PRA Health Sciences, Inc.
Q2 2015 Earnings Call Transcript

Published: 28 Jul 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to the PRA Health Sciences Second Quarter Earnings Release 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 follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the call over to your host, Mike Bonello, Senior Vice President and Corporate Controller. Please go ahead.

[Mike Bonello:]

Good morning and thank you for joining us for PRA's second quarter 2015 earnings teleconference. Today, Colin Shannon, PRA's Chief Executive Officer, and Linda Baddour, PRA's Chief Financial Officer, will be presenting our second quarter financial results as well as providing an update to our 2015 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 Web-site 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 the Company's business, which are discussed in the Risk Factors section of our annual report on Form 10-K filed with the SEC on March 3, 2015. Such 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 of the 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 conference call presentation on the Investor Relations portion of our Web-site. 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 the second quarter of 2015. I'm delighted to report the second quarter 2015 was one of further progress for PRA across a whole host of financial and operating metrics. Service revenues for the quarter were $336.5 million, which represents an increase of approximately 8% year-over-year or 12% on a constant currency basis. Our adjusted net income for the second quarter was $29.7 million, an increase of 112% over the same period last year. Adjusted net income per diluted share was correspondingly $0.47, a 37% increase versus the second quarter of 2014. New business was solid and for second quarter of 2015 we booked $407.8 million of net new business awards, representing a book-to-bill of 1.21x service revenue. During the quarter we announced the introduction of our new Predictivv platform which we had been previously referring to as Project P. It is a fully integrated platform that harmonizes data, processes and people across every aspect of a clinical study. With the increasingly higher level of complexity in conducting clinical trials, we think our approach will provide our clients with a transparency and proactive decision support to optimize the performance of their trials. We also believe the platform allows us to take advantage of the rapid changes in technology. To-date we have concentrated on introducing applications to improve internal efficiencies as part of our Predictivv Enterprise Suite. Some of the applications include an application to manage complex client contracts and facilitate revenue recognition, an application to manage a therapeutic expertise of our staff in a new streamlined manner, and an application to manage our ever-changing resource requirements. The first customer facing application, Predictivv Connect, was launched last month and is about to be piloted on our first major global study. We expect to launch several applications of Predictivv that will focus on key aspects of clinical trial management including site selection, patient recruitment and investigator engagement. During the quarter, we also made a small acquisition where we acquired the assets and people from a clinical development software company, Value Health Solutions. VHS has developed a library of clinical trial management applications and modules using [client] [ph] technology that uniquely aligns with PRA's strategy. Once this technology is fully integrated, it will accelerate the development of our Predictivv platform. Once again, I would like to take this opportunity to thank our staff for their continued commitment to our Company. As I had mentioned last quarter, we were awarded the International Clinical Company of the Year and this quarter our teams in North America were recognized with the PharmaTimes Best North American Clinical Company award. Our staff is dedicated to delivering top quality to our clients and this high performance helps to deliver a strong financial performance. To maintain the quality and effectiveness of our workforce, we recently launched the Candidate Experience which is designed to help us continue to attract people who can become highly skilled clinical research employees. This is in addition to our Bridge Program which addresses the need to recruit the best clinical research associates and our Oncology University which gives our CRAs the skills and training necessary to handle clinical trials within oncology. 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. As Colin mentioned, for the quarter ended June 30, 2015, our consolidated service revenues grew 8% at actual foreign exchange rate and 12% on a constant currency basis. We finished the quarter with $336.5 million of service revenues compared to $311.4 million for the same quarter last year. Our client base continues to be well-diversified with our top five clients representing 39.2% of our total second quarter revenue, our single largest client constituting approximately 10.3% of total revenue during the quarter. Moving forward, we anticipate that this client will represent approximately 10% of forecasted full year 2015 revenue based on current projections. In the second quarter, direct costs were $219.9 million compared to $213.4 million in the prior year. Direct costs were 65.3% of service revenue in the second quarter compared to 68.5% of service revenue during the second quarter of the prior year. On a constant currency basis, our direct costs increased $24.4 million as we hired billable staff to support current projects and additional staff in anticipation of future growth. This increase in our cost base was offset by a favorable foreign currency effect of $17.9 million. On a constant currency basis, our direct costs were 67.9% of service revenue in the second quarter compared to 68.5% of service revenue during the second quarter of the prior year. For the second quarter, SG&A expenses were $58.9 million or 17.5% of service revenue compared to 18% of service revenue during the second quarter of 2014. The decrease in SG&A as a percentage of service revenue is primarily related to our continued ability to effectively manage our overhead functions. Compared to the prior year, second quarter 2015 adjusted income from operations grew 38.6% to $56.2 million, and margin of 16.7%, up 370 basis points, due to the realization of synergies from our acquisitions. Adjusted net income grew 112% to $29.7 million in the second quarter compared to the previous year. Contributing to the adjusted net income growth were increased service revenues, improved operating margins and lower interest expense due to the decreased indebtedness. Adjusted net income per diluted share grew 37% to $0.47 per share in the second quarter versus $0.34 per share a year earlier. Cash provided by operations was $26.6 million for the three months ended June 30, 2015 compared to cash provided by operations of $37.1 million for the same period in 2014. For the six months ended June 30, 2015, cash provided by operations was $30 million compared to the use of cash of $3.3 million for the same period in 2014. The increase in operating cash flow was the result of operational performance increases offset by an increase in net working capital driven by an increase in our day sales outstanding. Capital expenditure was $9.5 million for the three months ended June 30, 2015 compared to $6.1 million during the same period in 2014. The increase in capital expenditure reflects our ongoing investment in information technology and the expansion of our facilities in the U.S. and abroad. Our cash balance was $61.1 million as of the end of second quarter, of which $22.7 million was held by our [indiscernible]. Net debt outstanding, defined as total debt less cash and cash equivalents, at June 30, 2015, was $862.9 million compared to $1.2 billion at June 30, 2014. The overall reduction on our net debt is attributable to us paying down debt with the proceeds of our November 2014 IPO and repayment of $30 million made in the first half of 2015. Finally, we are updating our guidance taking into account the strength in the underlying business and the movement in current foreign exchange rates. As a result, we are maintaining our guidance for service revenues between $1.34 billion and $1.39 billion, and our estimated effective income tax rate of approximately 30%. We are increasing our guidance for diluted net income per share to between $0.80 and $0.90 per share compared to $0.70 and $0.80 per share previously. In addition, we are increasing our guidance for adjusted net income per share to between $1.75 and $1.85 per share compared to previous guidance of $1.62 to $1.72 per share. This guidance assumes foreign exchange rates as of July 2015. At this time, we'd be happy to take your questions and I would ask our participants to limit themselves to one question and one follow-up to allow as many participants as possible to ask questions. Please provide your name and affiliation when you do so. Operator, you may now open the line for questions.

[Operator:]

[Operator Instructions] Our first question comes from John Kreger with William Blair. Your line is open.

[Ravi Fadah:]

This is actually Ravi Fadah in for John today. I was just wondering if you guys could give us an update on the mix of revenue and new business across the traditional and Strategic Solutions channels.

[Linda Baddour:]

Our new business that we reported, basically it was on target for what we were expecting for the quarter. So Strategic Solutions performed very nicely during the quarter and as you can see we did a consolidated book-to-bill of 1.21.

[Ravi Fadah:]

Okay, thanks. And I think in the past few quarters you've talked a little bit about, you've given us a little bit more color on the margin trajectory in Strategic Solutions. Where does that stand now and how much more room do you have to expand margins there?

[Linda Baddour:]

We actually have not been disclosing the margin on the Strategic Solutions business. As we have now pretty much recognized all of the synergies, we have a few bits and pieces left as it relates to facilities and legal entities, but as we mentioned in Q1 we consolidated our business development all under one function here with our Executive Vice President, Tami Klerr, and so that piece of the integration is complete and the synergies from that have pretty much been recognized. So we are not able to give you any margin information since that's not a separate segment.

[Ravi Fadah:]

Okay, thanks very much.

[Operator:]

Our next question comes from Dave Windley with Jefferies. Your line is open.

[David Windley:]

The follow-up on Ravi's question there, Linda, can you talk a little bit more beyond what might be definitional synergies, cost synergies in the RPS integration? I think there were a number of other initiatives around kind of improving the pricing discipline in bids, some cross-selling initiatives which I got the sense last quarter were maybe you were intentionally slow walking those a little bit. Could you give us a little bit more, elaborate a little bit more on where you stand in terms of further fortifying beyond just kind of the hard dollar synergies in the RPS business bringing it fully into the fold?

[Linda Baddour:]

We're very pleased with the progress that we've made in managing the contracts that were existing at RPS and in our Strategic Solutions division because basically they were good contracts but they just needed additional financial management and that has been completed. And the thing that was really a problem for us was, remember the work that we had over in Europe where they had tried to start another CRO and we were able to, that work is still winding down, we're still doing a bit of it, but that work is getting better too. As it relates to cross-selling…

[Colin Shannon:]

Dave, I'm just going to obviously comment that we mentioned to you about our introduction of the Predictivv platform. We were able to actually add uniquely to all of the contract details within our systems to actually give us great visibility of managing the contracts which has actually really helped the operational team to create financial visibility to manage the contracts much better. That has really helped significantly and putting the profitability of all of the contracts. We believe in working together, the teams have done a great job and really improving the financial discipline and performance in that Strategic Solutions business. We mentioned last time that we are continually seeing opportunities where it would be nice to demonstrate the other capabilities of the broader PRA within the Strategic Solutions division. We've been taking that up and it's actually been great that we've been [build] [ph] into these situations rather than us pushing. So in any situation, we continue to evolve them. We've even got one or two of the clients wanting to look more at the Predictivv platform and actually utilize it within the functions. So we're very pleased with the progress that we're making.

[David Windley:]

Excellent. Thanks for that. And then, Linda, I think you commented in your prepared remarks that on a constant currency basis direct cost I believe you cited the percentage that would have been up year-over-year, and I know in your press release you do comment that the improvement in…

[Linda Baddour:]

Yes, maybe you misheard me, let me get back and get you that [indiscernible] for you. It's actually down. So direct cost as a percentage of revenue were 67.9% on constant currency compared to 68.5% last year.

[David Windley:]

Okay, so the spirit of the question I guess is, you're getting more benefit on top of that from the FX this year.

[Linda Baddour:]

That's right.

[David Windley:]

And you commented I think in that same context about hiring and putting people in place. I guess I'm curious about where you see yourselves in say hiring on the curve, ahead of the curve, et cetera, and where you see performance relative to your long-term I think kind of 16% to 19% adjusted EBITDA target range which on kind of with the FX help you're kind of already right in the middle of that range or better and I guess I'm wondering is that range still the appropriate way to think about it or should it go up because of the FX impact, help us to understand what you think the achievable range is there, thanks.

[Linda Baddour:]

The improvement in direct costs is related to several factors. As Colin mentioned, using the Predictivv platform for resourcing as well has been absolutely so helpful in making sure that we fully utilize the billable staff and that we see exactly what is being involved in the contract and keeping in with the budget of the contract. We've always been good at that that has really helped us. In addition, as we mentioned last year we had these problems with programming, we had to hire all those contractors. That is getting a little bit better this year. We still have a few but we are well on our way to getting that problem resolved. So that has contributed. We always try to hire in advance a bit because you have to have staff to sail through the new project. So it's not unusual to have, to tap in staff on hand to win new business.

[David Windley:]

Okay, thank you.

[Operator:]

Our next question comes from Garen Sarafian with Citigroup. Your line is open.

[Garen Sarafian:]

First, I want to touch on Predictivv platform. You mentioned in your prepared remarks VHS acquisition and if you can elaborate on, any details you can share as to how many people you onboarded and any sort of financial contribution and so on? And then secondly, just want to get your overall thoughts as to how you are viewing this. Is this something that is just embedded in each and every project that you sell or is this something that gradually you will eventually sell as a standalone even if they don't take on some of the other portions of your traditional CRO business?

[Colin Shannon:]

That's interesting question. Linda will go through some of the financials. I mean it is a small acquisition but it's actually, it was a nice fit for a lot of the – and for me as the technologies we are introducing. The way we are viewing it as, firstly, we want to maximize our internal efficiencies and use it internally, although we are now starting to work with some clients to utilize some parts and aspects of the platform with our clients. We ultimately are seeing that there is an opportunity that we will be able to provide some applications or modules to clients and it can be used in many, many different ways and it doesn't have to be a complete system-wide approach. It can be used in very, very limited parts of the organization. So for example, when Linda was talking about the programming piece, we decided to implement early a piece of our whole management of our clinical trials within programming to get visibility [indiscernible] on all of our [indiscernible] about 250 to 300 projects giving us a new capability of managing more specific controls over that piece of the business, and that's what I'm talking to some of our clients. They are seeing the use of some of these tools and they are asking us to actually get these developed and utilize in a more commercial way. We have not started commercial development [indiscernible], so as we further enhance and introduce more modules, we will start to look out maybe more commercial and getting it ready for more applications that our clients can utilize.

[Garen Sarafian:]

Got it. So it hasn't been ruled out?

[Colin Shannon:]

Correct. [Indiscernible]

[Linda Baddour:]

And just to give you a little more information on the acquisition price for VHS, it was $2.5 million with an opportunity for an earn-out of about $1 million as we further develop the product. It's a very small company but we are very happy with the technology. So there will be some footnote in the 10-Q when we file that tomorrow or later today.

[Garen Sarafian:]

Got it, great. And, Linda, as a quick follow-up, I know you're quite conservative when it comes to guidance, just to clarify then on the remainder of the year, how much of the operational improvement are you building into guidance if any?

[Linda Baddour:]

There is some operational improvement built into guidance and basically as we mentioned we use the July 2015 exchange rates. Actually during the quarter in Q2, exchange rate moved away from us, we had a hurt of about $0.01 in the quarter and as you can see we had some losses on our inter-company loans, that non-cash losses, but going forward we have definitely built in some room for the FX to move, for the dollar to weaken a bit more but also we have some operational improvements.

[Garen Sarafian:]

Okay, great, thank you again.

[Operator:]

Our next question comes from Steven Valiquette with UBS. Your line is open.

[Steven Valiquette:]

Congrats on these strong results. So I guess first just based on some of the [MI] [ph] questions we get, there are maybe some investors out there who are suggesting that the quality of the [indiscernible] earnings are maybe slightly lower because of the $4 million FX loss that was excluded from the adjusted EBITDA, but I think for the six months year to date they actually had about $5 million of FX gain they've been excluding from EBITDA, so we're actually not worried about this because you've actually penalised yourself year-to-date by excluding this. But I guess my question is, maybe it wouldn't hurt if you just maybe just quickly discuss the PRA philosophy on excluding these FX gains and losses from adjusted EBITDA because it seems like there are still a lot of investor questions out there on that topic and that line item in particular?

[Linda Baddour:]

I'll be happy to talk about that again. Basically as we have mentioned before, these are intercompany loans where the U.S. owes some of our foreign subs cash and for us to bring that into the – to pay those off, it would cost us some tax monies and dividends and it's just not important to us because they're basically non-cash – the recording that we have made is non-cash. So as you mentioned we do have a $5 million gain year to date. We have been able in Q2 to consolidate those and narrow down the countries where we actually have the liabilities and primarily it's in the U.K. and Germany. So as we move forward, we anticipate that not to be such a large number but it also depends a lot on how the dollar moves. But thank you for giving me the opportunity to explain that again.

[Steven Valiquette:]

Yes, that was going to be the follow up, is there any visibility on how those will shake out for the full year or do you just kind of live with this quarter by quarter? It sounds like it's maybe something in between based on what you just said.

[Linda Baddour:]

We still have a few ideas that we are working with [indiscernible] on and to reduce those amounts and attack sufficiently as we possibly can. So we're not giving up on the idea of getting that reduced, but again it's going to depend a lot on how the dollar moves.

[Steven Valiquette:]

Okay, got it. Okay, great, thanks.

[Operator:]

Our next question comes from Donald Hooker with KeyBanc. Your line is open.

[Donald Hooker:]

I was wondering, so you talked about this Predictivv launch, can you talk about some of your worries then with some of your external technology partners, how that fits in with any external partners you're working with if I'm thinking about this right, where Predictivv stops and where third parties begin?

[Colin Shannon:]

Actually what we have chosen to do by creating a platform technology, it allows us the versatility to work with multiple vendors and really be totally technology agnostic, allows us to just almost plug things into the platform and then streamline it using our processes internally. And so we have tried to look more futuristic and say what are the new needs of the future for our clients and how do we take advantage of the rapid developments in technology, and so we wanted to be in a situation that as things advance we can actually take the opportunity to utilize them. So we've actually not, it's not a case of this is the platform, it's an evolution and it will continue to evolve and as things get better we can take advantage of it.

[Donald Hooker:]

Okay, that's helpful. And then maybe in terms of where sort of the backlog stands now, and I think about that versus the prior year June quarter, kind of is there any notable difference in terms of mix as that burns going forward whether it's between functional and programmatic projects in there or therapeutic mix or anything that we should think about as that burns through the rest of this year and into 2015?

[Linda Baddour:]

No, we haven't really seen a mix change. As we mentioned earlier, our diversification is very good so far and we also have the therapeutic areas where we excel, are basically have been the same as they were last year. So we haven't seen any big change in those.

[Donald Hooker:]

So the backlog burn going forward I guess I'm taking should be somewhat, from what we know now, there is no reason to think it would be materially different than it was in the past? Is that fair?

[Linda Baddour:]

Absolutely no reason, yes.

[Donald Hooker:]

Okay. And then maybe one last one in terms of obviously you have a very diverse revenue base but it looks like one client is sort of emerging here, this 10% plus client. How should we think about that going beyond sort of – is this a growing relationship that's going to keep growing or does it taper off into 2016 and 2017 or how do we think about that versus your [indiscernible]?

[Colin Shannon:]

It actually varies between a couple of clients and we've got a couple that are just bumping along there that get – just one that clipped over the 10% mark and it should by the end of the year [indiscernible] but it's something that from time to time when you're depending on the mix of trials and what's being done in a particular period, it kind of just [indiscernible]. As you know our goal is to try to make sure that we have a good book of business and it's well distributed.

[Donald Hooker:]

Thank you very much.

[Operator:]

[Operator Instructions] Our next question comes from Eric Coldwell with Robert W. Baird. Your line is open.

[Eric Coldwell:]

Just a quick one here technical, we reverse engineered a 4.3% impact on revenue from currency. Linda, is that approximately correct?

[Linda Baddour:]

That is, yes. We have 12% constant currency revenue growth.

[Eric Coldwell:]

Yes, just trying to figure out if the 12% was 11.5% or 12.5% and it looks like it was [indiscernible]. And then on DSO, since before the IPO, I mean it's been pretty clear that you have abnormally low levels, we're going to trend more towards the industry average but still be at a great rate which is happening. I'm curious what your updated thought is on the DSO trending as well as where you think you might given current mix at least where you might wind-up when you get to sort of a PRA specific mature DSO level?

[Linda Baddour:]

Thank you so much for asking that question because as we mentioned while we were doing our guidance call in the first part of the year that we are backend-loading our debt repayments because it's not unusual during the first part of the year for DSOs to inch up. However, during the 4th of July holiday, right prior to that, we had low collection. And then in the first week of July we collected over $26 million and we actually took that opportunity to pay back $10 million on our term loans. So total for the year is $40 million already and we add that to the $30 million. And we expect DSO, of course we expect it to increase some during the year but it's not – it's really right on target now where we thought it was going to be.

[Eric Coldwell:]

So something in the low to mid 20s for the year?

[Linda Baddour:]

I think that maybe it's a little better than that.

[Eric Coldwell:]

Okay, awesome. Last question, maybe Colin, it's not really a great question and I'm not sure if there's really a great answer for this call but I just have to ask given what we are seeing with two of your peer reports this morning. Outside of you guys and your one cross-town neighbor that also came publicly last year, there's just really no growth in the sector right now, I mean Quintiles, Covance, PAREXEL, ICON, everybody is missing revenue. We're talking low single digits constant dollar organic. Is there an elephant in the room here or is it just something to do with the mix of their clients having been the companies that won the big strategic deals three, four, five years ago and they're just getting maturity rates? Just curious what your big picture view is on this space because frankly the majority of the companies are not really generating the top line here.

[Colin Shannon:]

Eric, that's a complicated question with other companies [indiscernible] this makes. So I can only tell you what I'm seeing and even as we speak we're seeing a very solid RFP volume. In fact again we're seeing record levels beginning this quarter. So we have got good visibility into a nice book of business opportunity. It all bodes well for what our Company is trying to do. So I can only speak to that and I gave guidance on that basis, not from obviously the total market. I don't see all of it, I can only see what we are looking out and we are seeing a very good visible amount of RFP volume.

[Eric Coldwell:]

Colin, thanks for the answer. On the RFP volume, are you seeing any change in how clients are coming to market, in other words stepping away a little bit from past strategic deals, more tactical work than you would've seen a year or two ago or are the contracting dynamics, the number of parties bidding, et cetera, those all relatively unchanged?

[Colin Shannon:]

[Indiscernible] is pretty much the same, I'll be honest with you. We're seeing all parts of the business as to get the same type of client mix, good opportunities and a lot of work [indiscernible]. Our teams are very busy on the RFP volume. We don't underestimate the amount of getting proposals developed. We take great pride in making sure that we tried to do our best for our clients and make sure that we give them something that makes them think about how to conduct the trial as best as they can and most efficient and at the least cost. We just always taking that approach and it seems to attract the right type of mix for us. I mean I'm pleased as well that Strategic Solutions has continued to increase its volume with every single client by adding pieces of it where they are organized. So we're seeing growth there as well. So we're seeing it all around the Company which I'm very pleased about.

[Eric Coldwell:]

That's great. Okay, thank you very much for the answers. I'll let others get in.

[Operator:]

Our next question comes from Dave Windley with Jefferies. Your line is open.

[David Windley:]

If I wasn't behind him, I'm sure he would've gone on longer. The follow-up questions that I have are, first, Colin, you've given us a nice insight into this Predictivv platform and some early moves. I'm wondering what initiatives you have either maybe not formal selling but what kind of education are you doing perhaps with clients to drive adoption of the platform or are those initiatives maybe only internally focused at this point?

[Colin Shannon:]

Dave, what we've done is there is a small number of clients where they've been actively seeking some information and we've done a number of presentations to some clients and this is obviously it's gone over exceedingly well which we're very, very pleased and excited about because even though it's not fully fleshed out and everything is where we need it to be, they seeing a vision and understanding that it's really offering a new alternative which is actually very different from traditional models where everything is either just thrown into data warehouses and then shortlisted in some screens, they are seeing that this is a complete end to end process that really works very differently. And it's going over very well and we are excited about the continual evolution. We had to launch it quickly because we were running out of time to actually hold the name and we have a patent with trademark but we wanted to get out there. I probably would've liked to hang on for another three or four months, David, in all honestly before we launched it but we wanted to secure the name that was out there and actually we're talking to some clients who are actually assisting us with pilots and actually working with us as we continue to evolve the product.

[David Windley:]

Okay. And maybe to back up a step, Colin, philosophically you decided to invest in this, I know you've talked about modernizing kind of your entire IT backbone, there are some discussions in the marketplace about this, a number of the competitors are investing in different branded technology platforms whether it's [indiscernible], Quintiles or accelerated Covance, and then there is the argument about say using office shelf software, maybe you could talk to why you view this as necessary as opposed to say letting the software guys write the software?

[Colin Shannon:]

When software guys write the software, you then kind of stop with that module and you are then subject to any improvements that they can do. What we were trying to do is be agnostic so that we can take advantage of modules. I mean we can still use external vendors, we can plug into platform and it actually is the ease of adoption that makes it very versatile. And as you know, Dave, we stopped it a few years back and it was quite an undertaking, unfortunately at the time we were only about 4,000 employees when we started this out and I don't think we would've really got to do it by then. We were basically unpacking all of the massive amount of this book and products that we had that were running in multiple clinical trials and we tried to streamline it so that they all were working together so we get visibility from end to end. That was the goal, that was what we started doing and we thought, let's stick with this vision. The platform approach means that with all the modern technologies, it just gives you a use that you can adopt very, very quickly [indiscernible]. So it doesn't preclude us from using even temporarily some other pieces while – but then take advantage of new technologies that become available.

[David Windley:]

Okay. Switching gears to an earlier question, I think Donald asked this question about backlog burn rate, Linda, tell me where this logic is flawed. So your book to bill at 1.2, I think you are growing backlog little faster than reported revenue certainly, book to bill suggest that you could be doing that. You've had a book-to-bill at that level for now three or four quarters in a row. If backlog burn rate does not change, that suggests to me that revenue growth should accelerate in the future. Is there –kind of wanted to oppose that to you and give you the chance to correct that if you deem appropriate.

[Colin Shannon:]

Dave, your logic is sound and when we are looking at guidance, as you know many factors including FX that's quite material that we got to consider, but actually yes, you would be correct in assuming that we will see a faster growth level in the future.

[David Windley:]

Okay, thank you. Best of luck.

[Operator:]

Our next question comes from Garen Sarafian with Citigroup. Your line is open.

[Garen Sarafian:]

Thanks for taking the follow-ups. One was just a clarification question on your IT platform Dave sort of alluded to just a minute ago, but is the idea to sit on top of some of the external vendors to tailor it to your needs and to your clients' needs such as one of your competitors or is the idea to have a full IT platform that you can take to clients where you would not use an external vendor and it would just be truly internally developed as one of your other competitors?

[Colin Shannon:]

We are [indiscernible] of a hybrid. We can be flexible of our various different levels of service. And because it's designed end to end, we can then modify that end to end based on clients' SOPs that we [indiscernible] so that it becomes very bespoke but it can obviously then plug and play with various other tools and technologies. So we are not trying to be, this is the solution. What we are trying to do is produce something that we can utilize technology to help us with our everyday conduct of a clinical trial and not like technology in the way of it.

[Garen Sarafian:]

Okay. And then just the second question I had was just if you could touch on pricing environment, it wasn't asked just the last three months or whatever you've been seeing as well, you talked about RFPs but what the pricing environment looks like?

[Colin Shannon:]

I see no difference. Obviously the CRO space is we're seeing some pressure on salaries and we've got to be careful with pricing. So we are very cautious about discounting and these things because hiring staff, there is definitely some salaries [indiscernible] in certain job families, particularly oncology CRAs. So we are very cautious but we are not seeing anything dramatically shifted from the last couple of quarters.

[Garen Sarafian:]

Okay, great. Thank you again.

[Operator:]

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

[Tim Evans:]

Linda, I was hoping maybe you could talk a little bit about your philosophy on cost containment in the event that foreign exchange ends up going against you on the cost line in the future. I mean obviously I think the dollar has been stronger than we all would have anticipated and what happens, what levers would you pull if that actually ended up going the opposite direction?

[Linda Baddour:]

As you know we've always had a strong operating margin and EBITDA margin even when the dollar was very strong. So we have been very transparent with the street in giving up the FX gain that we've had this past year, and so I would anticipate going forward we having a very nice strong EBITDA and operating margin.

[Colin Shannon:]

And just to clarify a little bit more than that, Tim, we typically – the previous question was asking about pricing, when we are into negotiations, sometimes like we decide to either we can give away maybe contract currency. So it gives us opportunity to create more natural hedges by maybe taking on some more euro or sterling denominated contracts over the next period that will help give a more natural hedge. And so these are all tools that we utilize on a contract to contract basis that we work through.

[Tim Evans:]

Great, thank you.

[Operator:]

And I'm showing no further questions. I will now 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 good day and goodbye. Thank you.

[Operator:]

Thank you, ladies and gentlemen. That does conclude today's conference. You may all disconnect and everyone have a great day.