Syneos Health Reports Second Quarter 2018 Results

August 2, 2018

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.

  • 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.

RALEIGH, N.C., Aug. 02, 2018 (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 second quarter and six months ended June 30, 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 that represent combined financial information of INC Research and inVentiv Health as if the Merger had taken place on January 1, 2017, with conforming adjustments to the current year presentation. 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 measure.

“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 Alistair Macdonald, Chief Executive Officer of Syneos Health. “During the quarter, we successfully leveraged our collaborative cross-selling capabilities to achieve record net awards and revenue in our Clinical business, and achieved the first quarter of sequential quarterly growth in our Commercial business since the closing of the merger. We had significant wins across both SMID and large customers, including a large end-to-end deal, which further validates the relevance of our integrated business model. We believe we are poised to capitalize on our robust pipeline and generate strong results in the second half of the year while continuing to build our unique biopharmaceutical solutions organization.”

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 following schedule includes a comparison of the second quarter and year-to-date 2018 financial results as reported compared to results presented as if the previous accounting guidance (ASC 605) had been in effect. The adoption of ASC 606 lowered the Company's total revenue and income from operations, and had no impact on its cash flows from operations.

   
  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 $1.07 billion, an increase of $814.4 million, or 315.6%, compared to $258.1 million in the same period of 2017. GAAP service revenue for the six months ended June 30, 2018 was $2.13 billion, an increase of $1.62 billion, or 317.5%, compared to $510.2 million in the same period of 2017. Excluding reimbursable revenue of $299.5 million and $608.2 million for the three and six months ended June 30, 2018, respectively, the service revenue increase was primarily due to the Merger with inVentiv Health in August 2017.

Combined Company adjusted service revenue under ASC 605 increased during the three months ended June 30, 2018 by $18.4 million, or 2.4%, to $797.5 million from $779.1 million during the three months ended June 30, 2017. The increase was primarily due to revenue growth in the Company's Clinical Solutions segment and a foreign currency exchange rate benefit of $5.9 million, partially offset by a decline in revenue from the Company's Commercial Solutions segment. Combined Company adjusted service revenue under ASC 605 decreased during the six months ended June 30, 2018 by $5.9 million, or 0.4%, to $1,559.0 million from $1,565.0 million during the six months ended June 30, 2017. The decrease was primarily due to project cancellations and customer downsizing within the Company's Commercial Solutions segment, partially offset by growth in the Company's Clinical Solutions segment and a foreign currency exchange benefit of $17.0 million.

Under ASC 605, the Combined Company Clinical Solutions segment generated $557.6 million of adjusted service revenue during the three months ended June 30, 2018, representing an increase of $31.4 million or 6.0%, compared to $526.2 million during the three months ended June 30, 2017. Under ASC 605, the Combined Company Clinical Solutions segment generated $1.09 billion of adjusted service revenue during the six months ended June 30, 2018, representing an increase of $43.2 million, or 4.1%, compared to $1.05 billion during the six months ended June 30, 2017. These increases were primarily due to revenue from strong net awards in the last 12 months and a favorable revenue mix.

The Combined Company Commercial Solutions segment generated $239.9 million of adjusted service revenue under ASC 605 during the three months ended June 30, 2018, a decrease of $13.0 million, or 5.1%, compared to $252.9 million during the three months ended June 30, 2017. The Combined Company Commercial Solutions segment generated $470.5 million of adjusted service revenue under ASC 605 during the six months ended June 30, 2018, a decrease of $49.1 million, or 9.5%, compared to $519.6 million during the six months ended June 30, 2017. These decreases were primarily due to project cancellations and customer downsizing impacting revenue from the Company's selling solutions and communications service offerings, along with lower new business awards in 2017 that reduced 2018 revenue. Despite these factors, adjusted service revenue from the Company's Commercial Solutions segment grew by 4.0% compared to the first quarter of 2018.

GAAP income from operations for the three months ended June 30, 2018 increased by $20.5 million, or 199.7%, to $30.7 million from $10.3 million during the three months ended June 30, 2017. GAAP income from operations for the six months ended June 30, 2018 was $40.9 million, a decrease of $4.1 million, or 9.1%, compared to $45.0 million during the six months ended June 30, 2017. These changes were primarily attributed to the Merger with inVentiv Health in August 2017. Combined Company adjusted income from operations under ASC 605 was $139.4 million and $254.1 million, or 17.5% and 16.3% of adjusted service revenue, respectively, during the three and six months ended June 30, 2018, compared to $120.1 million and $246.0 million, or 15.4% and 15.7% of adjusted service revenue, respectively, during the three and six months ended June 30, 2017.

Combined Company adjusted EBITDA for the three and six months ended June 30, 2018 under ASC 605 increased to $157.0 million and $289.7 million, or 19.7% and 18.6% of adjusted service revenue, respectively, compared to $138.8 million and $285.6 million, or 17.8% and 18.2% of adjusted service revenue, respectively, during the three and six months ended June 30, 2017. These increases were a result of revenue growth and a more favorable revenue mix in the second quarter of 2018 in the Company's Clinical Solutions segment, realized synergies, and other cost management initiatives during 2018. However, these increases were partially offset by a decline in revenue from the Company’s Commercial Solutions segment, an unfavorable revenue mix in its selling solutions business, and negative impacts of foreign currency exchange fluctuations of $1.3 million and $7.9 million during the three and six months ended June 30, 2018, respectively.

GAAP net income for the three months ended June 30, 2018 was $13.6 million resulting in diluted earnings per share of $0.13, compared to net income of $3.4 million resulting in diluted earnings per share of $0.06 for the three months ended June 30, 2017. GAAP net loss for the six months ended June 30, 2018 was $11.0 million, or an $0.11 diluted loss per share, compared to net income of $24.6 million, or a $0.45 diluted earnings per share, for the six months ended June 30, 2017. Combined Company adjusted net income under ASC 605 during the three and six months ended June 30, 2018 was $78.4 million and $139.2 million, or $0.75 and $1.33 per diluted share, respectively, compared to $52.3 million and $107.7 million, or $0.50 and $1.02 per diluted share, during the three and six months ended June 30, 2017, respectively. These increases in the Combined Company adjusted net income were primarily due to lower interest expense stemming from the partial redemption of the inVentiv Health Senior Unsecured Notes as part of the 2017 Merger financing and a reduction in the Company's non-GAAP tax rate from 31% during 2017 to 27.5% in 2018.

Under ASC 605, net new business awards were $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 and Commercial Solutions net new business awards for the three months ended June 30, 2018 were $849.9 million and $205.8 million, representing book-to-bill ratios of 1.52x and 0.86x, respectively. Clinical Solutions and Commercial Solutions net new business awards for the six months ended June 30, 2018 were $1.40 billion and $528.1 million, representing book-to-bill ratios of 1.29x and 1.12x, respectively. Clinical Solutions Combined Company net new business awards grew by 18.6% and 13.4%, respectively, compared to the three and six months ended June 30, 2017, and maintained a trailing twelve-month book-to-bill ratio of 1.26x. As of June 30, 2018, ending backlog under ASC 605 for Clinical Solutions and the selling solutions offering within Commercial Solutions was $4.09 billion and $424.7 million, respectively.

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 $66.3 million and $97.5 million, respectively, of its term loan debt, bringing its total debt reduction since the closing of the Merger to $149.5 million. The expected annual interest expense savings as a result of these activities is $6.1 million. Additionally, in June 2018, the Company entered into two new interest rate swaps in an effort to limit its exposure to variable interest rates on its Term Loans. As a result, the percentage of the Company's total principal debt that is subject to fixed rates was approximately 60% at June 30, 2018.

The Company also paid $37.5 million and $75.0 million to repurchase outstanding shares of its common stock during the three and six months ended June 30, 2018, respectively, under the share repurchase program announced on February 28, 2018.  As of June 30, 2018, $175.0 million remains authorized under this plan for discretionary repurchases through the end of 2019.

On June 29, 2018, the Company entered into an accounts receivable financing agreement which will allow it to borrow up to $250.0 million from a third party lender, subject to the periodic calculations of the available borrowing base. The borrowings under this agreement will bear interest at LIBOR plus 100 basis points, a rate lower than on the Company's Term Loans.

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

Syneos Health will host a conference call at 8:00 a.m. ET on August 2, 2018, to discuss its second quarter 2018 financial results. 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 2556819.

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 the United States or +1 404 537 3406 outside the United States. The audio replay ID is 2556819.

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 more than 21,000 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 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. 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 SEC filings, copies of which are available free of charge on the Company's website at investor.syneoshealth.com. Syneos Health 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 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 INC Research and inVentiv Health financial information as if the Merger had taken place on January 1, 2017, with conforming adjustments to the 2017 presentation.

The Company defines Combined Company adjusted service revenue as the stand-alone INC Research and inVentiv Health service revenue as if the Merger had taken place on January 1, 2017, with conforming adjustments to the 2017 presentation and adjusted to include revenue eliminated as a result of purchase accounting.

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



Syneos Health, Inc. and Subsidiaries
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  
                       



Syneos Health, Inc. and Subsidiaries
 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  
 


Syneos Health, Inc. and Subsidiaries
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  
 


Syneos Health, Inc. and Subsidiaries
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  
 


Syneos Health, Inc. and Subsidiaries

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  
 


Syneos Health, Inc. and Subsidiaries

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 %
                     


Syneos Health, Inc. and Subsidiaries

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 %
                     

Syneos Health, Inc. and Subsidiaries
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  
                           


Syneos Health, Inc. and Subsidiaries

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  
                           
  1. 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.

  2. Represents the amortization of intangible assets associated with acquired customer relationships, backlog, and trademarks.

  3. 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.

  4. Represents fees associated with corporate transactions and integration-related activities which primarily relate to the Merger in 2017.

  5. Represents non-cash share-based compensation expense related to awards granted under equity incentive plans.

  6. Represents inVentiv Health discretionary bonus accruals from the prior year that were reversed in periods prior to the Merger.

  7. Represents additional research and development tax credits in certain international locations for expenses incurred and recorded as a reduction of direct costs.

  8. Represents the annual sponsor management fee previously paid pursuant to the THL and Advent Management Agreement with inVentiv Health.

  9. 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.

  10. Represents other (income) expense comprised primarily of foreign exchange gains and losses.

  11. Represents loss on extinguishment of debt associated with the debt prepayment.

  12. 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.

  13. 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.

  14. 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 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  
  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 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.

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Source: Syneos Health