10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

or

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             .

Commission file number: 001-36732

PRA Health Sciences, Inc.

(Exact name of registrant as specified in its charter)

Delaware	46-3640387
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

4130 ParkLake Avenue, Suite 400, Raleigh, NC 27612

(Address of principal executive offices) (Zip Code)

(919) 786-8200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer x	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.

Class	Number of Shares Outstanding
Common Stock $0.01 par value	60,165,102 shares outstanding as of July 24, 2015

PRA HEALTH SCIENCES, INC.

FORM 10-Q

FOR QUARTER PERIOD ENDED JUNE 30, 2015

TABLE OF CONTENTS

Item Number		Page
	PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Consolidated Condensed Balance Sheets as of June 30, 2015 and December 31, 2014	3
	Consolidated Condensed Statements of Operations for the three and six months ended June 30, 2015 and 2014	4
	Consolidated Condensed Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2015 and 2014	5
	Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2015 and 2014	6
	Notes to Consolidated Condensed Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	25
	PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	25
SIGNATURES		26
EXHIBIT INDEX		27

2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share amounts)

	June 30,			December 31,
	2015			2014
ASSETS
Current assets:
Cash and cash equivalents	$	61,148		$	85,192
Restricted cash	6,051			6,337
Accounts receivable and unbilled services, net	396,627			338,781
Other current assets	65,389			58,413
Total current assets	529,215			488,723
Fixed assets, net	76,250			72,933
Goodwill	1,033,772			1,033,999
Intangible assets, net	573,265			600,910
Other assets	39,111			42,012
Total assets	$	2,251,613		$	2,238,577
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	55,506		$	39,100
Accrued expenses and other current liabilities	132,879			131,135
Advance billings	297,671			296,121
Total current liabilities	486,056			466,356
Long-term debt, net	919,156			948,537
Other long-term liabilities	150,877			146,869
Total liabilities	1,556,089			1,561,762
Commitments and contingencies (Note 12)
Stockholders’ equity:
Common stock, $0.01 par value, 1,000,000,000 authorized shares at June 30, 2015 and December 31, 2014; 60,158,455 and 59,814,444 issued and outstanding at June 30, 2015 and December 31, 2014, respectively	602			598
Additional paid-in-capital	825,037			821,411
Accumulated other comprehensive loss	(84,032		)	(69,509		)
Accumulated deficit	(46,083		)	(75,685		)
Total stockholders’ equity	695,524			676,815
Total liabilities and stockholders’ equity	$	2,251,613		$	2,238,577

The accompanying notes are an integral part of the consolidated condensed financial statements.

3

PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Revenue:
Service revenue	$	336,518		$	311,422		$	668,486		$	622,774
Reimbursement revenue	56,330			46,123			112,940			89,511
Total revenue	392,848			357,545			781,426			712,285
Operating expenses:
Direct costs	219,877			213,378			438,838			428,529
Reimbursable out-of-pocket costs	56,330			46,123			112,940			89,511
Selling, general and administrative	58,905			56,010			119,740			116,849
Depreciation and amortization	19,220			24,598			38,455			49,236
Loss on disposal of fixed assets	195			—			195			—
Income from operations	38,321			17,436			71,258			28,160
Interest expense, net	(15,416		)	(20,818		)	(30,809		)	(42,584		)
Loss on modification of debt	—			—			—			(1,384		)
Foreign currency (losses) gains, net	(3,966		)	(5,387		)	5,100			(9,099		)
Other expense, net	(96		)	(116		)	(560		)	(175		)
Income (loss) before income taxes and equity in losses of unconsolidated joint ventures	18,843			(8,885		)	44,989			(25,082		)
Provision for (benefit from) income taxes	5,623			(5,186		)	13,645			(11,519		)
Income (loss) before equity in losses of unconsolidated joint ventures	13,220			(3,699		)	31,344			(13,563		)
Equity in losses of unconsolidated joint ventures, net of tax	(805		)	(357		)	(1,742		)	(534		)
Net income (loss)	$	12,415		$	(4,056	)	$	29,602		$	(14,097	)
Net income (loss) per share attributable to common stockholders:
Basic	$	0.21		$	(0.10	)	$	0.49		$	(0.35	)
Diluted	$	0.20		$	(0.10	)	$	0.47		$	(0.35	)
Weighted average common shares outstanding:
Basic	59,871			40,268			59,843			40,268
Diluted	62,951			40,268			62,864			40,268

The accompanying notes are an integral part of the consolidated condensed financial statements.

4

PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(in thousands)

	Three Months Ended June 30,					Six Months Ended June 30,
	2015		2014			2015			2014
Net income (loss)	$	12,415	$	(4,056	)	$	29,602		$	(14,097	)
Other comprehensive income (loss):
Foreign currency translation adjustments	30,233		14,386			(10,124		)	16,280
Unrealized gains (losses) on derivative instruments, net of income taxes of $ - , $3,204, $700 and $5,924	1,770		(5,003		)	(4,468		)	(9,250		)
Reclassification adjustments:
Losses on derivatives included in net income (loss), net of income taxes of $ -, $ -, $ - and $ -	52		—			69			—
Comprehensive income (loss)	$	44,470	$	5,327		$	15,079		$	(7,067	)

The accompanying notes are an integral part of the consolidated condensed financial statements.

5

PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

	Six Months Ended June 30,
	2015			2014
Cash flows from operating activities:
Net income (loss)	$	29,602		$	(14,097	)
Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	38,455			49,236
Amortization of debt issuance costs and discount	3,286			2,893
Stock-based compensation	2,020			1,760
Unrealized foreign currency (gains) losses	(8,079		)	5,808
Loss on modification of debt	—			1,384
Deferred income taxes	(2,395		)	(20,897		)
Other reconciling items	3,143			826
Changes in operating assets and liabilities:
Accounts receivable, unbilled services, and advance billings	(65,550		)	(50,547		)
Other operating assets and liabilities	29,475			20,374
Net cash provided by (used in) operating activities	29,957			(3,260		)
Cash flows from investing activities:
Purchase of fixed assets	(17,066		)	(11,876		)
Proceeds from RPS working capital settlement	—			15,000
Proceeds from CRI Lifetree working capital settlement	—			851
Investment in unconsolidated joint venture	(3,000		)	—
Acquisition of Value Health Solutions Inc.	(543		)	—
Payment of amounts held in escrow	—			(787		)
Net cash (used in) provided by investing activities	(20,609		)	3,188
Cash flows from financing activities:
Repayment of long-term debt	(30,000		)	(4,450		)
Borrowings on line of credit	15,000			45,000
Repayments on line of credit	(15,000		)	(55,000		)
Proceeds from stock option exercises	27			33
Payment of acquisition-related contingent consideration	(2,000		)	—
Payments for common stock issuance costs	(525		)	—
Net cash used in financing activities	(32,498		)	(14,417		)
Effects of foreign exchange changes on cash and cash equivalents	(894		)	(20		)
Change in cash and cash equivalents	(24,044		)	(14,509		)
Cash and cash equivalents, beginning of period	85,192			72,155
Cash and cash equivalents, end of period	$	61,148		$	57,646
Supplemental cash flow data
Non-cash investing activities:
Issuance of common stock for the acquisition of Value Health Solutions Inc.	$	1,582		$	—

The accompanying notes are an integral part of the consolidated condensed financial statements.

6

PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2015

(1) Basis of Presentation

Unaudited Interim Financial Information

The interim consolidated condensed financial statements include the accounts of PRA Health Sciences, Inc. and its subsidiaries, or the Company. These financial statements are prepared in conformity with U.S. generally accepted accounting principles, or GAAP, and are unaudited.  In the opinion of the Company’s management, all adjustments of a normal recurring nature necessary for a fair presentation have been reflected.  Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted.  The accompanying interim consolidated condensed financial statements and related notes should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, or the Company’s 2014 Annual Report.

The preparation of the interim consolidated condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim consolidated condensed financial statements and the reported amounts of revenues and claims and expenses during the reporting period.  Actual results could differ from those estimates.

The Company

PRA Health Sciences, Inc. is a full-service global contract research organization providing a broad range of product development services for pharmaceutical and biotechnology companies around the world. The Company’s integrated services include data management, statistical analysis, clinical trial management, and regulatory and drug development consulting.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, or FASB, issued an Accounting Standards Update, or ASU, No. 2014-09, ‘‘Revenue from Contracts with Customers,’’ to clarify the principles of recognizing revenue and create common revenue recognition guidance between GAAP and International Financial Reporting Standards. ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted. The Company is currently assessing the potential impact of ASU No. 2014-09 on the Company’s consolidated condensed financial statements.

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern.” ASU No. 2014-15 clarifies management’s responsibility to evaluate whether there is a substantial doubt about the entity’s ability to continue as a going concern and provides guidance for related footnote disclosures. ASU No. 2014-15 will be effective for annual periods ending after December 15, 2016, and interim periods beginning after December 15, 2016. The adoption of ASU No. 2014-15 is not expected to have a material effect on the Company’s consolidated condensed financial statements.

In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” ASU No. 2015-03 requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. ASU No. 2015-03 will be effective for annual reporting periods beginning after December 15, 2015, and interim periods within those fiscal years. As of June 30, 2015, the Company had $21.9 million in debt issuance costs in other assets that would be reclassified to long-term debt, net.

(2) Business Combination

On June 8, 2015, the Company purchased the assets of Value Health Solutions Inc., or VHS, a software development firm, for $0.5 million in cash and 47,598 unregistered shares of the Company’s common stock with a fair market value of $1.6 million; an additional $0.4 million of common stock will be issued in June 2017, less amounts reimbursable to the Company for any indemnification obligations of the seller.  The asset purchase agreement also includes contingent consideration in the form of potential earn-out payments of up to $16.0 million. Earn-out payments totaling $1.0 million and $15.0 million are contingent upon the achievement of project milestones and certain external software sales targets during the 48-month period following closing, respectively. The Company has recognized a liability of approximately $1.0 million as the estimated acquisition date fair value of the earn-out; this amount is included in the accrued expenses and other current liabilities in the consolidated condensed balance sheet. The fair value of the contingent consideration was based on significant inputs not observed in the market and thus represented a Level 3 measurement. Any change in the fair value of the contingent consideration subsequent to the acquisition date will be recognized in

7

PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2015

earnings in the period of the change. With this acquisition, the Company expects to enhance its ability to serve customers throughout the clinical research process with technologies that include improved efficiencies by reducing study durations and costs through integrated operational management.

The acquisition of VHS was accounted for as a business combination and, accordingly, the assets acquired and the liabilities assumed have been recorded at their respective fair values as of the acquisition date. In connection with the acquisition, the Company recorded approximately $1.0 million of goodwill, which is deductible for income tax purposes. The goodwill is attributable to the workforce of the acquired business and expected synergies with the Company’s existing information technology operations.

Due to the timing of the acquisition, the valuation of net assets acquired has not been finalized and is expected to be completed by the end of December 2015, and in any case, no later than one year from the acquisition date in accordance with GAAP. The Company’s preliminary estimate of the purchase price allocation is as follows (in thousands):

	Purchase		Weighted
	Price		Amortization
	Allocation		Period
Software intangible	$	2,500	5 years
Property, plant and equipment	43
Estimated fair value of net assets acquired	2,543
Purchase price, including contingent consideration	3,499
Total goodwill	$	956

Pro forma information is not provided as the acquisition did not have a material effect on the Company’s consolidated results.

(3) Joint Ventures

PRA and WuXi PharmaTech, or WuXi, operate a joint venture, WuXiPRA Clinical Research Co., Ltd, or WuXiPRA, with operations in China, Hong Kong and Macau.  During April 2015, both PRA and WuXi made a $3.0 million contribution to WuXiPRA to fund the joint venture’s working capital needs.  The Company’s interest in WuXiPRA remains at 49% after the capital contribution.

(4) Fair Value Measurements

The Company records certain assets and liabilities at fair value.  Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.  A three-level fair value hierarchy that prioritizes the inputs used to measure fair value is described below.  This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs.

The three levels of inputs used to measure fair value are as follows:

·Level 1 — Quoted prices in active markets for identical assets or liabilities.

·Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

·Level 3 — Unobservable inputs that are supported by little or no market activity. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The carrying amount of financial instruments, including cash and cash equivalents, accounts receivable, unbilled services, accounts payable and advanced billings, approximate fair value due to the short maturities of these instruments.

8

PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2015

Recurring Fair Value Measurements

The following table summarizes the fair value of the Company’s financial assets and liabilities that are measured on a recurring basis as of June 30, 2015 (in thousands):

	Level 1		Level 2		Level 3		Total
Liabilities:
Interest rate contracts	$	—	$	25,208	$	—	$	25,208
Contingent consideration	—		—		999		999
Total	$	—	$	25,208	$	999	$	26,207

Interest rate swaps and caps, or interest rate contracts, are measured at fair value using a market approach valuation technique. The valuation is based on an estimate of net present value of the expected cash flows using relevant mid-market observable data inputs and based on the assumption of no unusual market conditions or forced liquidation.

The Company values contingent consideration, related to business combinations, using a weighted probability of potential payment scenarios discounted at rates reflective of the weighted average cost of capital for the businesses acquired. Key assumptions used to estimate the fair value of contingent consideration include operational milestones and the probability of achieving the specific milestones.

The following table summarizes the changes in Level 3 financial liabilities measured on a recurring basis for the six months ended June 30, 2015 (in thousands):

	Contingent Considerations - Accrued expenses and other current liabilities
Balance at December 31, 2014	$	1,911
Revaluations included in earnings	89
Payments on ClinStar contingent consideration	(2,000		)
Initial estimate of VHS contingent consideration	999
Balance at June 30, 2015	$	999

Non-recurring Fair Value Measurements

Certain assets and liabilities are carried on the accompanying consolidated condensed balance sheets at cost and are not remeasured to fair value on a recurring basis. These assets include finite-lived intangible assets which are tested when a triggering event occurs and goodwill and identifiable indefinite-lived intangible assets which are tested for impairment annually on October 1 or when a triggering event occurs.

As of June 30, 2015, assets carried on the balance sheet and not remeasured to fair value on a recurring basis totaling approximately $1,607.0 million were identified as Level 3. These assets are comprised of goodwill of $1,033.8 million and identifiable intangible assets of $573.2 million.

(5) Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, accounts receivable, and unbilled services.  As of June 30, 2015, substantially all of the Company’s cash and cash equivalents were held in or invested with large financial institutions.  Accounts receivable include amounts due from pharmaceutical and biotechnology companies.  The Company establishes an allowance for potentially uncollectible receivables.  In management’s opinion, there is no additional material credit risk beyond amounts provided for such losses.

9

PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2015

Service revenue from individual customers greater than 10% of consolidated service revenue in the respective periods was as follows:

	Three Months Ended June 30,			Six Months Ended June 30,
	2015		2014	2015		2014
Customer A	10.3	%	—	10.9	%	—

Accounts receivable and unbilled receivables from individual customers that were equal to or greater than 10% of consolidated accounts receivable and unbilled receivables at the respective dates were as follows:

	June 30,		December 31,
	2015		2014
Customer A	11.0	%	14.4	%
Customer B	11.0	%	10.2	%

(6)  Accounts Receivable and Unbilled Services

Accounts receivable and unbilled services include service revenue, reimbursement revenue, and amounts associated with work performed by investigators. Accounts receivable and unbilled services were as follows (in thousands):

	June 30,			December 31,
	2015			2014
Accounts receivable	$	284,160		$	235,058
Unbilled services	115,242			105,542
	399,402			340,600
Less allowance for doubtful accounts	(2,775		)	(1,819		)
Total accounts receivable and unbilled services, net	$	396,627		$	338,781

(7) Goodwill and Intangible Assets

Goodwill

The changes in the carrying amount of goodwill are as follows (in thousands):

Balance at December 31, 2014	$	1,033,999
VHS Acquisition	956
Currency translation	(1,183		)
Balance at June 30, 2015	$	1,033,772

There are no accumulated impairment charges as of June 30, 2015.

Based upon the Company’s most recent annual goodwill impairment test that was conducted during the fourth quarter of 2014, the fair value of its Product Registration Services and Strategic Solutions reporting units substantially exceeded their carrying values; the estimated fair value of the Early Development Services, or EDS, reporting unit, however, closely approximated its carrying value. The goodwill of EDS was $124.5 million at June 30, 2015. The EDS reporting unit experienced significant cancellations in the second half of 2014 and was not able to realize synergies from the CRI Lifetree acquisition as quickly as originally forecasted. The Company’s current assumptions include higher revenue during the remainder of 2015, from existing backlog and increased new business awards, as well as making operational improvements to the business. Any negative changes in assumptions on revenue, new business awards, cancellations, or the Company’s ability to improve operations while maintaining a competitive cost structure could adversely affect the fair value of EDS and result in significant goodwill impairment charges in 2015 or later.

10

PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2015

Intangible Assets

Intangible assets consist of the following (in thousands):

	June 30,			December 31,
	2015			2014
Customer relationships	$	391,130		$	393,053
Customer backlog	131,026			130,833
Trade names (definite-lived)	25,770			25,762
Patient list and other intangibles	23,400			20,900
Non-competition agreements	2,787			2,774
Total finite-lived intangible assets, gross	574,113			573,322
Accumulated amortization	(118,858		)	(90,422		)
Total finite-lived intangible assets, net	455,255			482,900
Trade names (indefinite-lived)	118,010			118,010
Total intangible assets, net	$	573,265		$	600,910

Amortization expense was $14.1 million and $28.2 million for the three and six months ended June 30, 2015, respectively, and $19.7 million and $38.4 million for the three and six months ended June 30, 2014, respectively. The estimated future amortization expense of finite-lived intangible assets is expected to be as follows (in thousands):

2015 (remaining)	$	28,731
2016	46,485
2017	36,590
2018	32,093
2019	26,526
2020 and thereafter	284,830
Total	$	455,255

(8) Long-Term Debt

Long-term debt consists of the following (in thousands):

	June 30,			December 31,
	2015			2014
Term loans, first lien	$	699,000		$	729,000
Senior notes	225,000			225,000
	924,000			954,000
Less debt discount	(4,844		)	(5,463		)
Total long-term debt, net	$	919,156		$	948,537

Principal payments on long-term debt are due as follows (in thousands):

2015 (remaining)	$	—
2016	—
2017	—
2018	—
2019	—
2020 and thereafter	924,000
Total	$	924,000

11

PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2015

The estimated fair value of long-term debt was $952.9 million and $966.0 million at June 30, 2015 and December 31, 2014, respectively.  The fair value of the senior notes was determined based on Level 2 inputs using the market approach, which is primarily based on rates at which the debt is traded among financial institutions.  The fair value of the term loans and borrowings under credit facilities was determined based on Level 3 inputs, which is primarily based on rates at which the debt is traded among financial institutions adjusted for the Company’s credit standing.

Revolving Credit Facilities

The Company’s revolving credit facilities provide for $125.0 million of potential borrowings and expires on September 23, 2018.  The interest rate on the revolving credit facilities is based on the LIBOR plus an applicable rate, based on the leverage ratio of the Company.  The Company, at its discretion, may choose interest periods of 1, 2, 3 or 6 months.  In addition, the Company is required to pay to the lenders a commitment fee of 0.5% quarterly for unused commitments on the revolver, subject to a step-down to 0.375% based upon achievement of a certain leverage ratio. At June 30, 2015 and December 31, 2014, the Company had no outstanding borrowings under the revolving credit facilities. In addition, at June 30, 2015 and December 31, 2014, the Company had $5.0 million and $5.1 million, respectively, in letters of credit outstanding, which are secured by the revolving credit facilities.

(9) Stockholders’ Equity

Authorized Shares

The Company is authorized to issue up to one billion shares of common stock, with a par value of $0.01.

(10)  Stock-Based Compensation

The Company granted 635,500 service-based options, 123,624 restricted stock awards, or RSAs, and 15,000 restricted stock units, or RSUs, with a total grant date fair value of $6.7 million, $3.5 million and $0.4 million, respectively, during the six months ended June 30, 2015. There were no options, RSAs, or RSUs granted during the six months ended June 30, 2014.

Aggregated information regarding the Company’s option plans is summarized below:

					Wtd. Average
			Wtd. Average		Remaining	Intrinsic
	Options		Exercise Price		Contractual Life	Value
						(millions)
Outstanding at December 31, 2014	6,961,796		$	9.40	7.6	$	103.1
Granted	635,500		$	28.60
Exercised	(172,789	)	4.32
Expired/forfeited	(332,874	)	11.09
Outstanding at June 30, 2015	7,091,633		$	11.15	7.3	178.6
Exercisable at June 30, 2015	2,406,544		$	4.90	4.6	75.6

The Company’s restricted share activity in 2015 is as follows:

	Awards	Wtd. Average Grant-Date Fair Value		Intrinsic Value (millions)
Outstanding at December 31, 2014	5,556	$	20.35
Granted	138,624	28.44
Outstanding at June 30, 2015	144,180	$	28.13	$	5.2

12

PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2015

Stock-based compensation expense related to employee stock options, RSAs, and RSUs are summarized below (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Direct costs	$	251	$	139	$	427	$	282
Selling, general and administrative	994		728		1,593		1,478
Total stock compensation expense	$	1,245	$	867	$	2,020	$	1,760

(11) Income Taxes

The Company’s effective income tax rate was 30.3% and 45.9% for the six months ended June 30, 2015 and 2014, respectively. The variation between the Company’s effective income tax rate and the U.S. statutory rate of 35% for the six months ended June 30, 2015 is primarily due to (i) income from foreign subsidiaries being taxed at rates lower than the U.S. statutory rate and (ii) the favorable impact of research and development tax credits.

GAAP requires a two-step approach when evaluating uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence demonstrates that it is more likely than not that the position will be sustained upon audit, including resolution of any related appeals or litigation processes. The second step is to quantify the amount of tax benefit to recognize as the amount that is cumulatively more than 50% likely to be realized upon ultimate settlement with the taxing authorities.

As of June 30, 2015, the Company’s liability for unrecognized tax benefits was $14.8 million. If any portion of this $14.8 million is recognized that impacts the effective tax rate, the Company will then include that portion in the computation of its effective tax rate. Although the ultimate timing of the resolution of audits is highly uncertain, the Company believes it is reasonably possible that approximately $0.4 million of gross unrecognized tax benefits will change in the next 12 months as a result of pending audit settlements or statute of limitations expirations.

The Company files U.S. federal, U.S. state, and foreign tax returns. For U.S. federal purposes, the Company is generally no longer subject to tax examinations for years ended December 31, 2011 and prior. For U.S. state tax returns, the Company is generally no longer subject to tax examinations for years prior to 2011. For foreign purposes, the Company is generally no longer subject to examination for tax periods 2007 and prior. Certain carryforward tax attributes generated in prior years remain subject to examination and adjustment.

(12) Commitments and Contingencies

Legal Proceedings

The Company is involved in legal proceedings from time to time in the ordinary course of its business, including employment claims and claims related to other business transactions.  Although the outcome of such claims is uncertain, management believes that these legal proceedings will not have a material adverse effect on the financial condition or results of future operations of the Company.

The Company is currently a party to litigation with the City of Sao Paulo, Brazil. The dispute relates to whether the export of services provided by the Company is subject to a local tax on services. The Company has not recorded a liability associated with the claim, which totaled $4.6 million at June 30, 2015, given that it is not deemed probable the Company will incur a loss related to this case. However, a deposit totaling $4.6 million has been made to the Brazilian court in order to annul the potential tax obligation and to avoid the accrual of additional interest and penalties. This balance is recorded in other assets on the consolidated condensed balance sheet. During June 2015, the Judiciary Court of Justice of the State of Sao Paulo ruled in the favor of the Company, however, we expect the judgment to be appealed by the City of Sao Paulo. The Company expects to recover the full amount of the deposit when the case is final.

13

PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2015

(13) Restructuring

European Restructuring

During 2012, the Board of Directors of RPS Parent Holding Corp., or RPS, approved a restructuring plan, or European Restructuring Plan, to reduce support costs in its European Operations. RPS offered severance benefits to the terminated employees and eliminated approximately 75 positions. The Company elected to continue the European Restructuring Plan after acquiring RPS in September 2013 and a total of approximately $0.7 million is included in accrued expenses and other current liabilities as of June 30, 2015. This balance relates to outstanding contingency claims for certain former employees that were terminated as part of the European Restructuring Plan. The Company did not incur any additional restructuring expense during the three and six months ended June 30, 2015.

The table below outlines the components of the restructuring charges (in thousands):

	Balance at December 31, 2014		Foreign exchange adjustment			Balance at June 30, 2015
European Restructuring	$	753	$	(64	)	$	689
Total	$	753	$	(64	)	$	689

(14) Derivatives

The Company is exposed to certain risks relating to our ongoing business operations. The primary risk that the Company seeks to manage by using derivative instruments is interest rate risk. Accordingly, the Company has instituted interest rate hedging programs that are accounted for in accordance with ASC 815, “Derivatives and Hedging.” The interest rate hedging program is a cash flow hedge program designed to minimize interest rate volatility. The Company swaps the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount, at specified intervals. The Company also employs an interest rate cap that compensates us if variable interest rates rise above a pre-determined rate. The Company’s interest rate contracts are designated as hedging instruments.

On October 2, 2013, the Company entered into interest rate swap agreements with an aggregate notional principal amount of $620.0 million. The interest rate swaps will begin on September 23, 2015. The interest rate swaps will be used to hedge the Company’s variable rate debt. The interest rate swaps have maturity dates ranging from one to five years.

In addition, on October 2, 2013, the Company also entered into an interest rate cap with an aggregate notional principal amount of $800.0 million. The interest rate cap began on September 23, 2014 and will expire on September 23, 2015. The interest rate cap is used to hedge the variable rate of the Company’s revolving credit facilities to the extent that the LIBOR rises above 4.0%.

The following table presents the notional amounts and fair values (determined using level 2 inputs) of our derivatives as of June 30, 2015 and December 31, 2014. All liability amounts are reported in other long-term liabilities (in thousands):

		June 30, 2015					December 31, 2014
	Balance Sheet Classification	Notional amount		Liability			Notional amount		Liability
Derivatives in a liability position:
Interest rate contracts	Other long-term liabilities	$	1,420,000	$	(25,208	)	$	1,420,000	$	(19,446	)
Total designated derivatives		$	1,420,000	$	(25,208	)	$	1,420,000	$	(19,446	)

The Company records the effective portion of any change in the fair value of derivatives designated as hedging instruments under ASC 815 to other accumulated comprehensive (loss) income in our consolidated condensed balance sheet, net of deferred taxes, and will later reclassify into earnings when the hedged item affects earnings or is no longer expected to occur. Gains and losses from the ineffective portion of any hedge are recognized in earnings immediately. For other derivative contracts that do not qualify or no longer qualify for hedge accounting, changes in the fair value of the derivatives are recognized in earnings each period.

During the fourth quarter of 2014, due to the debt repayments made in conjunction with the Company’s initial public offering, or IPO, in November 2014 and related changes to forecasted voluntary debt repayments in future periods, the Company

14

PRA HEALTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2015

determined interest rate swaps with a notional principal amount of $47.5 million no longer qualify for hedge accounting.  The change in estimated debt repayments also resulted in ineffectiveness in interest rate swaps with a notional principal amount of $297.5 million during the fourth quarter of 2014.

During the second quarter of 2015, the Company further revised its forecasted voluntary debt repayments in future periods.  As a result of the change in expected future cash flows, an interest rate swap with a notional principal amount of $17.5 million experienced ineffectiveness.  This also caused interest rate swaps with a notional principal amount of $40.0 million, which experienced ineffectiveness during 2014, to no longer qualify for hedge accounting.

The table below presents the effect of our derivatives on the consolidated condensed statements of operations and comprehensive loss for the three and six months ended June 30, 2015 and 2014 (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
Derivatives in Cash Flow Hedging Relationships (Interest Rate Contracts)	2015			2014			2015			2014
Amount of pre-tax gain (loss) recognized in other comprehensive income (loss) on derivatives	$	1,770		$	(8,207	)	$	(5,168	)	$	(15,174	)
Amount of loss recognized in other expense, net on derivatives (ineffective portion)	(29		)	—			(85		)	—
Amount of loss recognized in other expense, net on derivatives (no longer qualify for hedge accounting)	(20		)	—			(509		)	—
Amount of loss reclassified from accumulated other comprehensive loss into interest expense, net on derivatives	(52		)	—			(69		)	—

The Company expects that $8.4 million of unrealized losses will be reclassified out of accumulated other comprehensive loss and into interest expense, net over the next 12 months.

(15) Related Party Transactions

At December 31, 2014, Kohlberg Kravis Robert & Co. L.P., or KKR, the majority stockholder of the Company, held $0.8 million in first lien term debt. At June 30, 2015, KKR no longer held any of the Company’s first lien term debt.

The Company paid management fees of $0.6 million and $1.1 million to KKR pursuant to the terms of the monitoring agreement between the Company and KKR that was in effect prior to the IPO during the three and six months ended June 30, 2014, respectively. The Company did not pay any management fees to KKR during the three and six months ended June 30, 2015 due to the termination of the monitoring agreement in conjunction with the IPO during the fourth quarter of 2014.

(16) Net Income (Loss) Per Share

Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the applicable period. Diluted net income (loss) per share is calculated after adjusting the denominator of the basic net income (loss) per share calculation for the effect of all potentially dilutive common shares, which, in the Company’s case, includes shares issuable under the stock option and incentive award plan.

The following table reconciles the basic to diluted weighted average shares outstanding (in thousands):

	Three Months Ended June 30,		Six Months Ended June 30,
	2015	2014	2015	2014
Basic weighted average common shares outstanding	59,871	40,268	59,843	40,268
Effect of dilutive securities	3,080	—	3,021	—
Diluted weighted average common shares outstanding	62,951	40,268	62,864	40,268
Anti-dilutive shares	55	424	38	390

The dilutive and anti-dilutive shares disclosed above were calculated using the treasury stock method. During the three and six months ended June 30, 2015, the anti-dilutive shares were due to the assumed exercise price exceeding the average market price of the Company’s common stock during the period. During the three and six months ended June 30, 2014, the anti-dilutive shares were due to the Company being in a net loss position during the period.

15

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated condensed financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 and with the information under the heading “Management Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

We use the terms “we,” the “Company” in this report to refer to PRA Health Sciences, Inc. and its subsidiaries.

Overview

We are one of the world’s leading global contract research organizations, or CROs, by revenue, providing outsourced clinical development services to the biotechnology and pharmaceutical industries. We believe we are one of a select group of CROs with the expertise and capability to conduct clinical trials across major therapeutic areas on a global basis. Our therapeutic expertise includes areas that are among the largest in pharmaceutical development, and we focus in particular on oncology, central nervous system inflammation, respiratory, cardiometabolic and infectious diseases. We believe that we further differentiate ourselves from our competitors through our investments in medical informatics and clinical technologies designed to enhance efficiencies, improve study predictability and provide better transparency for our clients throughout their clinical development processes.

Contracts define the relationships with our clients and establish the way we earn revenue. Three types of relationships are most common: a fixed-price contract, a time and materials contract and fee-for-service arrangements. In cases where the contracts are fixed price, we may bear the cost of overruns for the contracted scope, or we may benefit if the costs are lower than we anticipated for the contracted scope. In cases where our contracts are fee-for-service, the contracts contain an overall budget for contracted resources. If actual resources used are lower than anticipated, the client generally keeps the savings and we may be responsible for covering the cost of the unused resource if we are unable to redeploy the resource. For time and material contracts, we bill the client only for the actual hours we spend to complete the contracted scope based upon stated hourly rates by position. The duration of our contracts range from a few months to several years. Revenue for services is recognized only after persuasive evidence of an arrangement exists, the sales price is determinable, services have been rendered, and collectability is reasonably assured. Once these criteria have been met, we recognize revenue for the services provided on fixed-fee contracts based on the proportional performance methodology, which determines the proportion of outputs or performance obligations, which have been completed or delivered compared to the total contractual outputs for performance obligations. To measure performance, we compare the contract costs incurred to estimated total contract costs through completion. As part of the client proposal and contract negotiation process, we develop a detailed project budget for the direct costs based on the scope of the work, the complexity of the study, the geographical location involved and our historical experience. We then establish the individual contract pricing based on our internal pricing guidelines, discount agreements, if any, and negotiations with the client. The estimated total contract costs are reviewed and revised periodically throughout the lives of the contracts, with adjustments to revenue resulting from such revisions being recorded on a cumulative basis in the period in which the revisions are first identified. Our costs consist of expenses necessary to carry out the clinical development project undertaken by us on behalf of the client. These costs primarily include the expense of obtaining appropriately qualified labor to administer the project, which we refer to as direct cost headcount. Other costs we incur are attributable to the expense of operating our business generally, such as leases and maintenance of information technology and equipment. Revenue from time and materials contracts is recognized as hours are incurred. Revenues and the related costs of fee-for-service contracts are recognized in the period in which services are performed.

How We Assess the Performance of Our Business

In addition to our GAAP financial measures, we review various financial and operational metrics, including, new business awards, cancellations, and backlog. Many of our current contracts include clinical trials covering multiple geographic locations. We utilize the same management systems and reporting tools to monitor and manage these activities on the same basis worldwide. For this reason, we consider our operations to be a single business segment, and we present our results of operations as a single reportable segment.

Our gross new business awards for the six months ended June 30, 2015 and 2014 were $906.7 million and $846.6 million, respectively. New business awards arise when a client selects us to execute its trial and is documented by written or electronic correspondence, or for our Strategic Solutions offering when the amount of revenue expected to be recognized is measurable. The number of new business awards can vary significantly from year to year, and awards can have terms ranging from several months to several years. For our Strategic Solutions offering, the value of a new business award is the anticipated service revenue to be recognized in the corresponding quarter of the next fiscal year. For the remainder of our business, the value of a new award is the anticipated service revenue over the life of the contract, which does not include reimbursement activity or investigator fees.

16

In the normal course of business, we experience contract cancellations, which are reflected as cancellations when the client provides us with written or electronic correspondence that the work should cease. During the six months ended June 30, 2015 and 2014 we had $100.9 million and $123.3 million, respectively, of cancellations for which we received correspondence from the client. The number of cancellations can vary significantly from year to year. The value of the cancellation is the remaining amount of unrecognized service revenue, less the estimated effort to transition the work back to the client.

Our backlog consists of anticipated service revenue from new business awards that either have not started or are in process but have not been completed. Backlog varies from period to period depending upon new business awards and contract modifications, cancellations, and the amount of service revenue recognized under existing contracts. Our backlog at June 30, 2015 and 2014 was $2.3 billion and $2.0 billion, respectively.

Sources of Revenue

Total revenues are comprised of service revenue and reimbursement revenue, each of which is described below.

Service Revenue

We generally enter into contracts with customers to provide services with payments based on either fixed-fee, time and materials, or fee-for-service arrangements. Revenue for services is recognized only after persuasive evidence of an arrangement exists, the sales price is determinable, services have been rendered, and collectability is reasonably assured.

Once these criteria have been met, we recognize revenue for the services provided on fixed-fee contracts based on the proportional performance methodology, which determines the proportion of outputs or performance obligations which have been completed or delivered compared to the total contractual outputs for performance obligations. To measure performance, we compare the contract costs incurred to estimated total contract costs through completion. As part of the client proposal and contract negotiation process, we develop a detailed project budget for the direct costs based on the scope of the work, the complexity of the study, the geographical location involved and our historical experience. We then establish the individual contract pricing based on our internal pricing guidelines, discount agreements, if any, and negotiations with the client. The estimated total contract costs are reviewed and revised periodically throughout the lives of the contracts, with adjustments to revenue resulting from such revisions being recorded on a cumulative basis in the period in which the revisions are first identified. Revenue from time and materials contracts is recognized as hours are incurred. Billable hours typically fluctuate during the terms of individual contracts, as services we provide generally increase at the beginning of a study and decrease toward the end of a study. Revenues and the related costs of fee-for-service contracts are recognized in the period in which services are performed.

A majority of our contracts undergo modifications over the contract period and our contracts provide for these modifications. During the modification process, we recognize revenue to the extent we incur costs, provided client acceptance and payment is deemed reasonably assured.

We often offer volume discounts to our large customers based on annual volume thresholds. We record an estimate of the annual volume rebate as a reduction of revenue throughout the period based on the estimated total rebate to be earned for the period.

Most of our contracts can be terminated by the client either immediately or after a specified period, typically 30 to 60 days, following notice. In the case of early termination, these typical contracts require payment to us of fees earned to date, and in some cases, a termination fee or some portion of the fees or profit that we could have earned under the contract if it had not been terminated early. Based on ethical, regulatory, and health considerations, this wind-down activity may continue for several quarters or years. Therefore, revenue recognized prior to cancellation generally does not require a significant adjustment upon cancellation.

Increases in the estimated total direct costs to complete a contract without a corresponding proportional increase to the total contract price result in a cumulative adjustment to the amount of revenue recognized in the period the change in estimate is determined.

Our service revenue was $668.5 million and $622.8 million for the six months ended June 30, 2015 and 2014, respectively. Changes in service revenue from period to period are driven primarily by changes in backlog at the beginning of a period, as well as new business awards during such period. Additionally, service revenue and billable hours will generally be impacted by the mix of studies that are active during a period, as different studies have different staffing requirements, as well as the life cycles of projects that are active during a period.

17

Reimbursement Revenue and Reimbursable Out-of-Pocket Costs

We incur out-of-pocket costs, which are reimbursable by our customers. We include these out-of-pocket costs as reimbursement revenue and reimbursable out-of-pocket expenses in our consolidated condensed statement of operations.

As is customary in our industry, we also routinely enter into separate agreements on behalf of our clients with independent physician investigators in connection with clinical trials. We also receive funds from our clients for investigator fees, which are netted against the related costs, since such fees are the obligation of our clients, without risk or reward to us. We are not obligated either to perform the service or to pay the investigator in the event of default by the client. In addition, we do not pay the independent physician investigator until funds are received from the client. Accordingly, unlike reimbursable out-of-pocket costs, we do not recognize these investigator fees in revenue.

Reimbursement costs and investigator fees are not included in our backlog because they are pass-through costs to our clients.

We believe that the fluctuations in reimbursement costs and reimbursement revenue from period to period are not meaningful to our underlying performance.

Costs and Expenses

Our costs and expenses are comprised primarily of our direct costs, selling, general and administrative costs, depreciation and amortization and income taxes. In addition, we incur reimbursable out-of-pocket expenses; however, as noted above, our reimbursable out-of-pocket expenses are directly offset by our reimbursement revenue. Since reimbursement revenue is offset by our out-of-pocket reimbursable expenses, we monitor and measure costs as a percentage of service revenue rather than total revenue as we believe this is a more meaningful comparison and better reflects the operations of our business.

Direct Costs

Our direct costs are primarily labor-related charges. They include elements such as salaries, benefits and incentive compensation for our employees. In addition, we utilize staffing agencies to procure primarily part time individuals to perform work on our contracts. For the six months ended June 30, 2015 and 2014, the labor-related charges were 95.5% and 95.0% of our total direct costs, respectively. The cost of labor procured through staffing agencies is included in these percentages and represented 4.0% and 4.9% of total direct costs for the six months ended June 30, 2015 and 2014, respectively. Our remaining direct costs are items such as travel, meals, postage and freight, patient costs, medical waste and supplies. The total of all these items was 4.5% and 5.0% of total direct costs for the six months ended June 30, 2015 and 2014, respectively.

Historically, direct costs have increased with an increase in service revenues. The future relationship between direct costs and service revenues may vary from historical relationships. Several factors will cause direct costs to decrease as a percentage of service revenues. Deployment of our billable staff in an optimally efficient manner has the most impact on our ratio of direct cost to service revenue. The most effective deployment of our staff is when they are fully engaged in billable work and are accomplishing contract related activities at a rate that meets or exceeds budgeted targets. We also seek to optimize our efficiency by performing work using the employee with the lowest cost. Generally, the following factors may cause direct costs to increase as a percentage of service revenues: our staff are not fully deployed, as is the case when there are unforeseen cancellations or delays, or when our staff are accomplishing tasks at levels of effort that exceed budget, such as rework, as well as pricing pressure from increased competition.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of administration payroll and benefits, marketing expenditures, and overhead costs such as information technology and facilities costs. These expenses also include central overhead costs that are not directly attributable to our operating business and include certain costs related to insurance, professional fees and property.

Loss on Modification of Debt

Loss on modification of debt consists of debt financing costs that were expensed as a result of a repricing transaction associated with the first lien term loan that reduced the applicable margin from 4.0% to 3.5% that was completed on March 24, 2014.

Depreciation and Amortization

Depreciation represents the depreciation charged on our fixed assets. The charge is recorded on a straight-line method, based on estimated useful lives of three to seven years for computer hardware and software and five to seven years for furniture and equipment. Leasehold improvements are depreciated over the lesser of the life of the lease term or the useful life of the improvements.

18

Amortization expense consists of amortization recorded on acquisition-related intangible assets. Customer relationships, backlog and finite-lived trade names are amortized on an accelerated basis, which coincides with the period of economic benefit we expect to receive. All other finite-lived intangibles are amortized on a straight-line basis. In accordance with generally accepted accounting principles, we do not amortize goodwill and indefinite-lived intangible assets.

Income Taxes

Because we conduct operations on a global basis, our effective tax rate has and will continue to depend upon the geographic distribution of our pre-tax earnings among several different taxing jurisdictions. Our effective tax rate can also vary based on changes in the tax rates of the different jurisdictions. Our effective tax rate is also impacted by tax credits and the establishment or release of deferred tax asset valuation allowances and tax reserves, as well as significant non-deductible items such as portions of transaction-related costs.

We have federal, state, and foreign net operating loss carryforwards. The carryforward periods for these losses vary from five years to an indefinite carryforward period depending on the jurisdiction. Our ability to offset future taxable income with the net operating loss carryforwards may be limited in certain instances, including changes in ownership.

Exchange Rate Fluctuations

The majority of our foreign operations transact in the Euro or Pound Sterling. As a result, our revenue and expenses are subject to exchange rate fluctuations with respect to these currencies. We have translated these currencies into U.S. Dollars using the following average exchange rates:

	Six Months Ended June 30,
	2015	2014
U.S. Dollars per:
Euro	1.12	1.37
Pound Sterling	1.52	1.68

19

Results of Operations

Three Months Ended June 30, 2015 Compared to the Three Months Ended June 30, 2014

	Three Months Ended June 30,
(in thousands)	2015			2014
Revenue
Service revenue	$	336,518		$	311,422
Reimbursement revenue	56,330			46,123
Total revenue	392,848			357,545
Operating expenses
Direct costs	219,877			213,378
Reimbursable out-of-pocket costs	56,330			46,123
Selling, general and administrative	58,905			56,010
Depreciation and amortization	19,220			24,598
Loss on disposal of fixed assets	195			—
Income from operations	38,321			17,436
Interest expense, net	(15,416		)	(20,818		)
Foreign currency losses, net	(3,966		)	(5,387		)
Other expense, net	(96		)	(116		)
Income (loss) before income taxes and equity in losses of unconsolidated joint ventures	18,843			(8,885		)
Provision for (benefit from) income taxes	5,623			(5,186		)
Income (loss) before income taxes and equity in losses of unconsolidated joint ventures	13,220			(3,699		)
Equity in losses of unconsolidated joint ventures, net of tax	(805		)	(357		)
Net income (loss)	$	12,415		$	(4,056	)

Service revenue increased by $25.1 million, or 8.1%, from $311.4 million during the three months ended June 30, 2014 to $336.5 million during the three months ended June 30, 2015. Service revenue in the three months ended June 30, 2015 benefited from an increase in billable hours and an increase in the effective rate of the hours billed on our studies, offset by an unfavorable impact of $13.6 million from foreign currency exchange rate fluctuations. The growth in service revenue and the increase in billable hours were due largely to the increase in our backlog as we entered the year, the type of services we are providing on our active studies, which was driven by the life cycles of projects that were active during the period, the growth in new business awards as a result of higher demand for our services across the industries we serve, and more effective sales efforts and the growth in the overall CRO market. New business awards arise when a client selects us to execute its trial. The number of awards can vary significantly from period to period and our studies have terms ranging from several months to several years. The increase in our effective rate of the hours billed on our studies is attributable to the contract pricing terms on our current mix of active studies and the mix of clients and the services that we provide to those clients.

Direct costs increased by $6.5 million, or 3.0%, from $213.4 million during the three months ended June 30, 2014 to $219.9 million during the three months ended June 30, 2015. The increase in direct costs is primarily due to an increase in salaries and related benefits of $24.4 million, as we continue to hire billable staff to support our current projects and as we hire additional staff in anticipation of our growing portfolio of studies, offset by a favorable impact of $17.9 million from foreign currency. The direct costs as a percentage of service revenue decreased from 68.5% during the three months ended June 30, 2014 to 65.3% during the three months ended June 30, 2015. This decrease in direct costs as a percentage of service revenue is primarily due to the favorable impact from foreign currency exchange rate fluctuations.

Selling, general and administrative expenses increased by $2.9 million, or 5.2%, from $56.0 million during the three months ended June 30, 2014 to $58.9 million during the three months ended June 30, 2015. Selling, general and administrative expenses as a percentage of service revenue decreased from 18.0% during the three months ended June 30, 2014 to 17.5% during the three months ended June 30, 2015. This decrease in selling, general and administrative expenses as a percentage of service revenue is primarily related to our continued ability to effectively manage our selling and administrative functions.

20

Depreciation and amortization expense decreased by $5.4 million, or 21.9%, from $24.6 million during the three months ended June 30, 2014 to $19.2 million during the three months ended June 30, 2015. Depreciation and amortization expense as a percentage of service revenue was 7.9% during the three months ended June 30, 2014 and 5.7% during the three months ended June 30, 2015. The decrease in depreciation and amortization expense as a percentage of service revenue is primarily due the continued amortization of our acquired intangibles that are amortized on an accelerated basis.

Interest expense, net decreased by $5.4 million from $20.8 million during the three months ended June 30, 2014 to $15.4 million during the three months ended June 30, 2015. This decrease in interest expense is related to the paydowns to our first lien term loan and senior notes made using proceeds from the initial public offering in November 2014 and repayments to our first lien term loan made during 2015.

Foreign currency losses, net decreased $1.4 million from losses of $5.4 million during the three months ended June 30, 2014 to $4.0 million of loss during the three months ended June 30, 2015. The foreign exchange gains and losses are due to fluctuations in the U.S. dollar, gains or losses that arise in connection with the revaluation of short-term inter-company balances between our domestic and international subsidiaries, and gains or losses from foreign currency transactions, such as those resulting from the settlement of third-party accounts receivables and payables denominated in a currency other than the local currency of the entity making the payment.

Provisions for (benefit from) income taxes increased $10.8 million from a benefit of $5.2 million during the three months ended June 30, 2014 to an income tax provision of $5.6 million during the three months ended June 30, 2015. Our effective tax rate was 29.8% and 58.4% during the three months ended June 30, 2015 and 2014, respectively. The decrease in the effective tax rate of 28.6% was primarily attributable to the significant reduction in projected pretax losses in higher tax jurisdictions such as the United States in 2015 when compared to 2014.

Six Months Ended June 30, 2015 Compared to the Six Months Ended June 30, 2014

	Six Months Ended June 30,
(in thousands)	2015			2014
Revenue
Service revenue	$	668,486		$	622,774
Reimbursement revenue	112,940			89,511
Total revenue	781,426			712,285
Operating expenses
Direct costs	438,838			428,529
Reimbursable out-of-pocket costs	112,940			89,511
Selling, general and administrative	119,740			116,849
Depreciation and amortization	38,455			49,236
Loss on disposal of fixed assets	195			—
Income from operations	71,258			28,160
Interest expense, net	(30,809		)	(42,584		)
Loss on modification of debt	—			(1,384		)
Foreign currency gains (losses), net	5,100			(9,099		)
Other expense, net	(560		)	(175		)
Income (loss) before income taxes and equity in losses of unconsolidated joint ventures	44,989			(25,082		)
Provision for (benefit from) income taxes	13,645			(11,519		)
Income (loss) before income taxes and equity in losses of unconsolidated joint ventures	31,344			(13,563		)
Equity in losses of unconsolidated joint ventures, net of tax	(1,742		)	(534		)
Net income (loss)	$	29,602		$	(14,097	)

Service revenue increased by $45.7 million, or 7.3%, from $622.8 million during the six months ended June 30, 2014 to $668.5 million during the six months ended June 30, 2015. Service revenue in the six months ended June 30, 2015 benefited from an increase in billable hours and an increase in the effective rate of the hours billed on our studies, offset by an unfavorable impact of $23.6 million from foreign currency exchange rate fluctuations. The growth in service revenue and the increase in billable hours were

21

due largely to the increase in our backlog as we entered the year, the type of services we are providing on our active studies, which was driven by the life cycles of projects that were active during the period, the growth in new business awards as a result of higher demand for our services across the industries we serve, and more effective sales efforts and the growth in the overall CRO market. New business awards arise when a client selects us to execute its trial. The number of awards can vary significantly from period to period and our studies have terms ranging from several months to several years. The increase in our effective rate of the hours billed on our studies is attributable to the contract pricing terms on our current mix of active studies and the mix of clients and the services that we provide to those clients.

Direct costs increased by $10.3 million, or 2.4%, from $428.5 million during the six months ended June 30, 2014 to $438.8 million during the six months ended June 30, 2015. The increase in direct costs is primarily due to an increase in salaries and related benefits of $44.4 million, as we continue to hire billable staff to support our current projects and as we hire additional staff in anticipation of our growing portfolio of studies, offset by a favorable impact of $35.1 million from foreign currency. The direct costs as a percentage of service revenue decreased from 68.8% during the six months ended June 30, 2014 to 65.6% during the six months ended June 30, 2015. This decrease in direct costs as a percentage of service revenue is primarily due to the favorable impact from foreign currency exchange rate fluctuations.

Selling, general and administrative expenses increased by $2.9 million, or 2.5%, from $116.8 million during the six months ended June 30, 2014 to $119.7 million during the six months ended June 30, 2015. Selling, general and administrative expenses as a percentage of service revenue decreased from 18.8% during the six months ended June 30, 2014 to 17.9% during the six months ended June 30, 2015.  This decrease in selling, general and administrative expenses as a percentage of service revenue is primarily related to our continued ability to effectively manage our selling and administrative functions.

Depreciation and amortization expense decreased by $10.8 million, or 21.9%, from $49.2 million during the six months ended June 30, 2014 to $38.5 million during the six months ended June 30, 2015. Depreciation and amortization expense as a percentage of service revenue was 7.9% during the six months ended June 30, 2014 and 5.8% during the six months ended June 30, 2015.  The decrease in depreciation and amortization expense as a percentage of service revenue is primarily due the continued amortization of our acquired intangibles that are amortized on an accelerated basis.

Interest expense, net decreased by $11.8 million from $42.6 million during the six months ended June 30, 2014 to $30.8 million during the six months ended June 30, 2015. This decrease in interest expense is related to the paydowns to our first lien term loan and senior notes made using proceeds from the initial public offering in November 2014 and repayments made to our first lien term loan during 2015, as well as the March 24, 2014 repricing transaction associated with the first lien term loan that reduced the applicable margin from 4.0% to 3.5%.

Loss on modification of debt costs were $1.4 million during the six months ended June 30, 2014 and there were no losses on modification of debt during the six months ended June 30, 2015. The loss on modification of debt of $1.4 million incurred during the six months ended June 30, 2014 was due to our repricing transaction which took place on March 24, 2014.

Foreign currency gains (losses), net decreased $14.2 million from losses of $9.1 million during the six months ended June 30, 2014 to $5.1 million of gains during the six months ended June 30, 2015. The foreign exchange gains and losses are due to fluctuations in the U.S. dollar, gains or losses that arise in connection with the revaluation of short-term inter-company balances between our domestic and international subsidiaries, and gains or losses from foreign currency transactions, such as those resulting from the settlement of third-party accounts receivables and payables denominated in a currency other than the local currency of the entity making the payment.

Provisions for (benefit from) income taxes increased $25.1 million from a benefit of $11.5 million during the six months ended June 30, 2014 to an income tax provision of $13.6 million during the six months ended June 30, 2015. Our effective tax rate was 30.3% and 45.9% during the six months ended June 30, 2015 and 2014, respectively. The decrease in the effective tax rate of 15.6% was primarily attributable to the significant reduction in projected pretax losses in higher tax jurisdictions such as the United States in 2015 when compared to 2014.

Seasonality

Although our business is not generally seasonal, we typically experience a slight decrease in our revenue growth rate during the fourth quarter due to holiday vacations and a similar decrease in new business awards in the first quarter due to our clients’ budgetary cycles and vacations during the year-end holiday period.

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Liquidity and Capital Resources

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Our principal source of liquidity is operating cash flows. As of June 30, 2015, we had approximately $61.1 million of cash and cash equivalents of which $22.7 million was held by our foreign subsidiaries. Our expected primary cash needs on both a short and long-term basis are for capital expenditures, expansion of services, geographic expansion, and other general corporate purposes. We have historically funded our operations and growth, including acquisitions, with cash flow from operations, borrowings, and issuances of equity securities. We expect to continue expanding our operations through internal growth and strategic acquisitions and investments. We expect these activities will be funded from existing cash, cash flow from operations and, if necessary or appropriate, borrowings under our existing or future credit facilities. Our sources of liquidity could be affected by our dependence on a small number of industries and clients, compliance with regulations, international risks, and personal injury, environmental or other material litigation claims.

Cash Collections

Cash collections from accounts receivable were $851.1 million during the six months ended June 30, 2015, including $116.2 million of funds received from customers to pay independent physician investigators, or investigators, as compared to $765.1 million during the six months ended June 30, 2014, including $109.9 million of funds received from customers to pay investigators. The increase in cash collections during the six months ended June 30, 2015 is related to our increase in revenue, driven by an increase in new business awards, an increase in our backlog, and improved cash payment schedules contained in our master service agreements and our statements of work.

Discussion of Cash Flows

Cash Flow from Operating Activities

During the six months ended June 30, 2015, net cash provided by operations was $30.0 million, compared to net cash used in operations of $3.3 million for the same period of 2014. Cash provided by operating activities increased over the prior year due to increased cash flows from our operating performance offset by an increase in net working capital, driven by an increase in our days sales outstanding.

Cash Flow from Investing Activities

Net cash used in investing activities was $20.6 million during the six months ended June 30, 2015, compared to net cash provided by investing activities of $3.2 million for the same period of 2014. During the six months ended June 30, 2015, we purchased $17.1 million of fixed assets as compared to $11.9 million purchased during the six months ended June 30, 2014, which was offset by $15.0 million in collections of an acquisition-related receivable due from the former owners of RPS Parent Holding Corp., or RPS, in 2014. During the six months ended June 30, 2015, we also made a $3.0 million capital contribution to our WuXiPRA joint venture and made a $0.5 million cash payment as partial consideration for the purchase of the assets of Value Health Solutions Inc.

Cash Flow from Financing Activities

Net cash used in financing activities during the six months ended June 30, 2015 was $32.5 million compared to $14.4 million of net cash used in financing activities for the same period of 2014. During 2015, we voluntarily repaid $30.0 million on our term loan and made a $2.0 payment on our ClinStar acquisition-related contingent consideration. During the six months ended June 30, 2014, we made $10.0 million in net repayments on our line of credit and made $4.5 million in principal payments on our term loan.

Indebtedness

As of June 30, 2015, we had $924.0 million of total indebtedness.  Additionally, our senior secured credit agreement provides for a $125.0 million revolving credit facility. There were no amounts drawn on this revolving credit facility at June 30, 2015. In addition, at June 30, 2015, the Company had $5.0 million in letters of credit outstanding, which are secured by the revolving credit facility. Our long-term debt arrangements contain usual and customary restrictive covenants, and as of June 30, 2015, we were in compliance with these covenants.

See “Management’s Discussion and Analysis — Liquidity and Capital Resources” and Note 10 to our audited consolidated financial statements, each included in our Annual Report on Form 10-K for fiscal year ended December 31, 2014, for additional details regarding our credit arrangements.

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Contractual Obligations and Commercial Commitments

We have various contractual obligations, which are recorded as liabilities in our consolidated condensed financial statements. Other items, such as operating lease obligations, are not recognized as liabilities in our consolidated condensed financial statements but are required to be disclosed.

There have been no material changes, outside of the ordinary course of business, to our contractual obligations as previously disclosed in our Annual Report on Form 10-K for fiscal year ended December 31, 2014.

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies as previously disclosed in our Annual Report on Form 10-K for fiscal year ended December 31, 2014.

Disclosure Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. In addition to historical consolidated condensed financial information, this Quarterly Report on Form 10-Q contains forward-looking statements that reflect, among other things, our current expectations and anticipated results of operations, all of which are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, market trends, or industry results to differ materially from those expressed or implied by such forward-looking statements. Therefore, any statements contained herein that are not statements of historical fact may be forward-looking statements and should be evaluated as such. Without limiting the foregoing, the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “should,” “targets,” “will” and the negative thereof and similar words and expressions are intended to identify forward-looking statements. Unless legally required, we assume no obligation to update any such forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information.

We caution you that any such forward-looking statements are further qualified by important factors that could cause our actual operating results to differ materially from those in the forward-looking statements, including without limitation, that most of our contracts may be terminated on short notice, and we may be unable to maintain large customer contracts or to enter into new contracts; our financial results may be adversely affected if we underprice our contracts, overrun our cost estimates or fail to receive approval for or experience delays in documenting change orders; the historical indications of the relationship of our backlog to revenues may not be indicative of their future relationship; we may be unable to maintain our information systems or effectively update them; customer or therapeutic concentration could harm our business; our business is subject to risks associated with international operations, including economic, political and other risks, such as compliance with a myriad of laws and regulations, complications from conducting clinical trials in multiple countries simultaneously and changes in exchange rates; the market for our services may not grow as we expect; government regulators or our customers may limit the scope of prescription or withdraw products from the market, and government regulators may impose new regulatory requirements or may adopt new regulations affecting the biopharmaceutical industry; we may be unable to successfully develop and market new services or enter new markets; our failure to perform services in accordance with contractual requirements, regulatory standards and ethical considerations may subject us to significant costs or liability, which could also damage our reputation and cause us to lose existing business or not receive new business; our services are related to treatment of human patients, and we could face liability if a patient is harmed; we may be unable to successfully identify, acquire and integrate businesses, services and technologies; and we have substantial indebtedness and may incur additional indebtedness in the future, which could adversely affect our financial condition. For a further discussion of the risks relating to our business, see “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

Website and Social Media Disclosure

We use our website (www.prahs.com) and our corporate Twitter account (@PRAHSciences) as channels of distribution of company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, Securities and Exchange Commission, or SEC, filings and public conference calls and webcasts. The contents of our website and social media channels are not, however, a part of this report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our quantitative and qualitative disclosures about market risk as compared to the quantitative and qualitative disclosures about market risk described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

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Item 4. Controls and Procedures

As of June 30, 2015, we carried out an evaluation under the supervision and with the participation of our management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Regulations under the Exchange Act require public companies, including us, to maintain “disclosure controls and procedures,” which are defined in Rule 13a-15(c) and Rule 15d-15(e) of the Exchange Act to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required or necessary disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to accomplish their objective of a reasonable assurance level.

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

We are party to legal proceedings incidental to our business. While the outcome of these matters could differ from management’s expectations, we do not believe that the resolution of these matters is reasonably likely to have a material adverse effect to our financial statements.

Item 1A. Risk Factors

For a discussion of our potential risks and uncertainties, see the information under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. There have been no significant changes from the risk factors previously disclosed in our Annual Report.

Item 2. Unregistered Sales of Equity Securities, and Use of Proceeds

Recent Sales of Unregistered Securities

During the second quarter of 2015, we issued an aggregate of 47,598 common shares at a price of $33.24 per share as partial consideration for the purchase of the assets of Value Health Solutions Inc. In connection with this acquisition, we have also agreed to issue $0.4 million of common shares in June 2017, less amounts reimbursable to us for any indemnification obligations of the seller. The offer and sale of the common shares was made in reliance upon the exemption from registration under the Securities Act of 1933, as amended, afforded by Section 4(a)(2) thereof, on the basis that it did not involve any public offering.

Use of Proceeds from Registered Securities

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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Item 6. Exhibits

The exhibits in the accompanying Exhibit Index following the signature page are filed or furnished as a part of this report and are incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PRA HEALTH SCIENCES, INC.

/s/ Linda Baddour

Linda Baddour

Executive Vice President and Chief Financial Officer

Date: July 28, 2015

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EXHIBIT INDEX

Exhibit Number	Description of Exhibit
31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	The following financial information from PRA Health Sciences, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 formatted in XBRL: (i) Consolidated Condensed Balance Sheets as of June 30, 2015 and December 31, 2014, (ii) Consolidated Condensed Statements of Operations for the three and six months ended June 30, 2015 and 2014, (iii) Consolidated Condensed Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2015 and 2014, (iv) Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2015 and 2014, and (v) Notes to Consolidated Condensed Financial Statements

28

EX-31.1

Exhibit 31.1

I, Colin Shannon, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 of PRA Health Sciences, Inc. (the “registrant”);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  July 28, 2015

/s/ Colin Shannon

Colin Shannon

Chief Executive Officer

EX-31.2

Exhibit 31.2

I, Linda Baddour, certify that:

1.I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2015 of PRA Health Sciences, Inc. (the “registrant”);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 28, 2015

/s/ Linda Baddour

Linda Baddour

Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of PRA Health Sciences, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2015 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Colin Shannon, President, Chief Executive Officer and Chairman of the Board of Directors of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

·The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

·The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.

Date: July 28, 2015

By:	/s/ Colin Shannon
	Colin Shannon
	President, Chief Executive Officer and Chairman of the Board of Directors
	(Principal Executive Officer)

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of PRA Health Sciences, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2015 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Linda Baddour, Executive Vice President and Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

·The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

·The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.

Date: July 28, 2015

By:	/s/ Linda Baddour
	Linda Baddour
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)

XML

Concentration of Credit Risk (Details) - Customer Concentration Risk	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Service revenue | Customer A
Concentration risk
Concentration risk percentage	10.30%	0.00%	10.90%	0.00%
Accounts receivable and unbilled receivables | Customer A
Concentration risk
Concentration risk percentage			11.00%		14.40%
Accounts receivable and unbilled receivables | Customer B
Concentration risk
Concentration risk percentage			11.00%		10.20%

XML

Derivatives (Details) - USD ($) $ in Thousands	3 Months Ended			6 Months Ended
	Jun. 30, 2015	Dec. 31, 2014	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Oct. 02, 2013
Interest rate contracts
Derivative Gain (Loss)
Amount of pre-tax gain (loss) recognized in other comprehensive income (loss) on derivatives	$ 1,770		$ (8,207)	$ (5,168)	$ (15,174)
Amount of loss recognized in other expense, net on derivatives (ineffective portion)	(29)			(85)
Amount of loss recognized in other expense, net on derivatives (no longer qualify for hedge accounting)	(20)			(509)
Amount of loss reclassified from accumulated other comprehensive loss into interest expense, net on derivatives	(52)			(69)
Unrealized losses expected to be reclassified out of accumulated other comprehensive (loss) income into interest expense				$ 8,400
Estimated period for the anticipated transfer of (loss) income from accumulated other comprehensive income into earnings				12 months
Interest rate contracts | Designated as hedging instruments
Derivatives in a liability position:
Notional amount	1,420,000	$ 1,420,000		$ 1,420,000
Interest rate contracts | Designated as hedging instruments | Other long-term liabilities
Derivatives in a liability position:
Notional amount	1,420,000	1,420,000		$ 1,420,000
Interest rate swaps
Derivatives
Notional amount						$ 620,000
Interest rate swap maturity, low end of range				1 year
Interest rate swap maturity, high end of range				5 years
Derivatives in a liability position:
Notional amount of ineffective portion	17,500	297,500
Interest rate swaps | No longer designated as hedging instrument
Derivatives
Notional amount		47,500
Derivatives in a liability position:
Notional amount of ineffective portion	$ 40,000
Interest rate cap
Derivatives
Notional amount						$ 800,000
Variable rate basis				LIBOR
Interest rate cap	4.00%			4.00%
Level 2 | Interest rate contracts | Designated as hedging instruments
Derivatives in a liability position:
Liability	$ (25,208)	(19,446)		$ (25,208)
Level 2 | Interest rate contracts | Designated as hedging instruments | Other long-term liabilities
Derivatives in a liability position:
Liability	$ (25,208)	$ (19,446)		$ (25,208)

XML

Commitments and Contingencies (Details) - Tax related claim on export of services provided $ in Millions	Jun. 30, 2015 USD ($)
Commitments and Contingencies
Amount of tax claimed to be due in litigation	$ 4.6
Other assets
Commitments and Contingencies
Deposit made to Brazilian court in tax litigation	$ 4.6

XML

Net Income (Loss) Per Share (Tables)

6 Months Ended

Jun. 30, 2015

Net Income (Loss) Per Share

Schedule of weighted average basic and diluted common shares

The following table reconciles the basic to diluted weighted average shares outstanding (in thousands):

	Three Months Ended June 30,		Six Months Ended June 30,
	2015	2014	2015	2014
Basic weighted average common shares outstanding	59,871	40,268	59,843	40,268
Effect of dilutive securities	3,080	—	3,021	—
Diluted weighted average common shares outstanding	62,951	40,268	62,864	40,268
Anti-dilutive shares	55	424	38	390

XML

Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2015

Fair Value Measurements

Summary of the fair value of financial assets and liabilities measured on a recurring basis

The following table summarizes the fair value of the Company’s financial assets and liabilities that are measured on a recurring basis as of June 30, 2015 (in thousands):

	Level 1		Level 2		Level 3		Total
Liabilities:
Interest rate contracts	$	—	$	25,208	$	—	$	25,208
Contingent consideration	—		—		999		999
Total	$	—	$	25,208	$	999	$	26,207

Summary of the changes in Level 3 financial assets and liabilities measured on a recurring basis

The following table summarizes the changes in Level 3 financial liabilities measured on a recurring basis for the six months ended June 30, 2015 (in thousands):

	Contingent Considerations - Accrued expenses and other current liabilities
Balance at December 31, 2014	$	1,911
Revaluations included in earnings	89
Payments on ClinStar contingent consideration	(2,000		)
Initial estimate of VHS contingent consideration	999
Balance at June 30, 2015	$	999

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Net Income (Loss) Per Share (Details) - shares shares in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Reconciliation of basic to diluted weighted average shares outstanding
Basic weighted average common shares outstanding	59,871	40,268	59,843	40,268
Effect of dilutive securities	3,080		3,021
Diluted weighted average common shares outstanding	62,951	40,268	62,864	40,268
Anti-dilutive shares	55	424	38	390

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Long-Term Debt (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Current borrowings and long-term debt
Long-term debt, gross	$ 924,000	$ 954,000
Less debt discount	(4,844)	(5,463)
Total long-term debt, net	919,156	948,537
Principal payments on long-term debt
2020 and thereafter	924,000
Total	924,000	954,000
Estimated fair value of borrowings	952,900	966,000
Term loans, first lien
Current borrowings and long-term debt
Long-term debt, gross	699,000	729,000
Principal payments on long-term debt
Total	699,000	729,000
Revolving credit facilities
Principal payments on long-term debt
Maximum borrowing capacity	$ 125,000
Variable rate basis	LIBOR
Interest period, option one	1 month
Interest period, option two	2 months
Interest period, option three	3 months
Interest period, fourth option	6 months
Commitment fee (as a percent)	0.50%
Step-down commitment fee based upon achievement of a certain leverage ratio (as a percent)	0.375%
Outstanding borrowings	$ 0	0
Outstanding letters of credit	5,000	5,100
Senior notes
Current borrowings and long-term debt
Long-term debt, gross	225,000	225,000
Principal payments on long-term debt
Total	$ 225,000	$ 225,000

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Fair Value Measurements (Details) - Recurring $ in Thousands	Jun. 30, 2015 USD ($)
Total
Liabilities:
Total	$ 26,207
Total | Interest rate contracts
Liabilities:
Total	25,208
Total | Contingent consideration
Liabilities:
Total	999
Level 2
Liabilities:
Total	25,208
Level 2 | Interest rate contracts
Liabilities:
Total	25,208
Level 3
Liabilities:
Total	999
Level 3 | Contingent consideration
Liabilities:
Total	$ 999

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Restructuring (Details) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2015 USD ($)	Dec. 31, 2012 employee
Components of the restructuring charges
Balance at the beginning of the period	$ 753
Foreign exchange adjustment	(64)
Balance at the end of the period	689
European Restructuring
Restructuring
Number of employees terminated | employee		75
Components of the restructuring charges
Balance at the beginning of the period	753
Foreign exchange adjustment	(64)
Balance at the end of the period	689
European Restructuring | Accrued expenses
Restructuring
Total cost incurred	$ 700

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Business Combination

6 Months Ended

Jun. 30, 2015

Business Combination

Business Combination

(2) Business Combination

On June 8, 2015, the Company purchased the assets of Value Health Solutions Inc., or VHS, a software development firm, for $0.5 million in cash and 47,598 unregistered shares of the Company’s common stock with a fair market value of $1.6 million; an additional $0.4 million of common stock will be issued in June 2017, less amounts reimbursable to the Company for any indemnification obligations of the seller.  The asset purchase agreement also includes contingent consideration in the form of potential earn-out payments of up to $16.0 million. Earn-out payments totaling $1.0 million and $15.0 million are contingent upon the achievement of project milestones and certain external software sales targets during the 48-month period following closing, respectively. The Company has recognized a liability of approximately $1.0 million as the estimated acquisition date fair value of the earn-out; this amount is included in the accrued expenses and other current liabilities in the consolidated condensed balance sheet. The fair value of the contingent consideration was based on significant inputs not observed in the market and thus represented a Level 3 measurement. Any change in the fair value of the contingent consideration subsequent to the acquisition date will be recognized in earnings in the period of the change. With this acquisition, the Company expects to enhance its ability to serve customers throughout the clinical research process with technologies that include improved efficiencies by reducing study durations and costs through integrated operational management.

The acquisition of VHS was accounted for as a business combination and, accordingly, the assets acquired and the liabilities assumed have been recorded at their respective fair values as of the acquisition date. In connection with the acquisition, the Company recorded approximately $1.0 million of goodwill, which is deductible for income tax purposes. The goodwill is attributable to the workforce of the acquired business and expected synergies with the Company’s existing information technology operations.

Due to the timing of the acquisition, the valuation of net assets acquired has not been finalized and is expected to be completed by the end of December 2015, and in any case, no later than one year from the acquisition date in accordance with GAAP. The Company’s preliminary estimate of the purchase price allocation is as follows (in thousands):

	Purchase		Weighted
	Price		Amortization
	Allocation		Period
Software intangible	$	2,500	5 years
Property, plant and equipment	43
Estimated fair value of net assets acquired	2,543
Purchase price, including contingent consideration	3,499
Total goodwill	$	956

Pro forma information is not provided as the acquisition did not have a material effect on the Company’s consolidated results.

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Stockholders' Equity (Details) - $ / shares	Jun. 30, 2015	Dec. 31, 2014
Stockholders' Equity
Authorized shares (in shares)	1,000,000,000	1,000,000,000
Par value of share (in dollars per share)	$ 0.01	$ 0.01

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Long-Term Debt (Tables)

6 Months Ended

Jun. 30, 2015

Long-Term Debt.

Schedule of long-term debt

Long-term debt consists of the following (in thousands):

	June 30,			December 31,
	2015			2014
Term loans, first lien	$	699,000		$	729,000
Senior notes	225,000			225,000
	924,000			954,000
Less debt discount	(4,844		)	(5,463		)
Total long-term debt, net	$	919,156		$	948,537

Schedule of principal payments on long-term debt due

Principal payments on long-term debt are due as follows (in thousands):

2015 (remaining)	$	—
2016	—
2017	—
2018	—
2019	—
2020 and thereafter	924,000
Total	$	924,000

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Goodwill and Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2015

Goodwill and Intangible Assets

Schedule of changes in the carrying amount of goodwill

Goodwill

The changes in the carrying amount of goodwill are as follows (in thousands):

Balance at December 31, 2014	$	1,033,999
VHS Acquisition	956
Currency translation	(1,183		)
Balance at June 30, 2015	$	1,033,772

Schedule of intangible assets

Intangible assets consist of the following (in thousands):

	June 30,			December 31,
	2015			2014
Customer relationships	$	391,130		$	393,053
Customer backlog	131,026			130,833
Trade names (definite-lived)	25,770			25,762
Patient list and other intangibles	23,400			20,900
Non-competition agreements	2,787			2,774
Total finite-lived intangible assets, gross	574,113			573,322
Accumulated amortization	(118,858		)	(90,422		)
Total finite-lived intangible assets, net	455,255			482,900
Trade names (indefinite-lived)	118,010			118,010
Total intangible assets, net	$	573,265		$	600,910

Schedule of estimated future amortization expense

The estimated future amortization expense of finite-lived intangible assets is expected to be as follows (in thousands):

2015 (remaining)	$	28,731
2016	46,485
2017	36,590
2018	32,093
2019	26,526
2020 and thereafter	284,830
Total	$	455,255

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Stock-Based Compensation (Details 1) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Stock options, restricted stock awards and restricted stock units
Stock-based compensation
Total stock-based compensation expense	$ 1,245	$ 867	$ 2,020	$ 1,760
Stock options
Stock-based compensation
Total grant date fair value of awards granted			$ 6,700
Options
Outstanding at beginning of period (in shares)			6,961,796
Granted (in shares)			635,500	0
Exercised (in shares)			(172,789)
Expired/forfeited (in shares)			(332,874)
Outstanding at end of period (in shares)	7,091,633		7,091,633		6,961,796
Exercisable (in shares)	2,406,544		2,406,544
Weighted Average Exercise Price
Outstanding at beginning of period (in dollars per share)			$ 9.40
Granted (in dollars per share)			28.60
Exercised (in dollars per share)			4.32
Expired/forfeited (in dollars per share)			11.09
Outstanding at end of period (in dollars per share)	$ 11.15		11.15		$ 9.40
Exercisable (in dollars per share)	$ 4.90		$ 4.90
Weighted Average Remaining Contractual Life
SharebasedCompensationArrangementBySharebasedPaymentAwardOptionsOutstandingWeightedAverageRemainingContractualTerm2			7 years 3 months 18 days		7 years 7 months 6 days
SharebasedCompensationArrangementBySharebasedPaymentAwardOptionsOutstandingWeightedAverageRemainingContractualTerm2			7 years 3 months 18 days		7 years 7 months 6 days
Exercisable			4 years 7 months 6 days
Intrinsic Value
Outstanding at beginning of period			$ 103,100
Outstanding at end of period	$ 178,600		178,600		$ 103,100
Exercisable	$ 75,600		$ 75,600
Restricted Stock
Restricted Shares
Outstanding at beginning of period (in dollars per share)			5,556
Granted (in shares)			138,624
Outstanding at end of period (in dollars per share)	144,180		144,180		5,556
Weighted Average Grant-Date Fair Value
Outstanding at beginning of period (in dollars per share)			$ 20.35
Granted (in dollars per share)			28.44
Outstanding at end of period (in dollars per share)	$ 28.13		$ 28.13		$ 20.35
Intrinsic Value
Outstanding at end of period	$ 5,200		$ 5,200
Restricted Stock Awards (RSAs)
Stock-based compensation
Total grant date fair value of awards granted			$ 3,500
Restricted Shares
Granted (in shares)			123,624	0
Restricted Stock Units (RSUs)
Stock-based compensation
Total grant date fair value of awards granted			$ 400
Restricted Shares
Granted (in shares)			15,000	0
Direct costs | Stock options, restricted stock awards and restricted stock units
Stock-based compensation
Total stock-based compensation expense	251	139	$ 427	$ 282
Selling, general, and administrative expenses | Stock options, restricted stock awards and restricted stock units
Stock-based compensation
Total stock-based compensation expense	$ 994	$ 728	$ 1,593	$ 1,478

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Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2015

Stock-Based Compensation

Summary of stock option plans

					Wtd. Average
			Wtd. Average		Remaining	Intrinsic
	Options		Exercise Price		Contractual Life	Value
						(millions)
Outstanding at December 31, 2014	6,961,796		$	9.40	7.6	$	103.1
Granted	635,500		$	28.60
Exercised	(172,789	)	4.32
Expired/forfeited	(332,874	)	11.09
Outstanding at June 30, 2015	7,091,633		$	11.15	7.3	178.6
Exercisable at June 30, 2015	2,406,544		$	4.90	4.6	75.6

Schedule of restricted stock activity

	Awards	Wtd. Average Grant-Date Fair Value		Intrinsic Value (millions)
Outstanding at December 31, 2014	5,556	$	20.35
Granted	138,624	28.44
Outstanding at June 30, 2015	144,180	$	28.13	$	5.2

Schedule of stock-based compensation expense

Stock-based compensation expense related to employee stock options, RSAs, and RSUs are summarized below (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Direct costs	$	251	$	139	$	427	$	282
Selling, general and administrative	994		728		1,593		1,478
Total stock compensation expense	$	1,245	$	867	$	2,020	$	1,760

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Restructuring (Tables)

6 Months Ended

Jun. 30, 2015

Restructuring

Schedule of components of restructuring charges

The table below outlines the components of the restructuring charges (in thousands):

	Balance at December 31, 2014		Foreign exchange adjustment			Balance at June 30, 2015
European Restructuring	$	753	$	(64	)	$	689
Total	$	753	$	(64	)	$	689

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Basis of Presentation

6 Months Ended

Jun. 30, 2015

Basis of Presentation

Basis of Presentation

(1) Basis of Presentation

Unaudited Interim Financial Information

The interim consolidated condensed financial statements include the accounts of PRA Health Sciences, Inc. and its subsidiaries, or the Company. These financial statements are prepared in conformity with U.S. generally accepted accounting principles, or GAAP, and are unaudited.  In the opinion of the Company’s management, all adjustments of a normal recurring nature necessary for a fair presentation have been reflected.  Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted.  The accompanying interim consolidated condensed financial statements and related notes should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, or the Company’s 2014 Annual Report.

The preparation of the interim consolidated condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim consolidated condensed financial statements and the reported amounts of revenues and claims and expenses during the reporting period.  Actual results could differ from those estimates.

The Company

PRA Health Sciences, Inc. is a full-service global contract research organization providing a broad range of product development services for pharmaceutical and biotechnology companies around the world. The Company’s integrated services include data management, statistical analysis, clinical trial management, and regulatory and drug development consulting.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, or FASB, issued an Accounting Standards Update, or ASU, No. 2014-09, ‘‘Revenue from Contracts with Customers,’’ to clarify the principles of recognizing revenue and create common revenue recognition guidance between GAAP and International Financial Reporting Standards. ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted. The Company is currently assessing the potential impact of ASU No. 2014-09 on the Company’s consolidated condensed financial statements.

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern.” ASU No. 2014-15 clarifies management’s responsibility to evaluate whether there is a substantial doubt about the entity’s ability to continue as a going concern and provides guidance for related footnote disclosures. ASU No. 2014-15 will be effective for annual periods ending after December 15, 2016, and interim periods beginning after December 15, 2016. The adoption of ASU No. 2014-15 is not expected to have a material effect on the Company’s consolidated condensed financial statements.

In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” ASU No. 2015-03 requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. ASU No. 2015-03 will be effective for annual reporting periods beginning after December 15, 2015, and interim periods within those fiscal years. As of June 30, 2015, the Company had $21.9 million in debt issuance costs in other assets that would be reclassified to long-term debt, net.

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Derivatives (Tables)

6 Months Ended

Jun. 30, 2015

Derivatives

Schedule of notional amounts and fair values of derivatives determined using level 2 inputs

All liability amounts are reported in other long-term liabilities (in thousands):

		June 30, 2015					December 31, 2014
	Balance Sheet Classification	Notional amount		Liability			Notional amount		Liability
Derivatives in a liability position:
Interest rate contracts	Other long-term liabilities	$	1,420,000	$	(25,208	)	$	1,420,000	$	(19,446	)
Total designated derivatives		$	1,420,000	$	(25,208	)	$	1,420,000	$	(19,446	)

Schedule of the effect of derivatives on the condensed consolidated statements of operations and comprehensive (loss) income

The table below presents the effect of our derivatives on the consolidated condensed statements of operations and comprehensive loss for the three and six months ended June 30, 2015 and 2014 (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
Derivatives in Cash Flow Hedging Relationships (Interest Rate Contracts)	2015			2014			2015			2014
Amount of pre-tax gain (loss) recognized in other comprehensive income (loss) on derivatives	$	1,770		$	(8,207	)	$	(5,168	)	$	(15,174	)
Amount of loss recognized in other expense, net on derivatives (ineffective portion)	(29		)	—			(85		)	—
Amount of loss recognized in other expense, net on derivatives (no longer qualify for hedge accounting)	(20		)	—			(509		)	—
Amount of loss reclassified from accumulated other comprehensive loss into interest expense, net on derivatives	(52		)	—			(69		)	—

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Accounts Receivable and Unbilled Services (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Accounts Receivable and Unbilled Services
Accounts receivable	$ 284,160	$ 235,058
Unbilled services	115,242	105,542
Total accounts receivable, gross	399,402	340,600
Less allowance for doubtful accounts	(2,775)	(1,819)
Total accounts receivable and unbilled services, net	$ 396,627	$ 338,781

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CONSOLIDATED CONDENSED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Current assets:
Cash and cash equivalents	$ 61,148	$ 85,192
Restricted cash	6,051	6,337
Accounts receivable and unbilled services, net	396,627	338,781
Other current assets	65,389	58,413
Total current assets	529,215	488,723
Fixed assets, net	76,250	72,933
Goodwill	1,033,772	1,033,999
Intangible assets, net	573,265	600,910
Other assets	39,111	42,012
Total assets	2,251,613	2,238,577
Current liabilities:
Accounts payable	55,506	39,100
Accrued expenses and other current liabilities	132,879	131,135
Advance billings	297,671	296,121
Total current liabilities	486,056	466,356
Long-term debt, net	919,156	948,537
Other long-term liabilities	150,877	146,869
Total liabilities	$ 1,556,089	$ 1,561,762
Commitments and contingencies (Note 12)
Stockholders' equity:
Common stock, $0.01 par value, 1,000,000,000 authorized shares at June 30, 2015 and December 31, 2014; 60,158,455 and 59,814,444 issued and outstanding at June 30, 2015 and December 31, 2014, respectively	$ 602	$ 598
Additional paid-in capital	825,037	821,411
Accumulated other comprehensive loss	(84,032)	(69,509)
Accumulated deficit	(46,083)	(75,685)
Total stockholders' equity	695,524	676,815
Total liabilities and stockholders' equity	$ 2,251,613	$ 2,238,577

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Income Taxes (Details) - USD ($) $ in Millions	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Income Taxes
Effective income tax rate (as a percent)	30.30%	45.90%
U.S. statutory rate (as a percent)	35.00%
Liability for unrecognized tax benefits	$ 14.8
Amount of gross unrecognized tax benefits that will change in the next 12 months as a result of pending audit settlements or statute of limitations expirations	$ 0.4

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CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Unrealized losses on derivative instruments, tax	$ 3,204	$ 700	$ 5,924

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Business Combination (Details) - USD ($) $ in Thousands		6 Months Ended
	Jun. 08, 2015	Jun. 30, 2015	Dec. 31, 2014
Business Combination
Cash paid		$ 543
Fair market value of common stock issued		1,582
Preliminary estimate of purchase price allocation
Total goodwill		$ 1,033,772	$ 1,033,999
VHS
Business Combination
Cash paid	$ 500
Number of unregistered shares of common stock issued	47,598
Fair market value of common stock issued	$ 1,600
Additional amount of common stock to be issued at a future date	400
Aggregate potential contingent earn-out payments	16,000
Potential contingent earn-out payments based on milestones	1,000
Potential contingent earn-out payments based on sales targets	$ 15,000
Earn-out period for contingent consideration	48 months
Liability recognized	$ 1,000
Preliminary estimate of purchase price allocation
Software intangible	2,500
Property, plant and equipment	43
Estimated fair value of net assets acquired	2,543
Purchase price, including contingent consideration	3,499
Total goodwill	$ 956
Software intangible | VHS
Preliminary estimate of purchase price allocation
Weighted Amortization Period	5 years

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Related Party Transactions

6 Months Ended

Jun. 30, 2015

Related Party Transactions

Related Party Transactions

(15) Related Party Transactions

At December 31, 2014, Kohlberg Kravis Robert & Co. L.P., or KKR, the majority stockholder of the Company, held $0.8 million in first lien term debt. At June 30, 2015, KKR no longer held any of the Company’s first lien term debt.

The Company paid management fees of $0.6 million and $1.1 million to KKR pursuant to the terms of the monitoring agreement between the Company and KKR that was in effect prior to the IPO during the three and six months ended June 30, 2014, respectively. The Company did not pay any management fees to KKR during the three and six months ended June 30, 2015 due to the termination of the monitoring agreement in conjunction with the IPO during the fourth quarter of 2014.

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Joint Ventures (Details) - PRA-WuXi Joint Venture - USD ($) $ in Millions	Apr. 30, 2015	Apr. 30, 2014
Joint Ventures
Equity interest percentage of ownership		49.00%
Equity investment amount	$ 3.0

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Business Combinations (Tables)

6 Months Ended

Jun. 30, 2015

VHS

Business Combination

Schedule of preliminary estimate of the purchase price allocation

The Company’s preliminary estimate of the purchase price allocation is as follows (in thousands):

	Purchase		Weighted
	Price		Amortization
	Allocation		Period
Software intangible	$	2,500	5 years
Property, plant and equipment	43
Estimated fair value of net assets acquired	2,543
Purchase price, including contingent consideration	3,499
Total goodwill	$	956

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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Cash flows from operating activities:
Net income (loss)	$ 29,602	$ (14,097)
Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	38,455	49,236
Amortization of debt issuance costs and discount	3,286	2,893
Stock-based compensation	2,020	1,760
Unrealized foreign currency (gains) losses	(8,079)	5,808
Loss on modification of debt		1,384
Deferred income taxes	(2,395)	(20,897)
Other reconciling items	3,143	826
Changes in operating assets and liabilities:
Accounts receivable, unbilled services, and advance billings	(65,550)	(50,547)
Other operating assets and liabilities	29,475	20,374
Net cash provided by (used in) operating activities	29,957	(3,260)
Cash flows from investing activities:
Purchase of fixed assets	(17,066)	(11,876)
Investment in unconsolidated joint ventures	(3,000)
Acquisition of Value Health Solutions Inc.	(543)
Payment of amounts held in escrow		(787)
Net cash (used in) provided by investing activities	(20,609)	3,188
Cash flows from financing activities:
Repayments of long-term debt	(30,000)	(4,450)
Borrowings on line of credit	15,000	45,000
Repayments of line of credit	(15,000)	(55,000)
Proceeds from stock options exercises	27	33
Payment of acquisition-related contingent consideration	(2,000)
Payments for common stock issuance costs	(525)
Net cash used in financing activities	(32,498)	(14,417)
Effects of foreign exchange changes on cash and cash equivalents	(894)	(20)
Change in cash and cash equivalents	(24,044)	(14,509)
Cash and cash equivalents, beginning of period	85,192	72,155
Cash and cash equivalents, end of period	61,148	57,646
Non-cash investing activities:
Issuance of common stock for the acquisition of Value Health Solutions Inc.	$ 1,582
RPS
Cash flows from investing activities:
Proceeds from working capital settlement		15,000
CRI Lifetree
Cash flows from investing activities:
Proceeds from working capital settlement		$ 851

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CONSOLIDATED CONDENSED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 30, 2015	Dec. 31, 2014
CONSOLIDATED CONDENSED BALANCE SHEETS
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	1,000,000,000	1,000,000,000
Common stock, shares issued	60,158,455	59,814,444
Common stock, shares outstanding	60,158,455	59,814,444

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2015

Stock-Based Compensation

Stock-Based Compensation

(10)  Stock-Based Compensation

The Company granted 635,500 service-based options, 123,624 restricted stock awards, or RSAs, and 15,000 restricted stock units, or RSUs, with a total grant date fair value of $6.7 million, $3.5 million and $0.4 million, respectively, during the six months ended June 30, 2015. There were no options, RSAs, or RSUs granted during the six months ended June 30, 2014.

Aggregated information regarding the Company’s option plans is summarized below:

					Wtd. Average
			Wtd. Average		Remaining	Intrinsic
	Options		Exercise Price		Contractual Life	Value
						(millions)
Outstanding at December 31, 2014	6,961,796		$	9.40	7.6	$	103.1
Granted	635,500		$	28.60
Exercised	(172,789	)	4.32
Expired/forfeited	(332,874	)	11.09
Outstanding at June 30, 2015	7,091,633		$	11.15	7.3	178.6
Exercisable at June 30, 2015	2,406,544		$	4.90	4.6	75.6

The Company’s restricted share activity in 2015 is as follows:

	Awards	Wtd. Average Grant-Date Fair Value		Intrinsic Value (millions)
Outstanding at December 31, 2014	5,556	$	20.35
Granted	138,624	28.44
Outstanding at June 30, 2015	144,180	$	28.13	$	5.2

Stock-based compensation expense related to employee stock options, RSAs, and RSUs are summarized below (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Direct costs	$	251	$	139	$	427	$	282
Selling, general and administrative	994		728		1,593		1,478
Total stock compensation expense	$	1,245	$	867	$	2,020	$	1,760

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Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2015	Jul. 24, 2015
Document and Entity Information
Entity Registrant Name	PRA Health Sciences, Inc.
Entity Central Index Key	0001613859
Document Type	10-Q
Document Period End Date	Jun. 30, 2015
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		60,165,102
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q2

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Income Taxes

6 Months Ended

Jun. 30, 2015

Income Taxes

Income Taxes

(11) Income Taxes

The Company’s effective income tax rate was 30.3% and 45.9% for the six months ended June 30, 2015 and 2014, respectively. The variation between the Company’s effective income tax rate and the U.S. statutory rate of 35% for the six months ended June 30, 2015 is primarily due to (i) income from foreign subsidiaries being taxed at rates lower than the U.S. statutory rate and (ii) the favorable impact of research and development tax credits.

GAAP requires a two-step approach when evaluating uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence demonstrates that it is more likely than not that the position will be sustained upon audit, including resolution of any related appeals or litigation processes. The second step is to quantify the amount of tax benefit to recognize as the amount that is cumulatively more than 50% likely to be realized upon ultimate settlement with the taxing authorities.

As of June 30, 2015, the Company’s liability for unrecognized tax benefits was $14.8 million. If any portion of this $14.8 million is recognized that impacts the effective tax rate, the Company will then include that portion in the computation of its effective tax rate. Although the ultimate timing of the resolution of audits is highly uncertain, the Company believes it is reasonably possible that approximately $0.4 million of gross unrecognized tax benefits will change in the next 12 months as a result of pending audit settlements or statute of limitations expirations.

The Company files U.S. federal, U.S. state, and foreign tax returns. For U.S. federal purposes, the Company is generally no longer subject to tax examinations for years ended December 31, 2011 and prior. For U.S. state tax returns, the Company is generally no longer subject to tax examinations for years prior to 2011. For foreign purposes, the Company is generally no longer subject to examination for tax periods 2007 and prior. Certain carryforward tax attributes generated in prior years remain subject to examination and adjustment.

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CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Revenue:
Service revenue	$ 336,518	$ 311,422	$ 668,486	$ 622,774
Reimbursement revenue	56,330	46,123	112,940	89,511
Total revenue	392,848	357,545	781,426	712,285
Operating expenses:
Direct costs	219,877	213,378	438,838	428,529
Reimbursable out-of-pocket costs	56,330	46,123	112,940	89,511
Selling, general and administrative	58,905	56,010	119,740	116,849
Depreciation and amortization	19,220	24,598	38,455	49,236
Loss on disposal of fixed assets	195		195
Income from operations	38,321	17,436	71,258	28,160
Interest expense, net	(15,416)	(20,818)	(30,809)	(42,584)
Loss on modification of debt				(1,384)
Foreign currency (losses) gains, net	(3,966)	(5,387)	5,100	(9,099)
Other expense, net	(96)	(116)	(560)	(175)
Income (loss) before income taxes and equity in losses of unconsolidated joint ventures	18,843	(8,885)	44,989	(25,082)
Provision for (benefit from) income taxes	5,623	(5,186)	13,645	(11,519)
Income (loss) before equity in losses of unconsolidated joint ventures	13,220	(3,699)	31,344	(13,563)
Equity in losses of unconsolidated joint ventures, net of tax	(805)	(357)	(1,742)	(534)
Net income (loss)	$ 12,415	$ (4,056)	$ 29,602	$ (14,097)
Net income (loss) per share attributable to common stockholders:
Basic (in dollars per share)	$ 0.21	$ (0.10)	$ 0.49	$ (0.35)
Diluted (in dollars per share)	$ 0.20	$ (0.10)	$ 0.47	$ (0.35)
Weighted average common shares outstanding:
Basic (in shares)	59,871	40,268	59,843	40,268
Diluted (in shares)	62,951	40,268	62,864	40,268

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Concentration of Credit Risk

6 Months Ended

Jun. 30, 2015

Concentration of Credit Risk

Concentration of Credit Risk

(5) Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, accounts receivable, and unbilled services.  As of June 30, 2015, substantially all of the Company’s cash and cash equivalents were held in or invested with large financial institutions.  Accounts receivable include amounts due from pharmaceutical and biotechnology companies.  The Company establishes an allowance for potentially uncollectible receivables.  In management’s opinion, there is no additional material credit risk beyond amounts provided for such losses.

Service revenue from individual customers greater than 10% of consolidated service revenue in the respective periods was as follows:

	Three Months Ended June 30,			Six Months Ended June 30,
	2015		2014	2015		2014
Customer A	10.3	%	—	10.9	%	—

Accounts receivable and unbilled receivables from individual customers that were equal to or greater than 10% of consolidated accounts receivable and unbilled receivables at the respective dates were as follows:

	June 30,		December 31,
	2015		2014
Customer A	11.0	%	14.4	%
Customer B	11.0	%	10.2	%

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Fair Value Measurements

6 Months Ended

Jun. 30, 2015

Fair Value Measurements

Fair Value Measurements

(4) Fair Value Measurements

The Company records certain assets and liabilities at fair value.  Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.  A three-level fair value hierarchy that prioritizes the inputs used to measure fair value is described below.  This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs.

The three levels of inputs used to measure fair value are as follows:

· Level 1 — Quoted prices in active markets for identical assets or liabilities.

· Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

· Level 3 — Unobservable inputs that are supported by little or no market activity. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The carrying amount of financial instruments, including cash and cash equivalents, accounts receivable, unbilled services, accounts payable and advanced billings, approximate fair value due to the short maturities of these instruments.

Recurring Fair Value Measurements

The following table summarizes the fair value of the Company’s financial assets and liabilities that are measured on a recurring basis as of June 30, 2015 (in thousands):

	Level 1		Level 2		Level 3		Total
Liabilities:
Interest rate contracts	$	—	$	25,208	$	—	$	25,208
Contingent consideration	—		—		999		999
Total	$	—	$	25,208	$	999	$	26,207

Interest rate swaps and caps, or interest rate contracts, are measured at fair value using a market approach valuation technique. The valuation is based on an estimate of net present value of the expected cash flows using relevant mid-market observable data inputs and based on the assumption of no unusual market conditions or forced liquidation.

The Company values contingent consideration, related to business combinations, using a weighted probability of potential payment scenarios discounted at rates reflective of the weighted average cost of capital for the businesses acquired. Key assumptions used to estimate the fair value of contingent consideration include operational milestones and the probability of achieving the specific milestones.

The following table summarizes the changes in Level 3 financial liabilities measured on a recurring basis for the six months ended June 30, 2015 (in thousands):

	Contingent Considerations - Accrued expenses and other current liabilities
Balance at December 31, 2014	$	1,911
Revaluations included in earnings	89
Payments on ClinStar contingent consideration	(2,000		)
Initial estimate of VHS contingent consideration	999
Balance at June 30, 2015	$	999

Non-recurring Fair Value Measurements

Certain assets and liabilities are carried on the accompanying consolidated condensed balance sheets at cost and are not remeasured to fair value on a recurring basis. These assets include finite-lived intangible assets which are tested when a triggering event occurs and goodwill and identifiable indefinite-lived intangible assets which are tested for impairment annually on October 1 or when a triggering event occurs.

As of June 30, 2015, assets carried on the balance sheet and not remeasured to fair value on a recurring basis totaling approximately $1,607.0 million were identified as Level 3. These assets are comprised of goodwill of $1,033.8 million and identifiable intangible assets of $573.2 million.

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Net Income (Loss) Per Share

6 Months Ended

Jun. 30, 2015

Net Income (Loss) Per Share

Net Income (Loss) Per Share

(16) Net Income (Loss) Per Share

Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the applicable period. Diluted net income (loss) per share is calculated after adjusting the denominator of the basic net income (loss) per share calculation for the effect of all potentially dilutive common shares, which, in the Company’s case, includes shares issuable under the stock option and incentive award plan.

The following table reconciles the basic to diluted weighted average shares outstanding (in thousands):

	Three Months Ended June 30,		Six Months Ended June 30,
	2015	2014	2015	2014
Basic weighted average common shares outstanding	59,871	40,268	59,843	40,268
Effect of dilutive securities	3,080	—	3,021	—
Diluted weighted average common shares outstanding	62,951	40,268	62,864	40,268
Anti-dilutive shares	55	424	38	390

The dilutive and anti-dilutive shares disclosed above were calculated using the treasury stock method. During the three and six months ended June 30, 2015, the anti-dilutive shares were due to the assumed exercise price exceeding the average market price of the Company’s common stock during the period. During the three and six months ended June 30, 2014, the anti-dilutive shares were due to the Company being in a net loss position during the period.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2015

Commitments and Contingencies

Commitments and Contingencies

(12) Commitments and Contingencies

Legal Proceedings

The Company is involved in legal proceedings from time to time in the ordinary course of its business, including employment claims and claims related to other business transactions.  Although the outcome of such claims is uncertain, management believes that these legal proceedings will not have a material adverse effect on the financial condition or results of future operations of the Company.

The Company is currently a party to litigation with the City of Sao Paulo, Brazil. The dispute relates to whether the export of services provided by the Company is subject to a local tax on services. The Company has not recorded a liability associated with the claim, which totaled $4.6 million at June 30, 2015, given that it is not deemed probable the Company will incur a loss related to this case. However, a deposit totaling $4.6 million has been made to the Brazilian court in order to annul the potential tax obligation and to avoid the accrual of additional interest and penalties. This balance is recorded in other assets on the consolidated condensed balance sheet. During June 2015, the Judiciary Court of Justice of the State of Sao Paulo ruled in the favor of the Company, however, we expect the judgment to be appealed by the City of Sao Paulo. The Company expects to recover the full amount of the deposit when the case is final.

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Long-Term Debt

6 Months Ended

Jun. 30, 2015

Long-Term Debt.

Long-Term Debt

(8) Long-Term Debt

Long-term debt consists of the following (in thousands):

	June 30,			December 31,
	2015			2014
Term loans, first lien	$	699,000		$	729,000
Senior notes	225,000			225,000
	924,000			954,000
Less debt discount	(4,844		)	(5,463		)
Total long-term debt, net	$	919,156		$	948,537

Principal payments on long-term debt are due as follows (in thousands):

2015 (remaining)	$	—
2016	—
2017	—
2018	—
2019	—
2020 and thereafter	924,000
Total	$	924,000

The estimated fair value of long-term debt was $952.9 million and $966.0 million at June 30, 2015 and December 31, 2014, respectively.  The fair value of the senior notes was determined based on Level 2 inputs using the market approach, which is primarily based on rates at which the debt is traded among financial institutions.  The fair value of the term loans and borrowings under credit facilities was determined based on Level 3 inputs, which is primarily based on rates at which the debt is traded among financial institutions adjusted for the Company’s credit standing.

Revolving Credit Facilities

The Company’s revolving credit facilities provide for $125.0 million of potential borrowings and expires on September 23, 2018.  The interest rate on the revolving credit facilities is based on the LIBOR plus an applicable rate, based on the leverage ratio of the Company.  The Company, at its discretion, may choose interest periods of 1, 2, 3 or 6 months.  In addition, the Company is required to pay to the lenders a commitment fee of 0.5% quarterly for unused commitments on the revolver, subject to a step-down to 0.375% based upon achievement of a certain leverage ratio. At June 30, 2015 and December 31, 2014, the Company had no outstanding borrowings under the revolving credit facilities. In addition, at June 30, 2015 and December 31, 2014, the Company had $5.0 million and $5.1 million, respectively, in letters of credit outstanding, which are secured by the revolving credit facilities.

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Accounts Receivable and Unbilled Services

6 Months Ended

Jun. 30, 2015

Accounts Receivable and Unbilled Services

Accounts Receivable and Unbilled Services

(6)  Accounts Receivable and Unbilled Services

Accounts receivable and unbilled services include service revenue, reimbursement revenue, and amounts associated with work performed by investigators. Accounts receivable and unbilled services were as follows (in thousands):

	June 30,			December 31,
	2015			2014
Accounts receivable	$	284,160		$	235,058
Unbilled services	115,242			105,542
	399,402			340,600
Less allowance for doubtful accounts	(2,775		)	(1,819		)
Total accounts receivable and unbilled services, net	$	396,627		$	338,781

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Goodwill and Intangible Assets

6 Months Ended

Jun. 30, 2015

Goodwill and Intangible Assets

Goodwill and Intangible Assets

(7) Goodwill and Intangible Assets

Goodwill

The changes in the carrying amount of goodwill are as follows (in thousands):

Balance at December 31, 2014	$	1,033,999
VHS Acquisition	956
Currency translation	(1,183		)
Balance at June 30, 2015	$	1,033,772

There are no accumulated impairment charges as of June 30, 2015.

Based upon the Company’s most recent annual goodwill impairment test that was conducted during the fourth quarter of 2014, the fair value of its Product Registration Services and Strategic Solutions reporting units substantially exceeded their carrying values; the estimated fair value of the Early Development Services, or EDS, reporting unit, however, closely approximated its carrying value. The goodwill of EDS was $124.5 million at June 30, 2015. The EDS reporting unit experienced significant cancellations in the second half of 2014 and was not able to realize synergies from the CRI Lifetree acquisition as quickly as originally forecasted. The Company’s current assumptions include higher revenue during the remainder of 2015, from existing backlog and increased new business awards, as well as making operational improvements to the business. Any negative changes in assumptions on revenue, new business awards, cancellations, or the Company’s ability to improve operations while maintaining a competitive cost structure could adversely affect the fair value of EDS and result in significant goodwill impairment charges in 2015 or later.

Intangible Assets

Intangible assets consist of the following (in thousands):

	June 30,			December 31,
	2015			2014
Customer relationships	$	391,130		$	393,053
Customer backlog	131,026			130,833
Trade names (definite-lived)	25,770			25,762
Patient list and other intangibles	23,400			20,900
Non-competition agreements	2,787			2,774
Total finite-lived intangible assets, gross	574,113			573,322
Accumulated amortization	(118,858		)	(90,422		)
Total finite-lived intangible assets, net	455,255			482,900
Trade names (indefinite-lived)	118,010			118,010
Total intangible assets, net	$	573,265		$	600,910

Amortization expense was $14.1 million and $28.2 million for the three and six months ended June 30, 2015, respectively, and $19.7 million and $38.4 million for the three and six months ended June 30, 2014, respectively. The estimated future amortization expense of finite-lived intangible assets is expected to be as follows (in thousands):

2015 (remaining)	$	28,731
2016	46,485
2017	36,590
2018	32,093
2019	26,526
2020 and thereafter	284,830
Total	$	455,255

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Stockholders' Equity

6 Months Ended

Jun. 30, 2015

Stockholders' Equity

Stockholders' Equity

(9) Stockholders’ Equity

Authorized Shares

The Company is authorized to issue up to one billion shares of common stock, with a par value of $0.01.

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Basis of Presentation (Details) $ in Millions	6 Months Ended
	Jun. 30, 2015 USD ($)
Basis of Presentation
Debt issuance costs	$ 21.9

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Derivatives

6 Months Ended

Jun. 30, 2015

Derivatives

Derivatives

(14) Derivatives

The Company is exposed to certain risks relating to our ongoing business operations. The primary risk that the Company seeks to manage by using derivative instruments is interest rate risk. Accordingly, the Company has instituted interest rate hedging programs that are accounted for in accordance with ASC 815, “Derivatives and Hedging.” The interest rate hedging program is a cash flow hedge program designed to minimize interest rate volatility. The Company swaps the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount, at specified intervals. The Company also employs an interest rate cap that compensates us if variable interest rates rise above a pre-determined rate. The Company’s interest rate contracts are designated as hedging instruments.

On October 2, 2013, the Company entered into interest rate swap agreements with an aggregate notional principal amount of $620.0 million. The interest rate swaps will begin on September 23, 2015. The interest rate swaps will be used to hedge the Company’s variable rate debt. The interest rate swaps have maturity dates ranging from one to five years.

In addition, on October 2, 2013, the Company also entered into an interest rate cap with an aggregate notional principal amount of $800.0 million. The interest rate cap began on September 23, 2014 and will expire on September 23, 2015. The interest rate cap is used to hedge the variable rate of the Company’s revolving credit facilities to the extent that the LIBOR rises above 4.0%.

The following table presents the notional amounts and fair values (determined using level 2 inputs) of our derivatives as of June 30, 2015 and December 31, 2014. All liability amounts are reported in other long-term liabilities (in thousands):

		June 30, 2015					December 31, 2014
	Balance Sheet Classification	Notional amount		Liability			Notional amount		Liability
Derivatives in a liability position:
Interest rate contracts	Other long-term liabilities	$	1,420,000	$	(25,208	)	$	1,420,000	$	(19,446	)
Total designated derivatives		$	1,420,000	$	(25,208	)	$	1,420,000	$	(19,446	)

The Company records the effective portion of any change in the fair value of derivatives designated as hedging instruments under ASC 815 to other accumulated comprehensive (loss) income in our consolidated condensed balance sheet, net of deferred taxes, and will later reclassify into earnings when the hedged item affects earnings or is no longer expected to occur. Gains and losses from the ineffective portion of any hedge are recognized in earnings immediately. For other derivative contracts that do not qualify or no longer qualify for hedge accounting, changes in the fair value of the derivatives are recognized in earnings each period.

During the fourth quarter of 2014, due to the debt repayments made in conjunction with the Company’s initial public offering, or IPO, in November 2014 and related changes to forecasted voluntary debt repayments in future periods, the Company determined interest rate swaps with a notional principal amount of $47.5 million no longer qualify for hedge accounting.  The change in estimated debt repayments also resulted in ineffectiveness in interest rate swaps with a notional principal amount of $297.5 million during the fourth quarter of 2014.

During the second quarter of 2015, the Company further revised its forecasted voluntary debt repayments in future periods.  As a result of the change in expected future cash flows, an interest rate swap with a notional principal amount of $17.5 million experienced ineffectiveness.  This also caused interest rate swaps with a notional principal amount of $40.0 million, which experienced ineffectiveness during 2014, to no longer qualify for hedge accounting.

The table below presents the effect of our derivatives on the consolidated condensed statements of operations and comprehensive loss for the three and six months ended June 30, 2015 and 2014 (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
Derivatives in Cash Flow Hedging Relationships (Interest Rate Contracts)	2015			2014			2015			2014
Amount of pre-tax gain (loss) recognized in other comprehensive income (loss) on derivatives	$	1,770		$	(8,207	)	$	(5,168	)	$	(15,174	)
Amount of loss recognized in other expense, net on derivatives (ineffective portion)	(29		)	—			(85		)	—
Amount of loss recognized in other expense, net on derivatives (no longer qualify for hedge accounting)	(20		)	—			(509		)	—
Amount of loss reclassified from accumulated other comprehensive loss into interest expense, net on derivatives	(52		)	—			(69		)	—

The Company expects that $8.4 million of unrealized losses will be reclassified out of accumulated other comprehensive loss and into interest expense, net over the next 12 months.

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Concentration of Credit Risk (Tables)

6 Months Ended

Jun. 30, 2015

Service revenue

Concentration risk

Schedule of concentration of risk by risk factor

	Three Months Ended June 30,			Six Months Ended June 30,
	2015		2014	2015		2014
Customer A	10.3	%	—	10.9	%	—

Accounts receivable and unbilled receivables

Concentration risk

Schedule of concentration of risk by risk factor

	June 30,		December 31,
	2015		2014
Customer A	11.0	%	14.4	%
Customer B	11.0	%	10.2	%

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Related Party Transactions (Details) - KKR - USD ($) $ in Millions	3 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2014	Dec. 31, 2014
Related Party Transactions
Management fees paid	$ 0.6	$ 1.1
First lien term debt
Related Party Transactions
First lien term debt held by related parties			$ 0.8

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Goodwill and Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Changes in carrying amount of goodwill
Balance at the beginning of the period			$ 1,033,999
Currency translation			(1,183)
Balance at the end of the period	$ 1,033,772		1,033,772
Accumulated impairment charges	0		0
Intangible Assets
Total finite-lived intangible assets, gross	574,113		574,113		$ 573,322
Accumulated amortization	(118,858)		(118,858)		(90,422)
Total finite-lived intangible assets, net	455,255		455,255		482,900
Trade names (indefinite-lived)	118,010		118,010		118,010
Total intangible assets, net	573,265		573,265		600,910
Amortization expense	14,100	$ 19,700	28,200	$ 38,400
2015 (remaining)	28,731		28,731
2016	46,485		46,485
2017	36,590		36,590
2018	32,093		32,093
2019	26,526		26,526
2020 and thereafter	284,830		284,830
Total finite-lived intangible assets, net	455,255		455,255		482,900
Customer relationships
Intangible Assets
Total finite-lived intangible assets, gross	391,130		391,130		393,053
Customer backlog
Intangible Assets
Total finite-lived intangible assets, gross	131,026		131,026		130,833
Trade names
Intangible Assets
Total finite-lived intangible assets, gross	25,770		25,770		25,762
Patient list and other intangibles
Intangible Assets
Total finite-lived intangible assets, gross	23,400		23,400		20,900
Non-competition agreements
Intangible Assets
Total finite-lived intangible assets, gross	2,787		2,787		$ 2,774
EDS
Changes in carrying amount of goodwill
Balance at the end of the period	$ 124,500		124,500
VHS
Changes in carrying amount of goodwill
VHS Acquisition			$ 956

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CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income (loss)	$ 12,415	$ (4,056)	$ 29,602	$ (14,097)
Other comprehensive income (loss):
Foreign currency translation adjustments	30,233	14,386	(10,124)	16,280
Unrealized gains (losses) on derivative instruments, net of income taxes of $ -, $3,204, $700 and $5,924	1,770	(5,003)	(4,468)	(9,250)
Reclassification adjustments:
Losses on derivatives included in net income (loss), net of income taxes, $ -, $ -, $ - and $ -	52		69
Comprehensive income (loss)	$ 44,470	$ 5,327	$ 15,079	$ (7,067)

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Joint Ventures

6 Months Ended

Jun. 30, 2015

Joint Ventures

Joint Ventures

(3) Joint Ventures

PRA and WuXi PharmaTech, or WuXi, operate a joint venture, WuXiPRA Clinical Research Co., Ltd, or WuXiPRA, with operations in China, Hong Kong and Macau.  During April 2015, both PRA and WuXi made a $3.0 million contribution to WuXiPRA to fund the joint venture’s working capital needs.  The Company’s interest in WuXiPRA remains at 49% after the capital contribution.

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Accounts Receivable and Unbilled Services (Tables)

6 Months Ended

Jun. 30, 2015

Accounts Receivable and Unbilled Services

Schedule of accounts receivable and unbilled services

Accounts receivable and unbilled services were as follows (in thousands):

	June 30,			December 31,
	2015			2014
Accounts receivable	$	284,160		$	235,058
Unbilled services	115,242			105,542
	399,402			340,600
Less allowance for doubtful accounts	(2,775		)	(1,819		)
Total accounts receivable and unbilled services, net	$	396,627		$	338,781

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Fair Value Measurements (Details 2) - Jun. 30, 2015 - Level 3 - USD ($) $ in Thousands	Total
Nonrecurring
Assets fair value measurements
Assets fair value	$ 1,607,000
Goodwill	1,033,800
Identifiable intangible assets	573,200
Contingent consideration | Recurring
Changes in the fair value of the Company's Level 3 financial liabilities
Beginning balance	1,911
Revaluations included in earnings	89
Initial estimate of VHS contingent consideration	999
Ending balance	999
ClinStar | Contingent consideration | Recurring
Changes in the fair value of the Company's Level 3 financial liabilities
Payments on ClinStar contingent consideration	$ (2,000)

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Restructuring

6 Months Ended

Jun. 30, 2015

Restructuring

Restructuring

(13) Restructuring

European Restructuring

During 2012, the Board of Directors of RPS Parent Holding Corp., or RPS, approved a restructuring plan, or European Restructuring Plan, to reduce support costs in its European Operations. RPS offered severance benefits to the terminated employees and eliminated approximately 75 positions. The Company elected to continue the European Restructuring Plan after acquiring RPS in September 2013 and a total of approximately $0.7 million is included in accrued expenses and other current liabilities as of June 30, 2015. This balance relates to outstanding contingency claims for certain former employees that were terminated as part of the European Restructuring Plan. The Company did not incur any additional restructuring expense during the three and six months ended June 30, 2015.

The table below outlines the components of the restructuring charges (in thousands):

	Balance at December 31, 2014		Foreign exchange adjustment			Balance at June 30, 2015
European Restructuring	$	753	$	(64	)	$	689
Total	$	753	$	(64	)	$	689