prah-20200930

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number: 001-36732

PRA Health Sciences, Inc.

(Exact name of registrant as specified in its charter)


Delaware						46-3640387
(State or other jurisdiction of						(I.R.S. Employer
incorporation or organization)						Identification No.)

4130 ParkLake Avenue, Suite 400, Raleigh, NC 27612

(Address of principal executive offices) (Zip Code)

(919) 786-8200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class

Name of exchange on which registered

Trading symbol

Common Stock $0.01 par value

Nasdaq Global Select Market

PRAH

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class	Number of Shares Outstanding
Common Stock $0.01 par value	64,149,626	shares outstanding as of October 30, 2020

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PRA HEALTH SCIENCES, INC.

FORM 10-Q

FOR QUARTERLY PERIOD ENDED September 30, 2020

TABLE OF CONTENTS


Item Number		Page

	PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Consolidated Condensed Balance Sheets as of September 30, 2020 and December 31, 2019	3
	Consolidated Condensed Statements of Operations for the three and nine months ended September 30, 2020 and 2019	4
	Consolidated Condensed Statements of Comprehensive Income for the three and nin e months ended September 30, 2020 and 2019	5
	Consolidated Condensed Statements of Changes in Stockholders' Equity for the three and nine months ended September 30, 2020 and 2019	6
	Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2020 and 2019	8
	Notes to Consolidated Condensed Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35

	PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	39
SIGNATURES		40

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share amounts)


	September 30,		December 31,
	2020		2019
ASSETS
Current assets:
Cash and cash equivalents	$	336,228	$	236,232
Restricted cash	—		38
Accounts receivable and unbilled services, net of allowance for credit losses of $3,236 at September 30, 2020	708,810		658,517
Other current assets	89,261		90,780
Total current assets	1,134,299		985,567
Fixed assets, net	191,798		180,716
Operating lease right-of-use assets	178,514		186,343
Goodwill	1,672,409		1,502,756
Intangible assets, net	613,023		638,577
Other assets	49,171		50,471
Total assets	$	3,839,214	$	3,544,430
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of borrowings under credit facilities	$	—	$	88,800
Current portion of long-term debt	25,000		25,000
Accounts payable	31,873		55,293
Accrued expenses and other current liabilities	324,082		304,799
Current portion of operating lease liabilities	38,627		37,603
Advanced billings	580,158		505,714
Total current liabilities	999,740		1,017,209
Long-term debt, net	1,255,969		1,140,178
Long-term portion of operating lease liabilities	161,309		172,370
Deferred tax liabilities	47,794		78,511
Other long-term liabilities	49,136		46,171
Total liabilities	2,513,948		2,454,439
Commitments and contingencies (Note 13)
Stockholders' equity:
Preferred stock (100,000,000 authorized shares; $0.01 par value)
Issued and outstanding -- none	—		—
Common stock (1,000,000,000 authorized shares; $0.01 par value)
Issued and outstanding -- 64,100,349 and 63,491,550 at September 30, 2020 and December 31, 2019, respectively	641		635
Additional paid-in capital	1,089,115		1,006,182
Accumulated other comprehensive loss	(153,558)		(160,108)
Retained earnings	389,068		243,282


Total stockholders' equity	1,325,266		1,089,991
Total liabilities and stockholders' equity	$	3,839,214	$	3,544,430

The accompanying notes are an integral part of the consolidated condensed financial statements.

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PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenue	$	796,307	$	780,691	$	2,309,907	$	2,266,022
Operating expenses:
Direct costs (exclusive of depreciation and amortization)	412,076		389,304		1,211,278		1,153,441
Reimbursable expenses	156,389		169,965		481,497		471,682
Selling, general and administrative expenses	115,409		95,542		332,346		291,439
Transaction-related costs	(45,074)		572		(44,465)		572
Depreciation and amortization expense	33,315		29,264		98,078		85,462
Loss on disposal of fixed assets, net	32		256		207		900
Income from operations	124,160		95,788		230,966		262,526
Interest expense, net	(10,721)		(12,974)		(36,102)		(37,834)
Loss on modification or extinguishment of debt	—		(1,855)		—		(1,855)
Foreign currency (losses) gains, net	(9,128)		5,408		(12,036)		1,864
Other (expense) income, net	(1)		15		(1)		(66)
Income before income taxes	104,310		86,382		182,827		224,635
Provision for income taxes	13,058		3,375		37,041		56,317


Net income	91,252		83,007		145,786		168,318
Net income attributable to noncontrolling interest	—		—		—		(99)
Net income attributable to PRA Health Sciences, Inc.	$	91,252	$	83,007	$	145,786	$	168,219
Net income per share attributable to common stockholders:
Basic	$	1.44	$	1.28	$	2.31	$	2.58
Diluted	$	1.41	$	1.25	$	2.26	$	2.53
Weighted average common shares outstanding:
Basic	63,447		64,771		63,184		65,096
Diluted	64,874		66,213		64,558		66,607

The accompanying notes are an integral part of the consolidated condensed financial statements.

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PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net income	$	91,252	$	83,007	$	145,786	$	168,318
Other comprehensive income (loss):
Foreign currency translation adjustments, net of income tax of $(2,581), $2,183, $1,699 and $2,447	33,050		(27,582)		2,076		(26,692)
Unrealized losses on derivative instruments, net of income tax of $(5), $(13), $(1,433) and $(1,624)	(16)		(254)		(3,659)		(4,567)
Reclassification adjustments:
Losses on derivatives included in net income, net of income taxes of $1,163, $398, $3,099 and $1,056	3,193		1,213		8,133		2,972
Comprehensive income	127,479		56,384		152,336		140,031
Comprehensive income attributable to noncontrolling interest	—		—		—		(175)
Comprehensive income attributable to PRA Health Sciences, Inc.	$	127,479	$	56,384	$	152,336	$	139,856

The accompanying notes are an integral part of the consolidated condensed financial statements.

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PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

(in thousands)


						Accumulated Other Comprehensive Loss (Note 15)		Retained Earnings		Non-controlling Interest
	Common Stock			Additional Paid-in Capital
	Shares	Amount										Total
Balance at December 31, 2019	63,492	$	635	$	1,006,182	$	(160,108)	$	243,282	$	—	$	1,089,991
Exercise of common stock options and stock award distribution	90	1		2,907		—		—		—		2,908
Stock-based compensation	—	—		15,425		—		—		—		15,425
Net income	—	—		—		—		40,660		—		40,660
Issuance of restricted stock for acquisition	44	—		2,585		—		—		—		2,585
Other comprehensive loss, net of tax	—	—		—		(44,152)		—		—		(44,152)
Balance at March 31, 2020	63,626	636		1,027,099		(204,260)		283,942		—		1,107,417
Exercise of common stock options, employee stock plan purchases and other	323	3		15,786		—		—		—		15,789
Stock-based compensation	—	—		15,845		—		—		—		15,845
Net income	—	—		—		—		13,874		—		13,874
Other comprehensive income, net of tax	—	—		—		14,475		—		—		14,475
Balance at June 30, 2020	63,949	639		1,058,730		(189,785)		297,816		—		1,167,400
Exercise of common stock options and stock award distribution	151	2		11,042		—		—		—		11,044
Stock-based compensation	—	—		19,343		—		—		—		19,343
Net income	—	—		—		—		91,252		—		91,252
Other comprehensive income, net of tax	—	—		—		36,227		—		—		36,227
Balance at September 30, 2020	64,100	$	641	$	1,089,115	$	(153,558)	$	389,068	$	—	$	1,325,266

The accompanying notes are an integral part of the consolidated condensed financial statements.

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PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

(in thousands)


						Accumulated Other Comprehensive Loss (Note 15)		Retained Earnings		Non-controlling Interest
	Common Stock			Additional Paid-in Capital
	Shares	Amount										Total
Balance at December 31, 2018	65,395	$	654	$	960,535	$	(170,659)	$	254,500	$	6,390	$	1,051,420
Impact from adoption of ASU 2018-02, Reclassification of certain tax effects from accumulated other comprehensive income	—	—		—		1,419		(1,419)		—		—
Balance at January 1, 2019	65,395	654		960,535		(169,240)		253,081		6,390		1,051,420
Exercise of common stock options and employee stock purchase plan purchases	219	2		10,668		—		—		—		10,670
Stock-based compensation	33	—		9,247		—		—		—		9,247
Net income	—	—		—		—		44,084		172		44,256
Other comprehensive loss, net of tax	—	—		—		(384)		—		(45)		(429)
Balance at March 31, 2019	65,647	656		980,450		(169,624)		297,165		6,517		1,115,164
Exercise of common stock options and other	84	1		4,074		—		—		—		4,075
Stock-based compensation	5	—		9,916		—		—		—		9,916
Acquisition of noncontrolling interest	—	—		1,290		—		—		(6,565)		(5,275)
Net income (loss)	—	—		—		—		41,128		(73)		41,055
Other comprehensive loss, net of tax	—	—		—		(1,356)		—		121		(1,235)
Balance at June 30, 2019	65,736	657		995,730		(170,980)		338,293		—		1,163,700
Exercise of common stock options and employee stock purchase plan purchases	328	6		15,409		—		—		—		15,415
Stock-based compensation	257	—		11,244		—		—		—		11,244
Repurchase and retirement of common stock	(3,080)	(31)		(47,150)		—		(252,819)		—		(300,000)
Net income	—	—		—		—		83,007		—		83,007
Other comprehensive loss, net of tax	—	—		—		(26,623)		—		—		(26,623)
Balance at September 30, 2019	63,241	$	632	$	975,233	$	(197,603)	$	168,481	$	—	$	946,743

The accompanying notes are an integral part of the consolidated condensed financial statements.

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PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


	Nine Months Ended September 30,
	2020		2019
Cash flows from operating activities:
Net income	$	145,786	$	168,318
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	98,078		85,462
Amortization of debt issuance costs	1,266		1,364
Amortization of terminated interest rate swaps	4,559		4,960
Stock-based compensation expense	50,613		30,407
Change in fair value of acquisition-related contingent consideration	(44,500)		—

Unrealized foreign currency losses (gains), net	17,413		(7,773)

Deferred income tax benefit	(32,067)		(25,408)

Other reconciling items	8,221		792
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:
Accounts receivable, unbilled services and advanced billings	20,890		(104,589)
Other operating assets and liabilities	(3,156)		(4,289)
Payment of acquisition-related contingent consideration	—		(83,249)
Net cash provided by operating activities	267,103		65,995
Cash flows from investing activities:
Purchase of fixed assets	(54,024)		(61,210)
(Cash paid) proceeds received for interest on interest rate swap, net	(6,414)		1,076
Distributions from unconsolidated joint ventures	—		418
Proceeds from the sale of fixed assets	29		26
Acquisition of Care Innovations, Inc., net of cash acquired	(158,824)		—
Net cash used in investing activities	(219,233)		(59,690)
Cash flows from financing activities:

Repurchase and retirement of common stock	—		(300,000)
Borrowings on accounts receivable financing agreement	—		30,000
Borrowings on line of credit	100,000		40,000
Proceeds from issuance of long-term debt	—		300,000

Repayments of line of credit	(55,000)		(40,000)
Repayments of long-term debt	(18,750)		(25,000)

Acquisition of noncontrolling interest	—		(4,138)
Proceeds from stock issued under employee stock purchase plan and stock option exercises	29,741		30,180
Payments for debt issuance costs	(470)		—
Net cash provided by financing activities	55,521		31,042
Effects of foreign exchange changes on cash, cash equivalents, and restricted cash	(3,433)		(266)
Change in cash, cash equivalents, and restricted cash	99,958		37,081
Cash, cash equivalents, and restricted cash, beginning of period	236,270		144,709
Cash, cash equivalents, and restricted cash, end of period	$	336,228	$	181,790

The accompanying notes are an integral part of the consolidated condensed financial statements.

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PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

(1) Basis of Presentation

The Company

PRA Health Sciences, Inc. and its subsidiaries, or the Company, is a full-service global contract research organization providing a broad range of product development and data solution services to pharmaceutical and biotechnology companies around the world. The Company’s integrated services include data management, statistical analysis, clinical trial management, and regulatory and drug development consulting.

Unaudited Interim Financial Information

The interim consolidated condensed financial statements include the accounts of the Company and variable interest entities where the Company is the primary beneficiary. These financial statements are prepared in conformity with U.S. generally accepted accounting principles, or GAAP, and are unaudited. In the opinion of the Company’s management, all adjustments of a normal recurring nature necessary for a fair presentation have been reflected. Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted. The accompanying interim consolidated condensed financial statements and related notes should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

The preparation of the interim consolidated condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim consolidated condensed financial statements and the reported amounts of revenues and claims and expenses during the reporting period. Actual results could differ from those estimates.

Recently Implemented Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board, or FASB, issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The provisions of ASU 2016-13 modify the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology and require consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company adopted this standard effective January 1, 2020 and the application of ASU 2016-13 did not have a material impact on the Company's consolidated condensed financial statements.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment,” in order to simplify the subsequent measurement of goodwill by eliminating the Step 2 goodwill impairment test. Under the amendments in this ASU, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity will then recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The Company adopted this standard effective January 1, 2020 and the application of ASU 2017-04 did not have a material impact on the Company's consolidated condensed financial statements.

In August 2018, the FASB issued ASU No. 2018-15, "Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," in order to expand on the FASB's guidance of capitalized costs incurred in a cloud computing arrangement. The amendments in this update require an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The Company adopted this standard effective January 1, 2020 and the application of ASU 2018-15 did not have a material impact on the Company's consolidated condensed financial statements.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, "Simplifying the Accounting for Income Taxes". The provisions of ASU 2019-12 include eliminating certain exceptions related to the approach for intra-period tax allocation, the

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methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance is effective for the reporting period beginning after December 15, 2020, and the interim periods therein. The Company is currently assessing the potential impact of ASU 2019-12 on the its consolidated financial statements.

(2) Significant Accounting Policies

Significant accounting policies are detailed in "Note 3: Significant Accounting Policies" of the Annual Report on Form 10-K for the year ended December 31, 2019.

Cash, Cash Equivalents, and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated condensed balance sheets that sum to the total of the same amounts shown in the consolidated condensed statements of cash flows (in thousands):


	September 30,				December 31,
	2020		2019		2019		2018
Cash and cash equivalents	$	336,228	$	181,767	$	236,232	$	144,221
Restricted cash	—		23		38		488
Total cash, cash equivalents, and restricted cash	$	336,228	$	181,790	$	236,270	$	144,709

(3) Business Combinations

Care Innovations, Inc.

In January 2020, the Company acquired all of the outstanding equity interests of Care Innovations, Inc., or Care Innovations, an entity that provides digital health services. The purchase price was $208.6 million, which consisted of $161.5 million of cash, $2.6 million of restricted stock and $44.5 million of estimated contingent consideration in the form of a potential earn-out payment. With this acquisition, the Company expects to expand its ability to serve customers with technologies that deliver enhancements to the Company’s mobile health platform and provide expanded remote patient monitoring support to expand the Company's ability to deliver virtual and decentralized trials.

The earn-out payment, which is capped at $50.0 million, is contingent on the achievement of two 2020 financial targets. The fair value of the contingent consideration was based on significant inputs not observed in the market and thus represented a Level 3 fair value measurement. During the third quarter of 2020, as a result of changes in market conditions within the earn-out period, the Company determined that the two 2020 financial targets would not be met; therefore the Company released the $45.1 million contingent consideration liability, which is recorded within transaction-related costs in the consolidation condensed statements of operations.

The acquisition of Care Innovations was accounted for as a business combination and, accordingly, the assets acquired and the liabilities assumed have been recorded at their respective fair values as of the acquisition date. The consideration paid was allocated as follows: (i) $33.5 million to definite-lived intangible assets primarily consisting of developed technology with a weighted average amortization period of five years, (ii) $174.1 million to goodwill and (iii) $1.0 million to other net assets. The acquisition costs are included in transaction-related costs in the consolidated condensed statement of operations and were immaterial.

Since the acquisition date, goodwill decreased by $0.2 million, primarily as a result of adjustments to acquired income tax balances. The Company has not disclosed post-acquisition or pro-forma revenue and earnings attributable to Care Innovations as they did not have a material effect on the Company’s consolidated results.

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(4) Fair Value Measurements

The Company records certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy that prioritizes the inputs used to measure fair value is described below. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

•Level 1 — Quoted prices in active markets for identical assets or liabilities.

•Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

•Level 3 — Unobservable inputs that are supported by little or no market activity. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, unbilled services, contract assets, accounts payable and advanced billings, approximate fair value due to the short maturities of these instruments.

Recurring Fair Value Measurements

The following table summarizes the fair value of the Company’s financial liabilities that are measured on a recurring basis as of September 30, 2020 (in thousands):


	Level 1		Level 2		Level 3		Total
Liabilities:
Contingent consideration	$	—	$	—	$	—	$	—
Interest rate swaps	—		1,395		—		1,395
Total	$	—	$	1,395	$	—	$	1,395

The Company values contingent consideration using models that include significant unobservable Level 3 inputs, such as projected market performance over the earn-out period along with estimates for market volatility and the discount rate applicable to potential cash payments. Interest rate swaps are measured at fair value using a market approach valuation technique. The valuation is based on an estimate of the net present value of the expected cash flows using relevant mid-market observable data inputs and based on the assumption of no unusual market conditions or forced liquidation.

Changes in Level 3 financial liabilities measured on a recurring basis are as follows (in thousands):


	Contingent Consideration
Balance at December 31, 2019	$	—



Initial estimate of Care Innovations contingent consideration	44,500
Change in fair value recognized in transaction-related costs	(44,500)
Balance at September 30, 2020	$	—

The fair value of the Care Innovations earn-out payments as of the acquisition date was $44.5 million, which was valued using a Monte Carlo simulation. It is based on the achievement of certain 2020 financial targets. As the fair value was based on significant inputs not observed in the market, it represented a Level 3 measurement. During the third quarter of 2020, the Company determined that the 2020 financial targets would not be met; therefore the Company released the contingent consideration liability. Specifically, the revenue and earnings before interest, taxes, depreciation, and amortization of the acquired business are expected to be lower than initial forecasts. The initial growth estimates for the service offering were negatively impacted by changes in market conditions, which negatively impacted Care Innovations’ ability to contract and deliver services on new commercial opportunities within the one-year earn-out period. Refer to "Note 3 - Business Combinations" for additional information regarding the Care Innovations acquisition.

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Non-recurring Fair Value Measurements

Certain assets and liabilities are carried on the accompanying consolidated condensed balance sheets at cost and are not remeasured to fair value on a recurring basis. These assets include finite-lived intangible assets that are tested for impairment when a triggering event occurs and goodwill and identifiable indefinite-lived intangible assets that are tested for impairment annually on October 1 or when a triggering event occurs.

As of September 30, 2020, assets carried on the balance sheet and not remeasured to fair value on a recurring basis totaled approximately $2,285.4 million and are identified as Level 3 assets. These assets are comprised of goodwill of $1,672.4 million and identifiable intangible assets, net of $613.0 million.

Refer to "Note 9 - Revolving Credit Facilities and Long-Term Debt" for additional information regarding the fair value of long-term debt balances.

(5) Concentration of Credit Risk and Expected Credit Losses

Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, accounts receivable, unbilled services, and derivatives. As of September 30, 2020, substantially all of the Company’s cash and cash equivalents and derivatives were held in or invested with large financial institutions.

Accounts receivable primarily include amounts due from pharmaceutical and biotechnology companies under credit terms that generally do not extend beyond 90 days. The Company maintains an allowance for expected credit losses resulting from the inability of its customers to make required payments. The Company performs credit reviews of each customer, monitors collections and payments from customers, and determines the allowance based upon historical experience and specific customer collection issues. The Company ages billed accounts receivable and assesses exposure by customer type, by aged category, and by specific identification. After all attempts to collect a receivable have failed, the receivable is written off against the allowance or, to the extent unreserved, to bad debt expense within selling, general and administrative expenses in the consolidated condensed statements of operations. There were no material changes in the provision for credit loss in the nine months ended September 30, 2020.

Accounts receivable and unbilled services from individual customers that were equal to or greater than 10% of consolidated accounts receivable and unbilled services at the respective dates were as follows:


	September 30,		December 31,
	2020		2019
Customer A	11.6	%	11.2	%
Customer B	10.4	%	15.6	%
Customer C	11.2	%	*

* Less than 10%

There were no individual customers for which revenue was greater than 10% of consolidated revenue in the three and nine months ended September 30, 2020 and 2019.

(6) Accounts Receivable, Unbilled Services and Advanced Billings

Accounts receivable and unbilled services were as follows (in thousands):


	September 30,		December 31,
	2020		2019
Accounts receivable	$	537,414	$	512,061
Unbilled services	174,632		149,194
Total accounts receivable and unbilled services	712,046		661,255
Less allowance for credit losses	(3,236)		(2,738)
Total accounts receivable and unbilled services, net	$	708,810	$	658,517

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Unbilled services as of September 30, 2020 and December 31, 2019 includes $91.8 million and $76.0 million, respectively, of contract assets where the Company’s right to bill is conditioned on criteria other than the passage of time. Impairment losses on contract assets were immaterial in the three and nine months ended September 30, 2020 and 2019.

Advanced billings were as follows (in thousands):


	September 30,		December 31,
	2020		2019
Advanced billings	$	580,158	$	505,714

The $74.4 million increase in advanced billings from December 31, 2019 to September 30, 2020 was primarily due to the timing of billings to customers. During the nine months ended September 30, 2020 and 2019, the Company recognized revenue of $455.2 million and $398.4 million related to advanced billings recorded as of January 1, 2020 and 2019, respectively.

Performance Obligations

Revenue recognized from reimbursable expenses and services completed in prior periods was $13.3 million and $30.9 million for the three and nine months ended September 30, 2020, respectively, and $14.8 million and $65.2 million for the three and nine months ended September 30, 2019, respectively. This primarily relates to adjustments attributable to changes in estimates such as estimated total contract costs, and from contract modifications on long-term fixed price contracts executed in the current period, which results in changes to the transaction price.

The Company does not disclose the value of the transaction price allocated to unsatisfied performance obligations on contracts that have an original contract term of less than one year. These contracts are short in duration and revenue recognition generally follows the delivery of the promised services. The total transaction price for the undelivered performance obligation on contracts with an original initial contract term greater than one year is $5.5 billion as of September 30, 2020. This amount includes reimbursement revenue. The Company expects to recognize revenue over the remaining contract term of the individual projects, with contract terms generally ranging from one to five years.

(7) Leases

The Company’s material lease obligations are operating leases for office and other facilities in which the Company conducts business. The facility leases generally provide an initial lease term ranging from three to 20 years and include one or more optional extensions. The Company's leases have remaining lease terms of one year to 20 years. The leases typically include rent escalation clauses and for some markets the leases frequently include periodic market adjustments to the base rent over the term of the lease. In certain instances, the Company subleases space that has been exited or is no longer required. The Company’s sublease income is immaterial.

The components of lease cost were as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Lease cost:
Operating lease cost	$	11,305	$	9,788	$	33,639	$	28,583
Short-term lease cost	283		725		1,134		2,033
Variable lease cost	1,837		2,175		5,486		5,796
Lease income	(49)		(47)		(142)		(130)
Net lease cost	$	13,376	$	12,641	$	40,117	$	36,282

Supplemental cash flow information related to leases was as follows (in thousands):

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Cash paid for amounts included in the measurements of lease liabilities, all included in operating cash flows	$	11,954	$	9,772	$	33,709	$	28,262
Right-of-use assets obtained in exchange for lease obligations	3,568		5,100		18,917		26,148

Other supplemental information related to leases was as follows:


	As of September 30,	As of December 31,
	2020	2019
Weighted average remaining lease term	8.1 years	7.7 years
Weighted average discount rate	4.2%	4.3%

Maturities of operating lease liabilities were as follows as of September 30, 2020 (in thousands):


2020 (remaining)	$	9,659
2021	46,342
2022	38,072
2023	30,237
2024	20,731
Thereafter	89,713
Total lease payments	234,754
Less imputed interest	(34,818)
Total	$	199,936

As of September 30, 2020, the Company has no material non-cancelable operating leases that have not yet commenced.

(8) Goodwill and Intangible Assets

Goodwill

The changes in the carrying amount of goodwill by reportable segment are as follows (in thousands):


	Clinical Research		Data Solutions		Consolidated
Balance at December 31, 2019	$	1,025,897	$	476,859	$	1,502,756

Acquisition of Care Innovations, Inc.	174,115		—		174,115
Currency translation	(4,462)		—		(4,462)
Balance at September 30, 2020	$	1,195,550	$	476,859	$	1,672,409

There are no accumulated impairment charges as of September 30, 2020 and December 31, 2019.

Goodwill recorded in connection with the acquisition of Care Innovations was assigned to the Clinical Research segment and is not deductible for income tax purposes. The goodwill is attributable to the workforce of Care Innovations and expected synergies with the Company’s existing Product Registration business unit's operations.

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Intangible Assets

Intangible assets consist of the following (in thousands):


	September 30, 2020						December 31, 2019
	Gross Amount		Accumulated Amortization		Net Amount		Gross Amount		Accumulated Amortization		Net Amount
Customer relationships	$	559,518	$	(162,622)	$	396,896	$	559,768	$	(137,728)	$	422,040
Trade names (finite-lived)	29,877		(18,860)		11,017		28,536		(16,582)		11,954
Developed technology and other intangibles	74,174		(43,479)		30,695		44,474		(35,654)		8,820
Database	137,100		(80,695)		56,405		137,100		(59,347)		77,753
Total finite-lived intangible assets	800,669		(305,656)		495,013		769,878		(249,311)		520,567
Trade names (indefinite-lived)	118,010		—		118,010		118,010		—		118,010
Total intangible assets	$	918,679	$	(305,656)	$	613,023	$	887,888	$	(249,311)	$	638,577

Amortization expense was $19.0 million and $57.2 million for the three and nine months ended September 30, 2020, respectively, and $17.1 million and $51.4 million for the three and nine months ended September 30, 2019, respectively.

The estimated future amortization expense of finite-lived intangible assets is expected to be as follows (in thousands):


2020 (remaining)	$	19,022
2021	70,718
2022	56,094
2023	43,881
2024	34,686
2025 and thereafter	270,612
Total	$	495,013

(9) Revolving Credit Facilities and Long-Term Debt

The Company had the following debt outstanding as of September 30, 2020 and December 31, 2019 (in thousands):


			Principal amount
	Interest rate as of		September 30,		December 31,
	September 30, 2020		2020		2019		Maturity Date
Senior Secured Credit Facility:
First Lien Term Loan	1.66	%	$	981,250	$	1,000,000	October 2024
Revolver	1.66	%	133,800		88,800		October 2024
Accounts Receivable Financing Agreement(1)	1.41	%	170,000		170,000		May 2021
Total debt			1,285,050		1,258,800
Less current portion of Revolver(2)			—		(88,800)
Less current portion of long-term debt			(25,000)		(25,000)
Total long-term debt			1,260,050		1,145,000
Less debt issuance costs			(4,081)		(4,822)
Total long-term debt, net			$	1,255,969	$	1,140,178

(1) The Company has excluded its Accounts Receivable Financing Agreement from current liabilities at September 30, 2020 as the Company has the intent and ability to refinance the obligation on a long-term basis prior to its maturity date of May 31, 2021 as supported by the available capacity under the Revolver.

(2) The Company assesses its ability and intent to repay the outstanding borrowings on the Revolver at the end of each reporting period in order to determine the proper balance sheet classification. Outstanding borrowings on the Revolver that the Company intends to repay in less than 12 months are classified as current.

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As of September 30, 2020, the contractual maturities of the Company's debt obligations were as follows (in thousands):


Current maturities of long-term debt:
2020 (remaining)	$	6,250
2021	195,000
2022	25,000
2023	25,000
2024 and thereafter	1,033,800
Total	$	1,285,050

The Company's primary financing arrangements are its senior secured credit facility (the "Senior Secured Credit Facility"), which consists of a first lien term loan ("First Lien Term Loan") and a revolving credit facility (the "Revolver"), and its Accounts Receivable Financing Agreement.

Senior Secured Credit Facility

The overall capacity of the Senior Secured Credit Facility is $1.75 billion (consisting of a $1.0 billion First Lien Term Loan and a $750.0 million Revolver). As collateral for borrowings under the Senior Secured Credit Facility, the Company granted a pledge on primarily all of its assets, the interests of wholly-owned U.S. restricted subsidiaries, and a portion of the interests of wholly-owned non-U.S. restricted subsidiaries. The Company is subject to certain financial covenants, which require the Company to maintain certain debt-to-EBITDA and interest expense-to-EBITDA ratios. The Senior Secured Credit Facilities also contain covenants that, among other things, restrict the Company’s ability to create any liens, make investments and acquisitions, incur or guarantee additional indebtedness, enter into mergers or consolidations and other fundamental changes, conduct sales and other dispositions of property or assets, enter into sale-leaseback transactions or hedge agreements, prepay subordinated debt, pay dividends or make other payments in respect of capital stock, change the line of business, enter into transactions with affiliates, enter into burdensome agreements with negative pledge clauses, and make subsidiary distributions. After giving effect to the applicable restrictions on the payment of dividends under the Senior Secured Credit Facilities, subject to compliance with applicable law, as of September 30, 2020 and December 31, 2019, all amounts in retained earnings were free of restriction and were available for the payment of dividends. The Senior Secured Credit Facility also contains customary representations, warranties, affirmative covenants, and events of default. The variable interest rate is a rate equal to the London Interbank Offered Rate, or LIBOR, or the adjusted base rate, or ABR, at the election of the Company, plus a margin based on the ratio of total indebtedness to EBITDA. The margin ranges from 1.0% to 2.0%, in the case of LIBOR loans, and 0.0% to 1.0%, in the case of ABR loans. The Company has the option of one-, two-, three- or six-month base interest rates. The credit agreement governing the Senior Secured Credit Facility includes provisions that allow the agreement to be amended to replace the LIBOR rate with a comparable or successor floating rate.

The First Lien Term Loan requires the Company to repay 2.5% of the original aggregate principal amount per annum in equal quarterly installments through September 30, 2024, with the remaining balance due at maturity. There are no voluntary prepayment penalties and prepayment is required upon the issuance of certain debt or asset sales or other events.

The Revolver requires the Company to pay to the lenders a commitment fee for unused commitments of 0.15% to 0.35% based on the Company’s debt-to-EBITDA ratio. Principal amounts are due and payable in full at maturity. In addition, at September 30, 2020 and December 31, 2019, the Company had $5.8 million and $5.4 million, respectively, in letters of credit outstanding, which are secured by the Revolver.

Accounts Receivable Financing Agreement

Loans under the Accounts Receivable Financing Agreement accrue interest at either a reserve-adjusted LIBOR or a base rate, plus 1.25%. The Company may prepay loans upon one business day's prior notice and may terminate the Accounts Receivable Financing Agreement with 15 days’ prior notice.

The Accounts Receivable Financing Agreement contains various customary representations and warranties and covenants, and default provisions that provide for the termination and acceleration of the commitments and loans under the agreement in circumstances including, but not limited to, failure to make payments when due, breach of representations, warranties or covenants, certain insolvency events or failure to maintain the security interest in the trade receivables, and defaults under other material indebtedness.

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At September 30, 2020 and December 31, 2019, there was $30.0 million of remaining capacity available under the Accounts Receivable Financing Agreement.

Fair Value of Debt

The estimated fair value of the Company’s debt and outstanding borrowings under its revolving credit facilities was $1,281.7 million and $1,255.8 million at September 30, 2020 and December 31, 2019, respectively. The fair values of the term loans, borrowings under credit facilities, and accounts receivable financing agreement were determined based on Level 2 inputs, which are primarily based on rates at which the debt is traded among financial institutions adjusted for the Company's credit standing.

(10) Stockholders’ Equity

Authorized Shares

The Company is authorized to issue up to one billion shares of common stock, with a par value of $0.01. The Company is authorized to issue up to one hundred million shares of preferred stock, with a par value of $0.01.

Share Repurchase Program

On August 30, 2019, the Company's Board of Directors, or the Board, approved a share repurchase program, or the Repurchase Program, authorizing the repurchase of up to $500.0 million of the Company's common stock in open market purchases, privately-negotiated transactions, secondary offerings, block trades or otherwise in accordance with all applicable securities laws and regulations, including through Rule 10b5-1 trading plans and pursuant to Rule 10b-18 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. The Repurchase Program does not obligate the Company to repurchase any particular amount of its common stock, and it may be modified, suspended or terminated at any time at the Board's discretion. The Repurchase Program expires on December 31, 2021.

As of September 30, 2020, the Company has remaining authorization to repurchase up to $200.0 million of its common stock under the Repurchase Program.

(11) Stock-Based Compensation

Stock Option and RSA/RSU Activity

The 2020 Stock Incentive Plan, or the 2020 Plan, was approved by stockholders at the annual meeting on May 18, 2020. The 2020 Plan allows for the issuance of stock options, stock appreciation rights, restricted shares and restricted stock units, other stock-based awards, and performance compensation awards as permitted by applicable laws. The 2020 Plan authorized the issuance of 2,500,000 shares of common stock plus all shares that remained available under the prior plan on May 18, 2020.

The Company granted 528,740 service-based options and 401,095 restricted stock awards and units, or RSAs/RSUs, with a total grant date fair value of $19.2 million and $38.7 million, respectively, during the nine months ended September 30, 2020.

Aggregated information regarding the Company’s option plans is summarized below:


	Options	Wtd. Average Exercise Price		Wtd. Average Remaining Contractual Life (in years)	Intrinsic Value (millions)
Outstanding at December 31, 2019	4,861,606	$	72.45	7.5	$	188.3
Granted	528,740	103.15
Exercised	(376,904)	57.52
Expired or forfeited	(289,066)	95.76
Outstanding at September 30, 2020	4,724,376	$	75.65	7.0	$	125.3
Exercisable at September 30, 2020	2,518,446	$	58.75	5.9	$	108.4

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The Company’s RSAs/RSUs activity in 2020 is as follows:


	Awards	Wtd. Average Grant-Date Fair Value		Intrinsic Value (millions)
Unvested at December 31, 2019	632,436	$	91.07	$	70.3
Granted	401,095	96.39
Forfeited	(41,780)	91.46
Vested	(257,787)	81.53
Unvested at September 30, 2020	733,964	$	97.31	$	74.5

Employee Stock Purchase Plan

In April 2017, the Board approved the PRA Health Sciences, Inc. 2017 Employee Stock Purchase Plan, or ESPP, which was approved by the Company’s shareholders on June 1, 2017. The ESPP allows eligible employees to authorize payroll deductions of up to 15% of their base salary or wages to be applied toward the purchase of shares of the Company’s common stock on the last trading day of any offering period. Participating employees will purchase shares of the Company's common stock at a discount of up to 15% on the lesser of the closing price of the Company's common stock on the NASDAQ Global Select Market (i) on the first trading day of the offering period or (ii) the last trading day of any offering period. Offering periods under the ESPP will generally be in six month increments, with the administrator of the ESPP having the right to establish different offering periods. The Company recognized stock-based compensation expense of $4.6 million and $3.0 million associated with the ESPP during the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, there have been 396,775 shares issued and 2,603,225 shares reserved for future issuance under the ESPP.

Stock-based Compensation Expense

Stock-based compensation expense related to employee stock plans are summarized below (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Direct costs	$	4,824	$	3,685	$	11,873	$	9,780
Selling, general and administrative	14,519		7,559		38,740		20,627

Total stock-based compensation expense	$	19,343	$	11,244	$	50,613	$	30,407

(12) Income Taxes

The Company’s effective income tax rate was 20.3% and 25.1% for the nine months ended September 30, 2020 and 2019, respectively. The variation between the Company’s effective income tax rate and the U.S. statutory rate of 21% for the nine months ended September 30, 2020 is primarily due to (i) geographic distribution of global pre-tax income, (ii) the U.S. inclusion of amounts related to the estimated tax on global intangible low-taxed income, or GILTI, and (iii) the U.S. inclusion of amounts related to Foreign-Derived Intangible Income. The effective tax rate for the nine months ended September 30, 2020 included the effect of a decrease in the fair value of the earn-out liability related to the stock acquisition of Care Innovations, which was not included in taxable income, but instead decreased the tax basis.

Significant judgment is required related to the application of the recent U.S. tax reform, or the Act, particularly with respect to GILTI and BEAT provisions. If changes occur in the Company’s tax structure, the structure of its arrangements, interpretations, or regulations that clarify these or other provisions of the Act, these changes could have a material effect on the Company’s tax provision.

GAAP requires a two-step approach when evaluating uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence demonstrates that it is more likely than not that the position will be sustained upon audit, including resolution of any related appeals or litigation processes. The second step is to quantify the amount of tax benefit to recognize as the amount that is cumulatively more than 50% likely to be realized upon ultimate settlement with the taxing authorities. During the nine months ended September 30, 2020, there was no significant change in uncertain tax positions.

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(13) Commitments and Contingencies

Legal Proceedings

The Company is involved in legal proceedings from time to time in the ordinary course of its business, including employment claims and claims related to other business transactions. Although the outcome of such claims is uncertain, management believes that these legal proceedings will not have a material adverse effect on the financial condition or results of future operations of the Company.

(14) Derivatives

The Company is exposed to certain risks relating to its ongoing business operations. The primary risk that the Company seeks to manage by using derivative instruments is interest rate risk arising from movement in market interest rates. Accordingly, the Company has instituted an interest rate hedging program that uses interest rate swaps designated as cash flow hedges to mitigate interest rate volatility. The Company swaps the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount, at specified intervals. The Company’s interest rate contracts are designated as hedging instruments.

The following table presents the notional amounts and fair values (determined using Level 2 inputs) of the Company’s derivatives as of September 30, 2020 and December 31, 2019 (in thousands):


	September 30, 2020				December 31, 2019
Balance Sheet Classification	Notional amount		Liability		Notional amount		Liability
Accrued expenses and other current liabilities	$	375,000	$	(1,395)	$	625,000	$	(2,976)
	$	375,000	$	(1,395)	$	625,000	$	(2,976)

An interest rate swap with a notional amount of $250.0 million matured on September 6, 2020.

The Company records the change in the fair value of derivatives designated as hedging instruments under ASC 815 to accumulated other comprehensive loss in the Company's consolidated condensed balance sheet, net of deferred taxes, and will later reclassify into earnings, including the associated tax impact, when the hedged item affects earnings or is no longer expected to occur. For other derivative contracts that do not qualify or no longer qualify for hedge accounting, changes in the fair value of the derivatives are recognized in earnings each period.

The table below presents the effect of the Company's derivatives on the consolidated condensed statements of operations and comprehensive income for the three and nine months ended September 30, 2020 and 2019 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
Derivatives in Cash Flow Hedging Relationships (Interest Rate Swaps)	2020		2019		2020		2019
Amount of pre-tax loss recognized in other comprehensive income (loss)	$	(21)	$	(266)	$	(5,092)	$	(6,190)
Amount of loss reclassified from accumulated other comprehensive loss into interest expense, net	(4,356)		(1,611)		(11,232)		(4,028)

The Company expects that $1.4 million of unrealized losses will be reclassified out of accumulated other comprehensive loss and into interest expense, net over the next 12 months.

The effect of cash flow hedge accounting on the consolidated condensed statements of operations for the three and nine months ended September 30, 2020 and 2019, respectively, is as follows (in thousands):

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Interest expense, net	$	(10,721)	$	(12,974)	$	(36,102)	$	(37,834)
Loss on cash flow hedging relationships in Subtopic 815-20 (interest contracts):
Loss reclassified from accumulated other comprehensive loss into interest expense, net	(4,356)		(1,611)		(11,232)		(4,028)

(15) Accumulated Other Comprehensive Loss

Below is a summary of the components of accumulated other comprehensive loss (in thousands):


	Foreign Currency Translation, Net of Tax		Derivative Instruments, Net of Tax		Total
Balance at December 31, 2019	$	(149,342)	$	(10,766)	$	(160,108)
Other comprehensive income (loss) before reclassifications	2,076		(3,659)		(1,583)
Reclassification adjustments	—		8,133		8,133
Balance at September 30, 2020	$	(147,266)	$	(6,292)	$	(153,558)

Foreign Currency Translation

The change in the Company's foreign currency translation adjustment was due primarily to the movements in the British pound (GBP), Euro (EUR), Canadian dollar (CAD) and Russian ruble (RUB) exchange rates against the U.S. dollar. The U.S. dollar strengthened by 2.4%, 2.6%, and 20.7% versus the GBP, CAD, and RUB, respectively, and weakened by 4.5% versus the EUR, respectively, between December 31, 2019 and September 30, 2020. The movement in the GBP, CAD and RUB contributed to a $5.8 million, $1.1 million, and $7.2 million increase in other comprehensive loss, respectively, which was offset by the movement in the EUR which contributed to a decrease of $17.4 million in other comprehensive loss during the nine months ended September 30, 2020.

Derivative Instruments

See "Note 14 - Derivatives" for further information on changes to accumulated other comprehensive loss related to the derivative instruments.

(16) Net Income Per Share

Basic net income per share is calculated by dividing net income by the weighted average number of common shares outstanding for the applicable period. Diluted net income per share is calculated after adjusting the denominator of the basic net income per share calculation for the effect of all potentially dilutive common shares, which, in the Company’s case, includes shares issuable under the stock option and incentive award plans.

The following table reconciles the basic to diluted weighted average shares outstanding (in thousands):


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
Basic weighted average common shares outstanding	63,447	64,771	63,184	65,096
Effect of dilutive stock options and other awards under share-based compensation programs	1,427	1,442	1,374	1,511
Diluted weighted average common shares outstanding	64,874	66,213	64,558	66,607

Anti-dilutive shares	2,467	2,150	2,450	1,914

The dilutive and anti-dilutive shares disclosed above were calculated using the treasury stock method. The treasury stock method calculates dilution assuming the exercise of all in-the-money options and vesting of RSAs/RSUs, reduced by the

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repurchase of shares with the proceeds from the assumed exercises, and unrecognized compensation expense for outstanding awards.

(17) Segments

The Company is managed through two reportable segments: (i) the Clinical Research segment and (ii) the Data Solutions segment. In accordance with the provisions of ASC 280, "Segment Reporting", the Company's chief operating decision-maker has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire company.

•Clinical Research Segment: The Clinical Research segment, which primarily serves biopharmaceutical clients, provides outsourced clinical research and clinical trial related services.

•Data Solutions Segment: The Data Solutions segment provides data and analytics, technology solutions and real-world insights and services primarily to the Company’s life science customers.

The Company's chief operating decision-maker uses segment profit as the primary measure of each segment's operating results in order to allocate resources and in assessing the Company's performance. Asset information by segment is not presented, as this measure is not used by the chief operating decision-maker to assess the Company's performance.

The Company’s reportable segment information is presented below (in thousands):


	Three Months Ended September 30, 2020						Three Months Ended September 30, 2019
	Clinical Research		Data Solutions		Total		Clinical Research		Data Solutions		Total
Revenue	$	732,126	$	64,181	$	796,307	$	719,005	$	61,686	$	780,691

Direct costs (exclusive of depreciation and amortization)	364,558		47,518		412,076		342,695		46,609		389,304
Reimbursable expenses	156,382		7		156,389		169,965		—		169,965

Segment profit	211,186		16,656		227,842		206,345		15,077		221,422
Less expenses not allocated to segments:
Selling, general and administrative expenses					115,409						95,542
Transaction-related costs					(45,074)						572
Depreciation and amortization expense					33,315						29,264
Loss on disposal of fixed assets, net					32						256
Income from operations					124,160						95,788
Interest expense, net					(10,721)						(12,974)
Loss on modification or extinguishment of debt					—						(1,855)
Foreign currency (losses) gains, net					(9,128)						5,408
Other (expense) income, net					(1)						15
Income before income taxes					$	104,310					$	86,382

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	Nine Months Ended September 30, 2020						Nine Months Ended September 30, 2019
	Clinical Research		Data Solutions		Total		Clinical Research		Data Solutions		Total
Revenue	$	2,125,510	$	184,397	$	2,309,907	$	2,087,863	$	178,159	$	2,266,022

Direct costs (exclusive of depreciation and amortization)	1,066,150		145,128		1,211,278		1,022,329		131,112		1,153,441
Reimbursable expenses	481,369		128		481,497		471,682		—		471,682
Segment profit	577,991		39,141		617,132		593,852		47,047		640,899
Less expenses not allocated to segments:
Selling, general and administrative expenses					332,346						291,439
Transaction-related costs					(44,465)						572
Depreciation and amortization expense					98,078						85,462
Loss on disposal of fixed assets, net					207						900
Income from operations					230,966						262,526
Interest expense, net					(36,102)						(37,834)
Loss on modification or extinguishment of debt					—						(1,855)
Foreign currency (losses) gains, net					(12,036)						1,864
Other expense, net					(1)						(66)
Income before income taxes					$	182,827					$	224,635

Revenue by geographic location for each segment is as follows (in thousands):


	Three Months Ended September 30, 2020						Three Months Ended September 30, 2019
	Clinical Research		Data Solutions		Total		Clinical Research		Data Solutions		Total
Revenue
Americas:
United States	$	471,460	$	64,181	$	535,641	$	467,096	$	61,686	$	528,782
Other	5,102		—		5,102		12,255		—		12,255
Total Americas	476,562		64,181		540,743		479,351		61,686		541,037
Europe, Africa, and Asia-Pacific
United Kingdom	213,567		—		213,567		191,994		—		191,994
Netherlands	23,889		—		23,889		30,144		—		30,144
Other	18,108		—		18,108		17,516		—		17,516
Total Europe, Africa, and Asia-Pacific	255,564		—		255,564		239,654		—		239,654
Total revenue	$	732,126	$	64,181	$	796,307	$	719,005	$	61,686	$	780,691

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	Nine Months Ended September 30, 2020						Nine Months Ended September 30, 2019
	Clinical Research		Data Solutions		Total		Clinical Research		Data Solutions		Total
Revenue
Americas:
United States	$	1,380,964	$	184,397	$	1,565,361	$	1,368,344	$	178,159	$	1,546,503
Other	20,721		—		20,721		37,268		—		37,268
Total Americas	1,401,685		184,397		1,586,082		1,405,612		178,159		1,583,771
Europe, Africa, and Asia-Pacific
United Kingdom	607,305		—		607,305		551,460		—		551,460
Netherlands	63,000		—		63,000		82,839		—		82,839
Other	53,520		—		53,520		47,952		—		47,952
Total Europe, Africa, and Asia-Pacific	723,825		—		723,825		682,251		—		682,251
Total revenue	$	2,125,510	$	184,397	$	2,309,907	$	2,087,863	$	178,159	$	2,266,022

(18) Overview of the Impact of the COVID-19 Pandemic

A novel strain of coronavirus (COVID-19) was first identified in Wuhan, China in December 2019, and subsequently declared a global pandemic by the World Health Organization on March 11, 2020. As a result of the outbreak, during the second half of March 2020 and the entirety of the second and third quarters of 2020, the Company experienced disruptions in its global operations as the COVID-19 virus continued to spread and impact countries in which the Company operates. During the three months ended September 30, 2020, the Company's operations continued to be impacted by limited accessibility to investigator sites and limited ability to screen and enroll patients due to travel restrictions. The full extent of the COVID-19 outbreak in 2020 and its impact on the Company's operations remains uncertain. A prolonged outbreak could continue to interrupt the operations of the Company and its customers and suppliers.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated condensed financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, or the Annual Report, and with the information under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.

We use the terms “we,” “us,” “our,” or the "Company” in this report to refer to PRA Health Sciences, Inc. and its subsidiaries.

Overview

We are one of the world’s leading global contract research organizations, or CROs, by revenue, providing outsourced clinical development services to the biotechnology and pharmaceutical industries. We believe we are one of a select group of CROs with the expertise and capability to conduct clinical trials across major therapeutic areas on a global basis. Our therapeutic expertise includes areas that are among the largest in pharmaceutical development, and we focus in particular on oncology, immunology, central nervous system inflammation, respiratory, cardiometabolic and infectious diseases. We believe that we further differentiate ourselves from our competitors through our investments in medical informatics and clinical technologies designed to enhance efficiencies, improve study predictability and provide better transparency for our clients throughout their clinical development processes. Our Data Solutions segment allows us to better serve our clients across their entire product lifecycle by (i) improving clinical trial design, recruitment, and execution; (ii) creating real-world data solutions based on the use of medicines by actual patients in normal situations; and (iii) increasing the efficiency of healthcare companies' commercial organizations through enhanced analytics and outsourcing services.

Overview of the Impact of COVID-19 to our Business

The recent outbreak of novel coronavirus COVID-19, or COVID-19, which surfaced in Wuhan, China, in December 2019, has been declared a pandemic and has spread to multiple global regions, including the United States and Europe. The impact of this pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions to the global economy, as well as businesses around the world. In an effort to halt the outbreak of COVID-19, a number of countries, including the United States, have placed significant restrictions on travel and many businesses have announced extended closures.

The disruptions caused by COVID-19 did not have a material impact on our financial results to start the year; however, as the global spread of the virus began to accelerate late in the first quarter of 2020, we began to experience an adverse impact to our financial results, which continued through the third quarter of 2020. We believe that we will continue to experience disruptions to our business due to the COVID-19 pandemic through the remainder of 2020 and into 2021.

As the COVID-19 pandemic continues to evolve rapidly, we cannot at this time accurately predict the effects of these conditions on our operations. Uncertainties remain as to the duration of the pandemic, the geographic location of specific outbreaks, and the length and scope of the travel restrictions and business closures imposed by the governments of impacted countries. The COVID-19 outbreak has had, and a continuing outbreak or future outbreaks may have, several important impacts on our business:

•Workforce: In response to the outbreak and business disruption, first and foremost, we have prioritized the health and safety of our employees and we closed the majority of our physical office locations worldwide in March. Although we have begun limited re-openings of some of our offices, most of our workforce is able to work remotely in an effective way.

•Backlog: We have not experienced any material COVID-19 related trial cancellations. Although business development activities began to normalize during the second and third quarters, the nine month period ended September 30, 2020 was impacted by COVID-19. Late in the first quarter, we experienced bid-defense meeting postponements due to travel restrictions and delays in study award decision-making. This has had an impact on new business awards in both the Clinical Research and Data Solutions segments, leading to lower growth in gross new business awards in the first nine months of 2020 as compared to prior years.

•Clinical Research segment: During March 2020, we began to experience global site closures, including some of our clinic facilities, which has led to a decline in site-based monitoring and the enrollment of

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patients. We have been able to implement remote monitoring activities through the use of our technology platforms in an effort to mitigate the impact of these site closures. Limitations on travel and business closures recommended by federal, state, and local governments, has and could continue to, among other things, impact our ability to enroll patients in clinical trials, recruit clinical site investigators, and obtain timely approvals from local regulatory authorities.

•Data Solutions segment: Our Data Solutions segment is relatively more insulated from the effects of the virus, due to its high proportion of recurring license revenue. However, service offerings in this segment that rely on face-to-face interactions or are dependent on in-person gatherings, events or conferences may experience significant disruption.

•Mitigation strategies: In light of the current situation, we have initiated proactive cost management strategies. These include, among other things, hiring restrictions, reductions in third-party costs and certain compensation adjustments. We have also implemented proactive cash conservation initiatives, including delaying some capital expenditures and halting voluntary debt repayments.

•Liquidity position: We believe that we have a strong liquidity position, which includes cash on hand and access to our revolving credit facility. We are currently subject to two debt covenants in our Senior Secured Credit Facility:

Requirement:

As of September 30, 2020

Total indebtedness to EBITDA

≤ 4.25x

1.61x

Interest expense to EBITDA

≥ 3.00x

11.05x

We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our operating plan. As such, given the dynamic nature of this situation, we cannot reasonably estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the future.

Coronavirus Aid, Relief, and Economic Security Act

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted. The CARES Act is an approximate $2 trillion emergency economic stimulus package passed in response to the coronavirus outbreak. The CARES Act includes broad sweeping provisions including direct financial assistance to Americans in the form of one-time payments to individuals; aid to small businesses in the form of loans and grants; efforts to stabilize the U.S. economy and keep Americans employed in general; and support for healthcare professionals, patients and hospitals. Also included in the CARES Act are numerous tax provisions including, but not limited to, certain payroll tax benefits, changes to the net operating loss rules, and the business interest expense deduction rules under Code Section 163(j). Due to the recent enactment of this legislation, there is a high degree of uncertainty around its implementation and we continue to assess the potential impacts of this legislation on our business, results of operations, financial condition and cash flows. There can be no assurance that we will receive any funding under the CARES Act.

How We Assess the Performance of Our Business

The Company is managed through two reportable segments: (i) the Clinical Research segment; and (ii) the Data Solutions segment. Our chief operating decision-maker uses segment profit as the primary measure of each segment's operating results in order to allocate resources and in assessing the Company's performance. In addition to our financial measures in conformity with U.S. generally accepted accounting principles, or GAAP, including revenue, costs and expenses and other measures discussed below, we review various financial and operational metrics. For our Clinical Research segment, we review new business awards, cancellations, and backlog.

Our gross new business awards for our Clinical Research segment for the nine months ended September 30, 2020 and 2019 were $2,329.9 million and $2,300.3 million, respectively. New business awards arise when a client selects us to execute its trial and is documented by written or electronic correspondence, or for our Strategic Solutions offering when the amount of revenue expected to be recognized is measurable. The number of new business awards can vary significantly from year to year, and awards can have terms ranging from several months to several years. For our Strategic Solutions offering, the value of a new business award is the anticipated revenue to be recognized in the corresponding quarter of the next fiscal year. For the remainder of our Clinical Research segment, the value of a new award is the anticipated revenue over the life of the contract, which does not include reimbursable expenses.

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In the normal course of business, we experience contract cancellations, which are reflected as cancellations when the client provides us with written or electronic correspondence that the work should cease. During the nine months ended September 30, 2020 and 2019, we had $285.6 million and $295.6 million, respectively, of cancellations for which we received correspondence from the client for our Clinical Research segment. The number of cancellations can vary significantly from period to period. The value of the cancellation is the remaining amount of unrecognized service revenue, less the estimated effort to transition the work back to the client.

Our backlog consists of anticipated revenue from new business awards that either have not started or are in process but have not been completed for our Clinical Research segment. Backlog varies from period to period depending upon new business awards and contract modifications, cancellations, and the amount of revenue recognized under existing contracts. Our backlog at September 30, 2020 and 2019 was $5.1 billion and $4.6 billion, respectively.

Sources of Revenue

Total revenues are comprised of revenues from the provision of our services and revenues from reimbursed expenses and reimbursable investigator grants that are incurred while providing our services. We do not have any material product revenues.

Costs and Expenses

Our costs and expenses are comprised primarily of our direct costs, selling, general and administrative costs, depreciation and amortization expense and income taxes.

Direct Costs (Exclusive of Depreciation and Amortization)

For our Clinical Research segment, direct costs consist primarily of labor-related charges. They include elements such as salaries, benefits and incentive compensation for our employees. In addition, we utilize staffing agencies to procure primarily part time individuals to perform work on our contracts. Labor-related charges as a percentage of the Clinical Research segment's total direct costs were 97.5% and 96.2% for the nine months ended September 30, 2020 and 2019, respectively. The cost of labor procured through staffing agencies is included in these percentages and represents 3.0% and 3.1% of the Clinical Research segment's total direct costs for the nine months ended September 30, 2020 and 2019, respectively. Our remaining direct costs are items such as travel, meals, postage and freight, patient costs, medical waste and supplies. The total of all these items as a percentage of the Clinical Research segment's total direct costs were 2.5% and 3.8% for the nine months ended September 30, 2020 and 2019, respectively.

Historically, direct costs have increased with an increase in revenues. The future relationship between direct costs and revenues may vary from historical relationships. Several factors will cause direct costs to decrease as a percentage of revenues. Deployment of our billable staff in an optimally efficient manner has the most impact on our ratio of direct cost to revenue. The most effective deployment of our staff is when they are fully engaged in billable work and are accomplishing contract related activities at a rate that meets or exceeds budgeted targets. We also seek to optimize our efficiency by performing work using the employee with the lowest cost. Generally, the following factors may cause direct costs to increase as a percentage of revenues: our staff are not fully deployed, as is the case when there are unforeseen cancellations or delays, or when our staff are accomplishing tasks at levels of effort that exceed budget, such as rework, as well as pricing pressure from increased competition.

For our Data Solutions segment, direct costs consist primarily of data costs. Data costs as a percentage of the Data Solutions segment's total direct costs were 76.7% and 73.3% for the nine months ended September 30, 2020 and 2019, respectively. Labor-related charges, such as salaries, benefits and incentive compensation for our employees, were 18.3% and 20.0% of the Data Solutions segment's total direct costs for the nine months ended September 30, 2020 and 2019, respectively. Our remaining direct costs are items such as travel, meals, and supplies and were 5.1% and 6.7% of the Data Solutions segment's total direct costs for the nine months ended September 30, 2020 and 2019, respectively.

Reimbursable Expenses

As is customary in our industry, we also routinely enter into separate agreements on behalf of our clients with independent physician investigators in connection with clinical trials. We also receive funds from our clients for investigator fees. We are not obligated either to perform the service or to pay the investigator in the event of default by the client. In addition, we do not pay the independent physician investigator until funds are received from the client. We include these

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investigator fees, as well as our out-of-pocket costs that are reimbursable by our customers, as reimbursable expenses in our consolidated condensed statements of operations.

Reimbursable expenses are not included in our backlog because they are pass-through costs to our clients.

We believe that the fluctuations in reimbursable expenses are not meaningful to the final economic performance as measured on a net basis given that such costs are passed through to the client. The reimbursable expenses are included in our measure of progress for our long-term contracts.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of administration payroll and benefits, marketing expenditures, and overhead costs such as information technology and facilities costs. These expenses also include central overhead costs that are not directly attributable to our operating business and include certain costs related to insurance, professional fees and property.

Transaction-related Costs

Transaction-related costs include fees associated with our secondary offerings, costs associated with acquisition related earn-out liabilities or adjustments to the initial fair value estimates, and expenses associated with our acquisitions.

Depreciation and Amortization Expense

Depreciation expense represents the depreciation charged on our fixed assets. The charge is recorded on a straight-line method, based on estimated useful lives of three to seven years for computer hardware and software and five to seven years for furniture and equipment. Leasehold improvements are depreciated over the lesser of the life of the lease term or the useful life of the improvements.

Amortization expense consists of amortization recorded on acquisition-related intangible assets. Customer relationships, backlog and finite-lived trade names are amortized on an accelerated basis, which coincides with the period of economic benefit we expect to receive. All other finite-lived intangibles are amortized on a straight-line basis. In accordance with GAAP, we do not amortize goodwill and indefinite-lived intangible assets.

Income Taxes

Because we conduct operations on a global basis, our effective tax rate has depended and will continue to depend upon the geographic distribution of our pre-tax earnings among several different taxing jurisdictions. Our effective tax rate can also vary based on changes in the tax rates of the different jurisdictions. Our effective tax rate is also impacted by tax credits and the establishment or release of deferred tax asset valuation allowances and tax reserves, as well as significant non-deductible items such as portions of transaction-related costs.

In addition, our effective income tax rate is influenced by U.S. tax law which has been substantially modified by the U.S. Tax Cuts and Jobs Act of 2017, or the Act. The following provisions of the Act could have an adverse effect on our tax rate:

•global intangible low-taxed income, or GILTI;

•limitations on the U.S. deductions for net business interest;

•base erosion anti-abuse provisions, or BEAT; and

•performance-based compensation subject to $1 million limit.

Significant judgment is required related to the application of the Act, particularly with respect to GILTI and BEAT provisions. If changes occur in the Company’s tax structure, the structure of its customer arrangements, or interpretations of regulations that clarify these or other provisions of the Act, these changes could have a material effect on the Company’s tax provision.

Foreign subsidiaries are taxed separately in their respective jurisdictions. We have foreign net operating loss carryforwards in some jurisdictions. The carryforward periods for these losses vary from four years to an indefinite carryforward period depending on the jurisdiction. Our ability to offset future taxable income with the net operating loss carryforwards may be limited in certain instances, including changes in ownership.

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Exchange Rate Fluctuations

The majority of our foreign operations transact in the Euro, or EUR, or British pound, or GBP. As a result, our revenue and expenses are subject to exchange rate fluctuations with respect to these currencies. We have translated these currencies into U.S. dollars using the following average exchange rates:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
U.S. dollars per:
Euro	1.17	1.11	1.12	1.12
British pound	1.29	1.23	1.27	1.27

Results of Operations

Consolidated Results of Operations for the Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019


	Three Months Ended September 30,
	2020		2019
(in thousands)
Revenue	$	796,307	$	780,691
Operating expenses:
Direct costs (exclusive of depreciation and amortization)	412,076		389,304
Reimbursable expenses	156,389		169,965
Selling, general and administrative expenses	115,409		95,542
Transaction-related costs	(45,074)		572
Depreciation and amortization expense	33,315		29,264
Loss on disposal of fixed assets	32		256
Income from operations	124,160		95,788
Interest expense, net	(10,721)		(12,974)
Loss on modification or extinguishment of debt	—		(1,855)
Foreign currency (losses) gains, net	(9,128)		5,408
Other (expense) income, net	(1)		15
Income before income taxes	104,310		86,382
Provision for income taxes	13,058		3,375
Net income	$	91,252	$	83,007

Revenue increased by $15.6 million, or 2.0%, from $780.7 million during the three months ended September 30, 2019 to $796.3 million during the three months ended September 30, 2020. Revenue for the three months ended September 30, 2020 benefited from an increase in billable hours as well as by a favorable impact of $5.4 million from foreign currency exchange rate fluctuations offset by a decrease in the reimbursable portion of revenue, which were impacted by the continued disruption from the COVID-19 pandemic.

Direct costs, exclusive of depreciation and amortization, increased by $22.8 million, or 5.8%, from $389.3 million during the three months ended September 30, 2019 to $412.1 million during the three months ended September 30, 2020. Salaries and related benefits in our Clinical Research segment increased $24.2 million due to hiring of billable staff to support our portfolio of studies prior to March 2020, when COVID-19 began to have an adverse impact on our operations. Data costs in our Data Solutions segment increased $1.7 million due to increased costs on the renewal of existing contracts and the addition of new sources of data to expand our data offerings. There was an unfavorable impact of $1.3 million from foreign currency exchange rate fluctuations, which was offset by a decrease in travel and other project-related costs of $4.2 million. Direct costs as a percentage of revenue were 51.7% and 49.9% during the three months ended September 30, 2020 and 2019, respectively.

Reimbursable expenses decreased by $13.6 million from $170.0 million during the three months ended September 30, 2019 to $156.4 million during the three months ended September 30, 2020. We believe that the fluctuations in reimbursable expenses from period to period are not meaningful to our underlying performance over the full terms of the relevant contracts.

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Selling, general and administrative expenses increased by $19.9 million, or 20.8%, from $95.5 million during the three months ended September 30, 2019 to $115.4 million during the three months ended September 30, 2020. The increase in selling, general and administrative expenses is primarily related to an increase in salaries and related benefits, including stock-based compensation expense, due to increased headcount and additional office space added prior to March 2020 when COVID-19 began to have an adverse impact on our operations. Selling, general and administrative expenses as a percentage of revenue were 14.5% and 12.2% during the three months ended September 30, 2020 and 2019, respectively.

Transaction-related costs are primarily related to changes in the fair value of contingent consideration and other expenses incurred in conjunction with our recent acquisitions. During the three months ended September 30, 2020, we recorded a $45.1 million reduction in the fair value of the earn-out liability associated with the acquisition of Care Innovations, Inc., or Care Innovations, as it was determined that the two 2020 financial targets would not be met. Specifically, the revenue and earnings before interest, taxes, depreciation, and amortization of the acquired business are expected to be lower than initial forecasts. The initial growth estimates for the service offering were negatively impacted by changes in market conditions, which negatively impacted Care Innovations’ ability to contract and deliver services on new commercial opportunities within the one-year earn-out period.

Depreciation and amortization expense was $33.3 million and $29.3 million during the three months ended September 30, 2020 and 2019, respectively. Depreciation and amortization expense as a percentage of revenue was 4.2% during the three months ended September 30, 2020 and 3.7% during the three months ended September 30, 2019. The increase is due to the amortization of the intangible assets acquired in connection with the acquisition of Care Innovations as well as an increase in depreciation expense due to an increase in our depreciable asset base.

Interest expense, net, decreased by $2.3 million, or 17.4%, from $13.0 million during the three months ended September 30, 2019 to $10.7 million during the three months ended September 30, 2020. The decrease is primarily due to a decrease in the weighted average interest rate on the unhedged portion of our debt and was partially offset by an increase in the average outstanding debt balance as compared to the three months ended September 30, 2019.

Foreign currency (losses) gains, net, changed by $14.5 million from foreign currency gains of $5.4 million during the three months ended September 30, 2019 to foreign currency losses of $9.1 million during the three months ended September 30, 2020. Foreign currency gains and losses are due to fluctuations in the U.S. dollar, gains or losses that arise in connection with the revaluation of short-term inter-company balances between our domestic and international subsidiaries, and gains or losses from foreign currency transactions, such as those resulting from the settlement of third-party accounts receivables and payables denominated in a currency other than the local currency of the entity making the payment. During the three months ended September 30, 2020, foreign currency losses were primarily due to movement of the U.S. dollar versus the British pound, Euro, Canadian dollar and Russian ruble.

Provision for income taxes increased by $9.7 million from $3.4 million during the three months ended September 30, 2019 to $13.1 million during the three months ended September 30, 2020. Our effective tax rate was 3.9% and 12.5% during the three months ended September 30, 2019 and 2020, respectively. The comparative increase in income tax expense was primarily driven by the impact of a cumulative reduction in the Company’s BEAT liability for the three months ended September 30, 2019 related to revisions to contractual arrangements which reduced the effective tax rate. For the three months ended September 30, 2020, the annual estimated effective tax rate varied from the U.S. statutory rate of 21% primarily due to (i) geographic distribution of global pre-tax income, (ii) the U.S. inclusion of amounts related to the estimated tax on GILTI, (iii) the U.S. inclusion of amounts related to Foreign-Derived Intangible Income, and (iv) a decrease in the fair value of the earn-out liability related to the stock acquisition of Care Innovations, which was not included in taxable income, but instead decreased the tax basis.

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Consolidated Results of Operations for the Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019


	Nine Months Ended September 30,
	2020		2019
(in thousands)
Revenue	$	2,309,907	$	2,266,022
Operating expenses:
Direct costs (exclusive of depreciation and amortization)	1,211,278		1,153,441
Reimbursable expenses	481,497		471,682
Selling, general and administrative expenses	332,346		291,439
Transaction-related costs	(44,465)		572
Depreciation and amortization expense	98,078		85,462
Loss on disposal of fixed assets	207		900
Income from operations	230,966		262,526
Interest expense, net	(36,102)		(37,834)
Loss on modification or extinguishment of debt	—		(1,855)
Foreign currency (losses) gains, net	(12,036)		1,864
Other expense, net	(1)		(66)
Income before income taxes	182,827		224,635
Provision for income taxes	37,041		56,317


Net income	145,786		168,318
Net income attributable to noncontrolling interest	—		(99)
Net income attributable to PRA Health Sciences, Inc.	$	145,786	$	168,219

Revenue increased by $43.9 million or 1.9%, from $2,266.0 million during the nine months ended September 30, 2019 to $2,309.9 million during the nine months ended September 30, 2020. Revenue for the nine months ended September 30, 2020 benefited from an increase in billable hours and the reimbursable portion of revenue, offset by an unfavorable impact of $4.6 million from foreign currency exchange rate fluctuations. For the nine months ended September 30, 2020, our revenue growth was impacted by the COVID-19 pandemic. Although we saw an increase in billable hours during the nine months ended September 30, 2020, our billable hours, particularly during the second quarter, were impacted by the inaccessibility of investigator sites and an inability to screen and enroll patients due to the continued disruption from the COVID-19 pandemic. The growth in revenue and the increase in billable hours for the nine months ended September 30, 2020 was due largely to the increase in our backlog as we entered the year, the type of services we are providing on our active studies, which was driven by the life cycles of projects that were active during the period, the growth in new business awards as a result of higher demand for our services across the industries we serve, more effective sales efforts and the growth in the overall CRO market.

Direct costs, exclusive of depreciation and amortization, increased by $57.8 million, or 5.0%, from $1,153.4 million during the nine months ended September 30, 2019 to $1,211.3 million during the nine months ended September 30, 2020. Salaries and related benefits in our Clinical Research segment increased $67.6 million due to hiring of billable staff to support our portfolio of studies prior to March 2020, when COVID-19 began to have an adverse impact on our operations. Data costs in our Data Solutions segment increased $15.1 million due to increased costs on the renewal of existing contracts and the addition of new sources of data to expand our data offerings. These were offset by a decrease in travel and other project-related costs of $12.1 million and a favorable impact of $12.9 million from foreign currency exchange rate fluctuations. Direct costs as a percentage of revenue were 52.4% and 50.9% during the nine months ended September 30, 2020 and 2019, respectively.

Reimbursable expenses increased by $9.8 million from $471.7 million during the nine months ended September 30, 2019 to $481.5 million during the nine months ended September 30, 2020. We believe that the fluctuations in reimbursable expenses from period to period are not meaningful to our underlying performance over the full terms of the relevant contracts.

Selling, general and administrative expenses increased by $40.9 million, or 14.0%, from $291.4 million during the nine months ended September 30, 2019 to $332.3 million during the nine months ended September 30, 2020. The increase in selling, general and administrative expenses is primarily related to an increase in salaries and related benefits, including stock-based compensation expense, due to increased headcount and additional office space added prior to March 2020 when COVID-19 began to have an adverse impact on our operations. Selling, general and administrative expenses as a percentage of revenue were 14.4% and 12.9% during the nine months ended September 30, 2020 and 2019, respectively.

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Transaction-related costs are primarily related to changes in the fair value of contingent consideration and other expenses incurred in conjunction with our recent acquisitions. During the nine months ended September 30, 2020, we recorded a $44.5 million reduction in the fair value of the earn-out liability associated with the acquisition of Care Innovations, as it was determined that the two 2020 financial targets would not be met. Specifically, the revenue and earnings before interest, taxes, depreciation, and amortization of the acquired business are expected to be lower than initial forecasts. The initial growth estimates for the service offering were negatively impacted by changes in market conditions, which negatively impacted Care Innovations’ ability to contract and deliver services on new commercial opportunities within the one-year earn-out period.

Depreciation and amortization expense increased by $12.6 million, or 14.8%, from $85.5 million during the nine months ended September 30, 2019 to $98.1 million during the nine months ended September 30, 2020. Depreciation and amortization expense as a percentage of revenue was 4.2% during the nine months ended September 30, 2020 and 3.8% during the nine months ended September 30, 2019. The increase is due to the amortization of the intangible assets acquired in the acquisition of Care Innovations as well as an increase in depreciation expense due to an increase in our depreciable asset base.

Interest expense, net, decreased by $1.7 million, or 4.6%, from $37.8 million during the nine months ended September 30, 2019 to $36.1 million during the nine months ended September 30, 2020. The decrease is primarily due to a decrease in the weighted average interest rate on the unhedged portion of our debt and was partially offset by an increase in the average outstanding debt balance as compared to the nine months ended September 30, 2019.

Foreign currency (losses) gains, net, changed by $13.9 million from foreign currency gains of $1.9 million during the nine months ended September 30, 2019 to foreign currency losses of $12.0 million during the nine months ended September 30, 2020. Foreign currency gains and losses are due to fluctuations in the U.S. dollar, gains or losses that arise in connection with the revaluation of short-term inter-company balances between our domestic and international subsidiaries, and gains or losses from foreign currency transactions, such as those resulting from the settlement of third-party accounts receivables and payables denominated in a currency other than the local currency of the entity making the payment. During the nine months ended September 30, 2020, foreign currency losses were primarily due to movement of the U.S. dollar versus the British pound, Euro, Canadian dollar and Russian ruble.

Provision for income taxes decreased by $19.3 million from $56.3 million during the nine months ended September 30, 2019 to $37.0 million during the nine months ended September 30, 2020. Our effective tax rate was 25.1% and 20.3% during the nine months ended September 30, 2019 and 2020, respectively. The decrease in the effective tax rate of 4.8% was primarily attributable to the effect of a decrease in the fair value of the earn-out liability related to the stock acquisition of Care Innovations, which was not included in taxable income, but instead decreased the tax basis.

Segment Results of Operations for the Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019

Clinical Research


	Three Months Ended September 30,
	2020			2019
(in thousands)
Revenue	$	732,126		$	719,005
Segment profit	211,186			206,345
Segment profit %	28.8		%	28.7		%

Revenue increased by $13.1 million, or 1.8%, from $719.0 million during the three months ended September 30, 2019 to $732.1 million during the three months ended September 30, 2020. Revenue for the three months ended September 30, 2020 benefited from an increase in billable hours and an increase in the effective rate of hours billed on our studies. We saw a decrease in the reimbursable portion of revenue, primarily driven by a lack of access to investigator sites and an inability to screen and enroll patients due to the continued disruption from the COVID-19 pandemic.

Segment profit increased by $4.8 million, or 2.3%, from $206.3 million during the three months ended September 30, 2019 to $211.2 million during the three months ended September 30, 2020 primarily due to an increase in revenue. Segment profit as a percentage of revenue increased from 28.7% during the three months ended September 30, 2019 to 28.8% for the same period in 2020.

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Data Solutions


	Three Months Ended September 30,
	2020			2019
(in thousands)
Revenue	$	64,181		$	61,686
Segment profit	16,656			15,077
Segment profit %	26.0		%	24.4		%

Revenue increased by $2.5 million, or 4.0%, from $61.7 million during the three months ended September 30, 2019 to $64.2 million during the three months ended September 30, 2020. The increase in revenue was related to an increase in services provided during the quarter.

Segment profit increased by $1.6 million, or 10.5%, from $15.1 million during the three months ended September 30, 2019 to $16.7 million during the three months ended September 30, 2020 primarily due to an increase in revenue. Segment profit as a percentage of revenue increased from 24.4% during the three months ended September 30, 2019 to 26.0% for the same period in 2020 primarily due to factors noted above.

Segment Results of Operations for the Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019

Clinical Research


	Nine Months Ended September 30,
	2020			2019
(in thousands)
Revenue	$	2,125,510		$	2,087,863
Segment profit	577,991			593,852
Segment profit %	27.2		%	28.4		%

Revenue increased by $37.6 million, or 1.8%, from $2,087.9 million during the nine months ended September 30, 2019 to $2,125.5 million during the nine months ended September 30, 2020. Revenue for the nine months ended September 30, 2020 benefited from an increase of billable hours and the reimbursable portion of revenue. For the nine months ended September 30, 2020, our revenue growth was impacted by the COVID-19 pandemic. Although we saw an increase in billable hours during the nine months ended September 30, 2020, our billable hours, particularly during the second quarter, were impacted by the inaccessibility of investigator sites and an inability to screen and enroll patients due to the continued disruption from the COVID-19 pandemic. The growth in revenue and the increase in billable hours for the nine months ended September 30, 2020 was due largely to the increase in our backlog as we entered the year, the type of services we are providing on our active studies, which was driven by the life cycles of projects that were active during the period, the growth in new business awards as a result of higher demand for our services across the industries we serve, more effective sales efforts and the growth in the overall CRO market.

Segment profit decreased by $15.9 million, or 2.7%, from $593.9 million during the nine months ended September 30, 2019 to $578.0 million during the nine months ended September 30, 2020 primarily due to an increase in direct costs (exclusive of depreciation and amortization) and reimbursable expenses. Segment profit as a percentage of revenue decreased from 28.4% during the nine months ended September 30, 2019 to 27.2% for the same period in 2020. Segment profit as a percentage of revenue decreased primarily due to the factors noted above.

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Data Solutions


	Nine Months Ended September 30,
	2020			2019
(in thousands)
Revenue	$	184,397		$	178,159
Segment profit	39,141			47,047
Segment profit %	21.2		%	26.4		%

Revenue increased by $6.2 million, or 3.5%, from $178.2 million during the nine months ended September 30, 2019 to $184.4 million during the nine months ended September 30, 2020. The increase in revenue was related to an increase in the volume of data services provided during the nine-month period offset by a decrease in the amount of consulting and service in kind services provided during the nine month period.

Segment profit decreased by $7.9 million, or 16.8%, from $47.0 million during the nine months ended September 30, 2019 to $39.1 million during the nine months ended September 30, 2020 due to an increase in direct costs (exclusive of depreciation and amortization). The increase in direct costs is attributable to increased costs on the renewal of existing contracts and the addition of new sources of data to expand our data offerings. Segment profit as a percentage of revenue decreased from 26.4% during the nine months ended September 30, 2019 to 21.2% for the same period in 2020 primarily due to the factors noted above.

Seasonality

Although our business is not generally seasonal, we typically experience a slight decrease in our revenue growth rate during the fourth quarter due to holiday vacations and a similar decrease in new business awards in the first quarter due to our clients’ budgetary cycles and vacations during the year-end holiday period.

Liquidity and Capital Resources

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Our principal source of liquidity is operating cash flows. As of September 30, 2020, we had $336.2 million of cash and cash equivalents of which $56.4 million was held by our foreign subsidiaries. Additionally, as of September 30, 2020 our Revolver and Accounts Receivable Financing Agreement provided for $640.4 million of potential borrowings. Our expected primary cash needs on both a short and long-term basis are for capital expenditures, expansion of services, geographic expansion, debt repayments, acquisitions and other strategic transactions, and other general corporate purposes. We have historically funded our operations and growth, including acquisitions, with cash flow from operations, borrowings, and issuances of equity securities. We expect to continue expanding our operations through internal growth and strategic acquisitions and investments. We expect these activities will be funded from existing cash, cash flow from operations and, if necessary or appropriate, borrowings under our existing or future credit facilities. Our sources of liquidity could be affected by our dependence on a small number of industries and clients, compliance with regulations, international risks (including the ongoing COVID-19 pandemic), and personal injury, environmental or other material litigation claims.

Cash Collections

Cash collections from accounts receivable were $2,363.1 million during the nine months ended September 30, 2020, including $331.8 million of funds received from customers to pay independent physician investigators, or investigators, as compared to $2,195.2 million during the nine months ended September 30, 2019, including $261.5 million of funds received from customers to pay investigators. The increase in cash collections during the nine months ended September 30, 2020 is related to our increase in revenue, driven by an increase in new business awards and an increase in our backlog, as well as improvements in our days sales outstanding.

Discussion of Cash Flows

Cash Flow from Operating Activities

During the nine months ended September 30, 2020, net cash provided by operations was $267.1 million compared to $66.0 million for the same period in 2019. Cash provided by operating activities increased over the prior year primarily due to

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improvements in cash flows from working capital changes, driven by an improvement in our days sales outstanding as compared to the prior year. Additionally, the prior year included the impact of an acquisition related earn-out payment.

Cash Flow from Investing Activities

Net cash used in investing activities was $219.2 million during the nine months ended September 30, 2020 compared to $59.7 million for the same period in 2019. The increase in cash outflows is primarily attributable to the acquisition of Care Innovations.

Cash Flow from Financing Activities

Net cash provided by financing activities was $55.5 million during the nine months ended September 30, 2020 compared to $31.0 million for the same period in 2019. During the nine months ended September 30, 2020 our long-term debt balances increased by $26.3 million compared to a $305.0 million increase for the same period in 2019. Additionally, the prior year included a $300.0 million cash outflow for the repurchase and retirement of common stock as well as a $4.1 million outflow for the acquisition of a non-controlling interest.

Indebtedness

As of September 30, 2020, we had $1,285.1 million of total indebtedness. We do not expect to pay dividends in the foreseeable future. Our long-term debt arrangements contain usual and customary restrictive covenants, and, as of September 30, 2020, we were in compliance with these covenants.

See Note 9 to our consolidated condensed financial statements included in this Quarterly Report on Form 10-Q, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Liquidity and Capital Resources” and Note 11 to our audited consolidated financial statements, each included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, for additional details regarding our credit arrangements.

Contractual Obligations and Commercial Commitments

We have various contractual obligations, which are recorded as liabilities in our consolidated condensed financial statements. Other items are not recognized as liabilities in our consolidated condensed financial statements but are required to be disclosed. There have been no material changes, outside of the ordinary course of business, to our contractual obligations as previously disclosed in our Annual Report on Form 10-K for fiscal year ended December 31, 2019.

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Disclosure Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition to historical consolidated condensed financial information, this Quarterly Report on Form 10-Q contains forward-looking statements that reflect, among other things, our current expectations and anticipated results of operations, all of which are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, market trends, or industry results to differ materially from those expressed or implied by such forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may constitute forward-looking statements. Without limiting the foregoing, words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “should,” “targets,” “will” and the negative thereof and similar words and expressions are intended to identify forward-looking statements. These forward-looking statements speak only as of the date hereof, and unless legally required, we assume no obligation to update any such forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information.

The Company cautions you that actual results may differ materially from the Company's expectations due to a number of factors, including that the current COVID-19 pandemic has adversely affected and may continue to affect adversely our business and results of operations; most of the Company’s contracts may be terminated on short notice and that the Company may be unable to maintain large customer contracts or to enter into new contracts; the Company may underprice contracts, overrun its cost estimates, or fail to receive approval for, or experience delays in, documenting change orders; the historical

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indications of the relationship of backlog to revenues may not be indicative of their future relationship; the Company may be unable to attract suitable investigators and patients for its clinical trials; the Company could be subject to employment liability with its embedded and functional outsourcing solutions as it places employees at the physical workplaces of its clients; the Company may lose key personnel or be unable to recruit and retain experienced personnel; the Company may be unable to maintain information systems or effectively update them; a failure or breach of the Company’s IT systems could result in customer information being compromised or otherwise significantly disrupt the Company’s business operations; client or therapeutic concentration or competition among clients could harm the Company’s business; if the Company does not keep pace with rapid technological changes, its services may become less competitive or obsolete; the Company may be unable to successfully identify, acquire and integrate businesses, services and technologies or to manage joint ventures; the Company’s business is subject to economic, political and other risks associated with international operations, including foreign currency exchange rate fluctuations; the Company may be exposed to liabilities under anti-corruption laws due to the global nature of its business; the Company’s failure to perform services in accordance with contractual requirements, certain laws and regulatory standards, and ethical considerations may subject it to significant costs or liability, damage its reputation and cause it to lose existing business or not receive new business; the Company’s services are related to treatment of human patients, and it could face liability if a patient is harmed; the Company’s relationships with existing or potential clients who are in competition with each other may adversely impact the degree to which other clients or potential clients use its services; the Company may be unable to compete effectively with other players in the biopharmaceutical services industry; changes in accounting standards may adversely affect the Company’s financial statements; the Company’s effective income tax rate may fluctuate which may adversely affect its operations, earnings, and earnings per share; the Company may not realize the full value of its goodwill and intangible assets, and may be unable to use net operating loss carry-forwards; the Company’s suppliers may increase its costs to obtain, restrict its use of or refuse to license its data, or the Company may otherwise be unable to continue to obtain products, services and licenses from third parties; the Company may be unable to protect its intellectual property; patent and other intellectual property litigation could be time-consuming and costly; biopharmaceutical industry outsourcing trends could change and adversely affect the Company’s operations and growth rate; government regulators or customers may limit the scope of prescriptions or withdraw products from the market; the U.S. and international healthcare industry is subject to political, economic and/or regulatory influences and changes, such as healthcare reform; current and proposed laws and regulations regarding the protection of personal data could result in increased risks of liability or increased cost or could limit the Company’s service offerings; the Company has substantial indebtedness, some of which have interest rates pricing using a spread over LIBOR, and may incur additional indebtedness in the future, which could adversely affect the Company’s financial condition; circumstances beyond the Company’s control could cause industry-wide reduction in demand for its services; and other factors that are set forth in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K filed on February 21, 2020.

Website and Social Media Disclosure

We use our website (www.prahs.com) as a channel of distribution of company information. The information we post through this channel may be deemed material. Accordingly, investors should monitor this channel, in addition to following our press releases, Securities and Exchange Commission, or SEC, filings and public conference calls and webcasts. The contents of our website are not, however, a part of this report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our quantitative and qualitative disclosures about market risk as compared to the quantitative and qualitative disclosures about market risk described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Item 4. Controls and Procedures

As of September 30, 2020, we carried out an evaluation under the supervision and with the participation of our management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Regulations under the Exchange Act require public companies, including us, to maintain “disclosure controls and procedures,” which are defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required or necessary disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of

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achieving their control objectives. Based upon our evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to accomplish their objective at a reasonable assurance level.

There were no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

The information required with respect to this item can be found under “Commitments and Contingencies” in Note 13 to our consolidated condensed financial statements included elsewhere in this Form 10-Q and is incorporated by reference into this Item 1.

Item 1A. Risk Factors

For a discussion of our potential risks and uncertainties, see the information under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. In addition, we have identified the following additional risk as of September 30, 2020.

The effects of the COVID-19 outbreak could adversely affect our business, results of operations, and financial condition.

In December 2019, a novel strain of coronavirus, now known as COVID-19, was reported to have surfaced in Wuhan, China and to cause a severe respiratory illness. Since then, COVID-19 has spread globally, including to numerous countries in which we have ongoing and planned clinical trials. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. In an effort to halt the outbreak of COVID-19, a number of countries, including the United States, have placed significant restrictions on travel and many businesses have announced extended closures. While these actions vary by locale, we expect them to remain in place for the foreseeable future. For locations in which outbreaks continue to worsen, additional restrictions may be imposed by governing authorities.

The global COVID-19 pandemic continues to rapidly evolve. The extent to which COVID-19 impacts our business and clinical trials depends on future developments that are highly uncertain and cannot be predicted with any degree of confidence, such as the following: the ultimate geographic spread and severity of the disease; the duration of the outbreak or future outbreaks; travel restrictions and the implementation of social distancing in the United States and other countries; business closures or business disruptions; and the effectiveness of actions taken in the United States and other countries to contain and treat the disease and current and future outbreaks. We have experienced disruptions in our business due to the COVID-19 pandemic in the form of delays and difficulties in enrolling patients, the closure of certain clinical sites, and travel restrictions that have impacted our ability to manage our business as efficiently and effectively as we have in the past. We may experience additional disruptions due to the COVID-19 pandemic that could severely impact our business and clinical trials in our Clinical Research segment, including:

•further delays, difficulties or a suspension in enrolling patients in our ongoing and planned clinical trials;

•further delays, difficulties or a suspension in clinical site initiation, including difficulties in recruiting clinical site investigators;

•diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

•interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal, state or local governments; and

•limitations in employee resources that would otherwise be focused on our business and the conduct of our clinical trials, including because of sickness of employees or their families, the desire of employees to avoid contact with large groups of people, and governmental orders that limit the ability of our employees to leave their homes.

For our clinical trials that are planned to be conducted at sites in countries that are experiencing heightened impact from COVID-19, in addition to the risks listed above, we may also experience the following adverse impacts:

•delays in receiving approval from local regulatory authorities to initiate our planned clinical trials;

•delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials;

•interruption in global shipping that may affect the transport of clinical trial materials, such as investigational drug product used in our clinical trials;

•changes in local regulations as part of a response to the COVID-19 outbreak that may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;

•delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees; and

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•refusal of the United States Food and Drug Administration to accept data from clinical trials in these affected geographies.

Our Data Solutions business is relatively more insulated from the effects of the virus due to a high portion of recurring license revenue in this segment. However, service offerings in this segment that rely on face-to-face interactions or are dependent on in-person gatherings, events or conferences may experience significant disruption.

We also closed the majority of our physical office locations worldwide in March, requiring most of our workforce in both our Clinical Research and Data Solutions businesses to work remotely. While we have re-opened many of our offices in some capacity, we may have to close those offices once again if an outbreak recurs in the geographic locations of those offices. We are unsure as to how long offices will remain closed in locations where outbreaks continue to occur. While we believe that most of our employees are able to work remotely in an effective way, our operations could be disrupted if key members of our senior management or a significant percentage of our workforce are unable to continue to work because of illness, government directives or otherwise. Having shifted to remote working arrangements, we also face a heightened risk of cybersecurity attacks or data security incidents and are more dependent on internet and telecommunications access and capabilities.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)Not applicable.

(b)Not applicable.

(c)Purchases of Equity Securities by the Issuer

On August 30, 2019, our board of directors authorized a share repurchase program, or the Repurchase Program, pursuant to which we may repurchase up to $500 million of common stock, effective immediately and through and including December 31, 2021, when the Repurchase Program will expire. Under the repurchase program, we are authorized to repurchase shares through open market purchases, privately-negotiated transactions, secondary offerings, block trades or otherwise in accordance with all applicable securities laws and regulations, including through Rule 10b5-1 trading plans and pursuant to Rule 10b-18 under the Exchange Act.

No repurchases were made during the three months ended September 30, 2020. As of September 30, 2020, we have remaining authorization to repurchase up to $200.0 million of common stock under the Repurchase Program.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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Item 6. Exhibits


Exhibit
Number						Description of Exhibit

10.1						Form of Restricted Stock Grant Notice and Agreement under the PRA Health Sciences, Inc. 2020 Stock Incentive Plan (incorporated by reference as Exhibit 10.1 to the Current Report on Form 8-K filed on September 16, 2020).

31.1*						Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*						Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*						Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*						Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101*						The following financial information from PRA Health Sciences, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 formatted in inline XBRL (iXBRL): (i) Consolidated Condensed Balance Sheets as of September 30, 2020 and December 31, 2019, (ii) Consolidated Condensed Statements of Operations for the three and nine months ended September 30, 2020 and 2019, (iii) Consolidated Condensed Statements of Comprehensive Income for the three and nine months ended September 30 2020 and 2019, (iv) Consolidated Condensed Statements of Changes in Stockholders' Equity for the three and nine months ended September 30, 2020 and 2019, (v) Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2020 and 2019, and (v) Notes to Consolidated Condensed Financial Statements.

104*						Cover page from PRA Health Sciences, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted iXBRL and contained in Exhibit 101.

Filed herewith

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SIGNATURES

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


			PRA HEALTH SCIENCES, INC.

			/s/ Michael J. Bonello
			Michael J. Bonello
			Executive Vice President and Chief Financial Officer
			(Authorized Signatory)

Date: November 5, 2020