10-Q 1 synh-20220930.htm 10-Q 10-Q
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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, 2022

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

img222613681_0.jpg 

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)

(919) 876-9300

(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 class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, $0.01 par value per share

SYNH

The 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 31, 2022, there were approximately 102,904,024 shares of the registrant’s common stock outstanding.

 


Table of Contents

SYNEOS HEALTH, INC.

FORM 10-Q

TABLE OF CONTENTS

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

 

Page

 

 

 

Item 1.

Financial Statements

3

 

 

 

 

Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2022 and 2021 (unaudited)

3

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and 2021 (unaudited)

4

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 (unaudited)

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited)

6

 

 

 

 

Condensed Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, 2022 and 2021 (unaudited)

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

8

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

 

 

 

Item 4.

Controls and Procedures

37

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

38

 

 

 

Item 1A.

Risk Factors

38

 

 

 

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

39

 

 

 

Item 5.

Other Information

40

 

 

 

Item 6.

Exhibits

41

 

 

 

 

Signature

42

 

 

2


Table of Contents

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

 

SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(in thousands, except per share data)

 

Revenue

 

$

1,336,223

 

 

$

1,348,230

 

 

$

4,033,215

 

 

$

3,839,586

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Direct costs (exclusive of depreciation and amortization)

 

 

1,017,784

 

 

 

1,031,887

 

 

 

3,097,113

 

 

 

2,969,718

 

Selling, general, and administrative expenses

 

 

130,355

 

 

 

139,524

 

 

 

409,561

 

 

 

421,507

 

Restructuring and other costs

 

 

8,727

 

 

 

7,209

 

 

 

33,267

 

 

 

18,403

 

Depreciation

 

 

21,797

 

 

 

17,680

 

 

 

63,617

 

 

 

54,285

 

Amortization

 

 

39,717

 

 

 

38,574

 

 

 

121,320

 

 

 

117,618

 

Total operating expenses

 

 

1,218,380

 

 

 

1,234,874

 

 

 

3,724,878

 

 

 

3,581,531

 

Income from operations

 

 

117,843

 

 

 

113,356

 

 

 

308,337

 

 

 

258,055

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other expense, net:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

(303

)

 

 

76

 

 

 

(342

)

 

 

5

 

Interest expense

 

 

22,131

 

 

 

16,698

 

 

 

55,998

 

 

 

62,645

 

Loss on extinguishment of debt

 

 

67

 

 

 

 

 

 

67

 

 

 

2,802

 

Other income, net

 

 

(20,737

)

 

 

(3,827

)

 

 

(21,247

)

 

 

(5,856

)

Total other expense, net

 

 

1,158

 

 

 

12,947

 

 

 

34,476

 

 

 

59,596

 

Income before provision for income taxes

 

 

116,685

 

 

 

100,409

 

 

 

273,861

 

 

 

198,459

 

Income tax expense

 

 

29,636

 

 

 

22,166

 

 

 

62,892

 

 

 

39,587

 

Net income

 

$

87,049

 

 

$

78,243

 

 

$

210,969

 

 

$

158,872

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.85

 

 

$

0.76

 

 

$

2.05

 

 

$

1.53

 

Diluted

 

$

0.84

 

 

$

0.75

 

 

$

2.04

 

 

$

1.51

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

102,731

 

 

 

103,562

 

 

 

102,997

 

 

 

103,924

 

Diluted

 

 

103,206

 

 

 

104,785

 

 

 

103,563

 

 

 

105,087

 

 

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

(Unaudited)

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

 

 

 

 

 

 

Net income

 

$

87,049

 

 

$

78,243

 

 

$

210,969

 

 

$

158,872

 

Unrealized (loss) gain on derivative instruments, net of income tax (benefit) expense of ($128), $317, $4,899, and $3,926, respectively

 

 

(360

)

 

 

936

 

 

 

13,808

 

 

 

11,581

 

Foreign currency translation adjustments, net of income tax expense (benefit) of $200, ($1,102), ($766), and ($1,260), respectively

 

 

(85,511

)

 

 

(23,687

)

 

 

(172,723

)

 

 

(19,172

)

Comprehensive income

 

$

1,178

 

 

$

55,492

 

 

$

52,054

 

 

$

151,281

 

 

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, 2022

 

 

December 31, 2021

 

 

 

(in thousands, except par value)

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash, cash equivalents, and restricted cash

 

$

170,100

 

 

$

106,475

 

Accounts receivable and unbilled services, net

 

 

1,647,461

 

 

 

1,524,890

 

Prepaid expenses and other current assets

 

 

145,645

 

 

 

135,091

 

Total current assets

 

 

1,963,206

 

 

 

1,766,456

 

Property and equipment, net

 

 

255,749

 

 

 

222,657

 

Operating lease right-of-use assets

 

 

185,727

 

 

 

209,408

 

Goodwill

 

 

4,850,457

 

 

 

4,956,015

 

Intangible assets, net

 

 

710,637

 

 

 

854,067

 

Deferred income tax assets

 

 

30,622

 

 

 

35,387

 

Other long-term assets

 

 

201,385

 

 

 

193,103

 

Total assets

 

$

8,197,783

 

 

$

8,237,093

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

118,952

 

 

$

107,535

 

Accrued expenses

 

 

653,199

 

 

 

614,441

 

Deferred revenue

 

 

885,013

 

 

 

868,455

 

Current portion of operating lease obligations

 

 

41,123

 

 

 

43,058

 

Current portion of finance lease obligations

 

 

25,053

 

 

 

20,627

 

Total current liabilities

 

 

1,723,340

 

 

 

1,654,116

 

Long-term debt

 

 

2,752,470

 

 

 

2,775,721

 

Operating lease long-term obligations

 

 

180,169

 

 

 

205,798

 

Finance lease long-term obligations

 

 

50,463

 

 

 

34,181

 

Deferred income tax liabilities

 

 

82,284

 

 

 

78,062

 

Other long-term liabilities

 

 

54,996

 

 

 

76,660

 

Total liabilities

 

 

4,843,722

 

 

 

4,824,538

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 16)

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.01 par value; 30,000 shares authorized, 0 shares issued and outstanding as of September 30, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock, $0.01 par value; 600,000 shares authorized, 102,895 and 103,764 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

 

 

1,029

 

 

 

1,038

 

Additional paid-in capital

 

 

3,449,399

 

 

 

3,474,088

 

Accumulated other comprehensive loss, net of taxes

 

 

(208,533

)

 

 

(49,618

)

Retained earnings (accumulated deficit)

 

 

112,166

 

 

 

(12,953

)

Total shareholders’ equity

 

 

3,354,061

 

 

 

3,412,555

 

Total liabilities and shareholders’ equity

 

$

8,197,783

 

 

$

8,237,093

 

 

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

5


Table of Contents

 

SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Nine Months Ended
September 30,

 

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

210,969

 

 

$

158,872

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

184,937

 

 

 

171,903

 

Share-based compensation

 

 

46,499

 

 

 

48,891

 

Provision for doubtful accounts

 

 

179

 

 

 

51

 

Provision for (benefit from) deferred income taxes

 

 

8,797

 

 

 

(21,324

)

Foreign currency transaction adjustments

 

 

(30,445

)

 

 

(6,320

)

Fair value adjustment of contingent obligations

 

 

 

 

 

(597

)

Loss on extinguishment of debt

 

 

67

 

 

 

2,802

 

Other non-cash items

 

 

(8,219

)

 

 

6,657

 

Changes in operating assets and liabilities, net of effect of acquisitions:

 

 

 

 

 

 

Accounts receivable, unbilled services, and deferred revenue

 

 

(137,124

)

 

 

(154,162

)

Accounts payable and accrued expenses

 

 

74,466

 

 

 

99,417

 

Other assets and liabilities

 

 

(46,962

)

 

 

(41,891

)

Net cash provided by operating activities

 

 

303,164

 

 

 

264,299

 

Cash flows from investing activities:

 

 

 

 

 

 

Payments related to acquisitions of businesses, net of cash acquired

 

 

(4,484

)

 

 

(226,347

)

Proceeds from notes receivable from divestiture

 

 

 

 

 

5,000

 

Purchases of property and equipment

 

 

(69,833

)

 

 

(29,917

)

Investments in unconsolidated affiliates

 

 

(5,230

)

 

 

(5,074

)

Loan to unconsolidated affiliate

 

 

 

 

 

(3,844

)

Net cash used in investing activities

 

 

(79,547

)

 

 

(260,182

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of long-term debt, net of discount

 

 

 

 

 

494,505

 

Payments of debt financing costs

 

 

 

 

 

(544

)

Repayments of long-term debt

 

 

(25,000

)

 

 

(602,277

)

Proceeds from accounts receivable financing agreement

 

 

 

 

 

65,000

 

Proceeds from revolving line of credit

 

 

130,000

 

 

 

30,000

 

Repayments of revolving line of credit

 

 

(130,000

)

 

 

 

Payments of contingent consideration related to acquisitions

 

 

(3,082

)

 

 

(7,197

)

Payments of finance leases

 

 

(4,379

)

 

 

(12,748

)

Payments for repurchases of common stock

 

 

(149,961

)

 

 

(117,521

)

Proceeds from exercises of stock options

 

 

23,568

 

 

 

26,223

 

Payments related to tax withholdings for share-based compensation

 

 

(30,633

)

 

 

(30,924

)

Net cash used in financing activities

 

 

(189,487

)

 

 

(155,483

)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

29,495

 

 

 

1,728

 

Net change in cash, cash equivalents, and restricted cash

 

 

63,625

 

 

 

(149,638

)

Cash, cash equivalents, and restricted cash - beginning of period

 

 

106,475

 

 

 

272,173

 

Cash, cash equivalents, and restricted cash - end of period

 

$

170,100

 

 

$

122,535

 

 

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

6


Table of Contents

 

SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

 

 

 

 

 

 

Shareholders’ equity, beginning balance

 

$

3,329,065

 

 

$

3,238,614

 

 

$

3,412,555

 

 

$

3,242,112

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock:

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

1,026

 

 

 

1,035

 

 

 

1,038

 

 

 

1,039

 

Repurchases of common stock

 

 

 

 

 

 

 

 

(19

)

 

 

(15

)

Issuances of common stock

 

 

3

 

 

 

2

 

 

 

10

 

 

 

13

 

Ending balance

 

 

1,029

 

 

 

1,037

 

 

 

1,029

 

 

 

1,037

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional paid-in capital:

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

3,425,584

 

 

 

3,430,375

 

 

 

3,474,088

 

 

 

3,461,747

 

Repurchases of common stock

 

 

 

 

 

 

 

 

(64,092

)

 

 

(49,595

)

Issuances of common stock

 

 

10,840

 

 

 

10,904

 

 

 

(7,096

)

 

 

(4,665

)

Share-based compensation

 

 

12,975

 

 

 

15,099

 

 

 

46,499

 

 

 

48,891

 

Ending balance

 

 

3,449,399

 

 

 

3,456,378

 

 

 

3,449,399

 

 

 

3,456,378