UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact name of registrant as specified in its charter)
|
|
|
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
(Address of principal executive offices and Zip Code)
(
(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 |
|
|
|
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.
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).
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.
|
|
☒ |
|
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
As of April 21, 2022, there were approximately
SYNEOS HEALTH, INC.
FORM 10-Q
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
SYNEOS HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
|
|
(in thousands, except per share data) |
|
|||||
Revenue |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Costs and operating expenses: |
|
|
|
|
|
|
|
|
Direct costs (exclusive of depreciation and amortization) |
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses |
|
|
|
|
|
|
|
|
Restructuring and other costs |
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
|
|
Income from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net: |
|
|
|
|
|
|
|
|
Interest income |
|
|
( |
) |
|
|
( |
) |
Interest expense |
|
|
|
|
|
|
|
|
Loss on extinguishment of debt |
|
|
— |
|
|
|
|
|
Other expense (income), net |
|
|
|
|
|
|
( |
) |
Total other expense, net |
|
|
|
|
|
|
|
|
Income before provision for income taxes |
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
|
|
|
$ |
|
|
Diluted |
|
$ |
|
|
|
$ |
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
SYNEOS HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
|
|
(in thousands) |
|
|||||
Net income |
|
$ |
|
|
|
$ |
|
|
Unrealized gain on derivative instruments, net of income tax expense of $ |
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of income tax benefit of $( |
|
|
( |
) |
|
|
( |
) |
Comprehensive income |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
SYNEOS HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
|
|
(in thousands, except par value) |
|
|||||
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash |
|
$ |
|
|
|
$ |
|
|
Accounts receivable and unbilled services, net |
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
|
|
|
|
|
|
Operating lease right-of-use assets |
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
|
|
Intangible assets, net |
|
|
|
|
|
|
|
|
Deferred income tax assets |
|
|
|
|
|
|
|
|
Other long-term assets |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
|
|
|
$ |
|
|
Accrued expenses |
|
|
|
|
|
|
|
|
Deferred revenue |
|
|
|
|
|
|
|
|
Current portion of operating lease obligations |
|
|
|
|
|
|
|
|
Current portion of finance lease obligations |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
|
|
Operating lease long-term obligations |
|
|
|
|
|
|
|
|
Finance lease long-term obligations |
|
|
|
|
|
|
|
|
Deferred income tax liabilities |
|
|
|
|
|
|
|
|
Other long-term liabilities |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 16) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
Preferred stock, $ |
|
|
|
|
|
|
|
|
Common stock, $ |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss, net of taxes |
|
|
( |
) |
|
|
( |
) |
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
Total shareholders’ equity |
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
SYNEOS HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
|
|
(in thousands) |
|
|||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
|
|
|
$ |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
Recovery from doubtful accounts |
|
|
( |
) |
|
|
( |
) |
Provision for (benefit from) deferred income taxes |
|
|
|
|
|
|
( |
) |
Foreign currency transaction adjustments |
|
|
|
|
|
|
( |
) |
Fair value adjustment of contingent obligations |
|
|
— |
|
|
|
( |
) |
Loss on extinguishment of debt |
|
|
— |
|
|
|
|
|
Other non-cash items |
|
|
( |
) |
|
|
|
|
Changes in operating assets and liabilities, net of effect of acquisitions: |
|
|
|
|
|
|
|
|
Accounts receivable, unbilled services, and deferred revenue |
|
|
( |
) |
|
|
|
|
Accounts payable and accrued expenses |
|
|
|
|
|
|
|
|
Other assets and liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Payments related to acquisitions of businesses, net of cash acquired |
|
|
( |
) |
|
|
( |
) |
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
(Investments in) proceeds from unconsolidated affiliates |
|
|
( |
) |
|
|
|
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Payments of debt financing costs |
|
|
— |
|
|
|
( |
) |
Repayments of long-term debt |
|
|
— |
|
|
|
( |
) |
Proceeds from accounts receivable financing agreement |
|
|
— |
|
|
|
|
|
Proceeds from revolving line of credit |
|
|
|
|
|
|
— |
|
Payments of contingent consideration related to acquisitions |
|
|
— |
|
|
|
( |
) |
Payments of finance leases |
|
|
( |
) |
|
|
( |
) |
Payments for repurchases of common stock |
|
|
( |
) |
|
|
( |
) |
Proceeds from exercises of stock options |
|
|
|
|
|
|
|
|
Payments related to tax withholdings for share-based compensation |
|
|
( |
) |
|
|
( |
) |
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash |
|
|
|
|
|
|
( |
) |
Net change in cash, cash equivalents, and restricted cash |
|
|
|
|
|
|
( |
) |
Cash, cash equivalents, and restricted cash - beginning of period |
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash - end of period |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
SYNEOS HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
|
|
(in thousands) |
|
|||||
Shareholders’ equity, beginning balance |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Common stock: |
|
|
|
|
|
|
|
|
Beginning balance |
|
|
|
|
|
|
|
|
Repurchases of common stock |
|
|
( |
) |
|
|
( |
) |
Issuances of common stock |
|
|
|
|
|
|
|
|
Ending balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital: |
|
|
|
|
|
|
|
|
Beginning balance |
|
|
|
|
|
|
|
|
Repurchases of common stock |
|
|
( |
) |
|
|
( |
) |
Issuances of common stock |
|
|
( |
) |
|
|
( |
) |
Share-based compensation |
|
|
|
|
|
|
|
|
Ending balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss: |
|
|
|
|
|
|
|
|
Beginning balance |
|
|
( |
) |
|
|
( |
) |
Unrealized gain on derivative instruments, net of taxes |
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of taxes |
|
|
( |
) |
|
|
( |
) |
Ending balance |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Accumulated deficit: |
|
|
|
|
|
|
|
|
Beginning balance |
|
|
( |
) |
|
|
( |
) |
Repurchases of common stock |
|
|
( |
) |
|
|
( |
) |
Net income |
|
|
|
|
|
|
|
|
Ending balance |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Shareholders’ equity, ending balance |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
SYNEOS HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Nature of Operations
Syneos Health, Inc. (the “Company”) is a global provider of end-to-end biopharmaceutical outsourcing solutions. The Company operates under
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 fiscal year ended December 31, 2021 (the “2021 Form 10-K”), filed with the Securities and Exchange Commission on February 17, 2022. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2022 or any other future period. The unaudited condensed consolidated balance sheet as of December 31, 2021 is derived from the amounts in the audited consolidated balance sheet included in the 2021 Form 10-K.
Reclassification
Certain previously reported amounts have been reclassified to conform to the current year presentation.
COVID-19 Pandemic
The ongoing COVID-19 pandemic and associated economic repercussions have significantly impacted, and are expected to continue to impact, the Company’s business and operations. The continued availability and effectiveness of vaccines may partially mitigate the risks around the continued spread of COVID-19, however, with the spread of COVID-19 variants, the ongoing impacts of the COVID-19 pandemic could adversely impact the Company’s business and results of operations. For further discussion of the potential impact of the pandemic on its business, refer to Part I, Item 1A, “Risk Factors” in the 2021 Form 10-K.
8
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. As part of a master netting arrangement, 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. Under the terms of the master netting arrangement, the financial institution has the right, ability, and intent to offset a positive balance in one account against an overdrawn amount in another account. Amounts in each of the accounts are unencumbered and unrestricted with respect to use. As such, the net cash balance related to this pooling arrangement is included in cash, cash equivalents, and restricted cash in the condensed consolidated balance sheets.
The Company’s net cash pool position consisted of the following (in thousands):
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Gross cash position |
|
$ |
|
|
|
$ |
|
|
Less: cash borrowings |
|
|
( |
) |
|
|
( |
) |
Net cash position |
|
$ |
|
|
|
$ |
|
|
Accounts Receivable and Unbilled Services, net
Accounts receivable and unbilled services (including contract assets), net of allowance for doubtful accounts, consisted of the following (in thousands):
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Accounts receivable billed |
|
$ |
|
|
|
$ |
|
|
Accounts receivable unbilled |
|
|
|
|
|
|
|
|
Contract assets |
|
|
|
|
|
|
|
|
Less: Allowance for doubtful accounts |
|
|
( |
) |
|
|
( |
) |
Accounts receivable and unbilled services, net |
|
$ |
|
|
|
$ |
|
|
Accounts Receivable Factoring Arrangement
The Company has an accounts receivable factoring agreement to sell certain eligible unsecured trade accounts receivable, at its option, without recourse, to an unrelated third-party financial institution for cash. For the three months ended March 31, 2022 and 2021, the Company factored $
9
Goodwill
The changes in the carrying amount of goodwill by segment for the three months ended March 31, 2022 were as follows (in thousands):
|
|
Clinical Solutions (a) |
|
|
Commercial Solutions (a) |
|
|
Total |
|
|||
Balance as of December 31, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Acquisitions (b) |
|
|
|
|
|
|
— |
|
|
|
|
|
Impact of foreign currency translation |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance as of March 31, 2022 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
(a)
(b) Amount represents goodwill recognized in connection with an insignificant acquisition and measurement period adjustments in connection with insignificant 2021 acquisitions during the three months ended March 31, 2022 within the Clinical Solutions segment.
Accumulated Other Comprehensive Loss, Net of Taxes
Accumulated other comprehensive loss, net of taxes, consisted of the following (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Beginning balance |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
Derivative instruments: |
|
|
|
|
|
|
|
|
Beginning balance |
|
|
( |
) |
|
|
( |
) |
Other comprehensive income before reclassifications |
|
|
|
|
|
|
|
|
Reclassification adjustments |
|
|
|
|
|
|
|
|
Ending balance |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Foreign currency translation: |
|
|
|
|
|
|
|
|
Beginning balance |
|
|
( |
) |
|
|
( |
) |
Other comprehensive loss before reclassifications |
|
|
( |
) |
|
|
( |
) |
Ending balance |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss, net of taxes |
|
$ |
( |
) |
|
$ |
( |
) |
10
Changes in accumulated other comprehensive loss consisted of the following (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Unrealized gain on derivative instruments: |
|
|
|
|
|
|
|
|
Unrealized gain during period, before taxes |
|
$ |
|
|
|
$ |
|
|
Income tax expense |
|
|
|
|
|
|
|
|
Unrealized gain during period, net of taxes |
|
|
|
|
|
|
|
|
Reclassification adjustment, before taxes |
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
Reclassification adjustment, net of taxes |
|
|
|
|
|
|
|
|
Total unrealized gain on derivative instruments, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments: |
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, before taxes |
|
|
( |
) |
|
|
( |
) |
Income tax benefit |
|
|
( |
) |
|
|
( |
) |
Foreign currency translation adjustments, net of taxes |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Total other comprehensive (loss) income, net of taxes |
|
$ |
( |
) |
|
$ |
|
|
Other Expense (Income), Net
Other expense (income), net consisted of the following (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Net realized foreign currency loss |
|
$ |
|
|
|
$ |
|
|
Net unrealized foreign currency loss (gain) |
|
|
|
|
|
|
( |
) |
Equity investment income |
|
|
— |
|
|
|
( |
) |
Other, net |
|
|
|
|
|
|
( |
) |
Total other expense (income), net |
|
$ |
|
|
|
$ |
( |
) |
3. Investments
During 2020, the Company made a non-cash investment of $
11
4. Long-Term Debt Obligations
The Company’s debt obligations consisted of the following (in thousands):
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Secured Debt |
|
|
|
|
|
|
|
|
Term Loan A - tranche one due March 2024 |
|
$ |
|
|
|
$ |
|
|
Term Loan A - tranche two due August 2024 |
|
|
|
|
|
|
|
|
Revolving credit facility due August 2024 |
|
|
|
|
|
|
— |
|
Accounts receivable financing agreement due October 2024 |
|
|
|
|
|
|
|
|
Total secured debt |
|
|
|
|
|
|
|
|
Unsecured Debt |
|
|
|
|
|
|
|
|
Senior notes due January 2029 (the “Notes”) |
|
|
|
|
|
|
|
|
Total debt obligations |
|
|
|
|
|
|
|
|
Less: Term loan original issuance discount |
|
|
( |
) |
|
|
( |
) |
Less: Unamortized deferred issuance costs |