PPD Reports First Quarter 2020 Results

PPD, Inc. PPD, a leading global contract research organization, today reported its financial results for the first quarter ended March 31, 2020.

Highlights

• Net authorizations of $1,063.6 million, representing 8.8% growth over first quarter 2019 and resulting in a net book-to-bill ratio of 1.30x on a historical basis
• Ending backlog of $7,312.2 million, representing 11.9% growth over first quarter 2019 on a historical basis
• Revenue of $1,072.5 million, representing 11.3% growth over first quarter 2019
• Net income attributable to common stockholders of $4.2 million, representing 194.6% growth over first quarter 2019
• Adjusted EBITDA of $196.9 million, representing 17.3% growth over first quarter 2019
• Cash and cash equivalents of $738.4 million as of March 31, 2020
• Full year 2020 financial guidance withdrawn due to uncertainty associated with COVID-19
• Second quarter 2020 guidance for revenue of $907 million to $946 million; and adjusted EBITDA of $170 million to $177 million

"While we were pleased with our strong commercial and financial results for Q1, our full attention is focused on navigating the challenges presented by the COVID-19 pandemic, most importantly, ensuring the health and safety of our employees, patients and customers," said David Simmons, PPD's chairman and CEO. "We are coordinating closely with customers to minimize study disruptions where possible and ensure continued access to drug supply for patients in ongoing studies. This pandemic highlights the crucial role the life sciences industry plays in our society and underscores the importance of PPD's purpose and mission ‘to improve health by helping our customers deliver life-changing therapies.' To that end, we are proud to be actively working on 39 studies related to COVID-19 treatments and vaccines."

First Quarter 2020 Results

Revenue for the three months ended March 31, 2020 increased by 11.3% to $1,072.5 million, compared to $963.7 million for the three months ended March 31, 2019. At the segment level, Clinical Development Services revenue of $870.9 million grew 7.6% and Laboratory Services revenue of $201.6 million grew 30.6% compared to the three months ended March 31, 2019. Beginning in the first quarter of 2020, PPD revised the presentation of its reportable segments based on how management reviews performance and allocates resources. Segment revenue now includes direct, third-party pass-through and reimbursable out-of-pocket revenue. PPD's segment information for the first quarter of 2019 has been recast to reflect the change in segment presentation.

Net income attributable to common stockholders for the three months ended March 31, 2020 was $4.2 million, or $0.01 per diluted share, compared to a net loss attributable to common stockholders of $4.5 million, or $0.02 per diluted share, for the three months ended March 31, 2019. Adjusted net income for the three months ended March 31, 2020 was $76.5 million, or $0.24 per diluted share, compared to adjusted net income of $55.9 million, or $0.20 per diluted share, for the three months ended March 31, 2019.

Adjusted EBITDA for the three months ended March 31, 2020 was $196.9 million, compared to $167.8 million for the three months ended March 31, 2019.

Important disclosures about and reconciliations of non-GAAP measures to their most directly comparable GAAP measures, including adjusted net income, adjusted diluted earnings per share and adjusted EBITDA are provided below in this press release.

Backlog and Net Authorizations

The following tables provide selected information related to PPD's backlog and net authorizations:

Backlog and Net Authorizations - Historical Basis

Backlog and Net Authorizations - Direct Basis

Backlog and Net Authorizations - Direct and Indirect Basis

Financial Position

As of March 31, 2020, cash and cash equivalents were $738.4 million, gross debt was $4,395.4 million and net debt was $3,657.0 million, resulting in a net leverage ratio of 4.5x trailing 12-month adjusted EBITDA.

In March 2020, PPD borrowed $150.0 million from its $300.0 million revolving credit facility to provide additional liquidity solely as a precautionary measure to further strengthen its cash position and preserve financial flexibility in light of uncertainty in the global markets due to COVID-19. Under the terms of its credit agreement, in the event borrowings are greater than 30% of revolving credit capacity at the end of a fiscal quarter, PPD is subject to a financial covenant, the details of which are as follows:

As of March 31, 2020, PPD had an additional $148.4 million of borrowing capacity remaining on its revolving credit facility.

Financial Guidance

PPD originally provided full year 2020 financial guidance in connection with the reporting of its fourth quarter and full year 2019 results on March 4, 2020. After that date and due to the COVID-19 pandemic, some customers have delayed new studies and/or paused ongoing studies or certain activities in ongoing studies, such as patient recruitment, patient enrollment, site visits and site monitoring. Due to uncertainties associated with the extent and duration of the impacts of the COVID-19 pandemic, as well as its ability to mitigate related disruptions, PPD is withdrawing its full year 2020 financial guidance.

PPD is announcing second quarter 2020 financial guidance as follows:

Additional details on the expected operational and financial impacts of the COVID-19 pandemic will be provided during PPD's first quarter 2020 earnings conference call.

Webcast and Conference Call Details

PPD will host a conference call on Thursday, May 7, 2020 at 8:30 a.m. (Eastern Time) to discuss its first quarter 2020 financial results. The conference call can be accessed live over the phone by dialing +1 855 327 6837, or for international callers, +1 631 891 4304.

Investors and other interested parties also may listen to a live webcast of the conference call by logging onto the investors section of PPD's website at investors.ppd.com. An online replay will be available after the call and can be accessed by dialing +1 844 512 2921, or for international callers, +1 412 317 6671. The passcode for the live conference call and the replay is 10009309. The replay will be available until Thursday, May 21, 2020.

About PPD

PPD is a leading global contract research organization providing comprehensive, integrated drug development, laboratory and lifecycle management services. Our customers include pharmaceutical, biotechnology, medical device, academic and government organizations. With offices in 46 countries and approximately 24,000 professionals worldwide, PPD applies innovative technologies, therapeutic expertise and a firm commitment to quality to help customers bend the cost and time curve of drug development and optimize value in delivering life-changing therapies to improve health. For more information, visit www.ppd.com.

Forward-Looking Statements

This press release contains forward-looking statements. These statements often include words such as "anticipate," "expect," "suggest," "plan," "believe," "intend," "project," "forecast," "estimates," "targets," "projections," "should," "could," "would," "may," "might," "will," and other similar expressions, including forward-looking statements about the impact from the novel coronavirus disease (the "COVID-19 pandemic"). Although we believe that these forward-looking statements are based on reasonable assumptions at the time they are made, you should be aware that many factors could affect our actual financial results, including the impact from the COVID-19 pandemic, and our ability to achieve our projected second quarter 2020 guidance, and therefore actual results might differ materially from those expressed in these forward-looking statements. Factors that might materially affect such forward-looking statements include: the magnitude, continued duration, geographic reach and ongoing impact on the global economy and capital and credit markets of the COVID-19 pandemic; the current and uncertain future impact from the COVID-19 pandemic on our business, growth, reputation, prospects, financial condition, results of operations (including components of our financial results), cash flows and liquidity; the fragmented and highly competitive nature of the drug development services industry; changes in trends in the biopharmaceutical industry; our ability to keep pace with rapid technological changes that could make our services less competitive or obsolete; political, economic and/or regulatory influences and changes; any failure of our backlog to accurately predict or convert into future revenue; the fact that our customers can terminate, delay or reduce the scope of our contracts with them upon short notice or with no notice; the impact of industry, customer and therapeutic area concentration; our ability to accurately price our contracts and manage our costs associated with performance of such contracts; any failures in our information and communication systems impacting us or our customers, clinical trial participants or employees; any failure to perform services in accordance with contractual requirements, regulatory standards and ethical standards; our ability to recruit, retain and motivate key personnel, including the loss of any key executive who becomes seriously ill with COVID-19; our ability to attract suitable investigators or enroll a sufficient number of patients for our customers' clinical trials; any failure by us to comply with numerous privacy laws; our dependence on third parties for critical goods and support services, including a significant impact from the COVID-19 pandemic to our suppliers; our dependence on our technology network, and the impact from upgrades to the network; any violation of laws, including laws governing the conduct of clinical trials or other biopharmaceutical research, and anti-corruption laws; competition between our existing and potential customers and the potential negative impact on our business; our management of business restructuring transactions and the integration of acquisitions; risks related to the drug development services industry that could result in potential liability; any failure of our insurance to cover the potential liabilities associated with the operation of our business and provision of services; our use of biological and hazardous materials, which could result in liability; international or U.S. economic, currency, political and other risks, including those caused by the global COVID-19 pandemic; disruption to our operations by the occurrence of a natural disaster, pandemic (such as the COVID-19 pandemic) or other catastrophic events; economic conditions and regulatory changes from the United Kingdom's exit from the European Union; any inability to adequately protect our intellectual property or the security of our systems and the data stored therein; consolidation amongst our customers, and the potential for rationalization of the combined drug development pipeline, resulting in fewer products in clinical development; any patent or other intellectual property litigation we might be involved in; changes in tax laws, or interpretations of existing tax laws; our investments in third parties; the substantial value of our goodwill and intangible assets, which we might not fully realize, resulting in impairment losses; difficult and volatile conditions in the capital and credit markets and in the overall economy, including those caused by the COVID-19 pandemic; risks related to our indebtedness; risks related to ownership of our common stock; the significant influence of certain significant stockholders over us; and other factors beyond our control. We assume no obligation and disclaim any duty to revise or update any forward-looking statements, or make any new forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.

Backlog and Net Authorizations

Revenue is comprised of direct, third-party pass-through and out-of-pocket revenue from providing services to customers. Direct revenue represents revenue associated with the direct services. Third-party pass-through and out-of-pocket revenue (collectively, "indirect revenue") represents the reimbursement by customers of third-party pass-through and out-of-pocket costs incurred by PPD under its contracts with customers.

Historically, PPD reported backlog and net authorizations on a basis which excluded indirect revenues and the impact of Accounting Standards Codification ("ASC") 606 ("ASC 606") on direct revenue ("Backlog and Net Authorizations - Historical Basis"). During the first quarter of 2020, PPD began to assess backlog and net authorizations on a ASC 606 direct revenue basis ("Backlog and Net Authorizations - Direct Basis") and an ASC 606 total direct and indirect revenue basis ("Backlog and Net Authorizations - Direct and Indirect Basis").

Net authorizations represent new business awards, net of award or contract modifications, contract cancellations, foreign currency fluctuations and other adjustments. Backlog for all periods represents anticipated revenues for work not yet completed or performed (i) under signed contracts, letters of intent and, in some cases, awards that are supported by other forms of written communication and (ii) where there is sufficient or reasonable certainty about the customer's ability and intent to fund and commence the services within six months. Backlog conversion represents the quarterly average of revenues for the period divided by opening backlog for that period. The net book-to-bill ratio represents the amount of net authorizations for the period divided by revenues recognized in that period.

Due to the COVID-19 pandemic, some PPD customers have delayed new studies and/or paused ongoing studies or certain activities in ongoing studies, such as patient recruitment, patient enrollment, site visits and site monitoring. These delays have impacted, and will continue to impact, the timing and extent to which backlog has and will convert to revenue. PPD has not adjusted backlog to remove the backlog associated with these studies as the customers for these studies have not canceled these studies or notified PPD of their intent to cancel these studies.

Non-GAAP Financial Measures

In addition to the financial measures prepared in accordance with generally accepted accounting principles in the United States ("GAAP"), this press release contains certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income, adjusted diluted earnings per share, net debt, net secured debt, net leverage ratio and net secured leverage ratio. A non-GAAP financial measure is generally defined as a numerical measure of a company's financial performance or financial position that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with GAAP.

Adjusted EBITDA consists of net income (loss) attributable to common stockholders of PPD, adjusted for changes in recapitalization investment portfolio consideration and net (income) loss attributable to noncontrolling interest and before interest expense, net, provision for (benefit from) income taxes and depreciation and amortization and eliminates (i) non-operating income or expense and (ii) impacts of certain non-cash, unusual or other items that are included in net income (loss) that we do not consider indicative of our ongoing operating performance. Adjusted net income (and adjusted diluted earnings per share) consists of net income (and diluted earnings per share) attributable to common stockholders of PPD before amortization and the elimination of (i) non-operating income or expense and (ii) impacts of certain non-cash, unusual or other items that are included in net income (loss) that we do not consider indicative of our ongoing operating performance. In the case of adjusted EBITDA, adjusted net income and adjusted diluted earnings per share, we believe that making such adjustments provides management and investors meaningful information to understand our operating performance and ability to analyze financial and business trends on a period-to-period basis. Although we exclude amortization of acquired intangible assets from our non-GAAP expenses, we note that revenue generated from such intangibles is included within revenue in determining net income (loss) attributable to common stockholders of PPD.

Other companies in our industry may calculate adjusted EBITDA, adjusted net income, adjusted diluted earnings per share, net debt, net secured debt, net leverage ratio and net secured leverage ratio differently than we do. As a result, these non-GAAP financial measures have limitations as analytical and comparative tools and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Adjusted EBITDA, adjusted net income, adjusted diluted earnings per share, net debt, net secured debt, net leverage ratio and net secured leverage ratio should not be considered as measures of discretionary cash available to us to invest in the growth of our business. In calculating these performance and liquidity financial measures, we make certain adjustments that are based on assumptions and estimates that may prove to have been inaccurate. Our presentation of adjusted EBITDA, adjusted net income, adjusted diluted earnings per share, net debt, net secured debt, net leverage ratio and net secured leverage ratio should not be construed as an inference that our future results and financial position will be unaffected by unusual items. Net debt consists of the outstanding principal balance of the term loan, senior unsecured notes, other debt, finance lease obligations and revolving credit borrowings, less cash and cash equivalents, and the net leverage ratio is equal to net debt divided by trailing 12-month adjusted EBITDA as reported. Net secured debt consists of the outstanding principal balance of the term loan and revolving credit borrowings, less cash and cash equivalents, and the net secured leverage ratio is equal to net secured debt divided by trailing 12-month adjusted EBITDA.

PPD has not reconciled the forward-looking adjusted EBITDA guidance included in this press release to the most directly comparable GAAP measure because this cannot be done without unreasonable effort due to the variability and low visibility with respect to certain costs, including, but not limited to, costs related to unplanned acquisitions, incentive compensation (including stock-based compensation), transaction costs, recapitalization portfolio interest consideration, uncertainties caused by the global COVID-19 pandemic and other items not reflective of PPD's ongoing operations, which are potential adjustments to future earnings. PPD expects the variability of these items to have a potentially unpredictable, and a potentially significant, impact on our future GAAP financial results.

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