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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 

FORM 10-Q 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            .
Commission File Number: 001-36730
SYNEOS HEALTH, INC.
(Exact name of registrant as specified in its charter)
Delaware 27-3403111
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1030 Sync Street, Morrisville, North Carolina 27560-5468
(Address of principal executive offices and Zip Code)
(919876-9300
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
                Class A Common Stock, $0.01 par value per share SYNHThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer   Accelerated filer 
Non-accelerated filer   Smaller reporting company 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No  
As of October 24, 2019, there were approximately 103,796,489 shares of the registrant’s common stock outstanding.




Table of Contents


SYNEOS HEALTH, INC.
FORM 10-Q
TABLE OF CONTENTS
Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 5.
Item 6.

2



Table of Contents


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.

SYNEOS HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
(In thousands, except per share data) 
Revenue$1,177,028  $1,114,918  $3,462,861  $3,244,644  
Costs and operating expenses:
Direct costs (exclusive of depreciation and amortization)913,674  872,214  2,718,005  2,560,502  
Selling, general, and administrative expenses109,864  96,943  333,860  296,420  
Restructuring and other costs13,456  19,349  39,751  41,647  
Transaction and integration-related expenses10,454  18,561  34,766  61,804  
Depreciation18,844  17,639  57,663  53,224  
Amortization41,293  50,395  124,423  150,333  
Total operating expenses1,107,585  1,075,101  3,308,468  3,163,930  
Income from operations69,443  39,817  154,393  80,714  
Other income (expense), net:
Interest income2,426  1,004  6,061  3,498  
Interest expense(32,607) (33,097) (101,500) (97,727) 
Loss on extinguishment of debt  (1,789) (4,355) (3,914) 
Other income (expense), net30,713  (4,346) 29,365  15,101  
Total other income (expense), net532  (38,228) (70,429) (83,042) 
Income (loss) before provision for income taxes69,975  1,589  83,964  (2,328) 
Income tax expense(11,055) (11,983) (43,756) (19,058) 
Net income (loss)$58,920  $(10,394) $40,208  $(21,386) 
Earnings (loss) per share:
Basic$0.57  $(0.10) $0.39  $(0.21) 
Diluted$0.56  $(0.10) $0.38  $(0.21) 
Weighted average common shares outstanding:
Basic103,594  103,012  103,553  103,453  
Diluted105,021  103,012  104,881  103,453  

The accompanying notes are an integral part of these condensed consolidated financial statements.
3



Table of Contents


SYNEOS HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)

Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
(In thousands) 
Net income (loss)$58,920  $(10,394) $40,208  $(21,386) 
Unrealized gain (loss) on derivative instruments, net of income tax (expense) benefit of $0, $(475), $332 and $(475), respectively74  2,624  (13,104) 1,341  
Foreign currency translation adjustments, net of income tax benefit of $0, $2,868, $0 and $0, respectively(34,421) (1,295) (25,736) (36,541) 
Comprehensive income (loss)$24,573  $(9,065) $1,368  $(56,586) 

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


4



Table of Contents


SYNEOS HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, 2019December 31, 2018
(in thousands, except par value)
ASSETS  
Current assets:  
Cash, cash equivalents, and restricted cash$129,204  $155,932  
Accounts receivable and unbilled services, net1,295,089  1,256,731  
Prepaid expenses and other current assets68,219  79,299  
Total current assets1,492,512  1,491,962  
Property and equipment, net201,122  183,486  
Operating lease right-of-use assets220,346  —  
Goodwill4,322,183  4,333,159  
Intangible assets, net1,004,576  1,133,612  
Deferred income tax assets5,502  9,317  
Other long-term assets131,072  103,373  
Total assets$7,377,313  $7,254,909  
LIABILITIES AND SHAREHOLDERS' EQUITY      
Current liabilities:      
Accounts payable$82,838  $98,624  
Accrued expenses587,895  563,527  
Deferred revenue703,916  777,141  
Current portion of operating lease obligations30,390  —  
Current portion of finance lease obligations17,945  13,806  
Current portion of long-term debt28,750  50,100  
Total current liabilities1,451,734  1,503,198  
Long-term debt2,680,111  2,737,019  
Operating lease long-term obligations222,199  —  
Finance lease long-term obligations36,676  26,759  
Deferred income tax liabilities33,500  25,120  
Other long-term liabilities85,577  106,669  
Total liabilities4,509,797  4,398,765  
Commitments and contingencies (Note 17)
Shareholders' equity:      
Preferred stock, $0.01 par value; 30,000 shares authorized, 0 shares issued and outstanding at September 30, 2019 and December 31, 2018    
Common stock, $0.01 par value; 600,000 shares authorized, 103,793 and 103,372 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively1,038  1,034  
Additional paid-in capital3,425,826  3,402,638  
Accumulated other comprehensive loss, net of tax(127,035) (88,195) 
Accumulated deficit(432,313) (459,333) 
Total shareholders' equity2,867,516  2,856,144  
Total liabilities and shareholders' equity$7,377,313  $7,254,909  

The accompanying notes are an integral part of these condensed consolidated financial statements.
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SYNEOS HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
20192018
(In thousands)
Cash flows from operating activities:
Net income (loss)$40,208  $(21,386) 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization182,086  203,557  
Share-based compensation40,864  26,045  
Provision for doubtful accounts948  (3,453) 
Provision for (benefit from) deferred income taxes13,091  (721) 
Foreign currency transaction adjustments(6,090) (14,927) 
Fair value adjustment of contingent obligations(571) 3,582  
Loss on extinguishment of debt4,355  3,914  
Other non-cash items1,177  3,169  
Changes in operating assets and liabilities, net of effect of business combinations:
Accounts receivable, unbilled services, and deferred revenue(110,083) (48,802) 
Accounts payable and accrued expenses12,337  5,371  
Other assets and liabilities(20,389) 34,651  
Net cash provided by operating activities157,933  191,000  
Cash flows from investing activities:
Payments associated with business combinations, net of cash acquired  (90,890) 
Purchases of property and equipment(50,645) (42,963) 
Investments in unconsolidated affiliates(9,227)   
Net cash used in investing activities(59,872) (133,853) 
Cash flows from financing activities:
Proceeds from issuance of long-term debt, net of discount183,195    
Payments of debt financing costs(2,593) (3,062) 
Repayments of long-term debt(370,936) (354,396) 
Proceeds from accounts receivable financing agreement128,000  183,600  
Repayments of accounts receivable financing agreement(22,400)   
Payments of contingent consideration related to business combinations(178)   
Payments of finance leases(9,429) (12,664) 
Payments for repurchase of common stock(56,716) (74,985) 
Proceeds from exercise of stock options39,675  18,042  
Payments related to tax withholding for share-based compensation(12,503) (3,212) 
Net cash used in financing activities(123,885) (246,677) 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (904) 2,158  
Net change in cash, cash equivalents, and restricted cash (26,728) (187,372) 
Cash, cash equivalents, and restricted cash - beginning of period155,932  321,976  
Cash, cash equivalents, and restricted cash - end of period$129,204  $134,604  

The accompanying notes are an integral part of these condensed consolidated financial statements.
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SYNEOS HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
(in thousands)
Shareholders' equity, beginning balance$2,823,899  $2,822,672  $2,856,144  $3,022,579  
Impact from adoption of ASU 2014-09      (98,815) 
Shareholders' equity, adjusted beginning balance2,823,899  2,822,672  2,856,144  2,923,764  
Common stock:
Beginning balance1,035  1,029  1,034  1,044  
Stock repurchase(1)   (13) (19) 
RSU distributions net of shares for tax withholding    4  1  
Stock option exercises4  3  13  6  
Ending balance1,038  1,032  1,038  1,032  
Additional paid-in capital:
Beginning balance3,404,389  3,371,316  3,402,638  3,414,389  
Stock repurchase(4,648)   (43,515) (64,482) 
RSU distributions net of shares for tax withholding(1,073) (829) (12,851) (3,213) 
Stock option exercises14,355  10,456  38,690  17,995  
Share-based compensation12,803  9,791  40,864  26,045  
Ending balance3,425,826  3,390,734  3,425,826  3,390,734  
Accumulated other comprehensive (loss) income:
Beginning balance(92,688) (55,064) (88,195) (22,385) 
Impact from adoption of ASU 2018-02      3,850  
Adjusted beginning balance(92,688) (55,064) (88,195) (18,535) 
Unrealized gain (loss) on derivative instruments, net of taxes74  2,624  (13,104) 1,341  
Foreign currency translation adjustment, net of taxes(34,421) (1,295) (25,736) (36,541) 
Ending balance(127,035) (53,735) (127,035) (53,735) 
Accumulated deficit:
Beginning balance(488,837) (494,609) (459,333) (370,469) 
Impact from adoption of ASU 2014-09      (98,815) 
Impact from adoption of ASU 2018-02      (3,850) 
Adjusted beginning balance(488,837) (494,609) (459,333) (473,134) 
Stock repurchase(2,396)   (13,188) (10,483) 
Net income (loss)58,920  (10,394) 40,208  (21,386) 
Ending balance(432,313) (505,003) (432,313) (505,003) 
Shareholders' equity, ending balance$2,867,516  $2,833,028  $2,867,516  $2,833,028  

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

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SYNEOS HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Basis of Presentation and Changes in Significant Accounting Policies
Nature of Operations
Syneos Health, Inc. (the “Company”) is a global provider of end-to-end biopharmaceutical outsourcing solutions. The Company operates under two reportable segments, Clinical Solutions and Commercial Solutions, and derives its revenue through a suite of services designed to enhance its customers’ ability to successfully develop, launch, and market their products. The Company offers its solutions on both a standalone and integrated basis with biopharmaceutical development and commercialization services ranging from Phase I to Phase IV clinical trial services to services associated with the commercialization of biopharmaceutical products. The Company’s customers include small, mid-sized, and large companies in the pharmaceutical, biotechnology, and medical device industries.
Unaudited Interim Financial Information
The Company prepared the accompanying unaudited condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. The significant accounting policies followed by the Company for interim financial reporting are consistent with the accounting policies followed for annual financial reporting.
The unaudited condensed consolidated financial statements, in management’s opinion, include all adjustments of a normal recurring nature necessary for a fair presentation. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission (“SEC”) on March 18, 2019. The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the full year ending December 31, 2019 or any other future period. The unaudited condensed consolidated balance sheet at December 31, 2018 is derived from the amounts in the audited consolidated balance sheet included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
Allowance for Doubtful Accounts
The Company maintains a credit approval process and makes judgments in connection with assessing its customers’ ability to pay throughout the contractual obligation period. Generally, the Company has the ability to limit credit exposure by discontinuing services in the event of non-payment. The Company has certain customers that may depend on the ability to continue to raise capital in order to complete the development or commercialization of their products. The Company monitors its customers’ credit worthiness and applies judgment in establishing a provision for estimated credit losses based on historical experience, current receivables aging, and identified customer-specific circumstances that would affect the customers’ ability to meet their obligation. Despite this assessment, from time to time, customers are unable to meet their payment obligations, which could impact the Company’s results of operations.
Recently Adopted Accounting Standards
Leases. In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-02 (“ASU 2016-02”), Leases (Topic 842), as further amended, to increase transparency and comparability among organizations by requiring the recognition of, at the lease commencement date, a lease liability for the obligation to make lease payments, and a right-of-use ("ROU") asset for the right to use the underlying asset, on the balance sheet. The Company adopted ASU 2016-02, and all related amendments, collectively “ASC 842”, as of January 1, 2019, using the modified retrospective approach. Results for reporting periods beginning on January 1, 2019 are presented under ASC 842, while prior
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period amounts continue to be reported and disclosed in accordance with the Company’s historical accounting treatment under Accounting Standards Codification 840, Leases (“ASC 840”). In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, does not require the Company to reassess if a contract is or contains a lease and allows the Company to carry forward the historical lease classifications and historical initial direct costs. The Company made an accounting policy election under ASC 842 not to recognize ROU assets and lease liabilities for leases with a term of 12 months or less. Lease payments for these leases are recognized as lease costs on a straight-line basis over the lease term. The Company also elected to account for lease components and the associated non-lease components in the contracts as a single lease component for all classes of underlying assets.
Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities, mainly related to operating leases, of approximately $214.0 million, as of January 1, 2019. The Company’s accounting for finance leases (previously classified as capital leases under ASC 840) remained substantially unchanged.
2. Financial Statement Details
Cash, Cash Equivalents, and Restricted Cash
Certain of the Company’s subsidiaries participate in a notional cash pooling arrangement to manage global liquidity requirements. The participants combine their cash balances in pooling accounts at the same financial institution with the ability to offset bank overdrafts of one participant against positive cash account balances held by another participant. The net cash balance related to this pooling arrangement is included in cash, cash equivalents, and restricted cash in the unaudited condensed consolidated balance sheets.
Accounts Receivable and Unbilled Services, net
Accounts receivable and unbilled services, net of allowance for doubtful accounts, consisted of the following (in thousands):
September 30, 2019December 31, 2018
Accounts receivable billed$774,309  $733,142  
Less: Allowance for doubtful accounts(4,974) (4,587) 
Accounts receivable billed, net769,335  728,555  
Accounts receivable unbilled416,211  422,860  
Contract assets109,543  105,316  
Accounts receivable and unbilled services, net$1,295,089  $1,256,731  
Accounts Receivable Factoring Arrangement
In May 2017, the Company entered into an accounts receivable factoring agreement to sell certain eligible unsecured trade accounts receivable, without recourse, to an unrelated third-party financial institution for cash. For the nine months ended September 30, 2019 and 2018, the Company factored $162.0 million and $197.4 million, respectively, of trade accounts receivable on a non-recourse basis and received $160.8 million and $196.4 million, respectively, in cash proceeds from the sale. The fees associated with these transactions were insignificant.
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Goodwill
The changes in the carrying amount of goodwill by segment for the nine months ended September 30, 2019 were as follows (in thousands):
Clinical
Solutions (a)
Commercial
Solutions (b)
Total
Balance as of December 31, 2018$2,772,803  $1,560,356  $4,333,159  
Business combinations (c)  (204) (204) 
Impact of foreign currency translation(9,087) (1,685) (10,772) 
Balance as of September 30, 2019$2,763,716  $1,558,467  $4,322,183  
(a) Accumulated impairment losses of $8.1 million associated with the Clinical Solutions segment were recorded prior to 2016 and related to the former Phase I Services segment, now a component of the Clinical Solutions segment. No impairment of goodwill was recorded for the nine months ended September 30, 2019.
(b) Accumulated impairment losses of $8.0 million associated with the Commercial Solutions segment were recorded prior to 2015 and related to the former Global Consulting segment, now a component of the Commercial Solutions segment. No impairment of goodwill was recorded for the nine months ended September 30, 2019.
(c) Amount represents measurement period adjustments to goodwill recognized in connection with the acquisition of Kinapse Topco Limited (“Kinapse”).

Transaction and Integration-Related Expenses
Transaction and integration-related expenses consisted of the following (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
Professional fees$7,108  $14,851  $26,632  $40,624  
Debt modification and related expenses1,582  409  5,555  1,726  
Integration and personnel retention-related costs1,394  2,107  3,150  15,847  
Fair value adjustments to contingent obligations370  1,194  (571) 3,582  
Other      25  
Total transaction and integration-related expenses$10,454  $18,561  $34,766  $61,804  



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Accumulated Other Comprehensive Loss, Net of Tax

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

Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
Beginning balance$(92,688) $(55,064) $(88,195) $(22,385) 
Foreign Currency Translation:
  Beginning balance(72,270) (55,166) (80,955) (23,514) 
    Impact from adoption of ASU 2018-02      3,594  
  Adjusted beginning balance(72,270) (55,166) (80,955) (19,920) 
    Other comprehensive loss before reclassifications(34,421) (1,295) (25,736) (36,541) 
    Reclassification adjustments        
  Ending balance(106,691) (56,461) (106,691) (56,461) 
Derivative Instruments:
  Beginning balance(20,418) 102  (7,240) 1,129  
    Impact from adoption of ASU 2018-02      256  
  Adjusted beginning balance(20,418) 102  (7,240) 1,385  
    Other comprehensive (loss) income before reclassifications(1,105) 2,397  (15,351) 1,712  
    Reclassification adjustments1,179  227  2,247  (371) 
  Ending balance(20,344) 2,726  (20,344) 2,726  
Ending balance$(127,035) $(53,735) $(127,035) $(53,735) 


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

Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
Foreign currency translation adjustments:
    Foreign currency translation adjustments, before tax$(34,421) $(4,163) $(25,736) $(36,541) 
    Income tax benefit  2,868      
  Foreign currency translation adjustments, net of tax(34,421) (1,295) (25,736)