10-Q 1 synh-20230630.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 June 30, 2023

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

img223534319_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 July 31, 2023, there were approximately 103,719,179 shares of the registrant’s Class A 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 Operations for the three and six months ended June 30, 2023 and 2022 (unaudited)

3

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2023 and 2022 (unaudited)

4

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 (unaudited)

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 (unaudited)

6

 

 

 

 

Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 2023 and 2022 (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

36

 

 

 

Item 4.

Controls and Procedures

36

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

36

 

 

 

Item 1A.

Risk Factors

37

 

 

 

Item 2.

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

41

 

 

 

Item 5.

Other Information

41

 

 

 

Item 6.

Exhibits

42

 

 

 

 

Signature

43

 

 

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
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(in thousands, except per share data)

 

Revenue

 

$

1,366,080

 

 

$

1,360,739

 

 

$

2,722,880

 

 

$

2,696,992

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Direct costs (exclusive of depreciation and amortization)

 

 

1,071,363

 

 

 

1,034,897

 

 

 

2,159,912

 

 

 

2,079,329

 

Selling, general, and administrative expenses

 

 

182,523

 

 

 

139,040

 

 

 

344,040

 

 

 

279,206

 

Restructuring and other costs

 

 

10,641

 

 

 

8,983

 

 

 

95,328

 

 

 

24,540

 

Depreciation

 

 

20,777

 

 

 

21,241

 

 

 

43,950

 

 

 

41,820

 

Amortization

 

 

38,555

 

 

 

39,980

 

 

 

76,969

 

 

 

81,603

 

Total operating expenses

 

 

1,323,859

 

 

 

1,244,141

 

 

 

2,720,199

 

 

 

2,506,498

 

Income from operations

 

 

42,221

 

 

 

116,598

 

 

 

2,681

 

 

 

190,494

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other expense, net:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

(1,708

)

 

 

(36

)

 

 

(2,236

)

 

 

(39

)

Interest expense

 

 

37,877

 

 

 

18,102

 

 

 

64,664

 

 

 

33,867

 

Other expense (income), net

 

 

5,391

 

 

 

(5,152

)

 

 

14,754

 

 

 

(510

)

Total other expense, net

 

 

41,560

 

 

 

12,914

 

 

 

77,182

 

 

 

33,318

 

Income (loss) before provision for income taxes

 

 

661

 

 

 

103,684

 

 

 

(74,501

)

 

 

157,176

 

Income tax (benefit) expense

 

 

(132

)

 

 

25,940

 

 

 

(3,145

)

 

 

33,256

 

Net income (loss)

 

$

793

 

 

$

77,744

 

 

$

(71,356

)

 

$

123,920

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.01

 

 

$

0.76

 

 

$

(0.69

)

 

$

1.20

 

Diluted

 

$

0.01

 

 

$

0.75

 

 

$

(0.69

)

 

$

1.19

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

103,679

 

 

 

102,596

 

 

 

103,502

 

 

 

103,130

 

Diluted

 

 

104,344

 

 

 

103,072

 

 

 

103,502

 

 

 

103,741

 

 

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
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Net income (loss)

 

$

793

 

 

$

77,744

 

 

$

(71,356

)

 

$

123,920

 

Unrealized gain (loss) on derivative instruments, net of income tax expense (benefit) of $3,082, $1,607, ($36), $5,027, respectively

 

 

9,329

 

 

 

4,528

 

 

 

(110

)

 

 

14,168

 

Foreign currency translation adjustments, net of income tax (benefit) expense of ($141), $1,745, ($150), ($966), respectively

 

 

9,772

 

 

 

(69,826

)

 

 

28,361

 

 

 

(87,212

)

Comprehensive income (loss)

 

$

19,894

 

 

$

12,446

 

 

$

(43,105

)

 

$

50,876

 

 

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)

 

 

 

June 30, 2023

 

 

December 31, 2022

 

 

 

(in thousands, except par value)

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash, cash equivalents, and restricted cash

 

$

82,276

 

 

$

112,004

 

Accounts receivable and unbilled services, net

 

 

1,699,537

 

 

 

1,645,162

 

Prepaid expenses and other current assets

 

 

169,947

 

 

 

186,770

 

Total current assets

 

 

1,951,760

 

 

 

1,943,936

 

Property and equipment, net

 

 

236,697

 

 

 

264,295

 

Operating lease right-of-use assets

 

 

95,951

 

 

 

172,794

 

Goodwill

 

 

4,911,596

 

 

 

4,897,518

 

Intangible assets, net

 

 

608,433

 

 

 

680,863

 

Deferred income tax assets

 

 

57,628

 

 

 

50,677

 

Other long-term assets

 

 

213,316

 

 

 

189,135

 

Total assets

 

$

8,075,381

 

 

$

8,199,218

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

137,017

 

 

$

118,621

 

Accrued expenses

 

 

617,945

 

 

 

614,200

 

Deferred revenue

 

 

803,922

 

 

 

923,875

 

Current portion of operating lease obligations

 

 

39,502

 

 

 

43,984

 

Current portion of finance lease obligations

 

 

20,335

 

 

 

24,011

 

Current portion of long-term debt

 

 

8,437

 

 

 

 

Total current liabilities

 

 

1,627,158

 

 

 

1,724,691

 

Long-term debt

 

 

2,641,566

 

 

 

2,611,166

 

Operating lease long-term obligations

 

 

150,248

 

 

 

175,568

 

Finance lease long-term obligations

 

 

35,137

 

 

 

44,124

 

Deferred income tax liabilities

 

 

69,335

 

 

 

92,155

 

Other long-term liabilities

 

 

58,183

 

 

 

56,513

 

Total liabilities

 

 

4,581,627

 

 

 

4,704,217

 

 

 

 

 

 

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.01 par value; 30,000 shares authorized, 0 shares issued and outstanding as of June 30, 2023 and December 31, 2022

 

 

 

 

 

 

Class A common stock, $0.01 par value; 600,000 shares authorized, 103,714 and 102,911 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

 

 

1,037

 

 

 

1,029

 

Additional paid-in capital

 

 

3,502,002

 

 

 

3,460,152

 

Accumulated other comprehensive loss, net of taxes

 

 

(105,623

)

 

 

(133,874

)

Retained earnings

 

 

96,338

 

 

 

167,694

 

Total shareholders’ equity

 

 

3,493,754

 

 

 

3,495,001

 

Total liabilities and shareholders’ equity

 

$

8,075,381

 

 

$

8,199,218

 

 

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)

 

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net (loss) income

 

$

(71,356

)

 

$

123,920

 

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

120,919

 

 

 

123,423

 

Share-based compensation

 

 

38,826

 

 

 

33,524

 

Provision for (recovery from) doubtful accounts

 

 

6,758

 

 

 

(426

)

(Benefit from) provision for deferred income taxes

 

 

(30,628

)

 

 

4,206

 

Foreign currency transaction adjustments

 

 

10,421

 

 

 

(9,069

)

Other non-cash items

 

 

17,085

 

 

 

(5,636

)

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

 

 

 

 

 

 

Accounts receivable, unbilled services, and deferred revenue

 

 

(174,116

)

 

 

(77,602

)

Accounts payable and accrued expenses

 

 

35,115

 

 

 

40,772

 

Operating lease assets and liabilities

 

 

48,688

 

 

 

(814

)

Other assets and liabilities

 

 

(4,970

)

 

 

(61,509

)

Net cash (used in) provided by operating activities

 

 

(3,258

)

 

 

170,789

 

Cash flows from investing activities:

 

 

 

 

 

 

Payments related to acquisitions of businesses, net of cash acquired

 

 

 

 

 

(1,574

)

Purchases of property and equipment

 

 

(45,471

)

 

 

(47,912

)

Investments in unconsolidated affiliates

 

 

(1,056

)

 

 

(1,577

)

Net cash used in investing activities

 

 

(46,527

)

 

 

(51,063

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from revolving line of credit

 

 

113,000

 

 

 

130,000

 

Repayments of revolving line of credit

 

 

(75,000

)

 

 

(95,000

)

Payments of contingent consideration related to acquisitions

 

 

(8,600

)

 

 

 

Payments of finance leases

 

 

(6,435

)

 

 

(1,886

)

Payments for repurchases of Class A common stock

 

 

 

 

 

(149,961

)

Proceeds from exercises of stock options

 

 

12,152

 

 

 

12,390

 

Payments related to tax withholdings for share-based compensation

 

 

(8,969

)

 

 

(30,062

)

Net cash provided by (used in) financing activities

 

 

26,148

 

 

 

(134,519

)

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

 

 

(6,091

)

 

 

14,306

 

Net change in cash, cash equivalents, and restricted cash

 

 

(29,728

)

 

 

(487

)

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

 

 

112,004

 

 

 

106,475

 

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

 

$

82,276

 

 

$

105,988

 

 

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
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Shareholders’ equity, beginning balance

 

$

3,454,471

 

 

$

3,301,559

 

 

$

3,495,001

 

 

$

3,412,555

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A common stock:

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

1,036

 

 

 

1,026

 

 

 

1,029

 

 

 

1,038

 

Repurchases of Class A common stock

 

 

 

 

 

 

 

 

 

 

 

(19

)

Issuances of Class A common stock

 

 

1

 

 

 

 

 

 

8

 

 

 

7

 

Ending balance

 

 

1,037

 

 

 

1,026

 

 

 

1,037

 

 

 

1,026

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional paid-in capital:

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

3,482,614

 

 

 

3,410,524

 

 

 

3,460,152

 

 

 

3,474,088

 

Repurchases of Class A common stock

 

 

 

 

 

 

 

 

 

 

 

(64,092

)

Issuances of Class A common stock

 

 

(746

)

 

 

(1,131

)

 

 

3,024

 

 

 

(17,936

)

Share-based compensation

 

 

20,134

 

 

 

16,191

 

 

 

38,826

 

 

 

33,524

 

Ending balance

 

 

3,502,002

 

 

 

3,425,584

 

 

 

3,502,002

 

 

 

3,425,584

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

(124,724

)

 

 

(57,364

)

 

 

(133,874

)

 

 

(49,618

)

Unrealized gain (loss) on derivative instruments, net of taxes

 

 

9,329

 

 

 

4,528

 

 

 

(110

)

 

 

14,168

 

Foreign currency translation adjustment, net of taxes

 

 

9,772

 

 

 

(69,826

)

 

 

28,361

 

 

 

(87,212

)

Ending balance

 

 

(105,623

)

 

 

(122,662

)

 

 

(105,623

)

 

 

(122,662

)

 

 

 

 

 

 

 

 

 

 

 

 

Retained earnings (accumulated deficit):

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

95,545

 

 

 

(52,627

)

 

 

167,694

 

 

 

(12,953

)

Repurchases of Class A common stock