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PRA Health Services, Inc. (NASDAQ:PRAH)
Q1 2019 Earnings Call
May. 2, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the PRA Health Sciences 1Q 2019 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press *0 on your touchtone telephone. As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Tom Byrne, Vice President of Legal Affairs. Mr. Byrne, you may begin.

Tom Byrne -- Vice President of Legal Affairs 

Great, thank you. Good morning, and thank you for joining us for the PRA Health Sciences First Quarter of 2019 Earnings Teleconference. Today, Colin Shannon, our Chief Executive Officer and Mike Bonello, our Chief Financial Officer will discuss our quarterly financial results. Following our opening comments we will be available for questions. In addition to our press release, an investor supplement with additional financial information is available in the Investor Relations portion of our website.

Before we begin, I'd like to remind you that our remarks and responses to questions may include forward-looking statements. Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with our business, which are discussed in the risk factors included in our annual report on Form 10-K filed, with the SEC on February 28, 2019. Our risk factors may be updated from time to time in our filings with the SEC.

Please note that we assume no obligation to update any forward-looking statements. Certain financial measures we will discuss on this call are non-GAAP financial measures. We believe that providing these measures helps investors gain a more helpful and complete understanding of our results and is consistent with how management views our financial results. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measure, calculated and presented in accordance with GAAP, is available in the earnings press release and investor supplement included in the Investor Relations portion of our website.

I would now like to turn the call over to our CEO, Colin Shannon.

Colin Shannon -- Chief Executive Officer

Thank you, Tom. Good morning, and thank you for joining the conference call covering our first quarter financial results. I'm delighted that we have started off 2019 on solid ground and happy to report that our first quarter financial results were in line with our expectations. Our financial metrics continue to improve as we continue to expand our operating margins and adjusted net income, and adjusted net income per diluted share continues to grow at double-digit rates.

In the first quarter of 2019, we reported $665 million of net new business awards, and net book-to-bill of 1.27 times revenue. Continuing a run of quarters with net book-to-bills equal to or greater than 1.2 times our revenue. As we have previously discussed, our new business awards and calculations of net book-to-bill excludes reimbursement revenue and revenue from our Data Solutions segment.

The addition of our first quarter new business awards has resulted in a backlog increasing approximately 3% on a sequential basis, and 15% year-over-year, finishing at approximately $4.4 billion. Please remember that our backlog does not include our Data Solutions segment of reimbursed revenue.

The concentration of our new business awards continues to be well diversified, with approximately 70% of our new awards coming from the pharmaceutical sector, and approximately 30% coming from the biotech sector. Although, the first quarter of 2019 was more heavily weighted toward pharma, it is not that far out of line with what we have seen in previous quarters, and certainly not a reflection of what we are seeing in the biotech sector. I would add that overall, the CRO environment remains stable.

We continue to see a steady flow of RFP volume though, we continue to see the path, and we noted previously that once we are awarded business, clients are taking slightly longer to determine the final trial design, which has led to slower start times. There also continues to be erratic around the pharmaceutical industry with proposals such as Medicare For All. But at this point, clients are still assessing the impact of these proposals, and do not appear to be changing the development programs.

Total revenue for the first quarter was a total $722 million, which represents an increase of approximately 3% year-over-year, at actual foreign exchange rate, and 4% on a constant currency basis. Revenue growth excluding reimbursement revenue was approximately 4% year-over-year at actual foreign exchange rate, and 5% on a constant currency basis.

Our first quarter revenue was within the guidance range we provided in February. However, we continue to see volatility in amount of reimbursement revenue that has been recognized period-to-period, and versus our expectations. The team, continues to look at ways of retaining our forecast in process to try to resist this volatility However, the types of studies that we are awarded, and our customers' preference in the amount of past activity that we will be managing continues to be a factor in the amount of revenue that has been recognized, and the amount of revenue that will be recognized in the future.

Adjusted net income for the quarter was approximately $73 million, an increase of approximately 30% versus the first quarter of 2018. While adjusted net income per diluted share was $1.10, at 29% increase versus the first quarter of 2018. Our client base continues to be well diversified, with our Top 5 clients representing approximately 38% of revenue for the quarter, with our largest client representing approximately 9% of revenue. Both metrics exclude reimbursement revenue.

Regarding our Data Solutions segment, as I mentioned last quarter, we concluded earn-out pay for Symphony, and the final earn-out payment was made in the first week of April, 2019. During the quarter, I made leadership changes to more appropriately align the vision and culture to the larger PRA. We have a lot of great talent in the segment, and with the new leadership having very strong ties to the larger PRA Organization, this has been very well received. This distraction, unfortunately, causes us to be on the lower end of our expected revenue range, and it was approximately $4.5 million less than expected, at $55.4 million for the quarter.

We are now in the process of building up our commercial team to get it to full strength, and we look to continue to evolve the business by investing in new offerings, more integration, and international expansion. As mentioned in our press release, we are reaffirming our 2019 guidance, with an expectation adjusted earnings per diluted share, will be between $4.93, and $5.08 per share. Mike, will provide additional details about our reaffirmed 2019 guidance later, in the call. Including, I'd like to thank our entire staff and our clients for the continued commitment to PRA Health Sciences. 2019, is off to a solid start, and I believe we are well positioned for the remainder of the year.

I would now like to hand over the call to Mike Bonello, or Chief Financial Officer, who will go through the quarter financial results in more detail.

Mike Bonello -- Chief Financial Officer

Thank you, Colin. Good morning, everyone. For the first quarter of 2019, our consolidated revenue grew 2.9% at actual foreign exchange rate, and 4.4% on a constant currency basis. We reported revenue of $722 million for the first quarter of 2019, compared to $701.8 million for the first quarter of 2018.

When compared reporting revenue to our guidance, first quarter was negatively impacted by foreign currency fluctuations by approximately $2 million, and lower than forecasted reimbursement revenue by approximately $5 million. Our 2019 guidance assumed a reimbursement revenue of 28% of service revenue, while actuals came in at approximately 27%. As Colin mentioned earlier, this difference in rate is purely timing related and has no impact on the earnings we reported in the quarter.

Revenue by segment for the first quarter of 2019 was $666.6 million for the clinical research segment and $55.4 million for the Data Solutions segment. Regarding revenue concentration for the first quarter of 2019, we derived 55% of our service revenue from large pharmaceutical companies, 10% from small to mid-sized pharmaceutical companies. 17% from large biotechnology companies. And 18% from all other biotechnology companies. These concentration metrics exclude our Data Solutions segment in reimbursement revenue, nor are in line with what we reported in previous quarters.

Total direct costs were $377.9 million in the first quarter of 2019, compared to $381.4 million in the first quarter of 2018. The decrease in direct costs was primarily related to favorable impact of $14.8 million from foreign currency exchange rate fluctuations, which was offset by an increase in labor-related costs in our clinical research segment, as we continue to hire to ensure appropriate staffing levels. Direct costs, were 52.3% of revenue in the first quarter of 2019, compared to 54.3% in the first quarter of 2018. The decrease in direct costs as a percentage of revenue, is primarily due to the favorable currency exchange rate fluctuations discussed earlier, and increase in the utilization of our staff.

SG&A expenses were $97.1 million, or 13.4% of revenue for the first quarter of 2019 compared to 13.1% for the first quarter of 2018. The slight increase in SG&A expenses as a percent of revenue is primarily related to an increase in stock-based compensation. As previously discussed, the increase in stock-based compensation expense is related to the initiation of our annual grant program and the expansion of our employee stock purchase plan and is consistent with the trend we saw in the fourth quarter of 2018.

Adjusted net income, which excludes certain items which fluctuation from period to period, does not necessarily correspond to changes in our operating results, increased 30.3% to $73.3 million in the first quarter of 2019. Adjusted net income per diluted share grew 29.4% to $1.10 per share, in the first quarter of 2019, compared to $0.85 per share in the first quarter of 2018.

Cash, provided by operations was $41 million in the first quarter of 2019, compared to $34.6 million the first quarter of 2018. The increase in operating cash flow was a result of increased operational performance, offset by an increase in our working capital. Our net day's sales outstanding was 20 days, at March 31, 2019 and 2018, and was in line with our expectations.

Capital expenditures, were $19.9 million for the first quarter of 2019, compared to $13.8 million for the first quarter of 2018. Our capital expenditures continue to reflect our investment in information technology and the expansion of our infrastructure to support our growth. Our cash balance was $177.1 million, at March 31, 2019, at which $50.8 million was held by our foreign subs.

Net debt outstanding, defined as total debt less cash, and cash equivalents at March 31, 2019 was $909.4 million, compared to $1.2 billion at March 31, 2018. Regarding currency concentration, excluding reimbursement revenue on expenses, 84% of our revenue were denominated in U.S. dollars, 60% of our total expenses were denominated in U.S. dollars, which is consistent with prior quarters, and consistent with 2018 levels. Our Euro exposure continues to be naturally hedged. As we have discussed in prior quarters, we have exposure to movements in the GBP, as less than 1% of our revenue is denominated in GBP, while approximately 6% of our expenses are denominated in GBP.

As Colin referenced earlier in the call, the company is reaffirming its 2019 revenue guidance of between $3.09 and $3.20 billion, representing as reported in constant currency growth, of 8% to 11%. We are also reaffirming our GAP net income per diluted share of between $3.65 and $3.80 and adjusted net income per diluted share between $4.93 and $5.08 representing growth of 15% to 19%. We continue to estimate our annual effective income tax rate of 24%, which includes the expected impact of the U.S. Tax Cuts and Job act.

As we have previously discussed, our effective tax rate may differ from this estimate, due to other things, changes in the geographic allocation of our pre-tax income, as well as changes in the guidance from regulatory agencies related to the U.S. Tax Cuts and Jobs Act. Please note that our guidance assumes a Euro rate of 1.15 and a GBP rate of 1.35. All other foreign currency exchange rates are as of January 31, 2019.

That concludes are prepared remarks, and now, we're happy to take your questions. Please, provide your name and affiliation when asking your question.

...

Operator, you may now open the line.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, if you have a question at this time, please press the *, then the No. 1 key on your touchtone telephone. If your question has been answered, or you wish to remove yourself from the queue please, press the # key. Again, that's *1, to ask a question. To prevent any background noise, please place your line on mute once your question has been stated.

Our first question comes from John Kreger, of William Blair. You may proceed with your question.

John Kreger -- William Blair -- Analyst

Thanks, guys. If I'm doing the math right, I think your guidance implies high single-digit revenue growth for the whole year, and maybe low double-digits for the next 3 quarters. How comfortable are you that that is feasible, given the slowdown over the last year? Do you think the key driver of the improvement is going to be more on your clinical research side, or in Data Solutions? Thanks.

Colin Shannon -- Chief Executive Officer

Thanks, for the question, John. When we modeled the end of the year, with a very good backlog coverage, a lot of this is driven by the visibility we have from our backlog. We can get that from our clinical operations, we're getting obviously, feel confident. Because, the studies that we've run over the last number of quarters are starting to ramp up, and we're seeing it. We're already feeling a pressure of hiring, I mentioned that last quarter, we're starting to build out and ramp up rapidly in order to meet these numbers.

So, overall, the areas and the traditional PRA, I'm feeling very confident over. And we mentioned the big pharma, with strategic solutions. We're a little bit nervous about that piece because, we're unsure about how they react to all the things that are going on with the government, and the changes in pricing, and everything like that. We already started noticing that they are tightening up the cost savings, etc. We're watching that evolve. I don't see a huge amount of growth there. A major part of it is coming from our traditional business. I'm pretty good -- I'm feeling that Data Solutions now. We've got a new leadership, we expect to see that ramp up. It might still get a little bit slow in Q2, but as you know, it's fairly back-end loaded, so we're feeling pretty good about the latter part of the year.

Mike Bonello -- Chief Financial Officer

And John, I'll just point out, you know, regarding kind of the historical 605 revenue, we were within -- after taking into account FX, and the movements from what we had budgeted, a million dollars from the midpoint, so it's not like there's a significant amount being pushed out into later quarters. The biggest portion of us being toward the lower end of the range puts you on what's really the pass-through component.

John Kreger -- William Blair -- Analyst

Understood, thanks. And just one quick follow-up on Symphony. You mentioned on the call, and I think, last time, too that you see a nice opportunity to expand that business internationally. If you do that, or as you do it, is that going to be a pressure on margin? Should we be thinking about maybe less a bottom-line contribution from Symphony in the nearer term, as you build that out? Thanks.

Colin Shannon -- Chief Executive Officer

Well, there's a potential of -- I mean, it really depends how we manage this, John because, a lot of our clients are really looking for us to improve our offering so that it's -- we know that demand is there. You know, it's just getting the right assets at the right pricing. And we are looking to evaluate many opportunities here. I think that something that our clients would love us to do more, they see it as a good viable offering -- the delight of this. The new leadership has been out to a number of clients, the feedback has been really, really positive, and very strong. So, we feel like we have a very good name out there, and I'm feeling very positive about that we could expand, that we can actually cover most of it. But you know, I'm willing to make these short-term investments because, I think we'll recover it in the longer part, the longer term from the other parts of the business.

John Kreger -- William Blair -- Analyst

Great, thank you.

Operator

Thank you. Our next question comes from David Windley, of Jefferies. You may proceed with your question.

David Windley -- Jefferies -- Analyst

Thanks. Colin, could you elaborate a little bit on the factors that are influencing the delay in these study starts, and for example, which segment of your client base is that more prevalent? Qualitatively, what are those more regulatory protocol design funding? What are the factors that are influencing that? Thanks.

Colin Shannon -- Chief Executive Officer

Well, I'll remove funding because, that's not an issue, at all. Before we even accept an award, we've always checked out funding, so our clients are very well vetted, and we always make sure that they have the finances to cover the whole study, including all of the investigator grants.

We're finding -- and I mentioned this over, really, since last summer, we've been signing, we're getting awards, and we're doing multiple rebids, as we're looking at various scenarios as they optimize the study protocols, and looking at how we direct the right country mix and balance that out appropriately for our cost benefit. It's just taking more affiliations of identifying the right trial design. I mentioned that in my prepared remarks, we're still seeing that sliding out a little bit. But when we start to see concrete start dates, we're able to get assuredness, which is why when I mentioned last quarter, we knew exactly what was going to happen this quarter, and as Mike said, went on $1 million of it, and that included $4.5 million shortage in our Data Solutions business. So, we actually feel pretty confident about everything except this reimbursed revenue. Honestly, it's about a shot in the heart.

David Windley -- Jefferies -- Analyst

Appreciate that. So, as you're thinking about these rebid activities, is that -- and I think, maybe the opportunity to clarify, not recompeting for the business, but the client evaluating strategies. Correct?

Colin Shannon -- Chief Executive Officer

Correct. This is after the awards.

David Windley -- Jefferies -- Analyst

Right. So, not a question whether you keep the business or not.

Colin Shannon -- Chief Executive Officer

No. Correct. This is all venturing. No, we would never take back on anything that wasn't formally awarded. But then, as we go through -- I mean, a lot of it is actually, we're using our data analytics, and giving you new options, and a lot of it is just giving the client an opportunity to really hone in what they really want to get done. We give them best approaches, new ideas, and you know, it just takes a little bit longer.

David Windley -- Jefferies -- Analyst

And that's a good segue into what I was going to ask, which is are the clients' minds being open to the tools that are now allowing them to think more insightfully or intuitively, or do more analysis upfront on study strategy because of the data tools, for example, that you're bringing to bear, and maybe, a lot of selling activity that is along these lines that is going on in the industry today? Is that contributing to this, do you think?

Colin Shannon -- Chief Executive Officer

I would say, partly. It's really -- the uptick there is you've got high-end, very sophisticated data users, wanting to know more understanding of what's going on in the marketplace, what's happening with the patient population, and others, who are very traditional in the thought process. We want our clients to choose what they want to do. We are there to help them. We support them with whatever aspect they need. Our goal, really, is to continue to educate, and allow them to use our capabilities, so it'll help them get the trial done faster, and cheaper.

David Windley -- Jefferies -- Analyst

Very good. I'll save my other questions for offline. Thank you.

Colin Shannon -- Chief Executive Officer

You're welcome.

Operator

Thank you. Our next question comes from Donald Hooker, of KeyBanc Capital Markets. You may proceed with your question.

Donald Hooker -- KeyBanc Capital Markets -- Analyst

Great. Good morning. So, maybe help clarify with regards to the Data Solutions segment, and what have you baked in the guidance for this year in terms of revenues?

Mike Bonello -- Chief Financial Officer

Donald, we haven't disclosed that at this point, we're still, with the change in management, we want to make sure that we define what that estimate is, and we won't be disclosing it at this point.

Colin Shannon -- Chief Executive Officer

Donald, what we've actually had is we've had planning sessions, and creating, we're adding on to our sales force, our commercial sales force. We're building out because it was a lot better if we did. We are looking at new service offerings. We're looking to continue to innovate and get more client needs. We're looking at new data offerings. We're looking at international offerings. We continue to work closer with the larger PRA Organization, and that's creating opportunities. So, we're excited about the direction where we're going in. But at this point, we have not locked an exact way where it's going to adapt to, into numbers. We have said that it's going to go in line with other parts of the business, and we've always felt that low double digits would be where we'd be always aiming. At this point in the year, I still have not aimed, you know, where we got off to a little bit rocky, first quarter start.

Donald Hooker -- KeyBanc Capital Markets -- Analyst

That's a helpful perspective, thank you for that. And then, maybe switching to the clinical research segment, I understand from your commentary that you're recruiting pretty aggressively, new staff to kind of backfill business that you won. So, when I think about sort of gross margins, are we sort of at a high watermark? I guess we're down, sequentially, a little bit if you've brought new staff in. But are we probably seeing pressure there going forward? Where do you see gross margins sort of trending over the next 12 to 24 months?

Mike Bonello -- Chief Financial Officer

I think our gross margin should hold line with where they were in the first quarter. We obviously have that hiring into our forecast, going forward, and expect to see some higher utilization, and hopefully, some margin expansion toward the end of the year.

Donald Hooker -- KeyBanc Capital Markets -- Analyst

Great. I'll just ask one real quick one, and jump off. In terms of, obviously, also backlog burn is a focus, I understand there's a shift in mix there, so it's not necessarily a bad thing. But just for our -- is it sort of a low watermark there in terms of backlog burn? What is the bottom there, in terms of backlog burn percentage?

Mike Bonello -- Chief Financial Officer

Our backlog burn, as you see in our investor presentation, was 12.7% for the quarter, and that was in -- just slightly above what we had forecast, for the first quarter. I'm feeling like we're starting to hit that, the bottom of the trough, and should be turning back out of it, more toward -- I don't know that we'll get to the levels where we were in previous years, but we should start seeing an increase in burner.

Donald Hooker -- KeyBanc Capital Markets -- Analyst

Thank you, very much.

Operator

Thank you. Our next question comes from Jack Meehan, of Barclays. You may proceed with your question.

Jack Meehan -- Barclays -- Analyst

Thanks. Good morning. Just to build off that, maybe just was hoping to get a little bit more clarification on the 2019 outlook. Do you expect growth to pick up sequentially throughout the year, or do you think it's possible with some of the pickup and burn rates that you could actually see more meaningful step-up in the second quarter?

Mike Bonello -- Chief Financial Officer

I think we'll probably be in line with where we were for the second quarter versus in the first quarter. So, those rates should be relatively the same. And we'll see the pick-up be more toward the back end of the year.

Jack Meehan -- Barclays -- Analyst

That makes sense. I was hoping you could give us a mark to market, with one of your larger customers, Takeda, you know, obviously, with the deal closed. Just curious what you're seeing there in terms of awards, and what the dialogue's been about, potentially taking from the Shire share of the deal was closed.

Colin Shannon -- Chief Executive Officer

There's a lot of intense work being performed by our teams with the Takeda group, as they are looking to evaluate the next steps. We've always -- a nice book of business that we are just continuing to walk through at the moment. There are a lot of workers who are trying to rationalize what they are doing, internally. How they're going to be working with us going forward. We have sold our main strategic partner, but there's other CROs in the mix just now, obviously, with Shire. So, it's that collaboration, getting things organized then. That's a huge amount of activity. We've just obviously, we enjoy the relationship and we have continued to help them, and support them in their future needs.

Jack Meehan -- Barclays -- Analyst

Thank you, Colin.

Operator

Thank you. Our next question comes from Juan Avendano, of Bank of America. You may proceed with your question.

Juan Avendano -- Bank of America -- Analyst

Hi. Thank you. When you acquired Symphony, I believe adjusted EBITDA margins for that business were in the low-20s, given some investments and implementation costs that you had to incur. Can you give us an update on your adjusted EBITDA margin of the Data Solution business nowadays?

Mike Bonello -- Chief Financial Officer

Juan, we're not disclosing that information. We don't manage that business anymore, to that extent, as you'll see in our disclosures, or if you look back to the 10K. We manage the business only to gross margin. So, there's other costs in there that obviously are being shared by both businesses, so it wouldn't allow me to give you an accurate number.

Juan Avendano -- Bank of America -- Analyst

And my follow-up -- unrelated -- but your gross wins, growth, was flat, year-over-year. Is this due to competitive dynamics, lack of more capacity? I know you're hiring back up again. Can you shed any light on this?

Colin Shannon -- Chief Executive Officer

That's definitely a stronger competition. We're finding -- pricing is always pretty aggressive, we've always felt that it keeps everybody on, as market rate is appropriate. There's no one particular reason that we're in any way, that we look to say that we would be losing, at a particular reason. Sometimes, it might be a little bit of pricing -- of strategies, at first. A lot of it is we are looking closely at data, and understanding the rest associated with it, so we feel like we're getting a good understanding of what it's going to take to price the study appropriately. We found that that sometimes can lead to us being perceived as being higher priced, yet we're following the rest. So, we're explaining to the client this is the reason that we are pricing it at this manner, we're supporting it with data, we're showing that. But there's lots of moving dynamics, and all I can say though, there is a great amount of RFP volume out there, and there certainly seems to be enough business to go around. Looking at our competitors, everybody's winning a good share of business. We've got a very, very good diversified client mix, and feel very good about where we're positioned.

Juan Avendano -- Bank of America -- Analyst

Thank you.

Operator

Thank you. Our next question comes from Sandy Draper, of SunTrust. You may proceed with your question.

Sandy Draper -- SunTrust -- Analyst

Thanks, very much. I guess, first, maybe just a couple of questions for Jack, around currency. I may have missed it. Did you give a constant currency growth number for just the research business, excluding Data Solutions? And then, maybe a follow-up, is there any impact of the FX on Data Solutions? Or is that business 100% denominated in U.S. dollars?

Mike Bonello -- Chief Financial Officer

I didn't break it out, I just gave it to you in total. So, I'll tell you this, that the Data Solutions segment is all U.S. dollars, so I think you can figure out the dollar piece there, Sandy. There was about a, like I said, about a $2 million-impact from FX versus what we had guided to, versus where actuals came in, with respect --.

Sandy Draper -- SunTrust -- Analyst

Got it. That's helpful. And in terms of the -- maybe for Colin, in terms of the shortfall in Data Solutions, I understand management change and refocus, etc. When I think about it, were you not seeing enough opportunities? You weren't winning opportunities? The focus wasn't there, so there were opportunities out there that you just didn't go after? I'm just trying to think of, as you change things, how much is this in your control versus something has to happen in the market, or something's happening competitively? Thanks.

Colin Shannon -- Chief Executive Officer

No, this is all internal. I take full responsibility because, I couldn't make the changes until later on, in February. I was aware that we needed to add to our sales force, and I wasn't prepared to start adding until I got the new leadership in place, and have everybody aligned, and made sure they were selected appropriately. So, I was well aware that it was going to -- consequences. And I felt I estimated that well enough. But it's paying, new business, as well. But it was actually all said and done. The revenue streams are pretty good. But what was found is that you know, there's another component, which is service in kind, and it varies a lot because, it depends on the use of the -- by the clients. And that's perfectly -- we expect the costs over the year. But it's kind of lumpy when you actually use the service in kind that we're actually working with. So, that was down a lot more. And that's really the uncontrollable part. But overall, directionally, I feel very good about what we did, and with the managing going forward.

Sandy Draper -- SunTrust -- Analyst

Great. Thanks, Colin.

Operator

Thank you. Our next question comes from Ross Muken, of Evercore. You may proceed with your question.

Ross Muken -- Evercore ISI -- Analyst

Hey, guys, it's Luke, on for Ross this morning. Just a quick one, a follow-up on Dave's train of thought on the slower start-up times. Is this also -- could this be due to a function of more indications like gene therapy and cell therapy where, pharma -- and these are completely new greenfield opportunities that don't have any prior experience? So, you're working with the client, and it also presents you an opportunity to kind of layer on that data -- on the start-up times.

Colin Shannon -- Chief Executive Officer

It's exactly the case. It can happen with a lot of the complex studies, as well, where our technical patient populations, and how do we best go after them. So, once, we're being selective, and then, work closer with the client to help them really optimize the trial, and looking at how -- and really identify where best to locate the patient population, looking forward to ensure the success of the study.

Ross Muken -- Evercore ISI -- Analyst

Great. And then, I guess on the investments that you talked about for the Data Solutions, to get that back up and running, now that management's new in place. Besides on the sales force, kind of what innovation and technology offerings are you guys looking to expand upon? Just kind of give us an idea of what that takes to build, etc.

Colin Shannon -- Chief Executive Officer

Well, at any point, our clients are looking -- I mean, and the more data you have, the more you start to realize that there's gaps. But we're always on the lookout for new sources to give us more capability to get that analysis done to help our clients who understand what they're looking for in the marketplace. So, when we're looking for new offerings, we're saying, well, we have to look at new data sources. How do we blend it together? How do we reconnect? We'll always continue looking at new ways of analyzing the data that helps give more meaningful context of what the client's looking for. So, that's an important attribute. One thing that, well, there's something we weren't able to do is invest overseas -- the infrastructure or capability. We've got privacy, and all of the capabilities, and obviously, the overseas infrastructure to help move that forward. So, we're just now looking for the right opportunities to make sure that we, you know, as we progress that forward, we do so in a meaningful manner.

Ross Muken -- Evercore ISI -- Analyst

So, it's more of just finding a dataset that would be complementary with what you already have.

Colin Shannon -- Chief Executive Officer

Correct.

Operator

Thank you. And as a reminder, ladies and gentlemen, that's *1 to ask a question. Our next question comes from Dan Brennan, of UBS. You may proceed with your question.

Daniel Brennan -- UBS Group -- Analyst

Great, thank you. Thanks for taking the question. Colin, I just wanted to go back to a comment you made at the -- kind of earlier, in the Q&A, about the potential influence from behavior, from like these political headlines, maybe on Medicare For All, or drug pricing. First, could you just clarify, is this mostly some hesitation or impact on the established pharmaceutical companies, and not on the more emerging biotech? Secondly, can you just clarify what potentially you are seeing? You mentioned something related to more cost control. Just want to kind of flush out this point. Thank you.

Colin Shannon -- Chief Executive Officer

Our strategic solutions division works with big pharma primarily, and they're the ones who get more impacted with any cost constraints that the pharma sector imposes. And we've been getting sort of a continual pressure there for watching costs and looking at that, looking very closely at the procurement of budgets. We're seeing that you know, they have not altered the development partly, but they're continuously looking for productivity gains, trying to do a lot more with less. So, there's definitely the feeling that they are definitely sorting out their cost structures, and they're trying to watch how they're spending, and trying to get more value of what we're currently doing. We're obviously delighted to be working with our clients, and helping them achieve that opportunity, utilizing some of our tools that we have in the other parts of the business, to help support them, and help improve the productivity. But we're certainly feeling that there's some angst there because of what's going on in the marketplace.

Daniel Brennan -- UBS Group -- Analyst

Great, thanks. And then, just one other, just on the competitive environment. I think you mentioned pricing is always, I guess, it's fair but not necessarily changing. But you also mentioned maybe seeing stronger competition. So, is there any change in the overall competitive environment that you're alluding to? I just want to kind of flush out that point, as well. Thanks.

Colin Shannon -- Chief Executive Officer

I think as the CROs have been entering a lot of the mergers, are starting to stabilize. Obviously, they are in a stronger position. So, I think that it's fair to say that they are much more focused, and getting a lot more attention. So, I don't see anything majorly changing. It's always been competitive because, there's always strong players out there. We just got to continue to enhance our offerings, improve our service capabilities, and make more use of our IT developments that we're continuously working on, and prevailing data support and service for our project teams. So, we are in charge of our own destiny, we make sure that we lead the charge in our own way.

Daniel Brennan -- UBS Group -- Analyst

Great. Thank you, Colin.

Operator

Thank you. Our next question comes from Erin Wright, of Credit Suisse. You may proceed with your question.

Erin Wright -- Credit Suisse -- Analyst

Great. Thanks. I have just a broader question on demand trend. Are you seeing any fluctuations, at all in insourcing, outsourcing, specifically across kind of both FSP versus kind of the full service relationships in any sort of unique dynamics going on potentially in the quarter, what you kind of see going forward? And then, just general RFP flow. If you could comment on. Thanks.

Colin Shannon -- Chief Executive Officer

Thank you, for that. On the FSP-type work, we're definitely seeing that a little bit flatter than previous years. We're still seeing strong opportunities and the traditional project-base work. But we're certainly -- and it may just be temporary at this point; it's hard to assess that. But we've been cautious about how we're building our forecast from that element. So, as we are preparing our guidance, etc. we're looking for how FS continues that type of trend: what would we do to mitigate some of the effects. So, we take a lot of the caution out as we're building out a forecast. I think we've got it pretty well covered.

Erin Wright -- Credit Suisse -- Analyst

Great. Thank you.

Colin Shannon -- Chief Executive Officer

Thank you, Erin.

Operator

Thank you. Our next question comes from Donald Hooker, of KeyBanc Capital Markets. You may proceed with your question.

Donald Hooker -- KeyBanc Capital Markets -- Analyst

Hey, great. Just a follow-up. One of the questions I meant to ask was, as we think about, I mean, the balance sheet looks great, and as you're paying down debt, I assume, going forward, how do we think about capex? It looked like it was a little bit elevated in the quarter. So, I just want to make sure I get my head around what capex spending should be because I know you're making a lot of changes with the company.

Mike Bonello -- Chief Financial Officer

Yeah, I think it is. I think I referred to this in our February call, Don. I think it is going to be higher than it has been historically. I don't remember the number off the top of my head, but I want to say we were roughly around $60 million last year. We had anticipated that that would be roughly $10 million to $15 million higher. We weren't able to spend that money last year because of just prioritization in the staff to get some of those projects done. So, I wouldn't expect that we would try to push some of the projects that were missed last year into this year, and that will cause us to be slightly higher in 2019.

Donald Hooker -- KeyBanc Capital Markets -- Analyst

So, that would be kind of like bleb, and then, I guess thereafter, maybe a more normalized trend.

Mike Bonello -- Chief Financial Officer

That's correct. So, we've looked at -- I looked at 2018 and 2019, kind of in total, and we would still spend what we would have spend in total, in those 2 years. So, when everything is said and done, it'll be about the same.

Donald Hooker -- KeyBanc Capital Markets -- Analyst

That's fair. Thanks so much.

Operator

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Colin Shannon, CEO, for any further remarks.

Colin Shannon -- Chief Executive Officer

Well, thank you everyone, for participating in our call today. If you have any additional questions, please feel free to contact us. We hope you have a great rest of the day. Thank you very much.

...

Operator

Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a wonderful day.

Duration: 43 minutes

Call participants:

Tom Byrne -- Vice President of Legal Affairs 

Colin Shannon -- Chief Executive Officer

Mike Bonello -- Chief Financial Officer

John Kreger -- William Blair -- Analyst

David Windley -- Jefferies -- Analyst

Donald Hooker -- KeyBanc Capital Markets -- Analyst

Jack Meehan -- Barclays -- Analyst

Juan Avendano -- Bank of America -- Analyst

Sandy Draper -- SunTrust -- Analyst

Ross Muken -- Evercore ISI -- Analyst

Daniel Brennan -- UBS Group -- Analyst

Erin Wright -- Credit Suisse -- Analyst

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