Q1 2020 Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to stand by thank you for your patience.
[music].
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by welcome to the Peoria Health Sciences first quarter 2020 earnings release Conference call.
At this time, all participants' lines ARNA listen only mode.
After the speakers presentation, there will be a question answer session.
To ask a question during the session you'll need to press star one on your telephone.
Please be advised that todays conference is being recorded.
If you require any further assistance please press star zero.
Oh, no I'd like to hand, the conference over to your Speaker today Mr., Chris Gonzalez Chief administrative officer. Thank you. Please go ahead Sir.
Good morning, and thank you for joining us for the Prs <unk> Health Sciences first quarter of 2020 earnings teleconference. Today, Colin Shannon, Our Chief Executive Officer, Mike The now our Chief Financial Officer will discuss our quarterly financial results. Following our opening statements we will be available for questions.
In addition to our press release, an investor supplement.
With additional financial information is available in the Investor relations portion of our website.
Before we begin I'd like to remind you that our remarks and responses to questions may include forward looking statements.
Actual results may differ materially from those stated or implied by forward looking statements due to the risks and uncertainties associated with our business, which are discussed in the fight in the risk factors included in our annual report on form 10-K filed with the FCC on February 21 2020.
Our risk factors may be updated from time to time in our filings with the FCC. Please note that we assume no obligation to update any forward looking statements.
Certain financial measures, we will discuss in this call our non-GAAP financial measures. We believe that providing these measures helps investors gain a more helpful and complete understanding of our financial results and is consistent with how management views our financial results.
A reconciliation of these non-GAAP GAAP financial measures to the most comparable GAAP measure calculated and presented in accordance with gap.
Is available in the earnings press release and Investor supplement included in the Investor Relations portion of our web web site.
I'd now like to turn the call over to calling going.
Thank you Chris.
Good morning, Thank you for joining the conference call covering our first quarter financial results.
Before I begin discussing our financial results for the quarter I'd like to thank all of our staff for their efforts and support during the cold, but 19 pandemic.
I also want good, especially sign can number of stop either <unk> or work called out to support the front line.
The knowledge was also an invaluable and assisting up crisis management team in helping out.
He managed our workforce so thank you though.
The crisis block teams together across geographies and departments is truly one PRT.
And this and that she liked so amazing achievements as we supported our clients with innovative solutions.
And one instance, we what I could do a cobot study just about a month ago.
Four days after receiving a protocol we activated at first sight.
Yesterday was dates that it since we got the protocol.
Activate the 882 sites in 19 countries I didn't go 1000 eligible patients.
This is a fantastic achievement with our team and the claims team walk in total units.
As you're aware, we invested on a mobile health platform about three years ago, when we acquired catalog six.
We had anticipated that would be an increasing need more virtual trials I mean wanted to get ahead of the behavior, we all need cars.
We have not had 40 trials into platform and over the last few years of continuously to find and optimize the technology.
Recently, we started the industry's first so we chose <unk> with direct to patient registration no interventional drug trial in heart failure.
It was great to hear about decline celebrating enrolling patients during a pandemic.
As you're aware the Barton on this I use conducting trials is great.
And do you look to utilize our mobile health platform to create a solution.
We want to helps I used to do all the competing work I stopped providing the necessary oversight to ensure patient safety and to continue the critical work of providing double medications to patients.
We have created a module on our mobile health platform called two studies support that offer sites, a lightweight <unk> technology, which is 21, Seattle packed wasn't complied and can be rapidly implemented to ensure patient safety and studied continuity.
Enabling investigators to maintain and document and an audit complaint with the responsibility for the ongoing oversight of the study conduct an kid of patients without the need for site visits.
We have already gained approval to deploy our solution on both small biotechs as well as loud strategic client portfolios.
And we continue to engage in conversations with diminish in today's decline.
When we acquired a ball health platform, we need to find a way to what with connected devices.
At that time, yet I used to deal with Intel.
And tell eventually spine <unk> small division into a company called kit innovations and we acquired this company and John Eudy.
Yeah about remote patient monitoring platform, which has been deployed in over 100000 patients.
It allows <unk> to eggs bond I reach from purely clinical trials and to health care by engaging and direct to patient remote patient monitoring I end up propriety health harmony platform.
The platform as a team we deployed by healthcare networks hospitals, because I you does nprs the facility and home patient disease management and monitoring.
The cobot 19 outlet stores provide he does to provide and home hospitals out because he's the remote patient monitoring using <unk> Pete diagnostic monitoring devices.
Our cobot 19 monitoring up with developed on the health Harmony platform and what does it was one of the first cobot 19 remote patient monitoring ops deployed.
Yeah allows patients to monitor and home for cobot symptoms and they use our centralized nesting Coke center to help patients with health care decisions related to their symptoms.
We have deployed opt to some of the world's largest retailers to support that ability tele employees to monitor for corporate symptoms.
We have also deployed to up to government agencies, I'd say, the U.S. to manage their corporate respond as well as to U.S. healthcare systems. Today, we have over 10000 people enrolled enough or that's up to 50000.
The next deployment of the Cobot 19 monitoring up will be focused on out a ton to what module to help employers monitor that employees to establish safe with them to walk models, yes, I pulled that state this monitory.
Our mobile health platform is unique and incorporates not only the direct to patient they can get wouldn't device based platform.
But it includes approval library or connected device capabilities via kit innovations and integrates without on E.D.C. system, and I Sensity, how should I be occupy Ted Christie Kopczynski.
The first quarter stock Pete on a very strong note with a pandemic impacting the lots of talk to the quota.
We close most about office he's worldwide and I'll be working on to stay at home all doors issued by country specific authority.
Fortunately most of our what Phil is able to walk the botley. So we have been I need. So we are being able to continue to operate effectively.
During March we began to experience significant lockdowns insight close yes, both here in the U.S. and abroad.
We were able to mitigate the impact <unk> things and say well just have done our operations through the effective use of our mobile health platform and our remote monitoring technology.
From a new business perspective, the first quarter 2020 had a record RFP volume button. The last few weeks of March decisions, what the lead and we carried over approximately four times a normal <unk> pending decisions.
We are confident that decisions will be made as the economy starts up again I do we'll continue with a strong momentum we were building.
Revenues for the first quarter was $784 million, which represents an increase of approximately 90% year over year.
Adjusted net income was approximately $67 million, an adjusted net income per diluted share was one dollar in five cents.
Our client base continues to be well diversified without <unk> five clients, representing approximately 58% of revenue for the quarter with one client representing more than 10% of our revenue.
We reported $605 million of net new business awards, excluding reimbursement revenue, representing a net <unk> Belo of 1.10.
And putting reimbursement revenue, we would have reported net new business awards $956 million or a book to bill of 1.32.
Our first quarter, New business awards metrics were impacted by the bank they make particularly a lot ended the quarter when business development activities began to slow with defense meetings and study award decision being the spot when I see it home all different it's in place.
The addition of of course core for New business Awards resulted at an increasing our backlog of 9% year over year, and 1% nice sequential basis with backlog, finishing at approximately $4.7 billion at end of March.
Our data solutions segment were slightly impacted by different damage during the first quarter.
For the first two months, we were ahead of target. However in March the business was impacted ice decisions, what the fab due to the impact of endemic and customers what needs.
I'd like to point <unk> data solutions segment is less exposed to the impact to the covert 19 and damage or to the high proportion of the cutting license revenue.
That is still some disruption due to the lack of and past meetings, the constellation Dominion industry meetings and events and the reprioritization of discretionary spend by customers.
In terms of the underlying trends, we continue to invest in the segment, adding headcount to critical positions I think your data sources I didnt hunting integration with the clinical Vseven segment.
[noise] with all the on Sefton decided that's been Danny will unfold is extremely difficult to estimate the impact to our financial results.
We do believe that Q2 will likely be the trough.
But we do believe it is with prudent to withdraw our full year 2020 guidance until that is most afton piece that I can do the impact of the cool that 19 pandemic.
We have carefully planned our work schedule for the second quarter of Twentytwenty, We anticipate real achieved revenue of between 705 million and $740 million.
I'd expect adjusted earnings per diluted share between 75 cents, a 90 cents.
Mike will provide additional details about second quarter Twentytwenty guidance later Nicole.
In closing once again I'd like to sign couldn't type stuff under claims for their continued commitment to PRT health Science East during these challenging times.
I'd also like to thank everyone, that's helping to what do you get through this global pandemic.
I would like handover the call to make the nail our chief financial officer, coupled with the quarterly financial results in more detail.
Thank you cone and good morning, everyone.
For the first quarter of 2020 or consolidated revenue grew up 9% both at actual foreign exchange rate and on a constant currency basis.
As cone stated previously we reported revenue of $783.7 million for the first quarter of 2020 compared to $722 million for the first quarter of 29 team.
Foreign currency exchange rates in the Koby 19 pandemic negatively impacted our first quarter revenue by approximately $7 million.
The clinical research segment reported revenue of $726.1 million for the quarter well the delayed data solutions segment reported revenue of $57.6 million increases up 9% and 4% respectively.
During the quarter, we derived 56% of our service revenue from large pharmaceutical companies.
10% from small to midsize pharmaceutical companies.
16% from large biotechnology companies.
18% from all other biotechnology companies.
These concentration metrics exclude our data solutions segment and reimbursement revenue and are in line with what we reported in previous quarters.
Total direct costs for the quarter were $403.9 million compared to $377.9 million in the fourth first quarter of 2019.
The increase indirect costs continues to be driven by increased labor costs in our clinical research segment as we add staff to support current and future business needs.
An increase data cost in our data solutions segment, as we add more data assets and as we see increases in renewal rates on current data contracts.
The increase in direct cost was offset by favorable impact of $6.5 million from fluctuations in foreign currency exchange rates.
[noise] direct costs were 51.5% of revenue in the first quarter of 2020 compared to 52.3% in the first quarter of 2019.
The decrease in direct cost as a percentage of revenue was driven by favorable foreign exchange rates and increased utilization of our stuff.
Selling general and administrative expenses were $107 million was 13.6% of revenue for the first quarter of 2020.
Compared to 13.4% for the first quarter of 2019.
The slight increase in its genie expenses as a percentage of revenue is related to increased stock based compensation expense.
Adjusted net income, which exclude certain items, whose fluctuation from period to period do not correspond to changes in our operating results decreased 8.1% to $67.3 million in the first quarter of 2020.
Adjusted net income per diluted share decreased 4.5% to one dollar and five cents per share in the first quarter 2020, compared to one dollar and 10 cents per share in the first quarter of 2019.
Both adjusted net income in adjusted net income per diluted share were impacted by the covert 19 pandemic.
And were in line with guidance ranges, we provided in February.
Cash provided by operations was $60.6 million in the first quarter of 2020.
Compared to cash provided by operations, a $41 million in the first quarter of 2019.
The increase in operating cash flow was primarily the result of an improvement in working capital driven by an improvement in our days sales outstanding.
Our net day sales outstanding was 18 days at March 30, Onest 2020, compared to 20 days at March 30, Onest 2019.
Capital expenditures were $21.5 million compared to $19.9 million in the first quarter of 2019.
The slight increase in capital expenditures during the quarter continues to reflect the investment we're making in information technology and the expansion of our infrastructure.
Our cash balance at the end of the quarter was $150.8 million of which $68 million was held by our foreign subsidiaries.
Net debt outstanding defined as total debt less cash and cash equivalents at March 31st 20, $21.1 billion compared to 909 million at March 31st 2019.
We believe our current cash position, along with our $642 million, a borrowing capacity position us well to weather the challenging economic conditions that we may continue to face to at the remainder of 2020.
We are currently in compliance with the covenant requirements included in our credit facility and we expect to maintain our compliance with those covenants.
In light of the current situation, we haven't also initiated proactive cost management strategies.
These include the delay of non essential hires.
A reduction in our reliance on third party contractors.
The deferral of our annual Merit.
In the management of non essential discretionary spend.
We have also implemented proactive cashman conservation initiatives, including delaying nonessential capital expenditures.
And eliminating voluntary debt repayments until further notice.
Regarding our currency concentration, excluding reimbursement revenue and expenses.
81% of our revenue and 61% of our expenses denominated in us dollars in our your exposure continues to be naturally hedged.
We continue to have exposure to movements in the GBP as opposed to 1% of our revenue is denominated in GBP well approximately 6% of our expenses are denominated in GBP.
[noise] as Colin referenced earlier in the call do the uncertainty surrounding the impact of the covert 19 pandemic on our results of operations. The company is withdrawing its previously issued full year 2020 guidance.
We are however, providing guidance for the second quarter of 2020.
We are estimating revenues between 705 and $740 million.
GAAP net income per diluted share between 30 to 46 cents.
And adjusted net income per diluted share a between 75 and 90 cents.
Our revenue guidance assumes that our current portfolio studies continues as anticipated.
In that New awards start as outlined in the agreed upon budgets.
In addition, our second quarter guidance reflects the impact of keeping our workforce in place even though they may not be fully utilized during the quarter.
Our rationale for keeping our workforce and Tac was to ensure that we have staff available wonderful business operations resume.
We expect this decision to impact gross margins by roughly 50 to 150 basis points and impact adjusted EBITDA margins by roughly 100 to 200 basis points.
Consistent with the guidance we issued in February we anticipate that our annual effective income tax rate will be approximately 23%.
Our effective tax rate may differ from this estimate is the geographic distribution of our pre tax earnings changes from what we have estimated.
Or if there are changes in interpretations analysis or for additional guidance is issued by regulatory bodies.
It should be noted that our guidance assumes a euro rate of 1.15, and a GBP rate of 1.3.
All other foreign currency exchange rates are as of March 30, Onest 2020.
That concludes our prepared remarks, and we're now happy to take your questions. Operator, you may open the line.
As a reminder, asked the question you will need a press star one on your telephone to withdraw your question press the pound key please standby well, we compile the Q and a roster.
Our first question comes from won a vendor with Bank of America. Your line is now open.
Hi.
Thank you for taking my questions I have true.
My first question is not really PRT specific body pertains to the whole CRM to screen. It seems like CRM management teams and analysts are tracking the percentage of site closures and reopening as the main approach to evaluate the extent of clinical probably will be ladies.
But just because cruise ships.
Reopening it doesn't mean battle tours, a we'll cross that you take vacations and when movie theaters reopen people may or may not grow to watch movies. So so even when sites or reopened.
I'm curious about how fully compliant.
Patients will be.
When do you relates medical it here in the clinical problems. So given this I mean my question is can you share with us metrics on inpatient leakage for sites that have remained open or have you opened during this and then I.
And also what tools and initiatives can you implement to manage patient behavior insight.
This is also on important variable in this whole situation.
I'm, sorry, I went through in great detail.
A whole system that we pay out.
Unfortunately studies support we are.
Well I wouldn't I suppose I used to help manage their patients remotely and I love is today continuation up the trials.
So that's one of the aspect who are doing that's actually been a as we mentioned been already been taken up by a number of our at both Biopharma <unk> clients.
Hi, techs on pharma.
And that's one aspect, but I know people have been looking and hitting numbers bandied about access to sites.
You know obviously, that's not the difference between while a access by telephone or by physical presence.
We are assuming the latter which it's the latter it varies by country, but so far we're seeing depending on the country somewhere in the region between 65% to 80% availability.
So you know that that's where we're seeing it going and obviously I had when we get back to what will be looking all sorts of ways to module heavy I actually got effectively utilize our child.
No. The reason, we're able to provide.
The quarters guidance is we'll talk to to Bell does a very solid pipeline of high we're going to achieve our revenue targets and what we needed to do we strive to fidler CLI all of clients activities and always studies were working on B, what would it clients to understand what their needs well and together with the paired share Jones to.
Enable us to condemn to do that conductus walk over the quarter. So obviously looking at a quarter. We believe we noticed circumstance he's pretty much. So we feel pretty good about giving use I. Good guidance. So I hope that's covered your your question.
Okay got it and my follow up is its on FSP and their specific DRA <unk> can you remind us what percentage of total revenue FSP represents how much did a strategic solutions growing the quarter and how resilient.
Yes, FSP motive business may or may not be during that pandemic and whether or not there hasn't been any very nice and how you are your second quarter revenue guide.
Her parents back then.
Yeah, one we don't break that out separately, because that's part of the clinical research segment, but I will tell you that grew at a nice piece in the first quarter over the first quarter of last year, and we're not expecting to see too much of an impact as a result of the pandemic.
For the for for Q2 over Q1.
Thank you.
Thank you. Our next question comes from Stephen Baxter with Wolfe Research. Your line is now open.
Hi, Thanks, just wanted to follow up a little bit I'm on some of the keeps your question. So I appreciate all the detail unless you're dealing with the technology side of thing.
We have heard some others talk about some insights that just are not up and running when it comes to remote monitoring a certain percentage, it's still kind of fully an accessible sort of whatever percentage as you put around physical access sites. I was wondering if you have something that you'd be able to quantify for us there.
And then I guess is the sort of the follow up you know you mentioned something about proceed in you know upon agreed upon budgets have those budgets been confirmed by the customers are those budgets that are agreed to before the outbreak intensified.
And then last I'm, just asking about pass throughs seem like they were a lot higher than I might have expected for the first quarter wondering where you expect them to be in Q2 from a year over year growth rate.
Just trying to understand the dynamics around that and that's that enable and the guidance talk little bit better for the topline Keith.
Thanks.
Thank you, yes, there's some say its way out it's just difficult to obviously again I'd say stuff does not declining up to say you signed obviously it makes it very difficult you know we we've obviously, we're tracking that very closely and we're trying our best obviously contact decided he signed and get it.
As best as we can.
So as we've mentioned, we've got technology options, but we do we use and apply it remote monitoring and utilize all the necessary tools available we've been.
Quite successful in achieving not.
We have scope currently working to most of our study budgets, though you know what does a lot. So partial units that we can complete a Judy beauty then we're looking at high best achieved I'm, where obviously, making sure first and foremost patient safety I have or looking to protect pay me the endpoints for our clients studies I'm sure where.
Stratifying and no ideally video core needs and we have a binding to enter Beatty scripts and drawn on schedule of attack show that we can really focus on the most important areas. So you know obviously, we had <unk> died we can access I'll be sabre.
I was trying their best to obviously get some south communication going so we can get some some things moving otherwise things can be to FAOD.
Right, but overall, it's been I spent a good steadfast motion and hopefully we can start seeing some of the restrictions less steed over the next few mines.
Yeah, and as it relates to.
The pass through certainly or pass through revenue was slightly higher than we had its anticipated coming into the quarter, but it was in line with.
The percentages that we saw in Q3 in Q4, what I have brought that number down for Q2, obviously with a travel being included in that number you know, we're anticipating obviously with with the the stay at home orders that are in place right now that travel for the quarter will be down. So as you look at it sequentially I am expecting it to come.
Now on you know a good chunk and be down versus Q2 of last year. You know, we're anticipating somewhere between I'd say 27, and 29% of service revenue.
Great. Okay. Thank you.
Thank you. Our next question comes from Robert Jones with Goldman Sachs. Your line is now.
Great. Thanks for taking the questions I guess, just a two on bookings Kolon you mentioned I think seeing a four times the normal amount of RFP pushed out that's I guess just curious if.
If you could share if you take most of that work will be awarded you know near term you know such that it was a timing issue just between one to one quarter and second quarter or is this something that could be pushed out.
Longer in this environment and then I guess the follow up would just be a any comments about your win rate and how that's trended.
In the quarter anything anything changed there relative to your peers like somebody that Greg that thank you well firstly on.
We we have had some of these awards come through subsequently, yes, I'd. There's others. We are clients have actually done Ah crap out pivoting on being focused on getting some co bid work done what that were working with them on and it hasn't been that they're not going forward with these other studies, but they have certainly the outcome for the lateral.
So you know typically I'm you know, we would expect us to our normal win rate I. It was it's been very very steady and it was again to win rate was very very steady again next quarter. So forget our fair share of the substantial amount that we and you know it was up.
Betty So close this time, we then do our normal crocheting, we'd only closed down and it was like a like a cascade beauty close by have been a you know and end up a quarter close and you know we knew that you know there's lots of studies that just went went to star and we're happy to wait I, we found a biotechs well actually.
I'm you know a lot more eager because they they want to getting to the lighting to gauge study stocked up moving as fast as the economy. So I'm a frightening not also in and not April and beauty, this well and Saudi out Oh, Yeah first one to the quarter so and.
Again book started off the quarter with again, another strong I might about as people and so we're seeing a lot of abuse studies and a lot of them way.
Looking for hybrid solutions, including <unk> software, so with that you know where spot where our departments are very very busy an active and keeping up with <unk> volume.
Great. Thank you.
Thank you.
Our next question comes from Elizabeth Anderson with Evercore. Your line is now open.
Hi, Thanks for taking my question guys.
What one question in those days, you mentioned sort of your cost cuts in sort of how do you your efforts to balance.
The upcoming growth first is obviously the current situation how do you guys thinking about it if the situation sort of gets better or worse, how how do you think about sort of patriotic that.
You know at the moment.
You know we've done our best to retain a workforce and we.
We won obviously I feel feel forced to move forward to continue with the trials in the latter part of the are all going well, obviously, if things change at those on your wave after pandemic and things older. We may have to take a different course of action.
We were prepared to see this period of time and I think it was a good move up a lot about clients have really support he doesn't scientists and I'm glad that while retaining our stuff and I'm keeping them happy I because they know without as soon as things start to move bad <unk>. The one the same teams involved.
And you know so we've done a best in mind, he's gotten maintain it so really I'm a lot of is that without control what weve looked forward for the next couple of months and we see it Betty Containable, where that's why would they should some guidance there and well take it one clock that at a time until we see more David.
And so you know when things get back to some level of normality.
Okay. That's helpful. And then on Symphony, you mentioned sort of sales sort of.
Above plan and beginning of the quarter, that's sort of tapering off were there any like particular areas or was it sort of I'd just like the cost kinda areas new sales.
Oh renewals there could you provide any additional color there.
Yeah, It was really actually.
Really more cotton data needs died.
And obviously with that that pharma companies closing down and they have to differ at all.
I'm getting did not work done so there was a slippage of on a few million dollars odd that we on the we just as being the fab.
And there was no need to do the work until they have got workforce that they can actually talk to the data and utilize way. So it was just I know a number of sort of like spoke on try. So it was tracking really well for I really nice quarter that was actually going to.
And maybe I was going to be until new budgets as well so what we've been disappointing because we're tracking really well and but we're still seeing good activity there and continue to build up strong team our hiring in general it's been going Wow, what we've actually Heidi significant flight of that of our view on.
[laughter] see these coming through so you know, where we are well positioned to take advantage of that and continue our hiring to meet our growing demands.
Yes, that's sounds like it's more like a push out versus just.
Collapsing demand.
Potentially I mean, you never know sometimes they that that may have been an urgency as it may not combined <unk>. You know these things we think is up to show and that's what we're building, but we never know for 100% say often saw I don't want to mislead you in anyway.
Okay got it thank you very much you're welcome.
Thank you and our next question comes from Patrick Donnelly with Citi. Your line is now open.
Great. Thanks, guys.
Now let me just one for you on the biotech side, particularly smaller biotech.
Have you seen any change in tone in the conversations with clients. There. During this period of uncertainty, we're maybe fundings a little less acceptable you do you feel like your tone shifting a little more conservative in terms the appetite for new spend I know, it's been a big access for you guys to increase your presence there. So just wondering how the conversation.
<unk> I mentioned, that's a numerous called side with time, we work with a buy it takes at the latter stages. They have had to funding in place for a long time.
The company's we worked with a well funded I missed a prerequisite before we even respond to an RFP.
Oh Im has been very high we've been getting I agree I mean, a volume from our our biotech.
Claims and we're seeing I'll across the board, we're getting very very strong RFP volume and so I've not seen any change on you know I I have read out are those mab until I got some issues with some of the smaller by taking the Elliot fees part spread that we've not seen anything.
We're looking.
Okay, well, maybe just a follow up I think it was Bob's question on the pending decisions anything carried over do you guys had better visibility into those ones than you typically do give them the carried over and you probably had increased conversations with customer base.
He has that allowed you to kinda give that a little better than expected Twoq you guys.
Are you feeling more confident most pending decisions.
Converting over versus your standard amount of.
Yeah.
Yeah, I mean, a law if they want one I know is really going impact a lot of part of the year. You know obviously getting studies all started et cetera, <unk>, which is exactly why there was no pressure to really pushed and drive hard is a how close it end of the big water when you can really get.
A lot of things moving so everybody knew that were getting try it was on hold everything was so you know we were just working closely with decline and you know we went through all the things we need to do we were what been exceedingly busy so little we're not doing physical but defense east side, there was a lot of too but.
Defensive and we're finding that maybe outline some of the things have been doing might change the we have the future but with more.
But defend season more use of technology, and maybe will speed up things getting done and clinical trials all investments we've been making anticipating this would happen seems to be of actually accelerated with the pandemic. So maybe that is a light at the end of the tunnel.
That's helpful. Thanks.
Thank you. Our next question comes from Aaron Right with Credit Suisse. Your line is now open.
Great. Thanks have a follow up on the data solutions business more broadly how we should be thinking about the performance across that business. In this sort of environment. I know you mentioned, it's occurring in nature, but is the vast majority of that business, referring in each or what percentage of it and.
Do you anticipate further kind of volatility there just curious thanks.
Yeah, yeah ever and we have baked in some volatility as Colin said you know in his prepared statements. You know the majority of that is recurring license revenue. Obviously, we're always out there trying to generate.
New leads with different data assets in and different uses of the data that we currently have we have built in.
You know us as I guess from what we would have when we guided to when we issued our full year guidance, obviously, we built in a little bit of.
Less revenue than we had then and our target you know because of what happened in the first quarter. So.
We're pretty confident as Colin said, a you know based on the discussions that we're having with clients, but we did bring the revenue down to make sure that we had a good range in there for the Q2 guns.
Okay, Great and then.
Potentially would change orders are extended enrollment timeline for me.
Saying that that is an opportunity for you and when does that essentially kind of flow through pricing you're having these discussions already that's fine. Thanks.
We are having these discussions with clients you know those are typical discussions quarter to quarter.
You know it really all depends on you know the particular change order.
And what you're trying to recapture obviously, there could be a timeline extension it could be something else a timeline essential would obviously you don't have a backend impact in our Rev. Rec. If it's for work that we've been performing you know that we've been in discussion with them about that change order and it just hasn't gone through administratively it could have an impact, but that's something you know that we deal.
With you know quarter to quarter and in historically, we've we've you know kind of view change orders as an offset to any cancellations that might come through so.
But we are you know looking at change orders and having discussions with claims.
Okay.
Thank you. Our next question comes from Dan Brennan with you'd be S. Your line is now open.
Thanks, a question Huh.
As Scott one question on bookings in one or non margins. So maybe just on bookings I know there's been a couple of questions asked but.
If you wouldn't mind is there anything unique about your your customer base, possibly a therapeutic areas of focus.
Where your approach you think from what you've seen for mothers that would have led to.
Lower closure rate that you've seen versus peers, because thus far you seem to me got it appears that didn't seem to have the same level of.
Close rates in kind of issues with book to bills as we shouldn't be bookings growth Oh, you know as we got that ended the quarter.
Actually I don't know I've looked at over the course and.
When we compare our six so six everybody else is competing or and a megawatt if not better I think there range with between 1.2 to 1.4 Big tobacco and we have 1.32 I'm sorry, so what's the point yeah.
Oh, sorry, I was wondering on six so five basis.
Oh, Saudi <unk>, well I would you know because nobody else is getting not I'm actually trying to maybe transponders. So you got an understanding of what really drives the business.
I mean, if you don't want me to gets not anymore. That's fine I mean, like obviously it causes a distraction and people seem to be unsure of what's driving business you know, but certainly I you know we've managed to purchase 9% growth over the year.
You know that's quarter coming up they were the major impact actually has been our phase one click clinics. Because obviously you know people can get to that I had to volunteer anytime there's work. So the only what we're doing is some cobot trials that were doing on site. So it's a it's been a one this most heavily impacted.
Other than not you know we've been doing very very nicely.
Okay, maybe maybe a question Mike on kind of.
Q2, and how we're thinking about kind of costs and kinda Decrementals I know you get qualitative comments on cost cuts that I missed it did you give us a number or any kind of aggregate dollar amount in terms of the level of cost cuts and I know you've given Q2 non-GAAP earnings how do we think about from an operating margin basis like what the implied decrementals on that so many.
Any any color you can provide in terms of magnitude the cost cuts and how you're thinking about kind of the decremental margins and ensuring that you know you're balancing cost cutting at the same time being prepared for a return to growth. Thank you. Yeah, I think given an absolute dollar amount, but I did reference that if you look at on a sequential basis, where Q.
One margins came into that we expect you know there to be an impact of roughly 5200 basis points on gross margin and 100 to 200 basis points on our adjusted EBITDA margin.
So.
Obviously, you know I know you've got to run your models you can you can drop that in.
And in terms of how you're thinking about like there.
Focus on protecting the bottom line, but at the same time, not cutting too much or that you're prepared.
These trials come back online I guess, maybe a question for me to kinda like how much.
And any any any thoughts on your ability. If you know this persist longer or you know the impact drags on how do we think about your ability to take you know a more costs out I'm kind of what are you planning on that front. Thanks.
Yeah, Let me, let Colin stated earlier you know we've.
We've prepared our guidance based on what we expect to see in Q2, if things change we're going to have to pivot. So we haven't necessarily gone through and.
And I tried to say hey, if things don't returned to where we think they're gonna be here's what we're going to take out but as you know you know we always spend a lot of time on making sure that were managing costs and we're being you know it most efficient as possible in the cost structure. The business will continue to look at that the majority of our cost as you know our labor costs.
And if the revenue for whatever reason, if things don't change and it doesn't materialize, we will pivot and we will figure out what we need to do from a workforce perspective to make sure that we're able to maintain some semblance of a bottom line that.
Everyone would expect.
Great. Okay. Thank you guys.
Thank you. Our next question comes from Donald Hooker with Keybanc. Your line is now open.
Great. Good morning, So I'm sure, it's small, but just to clarify your acquisition of care innovations in January.
What is the contribution there in terms of revenue and is this one of these high growth.
Sort of virtual care companies, that's burning a lot of cash is this going up impact your cash flow, even though it's small.
Yeah. It's it's honestly material is it's not even we're not going to disclose it but it is very small tell you that and it did not a burn cash in the quarter.
Okay. Okay. That's just wanted to clarify that I'm sure that was must be we're assuming that but it's good to hear secondly, I'd love to hear you guys seem very excited last quarter about some opportunities in your government contracting area I'm not sure if that was delayed or or whatnot would love to hear.
I'm kind of some of your investment there I think you were trying to get some prime contractor work that seemed.
Interesting can you elaborate onto on that business, how big is that business as well.
You know it's it's.
Not very large right now you know we were making the investment to expand we were as we sit on the on the yearend earnings call. We we had been doing some some contract work and did want to get into this prime status. So we haven't we did incur the cost during the quarter to continue to make sure that we were in a position that when this new business comes through.
We are compliant we have seen or a piece come through and we have seen some delays there too obviously because of you know what's going on with the pandemic. So everything is encouraging without sector right now and we're continuing to invest to make sure that we're in a position for when those are piece or awarded.
You know that were in the right spot from a prime perspective.
Okay. Thank you very much.
Thank you as a reminder, ladies and gentlemen that Star then one to ask a question.
Our next question comes from Dave Windley with Jefferies. Your line is now open.
Hi, good morning, Thanks for taking my questions Collyn.
I wanted to re frame a couple of earlier questions one around bookings I hear you, saying.
The RFP flows were a record in the first quarter or some other competitors have actually been talking kind of talked positively, but about just the they seem encouraged that that RFP flows of kind of been stable with last year.
So if I'm interpreting correctly your RF piece are growing and I would think I would would ask you to what do you attribute that and is it at all related to some of the biotech pivot that you made in 2019.
That's exactly what happened, we I and we seem to have a lot more coming through from biotite, but it but that has been a low across the board you know if you recall, we hired a one off or strategic partners that we had been waiting and setting up a long time ago, we started to see a lot of volume coming through to bed on from.
Not so that that was encouraging very exciting because we've been waiting patiently for quite awhile I nothing device questions about gotten deposit Dave. So I'm pleased probably tell me that yet [laughter], but I bet, but it's nice to know only stuff coming through but we've had awards and it's nice to see that going size positive direction.
I would put a lot of really good client interactions and a lot over time, you know deafened claims I guess, there's a lot of new work obviously, some some of the I didn't you tools and technologies that we have available I have a finding a lot up on new opportunities all have some bedding component with some structural trial hybrid.
Are you from solution. So it's nice to thing that more innovatively on we're seeing HM claim to be much more to sit 50 thinking at the box and doing things nontraditional. So it's an exciting development and long may it continue.
That's a good segue into another question I wanted to ask which is around the acquisition you had prior to.
Oh I think prior to the end of the year launch this.
Fully virtual trial with JNJ, which would you know and I'm I'm afraid I'm, probably you know maybe glossy never nuances, but would seem to suggest that you had a lot of capabilities in house already to do some very you know digital enabled virtual activity. If you were standing up.
Trial, what does this acquisition specifically I pad.
She was a capabilities that you already had to support a very sightless type trial.
Thanks, Dave Ida you're absolutely right that was announced and it was a tie all that I alluded to I don't wait to put the name of the client and there, but it was the and hot fill we are study that were doing which is and you know the first.
Fairly virtual stateless Registrational trials, so I'm always an exciting star and but it was I was actually award deed and actually just we started enrolling patients just been the lost a number two weeks. So it's been exciting but one of the things that we use connected devices well every.
A key component and every trial what we've done has always had some level of connected device and we were always working with kit innovations for on these connected devices. So it seemed I just a natural fit that we then have no and who's the Phil and and and you know a offering.
So I picked up this is completely unique and the Seattle space, having not offering available that is and how you some and I propriety and technology.
Okay, and and while we're on this topic one of the commentary one of the pieces of commentary that I've heard from from at least one other competitor is around ability to access or tap into site level electronic medical records to to be able to kind of.
Enhance source data verification when you're you're monitors can't get access is that part of your technology platform is that a capability embedded in this.
Actually I number of years ago. If you recall, we bought a company called next trials next trials I see a link that is compliant. It takes the they eat the any electronic health records and takes it straight through it bypassing any E.D.C. So that we can have Adam so setting.
Permission straight from source.
And that tool was available we have been working more to get more availability, we're finding though a lot of the straight each hour rate cards like a lot of the detailed information, particularly when it comes to unstructured data I'm. So typically what are you looking to augment that with some east source type where.
We're collecting and using <unk> to <unk> to really get it on structured data <unk> got like already so no I think that I've been taken by the Doctor and habit and convert it into some structured format, but yes. We we have got next trials and we're seeing a lot of activity. There. We're looking to see if we can enhance that significant.
We've always thought that was a great way forward I'm forgetting information straight from the age out directly I will continue to pursue that and you know they'll come a point where that will be the new standards.
Last question for me.
And a clarification another thing that seems a little different in and your approach in reaction to the covert impact than maybe the peers is.
What I hear you, saying is keeping the sounds like keeping the billable work force completely intact.
What.
I mean seems likes to some degree that's probably a strategic decision.
Can you help us understand how much of that is is say obligated by.
Trials that you haven't place or client demands and what element of that is it's kind of say, taking a strategic position of we can use this to our advantage to win business. If we think we come out of covert relatively quickly.
Its does Seattle on Cline piece of that that's all been on you know done by the company's decision and you know I. There's a couple of comments you out one we did the fab are met entry fees and you know so we look I'd hate to make sure.
You know I, just didn't feel right getting mad and pieces when millions of people are being made redundant and.
However, we we felt like we've always said Dod stuff as I know employees, our most important asset.
Payment of place weighing we've got to stand up behind them I'm, hoping that we they repeat lies in spades when it comes to the latter half of the year when I need them to go <unk> and get all of these studies back on track. So as you know something that we're doing because we want to put more money, where our most days, we believe enough people and we want to stand up would be that.
Way.
Got it. Thank you appreciate the answers.
Thank you. Our next question comes from Sandy Draper with Suntrust. Your line is now.
Thanks, very much a lot of questions, obviously asked and answered maybe just a quick accounting fall off on the on that last question.
In terms of the actual donors deferral.
Are you still it.
When you know you're you're hoping for the day when does get paid out because things are are better at that point, but then it said is that a new expense or you already accruing for that that's sort of the first short question.
Well said, he we were referring to merit so.
Our typical merit cycle has been historically in July we had moved planned to move that up to April and what we did was just defer that again.
We'll reevaluate it obviously, but we've deferred that today to the third quarter or the beginning of the third quarter and as we get closer depending on how the pandemic pans out.
We will make it an evaluation of weather, we implemented in the third quarter or if we have to make a decision to maybe deferred a little bit longer.
Okay great.
Appreciate the clarification I misunderstood.
Second and maybe for for both you guys when I think about or when you look at the obviously a lot is changed about the business the way you're running it the way you're you're doing it.
Sounds like Holland, a lot of what you're you're doing now is already stuff you put in place, but have you identified areas where longer term you're thinking hey, maybe we don't have to bring this cost backend. We've we've taken it out now, but we don't need to bring these cost back and we can do things differently and there are opportunities for a longer term savings.
You've talked about the opportunity is about.
The doing that definitely be there other things that you can.
So let's start you identify I guess that maybe longer term, there's a structurally lower cost that you are starting to think about thanks.
Hi, Thanks, Andy well, Yeah, I mean first of all work with our global infrastructure, what we're able to quickly have everybody walk from home I'm you know what do I do think some people are missing coming to office. He's beida. It's certainly was doable I. We saw a lot of savings obviously on a conduct a bit defense he's where.
We used to be flying people from all over the world to meet with clients and you know they've been going well and you know over over the actual networks and but that's not huge saving and <unk>.
That's one area.
You know we were seeing the uptake of I'm more use of technology to help change and maybe drive the clinical trial, and a fast or more and expensive monarch and you know that's always encouraging.
There's a lot of price, obviously, a big clinical trial, just now in important solving having good data. So you know, it's all about getting the speed and performance, while having real boss data.
And I think we're starting to see ways that we can I sketchy that I think the there's lots of encouraging specs at the whole industry could actually do things better its something that we've always wanted to lead the charge on and it's exciting not this may actually be the time, we are change is going to happen.
Great talent I really appreciate the comments.
Thank you. Our next question comes from John Kreger with William Blair. Your line is no.
Hey, Thanks, very much a comment if you look across your various geographies are you seeing any good examples of regions opening up and how that might translate into easier operations for you I'm just looking for you know any insight into how.
Kind of a recovery in the second half of this year could play out.
Yeah, we're still seeing a in Asia that things are opening up better there, that's where we've got higher access to site I. So we're starting to see movement. There and you know I think they'll be a set of I move towards thought over the rest of the word old guys. I you know we stopped to get through the peak.
The pandemic. So you know well we're hopeful I think is it's going to be done for awhile.
You know this does obviously, we're working on a number of Klein started being Corbett, whether it's a vaccine or other therapeutic exciting <unk>. You know we is as it is gonna be great. When we see more opportunities get that they can help and cure this virus.
But you know I, yeah, we're obviously, making the best use of it but John we never know if it's bounced back up again or what's going to happen. So we're being cautious I'm with trying to forecast that carefully with proper and discipline over our approach for the next few months and again, that's why we really didn't want.
To go away to the ended the year when really it's anybody's guess, what's going to happen in the latter part of the.
Understood. Thanks, and maybe just a follow up on that same point. If you think about an award that you got maybe in February or January sort of pre crisis I'm guessing you probably in a normal course be sort of losing towards activation in the second quarter. How are you approaching that you know again for a non coal that type study.
Does that just sort of getting put on hold until we see less growth and infections or are you able to sort of push ahead with start up and site Activations. Thanks, we were able to get a lot of the documentation and.
The payout than in finance and ready to go you know Weve really really streamlined our study stocked up over the last year I mean, as I mentioned, we paid a lot of changes last year not infrastructure.
We knew and felt that things are much much stronger this war starting in the beginning of the year, we saw that convert out and to really great momentum at the first couple of months. So no. We feel very good up by where we are and you know as I mentioned to me a lot of all that biotech clients are really.
Wanting to get towards two is quickly so they can start getting all the people weren't ready so that when things are bike, we can immediately stopped fishing phosphate activations as quickly as possible.
Great. Thank you.
Thank you I'm not showing any further questions at this time [noise].
I would now like to turn the call back over to Colin Shannon CEO for any closing remarks.
Oh, well, thank you for everyone for participating in the coal today. If you have any additional questions. Please feel free to contact as we hope you have a great nice of you then thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].
[noise] [noise].
[music].