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Syneos Health, Inc. - Quarter Report: 2021 June (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 June 30, 2021

or

 

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 August 2, 2021, there were approximately 103,483,148 shares of the registrant’s common stock outstanding.

 

 


Table of Contents

 

 

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 six months ended June 30, 2021 and 2020 (unaudited)

3

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2021 and 2020 (unaudited)

4

 

 

 

 

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

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020 (unaudited)

6

 

 

 

 

Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended June 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

26

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

 

 

 

Item 4.

Controls and Procedures

41

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

41

 

 

 

Item 1A.

Risk Factors

41

 

 

 

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

41

 

 

 

Item 5.

Other Information

42

 

 

 

Item 6.

Exhibits

43

 

 

 

 

Signature

44

 

 

2


Table of Contents

 

 

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements.

 

SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(in thousands, except per share data)

 

Revenue

 

$

1,282,611

 

 

$

1,013,399

 

 

$

2,491,356

 

 

$

2,176,754

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct costs (exclusive of depreciation and amortization)

 

 

992,581

 

 

 

805,892

 

 

 

1,937,831

 

 

 

1,729,906

 

Selling, general, and administrative expenses

 

 

144,669

 

 

 

108,344

 

 

 

281,983

 

 

 

233,891

 

Restructuring and other costs

 

 

3,966

 

 

 

8,171

 

 

 

11,194

 

 

 

16,891

 

Depreciation

 

 

18,158

 

 

 

17,304

 

 

 

36,605

 

 

 

34,529

 

Amortization

 

 

39,553

 

 

 

38,717

 

 

 

79,044

 

 

 

77,599

 

Total operating expenses

 

 

1,198,927

 

 

 

978,428

 

 

 

2,346,657

 

 

 

2,092,816

 

Income from operations

 

 

83,684

 

 

 

34,971

 

 

 

144,699

 

 

 

83,938

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other expense, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

(122

)

 

 

(71

)

 

 

(458

)

Interest expense

 

 

22,619

 

 

 

21,684

 

 

 

45,947

 

 

 

48,142

 

Loss on extinguishment of debt

 

 

2,199

 

 

 

 

 

 

2,802

 

 

 

 

Other expense (income), net

 

 

7,827

 

 

 

5,761

 

 

 

(2,029

)

 

 

(13,169

)

Total other expense, net

 

 

32,645

 

 

 

27,323

 

 

 

46,649

 

 

 

34,515

 

Income before provision for income taxes

 

 

51,039

 

 

 

7,648

 

 

 

98,050

 

 

 

49,423

 

Income tax expense

 

 

9,134

 

 

 

3,737

 

 

 

17,421

 

 

 

11,938

 

Net income

 

$

41,905

 

 

$

3,911

 

 

$

80,629

 

 

$

37,485

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.40

 

 

$

0.04

 

 

$

0.77

 

 

$

0.36

 

Diluted

 

$

0.40

 

 

$

0.04

 

 

$

0.77

 

 

$

0.36

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

103,937

 

 

 

104,198

 

 

 

104,105

 

 

 

104,232

 

Diluted

 

 

105,019

 

 

 

105,219

 

 

 

105,238

 

 

 

105,430

 

 

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

3


Table of Contents

 

SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Net income

 

$

41,905

 

 

$

3,911

 

 

$

80,629

 

 

$

37,485

 

Unrealized gain (loss) on derivative instruments, net of income tax expense (benefit) of $1,596, $52, $3,609, and $(6,587), respectively

 

 

4,708

 

 

 

(1,131

)

 

 

10,645

 

 

 

(11,861

)

Foreign currency translation adjustments, net of income tax expense (benefit) of $550, $0, $(158), and $0, respectively

 

 

8,825

 

 

 

2,870

 

 

 

4,515

 

 

 

(45,918

)

Comprehensive income (loss)

 

$

55,438

 

 

$

5,650

 

 

$

95,789

 

 

$

(20,294

)

 

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

4


Table of Contents

 

SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

June 30, 2021

 

 

December 31, 2020

 

 

 

(in thousands, except par value)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash, cash equivalents, and restricted cash

 

$

261,135

 

 

$

272,173

 

Accounts receivable and unbilled services, net

 

 

1,369,921

 

 

 

1,344,781

 

Prepaid expenses and other current assets

 

 

117,240

 

 

 

121,058

 

Total current assets

 

 

1,748,296

 

 

 

1,738,012

 

Property and equipment, net

 

 

203,988

 

 

 

216,200

 

Operating lease right-of-use assets

 

 

222,034

 

 

 

223,285

 

Goodwill

 

 

4,789,784

 

 

 

4,776,178

 

Intangible assets, net

 

 

831,072

 

 

 

933,525

 

Deferred income tax assets

 

 

37,614

 

 

 

35,059

 

Other long-term assets

 

 

186,886

 

 

 

141,047

 

Total assets

 

$

8,019,674

 

 

$

8,063,306

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

107,772

 

 

$

113,684

 

Accrued expenses

 

 

625,623

 

 

 

611,042

 

Deferred revenue

 

 

802,256

 

 

 

793,068

 

Current portion of operating lease obligations

 

 

43,636

 

 

 

42,082

 

Current portion of finance lease obligations

 

 

17,061

 

 

 

17,455

 

Total current liabilities

 

 

1,596,348

 

 

 

1,577,331

 

Long-term debt

 

 

2,863,620

 

 

 

2,902,054

 

Operating lease long-term obligations

 

 

217,341

 

 

 

221,760

 

Finance lease long-term obligations

 

 

25,881

 

 

 

31,522

 

Deferred income tax liabilities

 

 

13,739

 

 

 

20,216

 

Other long-term liabilities

 

 

64,131

 

 

 

68,311

 

Total liabilities

 

 

4,781,060

 

 

 

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 June 30, 2021 and December 31, 2020

 

 

 

 

 

 

Common stock, $0.01 par value; 600,000 shares authorized, 103,473 and 103,935 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

 

 

1,035

 

 

 

1,039

 

Additional paid-in capital

 

 

3,430,375

 

 

 

3,461,747

 

Accumulated other comprehensive loss, net of taxes

 

 

(25,641

)

 

 

(40,801

)

Accumulated deficit

 

 

(167,155

)

 

 

(179,873

)

Total shareholders’ equity

 

 

3,238,614

 

 

 

3,242,112

 

Total liabilities and shareholders’ equity

 

$

8,019,674

 

 

$

8,063,306

 

 

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

5


Table of Contents

 

SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

80,629

 

 

$

37,485

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

115,649

 

 

 

112,128

 

Share-based compensation

 

 

33,792

 

 

 

32,173

 

(Recovery from) provision for doubtful accounts

 

 

(473

)

 

 

379

 

(Benefit from) provision for deferred income taxes

 

 

(13,024

)

 

 

8,750

 

Foreign currency transaction gains

 

 

(3,563

)

 

 

(12,541

)

Fair value adjustment of contingent obligations

 

 

(597

)

 

 

(3,943

)

Loss on extinguishment of debt

 

 

2,802

 

 

 

 

Other non-cash items

 

 

5,007

 

 

 

1,501

 

Changes in operating assets and liabilities, net of effect of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable, unbilled services, and deferred revenue

 

 

(8,269

)

 

 

52,670

 

Accounts payable and accrued expenses

 

 

30,117

 

 

 

(64,757

)

Other assets and liabilities

 

 

(26,275

)

 

 

(8,680

)

Net cash provided by operating activities

 

 

215,795

 

 

 

155,165

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Payments related to acquisitions of businesses, net of cash acquired

 

 

(14,635

)

 

 

 

Proceeds from notes receivable from divestiture

 

 

5,000

 

 

 

 

Purchases of property and equipment

 

 

(22,337

)

 

 

(30,078

)

Proceeds from (investments in) unconsolidated affiliates

 

 

692

 

 

 

(7,202

)

Net cash used in investing activities

 

 

(31,280

)

 

 

(37,280

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt, net of discount

 

 

494,505

 

 

 

 

Payments of debt financing costs

 

 

(544

)

 

 

 

Repayments of long-term debt

 

 

(602,277

)

 

 

(19,375

)

Proceeds from accounts receivable financing agreement

 

 

65,000

 

 

 

6,600

 

Repayments of accounts receivable financing agreement

 

 

 

 

 

(6,600

)

Proceeds from revolving line of credit

 

 

 

 

 

300,000

 

Repayments of revolving line of credit

 

 

 

 

 

(150,000

)

Payments of contingent consideration related to acquisitions

 

 

(6,196

)

 

 

(26,634

)

Payments of finance leases

 

 

(8,380

)

 

 

(8,904

)

Payments for repurchases of common stock

 

 

(117,521

)

 

 

(32,029

)

Proceeds from exercises of stock options

 

 

14,482

 

 

 

12,784

 

Payments related to tax withholdings for share-based compensation

 

 

(29,892

)

 

 

(19,604

)

Net cash (used in) provided by financing activities

 

 

(190,823

)

 

 

56,238

 

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

(4,730

)

 

 

5,218

 

Net change in cash, cash equivalents, and restricted cash

 

 

(11,038

)

 

 

179,341

 

Cash, cash equivalents, and restricted cash - beginning of period

 

 

272,173

 

 

 

163,689

 

Cash, cash equivalents, and restricted cash - end of period

 

$

261,135

 

 

$

343,030

 

 

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

6


Table of Contents

 

SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Shareholders’ equity, beginning balance

 

$

3,236,877

 

 

$

2,977,922

 

 

$

3,242,112

 

 

$

3,029,654

 

Impact from adoption of ASU 2016-13

 

 

 

 

 

 

 

 

 

 

 

(2,771

)

Shareholders’ equity, adjusted beginning balance

 

 

3,236,877

 

 

 

2,977,922

 

 

 

3,242,112

 

 

 

3,026,883

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

1,042

 

 

 

1,042

 

 

 

1,039

 

 

 

1,039

 

Repurchases of common stock

 

 

(9

)

 

 

 

 

 

(15

)

 

 

(6

)

Issuances of common stock

 

 

2

 

 

 

 

 

 

11

 

 

 

9

 

Ending balance

 

 

1,035

 

 

 

1,042

 

 

 

1,035

 

 

 

1,042

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional paid-in capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

3,440,840

 

 

 

3,430,740

 

 

 

3,461,747

 

 

 

3,441,471

 

Repurchases of common stock

 

 

(29,778

)

 

 

 

 

 

(49,595

)

 

 

(19,734

)

Issuances of common stock

 

 

2,874

 

 

 

(63

)

 

 

(15,569

)

 

 

(7,058

)

Share-based compensation

 

 

16,439

 

 

 

16,175

 

 

 

33,792

 

 

 

32,173

 

Ending balance

 

 

3,430,375

 

 

 

3,446,852

 

 

 

3,430,375

 

 

 

3,446,852

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

(39,174

)

 

 

(131,111

)

 

 

(40,801

)

 

 

(71,593

)

Unrealized gain (loss) on derivative instruments, net of taxes

 

 

4,708

 

 

 

(1,131

)

 

 

10,645

 

 

 

(11,861

)

Foreign currency translation adjustment, net of taxes

 

 

8,825

 

 

 

2,870

 

 

 

4,515

 

 

 

(45,918

)

Ending balance

 

 

(25,641

)

 

 

(129,372

)

 

 

(25,641

)

 

 

(129,372

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated deficit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

(165,831

)

 

 

(322,749

)

 

 

(179,873

)

 

 

(341,263

)

Impact from adoption of ASU 2016-13

 

 

 

 

 

 

 

 

 

 

 

(2,771

)

Adjusted beginning balance

 

 

(165,831

)

 

 

(322,749

)

 

 

(179,873

)

 

 

(344,034

)

Repurchases of common stock

 

 

(43,229

)

 

 

 

 

 

(67,911

)

 

 

(12,289

)

Net income

 

 

41,905

 

 

 

3,911

 

 

 

80,629

 

 

 

37,485

 

Ending balance

 

 

(167,155

)

 

 

(318,838

)

 

 

(167,155

)

 

 

(318,838

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity, ending balance

 

$

3,238,614

 

 

$

2,999,684

 

 

$

3,238,614

 

 

$

2,999,684

 

 

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

7


Table of Contents

 

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 six months ended June 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 six months ended June 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 unaudited condensed consolidated balance sheets.

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

 

 

June 30, 2021

 

 

December 31, 2020

 

Gross cash position

 

$

232,537

 

 

$

220,261

 

Less: cash borrowings

 

 

(205,632

)

 

 

(204,647

)

Net cash position

 

$

26,905

 

 

$

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):

 

 

 

June 30, 2021

 

 

December 31, 2020

 

Accounts receivable billed

 

$

768,681

 

 

$

774,605

 

Accounts receivable unbilled

 

 

234,402

 

 

 

211,285

 

Contract assets

 

 

374,157

 

 

 

366,506

 

Less: Allowance for doubtful accounts

 

 

(7,319

)

 

 

(7,615

)

Accounts receivable and unbilled services, net

 

$

1,369,921

 

 

$

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 six months ended June 30, 2021 and 2020, the Company factored $68.7 million and $77.6 million, respectively, of trade accounts receivable on a non-recourse basis and received $68.6 million and $77.3 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 six months ended June 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)

 

 

8,105

 

 

 

 

 

 

8,105

 

Impact of foreign currency translation and other (d)

 

 

52,425

 

 

 

(46,924

)

 

 

5,501

 

Balance as of June 30, 2021

 

$

3,276,865

 

 

$

1,512,919

 

 

$

4,789,784

 

(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 six months ended June 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 six months ended June 30, 2021.

(c) Amount represents goodwill recognized in connection with an insignificant acquisition during the second quarter of 2021 and measurement period adjustments to goodwill 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

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Beginning balance

 

$

(39,174

)

 

$

(131,111

)

 

$

(40,801

)

 

$

(71,593

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

(26,350

)

 

 

(105,545

)

 

 

(22,040

)

 

 

(56,757

)

Other comprehensive income (loss) before reclassifications

 

 

8,825

 

 

 

2,870

 

 

 

4,515

 

 

 

(45,918

)

Ending balance

 

 

(17,525

)

 

 

(102,675

)

 

 

(17,525

)

 

 

(102,675

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

(12,824

)

 

 

(25,566

)

 

 

(18,761

)

 

 

(14,836

)

Other comprehensive (loss) income before reclassifications

 

 

(488

)

 

 

(5,461

)

 

 

284

 

 

 

(17,971

)

Reclassification adjustments

 

 

5,196

 

 

 

4,330

 

 

 

10,361

 

 

 

6,110

 

Ending balance

 

 

(8,116

)

 

 

(26,697

)

 

 

(8,116

)

 

 

(26,697

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive loss, net of taxes

 

$

(25,641

)

 

$

(129,372

)

 

$

(25,641

)

 

$

(129,372

)

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

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Foreign currency translation adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment, before taxes

 

$

9,375

 

 

$

2,870

 

 

$

4,357

 

 

$

(45,918

)

Income tax expense (benefit)

 

 

550

 

 

 

 

 

 

(158

)

 

 

 

Foreign currency translation adjustments, net of taxes

 

 

8,825

 

 

 

2,870

 

 

 

4,515

 

 

 

(45,918

)

Unrealized gain (loss) on derivative instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain during period, before taxes

 

 

(654

)

 

 

(6,876

)

 

 

380

 

 

 

(26,659

)

Income tax (benefit) expense

 

 

(166

)

 

 

(1,415

)

 

 

96

 

 

 

(8,688

)

Unrealized (loss) gain during period, net of taxes

 

 

(488

)

 

 

(5,461

)

 

 

284

 

 

 

(17,971

)

Reclassification adjustment, before taxes

 

 

6,958

 

 

 

5,797

 

 

 

13,874

 

 

 

8,211

 

Income tax expense

 

 

1,762

 

 

 

1,467

 

 

 

3,513

 

 

 

2,101

 

Reclassification adjustment, net of taxes

 

 

5,196

 

 

 

4,330

 

 

 

10,361

 

 

 

6,110

 

Total unrealized gain (loss) on derivative instruments, net of taxes

 

 

4,708

 

 

 

(1,131

)

 

 

10,645

 

 

 

(11,861

)

Total other comprehensive income (loss), net of taxes

 

$

13,533

 

 

$

1,739

 

 

$

15,160

 

 

$

(57,779

)

 

Other Expense (Income), Net

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

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net realized foreign currency loss (gain)

 

$

570

 

 

$

3,045

 

 

$

1,762

 

 

$

(2,051

)

Net unrealized foreign currency loss (gain)

 

 

5,959

 

 

 

2,478

 

 

 

(3,563

)

 

 

(12,541

)

Other, net

 

 

1,298

 

 

 

238

 

 

 

(228

)

 

 

1,423

 

Total other expense (income), net

 

$

7,827

 

 

$

5,761

 

 

$

(2,029

)

 

$

(13,169

)

 

3. Acquisitions, Divestitures, and Investments

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 $358.0 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.

 

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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 value and the purchase price allocation related to these 2020 acquisitions is 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.

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 through May 31, 2021, the Company recognized $1.8 million of contingent consideration in other expense (income), net in the accompanying condensed consolidated statements of income for the three months ended June 30, 2021. The cash had not been received as of June 30, 2021, and therefore was recorded as a receivable in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheet. 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 three months ended June 30, 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 three months ended June 30, 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. During the three months ended June 30, 2021, the Company exchanged the intellectual property for an equity method investment in an unconsolidated variable interest entity. The Company will also provide the entity $3.9 million in cash, in the form of a loan, during the third quarter of 2021. Based on the hypothetical liquidation book value of its investment as of June 30, 2021, the Company recorded a $2.8 million loss to other expense (income), net in the accompanying condensed statements of income for the three months ended June 30, 2021. As of June 30, 2021, the book value of the Company’s investment was $24.5 million and was included in other long-term assets in the accompanying condensed consolidated balance sheet, with a maximum exposure to loss of approximately $28.4 million, which includes anticipated funding of the loan.

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4. Long-Term Debt Obligations

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

 

 

 

June 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

 

Accounts receivable financing agreement due October 2022

 

 

365,000

 

 

 

300,000

 

Total secured debt

 

 

2,275,993

 

 

 

2,318,270

 

Unsecured Debt

 

 

 

 

 

 

 

 

Senior Unsecured Notes due January 2029 (the “Notes”)

 

 

600,000

 

 

 

600,000

 

Total debt obligations

 

 

2,875,993

 

 

 

2,918,270

 

Less: Term loan original issuance discount

 

 

(3,091

)

 

 

(3,500

)

Less: Unamortized deferred issuance costs

 

 

(9,282

)

 

 

(12,716

)

Total debt obligations, non-current portion

 

$

2,863,620

 

 

$

2,902,054

 

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 six months ended June 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 $2.2 million and $2.8 million loss on extinguishment of debt during the three and six months ended June 30, 2021, respectively.

Revolver and Letters of Credit

The Revolver includes letters of credit (“LOCs”) with a sublimit of $150.0 million. As of June 30, 2021, there were no outstanding Revolver borrowings and $16.7 million of LOCs outstanding, leaving $583.3 million of available borrowings under the Revolver, including $133.3 million available for LOCs.

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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 June 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 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.

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

Maturities of Debt Obligations

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

 

 

 

Principal

 

Remainder of 2021

 

$

 

2022

 

 

385,856

 

2023

 

 

125,875

 

2024

 

 

1,764,262

 

2025

 

 

 

2026 and thereafter

 

 

600,000

 

Less: Deferred issuance costs

 

 

(9,282

)

Less: Term loan original issuance discount

 

 

(3,091

)

Total

 

$

2,863,620

 

 

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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 June 30, 2021, the notional value of these interest rate swaps was $1.42 billion.

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 expense (income), net in the accompanying consolidated statements of income. The Company recognized $0.4 million and $1.5 million of realized gains during the three and six months ended June 30, 2021, respectively, related to this foreign exchange forward. As of June 30, 2021, the notional value of this foreign exchange forward was $65.0 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

 

June 30, 2021

 

 

December 31, 2020

 

Interest rate swaps - current

 

Accrued expenses

 

$

6,212

 

 

$

17,045

 

Interest rate swaps - non-current

 

Other long-term liabilities

 

 

2,151

 

 

 

5,572

 

Fair value of derivative liabilities

 

$

8,363

 

 

$

22,617

 

 

 

 

6. Fair Value Measurements

Assets and Liabilities Carried at Fair Value

As of June 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 June 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)

 

$

24,802

 

 

$

 

 

$

 

 

$

 

 

$

24,802

 

Partnership interest (b)

 

 

 

 

 

 

 

 

 

 

 

9,073

 

 

 

9,073

 

Total assets

 

$

24,802

 

 

$

 

 

$

 

 

$

9,073

 

 

$

33,875

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments (c)

 

$

 

 

$

8,363

 

 

$

 

 

$

 

 

$

8,363

 

Contingent obligations related to acquisitions (d)

 

 

 

 

 

 

 

 

995

 

 

 

 

 

 

995

 

Total liabilities

 

$

 

 

$

8,363

 

 

$

995

 

 

$

 

 

$

9,358

 

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 interest (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 June 30, 2021, the Company’s remaining unfunded commitment in the private equity funds was $14.1 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.

(c) Represents the fair value of interest rate swap arrangements (see “Note 5 – Derivatives” for further information).

(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 six months ended June 30, 2021 (in thousands):

 

Balance as of December 31, 2020

 

$

6,793

 

Additions (a)

 

 

1,008

 

Changes in fair value recognized in earnings

 

 

(610

)

Payments (b)

 

 

(6,196

)

Balance as of June 30, 2021

 

$

995

 

 

(a) Represents obligations in connection with the insignificant acquisition made during the second quarter of 2021.

(b) The Company made payments during the first quarter of 2021 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 six months ended June 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 June 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 $5.65 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):

 

 

 

June 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

 

$

173,571

 

 

$

173,635

 

 

$

183,320

 

 

$

183,026

 

Term Loan A - tranche two due August 2024

 

 

1,734,331

 

 

 

1,741,484

 

 

 

1,271,255

 

 

 

1,269,213

 

Term Loan B due August 2024

 

 

 

 

 

 

 

 

560,194

 

 

 

560,144

 

Senior Unsecured Notes due January 2029

 

 

600,000

 

 

 

598,500

 

 

 

600,000

 

 

 

602,412

 

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

7. Restructuring and Other Costs

During the three and six months ended June 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 six months ended June 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.

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

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Employee severance and benefit costs

 

$

2,084

 

 

$

7,647

 

 

$

8,377

 

 

$

15,268

 

Facility and lease termination costs

 

 

1,882

 

 

 

375

 

 

 

2,770

 

 

 

1,108

 

Other costs

 

 

 

 

 

149

 

 

 

47

 

 

 

515

 

Total restructuring and other costs

 

$

3,966

 

 

$

8,171

 

 

$

11,194

 

 

$

16,891

 

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

 

 

 

(1

)

 

 

8,424

 

Payments

 

 

(10,878

)

 

 

1

 

 

 

(10,877

)

Balance as of June 30, 2021

 

$

3,377

 

 

$

 

 

$

3,377

 

 

(a) The amount of expenses incurred for the six months ended June 30, 2021 excludes $2.8 million of facility lease closure and lease termination costs that are reflected as a reduction of operating lease right-of-use assets on the unaudited condensed consolidated balance sheet under ASC 842.

The Company expects the employee severance costs accrued as of June 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.

8. Shareholders’ Equity

Shares Outstanding

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

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Common stock shares, beginning balance

 

 

104,226

 

 

 

104,161

 

 

 

103,935

 

 

 

103,866

 

Repurchases of common stock

 

 

(900

)

 

 

 

 

 

(1,500

)

 

 

(600

)

Issuances of common stock

 

 

147

 

 

 

75

 

 

 

1,038

 

 

 

970

 

Common stock shares, ending balance

 

 

103,473

 

 

 

104,236

 

 

 

103,473

 

 

 

104,236

 

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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 six months ended June 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 June 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 June 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

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

41,905

 

 

$

3,911

 

 

$

80,629

 

 

$

37,485

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

 

103,937

 

 

 

104,198

 

 

 

104,105

 

 

 

104,232

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options and other awards under deferred share-based compensation programs

 

 

1,082

 

 

 

1,021

 

 

 

1,133

 

 

 

1,198

 

Diluted weighted average common shares outstanding

 

 

105,019

 

 

 

105,219

 

 

 

105,238

 

 

 

105,430

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.40

 

 

$

0.04

 

 

$

0.77

 

 

$

0.36

 

Diluted

 

$

0.40

 

 

$

0.04

 

 

$

0.77

 

 

$

0.36

 

 

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 143,958, 1,051,560, 155,062, and 981,239 for the three and six months ended June 30, 2021 and 2020, respectively.

10. Income Taxes

Income Tax Expense

For the three and six months ended June 30, 2021, the Company recorded income tax expense of $9.1 million and $17.4 million, respectively, compared to pre-tax income of $51.0 million and $98.1 million, respectively. Income tax expense for the three and six months ended June 30, 2021 included discrete tax benefits of $2.2 million and $5.8 million, respectively, primarily related to excess tax benefits from share-based compensation. The effective tax rates for the three and six months ended June 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 six months ended June 30, 2020, the Company recorded income tax expense of $3.7 million and $11.9 million, respectively, compared to pre-tax income of $7.6 million and $49.4 million, respectively. Income tax expense for the three and six months ended June 30, 2020 included a discrete tax expense of $1.6 million and a discrete tax benefit of $5.5 million, respectively, primarily related to excess tax benefits from share-based compensation and the benefit from foreign tax credits claimed on amended returns filed during the year. The effective tax rates for the three and six months ended June 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 $9.6 million and $9.0 million as of June 30, 2021 and December 31, 2020, respectively. The increase of $0.6 million was primarily due to unrecognized tax benefits 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 and 2018 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 June 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 $7.15 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 six months ended June 30, 2021, the Company recognized approximately $393.6 million and $526.3 million, respectively, of revenue that was included in the deferred revenue balance at the beginning of the periods. During the three and six months ended June 30, 2021, approximately $5.8 million and $32.6 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 gross and net amounts of revenue recognized solely from changes in estimates were not material.

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. 

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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.

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

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clinical Solutions

 

$

991,142

 

 

$

755,822

 

 

$

1,929,096

 

 

$

1,638,323

 

Commercial Solutions

 

 

291,469

 

 

 

257,577

 

 

 

562,260

 

 

 

538,431

 

Total revenue

 

 

1,282,611

 

 

 

1,013,399

 

 

 

2,491,356

 

 

 

2,176,754

 

Segment direct costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clinical Solutions

 

 

750,810

 

 

 

597,486

 

 

 

1,466,923

 

 

 

1,279,660

 

Commercial Solutions

 

 

233,644

 

 

 

200,300

 

 

 

453,686

 

 

 

433,958

 

Total segment direct costs

 

 

984,454

 

 

 

797,786

 

 

 

1,920,609

 

 

 

1,713,618

 

Segment selling, general, and administrative expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clinical Solutions

 

 

89,303

 

 

 

64,609

 

 

 

176,835

 

 

 

140,953

 

Commercial Solutions

 

 

20,318

 

 

 

18,986

 

 

 

41,289

 

 

 

41,596

 

Total segment selling, general, and administrative expenses

 

 

109,621

 

 

 

83,595

 

 

 

218,124

 

 

 

182,549

 

Segment operating income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clinical Solutions

 

 

151,029

 

 

 

93,727

 

 

 

285,338

 

 

 

217,710

 

Commercial Solutions

 

 

37,507

 

 

 

38,291

 

 

 

67,285

 

 

 

62,877

 

Total segment operating income

 

 

188,536

 

 

 

132,018

 

 

 

352,623

 

 

 

280,587

 

Direct costs and operating expenses not allocated to segments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation included in direct costs

 

 

8,127

 

 

 

8,106

 

 

 

17,222

 

 

 

16,288

 

Share-based compensation included in selling, general, and administrative expenses

 

 

8,312

 

 

 

8,069

 

 

 

16,570

 

 

 

15,885

 

Corporate selling, general, and administrative expenses

 

 

26,736

 

 

 

16,680

 

 

 

47,289

 

 

 

35,457

 

Restructuring and other costs

 

 

3,966

 

 

 

8,171

 

 

 

11,194

 

 

 

16,891

 

Depreciation and amortization

 

 

57,711

 

 

 

56,021

 

 

 

115,649

 

 

 

112,128

 

Total income from operations

 

$

83,684

 

 

$

34,971

 

 

$

144,699

 

 

$

83,938

 

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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

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America (a)

 

$

774,228

 

 

$

638,564

 

 

$

1,513,229

 

 

$

1,391,609

 

Europe, Middle East, and Africa

 

 

328,895

 

 

 

242,326

 

 

 

645,071

 

 

 

510,348

 

Asia-Pacific

 

 

144,233

 

 

 

110,186

 

 

 

270,690

 

 

 

227,239

 

Latin America

 

 

35,255

 

 

 

22,323

 

 

 

62,366

 

 

 

47,558

 

Total revenue

 

$

1,282,611

 

 

$

1,013,399

 

 

$

2,491,356

 

 

$

2,176,754

 

 

(a) Revenue for the North America region includes revenue attributable to the United States of $722.8 million and $608.7 million, or 56.4% and 60.1% of total revenue, for the three months ended June 30, 2021 and 2020, respectively. Revenue for the North America region includes revenue attributable to the United States of $1,416.7 million and $1,322.2 million or 56.9% and 60.7% of total revenue for the six months ended June 30, 2021 and 2020, respectively. No other country represented more than 10% of total revenue for any period.

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

 

 

 

June 30, 2021

 

 

December 31, 2020

 

Property and equipment, net:

 

 

 

 

 

 

 

 

North America (a)

 

$

150,296

 

 

$

161,531

 

Europe, Middle East, and Africa

 

 

37,239

 

 

 

38,745

 

Asia-Pacific

 

 

10,694

 

 

 

11,167

 

Latin America

 

 

5,759

 

 

 

4,757

 

Total property and equipment, net

 

$

203,988

 

 

$

216,200

 

 

(a) Long-lived assets for the North America region include property and equipment, net attributable to the United States of $144.5 million and $156.0 million as of June 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 June 30, 2021, the amount of cash and cash equivalents held outside of the United States by the Company’s foreign subsidiaries was $145.0 million, or 56% of the total consolidated cash and cash equivalents balance. As of December 31, 2020, the amount of cash and cash equivalents held outside of the United States by the Company’s foreign subsidiaries was $50.7 million, or 19% of the total consolidated cash and cash equivalents balance.

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

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As of June 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 six months ended June 30, 2021, the Company had combined revenue of $1.2 million and $1.9 million, respectively, and, as of June 30, 2021, combined receivables of $1.6 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 six months ended June 30, 2021, the Company incurred expenses of $0.7 million and $1.4 million, respectively, for professional services obtained from the related party noted in the paragraph below.

In May 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 through May 31, 2021, the Company recognized $1.8 million of contingent consideration in other expense (income), net in the accompanying condensed consolidated statements of income for the three months ended June 30, 2021. The cash had not been received as of June 30, 2021, and therefore was recorded as a receivable in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheet. 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 six months ended June 30, 2020.

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.) in the Southern District of New York, names as defendants the Company, Michael Bell, Alistair Macdonald, Michael Gilbertini, and Gregory S. Rush (the “Bermudez action”), and the second action, Vaitkuvienë v. Syneos Health, Inc., et al, No. 18-0029 (E.D.N.C.) in the Eastern District of North Carolina, filed on January 25, 2018 (the “Vaitkuvienë action”), names as defendants the Company, Alistair Macdonald, and Gregory S. Rush (the “Initial Defendants”). Both complaints allege similar claims under Section 10(b) and Section 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 (for the Vaitkuvienë action) and November 9, 2017 (for the Bermudez action). The complaints allege that the Company published inaccurate or incomplete information regarding, among other things, the financial performance and business outlook for inVentiv’s business prior to the 2017 merger (the “Merger”) with Double Eagle Parent, Inc. (“inVentiv”), the parent company of inVentiv Health, Inc., and with respect to the combined company following the Merger. On January 30, 2018, two alleged shareholders separately filed motions seeking to be appointed lead plaintiff and approving the selection of lead counsel. On March 30, 2018, Plaintiff in the Bermudez action filed a notice of voluntary dismissal of the Bermudez action, without prejudice, and as to all defendants. On May 29, 2018, the Court in the Vaitkuvienë action appointed the

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San Antonio Fire & Police Pension Fund and El Paso Firemen & Policemen’s Pension Fund as Lead Plaintiffs and, on June 7, 2018, the Court entered a schedule providing for, among other things, Lead Plaintiffs to file an amended complaint by July 23, 2018 (later extended to July 30, 2018). Lead Plaintiffs filed their amended complaint on July 30, 2018, which also includes a claim against the Initial Defendants, as well as each member of the board of directors at the time of the INC Research - inVentiv Health merger vote in July 2017 (the “Defendants”), contending that the inVentiv merger proxy was misleading under Section 14(a) of the Act. Lead Plaintiffs seek, among other things, orders (i) declaring that the lawsuit is a proper class action and (ii) awarding compensatory damages in an amount to be proven at trial, including interest thereon, and reasonable costs and expenses incurred in this action, including attorneys’ fees and expert fees, to Lead Plaintiffs and other class members. Defendants filed a Motion to Dismiss Plaintiffs’ Amended Complaint on September 20, 2018. Lead Plaintiffs filed a Response in Opposition to such motion on November 21, 2018, and Defendants filed a Reply to such response on December 5, 2018. The District Court referred the Motion to Dismiss to a magistrate judge for a report and recommendation. On September 26, 2019, the magistrate judge stayed the action and, on August 7, 2020, the magistrate judge lifted the stay. Also on August 7, 2020, the magistrate judge issued a report (the “Magistrate Report”) recommending to the District Court that Defendants’ Motion to Dismiss be denied. On September 4, 2020, Defendants filed written objections to the Magistrate Report, requesting that the District Court grant the Motion to Dismiss. Lead Plaintiffs filed a Response in Opposition to such objections on October 2, 2020. The Company and the other defendants deny the allegations in these complaints and intend to defend vigorously against these claims.

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 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, 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.

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 six months ended June 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 June 30 was as follows (in millions):

 

 

 

2021

 

 

2020

 

 

Change

 

Clinical Solutions

 

$

10,966.9

 

 

$

9,023.2

 

 

$

1,943.7

 

 

 

21.5

%

Commercial Solutions - Deployment Solutions

 

 

718.4

 

 

 

609.7

 

 

 

108.7

 

 

 

17.8

%

Total backlog

 

$

11,685.3

 

 

$

9,632.9

 

 

$

2,052.4

 

 

 

21.3

%

 

We expect approximately $2.38 billion of our backlog as of June 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 June 30 were as follows (in millions):

 

 

 

2021

 

 

2020

 

Clinical Solutions

 

$

4,971.5

 

 

$

4,596.4

 

Commercial Solutions

 

 

1,257.4

 

 

 

1,200.2

 

Total net new business awards

 

$

6,228.9

 

 

$

5,796.6

 

 

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 unaudited condensed consolidated statements of income along with dollar and percentage changes (in thousands, except percentages):

 

 

 

Three Months Ended

June 30,

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

Change

 

Revenue

 

$

1,282,611

 

 

$

1,013,399

 

 

$

269,212

 

 

 

26.6

%

Costs and operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct costs (exclusive of depreciation and amortization)

 

 

992,581

 

 

 

805,892

 

 

 

186,689

 

 

 

23.2

%

Selling, general, and administrative expenses

 

 

144,669

 

 

 

108,344

 

 

 

36,325

 

 

 

33.5

%

Restructuring and other costs

 

 

3,966

 

 

 

8,171

 

 

 

(4,205

)

 

 

(51.5

)%

Depreciation and amortization

 

 

57,711

 

 

 

56,021

 

 

 

1,690

 

 

 

3.0

%

Total operating expenses

 

 

1,198,927

 

 

 

978,428

 

 

 

220,499

 

 

 

22.5

%

Income from operations

 

 

83,684

 

 

 

34,971

 

 

 

48,713

 

 

 

139.3

%

Total other expense, net

 

 

32,645

 

 

 

27,323

 

 

 

5,322

 

 

 

19.5

%

Income before provision for income taxes

 

 

51,039

 

 

 

7,648

 

 

 

43,391

 

 

 

567.4

%

Income tax expense

 

 

9,134

 

 

 

3,737

 

 

 

5,397

 

 

 

144.4

%

Net income

 

$

41,905

 

 

$

3,911

 

 

$

37,994

 

 

 

971.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

June 30,

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

Change

 

Revenue

 

$

2,491,356

 

 

$

2,176,754

 

 

$

314,602

 

 

 

14.5

%

Costs and operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct costs (exclusive of depreciation and amortization)

 

 

1,937,831

 

 

 

1,729,906

 

 

 

207,925

 

 

 

12.0

%

Selling, general, and administrative expenses

 

 

281,983

 

 

 

233,891

 

 

 

48,092

 

 

 

20.6

%

Restructuring and other costs

 

 

11,194

 

 

 

16,891

 

 

 

(5,697

)

 

 

(33.7

)%

Depreciation and amortization

 

 

115,649

 

 

 

112,128

 

 

 

3,521

 

 

 

3.1

%

Total operating expenses

 

 

2,346,657

 

 

 

2,092,816

 

 

 

253,841

 

 

 

12.1

%

Income from operations

 

 

144,699

 

 

 

83,938

 

 

 

60,761

 

 

 

72.4

%

Total other expense, net

 

 

46,649

 

 

 

34,515

 

 

 

12,134

 

 

 

35.2

%

Income before provision for income taxes

 

 

98,050

 

 

 

49,423

 

 

 

48,627

 

 

 

98.4

%

Income tax expense

 

 

17,421

 

 

 

11,938

 

 

 

5,483

 

 

 

45.9

%

Net income

 

$

80,629

 

 

$

37,485

 

 

$

43,144

 

 

 

115.1

%

Revenue

For the three months ended June 30, 2021, our revenue increased by $269.2 million, or 26.6%, to $1,282.6 million from $1,013.4 million for the three months ended June 30, 2020. For the six months ended June 30, 2021, our revenue increased by $314.6 million, or 14.5%, to $2,491.4 million from $2,176.8 million for the six months ended June 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 six months ended June 30, 2021 and 2020. Revenue from our top five customers accounted for approximately 22% of revenue for both the three and six months ended June 30, 2021 and 2020.

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

 

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

% of total

 

 

2020

 

 

% of total

 

 

Change

 

Clinical Solutions

 

$

991,142

 

 

 

77.3

%

 

$

755,822

 

 

 

74.6

%

 

$

235,320

 

 

 

31.1

%

Commercial Solutions

 

 

291,469

 

 

 

22.7

%

 

 

257,577

 

 

 

25.4

%

 

 

33,892

 

 

 

13.2

%

Total revenue

 

$

1,282,611

 

 

 

 

 

 

$

1,013,399

 

 

 

 

 

 

$

269,212

 

 

 

26.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

% of total

 

 

2020

 

 

% of total

 

 

Change

 

Clinical Solutions

 

$

1,929,096

 

 

 

77.4

%

 

$

1,638,323

 

 

 

75.3

%

 

$

290,773

 

 

 

17.7

%

Commercial Solutions

 

 

562,260

 

 

 

22.6

%

 

 

538,431

 

 

 

24.7

%

 

 

23,829

 

 

 

4.4

%

Total revenue

 

$

2,491,356

 

 

 

 

 

 

$

2,176,754

 

 

 

 

 

 

$

314,602

 

 

 

14.5

%

 

Clinical Solutions

For the three and six months ended June 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 COVID-19 projects that generally have higher reimbursable out-of-pocket expenses. The revenue increases were partially offset by decreases related to the divestiture of our contingent staffing business in the second quarter of 2020. For the three and six months ended June 30, 2021 revenue was positively impacted by $27.7 million and $37.3 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 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 six months ended June 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 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 consisted of the following (dollars in thousands):

 

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

Change

 

Direct costs (exclusive of depreciation and amortization)

 

$

992,581

 

 

$

805,892

 

 

$

186,689

 

 

 

23.2

%

% of revenue

 

 

77.4

%

 

 

79.5

%

 

 

 

 

 

 

 

 

Gross margin %

 

 

22.6

%

 

 

20.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

Change

 

Direct costs (exclusive of depreciation and amortization)

 

$

1,937,831

 

 

$

1,729,906

 

 

$

207,925

 

 

 

12.0

%

% of revenue

 

 

77.8

%

 

 

79.5

%

 

 

 

 

 

 

 

 

Gross margin %

 

 

22.2

%

 

 

20.5

%

 

 

 

 

 

 

 

 

 

For the three months ended June 30, 2021, our direct costs increased by $186.7 million, or 23.2%, compared to the three months ended June 30, 2020. For the six months ended June 30, 2021, our direct costs increased by $207.9 million, or 12.0%, compared to the six months ended June 30, 2020. These increases were primarily driven by higher reimbursable out-of-pocket expenses, temporary cost management strategies in response to the COVID-19 pandemic in the prior year, and impacts from the acquisitions that were completed in the fourth quarter of 2020. These increases were partially offset by decreases from business divestitures in 2020.    

Clinical Solutions

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

 

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

Change

 

Direct costs

 

$

750,810

 

 

$

597,486

 

 

$

153,324

 

 

 

25.7

%

% of segment revenue

 

 

75.8

%

 

 

79.1

%

 

 

 

 

 

 

 

 

Segment gross margin %

 

 

24.2

%

 

 

20.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

Change

 

Direct costs

 

$

1,466,923

 

 

$

1,279,660

 

 

$

187,263

 

 

 

14.6

%

% of segment revenue

 

 

76.0

%

 

 

78.1

%

 

 

 

 

 

 

 

 

Segment gross margin %

 

 

24.0

%

 

 

21.9

%

 

 

 

 

 

 

 

 

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For the three months ended June 30, 2021, our Clinical Solutions segment direct costs increased by $153.3 million, or 25.7%, compared to the three months ended June 30, 2020. For the six months ended June 30, 2021, our Clinical Solutions segment direct costs increased by $187.3 million, or 14.6%, compared to the six months ended June 30, 2020. These increases were primarily driven by higher reimbursable out-of-pocket expenses, temporary cost management strategies in response to the COVID-19 pandemic in the prior year, impacts from the acquisitions that were completed in the fourth quarter of 2020, and the negative impacts of foreign exchange rate fluctuations. These increases were partially offset by the divestiture of our contingent staffing business in the second quarter of 2020 and positive impacts from our ForwardBound margin enhancement initiative.

Gross margins for our Clinical Solutions segment were 24.2% and 20.9% for the three months ended June 30, 2021 and 2020, respectively, and 24.0% and 21.9% for the six months ended June 30, 2021 and 2020, respectively. Gross margins were higher during the current year periods as compared to the same periods 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 and the negative impacts of foreign exchange rate fluctuations.

Commercial Solutions

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

 

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

Change

 

Direct costs

 

$

233,644

 

 

$

200,300

 

 

$

33,344

 

 

 

16.6

%

% of segment revenue

 

 

80.2

%

 

 

77.8

%

 

 

 

 

 

 

 

 

Segment gross margin %

 

 

19.8

%

 

 

22.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

Change

 

Direct costs

 

$

453,686

 

 

$

433,958

 

 

$

19,728

 

 

 

4.5

%

% of segment revenue

 

 

80.7

%

 

 

80.6

%

 

 

 

 

 

 

 

 

Segment gross margin %

 

 

19.3

%

 

 

19.4

%

 

 

 

 

 

 

 

 

For the three months ended June 30, 2021, our Commercial Solutions segment direct costs increased by $33.3 million, or 16.6%, compared to the three months ended June 30, 2020. For the six months ended June 30, 2021, our Commercial Solutions segment direct costs increased by $19.7 million, or 4.5%, compared to the six months ended June 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 19.8% and 22.2% for the three months ended June 30, 2021 and 2020, respectively, and 19.3% and 19.4% for the six months ended June 30, 2021 and 2020. Gross margins were lower during the current year periods as compared to the same periods in the prior year primarily 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.

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Selling, General, and Administrative Expenses

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

 

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

Change

 

Selling, general, and administrative expenses

 

$

144,669

 

 

$

108,344

 

 

$

36,325

 

 

 

33.5

%

% of total revenue

 

 

11.3

%

 

 

10.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

Change

 

Selling, general, and administrative expenses

 

$

281,983

 

 

$

233,891

 

 

$

48,092

 

 

 

20.6

%

% of total revenue

 

 

11.3

%

 

 

10.7

%

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses for the three and six months ended June 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. These increases were partially offset by positive impacts from our ForwardBound margin enhancement initiative. Transaction and integration-related expenses are no longer reported separately and are included in selling, general, and administrative expenses.

Restructuring and Other Costs

Restructuring and other costs were $4.0 million and $8.2 million for the three months ended June 30, 2021 and 2020, respectively, and $11.2 million and $16.9 million for the six months ended June 30, 2021 and 2020, respectively. The costs incurred during the three and six months ended June 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 six months ended June 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

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Employee severance and benefit costs

 

$

2,084

 

 

$

7,647

 

 

$

8,377

 

 

$

15,268

 

Facility and lease termination costs

 

 

1,882

 

 

 

375

 

 

 

2,770

 

 

 

1,108

 

Other costs

 

 

 

 

 

149

 

 

 

47

 

 

 

515

 

Total restructuring and other costs

 

$

3,966

 

 

$

8,171

 

 

$

11,194

 

 

$

16,891

 

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.

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Table of Contents

 

Depreciation and Amortization Expense

Total depreciation and amortization expense was $57.7 million and $56.0 million for the three months ended June 30, 2021 and 2020, respectively, and $115.6 million and $112.1 million for the six months ended June 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.

Total Other Expense, Net

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

 

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

Change

 

Interest income

 

$

 

 

$

(122

)

 

$

122

 

 

 

100.0

%

Interest expense

 

 

22,619

 

 

 

21,684

 

 

 

935

 

 

 

4.3

%

Loss on extinguishment of debt

 

 

2,199

 

 

 

 

 

 

2,199

 

 

 

100.0

%

Other expense, net

 

 

7,827

 

 

 

5,761

 

 

 

2,066

 

 

 

35.9

%

Total other expense, net

 

$

32,645

 

 

$

27,323

 

 

$

5,322

 

 

 

19.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

Change

 

Interest income

 

$

(71

)

 

$

(458

)

 

$

387

 

 

 

84.5

%

Interest expense

 

 

45,947

 

 

 

48,142

 

 

 

(2,195

)

 

 

(4.6

)%

Loss on extinguishment of debt

 

 

2,802

 

 

 

 

 

 

2,802

 

 

 

100.0

%

Other income, net

 

 

(2,029

)

 

 

(13,169

)

 

 

11,140

 

 

 

84.6

%

Total other expense, net

 

$

46,649

 

 

$

34,515

 

 

$

12,134

 

 

 

35.2

%

 

Total other expense, net was $32.6 million and $27.3 million for the three months ended June 30, 2021 and 2020, respectively, and $46.6 million and $34.5 million for the six months ended June 30, 2021 and 2020, respectively. The increase in interest expense for the three months ended June 30, 2021 was primarily due to a higher fixed rate on the interest rate swaps that expired on June 30, 2021, which was not fully offset by the lower interest rates on our variable interest rate debt. The decrease in interest expense for the six months ended June 30, 2021 was 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 loss on extinguishment of debt was the result of our debt prepayments and refinancing transaction. Other 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.

Income Tax Expense

For the three and six months ended June 30, 2021, we recorded income tax expense of $9.1 million and $17.4 million, respectively, compared to pre-tax income of $51.0 million and $98.1 million, respectively. Income tax expense for the three and six months ended June 30, 2021 included discrete tax benefits of $2.2 million and $5.8 million, respectively, primarily related to excess tax benefits from share-based compensation. The effective tax rates for the three and six months ended June 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.

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For the three and six months ended June 30, 2020, we recorded income tax expense of $3.7 million and $11.9 million, respectively, compared to pre-tax income of $7.6 million and $49.4 million, respectively. Income tax expense for the three and six months ended June 30, 2020 included a discrete tax expense of $1.6 million and a discrete tax benefit of $5.5 million, respectively, primarily related to excess tax benefits from share-based compensation and the benefit from foreign tax credits claimed on amended returns filed during the year. The effective tax rates for the three and six months ended June 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.

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 June 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):

 

 

 

June 30, 2021

 

 

December 31, 2020

 

Balance sheet statistics:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

260,868

 

 

$

271,901

 

Restricted cash

 

 

267

 

 

 

272

 

Working capital (excluding restricted cash)

 

 

151,681

 

 

 

160,409

 

As of June 30, 2021, we had $261.1 million of cash, cash equivalents, and restricted cash. As of June 30, 2021, the amount of cash and cash equivalents held outside of the United States by our foreign subsidiaries was $145.0 million, or 56% of the total consolidated cash and cash equivalents balance. In addition, we had $583.3 million (net of $16.7 million in outstanding letters of credit (“LOCs”)) available for borrowing under our revolving credit facility (the “Revolver”), of which $133.3 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 June 30, 2021, we had approximately $2.92 billion of total principal indebtedness (including $42.9 million in finance lease obligations), consisting of $1.91 billion in term loan debt, $600.0 million of 3.625% senior notes (the “Notes”), and $365.0 million in borrowings against our accounts receivable financing agreement. Approximately $859.5 million of our indebtedness (excluding finance leases) was subject to variable interest rates.

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Table of Contents

 

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.

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 six months ended June 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 $2.2 million and $2.8 million loss on extinguishment of debt during the three and six months ended June 30, 2021, respectively.

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Table of Contents

 

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 June 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 June 30, 2021, there were no outstanding Revolver borrowings and $16.7 million of LOCs outstanding, leaving $583.3 million of available borrowings under the Revolver, including $133.3 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 June 30, 2021, we had $365.0 million of outstanding borrowings under this agreement with no remaining borrowing capacity available.

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Table of Contents

 

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 June 30, 2021, the percentage of our total principal debt (excluding finance leases) that is subject to fixed interest rates was approximately 70%. Each quarter-point increase or decrease in the applicable floating interest rate at June 30, 2021 would change our annual interest expense by approximately $2.1 million.

Stock Repurchase Program

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.

The following table sets forth repurchase activity under the Stock Repurchase Program from inception through June 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 June 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):

 

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

2021

 

 

2020

 

 

Change

 

Net cash provided by operating activities

 

$

215,795

 

 

$

155,165

 

 

$

60,630

 

Net cash used in investing activities

 

 

(31,280

)

 

 

(37,280

)

 

 

6,000

 

Net cash (used in) provided by financing activities

 

 

(190,823

)

 

 

56,238

 

 

 

(247,061

)

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Table of Contents

 

 

Cash Flows from Operating Activities

Cash flows provided by operating activities increased by $60.6 million during the six months ended June 30, 2021 compared to the six months ended June 30, 2020. The increase is primarily due to higher cash-related net income and positive changes in operating assets and liabilities relative to the prior year period. 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 six months ended June 30, 2021, we used $31.3 million in cash for investing activities, which consisted of $14.6 million of payments related to acquisitions and $22.3 million for purchases of property and equipment, partially offset by proceeds of $5.0 million from notes receivable from a divestiture and $0.7 million from unconsolidated affiliates. 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 six months ended June 30, 2020, we used $37.3 million in cash for investing activities, which consisted of $30.1 million for purchases of property and equipment and $7.2 million for investments in unconsolidated affiliates.

Cash Flows from Financing Activities

For the six months ended June 30, 2021, we used $190.8 million in cash for financing activities, which consisted primarily of repurchases of our common stock, net repayments of long-term debt, and payments related to tax withholdings for share-based compensation. These payments were partially offset by proceeds from our accounts receivable financing arrangement.

For the six months ended June 30, 2020, our financing activities provided $56.2 million in cash, which consisted primarily of a net $150.0 million draw on our Revolver, partially offset by 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

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

During the three months ended June 30, 2021, we repurchased 900,000 shares of our Class A common stock, $0.01 par value per share in private transactions under our previously announced stock repurchase program described below, for a total purchase price of approximately $73.0 million. As of June 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.

Period

 

Total number of shares purchased

 

 

Average price paid per share

 

 

Total number of shares purchased as part of publicly announced plans or programs (1)

 

 

Approximate dollar value of shares that may yet be purchased under the plans or programs (in thousands)

 

April 1, 2021 - April 30, 2021

 

 

 

 

$

 

 

 

 

 

$

255,495

 

May 1, 2021 - May 31, 2021

 

 

400,000

 

 

$

81.04

 

 

 

400,000

 

 

$

223,079

 

June 1, 2021 - June 30, 2021

 

 

500,000

 

 

$

81.20

 

 

 

500,000

 

 

$

182,479

 

 

 

 

900,000

 

 

 

 

 

 

 

900,000

 

 

 

 

 

(1) 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.

We 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.

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

4.1

 

Second Supplemental Indenture, dated as of May 25, 2021, among the Company, the subsidiary guarantors named on the signature pages thereto, the other guarantors, and Wells Fargo Bank, National Association, as trustee.

Filed herewith

10.1

 

Form of Global Restricted Stock Unit Award Agreement for Directors under Syneos Health, Inc. 2018 Equity Incentive Plan.

Filed herewith

10.2

 

Share Repurchase Agreement, dated April 30, 2021, by and among Syneos Health, Inc. and certain selling stockholders named therein.

8-K

001-36730

10.1

May 5, 2021

10.3

 

Share Repurchase Agreement, dated June 1, 2021, by and among Syneos Health, Inc. and certain selling stockholders named therein.

8-K

001-36730

10.1

June 4, 2021

10.4

 

Amendment No. 5 to the Credit Agreement, dated as of June 30, 2021, among the Company, the other borrowers party thereto, the lenders party thereto, JPMorgan Chase Bank N.A., as Administrative Agent, and each of the other parties thereto.

8-K

001-36730

10.1

July 1, 2021

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:  August 6, 2021

 

BY:

 

/s/ Jason Meggs

 

 

 

 

Jason Meggs

 

 

 

 

Chief Financial Officer

(Principal Financial Officer)

 

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