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PRA Health Sciences Inc (NASDAQ:PRAH)
Q3 2020 Earnings Call
Nov 5, 2020, 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 Third Quarter 2020 Earnings Release Conference Call. [Operator Instructions]

I would now like to turn the conference over to your host, Mr. Chris Gaenzle, Executive Vice President and General Counsel. Please go ahead.

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

Good morning, and thank you for joining us for the PRA Health Sciences Third 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 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 portions 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 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 in 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 would now like to turn the call over to our CEO, Colin Shannon.

Colin Shannon -- President, Chief Executive Officer

Thank you, Chris. Good morning, and thank you for joining us this morning to discuss our third quarter financial results. Given the continued pressure from the COVID-19 pandemic and the difficult circumstances in the world today, I am very pleased with our third quarter financial results. We reported revenue and earnings that were significantly stronger than the guidance we provided in August. Working very closely with our clients and our sites, we were able to move our studies forward and deliver revenues of $796 million and adjusted net income per diluted share of $1.30. I am very appreciative of the efforts and the focus of all of our employees, and I would like to thank them for their hard work. Last quarter, we estimated that approximately 30% of our studies were either on full or partial hold. That number declined to approximately 5% by the end of the third quarter. We have been fortunate to be able to utilize our mobile health platform, and that has allowed us to shift work to remote monitoring on a more structural trial basis where possible, improving our ability to keep our client studies moving forward.

We continued to see an increase in the number of studies that are integrating mobile health components with approximately 40 studies currently using our platform. We believe we are well positioned as the clinical research paradigm continues to shift to a more flexible delivery model. We continue to see access to sites improved during the third quarter. By the end of the quarter, less than 40% of sites were restricted in some form. While the improvement from the second quarter to the third quarter is encouraging, we are aware that things can change very quickly, and we continue to work with our clients to ensure that we are well positioned to address any changes that might arise. New business activity continues to be strong, and I'm pleased to report another quarter of record authorizations on both a gross and net basis. We reported $738 million of net new business awards, excluding reimbursement revenue, an increase of approximately 10% versus the third quarter of 2019 and increase of approximately 5% on a sequential basis and representing a net book-to-bill of 1.28 for the quarter.

Including reimbursement revenue, we reported net new business awards of $986 million or a book-to-bill of 1.35. We continue to see strength across the entire Clinical Research segment, including our Strategic Solutions business and our new authorizations are diversified across a number of different therapeutic areas. Consistent with the second quarter, our third quarter new authorizations included a slightly higher concentration of infectious disease studies, which was obviously influenced by the COVID-19 pandemic. For the third quarter, COVID-19 studies represented approximately 5% of total net new authorizations. In addition and in consistent with prior quarters, we did not experience any material COVID-19-related cancellations during the quarter. The client mix of our net new business has been broadly in line with previous quarters with approximately 60% of our net new business this quarter coming from top 15 pharma and the remainder coming from midsized pharma and biotech.

The addition of our third quarter net new business awards, excluding reimbursement revenue, resulted in an increase in our backlog of 11% year-over-year and 4% on a sequential basis, with backlog finishing at approximately $5.1 billion at end of September. Our sales funnel continues to be strong and RFP volumes remained high this quarter. RFPs have been diversified with respect to therapeutic area and continue to include studies to combat the COVID-19 pandemic. With the level of RFP activity we have seen through the third quarter of 2020 and we are seeing so far this quarter, we feel the industry outlook remains very solid. We continue to see slightly slower decision-making on the part of our clients, and we continue to have a high level of pending decisions at the end of the quarter. Our client base continues to be well diversified, with our top five clients representing approximately 39% of revenue, with no client representing more than 10% of our revenue during the quarter. Our Data Solutions segment continues to perform in line with our expectations. However, we did see some impact from the pandemic during the quarter.

Although the Data Solutions segment is less exposed to the impact of the pandemic due to the high proportion of recurring license revenue, we did see some disruption due to the reprioritization of discretionary spend by a couple of our customers. We are monitoring this situation closely and working closely with our clients to ensure they optimize their discretionary spend in the fourth quarter. We have updated our expectations for the remainder of 2020 accordingly. Moving on to our 2020 guidance. Although there remains uncertainty around the impact of the pandemic on our financial results for the remainder of the year, we anticipate full year revenue between $3.12 billion and $3.15 billion and expect adjusted earnings per diluted share between $4.61 and $4.71. Mike will provide some additional details about our 2020 guidance later in the call. In closing, I would like to thank again our entire staff and our clients for their continued commitment to our company during these challenging times.

We are also proud of the industry awards and recognition that we received during the quarter, such as in the PharmaTimes Clinical Researcher of the Year 2020 Awards, where we achieved top places in many categories culminating in the Clinical Research Company of the Year award. This recognition is a direct result of the dedication of our staff and the delivery of top-quality services to our clients. This is an outstanding achievement in these tough times.

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

Mike Bonello -- Executive Vice President And Chief Financial Officer

Thank you, Colin, and good morning, everyone. For the third quarter of 2020, our consolidated revenue increased 2% at actual foreign exchange rates and 1% on a constant currency basis. As Colin stated previously, we reported revenue of $796 million for the third quarter of 2020 compared to $781 million for the third quarter of 2019. This increase in revenue benefited from an increase in billable hours, which was driven by strength across our Clinical Research segment as well as by a favorable impact of $5.4 million from foreign currency exchange rate fluctuations. The increase I just noted was offset by a decrease in the reimbursable portion of our revenue, which continues to be impacted by the disruption created by the COVID-19 pandemic. For the third quarter, the Clinical Research segment reported revenue of $732 million, while the Data Solutions segment reported revenue of $64 million, an increase of 2% and 4%, respectively. During the quarter, we derived 56% of our service revenue from large pharmaceutical companies, 9% from small to midsized pharmaceutical companies, 17% from large biotechnology companies and 18% from all other biotechnology companies.

Consistent with prior quarters, these concentration metrics exclude our Data Solutions segment and reimbursable revenue and are in line with what we have historically reported. Total direct costs for the quarter were $412.1 million compared to $389.3 million in the third quarter of 2019. The increase in direct cost continues to be driven by increased labor costs in our Clinical Research segment, as we continue to add staff to support current and future business needs and increased data cost in our Data Solutions segment has continued to add data assets to expand our offering and as we continue to see increases in renewal rates on our data contracts. A $1.3 million unfavorable impact from fluctuations in foreign currency exchange rates also contributed to the increase in direct cost this quarter. Direct costs were 51.7% of revenue for the third quarter of 2020 compared to 49.9% in the third quarter of 2019. The increase in direct cost as a percentage of revenue continues to be driven by the impact of the COVID-19 pandemic that it's having on our business.

Selling, general and administrative expenses were $115 million or 14.5% of revenue for the third quarter of 2020 compared to 12.2% for the third quarter of 2019. As we have discussed in prior quarters, the increase in SG&A expense as a percentage of revenue is due to an increase in salary and related benefits, including stock-based compensation expense due to increased headcount required to support the growth of the business and additional infrastructure added prior to the COVID-19 pandemic, having an 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 3.6% to $84.1 million in the third quarter of 2020. Adjusted net income per diluted share decreased 1.5% to $1.30 per share in the third quarter of 2020 compared to $1.32 per share in the third quarter of 2019.

As Colin noted earlier, these amounts were impacted by the COVID-19 pandemic and were significantly better than the third quarter guidance we provided in August. Cash provided by operations was $180.6 million in the third quarter of 2020 compared to $70.8 million for the third quarter of 2019. The increase in operating cash flow was primarily due to improvements in our working capital, which was driven by a decrease in our days sales outstanding when compared to the prior year. Capital expenditures for the third quarter of 2020 were $15.2 million compared to $20.3 million in the third quarter of 2019. Our capital expenditures continue to reflect the investments we are making in information technology, and in particular, our mobile health platform and the continued expansion of our infrastructure, which we committed to prior to the pandemic. Our cash balance at the end of the quarter was $336.2 million, of which $56.4 million was held by our foreign subsidiaries. We continue to manage our cash position in a financially prudent manner, and we believe that our current cash position, along with the borrowing capacity we have under our credit facility provide us with more than adequate liquidity to face the challenging economic conditions we are currently dealing with.

Net debt outstanding, defined as total debt less cash and cash equivalents at September 30, 2020, was $949 million compared to $1.2 billion at September 30, 2019. Regarding our currency concentration and consistent with what we have disclosed in prior quarters, excluding reimbursement revenue and expenses, 80% of our revenue and 62% of our expenses were denominated in U.S. dollars, while our euro exposure was naturally hedged. As we have indicated in the past, we continue to 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, the company is updating our 2020 revenue guidance to between $3.12 billion and $3.15 billion, our GAAP net income per diluted share to between $3.23 and $3.35 and our adjusted net income per diluted share to between $4.61 and $4.71. Our current guidance reflects our third quarter outperformance and the increase we are expecting in our fourth quarter results.

Although 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, the length and scope of travel restrictions and business closures could impact our financial results for the remainder of 2020. These uncertainties could impact the assumptions used in our guidance if they result in business interruptions, such as an unexpected closure of our Phase I clinic, the slowdown in recruitment activities or limited access to sites worldwide. However, we've used our best efforts to estimate the impact 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 income 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've estimated, or if there are changes in interpretation, analysis or if additional guidance is issued by regulatory agencies. It should be noted that our guidance continues to assume a euro rate of 1.15 and a GBP rate of 1.30. All other foreign currency exchange rates are as of September 30, 2020.

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

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from Eric Coldwell with Baird.

Eric Coldwell -- Baird -- Analyst

Thanks very much. Good morning. Just a couple of quick ones here. On the COVID-19 related awards in the quarter, I think you said 5%. I just wanted to clarify, is that on the old 605 service level basis? Or is that on the 606 total bookings basis, please?

Colin Shannon -- President, Chief Executive Officer

It's a 605 basis. And I'd also just like to add there, that we are working on our Strategic Solutions side, doing a lot of very important work with big pharma on COVID. But it's very hard to really break out exactly what would have been new business there because it's really sort of a volume area. And so we would specifically not broken that out. But I just wanted to highlight that we're still doing work with our big pharma clients on that very important activity.

Eric Coldwell -- Baird -- Analyst

It's a good reminder. Thank you. One of your peers and probably several others have had some cancels taken in the quarter out of backlog related to pass-throughs. I'm curious if you've had that similar experience either this quarter or remind us about last quarter as you look at the world in the lower travel, lower pass-throughs in general, have you had to take any adjustments out of backlog for that?

Colin Shannon -- President, Chief Executive Officer

Eric, at this point, we have not. We continue to analyze that and look at each study individually and how we think pass-throughs are going to come through in the future. But at this point, we haven't had to take any material writedowns for pass-through coming out of backlog.

Eric Coldwell -- Baird -- Analyst

Great. Last one for me. Data solutions. You've mentioned some impact from COVID a couple of reprioritizations on discretionary spend. You said you factored that into your guidance. I'm curious if you could help us with your thinking for 4Q and Data Solutions from both revenue and gross profit standpoint, if possible?

Colin Shannon -- President, Chief Executive Officer

Well, I mean, overall, we are faced with the uncertainty, as you know, Q4 is the big quarter, and this is where a lot of the expenditure is discretionary using our budgets at the end of the year further and really getting the plans and put in place for next year. So we wanted to be a little bit more cautious on the amount of forecast that we wanted to put in for 2020 guidance. I'm not sure if we released that number, Mike, or whether you want to give more?

Mike Bonello -- Executive Vice President And Chief Financial Officer

Yes, I don't -- we haven't given a specific number that we've looked forward. But I think from a revenue perspective, Eric, my expectation would be that it would be roughly flat with where it was last year. And obviously, with the increase in data costs that we've seen over the course of the year, I do expect margins to be slightly lower than they were in the fourth quarter of last year.

Eric Coldwell -- Baird -- Analyst

Perfect. Thanks guys. Appreciate it.

Operator

Our next question comes from Dave Windley with Jefferies.

Dave Windley -- Jefferies. -- Analyst

Hi, good morning. I apologize, I jumped on late. I hope you didn't cover this in too much detail, but I'm curious about how you foresee your margin progression. As we've discussed in prior quarters, I think you have not only kept a lot of your cost structure in place, but also continue to hire to meet demand. And your revenue, as we see in this quarter, revenue is actually able to grow year-over-year, but EBITDA is down year-over-year. And so just thinking about if there's an opportunity for your EBITDA margin to kind of catch-up to the trend line that we would have expected outside of COVID over the next, I don't know, 5, 6, seven quarters?

Colin Shannon -- President, Chief Executive Officer

Well, there's -- I mean, there's a couple of things that we have mentioned, Dave. One is the EDS side. As you know, during the pandemic that we've had to curtail the operations to an extent for social distancing. So the throughput isn't anywhere near what we would normally achieve. So that's obviously going to be a hangover until we get some level of normality back. So we're still operating at well below 100% capacity. Here we are full, but it's obviously subject to as well any COVID outbreaks, and we've had a couple, and we've had to be quite cautious when we're thinking through Q4 on our Phase I facility. The other part is, obviously, while we're doing our best to manage the revenue recognition piece, our utilization is still not where we'd like it to be in. There's a little bit of catch-up there. So we expect to see that improving as we get back to more normality. So we're hoping that by mid-next year, we start to plan. But at this point, we haven't really looked at our planning for next year for 2021. We're just in a nice position moving into 2021, and we'll give a lot more clarity when we start -- really start thinking through how we're going to do that.

Dave Windley -- Jefferies. -- Analyst

Very good. And then as a follow-up on -- to the revenue line and thinking about your backlog burn, that has recovered really nicely in the third quarter, just obviously impacted for everybody in the second quarter and then kind of climbing out of that hole. You've almost really gotten back to kind of where you exited 2019. Fourth quarter implies that, that pulls back a little bit. I wondered if you see some specific studies or start dates or things like that, that are influencing that number? Or is that more of a cautionary position as you see these regional outbreaks of infection and thinking about the possibility that sites might have to pull back or shutdown?

Mike Bonello -- Executive Vice President And Chief Financial Officer

Yes, Dave, I think -- we have certainly been conservative in how we think the pandemic is going to impact Q4, specifically, as Colin spoke about the impact it could have in our Phase I business. I think there's a couple of things there. From a pass-through perspective, I'm assuming, given everything that's going on and the fact that we're heading into a holiday period that my pass-throughs are going to be relatively flat with where they were in Q3. And also, as I noted in Eric's question before, with what we're seeing and how conservative we've been with Data Solutions, we have -- we're not showing any growth there. So I think based on at least my calculations, I think, will be flat with Q3 or maybe up 0.1 or maybe slightly more than that. So I don't show the burn rate deteriorating from where it was in Q3.

Dave Windley -- Jefferies. -- Analyst

Okay, thank you.

Operator

Our next question comes from Robert Jones with Goldman Sachs.

Robert Jones -- Goldman Sachs -- Analyst

Great. Thanks for the question. I guess just looking at bookings, it looks like pharma bookings were up pretty meaningfully year-over-year, but biotech, obviously, was not. It might be definitional about what's in what bucket. But just curious if you could maybe touch on what you're seeing in those two cohorts? I know there's been a clear focus to pivot to biotech. So I just want to understand the trends you're seeing within the pharma client base versus the biotech client base?

Mike Bonello -- Executive Vice President And Chief Financial Officer

I think the trends have been the same. I think some of what you're seeing, particularly this quarter is -- and I think we referenced last quarter as we are starting to see some strength in our Strategic Solutions business, which I think Colin referred to in his prepared remarks. So obviously, that business is pharma-based. So I think you're seeing a little bit of a shift up in pharma that's being driven by our Strategic Solutions business.

Robert Jones -- Goldman Sachs -- Analyst

Got it. No, that's helpful. And then I guess maybe just looking at COVID, I know you saw a step-up in the percent of bookings that were coming from COVID. I'm just curious, as you sit here today, any change in thoughts as far as how you're viewing the COVID opportunity as you look out into next year?

Colin Shannon -- President, Chief Executive Officer

You know, we are seeing that as we're learning how to get through the pandemic and manage our sites. We do see pathways that we're able to keep on top of the work. I mean, it's obviously not keeping back to Phase I because, obviously, one of the impacts there is getting volunteers into the studies, particularly in the Netherlands where they've closed the borders, and we get a lot of volunteers coming from the surrounding countries that are not allowed now to enter. So that can impact the workflow. And so just really making sure that we can keep the sites active and support them as best we can and work with our clients to make sure they're getting the information and that.

When we do get access to sites that we're able to quickly get the data and as expeditiously as possible. So as we're doing our planning for next year, we're going to know a lot more of the effect as we start to approach and go through this when the cold weather piece. What we're seeing, obviously, the close down in Europe, cases reaching over 100,000 a day in the U.S. is alarming. And I think it's certainly not going to go away quickly. We do see light at the end of the tunnel where the vaccines are going to obviously come strong at the beginning of the year. And maybe by midyear, we've got a better visibility into what we can do. But I think we're handling things pretty strongly, and we're certainly seeing a lot of work still flowing through.

Robert Jones -- Goldman Sachs -- Analyst

Okay. Great. Thank you.

Operator

Your next question comes from the line of Donald Hooker with KeyBanc.

Donald Hooker -- KeyBanc -- Analyst

Great. So I just wanted to jump back on the Data Solutions segment. Thank you. I know you guys have put a lot of money into that. Just stepping back big picture, how do you -- you had that for a few years with Symphony Health, the acquisition there and a couple of other acquisitions. What do you think your market share is in the big picture there in terms of what you're trying to penetrate with that business to help us sort of think about the upside potential. So is there like a TAM that you're focused on that you could share with us an updated view there?

Colin Shannon -- President, Chief Executive Officer

We still feel that we have a very small market share and lots of opportunity to grow, which is, I think, gives us that opportunity to to grow beyond the industry standards. And -- a lot of time moving in through rebuilding. And in fact, [Indecipherable] we've just added a couple of more senior people to the team in the last quarter. Just we continue to strengthening what we're doing. Obviously, getting more face-to-face time with clients will be more beneficial. The Zoom conferencing can only work for so long. And especially when you're -- the clients are not sure of what's happening next year, and they don't know what data they need, et cetera. And it's quite difficult to go through that. But I do see there's an awful lot of opportunity there.

And we're still using the data in other parts of our business, which is very important in the way we conduct and run the business using evidence-based support for a lot of our decision-making. So lots of things that we initially strategically acquired for are still intact, and we continue to monitor that carefully while looking to build that business more strongly in the future.

Donald Hooker -- KeyBanc -- Analyst

Thank you for that. And then maybe one other question. You guys did fairly good job presenting information here, but maybe a little bit deeper into the weeds. In prior quarters, you had talked about some opportunities in the government space. And I think some of the -- my sense was that was fairly material and you had sort of impact -- it impacted your gross margin and your margins. Actually, you put some money into that area. I understand that stuff was paused. With the COVID-19 outbreak potentially winding down over the next 12 months, hopefully, are we going to see that come back? And can you maybe scope that for us?

Colin Shannon -- President, Chief Executive Officer

Well, I mean, it's going to be difficult to scope this now. But yes, it did actually come back, and we did actually do a small press release just to announced that the investment paid off, and we did actually get a first award. It's difficult to determine exactly how much it's going to be because it's a bucket of dollars. The most important thing that we're really flagging is that our investment paid off and that we're now moving forward, and we've now actually achieved approvals, levels that we wanted, and we continue to look to support the government in endeavors to do the Clinical Research. So we feel nicely positioned now to move that one forward.

Donald Hooker -- KeyBanc -- Analyst

Okay, thank you.

Operator

Your next question comes from Patrick Danely with Citi.

Jessie -- Citi -- Analyst

Thanks. This is Jessie on for Patrick. You mentioned pending decisions were still high in the quarter. So I was just wondering if you could give us some more color on how RFPs for decision-making has trended for non-COVID work. And if some of those decisions were -- that were delayed in the first half of 2020, were partially responsible for the strong bookings in 3Q? And then as that relates to 4Q, have you seen any additional delays so far in the first few weeks of the quarter? Or is it possible for some of those delayed decisions to roll into 4Q? And maybe we see another sequential uptick in 4Q bookings?

Mike Bonello -- Executive Vice President And Chief Financial Officer

I mean, I think we're seeing, I think we commented about this on the last call and part of the reason that we did is, I think they're just rolling through as they normally would roll through. I think we are seeing that there's still a little bit of a delay on the client side on making a decision. But the levels that are coming out of the quarter with respect to those pending decisions are in line with where they were in Q2 coming out of that quarter. So I don't think we anticipate any big bolus or cause of the numbers that you've seen. I think it's been normal business. Again, we commented on that last quarter because we wanted to show the strength in our Q2 bookings that it wasn't just all everything dropping through from Q1. So we're seeing the normal amount of activity. RFP volume has been high, and it's just taking a little bit longer for our clients to make decisions on moving forward on some things.

Jessie -- Citi -- Analyst

Okay. Got it. And then just one on cash flow, it looks like free cash flow was really strong in the quarter. So just wondering if you saw any pull-forward dynamics as it relates to receivables? Or if you can just kind of speak to any work you've been doing around working capital? And then just how we should expect that to trend into 4Q in 2021?

Mike Bonello -- Executive Vice President And Chief Financial Officer

Yes. No, I think our DSO did beat our internal target by it was only by two days. So there was nothing specific that came through where we had a big bolus of payments. I think when you look at the increase versus the prior year, I think 2019, I believe our Q3 DSO was roughly 27 days. And we did have a couple of client issues there with new systems that implemented. So my expectation going forward is that we would be somewhere in that kind of 15- to 20-day range by the end of the year. Remember, Q4 is typically a very high cash collection quarter as clients tend to spend their budget and make sure they're making payments. So I don't anticipate anything out of the ordinary. And I would expect that our DSO should be pretty good at the end of the year.

Jessie -- Citi -- Analyst

Okay. Great. Thanks.

Operator

Our next question comes from Jack Meehan with Nephron Research.

Jack Meehan -- Nephron Research -- Analyst

Thank you. Good morning. Colin, you've highlighted Phase I a couple of times so far. I was wondering if you could help quantify for us how much of a drag was that in the quarter? And just any commentary on how that recovered versus 2Q? And then if you look at your sites around the world, just some color around where there may or may not be some exposure for shutdowns?

Mike Bonello -- Executive Vice President And Chief Financial Officer

Yes, Jack, we don't -- EDS is part of the Clinical Research segment, so we haven't broken that out separately. But I will tell you, year-over-year from a revenue perspective, that business was down. It was obviously down as much as it was in Q2. That's why our EPS was significantly higher, but it was down year-over-year. And as Colin indicated, that's really due to the fact that we're having to social distance within the clinic. So our capacity is getting slightly constrained there. But we don't break that out separately, unfortunately.

Jack Meehan -- Nephron Research -- Analyst

Okay. And just a follow-up -- with the cash flow in the quarter and it seems like the business back on its feet better after the pandemic now and leverage is below 2 times again. What's the appetite for doing more deals? Do you think -- is there any caution in the current environment from doing something if you wanted to do it?

Colin Shannon -- President, Chief Executive Officer

Actually, we are always looking for opportunities to take advantage of any anything that can help us grow our business. One of the areas I'd like to move into is a real-world evidence late phase type of work, but it's finding an appropriate asset is always a difficult part. But that would certainly be very helpful for us, particularly, we have all of the data resources that we could utilize and help grow that business even faster. It's an area that we continue to look for. Other than that, we do get visibility to a lot of things. But it's been tough off this year, just trying to keep focused on what we're doing and making sure we keep on top of the workflow and keeping supporting our clients. So yes, you're right, maybe next year, when we get to catch a breath, we can start to look at the -- our strategy about -- is there any other opportunities out there moving forward with particularly in this changing environment.

Jack Meehan -- Nephron Research -- Analyst

Thank you Colin.

Operator

Your next question comes from Dan Brennan with UBS.

Dan Brennan -- UBS -- Analyst

Great. Thanks. Thanks for taking the questions. Maybe just wondering, if you look at the third quarter in totality from where you originally set your guidance, and you mentioned you did come in above that. How would you characterize the areas that you kind of did better than what you expected? And kind of why did they come in ahead of original player?

Mike Bonello -- Executive Vice President And Chief Financial Officer

We -- I think I said in my prepared notes -- we did pretty well across the business in terms of performance. I think when we were heading into Q3 when we issued our guidance, there was still some uncertainty on site accessibility and ability to enroll patients and stuff like that. And as Colin indicated, through the use of our mobile health platform and some other things that we're doing internally, we've been able to work with our clients to move the studies forward. As a result, it obviously generated more revenue. Most of the improvement, I think -- you'll see it through the analysis was revenue generated. So I think it was some opening up in the world on -- from the impact of the COVID-19 pandemic helped us in the third quarter. And I think we said in our call, we were cautious about our Q3 guidance because there was a lot of uncertainty there.

Colin Shannon -- President, Chief Executive Officer

And we did mention as well, the -- our Strategic Solutions division has been stronger this year because the last couple of years has been quite tough as at least moved a lot of the labor force to sort of lower cost countries, and we saw that being slightly diverse again in this coming year. So we saw that some of the vacancies and they've been hiring a lot and placing them within the Strategic Solutions division. So that's been a help as well.

Dan Brennan -- UBS -- Analyst

Great. And then, I mean, if you pull out your crystal ball, like Mike, I think you may have mentioned how you possibly think about things evolving in 2021, but like what's a few of your peers have kind of pushed up the timing for which they expect many things to get back to normal, and this is a very fluid situation. What would be your best planning today if you thought like, is it Q2, Q3, Q4? Or is it impossible to say when you think as you guys look ahead to '21, when you think you get back to a normal level of site access and patient enrollment?

Colin Shannon -- President, Chief Executive Officer

You know, when we are doing our planning, we are going to be obviously looking at the the ramp-up. And we've not even really started that process. That will be happening in the next number of weeks. And I think we've tried to give a pretty good understanding of how we saw things. Even -- we did give you a Q3 number with no deals there. We -- our Q3 and Q4 number. I think we've been pretty good at sort of give you an indication of what we thought was going on. At this point, we're just not ready yet for 2021. But looking at -- obviously, I feel we're well positioned. We have a solid backlog with a well-diversified portfolio in therapeutic areas that are strong. And we've got great client mix. So we've got all of the major things I'm looking for to be intact. And then we're just going to put for the flow of how the work is going to happen. I mean, I think it will be -- there's no reason why it can't be a lot stronger than 2020. So -- but it's hard to say because we're going to a period where we just don't know what's going to happen with this cold weather and what it's going to do with the virus. And I think I just -- I want to just proceed with a little bit of caution there.

Dan Brennan -- UBS -- Analyst

Great. Thank you Colin. Thanks Mike.

Operator

Our next question comes from Sandy Draper with Trust Securities.

Sandy Draper -- Trust Securities -- Analyst

Thanks very much. Maybe a question on -- I mean, there's been a lot of folks on either site access, patient recruitment, Colin, you mentioned the percentage of trials that are being impacted. What I think about it is site access versus patient recruitment enrollment is one of those notably more important to the recovery than the other?

Colin Shannon -- President, Chief Executive Officer

Yes. Enrollment is very, very important. And of course, that means that patients have got to get to see the doctors. So that's -- so it's back to the circular argument. You need to site access to the patients to get in and get seen and get recruited onto a study. So we've got to sort of Unjam the whole flow and allow the patients to be seen by the metrics that are then placing them within a study. We need access to obviously collected data in a timely fashion to make sure that we're observing everything under the protocol, capturing all the data in a timely manner, making sure that all of the adverse events, serious adverse events are reported on a timely basis, et cetera. So there's a lot of work that gets done that we've got to make sure that it gets maintained. And we don't want to sort of get behind in any of the data collection pieces. So we do have data at sites and getting access and which is why the minute we're allowed to get on the site. We've even doubled up on our resources to ensure that we can take advantage of being open to us and allow us to to help the site base getting it done as quickly and expeditiously as we can.

Sandy Draper -- Trust Securities -- Analyst

Great. That's helpful. And then maybe a related follow-up to probably to Mike. When you think about the -- you guys have done a pretty aggressive job of going with remote monitoring, using your mobile technologies. Assuming at some point, we get back to normal, but there's probably more use of that technology, more use monitoring, et cetera. Just can you walk me through sort of what you see the longer-term financial impacts. Is there any notable change to the revenue that maybe the revenue is lower because there's fewer pass-throughs or other things, but there's a better margin potential? Just what are the longer-term dynamics if you -- we don't go back to the old way, but we start to see more remote monitoring virtual trials. Thanks.

Colin Shannon -- President, Chief Executive Officer

You know, srategically, we've always thought that when we can change the paradigm and reduce the time to get a study done and just the cost impact that there will be more potential for more studies to get done because the ROIs change and more compounds will be developed. And moving into sort of more precision-based medicine or personalized medicine, whatever you want to call it. And we see that trending in the future. So we never see that there will be a reduction in the full of new work. We do think that the changes that we're seeing now will accelerate. And the studies will be willing to embrace using technologies to help expedite studies and get them done in a manner that's more cost-effective as well. So we do see this -- the pandemic has -- is allowing us to change that. Regarding our margin profile, I think it's too early to say because we've actually stretched it in a year where we're in a pandemic. And I think we'd need a little bit more time on that because a lot of the efforts we're making was on the back foot trying to just support and help our clients. So we didn't do it with a plan to -- this is what we're going to do to make margin. We did it to how do we help our clients get through the clinical trials.

Sandy Draper -- Trust Securities -- Analyst

Great. That's really helpful Collin. Thanks.

Operator

Our next question comes from John Kreger with William Blair.

John Kreger -- William Blair -- Analyst

Hi, thanks very much. For the COVID work you guys have won of late, can you remind us what's the sort of duration you're seeing on that business versus a typical non-COVID award?

Mike Bonello -- Executive Vice President And Chief Financial Officer

Yes, John, obviously -- I don't have that number off the top of my head, but obviously, we are seeing a slightly shorter duration. I can certainly get that information to get it back to you. But I don't have the exact duration of that profile right in front of me.

John Kreger -- William Blair -- Analyst

Okay. Got it. Thanks. And then I realize we're early in the planning for '21, but any kind of notable partnership renewals kind of coming up in the next 12 months that we should be thinking about?

Mike Bonello -- Executive Vice President And Chief Financial Officer

I don't think -- John, as you said, it's very early. We've just kind of -- we've kicked off our process. We're sitting down with our BD teams. If there are significant renewals, we'll certainly be involved in that process. But at this point, I don't know that I can comment on that.

John Kreger -- William Blair -- Analyst

Great. Great. And then, Mike, maybe one more. I think in the EBITDA reconciliation, it looked like you guys had a pretty big adjustment of something on the order of $45 million. I think that was a benefit, although I realized it wasn't in the adjusted P&L, but assuming I saw that correctly, can you just maybe elaborate on what that was?

Mike Bonello -- Executive Vice President And Chief Financial Officer

Sure. Yes, that was actually -- it was a benefit, and it was actually the release of our contingent liability related to our -- the CI or the Care Innovations acquisition. If you recall, we had a large upfront payment and an earn-out attached to it. Obviously, given the change in market conditions, this was a 12-month earn-out and the market conditions obviously impacted that and as a result, we had to release that earn out liability.

John Kreger -- William Blair -- Analyst

Got it. Thank you.

Operator

Your next question comes from Erin Wright with Credit Suisse.

Erin Wright -- Credit Suisse -- Analyst

Okay. Thanks. On the COVID-related work, how much is vaccine-related work versus therapeutic work? And and do you think that there will be some sort of reprioritization of R&D efforts heading into next year when potentially there is a vaccine? Will we see that sort of reprioritization in R&D or cancellations associated with some of those Covid therapeutic efforts? Or do you view that as likely?

Colin Shannon -- President, Chief Executive Officer

The -- it's almost a pretty much given split between the vaccine and the therapeutics. We're just expanding some of the studies that we're doing in the vaccine work and adding new capability -- new capacity. We -- there is a plan in place for that. Obviously, it's been executing pretty well. And we're still working through, obviously, in some therapeutics, which is great. But it's not been a huge amount of work. I mean, it was 5% of our authorization. So we're seeing, obviously, a strong pipeline across the board. So I don't think there's anything that I see it's unusual that I wouldn't normally sort of view it as the ordinary course of business.

Erin Wright -- Credit Suisse -- Analyst

Okay. Great. Thank you.

Operator

[Operator Instructions] Your next question comes from the line of Juan Avendano with Bank of America.

Juan Avendano -- Bank of America -- Analyst

Hi, thanks for taking the question. If I heard correctly in the prepared remarks, you mentioned that there is some uncertainty in the Data Solutions as some of the spend there is discretionary. My understanding of this business, which could be mistaken was that this was a subscription-based business and having somewhat of a recurring in nature. So can you please help me understand this better? Maybe perhaps if you could share the percentage of the business that is driven by discretionary spend versus non-discretionary spend and how much of this business could be recurring in nature?

Mike Bonello -- Executive Vice President And Chief Financial Officer

Yes, sure, Juan. I don't have those percentages in front of me for the breakout. But as we've commented in previous quarters, we've said the majority of the business is subscription-based. That's why the pandemic would have less of an impact on that business as compared to the clinical side of our business. So it was not a significant amount that was -- had dropped out of the third quarter compared to where we had thought it would be. But we did have some challenges there because of some of the discretionary spend, as Colin referenced, come through, didn't happen.

So I mean, the commentary around that was really just to try to help guide you guys in the street to where we think Data Solutions is going to be from a revenue perspective because typical to what we've seen at least year-to-date, that business has grown. It is up, but we've commented in the past and where our expectations were and we wanted to just kind of give a broad-based comment so that people understand that we're not expecting to see a lot of growth there because of the impact that some of these discretionary spends having on the fourth quarter revenue that we were expecting.

Juan Avendano -- Bank of America -- Analyst

Okay, thank you. And it seems like data acquisition costs continue to grind higher and higher. I suppose that some of this is related to more competition for these data assets. But should -- how long should we expect this to happen? Or is this a new norm? And while you're at it, can you give us an update on your data assets, perhaps the number of data suppliers, data feeds and the total number of patient lives that are covered by your databases?

Colin Shannon -- President, Chief Executive Officer

Well, the patient lives, we cover -- like over 300 million in the U.S. So we actually have covering other parts of the world is a little bit more sparse. We do have some good data sources, but we are not anywhere near to what the scale we have in the U.S. We don't disclose our data cost there. As an ongoing discussions we have with our clients are normally multiyear agreements. But as you can imagine, everybody thinks of data is more valuable than it really can be or is. It's not until we aggregate it, and we can actually -- once we're processed, we identified and linked it all together, it becomes when we transform it from a broad data into information that becomes meaningful, but that raw data as a starting point.

And I think we're trying to sort of change our paradigm by working more with our data providers and say, what can we help them use our data with because we've got all the analytic tools and all the expertise. And there might be other ways that we can actually give a win-win relationship where can actually help them utilize their data in more appropriate manners within their company. So we've been, like I said, trying to sort of turn that on its head and try to get more understanding relationships with our partners.

Juan Avendano -- Bank of America -- Analyst

Thank you.

Operator

I'm showing no further questions at this time. I would now like to turn the conference back to Colin Shannon, CEO.

Colin Shannon -- President, 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: 52 minutes

Call participants:

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

Colin Shannon -- President, Chief Executive Officer

Mike Bonello -- Executive Vice President And Chief Financial Officer

Eric Coldwell -- Baird -- Analyst

Dave Windley -- Jefferies. -- Analyst

Robert Jones -- Goldman Sachs -- Analyst

Donald Hooker -- KeyBanc -- Analyst

Jessie -- Citi -- Analyst

Jack Meehan -- Nephron Research -- Analyst

Dan Brennan -- UBS -- Analyst

Sandy Draper -- Trust Securities -- Analyst

John Kreger -- William Blair -- Analyst

Erin Wright -- Credit Suisse -- Analyst

Juan Avendano -- Bank of America -- Analyst

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