Syneos Health, Inc. - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2021


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

For the transition period from to .

Commission File Number: 001-36730

SYNEOS HEALTH, INC.

(Exact name of registrant as specified in its charter)


Delaware		27-3403111
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1030 Sync Street, Morrisville, North Carolina 27560-5468

(Address of principal executive offices and Zip Code)

(919) 876-9300

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.01 par value per share	SYNH	The Nasdaq Stock Market LLC

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of October 27, 2021, there were approximately 103,692,056 shares of the registrant’s common stock outstanding.

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SYNEOS HEALTH, INC.

FORM 10-Q

TABLE OF CONTENTS

	PART I - FINANCIAL INFORMATION

		Page

Item 1.	Financial Statements	3

	Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2021 and 2020 (unaudited)	3

	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020 (unaudited)	4

	Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (unaudited)	6

	Condensed Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, 2021 and 2020 (unaudited)	7

	Notes to Condensed Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43

Item 4.	Controls and Procedures	43

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	43

Item 1A.	Risk Factors	43

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	43

Item 5.	Other Information	44

Item 6.	Exhibits	45

	Signature	46

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2021			2020		2021			2020
	(in thousands, except per share data)
Revenue	$	1,348,230		$	1,099,004	$	3,839,586		$	3,275,758

Costs and operating expenses:
Direct costs (exclusive of depreciation and amortization)		1,031,887			820,228		2,969,718			2,550,134
Selling, general, and administrative expenses		139,524			118,051		421,507			351,942
Restructuring and other costs		7,209			6,523		18,403			23,414
Depreciation		17,680			17,301		54,285			51,830
Amortization		38,574			38,147		117,618			115,746
Total operating expenses		1,234,874			1,000,250		3,581,531			3,093,066
Income from operations		113,356			98,754		258,055			182,692

Total other expense, net:
Interest income		76			126		5			(332	)
Interest expense		16,698			20,316		62,645			68,458
Loss on extinguishment of debt		—			346		2,802			346
Other (income) expense, net		(3,827	)		10,596		(5,856	)		(2,573	)
Total other expense, net		12,947			31,384		59,596			65,899
Income before provision for income taxes		100,409			67,370		198,459			116,793
Income tax expense		22,166			3,954		39,587			15,892
Net income	$	78,243		$	63,416	$	158,872		$	100,901

Earnings per share:
Basic	$	0.76		$	0.61	$	1.53		$	0.97
Diluted	$	0.75		$	0.60	$	1.51		$	0.96
Weighted average common shares outstanding:
Basic		103,562			104,277		103,924			104,247
Diluted		104,785			105,588		105,087			105,483

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

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SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2021			2020		2021			2020
	(in thousands)
Net income	$	78,243		$	63,416	$	158,872		$	100,901
Unrealized gain (loss) on derivative instruments, net of income tax expense (benefit) of $317, $1,384, $3,926, and $(5,203), respectively		936			5,219		11,581			(6,642	)
Foreign currency translation adjustments, net of income tax (benefit) expense of $(1,102), $0, $(1,260), and $0, respectively		(23,687	)		33,832		(19,172	)		(12,086	)
Comprehensive income	$	55,492		$	102,467	$	151,281		$	82,173

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

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SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2021			December 31, 2020
	(in thousands, except par value)
ASSETS
Current assets:
Cash, cash equivalents, and restricted cash	$	122,535		$	272,173
Accounts receivable and unbilled services, net		1,527,032			1,344,781
Prepaid expenses and other current assets		114,632			121,058
Total current assets		1,764,199			1,738,012
Property and equipment, net		205,479			216,200
Operating lease right-of-use assets		221,101			223,285
Goodwill		4,896,907			4,776,178
Intangible assets, net		880,847			933,525
Deferred income tax assets		39,032			35,059
Other long-term assets		209,394			141,047
Total assets	$	8,216,959		$	8,063,306

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	110,347		$	113,684
Accrued expenses		693,599			611,042
Deferred revenue		819,903			793,068
Current portion of operating lease obligations		45,842			42,082
Current portion of finance lease obligations		18,580			17,455
Total current liabilities		1,688,271			1,577,331
Long-term debt		2,894,262			2,902,054
Operating lease long-term obligations		215,907			221,760
Finance lease long-term obligations		29,579			31,522
Deferred income tax liabilities		7,532			20,216
Other long-term liabilities		61,297			68,311
Total liabilities		4,896,848			4,821,194

Commitments and contingencies (Note 16)

Shareholders’ equity:
Preferred stock, $0.01 par value; 30,000 shares authorized, 0 shares issued and outstanding at September 30, 2021 and December 31, 2020		—			—
Common stock, $0.01 par value; 600,000 shares authorized, 103,688 and 103,935 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively		1,037			1,039
Additional paid-in capital		3,456,378			3,461,747
Accumulated other comprehensive loss, net of taxes		(48,392	)		(40,801	)
Accumulated deficit		(88,912	)		(179,873	)
Total shareholders’ equity		3,320,111			3,242,112
Total liabilities and shareholders’ equity	$	8,216,959		$	8,063,306

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

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SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	2021			2020
	(in thousands)
Cash flows from operating activities:
Net income	$	158,872		$	100,901
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		171,903			167,576
Share-based compensation		48,891			47,266
Provision for doubtful accounts		51			1,357
(Benefit from) provision for deferred income taxes		(21,324	)		21,306
Foreign currency transaction gains		(6,320	)		(7,747	)
Fair value adjustment of contingent obligations		(597	)		(3,791	)
Loss on extinguishment of debt		2,802			346
Other non-cash items		6,657			1,881
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable, unbilled services, and deferred revenue		(154,162	)		15,542
Accounts payable and accrued expenses		99,417			(2,226	)
Other assets and liabilities		(41,891	)		(31,244	)
Net cash provided by operating activities		264,299			311,167
Cash flows from investing activities:
Payments related to acquisitions of businesses, net of cash acquired		(226,347	)		—
Proceeds from notes receivable from divestiture		5,000			—
Purchases of property and equipment		(29,917	)		(38,493	)
Investments in unconsolidated affiliates		(5,074	)		(6,859	)
Loan to unconsolidated affiliate		(3,844	)		—
Net cash used in investing activities		(260,182	)		(45,352	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt, net of discount		494,505			—
Payments of debt financing costs		(544	)		(300	)
Repayments of long-term debt		(602,277	)		(113,750	)
Proceeds from accounts receivable financing agreement		65,000			31,600
Repayments of accounts receivable financing agreement		—			(6,600	)
Proceeds from revolving line of credit		30,000			300,000
Repayments of revolving line of credit		—			(300,000	)
Payments of contingent consideration related to acquisitions		(7,197	)		(26,634	)
Payments of finance leases		(12,748	)		(12,735	)
Payments for repurchases of common stock		(117,521	)		(62,029	)
Proceeds from exercises of stock options		26,223			22,973
Payments related to tax withholdings for share-based compensation		(30,924	)		(20,701	)
Net cash used in financing activities		(155,483	)		(188,176	)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash		1,728			7,568
Net change in cash, cash equivalents, and restricted cash		(149,638	)		85,207
Cash, cash equivalents, and restricted cash - beginning of period		272,173			163,689
Cash, cash equivalents, and restricted cash - end of period	$	122,535		$	248,896

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

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SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
	(in thousands)
Shareholders’ equity, beginning balance	$	3,238,614		$	2,999,684		$	3,242,112		$	3,029,654
Impact from adoption of ASU 2016-13		—			—			—			(2,771	)
Shareholders’ equity, adjusted beginning balance		3,238,614			2,999,684			3,242,112			3,026,883

Common stock:
Beginning balance		1,035			1,042			1,039			1,039
Repurchases of common stock		—			(5	)		(15	)		(11	)
Issuances of common stock		2			3			13			12
Ending balance		1,037			1,040			1,037			1,040

Additional paid-in capital:
Beginning balance		3,430,375			3,446,852			3,461,747			3,441,471
Repurchases of common stock		—			(16,795	)		(49,595	)		(36,529	)
Issuances of common stock		10,904			9,231			(4,665	)		2,173
Share-based compensation		15,099			15,093			48,891			47,266
Ending balance		3,456,378			3,454,381			3,456,378			3,454,381

Accumulated other comprehensive loss:
Beginning balance		(25,641	)		(129,372	)		(40,801	)		(71,593	)
Unrealized gain (loss) on derivative instruments, net of taxes		936			5,219			11,581			(6,642	)
Foreign currency translation adjustment, net of taxes		(23,687	)		33,832			(19,172	)		(12,086	)
Ending balance		(48,392	)		(90,321	)		(48,392	)		(90,321	)

Accumulated deficit:
Beginning balance		(167,155	)		(318,838	)		(179,873	)		(341,263	)
Impact from adoption of ASU 2016-13		—			—			—			(2,771	)
Adjusted beginning balance		(167,155	)		(318,838	)		(179,873	)		(344,034	)
Repurchases of common stock		—			(13,200	)		(67,911	)		(25,489	)
Net income		78,243			63,416			158,872			100,901
Ending balance		(88,912	)		(268,622	)		(88,912	)		(268,622	)

Shareholders’ equity, ending balance	$	3,320,111		$	3,096,478		$	3,320,111		$	3,096,478

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

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SYNEOS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

Nature of Operations

Syneos Health, Inc. (the “Company”) is a global provider of end-to-end biopharmaceutical outsourcing solutions. The Company operates under two reportable segments, Clinical Solutions and Commercial Solutions, and derives its revenue through a suite of services designed to enhance its customers’ ability to successfully develop, launch, and market their products. The Company offers its solutions on both a standalone and integrated basis with biopharmaceutical development and commercialization services ranging from Phase I to IV clinical trial services to services associated with the commercialization of biopharmaceutical products. The Company’s customers include small, mid-sized, and large companies in the pharmaceutical, biotechnology, and medical device industries.

Unaudited Interim Financial Information

The Company prepared the accompanying unaudited condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. The significant accounting policies followed by the Company for interim financial reporting are consistent with the accounting policies followed for annual financial reporting.

The unaudited condensed consolidated financial statements, in management’s opinion, include all adjustments of a normal recurring nature necessary for a fair presentation. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission on February 18, 2021. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year ending December 31, 2021 or any other future period. The unaudited condensed consolidated balance sheet at December 31, 2020 is derived from the amounts in the audited consolidated balance sheet included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Reclassification

Certain previously reported amounts have been reclassified to conform to the current year presentation.

COVID-19 Pandemic

On March 11, 2020, the World Health Organization designated the outbreak of the novel strain of coronavirus that causes the disease known as COVID-19 as a global pandemic. Governments and businesses around the world have taken unprecedented actions to mitigate the spread of COVID-19, including, but not limited to, shelter-in-place orders, quarantines, significant restrictions on travel, social distancing practices as well as restrictions that prohibit many employees from going to work in person. As a result, the Company experienced significant impacts to its business and results of operations from COVID-19 during 2020 and to a lesser extent for the nine months ended September 30, 2021. While certain governments have eased restrictions, the pandemic continues to be disruptive to the Company’s business. The pandemic and associated economic impacts are expected to continue to impact the Company’s future financial condition, results of operations, and cash flows.

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2. Financial Statement Details

Cash, Cash Equivalents, and Restricted Cash

Certain of the Company’s subsidiaries participate in a notional cash pooling arrangement to manage global liquidity requirements. As part of a master netting arrangement, the participants combine their cash balances in pooling accounts at the same financial institution with the ability to offset bank overdrafts of one participant against positive cash account balances held by another participant. Under the terms of the master netting arrangement, the financial institution has the right, ability, and intent to offset a positive balance in one account against an overdrawn amount in another account. Amounts in each of the accounts are unencumbered and unrestricted with respect to use. As such, the net cash balance related to this pooling arrangement is included in cash, cash equivalents, and restricted cash in the condensed consolidated balance sheets.

The Company’s net cash pool position consisted of the following (in thousands):

	September 30, 2021			December 31, 2020
Gross cash position	$	205,462		$	220,261
Less: cash borrowings		(201,881	)		(204,647	)
Net cash position	$	3,581		$	15,614

Accounts Receivable and Unbilled Services, net

Accounts receivable and unbilled services (including contract assets), net of allowance for doubtful accounts, consisted of the following (in thousands):

	September 30, 2021			December 31, 2020
Accounts receivable billed	$	848,453		$	774,605
Accounts receivable unbilled		245,041			211,285
Contract assets		441,125			366,506
Less: Allowance for doubtful accounts		(7,587	)		(7,615	)
Accounts receivable and unbilled services, net	$	1,527,032		$	1,344,781

Accounts Receivable Factoring Arrangement

The Company has an accounts receivable factoring agreement to sell certain eligible unsecured trade accounts receivable, without recourse, to an unrelated third-party financial institution for cash. For the nine months ended September 30, 2021 and 2020, the Company factored $97.5 million and $113.1 million, respectively, of trade accounts receivable on a non-recourse basis and received $97.4 million and $112.7 million, respectively, in cash proceeds from the sale. The fees associated with these transactions were insignificant.

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Goodwill

The changes in the carrying amount of goodwill by segment for the nine months ended September 30, 2021 were as follows (in thousands):

	Clinical Solutions (a)		Commercial Solutions (b)			Total
Balance as of December 31, 2020	$	3,216,335	$	1,559,843		$	4,776,178
Acquisitions (c)		130,239		—			130,239
Impact of foreign currency translation and other (d)		40,733		(50,243	)		(9,510	)
Balance as of September 30, 2021	$	3,387,307	$	1,509,600		$	4,896,907

(a) Accumulated impairment losses of $8.1 million associated with the Clinical Solutions segment were recorded prior to 2016 and related to the former Phase I Services segment, now a component of the Clinical Solutions segment. No impairment of goodwill was recorded for the nine months ended September 30, 2021.

(b) Accumulated impairment losses of $8.0 million associated with the Commercial Solutions segment were recorded prior to 2015 and related to the former Global Consulting segment, now a component of the Commercial Solutions segment. No impairment of goodwill was recorded for the nine months ended September 30, 2021.

(c) Amount represents goodwill recognized in connection with the acquisition of StudyKIK Corporation (“StudyKIK”) and an insignificant acquisition during the three months ended September 30, 2021, an insignificant acquisition during the second quarter of 2021, and insignificant measurement period adjustments recognized in connection with the 2020 acquisitions of SHCR Holdings Corporation (“Synteract”) and Illingworth Research Group™ (“Illingworth Research”) within the Clinical Solutions segment.

(d) Includes $44.2 million reallocation of goodwill from the Commercial Solutions segment to the Clinical Solutions segment to reflect the transfer of the Kinapse Regulatory and Operations Consulting service lines to align with management reporting in 2021.

Accumulated Other Comprehensive Loss, Net of Taxes

Accumulated other comprehensive loss, net of taxes, consisted of the following (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Beginning balance	$	(25,641	)	$	(129,372	)	$	(40,801	)	$	(71,593	)

Derivative instruments:
Beginning balance		(8,116	)		(26,697	)		(18,761	)		(14,836	)
Other comprehensive (loss) income before reclassifications		(489	)		1			(205	)		(17,970	)
Reclassification adjustments		1,425			5,218			11,786			11,328
Ending balance		(7,180	)		(21,478	)		(7,180	)		(21,478	)

Foreign currency translation:
Beginning balance		(17,525	)		(102,675	)		(22,040	)		(56,757	)
Other comprehensive (loss) income before reclassifications		(23,687	)		33,832			(19,172	)		(12,086	)
Ending balance		(41,212	)		(68,843	)		(41,212	)		(68,843	)

Accumulated other comprehensive loss, net of taxes	$	(48,392	)	$	(90,321	)	$	(48,392	)	$	(90,321	)

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Changes in accumulated other comprehensive loss consisted of the following (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Unrealized gain (loss) on derivative instruments:
Unrealized loss during period, before taxes	$	(655	)	$	(478	)	$	(275	)	$	(27,137	)
Income tax benefit		(166	)		(479	)		(70	)		(9,167	)
Unrealized (loss) gain during period, net of taxes		(489	)		1			(205	)		(17,970	)
Reclassification adjustment, before taxes		1,908			7,081			15,782			15,292
Income tax expense		483			1,863			3,996			3,964
Reclassification adjustment, net of taxes		1,425			5,218			11,786			11,328
Total unrealized gain (loss) on derivative instruments, net of taxes		936			5,219			11,581			(6,642	)

Foreign currency translation adjustments:
Foreign currency translation adjustment, before taxes		(24,789	)		33,832			(20,432	)		(12,086	)
Income tax benefit		(1,102	)		—			(1,260	)		—
Foreign currency translation adjustments, net of taxes		(23,687	)		33,832			(19,172	)		(12,086	)

Total other comprehensive (loss) income, net of taxes	$	(22,751	)	$	39,051		$	(7,591	)	$	(18,728	)

Other (Income) Expense, Net

Other (income) expense, net consisted of the following (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2021			2020		2021			2020
Net realized foreign currency loss	$	1,861		$	4,823	$	3,623		$	2,772
Net unrealized foreign currency (gain) loss		(2,757	)		4,794		(6,320	)		(7,747	)
Other, net		(2,931	)		979		(3,159	)		2,402
Total other (income) expense, net	$	(3,827	)	$	10,596	$	(5,856	)	$	(2,573	)

3. Acquisitions, Divestitures, and Investments

StudyKIK Acquisition

On September 13, 2021, the Company completed the acquisition of StudyKIK, a leading technology-enabled clinical trial recruitment and retention company, expanding the Company’s portfolio of patient-direct, technology-enabled solutions. The total purchase consideration was $203.9 million (net of cash acquired of $1.2 million). The Company recognized $109.7 million of goodwill and $92.4 million of intangible assets. The remainder of consideration was attributed to other net assets, primarily related to net working capital.

The purchase price has been allocated to the tangible assets and identifiable intangible assets acquired and liabilities assumed based upon their fair values. The excess of the purchase price over the tangible and intangible assets acquired and liabilities assumed has been recorded as goodwill. Goodwill is attributable to the acquired workforce as well as future synergies and is not deductible for income tax purposes. The operating results from the acquisition have been included in the Company’s Clinical Solutions segment from the date of acquisition.

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The following table summarizes the fair values of identified intangible assets and their respective useful lives (dollars in thousands):

	Estimated Fair Value		Estimated Useful Life
Customer relationships	$	22,900	6 years
Backlog		1,800	1.25 years
Trade name		2,700	6 years
Patient communities		45,100	6 years
Acquired technology		19,900	6 years
Total intangible assets	$	92,400

Synteract Acquisition

On December 9, 2020, the Company completed the acquisition of Synteract, effected through the purchase of 100% of the outstanding shares of Synteract for approximately $385.5 million in cash (net of approximately $28.0 million of cash acquired), which included payment of $1.0 million during the first quarter of 2021. Synteract is a contract research organization focused on the emerging biopharmaceutical industry, strengthening the Company’s position in the small to mid-sized category. The Company recognized $360.8 million of goodwill and $56.4 million of intangible assets, including acquired backlog and trade name, as a result of the acquisition. The purchase price has been allocated to the tangible assets and identifiable intangible assets acquired and liabilities assumed based upon their fair values. The excess of the purchase price over the tangible and intangible assets acquired and liabilities assumed has been recorded as goodwill. Goodwill is attributable to the acquired workforce as well as future synergies and is not deductible for income tax purposes. The operating results from the acquisition of Synteract have been included in the Company’s Clinical Solutions segment from the date of acquisition.

Illingworth Research Group Acquisition

On December 17, 2020, the Company completed the acquisition of Illingworth Research, a leading provider of clinical research home health services, adding new scale and capabilities to the Company’s clinical trial solutions. The total purchase consideration was $80.9 million (net of cash acquired of $1.1 million), which included payments of $9.0 million during the first quarter of 2021. The Company recognized $64.0 million of goodwill and $21.5 million of intangible assets, principally customer relationships, as a result of the acquisition. The purchase price has been allocated to the tangible assets and identifiable intangible assets acquired and liabilities assumed based upon their fair values. The excess of the purchase price over the tangible and intangible assets acquired and liabilities assumed has been recorded as goodwill. Goodwill is attributable to the acquired workforce as well as future synergies and is not deductible for income tax purposes. The operating results from the acquisition of Illingworth Research have been included in the Company’s Clinical Solutions segment from the date of acquisition.

The Company’s assessment of fair values and the purchase price allocations related to these acquisitions are preliminary and further adjustments may be necessary as additional information related to the fair values of assets acquired and liabilities assumed is assessed during the measurement period (up to one year from the respective acquisition dates).

Pro forma information for these acquisitions is not presented as the operations of the acquired businesses, individually and in the aggregate, are not significant to the overall operations of the Company.

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Divestitures

During the second quarter of 2020, the Company sold its contingent staffing business to a related party in exchange for potential future cash consideration not to exceed $4.0 million. Based on the financial results of the business one year after the divestiture date, the Company recognized $1.8 million of contingent consideration in other (income) expense, net during the second quarter of 2021. Refer to “Note 15 – Related-Party Transactions” for further information.

During the fourth quarter of 2020, the Company sold its medication adherence business for consideration of $23.0 million, including cash consideration of $18.0 million, net of cash transferred, and convertible notes of $5.0 million. The Company received $5.0 million of cash proceeds from the notes receivable during the second quarter of 2021. The Company is entitled to future cash consideration that is contingent on the financial performance of the sold business through 2021. The Company will recognize the contingent consideration in the consolidated statements of income in the period the contingency is resolved.

Investments

During the second quarter of 2020, the Company made a non-cash investment of $27.3 million to acquire certain intellectual property rights from a customer in lieu of cash payment for services rendered. The Company subsequently exchanged the intellectual property for an equity method investment in an unconsolidated variable interest entity. The Company provided the entity $3.8 million in cash, in the form of a loan, during the three months ended September 30, 2021. Based on the hypothetical liquidation book value of its investment as of September 30, 2021, the Company recorded a $1.2 million and $4.0 million loss to other (income) expense, net in the accompanying condensed statements of income for the three months and nine ended September 30, 2021, respectively. As of September 30, 2021, the book value of the Company’s investment was $22.7 million and was included in other long-term assets in the accompanying condensed consolidated balance sheet, with a maximum exposure to loss of approximately $26.5 million, which includes funding of the loan.

4. Long-Term Debt Obligations

The Company’s debt obligations consisted of the following (in thousands):

	September 30, 2021			December 31, 2020
Secured Debt
Term Loan A - tranche one due March 2024	$	173,852		$	183,715
Term Loan A - tranche two due August 2024		1,737,141			1,273,991
Term Loan B due August 2024		—			560,564
Revolving credit facility due August 2024		30,000			—
Accounts receivable financing agreement due October 2022		365,000			300,000
Total secured debt		2,305,993			2,318,270
Unsecured Debt
Senior notes due January 2029 (the “Notes”)		600,000			600,000
Total debt obligations		2,905,993			2,918,270
Less: Term loan original issuance discount		(2,841	)		(3,500	)
Less: Unamortized deferred issuance costs		(8,890	)		(12,716	)
Total long-term debt	$	2,894,262		$	2,902,054

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Credit Agreement

The Company is party to a credit agreement (as amended, the “Credit Agreement”) that included a $1.55 billion Term Loan A facility (“Term Loan A”) that has two tranches, tranche one that matures on March 26, 2024 and tranche two that matures on August 1, 2024, a $1.60 billion Term Loan B facility (“Term Loan B”) that was paid in full during the second quarter of 2021, and a $600.0 million revolving credit facility that matures on August 1, 2024 (the “Revolver”).

In February 2021, as a result of the Company’s First Lien Leverage Ratio (as defined in the Credit Agreement) being less than or equal to 2.5x, the Adjusted Eurocurrency Rate Spread (as defined in the Credit Agreement) on Term Loan A and the Revolver decreased from 1.50% to 1.25%.

On June 30, 2021 (the “Closing Date”), the Company entered into Amendment No. 5 (the “Fifth Amendment”) to the Credit Agreement. The Fifth Amendment modified the Credit Agreement to increase Term Loan A in an aggregate principal amount of $495.0 million (“Incremental Term Loan A”). Incremental Term Loan A was funded on the Closing Date, and the proceeds were used, along with cash on hand, to repay the outstanding Term Loan B in full under the Credit Agreement and to pay fees and expenses in connection with the Fifth Amendment and the incurrence of Incremental Term Loan A. Incremental Term Loan A has the same terms as Term Loan A under the Credit Agreement, and is subject to the same covenants. The Company recorded an additional discount of $0.5 million against the Term Loan A borrowings in connection with the Fifth Amendment, which is being amortized as a component of interest expense using the effective interest method over the term of Term Loan A.

During the nine months ended September 30, 2021, the Company made $41.8 million and $560.5 million of voluntary prepayments against Term Loan A and Term Loan B, respectively, which were applied to future principal payments. As a result of these and previous voluntary prepayments, the Company is not required to make a mandatory payment against the principal balance of Term Loan A until October 2022 and Term Loan B has been paid in full. In connection with these prepayments, the Company recorded a $2.8 million loss on extinguishment of debt during the nine months ended September 30, 2021.

Revolver and Letters of Credit

The Revolver includes letters of credit (“LOCs”) with a sublimit of $150.0 million. As of September 30, 2021, there were $30.0 million of outstanding Revolver borrowings and $16.1 million of LOCs outstanding, leaving $553.9 million of available borrowings under the Revolver, including $133.9 million available for LOCs.

The lease for the Company’s corporate headquarters in Morrisville, North Carolina includes a provision that may require the Company to issue a LOC in certain amounts to the landlord based on the debt rating of the Company issued by Moody’s Investors Service (or other nationally-recognized debt rating agency, such as S&P Global Ratings). As of September 30, 2021, the Company’s debt rating was such that no LOC is currently required. Any LOC issued in accordance with the aforementioned requirements could be issued under the Company’s Revolver, and, if issued under the Revolver, would reduce its available borrowing capacity by the same amount accordingly.

Accounts Receivable Financing Agreement

The Company has an accounts receivable financing agreement (as amended) with a termination date, as of September 30, 2021, of October 3, 2022, unless terminated earlier pursuant to its terms. On January 28, 2021, the Company amended this agreement to increase the amount it can borrow from $300.0 million to $365.0 million, and drew down the additional $65.0 million to partially fund the Term Loan A and Term Loan B voluntary prepayments. Accordingly, there was no incremental impact on the Company’s total debt.

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Under the accounts receivable financing agreement, certain of the Company’s consolidated subsidiaries sell accounts receivable and unbilled services (including contract assets) balances to a wholly-owned, bankruptcy-remote special purpose entity. The Company has guaranteed the performance of the obligations of existing and future subsidiaries that sell and service the accounts receivable under this agreement. The available borrowing capacity varies monthly according to the levels of the Company’s eligible accounts receivable and unbilled services (including contract assets). Loans under this agreement will accrue interest at a reserve-adjusted LIBOR rate or a base rate equal to the higher of the applicable lender’s prime rate and the federal funds rate plus 0.50%.

As of September 30, 2021, the Company had $365.0 million of outstanding borrowings under this agreement, which are recorded in long-term debt on the accompanying condensed consolidated balance sheet. There was no remaining borrowing capacity available under this agreement as of September 30, 2021.

On October 13, 2021, the Company further amended its accounts receivable financing agreement to increase the amount it can borrow from $365.0 million to $400.0 million, extended the maturity to October 2024, and drew down the additional $35.0 million. At the same time, the Company paid down $35.0 million on facilities under its Credit Agreement, resulting in no net impact on leverage.

Maturities of Debt Obligations

As of September 30, 2021, the contractual maturities of the Company’s debt obligations (excluding finance leases) were as follows (in thousands):

	Principal
Remainder of 2021	$	—
2022		385,857
2023		125,875
2024		1,794,261
2025		—
2026 and thereafter		600,000
Less: Term loan original issuance discount		(2,841	)
Less: Unamortized deferred issuance costs		(8,890	)
Total	$	2,894,262

5. Derivatives

Interest Rate Swaps

The Company has entered into various interest rate swaps to mitigate its exposure to changes in interest rates on its term loans.

In June 2018, the Company entered into an interest rate swap with multiple counterparties that had an initial aggregate notional value of $1.01 billion, an effective date of December 31, 2018, and expired on June 30, 2021.

In March 2020, the Company entered into interest rate swaps with multiple counterparties. The interest rate swaps had an initial aggregate notional value of $549.2 million that increased to $1.42 billion on June 30, 2021, an effective date of March 31, 2020, and will expire on March 31, 2023. As of September 30, 2021, the notional value of these interest rate swaps was $1.37 billion.

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Foreign Exchange Forward

On October 30, 2020, the Company entered into a foreign exchange forward in order to minimize monthly foreign currency remeasurement gains or losses on non-functional currency monetary balances. The foreign exchange forward notional value may be adjusted each month as the exposure balance changes. The Company did not designate the derivative as a hedge. All changes in the fair value of the foreign exchange forward are recorded in earnings every month to other (income) expense, net in the accompanying condensed consolidated statements of income. The Company recognized $2.0 million and $0.5 million of realized losses during the three and nine months ended September 30, 2021, respectively, related to this foreign exchange forward. As of September 30, 2021, the notional value of this foreign exchange forward was $70.0 million.

Fair Values

The fair values of the Company’s derivative financial instruments and the line items on the accompanying condensed consolidated balance sheets to which they were recorded were as follows (in thousands):

	Balance Sheet Classification	September 30, 2021		December 31, 2020
Interest rate swaps - current	Accrued expenses	$	5,875	$	17,045
Interest rate swaps - non-current	Other long-term liabilities		1,235		5,572
Fair value of derivative liabilities		$	7,110	$	22,617

6. Fair Value Measurements

Assets and Liabilities Carried at Fair Value

As of September 30, 2021 and December 31, 2020, the Company’s financial assets and liabilities carried at fair value included cash and cash equivalents, restricted cash, trading securities, accounts receivable, unbilled services (including contract assets), accounts payable, accrued expenses, deferred revenue, contingent obligations, liabilities under the accounts receivable financing agreement, and derivative instruments.

The fair values of cash and cash equivalents, restricted cash, accounts receivable, unbilled services (including contract assets), accounts payable, accrued expenses, deferred revenue, and the liabilities under the accounts receivable financing agreement approximate their respective carrying amounts because of the liquidity and short-term nature of these financial instruments.

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Financial Instruments Subject to Recurring Fair Value Measurements

As of September 30, 2021, the fair values of the major classes of the Company’s assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):

	Level 1		Level 2		Level 3		Investments Measured at Net Asset Value		Total
Assets:
Trading securities (a)	$	25,120	$	—	$	—	$	—	$	25,120
Partnership interests (b)		—		—		—		9,660		9,660
Total assets	$	25,120	$	—	$	—	$	9,660	$	34,780

Liabilities:
Derivative instruments (c)	$	—	$	7,110	$	—	$	—	$	7,110
Contingent obligations related to acquisitions (d)		—		—		3,492		—		3,492
Total liabilities	$	—	$	7,110	$	3,492	$	—	$	10,602

As of December 31, 2020, the fair values of the major classes of the Company’s assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):

	Level 1		Level 2		Level 3		Investments Measured at Net Asset Value		Total
Assets:
Trading securities (a)	$	22,950	$	—	$	—	$	—	$	22,950
Partnership interests (b)		—		—		—		8,665		8,665
Total assets	$	22,950	$	—	$	—	$	8,665	$	31,615

Liabilities:
Derivative instruments (c)	$	—	$	22,617	$	—	$	—	$	22,617
Contingent obligations related to acquisitions (d)		—		—		6,793		—		6,793
Total liabilities	$	—	$	22,617	$	6,793	$	—	$	29,410

(a) Represents the fair value of investments in mutual funds based on quoted market prices that are used to fund the liability associated with the Company’s deferred compensation plan.

(b) The Company has committed to invest $21.5 million as a limited partner in two private equity funds. The private equity funds invest in opportunities in the healthcare and life sciences industry. As of September 30, 2021, the Company’s remaining unfunded commitment in the private equity funds was $13.7 million. The Company holds minor ownership interests (less than 3%) in each of the private equity funds and has determined that it does not exercise significant influence over the private equity funds’ operating and finance activities. As the private equity funds do not have readily determinable fair values, the Company has estimated the fair values using each fund’s Net Asset Value, the amount by which the value of all assets exceeds all debt and liabilities, in accordance with ASC Topic 946, Financial Services – Investment Companies.

(d) Represents the fair value of contingent consideration obligations related to acquisitions. The fair values of these liabilities are determined based on the Company’s best estimate of the probable timing and amount of settlement.

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The following table presents a reconciliation of changes in the carrying amount of contingent obligations classified as Level 3 for the nine months ended September 30, 2021 (in thousands):

Balance as of December 31, 2020	$	6,793
Additions (a)		4,558
Changes in fair value recognized in earnings		(662	)
Payments (b)		(7,197	)
Balance as of September 30, 2021	$	3,492

(a) Represents obligations in connection with insignificant acquisitions completed during 2021.

(b) The Company made payments to fully settle obligations in connection with the insignificant acquisition completed during the second quarter of 2021 and to fully settle the contingent tax-sharing obligation arising from inVentiv Health, Inc.’s 2016 merger with Double Eagle Parent, Inc. (see “Note 16 – Commitments and Contingencies” for further information) during the first quarter of 2021.

During the nine months ended September 30, 2021, there were no transfers of assets or liabilities between Level 1, Level 2, or Level 3 fair value measurements.

Financial Instruments Subject to Non-Recurring Fair Value Measurements

Certain assets, including goodwill and identifiable intangible assets, are carried on the accompanying condensed consolidated balance sheets at cost and, subsequent to initial recognition, are measured at fair value on a non-recurring basis when certain identified events or changes in circumstances that may have a significant adverse effect on the carrying values of these assets occur. These assets are classified as Level 3 fair value measurements within the fair value hierarchy. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate a triggering event has occurred. Intangible assets are tested for impairment upon the occurrence of certain triggering events. As of September 30, 2021 and December 31, 2020, assets carried on the condensed consolidated balance sheets and not remeasured to fair value on a recurring basis totaled $5.80 billion and $5.71 billion, respectively.

Fair Value Disclosures for Financial Instruments Not Carried at Fair Value

The estimated fair values of the term loans and the Notes are determined based on the price that the Company would have had to pay to settle the liabilities. As these liabilities are not actively traded, they are classified as Level 2 fair value measurements. The estimated fair values of the Company’s term loans and the Notes were as follows (in thousands):

	September 30, 2021				December 31, 2020
	Carrying Value (a)		Estimated Fair Value		Carrying Value (a)		Estimated Fair Value
Term Loan A - tranche one due March 2024	$	173,594	$	173,562	$	183,320	$	183,026
Term Loan A - tranche two due August 2024		1,734,559		1,739,931		1,271,255		1,269,213
Term Loan B due August 2024		—		—		560,194		560,144
Senior notes due January 2029		600,000		600,750		600,000		602,412

(a) The carrying value of the term loan debt is shown net of original issue discounts.

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7. Restructuring and Other Costs

During the three and nine months ended September 30, 2021, the Company incurred employee severance and benefit costs, facility and lease termination costs, and other costs related to the Company’s restructuring activities. These costs were primarily related to the Company’s ForwardBound margin enhancement initiative. The costs incurred during the three and nine months ended September 30, 2020 were primarily related to the Company’s cost management strategies in response to the COVID-19 pandemic as well as the Company’s ForwardBound initiative.

Restructuring and other costs consisted of the following (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Employee severance and benefit costs	$	3,438	$	5,903	$	11,815	$	21,171
Facility and lease termination costs		3,760		497		6,530		1,605
Other costs		11		123		58		638
Total restructuring and other costs	$	7,209	$	6,523	$	18,403	$	23,414

The Company expects to continue to incur costs related to restructuring of its operations in order to achieve cost savings and the targeted synergies related to its acquisitions. However, the timing and the amount of these costs depends on various factors, including, but not limited to, identifying and realizing synergy opportunities and executing the integration of its combined operations. The Company may also continue to incur additional restructuring and other costs during and beyond 2021 related to its ForwardBound margin enhancement initiative.

Accrued Restructuring Liabilities

The following table summarizes activity related to the liabilities associated with restructuring and other costs (in thousands):

	Employee Severance Costs			Other Costs			Total
Balance as of December 31, 2020	$	5,830		$	—		$	5,830
Expenses incurred (a)		8,425			10			8,435
Payments		(8,963	)		(10	)		(8,973	)
Balance as of September 30, 2021	$	5,292		$	—		$	5,292

(a) The amount of expenses incurred for the nine months ended September 30, 2021 excludes $6.5 million of facility lease closure and lease termination costs that are reflected as a reduction of operating lease right-of-use assets on the condensed consolidated balance sheet under ASC 842.

The Company expects the employee severance costs accrued as of September 30, 2021 will be paid within the next twelve months. Liabilities associated with restructuring and other costs are included in accrued expenses and other long-term liabilities on the accompanying condensed consolidated balance sheets.

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8. Shareholders’ Equity

Shares Outstanding

Shares of common stock outstanding were as follows (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2021		2020			2021			2020
Common stock shares, beginning balance		103,473		104,236			103,935			103,866
Repurchases of common stock		—		(506	)		(1,500	)		(1,106	)
Issuances of common stock		215		264			1,253			1,234
Common stock shares, ending balance		103,688		103,994			103,688			103,994

Stock Repurchase Program

On November 17, 2020, the Company’s Board of Directors (the “Board”) authorized the repurchase of up to an aggregate of $300.0 million of the Company’s Class A common stock, par value $0.01 per share, to be executed from time to time in open market transactions effected through a broker at prevailing market prices, in block trades, or through privately negotiated transactions through December 31, 2022 (the “Stock Repurchase Program”). The Stock Repurchase Program took effect on January 1, 2021.

The Stock Repurchase Program does not obligate the Company to repurchase any particular amount of the Company’s common stock, and may be modified, extended, suspended, or discontinued at any time. The timing and amount of repurchases will be determined by the Company’s management based on a variety of factors such as the market price of the Company’s common stock, the Company’s corporate cash requirements, and overall market conditions. The Stock Repurchase Program is subject to applicable legal requirements, including federal and state securities laws and applicable Nasdaq rules. The Company may also repurchase shares of its common stock pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, which would permit shares of the Company’s common stock to be repurchased when the Company might otherwise be precluded from doing so by law.

During the nine months ended September 30, 2021, the Company repurchased 1,500,000 shares of its common stock in private transactions under the Stock Repurchase Program, for a total purchase price of approximately $117.5 million.

The following table sets forth repurchase activity under the Stock Repurchase Program from inception through September 30, 2021:

	Total number of shares purchased		Average price paid per share		Approximate dollar value of shares purchased (in thousands)
March 2021		600,000	$	74.18	$	44,505
May 2021		400,000		81.04		32,416
June 2021		500,000		81.20		40,600
Total		1,500,000			$	117,521

The Company immediately retired all of the repurchased common stock and charged the par value of the shares to common stock. The excess of the repurchase price over the par value was applied on a pro rata basis against additional paid-in capital, with the remainder applied to accumulated deficit.

As of September 30, 2021, the Company had remaining authorization to repurchase up to approximately $182.5 million of shares of its common stock under the Stock Repurchase Program.

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9. Earnings Per Share

The following table provides a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations (in thousands, except per share data):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Numerator:
Net income	$	78,243	$	63,416	$	158,872	$	100,901
Denominator:
Basic weighted average common shares outstanding		103,562		104,277		103,924		104,247
Effect of dilutive securities:
Stock options and other awards under deferred share-based compensation programs		1,223		1,311		1,163		1,236
Diluted weighted average common shares outstanding		104,785		105,588		105,087		105,483
Earnings per share:
Basic	$	0.76	$	0.61	$	1.53	$	0.97
Diluted	$	0.75	$	0.60	$	1.51	$	0.96

Potential common shares outstanding that are considered anti-dilutive are excluded from the computation of diluted earnings per share. Potential common shares related to stock options and other awards under share-based compensation programs may be determined to be anti-dilutive based on the application of the treasury stock method. Potential common shares are also considered anti-dilutive in periods when the Company incurs a net loss.

The number of potential shares outstanding that were anti-dilutive and therefore excluded from the computation of diluted earnings per share, weighted for the portion of the period they were outstanding, were 128,894 and 177,330, for the three months ended September 30, 2021 and 2020, respectively, and 146,339 and 713,269 for the nine months ended September 30, 2021 and 2020, respectively.

10. Income Taxes

Income Tax Expense

For the three and nine months ended September 30, 2021, the Company recorded income tax expense of $22.2 million and $39.6 million, respectively, compared to pre-tax income of $100.4 million and $198.5 million, respectively. Income tax expense for the three and nine months ended September 30, 2021 included discrete tax benefits of $0.7 million and $6.5 million, respectively, primarily related to excess tax benefits from share-based compensation. The effective tax rates for the three and nine months ended September 30, 2021, excluding discrete items, varied from the U.S. federal statutory income tax rate of 21.0% primarily due to foreign tax credits, foreign income inclusions such as the Global Intangible Low-Taxed Income (“GILTI”) provisions, and state and local taxes on U.S. income.

For the three and nine months ended September 30, 2020, the Company recorded income tax expense of $4.0 million and $15.9 million, respectively, compared to pre-tax income of $67.4 million and $116.8 million, respectively. Income tax expense for the three and nine months ended September 30, 2020 included discrete tax benefits of $18.8 million and $24.3 million, respectively, primarily related to the recognition of U.S. federal unrecognized tax benefits, excess tax benefits from share-based compensation, and the tax benefit from foreign tax credits claimed on amended returns filed during the year. The effective tax rates for the three and nine months ended September 30, 2020, excluding discrete items, varied from the U.S. federal statutory income tax rate of 21.0% primarily due to foreign income inclusions such as the GILTI provisions, state and local taxes on U.S. income, and research and general business credits.

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Unrecognized Tax Benefits

The Company’s gross unrecognized tax benefits, exclusive of associated interest and penalties, were $8.7 million and $9.0 million as of September 30, 2021 and December 31, 2020, respectively. The decrease of $0.3 million was primarily due to the settlement of unrecognized tax benefits in the U.S. partially offset with positions in foreign jurisdictions. The Company believes it is reasonably possible that its unrecognized tax benefits may decrease by approximately $0.6 million within the next 12 months as a result of lapses in statutes of limitations.

Tax Returns under Audit

The Company is not currently under any U.S. federal income tax audits, however, income tax returns are under examination by tax authorities in several state and foreign jurisdictions. The Company’s federal and state tax filings are open to investigations in numerous years due to net operating loss carryforwards. Additionally, the Company currently has an ongoing examination for tax years 2017 to 2019 in the United Kingdom. The United Kingdom is the jurisdiction with the Company’s largest foreign operations. The Company believes that its reserve for uncertain tax positions is adequate to cover existing risks or exposures related to all open tax years and jurisdictions.

11. Revenue from Contracts with Customers

Unsatisfied Performance Obligations

As of September 30, 2021, the total aggregate transaction price allocated to the unsatisfied performance obligations under contracts with contract terms greater than one year and that are not accounted for as a series pursuant to ASC Topic 606, Revenue from Contracts with Customers and all the related amendments was $6.99 billion. This amount includes revenue associated with reimbursable out-of-pocket expenses. The Company expects to recognize revenue over the remaining contract term of the individual projects, with contract terms generally ranging from one to five years. The amount of unsatisfied performance obligations is presented net of any constraints and, as a result, is lower than the potential contractual revenue. The contracts excluded due to constraints include contracts that do not commence within a certain period of time or that require the Company to undertake numerous activities to fulfill these performance obligations, including various activities that are outside of the Company’s control.

Timing of Billing and Performance

During the three and nine months ended September 30, 2021, the Company recognized approximately $376.2 million and $564.0 million, respectively, of revenue that was included in the deferred revenue balance at the beginning of the periods. During the three and nine months ended September 30, 2021, approximately $70.8 million and $101.8 million, respectively, of the Company’s revenue recognized was allocated to performance obligations partially satisfied in previous periods, substantially all of which was associated with changes in scope or price for full service clinical studies. The Company reviews its portfolio level risk and inflation factors during the third quarter of each year. Based on this review, the Company modified the application of its portfolio level inflation factor, which was considered a change in estimate, and recognized additional revenue of $23.5 million related to this change during the three months ended September 30, 2021. The additional revenue was mostly offset by insignificant changes in estimates related to projects recognized in the normal course of the Company’s revenue recognition processes.

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12. Segment Information

The Company is managed through two reportable segments: Clinical Solutions and Commercial Solutions. Each reportable segment consists of multiple service offerings that, when combined, create a fully integrated biopharmaceutical services organization. Clinical Solutions offers a variety of services spanning Phases I to IV of clinical development, including full service global studies, as well as individual service offerings such as clinical monitoring, investigator recruitment, patient recruitment, data management, and study start-up to assist customers with their drug development process. Commercial Solutions provides the pharmaceutical, biotechnology, and healthcare industries with commercialization services, including deployment solutions, communication solutions (public relations, advertising, and medical communications), and consulting services.

The Company’s Chief Operating Decision Maker (“CODM”) reviews segment performance and allocates resources based upon segment revenue and income from operations. Inter-segment revenue is eliminated from the segment reporting presented to the CODM and is not included in the segment revenue presented in the table below. Certain costs are not allocated to the Company’s reportable segments and are reported as general corporate expenses. These costs primarily consist of share-based compensation, general operating expenses associated with the Board and the Company’s senior leadership, finance, investor relations, and internal audit functions, and transaction and integration-related expenses. The Company does not allocate depreciation, amortization, asset impairment charges, or restructuring and other costs to its segments. Prior period segment results have been recast to reflect the transfer of the Kinapse Regulatory and Operations Consulting service lines from Commercial Solutions to Clinical Solutions to align with management reporting in 2021. Additionally, the CODM reviews the Company’s assets on a consolidated basis and does not allocate assets to its reportable segments for purposes of assessing segment performance or allocating resources.

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Information about reportable segment operating results was as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenue:
Clinical Solutions	$	1,037,445	$	837,237	$	2,966,541	$	2,475,560
Commercial Solutions		310,785		261,767		873,045		800,198
Total revenue		1,348,230		1,099,004		3,839,586		3,275,758
Segment direct costs:
Clinical Solutions		777,065		607,951		2,243,988		1,887,611
Commercial Solutions		246,406		204,577		700,092		638,535
Total segment direct costs		1,023,471		812,528		2,944,080		2,526,146
Segment selling, general, and administrative expenses:
Clinical Solutions		87,907		67,885		264,742		208,838
Commercial Solutions		20,875		19,717		62,164		61,313
Total segment selling, general, and administrative expenses		108,782		87,602		326,906		270,151
Segment operating income:
Clinical Solutions		172,473		161,401		457,811		379,111
Commercial Solutions		43,504		37,473		110,789		100,350
Total segment operating income		215,977		198,874		568,600		479,461
Direct costs and operating expenses not allocated to segments:
Share-based compensation included in direct costs		8,416		7,700		25,638		23,988
Share-based compensation included in selling, general, and administrative expenses		6,683		7,393		23,253		23,278
Corporate selling, general, and administrative expenses		24,059		23,056		71,348		58,513
Restructuring and other costs		7,209		6,523		18,403		23,414
Depreciation and amortization		56,254		55,448		171,903		167,576
Total income from operations	$	113,356	$	98,754	$	258,055	$	182,692

13. Operations by Geographic Location

The following table summarizes total revenue by geographic area (in thousands, all intercompany transactions have been eliminated):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenue:
North America (a)	$	821,700	$	694,286	$	2,334,929	$	2,085,895
Europe, Middle East, and Africa		324,816		258,590		969,887		768,938
Asia-Pacific		159,078		121,155		429,768		348,394
Latin America		42,636		24,973		105,002		72,531
Total revenue	$	1,348,230	$	1,099,004	$	3,839,586	$	3,275,758

(a) Revenue for the North America region includes revenue attributable to the U.S. of $775.7 million and $659.6 million, or 57.5% and 60.0% of total revenue, for the three months ended September 30, 2021 and 2020, respectively. Revenue for the North America region includes revenue attributable to the U.S. of $2,192.4 million and $1,981.7 million, or 57.1% and 60.5% of total revenue for the nine months ended September 30, 2021 and 2020, respectively. No other country represented more than 10% of total revenue for any period.

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The following table summarizes long-lived assets by geographic area (in thousands, all intercompany transactions have been eliminated):

	September 30, 2021		December 31, 2020
Property and equipment, net:
North America (a)	$	151,016	$	161,531
Europe, Middle East, and Africa		37,390		38,745
Asia-Pacific		11,168		11,167
Latin America		5,905		4,757
Total property and equipment, net	$	205,479	$	216,200

(a) Long-lived assets for the North America region include property and equipment, net attributable to the U.S. of $145.4 million and $156.0 million as of September 30, 2021 and December 31, 2020, respectively.

14. Concentration of Credit Risk

Financial assets that subject the Company to credit risk primarily consist of cash and cash equivalents, accounts receivable, and unbilled services (including contract assets). The Company’s cash and cash equivalents consist principally of cash and are maintained at several financial institutions with reputable credit ratings. The Company maintains cash depository accounts with several financial institutions worldwide and is exposed to credit risk related to the potential inability to access liquidity in financial institutions where its cash and cash equivalents are concentrated. The Company has not historically incurred any losses with respect to these balances and believes that they bear minimal credit risk.

As of September 30, 2021 and December 31, 2020, substantially all of the Company’s cash and cash equivalents were held within the U.S.

No single customer accounted for greater than 10% of the Company’s revenue for the three and nine months ended September 30, 2021 and 2020.

As of September 30, 2021 and December 31, 2020, no single customer accounted for greater than 10% of the Company’s accounts receivable and unbilled services (including contract assets) balances.

15. Related-Party Transactions

For the three and nine months ended September 30, 2021, the Company had combined revenue of $0.9 million and $2.8 million, respectively, and, as of September 30, 2021, combined receivables of $1.5 million from two customers whose board of directors each included a member who was also a member of the Company’s Board. For the three and nine months ended September 30, 2021, the Company incurred expenses of $0.6 million and $2.0 million, respectively, for professional services obtained from the related party noted in the paragraph below.

No related party expenses were recorded for the three months ended September 30, 2020. During the second quarter of 2020, the Company sold its contingent staffing business to a related party in exchange for potential future cash consideration not to exceed $4.0 million. Based on the financial results of the business one year after the divestiture date, the Company recognized $1.8 million of contingent consideration in other (income) expense, net in the second quarter of 2021. The future cash consideration is contingent on the financial performance of the sold business through May 31, 2023. The Company will recognize the contingent consideration in the consolidated statements of income in the period the contingency is resolved. No significant related-party revenue was recorded for the nine months ended September 30, 2020.

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16. Commitments and Contingencies

Legal Proceedings

The Company is involved in various claims and legal actions arising in the ordinary course of business. The Company accrues a liability when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, the Company does not record a liability, but instead discloses the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Legal fees are expensed as incurred. In the opinion of management, the outcome of any existing claims and legal or regulatory proceedings, other than the specific matters described below, if decided adversely, is not expected to have a material adverse effect on the Company's business, financial condition, results of operations, or cash flows.

On December 1, 2017, the first of two virtually identical actions alleging federal securities law claims was filed against the Company and certain of its officers on behalf of a putative class of its shareholders. The first action, captioned Bermudez v. INC Research, Inc., et al, No. 17-09457 (S.D.N.Y.), was filed in the Southern District of New York (the “Bermudez action”), and the second action, Vaitkuvienë v. Syneos Health, Inc., et al, No. 18-0029 (E.D.N.C.), was filed on January 25, 2018 in the Eastern District of North Carolina (the “Vaitkuvienë action”). On March 30, 2018, the Bermudez action was dismissed voluntarily. After the San Antonio Fire & Police Pension Fund and El Paso Firemen & Policemen’s Pension Fund were appointed as Lead Plaintiffs in the Vaitkuvienë action, Lead Plaintiffs filed an amended complaint on July 30, 2018, which named as defendants the Company, Alistair Macdonald, Gregory S. Rush, Michael A. Bell and each member of the Company’s board of directors at the time of the stockholder vote on the 2017 merger (the “Merger”) of INC Research with an affiliate of inVentiv Health, Inc. (“inVentiv”). The amended complaint alleged claims under Sections 10(b), 14(a) and 20(a) of the Securities Exchange Act of 1934 on behalf of a putative class of purchasers of the Company’s common stock between May 10, 2017 and November 8, 2017, contending that the Company published inaccurate or incomplete information regarding, among other things, the financial performance and business outlook for inVentiv’s business prior to and following the Merger. On September 20, 2018, Defendants moved to dismiss the action. On August 30, 2021, the District Court entered an order granting the motion to dismiss in its entirety, but allowed Lead Plaintiffs the opportunity to seek leave to further amend their complaint. On October 4, 2021, Lead Plaintiffs advised the Court that it would not seek to further amend their complaint, and on October 21, 2021, the Court entered judgment for Defendants. The deadline for Lead Plaintiffs to appeal from this judgment is November 22, 2021.

The Company is presently unable to predict the duration, scope, or result of the foregoing putative class actions, or any other related lawsuit. As such, the Company is presently unable to develop a reasonable estimate of a possible loss or range of losses, if any, related to these matters. While the Company intends to defend any further proceedings in the putative class action litigation vigorously, the outcome of such litigation or any other litigation is necessarily uncertain. The Company could be forced to expend significant resources in the defense of these lawsuits or future ones, and it may not prevail. As such, these matters could have a material adverse effect on the Company's business, annual, or interim results of operations, cash flows, or its financial condition.

Assumed Contingent Tax-Sharing Obligations

As a result of the Merger, the Company assumed contingent tax-sharing obligations arising from inVentiv Health, Inc.’s 2016 merger with Double Eagle Parent, Inc. During the first quarter of 2021, the Company made payments of $6.2 million to fully settle this outstanding obligation. As of December 31, 2020, the estimated fair value of the assumed contingent tax-sharing obligations was $6.8 million.

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

Forward Looking Statements

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and 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, 2020.

In addition to historical condensed consolidated financial information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 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, including our business strategy, the future impact of the COVID-19 pandemic on our business, financial results, and financial condition, benefits of acquisitions, and planned capital expenditures. Without limiting the foregoing, the words “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “projects,” “should,” “would,” “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, regional, national, or global political, economic, business, competitive, market, and regulatory conditions and the following: risks associated with the COVID-19 pandemic; our potential failure to generate a large number of new business awards and the risk of delay, termination, reduction in scope, or failure to go to contract of our business awards; our potential failure to convert backlog to revenue; fluctuations in our operating results and effective income tax rate; the impact of potentially underpricing our contracts, overrunning our cost estimates, or failing to receive approval for or experiencing delays with documentation of change orders; cyber-security and other risks associated with our information systems infrastructure; changes and costs of compliance with regulations related to data privacy; concentration of our customers or therapeutic areas; the risks associated with doing business internationally; risks related to the impact of the U.K.’s withdrawal from the European Union; challenges by tax authorities of our intercompany transfer pricing policies; our potential failure to successfully increase our market share, grow our business, and execute our growth strategies; our ability to effectively upgrade our information systems; our failure to perform our services in accordance with contractual requirements, regulatory standards, and ethical considerations; risks related to the management of clinical trials; risks related to investments in our customers’ businesses or drugs and our related commercial rights strategies; the need to hire, develop, and retain key personnel; the impact of unfavorable economic conditions, including the uncertain international economic environment, changes in exchange rates; effective income tax rate fluctuations; our ability to protect our intellectual property; risks related to our acquisition strategy, including our ability to realize synergies; our relationships with customers who are in competition with each other; any failure to realize the full value of our goodwill and intangible assets; risks related to restructuring; our compliance with anti-corruption and anti-bribery laws; our dependence on third parties; potential employment liability; our ability to utilize net operating loss carryforwards and other tax attributes; downgrades of our credit ratings; competition in the biopharmaceutical services industry; outsourcing trends and changes in aggregate spending and research and development budgets; the impact of, including changes in, government regulations and healthcare reform; our ability to keep pace with rapid technological change; the cost of and our ability to service our substantial indebtedness; and other risks related to ownership of our common stock. For a

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further discussion of the risks relating to our business, refer to “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Overview of Our Business and Services

We are a leading global biopharmaceutical solutions organization providing a full suite of clinical and commercial services to customers in the biopharmaceutical, biotechnology, and healthcare industries. We offer both stand-alone and integrated biopharmaceutical product development solutions ranging from Early Phase (Phase I) clinical trials to the full commercialization of biopharmaceutical products, with the goal of increasing the likelihood of regulatory approval and commercial success.

Our operations are divided into two reportable segments, Clinical Solutions and Commercial Solutions. Our Clinical Solutions segment offers a variety of services spanning Phases I to IV of clinical development, including full service global studies and real world evidence programs, as well as individual service offerings such as clinical monitoring, investigator recruitment, patient recruitment, data management, and study start-up to assist customers with their drug development process. Our Commercial Solutions segment provides commercialization services, including deployment solutions, communication solutions (public relations, advertising, and medical communications), and consulting services. We integrate our clinical and commercial capabilities into customized solutions by sharing knowledge, data, and insights through our Biopharmaceutical Acceleration Model. This collaboration across the development and commercialization continuum facilitates unique insights into patient populations, therapeutic environments, product timelines, and the competitive landscape. For further discussion, refer to “Business” in Part I, Item 1 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

During the three months ended September 30, 2021, we acquired StudyKIK, a leading technology-enabled clinical trial recruitment and retention company, expanding our portfolio of patient-direct, technology-enabled solutions. StudyKIK supports patient recruitment, patient retention, eConsent Solutions, Telemedicine Video Calling, and study companion mobile applications to expedite clinical trials, which we believe will result in benefits to customers including accelerated patient enrollment and retention, extensive patient population-based insights, improved site, sponsor and physician experiences, and reduced patient burden.

Prior period segment results have been recast to reflect the transfer of the Kinapse Regulatory and Operations Consulting service lines from Commercial Solutions to Clinical Solutions to align with management reporting in 2021.

COVID-19 Pandemic

On March 11, 2020, the World Health Organization designated the outbreak of the novel strain of coronavirus that causes the disease known as COVID-19 as a global pandemic. Governments and businesses around the world have taken unprecedented actions to mitigate the spread of COVID-19, including, but not limited to, shelter-in-place orders, quarantines, significant restrictions on travel, social distancing practices as well as restrictions that prohibit many employees from going to work in person. As a result, we experienced significant impacts to our business and results of operations from COVID-19 during 2020 and to a lesser extent for the nine months ended September 30, 2021. While certain governments have eased restrictions, the pandemic continues to be disruptive to our business. The pandemic and associated economic impacts are expected to continue to impact our future financial condition, results of operations and cash flows.

For a further discussion of this and other risks relating to our business, refer to “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

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New Business Awards and Backlog

We add new business awards to backlog when we enter into a contract or when we receive a written commitment from the customer selecting us as a service provider, provided that:

•

collection of the award value is probable;

•

the project or projects are expected to commence within a certain period of time from the end of the quarter in which the award was granted;

•

project contingencies such as the outcome of other clinical trials, funding approvals, or other events, are not anticipated to prevent the project or projects from commencing in accordance with the expected timeline;

•

the customer has entered or intends to enter into a comprehensive contract as soon as practicable; and

•

for awards related to deployment solutions and functional service provider offerings, a maximum of twelve months of services are included in the award value.

In addition, we continually evaluate our backlog to determine if any of the previously awarded work is no longer expected to be performed, regardless of whether we have received formal cancellation notice from the customer. If we determine that any previously awarded work is no longer probable of being performed, we remove the value from our backlog based on the risk of cancellation. We recognize revenue from these awards as services are performed, provided we have received proper authorization from the customer.

We report new business awards for our Clinical Solutions and Commercial Solutions segments on a trailing twelve months (“TTM”) basis. Our total backlog represents backlog for our Clinical Solutions segment and the deployment solutions offering within our Commercial Solutions segment. We do not report backlog for the remaining service offerings in the Commercial Solutions segment.

Backlog

Our backlog consists of anticipated future revenue from business awards that either have not started, or that are in process and have not been completed. Our backlog also reflects any cancellation or adjustment activity related to these awards. The average duration of our contracts will fluctuate from period to period based on the contracts comprising our backlog at any given time. The majority of our contracts contain early termination provisions that typically require notice periods ranging from 30 to 90 days.

Our backlog as of September 30 was as follows (in millions):

	2021		2020		Change
Clinical Solutions	$	11,281.4	$	9,222.4	$	2,059.0	22.3	%
Commercial Solutions - Deployment Solutions		732.8		586.7		146.1	24.9	%
Total backlog	$	12,014.2	$	9,809.1	$	2,205.1	22.5	%

We expect approximately $1.16 billion of our backlog as of September 30, 2021 will be recognized as revenue during the remainder of 2021. We adjust the amount of our backlog each quarter for the effects of fluctuations in foreign currency exchange rates.

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Net New Business Awards

New business awards, net of cancellations, for the TTM periods ended September 30 were as follows (in millions):

	2021		2020
Clinical Solutions	$	5,322.2	$	4,739.6
Commercial Solutions		1,331.1		1,152.5
Total net new business awards	$	6,653.3	$	5,892.1

New business awards have varied and may continue to vary significantly from quarter to quarter. Fluctuations in our net new business award levels often result from the fact that we may receive a small number of relatively large orders in any given reporting period. Because of these large orders, our backlog and net new business awards in a reporting period may reach levels that are not sustainable in subsequent reporting periods.

We believe that our backlog and net new business awards might not be consistent indicators of future revenue because they have been, and likely will continue to be, affected by a number of factors, including the variable size and duration of projects, many of which are performed over several years, and changes to the scope of work during the course of projects. Additionally, projects may be canceled or delayed by the customer or regulatory authorities. Net new business awards and backlog have been and we expect will continue to be affected by the broad effects of the COVID-19 pandemic on the global economy and major financial markets, as well as various other risks and uncertainties detailed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. We generally do not have a contractual right to the full amount of the awards reflected in our backlog. If a customer cancels an award, we might be reimbursed for the costs we have incurred. As we increasingly compete for and enter into large contracts that are more global in nature, we expect that the rate at which our backlog and net new business awards convert into revenue is likely to decrease, and the duration of projects and the period over which related revenue is recognized to lengthen. For more information about risks related to our backlog see Part I, Item 1A “Risk Factors - Risks Related to Our Business - Our backlog might not be indicative of our future revenues, and we might not realize all of the anticipated future revenue reflected in our backlog.” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

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Results of Operations

The following table sets forth amounts from our condensed consolidated statements of income along with dollar and percentage changes (in thousands, except percentages):

	Three Months Ended September 30,
	2021		2020		Change
Revenue	$	1,348,230	$	1,099,004	$	249,226		22.7	%
Costs and operating expenses:
Direct costs (exclusive of depreciation and amortization)		1,031,887		820,228		211,659		25.8	%
Selling, general, and administrative expenses		139,524		118,051		21,473		18.2	%
Restructuring and other costs		7,209		6,523		686		10.5	%
Depreciation and amortization		56,254		55,448		806		1.5	%
Total operating expenses		1,234,874		1,000,250		234,624		23.5	%
Income from operations		113,356		98,754		14,602		14.8	%
Total other expense, net		12,947		31,384		(18,437	)	(58.7	)%
Income before provision for income taxes		100,409		67,370		33,039		49.0	%
Income tax expense		22,166		3,954		18,212		460.6	%
Net income	$	78,243	$	63,416	$	14,827		23.4	%

	Nine Months Ended September 30,
	2021		2020		Change
Revenue	$	3,839,586	$	3,275,758	$	563,828		17.2	%
Costs and operating expenses:
Direct costs (exclusive of depreciation and amortization)		2,969,718		2,550,134		419,584		16.5	%
Selling, general, and administrative expenses		421,507		351,942		69,565		19.8	%
Restructuring and other costs		18,403		23,414		(5,011	)	(21.4	)%
Depreciation and amortization		171,903		167,576		4,327		2.6	%
Total operating expenses		3,581,531		3,093,066		488,465		15.8	%
Income from operations		258,055		182,692		75,363		41.3	%
Total other expense, net		59,596		65,899		(6,303	)	(9.6	)%
Income before provision for income taxes		198,459		116,793		81,666		69.9	%
Income tax expense		39,587		15,892		23,695		149.1	%
Net income	$	158,872	$	100,901	$	57,971		57.5	%

Revenue

For the three months ended September 30, 2021, our revenue increased by $249.2 million, or 22.7%, to $1,348.2 million from $1,099.0 million for the three months ended September 30, 2020. For the nine months ended September 30, 2021, our revenue increased by $563.8 million, or 17.2%, to $3,839.6 million from $3,275.8 million for the nine months ended September 30, 2020. These increases were primarily driven by growth in both our Clinical Solutions and Commercial Solutions segments as discussed below.

No single customer accounted for greater than 10% of our total consolidated revenue for the three and nine months ended September 30, 2021 and 2020. Revenue from our top five customers accounted for approximately 24% and 23% of revenue for the three months ended September 30, 2021 and 2020, respectively, and 22% of revenue for both the nine months ended September 30, 2021 and 2020.

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Revenue for each of our segments was as follows (dollars in thousands):

	Three Months Ended September 30,
	2021		% of total			2020		% of total			Change
Clinical Solutions	$	1,037,445		76.9	%	$	837,237		76.2	%	$	200,208	23.9	%
Commercial Solutions		310,785		23.1	%		261,767		23.8	%		49,018	18.7	%
Total revenue	$	1,348,230				$	1,099,004				$	249,226	22.7	%

	Nine Months Ended September 30,
	2021		% of total			2020		% of total			Change
Clinical Solutions	$	2,966,541		77.3	%	$	2,475,560		75.6	%	$	490,981	19.8	%
Commercial Solutions		873,045		22.7	%		800,198		24.4	%		72,847	9.1	%
Total revenue	$	3,839,586				$	3,275,758				$	563,828	17.2	%

Clinical Solutions

For the three and nine months ended September 30, 2021, revenue attributable to our Clinical Solutions segment increased compared to the same periods in the prior year, primarily driven by recovery from the COVID-19 pandemic and the acquisitions of SHCR Holdings Corporation (“Synteract”) and Illingworth Research Group™ (“Illingworth Research”) that were completed in the fourth quarter of 2020. The recovery from the COVID-19 pandemic includes increased project start-ups, including larger pharmaceutical customer relationships and COVID-19 projects that generally have higher reimbursable out-of-pocket expenses. The revenue increase for the nine months ended September 30, 2021 was partially offset by a decrease related to the divestiture of our contingent staffing business in the second quarter of 2020. For the three and nine months ended September 30, 2021, revenue was positively impacted by $6.8 million and $44.1 million, respectively, from fluctuations in foreign currency exchange rates compared to the same periods in the prior year.

Although we are aggressively managing our response to the COVID-19 pandemic, we expect that the COVID-19 pandemic will continue to negatively impact our Clinical Solutions revenue throughout the remainder of 2021, depending on the continuation of the pandemic. At this time, we believe that the ongoing impacts to revenue in our Clinical Solutions segment will be less significant but similar in nature to those experienced in 2020 with the most significant being the trend of more remote monitoring visits and delayed patient enrollment, resulting in lower reimbursable out-of-pocket expenses and related revenue as the recovery continues. We expect a moderate increase in the use of remote monitoring from pre-COVID-19 levels, although below levels necessitated in 2020.

Commercial Solutions

For the three and nine months ended September 30, 2021, revenue attributable to our Commercial Solutions segment increased compared to the same periods in the prior year, primarily driven by recovery from the COVID-19 pandemic and strength in new project start-ups. The revenue increases were partially offset by decreases related to the divestiture of our medication adherence business in the fourth quarter of 2020.

Although we are aggressively managing our response to the COVID-19 pandemic, we expect that the COVID-19 pandemic will continue to negatively impact our Commercial Solutions revenue throughout the remainder of 2021, depending on the continuation of the pandemic. At this time, we believe that the ongoing impacts to revenue in our Commercial Solutions segment will be temporary and relate to delayed decision-making related to new business awards, delays or cancellations of existing projects, declines in field team visits to healthcare providers and investigator meetings, and travel disruptions, similar to but less significant than those experienced in 2020, resulting in lower reimbursable out-of-pocket expenses and revenue relative to pre-pandemic levels as the recovery continues.

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Direct Costs

Direct costs consist principally of compensation expense and benefits associated with our employees and other employee-related costs, and reimbursable out-of-pocket expenses directly related to delivering on our projects. While we have some ability to manage the majority of these costs relative to the amount of contracted services we have during any given period, direct costs as a percentage of revenue can vary from period to period. Such fluctuations are due to a variety of factors, including, among others: (i) the level of staff utilization on our projects; (ii) adjustments to the timing of work on specific customer contracts; (iii) the experience mix of personnel assigned to projects; (iv) the service mix and pricing of our contracts; and (v) the timing of the incurrence of reimbursable out-of-pocket expenses. Relative to pre-pandemic levels, we have experienced reduced travel and other reimbursable out-of-pocket expenses related to lower physical monitoring visits for Clinical Solutions, as well as fewer field team visits to healthcare providers and investigator meetings for Commercial Solutions.

Direct costs were as follows (dollars in thousands):

	Three Months Ended September 30,
	2021			2020			Change
Direct costs (exclusive of depreciation and amortization)	$	1,031,887		$	820,228		$	211,659	25.8	%
% of revenue		76.5	%		74.6	%
Gross margin %		23.5	%		25.4	%

	Nine Months Ended September 30,
	2021			2020			Change
Direct costs (exclusive of depreciation and amortization)	$	2,969,718		$	2,550,134		$	419,584	16.5	%
% of revenue		77.3	%		77.8	%
Gross margin %		22.7	%		22.2	%

For the three months ended September 30, 2021, our direct costs increased by $211.7 million, or 25.8%, compared to the three months ended September 30, 2020. For the nine months ended September 30, 2021, our direct costs increased by $419.6 million, or 16.5%, compared to the nine months ended September 30, 2020. These increases were primarily driven by higher reimbursable out-of-pocket expenses, impacts from the acquisitions that were completed in the fourth quarter of 2020, and temporary cost management strategies in response to the COVID-19 pandemic in the prior year. These increases were partially offset by decreases from business divestitures in 2020.

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Clinical Solutions

Direct costs for our Clinical Solutions segment, excluding share-based compensation expense, were as follows (dollars in thousands):

	Three Months Ended September 30,
	2021			2020			Change
Direct costs	$	777,065		$	607,951		$	169,114	27.8	%
% of segment revenue		74.9	%		72.6	%
Segment gross margin %		25.1	%		27.4	%

	Nine Months Ended September 30,
	2021			2020			Change
Direct costs	$	2,243,988		$	1,887,611		$	356,377	18.9	%
% of segment revenue		75.6	%		76.2	%
Segment gross margin %		24.4	%		23.8	%

For the three months ended September 30, 2021, our Clinical Solutions segment direct costs increased by $169.1 million, or 27.8%, compared to the three months ended September 30, 2020. For the nine months ended September 30, 2021, our Clinical Solutions segment direct costs increased by $356.4 million, or 18.9%, compared to the nine months ended September 30, 2020. These increases were primarily driven by higher reimbursable out-of-pocket expenses, impacts from the acquisitions that were completed in the fourth quarter of 2020, temporary cost management strategies in response to the COVID-19 pandemic in the prior year, and negative impacts of foreign exchange rate fluctuations. These increases were partially offset by positive impacts from our ForwardBound margin enhancement initiative. The increase related to the nine months ended September 30, 2021 was also partially offset by a decrease from the divestiture of our contingent staffing business in the second quarter of 2020.

Gross margins for our Clinical Solutions segment were 25.1% and 27.4% for the three months ended September 30, 2021 and 2020, respectively, and 24.4% and 23.8% for the nine months ended September 30, 2021 and 2020, respectively. Gross margin was lower for the three months ended September 30, 2021 as compared to the same period in the prior year due to higher costs in the current year primarily driven by recovery from the COVID-19 pandemic, including higher reimbursable out-of-pocket expenses and temporary cost management strategies in response to the COVID-19 pandemic in the prior year, as well as negative impacts of foreign exchange rate fluctuations. Gross margin was higher for the nine months ended September 30, 2021 as compared to the same period in the prior year primarily due to revenue growth and positive impacts from our ForwardBound margin enhancement initiative, partially offset by higher reimbursable out-of-pocket expenses, temporary cost management strategies in response to the COVID-19 pandemic in the prior year, and negative impacts of foreign exchange rate fluctuations.

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Commercial Solutions

Direct costs for our Commercial Solutions segment, excluding share-based compensation expense, were as follows (dollars in thousands):

	Three Months Ended September 30,
	2021			2020			Change
Direct costs	$	246,406		$	204,577		$	41,829	20.4	%
% of segment revenue		79.3	%		78.2	%
Segment gross margin %		20.7	%		21.8	%

	Nine Months Ended September 30,
	2021			2020			Change
Direct costs	$	700,092		$	638,535		$	61,557	9.6	%
% of segment revenue		80.2	%		79.8	%
Segment gross margin %		19.8	%		20.2	%

For the three months ended September 30, 2021, our Commercial Solutions segment direct costs increased by $41.8 million, or 20.4%, compared to the three months ended September 30, 2020. For the nine months ended September 30, 2021, our Commercial Solutions segment direct costs increased by $61.6 million, or 9.6%, compared to the nine months ended September 30, 2020. These increases were primarily related to recovery from the COVID-19 pandemic and temporary cost management strategies in the prior year, partially offset by the divestiture of our medication adherence business in the fourth quarter of 2020.

Gross margins for our Commercial Solutions segment were 20.7% and 21.8% for the three months ended September 30, 2021 and 2020, respectively, and 19.8% and 20.2% for the nine months ended September 30, 2021 and 2020, respectively. Gross margins were lower during the current year periods as compared to the same periods in the prior year due to higher costs in the current year primarily driven by recovery from the COVID-19 pandemic, including the impact of temporary cost management strategies in response to the COVID-19 pandemic in the prior year and higher reimbursable out-of-pocket expenses.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses were as follows (dollars in thousands):

	Three Months Ended September 30,
	2021			2020			Change
Selling, general, and administrative expenses	$	139,524		$	118,051		$	21,473	18.2	%
% of total revenue		10.3	%		10.7	%

	Nine Months Ended September 30,
	2021			2020			Change
Selling, general, and administrative expenses	$	421,507		$	351,942		$	69,565	19.8	%
% of total revenue		11.0	%		10.7	%

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Selling, general, and administrative expenses for the three and nine months ended September 30, 2021 increased compared to the same periods in 2020 primarily due to the acquisitions that were completed in the fourth quarter of 2020, including higher transaction and integration-related expenses, and temporary cost management strategies in response to the COVID-19 pandemic in the prior year. Transaction and integration-related expenses are no longer reported separately and are included in selling, general, and administrative expenses. These increases were partially offset by positive impacts from our ForwardBound margin enhancement initiative.

Restructuring and Other Costs

Restructuring and other costs were $7.2 million and $6.5 million for the three months ended September 30, 2021 and 2020, respectively, and $18.4 million and $23.4 million for the nine months ended September 30, 2021 and 2020, respectively. The costs incurred during the three and nine months ended September 30, 2021 were primarily related to our ForwardBound margin enhancement initiative as we continue the ongoing evaluations of our workforce and facilities infrastructure needs in an effort to optimize our resources. The costs incurred during the three and nine months ended September 30, 2020 were primarily related to our cost management strategies in response to the COVID-19 pandemic as well as our ForwardBound initiative.

Restructuring and other costs consisted of the following (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Employee severance and benefit costs	$	3,438	$	5,903	$	11,815	$	21,171
Facility and lease termination costs		3,760		497		6,530		1,605
Other costs		11		123		58		638
Total restructuring and other costs	$	7,209	$	6,523	$	18,403	$	23,414

We expect to continue to incur costs related to the restructuring of our operations in order to achieve cost savings and the targeted synergies related to our acquisitions. However, the timing and the amount of these costs depends on various factors, including, but not limited to, identifying and realizing synergy opportunities and executing the integration of our combined operations. We may also continue to incur additional restructuring and other costs during and beyond 2021 related to our ForwardBound margin enhancement initiative.

Depreciation and Amortization Expense

Total depreciation and amortization expense was $56.3 million and $55.4 million for the three months ended September 30, 2021 and 2020, respectively, and $171.9 million and $167.6 million for the nine months ended September 30, 2021 and 2020, respectively. The increases in total depreciation and amortization expense in the current year compared to the prior year periods were primarily due to the acquisitions that were completed in the fourth quarter of 2020, partially offset by decreases due to fully amortized intangible assets from prior acquisitions.

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Total Other Expense, Net

Total other expense, net consisted of the following (dollars in thousands):

	Three Months Ended September 30,
	2021			2020			Change
Interest income	$	76		$	126		$	(50	)		(39.7	)%
Interest expense		16,698			20,316			(3,618	)		(17.8	)%
Loss on extinguishment of debt		—			346			(346	)		(100.0	)%
Other (income) expense, net		(3,827	)		10,596			(14,423	)	n/m
Total other expense, net	$	12,947		$	31,384		$	(18,437	)		(58.7	)%

	Nine Months Ended September 30,
	2021			2020			Change
Interest income	$	5		$	(332	)	$	337		n/m
Interest expense		62,645			68,458			(5,813	)		(8.5	)%
Loss on extinguishment of debt		2,802			346			2,456			709.8	%
Other income, net		(5,856	)		(2,573	)		(3,283	)		(127.6	)%
Total other expense, net	$	59,596		$	65,899		$	(6,303	)		(9.6	)%

Total other expense, net was $12.9 million and $31.4 million for the three months ended September 30, 2021 and 2020, respectively, and $59.6 million and $65.9 million for the nine months ended September 30, 2021 and 2020, respectively. The decreases in interest expense were primarily due to reductions in our higher interest rate debt as a result of debt prepayments and refinancing transactions as well as lower interest rates on our variable interest rate debt. The losses on extinguishment of debt were the result of our debt prepayments and refinancing transaction. Other (income) expense, net and other income, net primarily consist of foreign currency gains and losses that result from exchange rate fluctuations on our monetary asset balances denominated in currencies other than our functional currency, other gains and losses related to investments, and contingent consideration related to divested businesses.

Income Tax Expense

For the three and nine months ended September 30, 2021, we recorded income tax expense of $22.2 million and $39.6 million, respectively, compared to pre-tax income of $100.4 million and $198.5 million, respectively. Income tax expense for the three and nine months ended September 30, 2021 included discrete tax benefits of $0.7 million and $6.5 million, respectively, primarily related to excess tax benefits from share-based compensation. The effective tax rates for the three and nine months ended September 30, 2021, excluding discrete items, varied from the U.S. federal statutory income tax rate of 21.0% primarily due to foreign tax credits, foreign income inclusions such as the Global Intangible Low-Taxed Income (“GILTI”) provisions, and state and local taxes on U.S. income.

For the three and nine months ended September 30, 2020, we recorded income tax expense of $4.0 million and $15.9 million, respectively, compared to pre-tax income of $67.4 million and $116.8 million, respectively. Income tax expense for the three and nine months ended September 30, 2020 included discrete tax benefits of $18.8 million and $24.3 million, respectively, primarily related to the recognition of U.S. federal unrecognized tax benefits, excess tax benefits from share-based compensation, and the tax benefit from foreign tax credits claimed on amended returns filed during the year. The effective tax rates for the three and nine months ended September 30, 2020, excluding discrete items, varied from the U.S. federal statutory income tax rate of 21.0% primarily due to foreign income inclusions such as the GILTI provisions, state and local taxes on U.S. income, and research and general business credits.

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We currently maintain a valuation allowance against a portion of our state deferred tax assets and a portion of our foreign deferred tax assets as of September 30, 2021. We intend to continue to maintain a valuation allowance on these deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances.

Liquidity and Capital Resources

Key measures of our liquidity were as follows (in thousands):

	September 30, 2021		December 31, 2020
Balance sheet statistics:
Cash and cash equivalents	$	122,425	$	271,901
Restricted cash		110		272
Working capital (excluding restricted cash)		75,818		160,409

As of September 30, 2021, we had $122.5 million of cash, cash equivalents, and restricted cash. As of September 30, 2021, substantially all of our cash, cash equivalents, and restricted cash was held within the U.S. In addition, we had $553.9 million (net of $16.1 million in outstanding letters of credit (“LOCs”)) available for borrowing under our revolving credit facility (the “Revolver”), of which $133.9 million was available for LOCs.

We have historically funded our operations and growth, including acquisitions, primarily with our working capital, cash flow from operations, and funds available through various borrowing arrangements. Our principal liquidity requirements are to fund our debt service obligations, capital expenditures, expansion of service offerings, possible acquisitions, integration and restructuring costs, geographic expansion, stock repurchases, working capital, and other general corporate expenses. Cash flow from operations also could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic on the global economy and major financial markets, as well as other risks detailed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Based on past performance and current expectations, we believe our cash and cash equivalents, cash generated from operations, and funds available under the Revolver will be sufficient to meet our working capital needs, capital expenditures, scheduled debt and interest payments, income tax obligations, and other currently anticipated liquidity requirements for at least the next 12 months.

Indebtedness

As of September 30, 2021, we had approximately $2.95 billion of total principal indebtedness (including $48.2 million in finance lease obligations), consisting of $1.91 billion in term loan debt, $30.0 million under our Revolver, $600.0 million of 3.625% senior notes (the “Notes”), and $365.0 million in borrowings against our accounts receivable financing agreement. Approximately $931.7 million of our indebtedness (excluding finance leases) was subject to variable interest rates.

The Notes

On November 24, 2020, we completed the issuance and sale of $600.0 million aggregate principal amount of the Notes. The Notes were issued pursuant to an indenture (the “Indenture”), which provides, among other things, that the Notes are senior unsecured obligations of us and are guaranteed, jointly and severally, on a senior unsecured basis, by certain of our subsidiaries.

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We may redeem some or all of the Notes at any time prior to January 15, 2024 at a redemption price equal to 100% of the aggregate principal amount of the Notes to be redeemed plus a “make-whole” premium and accrued and unpaid interest. In addition, prior to July 15, 2023, we may redeem up to 40% of the original principal amount of the Notes with proceeds of certain equity offerings at a redemption price equal to 103.625% of the aggregate principal amount of such Notes plus accrued and unpaid interest. On or after January 15, 2024, we may redeem some or all of the Notes at the redemption prices set forth in the Indenture plus accrued and unpaid interest. The Indenture contains covenants that limit the ability of us and our restricted subsidiaries to, among other things, (1) incur additional liens, (2) engage in certain sale and leaseback transactions, and (3) conduct mergers, consolidations, or asset sales. These covenants are subject to exceptions and qualifications set forth in the Indenture.

If we sell certain of our assets or experience specific kinds of changes of control, we are required to offer to repurchase the Notes at a repurchase price equal to (1) par plus any accrued and unpaid interest in the case of an asset sale or (2) 101% of the aggregate principal amount thereof plus any accrued and unpaid interest in the case of a change of control.

Credit Agreement

We are party to a credit agreement (as amended, the “Credit Agreement”) that included a $1.55 billion Term Loan A facility (“Term Loan A”) that has two tranches, tranche one that matures on March 26, 2024 and tranche two that matures on August 1, 2024, a $1.60 billion Term Loan B facility (“Term Loan B”) that was paid in full during the second quarter of 2021, and a $600.0 million Revolver that matures on August 1, 2024. The Revolver includes LOCs with a sublimit of $150.0 million.

In February 2021, as a result of our First Lien Leverage Ratio (as defined in the Credit Agreement) being less than or equal to 2.5x, the Adjusted Eurocurrency Rate Spread (as defined in the Credit Agreement) on Term Loan A and the Revolver decreased from 1.50% to 1.25%.

On June 30, 2021 (the “Closing Date”), we entered into Amendment No. 5 (the “Fifth Amendment”) to the Credit Agreement. The Fifth Amendment modified the Credit Agreement to increase Term Loan A in an aggregate principal amount of $495.0 million (“Incremental Term Loan A”). Incremental Term Loan A was funded on the Closing Date, and the proceeds were used, along with cash on hand, to repay the outstanding Term Loan B in full under the Credit Agreement and to pay fees and expenses in connection with the Fifth Amendment and the incurrence of Incremental Term Loan A. Incremental Term Loan A has the same terms as Term Loan A under the Credit Agreement, and is subject to the same covenants. We recorded an additional discount of $0.5 million against the Term Loan A borrowings in connection with the Fifth Amendment, which is being amortized as a component of interest expense using the effective interest method over the term of Term Loan A.

During the nine months ended September 30, 2021, we made $41.8 million and $560.5 million of voluntary prepayments against Term Loan A and Term Loan B, respectively, which were applied to future principal payments. As a result of these and previous voluntary prepayments, we are not required to make a mandatory payment against the principal balance of Term Loan A until October 2022 and Term Loan B has been paid in full. In connection with these prepayments, we recorded a $2.8 million loss on extinguishment of debt during the nine months ended September 30, 2021.

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Our ability to make payments on our indebtedness and to fund planned capital expenditures and necessary working capital will depend on our ability to generate cash in the future. Our ability to meet our cash needs through cash flows from operations will depend on the demand for our services, as well as general economic, financial, competitive, and other factors, many of which are beyond our control, including the broad effects of the COVID-19 pandemic on the global economy and major financial markets. Our business may not generate cash flow in an amount sufficient to enable us to pay the principal of, or interest on, our indebtedness, or to fund our other liquidity needs, including working capital, capital expenditures, acquisitions, investments, and other general corporate requirements. If we cannot fund our liquidity needs, we will have to take actions such as reducing or delaying capital expenditures, acquisitions or investments, selling assets, restructuring or refinancing our debt, reducing the scope of our operations and growth plans, or seeking additional capital. We cannot assure you that any of these remedies could, if necessary, be affected on commercially reasonable terms, or at all, or that they would permit us to meet our scheduled debt service obligations. The Credit Agreement contains covenant restrictions that limit our ability to direct the use of proceeds from any disposition of assets and, as a result, we may not be allowed to use the proceeds from any such dispositions to satisfy all current debt service obligations.

Debt Covenants

Our Credit Agreement contains usual and customary restrictive covenants. Our Credit Agreement requires us to maintain a maximum First Lien Leverage Ratio (as defined in the Credit Agreement) of no more than 4.5 to 1.0 as of the last day of each fiscal quarter from and after March 31, 2020.

The Indenture also contains customary events of default, including (1) failure to make required payments, (2) failure to comply with certain covenants, (3) failure to pay certain other indebtedness, (4) certain events of bankruptcy and insolvency, and (5) failure to pay certain judgments. An event of default under the Indenture allows either the Trustee or the holders of at least 25% in aggregate principal amount of the Notes, as applicable, issued under such Indenture, to accelerate the amounts due under the Notes, or in the case of a bankruptcy or insolvency, will automatically cause the acceleration of the amounts due under the Notes.

As of September 30, 2021, we were in compliance with all applicable debt covenants.

Revolver and Letters of Credit

The Revolver includes LOCs with a sublimit of $150.0 million. As of September 30, 2021, we had $30.0 million of outstanding Revolver borrowings and $16.1 million of LOCs outstanding, leaving $553.9 million of available borrowings under the Revolver, including $133.9 million available for LOCs.

Accounts Receivable Financing Agreement

We have an accounts receivable financing agreement (as amended) with a termination date of October 3, 2022, unless terminated earlier pursuant to its terms. On January 28, 2021, we amended this agreement to increase the amount we can borrow from $300.0 million to $365.0 million, and drew down the additional $65.0 million to partially fund the Term Loan A and Term Loan B voluntary prepayments. Accordingly, there was no incremental impact on the outstanding principal of our debt. As of September 30, 2021, we had $365.0 million of outstanding borrowings under this agreement with no remaining borrowing capacity available.

On October 13, 2021, we further amended our accounts receivable financing agreement to increase the amount we can borrow from $365.0 million to $400.0 million, extended the maturity to October 2024, and drew down the additional $35.0 million. At the same time, we paid down $35.0 million on facilities under our Credit Agreement, resulting in no net impact on leverage.

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Interest Rates

We have entered into various interest rate swaps to mitigate our exposure to changes in interest rates on our term loans. As of September 30, 2021, the percentage of our total principal debt (excluding finance leases) that is subject to fixed interest rates was approximately 68%. Each quarter-point increase or decrease in the applicable floating interest rate at September 30, 2021 would change our annual interest expense by approximately $2.3 million.

Stock Repurchase Program

The Stock Repurchase Program does not obligate us to repurchase any particular amount of our Class A common stock, and may be modified, extended, suspended, or discontinued at any time. The timing and amount of repurchases are determined by our management based on a variety of factors such as the market price of our Class A common stock, our corporate cash requirements, and overall market conditions. The Stock Repurchase Program is subject to applicable legal requirements, including federal and state securities laws and applicable Nasdaq rules. We may also repurchase shares of our Class A common stock pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, which would permit shares of our Class A common stock to be repurchased when we might otherwise be precluded from doing so by law.

The following table sets forth repurchase activity under the Stock Repurchase Program from inception through September 30, 2021:

	Total number of shares purchased		Average price paid per share		Approximate dollar value of shares purchased (in thousands)
March 2021		600,000	$	74.18	$	44,505
May 2021		400,000		81.04		32,416
June 2021		500,000		81.20		40,600
Total		1,500,000			$	117,521

As of September 30, 2021, we had remaining authorization to repurchase up to approximately $182.5 million of shares of our common stock under the Stock Repurchase Program.

Cash, Cash Equivalents and Restricted Cash

Our cash flows from operating, investing, and financing activities were as follows (in thousands):

	Nine Months Ended September 30,
	2021			2020			Change
Net cash provided by operating activities	$	264,299		$	311,167		$	(46,868	)
Net cash used in investing activities		(260,182	)		(45,352	)		(214,830	)
Net cash used in financing activities		(155,483	)		(188,176	)		32,693

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Cash Flows from Operating Activities

Cash flows provided by operating activities decreased by $46.9 million during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The decrease is primarily due to negative changes in operating assets and liabilities relative to the prior year period partially offset by higher cash-related net income. Fluctuations in accounts receivable, unbilled services (including contract assets), and deferred revenue occur on a regular basis as we perform services, achieve milestones or other billing criteria, send invoices to customers, and collect outstanding accounts receivable. This activity varies by individual customer and contract. We attempt to negotiate payment terms that provide for payment of services prior to or soon after the provision of services, but the levels of accounts receivable, unbilled services (including contract assets), and deferred revenue can vary significantly from period to period.

Cash Flows from Investing Activities

For the nine months ended September 30, 2021, we used $260.2 million in cash for investing activities, which consisted of $226.3 million of payments related to acquisitions, including the acquisition of StudyKIK, and $29.9 million for purchases of property and equipment. We continue to closely monitor our capital expenditures, especially in light of the COVID-19 pandemic, while making strategic investments in the development of our information technology infrastructure to meet the needs of our workforce, enable efficiencies, reduce business continuity risks, and conform to changes in governing rules and regulations.

For the nine months ended September 30, 2020, we used $45.4 million in cash for investing activities, which consisted of $38.5 million for purchases of property and equipment and $6.9 million for investments in unconsolidated affiliates.

Cash Flows from Financing Activities

For the nine months ended September 30, 2021, we used $155.5 million in cash for financing activities, which consisted primarily of repurchases of our common stock and net repayments of long-term debt. These payments were partially offset by proceeds from our accounts receivable financing arrangement and Revolver.

For the nine months ended September 30, 2020, our financing activities used $188.2 million in cash, which consisted primarily of repurchases of our common stock, contingent consideration payments, and repayments of long-term debt.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses during the period, as well as disclosures of contingent assets and liabilities at the date of the financial statements. We evaluate our estimates on an ongoing basis, including those related to revenue recognition, valuation of goodwill and identifiable intangibles, and tax-related contingencies and valuation allowances. These estimates are based on the information available to management at the time these estimates, judgments, and assumptions are made. Actual results may differ materially from these estimates. There have been no significant changes to our critical accounting policies and estimates. For additional information on all of our critical accounting policies and estimates, refer to Part II - Item 7 - Management’s Discussion and Analysis included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

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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, 2020.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our CEO and CFO have concluded that as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Changes in Internal Controls

There have been no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that 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 our management currently believes the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our consolidated financial statements, litigation is subject to inherent uncertainties. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on our financial condition and results of operations.

Please refer to “Note 16 – Commitments and Contingencies” of our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional material developments to legal proceedings included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Item 1A. Risk Factors.

There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020. Refer to “Risk Factors” in Part 1, Item 1A of that report for a detailed discussion of risk factors affecting us.

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

Recent Sales of Unregistered Securities

Not applicable.

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Purchases of Equity Securities by the Issuer

On November 17, 2020, our Board authorized the repurchase of up to an aggregate of $300.0 million of our Class A common stock, par value $0.01 per share, to be executed from time to time in open market transactions effected through a broker at prevailing market prices, in block trades, or through privately negotiated transactions through December 31, 2022 (the “Stock Repurchase Program”). The Stock Repurchase Program took effect on January 1, 2021. Share repurchases are funded primarily with our working capital, cash flow from operations, and funds available through various borrowing arrangements. The Stock Repurchase Program does not obligate us to repurchase any particular amount of our Class A common stock, and may be modified, extended, suspended, or discontinued at any time. The timing and amount of repurchases are determined by our management based on a variety of factors such as the market price of our Class A common stock, our corporate cash requirements, and overall market conditions. The Stock Repurchase Program is subject to applicable legal requirements, including federal and state securities laws and applicable Nasdaq rules. We may also repurchase shares of our Class A common stock pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, which would permit shares of our Class A common stock to be repurchased when we might otherwise be precluded from doing so by law.

There were no share repurchases under the stock repurchase program for the three months ended September 30, 2021. As of September 30, 2021, we have remaining authorization to repurchase up to approximately $182.5 million of shares of our Class A common stock under the Stock Repurchase Program.

Item 5. Other Information.

Not applicable.

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Item 6. Exhibits


		Incorporated by Reference (Unless Otherwise Indicated)
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date
10.1	Eleventh Amendment to the Receivables Financing Agreement, dated as of October 13, 2021, by and among Syneos Health Receivables LLC, as borrower, Syneos Health, LLC, as initial servicer, Regions Bank, as a lender, and PNC Bank, National Association, as administrative agent and as a lender.	—	—	—	Filed herewith
10.2	Sixth Amendment to the Purchase and Sale Agreement, dated as of October 13, 2021, among each of the entities listed on the signature pages hereto as an Originator, Syneos Health, LLC, as servicer, and Syneos Health Receivables LLC.	—	—	—	Filed herewith
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	—	—	—	Filed herewith
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	—	—	—	Filed herewith
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	—	—	—	Furnished herewith
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	—	—	—	Furnished herewith
101.INS	Inline XBRL Instance Document - the Instance Document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.	—	—	—	Filed herewith
101.SCH	Inline XBRL Taxonomy Extension Schema Document.	—	—	—	Filed herewith
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.	—	—	—	Filed herewith
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.	—	—	—	Filed herewith
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.	—	—	—	Filed herewith
101.PRE	Inline Taxonomy Extension Presentation Linkbase Document.	—	—	—	Filed herewith
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).	—	—	—	Filed herewith

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SIGNATURE

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.

		SYNEOS HEALTH, INC.


Date: November 2, 2021	BY:	/s/ Jason Meggs
		Jason Meggs
		Chief Financial Officer (Principal Financial Officer)