Syneos Health Reports Fourth Quarter and Full Year 2018 Results

March 18, 2019

Highlights

  • GAAP total revenue of $1.15 billion and $4.39 billion for the fourth quarter and year ended December 31, 2018, respectively. Adjusted service revenue under ASC 606 of $1.15 billion and $4.40 billion for the fourth quarter and year ended December 31, 2018, respectively.
  • Net new business awards under ASC 605 of $3.89 billion for the year ended December 31, 2018, representing a twelve-month book-to-bill ratio of 1.22x.
    • Clinical Solutions segment net awards of $2.75 billion for the year ended December 31, 2018, representing a twelve-month book-to-bill ratio of 1.25x and growth of 7.8% compared to the prior year.
    • Commercial Solutions segment net awards of $1.14 billion for the year ended December 31, 2018, representing a twelve-month book-to-bill ratio 1.16x.
  • GAAP diluted earnings per share of $0.44 and $0.23 for the fourth quarter and year ended December 31, 2018, respectively.
  • ASC 606 adjusted diluted earnings per share of $0.95 and $2.87 for the fourth quarter and year ended December 31, 2018, respectively.
  • Clinical Solutions backlog under ASC 605 grew by 13.9% compared to the prior year.
  • Full-year 2019 adjusted service revenue guidance of $4.62 billion to $4.73 billion, adjusted EBITDA of $625.0 million to $660.0 million, and adjusted diluted earnings per share of $3.03 to $3.23.

MORRISVILLE, N.C., March 18, 2019 (GLOBE NEWSWIRE) -- Syneos Health (Nasdaq:SYNH), a leading biopharmaceutical solutions organization combining a CRO (Contract Research Organization) and a CCO (Contract Commercial Organization), today reported financial results for the fourth quarter and year ended December 31, 2018. Following the merger with inVentiv Health in August 2017 (the "Merger") and to aid investors and analysts with year-over-year comparability of results for the merged business, this press release includes certain "Combined Company" metrics for the full year of 2017 that represent combined financial information of INC Research and inVentiv Health as if the Merger had taken place on January 1, 2017. Because the Merger took place in the third quarter of 2017, fourth quarter results are not presented on a “Combined Company” basis. Please refer to the "Use of Non-GAAP Financial Measures" and "Reconciliation of GAAP to Combined Company Non-GAAP Measures" included in this press release and accompanying tables for important disclosures about non-GAAP measures and a reconciliation of these measures to the nearest GAAP measures.

“We had a strong finish to 2018, as we accelerated revenue growth and improved profitability in the fourth quarter,” said Alistair Macdonald, Chief Executive Officer of Syneos Health. “Customers continue to recognize the value of our Biopharmaceutical Acceleration Model, as evidenced by healthy net awards across both our Clinical and Commercial segments. Looking ahead to 2019, we are well-positioned for accelerating growth with a robust pipeline of opportunities and strong customer interest in our integrated outsourcing solutions.”

Impact of the Adoption of ASC 606

The Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASC 606”) on January 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption. The prior periods were not revised under this guidance and remain as previously reported.  As a result of adopting the standard, the Company is no longer permitted to present service revenue and revenue associated with reimbursable out-of-pocket expenses (reimbursable revenue) separately in the statements of operations. The adoption of ASC 606 lowered the Company’s total revenue and income from operations compared to the treatment under ASC 605, and such delayed revenue recognition is expected to continue until the portfolio of contracts matures. The adoption of ASC 606 had no impact on the Company's cash flow from operations. The following schedule includes a comparison of the fourth quarter and full year 2018 financial results under ASC 606 compared to results presented as if the previous accounting guidance (ASC 605) had been in effect.          

  Three Months Ended December 31, 2018   Three Months Ended
December 31, 2017
  ASC 606
As Reported
  ASC 605
As Adjusted
  ASC 605
As Reported
  (unaudited, in thousands)
Service revenue $ 1,145,472     $ 834,071     $ 750,471  
Reimbursable out-of-pocket expenses     327,839     326,212  
Total revenue 1,145,472     1,161,910     1,076,683  
Direct costs (exclusive of depreciation and amortization) 873,808     545,884     509,380  
Reimbursable out-of-pocket expenses     327,839     326,212  
Selling, general, and administrative expenses 109,885     110,552     106,300  
Restructuring and other costs 9,146     9,146     20,689  
Transaction and integration-related expenses 3,037     3,037     15,734  
Depreciation 18,934     18,934     18,128  
Amortization 51,194     51,194     65,220  
Total operating expenses 1,066,004     1,066,586     1,061,663  
Income from operations $ 79,468     $ 95,324     $ 15,020  


  Year Ended December 31, 2018   Year Ended
December 31, 2017
  ASC 606
As Reported
  ASC 605
As Adjusted
  ASC 605
As Reported
  (unaudited, in thousands)
Service revenue $ 4,390,116     $ 3,178,092     $ 1,852,843  
Reimbursable out-of-pocket expenses     1,270,235     819,221  
Total revenue 4,390,116     4,448,327     2,672,064  
Direct costs (exclusive of depreciation and amortization) 3,434,310     2,170,133     1,232,023  
Reimbursable out-of-pocket expenses     1,270,235     819,221  
Selling, general, and administrative expenses 406,305     408,818     282,620  
Restructuring and other costs 50,793     50,793     33,315  
Transaction and integration-related expenses 64,841     64,841     123,815  
Asset impairment charges         30,000  
Depreciation 72,158     72,158     44,407  
Amortization 201,527     201,527     135,529  
Total operating expenses 4,229,934     4,238,505     2,700,930  
Income (loss) from operations $ 160,182     $ 209,822     $ (28,866 )
                       

Fourth Quarter and Year-to-Date 2018 Results

GAAP service revenue for the three months ended December 31, 2018 was $1.15 billion, an increase of $395.0 million, or 52.6%, compared to $750.5 million in the same period of 2017. GAAP service revenue for the year ended December 31, 2018 was $4.39 billion, an increase of $2.54 billion, or 136.9%, compared to $1.85 billion in 2017. These increases were primarily due to the inclusion of reimbursable revenue in service revenue as a result of the adoption of ASC 606 and the Merger with inVentiv Health in August 2017.

Adjusted service revenue under ASC 605 increased during the three months ended December 31, 2018 by $63.8 million, or 8.3%, to $834.3 million from $770.5 million during the three months ended December 31, 2017. The increase during the three months ended December 31, 2018 was driven by revenue growth in both segments, as discussed below, partially offset by an unfavorable impact of foreign currency exchange rates of $5.4 million. Combined Company adjusted service revenue under ASC 605 increased during the year ended December 31, 2018 by $79.0 million, or 2.5%, to $3.18 billion from $3.10 billion during the year ended December 31, 2017. The increase for the year ended December 31, 2018 was primarily driven by revenue growth in the Clinical Solutions segment, as discussed below, and a foreign currency exchange benefit of $8.5 million.

GAAP Clinical Solutions service revenue for the three months and year ended December 31, 2018 was $821.2 million and $3.21 billion, respectively. Under ASC 605, the Clinical Solutions segment generated $562.3 million of adjusted service revenue during the three months ended December 31, 2018, representing an increase of $23.2 million or 4.3%, compared to $539.1 million during the three months ended December 31, 2017. This increase was primarily due to revenue from strong net awards in 2018, partially offset by the unfavorable impact of foreign currency exchange rates. Under ASC 605, the Combined Company Clinical Solutions segment generated $2.19 billion of adjusted service revenue during the year ended December 31, 2018, representing an increase of $76.7 million, or 3.6%, compared to $2.12 billion during the year ended December 31, 2017.

GAAP Commercial Solutions service revenue for the three months and year ended December 31, 2018 was $324.2 million and $1.18 billion, respectively. The Commercial Solutions segment generated $271.9 million of adjusted service revenue under ASC 605 during the three months ended December 31, 2018, an increase of $40.5 million, or 17.5%, compared to $231.4 million during the three months ended December 31, 2017. This increase was primarily due to strong net awards during 2018, fueled by the Company's strategic investments in business development and Syneos One, along with a strengthening macro environment, and the acquisition of Kinapse. The Combined Company Commercial Solutions segment generated $986.5 million of adjusted service revenue under ASC 605 during the year ended December 31, 2018, an increase of $2.3 million, or 0.2%, compared to $984.2 million during the year ended December 31, 2017. This increase was due to the impact of strong net awards during 2018 and the acquisition of Kinapse, partially offset by the impact of project cancellations and customer downsizing within our selling solutions and communications service offerings that occurred in 2017, as well as project startup delays in 2018.

GAAP net income for the three months ended December 31, 2018 was $45.7 million resulting in diluted earnings per share of $0.44, compared to net loss of $15.0 million resulting in a diluted loss per share of $0.14 for the three months ended December 31, 2017. GAAP net income for the year ended December 31, 2018 was $24.3 million, or a $0.23 diluted earnings per share, compared to net loss of $138.5 million, or a $1.85 diluted loss per share, for the year ended December 31, 2017. Adjusted net income under ASC 605 during the three months and year ended December 31, 2018 was $110.5 million and $330.0 million, respectively, resulting in adjusted diluted earnings per share of $1.05 and $3.15, respectively. Adjusted net income and Combined Company adjusted net income under ASC 605 during the three months and year ended December 31, 2017 was $74.1 million and $238.3 million, resulting in adjusted diluted earnings per share and Combined Company adjusted diluted earnings per share of $0.70 and $2.27, respectively. This represents adjusted diluted earnings per share growth of 50.0% and 38.8%, respectively, for the three months and year ended December 31, 2018, compared to the same periods in the prior year. The increases in adjusted net income and adjusted diluted earnings per share were primarily due to the increase in adjusted EBITDA, the reduction of the Company's non-GAAP effective tax rate to 24.5%, and lower interest expense.

Adjusted EBITDA for the three months and year ended December 31, 2018 under ASC 605 increased to $186.1 million and $636.3 million, or 22.3% and 20.0%, of adjusted service revenue, respectively, compared to $156.2 million and $580.7 million, or 20.3% and 18.7%, of adjusted service revenue and Combined Company adjusted service revenue during the three months and year ended December 31, 2017, respectively. This resulted in an increase in adjusted EBITDA of 19.1% and 9.6%, for the three months and year ended December 31, 2018, respectively, compared to the same periods in the prior year. These increases were a result of revenue growth, realized synergies and other cost savings, partially offset by a less favorable revenue mix and the Company's strategic investments. Fluctuations in foreign exchange rates resulted in a positive impact on adjusted EBITDA of $5.3 million during the three months ended December 31, 2018 and a negligible impact during the year ended December 31, 2018.

Under ASC 605, net new business awards were $3.89 billion for the year ended December 31, 2018, representing a book-to-bill ratio of 1.22x. Clinical Solutions and Commercial Solutions net new business awards for the year ended December 31, 2018 were $2.75 billion and $1.14 billion, respectively, representing book-to-bill ratios of 1.25x and 1.16x, respectively. As of December 31, 2018, backlog under ASC 605 for Clinical Solutions and the selling solutions offering within Commercial Solutions was $4.32 billion and $540.2 million, respectively. During 2018, Clinical Solutions backlog under ASC 605 grew by 13.9% compared to the prior year.

Capital Management Update

The Company is currently working with its lenders to refinance its existing Term Loan A and revolving credit facilities. The Company expects the new facilities to close prior to March 31, 2019 and mature five years from closing. The Company anticipates that the refinancing facilities will comprise of: (i) term A loans in an aggregate amount of $1.15 billion to be funded at close, of which approximately $187.5 million will be used to repay a portion of the Company's existing term B loans; (ii) delayed draw term A loans in an aggregate amount of $400.0 million that may be funded in multiple draws within nine months of closing, the proceeds of which will be applied in the fourth quarter of 2019 to redeem, repay, defease, or discharge all or a portion of its 7.5% senior unsecured notes due 2024; and (iii) revolving loans that will be available from time to time after closing in an aggregate amount of $600.0 million. These transactions are expected to reduce the Company's interest expense for 2019 by $4.2 million, and by $15.0 million annually thereafter.

Additionally, during the three months ended December 31, 2018, the Company voluntarily repaid an additional $30.0 million to reduce its outstanding debt balances. Since the closing of the Merger, the Company has reduced its total outstanding principal debt by $222.4 million, resulting in expected annual interest expense savings of $11.8 million.

Full Year 2019 Business Outlook

The Company's guidance takes into account a number of factors, including existing backlog, current sales pipeline, trends in cancellations and delays, and estimated Merger synergies, net of reinvestments. Furthermore, the below guidance is based on current foreign currency exchange rates, current interest rates, and expected tax rate. The guidance is based upon the Company's estimated diluted share count, takes into account the anticipated impact of the aforementioned refinancing transaction, and does not take into account any share repurchases beyond 2018. The Company's guidance for the full year of 2019 is outlined below and has been prepared under the revenue recognition requirements of ASC 606:

  Guidance Issued as of March 18, 2019
  Full Year 2019
  Low   High
  (in millions, except per share data)
Adjusted service revenue $ 4,620     $ 4,730  
Clinical Solutions adjusted service revenue (a) 3,345     3,410  
Commercial Solutions adjusted service revenue 1,275     1,320  
Adjusted EBITDA 625     660  
Adjusted diluted EPS $ 3.03     $ 3.23  
               

(a) Clinical Solutions Adjusted Service Revenue includes an add-back of deferred revenue eliminated in purchase accounting of approximately $6.5 million for 2019.

The Company anticipates that its 2019 effective tax rate will be between 24.0% and 25.0%. This effective tax rate includes the impact of the Company's reassessment of certain provisions of the Tax Cuts and Jobs Act ("Tax Act") as a result of updated guidance that was released and considered by the Company in late 2018. Important disclosures in this earnings release about and reconciliations of historical and forward-looking non-GAAP measures, to the nearest corresponding GAAP measures are provided below under "Use of Non-GAAP Financial Measures" and "Reconciliation of GAAP to Combined Company Non-GAAP Measures.”

Webcast and Conference Call Details

Syneos Health will host a conference call at 5:30 p.m. EDT on March 18, 2019, to discuss its financial results for the fourth quarter and year ended December 31, 2018. The live webcast will be available in listen-only mode in the Events section of the Company's Investor Relations website at investor.syneoshealth.com. To participate via phone, please dial +1 877 930 8058 within the United States or +1 253 336 7551 outside the United States approximately 15 minutes before the scheduled start of the call. The conference ID for the call is 3768756.

An archived replay of the conference call is expected to be available online at investor.syneoshealth.com after 8:30 p.m. EDT on March 18, 2019. In addition, an audio replay will be available for one week following the call and will be accessible by dialing +1 855 859 2056 within the United States or +1 404 537 3406 outside the United States. The audio replay ID is 3768756.

About Syneos Health

Syneos Health™ (Nasdaq:SYNH) is the only fully integrated biopharmaceutical solutions organization. The Company, including a Contract Research Organization (CRO) and Contract Commercial Organization (CCO), is purpose-built to accelerate customer performance to address modern market realities. Created through the merger of two industry leading companies – INC Research and inVentiv Health – Syneos Health brings together approximately 24,000 clinical and commercial minds with the ability to support customers in more than 110 countries. The Company shares insights, uses the latest technologies, and applies advanced business practices to speed its customers’ delivery of important therapies to patients. To learn more about how Syneos Health is shortening the distance from lab to life® visit syneoshealth.com.

Forward-Looking Statements

Except for historical information, all of the statements, expectations, and assumptions contained in this press release are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995, including statements regarding creating a strong foundation for 2019 and beyond, anticipated financial results for the full year 2019, and our entry into a new Term Loan A facility and the use of funds from any increased capacity under the new Term Loan A facility. Actual results might differ materially from those explicit or implicit in the forward-looking statements. Important factors that could cause actual results to differ materially include, but are not limited to: reliance on key personnel; principal investigators and patients; general and international economic, political, and other risks, including currency and stock market fluctuations and the uncertain economic environment; the Company's ability to adequately price its contracts and not overrun cost estimates; any adverse effects from the Company's customer or therapeutic area concentration; the Company's ability to maintain or generate new business awards; the Company's ability to increase its market share, grow its business, and execute its growth strategies; the Company's backlog not being indicative of future revenues and its ability to realize the anticipated future revenue reflected in its backlog; risks related to the Company's information systems and cybersecurity; changes and costs of compliance with regulations related to data privacy; risk related to the United Kingdom’s withdrawal from the European Union; risks related to the Company's transfer pricing policies; failure to perform services in accordance with contractual requirements, regulatory requirements and ethical considerations; risks relating to litigation and government investigations; risks associated with the Company's early phase clinical facilities; insurance risk; risks of liability resulting from harm to patients; success of investments in the Company's customers’ business or drugs; foreign currency exchange rate fluctuations; risks associated with the integration of the Company's business with the business of inVentiv Health and its operation of the combined business following the closing of the Merger; risks related to the Company's income tax expense and tax reform; risks relating to the Company's intellectual property; risks associated with the Company's acquisition strategy; failure to realize the full value of goodwill and intangible assets; restructuring risk; potential violations of anti-corruption and anti-bribery laws; risks related to the Company's dependence on third parties; downgrades of the Company's credit ratings; competition in the biopharmaceutical services industry; changes in outsourcing trends; regulatory risks; trends in the Company's customers’ businesses; the Company's ability to keep pace with rapid technological change; risks related to the Company's indebtedness; fluctuations in the Company's financial results and stock price; and other risk factors set forth in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and other SEC filings, copies of which are available free of charge on the Company's website at investor.syneoshealth.com. The Company assumes no obligation and does not intend to update these forward-looking statements, except as required by law.

Use of Non-GAAP Financial Measures

In addition to the financial measures prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), this press release contains certain non-GAAP financial measures, including adjusted service revenue, adjusted total revenue, adjusted net income (including adjusted diluted earnings per share), EBITDA, adjusted EBITDA, and  non-GAAP effective tax rate. To aid investors and analysts with year-over-year comparability for the merged business, the Company has also presented certain of these non-GAAP financial measures on a "Combined Company" basis for the full year 2017 results. Combined Company non-GAAP financial measures combine certain stand-alone INC Research and inVentiv Health financial information as if the Merger had taken place on January 1, 2017, in addition to include adjustments noted below. A “non-GAAP financial measure” is generally defined as a numerical measure of a company’s financial performance that excludes or includes amounts from the most directly comparable measure calculated and presented in accordance with GAAP in the statements of operations, balance sheets, or statements of cash flows of the Company.

The Company defines adjusted service revenue as GAAP revenue adjusted to include revenue eliminated as a result of purchase accounting. Adjusted service revenue is presented on a Combined Company basis for the full year 2017 results.

The Company defines adjusted net income (including adjusted diluted earnings per share) as net income (including diluted earnings per share) excluding acquisition-related deferred revenue adjustments; acquisition-related amortization; restructuring and other costs; transaction and integration-related expenses; asset impairment charges; share-based compensation expense; discretionary bonus accrual reversals; R&D tax credit adjustments; monitoring and advisory fees; acquisition-related revaluation adjustments; loss on extinguishment of debt; bridge financing fees; and other expense (income), net. After giving effect to these items, the Company has also included an adjustment to its income tax rate to reflect the expected long-term income tax rate and estimated impact of the enactment of the Tax Act. Adjusted net income and adjusted diluted earnings per share are presented on a Combined Company basis for the full year 2017 results.

EBITDA represents earnings before interest, taxes, depreciation and amortization. The Company defines adjusted EBITDA as EBITDA, further adjusted to exclude expenses and transactions that the Company believes are not representative of its core operations, namely: acquisition-related deferred revenue adjustments; restructuring and other costs; transaction and integration-related expenses; asset impairment charges; share-based compensation expense; discretionary bonus accrual reversals; R&D tax credit adjustments; monitoring and advisory fees; acquisition-related revaluation adjustments; other expense, net; and loss on extinguishment of debt. EBITDA and adjusted EBITDA are presented on a Combined Company basis for the full year 2017 results. The Company presents EBITDA and adjusted EBITDA because it believes they are useful metrics for investors as they are commonly used by investors, analysts and debt holders to measure the Company's ability to fund capital expenditures and meet working capital requirements.

Each of the non-GAAP measures noted above are used by management and the Board to evaluate the Company's core operating results because they exclude certain items whose fluctuations from period-to-period do not necessarily correspond to changes in the core operations of the business. Adjusted net income (including adjusted diluted earnings per share) and adjusted EBITDA are used by management and the Board to assess the performance of the Company's business.

Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP. Also, other companies might calculate these measures differently. Investors are encouraged to review the reconciliations of the non-GAAP financial measures to their most directly comparable GAAP measures included in this press release and the accompanying tables.

Investor Relations Contact:

Ronnie Speight
Senior Vice President, Investor Relations
Phone: +1 919 745 2745
Email: Investor.Relations@syneoshealth.com
Press/Media Contact:

Danielle DeForge
Executive Director, External Communications
Phone: +1 781 425 2624
Email: danielle.deforge@syneoshealth.com
   

Syneos Health, Inc. and Subsidiaries
GAAP Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)

  Three Months Ended December 31,   Year Ended December 31,
  2018   2017   2018   2017
Service revenue $ 1,145,472     $ 750,471     $ 4,390,116     $ 1,852,843  
Reimbursable out-of-pocket expenses     326,212         819,221  
Total revenue 1,145,472     1,076,683     4,390,116     2,672,064  
               
Costs and operating expenses:              
Direct costs (exclusive of depreciation and amortization) 873,808     509,380     3,434,310     1,232,023  
Reimbursable out-of-pocket expenses     326,212         819,221  
Selling, general, and administrative expenses 109,885     106,300     406,305     282,620  
Restructuring and other costs 9,146     20,689     50,793     33,315  
Transaction and integration-related expenses 3,037     15,734     64,841     123,815  
Asset impairment charges             30,000  
Depreciation 18,934     18,128     72,158     44,407  
Amortization 51,194     65,220     201,527     135,529  
Total operating expenses 1,066,004     1,061,663     4,229,934     2,700,930  
Income (loss) from operations 79,468     15,020     160,182     (28,866 )
               
Other expense, net:              
Interest income 188     417     3,686     1,182  
Interest expense (32,974 )   (29,907 )   (130,701 )   (63,725 )
Loss on extinguishment of debt (239 )   (520 )   (4,153 )   (622 )
Other income (expense), net 13,143     (3,682 )   28,244     (19,846 )
Total other expense, net (19,882 )   (33,692 )   (102,924 )   (83,011 )
Income (loss) before provision for income taxes 59,586     (18,672 )   57,258     (111,877 )
Income tax (expense) benefit (13,916 )   3,625     (32,974 )   (26,592 )
Net income (loss) $ 45,670     $ (15,047 )   $ 24,284     $ (138,469 )
               
Income (loss) per share:              
Basic $ 0.44     $ (0.14 )   $ 0.23     $ (1.85 )
Diluted $ 0.44     $ (0.14 )   $ 0.23     $ (1.85 )
Weighted average common shares outstanding:              
Basic 103,298     104,364     103,414     74,913  
Diluted 104,819     104,364     104,701     74,913  
                       

Syneos Health, Inc. and Subsidiaries
 Condensed Consolidated Balance Sheets
(in thousands, except per share data)
(unaudited)

  December 31, 2018   December 31, 2017
ASSETS      
Current assets:      
Cash, cash equivalents, and restricted cash $ 155,932     $ 321,976  
Accounts receivable and unbilled services, net 1,256,731     1,015,988  
Prepaid expenses and other current assets 79,299     84,215  
Total current assets 1,491,962     1,422,179  
Property and equipment, net 183,486     180,412  
Goodwill 4,333,159     4,292,571  
Intangible assets, net 1,133,612     1,286,050  
Deferred income tax assets 9,317     20,159  
Other long-term assets 103,373     84,496  
Total assets $ 7,254,909     $ 7,285,867  
LIABILITIES AND SHAREHOLDERS' EQUITY      
Current liabilities:      
Accounts payable $ 98,624     $ 58,575  
Accrued expenses 563,527     500,303  
Deferred revenue 777,141     559,270  
Current portion of capital lease obligations 13,806     16,414  
Current portion of long-term debt 50,100     25,000  
Total current liabilities 1,503,198     1,159,562  
Capital lease obligations 26,759     20,376  
Long-term debt 2,737,019     2,945,934  
Deferred income tax liabilities 25,120     37,807  
Other long-term liabilities 106,669     99,609  
Total liabilities 4,398,765     4,263,288  
       
Commitments and contingencies      
       
Shareholders' equity:      
Preferred stock, $0.01 par value; 30,000 shares authorized, 0 shares issued and outstanding at December 31, 2018 and 2017, respectively      
Common stock, $0.01 par value; 600,000 shares authorized, 103,372 and 104,436 shares issued and outstanding at December 31, 2018 and 2017, respectively 1,034     1,044  
Additional paid-in capital 3,402,638     3,414,389  
Accumulated other comprehensive loss, net of tax (88,195 )   (22,385 )
Accumulated deficit (459,333 )   (370,469 )
Total shareholders' equity 2,856,144     3,022,579  
Total liabilities and shareholders' equity $ 7,254,909     $ 7,285,867  
               

Syneos Health, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

  Year Ended December 31,
  2018   2017
Cash flows from operating activities:      
Net income (loss) $ 24,284     $ (138,469 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:      
Depreciation and amortization 273,685     179,936  
Share-based compensation 34,323     59,696  
(Recovery of) provision for doubtful accounts (4,587 )   4,167  
Provision for deferred income taxes 240     14,431  
Foreign currency transaction adjustments (16,165 )   7,912  
Asset impairment charges     30,000  
Fair value adjustment of contingent obligations (11,590 )   (12,276 )
Loss on extinguishment of debt 4,153     622  
Other non-cash items 2,849     5,212  
Changes in operating assets and liabilities, net of effect of business combinations:      
Accounts receivable, unbilled services, and deferred revenue (97,621 )   60,623  
Accounts payable and accrued expenses 60,024     (16,982 )
Other assets and liabilities 33,853     3,386  
Net cash provided by operating activities 303,448     198,258  
Cash flows from investing activities:      
Payments associated with business combinations, net of cash acquired (90,890 )   (1,678,381 )
Purchases of property and equipment (54,595 )   (43,896 )
Other, net     (567 )
Net cash used in investing activities (145,485 )   (1,722,844 )
Cash flows from financing activities:      
Proceeds from issuance of long-term debt, net of discount     2,598,000  
Payments of debt financing costs (3,062 )   (25,476 )
Repayments of long-term debt (390,646 )   (525,097 )
Proceeds from accounts receivable financing agreement 187,700      
Repayments of accounts receivable financing agreement (18,300 )    
Proceeds from revolving line of credit     15,000  
Repayments of revolving line of credit     (40,000 )
Redemption of Senior Notes and associated breakage fees     (292,425 )
Payments of contingent consideration related to business combinations (23,102 )    
Payments of capital leases (15,423 )   (8,145 )
Payments for repurchase of common stock (74,985 )    
Proceeds from exercise of stock options 21,821     19,335  
Payments related to tax withholding for share-based compensation (3,359 )   (6,824 )
Net cash (used in) provided by financing activities (319,356 )   1,734,368  
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (4,651 )   9,116  
Net change in cash, cash equivalents, and restricted cash (166,044 )   218,898  
Cash, cash equivalents, and restricted cash - beginning of period 321,976     103,078  
Cash, cash equivalents, and restricted cash - end of period $ 155,932     $ 321,976  
               

Syneos Health, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Measures
(in thousands)
(unaudited)

  Three Months Ended December 31,
  2018   2018   2018   2017
  ASC 606   ASC 605
  As Reported   Adjustment (a)   As Adjusted   As Reported
Adjusted service revenue:              
Service revenue, as reported $ 1,145,472     $ (311,401 )   $ 834,071     $ 750,471  
Acquisition-related deferred revenue adjustment (b) 2,937     (2,739 )   198     20,000  
Adjusted service revenue 1,148,409     (314,140 )   834,269     770,471  
Reimbursable out-of-pocket expenses, as reported     327,839     327,839     326,212  
Adjusted total revenue $ 1,148,409     $ 13,699     $ 1,162,108     $ 1,096,683  
               
Segment adjusted total revenue:              
Clinical Solutions service revenue, as reported $ 821,247     $ (259,107 )   $ 562,140     $ 522,187  
Acquisition-related deferred revenue adjustment (b) 2,937     (2,739 )   198     16,916  
Clinical Solutions adjusted service revenue 824,184     (261,846 )   562,338     539,103  
Clinical Solutions reimbursable out-of-pocket expenses, as reported     273,908     273,908     271,442  
Clinical Solutions adjusted total revenue $ 824,184     $ 12,062     $ 836,246     $ 810,545  
               
Commercial Solutions service revenue, as reported $ 324,225     $ (52,294 )   $ 271,931     $ 228,284  
Acquisition-related deferred revenue adjustment (b)             3,084  
Commercial Solutions adjusted service revenue 324,225     (52,294 )   271,931     231,368  
Commercial Solutions reimbursable out-of-pocket expenses, as reported     53,931     53,931     54,770  
Commercial Solutions adjusted total revenue $ 324,225     $ 1,637     $ 325,862     $ 286,138  
                               

Syneos Health, Inc. and Subsidiaries
Reconciliation of GAAP to Combined Company Non-GAAP Measures
(in thousands)
(unaudited)

  Year Ended December 31,
  2018   2018   2018   2017
  ASC 606   ASC 605
  As Reported   Adjustment (a)   As Adjusted   As Reported
Combined Company adjusted service revenue:              
Service revenue, as reported $ 4,390,116     $ (1,212,024 )   $ 3,178,092     $ 1,852,843  
Pre-merger inVentiv service revenue             1,202,170  
Combined Company service revenue, before adjustments 4,390,116     (1,212,024 )   3,178,092     3,055,013  
Acquisition-related deferred revenue adjustment (b) 13,480     (10,564 )   2,916     47,014  
Combined Company adjusted service revenue 4,403,596     (1,222,588 )   3,181,008     3,102,027  
Reimbursable out-of-pocket expenses, as reported     1,270,235     1,270,235     819,221  
Pre-merger inVentiv reimbursable out-of-pocket expenses             347,702  
Combined Company adjusted total revenue $ 4,403,596     $ 47,647     $ 4,451,243     $ 4,268,950  
               
Combined Company segment adjusted service revenue:              
Clinical Solutions service revenue, as reported $ 3,211,202     $ (1,018,819 )   $ 2,192,383     $ 1,459,968  
Pre-merger inVentiv Clinical Solutions service revenue             616,594  
Combined Company Clinical Solutions service revenue, before adjustments 3,211,202     (1,018,819 )   2,192,383     2,076,562  
Acquisition-related deferred revenue adjustment (b) 12,666     (10,564 )   2,102     41,244  
Combined Company Clinical Solutions adjusted service revenue 3,223,868     (1,029,383 )   2,194,485     2,117,806  
Clinical Solutions reimbursable out-of-pocket expenses, as reported     1,068,513     1,068,513     736,599  
Pre-merger inVentiv Clinical Solutions reimbursable out-of-pocket expenses             223,121  
Combined Company Clinical Solutions total revenue $ 3,223,868     $ 39,130     $ 3,262,998     $ 3,077,526  
               
Commercial Solutions service revenue, as reported $ 1,178,914     $ (193,205 )   $ 985,709     $ 392,875  
Pre-merger inVentiv Commercial Solutions service revenue             585,576  
Combined Company Commercial Solutions service revenue, before adjustments 1,178,914     (193,205 )   985,709     978,451  
Acquisition-related deferred revenue adjustment (b) 814         814     5,770  
Combined Company Commercial Solutions adjusted service revenue 1,179,728     (193,205 )   986,523     984,221  
Commercial Solutions reimbursable out-of-pocket expenses, as reported     201,722     201,722     82,622  
Pre-merger inVentiv Commercial Solutions reimbursable out-of-pocket expenses             124,581  
Combined Company Commercial Solutions total revenue $ 1,179,728     $ 8,517     $ 1,188,245     $ 1,191,424  
                               

Syneos Health, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Measures and Combined Company Non-GAAP Measures
(in thousands) (unaudited)

  Three Months Ended December 31,
  2018   2018   2018   2017
  ASC 606   ASC 605
  As Reported   Adjustment (a)   As Adjusted   As Reported
EBITDA and adjusted EBITDA:              
Net income (loss), as reported $ 45,670     $ 11,163     $ 56,833     $ (15,047 )
Interest expense, net 32,786         32,786     29,490  
Income tax expense (benefit) 13,916     4,693     18,609     (3,625 )
Depreciation 18,934         18,934     18,128  
Amortization (c) 51,194         51,194     65,220  
EBITDA 162,500     15,856     178,356     94,166  
Acquisition-related deferred revenue adjustment (b) 2,937     (2,739 )   198     20,000  
Restructuring and other costs (d) 9,146         9,146     20,689  
Transaction and integration-related expenses (e) 3,037         3,037     15,734  
Share-based compensation (g) 8,278         8,278     4,976  
R&D tax credit adjustment (i)             (3,568 )
Other (income) expense, net (l) (13,143 )       (13,143 )   3,682  
Loss on extinguishment of debt (m) 239         239     520  
Adjusted EBITDA $ 172,994     $ 13,117     $ 186,111     $ 156,199  
Adjusted EBITDA Margin 15.1 %       22.3 %   20.3 %


  Year Ended December 31,
  2018   2018   2018   2017
  ASC 606   ASC 605
  As Reported   Adjustment (a)   As Adjusted   As Reported
Combined Company EBITDA and adjusted EBITDA:              
Net income (loss), as reported $ 24,284     $ 42,500     $ 66,784     $ (138,469 )
Pre-merger inVentiv net loss             (105,577 )
Combined Company net income (loss), before adjustments 24,284     42,500     66,784     (244,046 )
Interest expense, net 127,015         127,015     149,327  
Income tax expense (benefit) 32,974     7,140     40,114     (19,288 )
Depreciation 72,158         72,158     75,988  
Amortization (c) 201,527         201,527     283,708  
EBITDA 457,958     49,640     507,598     245,689  
Acquisition-related deferred revenue adjustment (b) 13,480     (10,564 )   2,916     47,014  
Restructuring and other costs (d) 50,793         50,793     48,695  
Transaction and integration-related expenses (e) 64,841         64,841     149,461  
Asset impairment charges (f)             30,000  
Share-based compensation (g) 34,232         34,232     37,009  
Discretionary bonus accrual reversal (h)             (5,953 )
R&D tax credit adjustment (i)             (9,598 )
Monitoring and advisory fees (j)             7,538  
Acquisition-related revaluation adjustments (k)             4,408  
Other (income) expense, net (l) (28,244 )       (28,244 )   25,767  
Loss on extinguishment of debt (m) 4,153         4,153     622  
Combined Company adjusted EBITDA $ 597,213     $ 39,076     $ 636,289     $ 580,652  
Combined Company Adjusted EBITDA Margin 13.6 %       20.0 %   18.7 %
                     

Syneos Health, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Measures
(in thousands, except per share data)
(unaudited)

  Three Months Ended December 31,
  2018   2018   2018   2017
  ASC 606   ASC 605
  As Reported   Adjustment (a)   As Adjusted   As Reported
Adjusted net income:              
Net income (loss), as reported $ 45,670     $ 11,163     $ 56,833     $ (15,047 )
Acquisition-related deferred revenue adjustment (b) 2,937     (2,739 )   198     20,000  
Amortization (c) 51,194         51,194     65,220  
Restructuring and other costs (d) 9,146         9,146     20,689  
Transaction and integration-related expenses (e) 3,037         3,037     15,734  
Share-based compensation (g) 8,278         8,278     4,976  
R&D tax credit adjustment (i)             (3,568 )
Other (income) expense, net (l) (13,143 )       (13,143 )   3,682  
Loss on extinguishment of debt (m) 239         239     520  
Income tax adjustment to normalized rate (o) (22,547 )   2,257     (20,290 )   (132,569 )
Impact of Tax Cut and Jobs Act (p)             94,415  
Impact of base erosion and anti-abuse tax (q) 15,054         15,054      
Adjusted net income $ 99,865     $ 10,681     $ 110,546     $ 74,052  
               
Diluted weighted average common shares outstanding:              
Diluted weighted average common shares outstanding, as reported   104,819           104,819       104,364  
Effect of certain securities considered anti-dilutive under GAAP (r)             1,191  
Diluted weighted average common shares outstanding   104,819           104,819       105,555  
               
Adjusted diluted earnings per share $ 0.95         $ 1.05     $ 0.70  
                             

Syneos Health, Inc. and Subsidiaries
Reconciliation of GAAP to Combined Company Non-GAAP Measures
(in thousands, except per share data)
(unaudited)

  Year Ended December 31,
  2018   2018   2018   2017
  ASC 606   ASC 605
  As Reported   Adjustment (a)   As Adjusted   As Reported
Combined Company adjusted net income:              
Net income (loss), as reported $ 24,284     $ 42,500     $ 66,784     $ (138,469 )
Pre-merger inVentiv net loss             (105,577 )
Combined Company net income (loss), before adjustments 24,284     42,500     66,784     (244,046 )
Acquisition-related deferred revenue adjustment (b) 13,480     (10,564 )   2,916     47,014  
Amortization (c) 201,527         201,527     283,708  
Restructuring and other costs (d) 50,793         50,793     48,695  
Transaction and integration-related expenses (e) 64,841         64,841     149,461  
Asset impairment charges (f)             30,000  
Share-based compensation (g) 34,232         34,232     37,009  
Discretionary bonus accrual reversal (h)             (5,953 )
R&D tax credit adjustment (i)             (9,598 )
Monitoring and advisory fees (j)             7,538  
Acquisition-related revaluation adjustments (k)             4,408  
Other (income) expense, net (l) (28,244 )       (28,244 )   25,767  
Loss on extinguishment of debt (m) 4,153         4,153     622  
Bridge financing fee (n)             5,815  
Income tax adjustment to normalized rate (o) (79,600 )   (2,433 )   (82,033 )   (236,601 )
Impact of Tax Cut and Jobs Act (p)             94,415  
Impact of base erosion and anti-abuse tax (q) 15,054         15,054      
Combined Company adjusted net income $ 300,520     $ 29,503     $ 330,023     $ 238,254  
               
Combined Company diluted weighted average common shares outstanding:              
Diluted weighted average common shares outstanding, as reported   104,701           104,701       74,913  
Effect of certain securities considered anti-dilutive under GAAP (r)             1,255  
Estimated additional dilutive shares outstanding as a result of the Merger (s)             28,801  
Combined Company diluted weighted average common shares outstanding   104,701           104,701       104,969  
               
Combined Company adjusted diluted earnings per share $ 2.87         $ 3.15     $ 2.27  
                             
  1. The adjustment column shows the adjustment necessary to present the respective line item as if the previous accounting guidance (ASC 605) had been in effect.
  2. Represents non-cash adjustments resulting from the revaluation of deferred revenue and the subsequent elimination of revenue in purchase accounting in connection with business combinations.
  3. Represents the amortization of intangible assets associated with acquired customer relationships, backlog, and trademarks.
  4. Restructuring and other costs consist primarily of: (i) severance costs associated with a reduction/optimization of the Company's workforce in line with the Company's expectations of future business operations, (ii) consulting costs incurred for the continued consolidation of legal entities and restructuring of the Company's contract management process to meet the requirements of accounting regulation changes, and (iii) termination costs in connection with abandonment and closure of redundant facilities and other lease-related charges.
  5. Represents fees associated with corporate transactions and integration-related activities which primarily relate to the Merger in 2017.
  6. Represents impairment charges associated with the INC Research trade name due to the Company’s relaunch under the Syneos Health trade name in January 2018.
  7. Represents non-cash share-based compensation expense related to awards granted under equity incentive plans.
  8. Represents inVentiv Health discretionary bonus accruals from the prior year that were reversed in periods prior to the Merger.
  9. Represents additional research and development tax credits in certain international locations for expenses incurred and recorded as a reduction of direct costs.
  10. Represents the annual sponsor management fee previously paid pursuant to the THL and Advent Management Agreement with inVentiv Health.
  11. Represents non-cash adjustments resulting from the revaluation of certain items such as facilities and vehicle leases in connection with inVentiv Health's Merger with Advent in 2016.
  12. Represents other (income) expense comprised primarily of foreign exchange gains and losses.
  13. Represents loss on extinguishment of debt associated with the debt prepayments and refinancing activities.
  14. Represents bridge financing fees incurred by the Company related to its 2017 Credit Agreement prior to the Merger.
  15. Represents the income tax effect of the Combined Company non-GAAP adjustments made to arrive at adjusted net income using an estimated effective tax rate of approximately 24.5% in 2018 and 34.0% in 2017. This lower tax rate compared to the Company's previous estimates for 2018 stems primarily from its reassessment of the application of certain provisions of the Tax Act to the Company, based on, among other things, new guidance that was released late in 2018. These rates have been adjusted to exclude tax impacts related to valuation allowances recorded against deferred tax assets.
  16. Represents the direct and indirect net income tax effect recorded in the three months and year ended December 31, 2017 as a result of the enactment of the Tax Act.
  17. Represents the net income tax effect recorded in the three months and year ended December 31, 2018 as a result of the base erosion and anti-abuse tax.
  18. Represents the weighted average number of equity-based awards issued under the Company's equity incentive plans calculated using the treasury stock method that were excluded from shares used in computing GAAP diluted net loss per share due to reporting a net loss under GAAP for the period.
  19. Represents the estimated impact on the dilutive weighted average shares outstanding of shares and equity-based awards issued by the Company as a result of the Merger had the Merger occurred on January 1, 2017. The amount consists of the shares issued to inVentiv Health's shareholders on August 1, 2017 and the fully vested stock option awards and restricted stock units issued under the equity incentive plans formerly related to inVentiv Health that were assumed by the Company in the Merger.

Syneos Health, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP
Full Year 2019 Guidance
(in millions, except per share data)
(unaudited)

  Full Year 2019
  Low   High
EBITDA and Adjusted EBITDA:      
GAAP net income $ 111.6     $ 132.0  
Adjustments:      
Interest expense, net (a) 125.0     130.0  
Income tax expense (a) 40.3     47.6  
Depreciation (a) 74.8     77.0  
Amortization (a) 166.0     166.0  
EBITDA 517.7     552.6  
Merger-related deferred revenue adjustment (a) 6.5     6.5  
Restructuring and other costs (a) 20.0     20.0  
Transaction and integration-related expenses (a) 24.0     24.0  
Share-based compensation (a) 56.5     56.5  
Other (a) 0.3     0.4  
Adjusted EBITDA $ 625.0     $ 660.0  
               
  1. Amounts are estimates with an estimated range of +/- 5% and are presented gross without the benefit of associated income tax deduction.
  Full Year 2019
  Adjusted Net Income   Adjusted Diluted Earnings Per Share
  Low   High   Low   High
GAAP net income and diluted earnings per share $ 111.6     $ 132.0     $ 1.05     $ 1.25  
Adjustments:              
Amortization (a) 166.0     166.0     1.57     1.57  
Share-based compensation (a) 56.5     56.5     0.53     0.53  
Restructuring and other costs (a) 20.0     20.0     0.19     0.19  
Transaction and integration-related expenses (a) 24.0     24.0     0.23     0.23  
Merger-related deferred revenue adjustment (a) 6.5     6.5     0.06     0.06  
Other (a) 0.3     0.4          
Income tax effect of above adjustments (b) (63.9 )   (63.4 )   (0.60 )   (0.60 )
Adjusted net income and adjusted diluted earnings per share $ 321.0     $ 342.0     $ 3.03     $ 3.23  
                               
  1. Amounts are estimates with an estimated range of +/- 5% and are presented gross without the benefit of associated income tax deduction.
  2. Income tax expense is calculated and the adjustments are tax-affected at an approximate rate of 24.0% to 25.0%, which represents the estimated range of the Company's full year non-GAAP effective tax rate and takes into account the estimated effect of the enactment of the Tax Act.

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Source: Syneos Health