As Colin mentioned, our strong book-to-bill during the last half of 2016 has set us up nicely to deliver mid-teen revenue growth. I know all of you follow our backlog conversion rate and it has dipped below our typical range of 15% during Q4 2016 due to the large number of contracts that are in the early stages of start-up. As these studies ramp during the first half of 2017, we anticipate our backlog conversion rate to increase back to historical levels. Our backlog coverage for 2017 is consistent with levels at this same time last year. We are anticipating diluted adjusted earnings per share between $3.08 and $3.18 per share and diluted GAAP earnings per share between $2.46 and $2.56 per share. Finally, we anticipate our annual effective income tax rate will be approximately 27% for 2017, which incorporates various corporate tax initiatives that we’ve been implementing over the last couple of years. Regarding Q1 2017 guidance, we are estimating service revenues between $415 million and $425 million, representing constant currency growth of 11% to 14%. We are anticipating diluted adjusted earnings per share between $0.57 and $0.62 per share and diluted GAAP earnings per share between $0.41 and $0.46 per share. Similar to our first full year guidance, we are anticipating our annual effective income tax rate will be approximately 27%. For 2017, I’m including Q1 guidance to ensure that expectations around sequential quarter earnings are in line with our expectations. This guidance includes the impact of additional staffing required to meet our current work load and maintain a bench. In addition and consistent with prior years, our first quarter results are negatively impacted by additional expenses such as payroll taxes and employee benefits and expenses incurred related to our internal organizational meetings. Our guidance assumes a euro exchange rate of $1.11 and British pound exchange rate of $1.35, all other foreign currency exchange rates are as of January 31, 2017. Our process for determining exchange rates is consistent with prior years where we use a number of bank resources to evaluate expected rate movements for the next 12 months. That concludes our prepared remarks. And at this time, we’d be happy to take your questions. Operator, you may now open the line for questions. Thank you. [Operator Instructions] And our first question comes from Dave Windley of Jefferies. Your line is now open.

[Dave Windley:]

Hi, good morning. Thanks for taking my questions. I wanted Colin to focus on your partnership commentary first on Takeda where you said gross bookings are – there’s still not a lot of contribution to gross bookings. When are you expecting that to start to ramp? And then second part of that question would be, with this second partnership that you mentioned and expect that to be a meaningful contributor to bookings in 2017 kind of when does the timing of that hit and then how is your cadence of hiring relative to that to support both of those clients ramping up over the course of 2017?

[Colin Shannon:]

Okay. On the Takeda side, I’m obviously in the future going to be limiting my comments about any particular client, but obviously since it’s been already discussed, I will cover again this quarter. We feel that we – actually starting into a nice runway of getting work from Takeda, we are working closely with them and we are getting new awards on a regular basis now. I think the point I was really trying to make is that with very, very strong awards in Q4 and it was consisted of a large majority of very different client mix and was not all because of a new relationship and I always make sure that was highlighted, but we are seeing a nice stream of good awards and would continue obviously developing the partnership. You obviously saw in our press that we just did the framework for our JV in Japan. So everything is going very nicely with that relationship and we are expecting to see awards coming through every quarter throughout the year. On the second new award that was from another new client and obviously it’s going to remain anonymous, but it was a significant portion of our therapeutic area and the awards will be starting in Q1. And the way that we are actually having to win awards these days is you have got to hire and hold, have a team ready to do a study and – so all of the staff required to meet our needs is actually higher. And the hiring for future needs is for new business awards, so we are actually sitting there with a very substantial bench. We expected to see some of that bench being put to work this quarter because as we planned ahead. But with this new award just at very, very start of the year, it’s actually meant that we’ve had to continue steam ahead with hiring and meeting our growth expectations, but to answer your question about 2017, we are seeing strong awards right from Q1 with this new relationship, but we are obviously very excited about the new awards. And the theme for both of them was the fact about our innovative approach, they were looking for doing something different and as two brand new clients that we haven’t worked with.

[Dave Windley:]

Excellent. I appreciate that. If I could just follow-up with one. The comment that was made in the prepared remarks about – Linda made about conversion rate dropping below 15% and studies in start-up is certainly something that we have heard from other players in somewhat different context. Could you talk about your confidence and visibility to those studies that will move from start-up into more fulsome revenue production in the not too distant future so that we can have the comfort that that’s going – that studies essentially aren’t stuck in start-up as we’ve seen in the past?

[Colin Shannon:]

Yeah, so as for your look at – we set out all of our analysis, just to give you some idea of how substantial the impact is, our new awards have been very significantly overforecast. So as you can imagine, there was a lot that are heading into the start-up phase. And when we compare to the same time last year, our studies that are going through – revenue generated from them from the start-up phase is actually over 15% higher than the same time last year that are coming through start-up. So that gives you the impact of why we are seeing it. And, of course, we see a level setting as the ramp up throughout the next couple of quarters.

[Dave Windley:]

Okay.

[Colin Shannon:]

So, we have to forecast very differently. We obviously are putting the labor on and it’s not going to stuck in start up, it’s a case of as we ramp through the phases and they are all coming onboard at different stages and we are starting to see it coming back to normality towards the latter part of Q2, Q3.

[Dave Windley:]

Great. Thank you for that. Thanks for the interest and congratulations.

[Colin Shannon:]

Thank you.

[Operator:]

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

[Tim Evans:]

Hi, Linda, if I back into kind of the implied EBITDA margin in Q1 and then I kind of ramp that up through 2017 in a way that allows you to get to your EPS guidance, it’s a pretty substantial EBITDA margin ramp and you would be exciting the year, by my math, at, I guess, record level EBITDA margins. I guess, first of all, I’d like to confirm my kind of doing that math correctly? And then, secondly, is that margin that is basically assumed in that ramp to exit the year sustainable post-2017? Thanks.

[Linda Baddour:]

Thanks for your questions. As we look at 2017, what we saw was that if you look at the adjusted EBITDA margins in total for the year comparing it to the total for 2016, it basically is just a slight increase, so it wasn’t dramatic and maybe that’s something that we can talk you through later. But the – certainly for Q4 of 2016 and Q1 of 2017, we see a dip because they are carrying so many additional heads. But as we move into depending on what happens with our book-to-bill, as we continue to utilize those staffs and put them on projects and they become billable, we are going to see the improvement in margins.

[Tim Evans:]

I guess another way of asking the similar question, I mean, I’m trying to get a little bit about kind of how we should think about moving beyond 2017? And should we be taking the full-year 2017 margin as kind of the starting point or should we be taking the Q4 2017 margin as sort of the starting point as we think about margins beyond 2017?

[Linda Baddour:]

I think it’s better to take the full for 2016 and the full for 2017 and model out for 2018. It will be just marginal improvement every year which is what we talked about when we had our IPO.

[Colin Shannon:]

And we’ve mentioned as well that our IT investments really we start to see them picking up and transforming towards the end of this year, so we are starting to look at market expansion towards the end of the year from efficiencies obtained and housed through our technology investments.

[Tim Evans:]

Alright, thank you for the comments.

[Linda Baddour:]

Thank you.

[Operator:]

Thank you. And our next question comes from Eric Coldwell of Baird. Your line is now open.

[Eric Coldwell:]

Thank you very much. Couple of quick ones on follow-up and then I might even stretch and go three here. First off, on the fourth quarter bookings if I heard you correctly, 10% of your gross awards were Takeda. That would imply that your book-to-bill with all other clients was around or above 1.25. Is that accurate?

[Colin Shannon:]

Yes.

[Eric Coldwell:]

Yes. And then on Linda you had mentioned something about changing your paid time-off policy and it had a financial impact in the fourth quarter. I was hoping, I think I missed a little bit of that discussion. Could you just tell me what the impact was in the fourth quarter specifically?

[Linda Baddour:]

We actually - I’m not going to quantify but basically what happened as employees reached the end of the year with an announcement that we made earlier in the year of 2016, they either had to use their PTO or they were going to lose it. And so during the fourth quarter of 2016, we saw more employees taking pay time off instead of running billable hours, so it affected our revenue a bit, our revenue growth during that quarter.

[Eric Coldwell:]

Okay. So that was a transitory item that won’t repeat into 2017.

[Colin Shannon:]

[indiscernible].

[Linda Baddour:]

Exactly.

[Eric Coldwell:]

It could actually [indiscernible] your performance in 4Q a little bit, is that fair?

[Linda Baddour:]

That’s correct.

[Eric Coldwell:]

Okay. And then I guess my last one for the moment is, obviously, adding 600 people last quarter, growing headcount very substantially over the last year and into 2017, tell us a little bit about the current hiring environment, what the marketplace is, wages, salaries, benefits, recruiting costs, things of that sort. Are you getting any opportunities from the two megamergers that have occurred or any disruptions from those companies? Or are you finding people from other sources? Just talk a little bit about how hard it's going to be to fill in these ranks during the next 12 months. Thanks so much.

[Colin Shannon:]

Firstly, a lot of the awards that we've actually got were hired ahead for. We can't wait until the last minute to hire staff and so we to meet the client needs, we’ve actually been hiring. And we have found actually that it's quite a healthy environment. We have been getting good looks at a lot of toll which maybe is because of the alert. [indiscernible] mentioned is causing people to step regarding a lot of talent to look at which is actually been very, very favorable. The actual salaries we've noticed any significant inflationary tendencies in any of the job families, so we are very pleased with that. And so were continued obviously to push our head on our hiding fund to meet our future needs as well. Looking forward, we are seeing a good floor and pipeline of staff, and are applying for positions. So we feel pretty confident about meeting the needs of our newer facilities. So we’re feeling actually pretty strong about where we are sitting from a resourcing point of view. We’d now like to see this converted into [indiscernible]. I mean it’s an unusual circumstances where we got so many pieces of work and stuff out that’s actually causing us play a lot of debt and hoping a huge bench in anticipation of the ramp up.

[Eric Coldwell:]

Thanks, Colin. Would it be possible to get maybe a little bit of a projection on where 2017 headcount ends even if it's a ballpark figure?

[Colin Shannon:]

We’ve still got other things that we are working through. We’re actually still in the framework of doing a JV in Japan which is going to be at least a couple of hundred people but then as we flesh that out and take one more, there is many moving parts here. Maybe we can get through something definitely what gives and we can discuss, so you can actually put in context some of our assumptions.

[Eric Coldwell:]

Sounds great. Congrats on a good finish to the year and the really strong bookings. I’ll cede the floor here to others. Thanks so much.

[Colin Shannon:]

Thank you.

[Linda Baddour:]

Thank you.

[Operator:]

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

[John Kreger:]

Hi, thanks very much. Colin or Linda, with it sounds like to new relationships ramping can you maybe just talk a little bit about how your concentration statistics in terms of percent of revenue might vary? I don't think you gave it earlier. Could you maybe give us the percent of revenue that your top five clients accounted for in the fourth quarter? And do you expect that to change much as we think about maybe 12 months from now?

[Colin Shannon:]

That mentioned at the top five is 45%. So I think that and these top five have been varying John. So we’ve got quite a decent number that’s hovering around the isolation depending on the books of business. It varies from time to time. I don’t see anything substantially differing from that. It’s not like we’re going to be heavily loaded in any of our new relationships which is why I don’t really want to start highlighting any specific client in future because I spend with the mix of many of our other clients. And we’ve got the service and support all of our clients in the same manner.

[John Kreger:]

Great, thanks Colin. That's helpful. I noticed on your slides it looked like your cancellations spiked a bit in the fourth quarter. Was that just one maybe large award that went away or large project that went away or was it a broader trend that seem to change?

[Colin Shannon:]

No, there was one we’ve cancelled. What we like to do with cancellations, we try not to make a big deal. It’s obviously our job is sell the divide cancellations makes and make sure that it doesn’t cause any impact. We already some of the events to high risk if I followed them went into high risk backlog. So we were not forecasting revenue from it, so it’s not really impacted our forecasts. And we tend to be prudent about our backlog and big cancellation is probably a little bit quicker than others.

[John Kreger:]

Okay, great. Thanks. And maybe just one more, Linda, thanks for pointing out the currency rates that you’re using in guidance, that’s helpful. I’m just curious if you’ve done the numbers, if you would use a Euro rate maybe more like 106 and a pound rate around 125, in other words wherever they are now. What was the impact on your full 2017 guidance? I’m guessing it would bump revenue down a bit but maybe push earnings up a bit. If you could give us a sense of that, that would be helpful.

[Linda Baddour:]

Yes, that’s exactly correct and it would bump revenue down a bit and it would increase our earnings per share range. So I’m not going to give you the exact numbers but you’re correct on your assumption.

[John Kreger:]

Great. Okay, thank you.

[Operator:]

Thank you. And our next question comes from Garen Sarafian of Citi Research. Your line is now open.

[Garen Sarafian:]

Good morning, Colin and Linda. First more of a clarification question, on the new award I thought you mentioned something in the prepared remarks and I think also on Q&A, but how did you qualitatively size it for the year as to how significant of an award it was?

[Colin Shannon:]

Well, we have actually been working with the client and all of their studies and so we’ve been preparing to close those for a number of months. Although we got the award just the very beginning of January, we have been working extensively during Q4 and preparing a lot of their pipeline and identifying the studies and working through cost savings. And so we have an exceedingly busy Q4 with a lot of work and involved a significant amount of our senior staff been involved in the degradation of all of the defense, and meetings that we had with this client. So it’s again another significant amount and the whole company been involved in this relationship with many meetings and almost all of our senior staff had that is one point some involvement including with meeting. So it’s an ongoing process, so we have a very good look at what was happening over the next certainly next few quarters.

[Garen Sarafian:]

Got it. So it significant in the offered [ph] and the heavy lifting. Not necessarily your comments are necessarily directly relate to what it could be to results in 2017?

[Colin Shannon:]

I’m sorry, is there a question there?

[Garen Sarafian:]

So basically you did not quantify as to the level of impact it could have to financials in any way in terms of revenue.

[Colin Shannon:]

I didn’t – is there a question I just said it could be, one of our top producers for NBA for 2017, that’s not one to five that have got certainly…

[Garen Sarafian:]

Got it, no, that's great. And then and you mentioned IT investments in the prepared comments and also in the Q&A where it should begin to benefit margins, I think it was in the back half of the year. So could you elaborate a bit on where these investments are going? Is it more to lower costs in more of an infrastructure type of a spend as you grow? Or is this more of a client facing type of an investment that you are referring to that could accelerate various outputs of project [ph]?

[Colin Shannon:]

It’s a little bit of both because as you know we have launched a predictive platform and all of the components, and we have to redirect our IT resources last year to meet, exceed immediately of new clients where we had to get a lot of transparency. So we will amend a lot of tools and visuals that we are purchasing for our clients, but we are back on track to get and develop a predictive platform to where it needs to be. And we are making a lot of progress but we’ll start to see the impact of that later on in the year. Initially it’s going to have significant improvement and efficiencies within the organization but it won’t be shared with a lot of clients and will help with their study progress and get them a lot more transparency. So a lot of these ideas have obviously been shared with some of our new clients and we’ll be obviously giving a lot of pilots to some of these key clients. And some of them are already getting them already, so thanks.

[Garen Sarafian:]

Okay, good. Thank you.

[Operator:]

Thank you. And our next question comes from Sandy Draper of SunTrust Robinson Humphrey. Your line is now open.

[Sandy Draper:]

Thanks very much and congratulations on the strong finish to the year. A lot of my questions have been asked and answered, but maybe Colin when you think about to me it's pretty clear that you guys and one other company are really appear to be market share gainers. You made a comment early on, I think it was to Dave's question, when you talked about the innovation you have. I just wanted to see if you would be willing to give a little bit more detail on what is it that you think is causing you guys to win an outsized amount of the business? And is it really everything, is it what you are doing or have you seen any impact on some of the disturbances out in the market with two major players, one that has already been bought, one that may be up for sale, is that a contributing factor of people looking for stability or is it really that innovation? And examples of that innovation would be really helpful, thanks.

[Colin Shannon:]

It’s really very difficult for us to quantify. We asked the client the best ways to represent why we were chosen. A lot of it is down to our people, cultural march and innovation, and innovation thought process, our whole approach to the studies and we’re finding that as our clients are thinking about doing things definitely and they’re looking for change, and sling is a change agent, and that’s why we are pleased because we want to be seen that way, we want to be seen that they, we want to be solution and something that we’re working on to do. So I’m sure that all of the factors you mentioned are contributing costs but you still got to get through your lengthy processes and there is high competition out there. So it’s not something that we take lightly and in every single case we got to look what the client needs, what their expectations are and how best we can fill them and make sure that they – we demonstrate that from the top of the organization [indiscernible] we do have a process that would definitely think amatively and do things better and definitely.

[Sandy Draper:]

Great, I appreciate the commentary and again congrats on the strong year.

[Colin Shannon:]

Thank you so much.

[Operator:]

Thank you. [Operator Instructions] And our next question comes from Erin Wright of Credit Suisse. Your line is now open.

[Erin Wright:]

Great, thanks for taking my questions. Takeda has been active on the acquisition front. How does that roll into your business and how quickly or how much of that business do you think can transfer over? Does this offer potential upside to your 2017 guidance? Thanks.

[Colin Shannon:]

No, it was a factor that when we were having discussions with Takeda, when [indiscernible] that was going to be very active, it was part of their transformation and we wanted that would help them and take over and manage their clinical development. So they focus on looking assets unless worry about how the – together to help do the development. So we anticipate them to continue as this acquisition that certainly would have been doing today and we see that continuing, and share with us just before the announcements and we work together about how is the plan, how best to work through the development. So, yes, we are very pleased about the progress and every single one of that acquisition gives us new opportunities.

[Erin Wright:]

Okay, great. And then just broadly speaking on the Takeda deal, how is it progressing relative to your internal expectations when you first established the relationship and what has surprised you thus far? Thanks.

[Colin Shannon:]

As I mentioned in the prepared remarks, it is going very, very well and meeting exactly the progress that we expected. We are working together very collaboratively. We do have a lot of management and spending a lot of time working with the teams and Takeda. So it’s involving a lot of senior people. We are working through as we are standing up a lot of this [indiscernible], lot of new studies are beginning and we’ve been corporate a significant number of the staff to our workforce and even that is going very, very well and the staff are actually really enjoying being part of PRA and that’s also very delightful thing to happen because it’s giving good feedback to Takeda that may have very good choice in the partner.

[Erin Wright:]

Excellent. Thank you.

[Colin Shannon:]

Thanks, Erin.

[Operator:]

Thank you. [Operator Instructions] And this does conclude our question-and-answer session. I would now like to turn the call back over to Colin Shannon for any further 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:]

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