8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date Earliest Event reported): March 4, 2020

 

 

PPD, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-39212   45-3806427

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

929 North Front Street

Wilmington, North Carolina 28401

(910) 251-0081

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e- 4(c))

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, par value $0.01 per share   PPD  

The NASDAQ Stock Market LLC

(Nasdaq Global Select Market)

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 


Item 2.02.

Results of Operations and Financial Condition.

On March 4, 2020, PPD, Inc. (the “Company”) issued a press release reporting its financial results for the fourth quarter and full year of 2019. A copy of this press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

The information contained in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1 furnished herewith, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.

 

Item 9.01

Financial Statements and Exhibits.

(d) Exhibits.

 

Exhibit
No.

  

Description

99.1*    Press Release entitled “PPD Reports Fourth Quarter and Full Year 2019 Results”

 

*

Furnished herewith.


Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

PPD, Inc.
By:   /s/ B. Judd Hartman
Name:   B. Judd Hartman
Title:   Executive Vice President, General
  Counsel and Secretary

Date: March 4, 2020

EX-99.1

Exhibit 99.1

 

LOGO

PPD Reports Fourth Quarter and Full Year 2019 Results

Provides Full Year 2020 Guidance

WILMINGTON, N.C. (March 4, 2020) - PPD, Inc. (NASDAQ: PPD), a leading global contract research organization, today reported its financial results for the fourth quarter and full year ended December 31, 2019.

“Our fourth quarter and full year results reflect solid commercial and financial success enabled by effective execution of our growth strategy,” said David Simmons, PPD’s chairman and CEO. “We continue to progress our mission to help customers bring life-changing therapies to patients. Our record net authorizations and ending backlog combined with our stable backlog conversion rate, position us well for continued growth in 2020.”

Highlights

 

   

Fourth quarter revenue of $1,046.9 million, representing 7.0% growth over the fourth quarter of 2018

 

   

Full year revenue of $4,031.0 million, representing 7.5% growth over the prior year

 

   

Full year segment revenues of $3,143.7 million, representing 10.8% growth over the prior year

 

   

Net authorizations and a net book-to-bill ratio of $1,012.9 million and 1.24x for the fourth quarter; $3,827.3 million and 1.22x for the full year

 

   

Ending backlog of $7.1 billion, an increase of 11.9% over the prior year end

 

   

Net income attributable to common stockholders of $6.8 million for the fourth quarter; $54.7 million for the full year

 

   

Adjusted EBITDA of $213.6 million for the fourth quarter; $776.9 million for the full year

 

   

Full year 2020 guidance for revenue of $4.353 billion to $4.474 billion; Adjusted EBITDA of $855 million to $870 million

“Our financial performance in 2019, ending backlog and healthy net authorizations to close out the year give us confidence in our ability to continue delivering solid results,” said Chris Scully, PPD’s executive vice president and CFO. “As a result, based on the current outlook, we expect to land in the top half of our full year 2020 guidance range for revenue and adjusted EBITDA.”

Fourth Quarter 2019 Results

Revenue for the three months ended December 31, 2019 increased by 7.0% to $1,046.9 million, compared to $978.6 million for the three months ended December 31, 2018.

For the three months ended December 31, 2019, Clinical Development Services segment revenue of $657.7 million grew 4.4% and Laboratory Services segment revenue of $161.0 million grew 22.2%, resulting in segment revenues of $818.7 million and growth of 7.5% over the same period of the prior year. Other revenue not allocated to segments, which includes third party pass-through and out-of-pocket revenue, was $228.2 million for the three months ended December 31, 2019, compared to $216.7 million for the same period of the prior year.

Net income attributable to common stockholders for the three months ended December 31, 2019 was $6.8 million, or $0.02 per diluted share, compared to $36.6 million, or $0.13 per diluted share, for the three months ended December 31, 2018. Adjusted net income for the three months ended December 31, 2019 was $92.2 million, or $0.33 per diluted share, compared to adjusted net income of $75.8 million, or $0.27 per diluted share, for the three months ended December 31, 2018.

Adjusted EBITDA for the three months ended December 31, 2019 was $213.6 million, compared to $212.9 million for the three months ended December 31, 2018.

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

 

1


Full Year 2019 Results

Revenue for the year ended December 31, 2019 increased by 7.5% to $4,031.0 million, compared to $3,749.0 million for the prior year.

For the year ended December 31, 2019, Clinical Development Services segment revenue of $2,545.0 million grew 8.9% and Laboratory Services segment revenue of $598.7 million grew 19.3%, resulting in segment revenues of $3,143.7 million and growth of 10.8% over the same period of the prior year. Other revenue not allocated to segments, which includes third party pass-through and out-of-pocket revenue, was $887.3 million for the year ended December 31, 2019, compared to $911.2 million for the same period of the prior year.

Net income attributable to common stockholders for the year ended December 31, 2019 was $54.7 million, or $0.19 per diluted share, compared to $96.3 million, or $0.34 per diluted share, for the prior year. Adjusted net income for the year ended December 31, 2019 was $286.8 million, or $1.02 per diluted share, compared to adjusted net income of $257.6 million, or $0.92 per diluted share, for the prior year.

Adjusted EBITDA for the year ended December 31, 2019 was $776.9 million, compared to $707.4 million for the year ended December 31, 2018.

Net Authorizations and Backlog

Net authorizations were $1,012.9 million for the three months ended December 31, 2019, resulting in a net book-to-bill ratio of 1.24x. As of December 31, 2019, backlog was $7.1 billion, an increase of 11.9% from backlog of $6.3 billion at December 31, 2018.

Net authorizations were $3,827.3 million for the year ended December 31, 2019, resulting in a net book-to-bill ratio of 1.22x. For the year ended December 31, 2019, quarterly average backlog conversion was 11.9%.

Financial Position

As of December 31, 2019, cash and cash equivalents were $345.2 million, gross debt was $5,705.9 million and net debt was $5,360.7 million, resulting in a net leverage ratio of 6.9x trailing twelve month adjusted EBITDA.

In February 2020, PPD completed its initial public offering (“IPO”) of its stock at a price of $27.00 per share and issued 69.0 million shares, including 9.0 million shares issued pursuant to the full exercise of the underwriters option to purchase additional shares. The IPO raised net proceeds of approximately $1.77 billion for PPD.

PPD used a portion of the net proceeds from the IPO to redeem (i) $550.0 million in aggregate principal amount of 7.625%/8.375% Senior PIK Toggle Notes due 2022 and (ii) $900.0 million in aggregate principal amount of 7.75%/8.50% Senior PIK Toggle Notes due 2022 (collectively, the “PIK Notes Redemption”).

PPD’s adjusted net leverage ratio as of December 31, 2019 was 4.7x trailing twelve month adjusted EBITDA after giving effect to the IPO and the PIK Notes Redemption, as if each had occurred on such date.

Financial Guidance

PPD is announcing full year guidance for 2020 as follows:

 

Revenue

   $ 4.353 billion to $4.474 billion  

Adjusted EBITDA

     $855 million to $870 million    

Full year 2020 guidance assumes foreign exchange rates as of February 28, 2020 remain in effect for the rest of the year.

 

 

2


Webcast and Conference Call Details

PPD will host a conference call on Thursday, March 5, 2020 at 8:30 a.m. (Eastern Time) to discuss its fourth quarter and full year 2019 financial results. The conference call can be accessed live over the phone by dialing +1 877 407 0784, or for international callers, +1 201 689 8560.

Investors and other interested parties may also listen to a live webcast of the conference call by logging onto the investors section of PPD’s website at investors.ppdi.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 13698656. The replay will be available until Thursday, March 19, 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 more than 23,000 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.ppdi.com.

PPD Contacts

 

Media:    Investors:
Ned Glascock    +1 910 558 2899
+1 910 558 8760    investors@ppdi.com
ned.glascock@ppdi.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. 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 and our ability to achieve our projected full year 2020 guidance, and therefore actual results might differ materially from those expressed in the forward-looking statements. Factors that might materially affect such forward-looking statements include: 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 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; 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; 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; 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; 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. 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.

 

3


Net Authorizations and Backlog

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 segment 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. Net authorizations and backlog exclude the impact of net authorizations from anticipated third-party pass-through and out-of-pocket revenue. Backlog conversion represents the quarterly average of segment 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 segment revenues recognized in that period.

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 revenue growth at constant currency, segment revenues, adjusted EBITDA, adjusted net income, adjusted diluted earnings per share, net debt and adjusted net leverage. A non-GAAP financial measure is generally defined as a numerical measure of a company’s financial performance 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, Inc., 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, Inc. 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, Inc.

Other companies in our industry may calculate adjusted EBITDA and adjusted net income (and adjusted diluted earnings per share) 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 and adjusted net income (and adjusted diluted earnings per share) should not be considered as measures of discretionary cash available to us to invest in the growth of our business. In calculating these performance 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 and adjusted net income (and adjusted diluted earnings per share) should not be construed as an inference that our future results will be unaffected by unusual items.

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 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.

 

4


PPD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 

     Three Months Ended
December 31,
    Year Ended
December 31,
 
     2019     2018     2019     2018  

Revenue

   $ 1,046,884     $ 978,637     $ 4,031,017     $ 3,748,971  

Operating costs and expenses:

        

Direct costs, exclusive of depreciation and amortization

     372,077       344,252       1,484,258       1,333,812  

Reimbursed costs

     235,938       226,001       924,634       940,913  

Selling, general and administrative expenses

     257,375       213,472       938,806       813,035  

Depreciation and amortization

     66,934       63,639       264,830       258,974  

Goodwill and long-lived asset impairments

     1,284       29,626       1,284       29,626  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating costs and expenses

     933,608       876,990       3,613,812       3,376,360  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     113,276       101,647       417,205       372,611  

Interest expense, net

     (82,597     (65,698     (311,744     (263,618

Gain (loss) on investments

     3,673       (31,104     (19,043     15,936  

Other (expense) income, net

     (23,985     28,860       (27,143     21,701  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before provision for (benefit from) income taxes

     10,367       33,705       59,275       146,630  

(Benefit from) provision for income taxes

     (9,430     18,760       2,957       39,579  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before equity in losses of unconsolidated affiliates

     19,797       14,945       56,318       107,051  

Equity in losses of unconsolidated affiliates, net of income taxes

     (1,503     (186     (3,563     (186
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     18,294       14,759       52,755       106,865  

Net income attributable to noncontrolling interest

     (1,544     (1,366     (4,934     (2,679
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to PPD, Inc.

     16,750       13,393       47,821       104,186  

Recapitalization investment portfolio consideration

     (9,984     23,198       6,846       (7,849
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to common stockholders of PPD, Inc.

   $ 6,766     $ 36,591     $ 54,667     $ 96,337  
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share attributable to common stockholders of PPD, Inc.:

        

Basic

   $ 0.02     $ 0.13     $ 0.20     $ 0.34  

Diluted

   $ 0.02     $ 0.13     $ 0.19     $ 0.34  

Weighted-average common shares outstanding:

        

Basic

     279,433       279,038       279,285       279,238  

Diluted

     282,603       279,169       280,693       279,317  

 

5


PPD, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except par value amounts)

 

     December 31, 2019     December 31, 2018  
Assets

 

Current assets:

    

Cash and cash equivalents

   $ 345,187     $ 553,066  

Accounts receivable and unbilled services, net

     1,326,614       1,260,724  

Income taxes receivable

     27,437       16,065  

Prepaid expenses and other current assets

     119,776       102,274  
  

 

 

   

 

 

 

Total current assets

     1,819,014       1,932,129  

Property and equipment, net

     458,845       399,103  

Investments in unconsolidated affiliates

     34,028       8,756  

Investments

     250,348       265,715  

Goodwill

     1,764,104       1,723,378  

Intangible assets, net

     892,091       1,028,973  

Other assets

     156,220       131,307  

Operating lease right-of-use assets

     181,596       —    
  

 

 

   

 

 

 

Total assets

   $ 5,556,246     $ 5,489,361  
  

 

 

   

 

 

 
Liabilities, Redeemable Noncontrolling Interest and Stockholders’ Deficit

 

Current liabilities:

    

Accounts payable

   $ 130,060     $ 89,010  

Accrued expenses:

    

Payables to investigators

     322,231       355,144  

Accrued employee compensation

     263,834       240,679  

Accrued interest

     44,527       35,681  

Other accrued expenses

     138,632       108,335  

Income taxes payable

     15,161       8,953  

Unearned revenue

     1,110,872       921,964  

Current portion of operating lease liabilities

     45,962       —    

Current portion of long-term debt and finance lease obligations

     35,794       34,907  
  

 

 

   

 

 

 

Total current liabilities

     2,107,073       1,794,673  

Accrued income taxes

     38,465       26,597  

Deferred tax liabilities

     92,225       165,114  

Recapitalization investment portfolio liability

     191,678       198,524  

Long-term operating lease liabilities, less current portion

     153,766       —    

Long-term debt and finance lease obligations, less current portion

     5,608,134       4,760,777  

Other liabilities

     33,017       41,205  
  

 

 

   

 

 

 

Total liabilities

     8,224,358       6,986,890  

Redeemable noncontrolling interest

     30,036       24,892  

Stockholders’ deficit:

    

Common stock $0.01 par value, 2,080,000 shares authorized;

    

280,127 shares issued and 279,426 shares outstanding as of

    

December 31, 2019 and 2,080,000 shares authorized;

    

279,545 shares issued and 279,030 shares outstanding as of

     2,801       2,795  

December 31, 2018

    

Treasury stock, at cost, 701 and 515 shares, respectively, at

     (12,707     (8,933

December 31, 2019 and December 31, 2018

    

Additional paid-in-capital

     1,983       41,685  

Accumulated deficit

     (2,391,321     (1,245,077

Accumulated other comprehensive loss

     (298,904     (312,891
  

 

 

   

 

 

 

Total stockholders’ deficit

     (2,698,148     (1,522,421
  

 

 

   

 

 

 

Total liabilities, redeemable noncontrolling interest and stockholders’ deficit

   $ 5,556,246     $ 5,489,361  
  

 

 

   

 

 

 

 

6


PPD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

     Year Ended December 31,  
     2019     2018  

Cash flows from operating activities:

    

Net income

   $ 52,755     $ 106,865  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     264,830       258,974  

Goodwill and long-lived asset impairments

     1,284       29,626  

Stock-based compensation expense

     15,632       18,265  

Non-cash operating lease expense

     40,633       —    

Amortization of debt issuance and modification costs and debt discount

     17,768       10,082  

Amortization of accumulated other comprehensive income on terminated interest rate swaps

     (9,523     (5,269

Loss (gain) on investments

     19,043       (15,936

Benefit from deferred income taxes

     (84,795     (26,062

Amortization of costs to obtain a contract

     11,432       8,693  

Other

     12,929       (11,691

Change in operating assets and liabilities, net of effect of businesses acquired or sold:

    

Accounts receivable and unbilled services, net

     (28,075     (144,822

Prepaid expenses and other current assets

     (11,465     18,510  

Other assets

     (31,288     (26,819

Income taxes, net

     7,712       606  

Accounts payable, accrued expenses and other liabilities

     26,283       (4,443

Operating lease liabilities

     (39,065     —    

Unearned revenue

     166,856       206,827  
  

 

 

   

 

 

 

Net cash provided by operating activities

     432,946       423,406  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of property and equipment

     (125,928     (116,145

Acquisitions of businesses, net of cash and cash equivalents acquired

     (74,187     224  

Capital contributions paid for investments

     (4,069     (1,546

Distributions received from investments

     452       27,778  

Investments in unconsolidated affiliates

     (30,000     (9,000

Proceeds from sale of business

     —         8,000  

Other

     504       164  
  

 

 

   

 

 

 

Net cash used in investing activities

     (233,228     (90,525
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Purchase of treasury stock

     (4,012     (8,630

Proceeds from exercise of stock options

     4,524       923  

Proceeds from issuance of HoldCo notes

     891,000       —    

Payments on long-term debt and finance leases

     (37,409     (35,387

Payment of debt issuance and debt modification costs

     (30,142     —    

Recapitalization tax benefit distribution

     —         (108,320

Recapitalization investment portfolio distribution

     —         (16,008

Proceeds from employee stock purchases

     —         480  

Return of capital and special dividend to stockholders

     (1,246,000     —    
  

 

 

   

 

 

 

Net cash used in financing activities

     (422,039     (166,942
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     14,442       (31,833
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (207,879     134,106  

Cash and cash equivalents, beginning of the period

     553,066       418,960  
  

 

 

   

 

 

 

Cash and cash equivalents, end of the period

   $ 345,187     $ 553,066  
  

 

 

   

 

 

 

 

7


PPD, INC. AND SUBSIDIARIES

Reconciliation of GAAP to Non-GAAP Measures

(in thousands, except per share amounts)

(unaudited)

 

     Three Months Ended
December 31,
    Year Ended
December 31,
 
           2019                 2018                 2019                 2018        

Net income attributable to common stockholders of PPD, Inc.

   $ 6,766     $ 36,591     $ 54,667     $ 96,337  

Recapitalization investment portfolio consideration

     9,984       (23,198     (6,846     7,849  

Net income attributable to noncontrolling interest

     1,544       1,366       4,934       2,679  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     18,294       14,759       52,755       106,865  

Reconciliation to Adjusted EBITDA:

        

Interest expense, net

   $ 82,597     $ 65,698     $ 311,744     $ 263,618  

(Benefit from) provision for income taxes

     (9,430     18,760       2,957       39,579  

Depreciation and amortization

     66,934       63,639       264,830       258,974  

Stock-based compensation expense

     3,931       6,424       15,632       18,265  

Option holder special bonuses (a)

     4,017       —         18,874       —    

Other expense (income), net

     23,985       (28,860     27,143       (21,701

Goodwill and long-lived asset impairments

     1,284       29,626       1,284       29,626  

Sponsor fees and related costs (b)

     934       850       3,805       3,569  

Severance and charges for other cost reduction activities (c)

     2,641       3,217       10,398       7,938  

Transaction-related costs (d)

     9,959       1,356       22,950       2,938  

(Gain) loss on investments (e)

     (3,673     31,104       19,043       (15,936

Other adjustments (f)

     12,148       6,345       25,530       13,671  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 213,621     $ 212,918     $ 776,945     $ 707,406  
  

 

 

   

 

 

   

 

 

   

 

 

 

Reconciliation to Adjusted Net Income:

        

Net income

   $ 18,294     $ 14,759     $ 52,755     $ 106,865  

Amortization of intangible assets

     40,949       41,220       162,121       168,639  

Amortization of debt issuance and modification costs and debt discount

     5,606       2,571       17,768       10,082  

Amortization of accumulated other comprehensive income on derivative instruments

     (2,366     (2,500     (9,523     (5,269

Stock-based compensation expense

     3,931       6,424       15,632       18,265  

Option holder special bonuses (a)

     4,017       —         18,874       —    

Other expense (income), net

     23,985       (28,860     27,143       (21,701

Goodwill and long-lived asset impairments

     1,284       29,626       1,284       29,626  

Sponsor fees and related costs (b)

     934       850       3,805       3,569  

Severance and charges for other cost reduction activities (c)

     2,641       3,217       10,398       7,938  

Transaction-related costs (d)

     9,959       1,356       22,950       2,938  

(Gain) loss on investments (e)

     (3,673     31,104       19,043       (15,936

Other adjustments (f)

     12,148       6,345       25,530       13,671  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments

     99,415       91,353       315,025       211,822  
  

 

 

   

 

 

   

 

 

   

 

 

 

Tax effect of adjustments (g)

     (25,550     (23,386     (80,961     (54,226

Other tax adjustments (g)

     —         (6,902     —         (6,902
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income

   $ 92,159     $ 75,824     $ 286,819     $ 257,559  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted weighted average common shares outstanding

     282,603       279,169       280,693       279,317  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted diluted earnings per share

   $ 0.33     $ 0.27     $ 1.02     $ 0.92  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Reconciliation to Segment Revenues    Three Months Ended
December 31,
     Year Ended
December 31,
 
     2019      2018      2019      2018  

Clinical Development Services

   $ 657,677      $ 630,104      $ 2,545,046      $ 2,336,005  

Laboratory Services

     161,030        131,805        598,691        501,805  

Other revenue

     228,177        216,728        887,280        911,161  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

     1,046,884        978,637        4,031,017        3,748,971  
  

 

 

    

 

 

    

 

 

    

 

 

 

Less: Other revenue

     228,177        216,728        887,280        911,161  
  

 

 

    

 

 

    

 

 

    

 

 

 

Segment revenues

   $ 818,707      $ 761,909      $ 3,143,737      $ 2,837,810  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

8


PPD, INC. AND SUBSIDIARIES

Reconciliation of GAAP to Non-GAAP Measures

(in thousands)

(unaudited)

 

Calculation of Net Leverage Ratio as of December 31, 2019    As Reported      As Adjusted (h)  

Gross debt

   $ 5,705,862      $ 4,255,862  

Less: Cash and cash equivalents

     345,187        631,930  
  

 

 

    

 

 

 

Net debt

   $ 5,360,675      $ 3,623,932  
  

 

 

    

 

 

 

Adjusted EBITDA

   $ 776,945      $ 776,945  
  

 

 

    

 

 

 

Net leverage ratio (Net debt/Adjusted EBITDA)

     6.9x        4.7x  
  

 

 

    

 

 

 

 

(a)

Represents PPD’s costs associated with special cash bonuses paid to PPD’s option holders.

(b)

Represents management fees incurred under consulting services agreements with certain investment funds of Hellman & Friedman LLC and its affiliates and The Carlyle Group, Inc. and its affiliates. These consulting services agreements terminated upon consummation of our IPO.

(c)

Represents employee separation costs, exit and disposal costs with the full or partial exit of certain leased facilities, costs associated with planned employee reorganizations and other contract termination costs from various cost-reduction activities.

(d)

Represents integration and transaction costs incurred with completed or contemplated acquisitions, costs incurred in connection with our IPO and other transaction costs.

(e)

Represents the fair value accounting gains or losses primarily from our investments in Auven Therapeutic Holdings, L.P. and in venBio Global Strategic Fund, L.P.

(f)

Other adjustments include amounts that management believes are not representative of our operating performance. These adjustments include implementation costs associated with a new enterprise resource planning application, advisory costs associated with the adoption of new accounting standards and other unusual charges or income.

(g)

Non-GAAP adjustments were tax effected at an estimated blended effective tax rate of 26%, excluding the change in recapitalization investment portfolio consideration, which represents PPD’s estimated full year non-GAAP effective tax rate. The non-recurring gain associated with the Tax Cuts and Jobs Act of 2017 was $6.9 million for the three months and year ending December 31, 2018 and is reflected as an adjustment as it is not representative of our operating performance.

(h)

As adjusted net debt and net leverage ratio give effect to receipt of the net proceeds from our IPO (which was completed on February 10, 2020) and the use of a portion of such net proceeds to redeem (i) $550.0 million of aggregate principal amount of 7.625%/8.375% Senior PIK Toggle Notes due 2022 and (ii) $900.0 million of aggregate principal amount of 7.75%/8.50% Senior PIK Toggle Notes due 2022 issued by a subsidiary of PPD, including payment of the applicable premium and accrued interest thereon (which occurred on February 18, 2020), as if the IPO and such redemption occurred on December 31, 2019.

 

9