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): May 6, 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 May 6, 2020, PPD, Inc. (the “Company”) issued a press release reporting its financial results for the first quarter of 2020. 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 First Quarter 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: May 6, 2020

EX-99.1

Exhibit 99.1

 

LOGO

PPD Reports First Quarter 2020 Results

WILMINGTON, N.C. (May 6, 2020)—PPD, Inc. (Nasdaq: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 thirty-nine 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.

 

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Backlog and Net Authorizations

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

Backlog and Net Authorizations - Historical Basis

 

(dollars in millions)

   2020     2019     $ Change      % Change  

Net authorizations (for the three months ended March 31)

   $ 1,063.6     $ 977.8     $ 85.8        8.8

Backlog (as of March 31)

     7,312.2       6,536.0       776.2        11.9  

Backlog conversion (for the three months ended March 31)

     11.6     12.0        (0.4

Net book-to-bill (for the three months ended March 31)

     1.30     1.29     

Backlog and Net Authorizations - Direct Basis

 

(dollars in millions)

   2020     2019     $ Change      % Change  

Net authorizations (for the three months ended March 31)

   $ 1,063.6     $ 977.8     $ 85.8        8.8

Backlog (as of March 31)

     7,574.8       6,733.2       841.6        12.5  

Backlog conversion (for the three months ended March 31)

     11.1     11.3        (0.2

Net book-to-bill (for the three months ended March 31)

     1.31     1.34     

Backlog and Net Authorizations - Direct and Indirect Basis

 

(dollars in millions)

   2020     2019     $ Change      % Change  

Net authorizations (for the three months ended March 31)

   $ 1,417.2     $ 1,277.0     $ 140.2        11.0

Backlog (as of March 31)

     10,620.1       9,499.0       1,121.1        11.8  

Backlog conversion (for the three months ended March 31)

     10.4     10.5        (0.1

Net book-to-bill (for the three months ended March 31)

     1.32     1.33     

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 twelve 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:

 

Measure

  

Requirement

  

As of March 31, 2020

Net secured leverage ratio    Not greater than 5.0x    3.1x

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:

 

Revenue

   $907 million to $946 million

Adjusted EBITDA

   $170 million to $177 million

 

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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.

PPD Contacts

 

Media:

Ned Glascock

+1 910 558 8760

ned.glascock@ppd.com

  

Investors:

+1 910 558 2899

investors@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 the 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

 

3


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

 

4


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 twelve 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 twelve 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.

 

5


PPD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share data)

 

     Three Months Ended March 31,  
     2020     2019  

Revenue

   $ 1,072,462     $ 963,738  

Operating costs and expenses:

    

Direct costs, exclusive of depreciation and amortization

     414,439       367,202  

Reimbursed costs

     250,850       225,019  

Selling, general and administrative expenses

     247,776       218,380  

Depreciation and amortization

     66,315       65,418  
  

 

 

   

 

 

 

Total operating costs and expenses

     979,380       876,019  
  

 

 

   

 

 

 

Income from operations

     93,082       87,719  

Interest expense, net

     (64,710     (66,523

Loss on extinguishment of debt

     (50,065     —    

Loss on investments

     (26,872     (14,100

Other income (expense), net

     29,294       (24,301
  

 

 

   

 

 

 

Loss before benefit from income taxes

     (19,271     (17,205

Benefit from income taxes

     (7,717     (3,299
  

 

 

   

 

 

 

Loss before equity in losses of unconsolidated affiliates

     (11,554     (13,906

Equity in losses of unconsolidated affiliates, net of income taxes

     (1,566     (328
  

 

 

   

 

 

 

Net loss

     (13,120     (14,234

Net income attributable to noncontrolling interest

     (2,718     (861
  

 

 

   

 

 

 

Net loss attributable to PPD, Inc.

     (15,838     (15,095

Recapitalization investment portfolio consideration

     20,062       10,628  
  

 

 

   

 

 

 

Net income (loss) attributable to common stockholders of PPD, Inc.

   $ 4,224     $ (4,467
  

 

 

   

 

 

 

Income (loss) per share attributable to common stockholders of PPD, Inc.:

    

Basic

   $ 0.01     $ (0.02

Diluted

   $ 0.01     $ (0.02

Weighted-average common shares outstanding:

    

Basic

     318,221       279,086  

Diluted

     322,424       279,086  

 

6


PPD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except par value)

 

Assets  
     March 31, 2020     December 31, 2019  

Current assets:

    

Cash and cash equivalents

   $ 738,364     $ 345,187  

Accounts receivable and unbilled services, net

     1,352,232       1,326,614  

Income taxes receivable

     18,498       27,437  

Prepaid expenses and other current assets

     115,845       119,776  
  

 

 

   

 

 

 

Total current assets

     2,224,939       1,819,014  

Property and equipment, net

     455,439       458,845  

Investments in unconsolidated affiliates

     31,953       34,028  

Investments

     223,668       250,348  

Goodwill, net

     1,723,334       1,764,104  

Intangible assets, net

     835,284       892,091  

Other assets

     148,676       156,220  

Operating lease right-of-use assets

     171,495       181,596  
  

 

 

   

 

 

 

Total assets

   $ 5,814,788     $ 5,556,246  
  

 

 

   

 

 

 
Liabilities, Redeemable Noncontrolling Interest and Stockholders’ Deficit  

Current liabilities:

    

Accounts payable

   $ 116,568     $ 130,060  

Accrued expenses:

    

Payables to investigators

     324,053       322,231  

Accrued employee compensation

     246,993       263,834  

Accrued interest

     12,365       44,527  

Other accrued expenses

     163,197       138,632  

Income taxes payable

     9,295       15,161  

Unearned revenue

     1,057,988       1,110,872  

Current portion of operating lease liabilities

     46,265       45,962  

Current portion of long-term debt and finance lease obligations

     35,894       35,794  
  

 

 

   

 

 

 

Total current liabilities

     2,012,618       2,107,073  

Accrued income taxes

     16,909       38,465  

Deferred tax liabilities

     82,946       92,225  

Recapitalization investment portfolio liability

     171,616       191,678  

Long-term operating lease liabilities, less current portion

     143,962       153,766  

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

     4,336,826       5,608,134  

Other liabilities

     97,068       33,017  
  

 

 

   

 

 

 

Total liabilities

     6,861,945       8,224,358  

Redeemable noncontrolling interest

     32,741       30,036  

Stockholders’ deficit:

    

Preferred stock—$0.01 par value; 100,000 shares authorized as of March 31, 2020
none issued and outstanding as of March 31, 2020

     —         —    

Common stock—$0.01 par value; 2,000,000 and 2,080,000 shares authorized as of 349,310 shares issued and 348,584 shares outstanding as of March 31, 2020, and 280,127 shares issued and 279,426 shares outstanding as of December 31, 2019

     3,493       2,801  

Treasury stock, at cost, 726 shares and 701 shares, as of March 31, 2020 and

    

December 31, 2019, respectively

     (13,268     (12,707

Additional paid-in-capital

     1,782,232       1,983  

Accumulated deficit

     (2,387,903     (2,391,321

Accumulated other comprehensive loss

     (464,452     (298,904
  

 

 

   

 

 

 

Total stockholders’ deficit

     (1,079,898     (2,698,148
  

 

 

   

 

 

 

Total liabilities, redeemable noncontrolling interest and stockholders’ deficit

   $ 5,814,788     $ 5,556,246  
  

 

 

   

 

 

 

 

7


PPD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

     Three Months Ended March 31,  
     2020     2019  

Cash flows from operating activities:

    

Net loss

   $ (13,120   $ (14,234

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

    

Depreciation and amortization

     66,315       65,418  

Stock-based compensation expense

     5,272       3,734  

Non-cash operating lease expense

     9,819       10,400  

Amortization of debt issuance costs, modification costs and debt discounts

     3,857       2,575  

Non-cash losses (gains) on interest rate swaps

     5,965       (2,410

Loss on investments

     26,872       14,100  

Deferred income tax expense

     8,790       3,342  

Loss on extinguishment of debt

     50,065       —    

Amortization of costs to obtain a contract

     1,561       2,874  

Other

     1,456       (970

Change in operating assets and liabilities, net of effect of business acquired:

    

Accounts receivable and unbilled services, net

     (61,700     (1,736

Prepaid expenses and other current assets

     22,135       9,028  

Other assets

     (9,546     (12,840

Income taxes, net

     (18,767     (12,543

Accounts payable, accrued expenses and other liabilities

     (48,119     (73,888

Operating lease liabilities

     (9,868     (9,208

Unearned revenue

     (21,614     29,953  
  

 

 

   

 

 

 

Net cash provided by operating activities

     19,373       13,595  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of property and equipment

     (42,768     (24,761

Acquisition of business, net of cash and cash equivalents acquired

     —         (5,731

Capital contributions paid for investments, net of distributions received

     (452     (898

Investments in unconsolidated affiliates

     —         (20,000
  

 

 

   

 

 

 

Net cash used in investing activities

     (43,220     (51,390
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Purchase of treasury stock

     (865     (303

Proceeds from exercise of stock options

     2,709       2,889  

Borrowing on Revolving Credit Facility

     150,000       —    

Redemption of HoldCo Notes

     (1,464,500     —    

Payments on long-term debt and finance leases

     (10,427     (8,590

Net proceeds from initial public offering

     1,774,941       —    
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     451,858       (6,004
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (34,834     27,844  
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     393,177       (15,955

Cash and cash equivalents, beginning of the period

     345,187       553,066  
  

 

 

   

 

 

 

Cash and cash equivalents, end of the period

   $ 738,364     $ 537,111  
  

 

 

   

 

 

 

 

8


PPD, INC. AND SUBSIDIARIES

Reconciliation of GAAP to Non-GAAP Measures

(unaudited)

(in thousands, except per share amounts)

 

     Three Months Ended
March 31,
    Twelve
Months
Ended
March 31,
2020
 
     2020     2019  

Net income (loss) attributable to common stockholders of PPD, Inc.

   $ 4,224     $ (4,467   $ 63,358  

Recapitalization investment portfolio consideration

     (20,062     (10,628     (16,280

Net income attributable to noncontrolling interests

     2,718       861       6,791  
  

 

 

   

 

 

   

 

 

 

Net (loss) income

     (13,120     (14,234     53,869  

Reconciliation to Adjusted EBITDA:

      

Interest expense, net

   $ 64,710     $ 66,523     $ 309,931  

Benefit from income taxes

     (7,717     (3,299     (1,461

Depreciation and amortization

     66,315       65,418       265,727  

Stock-based compensation expense

     5,272       3,734       17,170  

Option holder special bonuses (a)

     2,105       —         20,979  

Other (income) expense, net

     (29,294     24,301       (26,452

Goodwill and other asset impairments

     —         —         1,284  

Sponsor fees and related costs (b)

     448       933       3,320  

Severance and charges for other cost reduction activities (c)

     754       2,612       8,540  

Transaction-related and public company transition costs (d)

     3,625       3,991       22,584  

Loss on extinguishment of debt

     50,065       —         50,065  

Loss on investments (e)

     26,872       14,100       31,815  

Other adjustments (f)

     26,823       3,761       48,592  
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 196,858     $ 167,840     $ 805,963  
  

 

 

   

 

 

   

 

 

 

Reconciliation to Adjusted Net Income:

      

Net loss

   $ (13,120   $ (14,234  

Amortization of intangible assets

     39,697       40,743    

Amortization of debt issuance and modification costs and debt discount

     3,857       2,575    

Amortization of accumulated other comprehensive income on derivative instruments

     (2,342     (2,410  

Stock-based compensation expense

     5,272       3,734    

Option holder special bonuses (a)

     2,105       —      

Other (income) expense, net

     (29,294     24,301    

Sponsor fees and related costs (b)

     448       933    

Severance and charges for other cost reduction activities (c)

     754       2,612    

Transaction-related and public company transition costs (d)

     3,625       3,991    

Loss on extinguishment of debt

     50,065       —      

Loss on investments (e)

     26,872       14,100    

Other adjustments (f)

     26,823       3,761    
  

 

 

   

 

 

   

Total adjustments

     127,882       94,340    
  

 

 

   

 

 

   

Tax effect of adjustments (g)

     (33,478     (24,253  

Other tax adjustments (g)

     (4,776     —      
  

 

 

   

 

 

   

Adjusted net income

   $ 76,508     $ 55,853    
  

 

 

   

 

 

   

Diluted weighted average common shares outstanding

     322,424       279,086    
  

 

 

   

 

 

   

Adjusted diluted earnings per share (h)

   $ 0.24     $ 0.20    
  

 

 

   

 

 

   

 

9


PPD, INC. AND SUBSIDIARIES

Reconciliation of GAAP to Non-GAAP Measures

(unaudited)

(in thousands)

 

Calculation of Net Leverage Ratios as of March 31, 2020    As
Reported
 

Gross debt

   $ 4,395,363  

Less: Cash and cash equivalents

     738,364  
  

 

 

 

Net debt

   $ 3,656,999  

Less: Unsecured debt

     1,157,040  
  

 

 

 

Net secured debt

   $ 2,499,959  
  

 

 

 

Trailing twelve month adjusted EBITDA

   $ 805,963  
  

 

 

 

Net leverage ratio (net debt/trailing twelve month adjusted EBITDA)

     4.5
  

 

 

 

Net secured leverage ratio (net secured debt/trailing twelve month adjusted EBITDA)

     3.1
  

 

 

 

 

(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 PPD’s 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 PPD’s IPO, other transaction costs and costs associated with PPD’s public company transition.

(e)

Represents the fair value accounting gains or losses primarily from PPD’s investments in Auven Therapeutic Holdings, L.P. and 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, one-time cost incurred in 2020 associated with the termination of a long-term incentive program which is being replaced by a traditional stock-based program in 2020, 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. The non-recurring net benefit for the three months ending March 31, 2020 is reflected as an adjustment as it is not representative of PPD’s operating performance.

(h)

The effect of certain securities considered anti-dilutive under GAAP, if included, would not change adjusted diluted earnings per share as presented for the three months ended March 31, 2019.

 

10