Syneos Health, Inc. - Quarter Report: 2022 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

FORM 10-Q 

(Mark One)

For the quarterly period ended March 31, 2022

or

For the transition period from            to            .

Commission File Number: 001-36730

SYNEOS HEALTH, INC.

(Exact name of registrant as specified in its charter)

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:

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. 

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 April 21, 2022, there were approximately 102,575,027 shares of the registrant’s common stock outstanding.

Table of Contents

SYNEOS HEALTH, INC.

FORM 10-Q

TABLE OF CONTENTS

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

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

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SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

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

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SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

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

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SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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

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SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

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

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SYNEOS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

Nature of Operations

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

Unaudited Interim Financial Information

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

The unaudited condensed consolidated financial statements, in management’s opinion, include all adjustments of a normal recurring nature necessary for a fair presentation. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Form 10-K”), filed with the Securities and Exchange Commission on February 17, 2022. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2022 or any other future period. The unaudited condensed consolidated balance sheet as of December 31, 2021 is derived from the amounts in the audited consolidated balance sheet included in the 2021 Form 10-K.

Reclassification

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

COVID-19 Pandemic

The ongoing COVID-19 pandemic and associated economic repercussions have significantly impacted, and are expected to continue to impact, the Company’s business and operations. The continued availability and effectiveness of vaccines may partially mitigate the risks around the continued spread of COVID-19, however, with the spread of COVID-19 variants, the ongoing impacts of the COVID-19 pandemic could adversely impact the Company’s business and results of operations. For further discussion of the potential impact of the pandemic on its business, refer to Part I, Item 1A, “Risk Factors” in the 2021 Form 10-K.

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2. Financial Statement Details

Cash, Cash Equivalents, and Restricted Cash

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

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

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):

Accounts Receivable Factoring Arrangement

The Company has an accounts receivable factoring agreement to sell certain eligible unsecured trade accounts receivable, at its option, without recourse, to an unrelated third-party financial institution for cash. For the three months ended March 31, 2022 and 2021, the Company factored $34.1 million and $30.1 million, respectively, of trade accounts receivable on a non-recourse basis and received $34.0 million and $30.0 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 three months ended March 31, 2022 were as follows (in thousands):

(a) No impairment of goodwill was recorded for the three months ended March 31, 2022.

(b) Amount represents goodwill recognized in connection with an insignificant acquisition and measurement period adjustments in connection with insignificant 2021 acquisitions during the three months ended March 31, 2022 within the Clinical Solutions segment.

Accumulated Other Comprehensive Loss, Net of Taxes

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

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

Other Expense (Income), Net

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

3. Investments

During 2020, the Company made a non-cash investment of $27.3 million to acquire certain intellectual property rights from a customer in lieu of cash payment for services rendered. The Company subsequently exchanged the intellectual property for an equity method investment in an unconsolidated variable interest entity. The Company provided the entity $3.8 million in cash, in the form of a loan, during the third quarter of 2021. Based on the hypothetical liquidation book value of its investment as of March 31, 2022, the Company recorded a $1.2 million loss to other expense (income), net in the accompanying condensed consolidated statement of income for the three months ended March 31, 2022. As of March 31, 2022, the book value of the Company’s investment was $14.4 million and was included in other long-term assets in the accompanying condensed consolidated balance sheet, with a maximum exposure to loss of approximately $18.3 million, which includes funding of the loan.

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4. Long-Term Debt Obligations

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

Credit Agreement

The Company is party to a credit agreement (as amended, the “Credit Agreement”) that includes a Term Loan A facility (“Term Loan A”) that has two tranches (as detailed in the table above), and a $600.0 million revolving credit facility that matures on August 1, 2024 (the “Revolver”). As a result of previous voluntary prepayments, the Company is not required to make a mandatory payment against the principal balance of Term Loan A until October 2023. As of March 31, 2022, the interest rate on Term Loan A was 1.70%. 

Revolver and Letters of Credit

The Revolver includes letters of credit (“LOCs”) with a sublimit of $150.0 million. As of March 31, 2022, there were $130.0 million of outstanding Revolver borrowings and $14.2 million of LOCs outstanding, leaving $455.8 million of available borrowings under the Revolver, including $135.8 million available for LOCs. As of March 31, 2022, the weighted average interest rate on the Revolver was 1.85%.

The Notes

The Notes bear interest at a rate of 3.625% per annum, payable semi-annually in arrears beginning on July 15, 2021, and will mature on January 15, 2029.

Accounts Receivable Financing Agreement

The Company has an accounts receivable financing agreement (as amended) with a termination date of October 2024, unless terminated earlier pursuant to its terms. As of March 31, 2022, the Company had $400.0 million of outstanding borrowings under this agreement, which are recorded in long-term debt on the accompanying condensed consolidated balance sheet. There was no remaining borrowing capacity available under this agreement as of March 31, 2022. As of March 31, 2022, the interest rate on the accounts receivable financing agreement was 1.40%.

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Maturities of Debt Obligations

As of March 31, 2022, the contractual maturities of the Company’s debt obligations (excluding finance leases) were as follows (in thousands):

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 loan. 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 March 31, 2022, the notional value of these interest rate swaps was $1.12 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 condensed consolidated statements of income. The Company recognized $1.9 million of realized losses and $1.1 million of realized gains during the three months ended March 31, 2022 and 2021, respectively, related to this foreign exchange forward. As of March 31, 2022, the notional value of this foreign exchange forward was $75.0 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):

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6. Fair Value Measurements

Assets and Liabilities Carried at Fair Value

As of March 31, 2022 and December 31, 2021, 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.

Financial Instruments Subject to Recurring Fair Value Measurements

As of March 31, 2022, 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):

As of December 31, 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):

(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.

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(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 March 31, 2022, the Company’s remaining unfunded commitment in the private equity funds was $12.5 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 Accounting Standards Codification (“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.

The following table presents a reconciliation of changes in the carrying amount of contingent obligations classified as Level 3 for the three months ended March 31, 2022 (in thousands):

During the three months ended March 31, 2022, 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 March 31, 2022 and December 31, 2021, assets carried on the condensed consolidated balance sheets and not remeasured to fair value on a recurring basis totaled $5.77 billion and $5.83 billion, respectively.

Fair Value Disclosures for Financial Instruments Not Carried at Fair Value

The estimated fair values of the term loan (based on tranche) 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 loan (based on tranche) and the Notes were as follows (in thousands):

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

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7. Restructuring and Other Costs

During the three months ended March 31, 2022 and 2021, the Company incurred employee severance and benefit costs, facility and lease termination costs, and other costs related to its restructuring activities. These costs were primarily related to the Company’s ForwardBound margin enhancement initiative.

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

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 2022 and beyond related to its ForwardBound margin enhancement initiative.

Accrued Restructuring Liabilities

The following table summarizes activity related to employee severance and benefit costs within accrued restructuring liabilities for the three months ended March 31, 2022 (in thousands):

(a) The amount of expenses incurred for the three months ended March 31, 2022 excludes $1.1 million of other costs that are included in accounts payable and $0.3 million of facility lease closure and lease termination costs that are reflected as reductions of operating lease right-of-use assets, current portion of operating lease obligations, and operating lease long-term obligations under ASC Topic 842, Leases, on the accompanying condensed consolidated balance sheet.

The Company expects the employee severance and benefit costs accrued as of March 31, 2022 will be paid within the next twelve months and are included within accrued expenses on the accompanying condensed consolidated balance sheets.

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8. Shareholders’ Equity

Shares Outstanding

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

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.

The following table sets forth repurchase activity under the Stock Repurchase Program from inception through March 31, 2022:

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 March 31, 2022, the Company had remaining authorization to repurchase up to approximately $32.5 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):

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 165,042 and 166,166, for the three months ended March 31, 2022 and 2021, respectively.

10. Income Taxes

Income Tax Expense

For the three months ended March 31, 2022, the Company recorded income tax expense of $7.3 million, compared to pre-tax income of $53.5 million. Income tax expense for the three months ended March 31, 2022 included a discrete tax benefit of $6.1 million, primarily related to excess tax benefits from share-based compensation. The effective tax rate for the three months ended March 31, 2022, excluding discrete items, varied from the United States (“U.S.”) federal statutory income tax rate of 21.0% primarily due to foreign income inclusions such as the Global Intangible Low-Taxed Income (“GILTI”) provisions, state and local taxes on U.S. income, and research and development credits.

For the three months ended March 31, 2021, the Company recorded income tax expense of $8.3 million, compared to pre-tax income of $47.0 million. Income tax expense for the three months ended March 31, 2021 included a discrete tax benefit of $3.6 million, primarily related to excess tax benefits from share-based compensation. The effective tax rate for the three months ended March 31, 2021, 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, foreign tax credits, and state and local taxes on U.S. income.

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Unrecognized Tax Benefits

The Company’s gross unrecognized tax benefits, exclusive of associated interest and penalties, were $12.1 million as of March 31, 2022 and December 31, 2021. The Company believes it is reasonably possible that its unrecognized tax benefits may decrease by approximately $1.5 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 2014 to 2019 in the United Kingdom. The United Kingdom is the jurisdiction with the Company’s largest foreign operations. The Company believes that its reserve for uncertain tax positions is adequate to cover existing risks or exposures related to all open tax years and jurisdictions.

11. Revenue from Contracts with Customers

Unsatisfied Performance Obligations

As of March 31, 2022, the total aggregate transaction price allocated to the unsatisfied performance obligations under contracts with contract terms greater than one year and that are not accounted for as a series pursuant to ASC Topic 606, Revenue from Contracts with Customers and all the related amendments was $6.68 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 months ended March 31, 2022, the Company recognized approximately $389.5 million of revenue that was included in the deferred revenue balance at the beginning of the period. During the three months ended March 31, 2022, approximately $6.3 million 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.

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12. Segment Information

The Company is managed through two reportable segments: Clinical Solutions and Commercial Solutions. Each reportable segment consists of multiple service offerings that, when combined, create a fully integrated biopharmaceutical services organization. Clinical Solutions offers comprehensive global services for the development of diagnostics, drugs, biologics, devices, and digital therapeutics that span Phases I to IV of clinical development. The segment is organized around clinical pharmacology and bioanalytical services, workforce deployment, full-service clinical studies, real world evidence, and consulting. This segment offers individual services including product development and regulatory consulting, project management, protocol development, investigational site recruitment, clinical monitoring, technology-enabled patient recruitment and engagement, clinical home health services, clinical trial diversity, biometrics, and regulatory affairs; all across a comprehensive range of therapeutic areas. Commercial Solutions provides the pharmaceutical, biotechnology, and healthcare industries with commercialization services, including deployment solutions, communication solutions (public relations, advertising, and medical communications), and consulting services. 

The Company’s Chief Operating Decision Maker (the “CODM”) reviews segment performance and allocates resources based upon segment revenue and income from operations. Inter-segment revenue is eliminated from the segment reporting provided 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 conform to insignificant changes to management reporting in 2022. Additionally, the CODM reviews the Company’s assets on a consolidated basis and does not allocate assets to its reportable segments for purposes of assessing segment performance or allocating resources.

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

13. Operations by Geographic Location

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

(a) Revenue for the North America region includes revenue attributable to the U.S. of $736.4 million and $693.9 million, or 55.1% and 57.4% of total revenue, for the three months ended March 31, 2022 and 2021, respectively. No other country represented more than 10% of total revenue for any period.

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

(a) Long-lived assets for the North America region include property and equipment, net attributable to the U.S. of $172.0 million and $160.0 million as of March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021, substantially all of the Company’s cash and cash equivalents were held within the U.S.

No single customer accounted for greater than 10% of the Company’s revenue for the three months ended March 31, 2022 or 2021.

As of March 31, 2022 and December 31, 2021, 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 months ended March 31, 2022, the Company had combined revenue of $1.3 million from three customers whose board of directors each included a member who was also a member of the Company’s Board. As of March 31, 2022, the Company had receivables of $0.3 million from one customer whose board of directors included a member who was also a member of the Company’s Board.

On February 8, 2022, the Company completed an insignificant acquisition, which was associated with the 2021 acquisition of RXDataScience, Inc., through an arm’s-length transaction. A member of the Company’s management was a minority shareholder of the acquired company. For additional information, refer to “Note 2 – Financial Statements Details – Goodwill.”

For the three months ended March 31, 2021, the Company had revenue of $0.3 million and, as of March 31, 2021, receivables of $0.3 million from one customer whose board of directors included a member who was also a member of the Company’s Board.

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16. Commitments and Contingencies

Legal Proceedings

In the opinion of management, the outcome of any existing claims and legal or regulatory proceedings, other than Vaitkuvienë v. Syneos Health, Inc., et al, No. 18-0029 (E.D.N.C.)  (the “Vaitkuvienë action”), 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. There have been no updates from the description of the Vaitkuvienë action included in “Note 17 – Commitments and Contingencies” to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” in the 2021 Form 10-K.

17. Subsequent Events

On April 28, 2022, the Board appointed Michelle Keefe as the Company’s Chief Executive Officer and as a Class I director, each effective as of April 29, 2022 (the “Effective Date”), succeeding Alistair Macdonald, who resigned from both positions as of the Effective Date. Also as of the Effective Date, Michael Brooks was appointed to serve as the Company’s Chief Operating Officer.

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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, 2021 (our “2021 Form 10-K”).

In addition to historical condensed consolidated financial information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect, among other things, our current expectations and anticipated results of operations, all of which are subject to known and unknown risks, uncertainties, and other factors that may cause our actual results, performance or achievements, market trends, or industry results to differ materially from those expressed or implied by such forward-looking statements. Therefore, any statements contained herein that are not statements of historical fact may be forward-looking statements and should be evaluated as such, including our business strategy, the future impact of the COVID-19 pandemic on our business, financial results, and financial condition, benefits of acquisitions, and planned capital expenditures. Without limiting the foregoing, the words “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “projects,” “should,” “would,” “targets,” “will” and the negative thereof and similar words and expressions are intended to identify forward-looking statements. Unless legally required, we assume no obligation to update any such forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information.

We caution you that any such forward-looking statements are further qualified by important factors that could cause our actual operating results to differ materially from those in the forward-looking statements, including without limitation, regional, national, or global political, economic, business, competitive, market, and regulatory conditions and the following: risks associated with the COVID-19 pandemic; our potential failure to generate a large number of new business awards and the risk of delay, termination, reduction in scope, or failure to go to contract of our business awards; our potential failure to convert backlog to revenue; fluctuations in our operating results and effective income tax rate; the impact of potentially underpricing our contracts, overrunning our cost estimates, or failing to receive approval for or experiencing delays with documentation of change orders; cyber-security and other risks associated with our information systems infrastructure; changes and costs of compliance with regulations related to data privacy; concentration of our customers or therapeutic areas; the risks associated with doing business internationally, including risks related to the war in Ukraine; 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; the need to hire, develop, and retain key personnel; the impact of unfavorable economic conditions, including the uncertain international economic environment and changes in foreign currency 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; the increasing focus on environmental sustainability and social initiatives; 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; intense competition faced by our customers from lower cost generic products and other competing products; 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

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ownership of our common stock. For a further discussion of the risks relating to our business, refer to Part I, Item 1A, “Risk Factors” in our 2021 Form 10-K.

Overview of Our Business and Services

We are the only fully integrated biopharmaceutical solutions organization purpose-built to accelerate customer success. We lead with a product development mindset, strategically blending clinical development, medical affairs, and commercial capabilities to address modern market realities for 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 comprehensive global services for the development of diagnostics, drugs, biologics, devices, and digital therapeutics that span Phases I to IV of clinical development. The segment is organized around clinical pharmacology and bioanalytical services, workforce deployment, full-service clinical studies, real world evidence, and consulting. 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. This collaboration across the development and commercialization continuum facilitates unique insights into patient populations, therapeutic environments, product timelines, and the competitive landscape. For a further discussion, refer to Part I, Item 1, “Business” in our 2021 Form 10-K.

The ongoing COVID-19 pandemic and associated economic repercussions have significantly impacted, and are expected to continue to impact, our business and our operations. Within Clinical Solutions, the pandemic has accelerated the adoption of virtual engagement with sites and patients, creating increased demand for decentralized solutions capabilities. As a result, we have continued to experience reduced travel and other reimbursable out-of-pocket expenses related to lower physical monitoring visits for Clinical Solutions relative to pre-pandemic levels. We have also experienced a reduction in the costs associated with investigational medicinal products, which has also resulted in lower reimbursable out-of-pocket expenses. Within Commercial Solutions, we have continued to experience fewer field team visits to healthcare providers and increased virtual investigator meetings. Therefore, we expect reimbursable out-of-pocket expenses as a percentage of revenue to remain lower relative to pre-pandemic levels. With the spread of COVID-19 variants, the ongoing impacts of the COVID-19 pandemic could adversely impact our business and results of operations. For a further discussion of this and other risks relating to our business, refer to Part I, Item 1A, “Risk Factors” in our 2021 Form 10-K.

Prior period segment results have been recast to conform to insignificant changes to management reporting in 2022.

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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:

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 March 31 was as follows (in millions):

We expect approximately $3.68 billion of our backlog as of March 31, 2022 will be recognized as revenue during the remainder of 2022. 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 March 31 were as follows (in millions):