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PRA Health Sciences Inc (NASDAQ:PRAH)
Q2 2020 Earnings Call
Aug 7, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Thank you for standing by and welcome to the PRA Health Sciences Second Quarter 2020 Earnings Release Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Mr. Chris Gaenzle, Chief Administrative Officer and General Counsel. Thank you. Please go ahead, sir.

Chris Gaenzle -- Executive Vice President, Chief Administrative Officer and General Counsel

Good morning and thank you for joining us for the PRA Health Sciences Second Quarter of 2020 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 statements, we will be available for questions. In addition to our press release and investor supplement with additional financial information is available in the Investor Relations portion of our website. Before we begin, I'd like to remind everyone 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 the 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 21, 2020.

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 financial 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'd now like to turn the call over to Colin Shannon, our CEO. Colin?

Colin Shannon -- President and Chief Executive Officer

Thank you, Chris. Good morning and thank you for joining us this morning to discuss our second quarter financial results. This is not an easy quarter, yet the tenacity and ingenuity demonstrated by our teams allowed us to focus on our plans and were able to report results that were better and revised guidance we provided in May. We work very closely with our clients and our sites, and we're able to move studies forward and deliver revenues of $730 million and adjusted net income per diluted share of $0.86. I would like to thank our employees for all their efforts to make this happen. At the height of the pandemic, we estimate that approximately 30% of our studies were either put on full or partial hold. That number has declined approximately 18% by the end of the second quarter, and it continues to improve weekly.

We are fortunate to be in a unique situation and have a robust and effective global health platform that has allowed us to shift work to remote monitoring or virtual trials where possible, limiting some of the effect the pandemic has on our ability to keep our current studies moving forward. We continue to see restrictions on access to site during the second quarter. At the end of the first quarter and beginning of the second quarter, we were seeing between 65% and 80% restriction to sites, and at the end of the quarter that number has dropped to less than 50%. Asia and Europe showed the most improvement with Latin America and North America showing much more modest improvement. While this is an encouraging sign, we are aware that things can change very quickly. New business activity was strong during the quarter and I'm pleased to report $702 million of net new business awards, excluding reinvestment revenue, representing a net book bill of 1.35. Including reimbursement revenue, we reported net new business awards of $1.1 billion on a book to bill of 1.62.

We saw strength across the entire clinical research segment including a strategic solutions business, and we continue to see diversification across therapeutic areas. However, the second quarter did have a higher level of new infectious disease studies, which was influenced by the COVID-19 pandemic. 46% of our net new business came from top 15 pharma while the remainder came from midsized pharma and biotech. The addition of our second quarter business awards excluding reimbursement revenue resulted in an increase in our backlog of 10% year-over-year and 4% on a sequential basis, with backlog finishing at approximately $4.9 billion at the end of June. Our sales funnel continues to be strong and RFP volumes remained high this quarter. RFPs have been diversified with respect to the therapeutic area and include studies to combat the COVID-19 pandemic. We continue to see slightly slower decision making for my clients. And at the end of the quarter second quarter, we had another record level of pending decisions.

With the level of RFP clarity we have seen in the first half of 2020 and have seen so far this quarter, we feel that the industry was very solid. Our client base continues to be well diversified, with our top five clients representing approximately 39% of revenue, with no clients representing more than 10% of our revenue during the quarter. Revenue in our Data Solutions segment was in line with us expectations during the second quarter. I'd like to remind everyone that the Data Solutions segment is less exposed to the impact of the pandemic due to the high proportion of recurring license revenue. However, we continue to see some disruptions due to the lack of in-person meetings, the cancellation of many industry events and the reprioritization of discretionary spend by customers. In terms of the underlying trends, we continue to invest in this segment by adding headcount to critical positions, adding new data sources and enhancing integration with the clinical research segment.

Moving onto our 2020 guidance, although, there means uncertainty around the impact of the pandemic and our financial results. We anticipate full year revenue between $3.07 billion and $3.13 billion and expect adjusted earnings per diluted share between $4.35 and $4.55. Mike will provide some additional details around the 2020 guidance later in the call. In closing, I'd like to thank again our entire staff and our clients for their continued commitment to PRA Health Sciences during these challenging times. I would also like to thank everyone who is helping throughout the world to get through this global pandemic.

I would now like to hand over the call to Mike Bonello, our Chief Financial Officer, who will look through our quarterly financials in more detail.

Mike Bonello -- Executive Vice President and Chief Financial Officer

Thank you, Colin, and good morning everyone. For the second quarter of 2020, our consolidated revenue decreased 4% both on actual foreign exchange rates and on a constant currency basis. As Colin stated previously, we reported revenue of $729.9 million for the second quarter of 2020, compared to $763.3 million for the second quarter of 2019. The decline in revenue was attributable to the impact of COVID-19 pandemic had on us in the global economy. We saw a decrease in our billable hours and volume related activities during the quarter, which was driven by a lack of access to investigator sites and the inability to screen and enroll patients due to stay-at-home orders and travel restrictions. During the quarter, we also had an unfavorable impact of $4.7 million due to foreign currency exchange rate fluctuations.

For the second quarter, the clinical research segment reported revenue of $667.3 million, while the Data Solutions segment reported revenue of $62.6 million, a decrease of 5% and an increase of 3%, respectively. During the quarter, we derived 56% of our service revenue from large pharmaceutical companies, 8% from small to midsized pharmaceutical companies, 18% from large biotechnology companies, and 18% from all other biotechnology companies. Consistent with prior quarters, these concentration metrics exclude our Data Solutions segment and reimbursement revenue and are in line with what we have historically reported. Total direct costs for the quarter were $395.3 million, compared to $386.2 million in the second quarter of 2019.

The increase in direct costs continues to be driven by increased labor costs in our clinical research segment, as we added staff in 2019 to support current and future business needs and increased data costs in our Data Solutions segment, as we continue to add data assets to expand our offering and as we see increases in renewal rates on our current contracts, The increase in direct costs was offset by favorable impact of $7.7 million from fluctuations in foreign currency exchange rates. Direct costs were 54.2% of revenue in the second quarter of 2020, compared to 50.6% in the second quarter of 2019. The increase in direct costs as a percentage of revenue was primarily driven by the decrease in revenue I noted earlier, which was driven by the COVID-19 pandemic. Selling, general and administrative expenses were $110 million or 15.1% of revenue for the second quarter of 2020, compared to 12.9% for the second quarter of 2019.

The increase in SG&A expenses as a percentage of revenue is primarily due to the decrease in revenue as well as an increase in salary related benefits due to increase headcount to support our growth, as well as additional office space added prior to March 2020, when the COVID-19 pandemic began to have an adverse impact on our operations. Adjusted net income, which excludes certain items whose fluctuation from period to period, do not correspond to changes in our operating results decreased 32.4% to $55.2 million in the second quarter of 2020. Adjusted net income per diluted share decreased 29.5% to $0.86 per share in the second quarter of 2020, compared to $1.22 per share in the second quarter of 2019. As Colin noted earlier, these amounts were impacted by the COVID-19 pandemic and were better than the revised guidance we provided in May. Cash provided by operations was $25.9 million in the second quarter of 2020 compared to cash used in operations of $45.8 million for the second quarter of 2019.

The increase in operating cash flow was primarily due to the impact an acquisition related earn out payment had on prior year cash flows. Capital expenditures for the second quarter of 2020 were $17.4 million, compared to $21 million for the second quarter of 2019. Our capital expenditures continue to reflect the investment we are making in information technology and in particular our mobile health platform, and the expansion of our infrastructure that was committed to prior to the pandemic. Our cash balance at the end of the quarter was $168.2 million, of which $53.4 million was held in our foreign subsidiaries. Net debt outstanding defined as total debt, less cash and cash equivalents at June 30, 2020 was $1.1 billion compared to $975 million at June 30, 2019. We are confident our current cash position together with over $600 million of borrowing capacity position us to weather the challenging economic conditions that we may continue to face throughout the remainder of 2020.

I would like to note that we are currently in compliance with the covenant requirements including our credit facility and we expect to maintain our compliance with these covenants. Consistent with the approach we took in the second quarter, we continue to employ proactive cost management strategies. These include the delay of non-essential hires, a reduction in our reliance on third party contractors, and the management of non-essential discretionary spend. We also continue to proactively conserve cash by delaying non-essential capital expenditures and eliminating voluntary debt repayments until further notice. Regarding our currency concentration, excluding reimbursement revenue and expenses, 82% of our revenue and 62% of our expenses were denominated in U.S. dollars while your euro exposure was naturally hedged. We continue to have exposure to movements in the GBP is less than 1% of our revenue was denominated in GBP, while approximately 6% of our expenses are denominated in GBP. As Colin referenced earlier, the Company is providing 2020 revenue guidance between $3.07 billion and $3.13 billion, GAAP net income per diluted share between $2.40 in $2.60 and adjusted net income per diluted share between $4.35 and $4.55.

The full extent of the COVID-19 pandemic and its impact on our 2020 operations remains uncertain. Specifically, the duration of the pandemic, the geographic location of specific outbreaks and the length and scope of travel restrictions and business closures could impact our financial results in the second half of 2020. These uncertainties could impact the assumptions used in our 2020 guidance, if they result in business interruptions, such as closure of our Phase I clinics, a slowdown in recruitment activities, or limited access to sites worldwide. However, we have used our best efforts to estimate the impact of the COVID-19 pandemic will have on our business and the resulting impact on our financial performance for the remainder of the year. We anticipate that our annual effective tax rate will be approximately 23%. Our effective tax rate may differ from this estimate if the geographic distribution of our pre-tax earnings changes from what we have estimated or if there are changes in interpretation analysis or additional guidance issued by regulatory agencies.

We're also providing third quarter guidance to ensure sequential quarter earnings growth are in line with our expectations. We are estimating revenue between $754 million and $784 million GAAP earnings per share between $0.58 and $0.68 per diluted share and adjusted earnings per diluted share between $1.09 and $1.19. Similar to our full year guidance, we expect our effective income tax rate to be 23%. It should be noted our guidance assumes a euro rate of 1.15 and a GBP rate of 1.30. All other foreign currency exchange rates are as of June 30, 2020.

That concludes our prepared remarks. And we are now happy to take your questions. Operator, you may open the line.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Your first question comes from the line after Sandy Draper with Wedbush Securities.

Sandy Draper -- Wedbush Securities -- Analyst

Thanks very much for taking my question. I guess maybe I'm not sure if this is for Collin or Mike, but when I thinking about the cost and the hiring. You've mentioned that their costs are still going up as you're adding people to do basically enabled a higher level of revenue and higher level basis you're expecting, but you're also accommodated slowing down some harm because of COVID.

I'm just trying to think as mostly that slower hiring happening down SG&A and delaying that, but you're still planning on hiring at the cost of goods one. I am just trying to think about hiring, and then also just the generally, how much of an impact when you're trying to get people is COVID having on your ability to hire the type of people you want? Thanks.

Colin Shannon -- President and Chief Executive Officer

Yes. Actually, we're finding that we have been able to hire -- we're getting great candidates in our pipeline, which has actually been quite surprising, but you're right we've really been focusing in on the revenue generating our people. Although, there is some support functions that we've needed to augment, particularly in some of our legal department where we're doing a lot more contract work and some of our like, talent acquisition people, we're just really finding and seeking out the talent.

So, while we are -- we're watching our SG&A very, very closely, we're trying to manage our costs because nobody knows what's going to happen in Q4 in particular. It's going to be interesting to see how this plays out, but we got some good relevant experience going through quarter there and that was why we decided to at least come up with an approach to provide some guidance because we feel like we've got some plans in place that can get us through the rest of the year, but there's so many unknowns.

Sandy Draper -- Wedbush Securities -- Analyst

Great. That's helpful. And not really follow-up, a second question. On the Data Solutions side, sure COVID has had an impact, but you guys, it makes to management changes, things are seeing starting to turnaround. Just wanted to get an update on how you feel that the change you made from management and sales and building that back up. Are you still confident in that returning to better growth? Or just an update on that business would be great? Thanks.

Colin Shannon -- President and Chief Executive Officer

Yes, the business is actually going well. We've added a lot of news capability. During the pandemic, we made a data offering one of our systems whereby we offer it free during part of the pandemic to our clients, allows us to utilize out data capabilities. We just felt that we want to do whatever we could to help on clients during this pandemic and we thought that was an opportunity. It's obviously, until we get back to some level of normality, some of the discretionary spend is not needed.

But we're still seeing a lot of good contact and a lot of need there, and we're managing our business well. I feel very good about the direction we're going in and we continue to look for opportunities to take out some of the lumpiness because we know it's very seasonal business where, from about September onwards, where it's really strong. We'd like to see that and try some change there, but we're feeling pretty good about the directions it's going in.

Operator

And your next question comes from the line of Patrick Donnelly with Citi.

Patrick Donnelly -- Citi -- Analyst

Colin, I just want to think about the guidance guys gave for 3Q in the back half. How are you assuming things trend here in the U.S.? Obviously, we have kind of the second wave coming up. How trends then through July? Did you see any pause and kind of enrollments or conversations with customers? Just curious, how the trends have been recently?

Colin Shannon -- President and Chief Executive Officer

Obviously, we -- the economy's doing its best to try and reopen and we're struggling through that as we speak. And we seem to have contingency plans for our contingency plans these days. And it's kind of we've got to take the unexpected and plan around it. Our goal now is to make sure that we follow carefully where we need to get some visits done. We plan accordingly. And I mentioned earlier on about the tenacity and ingenuity, some of our teams have cannot wait to enable that to happen.

We were just kept being persistent and challenged by figuring out how to get things done. And whether it's using our mobile health platform or whatever we've found ways to help really mitigate some of the effects of that. We're seeing, obviously, some opening up in the U.S. or trying to find the space. We don't know what's going to happen, but we've got a good handle on the availability and how to overcome some of the obstacles in a way.

So, we, obviously, were very trepid-acious in moving forward, come up with our guidance, but we felt like Q2, we gave a good view and we delivered on it. And as we're looking forward, I thought we could plan in place for up Q3. And Q4 is a little bit tougher because if there is a second wave with the flu season starting, we really just have no idea. But we felt like, well, we should get some sort of general cadence of directionally where we see it happening.

Patrick Donnelly -- Citi -- Analyst

And then last quarter I think you've talked about kind of four times the normal RFP is being pushed out. Just wondering how those trends -- do we see a lot of them come back in 2Q and even the beginning of 3Q versus maybe some of those companies pivoting toward more COVID trials, just wondering, the trends on that front?

Colin Shannon -- President and Chief Executive Officer

We actually did see there are some -- some cancellations this year -- that's quarter, there was really, we sort of, a lot of repositioning of pipelines and some of that did actually happen. We saw a lot of decisions that we were pending come through. And I've mentioned here and again, that we still have a high number of pending decisions at the end of the quarter again.

So, we're seeing a robot start RFP flow and we're not pushing hard for getting decisions because obviously this pandemic stage. We're just walking close with clients and sometimes wanting us to go full steam ahead. We're patiently waiting for our decisions. I've mentioned again that there were a number of pending decisions, again, at least a record high. So, we feel like we're setting out nicely with good visibility and we're feeling that, things are moving in the right direction, which is a solid industry phenomenon.

Operator

And your next question comes from the line of Dave Windley with Jefferies.

Dave Windley -- Jefferies -- Analyst

Hi, good morning. Thanks for taking the question. Colin, your bookings -- you just answered somewhat to Patrick's question, but your bookings were a highlight this quarter. It seems like a number of things have been percolating. You've upped your emphasis on biotech in the middle of last year. You have this high level of outstanding pending decisions at the end of the first quarter. You have some partnerships that I think had begun to be productive. I'm wondering if you could help us to understand which or the proportions of the contributions to that record bookings level in the quarter. What were the contributors?

Colin Shannon -- President and Chief Executive Officer

All the things you've mentioned Dave, we knew that we're going into the year on a much more solid footing and I tried to ensure that everybody understood that, we're sensing that shift in momentum. We have spent a lot of time rebuilding our management team. So as a company, we're focusing on the one PRA message, we're aligning all of our units to work together and collaborate together and that's been very beneficial. And we're pulling them together all the different components of the organization. And so, we've got mix of well-diversified client mix for the quarter. So, we feel really good. And the one area that we expected a lot more work that has been put and slowed down was from the government.

We had anticipated that happening, but imagine with all the changes in the government, with and everything that's there, things have slowed down. So -- and may even be next year before that starts to get to the levels where we anticipating, but ready for it now, so when you look at, what we've achieved, we feel like we got a lot of dry powder as well for the future.

Dave Windley -- Jefferies -- Analyst

Interesting, very good. From an operational standpoint, a lot of focus on, in the industry, on site openings and patient recruitment, what about your people, your CRA's ability, I guess, to get into sites or maybe even to get to sites, maybe you could help us to understand, to what extent do those folks need to get on a plane to get to a site and complete a site visit? Or are they regionally based enough that they can kind of get in their car and cover a territory?

Colin Shannon -- President and Chief Executive Officer

While we have a very broad mix and really, it's difficult when you've got some very difficult therapeutic areas where you've got specialist people. And we've got over 10 different arrangements and that's part of the planning process of how do we access data and how do we get there. It takes a lot of careful planning. And, we've got a number of people and it's hard to manage appropriately because they've got to have the change in the protocol. But it's not just that we're concerned any CRE as I say, you've got to have them appropriately trained etc, and able to go to this site and perform the duties as expected.

And that's part of our planning process, if I were to get out and do that. And one of the areas that we had mentioned that we have found difficulty with is, our Phase I unit. Because obviously, if there's outbreaks, there that can actually close the unit, so a lot of the things we were looking forward, what our capacity? Obviously, it's just capacity because of social distancing, etc. But we're still seeing volunteers coming in now and our staff is managing to get to the offices, we're still managing to work through it. And so, all the different parts of our business that we're focusing on and just we're obviously spent a lot of attention to the health and safety of our employees.

Dave Windley -- Jefferies -- Analyst

Are you -- so just to be more specific, are you finding that CRAs are willing to travel when they need to?

Colin Shannon -- President and Chief Executive Officer

Yes, and generally, yes. We tried to be very accommodative. We are a very understanding of -- a lot of families at home and at start-up things, but we're finding that we're able to accommodate the needs of our clients and our sales.

Operator

And our next question comes from the line of Robert Jones with Goldman Sachs.

Robert Jones -- Goldman Sachs -- Analyst

Thanks for the question. Collin, you mentioned the higher level of infectious disease work specifically related to COVID. Any more specifics you can share there? Just how you're thinking about this opportunity of COVID-related trials for PRA specifically? And I know some of your peers have shared some statistics about portion of backlog of revenue. Just wanted to get a better sense of how you're thinking about the COVID trial work?

Colin Shannon -- President and Chief Executive Officer

It's not a substantial post. We've got some nice studies. We're working on a few and a mix of clients between biotech and big pharma doing some as vaccine work, and but also working on some strong therapeutic. So, we've got a good mixture, but it's not like hugely weighted. We're still seeing a lot of our traditional type of work. And obviously, there are a lot of clients are prioritizing some of the work on COVID to help get through the pandemic.

And we've had a good share of that paper business. So, we're feeling very good about that, but we're still making sure that we're focusing on longer term as well. Hopefully, this in a year's time, this is going to be what well behind us and we'll be concentrating on our new book of business. We're making sure that, yes, we're going to be helping you in the short term, but obviously, we're still building for the longer time as well.

Robert Jones -- Goldman Sachs -- Analyst

Got it. And just on cure innovations, I know that you are leveraging the technology before you acquired. So just curious, if your vision has evolved since it's been in-house and maybe has it helped you take share in this world where remote capabilities are clearly more important?

Colin Shannon -- President and Chief Executive Officer

Yes, I mean, our Clinical six platform had worked and what care innovation, when it was just vendor. And so, we've actually worked very, very closely with them and it was just a natural fit. So, we didn't do all a pump in circumstance when we made acquisition because it was very much. It was small acquisition that just actually dovetailed very, very nicely with our Clinical six platform, but there's been a great addition and because with mobile health platform in addition to what we had, it has helped run though a lot of offerings.

We had a COVID-19 app. And we've been working for over five years on mobile health solutions. There is a lot of experience and we have a fully compliant FDA, EMEA, end to end platform with the mobile health connect detail, RPM and EHR integration. And it's all of the appropriate standards were GMP, HEPA, 21 CFR Part 11, etc. So, we feel and a very nice position to leave offerings. And I think it's been a really nice part that we've added and just the right time for the pandemic.

Operator

And your next question comes from the line of Juan Avendano with Bank of America.

Juan Avendano -- Bank of America -- Analyst

So, I just need go back to the gross bookings. And so, it just happens that in the quarter, when several of your CRO peers had no booking decline, you actually grew those business wins excluding pass-throughs for the first time since the third quarter of 2018. So, I'm curious about what growth in price sales here? And you mentioned, I mean, can you talk about how, whether or not we should expect growth in bookings to continue going forward? How sustainable is this? And perhaps, how much of this was driven by the accounts that had some slowdowns in business activities and reprioritizations? Or were these completely new accounts?

Colin Shannon -- President and Chief Executive Officer

No, as I mentioned last year, there was a lot of changes going on and strategic solutions where the growth in new accounts where, the headcounts were moving to low cost countries Latin America, Asia, even Eastern Europe. And so, we saw that while product legislation was growing at great pace, the strategic solution part of our business was a very, very as a modest growth. We've seen activity pick up again this year and strategic solutions as expected, and we did make some investments in strategic solutions last year. We added more leadership acquisitions. And so, what's helped us round out our offerings and we continue to expand these opportunities.

So that's what's really helped drive back to where we were seeing the growth, because, I think people are not understanding the revenue growth we got and why the strategic solutions is actually -- we basically -- we'll taking only 12 months of the backlog and to account. We're basically just replacing our revenue with every single quarter with a small amount of growth that we are anticipating. So, the book-to-bill for the strategic solutions can be anywhere between 1.03 to 1.05, and yet, actually 3% to 5% growth, which we said, no. But that was how we're structuring. And so, we've actually had, I felt good growth and I'm trying to make sure people understand. The product registration part of the business has been really accelerating very strongly.

And now we are seeing that as strategic solutions pick up, we're seeing an overall growth again. So, we feel very pleased about it and we're seeing lots of opportunities in the pipeline. We're seeing a lot of good RFP flow. So -- and if we can get decisions made, we feel pretty good about where we stand and the relationship to the challenges go ahead of us.

Juan Avendano -- Bank of America -- Analyst

Thank you. I guess my second question is that backlog conversions, for some of your peers went down by more than 100 basis points sequentially in the second quarter, but yours only went down by 70 basis points quarter-over-quarter. So what did you do to hold backlog conversion a little bit better than expected?

Mike Bonello -- Executive Vice President and Chief Financial Officer

I don't know that I can comment on where our competitor's backlog conversion is falling because that's all obviously dependent on what they have and they're taking for new business orders going into backlog. But I think we've talked in the past, we have a conservative approach to what we put in backlog. We go through every project, month by month, to make sure we understand how that's going to move through.

And as Colin just referenced, strategic solutions is showing some growth. So, that's a quicker burn as he was trying to indicate there than the rest of the business. So, I think that helps us stabilize that burn. And quite frankly, the burn rate came in right in line where I thought it was based on our revised projections that we provided back in May.

Operator

And your next question comes from the line of John Kreger with William Blair.

John Kreger -- William Blair -- Analyst

Thanks very much. Colin, can you just expand a little bit more on the comments you're making about strategic solutions? Is the repositioning to lower cost regions done? And can you give us a sense about at this point, how much of that activity is happening in the U.S. versus other regions?

Colin Shannon -- President and Chief Executive Officer

We felt that was really out of the way toward end of last year. Yes, there was quite shift as the clients were repositioning a lot of their work and to the low cost countries. And we don't know how long it was going to last, but we think that it was more or less by the end of the year, we saw -- I actually said that midway through the year, because we saw this shift happening, and I thought it was kind of over halfway through the year, but it trickled down a little bit longer.

And so, I feel like that part is no other way and we're now concentrating on like where they're placing their work, we're adding throughout the world now. So, it's we are hiring in the U.S. as much as anywhere else. So, we're seeing that it's back to sort of a good mix again and that's obviously helping the strategic solution side. And they're obviously getting some new offerings from client as well as new opportunity. So, we feel like that position is that business nicely positioned and to take advantage of where we are.

John Kreger -- William Blair -- Analyst

Great, thanks. And if you think about kind of RFP growth of late is, would you say it's pretty balanced between kind of more FSP work and traditional? Or is it still tilted more toward the traditional product registration?

Colin Shannon -- President and Chief Executive Officer

It's still tilted toward traditional and product registration. The strategic solution is a very consultative sale. These types of deals last a long period of time. And it's typically really an RFP type of work in spite we have a lot of discussions with the client before it gets to a point where -- they want to make decisions about changing the way what they work because it's a very senior leadership and right decision.

Because it's probably come from the top down, it changes your mind the staff behalf, done outsourcing, some stuff that lot clients like to keep everything in house. And, so striking out balances is something very difficult. And so, we've got a lot of experience in that field and we work closely with clients as we helped them through the journey.

John Kreger -- William Blair -- Analyst

Great, thanks. And then one last one, how do you feel about the ability to turn some of these new awards on? Are you getting to the point where start-up activity and patient enrollment can start to kind of return to some degree of normalcy? Or is that -- should we view that as being still pretty constrained at this point?

Colin Shannon -- President and Chief Executive Officer

Yes, we're not getting things started, I mean, that's when we look at -- we got our tickets cancellations if we're seeing any delays. And, that's how we actually went through all of our backlog. We do rigorously as well. And if we see anything that we're not getting started, I'd rather just take out. And even if it's not actually cancellation, we don't forecast revenue from it until we start to get indications of when the client really wants to get up and running. But we've actually been hiring and not whole of our contract department etc, to help with the study start-up activities. Just obviously one of the bottlenecks in industry is getting the legal contract with sites all up and running. And it gets more difficult when they've got staff working from home.

And so yes, it's definitely been challenging, but we've got a lot of things moving and we're driving hard. And some of these studies that we've done in COVID have been accelerating at a very, very fast rate. And it's great that when everybody's got a mind do it, it happens very, very fast. And I'm hoping that these long term benefits will change the way that we're doing things in the future and that we can slow things that are done faster. And I'd say changes the way we do clinical research and it all becomes fast and more stream line in the future.

Operator

And your next question comes from the line of Eric Coldwell with Baird.

Eric Coldwell -- Baird -- Analyst

Hi. Thanks very much. Just a couple of quick ones, I think. Firstly, from the earlier remarks, that COVID was perhaps not as -- COVID related trials were perhaps not as material for you as some of your peers, but I think all but one of the companies so far given a percentage. I was hoping we could extract that from you today whether it's a percent of 605 or 606 bookings?

Colin Shannon -- President and Chief Executive Officer

I have to get back to you on that one. I don't actually have that number on it just now. Maybe we'll get it, when we speak to your later.

Eric Coldwell -- Baird -- Analyst

All right. And then follow-up is on the data business. Pre-COVID, you talked about making investments in new data solutions, new geographies, etc, and had a little bit of an impact on gross margin this quarter. I'm just curious if you can give us a sense on where you think gross margin plays out for that segment over the next couple of quarters maybe the next year? And then I know you've talked and you mentioned again today about the seasonality and revenue that typically perks up starting September and certainly in the fourth quarter. Are you expecting that same kind of momentum this year given COVID dynamics and everything going on in the world? Or should we perhaps rain in the numbers a little bit here, given the uncertainty? I'm just not sure what you're really expecting for fourth quarter strength in the data businesses typically plays out?

Colin Shannon -- President and Chief Executive Officer

Yes, Eric. We have tried to factor that into our guidance, obviously. As we said, we're not entirely sure how, everything is going to certainly play out. We still do see some strong growth in that segment for the remainder of the year compared to where it was last year. But I would say, it's more, I'd say modest single-digit as opposed to we were talking. I think earlier, when we give our full year guidance, we said we were hoping for high-single-digit, maybe low-double-digit growth there. So, we've tempered that expectation slightly.

With respect to margins, as we indicated on the last call. We expected Q2 margin has come down slightly because we had employed a new data asset that we got to a point where we could sell it. So that whole cost was coming through in Q2. I do expect margins to moderate I guess more in line with what you have seen historically, and the big caveat obviously would be the fourth quarter and how much revenue were able to generate? Because obviously, when we can generate that revenue as straight drop through, because of the type of business that it is.

Operator

And your next question comes from the line of Daniel Brennan with UBS.

Daniel Brennan -- UBS -- Analyst

On the burn rate, Mike, I'm just wondering, obviously COVID severe disruption this year and as you guys climb out of it. I'm just wondering, as you kind of look beyond this year. Can you just remind us that like, kind of a mix of your business, that's in the backlog today? Is there a way to characterize how you think about that burn rate trending beyond this year? To start here and reflect on the past I'm just wondering for like our modeling purpose?

Mike Bonello -- Executive Vice President and Chief Financial Officer

We haven't really provided any guidance on those out years, but our expectation and hope was that throwing the pandemic out that we would start to see a flattening of the burn rate and a slight uptick toward the back half of this year and out into 2021, for instance. I don't expect that it'll ever get back to those burn rates that you saw maybe with the end of '17 in the beginning of '18, because if you recall. We did have a pretty large study that was infectious disease that ran pretty quickly.

So, really, it will depend on mix, but my hope is that in the back half of this year, we start to see a trend up, obviously, from where we working Q2. I think it'll be right around or maybe just slightly less than what you're going in Q1, and we can see a slight uptick. Hopefully, we're in kind of that that 12% to 12.5% burn rate range. And obviously, as Colin indicated earlier, if we continue to see some strong growth in strategic solutions that burn rate will start to increase. Because obviously, we only have 12 months of revenue in, backlog in the system. So we're burning that pretty quickly. So as that continues to grow, that will help my burn rate.

Daniel Brennan -- UBS -- Analyst

And then, as we look out toward next year and obviously not going to give numbers on this, but I'm just wondering, Colin mentioned kind of the hiring that you guys have done, and next year should be, I think a nice recovery for yourself and the CROs and your peers. But is there a sense as we look out how much more hiring might be done or kind of the call to action taken this year, kind of how that normalizes out? As we get to a stronger level of revenues, any way again, without giving specific numbers kind of thing qualitatively, maybe about your ability to generate incremental margins on that versus investing in the business?

Colin Shannon -- President and Chief Executive Officer

I mean, Jack [Phonetic], we had no change to our backlog from the pandemic. And I mean, that was actually the major reason why we didn't cut people salaries or follow staff or let people go because we needed our people. And that's been I went over well in the industry, and it's allowed us to be able to go ahead without hiding plans. We are not -- we make the positions, hit with the right time by our people. We've always said that our most important asset, we show that, we put our money where our mouth is.

And we followed through on that and it's allowed us to continue to grow. And so, it means that all of the new work that we're winning, we need to add people and we're able to attract them. So we feel nicely positioned as we're picking up new work that we're able to hire appropriately and get the work completed. We've mentioned earlier on that all the studies that we want are in start-ups, so we do have a bonus of what is getting done and whatever we're walking through. So, there's lots of activity. We are poised for the foreseeable future. And so, we feel very good about industry dynamics and where we're positioned.

Mike Bonello -- Executive Vice President and Chief Financial Officer

And Dan, I would say that we're probably still targeting that same kind of gross margin growth that we have talked about in the past. So kind of in that 50 basis point range, and that's what we would be looking at, trying to push through the organization as we move forward.

Daniel Brennan -- UBS -- Analyst

If I can see one final one just and I'm not familiar with it, and I probably should be, but your exposure in vaccines or your capabilities there. Anything that highlight, I know are you going to get back to Eric in terms of the mix from COVID, I'm just want some stuff, how well position they are, capabilities? How would you characterize your vaccine capability?

Colin Shannon -- President and Chief Executive Officer

We have obviously a strong infectious disease franchise, but I mean we don't have like a central lab where a lot of our clients were able to get work done there. I mean, we've just got bioanalytical labs, and that's pretty much for our patients and their dependents in getting access to patients and all of the samples that get to that. So, I think that for us, we are just using our expertise to actually run trials and using our mobile health platform and using an innovative approach.

But fortunately, we have a good amount of people in the organization that has the infectious disease knowledge and can help or be able to move on to the COVID-19 work. And certainly, it's not something what we said is, one of our, I would say, differentiation factors, but we're certainly help to be strong in infectious disease and we've done obviously a lot of work over the years in that area.

Operator

[Operator Instructions] And your next question comes from the line of Stephen Baxter with Wolfe Research.

Stephen Baxter -- Wolfe Research -- Analyst

Hi. Thanks for the question. So it's good to see the bookings come through in the second quarter. I wanted to ask about your expectations for bookings in the back half of the year. That's kind of the basis for the question is, if I look at the first half, either on the gross or net line, slowed down a little bit versus either half of last year. So as you move into the second half of this year, are you expecting to return to bookings growth? And what needs to happen for that to occur? Thank you.

Colin Shannon -- President and Chief Executive Officer

I'd mentioned earlier on that we're still seeing like very good RFP flow and that's obviously our lead indicator for the work this out there. So, we are seeing strength in that. And it's obviously hard to predict what proportion we're going to win, but we're feeling very optimistic that we're in a good position to continue some very good bookings.

Operator

And your next question comes from the line of Jack Bean with Nephron Research.

Jack Bean -- Nephron Research -- Analyst

Thanks. Good morning, guys. Couple of follow-ups. First, based -- Mike on the disclosures on the midsized pharma, it seems like a lot of the pressure in the quarter was concentrated there by my math. It was down -- revenue is down 30% year-over-year or somewhere in that ballpark. I was just wondering, if you talked about that customer class? I don't know if it's something definitional in the way you're reporting it, but talk about what you're seeing there.

Colin Shannon -- President and Chief Executive Officer

Yes, I think just to make sure we're grounded, year-over-year, revenue was down roughly 4%.

Jack Bean -- Nephron Research -- Analyst

Okay, I added going from 11% of sales to 8%. So maybe double check that. The second question, I just want to follow up on is within clinical research overall. Is it possible to call out the relative growth rates between strategic solutions and product registration? And, as you look at the guidance in the second half of the year just the relative shape of the curve you're assuming for those.

Mike Bonello -- Executive Vice President and Chief Financial Officer

Yes, we can't do that, Jack, as that's part of just the one clinical research segment and unfortunately we don't break that out separately. So, I think, we commented or Collin commented earlier on. What we're seeing in the strategic solutions and that we're starting to see that business pick up. And obviously, we've talked about in the past how kind of the core CRO business have been growing faster than that strategic solutions business. So, I wouldn't say that strategic solution is going to be growing as fast, but it is picking up in the second half of the year.

Operator

And there are no further audio questions. At this time, we will turn the call back over to the Colin Shannon, CEO for closing remarks.

Colin Shannon -- President and 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 and thank you.

Operator

[Operator Closing Remarks]

Duration: 54 minutes

Call participants:

Chris Gaenzle -- Executive Vice President, Chief Administrative Officer and General Counsel

Colin Shannon -- President and Chief Executive Officer

Mike Bonello -- Executive Vice President and Chief Financial Officer

Sandy Draper -- Wedbush Securities -- Analyst

Patrick Donnelly -- Citi -- Analyst

Dave Windley -- Jefferies -- Analyst

Robert Jones -- Goldman Sachs -- Analyst

Juan Avendano -- Bank of America -- Analyst

John Kreger -- William Blair -- Analyst

Eric Coldwell -- Baird -- Analyst

Daniel Brennan -- UBS -- Analyst

Stephen Baxter -- Wolfe Research -- Analyst

Jack Bean -- Nephron Research -- Analyst

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