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Quintiles Q3 Conference Call, Part 3

CFO Comments and Q&A

By Dale Wettlaufer (TMF Ralegh)

ALEXANDRIA, VA (August 30, 1999) -- I continue today with Part 3 of my notes on the Quintiles Transnational (Nasdaq: QTRN) conference call. Below you will find the conclusion of CFO Rachel Selisker's discussion and then we move on to the Q&A. If you have the RealPlayer plug-in, you can listen to the call on the Nasdaq-Amex site. I'm still working on the model for this company, as the sell-side models I've used do not incorporate projected balance sheets. Therefore, projecting cash flows is pretty much impossible until I get to know the business better, get some guidance, and do the financials myself. Upon doing that, I'd be happy to publish the model.

Quintiles Q3 Conference Call, Part 3

Geographic breakdown of revenues:

Americas: $278 million, 61% of total revenues
Europe and Africa: $161 million, 35% of total revenues
Asia/Pacific: $17 million, 4% of total revenues

The first quarter backlog has exceeded $2 billion. We get there by taking the backlog at the end of the year of $1.883 billion, adding new business signings of $1.005 billion, and deducting the $870 million in revenues for the first half to get to backlog of $2.018 billion at the end of Q2.

CFO Comments and Q&A

Q: Can you give us an update on your conversations with managed care organizations and other healthcare providers in terms of how they're reacting to the availability of your Envoy data and their willingness to share with you data in the cases where you haven't contractually had the right to use the data historically?

Dennis Gillings, Chairman and CEO: Yes, we do have a number of discussions going on now and they are proceeding very positively and we expect a considerable amount of the data we will be able to use.

Q: Are they expressing interest in also using the Envoy data for their own purposes and have you had any success in selling the Envoy data to a non-pharmaceutical player?

Dennis Gillings: I'm not aware that we've sold the data to a non-pharmaceutical company.

Rachel Selisker: Not to my knowledge. I am aware that some interest has been expressed.

Dennis Gillings: I think the interest is there because managed care is fast evolving to an evaluative framework, and as that becomes more the case, they will need access to more data.

Gregory D. Porter, Chief Administrative and Legal Officer: We do have at least one pharmaceutical customer that is using the data to then approach the managed care companies and show them analysis, so that shows some significant progress.

Rachel Selisker: As of June 30, accounts receivable were $262 million, representing 45 days sales outstanding (DSO), up from 44 DSO at the end of the March quarter. Unbilled services were $154 million, representing 27 days outstanding, as compared to 28 days at the end of the March quarter. Unearned income dropped during the quarter to $135 million, representing an offset of 24 days, whereas at the end of last quarter, the offset was 28 days. The total of those three is 48 days, as compared to 44 days as of Q1-end. I believe this is a timing issue on the unearned income, a matter of having earned out prepayments that have been received from clients.

New business signings were strong across all reporting business units. Don't forget we do not report new business signings and backlogs for Envoy, which of course is the biggest part of the Quinternet group.

Dennis Gillings: I would say that almost everything that's available [merger and acquisition candidates] of a reasonable sort of size comes our way, or at least it feels that way. We have a very active team managing our M&A activities, and we don't really see any change moving forward, though I would say the emphasis will probably be more on niche situations that round out our service sectors. We're not overtly looking for large acquisitions. I think it's relatively business as normal and we feel we're in a happy position of having a very good reputation for being very capable doing mergers and acquisitions and integrating them well and not losing one's footing in that regard.

Q: With regard to integration of a couple of the larger acquisitions over the last six months, could you provide some perspective on whether you feel you're on-plan or ahead of plan?

Dennis Gillings: First, Envoy has worked out very well. I think the financial expectations have been satisfied. As you've heard, revenue growth this quarter was 28% and their transaction growth was 21%. To the best of my knowledge, this is the leading growth rate in the industry from an organic point of view, so we were very pleased with that. As regards HMR, that has probably gone ahead of expectations from the point of view that we do have a lot of business outside of HMR going into that Kansas facility. We have to date, when I was there last, 31 contract awards from 19 companies in that facility over and above the HMR contracts. So we are using the resources more effectively, which was the intent.

Our expectations going into the Envoy transaction were a 25% revenue growth rate range. In each of the first two quarters, we've hit 28%. We understood that transactions would be in the 15-20% growth rate range overall and I believe each quarter we've hit 21%. I suppose generally it's a tad above expectations and a good deal above the results of the competition.

Rachel Selisker: If you add in Envoy's backlog, total backlog would be about $2.1 billion.

Dennis Gillings: On backlog, I like it to be ahead of our current annualized run-rate. Run-rate for the quarter just ended was about $1.8 billion and the comparable backlog figure to use would be the $2.1 billion number. By historical standards, the ratio of backlog to run-rate right now is high.

Continued on Wednesday.


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8/30/99 Closing Numbers
Ticker Company Dly Pr Chg Price
APCCAMER POWER CONVERSION-1/2$17.19
BRK.BBERKSHIRE HATHAWAY'B'-17$2,004.00
CSLCARLISLE COSUnch.$40.00
GTWGATEWAY INC-13/16$95.38

  Day Week Month Year
To Date
Since
10/1/98
Annualized
Boring -.76% -.76% -3.35% .24% 25.53% 28.23%
S&P 500 -1.80% -1.80% -.35% 7.71% 30.18% 33.44%
S&P 500(DA) -1.78% -1.78% -.35% 8.22% 31.89% 35.35%
NASDAQ -1.67% -1.67% 2.81% 23.72% 60.15% 67.36%

Trade Date # Shares Ticker Cost/Share Price LT % Val Chg
8/13/96200CSL26.325$40.0051.95%
2/9/99100GTW72.555$95.3831.45%
4/20/99460APCC14.477$17.1918.73%
12/31/9812BRK.B2,278.333$2,004.00-12.04%

Trade Date # Shares Ticker Cost Value LT $ Val Ch
8/13/96200CSL$5,264.99$8,000.00$2,735.01
2/9/99100GTW$7,255.50$9,537.50$2,282.00
4/20/99460APCC$6,659.25$7,906.25$1,247.00
12/31/9812BRK.B$27,340.00$24,048.00($3,292.00)
  Cash: $18,091.65  
  Total: $67,583.39  

Key
• S&P 500 (DA) = dividend adjusted. Dividends have been added to the total return of the index.