PRA Health Sciences, Inc.
Q3 2015 Earnings Call Transcript

Published: 3 Nov 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to the PRA Health Sciences Third Quarter 2015 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 may be recorded. I’d now like to turn the conference over to our host of today’s call Mr. Mike Bonello, Senior Vice President and Corporate Controller. You may begin

[Michael Bonello:]

Thank you, [Tanya]. Good morning and thank you for joining us for PRA's third quarter 2015 earnings teleconference. Today, Colin Shannon, PRA's Chief Executive Officer, and Linda Baddour, PRA's Chief Financial Officer, will be presenting our third 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 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 the our 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 investor presentation included in the Investor Relations 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 the third quarter of 2015. I'm delighted to report the third quarter of 2015 was one of further progress for PRA across a whole host of financial and operating metrics. Service revenues for the quarter were $345.1 million, which represents an increase of approximately 8% per year or 12% on a constant currency basis. Our adjusted net income for the third quarter was $33.2 million, an increase of 134% over the same period last year. Adjusted net income per diluted share was correspondingly $0.52, a 53% increase versus the third quarter of 2014. And just to clear up what was escalated when compared to our revised guidance provided during our Q2 earnings call. The Q3 2015 adjusted earnings per share of $0.52 had a $0.01 improvement related to a stronger than forecasted dollar. New business was also very strong for third quarter 2015; we booked $431.4 million of net new business awards, representing a book-to-bill of 1.25x service revenue. During the third quarter we continued to introduce our Predictivv platform to select clients and that has continued to receive an enthusiastic reception. Predictivv is a fully integrated platform that harmonizes data, processes and people across every aspect of a clinical study. The higher level of complexity in conducting clinical trials that we are seeing will help our clients realize above with this technology and we believe our approach will provide our clients with the transparency and proactive decision support they need to optimize the performance of their trials. In addition the flexibility of this platform allows us to and take advantage of the rapid changes in technology. Predictivv will enable unprecedented adoptive intelligence and decision support for the ever increasing complexities of the clinical development process. A number of our clients are also undergoing many innovation incentives and recognize at the traditional methodology in conducting clinical trials needs to vastly improve. Our approach of continuous improvement and innovation resonating very well with our clients. And then addition our approach was instrumental in securing an important new partnership during the quarter. Before turning over to Linda who will go through the financial more detail, I would like to mention that during the quarter two of our clients received a new drug authorization where we exceeded our timelines for database loss to integrated study reports. And type one of this studies had multiple pivotal studies and we had to close by database and manage to beat the clients previous from closing to filing by over two months. I would like to thank our staff and our clients for the co-operation in making this happen. It is very rewarding for our whole company to know partly creating new to the market and to remind ourselves that this why we come to work everyday. I would now like to hand over the call to Linda Baddour, our Chief Financial Officer, who will go through the quarterly financial results in more detail.

[Linda Baddour:]

Thank you, Colin. Good morning, everyone. As Colin mentioned, for the quarter ended September 30, 2015, our consolidated service revenues grew approximately 8% at actual foreign exchange rates and 12% on a constant currency basis. We finished the quarter with $345.1 million of service revenues compared to $320.1 million for the same quarter last year. Our client base continues to be well-diversified with our top five clients representing 41.5% of our total third quarter revenue, our single largest client constituting approximately an 11.4% of total revenue during the quarter. Moving forward, we anticipate that this client will represent approximately 11% of forecasted full year 2015 revenue based on current projections. In the third quarter, direct costs were $212.8 million compared to $215.7 million in the prior year. Direct costs were 61.7% of service revenue in the third quarter compared to 67.4% of service revenue during the third quarter of the prior year. On a constant currency basis, our direct costs increased $12.5 million as we hired billable staff to support current projects and additional staff and anticipation of future growth. This increase in our cost base was offset by a favorable foreign currency effect of $15.4 million. In addition during the third quarter we recorded a favorable impact of $8.5 million for research and development credits related to the prior year. The research and development credit are the results of a comprehensive analysis we have performing across the organization to determine whether expenditures incurred qualify as research and development as defined by the respected jurisdictions. On a constant currency basis, our direct costs were 64.1% of service revenue in the third quarter compared to 67.4% of service revenue during the third quarter of the prior year. For the third quarter, SG&A expenses were $63.1 million or 18.3% of service revenue compared to 19.8% of service revenue during the third quarter of 2014. This 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, third quarter 2015 adjusted income from operations which excludes certain items its fluctuation from period-to-period does not necessarily correspond to changes in our operating results including the effects of R&D credit I referenced earlier grew 49% to $61.2 million, and margin of 17.7%, up 490 basis points, due to the strength in underlying business and the realization of synergies from our acquisitions. Adjusted net income grew 134% to $33.2 million in the third 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 decrease in indebt. Adjusted net income per diluted share grew 53% to $0.52 per share in the third quarter versus $0.34 per share a year earlier. Cash provided by operations was $42.2 million for the three months ended September 30, 2015 compared to cash provided by operations of $4.7 million for the same period in 2014. For the nine months ended September 30, 2015, cash provided by operations was $72.2 million compared to cash provided by operations of $1.5 million for the same period in 2014. The increase in operating cash flow was the result of improved operational performance as well as reduction in cash outflows from working capital. This was driven by a slower rate of increase in our DSO during the nine months ended September 30, 2015 as compared to the same period of 2014. CapEx was $9 million for the three months ended September 30, 2015 compared to $7.1 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 $48.4 million as of the end of the quarter, of which $25.9 million was held by our foreign sub. Net debt outstanding, defined as total debt less cash and cash equivalents, at September 30, 2015, was $885.6 million compared to $1.2 billion at September 30, 2014. The overall reduction on our net debt is attributable to paying down debt with the proceeds of our November 2014 IPO and repayments of $40 million made in the first nine months of 2015. It should be noted that during the third quarter of 2015 we terminated our September 2013 interest rate swaps with an aggregate notional principal amount of $620 million which resulted in a termination fee of $32.9 million. Using a current three-year LIBOR interest rate curve the termination of interest rate swap is expected to save us approximately $15 million over the original five-year term of the swaps. Amounts included in accumulated other comprehensive income totaling $29.6 million will be amortized into the interest expense over the original term of the swaps and will be included as a non-cash adjustments in our reconciliation of net income to adjusted net income. In connection with the termination of our existing interest rate swaps, we entered into a new interest rate swaps with a notional amount of $250 million and a fixed three-month LIBOR rate of 1.48%. The interest rate swap again on September 23, 2015 and will mature on September 23, 2018. The interest rate swap is use to hedge our variable-rate term debt. Finally, we are updating our guidance taking into account the strength in our underlying business. As a result, we are updating our guidance for service revenues to between $1.365 billion and $1.37 billion from $1.34 billion to $1.39 billion we announced at our June quarter. We are increasing our guidance for diluted GAAP net income per share to between $1 and $1.05 per share compared to $0.80 and $0.90 per share previously announced. In addition, we are increasing our guidance for adjusted net income per share to between $1.89 and $1.92 per share compared to previous guidance of $1.75 to $1.85 per share. This guidance assumes foreign exchange rates as of October 15, 2015. At this time, we'd be happy to take your questions and I would like to 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 doing so. Operator, you may now open the line for questions.

[Operator:]

[Operator Instructions] And our first question comes from John Kreger of William Blair. Your line is open.

[Ravi Fadah:]

Hi, good morning guys, it’s Ravi Fadah in for John today thanks for taking the question. So just focusing on demand transport for the quarter it sounds like bookings were great and it sounds like you’re doing well with new business. Can you help us give us a sense of what the outstanding RFP activity looks like by client segment today and how that compares to maybe three months or six months ago?

[Colin Shannon:]

We’ve actually seeing very strong momentum still our proposal departments are still exceedingly busy. And that’s pretty much across the board during the quarter we had a number of client meetings all of them with very rich pipelines. So we’ve seeing a nice build of momentum we are very pleased with RFP volume coming through.

[Ravi Fadah:]

Great, thanks for that and then as a follow-up congrats on the new clients, how should we expect that to ramp over the next couple of quarters both from a revenue and a cost side should there be some initial costs in Q4 and Q1 that maybe are not offset by revenues yet.

[Colin Shannon:]

No, it’s not the way we do that our work and you know what we got no new authorization included in the quarter. So we will start to see a ramp up potentially Q4 but mainly for 2016.

[Ravi Fadah:]

Great thanks very much.

[Operator:]

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

[Garen Sarafian:]

Good morning Colin and Linda, Mike. We can start to consider of and cancellations and absolute basis the results this quarter were still very low, but it’s trending a little bit upward so particularly given your larger it some of your larger peers have also shown an uptick. I am wondering if you can elaborate there little bit and maybe on the broad industry trends if you could as well as your book?

[Linda Baddour:]

You are right the cancellations were up slightly but we were most of those something we had at seen a little bit in Q2 that they were comings that they were already removed either the forecast looking forward and looking to the end of the year where pretty much covered 99.8% of revenue of our revenue forecast through the end of 2015. That were in good shape.

[Garen Sarafian:]

Got it and then do you not seen any sort of sounds like you are not seeing any sort of broad industry trend – sort of isolated types of situations or…

[Colin Shannon:]

Is that the whole aspect of clinical trials you never know what's going to what some kinds you know you can get and late stages and either there is a issues happen because you know the trials will be stopped and you never know what's going to be happen it could be on your compound coming out computing there is lots and lots of changes in landscape that can happen that can cause a trial to be cancelled. The thing is having a broad portfolio multiple clients and you know we are not depending in any trial to produce our revenues. The portfolio theory helped us to manage our business effectively.

[Garen Sarafian:]

Okay. Fair enough. And then on gross two businesses for you trending up very nicely starting at 5% and then 9% and then I think double-digits now I think near 15%. So how should we think through this metric as you move forward? Yes, how you are thinking going through next few quarter only because historically just there haven’t been sort of because of M&A. I think its been pretty volatile.

[Colin Shannon:]

When we went public, we put together forecast of fund and I mean obviously what we had a little bit of a headwind with revenues from foreign exchange. But we are actually obviously benefited from our cost line. But we have been very much going on plan or maybe ahead of plan, which is great. On a constant basis of 12% improvement and growth and exactly if where we are wanting to get, we had [indiscernible] 8% was passively accepted growth rate but we as an management team, we are looking to beat that. So we feel pretty good about the direction we are moving, the new authorizations that we are winning a strong authorization that we believe will help us continue to sustain that level of growth.

[Garen Sarafian:]

Colin, that’s very useful. I will hop back in queue. Thank you, very much.

[Operator:]

And our next question comes from Dave Windley of Jefferies. Your line is open.

[David Windley:]

Hi, good morning. Thanks for taking my questions. The first one is around I guess some initial thoughts relative to next year and not going to try to drag here into giving us guidance. But Colin, following up on Garen’s last question, you commented you hope to get to 12% growth is that a level that is sustainable and then the second part of this question would be as it relates to your margin improvement this year and thinking about sustainability of that Linda how do you think about the remaining upside if any to your operational improvements and margin expansion and how do we think about FX as it relates to that. So help us kind of work through the FX impacts thinking about go forward is supposed to what just happened.

[Colin Shannon:]

Dave, so obviously we are not yet in a position to a give our guidance our next year, and so we are working through our forecasting, suffice to say we’ve had a sequence of strong biddings that allows us a good platform to get growth prospects for next year. So we are actually very pleased that we will continue with the momentum we have got going. Obviously, regarding FX, plan things may change, I mean that might be the new normal, what we tend to sign though as client during a period where, how that come to the weaker, that will start to pay in different currencies and helps us form a natural hedge. And so the impact of the reversal is never as drastic and so we are actually very pleased that we are in a good business that can take advantage of the FX. We signal that the being of the year what the effect was going to be as not in radically different from what we have said. So everything since then is really being out performance from an operational point of view. So we feel pretty good about that, so yes, Linda specifically to pass you over.

[Linda Baddour:]

The only thing I would like to add is we’ve been executing against our plan that we went out with our IPO in November of 2014 last year. And so we have been focusing on cost reductions and more efficient SG&A function. So I think that we’re in really good shape for next year and so if you were as I mentioned earlier when I was answering the other question it is basically where on plan to where we thought would be even on an constant currency basis.

[David Windley:]

Okay, switching gears later a little bit more balance sheet, you would comment about the termination of the swap and then execution of a new one. I think another strategy or maybe more tactic that the IPO was that after you delever the balance sheet some degree with IPO proceeds and cash flow thereafter you might be in a position to kind of what were your overall cost of debt through a refinancing of your - some of your debt instruments has not been pursued and what might be still opportunity there?

[Linda Baddour:]

No. It's still an opportunity and it's something that we’re looking into, we were upgraded as you know recently and our debt and so we're going to be talking with the banks and in the event that we were to refinance the term loan, the amount that we’re carrying in other comprehensive income would actually be written off and we pay off that debt. But going forward we’ll still be – have a non-cash item of amortizing in the interest rate swaps. We felt like we needed to enter into the new one just to hedge against higher interest rates. We can lock in a rate for the next three-year.

[Colin Shannon:]

But Dave, to your point I mean we have delever better than planned and we had intended to get about 4.1 by the end of the year, we are already at 3.8 at the end of the quarter.

[David Windley:]

Yes, thank you.

[Operator:]

And our next question comes from Donald Hooker of KeyBanc. Your line is open.

[Donald Hooker:]

Great, good morning. So strong bookings activity you just reported which is great and I’m wondering if you could provide a little color on some of the mix of the bookings between your different businesses particularly between sort of I guess project-based clinical trial work you do and between some of the more functional outsourcing and strategic solutions work you do. Can you breakout kind of a – give us a sense of the mix of the bookings in backlog? Thank you.

[Linda Baddour:]

We haven’t been giving that information because it’s not actually a segment, but suffice to say that they are basically the same as we was last quarter, it was we did have very strong bookings in our full service business this quarter so we are pleased with that, but also had nice bookings with our strategic solutions division. So and EDS came back strong, our early development services. Overall, it was a fantastic quarter for new business and we are very pleased with it.

[Donald Hooker:]

So when we think about your backlog again earlier question about when we started thinking about 2016 you finished September, it was a nice backlog that sort of the mix of that backlog as we were let out into next year. How might that mix compared to let say September of 2014 versus the different businesses are there anything – any notable change in the mix of that?

[Linda Baddour:]

There is really no notable change.

[Donald Hooker:]

Okay, thank you.

[Operator:]

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

[Tim Evans:]

Hi Linda, WuXi JV appears to have lost more money this quarter than last quarter I mean the losses are up substantially, can you talk about the progress of that business. I think there was some commentary around the IPO that those losses should narrow over time so just kind of curious the general progress and could you remind us how much that contributes in revenue right now? Thanks.

[Linda Baddour:]

Yes, we actually do not consolidate that above the line; we did read that in one of the reports this morning. We only have that – we only do the equity method on that investment and we did make an additional investment in a new JV, we’re in partnership with KKR on future JV investment of $20 million this quarter as you’ll notice that when the 10-Q comes out later today and that investment had a bit of a loss during the quarter which recorded for some expenses. The WuXi JV, you're right, it is not performing as I had planned back in November. There's going to be some changes coming with that, looking forward we are looking at the capital structure to see if there is something we want to change, but right now included in our guidance looking forward, we don't include that as adjusted net income so – but I will keep you updated and give you some more information as we do our full-year call in January.

[Colin Shannon:]

And just to clarify WuXi going private we're having discussions, obviously we’ve got great relationship with WuXi and we want to maintain a good friendly partnership, but we might have to make an adjustment to the JV and we are having discussions just now and probably within the next couple of quarters we’ll have that situation resolved.

[Tim Evans:]

Can you comment on the environment in China and why perhaps the JV hasn't performed to your expectations, is it something about the market environment there, or is it more about the structure of the relationship?

[Colin Shannon:]

It was actually – the market environment changed dramatically and with the regulatory complexities meaning that it was taking longer to get trials initiated unless we are doing local work. So a lot of the global trials were not using China. So we actually specifically developed some support service areas within the JV which actually really benefit as well. I would compare a nice programming group that isolates offering high-caliber programming which we’re very, very pleased with. So we actually utilize the group well, network actually having some of our clients staying there are no want to look at China again. So we’re starting to see that things are going to having for a little and we expect to see a little bit pick up in the future it was one of these regions that we have to how some level of presents so we obviously we are pleased with the investment we made there was important for our clients. It just unfortunately the timing work that things happen to change in the regulatory basis.

[Tim Evans:]

Okay thank you.

[Operator:]

And our next question comes from Steven Valiquette of UBS. Your line is open.

[Steven Valiquette:]

Hi, thanks. Good morning Colin and Linda. So really just a follow-up question on the margins a couple of different times there, but just a drilled down little bit deeper. Is anyway that just quantify just roughly not exact members is just roughly how much of the nearly five percentage point of EBIT margin expansion you had year-over-year. How much of that was driven by your operational efficiencies versus maybe just the mechanical benefits you are getting from currency?

[Linda Baddour:]

So basically I am sorry could you repeat your question?

[Steven Valiquette:]

Yes, so basically if you got roughly five percentage points of EBIT margin expansion year-over-year operating margin expansion. Just trying to get a rough sense for how much of that is truly driven by operational efficiency versus maybe just the mechanics of the currency translation the Mike give a benefit to that margin expansion as well?

[Linda Baddour:]

We’ve been clear on what the contributions are to the threat offline and the revenue line and if you make there is an adjustment you will how much of it is related to foreign currency.

[Steven Valiquette:]

Okay. All right, we can understood the extend pattern I guess. Okay all right that’s it for today. Thanks.

[Linda Baddour:]

Thank you.

[Operator:]

And our next question comes from Eric Coldwell of Robert. Your line is open.

[Eric Coldwell:]

Thanks good morning. Actually my primary questions have already been covered, but I will come back to this whole topic of biotech funding which has been out there for a while and you use to provide a little more transparency on the percent of your customer base I think you called the emerging clients if I'm not mistaken I think about a year ago was down to 10% or so backlog. I'm just curious if you can give us an update on when you look at your customer base what percent would you say are emerging or let's say pre-commercial pre-revenue clients and perhaps if you could go this for how many clients would be spread across that that concentration level and how you think about them over the next 12 months to 24 months of financing does in fact come down? Thanks so much.

[Colin Shannon:]

Yes, we will probably get more guidance of this at the end of the year, but suffice to say that that is not heavily weighted we guess we have a lot we do encourage our teams to work closely with emerging biotech but its not a huge amount and during the here today we’ve added 45 new clients and but the majority if you all some biotech or pharma. And you know we are finding a lot of the biotechs we worked with have been acquired biotech pharma so I'm we’re still working with them. So its actually changed the profile a lot even a low we’ve started with the small emerging biotech from know host somewhere else. And so install a very small proportion that is an emerging biotech sector, we still what closely with you often indications and as mentioned last time we’ve recently – what time in that’s a type of unique environment we can of our service to help these clients get the clinical trials done in a more a cost effective manner.

[Operator:]

And our next question comes from Greg Bolan of Avondale Partners. Your line is open.

[Greg Bolan:]

Hey, guys thanks for taking the question. So just going back to kind of the regulatory environment that you guys to talked about with the FDA. Are there any other regions within you know call it Asia-Pacific, specific like India where you are starting to see maybe an easing by the regulatory bodies and making a little bit I guess more little bit shorter timeframe to set up these clinical trial you know to get these clinical trial obligations filed and approved.

[Colin Shannon:]

India is not a good example because that was different reasons for that issue when they started actually holding the settle that tend to go for issues in the compound. That became a very different issue, just to clarify that. But the rest of Asia is pretty strong with no real barriers obviously there is differences in each area; Japan is very different from other parts of Asia. But we are seeing strong growth and Australia, and other Singapore and other areas, South Korea. These are all strong growth areas in Asia, so apart from the China issue, which obviously because it’s a huge amount of population, it can actually impact clinical trials very radically that regulatory environment cause the pause. There is no point and get failing for regulatory approval and it’s clinical trials finished before the approval happen. So that was the dilemma clients were facing.

[Greg Bolan:]

That's helpful. Thanks. I guess maybe if could ask Eric's question, just a little bit differently if you think about the kind of the spirit of the numbers that you guys gave back I think this time last year actually just in terms of client concentration. So from large biotech to large Pharma to small and medium Pharma to emerging biotech. I guess is it fair to say that those are pretty constant with last year?

[Colin Shannon:]

Yes very much. So…

[Greg Bolan:]

Okay, all right. Great, thanks guys.

[Linda Baddour:]

Thank you.

[Operator:]

[Operator Instructions] And our next question comes from Garen Sarafian of Citi Research. Your line is open.

[Garen Sarafian:]

Hi, guys. I just had a couple of follow-ups that didn’t come up yet. First, on the RPS acquisition in the past you spoken about cost synergies repricing the certain contract, cost sales opportunities and probably other areas not bringing up. But my impression was that were more the tail end of achieving, if not all though these majority of the targets at this point. So I know you are not giving guidance to 2016, because you just elaborate a bit on what’s still on your radar to get done especially if it carries beyond the next quarter?

[Colin Shannon:]

The bulk of integration as we told you had been completely but there is always work as we – we have been continually using some of our programs to bring in more or less expensive staff to augment the current experienced staff within a strategic division and there are no - have seen great success in some of our programs and the clients are now wanting to adopt more of that type of training programs that were actually implemented, they are seeing the benefits of getting less expensive staff trained up faster and obviously helps with the attrition rates that they more – seem to be more loyal. So we were working through these types of programs, we were adding other benefits that are utilizing some of the tools that we have from the legacy PRA type that’s actually becoming very useful for the client. So overall we are finding that the relationships are getting more enhanced and we are feeling very, very positive about the strategic solution business. In fact the two individuals running that unit are ecstatic with the progress they've made and they are almost in this belief, the progress and profitability that the unit now provides.

[Garen Sarafian:]

Great. On debt repayments I think David asked this question. But you mentioned your net debt-to-EBITDA ratio as come down beyond targets. But I expect more from EBITDA growth rather than that paydowns that we had modeled. So is there any sort of change in how you are thinking about this metric or is it pretty consistent with what you have been…

[Colin Shannon:]

I mean as we mentioned we use the substantial amount to be pay off the swap I mean that was choice to really protect going forward, we decided I obviously we had – in the protection but we have decided it was too costly so we use the funds to actually payoff the swap and then take up a new one to protect swap through to 2018. So we made that choice for the capital allocation in that manner.

[Linda Baddour:]

But our philosophy going forward, if we have extra cash we will be paying down debt.

[Garen Sarafian:]

Okay. All right, that sounds pretty consistent. And then just lastly on R&D credits, Linda you mentioned that there was a result of a thorough review, but is that something that you expect to continue periodically even if it's on an annual basis was that more of a one-time event?

[Linda Baddour:]

Now, well going forward in the P&L we’ll have some benefit every quarter from this credit, it will actually be as I mentioned on the direct cost line it’s more of a reimbursement than a tax benefit and we are still going through other jurisdictions in Europe to see if we recall fast and no its not complete we could have some additional pickups in the future.

[Garen Sarafian:]

Got it. Okay, great. Thanks again.

[Linda Baddour:]

Thank you.

[Operator:]

And our last question comes from David Windley of Jefferies. Your line is open Dave.

[David Windley:]

Hi, I had a couple of follow-ups as well one on the Garen’s last question. I believe $8.5 million in the third quarter that you excluded from adjusted. Was that all of the amount Linda or was that only the out of period amount?

[Linda Baddour:]

Dave, that was the only out of the period amount. Yes, there was a small amount included in the quarter.

[David Windley:]

So to the extent that you expect to credits to repeat the amount that were repeat is actually reflected in the third quarter so that would be kind of net neutral sequentially?

[Linda Baddour:]

That’s right.

[David Windley:]

Okay. Let see the other question I had is on going back to the strategic deal Colin, do you have a sense for how much business could flow from that client. I know you said there was nothing included in bookings in the third quarter you might see a little bit of beginnings of some in the fourth quarter, wondering kind of where you think that could ramp to?

[Colin Shannon:]

I couldn’t actually tell you at this moment Dave, it’s actually taking through, but obviously it is very delighted, we’ve the opportunities to work with the new clients as early Dave. We know that they have got a very healthy pipeline, we are excited to work with them, we are looking forward to it. So we want to get more clarity I’ll certainly share it with you.

[David Windley:]

Okay, thank you. And then I guess the last question I have was just follow-up again on your comments around the improvement in margin and strategic solutions I guess in order for us to try to triangulate a little bit here. I wondered if you give us a sense for either the differential in margin between your programmatic side and your more functional side or has the functional side exceeded your original expectations and I think what I’m going back to is that the IPO we kind of had in our minds an idea of where your goals were for traditional programmatic business and where your goals were for FSC type business and those blended to a number and I’m wondering how we should think about that kind of 15 to 18 pre-FX, 15 to 18 range or maybe 16 to 19 in fact range as we move forward from here?

[Colin Shannon:]

I mean Dave, as Linda mentioned we are tracking very, very well on to plan and we just obviously hope that we would achieve these types of profitability for the strategic solutions because we are in unknown territory, but we actually saw that we made all these changes that would lead through. We two obviously both enter forecast and we actually deliver and achieve them, so we are very pleased that we have planned. It’s now very, very difficult to tease out the differences because we’ve moved a lot of the infrastructure in the different parts of group consolidating. So it’s a very different work that we had in the past, which means it’s almost impossible for us to [indiscernible] apples-to-apples, but just suffice to say that we’ve hit the plan that we achieved when we are setting down they are rocking through with KKR, and looking at all of the synergy buckets and what we intended to achieve, we are delighted to see that’s been executed perfectly and nicely as planned.

[David Windley:]

Okay. One more I apologize, so we haven’t talked much about predictive in the Q&A. I think you're still pretty early in your rollout of modules there perhaps you can give us a sense of whether you want to use the baseline analogy or something else in terms of how far along you are and rolling out elements of predictive and as it relates to some type of call it placebo-controlled trail, do you have work that you are now far enough along an executing on the Predictivv platform where you could measure how much benefit the running Predictivv is providing to the company versus the old way.

[Colin Shannon:]

David it going to be really doing that from at Q1 next year this year will set up as you know some introductory pilot study were certain clients but a lot of thought it you know we are getting the benefits were not moment one more refining loan on the years getting all of our documentation change management process. This is a whole year of I'm ever evolving changes to the platform we stopped it off with a whole number of initiatives are underway so we are functionality all of the time and even you know we are getting information from clients the feedback what incorporating the nice thing about having a platform as we can actually rapidly change things and adopt very quickly. It was a whole idea behind all. So we are really looking forward to starting well from the beginning of next year and measuring the benefits and seeing the improvement. So we're excited we are actually getting great feedback from the clients as I mentioned. There are seeing we’re coming out thinking definitely were destructing the way things have been done in the past and you know which is actually very refreshing to them they don't want the same old - same old. So we’re trying to be different and allow them to help you get that deferential.

[David Windley:]

Great thank you. Thanks for taking my questions.

[Colin Shannon:]

Thanks you, Dave. End of Q&A

[Operator:]

And I am showing no further questions at this time. I would now like to turn the call back over to Coiln Shannon, President and CEO.

[Colin Shannon:]

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

[Operator:]

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. And have a wonderful day.