Quintiles Transitional Holdings Inc. (Q)

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Quintiles Transnational Holdings (Q)

Q3 2013 Earnings Call

October 31, 2013 8:00 am ET

Executives

Karl Deonanan

Thomas H. Pike - Chief Executive Officer and Director

Kevin K. Gordon - Chief Financial Officer and Executive Vice President

Analysts

Robert P. Jones - Goldman Sachs Group Inc., Research Division

John Kreger - William Blair & Company L.L.C., Research Division

Ricky Goldwasser - Morgan Stanley, Research Division

David H. Windley - Jefferies LLC, Research Division

Tycho W. Peterson - JP Morgan Chase & Co, Research Division

Timothy C. Evans - Wells Fargo Securities, LLC, Research Division

Douglas D. Tsao - Barclays Capital, Research Division

Derik De Bruin - BofA Merrill Lynch, Research Division

Alexander Y. Draper - Raymond James & Associates, Inc., Research Division

Vijay Kumar - ISI Group Inc., Research Division

Presentation

Operator

On behalf of Quintiles, hello, and welcome to today's Quintiles Third Quarter 2013 Earnings Call Webcast. My name is Todd, and I will be your web events specialist today. [Operator Instructions] It is now my pleasure to turn the webcast over to Karl Deonanan, Vice President of Investor Relations. Mr. Deonanan, the floor is yours.

Karl Deonanan

Thank you, Todd. Good morning, and welcome to Quintiles' Third Quarter 2013 Earnings Call. With me this morning are Tom Pike, our Chief Executive Officer; and Kevin Gordon, our Chief Financial Officer.

In addition to our press release issued this morning, a conference call presentation corresponding to our prepared remarks is available on our website at www.quintiles.com/investors.

Before we begin, I would like to caution listeners that certain information discussed by management during this conference call will include forward-looking statements. Actual results could differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company's business, which are discussed in the company's filings with the Securities and Exchange Commission.

In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in the press release and conference call presentation.

I would now like to turn the call over to our CEO, Tom Pike.

Thomas H. Pike

Thank you, Karl. Good morning to everyone. I'd like to thank you for joining our third quarter earnings call.

Let's begin on Slide 3 with a few highlights. Our continued leadership is demonstrated by our fifth consecutive quarter of strong new business, with year-to-date book-to-bills in both business segments greater than our 5-year historical averages. In addition to strong new business, we are pleased with our operational accomplishments, which continue to drive attractive margins. Our revenue reflects factors discussed on previous calls, challenging comparables, successful transitioning of older contracts to significant new business won and foreign currency. Our productivity programs and expense management continue to shine, bringing us attractive profitability.

We continue to focus on executing our strategy and maintaining our leadership within the industry. From my meetings with top executives in the industry, there's a belief that Quintiles can help define new paradigms for development and commercialization. In addition, beyond the numbers, this quarter, we received numerous awards for our employees, technology and delivery solutions, some of which I'll touch on later.

Now moving to the numbers. Our consolidated net new business of $1.34 billion grew 29% in the third quarter and 20% on a year-to-date basis to $3.6 billion. Our quarterly streak of $1 billion plus quarters in net new business has continued, which contributed to a healthy backlog of $9.6 billion, positioning us well for the future.

The book-to-bill ratio in the current quarter was 1.44. The year-to-date book-to-bill ratio is 1.28x our 9-month net service revenues.

In the Product Development segment, our sales machine is finding strong volume of RFPs and creating demand in the marketplace across a spectrum of our customers: the large, the midsize and the emerging pharma, including biotech. In fact, we're seeing an increase in demand across midsize and emerging pharma, resulting in all 3 groups contributing meaningfully to our net new business wins for this year.

We're also seeing interest in delivery solutions that encapsulate the majority of our broad services into end-to-end partnerships. We believe these types of partnerships, which we define as strategic, will become more common in the longer term and will be a key to above-market growth.

During the quarter, we were selected by another important pharma company to be their sole provider of development services, utilizing a broad range of our Product Development capabilities. This is the second sizable sole provider relationship we've been awarded this year.

The great thing about these relationships is that change and improvement to the development process can be achieved in a way that cannot be done with multiple vendors. It's important to note that we only record new business from these partnerships and our net new business and backlog when it's supported by written confirmation and not immediately as an estimated lump sum. Therefore, for instance, we expect this new strategic relationship to result in additional net new business and backlog in future quarters.

In Product Development, the increase in demand, coupled with increased win rates, has resulted in 18% net new business growth to $2.8 billion for the first 9 months of the year and 9% or $862 million for the third quarter. The book-to-bill for the first 9 months of the year is 1.31, and in the third quarter, it's about 1.21x net services revenues.

Read the rest of this transcript for free on seekingalpha.com