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PRA Health's (PRAH) Q2 Earnings Top, Revenues Lag Estimates

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PRA Health Sciences, Inc. (PRAH - Free Report) posted second-quarter 2018 adjusted earnings per share (EPS) of $1, which surpassed the Zacks Consensus Estimate of 95 cents. EPS rose 26.6% from the prior-year quarter’s tally. Notably, the company had an unfavorable impact of $5.3 million owing to fluctuation in foreign currency exchange rates.

PRA Health registered revenues of $658.3 million in the second quarter, up 23.3% year over year.

In first-quarter 2018, the company had adopted the new ASC 606 accounting standard for calculating revenues using the modified retrospective method. Accordingly, the metric was $722.8 million in the reported quarter, up 35.4% (up 34.2% at constant currency [cc]) from the year-ago quarter. The figure however missed the Zacks Consensus Estimate for revenues of $735.5 million.

Q2 in Detail

Segmental Analysis

The company is managed through two reportable segments — the Clinical Research segment and the Data Solutions segment

Net new business for the Clinical Research segment came in at $670 million in the second quarter. Through this segment, the company receives contracts from customers to provide clinical research services with payments based on fixed-fee or fee-for-service arrangements.

PRA Health Sciences, Inc. Price, Consensus and EPS Surprise

 

Revenues in the Data Solutions segment amounted to $58.1 million in the quarter under review. The company provides weekly, monthly or quarterly data reports and analytics to its customers.

Direct Costs

Direct costs totaled $381.7 million in the quarter, up 27% year over year.

For the Clinical Research segment, direct costs consist primarily of labor-related charges. Notably, labor-related costs rose $36.4 million in the segment.

At the Data Solutions segment, direct costs consist primarily of data costs. The segment witnessed $41.6 million of incremental direct costs year over year.

Margin Trend

Gross profit, after excluding direct costs, came in at $341.1 million, up 46.3% from the prior-year quarter. Gross margin, as a percentage of revenues, came in at 47.2%.

Net income from operations, after excluding selling, general and administrative expenses from gross profit, came in at $249.9 million, up 59.3% from the year-ago quarter. Adjusted operating margin, as a percentage of revenues, came in at 34.6%

Guidance Raised

PRA Health raised its 2018 revenue guidance to the range of $2.87-$2.92 billion from $2.84-$2.95 billion stated previously. The Zacks Consensus Estimate is currently pegged at $2.92 billion, which is below the guidance.

Adjusted earnings per diluted share are expected between $4.13 and $4.23 compared with the previously provided range of $4 to $4.15. The Zacks Consensus Estimate is currently pegged at $4.13, coinciding with the low end of the guidance.

Our Take

PRA Health exited second-quarter on a mixed note. We are upbeat about the company seeing a year-over-year increase in earnings and revenues. Also, the raised guidance for full-year 2018 adjusted EPS is indicative of brighter prospects for the company in the near term. We are also looking forward to the company’s ongoing integration of the $530-million Symphony Health acquisition. With this buyout, PRA Health expects to enhance its ability in the field of data and analytics.

 On the flip side, escalating direct cost is a cause of worry.

Q2 Earnings of MedTech Majors at a Glance

PRA Health carries a Zacks Rank #2 (Buy).

Other top-ranked stocks in the broader medical space, which reported solid earnings this season, are Intuitive Surgical (ISRG - Free Report) , Chemed Corporation (CHE - Free Report) and Align Technology, Inc. (ALGN - Free Report) . While Intuitive Surgical sports a Zacks Rank #1 (Strong Buy), Chemed and Align Technology carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuitive Surgical reported second-quarter 2018 adjusted EPS of $2.76, which beat the Zacks Consensus Estimate of $2.48. Revenues totaled $909.3 million, also surpassing the consensus estimate of $870 million.

Align Technology posted second-quarter 2018 adjusted EPS of $1.30, steering past the Zacks Consensus Estimate of $1.09. Revenues came in at $490.3 million, beating the consensus estimate of $462.9 million.

Chemed reported second-quarter 2018 adjusted EPS of $2.81, which trumped the Zacks Consensus Estimate of $2.68. Revenues of $441.8 million edged past the Zacks Consensus Estimate of $432.3 million.

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