Q4 2019 Earnings Call
Good morning, welcome to <unk> fourth quarter, and full year 2019 earnings conference call.
Today's call is being recorded and we've allocated one hour prepared remarks acuity.
At this time I'd like to turn the conference over Tonight, Spiker, Senior Vice President Finance for P. D.
Spyker you may begin.
Good morning, everyone. Thank you for Johnny earnings call Today will review, our financial operating results for the fourth quarter in 2019 four year.
Joining me on the call today, or David Simmons, Ppgs, Chairman and CEO, Bill trouble or C O and Chris Scully our CFO.
Please note that today's discussion contains forward looking statements based on the current business environment and as such include certain risks and uncertainties, which could cause our actual results to differ materially from such forward looking statements.
More information about potential risk factors can be found in our recent SEC filings and our upcoming form 10-K filing.
So in addition to U.S. GAAP reporting we will be discussing financial measures that do not conform to gap.
We believe these non-GAAP measures enhanced the understanding of our performance because they are more representative how we entered we measure our business.
Please note. These non-GAAP financial measures should not be considered in isolation from or as a substitute for GAAP measures. A reconciliation of GAAP to non-GAAP results is available in the press release, we issued last night.
In the supplemental Investor presentation posted tour Investor Relations website.
Finally, I'd like to highlight that our team will be attending the Barclays Global Healthcare conference in Miami next week.
With that I'll turn the call over to David.
Thank you need and good morning, everyone. Thank you for joining the call today will be covering our fourth quarter and full year 2019 results. We'll also discuss some of our recent capital transaction operational highlights and provide full year guidance per 2020.
I'd like to start by saying that I'm proud of what the PBT team has accomplished recently, including a strong close to the year and the successful completion of our IPO last month.
Our talented employees their commitment to excellence and unwavering focus on delivering for our customers have advanced our mission to help bring to life changing therapies to patients in need.
With that said I'm pleased to report that our 2019 commercial and financial results reflect a continuation of our solid track record of performance.
I'll cover some of the highlights before turning it over to bill and Chris to provide more detail.
On the selling front, our net authorizations were over $3.8 billion for the year, resulting in a net book to Bill of 1.22 X.
This success contributed to a record ending backlog of $7.1 billion, which grew 11.9% over the prior year end.
While the CRL industry continues to benefit from heightened levels of R&D spend and outsourcing penetration growth in our book of New business has been further aided by the expansion of our addressable market through strategic acquisitions, we pursued over the past several years and an uptick in our win rates over time.
We believe the win rate improvement has primarily been enabled by our strong culture and our continued focus on quality and operational rigor.
Also enabling our growth is our differentiated suite of laboratory services and bespoke customer engagement models for both large bio pharma and biotech customers.
Let me dive deeper into a few of these points.
First is our culture of quality.
We have a demonstrated the expertise and ability to deliver a comprehensive suite of high quality services with consistent standard operating procedures and low colleague turnover across the world.
This is important at a time when clinical trials and numerous therapeutic areas are becoming more complex.
Our commitment to quality and low turnover mean stability and reduced audit risk for our customers.
For example, we believe our project manager turnover as one of if not the lowest than the industry.
Continuity and this and other key customer facing roles leads to higher quality and satisfaction and ultimately repeat business.
Second is the expansion of our addressable market, we believe that in concert with effective customer engagement models specific to large biopharma into biotech.
Our investment of over $1 billion in the past six years to add newer enhanced services is resonating with our customers, specifically I'm, referring to our investments in sight and patient access.
Perry post approval services, including real World evidence.
Expansion of our leading laboratory services and our cutting edge investment in the digital virtual trials arena.
Turning to the result, our topline growth was supported by our stable backlog conversion rate as segment revenues, which exclude third party pass through Unreimbursed revenue grew 10.8% for the year and adjusted EBITDA grew 9.8% as we continue to focus on both operational.
And financial discipline.
These results are at or above the midpoint of the preliminary 2019 full year ranges, we provided in connection with our IPO process.
As you May know, we raised net IPO proceeds of $1.77 billion. We immediately put a portion of these proceeds the work by redeeming all of our 1.45 billion dollar and senior Pik toggle notes in February.
Assuming the IPO and debt pay down had occurred on December 30, Onest 2019, our adjusted net leverage at year end would be approximately 4.7 acts as compared to 6.9 acts on an as reported basis.
Given our strong book of business with a record ending backlog of $7.1 billion strong 2019 financial results and significant reduction in our net leverage we are well positioned for success and growth in 2020 and beyond.
With respect to the Corona virus, we are actively monitoring developments and working across three focus areas first we've organized a pandemic committee to work closely with our colleagues intercept policy to ensure colleague safety. Our primary objectives are to ensure our colleagues safety and not to contribute to the spread of code.
19.
Second we are continuously assessing the impact to our operations and implementing contingency plan such as increased use of remote monitoring.
Thus far operational impact has been mostly limited to reduce site monitoring and recruitment activities and affected areas.
The financial impact based on our latest assessment has been factored into our full year 2020 guidance that Chris will cover.
Third we have organize the task force to ensure our customers who are pursuing vaccines and treatments are able to get fast and complete assessments and support from PPD for their endeavors.
Specifically PBD is actively engage with nine customers working on coded 19 vaccines and treatments from RFP responses to start up activities Post awards.
There's no Greater example of PPD mission and action to help our customers deliver life changing therapies to patients in need.
Well continue to provide updates on this topic in the coming quarter quarters as the situation of all I'll now turn it over to Bill Sharable, Our Chief operating officer to review our operating results.
Thank you David 2019 was another year of strong operating momentum across the business amplified by strategic investments in areas. We believe position us well for continued growth I'll spend a moment talking about several of these investments and other highlights.
First I'll focus on our clinical development services segment.
We have steadily expanded and improved our site network and patient access capabilities, specifically the key challenges of finding the patients and then efficiently processing them through a clinical trial.
Using our direct to patient recruitment techniques allows PPD to leverage our large identified and consented datasets.
And send potential patients two sites close to home within our extensive global network of over 180 sites.
In 2019, we bolstered these capabilities with the acquisition of since Mark The Global site network, formerly owned by Bioclinica.
In addition, we've continued to invest in our differentiated biotech model focused on early engagement heightened collaboration around clinical strategy and agility in operational execution through the entire drug development lifecycle.
We are one of the earliest large CR rose to offer this type of model, which has proven to deliver industry leading results for our biotech customers.
And lastly, we remain focused on investing in our leading Perry post approval services in 2019, we acquired Mehdi mix International a technology company specializing in generating oncology real world evidence that enables clients to make better product positioning decisions.
Planned future studies and improved market access strategies.
Moving onto our laboratory services segment.
During 2019 and through organic investment, we added capacity to our laboratories in the us.
Started up fit of a new lab in China, and finalize plans for capacity expansion in our Europe based slabs.
Our lab services, which span bioanalytical, GMP vaccines bio marker and central labs offer customers a large highly reputable service provider our success as evidenced by our lab segment revenue growth of more than 19% in 2019.
We plan to continue investing in our clinical development services and laboratory services segments.
Further differentiate our offerings drive efficiencies and grow our market share over time.
And finally, we remain focused on excellence in clinical research and development of our employees as in prior years. We received numerous accolades in 2019, let me mention just a few.
PPD was once again named one of the best large employers by Forbes, which also recognized us as a top employer for diversity.
We were named the best COO provider for advancing cancer research at the World antibody drug conjugate awards for the second time in three years.
And PPD won multiple honors in the annual Pharmatimes clinical researcher of the year competitions.
While we're very proud of our differentiated suite of offerings. These accolades are examples that reinforce our commitment to developing talent and achieving excellence.
This concludes my comments and I'll now turn it over to Chris Scully, Our Chief Financial Officer to review our financial results.
Thanks, Bill good morning, everyone.
Im pleased to report strong results for both quarter, four and full year 2019, with the business meeting or exceeding the midpoint is provided in our recent S. One on all metrics and delivering double digit growth in authorizations backlog segment revenues and adjusted EBITDA in 2019.
My prepared comments I'll be walking you through the details on each of the above followed by an update on our capital structure post IPO and associated plans for debt refinancing and lastly, providing 2020 guidance before opening up for QNX.
Beginning with authorizations quarter, four was the strong quarter in which we booked $1.013 billion net authorizations, resulting in a 1.24 X net book to Bill ratio.
As a reminder, a 1.20 acts net book to Bill ratio combined with PPD is backlog conversion rate of roughly 12% per quarter has historically translated into double digit revenue growth.
Full year 2019, we recorded 3.827 billion and Nick authorizations up 11.9% from prior year, and resulting a net book to bill ratio of 1.22 X.
As a result of these bookings our yearend backlog increased to a record level of 7.1 billion up 11.9% from Twoq 2018.
It should be noted that these authorizations backlog and net book to Bill figures include or exclude pass throughs and reimbursables to provide comparability with historical reporting.
In 2020, we will be evaluating our disclosures on these metrics and whether or not to include pastors and reimbursables.
Turning to revenue, we achieved 1.047 billion in quarter, four representing 7% growth over the same period last year.
Full year revenue of 4.031 billion grew 7.5% over last year.
Underlying segment revenues, which excludes pastors and Reimbursables and remains on AMC six so five basis grew 7.5% during quarter, four and 10.8% for the full year 2019.
Within the specific segment results, both clinical development services and laboratory services segments had strong years.
Clinical development services revenue of 2.54, or 5 billion grew 8.9% while laboratory services revenue of 599 million grew 19.3%.
Fourth quarter adjusted EBITDA of 214 million grew.
0.3% compared to the fourth quarter of 2018. This more muted growth was due to an exceptionally strong quarter four in 2018 on a sequential basis quarter for 19, adjusted EBITDA grew 5.8% versus Q3 2019.
For the full year adjusted EBITDA of 777 million increased 9.8% over 2018.
With respect to 2019 cash flow our net cash provided by operating activities was 433 million our net cash used in investing activities with 233 million and our net cash used in financing activities was 422 million.
Turning to capital structure.
We ended the year with cash and cash equivalents of 345 million net debt of 5.361 billion, resulting in net leverage ratio of 6.9 X.
In February the company successfully price their IPO, including the full exercise of the Greenshoe, resulting in net proceeds of 1.77 billion, which we used a portion of to redeem the entirety of our outstanding 1.45 billion in senior Pik notes, which represented our most expensive tranche of debt.
Assuming the IPO and note redemptions had occurred on December 31st 2019, our adjusted net leverage ratio would've been approximately four point sevenx at year end, which is significantly below the 5.0 acts we communicated at the onset or the outset of the IPO Roadshow and puts us on a strong trudged.
Factory towards achieving the expectations, we shared to reduce net leverage to the low fours by the end of this year and into the threes in 2021.
Importantly, our commitment to deleveraging will not compromise our ability to invest in the business and pursue strategic acquisitions should the right opportunity or strategic tuck in acquisitions should the right opportunities arise.
Following the IPO, both Moody's and S&P upgraded our corporate credit ratings to be Athree stable and B plus positive respectively.
As you may be aware from our 8-K filing we recently launched a term loan b offering to refinance our remaining debt portfolio to take advantage of our improved credit ratings and reduced leverage profile and to further reduce our cost of capital. However, given market volatility surrounding the Corona virus, we and most other issues.
In the market.
Decided to temporary put on our our offering on hold until market conditions stabilize we will continue to monitor the market and revisit our refinancing plans if and when conditions improve.
Before turning to 2020 guidance as we mentioned during the IPO process. Our expectation is for double digit adjusted EBITDA growth on a compound annual basis over the next several years with stable to slightly improving margins.
For 2020, we are providing the following guidance for the full year.
Revenues of 4.35 billion, the 4.474 billion, which equates to 8% to 11% growth versus 2019.
Please note that we're providing a slightly wider range for revenues given the inclusion of pass throughs under assay six so six which as you've seen from other see arrows can fluctuate up or down a bit and can be more difficult to forecast than EBITDA.
Adjusted EBITDA of 855 million to 870 million, which equates to 10% to 12% growth versus 2019 on an as reported basis and 8% to 10% on a normalized basis. If you adjust our 2019 results to exclude 14 million and costs associated with a cash based.
Long term incentive program, which we are terminating and migrating to a traditional stock based program in 2020.
Further given our strong backlog and momentum exiting 2019, we expect to deliver the top path.
Both our revenue and adjusted EBITDA range is that I just shared.
In addition, similar to our peers the guidance above factors in a mid single digit million impact to revenue and adjusted EBITDA, primarily in quarter, one from the Corona buyers.
This is based on our current best estimate of the impact of the Corona virus in the countries, where we've seen disruptions in our operation so far including China other parts of Asia and some European countries.
Our current estimate of the impact assumes that those countries return to more normalized levels of operation in early quarter too and that there is not immaterial expansion of disruption into other countries, which is difficult to estimate at this time.
So in summary.
Tpd delivered strong quarter, four and full year results in line with we're ahead of the metrics in the S. One with double digit growth in 2019 on the most important line items.
We are ahead of schedule on reducing net leverage post IPO and will further seek to reduce our cost of capital through a refinancing of our remaining debt when market conditions approve.
Finally, we are expecting another solid year of top and bottom line growth in 2020.
With that I'll now hand over the call back to the operator to open the line for QNX.
Thank you well now be conducting a question and answer session. If you like to ask your question. Please press star one on your telephone keypad and a confirmation total indicate your line is in the question Q.
You mean press star to feel like to move your question from the Q.
Just one said using speaker equipment, it may be necessary to pick up your handset before pressing the star Keith.
So that we may address questions from as many participants as possible. We ask that you limit yourself to one question and one follow up.
One moment, please while we pull for questions.
Thank you. Our first question is coming from the line of Jack Meehan with Barclays. Please proceed with your question.
Thank you good morning.
Turning to started on current virus commentary I was wondering if you could help us just quantify what you. How you think about your exposure to China and then you talked about site monitoring and recruitment is your expectation that you can catch up on some of those things beyond you know when things returned to normal.
Versus.
Your expectation within the trial could things actually just get pushed out.
Jack Thanks for the question.
Don let Chris take the quantification of impact part and then I'm going to give some color commentary of what's really happening on the ground in China and get to your question of whether catch up as possible or not.
Good morning, Jack So going to your question on on the importance of kind of tied to US is China kind of right now contributes in the low single digits in terms of our kind of revenue and EBITDA kind of for the company. So hopefully that quantifies I think its impact and in terms of the ongoing kind of impact and whether it's just a delay in recording kind of ours.
Hello.
Or.
Revenue in EBITDA or it's a permanent impact we have a mixture of both so in some cases, we kind of think that it will result in us kind of catching up in the revenues in later quarters in other cases, where we have fixed cost due to either sites are kind of people on the ground those costs will fall to the bottom line in quarter one.
So Jack adding a little color on China, and maybe to put this in perspective, no China has been the first and probably most significantly impacted country with Corona virus. So.
That's what we're using the model how this might have effect as it as an if it spreads to other countries. So what we saw was that the.
The effect in China was predominantly the inability to do monitoring visits at sites that's what's.
Underneath the most significant part of the impact estimation, we have and when we look at all those visits and we unpack them and we look at our application of contingency plans on those the site visits we can see that about 30% of those site visits we've been able to switch over to remote monitoring without setting somebody on the site.
So we've been able to conduct the sites, where the site visits remotely and do the monitoring remote work remotely. So we're not at a zero in terms of being able to to conduct billable activity in China. When we look at the remaining.
Percentage of the stays we've got about 20% that are already being rescheduled for sites that have reopened and that leaves another 50% that we have to reschedule once the sites do become opened for activity. This changes province by province. So there is one reason to believe that aren't when a country.
As affected that I won't go into a shutdown of full impact with no billable activity through remote monitoring and the fact that only certain hospitals are affected you get some level of billable activity. The second part is there's reason to believe that there can be a catch up an acceleration to some extent of what's going on so and China is starting to see hospitals that are.
Reopening for business and were getting these visits rescheduled so hopefully that color commentary helps you a bit.
Yes, Thats great color and then just as a follow up as I look at the 2020 guidance that you note similar to what we're talking about as part of the IPO process I was actually surprised you're talking about the upper half of the range, especially in context of what's going on unrelated to the current a virus. So.
Obviously, you've had a lot of momentum, but I'd just be curious to get some more color over the last couple of months, what's changed where you feel confident to say upper half of the range for 2020.
Yes, Thanks really what it is what you hit on its the strength of our backlog in our business momentum kind of exiting kind of 2019 in entering into kind of this year.
Thank you.
Our next question. This from the line of Tyco Peterson with JP Morgan. Please proceed with your question.
Hey, Good morning, you guys had a nice sequential step up and book to Bill 1.14 to 1.24 can talk a little bit about drivers there was that more biotech versus pharma any of that on the laboratory services side.
Yep Psycho I'll start with this is David.
First there was strength across all segments. If you look at clinical across biotech and large biopharma customers were really strong and.
Laboratory services was really strong so it was pretty strong across the table, maybe peeling the onion back a little bit and going on the clinical side and I'd, rather not talk about quarter specific we don't like.
Quarter looks as to narrow, but if I break out to the second half of the year to get a little more data and thus we saw.
Okay.
Decent healthy increase in competitive decision volume, meaning the type the activity that we're bidding on whether we win or lose it we saw that increase across some of across both segments, but we saw when rates increase across both segments bio pharma and biotech. So we saw a pretty significant growth when you compare second half.
For the year to the second half of the year in 2018, so as Chris mentioned momentum being the reason that we're optimistic on the full year, we're seeing that across both segments.
And then maybe I guess looking ahead piggybacking off Jack's question on guidance any segment level you can give us.
We think about the revenue split for clinical development services and laboratory services and then on margins you know you're not really guiding for leverage obviously, you've got increased public company costs and maybe some planned investments, but maybe Chris you could talk a little bit about their underlying margin leverage as we think about the margin trajectory longer term.
Yes, yes, right. So I think you had you had two questions here first is on segments.
The segments, we don't plan on kind of guiding to specific kind of segments, but what we would say as we continue to expect in 2020.
The labs business to kind of have faster growth than the clinical business, maybe not quite at the 20% or nearly 20% that we booked in 2019, but still kind of healthy and robust double digit growth.
On the margins kind of question that I think you know as you kind of noted we are kind of absorbing the.
Public company costs that are in the neighborhood of $10 million as we shared during the that the road show as as the new public company.
And I think on an ongoing basis as we shared in the roadshow, we're expecting kind of margins to kind of be stable to slightly kind of improving as we kind of go forward as the company.
Okay, and then just one last clarification on Covance any development work on vaccines and drugs that potential driver to the upside in the back half a year or should we not.
Thanks.
Yes, well first we before getting into what could the impact of the work be we are engaged with with nine customers.
From pre RFP activity into active RFP activity to work Post awards.
I would say some of the color on this is there of the nine that we're engaged with six are pursuing vaccines three are pursuing treatments. The treatment work is accelerated because you have some some precedent products that already have established some safety and efficacy profile. So they are able to move faster we're seeing that move.
Pastor so.
So thats 0.12nd point is.
So far as I see monies that are allocated to support these programs are not.
Being funded at the detriment of other pipeline programs that we've been talking about with customers. So it does look like additional.
R&D spending to support the response to Corona virus, which would imply that whatever we when would be maybe an unanticipated upside to what we had forecast coming into 2020, but I would be load that to try to estimate what that what that might be.
Okay. Thank you.
Our next questions from the line of Ricky Goldwasser with Morgan Stanley. Please proceed with your question.
Yes, yes, hi, good morning.
Given the lower rate environment and to.
The improved rating with the agencies can you just talked about the potential timing for refinancing refinancing.
In the near term in 2020.
Yes sure of Rick.
I think basically are kind of expectations for kind of timing or is as soon as the conditions in the financial markets support doing the refinancing going it's a little more detail.
I should note that we're not in a position where we need to do a re fi imminently because of a looming maturity issue. Rather this is about us opportunistically looking to take advantage of the improvement in our credit ratings and improved leverage profile post the IPO to lower our cost of capital.
When we kicked off the process a few weeks back rates were actually it historically favorable levels when looking at them from a three five and 10 year perspective last week. Unfortunately, when the book was scheduled to close market conditions had shifted and the volatility made it difficult for us to do a deal almost independent repricing.
As various lenders were struggling to price risk and preferred to sit on the sidelines or depressed for terms that we didn't feel with the right ones for the company. The prudent thing was for us and as you saw several others that put it on halt we've seen some signs of the market recovery are recovering even in the last kind of several days and we'll continue to monitor.
The situation closely in the days and weeks ahead and determine what is the most opportunity in time to re enter.
Okay, and then thoughts question on guidance, just if you can give us little anymore color on the cadence I know you said backend loaded earnings similar to two other.
The industry, but <unk>.
Given kind of like Youre or how you think about to coordinate.
Chris impact any additional color would be helpful. As we think about the percentage between first half in second half.
Yep.
So let me start by saying that while we feel good about the full year guidance provided today and the accuracy of our forecast on annual basis individual quarters tend to be a bit lumpier given the nature of our business project, starting up or closing out the timing and contract modifications et cetera with that in the future. When we report individual quarters I would encourage.
Investors not to overreact, one way or another two our quarterly results and instead focus more so on what we guide for the full year, which is really how we manage the business now that being said I think.
While we're not providing quarterly guidance historically, we've driven 46% to 48% of our full year EBITDA in the first half versus 52% to 54% in the second.
Thank you.
The next question is from the line of Robert Jones with Goldman Sachs. Please proceed with your question.
Okay, great. Thanks for the question.
Maybe just to go back to guidance it looks like the conversion implied by the 2020 guidance, even after backing out the Corona virus impact it would imply that the conversion rate is set to decelerate in 2020, obviously you guys have kept that pretty consistent overtime, especially flat throughout 29.
So just curious if theres anything at play there from a specific trial standpoint that might.
That might degradation to conversion rate and then just on the overall guidance is first time, where in a while at least that we've had guidance from you guys. I'm just I'm just curious upper half of the range on initial guidance what prevented you from just putting the entire range higher and.
Thinking about the midpoint or there are there are risks that we should be considering that led you to keep the range. The way it is an endpoint towards the upper half.
Yes, so on the first got a piece of the question on a conversion rate I wouldn't necessarily draw that conclusion, our Bob I think what's kind of going on there is that.
Yes, the kind of the backlog that reporting is still on an assay six so five basis, excluding passers, whereas kind of the revenue projections are on an assay six of six basis, including basically passers, which can kind of lead to some anomalies, but we're expecting.
Conversion rates to be in the same ballpark as they are today or to slightly kind of improve.
Regarding basically why we kind of wouldn't go and increase the ranges as we kind of noted.
We feel really good and confident about basically where we exited the year and our momentum kind of going into the or at the same time there are variables such as the Corona virus. Okay. That's still are a bit of an unknown.
And we don't want to get ahead of ourselves I think for that reason.
That's fair and then I guess, you know market conditions are obviously moving around the timing of the re Fi, but assuming eventually that gets done thinking about just capital deployment beyond that.
That at that event could you maybe help us think about the cash generation and then prioritizing buybacks versus M&A versus reinvestments.
Yes, I think.
No. The answer is that I think on cash we expect the kind of continue to accumulate cash over the rest of this year and hopefully on an accelerated kind of basis I think if we're successful and basically getting good rate on kind of the refinery on capital deployment priorities.
Our immediate capital deployment priorities as you noted is lowering debt levels to the levels that we've kind of guided to which we feel in great shape of four given where we exited the IPO.
Beyond that our capital deployment priorities are going to depend on what drives the highest returns for shareholders to include.
Further reductions in leverage increased investment, both organically and via M&A or tuck in M&A or capital returns to shareholders or some kind of combination or mix most likely have all the above.
Business industry and market dynamics at the time are going to be critical inputs into our thinking.
I think what I would say, it's the current volatility in the financial markets demonstrates its tough to project, where the markets are going to be.
18 to 24 months out so what we would say it's important takeaway for investors is that the strength of our cash flow conversion just gives us significant flexibility to drive shareholder value. We have a great track record of deploying capital as evidenced by our historical growth and financial results and that we as a company or our guided to and committed to doing.
What's in the best long term interest of our shareholders.
No that makes touchsense appreciate that.
Thank you.
Our next question is from the line of Eric Coldwell with Baird. Please proceed with your question Hey, Thanks very much good morning.
Chris adverse impact in the affected regions are understandable, but have you seen or do you foresee any impact on business development in general beyond coded tests.
You see any general impact on client behavior, perhaps there are distracted.
There are an internal operations or you are impacted by travel restrictions I'm just curious if you've.
Factored in any anticipation of maybe a little more challenging bookings environment in Q1 in Q2 because of these district distractions. Thanks, so much.
Yes, Eric it's David I'll take this.
First the short answer is no we're not anticipating any negative headwind on BD activity as a result.
Cobot 19 at this point, we're monitoring that that could change and that's driven by the face to face engagements. We've had over the last month and a half since covert night team them become manifest in China, and we're not seeing any impact on customer engagement.
As of.
Studies timing of study conduct.
The volume of activity and discussions that we're having doesnt seem to have been impacted every conversation. We've had the only discussion of cobot 19 has been around how might this impact country and site selection and the study not whether or not the study would.
Withdrawn.
So that's a little bit of color commentary, but the short answer. The question is no not seeing a negative impact or anticipating a negative impact on commercial.
Pipeline volume.
Great. Thanks, much guys.
Our next question is from the line of Elizabeth Anderson with Evercore. Please proceed with your question.
Hi, good morning, guys.
To add to that kind of a question bank a little bit.
You mentioned you would that come in your commentary the China.
Hi.
This expanded.
Yeah.
Have you seen any impact on the business.
And as well.
Yes, So I think we've had a minor impact in that.
Europe, I think where we kind of closed temporarily are kind of Milan office.
But basically not kind of sizable basically impacts at this stage.
Yes.
And as you mentioned in terms of capital deployment strategy and.
Nice acquisition do you guys have done over the past <unk> can you talk qualitatively at least about.
Maybe in the quarter in the back half.
Capabilities.
Harry post approval space.
Yes, I'll make a general comment.
We we scrub hour.
Competitive decision volume.
Activity our awards are authorizations in the backlog and we cut those analysis for multiple lens. The one thing I've I've noticed in 2019 overall.
Is a increase in volume and win rates in chronic disease conditions I think for those who have heard us over the past several months in them engage with US directly you would've heard that we feel that we have very unique and differentiated service offerings in oncology vaccines.
Chronic disease conditions, and rare disease conditions and chronic disease. We definitely are seeing an uplift and award volumes that seems more significant than much more significant than an increase in R&D spend going into those therapeutic areas. So it's.
It's hard for me to prove direct causality, but at least there is a leading indicator to believe that the value propositions that were on rolling and chronic disease conditions are being accepted in adopted by the customers.
Thanks, that's helpful.
Our next question is from the line of Dave Windley with Jefferies. Please proceed with your question.
Thanks. Good morning, Thanks for taking my question kind of follow ups at this point.
First one is there any carryover of the L. tip expense beyond 2019, or does it will you be able to cut that off cleanly at the end of year.
Yes, Thanks morning, Dave, Yes, LTIP will be kind of cut off at 2019, So no impact in 2020 in terms okay.
EBITDA.
Alright, great Youre, a I think what are the things we didnt get preliminarily was cash flow in your looks like your free cash flow conversion is actually quite strong to end. The year I can you talk about drivers of that and then persistency of that potentially into 2020.
And this is Nate and one thing I'd call out.
Of any note there is we do often see.
End of year, we'll have some customers that opt to pre pay a little bit of their a our as theyre using on spent budget money. So we had a little bit of that but otherwise nothing notable and that pull forward, we wouldn't change our views on the conversion rate in 2020.
As for again, one last quick one I think a tax rate was a little low in the fourth quarter. Your guidance to US I think was about 21 to 22 is that unchanged and and what was the driver the low tax rate in the fourth quarter.
Yes, that's unchanged as far as as we sit now going forward and still guiding that low twentys and then with respect to quarter for effectively there was that a carry forward tax benefit there was utilized so.
We don't expect will continue into 20, something great we're still in that zone.
Great. Thank you.
Our next questions from the line of one of and Dano with Bank of America Merrill Lynch. Please proceed with your question.
Alright, alright, thanks for taking my question I.
I guess importing 19, bio pharma customer M&A activity to pick up.
You can you tell us if you can what does your exposure through our new if the recent biopharma mergers or help us quantify the potential impact.
Yes, so first I'd, just reiterate pbds policy or we're not going to discuss or comment on specific individual customers on wins or losses, and we think this I think it's confusing to try to monitor these partnership wins and losses and what's happening in them and we don't think our customers want us to talk too much about specifics of there.
Our decision, making processes, that's with bond the policy, but I do want to try to inform that the essence of your question. So to try to generalize. We've seen recently three large biopharma consolidations and of those three.
We're netting out positive if you look at those all those companies as a group and authorizations volumes from those companies as a group we're looking at a positive impact of the consolidations across all three when you add them up.
So hopefully that helps you a bit.
Okay. Thank you appreciate the color a mirror and along these lines I guess, what does your outlook on bookings growth permit book to bills and move nearer term anything in particular, there we should take into account.
With regards to bookings in that book to Bill and point importing.
Yeah, one I think we're not basically expecting the basically guide on authorizations I think you know that said as.
We tried to hammer home I think during the road shows is the way that we do look at it is a 1.2 opex or greater equates to double digit revenue growth holding that backlog conversion rate constant.
Okay. Thank you.
The next question is from the line of Paran right with Credit Suisse. Please proceed with your question.
Hi, Thanks can you break down some of the key drivers across the lab the unit and the most recent quarter in could you break out the central lab performance. It means anecdotally from kind of some of the other key segments across the wide basis and and also just more broadly can you remind the success you're seeing in cross selling across that business.
And how that's impacting win rate. Thanks.
Yes. Thanks for the question on the Labs. This is bill.
Yeah, we've kind of mentioned that the breadth and scope of our labs is extensive it's been built over the last 30 years and custom designed for drug development. We're not we're not going to break down individual lab units were talking about the labs as a segment in general but.
In 2019 and in Q4 all of the labs performed strongly so we feel good about that and you know the fundamental reason as we've got the breadth and scale, where global we invested as David mentioned.
Previously.
The investments we've made some of those have been oriented to the to the labs, all organic about $200 million over the past number year is focused on biologics.
Monoclonal antibodies vaccines gene and cell therapy antibody drug conjugates, you know so where were in a good position for where customers are going.
And we we offer interesting commercial models that meet the needs they have weather weather, where an extension of their laboratory or whether we're we're essentially taking over those services for them, which is more the case for a biotech customer and we've got great scientific leadership and a strong track record so add that altogether and.
We are positioned to outpace the market and and have done. So in 2019, Chris mentioned earlier, we're feeling good about the about the the guidance, we've given you, which which the labs are part of and I think Chris mentioned.
Yeah, we grew 19% last year, that's a that's a big number but we're comfortable about double digit growth.
Okay, great. Thank him second part of your question was.
Now.
The cross sell question so that.
That's most evident in our central lab business predominantly especially for.
Large pharma clients, where we have a strong relationship across labs, and clinical and clearly for biotech customers.
Which are usually smaller and many of them virtualized and need the full array of services to conduct clinical research. So we're perfectly positioned.
Therefore, making a cross sell across labs, and and the clinical development services.
Okay, Great. That's helpful. And then you bought them mention virtual trials and investments there how many virtual trial that you currently doing how much is in the pipeline will this becoming meaningful driver for you kind of heading into even next year and beyond and can you speak to your overall kind of competitive positioning on that.
Thanks.
Yes, it's it's David.
First I want to make sure we're precise on our definitions when we throw numbers around if we throw numbers around around virtual drought. So when we we have a definition of a fully virtual trial with one Mehta site and all the trial conduct being done at the patient. So thats. The most pure extreme version of virtual trials all the.
The way to virtual trial, using some form of digital enablement and you can go way down a pathway of very little digital enablement, and possibly classify that as a virtual trial. So if we stay in the zone of fully virtual as I've defined it or significantly digitally enabled meeting theres been a significant number of protocols.
Steps that have been adopted using digital technologies to ease the burden on the patient and the conduct of the study so kind of quite a significant hurdle to get over on this front.
We've completed 10 studies on the fully virtual basis and on that significantly digitally enabled on slightly north of 10 that are in process. So that gives you a magnitude of the numbers I.
I think the big important question on this is.
Is the pace of adoption of these fast enough to have a significant impact on our financial numbers and when might that happened, we don't see it having a significant impact in 2020 at least although we are trying to work with customers to make sure that they understand.
How to adopt the technologies, where and when to appropriately adopt the technologies in concert with regulators response to evidence coming from use of these technologies.
Okay. That's great. Thank you.
Our next question is from the line of John Kroeker Krieger with William Blair. Please proceed with your question.
Thanks, very much Hey, David just following up on Aarons question. So you gave us a lot of interesting color on the virus at the beginning of the cost in terms of how it's impacting monitoring visits how about.
How it is impacting either initial screening or just general flow of patients into the sites and do you see an opportunity to maybe accelerate the uptake of these virtual solutions to help offset some of those pressures either in China or other regions. Thanks, Yeah I don't.
And have specific enough data to understand at the hospital level, what's occurring with flow of patients into the hospital. So I don't even want to try to project what that might be.
However on the second part of the question.
One of the studies that where we are supporting in terms of coated 19 treatment response is a nearly fully virtual approach to the study conduct so yes. The question of can these virtual digital technologies help enable studies.
Our current you were asking specifically I think across all studies being conducted Im got taken the question tilting towards we know that some specific corona virus studies are being enable digitally I would also maybe add onto that is to the extent that some of our customers do have kind of delays in their clinical kind of trials.
As a result of kind of the virus in China.
Accelerate enrollment capabilities may offer kind of solutions to help basically get them back on track.
Hey, John your question.
I think what you what you're seeing and I can talk about our particular site network.
Yes look we're recruiting patients for for trials.
All across that network, if and we have a general procedure, which I think is probably through in most sites of if a potential clinical trial patient walks in.
And they appear.
To have some kind of of of cold or virus or something of that nature.
There there immediately isolate it we put a mask on them and we do a quick examination associated with that patient.
To determine if they are if they are ill in terms of an actual test for Corona virus, where we're not doing that if we feel the patient. So were then directing them too.
No.
Treating center that can do the kinds of the kinds of swabs and test necessary to determine whether its corona virus, but.
Broadly speaking.
You know this is this is not.
In the majority of the world and issue in clinical trials are progressing.
You know as they usually do.
Thanks, Bill that's helpful. One.
Follow up question, so youve talked about a disease patient enrollment tools that you've assembled in recent years can you give us a sense about how broadly there being used in if you think about the new business you. One in Q4 should we assume those those patients so as like the site network and the data are being used.
Across the majority or is it still pretty low at this point. Thanks.
Yes, we look this is a as we said a very new and differentiated business. We are seeing this business grow we're seeing a broadening of the therapeutic areas where can be used the backlog is growing we're using it not only in a rescue sense, but also in a prospective.
Sense as we talked to clients about upcoming programs we.
See customer adoption growing for this business of they clearly want to see a and test. This new this new service. So those are all positive and in terms of our actual assets that we've assembled which are unique it comes down to opt.
Demising the finding of the patients the scheduling of the patients and then the processing of those patients through our site network and we're doing a lot of activity around.
Productivity and measurement and improvement and optimization with respect to that but to your question.
We've said this is mostly oriented on chronic diseases, we do have some.
Nascent capability in oncology, we have really good capability in vaccines in particular, which is a topic of the day.
Obviously, so we're really well positioned to take advantage of market conditions and that businesses again, new put adoptions growing.
Very good thank you.
Thank you. Our next question is from the line of Dan Brown and with you've yes. Please proceed with your question.
Great. Thank you asked for taking the questions I just wanted to get a little color.
Within the clinic on the full service in your FSP business I think FSP is a little bit lower expose then somebody your peers, but can you give us some put color.
Regarding what that exposure is any any any color about demand and pricing trend across both and should we expect it FSP exposure to remain relatively stable going forward.
Yeah. This is bill.
Look we think in today's world.
As a leading global CRM BPO were fully capable to to offer you know.
FSP oriented services as well as full service activity.
Our our FSP capability has been resident for many many years, we had worked with a lot of customers and have some really sizable relationships again, there they're interested in hybrid outsourcing model. So we have to be able to do both terms of our company you know up in terms of backlog it's somewhere in.
In the mid to high single digits in and growing as a business. We think it's important we're making investments in this area.
Around not really the fundamental capabilities, we have but rather.
Marketing our capability in a in a more visible way around FSP, obviously, our current clients understand it but not not all clients do you know I would say.
In terms of the pricing question, you asked where most interested in attacking the FSP market, where the margins are little bit higher we see those in sort of monitoring services and a broad category I'll call.
Call biometrics around bio stats in medical writing and data management et cetera. So we want to focus on the part of the market, where where the the margins are a little better but were fully capable shop and definitely focusing on FSP as a service offering because it's important to our customers.
Great. Thank you for that and then maybe switching gears over to biotech.
Selling gene therapy, obviously have been very strong growth area in the past two to three years or you, particularly well positioned for those types of clinical trials can you give us a little color, what you're seeing on that front and kind of how much of a driver it's been or can be going forward.
We are seeing an increased amount of R&D spending flowing into that we believe we have.
Unique.
Service offering capabilities, especially in labs on the clinical side, it's a very nascent area. So everybody's generating experience in this new area. We think we're probably.
One of the further advance of thought the most furthest advance in terms of experience in this area, hence, we're seeing more and more RFP activity coming our way and engagement on them. It's just it's a very very new area. So I don't think we can read through too much in this other than Theres a lot of R&D increased funding going into segments.
And we're going to be positioned to support our customers and those pursuits.
Maybe just one more quick one back to John's question on Ah, Yes, so curing you've had for I guess six or seven years and I know you answered in terms of the success, you're seeing with the whole strategy, but specifically for Curian can you can you. Please comment on like what percent of your business actually.
In terms of bids what curian is kind of used in those bids and has that been kind of stable or growing any any flavor on kind of the impact and exposure to curian would be helpful. Thanks again.
Yes, Curian is as part of our clinical development services.
Reporting segments, so we're not breaking now.
Units underneath that look it's a really unique capability one that.
Isn't no no other steel ROE has and we don't think that they can replicate over time just because of the.
Proprietary algorithms developed over time, and and that and their ability to go direct to patient and push those patients into into clinical sites. That's a very unique capability. They have so look we use them to help us understand the feasibility and.
Timelines associated with clinical trials we.
Customers are interested in their services and they and we pair them with a with our site network to offer solutions that are unique.
You know that cut the timing cost of drug development, which is really what we're all about what customers want so it's a really unique asset but in terms of.
Breaking out any of the financials around that I can't do that but I can tell you. That's an important part of our new strategy going forward, Yes, I would just said to Bill's comments something I mentioned earlier that there was a question on what are we seeing in bookings our mother by therapeutic area or by customer class and I mentioned that we're seeing in.
Creased volumes and win rates and chronic disease conditions and the read through of the unique value proposition. We have in chronic disease conditions is the site and patient.
Recruitment capabilities of which curian as the main patient recruitment capability, what I would say as I wouldn't attribute it all do a curian because the site network themselves have unique capabilities in process in chronic disease patients in the two together are the real power of the the value proposition, but just to inform that.
We are seeing this come through in the numbers on awards, both volumes and win rates.
Great. Thank you.
Thank you were nearing the end of our a lot of time for question answer session. Today have time for one final question, which is coming from the line of Patrick Donnelly with Citi. Please proceed with your question.
Great. Thanks, Good morning, guys, maybe just want to capital deployments I. Appreciate you guys prioritizing debt pay down in the near term sounds like paying down the turns per year. So very threshold leverage you could point us toward you become more comfortable shifting towards M&A relative to peg now more debt.
Trying to figure out what you see that back in the market, adding inorganically.
Yes, so on our long term leverage kind of targets.
Yes, syndicating the roadshow, we anticipate being in low fours by the end of this year and into threes in 2021, I think beyond that we're not providing specific guidance.
But what I would say is given the strength of ppds financials, and cash flow conversion, where business that mathematically can support high levels of leverage quite successfully without issues.
And having debt and accompanies capital structure is in of itself not a bad thing can be beneficial to shareholder returns.
That said, we also understand that not all investors have the same preferences are tolerances around leverage ratios.
Some prefer higher leverage some lower so the way we look at this and the tradeoff and capital allocation is that's really a matter of balancing what capital structure will drive the highest returns for shareholders versus what's going to appeal to the brought us investor base possible and we spent a lot of time on the road show talking to about 150 plus did.
Current accounts on this the sweet spot that the majority of investors seem to indicate was for us to being the threes, but thats not to say what it will be in the future. So we'll continue to have this dialogue with investors and evaluate the financial markets and business conditions and determine what's optimal overtime and how we kind of deploy thinks optimal.
That's helpful. Then maybe just a quick follow up on the margins I know you guys talked about a little increase spend this year round public to public company costs and things like that you've talked a little bit about opting to spend more loan growth mode. Here in the near term can you talk through he sees the next few years this elevated gross level approaching double digits into it.
When we could see some of that slowed the bottom line versus you guys continue to extend to drive that level of growth. Thank you.
Yes, I think what we've indicated I think and as part of the road show of our expectations over the next several years is to have stable to slightly improving margins, which is consistent with what we've had in the past.
You know the way that we kind of look at it is you could say that.
That is kind of conservative given the track record that we've been out on an expanding margins over the last kind of five plus years and mathematically if were to grow our topline at a double digit kind of pace and maintain our kind of SGN egg cost okay at add to increasing at a lower rate in the mid single digits that mathematically would lead to margin expand.
Sure, but then again as you noted we're absorbing some incremental basically cost as a public company for the first time.
We kind of currently have if you adjust for pass or is the highest adjusted kind of EBITDA margins in the industry at least for the scale peers.
And we continue to expect to kind of invest to kind of drive differentiation for our customers to drive future growth.
And we don't want to get too far over our skis in terms of projecting or raising expectations to expand in the future.
Thank you.
Okay.
In advance of closing the call I just want to thank all of you for your time in consideration and diligence on PPD, we really are happy to be back in a public domain and engaging with you folks. So thank you very much we look forward to talking to you all again soon.
Thank you.
Today's conference you may disconnect your lines at this time, thank you for your participation.