Highlights
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 first quarter ended March 31, 2018. Following
the merger with inVentiv Health in August 2017 (the "Merger") and
to aid investors and analysts with year-over-year comparability of
results for the merged business, included within are 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 produced first quarter results that were in line with our
expectations despite temporary headwinds during the quarter. Our
optimism for the Company’s long-term growth prospects reflects this
quarter's performance, as well as our overall pipeline, which is
the strongest since the close of the merger of INC Research and
inVentiv Health," said Alistair Macdonald, Chief Executive Officer
of Syneos Health. "We are delivering on our combined clinical and
commercial value proposition, creating new opportunities with
existing and potential customers by leveraging our competitive
advantage – the industry’s deepest set of comprehensive
capabilities. We remain keenly focused on continuing to provide
exceptional customer service, achieving our integration milestones
and synergies and attracting and retaining top talent. We are well
positioned to drive growth for the remainder of the year."
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 first quarter
of 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 March 31, 2018 |
|
Three Months EndedMarch 31, 2017 |
|
ASC 606 As Reported |
|
ASC 605 As Adjusted |
|
ASC 605As
Reported |
|
(unaudited, in thousands) |
Service revenue |
$ |
1,057,196 |
|
|
$ |
760,058 |
|
|
$ |
252,078 |
|
Reimbursable
out-of-pocket expenses |
— |
|
|
310,098 |
|
|
129,840 |
|
Total revenue |
1,057,196 |
|
|
1,070,156 |
|
|
381,918 |
|
Direct costs (exclusive
of depreciation and amortization) |
532,057 |
|
|
536,888 |
|
|
154,835 |
|
Reimbursable
out-of-pocket expenses |
308,766 |
|
|
310,098 |
|
|
129,840 |
|
Selling, general, and
administrative |
99,259 |
|
|
99,716 |
|
|
44,934 |
|
Restructuring and other
costs |
13,707 |
|
|
13,707 |
|
|
1,927 |
|
Transaction and
integration-related expenses |
25,211 |
|
|
25,211 |
|
|
2 |
|
Depreciation |
18,028 |
|
|
18,028 |
|
|
6,164 |
|
Amortization |
49,993 |
|
|
49,993 |
|
|
9,464 |
|
Total operating
expenses |
1,047,021 |
|
|
1,053,641 |
|
|
347,166 |
|
Income from
operations |
$ |
10,175 |
|
|
$ |
16,515 |
|
|
$ |
34,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter 2018 Results
GAAP service revenue for the first quarter of 2018 was $1.06
billion, an increase of $805.1 million, or 319.4%, compared to
$252.1 million in the first quarter of 2017. Excluding reimbursable
revenue of $308.8 million, the service revenue increase was
primarily due to the Merger with inVentiv in August 2017.
Combined Company adjusted service revenue under ASC 605
decreased by $24.4 million, or 3.1%, to $761.5 million from $785.9
million in the first quarter of 2017. The decrease was primarily
due to project cancellations and customer downsizing within the
Company's selling solutions and communications service offerings in
2017, partially offset by growth in the Company's Clinical
Solutions segment and a foreign currency exchange rate benefit of
$10.9 million.
Under ASC 605, the Combined Company Clinical Solutions segment
generated $530.9 million of adjusted service revenue in the first
quarter of 2018, representing an increase of $11.8 million or 2.3%,
compared to $519.1 million in the first quarter of 2017. The
increase was primarily due to revenue from strong net awards in
2017 and a favorable foreign currency exchange rate impact, which
was partially offset by a less favorable revenue mix due to lower
customer contract modifications.
The Combined Company Commercial Solutions segment generated
$230.6 million of adjusted service revenue under ASC 605 in the
first quarter of 2018, a decrease of $36.1 million, or 13.5%,
compared to $266.8 million in the first quarter of 2017. This
decrease was primarily due to project cancellations and customer
downsizing within 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 was consistent with the fourth quarter of 2017.
GAAP income from operations for the first quarter of 2018 was
$10.2 million, a decrease of $24.6 million, or 70.7%, compared to
$34.8 million in the first quarter of 2017. The decrease was
primarily attributed to additional expenses associated with the
Merger. Combined Company adjusted income from operations under ASC
605 was $114.7 million, or 15.1% of adjusted service revenue, in
the first quarter of 2018, compared to $125.9 million, or 16.0% of
the adjusted service revenue, in the first quarter of 2017.
Combined Company adjusted EBITDA for the first quarter of 2018
under ASC 605 declined to $132.7 million, or 17.4% of adjusted
service revenue, compared to $146.8 million or 18.7% of adjusted
service revenue, in the first quarter of 2017. However, when
normalized for the negative impact from foreign currency exchange
rate fluctuations in the first quarter of 2018 and certain
nonrecurring benefits in the first quarter of 2017, primarily in
the Commercial Solutions segment, adjusted EBITDA and the related
margin were relatively flat. The benefits of revenue growth in the
Company's Clinical business, realized synergies, and lower selling,
general, and administrative expenses, were offset by a decline in
the Company’s Commercial Solutions segment, as well as the less
favorable revenue mix in both Clinical Solutions and Commercial
Solutions.
GAAP net loss for the first quarter of 2018 was $24.6 million,
or $0.24 diluted loss per share, compared to net income of $21.2
million, or $0.38 diluted earnings per share, in the first quarter
of 2017. Combined Company adjusted net income under ASC 605 for the
first quarter of 2018 was $60.7 million, or $0.58 per diluted
share, compared to $55.3 million, or $0.53 per diluted share, in
the first quarter of 2017. The increase in the Combined Company
adjusted net income was primarily due to lower interest and tax
expense, partially offset by the decline in Adjusted EBITDA, as
outlined above.
Under ASC 605, net new business awards for the first quarter of
2018 were $872.1 million, representing a book-to-bill ratio of
1.15x. Clinical Solutions and Commercial Solutions net new business
awards for the quarter were $549.7 million and $322.4
million, representing a book-to-bill ratio of 1.04x and 1.40x,
respectively. Clinical Solutions Combined Company net new business
awards grew by 6.2% compared to the first quarter of 2017 and
maintained a trailing twelve-month book-to-bill ratio of 1.21x. As
of March 31, 2018, ending backlog under ASC 605 for Clinical
Solutions and the selling solutions offering within Commercial
Solutions was $3.81 billion and $466.5 million, respectively.
Capital Deployment Update
As part of the Company's balanced approach to capital
deployment, during the first quarter the Company repaid $31.3
million of its term loan debt, bringing its total debt reduction
since the closing of the Merger to $83.3 million.
The Company also paid $37.5 million to repurchase outstanding
shares of its common stock during the first quarter under the share
repurchase program announced on February 28, 2018. As of March 31,
2018, $212.5 million remains authorized under this plan for
discretionary repurchases through the end of 2019.
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 taking into account debt
repricing, and expected tax rate, but does not take into
account the effects of stock repurchases after the first 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 605Guidance
Issued: |
|
ASC 606Guidance
Issued: |
|
February 28, 2018 |
|
May 9, 2018 |
|
May 9, 2018 |
|
Low |
|
High |
|
Low |
|
High |
|
Low |
|
High |
|
(in millions, except per share data) |
Adjusted service
revenue |
$ |
3,235.0 |
|
|
$ |
3,340.0 |
|
|
$ |
3,235.0 |
|
|
$ |
3,340.0 |
|
|
$ |
4,400.0 |
|
|
$ |
4,550.0 |
|
Clinical
Solutions adjusted service revenue |
2,245.0 |
|
|
2,300.0 |
|
|
2,245.0 |
|
|
2,300.0 |
|
|
3,250.0 |
|
|
3,350.0 |
|
Commercial Solutions adjusted service revenue |
990.0 |
|
|
1,040.0 |
|
|
990.0 |
|
|
1,040.0 |
|
|
1,150.0 |
|
|
1,200.0 |
|
Adjusted EBITDA |
620.0 |
|
|
660.0 |
|
|
620.0 |
|
|
660.0 |
|
|
580.0 |
|
|
620.0 |
|
Adjusted net
income |
285.5 |
|
|
313.1 |
|
|
295.0 |
|
|
324.0 |
|
|
266.0 |
|
|
295.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted diluted
EPS |
$ |
2.68 |
|
|
$ |
2.94 |
|
|
$ |
2.80 |
|
|
$ |
3.07 |
|
|
$ |
2.52 |
|
|
$ |
2.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 NOL 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. EDT on
May 9, 2018, to discuss its first 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 6394229.
An archived replay of the conference call is expected to be
available online at investor.syneoshealth.com after 1:00 p.m.
EDT on May 9, 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 6394229.
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 had been 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 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 certain 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: |
Press/Media
Contact: |
|
|
Ronnie Speight |
Danielle DeForge |
Vice President,
Investor Relations |
Senior Director,
External Communications |
Phone: +1 919 745
2745 |
Phone: +1 781 425
2624 |
Email:
Investor.Relations@syneoshealth.com |
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 EndedMarch 31, |
|
2018 |
|
2017 |
|
|
Service revenue |
$ |
1,057,196 |
|
|
$ |
252,078 |
|
Reimbursable
out-of-pocket expenses |
— |
|
|
129,840 |
|
Total
revenue |
1,057,196 |
|
|
381,918 |
|
|
|
|
|
Costs and operating
expenses: |
|
|
|
Direct
costs (exclusive of depreciation and amortization) |
532,057 |
|
|
154,835 |
|
Reimbursable out-of-pocket expenses |
308,766 |
|
|
129,840 |
|
Selling,
general, and administrative |
99,259 |
|
|
44,934 |
|
Restructuring and other costs |
13,707 |
|
|
1,927 |
|
Transaction and integration-related expenses |
25,211 |
|
|
2 |
|
Depreciation |
18,028 |
|
|
6,164 |
|
Amortization |
49,993 |
|
|
9,464 |
|
Total
operating expenses |
1,047,021 |
|
|
347,166 |
|
Income from
operations |
10,175 |
|
|
34,752 |
|
|
|
|
|
Other (expense) income,
net: |
|
|
|
Interest
income |
839 |
|
|
112 |
|
Interest
expense |
(31,736 |
) |
|
(3,100 |
) |
Loss on
extinguishment of debt |
(248 |
) |
|
— |
|
Other
expense, net |
(12,554 |
) |
|
(3,457 |
) |
Total
other expense, net |
(43,699 |
) |
|
(6,445 |
) |
(Loss) income before
provision for income taxes |
(33,524 |
) |
|
28,307 |
|
Income tax benefit
(expense) |
8,972 |
|
|
(7,120 |
) |
Net
(loss) income |
$ |
(24,552 |
) |
|
$ |
21,187 |
|
|
|
|
|
(Loss) earnings per
share: |
|
|
|
Basic |
$ |
(0.24 |
) |
|
$ |
0.39 |
|
Diluted |
$ |
(0.24 |
) |
|
$ |
0.38 |
|
Weighted average common
shares outstanding: |
|
|
|
Basic |
104,449 |
|
|
54,015 |
|
Diluted |
104,449 |
|
|
55,123 |
|
Syneos Health, Inc. and
Subsidiaries |
Condensed Consolidated Balance
Sheets |
(in thousands, except share data) |
(unaudited) |
|
|
March 31, 2018 |
|
December 31, 2017 |
ASSETS |
|
|
|
Current assets: |
|
|
|
Cash and
cash equivalents |
$ |
186,719 |
|
|
$ |
321,262 |
|
Restricted cash |
2,236 |
|
|
714 |
|
Accounts
receivable billed, net |
600,796 |
|
|
642,985 |
|
Accounts
receivable unbilled |
392,536 |
|
|
373,003 |
|
Contract
assets |
111,934 |
|
|
— |
|
Prepaid
expenses and other current assets |
94,291 |
|
|
84,215 |
|
Total
current assets |
1,388,512 |
|
|
1,422,179 |
|
Property and equipment,
net |
173,051 |
|
|
180,412 |
|
Goodwill |
4,306,244 |
|
|
4,292,571 |
|
Intangible assets,
net |
1,241,709 |
|
|
1,286,050 |
|
Deferred income tax
assets |
27,709 |
|
|
20,159 |
|
Other long-term
assets |
104,679 |
|
|
84,496 |
|
Total
assets |
$ |
7,241,904 |
|
|
$ |
7,285,867 |
|
LIABILITIES AND
SHAREHOLDERS' EQUITY |
|
|
|
Current
liabilities: |
|
|
|
Accounts
payable |
$ |
69,500 |
|
|
$ |
58,575 |
|
Accrued
liabilities |
518,383 |
|
|
500,303 |
|
Contract
liabilities |
643,338 |
|
|
559,270 |
|
Current
portion of capital lease obligations |
15,889 |
|
|
16,414 |
|
Current
portion of long-term debt |
31,250 |
|
|
25,000 |
|
Total
current liabilities |
1,278,360 |
|
|
1,159,562 |
|
Capital lease
obligations, non-current |
15,607 |
|
|
20,376 |
|
Long-term debt,
non-current |
2,908,366 |
|
|
2,945,934 |
|
Deferred income tax
liabilities |
22,265 |
|
|
37,807 |
|
Other long-term
liabilities |
110,047 |
|
|
99,609 |
|
Total
liabilities |
4,334,645 |
|
|
4,263,288 |
|
|
|
|
|
Commitments and
contingencies |
|
|
|
|
|
|
|
Shareholders'
equity: |
|
|
|
Preferred
stock, $0.01 par value; 30,000,000 shares authorized, 0shares
issued and outstanding at March 31, 2018 and December 31,2017,
respectively |
— |
|
|
— |
|
Common
stock, $0.01 par value; 600,000,000 shares authorized,103,803,581
and 104,435,501 shares issued and outstanding at March31, 2018 and
December 31, 2017, respectively |
1,038 |
|
|
1,044 |
|
Additional paid-in capital |
3,394,586 |
|
|
3,414,389 |
|
Accumulated other comprehensive income (loss), net of tax |
15,822 |
|
|
(22,385 |
) |
Accumulated deficit |
(504,187 |
) |
|
(370,469 |
) |
Total
shareholders' equity |
2,907,259 |
|
|
3,022,579 |
|
Total
liabilities and shareholders' equity |
$ |
7,241,904 |
|
|
$ |
7,285,867 |
|
Syneos Health, Inc. and
Subsidiaries |
Condensed Consolidated Statements of Cash
Flows |
(in thousands) |
(unaudited) |
|
|
Three Months EndedMarch 31, |
|
2018 |
|
2017 |
Cash flows from
operating activities: |
|
|
|
Net (loss) income |
$ |
(24,552 |
) |
|
$ |
21,187 |
|
Adjustments to
reconcile net (loss) income to net cash (used in) provided by
operatingactivities: |
|
|
|
Depreciation and amortization |
68,021 |
|
|
15,628 |
|
Amortization of capitalized loan fees and original issue discount,
net of Senior Notespremium |
(34 |
) |
|
201 |
|
Share-based compensation |
7,879 |
|
|
5,819 |
|
Provision
for (recovery of) doubtful accounts |
171 |
|
|
(7 |
) |
Provision
for deferred income taxes |
(10,735 |
) |
|
87 |
|
Foreign
currency transaction losses |
6,364 |
|
|
2,707 |
|
Fair
value adjustment of contingent tax-sharing obligation |
1,194 |
|
|
— |
|
Loss on
extinguishment of debt |
248 |
|
|
— |
|
Other
non-cash items |
1,796 |
|
|
364 |
|
Changes in operating
assets and liabilities, net of effect of business
combinations: |
|
|
|
Accounts
receivable, unbilled services, and advanced billings |
(90,617 |
) |
|
47,496 |
|
Accounts
payable and accrued expenses |
(14,241 |
) |
|
(20,457 |
) |
Other
assets and liabilities |
7,521 |
|
|
2,674 |
|
Net cash
(used in) provided by operating activities |
(46,985 |
) |
|
75,699 |
|
Cash flows from
investing activities: |
|
|
|
Purchases of property
and equipment |
(21,286 |
) |
|
(10,571 |
) |
Net cash
used in investing activities |
(21,286 |
) |
|
(10,571 |
) |
Cash flows from
financing activities: |
|
|
|
Repayments of long-term
debt |
(31,250 |
) |
|
— |
|
Proceeds from revolving
line of credit |
— |
|
|
15,000 |
|
Repayments of revolving
line of credit |
— |
|
|
(25,000 |
) |
Payments of capital
leases |
(4,479 |
) |
|
— |
|
Payments for repurchase
of common stock |
(37,493 |
) |
|
— |
|
Proceeds from exercise
of stock options |
5,668 |
|
|
5,153 |
|
Payments related to tax
withholding for share-based compensation |
(2,323 |
) |
|
(1,173 |
) |
Net cash
used in financing activities |
(69,877 |
) |
|
(6,020 |
) |
Effect of
exchange rate changes on cash, cash equivalents, and restricted
cash |
5,127 |
|
|
2,854 |
|
Net
change in cash, cash equivalents, and restricted cash |
(133,021 |
) |
|
61,962 |
|
Cash, cash
equivalents, and restricted cash - beginning of
period |
321,976 |
|
|
103,078 |
|
Cash, cash
equivalents, and restricted cash - end of period |
$ |
188,955 |
|
|
$ |
165,040 |
|
Syneos Health, Inc. and
Subsidiaries |
Reconciliation of GAAP to Combined Company
Non-GAAP Measures |
(in thousands) |
(unaudited) |
|
|
ASC 606 |
|
ASC 605 |
|
As Reported |
|
Adjustment |
|
As Adjusted |
|
As Reported |
|
Three Months Ended March 31, |
|
2018 |
|
2018 |
|
2018 |
|
2017 |
Combined
Company adjusted service revenue: |
|
|
|
|
|
|
|
Service revenue, as
reported |
$ |
1,057,196 |
|
|
$ |
(297,138 |
) |
|
$ |
760,058 |
|
|
$ |
252,078 |
|
Pre-merger inVentiv service revenue |
— |
|
|
— |
|
|
— |
|
|
526,055 |
|
Combined Company
service revenue, before adjustments |
1,057,196 |
|
|
(297,138 |
) |
|
760,058 |
|
|
778,133 |
|
Acquisition-related deferred revenue adjustment (a) |
3,806 |
|
|
(2,347 |
) |
|
1,459 |
|
|
7,760 |
|
Combined Company
adjusted service revenue |
1,061,002 |
|
|
(299,485 |
) |
|
761,517 |
|
|
785,893 |
|
Reimbursable out-of-pocket expenses, as reported |
— |
|
|
310,098 |
|
|
310,098 |
|
|
129,840 |
|
Pre-merger inVentiv reimbursable out-of-pocketexpenses |
— |
|
|
— |
|
|
— |
|
|
156,990 |
|
Combined Company
adjusted total revenue |
$ |
1,061,002 |
|
|
$ |
10,613 |
|
|
$ |
1,071,615 |
|
|
$ |
1,072,723 |
|
|
|
|
|
|
|
|
|
Combined
Company segment adjusted servicerevenue: |
|
|
|
|
|
|
|
Clinical Solutions
service revenue, as reported |
$ |
786,839 |
|
|
$ |
(257,008 |
) |
|
$ |
529,831 |
|
|
$ |
249,497 |
|
Pre-merger inVentiv Clinical Solutions service revenue |
— |
|
|
— |
|
|
— |
|
|
262,885 |
|
Combined Company
Clinical Solutions service revenue,before adjustments |
786,839 |
|
|
(257,008 |
) |
|
529,831 |
|
|
512,382 |
|
Acquisition-related deferred revenue adjustment (a) |
3,399 |
|
|
(2,347 |
) |
|
1,052 |
|
|
6,739 |
|
Combined Company
Clinical Solutions adjusted servicerevenue |
790,238 |
|
|
(259,355 |
) |
|
530,883 |
|
|
519,121 |
|
Clinical
Solutions reimbursable out-of-pocket expenses,as reported |
— |
|
|
261,478 |
|
|
261,478 |
|
|
129,840 |
|
Pre-merger inVentiv Clinical Solutions reimbursable out-of-pocket
expenses |
— |
|
|
— |
|
|
— |
|
|
95,735 |
|
Combined Company
Clinical Solutions total revenue |
$ |
790,238 |
|
|
$ |
2,123 |
|
|
$ |
792,361 |
|
|
$ |
744,696 |
|
|
|
|
|
|
|
|
|
Commercial Solutions
service revenue, as reported |
$ |
270,357 |
|
|
$ |
(40,130 |
) |
|
$ |
230,227 |
|
|
$ |
2,581 |
|
Pre-merger inVentiv Commercial Solutions servicerevenue |
— |
|
|
— |
|
|
— |
|
|
263,170 |
|
Combined Company
Commercial Solutions servicerevenue, before adjustments |
270,357 |
|
|
(40,130 |
) |
|
230,227 |
|
|
265,751 |
|
Acquisition-related deferred revenue adjustment (a) |
407 |
|
|
— |
|
|
407 |
|
|
1,021 |
|
Combined Company
Commercial Solutions adjustedservice revenue |
270,764 |
|
|
$ |
(40,130 |
) |
|
$ |
230,634 |
|
|
$ |
266,772 |
|
Commercial Solutions reimbursable out-of-pocketexpenses, as
reported |
— |
|
|
48,620 |
|
|
48,620 |
|
|
— |
|
Pre-merger inVentiv Commercial Solutions reimbursableout-of-pocket
expenses |
— |
|
|
— |
|
|
— |
|
|
61,255 |
|
Combined Company
Commercial Solutions total revenue |
$ |
270,764 |
|
|
$ |
8,490 |
|
|
$ |
279,254 |
|
|
$ |
328,027 |
|
Syneos Health, Inc. and
Subsidiaries |
Reconciliation of GAAP to Combined Company
Non-GAAP Measures (Continued) |
(in thousands, except per share data) |
(unaudited) |
|
|
ASC 606 |
|
ASC 605 |
|
As Reported |
|
Adjustment |
|
As Adjusted |
|
As Reported |
|
Three Months Ended March 31, |
|
2018 |
|
2018 |
|
2018 |
|
2017 |
Combined
Company adjusted income from operations: |
|
|
|
|
|
|
|
Income (loss) from
operations, as reported |
$ |
10,175 |
|
|
$ |
6,340 |
|
|
$ |
16,515 |
|
|
$ |
34,752 |
|
Pre-merger inVentiv (loss) income from operations |
— |
|
|
— |
|
|
— |
|
|
(14,415 |
) |
Combined Company income
(loss) from operations, beforeadjustments |
10,175 |
|
|
6,340 |
|
|
16,515 |
|
|
20,337 |
|
Acquisition-related deferred revenue adjustment (a) |
3,806 |
|
|
(2,347 |
) |
|
1,459 |
|
|
7,760 |
|
Amortization (b) |
49,993 |
|
|
— |
|
|
49,993 |
|
|
79,133 |
|
Restructuring and other costs (c) |
13,707 |
|
|
— |
|
|
13,707 |
|
|
6,417 |
|
Transaction and integration-related expenses (d) |
25,211 |
|
|
— |
|
|
25,211 |
|
|
573 |
|
Share-based compensation (e) |
7,788 |
|
|
— |
|
|
7,788 |
|
|
11,163 |
|
Discretionary bonus accrual reversal (f) |
— |
|
|
— |
|
|
— |
|
|
(5,953 |
) |
R&D
tax credit adjustment (g) |
— |
|
|
— |
|
|
— |
|
|
(203 |
) |
Monitoring and advisory fees (h) |
— |
|
|
— |
|
|
— |
|
|
5,432 |
|
Acquisition-related revaluation adjustments (i) |
— |
|
|
— |
|
|
— |
|
|
1,223 |
|
Combined Company
adjusted income from operations |
$ |
110,680 |
|
|
$ |
3,993 |
|
|
$ |
114,673 |
|
|
$ |
125,882 |
|
GAAP operating
margin |
1.0 |
% |
|
|
|
2.2 |
% |
|
13.8 |
% |
Combined Company
adjusted operating margin |
10.4 |
% |
|
|
|
15.1 |
% |
|
16.0 |
% |
|
|
|
|
|
|
|
|
Combined
Company EBITDA and adjusted EBITDA: |
|
|
|
|
|
|
|
Net (loss) income, as
reported |
$ |
(24,552 |
) |
|
$ |
5,545 |
|
|
$ |
(19,007 |
) |
|
$ |
21,187 |
|
Pre-merger inVentiv net loss |
— |
|
|
— |
|
|
— |
|
|
(40,716 |
) |
Combined Company net
loss, before adjustments |
(24,552 |
) |
|
5,545 |
|
|
(19,007 |
) |
|
(19,529 |
) |
Interest
expense, net |
30,897 |
|
|
— |
|
|
30,897 |
|
|
40,734 |
|
Income
tax expense (benefit) |
(8,972 |
) |
|
795 |
|
|
(8,177 |
) |
|
(7,532 |
) |
Depreciation |
18,028 |
|
|
— |
|
|
18,028 |
|
|
20,967 |
|
Amortization (b) |
49,993 |
|
|
— |
|
|
49,993 |
|
|
79,133 |
|
EBITDA |
65,394 |
|
|
6,340 |
|
|
71,734 |
|
|
113,773 |
|
Acquisition-related deferred revenue adjustment (a) |
3,806 |
|
|
(2,347 |
) |
|
1,459 |
|
|
7,760 |
|
Restructuring and other costs (c) |
13,707 |
|
|
— |
|
|
13,707 |
|
|
6,417 |
|
Transaction and integration-related expenses (d) |
25,211 |
|
|
— |
|
|
25,211 |
|
|
573 |
|
Share-based compensation (e) |
7,788 |
|
|
— |
|
|
7,788 |
|
|
11,163 |
|
Discretionary bonus accrual reversal (f) |
— |
|
|
— |
|
|
— |
|
|
(5,953 |
) |
R&D
tax credit adjustment (g) |
— |
|
|
— |
|
|
— |
|
|
(203 |
) |
Monitoring and advisory fees (h) |
— |
|
|
— |
|
|
— |
|
|
5,432 |
|
Acquisition-related revaluation adjustments (i) |
— |
|
|
— |
|
|
— |
|
|
1,223 |
|
Other
expense (income), net (j) |
12,554 |
|
|
— |
|
|
12,554 |
|
|
6,664 |
|
Loss on
extinguishment of debt (k) |
248 |
|
|
— |
|
|
248 |
|
|
— |
|
Combined Company
adjusted EBITDA |
$ |
128,708 |
|
|
$ |
3,993 |
|
|
$ |
132,701 |
|
|
$ |
146,849 |
|
Adjusted EBITDA
Margin |
12.1 |
% |
|
|
|
17.4 |
% |
|
18.7 |
% |
Syneos Health, Inc. and
Subsidiaries |
Reconciliation of GAAP to Combined Company
Non-GAAP Measures (Continued) |
(in thousands, except per share data) |
(unaudited) |
|
|
ASC 606 |
|
ASC 605 |
|
As Reported |
|
Adjustment |
|
As Adjusted |
|
As Reported |
|
Three Months Ended March 31, |
|
2018 |
|
2018 |
|
2018 |
|
2017 |
Combined
Company adjusted net income: |
|
|
|
|
|
|
|
Net (loss) income, as
reported |
$ |
(24,552 |
) |
|
$ |
5,545 |
|
|
$ |
(19,007 |
) |
|
$ |
21,187 |
|
Pre-merger inVentiv net loss |
— |
|
|
— |
|
|
— |
|
|
(40,716 |
) |
Combined Company net
loss, before adjustments |
(24,552 |
) |
|
5,545 |
|
|
(19,007 |
) |
|
(19,529 |
) |
Acquisition-related deferred revenue adjustment (a) |
3,806 |
|
|
(2,347 |
) |
|
1,459 |
|
|
7,760 |
|
Amortization (b) |
49,993 |
|
|
— |
|
|
49,993 |
|
|
79,133 |
|
Restructuring and other costs (c) |
13,707 |
|
|
— |
|
|
13,707 |
|
|
6,417 |
|
Transaction and integration-related expenses (d) |
25,211 |
|
|
— |
|
|
25,211 |
|
|
573 |
|
Share-based compensation (e) |
7,788 |
|
|
— |
|
|
7,788 |
|
|
11,163 |
|
Discretionary bonus accrual reversal (f) |
— |
|
|
— |
|
|
— |
|
|
(5,953 |
) |
R&D
tax credit adjustment (g) |
— |
|
|
— |
|
|
— |
|
|
(203 |
) |
Monitoring and advisory fees (h) |
— |
|
|
— |
|
|
— |
|
|
5,432 |
|
Acquisition-related revaluation adjustments (i) |
— |
|
|
— |
|
|
— |
|
|
1,223 |
|
Other
expense (income), net (j) |
12,554 |
|
|
— |
|
|
12,554 |
|
|
6,664 |
|
Loss on
extinguishment of debt (k) |
248 |
|
|
— |
|
|
248 |
|
|
— |
|
Income
tax adjustment to normalized rate (l) |
(30,912 |
) |
|
(303 |
) |
|
(31,215 |
) |
|
(37,331 |
) |
Combined Company
adjusted net income |
$ |
57,843 |
|
|
$ |
2,895 |
|
|
$ |
60,738 |
|
|
$ |
55,349 |
|
|
|
|
|
|
|
|
|
Combined
Company diluted weighted average commonshares
outstanding: |
|
|
|
|
|
|
|
Diluted weighted
average common shares outstanding, asreported |
104,449 |
|
|
— |
|
|
104,449 |
|
|
55,123 |
|
Effect of
certain securities considered anti-dilutive underGAAP (m) |
898 |
|
|
— |
|
|
898 |
|
|
— |
|
Estimated
additional dilutive shares outstanding as aresult of the Merger
(n) |
— |
|
|
— |
|
|
— |
|
|
49,927 |
|
Combined Company
diluted weighted average common shares outstanding |
105,347 |
|
|
— |
|
|
105,347 |
|
|
105,050 |
|
|
|
|
|
|
|
|
|
Adjusted
diluted earnings per share |
$ |
0.55 |
|
|
|
|
$ |
0.58 |
|
|
$ |
0.53 |
|
- 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 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.
- Represents non-cash adjustments resulting from the revaluation
of certain items such as facilities and vehicle leases in
connection with inVentiv'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% for the three
months ended March 31, 2018 and 32.5% for the three months
ended March 31, 2017. This rate has 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'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 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 NetIncome |
|
Adjusted DilutedEarnings Per
Share |
|
Adjusted NetIncome |
|
Adjusted DilutedEarnings Per
Share |
|
Low |
|
High |
|
Low |
|
High |
|
Low |
|
High |
|
Low |
|
High |
GAAP net (loss) income
anddiluted earnings per share |
$ |
44.3 |
|
|
$ |
73.1 |
|
|
$ |
0.42 |
|
|
$ |
0.69 |
|
|
$ |
7.8 |
|
|
$ |
36.6 |
|
|
$ |
0.07 |
|
|
$ |
0.35 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization (a) |
200.0 |
|
|
200.0 |
|
|
|
|
|
|
200.0 |
|
|
200.0 |
|
|
|
|
|
Share-based compensation (a) |
43.0 |
|
|
43.0 |
|
|
|
|
|
|
43.0 |
|
|
43.0 |
|
|
|
|
|
Restructuring and other costs (a) |
48.0 |
|
|
48.0 |
|
|
|
|
|
|
48.0 |
|
|
48.0 |
|
|
|
|
|
Transaction and integration-related expenses (a) |
41.0 |
|
|
41.0 |
|
|
|
|
|
|
41.0 |
|
|
41.0 |
|
|
|
|
|
Merger-related deferred revenueadjustment (a) |
3.0 |
|
|
3.0 |
|
|
|
|
|
|
13.5 |
|
|
13.5 |
|
|
|
|
|
Other
(a) |
13.4 |
|
|
13.6 |
|
|
|
|
|
|
13.5 |
|
|
13.7 |
|
|
|
|
|
Income
tax effect of aboveadjustments (b) |
(97.7 |
) |
|
(97.7 |
) |
|
|
|
|
|
(100.8 |
) |
|
(100.8 |
) |
|
|
|
|
Adjusted net income and
adjusteddiluted earnings per share |
$ |
295.0 |
|
|
$ |
324.0 |
|
|
$ |
2.80 |
|
|
$ |
3.07 |
|
|
$ |
266.0 |
|
|
$ |
295.0 |
|
|
$ |
2.52 |
|
|
$ |
2.80 |
|
- 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.
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