Syneos Health Reports Second Quarter 2018 Results
Highlights
- GAAP total revenue of
$1.07 billion and$2.13 billion for the three and six months ended June 30, 2018, respectively. Combined Company ASC 606 adjusted service revenue of$1.08 billion and$2.14 billion for the three and six months ended June 30, 2018, respectively. - Combined Company ASC 605 net new business awards of
$1.06 billion and$1.93 billion for the three and six months ended June 30, 2018, representing book-to-bill ratios of 1.32x and 1.24x, respectively.- Clinical Solutions segment awards of
$849.9 million and$1.40 billion , respectively, resulting in three-, six-, and trailing twelve-month book-to-bill ratios of 1.52x, 1.29x, and 1.26x, respectively. Awards grew 18.6% and 13.4% year over year, respectively, on a period-over-period basis for the three and six months ended June 30, 2018, respectively. - Commercial Solutions segment net awards of
$205.8 million and$528.1 million , representing book-to-bill ratios of 0.86x and 1.12x for the three and six months ended June 30, 2018, respectively.
- Clinical Solutions segment awards of
- Combined Company ASC 605 adjusted service revenue of
$797.5 million and$1.56 billion for the three and six months ended June 30, 2018, respectively. - GAAP diluted earnings per share of
$0.13 and loss per share of$0.11 for the three and six months ended June 30, 2018, respectively. - Combined Company ASC 606 adjusted diluted earnings per share of
$0.62 and$1.16 , respectively, compared to$0.75 and$1.33 , respectively, under ASC 605 for the three and six months ended June 30, 2018. - Repaid
$66.3 million and$97.5 million of term loan debt during the three and six months ended June 30, 2018, respectively. - Repurchased
$37.5 million and$75.0 million of common stock during the three and six months ended June 30, 2018, respectively. - Updating full year 2018 ASC 606 and ASC 605 guidance.
“We delivered solid second quarter results, which were in line with our expectations and appropriately mark the one-year anniversary of our transformative merger,” said
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
Three Months Ended June 30, 2018 | Three Months Ended June 30, 2017 |
||||||||||
ASC 606 As Reported |
ASC 605 As Adjusted |
ASC 605 As Reported |
|||||||||
(unaudited, in thousands) | |||||||||||
Service revenue | $ | 1,072,530 | $ | 796,461 | $ | 258,087 | |||||
Reimbursable out-of-pocket expenses | — | 299,445 | 133,048 | ||||||||
Total revenue | 1,072,530 | 1,095,906 | 391,135 | ||||||||
Direct costs (exclusive of depreciation and amortization) | 547,993 | 548,122 | 162,010 | ||||||||
Reimbursable out-of-pocket expenses | 299,472 | 299,445 | 133,048 | ||||||||
Selling, general, and administrative | 100,218 | 100,813 | 42,531 | ||||||||
Restructuring and other costs | 8,591 | 8,591 | 4,029 | ||||||||
Transaction and integration-related expenses | 18,032 | 18,032 | 23,739 | ||||||||
Depreciation | 17,557 | 17,557 | 6,066 | ||||||||
Amortization | 49,945 | 49,945 | 9,462 | ||||||||
Total operating expenses | 1,041,808 | 1,042,505 | 380,885 | ||||||||
Income from operations | $ | 30,722 | $ | 53,401 | $ | 10,250 | |||||
Six Months Ended June 30, 2018 | Six Months Ended June 30, 2017 |
||||||||||
ASC 606 As Reported |
ASC 605 As Adjusted |
ASC 605 As Reported |
|||||||||
(unaudited, in thousands) | |||||||||||
Service revenue | $ | 2,129,726 | $ | 1,556,519 | $ | 510,165 | |||||
Reimbursable out-of-pocket expenses | — | 609,543 | 262,888 | ||||||||
Total revenue | 2,129,726 | 2,166,062 | 773,053 | ||||||||
Direct costs (exclusive of depreciation and amortization) | 1,080,050 | 1,085,010 | 316,845 | ||||||||
Reimbursable out-of-pocket expenses | 608,238 | 609,543 | 262,888 | ||||||||
Selling, general, and administrative | 199,477 | 200,529 | 87,465 | ||||||||
Restructuring and other costs | 22,298 | 22,298 | 5,956 | ||||||||
Transaction and integration-related expenses | 43,243 | 43,243 | 23,741 | ||||||||
Depreciation | 35,585 | 35,585 | 12,230 | ||||||||
Amortization | 99,938 | 99,938 | 18,926 | ||||||||
Total operating expenses | 2,088,829 | 2,096,146 | 728,051 | ||||||||
Income from operations | $ | 40,897 | $ | 69,916 | $ | 45,002 | |||||
Second Quarter and Year-to-Date 2018 Results
GAAP service revenue for the three months ended June 30, 2018 was
Combined Company adjusted service revenue under ASC 605 increased during the three months ended June 30, 2018 by
Under ASC 605, the Combined Company Clinical Solutions segment generated
The Combined Company Commercial Solutions segment generated
GAAP income from operations for the three months ended June 30, 2018 increased by
Combined Company adjusted EBITDA for the three and six months ended June 30, 2018 under ASC 605 increased to
GAAP net income for the three months ended June 30, 2018 was
Under ASC 605, net new business awards were
Capital Management Update
As part of the Company's balanced approach to capital deployment, during the three and six months ended June 30, 2018, the Company repaid
The Company also paid
On
Full Year 2018 Business Outlook
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 guidance is based on current foreign currency exchange rates, current interest rates following the Company's repricing, accounts receivable securitization and interest rate swap transactions, and expected tax rate. The guidance is based upon the Company's estimated diluted share count, excluding any share repurchases subsequent to the second quarter of 2018. Guidance for the full year of 2018 is outlined below and has been prepared under both the new revenue recognition requirements of ASC 606 and the previous revenue recognition requirements of ASC 605:
ASC 605 Guidance Issued: |
ASC 606 Guidance Issued: |
||||||||||||||||||||||||||||||
May 9, 2018 | August 2, 2018 | May 9, 2018 | August 2, 2018 | ||||||||||||||||||||||||||||
Low | High | Low | High | Low | High | Low | High | ||||||||||||||||||||||||
(in millions, except per share data) | |||||||||||||||||||||||||||||||
Adjusted service revenue | $ | 3,235 | $ | 3,340 | $ | 3,235 | $ | 3,340 | $ | 4,400 | $ | 4,550 | $ | 4,400 | $ | 4,550 | |||||||||||||||
Clinical Solutions adjusted service revenue | 2,245 | 2,300 | 2,245 | 2,300 | 3,250 | 3,350 | 3,250 | 3,350 | |||||||||||||||||||||||
Commercial Solutions adjusted service revenue | 990 | 1,040 | 990 | 1,040 | 1,150 | 1,200 | 1,150 | 1,200 | |||||||||||||||||||||||
Adjusted EBITDA | 620 | 660 | 620 | 660 | 580 | 620 | 580 | 620 | |||||||||||||||||||||||
Adjusted net income | 295 | 324 | 298 | 326 | 266 | 295 | 268 | 297 | |||||||||||||||||||||||
Adjusted diluted EPS | $ | 2.80 | $ | 3.07 | $ | 2.84 | $ | 3.10 | $ | 2.52 | $ | 2.80 | $ | 2.55 | $ | 2.83 | |||||||||||||||
The Company anticipates that its 2018 effective tax rate will be between 27.0% and 28.0%, which takes into account the effect of the enactment of the Tax Cuts and Jobs Act (the "Tax Act"). The Company continues to expect to pay minimal cash taxes in the U.S. for 2018 due to the utilization of its net operating loss carryforwards.
Important disclosures in this earnings release about and reconciliations of non-GAAP measures, including Combined Company non-GAAP measures related to adjusted service revenue, adjusted income from operations, adjusted operating margin, adjusted net income, adjusted diluted earnings per share, EBITDA, and adjusted EBITDA, 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
An archived replay of the conference call is expected to be available online at investor.syneoshealth.com after 1:00 p.m. ET on August 2, 2018. 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
About
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. 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: 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; 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; the impact of adoption of the new accounting standard of recognizing revenue from customers; the impact of the Tax Act; the Company's ability to adequately price its contracts and not overrun cost estimates; general and international economic, political, and other risks, including currency and stock market fluctuations and the uncertain economic environment; fluctuations in the Company's financial results; reliance on key personnel; customer or therapeutic area concentration; and the other risk factors set forth in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and other
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 Combined Company and Combined Segment non-GAAP financial measures, including adjusted service revenue, adjusted income from operations, adjusted operating margin, adjusted net income (including adjusted diluted earnings per share), EBITDA, and adjusted EBITDA, as well as current year metrics as if ASC 605 was still in effect. 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. To aid investors and analysts with year-over-year comparability for the merged business, the Company has included "Combined Company" financial information that combines certain stand-alone
The Company defines Combined Company adjusted service revenue as the stand-alone
The Company defines Combined Company adjusted income from operations as income from operations excluding expenses and transactions that the Company believes are not representative of its core operations, namely: acquisition-related deferred revenue adjustments; acquisition-related amortization; restructuring and other costs; transaction and integration-related expenses; share-based compensation expense; discretionary bonus accrual reversals; R&D tax credit adjustments; monitoring and advisory fees; and acquisition-related revaluation adjustments. The Company defines Combined Company adjusted operating margin as adjusted income from operations as a percentage of adjusted service revenue.
The Company defines Combined Company adjusted net income (including adjusted diluted earnings per share) as net income (including diluted earnings per share) excluding the items excluded from adjusted income from operations mentioned previously, loss on extinguishment of debt, 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.
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; 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. 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 income from operations, adjusted operating margin, and adjusted net income (including adjusted diluted earnings per share) are used by management and the Board to assess 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 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 |
GAAP Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Service revenue | $ | 1,072,530 | $ | 258,087 | $ | 2,129,726 | $ | 510,165 | |||||||
Reimbursable out-of-pocket expenses | — | 133,048 | — | 262,888 | |||||||||||
Total revenue | 1,072,530 | 391,135 | 2,129,726 | 773,053 | |||||||||||
Costs and operating expenses: | |||||||||||||||
Direct costs (exclusive of depreciation and amortization) | 547,993 | 162,010 | 1,080,050 | 316,845 | |||||||||||
Reimbursable out-of-pocket expenses | 299,472 | 133,048 | 608,238 | 262,888 | |||||||||||
Selling, general, and administrative | 100,218 | 42,531 | 199,477 | 87,465 | |||||||||||
Restructuring and other costs | 8,591 | 4,029 | 22,298 | 5,956 | |||||||||||
Transaction and integration-related expenses | 18,032 | 23,739 | 43,243 | 23,741 | |||||||||||
Depreciation | 17,557 | 6,066 | 35,585 | 12,230 | |||||||||||
Amortization | 49,945 | 9,462 | 99,938 | 18,926 | |||||||||||
Total operating expenses | 1,041,808 | 380,885 | 2,088,829 | 728,051 | |||||||||||
Income from operations | 30,722 | 10,250 | 40,897 | 45,002 | |||||||||||
Other (expense) income, net: | |||||||||||||||
Interest income | 1,655 | 152 | 2,494 | 264 | |||||||||||
Interest expense | (32,894 | ) | (3,286 | ) | (64,630 | ) | (6,386 | ) | |||||||
Loss on extinguishment of debt | (1,877 | ) | — | (2,125 | ) | — | |||||||||
Other income (expense), net | 32,001 | (6,754 | ) | 19,447 | (10,211 | ) | |||||||||
Total other expense, net | (1,115 | ) | (9,888 | ) | (44,814 | ) | (16,333 | ) | |||||||
Income (loss) before provision for income taxes | 29,607 | 362 | (3,917 | ) | 28,669 | ||||||||||
Income tax (expense) benefit | (16,047 | ) | 3,027 | (7,075 | ) | (4,093 | ) | ||||||||
Net income (loss) | $ | 13,560 | $ | 3,389 | $ | (10,992 | ) | $ | 24,576 | ||||||
Earnings (loss) per share: | |||||||||||||||
Basic | $ | 0.13 | $ | 0.06 | $ | (0.11 | ) | $ | 0.45 | ||||||
Diluted | $ | 0.13 | $ | 0.06 | $ | (0.11 | ) | $ | 0.45 | ||||||
Weighted average common shares outstanding: | |||||||||||||||
Basic | 102,899 | 54,123 | 103,674 | 54,069 | |||||||||||
Diluted | 104,005 | 55,307 | 103,674 | 55,215 | |||||||||||
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(unaudited)
June 30, 2018 | December 31, 2017 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 171,528 | $ | 321,262 | |||
Restricted cash | 2,191 | 714 | |||||
Accounts receivable billed, net | 682,415 | 642,985 | |||||
Accounts receivable unbilled | 346,608 | 373,003 | |||||
Contract assets | 131,367 | — | |||||
Prepaid expenses and other current assets | 82,964 | 84,215 | |||||
Total current assets | 1,417,073 | 1,422,179 | |||||
Property and equipment, net | 163,500 | 180,412 | |||||
Goodwill | 4,275,485 | 4,292,571 | |||||
Intangible assets, net | 1,182,571 | 1,286,050 | |||||
Deferred income tax assets | 32,813 | 20,159 | |||||
Other long-term assets | 101,758 | 84,496 | |||||
Total assets | $ | 7,173,200 | $ | 7,285,867 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 85,810 | $ | 58,575 | |||
Accrued liabilities | 502,646 | 500,303 | |||||
Contract liabilities | 719,932 | 559,270 | |||||
Current portion of capital lease obligations | 15,201 | 16,414 | |||||
Current portion of long-term debt | 37,500 | 25,000 | |||||
Total current liabilities | 1,361,089 | 1,159,562 | |||||
Capital lease obligations, non-current | 13,241 | 20,376 | |||||
Long-term debt, non-current | 2,835,321 | 2,945,934 | |||||
Deferred income tax liabilities | 32,557 | 37,807 | |||||
Other long-term liabilities | 108,320 | 99,609 | |||||
Total liabilities | 4,350,528 | 4,263,288 | |||||
Commitments and contingencies | |||||||
Shareholders' equity: | |||||||
Preferred stock, $0.01 par value; 30,000,000 shares authorized, 0 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively |
— | — | |||||
Common stock, $0.01 par value; 600,000,000 shares authorized, 102,871,399 and 104,435,501 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively |
1,029 | 1,044 | |||||
Additional paid-in capital | 3,371,316 | 3,414,389 | |||||
Accumulated other comprehensive loss, net of tax | (55,064 | ) | (22,385 | ) | |||
Accumulated deficit | (494,609 | ) | (370,469 | ) | |||
Total shareholders' equity | 2,822,672 | 3,022,579 | |||||
Total liabilities and shareholders' equity | $ | 7,173,200 | $ | 7,285,867 | |||
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Ended June 30, |
|||||||
2018 | 2017 | ||||||
Cash flows from operating activities: | |||||||
Net (loss) income | $ | (10,992 | ) | $ | 24,576 | ||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 135,523 | 31,156 | |||||
Amortization of capitalized loan fees and original issue discount, net of Senior Notes premium | (32 | ) | 402 | ||||
Share-based compensation | 16,254 | 12,048 | |||||
(Recovery of) provision for doubtful accounts | (1,734 | ) | 158 | ||||
Benefit from deferred income taxes | (7,682 | ) | (9,081 | ) | |||
Foreign currency transaction adjustments | (19,633 | ) | 5,882 | ||||
Fair value adjustment of contingent tax-sharing obligation | 2,388 | — | |||||
Loss on extinguishment of debt | 2,125 | — | |||||
Other non-cash items | 4,056 | 700 | |||||
Changes in operating assets and liabilities, net of effect of business combinations: | |||||||
Accounts receivable, unbilled services, and advanced billings | (68,629 | ) | 31,868 | ||||
Accounts payable and accrued expenses | (3,269 | ) | 8,694 | ||||
Other assets and liabilities | 16,799 | (7,977 | ) | ||||
Net cash provided by operating activities | 65,174 | 98,426 | |||||
Cash flows from investing activities: | |||||||
Purchases of property and equipment | (32,586 | ) | (15,974 | ) | |||
Net cash used in investing activities | (32,586 | ) | (15,974 | ) | |||
Cash flows from financing activities: | |||||||
Payments of debt financing costs | (3,421 | ) | — | ||||
Repayments of long-term debt | (97,500 | ) | — | ||||
Proceeds from revolving line of credit | — | 15,000 | |||||
Repayments of revolving line of credit | — | (40,000 | ) | ||||
Payments of capital leases | (8,863 | ) | — | ||||
Payments for repurchase of common stock | (74,985 | ) | — | ||||
Proceeds from exercise of stock options | 7,458 | 6,251 | |||||
Payments related to tax withholding for share-based compensation | (2,383 | ) | (1,179 | ) | |||
Net cash used in financing activities | (179,694 | ) | (19,928 | ) | |||
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (1,151 | ) | 4,688 | ||||
Net change in cash, cash equivalents, and restricted cash | (148,257 | ) | 67,212 | ||||
Cash, cash equivalents, and restricted cash - beginning of period | 321,976 | 103,078 | |||||
Cash, cash equivalents, and restricted cash - end of period | $ | 173,719 | $ | 170,290 | |||
Reconciliation of GAAP to Combined Company Non-GAAP Measures
(in thousands)
(unaudited)
Three Months Ended June 30, | |||||||||||||||
2018 | 2018 | 2018 | 2017 | ||||||||||||
ASC 606 | ASC 605 | ||||||||||||||
As Reported | Adjustment | As Adjusted | As Reported | ||||||||||||
Combined Company adjusted service revenue: | |||||||||||||||
Service revenue, as reported | $ | 1,072,530 | $ | (276,069 | ) | $ | 796,461 | $ | 258,087 | ||||||
Pre-merger inVentiv service revenue | — | — | — | 514,947 | |||||||||||
Combined Company service revenue, before adjustments | 1,072,530 | (276,069 | ) | 796,461 | 773,034 | ||||||||||
Acquisition-related deferred revenue adjustment (a) | 3,800 | (2,739 | ) | 1,061 | 6,056 | ||||||||||
Combined Company adjusted service revenue | 1,076,330 | (278,808 | ) | 797,522 | 779,090 | ||||||||||
Reimbursable out-of-pocket expenses, as reported | — | 299,445 | 299,445 | 133,048 | |||||||||||
Pre-merger inVentiv reimbursable out-of-pocket expenses | — | — | — | 148,266 | |||||||||||
Combined Company adjusted total revenue | $ | 1,076,330 | $ | 20,637 | $ | 1,096,967 | $ | 1,060,404 | |||||||
Combined Company segment adjusted service revenue: | |||||||||||||||
Clinical Solutions service revenue, as reported | $ | 783,913 | $ | (226,937 | ) | $ | 556,976 | $ | 255,504 | ||||||
Pre-merger inVentiv Clinical Solutions service revenue | — | — | — | 265,188 | |||||||||||
Combined Company Clinical Solutions service revenue, before adjustments | 783,913 | (226,937 | ) | 556,976 | 520,692 | ||||||||||
Acquisition-related deferred revenue adjustment (a) | 3,393 | (2,739 | ) | 654 | 5,537 | ||||||||||
Combined Company Clinical Solutions adjusted service revenue | 787,306 | (229,676 | ) | 557,630 | 526,229 | ||||||||||
Clinical Solutions reimbursable out-of-pocket expenses, as reported | — | 251,917 | 251,917 | 133,048 | |||||||||||
Pre-merger inVentiv Clinical Solutions reimbursable out-of-pocket expenses | — | — | — | 96,933 | |||||||||||
Combined Company Clinical Solutions total revenue | $ | 787,306 | $ | 22,241 | $ | 809,547 | $ | 756,210 | |||||||
Commercial Solutions service revenue, as reported | $ | 288,617 | $ | (49,132 | ) | $ | 239,485 | $ | 2,583 | ||||||
Pre-merger inVentiv Commercial Solutions service revenue | — | — | — | 249,759 | |||||||||||
Combined Company Commercial Solutions service revenue, before adjustments | 288,617 | (49,132 | ) | 239,485 | 252,342 | ||||||||||
Acquisition-related deferred revenue adjustment (a) | 407 | — | 407 | 519 | |||||||||||
Combined Company Commercial Solutions adjusted service revenue | 289,024 | $ | (49,132 | ) | $ | 239,892 | $ | 252,861 | |||||||
Commercial Solutions reimbursable out-of-pocket expenses, as reported | — | 47,528 | 47,528 | — | |||||||||||
Pre-merger inVentiv Commercial Solutions reimbursable out-of-pocket expenses | — | — | — | 51,333 | |||||||||||
Combined Company Commercial Solutions total revenue | $ | 289,024 | $ | (1,604 | ) | $ | 287,420 | $ | 304,194 | ||||||
Reconciliation of GAAP to Combined Company Non-GAAP Measures (Continued)
(in thousands, except per share data)
(unaudited)
Six Months Ended June 30, | |||||||||||||||
2018 | 2018 | 2018 | 2017 | ||||||||||||
ASC 606 | ASC 605 | ||||||||||||||
As Reported | Adjustment | As Adjusted | As Reported | ||||||||||||
Combined Company adjusted service revenue: | |||||||||||||||
Service revenue, as reported | $ | 2,129,726 | $ | (573,207 | ) | $ | 1,556,519 | $ | 510,165 | ||||||
Pre-merger inVentiv service revenue | — | — | — | 1,041,002 | |||||||||||
Combined Company service revenue, before adjustments | 2,129,726 | (573,207 | ) | 1,556,519 | 1,551,167 | ||||||||||
Acquisition-related deferred revenue adjustment (a) | 7,606 | (5,086 | ) | 2,520 | 13,816 | ||||||||||
Combined Company adjusted service revenue | 2,137,332 | (578,293 | ) | 1,559,039 | 1,564,983 | ||||||||||
Reimbursable out-of-pocket expenses, as reported | — | 609,543 | 609,543 | 262,888 | |||||||||||
Pre-merger inVentiv reimbursable out-of-pocket expenses | — | — | — | 305,256 | |||||||||||
Combined Company adjusted total revenue | $ | 2,137,332 | $ | 31,250 | $ | 2,168,582 | $ | 2,133,127 | |||||||
Combined Company segment adjusted service revenue: | |||||||||||||||
Clinical Solutions service revenue, as reported | $ | 1,570,752 | $ | (483,945 | ) | $ | 1,086,807 | $ | 505,001 | ||||||
Pre-merger inVentiv Clinical Solutions service revenue | — | — | — | 528,073 | |||||||||||
Combined Company Clinical Solutions service revenue, before adjustments | 1,570,752 | (483,945 | ) | 1,086,807 | 1,033,074 | ||||||||||
Acquisition-related deferred revenue adjustment (a) | 6,792 | (5,086 | ) | 1,706 | 12,276 | ||||||||||
Combined Company Clinical Solutions adjusted service revenue | 1,577,544 | (489,031 | ) | 1,088,513 | 1,045,350 | ||||||||||
Clinical Solutions reimbursable out-of-pocket expenses, as reported | — | 513,395 | 513,395 | 262,888 | |||||||||||
Pre-merger inVentiv Clinical Solutions reimbursable out-of-pocket expenses | — | — | — | 192,668 | |||||||||||
Combined Company Clinical Solutions total revenue | $ | 1,577,544 | $ | 24,364 | $ | 1,601,908 | $ | 1,500,906 | |||||||
Commercial Solutions service revenue, as reported | $ | 558,974 | $ | (89,262 | ) | $ | 469,712 | $ | 5,164 | ||||||
Pre-merger inVentiv Commercial Solutions service revenue | — | — | — | 512,929 | |||||||||||
Combined Company Commercial Solutions service revenue, before adjustments | 558,974 | (89,262 | ) | 469,712 | 518,093 | ||||||||||
Acquisition-related deferred revenue adjustment (a) | 814 | — | 814 | 1,540 | |||||||||||
Combined Company Commercial Solutions adjusted service revenue | 559,788 | $ | (89,262 | ) | $ | 470,526 | $ | 519,633 | |||||||
Commercial Solutions reimbursable out-of-pocket expenses, as reported | — | 96,148 | 96,148 | — | |||||||||||
Pre-merger inVentiv Commercial Solutions reimbursable out-of-pocket expenses | — | — | — | 112,588 | |||||||||||
Combined Company Commercial Solutions total revenue | $ | 559,788 | $ | 6,886 | $ | 566,674 | $ | 632,221 | |||||||
Reconciliation of GAAP to Combined Company Non-GAAP Measures (Continued)
(in thousands, except per share data)
unaudited)
Three Months Ended June 30, | |||||||||||||||
2018 | 2018 | 2018 | 2017 | ||||||||||||
ASC 606 | ASC 605 | ||||||||||||||
As Reported | Adjustment | As Adjusted | As Reported | ||||||||||||
Combined Company adjusted income from operations: | |||||||||||||||
Income from operations, as reported | $ | 30,722 | $ | 22,679 | $ | 53,401 | $ | 10,250 | |||||||
Pre-merger inVentiv loss from operations | — | — | — | (13,770 | ) | ||||||||||
Combined Company income (loss) from operations, before adjustments | 30,722 | 22,679 | 53,401 | (3,520 | ) | ||||||||||
Acquisition-related deferred revenue adjustment (a) | 3,800 | (2,739 | ) | 1,061 | 6,056 | ||||||||||
Amortization (b) | 49,945 | — | 49,945 | 68,316 | |||||||||||
Restructuring and other costs (c) | 8,591 | — | 8,591 | 9,430 | |||||||||||
Transaction and integration-related expenses (d) | 18,032 | — | 18,032 | 32,283 | |||||||||||
Share-based compensation (e) | 8,375 | — | 8,375 | 11,534 | |||||||||||
R&D tax credit adjustment (g) | — | — | — | (5,827 | ) | ||||||||||
Monitoring and advisory fees (h) | — | — | — | 1,078 | |||||||||||
Acquisition-related revaluation adjustments (i) | — | — | — | 796 | |||||||||||
Combined Company adjusted income from operations | $ | 119,465 | $ | 19,940 | $ | 139,405 | $ | 120,146 | |||||||
GAAP operating margin | 2.9 | % | 6.7 | % | 4.0 | % | |||||||||
Combined Company adjusted operating margin | 11.1 | % | 17.5 | % | 15.4 | % | |||||||||
Combined Company EBITDA and adjusted EBITDA: | |||||||||||||||
Net income, as reported | $ | 13,560 | $ | 17,173 | $ | 30,733 | $ | 3,389 | |||||||
Pre-merger inVentiv net loss | — | — | — | (38,789 | ) | ||||||||||
Combined Company net income (loss), before adjustments | 13,560 | 17,173 | 30,733 | (35,400 | ) | ||||||||||
Interest expense, net | 31,239 | — | 31,239 | 39,672 | |||||||||||
Income tax expense (benefit) | 16,047 | 5,506 | 21,553 | (16,944 | ) | ||||||||||
Depreciation | 17,557 | — | 17,557 | 18,608 | |||||||||||
Amortization (b) | 49,945 | — | 49,945 | 68,316 | |||||||||||
EBITDA | 128,348 | 22,679 | 151,027 | 74,252 | |||||||||||
Acquisition-related deferred revenue adjustment (a) | 3,800 | (2,739 | ) | 1,061 | 6,056 | ||||||||||
Restructuring and other costs (c) | 8,591 | — | 8,591 | 9,430 | |||||||||||
Transaction and integration-related expenses (d) | 18,032 | — | 18,032 | 32,283 | |||||||||||
Share-based compensation (e) | 8,375 | — | 8,375 | 11,534 | |||||||||||
R&D tax credit adjustment (g) | — | — | — | (5,827 | ) | ||||||||||
Monitoring and advisory fees (h) | — | — | — | 1,078 | |||||||||||
Acquisition-related revaluation adjustments (i) | — | — | — | 796 | |||||||||||
Other (income) expense, net (j) | (32,001 | ) | — | (32,001 | ) | 9,152 | |||||||||
Loss on extinguishment of debt (k) | 1,877 | — | 1,877 | — | |||||||||||
Combined Company adjusted EBITDA | $ | 137,022 | $ | 19,940 | $ | 156,962 | $ | 138,754 | |||||||
Adjusted EBITDA Margin | 12.7 | % | 19.7 | % | 17.8 | % | |||||||||
Reconciliation of GAAP to Combined Company Non-GAAP Measures (Continued)
(in thousands, except per share data)
(unaudited)
Six Months Ended June 30, | |||||||||||||||
2018 | 2018 | 2018 | 2017 | ||||||||||||
ASC 606 | ASC 605 | ||||||||||||||
As Reported | Adjustment | As Adjusted | As Reported | ||||||||||||
Combined Company adjusted income from operations: | |||||||||||||||
Income from operations, as reported | $ | 40,897 | $ | 29,019 | $ | 69,916 | $ | 45,002 | |||||||
Pre-merger inVentiv loss from operations | — | — | — | (28,185 | ) | ||||||||||
Combined Company income from operations, before adjustments | 40,897 | 29,019 | 69,916 | 16,817 | |||||||||||
Acquisition-related deferred revenue adjustment (a) | 7,606 | (5,086 | ) | 2,520 | 13,816 | ||||||||||
Amortization (b) | 99,938 | — | 99,938 | 147,449 | |||||||||||
Restructuring and other costs (c) | 22,298 | — | 22,298 | 15,847 | |||||||||||
Transaction and integration-related expenses (d) | 43,243 | — | 43,243 | 32,856 | |||||||||||
Share-based compensation (e) | 16,163 | — | 16,163 | 22,697 | |||||||||||
Discretionary bonus accrual reversal (f) | — | — | — | (5,953 | ) | ||||||||||
R&D tax credit adjustment (g) | — | — | — | (6,030 | ) | ||||||||||
Monitoring and advisory fees (h) | — | — | — | 6,510 | |||||||||||
Acquisition-related revaluation adjustments (i) | — | — | — | 2,019 | |||||||||||
Combined Company adjusted income from operations | $ | 230,145 | $ | 23,933 | $ | 254,078 | $ | 246,028 | |||||||
GAAP operating margin | 1.9 | % | 4.5 | % | 8.8 | % | |||||||||
Combined Company adjusted operating margin | 10.8 | % | 16.3 | % | 15.7 | % | |||||||||
Combined Company EBITDA and adjusted EBITDA: | |||||||||||||||
Net (loss) income, as reported | $ | (10,992 | ) | $ | 22,718 | $ | 11,726 | $ | 24,576 | ||||||
Pre-merger inVentiv net loss | — | — | — | (79,505 | ) | ||||||||||
Combined Company net (loss) income, before adjustments | (10,992 | ) | 22,718 | 11,726 | (54,929 | ) | |||||||||
Interest expense, net | 62,136 | — | 62,136 | 80,406 | |||||||||||
Income tax expense (benefit) | 7,075 | 6,301 | 13,376 | (24,476 | ) | ||||||||||
Depreciation | 35,585 | — | 35,585 | 39,575 | |||||||||||
Amortization (b) | 99,938 | — | 99,938 | 147,449 | |||||||||||
EBITDA | 193,742 | 29,019 | 222,761 | 188,025 | |||||||||||
Acquisition-related deferred revenue adjustment (a) | 7,606 | (5,086 | ) | 2,520 | 13,816 | ||||||||||
Restructuring and other costs (c) | 22,298 | — | 22,298 | 15,847 | |||||||||||
Transaction and integration-related expenses (d) | 43,243 | — | 43,243 | 32,856 | |||||||||||
Share-based compensation (e) | 16,163 | — | 16,163 | 22,697 | |||||||||||
Discretionary bonus accrual reversal (f) | — | — | — | (5,953 | ) | ||||||||||
R&D tax credit adjustment (g) | — | — | — | (6,030 | ) | ||||||||||
Monitoring and advisory fees (h) | — | — | — | 6,510 | |||||||||||
Acquisition-related revaluation adjustments (i) | — | — | — | 2,019 | |||||||||||
Other (income) expense, net (j) | (19,447 | ) | — | (19,447 | ) | 15,816 | |||||||||
Loss on extinguishment of debt (k) | 2,125 | — | 2,125 | — | |||||||||||
Combined Company adjusted EBITDA | $ | 265,730 | $ | 23,933 | $ | 289,663 | $ | 285,603 | |||||||
Adjusted EBITDA Margin | 12.4 | % | 18.6 | % | 18.2 | % | |||||||||
Reconciliation of GAAP to Combined Company Non-GAAP Measures (Continued)
(in thousands, except per share data)
(unaudited)
Three Months Ended June 30, | |||||||||||||||
2018 | 2018 | 2018 | 2017 | ||||||||||||
ASC 606 | ASC 605 | ||||||||||||||
As Reported | Adjustment | As Adjusted | As Reported | ||||||||||||
Combined Company adjusted net income: | |||||||||||||||
Net income, as reported | $ | 13,560 | $ | 17,173 | $ | 30,733 | $ | 3,389 | |||||||
Pre-merger inVentiv net loss | — | — | — | (38,789 | ) | ||||||||||
Combined Company net income (loss), before adjustments | 13,560 | 17,173 | 30,733 | (35,400 | ) | ||||||||||
Acquisition-related deferred revenue adjustment (a) | 3,800 | (2,739 | ) | 1,061 | 6,056 | ||||||||||
Amortization (b) | 49,945 | — | 49,945 | 68,316 | |||||||||||
Restructuring and other costs (c) | 8,591 | — | 8,591 | 9,430 | |||||||||||
Transaction and integration-related expenses (d) | 18,032 | — | 18,032 | 32,283 | |||||||||||
Share-based compensation (e) | 8,375 | — | 8,375 | 11,534 | |||||||||||
R&D tax credit adjustment (g) | — | — | — | (5,827 | ) | ||||||||||
Monitoring and advisory fees (h) | — | — | — | 1,078 | |||||||||||
Acquisition-related revaluation adjustments (i) | — | — | — | 796 | |||||||||||
Other (income) expense, net (j) | (32,001 | ) | — | (32,001 | ) | 9,152 | |||||||||
Loss on extinguishment of debt (k) | 1,877 | — | 1,877 | — | |||||||||||
Income tax adjustment to normalized rate (l) | (8,215 | ) | 22 | (8,193 | ) | (45,110 | ) | ||||||||
Combined Company adjusted net income | $ | 63,964 | $ | 14,456 | $ | 78,420 | $ | 52,308 | |||||||
Combined Company diluted weighted average common shares outstanding: | |||||||||||||||
Diluted weighted average common shares outstanding, as reported | 104,005 | — | 104,005 | 55,307 | |||||||||||
Effect of certain securities considered anti-dilutive under GAAP (m) | — | — | — | — | |||||||||||
Estimated additional dilutive shares outstanding as a result of the Merger (n) | — | — | — | 49,927 | |||||||||||
Combined Company diluted weighted average common shares outstanding | 104,005 | — | 104,005 | 105,234 | |||||||||||
Adjusted diluted earnings per share | $ | 0.62 | $ | 0.75 | $ | 0.50 | |||||||||
Reconciliation of GAAP to Combined Company Non-GAAP Measures (Continued)
(in thousands, except per share data)
(unaudited)
Six Months Ended June 30, | |||||||||||||||
2018 | 2018 | 2018 | 2017 | ||||||||||||
ASC 606 | ASC 605 | ||||||||||||||
As Reported | Adjustment | As Adjusted | As Reported | ||||||||||||
Combined Company adjusted net income: | |||||||||||||||
Net (loss) income, as reported | $ | (10,992 | ) | $ | 22,718 | $ | 11,726 | $ | 24,576 | ||||||
Pre-merger inVentiv net loss | — | — | — | (79,505 | ) | ||||||||||
Combined Company net (loss) income, before adjustments | (10,992 | ) | 22,718 | 11,726 | (54,929 | ) | |||||||||
Acquisition-related deferred revenue adjustment (a) | 7,606 | (5,086 | ) | 2,520 | 13,816 | ||||||||||
Amortization (b) | 99,938 | — | 99,938 | 147,449 | |||||||||||
Restructuring and other costs (c) | 22,298 | — | 22,298 | 15,847 | |||||||||||
Transaction and integration-related expenses (d) | 43,243 | — | 43,243 | 32,856 | |||||||||||
Share-based compensation (e) | 16,163 | — | 16,163 | 22,697 | |||||||||||
Discretionary bonus accrual reversal (f) | — | — | — | (5,953 | ) | ||||||||||
R&D tax credit adjustment (g) | — | — | — | (6,030 | ) | ||||||||||
Monitoring and advisory fees (h) | — | — | — | 6,510 | |||||||||||
Acquisition-related revaluation adjustments (i) | — | — | — | 2,019 | |||||||||||
Other (income) expense, net (j) | (19,447 | ) | — | (19,447 | ) | 15,816 | |||||||||
Loss on extinguishment of debt (k) | 2,125 | — | 2,125 | — | |||||||||||
Income tax adjustment to normalized rate (l) | (39,127 | ) | (281 | ) | (39,408 | ) | (82,441 | ) | |||||||
Combined Company adjusted net income | $ | 121,807 | $ | 17,351 | $ | 139,158 | $ | 107,657 | |||||||
Combined Company diluted weighted average common shares outstanding: | |||||||||||||||
Diluted weighted average common shares outstanding, as reported | 103,674 | 1,002 | 104,676 | 55,215 | |||||||||||
Effect of certain securities considered anti-dilutive under GAAP (m) | 1,002 | — | — | — | |||||||||||
Estimated additional dilutive shares outstanding as a result of the Merger (n) | — | — | — | 49,927 | |||||||||||
Combined Company diluted weighted average common shares outstanding | 104,676 | 1,002 | 104,676 | 105,142 | |||||||||||
Adjusted diluted earnings per share | $ | 1.16 | $ | 1.33 | $ | 1.02 | |||||||||
- 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.
- Represents the amortization of intangible assets associated with acquired customer relationships, backlog, and trademarks.
- 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.
- Represents fees associated with corporate transactions and integration-related activities which primarily relate to the Merger in 2017.
- Represents non-cash share-based compensation expense related to awards granted under equity incentive plans.
- Represents inVentiv Health discretionary bonus accruals from the prior year that were reversed in periods prior to the Merger.
- Represents additional research and development tax credits in certain international locations for expenses incurred and recorded as a reduction of direct costs.
- Represents the annual sponsor management fee previously paid pursuant to the THL and Advent Management Agreement with inVentiv Health.
- 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.
- Represents other (income) expense comprised primarily of foreign exchange gains and losses.
- Represents loss on extinguishment of debt associated with the debt prepayment.
- 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 27.5% in 2018 and 35.0% in 2017. These rates have been adjusted to exclude tax impacts related to valuation allowances recorded against deferred tax assets.
- 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.
- 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 onAugust 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.
Reconciliation of GAAP to Non-GAAP Full Year 2018 Guidance
(in millions, except per share data)
(unaudited)
Full Year 2018 - ASC 605 | Full Year 2018 - ASC 606 | ||||||||||||||||||||||||||||||
Adjusted Net Income |
Adjusted Diluted Earnings Per Share |
Adjusted Net Income |
Adjusted Diluted Earnings Per Share |
||||||||||||||||||||||||||||
Low | High | Low | High | Low | High | Low | High | ||||||||||||||||||||||||
GAAP net income and diluted earnings per share | $ | 49.3 | $ | 75.7 | $ | 0.47 | $ | 0.72 | $ | 17.8 | $ | 46.8 | $ | 0.17 | $ | 0.45 | |||||||||||||||
Adjustments: | |||||||||||||||||||||||||||||||
Amortization (a) | 200.0 | 200.0 | 200.0 | 200.0 | |||||||||||||||||||||||||||
Share-based compensation (a) | 39.0 | 39.0 | 39.0 | 39.0 | |||||||||||||||||||||||||||
Restructuring and other costs (a) | 41.0 | 41.0 | 41.0 | 41.0 | |||||||||||||||||||||||||||
Transaction and integration-related expenses (a) | 48.0 | 48.0 | 48.0 | 48.0 | |||||||||||||||||||||||||||
Merger-related deferred revenue adjustment (a) | 3.0 | 3.0 | 13.5 | 13.5 | |||||||||||||||||||||||||||
Other (a) | 6.5 | 6.5 | 6.5 | 6.5 | |||||||||||||||||||||||||||
Income tax effect of above adjustments (b) | (88.8 | ) | (87.2 | ) | (97.8 | ) | (97.8 | ) | |||||||||||||||||||||||
Adjusted net income and adjusted diluted earnings per share | $ | 298.0 | $ | 326.0 | $ | 2.84 | $ | 3.10 | $ | 268.0 | $ | 297.0 | $ | 2.55 | $ | 2.83 |
- Amounts are estimates with an estimated range of +/- 5% and are presented gross without the benefit of associated income tax deduction.
- Income tax expense is calculated and the adjustments are tax-affected at an approximate rate of 27% - 28%, 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.
Source: Syneos Health