UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
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)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
Delaware
27-3403111
3201 Beechleaf Court, Suite 600
Raleigh, North Carolina
(Address of principal executive offices)
27604-1547
(Zip Code)
Registrant’s telephone number, including area code: (919) 876-9300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Class A Common Stock, par value $0.01 per share
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or section 15(d) of the Exchange Act. Yes
No
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 and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
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
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant, based on the closing sale price of $58.50 on
June 30, 2017, was approximately $3,169,493,379. Common stock held by each officer and director and by each person known to the registrant who
owned 10% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other purposes.
As of February 21, 2018, there were approximately 104,584,053 shares of the registrant's common stock outstanding.
Portions of the registrant’s Proxy Statement for its 2018 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.
SYNEOS HEALTH, INC.
FORM 10-K
For the Fiscal Year Ended December 31, 2017
TABLE OF CONTENTS
PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A.
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B.
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Item 3.
Item 4.
Item 5.
Item 6
Item 7.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Market for Registrants' Common Equity, Related Stockholder Matters, and Issuer Purchases of
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . .
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Item 9.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . .
Item 9A.
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B.
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10.
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11.
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13.
Certain Relationships and Related Transactions and Director Independence . . . . . . . . . . . . . . . . . .
Item 14.
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 15.
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part IV
Page
2
26
53
53
54
54
55
58
65
87
88
145
145
146
147
147
147
148
148
149
154
155
1
PART I
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act
of 1934, as amended, or the Exchange Act. Such forward-looking statements reflect, among other things, our
current expectations and anticipated results of operations, all of which are subject to known and unknown
risks, uncertainties and other factors that may cause our actual results, performance or achievements, market
trends, or industry results to differ materially from those expressed or implied by such forward-looking
statements. Therefore, any statements contained herein that are not statements of historical fact may be
forward-looking statements and should be evaluated as such. Without limiting the foregoing, the words
“anticipates,” “believes,” "can," "continue," "could," “estimates,” “expects,” “intends,” “may,” "might," “plans,”
“projects,” “should,” "would," “targets,” “will” and the negative thereof and similar words and expressions are
intended to identify forward-looking statements. These forward-looking statements are subject to a number of
risks, uncertainties and assumptions, including those described in Part I, Item 1A, "Risk Factors" in this
Annual Report on Form 10-K. Unless legally required, we assume no obligation to update any such forward-
looking information to reflect actual results or changes in the factors affecting such forward-looking
information.
As used in this report, the terms "Syneos Health, Inc.," "Company," "we," "us," and "our" mean Syneos
Health, Inc. and its subsidiaries unless the context indicates otherwise.
Item 1. Business.
Overview
We are a leading global biopharmaceutical services organization providing product development and
commercial solutions through our clinical end-to-end contract research organization (“CRO”) and contract
commercial organization (“CCO”). We offer both standalone and integrated biopharmaceutical solutions
ranging from Early Phase (Phase I) clinical trials to the full commercialization of biopharmaceutical products.
Our ability to achieve end-to-end solutions is based on our biopharmaceutical acceleration model ("BAM")
where we synchronize our clinical and commercial capabilities – sharing knowledge, data, and insights.
Our customers include large and small to mid-sized companies in the biopharmaceutical, biotechnology, and
medical device industries. Our revenue is derived through a broad suite of services designed to enhance our
customers’ ability to successfully develop, launch, and market products. Our competitive strengths include our
broad continuum of clinical and commercial solutions, with our proprietary Trusted Process® methodology
leading to faster, better-informed product development decisions, a focused effort on clinical research site
relationships, robust data assets, and clinical trial design fueled by patient-centric commercial insights.
Our organization has been recognized for innovative and best-in-class work. Our Clinical Solutions
organization was named the "Top CRO to Work With" among the top global CROs in the 2017 CenterWatch
Global Investigative Site Relationship Survey and the 2017 Society for Clinical Research Sites ("SCRS")
Eagle Award in the CRO category. In addition, we also participate at the highest level of membership within
the SCRS as a Global Impact Partner. Across our Commercial Solutions organization, our consulting business
has been recognized by Forbes magazine as one of America’s Best Management Consulting Firms for the
past two years, and our communications businesses have won more than 1,000 awards over the last decade.
These awards include, among others, the 2017 Medical Marketing & Media Agency of the Year, PM360
Greatest Creators and Trailblazer awards, and SABRE Superior Achievement in Branding, Reputation &
Engagement.
Founded more than three decades ago as an academic organization dedicated to central nervous system
("CNS") research, we have translated that expertise into a global organization with deep therapeutic
specialties, as well as full data services and regulatory advisory and implementation support capabilities. Over
the past decade, we have built our scale and capabilities to become a leading global provider of Phase I to
Phase IV clinical development services. We were established as INC Research in 1998, and our corporate
2
headquarters is located in Raleigh, North Carolina. As a result of a corporate reorganization in connection
with a business combination transaction, INC Research Holdings, Inc., was incorporated in Delaware in
August 2010, and we changed our name to Syneos Health, Inc. after our 2017 Merger with inVentiv Health
(the "Merger"). The merger of these two companies combined clinical and commercial expertise, scale, data,
and insights to facilitate faster delivery of evidence-based medicines to patients worldwide. With
approximately 21,000 employees in more than 60 countries across six continents as of December 31, 2017,
our combined broad global presence allows us to deliver our services in more than 110 countries, providing
our customers with access to diverse markets and patient populations, local regulatory expertise, and local
market knowledge. See further discussion in "Note 3 - Business Combinations" to our consolidated financial
statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report
on Form 10-K for additional details on the Merger.
Following the Merger, effective August 1, 2017, we realigned our operating segments into two reportable
segments: Clinical Solutions and Commercial Solutions to reflect the current structure under which we
operate, evaluate our performance, make strategic decisions, and allocate resources.
Our Clinical Solutions segment offers a variety of clinical development services spanning Phase I to Phase IV,
including full-service global studies, as well as unbundled service offerings such as clinical monitoring,
investigator recruitment, patient recruitment, data management, and study startup to assist customers with
their drug development process. Our Commercial Solutions segment provides customers with a full range of
commercialization services, including outsourced field selling solutions, medication adherence,
communications (advertising and public relations), and consulting services. Our strategic, insights-driven
approach provides our customers with a single source, integrated end-to end solution that spans the entire
product lifecycle, designed to increase the likelihood of a successful product launch and commercial
profitability. We offer those services in either a full service or individual, unbundled basis depending on
customers' needs.
Our management reviews segment performance and allocates resources based upon segment revenue and
segment operating income. Historical segment reporting has been revised to reflect these changes to our
segment structure. Prior to the Merger, our Commercial Solutions segment consisted solely of consulting
services. For further information about the Company's reportable segments, please see "Note 14 - Segment
Information" in our consolidated financial statements included in Part II, Item 8, "Financial Statements and
Supplementary Data” of this Annual Report on Form 10-K. For financial information about our revenue and
long-lived assets by geographic area, please see "Note 15 - Operations by Geographic Location" in our
consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data”
of this Annual Report on Form 10-K. Our international operations expose us to risks that differ from those
applicable to operating in the United States, including foreign currency translation and transaction risks, risks
of changes in tax and labor laws, and other risks described further in Part I, Item 1A, "Risk Factors" of this
Annual Report on Form 10-K.
For the year ended December 31, 2017, total net service revenue was $1.85 billion, net loss was $138.5
million, Adjusted Net Income was $196.0 million, and Adjusted EBITDA was $391.9 million. For important
disclosures about our non-GAAP measures and a reconciliation of Adjusted Net Income and Adjusted
EBITDA to our GAAP net income (loss), see Part II, Item 6, "Selected Financial Data" of this Annual Report on
Form 10-K. For further information about our consolidated revenues and earnings, see our consolidated
financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" and Part II,
Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this
Annual Report on Form 10-K.
Our Market
The market for our integrated solutions is primarily the biopharmaceutical industry that utilizes outsourced
clinical drug development and commercialization services. We believe we are well-positioned to benefit from
the following market trends:
Trends in clinical drug development. Biopharmaceutical companies continue to prioritize the outsourcing
of Phase I to Phase IV clinical trials, particularly in complex, high-growth therapeutic areas such as CNS,
3
oncology and other complex diseases. Additionally, small and mid-sized biopharmaceutical companies
typically have limited infrastructure and therefore are far more likely to outsource their clinical development to
CROs. We estimate, based on industry sources (including analysts' reports), and management's knowledge,
that the market for CRO services for Phase I to Phase IV clinical development services will grow at an
average annual rate of 5% to 7% through 2020, driven by a combination of increased development spending
and further outsourcing penetration. In addition, we estimate that total biopharmaceutical spending on drug
development in 2017 was approximately $89.0 billion, of which the clinical development market, which is the
market for drug development following pre-clinical research, was approximately $77.0 billion. Of the $77.0
billion, we estimate our total addressable market to be $62.0 billion, after excluding $15.0 billion of indirect
fees paid to principal investigators and clinical research sites, which are not a part of the CRO market. We
estimate that total biopharmaceutical spending on clinical development will grow at a rate of 2% to 4%
annually through 2020. In 2017, we estimate biopharmaceutical companies outsourced approximately $31.0
billion of clinical development spending to CROs, representing a 7% increase compared to 2016 and a
penetration rate of 49% of our total addressable market. We estimate that this penetration rate will increase to
approximately 52% of our total addressable market by 2020.
Within the overall Phase I to Phase IV market segment, the Phase IV/post-approval/Real World Evidence
sub-segment represents a large area of spending where outsourcing penetration is lower than traditional
clinical development and pharmaceutical industry trends are creating increasing demand.
Trends in commercialization outsourcing.
We believe that, based on industry sources (including analysts' reports), and management's knowledge, that
the market for CCO services will grow at an average annual rate of 7% through 2020, driven by a combination
of increased sales and marketing spending and further outsourcing penetration. We estimate that the total
addressable market for commercialization services was approximately $154.0 billion in 2017, as determined
by our analysis of biopharmaceutical selling, general, and administrative ("SG&A") trends and related sales
and marketing budgets over the past 10 years. In 2017, we estimate biopharmaceutical companies
outsourced approximately $24.0 billion of this commercialization spending to CCOs, representing a
penetration rate of approximately 16% of the total addressable commercial market. We estimate that this
penetration rate will increase to approximately 19% of our total addressable market by 2020, while the
underlying biopharmaceutical sales and marketing spending will grow at a rate of 1% to 3% annually during
this same time period. We project that over time this market may follow a similar outsourcing penetration
trajectory as the clinical development market, resulting in the potential for long-term revenue growth. We
believe this potential for growth is supported by: (i) significant biopharmaceutical sales and marketing budgets
– generally at least 10% greater than research and development ("R&D") budgets at large biopharmaceutical
companies; (ii) a continuing shift toward specialty and more complex therapies requiring more complex and
integrated sales and marketing execution and experience; (iii) a robust funding environment, which provides
capital to fuel growth in development and commercialization spending, particularly with small to mid-sized
companies that wish to remain independent, (iv) significant outsourcing penetration opportunities; (v) an
evolving industry landscape illustrated by a shift to longer and more strategic relationships; and (vi) significant
downward pressure on pharmaceutical pricing.
Increasingly challenging development and commercialization environment. The biopharmaceutical
industry is currently facing a number of challenges, including: (i) margin deterioration; (ii) reimbursement and
provider access hurdles; (iii) the declining attractiveness of non-core brands resulting in fewer blockbuster
and higher profitability drugs reaching the market; (iv) continued pressure from generic brand exposure
resulting from expiring patents; and (v) the consolidation of payers, health systems, providers, and
pharmacies. These challenges are also making physicians and patients more difficult to engage, making new
product launches more difficult. At the same time, the industry is experiencing growing demand for specialty
drugs, pressure to achieve improvements in R&D productivity, the transition of the healthcare industry
worldwide from a volume-based to a value-based reimbursement structure, and growing political and pricing
pressures. Existing approaches to address these challenges include reducing overhead costs, optimizing the
deployment of marketing and field assets, and refocusing product portfolios around therapeutic areas with
depth of presence and expanded market access capabilities.
4
Optimization of biopharmaceutical R&D efficiency. Market forces and healthcare reform, including the
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act,
the 21st Century Cures Act, and other governmental initiatives, place significant pressure on
biopharmaceutical companies to improve cost efficiency. Companies need to demonstrate the relative
improvement in quality, safety, and effectiveness of new therapies as compared to existing approved
therapies as early as possible in the development process. CROs can help biopharmaceutical companies
deploy capital more efficiently as many biopharmaceutical companies do not have adequate in-house
development resources. In response to high clinical trial costs, particularly in therapeutic areas such as CNS
and oncology, which we believe present the highest mean cost per patient across all clinical trials,
biopharmaceutical companies are streamlining operations and shifting development to external providers to
lower fixed costs.
Globalization of clinical trials. Clinical trials have become increasingly global as biopharmaceutical
companies seek to accelerate patient recruitment, particularly within protocol-eligible, treatment-naïve patient
populations without co-morbidities that could skew clinical outcomes. Biopharmaceutical companies are also
increasingly seeking to expand the commercial potential of their products by applying for regulatory approvals
in multiple countries, including fast-growing economies that are spending more on healthcare. As part of the
biopharmaceutical approval process in newer markets, especially in certain Asian and emerging markets,
regulators now often require trials to include specific percentages or numbers of people from local
populations, resulting in a combination of multinational and domestic trials.
Management of increasingly complex trials. The biopharmaceutical industry operates in an increasingly
sophisticated and highly-regulated environment and has responded to the demands of novel therapeutics by
adapting efficient drug development processes. Complex trial design expertise has emerged as a significant
competitive advantage for select CROs that have a track record of successfully navigating country-specific
regulatory, trial protocol, and patient enrollment barriers, including sometimes subjective, evolving clinical
endpoints. In addition, the therapeutic areas where we have significant experience and expertise, including
CNS, oncology, and other complex diseases, often require more complicated testing protocols than other
disease indications. Many of these studies have longer durations due to these factors resulting in demand for
greater clinical trial proficiency and expertise in these therapeutic areas, particularly in light of new methods of
testing, such as the use of biomarkers and gene therapy.
Evolving commercialization outsourcing needs for large vs. small to mid-sized pharma. Given the
increasingly challenging commercialization environment outlined previously, the needs of biopharmaceutical
companies are ever-changing. The needs of large versus small to mid-sized customers are developing
differently based upon infrastructure and corporate commercialization goals, requiring diverse approaches
and capabilities. Large biopharmaceutical companies tend to have more robust internal resources, and are
more often seeking to augment these resources with individual services on a brand-by-brand basis. They are
also frequently looking for enterprise vendor relationships that achieve broader cost savings based upon
volume considerations of their products. Smaller biopharmaceutical companies typically have a limited
number of products, and very limited internal resources and expertise for commercialization, requiring the full
spectrum of commercialization capabilities, similar to outsourced clinical development patterns. Historically
these commercialization considerations may have required small to mid-sized companies to surrender a
significant portion of their long-term economic value in licensing arrangements.
Our Competitive Strengths
We believe that our ability to provide integrated clinical drug development and commercial solutions positions
us to address market realities where these disciplines must work together to accelerate the delivery of
important therapies to market. Our key competitive strengths are:
Global leadership in biopharmaceutical outsourcing with differentiated positioning. We believe our
comprehensive suite of clinical and commercial services differentiates us in the marketplace. We offer our
services through a highly skilled staff of approximately 21,000 employees located in more than 60 countries
as of December 31, 2017, and have conducted work in more than 110 countries. Over 84% of all new
molecular entities approved by the U.S. Food and Drug Administration ("FDA") and 70% of the products
5
granted marketing authorization by the European Medicines Agency ("EMA") over the last five years have
been developed or commercialized with our support. We believe our scale, global reach, and breadth of
services, coupled with our deep industry expertise and experience, enable us to offer the solutions our
customers require to navigate an increasingly complex and evolving market. In addition, we believe our
customers are seeking to consolidate their outsourcing to a smaller set of large global providers in order to
address changing industry dynamics.
Innovative operating model - the Trusted Process®. Since 2006, we have conducted clinical trials using
our innovative Trusted Process® operating model, which is designed to standardize methodologies, increase
the predictability of the delivery of our services, and reduce operational risk. We accomplish standardized
delivery through support from a company-wide Project Management Office, which defines, maintains, and
improves procedures relating to the Trusted Process® and ensures consistent application globally. Since
initiation of the Trusted Process®, we have reduced median clinical study start-up time (defined as the period
from finalized protocol to first patient enrolled) on new projects. Based on industry sources for the median
study start-up time for the biopharmaceutical industry, we believe we achieve this milestone for our customers
at a faster pace than the industry, due in part to this proprietary methodology. In addition to the absolute
reduction of cycle times in critical path milestones, we believe we provide greater operating efficiency, more
predictable project schedules, and a reduction in overall project timelines. The metrics-driven Trusted
Process® methodology is divided into four sub-processes which correlate to the key phases of a clinical
project:
• PlanActivation® — the design phase, where a project is analyzed and a strategy developed utilizing
our therapeutic and clinical experience, forming the basis of a customized project proposal. The
strategy continues to be refined based on discussions with the customer through new business
award;
• QuickStart® — the initiating phase, which serves to align the customer and our project team to a
single set of objectives, create shared expectations and develop a joint plan for project
implementation;
• ProgramAccelerate® — the execution and control phase, which includes the processes of patient
recruitment, clinical monitoring and data management. In this phase, we proactively process and
review data to ensure quality and project timelines are actively managed, while maintaining strong
relationships with investigative sites; and
• QualityFinish® — the closing phase, which is triggered by the first enrolled patient completing the
clinical trial. This phase focuses on ensuring high quality, actionable data is used to develop the final
deliverables which make up the basis of the documentation necessary for filing with regulatory
agencies.
While initially developed to better manage clinical trial complexity, the Trusted Process® is being actively
deployed across our commercial service portfolio to further drive consistency and quality in our integrated
operations.
Functional Service Provider Model. Our Functional Service Provider ("FSP") model provides flexible
resourcing solutions in the areas of biostatistics and programming, data management, drug safety and
pharmacovigilance, medical writing and clinical monitoring. Our model includes a comprehensive plan
designed to ensure both speed and quality for operations, relationship management, communication, quality
and risk mitigation, and internal processes and tools. We collaborate extensively across functional teams to
ensure customer needs are appropriately identified and supported. Additionally, we provide clinical staffing
solutions in the areas of contract staffing and direct placement hire.
Adding value across the biopharmaceutical product lifecycle. Our broad suite of services allows us to
deliver customized solutions and provide value to biopharmaceutical companies and other key constituents
across the healthcare delivery system. We are uniquely positioned to leverage our broad experience and
proprietary data assets across our offerings, providing end-to-end solutions that help biopharmaceutical
6
customers optimize execution and reduce costs throughout the product lifecycle using the following
capabilities:
• Superior clinical trial design: We leverage our expanding clinical and commercial knowledge capital
and access claims data from over 100 million patients in the United States to inform and enhance
clinical trial design. These insights facilitate shorter and more efficient trials intended to improve the
likelihood of regulatory and subsequent commercial success.
• Enhanced site selection and patient recruitment: We utilize proprietary data assets, behavioral
insights, social media and communications capabilities to enhance the speed and success of site
selection and patient recruitment.
• Proactive pre-launch reimbursement and formulary management: We bridge the gap between clinical
development and commercialization by using our diverse capabilities and ability to communicate
clinical benefits to payers and Pharmacy Benefit Managers ("PBMs") to help optimize reimbursement
and patient access.
• Highly effective commercial product launch capabilities: We help our customers navigate the global
complexities of launching a product by orchestrating interconnected work streams to develop and
execute an effective product launch strategy.
• Proprietary programs to improve medication adherence: We have the ability to reach over 193 million
patients through multi-channel medication adherence programs designed to mitigate costs related to
non-adherence, which are estimated by the Centers for Disease Control and Prevention to exceed
$100 billion to $300 billion annually.
• Full commercialization solutions: We enable new companies to develop, launch, and commercially
support their brands by accessing our comprehensive outsourced services, and acting as their virtual
commercialization infrastructure.
• Efficient project ramp-up: We scale clinical or commercial projects rapidly and effectively through our
recruiting, training, and deployment capabilities, leveraging over 150 dedicated recruiting personnel
and our proprietary database of over 700,000 industry professionals.
Access to robust data assets. We have access to significant data assets through our clinical and
commercial operations, our medication adherence services, and a variety of third party providers. These data
assets provide insights to our customers to support their product development and commercialization efforts.
With more than 50% of all U.S. retail prescriptions ("scripts") and relationships with more than 30 of the top
retail pharmacy chains that represent more than 28,750 pharmacies, 193 million patients, and 2.25 billion
unique scripts each year, we are able to support all aspects of our end-to-end product development services,
including clinical trial protocol design, site selection, patient recruitment, selling solutions program design and
management, and pricing and market access consulting, among others. Furthermore, relationships we have
in place with third-party partners provide us a breadth of coverage for these insights that reaches Europe and
allow us to reach more than 400 million patients throughout North America and the European Union ("EU")
and United Kingdom.
We place a high importance on leveraging the insights we derive from our Adheris Health Patient
Performance and Outcomes platform to improve our site and investigator interactions. Our market leading
commercial capabilities enable our teams to focus their efforts on proactively enhancing planning, driving
improved adherence with therapies, and producing more predictable outcomes for our customers. Also, by
utilizing our exclusive retail network, we provide patient-level insights that enhance our decision-making and
collaboration with our clinical customers who can then leverage these insights to make informed, actionable,
and impactful decisions in an increasingly competitive market.
Deep and long-standing therapeutic expertise and organization. We provide our customers with highly-
differentiated, specialized teams that leverage our broad offering of world-class therapeutic expertise in both
our Clinical Solutions and Commercial Solutions segments. Our therapeutic expertise is managed by our
7
senior leadership and delivered by our senior scientific and medical staff and our clinical research associates
("CRAs") within our various therapeutic areas. Importantly, we believe we are unique in organizing our
therapeutic business units down to the CRA level, rather than operating with a broader pool of these
resources. We believe this therapeutic alignment improves the effectiveness and efficiency of our customers'
clinical trials by ensuring that our clinical staff working at our investigative sites have the therapeutic expertise
and experience to manage the trial. Industry analysts have reported that therapeutic expertise is the most
influential factor for sponsors of clinical trials in selecting a CRO. We believe that our expertise in managing
complex clinical trials differentiates us from our competitors and has played a key role in our growth, our
ability to win new clinical trials, and our successful relationship development with clinical research sites. We
also believe our specialized therapeutic expertise within our Commercial Solutions segment is unique in our
industry and becoming increasingly important to our customers as therapies become more complex and
targeted. Our experienced medical and scientific professionals include more than 950 employees with M.D.s,
Ph.D.s, or Pharm D.s. These employees apply innovative insights and science to clinical trials as well as to
the commercialization of products and support customers across both our Clinical Solutions and Commercial
Solutions segments.
Industry-leading principal investigator and clinical research site relationships. We have extensive
relationships with principal investigators and clinical research sites. We believe these quality relationships are
critical for delivering clinical trial results on time and on budget for our customers. Motivated and engaged
investigative sites can facilitate faster patient recruitment, increase retention, maintain safety, ensure
compliance with protocols as well as with local and international regulations, and streamline reporting. The
ability to recruit and retain principal investigators and patients is an integral part of the clinical trial process.
We have dedicated personnel focused on enhancing clinical research site relationships; we work with these
sites in collaborative partnerships to improve cycle times and standardize start-up activities to drive efficiency.
Diversified and loyal customer base. We are diversified across our segments, deriving 79% and 21% of
our net service revenue during 2017 from our Clinical Solutions and Commercial Solutions segments,
respectively. We have a well-diversified, loyal customer base of over 500 customers that includes each of the
50 largest global biopharmaceutical companies (based on annual investment in research and development)
as well as high-growth, small and mid-sized biopharmaceutical companies. During 2017, we provided both
clinical and commercial services to 64 customers. We have several customers with whom we have achieved
"preferred provider" or strategic alliance relationships. We define these customers as relationships from which
we generate significant revenue and where we have executed master service agreements in addition to
regularly scheduled strategy meetings to discuss the status of our relationship, and for which we serve as a
preferred supplier of services. We believe these relationships provide us enhanced opportunities for more
business, although they are not a guarantee of future business. Our top five customers accounted for
approximately 22% of our net service revenue in 2017.
Our customer base is geographically diverse with well-established relationships in the United States, Europe,
and Asia. As of December 31, 2017, our top ten customers had worked with us for an average of 18 years.
We believe that the tenure of our customer relationships as well as the depth of penetration of our services
reflect our strong reputation and track record. We believe we are uniquely positioned to further penetrate our
existing customer base and expand our services across the biopharmaceutical industry, as a significant
number of the top 50 biopharmaceutical companies utilize both clinical and commercial services. The
flexibility and depth of our services enables us to scale our commercialization solutions to address our
customers' needs. We connect and integrate clinical and commercial disciplines, enabling biopharmaceutical
companies of all sizes to accelerate the commercialization of assets by bringing market access insights into
the clinical trial design, reducing complexity, maximizing speed, and enhancing economic efficiency.
Highly experienced management team with a deep-rooted culture of quality and innovation. We are
led by a dedicated and experienced senior management team with significant experience and knowledge
focused on the biopharmaceutical industry. Each member of our senior management team has 20 years or
more of relevant experience, including experience with biopharmaceutical companies, payers, and health
systems. This team has successfully grown our company into a leading biopharmaceutical solutions
organization through a combination of organic growth and strategic acquisitions.
8
Our Business Strategy
Our goal is to generate profitable revenue growth, achieve differentiation in the marketplace in both of our
segments, and increase margins through operational efficiency initiatives. We believe our end-to-end product
development model, where clinical insights inform commercialization and commercial insights improve clinical
trial design and execution, is unique to the industry. The key elements of our business strategy include:
Increase market share through our unmatched service offerings and scale. We believe we are
uniquely positioned to meet our customers’ evolving needs as the only provider of a full suite of services
through the clinical development and commercialization continuum. Our size and scale enable us to
provide solutions designed to accelerate our customers’ clinical or commercial projects, driving speed and
cost efficiencies. Our ability to engage customers in the early phases of clinical trials with respect to
commercial insights allows them to make more informed decisions on clinical trial design and strategies,
which we believe is a key differentiator from our competitors. Our Real World and Late Phase offering
acts as the critical bridge from clinical effectiveness to commercial viability. The capabilities to move from
development to commercialization require a comprehensive approach that integrates strategic, creative,
and operational expertise. Our Integrated Solutions Group ("ISG") is comprised of dedicated industry
veterans and product strategists with regulatory, clinical, commercial, and real world expertise that
uniquely positions us to help our customers determine the right mix of clinical and commercial solutions
needed throughout the product life cycle. Our unique integration of strategy and operations results in
multiple selling points along the operational timeline of product development.
We intend to leverage our differentiated service offerings to increase our share of the growing market for
outsourced clinical and commercialization services. We believe the need for a full suite of services is
particularly strong with our small to mid-sized customers, given their rapid growth and limited internal
resources. We intend to capitalize on this market opportunity with existing and potential customers
through a variety of channels, but primarily through the consultative sales approach of our ISG. The ISG is
a dedicated group of industry veterans and product strategists with regulatory, clinical, commercial and
Real World Evidence expertise. The ISG is uniquely positioned to determine the appropriate mix of clinical
and commercial solutions to help customers optimize the development process for their products and
maximize the return on their investment.
Leverage our market leadership position in large and attractive markets. Our Clinical Solutions and
Commercial Solutions segments are benefiting from specific industry trends that are expected to drive
attractive growth. We believe outsourcing late-stage clinical development services to CROs optimizes returns
on invested R&D for biopharmaceutical companies. As business models continue to evolve in the healthcare
sector, we believe that the rate of commercial outsourcing may follow a similar long-term path to the clinical
development market. Global demand for biopharmaceutical products continues to increase, driven by
expanding access to care, increasing life expectancy, and the growing prevalence of chronic conditions in
both developed and emerging markets. Higher costs and increased complexity are driving our customers to
seek efficiency and expertise through outsourcing services. We intend to capitalize on these trends by
continuing to provide the services our customers need. Additionally, we believe that our differentiated
approach of investing in highly experienced people, making better use of enabling technology, improving the
process of clinical development and commercialization, and integrating our significant data and insights
across these disciplines will allow our customers to generate superior returns.
Leverage our expertise in delivering complex clinical trials and deepen our therapeutic expertise in
fast-growing areas. We intend to continue to develop and leverage our therapeutic and operational
expertise in delivering complex clinical trials. Our extensive use of insights gained from fit-for-purpose data
sources and our relationships with principal investigators and clinical research sites with longstanding patient
relationships are especially critical in delivering complex clinical trials. This is enhanced by the use of our
proprietary Trusted Process® methodology that reduces operational risk and variability by standardizing
processes, minimizing delays, instilling quality throughout the clinical development process, and leading
customers to more confident, better-informed drug development decisions. We believe this collective
expertise, data, and insights into complex clinical trials uniquely informs our customers’ decisions about their
regulatory and payer approvals, market access, reimbursement and formulary inclusion, and other steps that
are critical to optimizing their returns in the commercialization process.
9
Drive acceleration of commercial outsourcing. We have continuously expanded and invested in our
commercial outsourcing capabilities and we intend to leverage our extensive knowledge, experience and
broad offerings to drive expansion of the commercial outsourcing opportunity with new and existing
customers. We believe the market for our full suite of services is evolving based upon the different needs
of large biopharmaceutical companies compared to small to mid-sized companies, based upon their
infrastructure and corporate commercialization goals. Large biopharmaceutical companies are often
seeking broader cost savings through enterprise vendor relationships that leverage their volume of
products. However, smaller biopharmaceutical companies typically require the full spectrum of
commercialization capabilities, given their limited internal resources. Historically, this may have required
these smaller companies to surrender a significant portion of their long term economic value in a licensing
arrangement to achieve commercialization. However, with sufficient capital given today’s funding
environment, we believe these companies may be more receptive to commercialization alternatives that
allow them to maintain their independence. Although we are well positioned to capitalize on the needs of
both customer types, we believe that the market dynamics for these small to mid-sized customers will be
a key catalyst to driving further adoption of commercial outsourcing. Our ISG is purpose-built to leverage
this market dynamic, using our strong clinical presence and relationships in the small to mid-sized
customer segment. We believe that having the capability to provide our customers with a
commercialization plan may increase their overall success with the sales of a drug once FDA approval is
received.
Increase cross-selling with existing customers. We believe that we have substantial opportunities to
expand the reach of our services that we provide to our existing customers. During 2017, 64 customers,
of which 43 were also in our top 100 customers, utilized services from both our Clinical Solutions and
Commercial Solutions segments demonstrating our belief that there is both market precedent and
significant potential to sell additional services to our existing customer base. Given our past success in
expanding the scope of services provided to current customers, we intend to further expand our business
with our existing customers by cross-selling additional clinical and commercial services. As part of our
cross-selling efforts, we market the potential operational and economic efficiencies that customers can
achieve by using more of our services throughout the product lifecycle.
Capitalize on our geographic scale. We intend to leverage our global breadth and scale to drive continued
growth and target segments of the biopharmaceutical market in which we are underpenetrated. Additionally,
we have developed a global platform with a presence in all of the major biopharmaceutical markets in the
world and intend to further expand our business outside of the United States. We are focused on replicating
our success in the U.S. market to other major biopharmaceutical markets around the world. We have
expanded our capabilities, existing relationships, and local regulatory knowledge, which should continue to
position us well for new customer wins in a wide array of markets. We have added geographic reach through
both acquisitions and organic growth in areas such as Asia-Pacific, Latin America, and the Middle East and
Africa, which we believe is critical to obtaining larger new business awards from large and mid-sized
biopharmaceutical companies. Our long-term growth opportunities are enhanced by our strong reputation in
emerging markets and our proven track record of performance. We may also selectively identify and acquire
complementary businesses to enhance our services, capabilities, and geographic presence.
Continue to enhance our Trusted Process® methodology to deliver superior outcomes. We intend to
continue the development and enhancement of our Trusted Process® methodology, which has delivered
measurable, beneficial results for our customers and improved drug development decisions. While originally
developed through years of experience and refinement in our Clinical Solutions segment, we also intend to
adapt and deploy the Trusted Process® across our Commercial Solutions segment. We believe our Trusted
Process® will continue to lead to high levels of customer satisfaction.
Continue our proven track record of successfully integrating companies to augment our organic
growth. Over the past decade, we have developed a systematic approach for integrating operations. We
have successfully integrated ten companies, including both strategic and tuck-in acquisitions. These strategic
acquisitions have increased our size, scale, and reach, complementing our organic growth profile as we have
become a leading biopharmaceutical solutions organization. Our mergers and acquisitions have enabled us to
provide fully integrated clinical and commercial solutions to our customers and expand our global service
offerings while also allowing us to achieve significant synergies and cost reductions. In the near term, our
10
primary focus will be continuing the successful integration related to the Merger, but we intend to continue
evaluating selective tuck-in acquisition opportunities that we believe will enhance our services offerings and
geographic presence.
Drive our human capital asset base to grow existing relationships. Our employees are critical to our
ability to deliver our innovative operational model by engaging with customers, delivering clinical development
services in a complex environment, and supporting and executing our growth strategy. Our recruiting and
retention efforts are geared toward maintaining and growing a stable workforce, focused on delivering results
for customers. We have a successful track record of integrating talent from prior acquisitions and believe we
have a best-in-class pool of highly experienced project management professionals, CRAs, and
communications, advertising, and consulting experts. Based on industry reporting, we also believe that our
employee retention rates are consistent or better than the industry averages, and we intend to continue
fostering an employee-friendly environment that promotes retention.
Our Services
We provide services through two reportable segments: Clinical Solutions and Commercial Solutions. Each
reportable segment provides multiple service offerings that – when combined through the sharing of critical
insights and data, which we refer to as our Biopharmaceutical Acceleration Model – creates a fully-integrated
biopharmaceutical outsourced services provider. Our Clinical Solutions segment offers a variety of clinical
development services spanning Phase I to Phase IV, including full-service global studies, unbundled service
offerings, and Real World Evidence studies. Our Commercial Solutions segment provides customers with the
full range of commercialization solutions, which include outsourced field promotion and medication
adherence services, communication solutions (advertising and public relations), and consulting services.
Clinical Solutions
Our extensive range of clinical solutions supports the entire clinical development process from Phase I to
Phase IV and allows us to offer our customers an integrated suite of investigative site support and clinical
development services. We offer these services across a wide variety of therapeutic areas with deep clinical
expertise with a primary focus on Phase II to Phase IV clinical trials. We believe our therapeutic focus and
proprietary project management methodology have set us apart within our industry. We have particular
strengths in the complex therapeutic areas such as CNS and Oncology which represent the largest and
fastest growing therapeutic areas. We provide total biopharmaceutical program development through our Full
11
Service platform, while also providing discrete services for any part of a trial, often known as FSP, primarily
through our Strategic Resourcing Group. The combination of service area experts and the depth of clinical
capability allows for enhanced protocol design and actionable trial data. Importantly, all of our services in
Clinical Solutions operate with the discipline of the Trusted Process®, which we believe improves overall
quality, consistency, and delivery timelines. Our comprehensive suite of clinical development services and
delivery platforms includes, but is not limited to:
Full Service Clinical Development
Our full service clinical development offering provides comprehensive solutions to address the clinical
development needs of our customers, primarily in Phase II-IV. Our solutions can be delivered on a full-service
project basis, on a functional or resource basis (see Strategic Resourcing below), or through a combination or
hybrid approach depending on the needs of our customers. We are able to customize our services to provide
customers support within an individual clinical study, a single function, multiple functions within a single
therapeutic area, or across a customer’s entire product portfolio. We can leverage our extensive knowledge
capital across both our Clinical Solutions and Commercial Solutions segments to inform clinical development
strategy and trial design. Our comprehensive suite of clinical development services includes the following,
among others:
• Patient Recruitment and Retention. Our patient recruitment services group helps identify and
manage appropriate vendors, focuses on patient recruitment and retention strategies, and acts as a
liaison to media outlets and other vendors that we have validated.
• Site Start Up. Our site start up team helps maximize the enrollment period of the study by arranging
applicable regulatory authority and ethics committee approvals, site contract negotiation, regulatory
authority submissions, and the corresponding oversight of those activities.
• Project Management. Our project managers and directors provide customer-focused leadership in
managing clinical trials and are accountable for the successful execution of all assigned projects,
where success includes on-time, on-budget, and high quality results that lead to satisfied customers.
Project managers and directors have the skills, education, experience, and training to support the
successful conduct of clinical studies.
• Clinical Monitoring. Our clinical monitors oversee the conduct of a clinical trial by working with and
monitoring clinical research sites to ensure the quality of the data. The clinical monitor ensures the
trial is conducted according to Good Clinical Practice ("GCP"), International Conference on
Harmonisation ("ICH") guidelines, and local regulations, to meet the customers' and regulatory
authorities' requirements according to the study protocol. CRAs engage with clinical research sites in
site initiation, training, and patient recruitment. We deploy and manage clinical monitoring staff in all
regions of the globe. By maintaining a therapeutic focus, we attract CRAs who have a strong desire to
dedicate themselves to working within a specific therapeutic area, providing an environment where
they can further develop their expertise in their chosen area of interest.
• Drug Safety/Pharmacovigilance. Our drug safety teams are strategically located across the United
States, Europe, Latin America, and Asia-Pacific. We provide global drug safety expertise in all phases
of clinical research for serious adverse event/adverse event collection, evaluation, classification,
reporting, reconciliation, post-marketing safety, and pharmacovigilance.
• Medical Affairs. We have in-house physicians who provide 24/7 medical monitoring, scientific and
medical support for project management teams and clinical research sites. These in-house
physicians consist of senior clinicians and former clinical researchers with patient care and trial
management expertise.
• Quality Assurance. Quality control steps are built into all of our processes. We have an independent
quality assurance department that, in addition to conducting independent audits of all ongoing
projects and processes as part of our internal quality assurance program, offers contracted quality
assurance services to customers, including audits of clinical research sites and of various vendors to
12
the clinical research industry, mock regulatory inspections and clinical research site inspection-
readiness training, standard operating procedure development, and quality assurance program
development/consultation. Our customers also engage us to conduct third-party audits on behalf of
their studies.
• Regulatory and Medical Writing. We offer regulatory and medical writing expertise across the entire
biopharmaceutical product lifecycle. Our team has hands-on regulatory and medical writing
knowledge gained through experience from working in large biopharmaceutical companies, as well as
high-growth, small and mid-sized biopharmaceutical companies, CROs, and the FDA. Additionally,
each member is trained in FDA regulations, including GCP/standard operating practice compliance
guidelines and guidelines established by the ICH.
• Clinical Data Management. Our clinical data management services allow us to confirm that the
clinical trial database is ready, accurately populated, and locked in an expeditious manner, with
verification and validation procedures throughout every phase of a clinical trial. This processing is
done in synchronization with the clinical team, utilizing the information provided from the trial to help
ensure efficient processes are employed, regardless of the data collection method used.
• Electronic Data Capture. To compete in today's changing global drug and device development
environment, companies must collect and distribute data faster than ever. We have the ability to
manage electronic data capture ("EDC") to help our customers take advantage of the efficiencies
available through EDC, which include improved access to data, reduced cycle time, increased
productivity, and improved relationships with customers, vendors, and other parties. We utilize three
leading EDC platforms: Medidata Rave, Oracle Clinical Remote Data Capture, and Oracle Health
Sciences InForm products. Our ability to design, build, and deliver high quality databases in all three
platforms enables our team to deliver effective EDC solutions.
• Biostatistics. Our biostatistics team has a depth of experience with the FDA and EMA which allows
our teams to provide customers with guidance on building a statistical plan to meet regulatory and
safety requirements as well as a careful analysis of the resulting study data. In addition, we provide
support for independent drug safety monitoring boards and a full range of related services. Our
biostatisticians are also heavily involved in our Trusted Process® methodology, so that protocol and
project development can be grounded in advanced statistical methodology. As part of a project team,
our biostatisticians can provide data oversight throughout a clinical trial and address any data or data
handling issues that may arise.
Strategic Resourcing
Our FSP offering helps sponsors review their approach to key functional areas of clinical research, specifically
those areas not core to their clinical development business or in areas where they need to augment their own
internal resources. We are able to customize our full services offering to provide customers support within an
individual clinical study, a single function, multiple functions within a single therapeutic area, or across a
customer’s entire product portfolio. Any of our full service clinical solutions outlined above can be delivered on
an unbundled or functional basis or on a hybrid approach, based on our customers' specific needs. We
believe our FSP service offering provides greater predictability, improved visibility and reporting, and more
consistent delivery of services across all protocols. We currently operate FSP hubs in North America, South
America, Europe, and Asia.
Early Stage
Our Early Stage offering provides a full range of services for Phase I and Phase IIA clinical trial conduct,
bioanalytical analysis assay development, and clinical pharmacology services, including modeling and
simulation. We also provide validation and sample analysis services from preclinical development through
post-marketing support and purpose-built phase biometrics support from North America and India. We
conduct clinical trial studies at our facilities located in Quebec City and Toronto, Canada and Miami, Florida.
We have extensive experience in first-in-human, proof-of concept, bioequivalence and bioavailability,
biosimilars, and clinical pharmacology study conduct and are a leader in the provision of abuse-liability and
13
dependency studies. We have built direct partnerships with leading hospitals for conduct of early development
and clinical pharmacology studies that require access to patients. The combination of our facilities and
partnerships can provide access in the North American and Asia-Pacific geographies. We have a large base
of available subjects, including patient populations with specific medical conditions and healthy volunteers,
which provide efficient and rapid patient recruitment. Furthermore, we can also provide early stage and
clinical pharmacology studies through our Asia-Pacific Catalyst Model with Phase I - IIA conduct capabilities in
Australia, New Zealand, South Korea, Japan, and China.
Our two bioanalytical laboratories located in Quebec, Canada and Princeton, New Jersey have extensive
experience in method development, validation, and bioanalytical analysis support for both small molecule
therapeutics and biologics using a variety of analytical techniques and instrumentation platforms, as well as
the provision of critical reagents handling services for biologics.
Real World and Late Phase Services
Our Real World and Late Phase group conducts “real world” studies to understand how a treatment, service
or method of delivering care works when applied in real world, clinical practice environments. We provide both
consultative and operational expertise to our customers in real world data generation, from concept through
core development, launch and commercialization. By utilizing our successful drug life cycle management, we
ensure we partner with our customers to gain better outcomes for patients, physicians, payers, and
regulators. These services allow our customers to make timely and cost effective advances in clinical
treatment by providing data about actual experience of doctors and patients outside of the regulated
environment of clinical development. We also leverage the data and insights from our experience across the
commercialization spectrum to inform the design and conduct of these studies. Our services include patient
registries, surveillance and observational studies, patient/health outcomes research, and economic studies.
Commercial Solutions
Our Commercial Solutions business provides a broad suite of complementary commercialization services
including selling solutions, communications (advertising and public relations) and consulting services.
Selling Solutions Services
Selling solutions services include field-based promotional and market access solutions, field-based clinical
solutions, inside sales and contact center, insight and strategy design, patient support services, training, talent
sourcing, end-to-end sales operations, and medication adherence. We provide contract field promotion teams
with a broad array of capabilities, support services and non-personal engagement solutions including tele-
detailing and electronic detailing (e-detailing) to help our customers accelerate the commercialization of their
products. Our field promotion teams are supported by recruiting and training capabilities that are
complemented by highly-qualified clinical and scientific professionals who serve as advocates and educators
to inform markets of new and novel therapies as well as customized patient behavioral models built on
extensive data insights and analytics through our extensive and proprietary data-driven platform. Services
offered include market research, commercial analytics, managed markets access, biotechnology and
specialty managed markets, integrated commercialization, and medication adherence. Our field promotion
teams can be supported by our communications and consulting services.
• Clinical Field Teams. We are a leading provider of outsourced Clinical Field Team solutions to the
biopharmaceutical industry. As Medical Science Liaisons ("MSLs"), Contract US Medical Directors,
and/or Clinical Nurse Educators, our Clinical Field Teams deliver education, preparing healthcare
professionals, patients, advocacy organizations, and others with the latest evidence-based scientific
and practical information about disease states, current treatments, and the use of customers’
products.
• Promotional Field Teams and Support. We have the industry-leading, scalable capabilities to recruit,
train, target, deploy, and support successful sales teams for our customers to achieve their business
goals. As one of the largest providers of outsourced sales teams and sales solutions to the healthcare
14
industry, we have well-established flexible processes and infrastructure to efficiently build, scale,
deploy, execute, and retain a high-performing field sales team.
• Commercial Recruiting Solutions. We are an exclusive recruiting partner who has experience in the
commercial life science industry and a talent network of the top MSL, Nurse Educator, Sales, Sales
Management, and Market Access performers. Our proprietary database, industry-leading recruiters
and branding and talent assessment process are keys to accelerating our customers’ commercial
recruiting success.
• Operations Support Services. We maintain a comprehensive set of best-in-class operations support
services that include field automation hardware/software, data management, targeting and
alignments, analytics and reporting, incentive plan design and implementation, quality management,
and help desk. These capabilities are used both individually and collectively to ensure that our
deployed field teams perform optimally, respond rapidly to changing marketplace dynamics, and
continuously improve.
• Medication Adherence. We believe that we have the largest comprehensive network for patient and
prescriber access, and provide dynamic patient performance programs that activate patients, improve
outcomes, and elevate brand performance. With customized patient behavioral models built on
extensive data insights and analytics, we have the ability to communicate with various patient types
as they move throughout their individual patient journeys - in the doctor’s office, at the pharmacy, and
in their home - through our extensive and proprietary data-driven platform.
Communications Services
Communications services include healthcare advertising, medical communications, digital marketing,
communications planning, public relations, and naming/branding services. We offer a broad array of
advertising and public relations services to customers looking to commercialize their products domestically
and/or internationally. Communications services are deployed throughout a product’s existence, beginning
well before commercial launch, encompassing regulatory approval and market introduction, and continuing
throughout the life of a product. Our communications services offering is focused on healthcare, and provides
advertising, public relations, interactive digital strategies, and branding and identity consulting services, as
well as medical communications and education services.
• Healthcare Advertising. We believe that we offer the largest independent healthcare communications
network in the world. Our advertising teams are immersed in healthcare data and connected to
frontline experts who help them delve deep into the real life experience of health, harvesting insights
that allow us to create optimal communications strategies for our customers. We help our customers
excel at some of the most critical challenges in healthcare, including, but not limited to, brand launch,
leveraging mass and personalized media, creating advertising content and campaigns, patient
analysis, disease state campaigns, and market perception analysis. Our advertising teams have deep
therapeutic expertise, with agencies solely dedicated to oncology, chronic disease care and
activation, biologics, and industry innovation.
• Public Relations. Our Public Relations teams develop breakthrough creative campaigns grounded in
deep customer insight and integrated under a multi-channel strategy. These programs raise
awareness and produce meaningful, measurable behavior change among audiences. With a diverse
set of healthcare communications specialties under one umbrella, we are able to deliver integrated
advice and expert insight from a variety of strategic perspectives. We offer best-in-class capabilities
spanning public relations, digital and social media, medical and scientific education, and research and
analytics. Our teams create communications that enhance brand perception, drive engagement,
activate behavior shifts and deliver on the bottom line.
• Medical Communications. Medical Communications helps our customers to frame their product
position in a way that clinicians will find relevant, and creates strategies, campaigns and tactics to
help these stakeholders at the right time, with the right content. Our Medical Communications team
15
provides support through strategic planning, publication planning, content development, and peer-to-
peer education.
Consulting Services
Consulting services include commercial strategy development and planning, pricing and market access,
medical affairs advisory, and risk and program management. We offer specialized practices in business
development, managed markets, and brand management, including strategic product launch planning.
Consulting services are focused on addressing the needs of the pharmaceutical and biotechnology industries
to support critical decision-making throughout the evolution of a product, from licensing, to product and
portfolio strategy development, to drug commercialization. Consulting services professionals have a deep,
functional knowledge of our customers’ core business, which produces value-added insights and mission-
critical solutions, both creative and standard. Consulting services are centered on maximizing the commercial
value of a client’s product pipeline, helping clinical leaders better and more strategically deploy resources and
improve efficiency, as well as enhance the effectiveness of marketing and sales activities.
• Commercial Strategy Development and Planning. Our strategic consulting group focuses on
maximizing the value of scientific knowledge, intellectual property and portfolio content. The key
areas of advisory services include strategic drug development, clinical development plans,
registration strategies, exit strategies, transitional clarity, good clinical practice compliance strategies,
clinical operations optimization, pricing and reimbursement, and due diligence. Strategic consultants
include senior personnel from medical and regulatory affairs, clinical research, biostatistics and data
management. These individuals provide expertise gained through hands-on experience as former
executives from biopharmaceutical companies, CROs, and regulatory agencies.
• Pricing and Market Access. Our team offers a full spectrum of market access solutions and services,
including market assessment and analysis, comparative effectiveness research, pricing
reimbursement, patient assistance services, and legislative and regulatory analysis.
• Medical Affairs Advisory. Our team brings more than 20 years of practical experience and expertise in
helping our customers realize medical transformation. Our modular medical transformation solution
allows customers to assess where they are in their medical transformation by helping them identify
their competitive position, prioritize their needs, understand their brand perception, and inform their
market engagement strategy.
• Quality Management and Regulatory Compliance Advisory. Our quality and compliance team
delivers independent quality management services through audit, inspection and implementation
services, and assist our customers with developing and executing a clinical regulatory strategy
through regulatory consulting, publishing and submission services globally.
• Risk and Program Management. Our communications consultants provide advice and subject matter
expertise for risk evaluation on medicine affordability, compassionate use, and litigation and access
barriers. We provide an evidence-based approach to avoiding policy, patient, and provider pushback
on price; using best practices for how life-sciences companies can deploy effective preventative
strategies; implementing compliance strategies to prepare for expanded access and compassionate
use inquiries; and executing an Institute for Clinical and Economic Review review strategy to
demonstrate product value.
Customers
We have a well-diversified, loyal customer base that includes each of the world's largest biopharmaceutical
companies, which we define as the top 50 biopharmaceutical companies measured by annual R&D spend.
We serve over 500 customers, including each of the 20 largest global biopharmaceutical companies, as well
as numerous emerging and specialty biotechnology companies, medical device and diagnostics companies.
In addition, we have strong relationships with small and mid-sized biopharmaceutical customers that seek our
services for our therapeutic expertise and full-service offering.
16
For the year ended December 31, 2017, our net service revenue attributable to large biopharmaceutical
companies represented approximately 61% of our total net service revenue and net service revenue
attributable to small and mid-sized biopharmaceutical companies represented approximately 39%.
Additionally, we serve customers in a variety of locations throughout the world, with approximately 63% of our
2017 net service revenue generated from customers in the United States and Canada; 25% generated from
Europe, the Middle East, and Africa; 9% generated from Asia-Pacific; and 3% generated from Latin America.
This diversification allows us to grow our business in multiple customer segments and geographies.
For the year ended December 31, 2017, our top five customers accounted for approximately 22% of our net
service revenue. No single customer accounted for greater than 10% of our total consolidated net service
revenue for the years ended December 31, 2017, 2016 or 2015.
Our top ten customers have worked with us for an average of approximately 18 years as of December 31,
2017. We also have a growing list of "preferred provider" and/or strategic alliance relationships. Further,
among the majority of our customers, revenue is diversified by multiple projects and services. For example,
during 2017, we provided both clinical and commercial services to 64 customers. We believe that the tenure
of our customer relationships as well as the depth of penetration of our services reflects our strong reputation
and track record.
New Business Awards and Backlog
In connection with the Merger, we re-evaluated our existing backlog policy for our Clinical Solutions segment.
As a result of this evaluation, effective during the third quarter of 2017, we changed our policy for calculating
and reporting the amounts of our net new business awards and backlog. Under the new backlog policy for our
Clinical Solutions segment, we add new business awards to backlog when we enter into a contract or when
we receive a written commitment from the customer selecting us as a service provider, provided that:
•
•
•
•
the customer has received appropriate internal funding approval and collection of the award value is
probable;
the project or projects are not contingent upon completion of another trial or event;
the project or projects are expected to commence within the next six months;
the customer has entered or intends to enter into a comprehensive contract as soon as practicable;
and
•
for awards related to our FSP offering, only a maximum of twelve months of services are included.
In addition, we continually evaluate our backlog to determine if any of the previously awarded work is no
longer expected to be performed, regardless of whether we have received formal cancellation notice from the
customer. If we determine that any previously awarded work is no longer probable of being performed, we
remove the value from our backlog based on risk. We recognize revenue from these awards as services are
performed, provided we have entered into a contractual commitment with the customer. The primary changes
made to our net new business awards and backlog policy related to reducing the commencement date
requirement from twelve months to six months and only recording one year’s worth of an FSP award. These
adjustments resulted in a reduction to our backlog of approximately $284.5 million as of September 30, 2017.
We have recorded the backlog assumed in the Merger consistently with our new backlog policy.
We do not currently report new business awards or backlog data for our Commercial Solutions segment.
Accordingly, all disclosures related to net new service awards and backlog pertain solely to our Clinical
Solutions segment.
Our Clinical Solutions backlog consists of anticipated future net service revenue from business awards that
have not started but are anticipated to begin in the future, or that are in process and have not been
completed. Our backlog also reflects any cancellation or adjustment activity related to these contracts. The
average duration of our contracts will fluctuate from period to period in the future based on the contracts
17
comprising our backlog at any given time. The majority of our Clinical Solutions segment contracts can be
terminated by the customer with a 30-day notice.
As adjusted for the policy changes discussed above, our new business awards, net of award cancellations,
for the years ended December 31, 2017, 2016, and 2015 were $1.82 billion, $1.22 billion, and $1.11 billion,
respectively. Additionally, as of December 31, 2017 and 2016, our backlog was $3.80 billion and $1.88 billion,
respectively, with prior years adjusted to conform to the policy changes discussed above. Included in our
Clinical Solutions backlog at December 31, 2017 is $1.51 billion of backlog assumed in the Merger. We
expect approximately $1.88 billion of our Clinical Solutions backlog at December 31, 2017 will be recognized
as revenue in 2018, with the remainder expected to be recorded as revenue beyond 2018.
We believe that our backlog and net new business awards might not be consistent indicators of future
revenue because they have been, and likely will be, affected by a number of factors, including the variable
size and duration of projects, many of which are performed over several years, and cancellations and
changes to the scope of work during the course of projects. Additionally, projects may be canceled or delayed
by the customer or regulatory authorities. Projects that have been delayed for less than six months generally
remain in backlog, but the anticipated timing of the recognition of revenue is uncertain. We generally do not
have a contractual right to the full amount of the awards reflected in our backlog. If a customer cancels an
award, we might be reimbursed for the costs we have incurred. As we increasingly compete for and enter into
large contracts that are more global in nature, we expect that the rate at which our backlog and net new
business awards convert into revenue is likely to decrease, and the duration of projects and the period over
which related revenue is recognized is likely to increase. No assurance can be given that we will be able to
realize the net service revenue that is included in the backlog. See Part I, Item 1A, "Risk Factors - Risks
Related to Our Business - Our Clinical Solutions backlog might not be indicative of our future revenues, and
we might not realize all the anticipated future revenue reflected in our backlog," and Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of Operations - New Business
Awards and Backlog" of this Annual Report on Form 10-K for more information.
Sales and Marketing
We employ a team of business development sales representatives and support staff that promote, market and
sell our services to biopharmaceutical companies. In addition to significant selling experience, many of these
individuals have technical and/or scientific backgrounds.
Our business development team works with our senior executives, therapeutic and commercial leaders and
project team leaders to maintain key customer relationships and engage in business development activities.
For many of our largest customer relationships, we have dedicated strategic account management teams to
provide customers with a single point of contact to support delivery, cultural and process integration and to
facilitate cross-selling opportunities.
We use integrated and customer-focused business development teams to develop joint sales plans for key
accounts. We also place our business development personnel with strong operational experience around the
globe to help ensure project demands are fulfilled. Each business development employee is generally
responsible for a specific group of customers and for strengthening and expanding an effective relationship
with that customer. Each individual is responsible for developing his or her customer base on our behalf,
responding to customer requests for information, developing and defending proposals, and making
presentations to customers.
As part of each customer proposal, our business development personnel consult with potential
biopharmaceutical customers early in the project consideration stage in order to determine their requirements.
We involve our therapeutic, operational, technical and/or scientific personnel early in each proposal and,
accordingly, these individuals along with our business development representatives invest significant time to
determine the optimal means to design and execute the potential customer's program requirements. As an
example, recommendations we make to a potential customer with respect to a drug development study or
commercial launch strategy design and implementation are an integral part of our bid proposal process and
an important aspect of the integrated services we offer. Our preliminary efforts relating to the evaluation of a
18
proposed clinical or commercial solution, along with the therapeutic, operational, and technical expertise and
advice we provide during this process, enhance the opportunity for accelerated initiation and overall success
of the partnership and work.
To drive brand awareness and positioning, our marketing team supports our business development
organization through various marketing activities consisting primarily of market and competitive analysis,
brand management, market information and collateral development, participation in industry conferences,
content-driven thought leadership advertising, e-marketing, publications, and website development and
maintenance.
As part of the Syneos Health brand launch, a significant investment has been made to carve out a
differentiated positioning based on our unique Biopharmaceutical Acceleration Model where clinical insights
inform commercialization and commercial insights inform clinical trial design. From our brand identity that
delivers on our ability to “sync” clinical and commercial solutions, to our proprietary tagline, “Shortening the
Distance from Lab to Life™,” to curated customer content including commercialization trends impacting real-
time outsourcing solutions, all marketing efforts are delivered through multi-channel platforms to reach the
right customers at the right time. Over time and with enhanced education and reinforcement, we are confident
that brand recognition and our unique value proposition will position us as a preferred strategic outsourcing
partner.
Competition
We operate in highly competitive industries. Our competitors include a variety of companies providing
services to the biopharmaceutical industry, including large and smaller specialty CROs, large global
communications holding companies, smaller specialized communications agencies, and a wide range of
consulting companies. Each of our reportable segments faces distinct competitors within the markets they
serve.
Clinical Solutions
Our Clinical Solutions segment competes primarily against other full-service CROs and services provided by
in-house R&D departments of biopharmaceutical companies, universities and teaching hospitals. Although the
CRO industry has experienced increased consolidation over the past three years, the landscape remains
fragmented. Our major competitors include ICON plc, IQVIA (formerly Quintiles IMS Holdings, Inc.),
Laboratory Corporation of America Holdings (formerly Covance, Inc.), Medpace Holdings, Inc., PAREXEL
International Corporation, Pharmaceutical Product Development, LLC, PRA Health Sciences, Inc., and
numerous specialty and regional players. We generally compete on the basis of the following factors:
•
•
•
•
•
•
experience within specific therapeutic areas;
the quality of staff and services;
the range of services provided;
the ability to recruit principal investigators and patients into studies expeditiously;
the ability to organize and manage large-scale, global clinical trials;
an international presence with strategically located facilities;
• medical database management capabilities;
•
•
•
•
•
•
the ability to deploy and integrate IT systems to improve the efficiency of contract research;
experience with a particular customer;
the ability to form strategic partnerships;
speed to completion;
financial strength and stability;
price; and
19
•
overall value.
Commercial Solutions
Our Commercial Solutions segment's largest competitors in the outsourced sales market are Ashfield (UDG
Healthcare PLC), IQVIA, and Publicis Touchpoint Solutions, Inc. Our primary competitors in the
communications market are large global communications holding companies such as: Havas SA, Omnicom
Group Inc., Publicis Groupe S.A., The Interpublic Group of Companies, Inc., and WPP Group plc. Our
consulting services’ competitors include IQVIA, L.E.K. Consulting LLC, McKinsey & Company, Inc., and ZS
Associates, Inc. We also compete in our addressable market with the internal operations of biopharmaceutical
companies that choose to perform the clinical development and commercialization tasks we provide internally.
We generally compete on the basis of the following factors:
•
•
•
•
•
•
•
experience within the specific therapeutic area;
quality of the staff and services;
creativity of the proposed solution;
perceived "chemistry" with the staff to be deployed;
previous experience with a particular customer;
price; and
overall value.
Notwithstanding these competitive factors, we believe that our deep therapeutic expertise, global reach and
operational strengths differentiate us from our competitors across both of our segments.
Government Regulation
The biopharmaceutical industry is subject to a high degree of governmental regulation in both domestic and
international markets. Regardless of the country or region in which approval is being sought, before a
marketing application for a drug is ready for submission to regulatory authorities, the candidate drug must
undergo rigorous testing in clinical trials. The clinical trial process must be conducted in accordance with the
Federal Food, Drug and Cosmetic Act in the United States and similar laws and regulations in the relevant
foreign jurisdictions. These laws and regulations require the drug to be tested and studied in certain ways
prior to submission for approval.
Regulation of Our Clinical Solutions Segment
In the United States, the FDA regulates the conduct of clinical trials of drug products in human subjects, and
the form and content of regulatory applications. The FDA also regulates the development, approval,
manufacture, safety, labeling, storage, record keeping, and marketing of drug products. The FDA has similar
authority and similar requirements with respect to the clinical testing of biological products and medical
devices. In the EU and other jurisdictions where our customers intend to apply for marketing authorization,
similar laws and regulations apply. Within the EU, these requirements are enforced by the EMA, and
requirements vary slightly from one member state to another. In Canada, clinical trials are regulated by the
Health Products Food Branch of Health Canada as well as provincial regulations. Similar requirements also
apply in other jurisdictions, including Australia, Japan, and other Asian countries, where we operate or where
our customers intend to apply for marketing authorization. Sponsors of clinical trials also follow the ICH GCP
guidelines. An addendum to the ICH GCP Guidelines was adopted by the ICH committee in November 2016
and will now be implemented through national and regional guidance in ICH member states. The changes aim
to encourage sponsors to implement improved oversight and management of clinical trials, utilizing a Quality
Risk Management approach while continuing to ensure protection of human subjects participating in trials and
clinical trial data integrity.
20
Our services are subject to various regulatory requirements designed to ensure the quality and integrity of the
clinical trial process. In the United States, we must perform our clinical development services in compliance
with applicable laws, rules and regulations, including GCP, which govern, among other things, the design,
conduct, performance, monitoring, auditing, recording, analysis, and reporting of clinical trials. Before a
human clinical trial may begin, the manufacturer or sponsor of the clinical product candidate must file an
investigational new drug application ("IND") with the FDA, which contains, among other things, the results of
preclinical tests, manufacturer information, and other analytical data. A separate submission to an existing
IND must also be made for each successive clinical trial conducted during product development. Each clinical
trial must be conducted pursuant to, and in accordance with, an effective IND. In addition, under GCP, each
human clinical trial we conduct is subject to the oversight of an independent institutional review board ("IRB")
which is an independent committee that has the regulatory authority to review, approve and monitor a clinical
trial. The FDA, the IRB, or the sponsor may suspend or terminate a clinical trial at any time on various
grounds, including a finding that the study subjects are being exposed to an unacceptable health risk.
Clinical trials conducted outside the United States are subject to the laws and regulations of the country
where the trials are conducted. These laws and regulations might not be similar to the laws and regulations
administered by the FDA and other laws and regulations regarding the protection of patient safety and privacy
and the control of study pharmaceuticals, medical devices or other study materials. Studies conducted
outside the United States can also be subject to regulation by the FDA if the studies are conducted pursuant
to an IND or an investigational device exemption for a product candidate that will seek FDA approval or
clearance. It is the responsibility of the study sponsor or the parties conducting the studies to ensure that all
applicable legal and regulatory requirements are fulfilled.
In order to comply with GCP and other regulations, we must, among other things:
•
•
•
•
•
•
comply with specific requirements governing the selection of qualified principal investigators and
clinical research sites;
obtain specific written commitments from principal investigators;
obtain review, approval and supervision of the clinical trials by an IRB or ethics committee;
obtain favorable opinion from regulatory agencies to commence a clinical trial;
verify that appropriate patient informed consents are obtained before the patient participates in a
clinical trial;
ensure that adverse drug reactions resulting from the administration of a drug or biologic during a
clinical trial are medically evaluated and reported in a timely manner;
• monitor the validity and accuracy of data;
• monitor drug or biologic accountability at clinical research sites; and
•
verify that principal investigators and study staff maintain records and reports and permit appropriate
governmental authorities access to data for review.
Similar guidelines exist in various states and in other countries. We may be subject to regulatory action if we
fail to comply with applicable rules and regulations. Failure to comply with certain regulations can also result
in the termination of ongoing research and disqualification of data collected during the clinical trials. For
example, violations of GCP could result, depending on the nature of the violation and the type of product
involved, in the issuance of a warning letter, suspension or termination of a clinical study, refusal of the FDA to
approve clinical trial or marketing applications or withdrawal of such applications, injunction, seizure of
investigational products, civil penalties, criminal prosecutions, or debarment from assisting in the submission
of new drug applications. See Part I, Item 1A, "Risk Factors—Risks Related to Our Business—If we fail to
perform our services in accordance with contractual requirements, regulatory standards and ethical
considerations, we could be subject to significant costs or liability and our reputation could be harmed" in this
Annual Report on Form 10-K.
We monitor our clinical trials to test for compliance with applicable laws and regulations in the United States
and the foreign jurisdictions in which we operate. We have adopted standard operating procedures that are
21
designed to satisfy regulatory requirements and serve as a mechanism for controlling and enhancing the
quality of our clinical trials. In the United States, our procedures were developed to ensure compliance with
GCP and associated guidelines.
In addition to its comprehensive regulation of safety in the workplace, the U.S. Occupational Safety and
Health Administration has established extensive requirements relating to workplace safety for healthcare
employers whose workers might be exposed to blood-borne pathogens such as HIV and the hepatitis B virus.
Furthermore, certain employees might have to receive initial and periodic training to ensure compliance with
applicable hazardous materials regulations and health and safety guidelines. We are subject to similar
regulations in Canada and Spain.
Regulation of Our Commercial Solutions Segment
Our field personnel are subject to all laws, rules and regulations governing the promotion of pharmaceutical
products in the United States and in every other country where such personnel performs work. In particular,
these rules and regulations include limitations on the indications for which a product may be promoted and on
promotional spending. Violations of these rules may leave us at risk of direct regulatory enforcement action
and/or cause us to be in breach of contract with our customers.
Some of our field personnel handle and distribute samples of pharmaceutical products. In the United States,
the handling and distribution of prescription drug products are subject to regulation under the Prescription
Drug Marketing Act and other applicable federal, state and local laws and regulations and other countries may
have similar laws or regulations. These laws and regulations regulate the distribution of drug samples by
mandating procedures for storage and record-keeping requirements for drug samples and ban the purchase
or sale of drug samples. Further, companies holding or distributing controlled substances are subject to
regulation by the U.S. Drug Enforcement Agency.
Our communications solutions offerings are subject to all regulatory risks applicable to similar
communications businesses as well as risks that relate specifically to the provision of these services to the
biopharmaceutical industry. Such regulatory risks include enforcement by the FDA, Health Canada, the
Department of Health in the United Kingdom, EMA and the Federal Trade Commission as well as state
agencies and other foreign regulators enforcing laws relating to product advertising, false advertising, and
unfair and deceptive trade practices. In addition to enforcement actions initiated by government agencies,
there has been an increasing tendency in the United States among biopharmaceutical companies to resort to
the courts and industry and self-regulatory bodies to challenge comparative prescription drug advertising on
the grounds that the advertising is false and deceptive. There continues to be an expansion of specific rules,
prohibitions, media restrictions, labeling disclosures and warning requirements with respect to the advertising
for certain products.
Regulation of Patient Information
The confidentiality of patient-specific information and records and the circumstances under which such
patient-specific information and records may be released for inclusion in our databases or used in other
aspects of our business are heavily regulated. The U.S. Department of Health and Human Services has
promulgated rules under the Health Information Technology for Economic and Clinical Health Act in
connection with the application of security and privacy provisions under the Health Information Portability and
Accountability Act (collectively, "HIPAA"). These regulations govern the use, handling and disclosure of
personally identifiable medical information and require the use of standard transactions, privacy and security
standards and other administrative simplification provisions by covered entities, which include many
healthcare providers, health plans, and healthcare clearinghouses. Although we do not consider that our
business activities generally cause us to be subject to HIPAA as a directly covered entity, we endeavor to
embrace sound identity protection practices. These regulations also establish procedures for the exercise of
an individual's rights and the methods permissible for de-identification of health information. We are also
subject to privacy legislation in Canada under the federal Personal Information and Electronic Documents Act,
the Act Respecting the Protection of Personal Information in the Private Sector and the Personal Health
Information Protection Act, and privacy legislation in the EU under the 95/46/EC Privacy Directive on the
protection and free movement of personal data.
22
Intellectual Property
We develop and use a number of proprietary methodologies, analytics, systems, technologies and other
intellectual property in the conduct of our business. We rely upon a combination of confidentiality policies,
nondisclosure agreements and other contractual arrangements to protect our trade secrets, and copyright and
trademark laws to protect other intellectual property rights. We have obtained or applied for trademarks and
copyright protection in the United States and in a number of foreign countries. Our material trademarks
include Trusted Process®, PlanActivation®, QuickStart®, ProgramAccelerate®, QualityFinish®, "Shortening the
distance from lab to life™, Syneos Health, Inc., and other corporate emblems. Although the duration of
trademark registrations varies from country to country, trademarks generally may be renewed indefinitely so
long as they are in use and/or their registrations are properly maintained, and so long as they have not been
found to have become generic. Although we believe the ownership of trademarks is an important factor in our
business and that our success does depend in part on the ownership thereof, we rely primarily on the
innovative skills, technical competence and marketing abilities of our employees. We do not have any
material licenses, franchises or concessions.
Employees
The level of competition among employers in the United States and overseas for skilled personnel is high. We
believe that our brand recognition and our multinational presence are advantages in attracting qualified
candidates. As of December 31, 2017, we had approximately 21,000 employees worldwide, with
approximately 58% located in the United States and Canada, 22% in Europe, 16% in Asia-Pacific, 3% in Latin
America and 1% in the Middle East and Africa. The majority of our employees are employed on a full-time
basis. None of our employees are covered by a collective bargaining agreement and we believe our overall
relations with our employees are good. Employees in certain of our non-U.S. locations are represented by
workers' councils as required by local laws.
Indemnification and Insurance
In conjunction with our Clinical Solutions services, we employ or contract with research institutions and, in
some jurisdictions, principal investigators and pharmacies on behalf of biopharmaceutical companies to serve
as research centers and principal investigators in conducting clinical trials to test new drugs on human
volunteers. Such testing creates the risk of liability for personal injury or death of volunteers, particularly to
volunteers with life-threatening illnesses, resulting from adverse reactions to the drugs administered. It is
possible that we could be held liable for claims and expenses arising from any professional malpractice of the
principal investigators with whom we contract or engage, or in the event of personal injury to or death of
persons participating in clinical trials. In addition, as a result of our operation of Phase I clinical trial facilities,
we could be liable for the general risks associated with clinical trials including, but not limited to, adverse
events resulting from the administration of drugs to clinical trial participants or the professional malpractice of
medical care providers. We also could be held liable for errors or omissions in connection with the services
we perform through each of our service groups. For example, we could be held liable for errors, omissions, or
breach of contract, if monitoring obligations have been transferred to us and one of our CRA's inaccurately
reports from source documents or fails to adequately monitor a human clinical trial resulting in inaccurately
recorded results.
We have sought to reduce our risks by implementing the following where practicable:
•
•
securing contractual assurances such as indemnification provisions and provisions seeking to limit or
exclude liability contained in our contracts with customers, institutions, pharmacies, vendors and
principal investigators;
securing contractual and other assurances that adequate insurance will be maintained to the extent
applicable by customers, institutions, pharmacies, vendors, principal investigators and us; and
23
•
complying with various regulatory requirements, including monitoring that the oversight of
independent review boards and ethics committees are intact where obligations are transferred to us
and monitoring the oversight of the procurement by the principal investigator of each participant's
informed consent to participate in the study.
Our contractual indemnifications generally do not fully protect us against certain of our own actions, such as
negligence. Contractual arrangements are subject to negotiation with customers, and the terms and scope of
any indemnification, limitation of liability or exclusion of liability varies from customer to customer and from
trial to trial. Additionally, financial performance of these indemnities is not secured. Therefore, we bear the risk
that any indemnifying party against which we have claims may not have the financial ability to fulfill its
indemnification obligations to us.
While we maintain a global insurance program including professional liability and other types of insurance
standard to our industry to cover our liability while conducting our business activities and contracted services,
including drug safety issues as well as data processing and other errors and omissions, it is possible that we
could become subject to claims not covered by insurance or that exceed our coverage limits. We could be
materially and adversely affected if we were required to pay damages or bear the costs of defending any
claim that is outside the scope of, or in excess of, a contractual indemnification provision, beyond the level of
insurance coverage or not covered by insurance, or in the event that an indemnifying party does not fulfill its
indemnification obligations.
Executive Officers
The following table sets forth information concerning our executive officers as of December 31, 2017:
Name
Alistair Macdonald
Jason Meggs
Gregory S. Rush
Christopher L. Gaenzle
Age
Position
47
42
50
51
Chief Executive Officer and Director
Executive Vice President and Interim Chief Financial Officer
Former Executive Vice President and Chief Financial Officer
Former Chief Administrative Officer, General Counsel and Secretary
The following is a biographical summary of the experience of our executive officers:
Alistair Macdonald - Chief Executive Officer and Director
Alistair Macdonald has been our Chief Executive Officer ("CEO") and a member of our Company's Board of
Directors (the "Board") since October 2016. He joined our Company in May 2002 and has served in various
senior leadership roles during that time. Prior to his current role, Mr. Macdonald most recently served as
President and Chief Operating Officer from January 2015 to September 2016 and Chief Operating Officer
from January 2013 to January 2015. He also served as our President, Clinical Development Services from
March 2012 to January 2013, Executive Vice President of our Global Oncology Unit from February 2011 to
March 2012, Executive Vice President, Strategic Development from October 2009 to February 2011, and
Senior Vice President, Biometrics from May 2002 to September 2009. He received his Master of Science in
Environmental Diagnostics from Cranfield University.
Jason Meggs - Executive Vice President and Interim Chief Financial Officer
Jason Meggs was appointed Executive Vice President and Interim Chief Financial Officer ("CFO") on
February 21, 2018. Prior to his appointment to this role, he served as Executive Vice President and CFO of
the Commercial Solutions segment of the Company beginning in August 2017. He also previously served as
Executive Vice President, Oncology Operations at the Company from January 2017 to August 2017 and
Senior Vice President, Business Finance with the Company from 2014 to 2016. Prior to joining the Company,
Mr. Meggs was Global Vice President, Internal Audit, at Quintiles Transnational Corporation from 2013 to
2014 and held a number of finance roles at Quintiles from 2005 to 2013. He began his career as an auditor
with Deloitte & Touche LLP and Arthur Anderson LLP, and is a certified public accountant. He received his
24
Bachelor of Science in Business Administration degree with a Major in Accounting from Western Carolina
University.
Gregory S. Rush - Former Executive Vice President and Chief Financial Officer
Greg Rush joined our Company in August 2013 as Executive Vice President and Chief Financial Officer
("CFO"). From April 2010 to August 2013, Mr. Rush served as Senior Vice President and Chief Financial
Officer of Tekelec, Inc., which was acquired by Oracle Corporation in June 2013, after serving as Interim Chief
Financial Officer beginning in March 2010. Mr. Rush joined Tekelec as Vice President and Corporate
Controller in May 2005 and served as Vice President, Corporate Controller and Chief Accounting Officer from
May 2006 to March 2010. His previous experience also includes roles in various senior financial positions with
Siebel Systems, Inc., Quintiles, PricewaterhouseCoopers and Ernst & Young. Mr. Rush received his Bachelor
of Science in Business and Master of Accounting degrees from the University of North Carolina at Chapel Hill,
graduating with honors, and is a Certified Public Accountant. As disclosed in a Form 8-K filing on February 21,
2018, Mr. Rush stepped down as CFO of the Company and ceased to be an executive officer, he will remain
an employee of the Company through April 30, 2018.
Christopher L. Gaenzle - Former Chief Administrative Officer, General Counsel, and Secretary
Chris Gaenzle joined our Company in April 2012 as General Counsel and Secretary. Since August 2013, he
has also served as our Chief Administrative Officer. Prior to joining our Company, Mr. Gaenzle served for five
years in various senior legal positions at Pfizer Inc., where he was most recently Assistant General Counsel
from 2010 to 2012. Prior to Pfizer, Mr. Gaenzle was a partner at Hunton and Williams LLP, where he was a
practicing attorney from 1998 to 2007. Mr. Gaenzle has 20 years of private practice and corporate legal
experience, the majority of which is in the pharmaceutical, medical and clinical research industries. Mr.
Gaenzle received his Bachelor of Arts from Colgate University and his J.D. from Syracuse University. As
disclosed in a Form 8-K filing on February 21, 2018, Mr. Gaenzle stepped down as Chief Administrative
Officer, General Counsel, and Secretary of the Company and ceased to be an executive officer as of
February 19, 2018, he will remain an employee of the Company through April 15, 2018.
Available Information
Our website address is syneoshealth.com. Information on our website is not incorporated by reference herein.
Copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
our proxy statements for our annual stockholders meetings, and any amendments to those reports, as well as
Section 16 reports filed by our insiders, are available free of charge on our website as soon as reasonably
practicable after we file the reports with, or furnish the reports to, the Securities and Exchange Commission
(the "SEC"). Our SEC filings are also available for reading and copying at the SEC’s Public Reference Room
at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room
may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site
(http://www.sec.gov) containing reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC.
25
Item 1A. Risk Factors.
We operate in a rapidly changing environment that involves a number of risks, some of which are beyond our
control. In evaluating our company, you should consider carefully the risks and uncertainties described below
together with the other information included in this Annual Report on Form 10-K, including our consolidated
financial statements and related notes included in Part II, Item 8, "Financial Statements and Supplementary
Data" in this Annual Report on Form 10-K. The occurrence of any of the following risks may materially and
adversely affect our business, financial condition, results of operations and future prospects.
Risks Related to Our Business
If we do not generate a large number of new business awards, or if new business awards are delayed,
terminated, reduced in scope or fail to go to contract, our business, financial condition, results of
operations, or cash flows may be materially adversely affected.
Our business is dependent on our ability to generate new business awards from new and existing customers
and maintain existing customer contracts. Our inability to generate new business awards on a timely basis
and subsequently enter into contracts for such awards could have a material adverse effect on our business,
financial condition, results of operations or cash flows.
There is risk of cancelability in both the clinical and commercial businesses. The time between when a clinical
study is awarded and when it goes to contract is typically several months, and prior to a new business award
going to contract, our customer can cancel the award without notice. Once an award goes to contract, the
majority of our customers can terminate the contract with little notice, in many cases 30 days or less. Our
contracts may be delayed or terminated by our customers or reduced in scope for a variety of reasons beyond
our control, including but not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
decisions to forego or terminate a particular trial;
budgetary limits or changing priorities;
actions by regulatory authorities;
production problems resulting in shortages of the drug being tested;
failure of products being tested to satisfy safety requirements or efficacy criteria;
unexpected or undesired clinical results for products;
insufficient patient enrollment in a trial;
insufficient principal investigator recruitment;
production problems resulting in shortages of the product being tested;
the customers’ decision to terminate or scale back the development or commercialization of a product
or to end a particular project;
shift of business to a competitor or internal resources; or
product withdrawal following market launch.
Our commercial services contracts typically have a significantly shorter wind down period than clinical
contracts, particularly within our selling solutions offerings. Furthermore, many of our communications
services and consulting services projects are tied to a customer’s annual marketing budget or ad hoc service
requests, which can lead to seasonal variability in revenue and less predictability in future revenues. In
addition, many of our biopharmaceutical selling solutions service contracts provide our customers with the
opportunity to internalize the resources provided under the contract and terminate all or a portion of the
services we provide under the contract. Our customers may also decide to shift their business to a competitor.
Each of these factors results in less visibility to future revenues and higher volatility in future revenues.
Contract terminations, delays and modifications are a regular part of our business across each of our
segments. For example, our full-service offering within our Clinical Solutions business has been, and may
continue to be, negatively impacted by project delays, which impact near term revenue disproportionately. In
26
addition, project delays, downsizings and cancellations, particularly within our selling solutions and
communications offerings, which are part of our Commercial Solutions business, have impacted our results in
the past and might impact them in the future. The loss, reduction in scope or delay of a large project or of
multiple projects could have a material adverse effect on our business, results of operations and financial
condition. In addition, we might not realize the full benefits of our backlog if our customers cancel, delay or
reduce their commitments to us.
In the event of termination, our contracts often provide for fees for winding down the project, which include
both fees incurred and actual and non-cancellable expenditures and may include a fee to cover a percentage
of the remaining professional fees on the project. These fees might not be sufficient for us to maintain our
margins, and termination may result in lower resource utilization rates and therefore lower operating margins.
In addition, cancellation of a contract or project for the reasons noted above may result in the unwillingness or
inability of our customer to satisfy its existing obligations to us such as payments of accounts receivable,
which may in turn result in a material impact to our results of operations and cash flow. Historically,
cancellations and delays have negatively impacted our operating results, and they might again. In addition,
we might not realize the full benefits of our backlog if our customers cancel, delay or reduce their
commitments to us, which may occur if, among other things, a customer decides to shift its business to a
competitor or revoke our status as a preferred provider. Thus, the loss or delay of a large business award or
the loss or delay of multiple awards could adversely affect our service revenues and profitability. Additionally,
a change in the timing of a new business award could affect the period over which we recognize revenue and
reduce our revenue in any one quarter.
Our Clinical Solutions backlog might not be indicative of our future revenues, and we might not
realize all of the anticipated future revenue reflected in our backlog.
Our Clinical Solutions backlog consists of anticipated net service revenue awarded from contract and pre-
contract commitments that are supported by written communications. Once work begins on a project, revenue
is recognized over the duration of the project, provided the award has gone to contract. Projects may be
canceled or delayed by the customer or delayed by regulatory authorities for reasons beyond our control. To
the extent projects are delayed, the timing of our revenue could be adversely affected. In addition, if a
customer terminates a contract, we typically would be entitled to receive payment for all services performed
up to the termination date and subsequent customer-authorized services related to terminating the canceled
project. Typically, however, we have no contractual right to the full amount of the future revenue reflected in
our Clinical Solutions backlog in the event of a contract termination or subsequent changes in scope that
reduce the value of the contract. The duration of the projects included in our Clinical Solutions backlog, and
the related revenue recognition, typically range from a few months to several years. Our Clinical Solutions
backlog might not be indicative of our future revenues, and we might not realize all the anticipated future
revenue reflected in that backlog. A number of factors may affect backlog, including:
•
•
•
•
the size, complexity and duration of projects or strategic relationships;
the cancellation or delay of projects;
the failure of one or more business awards to go to contract; and
changes in the scope of work during the course of projects.
The rate at which our Clinical Solutions backlog converts to revenue may vary over time. The revenue
recognition on larger, more global projects could be slower than on smaller, more regional projects for a
variety of reasons, including, but not limited to, an extended period of negotiation between the time the project
is awarded to us and the actual execution of the contract, as well as an increased time frame for obtaining the
necessary regulatory approvals.
Our Clinical Solutions backlog at December 31, 2017 was $3.80 billion. Although an increase in Clinical
Solutions backlog will generally result in an increase in revenues over time, an increase in backlog at a
particular point in time does not necessarily correspond directly to an increase in revenues during any
particular period, or at all. The extent to which contracts in Clinical Solutions backlog will result in revenue
depends on many factors, including, but not limited to, delivery against project schedules, scope changes,
contract terminations and the nature, duration and complexity of the contracts, and can vary significantly over
time. Subsequent to the August 2017 Merger with inVentiv, our Clinical Solutions segment represents only a
27
portion of our overall business resulting in our reported backlog becoming less meaningful as an indicator of
our future total revenues.
We do not currently report new business awards or backlog data for our Commercial Solutions segment.
Failure to adopt the new accounting standard of recognizing revenue from contracts with customers
in a timely manner could cause our business, financial condition, results of operations or cash flows
to be materially adversely affected.
Effective January 1, 2018, the Company is required to adopt the Financial Accounting Standards Board
("FASB") Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, the
new comprehensive accounting standard for recognizing revenue from contracts with customers. If the
Company is unable to accurately and efficiently adopt the new standard effective on January 1, 2018, is
unable to adopt the new standard for the combined company after the Merger, is unable to get its information
systems and processes in place to facilitate compliance, or is unable to effectively communicate the changes
in revenue recognition policy to investors, the Company may lose investor confidence, its ability to raise
capital, and/or its business, financial condition, results of operations or cash flows may be materially
adversely affected. See "Note 1 - Basis of Presentation and Changes in Significant Accounting Policies" to the
consolidated financial statements in Part II, Item 8, "Financial Statements and Supplementary Data” in this
Annual Report on Form 10-K for further information regarding ASU 2014-09.
Our operating results have historically fluctuated between fiscal quarters and may continue to
fluctuate in the future, which may adversely affect the market price of our stock.
Our operating results have fluctuated in previous quarters and years and may continue to vary significantly
from quarter to quarter and are influenced by a variety of factors, such as:
•
•
•
•
•
•
•
timing of contract amendments for changes in scope that could affect the value of a contract and
potentially impact the amount of net new business awards and net service revenues from quarter to
quarter;
commencement, completion, execution, postponement or termination of large contracts;
contract terms for the recognition of revenue milestones;
progress of ongoing contracts and retention of customers;
timing of and charges associated with completion of acquisitions, integration of acquired businesses,
and other events;
changes in the mix of services delivered, both in terms of geography and type of services;
potential customer disputes, penalties or other issues that may impact the revenue we are able to
recognize or the collectability of our related accounts receivable; and
•
exchange rate fluctuations.
Our operating results for any particular quarter are not necessarily a meaningful indicator of future results and
fluctuations in our quarterly operating results could negatively affect the market price and liquidity of our stock.
If we underprice our contracts, overrun our cost estimates or fail to receive approval for or experience
delays in documentation of change orders, our business, financial condition, results of operations or
cash flows may be materially adversely affected.
We price our contracts based on assumptions regarding the scope of work required and cost to complete the
work. We bear the financial risk if we initially underprice our contracts or otherwise overrun our cost
estimates, which could adversely affect our cash flows and financial performance. In addition, contracts with
our customers are subject to change orders, which occur when the scope of work we perform needs to be
modified from that originally contemplated in our contract with the customers. This can occur, for example,
when there is a change in a key study assumption or parameter or a significant change in timing. We may be
unable to successfully negotiate changes in scope or change orders on a timely basis or at all, which could
require us to incur cost outlays ahead of the receipt of any additional revenue. In addition, under generally
accepted accounting principles in the United States of America ("GAAP") we cannot recognize additional
28
revenue anticipated from change orders until appropriate documentation is received by us from the customer
authorizing the change. However, if we incur additional expense in anticipation of receipt of that
documentation, we must recognize the expense as incurred. Any of the foregoing could have a material
adverse effect on our business, financial condition, results of operations or cash flows.
Our business depends on the continued effectiveness and availability of our information systems,
including the information systems we use to provide services to our customers and to store
employee data, and failures of these systems, including cyber-attacks, may materially limit our
operations or have an adverse effect on our reputation.
Our information systems are comprised of systems we have purchased or developed, legacy information
systems from organizations we have acquired, including inVentiv and, increasingly, web-enabled and other
integrated information systems. In using these information systems, we frequently rely on third-party vendors
to provide hosting services, where our infrastructure is dependent upon the reliability of their underlying
platforms, facilities and communications systems. We also utilize integrated information systems that we
provide customers access to or install for our customers in conjunction with our delivery of services.
As the breadth and complexity of our information systems continue to grow, we will increasingly be exposed
to the risks inherent in maintaining the stability of our legacy systems due to prior customization, attrition of
employees or vendors involved in their development, and obsolescence of the underlying technology as well
as risks from the increasing number and scope of external data breaches on multi-national companies. In
addition, during 2017 we began a major integration of the legacy inVentiv financial and operational systems to
our financial and operating systems. Please refer to the risk factor “Upgrading the information systems that
support our operating processes and evolving the technology platform for our services pose risks to our
business” below for additional risk related to integrating information technology systems and processes.
Because certain customers, clinical trials, and other long-term projects depend upon these legacy systems,
we also face an increased level of embedded risk in maintaining the legacy systems and limited options to
mitigate such risk. We are also exposed to risks associated with the availability of all our information systems,
including:
•
•
disruption, impairment or failure of data centers, telecommunications facilities or other key
infrastructure platforms, including those maintained by our third-party vendors;
security breaches of, cyber-attacks on and other failures or malfunctions in our internal systems,
including our employee data and communications, critical application systems or their associated
hardware; and
•
excessive costs, excessive delays or other deficiencies in systems development and deployment.
The materialization of any of these risks may impede the processing of data, the delivery of databases and
services, and the day-to-day management of our business and could result in the corruption, loss or
unauthorized disclosure of proprietary, confidential or other data. While we have disaster recovery plans in
place, they might not adequately protect us in the event of a system failure. Despite any precautions we take,
damage from fire, floods, hurricanes, power loss, telecommunications failures, computer viruses, break-ins
and similar events at our various computer facilities or those of our third-party vendors could result in
interruptions in the flow of data to us and from us to our customers. Corruption or loss of data may result in
the need to repeat a project at no cost to the customer, but at significant cost to us, the termination of a
contract or damage to our reputation. Additionally, significant delays in system enhancements or inadequate
performance of new or upgraded systems once completed could damage our reputation and harm our
business. Finally, long-term disruptions in the infrastructure caused by events such as natural disasters, the
outbreak of war, the escalation of hostilities and acts of terrorism, particularly involving cities in which we have
offices, and cyber-attacks such as those recently faced by other multi-national companies could adversely
affect our businesses. As our business continues to expand globally, these types of risks may be further
increased by instability in the geopolitical climate of certain regions, underdeveloped and less stable utilities
and communications infrastructure, and other local and regional factors. Although we carry property and
business interruption insurance that we believe is customary for our industry, our coverage might not be
adequate to compensate us for all losses that may occur.
29
Unauthorized disclosure of sensitive or confidential data, whether through systems failure or employee
actions, cyber-attacks, fraud or misappropriation, could damage our reputation and cause us to lose
customers. Similarly, we have been and expect that we will continue to be subject to attempts to gain
unauthorized access to or through our information systems or those we internally or externally develop for our
customers, including a cyber-attack by computer programmers and hackers who may develop and deploy
viruses, worms or other malicious software programs, process breakdowns, denial-of-service attacks,
malicious social engineering or other malicious activities, or any combination of the foregoing. In addition, we
may be susceptible to physical or computer-based attacks by terrorists or hackers due to our role in the
biopharmaceutical service industry. These concerns about security are increased when information is
transmitted over the Internet. Threats include cyber-attacks such as computer viruses, worms or other
destructive or disruptive software, and any of these could result in a degradation or disruption of our services
or damage to our properties, equipment and data. They could also compromise data security, including the
security of personal data. If such attacks are not detected immediately, their effect could be compounded. To
date these attacks have not had a material impact on our operations or financial results. However, successful
attacks in the future could result in negative publicity, significant remediation and recovery costs, legal liability
and damage to our reputation and could have a material adverse effect on our financial condition, results of
operations and cash flows. In addition, our liability insurance might not be sufficient in type or amount to cover
us against claims related to security breaches, cyber-attacks and other related breaches.
Additionally, we rely on service providers for the timely transmission of information across our global data
network. If a service provider fails to provide the communications capacity or services we require for similar
reasons, the failure could interrupt our services. Because of the centrality of our processing systems to our
business, any interruption or degradation could adversely affect the perception of our brands' reliability and
harm our business. If a service provider experiences the unauthorized disclosure of sensitive or confidential
data they are processing on our behalf, whether through systems failure or employee actions, cyber-attacks,
fraud, or misappropriation, it could damage our reputation and cause us to lose customers. Similarly, such
disclosure could result in negative publicity, significant remediation and recovery costs, legal liability and
damage to our reputation, and could have a material adverse effect on our financial condition, results of
operations, and cash flows. In addition, contractual indemnity, the service provider’s liability insurance and our
liability insurance might not be sufficient in type or amount to cover us against claims related to security
breaches, cyber-attacks, and other related breaches.
We are subject to regulation in the areas of consumer privacy and data use and security.
Privacy, data use and security continue to receive heightened legislative and regulatory focus in the United
States, Europe and elsewhere. For example, in many jurisdictions victims must be notified in the event of a
data breach and those jurisdictions that have these laws are continuing to increase the circumstances and the
breadth of these notices. Our failure or the failure of our customers to comply with these laws and regulations
could result in fines, sanctions, litigation, damages, cost for mitigation activities and damage to our global
reputation and our brands.
Our customer or therapeutic area concentration may have a material adverse effect on our business,
financial condition, results of operations or cash flows.
If any large customer decreases or terminates its relationship with us, our business, financial condition,
results of operations or cash flows could be materially adversely affected. For the year ended December 31,
2017, our top ten customers based on revenue accounted for approximately 37% of our consolidated net
service revenue and our top ten Clinical Solutions customers based on backlog accounted for approximately
39% of our total backlog. No single customer accounted for greater than 10% of our total consolidated net
service revenue for the years ended December 31, 2017, 2016 or 2015. It is possible that an even greater
portion of our revenues will be attributable to a smaller number of customers in the future, including as a
result of our entering into strategic provider relationships with customers. Also, consolidation in our potential
customer base results in increased competition for important market segments and fewer available customer
accounts.
Additionally, conducting multiple clinical trials for different sponsors in a single therapeutic class involving
drugs with the same or similar chemical action may adversely affect our business if some or all of the trials
are canceled because of new scientific information or regulatory judgments that affect the drugs as a class.
Similarly, marketing and selling products for different sponsors with similar drug action subjects us to risk if
30
new scientific information or regulatory judgment prejudices the products as a class, leading to compelled or
voluntary prescription limitations or withdrawal of some or all of the products from the market.
Our business is subject to international economic, political and other risks that could have a material
adverse effect on our business, financial condition, results of operations, cash flows or reputation.
We have operations in many foreign countries, including, but not limited to, countries in the Asia-Pacific
region, Europe, Latin America and the Middle East and Africa. As of December 31, 2017, approximately 47%
of our workforce was located outside of the United States, and for the fiscal year ended December 31, 2017,
approximately 39% of our net service revenue was billed to locations outside the United States. Our
international operations are subject to risks and uncertainties inherent in operating in these regions, including:
•
•
•
•
•
•
•
•
•
•
•
conducting a single project across multiple countries is complex, and issues in one country, such as a
failure to comply with or unanticipated changes to local regulations or restrictions such as restrictions
on import or export of clinical trial material or availability of clinical trial data may affect the progress of
the trial in the other countries, resulting in delays or potential termination of contracts, which in turn
may result in loss of revenue;
the United States or other countries could enact legislation or impose regulations or other restrictions,
including unfavorable labor regulations, tax policies, data protection regulations or economic
sanctions, which could have an adverse effect on our ability to conduct business in or expatriate
profits from the countries in which we operate;
foreign countries are expanding or may expand their banking regulations that govern international
currency transactions, particularly cross-border transfers, which may inhibit our ability to transfer
funds into or within a jurisdiction, impeding our ability to pay our principal investigators, vendors and
employees, thereby impacting our ability to conduct trials in such jurisdictions;
foreign countries are expanding or may expand their regulatory framework with respect to patient
informed consent, protection and compensation in clinical trials, or transparency reporting
requirements (similar to the Physician Payments Sunshine Act in the United States), which could
delay, inhibit or prohibit our ability to conduct projects in such jurisdictions;
the regulatory or judicial authorities of foreign countries might not enforce legal rights and recognize
business procedures in a manner in which we are accustomed or would reasonably expect;
changes in political and economic conditions, including the June 2016 vote by the U.K. to exit from
the European Union and the results of the U.S. presidential election, may lead to changes in the
business environment in which we operate, as well as changes in inflation and foreign currency
exchange rates;
potential violations of applicable anti-bribery/anti-corruption laws, including the United States Foreign
Corrupt Practices Act ("FCPA") and the UK Bribery Act of 2010, may cause a material adverse effect
on our business, financial condition, results of operations, cash flows or reputation;
customers in foreign jurisdictions may have longer payment cycles, and it may be more difficult to
collect receivables in those jurisdictions;
natural disasters, pandemics or international conflict, including terrorist acts, could interrupt our
services, endanger our personnel or cause project delays or loss of trial materials or results;
political unrest, such as the current situations in the Middle East, could delay or disrupt the ability to
conduct clinical trials or other business; and
foreign governments may enact currency exchange controls that may limit the ability to fund our
operations or significantly increase the cost of maintaining operations.
These risks and uncertainties could negatively impact our ability to, among other things, perform large, global
projects for our customers. Furthermore, our ability to deal with these issues could be affected by applicable
U.S. laws. Any such risks could have an adverse impact on our business, financial condition, results of
operations, cash flows or reputation.
31
Governmental authorities may question our intercompany transfer pricing policies or change their
laws in a manner that could increase our effective tax rate or otherwise harm our business.
As a U.S. company doing business in international markets through subsidiaries, we are subject to foreign tax
and intercompany pricing laws, including those relating to the flow of funds between legal entities in various
international jurisdictions. Tax authorities in the United States and in international markets have the right to
examine our corporate structure and how we account for intercompany fund transfers. If such authorities
challenge our corporate structure, transfer pricing mechanisms or intercompany transfers and the resulting
assessments are upheld, our operations may be negatively impacted and our effective tax rate may increase.
Tax rates vary from country to country and if a tax authority determines that our profits in one jurisdiction
should be increased, we might not be able to realize the full tax benefits in the event we cannot utilize all
foreign tax credits that are generated, or we do not realize a compensating offsetting adjustment in another
taxing jurisdiction. The effects of either would increase our effective tax rate. Additionally, the Organization for
Economic Cooperation and Development has issued certain guidelines regarding base erosion and profit
shifting. As these guidelines continue to be formally adopted by separate taxing jurisdictions, we may need to
change our approach to intercompany transfer pricing in order to maintain compliance under the new rules.
Our effective tax rate may increase or decrease depending on the current location of global operations at the
time of the change. Finally, we might not always be in compliance with all applicable customs, exchange
control, Value Added Tax and transfer pricing laws despite our efforts to be aware of and to comply with such
laws. If these laws change we may need to adjust our operating procedures and our business could be
adversely affected.
If we are unable to successfully increase our market share, our ability to grow our business and
execute our growth strategies could be materially adversely affected.
A key element of our growth strategy is increasing our market share within the biopharmaceutical services
market, the clinical development market and in the geographic markets in which we operate. In addition, we
continue to invest in expanding new services such as our late phase offerings, along with solutions for our
medical device customers. As we grow our market share within the biopharmaceutical services and clinical
development markets and make investments in growing our newer service offerings, we might not have or
adequately build the competencies necessary to perform our services satisfactorily or may face increased
competition. If we are unable to succeed in increasing our market share or realize the benefits of our
investments in our new service offerings, we may be unable to implement this element of our growth strategy,
and our ability to grow our business or maintain our operating margins could be adversely affected.
Upgrading the information systems that support our operating processes and evolving the
technology platform for our services pose risks to our business.
Continued efficient operation of our business requires that we implement standardized global business
processes and evolve our information systems to enable this implementation, especially in the course of
integrating inVentiv into our company. We have continued to undertake significant programs to optimize
business processes with respect to our services. Our inability to effectively manage the implementation of
new information systems or upgrades and adapt to new processes designed into these new or upgraded
systems in a timely and cost-effective manner may result in disruption to our business and negatively affect
our operations.
We have entered into agreements with certain vendors to provide systems development, integration, and
hosting services that develop or license to us the information technology ("IT") platforms and capacity for
programs to optimize our business processes. If such vendors or their products fail to perform as required or if
there are substantial delays in developing, implementing, and updating our IT platforms, our customer
delivery may be impaired, and we may have to make substantial further investments, internally or with third
parties, to achieve our objectives. For example, we rely on an external vendor to provide the clinical trial
management software used in managing the completion of our customer clinical trials. If that externally
provided system is not properly maintained we might not be able to meet the obligations of our contracts or
may need to incur significant costs to replace the system or capability. Additionally, our progress may be
limited by parties with existing or claimed patents who seek to enjoin us from using preferred technology or
seek license payments from us.
32
Meeting our objectives is dependent on a number of factors which might not take place as we anticipate,
including obtaining adequate technology-enabled services, depending upon our third-party vendors to
develop and enhance existing applications to adequately support our business, creating IT-enabled services
that our customers will find desirable and implementing our business model with respect to these services.
Also, increased IT-related expenditures and our potential inability to anticipate increases in service costs may
negatively impact our business, financial condition, results of operations or cash flows.
If we fail to perform our services in accordance with contractual requirements, regulatory standards
and ethical considerations, we could be subject to significant costs or liability and our reputation
could be harmed.
We contract with biopharmaceutical companies to perform a wide range of services to assist them in bringing
new drugs to market and to support the commercial activity of products already in the marketplace. Our
services include monitoring clinical trials, data and laboratory analysis, EDC, patient recruitment, product
launch consulting, selling solutions, advertising, publications and medical communications, and other related
services. Such services are complex and subject to contractual requirements, regulatory standards and
ethical considerations. For example, we must adhere to applicable regulatory requirements such as those
required by the Food and Drug Administration, European Medicines Agency, and current Good Clinical
Practice regulations, which govern, among other things, the design, conduct, performance, monitoring,
auditing, recording, analysis, and reporting of clinical trials and the promotion, sales and marketing of
biopharmaceutical products. If we fail to perform our services in accordance with these requirements,
regulatory agencies may take action against us or our customers. Such actions may include sanctions such
as injunctions or failure of such regulatory authorities to grant marketing approval of products, imposition of
clinical holds or delays, suspension or withdrawal of approvals, rejection of data collected in our studies,
license revocation, product seizures or recalls, operational restrictions, civil or criminal penalties or
prosecutions, damages or fines. Additionally, there is a risk that actions by regulatory authorities, if they result
in significant inspectional observations or other measures, could harm our reputation and cause customers
not to award us future contracts or to cancel existing contracts. Any such action could have a material
adverse effect on our business, financial condition, results of operations, cash flows or reputation.
Such consequences could arise if, among other things, the following occur:
Improper performance of our services. The performance of our clinical development and other
biopharmaceutical services is complex and time-consuming. For example, we may make mistakes in
conducting a clinical trial that could negatively impact or obviate the usefulness of the trial or cause the results
of the trial to be reported improperly. If the trial results are compromised, we could be subject to significant
costs or liability, which could have an adverse impact on our ability to perform our services and our reputation
could be harmed. For example:
•
•
non-compliance generally could result in the termination of ongoing clinical trials or the
disqualification of data for submission to regulatory authorities;
compromise of data from a particular trial, such as failure to verify that adequate informed consent
was obtained from subjects or improper monitoring of data, could require us to repeat the trial under
the terms of our contract at no further cost to our customer, but at a substantial cost to us; and
•
breach of a contractual term could result in liability for damages or termination of the contract.
Large clinical trials can cost hundreds of millions of dollars and improper performance of our services could
have a material adverse effect on our financial condition, damage our reputation, and result in the termination
of current contracts or failure to obtain future contracts from the affected customer or other customers.
Interactive Voice/Web Response Technology malfunction. We develop, maintain, and use third-party
computer-based interactive voice/web response systems to automatically manage the randomization of
patients in a given clinical trial to different treatment arms and regulate the supply of investigational drugs, all
by means of interactive voice/web response systems. An error in the design, programming, or validation of
these systems could lead to inappropriate assignment or dosing of patients which could give rise to patient
safety issues, invalidation of the trial, or liability claims against us. Furthermore, negative publicity associated
with such a malfunction could have an adverse effect on our business and reputation. Additionally, errors in
33
randomization may require us to repeat the trial at no further cost to our customer, but at a substantial cost to
us.
Investigation of customers. From time to time, one or more of our customers are audited or investigated by
regulatory authorities or enforcement agencies with respect to regulatory compliance of their clinical trials,
programs or the marketing and sale of their drugs. In these situations, we have often provided services to our
customers with respect to the clinical trials, programs, or activities being audited or investigated, and we are
called upon to respond to requests for information by the authorities and agencies. There is a risk that either
our customers or regulatory authorities could claim that we performed our services improperly or that we are
responsible for clinical trial or program compliance. If our customers or regulatory authorities make such
claims against us and prove them, we could be subject to damages, fines, or penalties. In addition, negative
publicity regarding regulatory compliance of our customers' clinical trials, programs, or drugs could have an
adverse effect on our business and reputation.
Insufficient customer funding to complete a clinical trial. As noted above, clinical trials can cost hundreds of
millions of dollars. There is a risk that we may initiate a clinical trial for a customer, and then the customer
becomes unwilling or unable to fund the completion of the trial. In such a situation, notwithstanding the
customer's ability or willingness to pay for or otherwise facilitate the completion of the trial, we may be
ethically bound to complete or wind down the trial at our own expense.
In addition to the above U.S. laws and regulations, we must comply with the laws of all countries where we do
business, including laws governing clinical trials in the jurisdiction where the trials are performed. Failure to
comply with applicable requirements could subject us to regulatory risk, liability, and potential costs
associated with redoing the trials, which could damage our reputation and adversely affect our operating
results.
Any future litigation against us could be costly and time-consuming to defend.
We may become subject, from time to time, to legal proceedings and claims that arise in the ordinary course
of business or pursuant to governmental or regulatory enforcement activity. While we do not believe that the
resolution of any currently pending lawsuits against us will, individually or in the aggregate, have a material
adverse effect on our business, financial condition, results of operations, or cash flows, we might be wrong,
and future litigation might result in substantial costs and divert management's attention and resources, which
might seriously harm our business, financial condition, results of operations, and cash flows. Insurance might
not cover such claims, provide sufficient payments to cover all of the costs to resolve one or more such
claims, or continue to be available on terms acceptable to us. In particular, any claim could result in potential
liability for us if the claim is outside the scope of the indemnification agreement we have with our customers,
our customers do not abide by the indemnification agreement as required or the liability exceeds the amount
of any applicable indemnification limits or available insurance coverage. A claim brought against us that is
uninsured or underinsured could result in unanticipated costs and could have a material adverse effect on our
financial condition, results of operations, cash flows, or reputation.
The operation of our early stage (Phase I and IIA) clinical facilities and the services we provide there
as well as our clinical trial management, including direct interaction with clinical trial patients or
volunteers, could create potential liability that may adversely affect our business, financial condition,
results of operations, cash flows, and reputation.
We operate facilities where early stage clinical trials are conducted, which ordinarily involve testing an
investigational drug on a limited number of individuals to evaluate a product’s safety, determine a safe dosage
range and identify side effects. Additionally, our business involves clinical trial management, which is one of
our clinical development service offerings, and includes the testing of new drugs on human volunteers. Some
of these trials involve the administration of investigational drugs to known substance abusers or volunteers
and patients that are already seriously ill and are at risk for further illness or death. Failure to operate any of
our early stage facilities in accordance with applicable regulations could result in that facility being shut down,
which could disrupt our operations and adversely affect our business, financial condition, results of
operations, cash flows, and reputation.
Additionally, we face risks resulting from the administration of drugs to volunteers, including adverse events,
and the professional malpractice of medical care providers, including improper administration of a drug or
34
device. We also directly employ doctors, nurses, and other trained employees who assist in implementing the
testing involved in our clinical trials, such as drawing blood from healthy volunteers. Although we attempt to
negotiate indemnification arrangements with our customers or vendors, we might not be able to collect under
these arrangements and our exposure could exceed any contractual limits on indemnification. Any
professional malpractice or negligence by such doctors, nurses, principal investigators, or other employees
could potentially result in liability to us in the event of personal injury to or death of a volunteer in clinical trials.
This liability, particularly if it were to exceed the limits of any indemnification agreements and insurance
coverage we may have, may adversely affect our business and financial condition, results of operations, cash
flows, and reputation.
If our insurance does not cover all of our indemnification obligations and other liabilities associated
with our operations, our business, financial condition, results of operations, or cash flows may be
materially adversely affected.
We maintain insurance designed to provide coverage for ordinary risks associated with our operations and
our ordinary indemnification obligations that we believe to be customary for our industry. The coverage
provided by such insurance might not be adequate for all claims we make or may be contested by our
insurance carriers. If our insurance is not adequate or available to pay all claims or exposures associated with
our operations, or if we are unable to purchase adequate insurance at reasonable rates in the future, our
business, financial condition, results of operations or cash flows may be materially adversely affected.
If we are unable to attract suitable principal investigators and recruit and enroll patients for clinical
trials, our clinical development business might suffer.
The recruitment of principal investigators and patients for clinical trials is essential to our business. Principal
investigators are typically located at hospitals, clinics, or other sites and supervise the administration of the
investigational drug to patients during the course of a clinical trial. Patients generally include people from the
communities in which the clinical trials are conducted. Several of our competitors have purchased site
networks or site management organizations as a strategy for priority access to a specific site, which could put
us at a competitive disadvantage. Our clinical development business could be adversely affected if we are
unable to attract suitable and willing principal investigators or recruit and enroll patients for clinical trials on a
consistent basis. The expanding global nature of clinical trials increases the risk associated with attracting
suitable principal investigators and patients, especially if these trials are conducted in regions where our
resources or experience may be more limited. For example, if we are unable to engage principal investigators
to conduct clinical trials as planned or enroll sufficient patients in clinical trials, we might need to expend
additional funds to obtain access to more principal investigators and patients than planned or else be
compelled to delay or modify the clinical trial plans, which may result in additional costs to us or cancellation
of the trial by our customer. If realized, these risks may also inhibit our ability to attract new business,
particularly in certain regions.
Our business could result in liability to us if a drug causes harm to a patient. While we are generally
indemnified and insured against such risks, we may still suffer financial losses.
When we market drugs under contract for a biopharmaceutical company, we could suffer liability for harm
allegedly caused by those drugs, either as a result of a lawsuit against the biopharmaceutical company to
which we are joined, a lawsuit naming us or any of our subsidiaries, or an action launched by a regulatory
body. While we are generally indemnified by the biopharmaceutical company for the action of the drugs we
market on its behalf and carry insurance to cover harm caused by our negligence in performing services, it is
possible that we could nonetheless incur financial losses, regulatory penalties, or both. In particular, any claim
could result in potential liability for us if the claim is outside the scope of the indemnification agreement we
have with the biopharmaceutical company, the biopharmaceutical company does not abide by the
indemnification agreement as required, or the liability exceeds the amount of any applicable indemnification
limits or available insurance coverage. Such a result could have an adverse impact on our financial condition,
results of operations, cash flows, and reputation. Furthermore, negative publicity associated with harm
caused by drugs we helped to market could have an adverse effect on our business and reputation.
35
Investments in our customers’ businesses or drugs and our related commercial rights strategies
could have a negative impact on our financial performance.
We may enter into arrangements with our customers or other drug companies in which we take on some of
the risk of the potential success or failure of their businesses or drugs, including making strategic investments
in our customers or other drug companies, providing financing to customers or other drug companies, or
acquiring an interest in the revenues from customers’ drugs or in entities developing a limited number of
drugs. Before entering into any such arrangements, we carefully analyze and select the customers and drugs
with which we are willing to structure our risk-based deals. Our financial results could be adversely affected if
these investments or the underlying drugs result in losses, do not achieve the level of success that we
anticipate, and/or our return or payment from the drug investment or financing is less than our direct and
indirect costs with respect to these arrangements. Additionally, there is a risk that we are not awarded projects
by other customers who believe we are in competition with them because of these investments, which would
negatively impact future awards.
If we lose the services of key personnel or are unable to recruit experienced personnel, our business,
financial condition, results of operations, cash flows, or reputation could be materially adversely
affected.
Our success substantially depends on the collective performance, contributions, and expertise of our senior
management team and other key personnel including qualified management, professional, scientific, and
technical operating staff, and business development personnel, particularly as we integrate inVentiv into our
company. There is significant competition for qualified personnel, particularly those with higher educational
degrees, in the biopharmaceutical and related services industries. In addition, the close proximity of some of
our facilities to offices of our major competitors could adversely impact our ability to successfully recruit and
retain key personnel. The departure of any key executive, or our inability to continue to identify, attract and
retain qualified personnel or replace any departed personnel in a timely fashion, might impact our ability to
grow our business and compete effectively in our industry and might negatively affect our business, financial
condition, results of operations, cash flows, or reputation.
Foreign currency exchange rate fluctuations may have a material adverse effect on our financial
condition, results of operations, and cash flows.
Approximately 17% of our fiscal year 2017 net service revenues were contracted in currencies other than U.S.
dollars and 32% of our direct and operating costs are incurred in countries with functional currencies other
than the U.S. dollar. Our financial statements are reported in U.S. dollars and changes in foreign currency
exchange rates could significantly affect our financial condition, results of operations, or cash flows. Our
primary exposure to fluctuations in foreign currency exchange rates is related to the following risks:
Foreign Currency Risk from Differences in Customer Contract Currency and Operating Costs Currency. The
majority of our global contracts are denominated in U.S. dollars or Euros while our operating costs in foreign
countries are denominated in various local currencies. Fluctuations in the exchange rates of the currencies
we use to contract with our customers and the currencies in which we incur cost to fulfill those contracts can
have a significant impact on our results of operations.
Foreign Currency Translation Risk. The revenue and expenses of our international operations are generally
denominated in local currencies and translated into U.S. dollars for financial reporting purposes. Accordingly,
exchange rate fluctuations between the value of the U.S. dollar versus local currencies will affect the U.S.
dollar value of our foreign currency denominated revenue, costs, and results of operations.
Foreign Currency Transaction Risk. We earn revenue from our service contracts over a period of several
months and, in many cases, over several years, resulting in timing differences between the consummation
and cash settlement of a transaction. Accordingly, profitability of the transactions denominated in foreign
currencies is subject to effects of fluctuations in foreign currency exchange rates during the period of time
between the consummation and cash settlement of a transaction.
We may seek to limit our exposure to these risks through inclusion of foreign currency exchange rate
provisions in our service contracts, and/or by hedging certain exposures with foreign exchange derivative
instruments. These measures, however, might not offset or mitigate any, or all of the adverse financial effects
of unfavorable movements in foreign currency exchange rates.
36
Unfavorable economic conditions could have a material adverse effect on our business, financial
condition, results of operations, or cash flows.
Unfavorable economic conditions and other adverse macroeconomic factors on global and domestic markets
might result, among other matters, in tightening in the credit and capital markets, low liquidity, and volatility in
fixed income, credit, currency, and equity markets. Such conditions could have a negative effect on our
business, financial condition, results of operations, or cash flows. For example, our customers might not be
able to raise money to conduct existing clinical trials, or to fund new drug development and related future
clinical trials. Resource-sharing customers may also scale back commercial support for their products. In
addition, economic or market disruptions could negatively impact our vendors, contractors, or principal
investigators which might have a negative effect on our business.
Our effective income tax rate may fluctuate, which may adversely affect our results of operations.
Our effective income tax rate is influenced by our projected profitability in the various taxing jurisdictions in
which we operate. Changes in the distribution of profits and losses among taxing jurisdictions may have a
significant impact on our effective income tax rate, which in turn could have an adverse effect on our results of
operations. Factors that may affect our effective income tax rate include, but are not limited to:
•
•
•
•
•
•
•
•
•
•
the requirement to exclude from our quarterly worldwide effective income tax calculations the benefit
for losses in jurisdictions where no income tax benefit can be recognized;
actual and projected full year pre-tax income;
the repatriation of foreign earnings to the United States;
uncertain tax positions;
changes in tax laws in various taxing jurisdictions;
audits by taxing authorities;
the establishment of valuation allowances against deferred income tax assets if we determine that it
is more likely than not that future income tax benefits will not be realized;
the release of a previously established valuation allowances against deferred income tax assets if we
determine that it is more likely than not that future income tax benefits will be realized;
changes in the relative mix and size of clinical studies in various tax jurisdictions; and
the timing and amount of the vesting and exercising of share-based compensation.
These changes may cause fluctuations in our effective income tax rate that could adversely affect our results
of operations and cause fluctuations in our earnings and earnings per share.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as
the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax
code, including, but not limited to: (i) reducing the U.S. federal corporate tax rate from 35% to 21%; (ii)
requiring companies to pay a one-time transition tax on certain undistributed earnings of foreign subsidiaries;
(iii) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (iv) introducing a
new provision designed to tax global intangible low-taxed income ("GILTI"); (v) eliminating the corporate
alternative minimum tax ("AMT") and changing how existing AMT credits can be realized; (vi) creating the
base erosion anti-abuse tax ("BEAT"), a new minimum tax; (vii) creating a new limitation on deductible
interest expense; (viii) introducing limitations on the deductibility of certain executive compensation; and (ix)
changing rules related to uses and limitations of net operating loss carryforwards created in tax years
beginning after December 31, 2017.
Our effective tax rate may fluctuate as we continue to quantify and implement the various aspects of the Tax
Act over the next 12 to 24 months. If any regulations or clarifications about the Tax Act are published that
cause us to change how we originally accounted for these new provisions, then our effective tax rate could
fluctuate as a result.
37
We have only a limited ability to protect our intellectual property rights, and these rights are important
to our success.
We develop, use, and protect our proprietary methodologies, analytics, systems, technologies, and other
intellectual property. Existing laws of the various countries in which we provide services or solutions offer only
limited protection of our intellectual property rights, and the protection in some countries may be very limited.
We rely upon a combination of trade secrets, confidentiality policies, nondisclosure agreements, and other
contractual arrangements, as well as copyright and trademark laws, to protect our intellectual property rights.
These laws are subject to change at any time and certain agreements might not be fully enforceable, which
could further restrict our ability to protect our innovations. Our intellectual property rights might not prevent
competitors from independently developing services similar to or duplicative of ours or alleging infringement of
their intellectual property rights in certain jurisdictions. The steps we take in this regard might not be adequate
to prevent or deter infringement or misappropriation of our intellectual property or claims against us for
alleged infringement or misappropriation by competitors, former employees, or other third parties.
Furthermore, we might not be able to detect unauthorized use of, or take appropriate and timely steps to
enforce, our intellectual property rights. Enforcing our rights might also require considerable time, money, and
oversight, and we might not be successful in enforcing our rights.
Our acquisition strategy may present additional risks.
We have historically grown our business both organically and through acquisitions, most recently and notably
of inVentiv. We have and will continue to assess the need and opportunity to offer additional services through
acquisitions of other companies. Acquisitions involve numerous risks, including the following:
•
•
•
•
•
•
•
•
•
ability to identify suitable acquisition opportunities or obtain any necessary financing on commercially
acceptable terms;
increased risk to our financial position and liquidity through changes to our capital structure and
assumption of acquired liabilities, including any indebtedness incurred to finance the acquisitions and
related interest expense;
diversion of management’s attention from normal daily operations of the business;
insufficient revenues to offset increased expenses associated with acquisitions;
assumption of liabilities and exposure to unforeseen liabilities of acquired companies, including
liabilities for their failure to comply with healthcare, tax, and other regulations;
inability to achieve identified operating and financial synergies anticipated to result from an
acquisition;
ability to integrate acquired operations, products, and technologies into our business;
difficulties integrating acquired personnel and distinct cultures into our business; and
the potential loss of key employees, customers, or projects.
We may also spend time and money investigating and negotiating with potential acquisition targets but not
complete the merger. Any acquisition could involve other risks, including, among others, the assumption of
additional liabilities and expenses, difficulties and expenses in connection with integrating the acquired
companies and achieving the expected benefits, issuances of potentially dilutive securities or interest-bearing
debt, loss of key employees of the acquired companies, transaction expenses, diversion of management's
attention from other business concerns, and, with respect to the acquisition of international companies, the
inability to overcome differences in international business practices, language and customs. Our failure to
successfully integrate inVentiv and potential future acquisitions could have a material adverse effect on our
business, financial condition, results of operations, and cash flows.
If we are unable to successfully integrate acquisitions, our business, financial condition, results of
operations, and cash flows could be materially adversely affected.
We have completed a number of acquisitions in the past, most recently and notably inVentiv, and anticipate
that a portion of our future growth may come from strategic or tuck-in acquisitions. The success of any
acquisition will depend upon, among other things, our ability to execute against identified synergies and
38
effectively integrate acquired personnel, operations, products, and technologies into our business, and to
retain the key personnel and customers of our acquired businesses. In addition, we may be unable to identify
suitable acquisition opportunities or obtain any necessary financing on commercially acceptable terms.
Our relationships with existing or potential customers who are in competition with each other may
adversely impact the degree to which other customers or potential customers use our services, which
may adversely affect our business, financial condition, results of operations, or cash flows.
The biopharmaceutical industry is highly competitive, with biopharmaceutical companies each seeking to
persuade payers, providers, and patients that their drug therapies are better and more cost-effective than
competing therapies marketed or being developed by competing firms. In addition to the adverse competitive
interests that biopharmaceutical companies have with each other, biopharmaceutical companies also have
adverse interests with respect to drug selection and reimbursement with other participants in the healthcare
industry, including payers and providers. Biopharmaceutical companies also compete to be first to market with
new drug therapies. We regularly provide services to biopharmaceutical companies who compete with each
other, and we sometimes provide services to such customers regarding competing drugs in the market and in
development. Our existing or future relationships, particularly broader strategic provider and commercial
relationships, with our biopharmaceutical customers may therefore deter other biopharmaceutical customers
from using our services or may result in our customers seeking to place limits on our ability to serve other
biopharmaceutical industry participants. In addition, our further expansion into the broader healthcare market
may adversely impact our relationships with biopharmaceutical customers, and such customers may elect not
to use our services, reduce the scope of services that we provide to them or seek to place restrictions on our
ability to serve customers in the broader healthcare market with interests that are adverse to theirs. Any loss
of customers or reductions in the level of revenues from a customer could have a material adverse effect on
our business, financial condition, results of operations, or cash flows.
Our results of operations may be adversely affected if we fail to realize the full value of our goodwill
and intangible assets.
As of December 31, 2017, our goodwill and net intangible assets were valued at $5.58 billion, which
constituted approximately 77% of our total assets.
Our goodwill is principally related to the Merger completed in August 2017. Goodwill is tested for impairment
at the reporting unit level, which is one level below the operating segment level. This test requires us to
determine if the implied fair value of the reporting unit's goodwill is less than its carrying amount. The
impairment analysis requires significant judgments, estimates and assumptions. There is no assurance that
the actual future earnings or cash flows of the reporting units will not decline significantly from the projections
used in the impairment analysis. Goodwill impairment charges may be recognized in future periods in one or
more of the reporting units to the extent changes in factors or circumstances occur, including deterioration in
the macroeconomic environment or industry, deterioration in our performance or our future projections, or
changes in plans for one or more of our reporting units. As of October 1, 2017 and December 31, 2017, we
assigned goodwill to five reporting units. We completed our annual impairment test for potential impairment as
of October 1, 2017 for all of our reporting units, determining that there were no impairments.
Intangible assets consist of backlog, customer relationships, and trademarks. We review intangible assets at
the end of each reporting period to determine if facts and circumstances indicate that the useful life is shorter
than originally estimated or that the carrying amount of the assets might not be recoverable. If such facts and
circumstances exist, we assess the recoverability of identified assets by comparing the projected
undiscounted net cash flows associated with the related asset or group of assets over their remaining lives to
their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amount over
the fair value of those assets and occur in the period in which the impairment determination was made. In
connection with the Merger we announced our intentions to relaunch our operations under a new brand name
in January 2018. As a result, in the third quarter of 2017 we determined that the useful life of our intangible
asset related to the INC Research trademark with carrying value of $35.0 million was no longer indefinite and
recorded a $30.0 million impairment charge with the remaining value amortized over the remainder of 2017.
39
We face risks arising from the restructuring of our operations, which could adversely affect our
financial condition, results of operations, cash flows, or business reputation.
From time to time, we have adopted cost savings initiatives to improve our operating efficiency through
various means such as: (i) the reduction of overcapacity, primarily in our costs of services (billable) function;
(ii) elimination of non-billable support roles; and (iii) the consolidation or other realignment of our resources. In
connection with the Merger, we have established a restructuring plan to eliminate redundant positions and
reduce our facility footprint worldwide. We expect to continue the ongoing evaluations of our workforce and
facilities infrastructure needs through 2020 in an effort to optimize our resources worldwide. Additionally, in
conjunction with the Merger, we assumed certain liabilities related to employee severance and facility closure
costs as a result of actions taken by inVentiv prior to the Merger. During the year ended December 31, 2017,
we recognized approximately $11.3 million of employee severance and benefit costs, facility closure and
lease termination costs of $2.2 million, and other costs of $2.0 million related to the Merger. Additionally,
during the year ended December 31, 2017, we recognized approximately $9.4 million of non-Merger related
employee severance costs and incurred $1.3 million of non-Merger related facility closure and lease
termination costs related to our focus on optimizing our resources worldwide.
Restructuring actions present significant risks that could have a material adverse effect on our operations,
financial condition, results of operations, cash flows, or business reputation. Such risks include:
•
•
•
•
•
•
a decrease in employee morale and retention of key employees;
a greater number of employment claims;
actual or perceived disruption of service or reduction in service standards to customers;
the failure to preserve supplier relationships and distribution, sales and other important relationships
and to resolve conflicts that may arise;
the failure to achieve targeted cost savings; and
the failure to meet operational targets and customer requirements due to the loss of employees and
any work stoppages that might occur.
We operate in many different jurisdictions and we could be adversely affected by violations of the
FCPA, UK Bribery Act of 2010, and/or similar worldwide anti-corruption and anti-bribery laws.
The FCPA, UK Bribery Act of 2010, and similar worldwide anti-corruption laws prohibit companies and their
intermediaries from making improper payments for the purpose of obtaining or retaining business. Our
internal policies mandate compliance with these anti-corruption laws. We operate in many parts of the world
that have experienced corruption to some degree and, in certain circumstances, anti-corruption laws have
appeared to conflict with local customs and practices. Despite our training and compliance programs, we
cannot assure that our internal control policies and procedures will protect us from acts in violation of anti-
corruption laws committed by persons associated with us, and our continued expansion outside the United
States, including in developing countries, could increase such risk in the future. Violations of the FCPA or
other non-U.S. anti-corruption laws, or even allegations of such violations, could disrupt our business and
result in a material adverse effect on our financial condition, results of operations, cash flows, and reputation.
For example, violations of anti-corruption laws can result in restatements of, or irregularities in, our financial
statements as well as severe criminal or civil sanctions. In some cases, companies that violate the FCPA
might be debarred by the U.S. government and/or lose their U.S. export privileges. In addition, U.S. or other
governments might seek to hold us liable for successor liability FCPA violations or violations of other anti-
corruption laws committed by companies that we acquire or in which we invest. Changes in anti-corruption
laws or enforcement priorities could also result in increased compliance requirements and related costs which
could adversely affect our business, financial condition, results of operations, and cash flows.
The failure of third parties to provide us critical support services could adversely affect our business,
financial condition, results of operations, cash flows, or reputation.
We depend on third parties for support services vital to our business. Such support services include, but are
not limited to, IT services, laboratory services, third-party transportation and travel providers, freight
forwarders and customs brokers, drug depots and distribution centers, suppliers or contract manufacturers of
40
drugs for patients participating in clinical trials, and providers of licensing agreements, maintenance contracts
or other services. In addition, we also rely on third-party CROs and other contract clinical personnel for clinical
services either in regions where we have limited resources, or in cases where demand cannot be met by our
internal staff. The failure of any of these third parties to adequately provide us critical support services could
have a material adverse effect on our business, financial condition, results of operations, cash flows or
reputation.
We might not be able to utilize certain of our net operating loss carryforwards and certain other tax
attributes, which could harm our profitability.
As of December 31, 2017, we had approximately $1.0 billion of net operating loss carry forwards (“NOLs”)
available to reduce U.S. federal taxable income in future years. Under Section 382 and similar provisions of
the Internal Revenue Code (“the Code”), if a corporation undergoes an “ownership change,” that corporation’s
ability to use its pre-change NOL carryforwards and other pre-change tax attributes, such as research tax
credits, to offset its post-change income and taxes may be limited for U.S. federal income tax purposes (or
similar provisions of other jurisdictions). These limitations may be subject to certain exceptions, including if
there is “net unrealized built-in gain” in the assets of the corporation undergoing the ownership change.
inVentiv had significant NOLs for U.S. federal income tax purposes, which, until they expire, generally can be
carried forward to reduce taxable income in future years. In addition, certain of inVentiv’s NOLs and tax
attributes are subject to existing limitations under Section 382 and similar provisions of the Code as a result of
inVentiv’s prior ownership changes. The application of these provisions with respect to inVentiv’s NOLs and
other tax attributes, including the determination of the amount of any “net unrealized built-in gain” in inVentiv’s
assets, is complex, involving, among other things, certain factual determinations regarding value and built-in
gain amounts. Accordingly, no assurance can be given that the IRS (or other taxing authority in a jurisdiction
applying similar law) would not assert our ability to utilize inVentiv’s NOLs and other tax attributes is subject to
limitations that are different from the limitations as determined by us, or that a court would not agree with such
an assertion.
The benefit of the inVentiv NOLs is uncertain even without regard to the Section 382 rules. Due to the
corporate income tax rate change pursuant to the Tax Act, the value of our NOLs was significantly decreased.
In addition, a portion of inVentiv’s NOLs arise from certain transaction tax deductions associated with Double
Eagle’s acquisition of inVentiv on November 9, 2016. Pursuant to that acquisition, inVentiv generally has a
contingent obligation to pay former shareholders of inVentiv Group Holdings the value of U.S. federal, state
and local tax benefits arising from those transaction tax deductions as such benefits are realized and,
consequently, the ability of the combined company to benefit from inVentiv’s NOLs will be limited to the extent
of such contingent obligation.
Further, as of December 31, 2017, we assessed both positive and negative evidence in evaluating whether
we could support the recognition of our U.S. net deferred tax asset position or if a valuation allowance would
be required. A significant piece of objective negative evidence that we considered was the cumulative loss
over the three-year period ended December 31, 2017. This objective evidence limited our ability to consider
subjective positive evidence, such as forecasted projections of income. Therefore, the Company recorded a
charge to income tax expense in the amount of $52.6 million for the net increase in the valuation allowance.
However, given our anticipated future earnings and the new GILTI and BEAT provisions under the Tax Act, we
believe there is a reasonable possibility that within the next 12 to 24 months, sufficient positive evidence may
become available to allow us to reach a conclusion that a significant portion of the valuation allowance will no
longer be needed. Consequently, such release of the valuation allowance would result in the recognition of
certain deferred tax assets and a decrease to the tax expense in the period that the release is recorded.
However, the exact timing and amount of the valuation allowance release is unknown at this time.
Downgrades of our credit ratings could adversely affect us.
We can be adversely affected by downgrades of our credit ratings because ratings are a factor influencing our
ability to access capital and the terms of any new indebtedness, including covenants and interest rates. Our
customers and vendors may also consider our credit profile when negotiating contract terms, and if they were
to change the terms on which they deal with us, it could have a material adverse effect on our business,
results of operations, cash flows, and financial condition.
41
Many of our vendors have the right to declare us in default of our agreements if any such vendor, including
the lessors under our vehicle fleet leases, determines that a change in our financial condition poses a
substantially increased credit risk. Upon default, the lessors can repossess the vehicles and require us to
compensate them for any remaining lease payments in excess of the value of the repossessed vehicles. As of
December 31, 2017, we had $36.8 million in capital lease obligations, primarily related to vehicles used in our
Selling Solutions offering in the United States. Our Selling Solutions offering may be negatively impacted if we
lose the use of vehicles for any period of time.
Our 2017 Credit Agreement contains covenants that may restrict our ability to, among other things, borrow
money, pay dividends, make capital expenditures, make strategic acquisitions and effect a consolidation,
merger, or disposal of all or substantially all of our assets. Refer to "Risks Related to Our Indebtedness -
Covenant restrictions under our 2017 Credit Agreement may limit our ability to operate our business" for
further details on our covenant restrictions.
Risks Related to Our Industry
The biopharmaceutical services industry is highly competitive and our business could be materially
impacted if we do not compete effectively.
The biopharmaceutical services industry is highly competitive. Our business often competes with other
biopharmaceutical services companies, internal discovery departments, development departments, sales and
marketing departments, information technology departments, and other departments within our customers,
some of which could be considered large biopharmaceutical services companies in their own right with
greater resources than ours. We also compete with universities, teaching hospitals, governmental agencies
and others. If we do not compete successfully, our business will suffer. The industry is highly fragmented, with
numerous smaller specialized companies and a handful of companies with global capabilities similar to
certain of our own capabilities. Increased competition has led to price and other forms of competition (such as
acceptance of less favorable contract terms) that could adversely affect our operating results. There are few
barriers to entry for companies considering offering any one or more of the services we offer. Because of their
size and focus, these companies might compete effectively against us, which could have a material adverse
impact on our business.
In recent years, our industry has experienced increased consolidation and might continue to, which might put
us at risk of growing more slowly than our competitors that make acquisitions. This trend is likely to produce
more competition from the resulting larger companies, and ones without the cost pressures of being public,
for both customers and acquisition candidates. One specific aspect of this consolidation competition involves
CROs entering into transactions to attempt to control more access to clinical trial participants, like acquisition
of site networks and data. These trends could make it harder for us to compete successfully.
Our future growth and success will depend on our ability to successfully compete with other companies that
provide similar services in the same markets, some of which may have financial, marketing, technical, and
other advantages. We also expect that competition will continue to increase as a result of consolidation
among these various companies. Large technology companies with substantial resources, technical
expertise, and greater brand power could also decide to enter or further expand in the markets where our
business operates and compete with us. If one or more of our competitors or potential competitors were to
merge or partner with another of our competitors, or if a new entrant emerged with substantial resources, the
change in the competitive landscape could adversely affect our ability to compete effectively. We compete on
the basis of various factors, including breadth and depth of services, reputation, reliability, quality, innovation,
security, price, and industry expertise and experience. In addition, our ability to compete successfully may be
impacted by the growing availability of health information from social media, government health information
systems, and other free or low-cost sources. In addition, consolidation or integration of wholesalers, retail
pharmacies, health networks, payers, or other healthcare stakeholders may lead any of them to provide
information services directly to customers or indirectly through a designated service provider, resulting in
increased competition from firms that may have lower costs to market (e.g., no data supply costs). Any of the
above may result in lower demand for our services, which could result in a material adverse impact on our
operating results and financial condition.
42
Outsourcing trends in the biopharmaceutical industry and changes in aggregate spending and
research and development budgets could adversely affect our operating results and growth rate.
Our revenues depend on the level of R&D and commercialization expenditures, size of the drug-development
pipelines and outsourcing trends of the biopharmaceutical industry, including the amount of such R&D spend
that is outsourced and subject to competitive bidding amongst us and our competitors. Accordingly, economic
factors and industry trends that affect biopharmaceutical companies affect our business.
Biopharmaceutical companies continue to seek long-term strategic collaborations with global CROs with
favorable pricing terms. Competition for these collaborations is intense and we might not be selected, in which
case a competitor may enter into the collaboration and our business with the customer, if any, may be limited.
Our success depends in part on our ability to establish and maintain preferred provider relationships with
large biopharmaceutical companies. Our failure to develop or maintain these preferred provider relationships
could have a material adverse effect on our business and results of operations. Furthermore, in order to
obtain preferred provider relationships, we may have to reduce the prices for our services, which could
negatively impact our gross margin for these services.
In addition, if the biopharmaceutical industry reduces its outsourcing of clinical trials or commercialization
services or such outsourcing fails to grow at projected rates, our business, financial condition, results of
operations, and cash flows could be materially and adversely affected. We may also be negatively impacted
by consolidation and other factors in the biopharmaceutical industry, which may slow decision making by our
customers, result in the delay or cancellation of existing projects, cause reductions in overall R&D
expenditures, or lead to increased pricing pressures. Further, in the event that one of our customers combines
with a company that is using the services of one of our competitors, the combined company could decide to
use the services of that competitor or another provider. All of these events could adversely affect our
business, financial condition, cash flows or results of operations.
Actions by government regulators or customers to limit a prescription’s scope or withdraw an
approved product from the market could adversely affect our business, results of operations, and
financial condition.
Government regulators have the authority, after approving a biopharmaceutical product, to limit its scope of
prescription or withdraw it from the market completely based on safety concerns. Similarly, customers may act
to voluntarily limit the scope of prescription of biopharmaceutical products or withdraw them from the market.
Actions by payors to limit a product on a formulary list can influence customer decisions to withdraw or limit
market support for a product. In the past, we have provided services with respect to products that have been
limited or withdrawn. If we are providing services to customers for products that are limited or withdrawn, we
may be required to narrow the scope of or terminate our services with respect to such products, which would
prevent us from earning the full amount of revenues anticipated under the related contracts with negative
impacts to our business, results of operations, cash flows, and financial condition.
If we fail to comply with federal, state, and foreign healthcare laws, including fraud and abuse laws,
we could face substantial penalties and our business, financial condition, results of operations, cash
flows, and prospects could be adversely affected.
Even though we do not and will not order healthcare services or bill directly to Medicare, Medicaid, or other
third-party payers, certain federal and state healthcare laws and regulations pertaining to fraud and abuse are
and will be applicable to our business. We could be subject to healthcare fraud and abuse laws of both the
federal government and the states in which we conduct our business. Because of the breadth of these laws
and the narrowness of available statutory and regulatory exceptions, it is possible that some of our business
activities could be subject to challenge under one or more of such laws. If we or our operations are found to
be in violation of any of the laws described above or any other governmental regulations that apply to us, we
may be subject to penalties, including civil and criminal penalties, damages, fines, imprisonment, and the
curtailment or restructuring of our operations, any of which could materially adversely affect our ability to
operate our business and our financial results.
43
We may be affected by healthcare reform and potential additional reforms which may adversely
impact the biopharmaceutical industry and reduce the need for our services or negatively impact our
profitability.
Numerous government bodies are considering or have adopted healthcare reforms and may undertake, or
are in the process of undertaking, efforts to control healthcare costs through legislation, regulation, and
agreements with healthcare providers and biopharmaceutical companies, including many of our customers.
As governmental administrations change and reforms take place, we are unable to predict what legislative
proposals, if any, will be adopted in the future. If regulatory cost-containment efforts limit the profitability of
new drugs by, for example, continuing to place downward pressure on pharmaceutical pricing and/or
increasing regulatory burdens and operating costs of the biopharmaceutical industry, our customers may
reduce their commercialization and R&D spending, which could reduce the business they outsource to us. In
addition, if regulatory requirements are relaxed or simplified drug approval procedures are adopted, the
demand for our services could decrease.
Government bodies have adopted and may continue to adopt new healthcare legislation or regulations that
are more burdensome than existing regulations. For example, product safety concerns and recommendations
by the Drug Safety Oversight Board could change the regulatory environment for drug products, and new or
heightened regulatory requirements may increase our expenses or limit our ability to offer some of our
services. We might have to incur additional costs to comply with these or other new regulations, and failure to
comply could harm our financial condition, results or operations, cash flows, and reputation. Additionally, new
or heightened regulatory requirements may have a negative impact on the ability of our customers to conduct
industry-sponsored clinical trials, which could reduce the need for our post-approval development services.
Current and proposed laws and regulations regarding the protection of personal data could result in
increased risks of liability or increased cost to us or could limit our service offerings.
The confidentiality, collection, use, and disclosure of personal data, including clinical trial patient-specific
information, are subject to governmental regulation generally in the country in which the personal data was
collected or used. For example, U.S. federal regulations under the Health Insurance Portability and
Accountability Act of 1996, as amended, ("HIPAA") generally require individuals' written authorization, in
addition to any required informed consent, before protected health information ("PHI") may be used for
research and such regulations specify standards for de-identification and for limited data sets. We may also
be subject to applicable state privacy and security laws and regulations in states in which we operate. We are
indirectly affected by the privacy provisions surrounding individual authorizations because many principal
investigators with whom we are involved in clinical trials are directly subject to them as a HIPAA "covered
entity." In addition, we obtain identifiable health information from third parties that are subject to such
regulations. While we do not believe we are a "business associate" under HIPAA, regulatory agencies may
disagree. Because of amendments to the HIPAA data security and privacy rules that were promulgated on
January 25, 2013, some of which went into effect on March 26, 2013, there are some instances where HIPAA
"business associates" of a "covered entity" may be directly liable for breaches of PHI and other HIPAA
violations. These amendments may subject "business associates" to HIPAA's enforcement scheme, which, as
amended, can yield up to $1.5 million in annual civil penalties for each HIPAA violation.
In the EU and many other data privacy laws outside of the U.S., personal data includes any information that
relates to an identified or identifiable natural person, with health, genetic, biometric, and other sensitive
personal information carrying additional obligations, including obtaining the explicit consent from the individual
for collection, use, or disclosure of the information. In addition, we are subject to EU rules with respect to
cross-border transfers of such data out of the EU. The United States, the EU and its member states, and
other countries where we have operations, such as Japan, China, South Korea, Malaysia, the Philippines,
Russia, and Singapore, continue to issue new privacy and data protection laws, rules, and regulations that
relate to personal data and health information. Failure to comply with certain certification/registration and
annual re-certification/registration provisions associated with these data protection and privacy laws, rules,
and regulations in various jurisdictions, or to resolve any serious privacy or security complaints, could subject
us to regulatory sanctions, delays in clinical trials, criminal prosecution, or civil liability. Federal, state, and
foreign governments may propose or have adopted additional legislation governing the collection, possession,
use, or dissemination of personal data, such as personal health information, and personal financial data as
well as security breach notification rules for loss or theft of such data. Additional legislation or regulation of
44
this type might, among other things, require us to implement new security measures and processes or to
pseudonymize or de-identify health or other personal data, each of which may require substantial
expenditures or limit our ability to offer some of our services. Additionally, if we violate applicable laws, rules,
or regulations relating to the collection, use, privacy, or security of personal data, we could be subject to civil
liability or criminal prosecution, be forced to alter our business practices and suffer reputational harm. The
European General Data Protection Regulation ("GDPR") goes into effect on May 25, 2018, replacing the
existing EU data protection framework. The GDPR contains new provisions specifically directed at the
processing of health information, rights of data subjects, higher sanctions, and extra-territoriality measures
intended to bring non-EU companies under the regulation.
Our customers face intense competition from lower cost generic products and other competing
products, which may lower the amount that they spend on our services and could have a material
adverse effect on our business, results of operations, cash flows, and financial condition.
Our customers face increasing competition from competing products and, in particular, from lower cost
generic products, which in turn may affect their ability to pursue clinical development and commercialization
activities. In the United States, the EU and Japan, political pressure to reduce spending on prescription
products has led to legislation and other measures which encourage the use of generic products. In addition,
proposals emerge from time to time in the United States and other countries for legislation to further
encourage the early and rapid approval of generic products. Loss of patent protection for a product typically is
followed promptly by generic substitutes, reducing our customers’ sales of that product and their overall
profitability. Availability of generic substitutes for our customers’ products or other competing products may
cause them to lose market share and, as a result, may adversely affect their results of operations and cash
flow, which in turn may mean that they would not have adequate capital to purchase our services. If
competition from generic or other products impacts our customers’ finances such that they decide to curtail
our services, our net revenues may decline and this could have a material adverse effect on our business,
results of operations, and financial condition.
If we do not keep pace with rapid technological change, our services may become less competitive or
obsolete.
The biopharmaceutical industry generally, and drug development and clinical research more specifically, are
subject to rapid technological change. Our current competitors or other businesses might develop
technologies or services that are more effective or commercially attractive than, or render obsolete, our
current or future technologies and services. If our competitors introduce superior technologies or services and
if we cannot make enhancements to remain competitive, our competitive position would be harmed. If we are
unable to compete successfully, we may lose customers or be unable to attract new customers, which could
lead to a decrease in our revenue and have an adverse impact on our financial condition.
In addition, the operation of our business relies on IT infrastructure and systems delivered across multiple
platforms. The failure of our systems to perform could severely disrupt our business and adversely affect our
results of operations. Our systems are also vulnerable to demise from natural or man-made disasters, terrorist
attacks, computer viruses or hackers, power loss, or other technology system failures. These events could
adversely affect our business or results of operations.
The biopharmaceutical industry has a history of patent and other intellectual property litigation and
we might be involved in costly intellectual property lawsuits.
The biopharmaceutical industry has a history of intellectual property litigation and these lawsuits will likely
continue in the future. Accordingly, we may face patent infringement suits or be called upon to provide
documentation by companies that have patents for similar business processes or other suits alleging
infringement of their intellectual property rights. Legal proceedings relating to intellectual property could be
expensive, take significant time, and divert management's attention from other business concerns, regardless
of the outcome of the litigation. In the event an infringement lawsuit were brought against us and we did not
prevail, we might have to pay substantial damages and we could be required to stop infringing activity or
obtain a license to use technology on unfavorable terms.
45
Risks Related to Our Indebtedness
Our substantial debt could adversely affect our financial condition and cash flows from operations.
On August 1, 2017, we entered into a credit agreement (the “2017 Credit Agreement”) and used the proceeds
to: (i) repay the Company’s and inVentiv’s pre-Merger term loans; (ii) partially redeem inVentiv’s Senior Notes;
and (iii) pay certain fees and expenses related to the Merger. As of December 31, 2017, our total principal
amount of indebtedness was $2.99 billion, which was comprised of: (i) a $1.0 billion Term Loan A facility; (ii) a
$1.55 billion Term Loan B facility; and (iii) $403.0 million of Senior Notes. Our substantial indebtedness could
adversely affect our financial condition and cash flows from operations and thus make it more difficult for us to
satisfy our obligations with respect to our senior secured facilities. If our cash flow is not sufficient to service
our debt and adequately fund our business, we may be required to seek further additional financing or
refinancing or dispose of assets. We might not be able to influence any of these alternatives on satisfactory
terms or at all. Our substantial indebtedness could also:
•
•
•
•
•
•
•
•
•
•
increase our vulnerability to adverse general economic, industry, or competitive developments;
require us to dedicate a more substantial portion of our cash flows from operations to payments on
our indebtedness, thereby reducing the availability of our cash flows to fund working capital,
investments, acquisitions, capital expenditures, and other general corporate purposes;
limit our ability to make required payments under our existing contractual commitments, including our
existing long-term indebtedness;
limit our ability to fund a change of control offer;
require us to sell certain assets;
restrict us from making strategic investments, including acquisitions, or causing us to make non-
strategic divestitures;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we
operate;
place us at a competitive disadvantage compared to our competitors that have less debt;
cause us to incur substantial fees from time to time in connection with debt amendments or
refinancings;
increase our exposure to rising interest rates because a substantial portion of our borrowings is at
variable interest rates; and
•
limit our ability to borrow additional funds or to borrow on terms that are satisfactory to us.
Despite our level of indebtedness, we are able to incur more debt and undertake additional
obligations. Incurring such debt or undertaking such additional obligations could further exacerbate
the risks to our financial condition.
We may be able to incur additional indebtedness in the future. Although covenants under our 2017 Credit
Agreement limit our ability to incur certain additional indebtedness, these restrictions are subject to a number
of qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be
substantial. To the extent we incur additional indebtedness, the risks associated with our leverage described
above, including our possible inability to service our debt obligations, would increase.
46
Servicing our debt will require a significant amount of cash, and our ability to generate sufficient cash
depends on many factors, some of which are beyond our control.
Our ability to make payments on and refinance our debt, make strategic acquisitions, and fund capital
expenditures depends on our ability to generate cash flow in the future. To some extent, our ability to
generate future cash flow is subject to general economic, financial, competitive, and other factors that are
beyond our control. We cannot assure you that:
•
our business will generate sufficient cash flow from operations;
• we will continue to realize the cost savings, revenue growth, and operating improvements that
resulted from the execution of our long-term strategic plan; or
•
future sources of funding will be available to us in amounts sufficient to enable us to fund our liquidity
needs.
We also may experience difficulties repatriating cash from foreign subsidiaries and accounts due to law,
regulation or contracts which could further constrain our liquidity. If we cannot fund our liquidity needs, we will
have to take actions such as reducing or delaying capital expenditures, marketing efforts, strategic
acquisitions, investments and alliances, selling assets, restructuring or refinancing our debt, or seeking
additional equity capital. We cannot assure you that any of these remedies could, if necessary, be effected on
commercially reasonable or favorable terms, or at all, or that they would permit us to meet our scheduled debt
service obligations. Any inability to generate sufficient cash flow or refinance our debt on favorable terms
could have a material adverse effect on our financial condition. In addition, if we incur additional debt, the
risks associated with our substantial leverage, including the risk that we will be unable to service our debt or
generate enough cash flow to fund our liquidity needs, could increase.
Covenant restrictions under our 2017 Credit Agreement may limit our ability to operate our business.
Our 2017 Credit Agreement contains covenants that may restrict our ability to, among other things, borrow
money, pay dividends, make capital expenditures, make strategic acquisitions and effect a consolidation,
merger or disposal of all or substantially all of our assets. Although the covenants in our 2017 Credit
Agreement are subject to various exceptions, we cannot assure you that these covenants will not adversely
affect our ability to finance future operations, capital needs, or to engage in other activities that may be in our
best interest. In addition, in certain circumstances, our long-term debt requires us to maintain a specified
financial ratio and satisfy certain financial condition tests, which may require that we take action to reduce our
debt or to act in a manner contrary to our business objectives. A breach of any of these covenants could result
in a default under our senior secured facilities. If an event of default under our 2017 Credit Agreement occurs,
the lenders thereunder could elect to declare all amounts outstanding, together with accrued interest, to be
immediately due and payable. In such case, we might not have sufficient funds to repay all the outstanding
amounts. In addition, our 2017 Credit Agreement is secured by first priority security interests on substantially
all of our real and personal property, including the capital stock of certain of our subsidiaries. If an event of
default under our 2017 Credit Agreement occurs, the lenders thereunder could exercise their rights under the
related security documents. Any acceleration of amounts due under our 2017 Credit Agreement or the
substantial exercise by the lenders of their rights under the security documents would likely have a material
adverse effect on us.
Under the terms of the lease agreement for our new corporate headquarters in Morrisville, North Carolina we
are required to issue a letter of credit ("LOC") to the landlord based on our debt rating issued by Moody’s
Investors Service (or other nationally-recognized debt rating agency). From June 14, 2017 through June 14,
2020, if our debt rating is Ba3 or better, no LOC is required, or if our debt rating is B1 or lower, a LOC equal to
25% of the remaining minimum annual rent and estimated operating expenses (or a LOC of approximately
$24.2 million as of December 31, 2017) is required to be issued to the landlord. This LOC would remain in
effect until our debt rating increased to Ba3 or higher for a twelve-month period. After June 14, 2020, if our
debt rating is Ba2 or better, no LOC is required; if our debt rating is Ba3 or lower, a LOC equal to 25% of the
then remaining minimum annual rent and estimated operating expenses is required to be issued to the
landlord (estimated at approximately $22.0 million as of December 31, 2017); or if our debt rating is B1 or
lower, a LOC equal to 100% of the then remaining minimum annual rent and estimated operating expenses is
required to be issued to the landlord (estimated at approximately $87.9 million as of December 31, 2017).
47
These letters of credit would remain in effect until our debt rating is back above the required threshold for a
twelve-month period.
As of December 31, 2017 (and through the date of this filing), our debt rating was Ba3. As such, no LOC is
currently required. Any letters of credit issued in accordance with the aforementioned requirements would be
issued under our Revolver, and would reduce our available borrowing capacity by the same amount
accordingly.
Interest rate fluctuations may have a material adverse effect on our business, financial condition,
results of operations or cash flows.
Because we have substantial variable rate debt, fluctuations in interest rates may affect our business,
financial condition, results of operations or cash flows. We currently utilize interest rate swaps to limit our
exposure to interest rate fluctuations; however, such instruments may not be effective. At December 31, 2017,
we had approximately $2.99 billion of total principal indebtedness comprised of $2.55 billion in term loan debt,
$403.0 million in Senior Notes, and $36.8 million of capital leases, of which $2.43 billion was subject to
variable interest rates.
Risks Related to Ownership of Our Common Stock
Our stock price is subject to volatility, which could have a material adverse impact on investors and
employee retention.
Since our initial public offering in November 2014 (the "IPO"), the price of our stock, as reported by NASDAQ,
has ranged from a low of $19.61 on November 7, 2014 to a high of $61.10 on June 19, 2017. In addition,
securities markets worldwide have experienced, and are likely to continue to experience, significant price and
volume fluctuations. This market volatility, as well as general economic, market or political conditions, could
affect stock price in ways that may be unrelated to our operating performance. The trading price of our stock
is subject to significant price fluctuations in response to many factors, including:
• market conditions or trends in our industry, including with respect to the regulatory environment, or
the economy as a whole;
•
•
•
•
•
•
•
•
•
•
•
fluctuations in quarterly operating results, as well as differences between our actual financial and
operating results and those expected by investors, especially as we integrate inVentiv into our
company;
future performance guidance, if any, that we provide to the public, any changes in this guidance or
our failure to meet this guidance;
changes in financial estimates or ratings by any securities analysts who follow our stock, our failure to
meet those estimates or the failure of those analysts to initiate or maintain coverage of our stock;
changes in key personnel;
entry into new markets;
announcements by us or our competitors of new service offerings or significant acquisitions,
divestitures, strategic partnerships, joint ventures or capital commitments;
actions by competitors;
changes in operating performance and market valuations of other companies in the industry;
investors' perceptions of our prospects and the prospects of the industry;
investors' perceptions of the investment opportunity associated with our stock relative to other
investment alternatives;
the public's reaction to press releases or other public announcements by us or third parties, including
our filings with the SEC;
•
announcements related to litigation;
48
•
•
•
•
changes in the credit ratings of our debt;
the sustainability of an active trading market for our stock;
future sales of our stock by our significant shareholders, officers and directors; and
other events or factors, including those resulting from system failures and disruptions, cyber-attacks,
earthquakes, hurricanes, war, acts of terrorism, other natural disasters or responses to these events.
These and other factors may cause the market price and demand for shares of our stock to fluctuate
substantially, which could result in reduced liquidity and a decline in the price of our stock. When the market
price of a stock is volatile, security holders often institute class action litigation against the company that
issued the stock. If we become involved in this type of litigation, regardless of the outcome, we could incur
substantial legal costs and our management's attention could be diverted from the operation of our business,
which could have a material adverse effect on our business, financial condition, results of operations and
cash flows.
We do not expect to pay any cash dividends for the foreseeable future.
We do not anticipate that we will pay any dividends to holders of our stock for the foreseeable future. Any
payment of cash dividends will be at the discretion of the Board and will depend on our financial condition,
capital requirements, legal requirements, earnings and other factors. Our ability to pay dividends is restricted
by the terms of our 2017 Credit Agreement and might be restricted by the terms of any indebtedness that we
incur in the future. Consequently, you should not rely on dividends in order to receive a return on your
investment. For additional information on our dividend policy, see Part II, Item 5, "Market for Registrant's
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" in this Annual
Report on Form 10-K.
Future sales of our stock in the public market could cause the market price of our stock to decrease
significantly.
As of December 31, 2017, we had 104,435,501 outstanding shares of Class A common stock. In addition, we
had 3,425,085 shares of outstanding options and restricted stock units that, if exercised or sold, would result
in these additional shares becoming available for sale subject, in some cases, to Rule 144 and Rule 701
under the Securities Act. Our private equity sponsors (the “Sponsors”) together own approximately 46% of our
outstanding shares and have contractual rights to cause us to register resales of those shares starting in
February 2018.
Sales or issuances of substantial amounts of our stock in the public market by us or our shareholders may
cause the market price of our stock to decrease significantly. The perception that such sales or issuances
could occur could also depress the market price of our stock. Any such sales or issuances could also create
public perception of difficulties or problems with our business and might also make it more difficult for us to
raise capital through the sale of equity securities in the future at a time and price that we deem appropriate.
Our Sponsors have significant influence over our company, and their interests may be different from
or conflict with those of our other shareholders.
Our Sponsors collectively beneficially own approximately 46% of our outstanding common stock. As a
consequence, the Sponsors continue to be able to exert a significant degree of influence over our
management, affairs, and matters requiring shareholder approval, including the election of directors, a
merger, consolidation or sale of all or substantially all of our assets, and any other significant transaction.
Additionally, each of the Sponsors is party to a stockholders agreement with us (the "Stockholders
Agreements"). The Stockholders Agreements, among other things, requires such shareholders to vote in favor
of certain nominees to our Board. The interests of the Sponsors might not always coincide with our interests
or the interests of our other shareholders. For instance, this concentration of ownership and/or the restrictions
imposed by the Stockholders Agreements may have the effect of delaying or preventing a change in control of
us otherwise favored by our other shareholders and could depress our stock price.
The Sponsors each make investments in companies and may, from time to time, acquire and hold interests in
businesses that compete directly or indirectly with us. Each of the Sponsors may also pursue, for its own
account, acquisition opportunities that may be complementary to our business, and as a result, those
49
acquisition opportunities might not be available to us. Our organizational documents contain provisions
renouncing any interest or expectancy held by our directors affiliated with the Sponsors in certain corporate
opportunities. Accordingly, the interests of the Sponsors may supersede ours, causing the Sponsors or their
affiliates to compete against us or to pursue opportunities instead of us, for which we have no recourse. Such
actions on the part of the Sponsors and inaction on our part could have a material adverse effect on our
business, financial condition, results of operations and cash flows.
The Sponsors control four seats on our Board. Since the Sponsors could invest in entities that directly or
indirectly compete with us, when conflicts arise between the interests of the Sponsors and the interests of our
shareholders, these directors might not be disinterested.
Provisions of our corporate governance documents and Delaware law could make an acquisition of
our company more difficult and may prevent attempts by our shareholders to replace or remove our
current management, even if beneficial to our shareholders.
Provisions of our certificate of incorporation and our amended and restated bylaws contain provisions that
delay, defer or discourage transactions involving an actual or potential change in control of us or change in
our management that shareholders may consider favorable, including transactions in which you might
otherwise receive a premium for your shares. These provisions could also limit the price that investors might
be willing to pay in the future for shares of our stock, thereby depressing the market price of our stock. In
addition, these provisions may frustrate or prevent any attempts by our shareholders to replace or remove our
current management by making it more difficult for shareholders to replace members of the Board. Because
the Board is responsible for appointing the members of our management team, these provisions could in turn
affect any attempt to replace current members of our management team. Among others, these provisions
include: (i) our ability to issue preferred stock without shareholder approval; (ii) the requirement that our
shareholders may not act without a meeting; (iii) requirements for advance notification of shareholder
nominations and proposals contained in our bylaws; (iv) the absence of cumulative voting for our directors;
(v) requirements for shareholder approval of certain business combinations; and (vi) the limitations on director
nominations contained in our Stockholders Agreement.
Additionally, Section 203 of the Delaware General Corporation Law (the "DGCL") prohibits a publicly held
Delaware corporation from engaging in a business combination with an interested shareholder, generally a
person which together with its affiliates owns, or within the last three years has owned, 15% of our voting
stock, for a period of three years after the date of the Merger in which the person became an interested
shareholder, unless the business combination is approved in a prescribed manner. The existence of the
foregoing provision could also limit the price that investors might be willing to pay in the future for shares of
our stock, thereby depressing the market price of our stock.
If securities analysts or industry analysts downgrade our shares, publish negative research or
reports, or do not publish reports about our business, stock price, and trading volume could decline.
The trading market for our stock is to some extent influenced by the research and reports that industry or
securities analysts publish about us, our business and our industry. If one or more analysts adversely change
their recommendation regarding our shares or our competitors' stock, our share price would likely decline. If
one or more analysts cease coverage of us or fail to regularly publish reports on us, we might lose visibility in
the financial markets, which in turn could cause our share price or trading volume to decline.
We are incurring increased costs and obligations as a result of being a public company.
As a public company, we are required to comply with certain additional corporate governance and financial
reporting practices and policies. As a result, due to compliance requirements of the Exchange Act, the
Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"), the Dodd-Frank Act, the listing requirements of the
NASDAQ, and other applicable securities rules and regulations, we have and will continue to incur significant
legal, accounting and other expenses. The Exchange Act requires, among other things, that we file annual,
quarterly, and current reports with respect to our business and operating results with the SEC. We are also
required to ensure that we have the ability to prepare financial statements and other disclosures that are fully
compliant with all SEC reporting requirements on a timely basis. Compliance with these rules and regulations
has increased and may continue to increase our legal and financial compliance costs, make some activities
more difficult, time-consuming, or costly, and increase demand on our systems and resources.
50
We might not be successful in complying with these requirements and the significant amount of resources
required to ensure compliance could have a material adverse effect on our business, financial condition,
results of operations and cash flows.
Our internal controls over financial reporting are required to meet all the standards of Section 404 of
Sarbanes-Oxley, and failure to achieve and maintain effective internal controls over financial reporting
could have a material adverse effect on our stock price, reputation, business, financial condition,
results of operations and cash flows.
Section 404 of Sarbanes-Oxley requires management and our independent registered public accounting firm
to assess and attest to the effectiveness of internal control over financial reporting on an annual basis. The
rules governing the standards that must be met to assess our internal control over financial reporting are
complex and require significant documentation, testing and possible remediation of our existing controls and
could result in incurring significant additional expenditures. We are required to design, implement and test our
internal controls over financial reporting in order to comply with this obligation. The effort necessary to meet
these requirements is time consuming, costly, and complicated, and we must continually evaluate and refine
these processes on an ongoing basis. We might encounter problems or delays in completing the
implementation of any required improvements and therefore fail to receive a favorable attestation provided by
our independent registered public accounting firm.
As a private company, inVentiv was not subject to the requirements of Section 404 of Sarbanes-Oxley. Now
that the Merger has been completed, we must devote significant management time and other resources to
ensure that the combined company complies with the requirements of Section 404, and there can be no
assurance that it will.
Further, material weaknesses or significant deficiencies in our internal control over financial reporting may
exist or otherwise be discovered in the future. If we fail to maintain an effective internal control environment,
such failure could limit our ability to report our financial results accurately and timely, resulting in
misstatements and/or restatements of our consolidated financial statements, which may cause investors to
lose confidence and have a material adverse effect on our stock price, reputation, business, financial
condition, results of operations, and cash flows.
We are a holding company and rely on dividends and other payments, advances and transfers of
funds from our subsidiaries to meet our obligations and pay any dividends.
We have no direct operations and no significant assets other than ownership of 100% of the capital stock of
our subsidiaries. Because we conduct our operations through our subsidiaries, we depend on those entities
for dividends and other payments to generate the funds necessary to meet our financial obligations, and to
pay any dividends with respect to our stock. Legal and contractual restrictions in our 2017 Credit Agreement
and other agreements which may govern future indebtedness of our subsidiaries, as well as the financial
condition and operating requirements of our subsidiaries, may limit our ability to obtain cash from our
subsidiaries. The earnings from, or other available assets of, our subsidiaries might not be sufficient to pay
dividends, make distributions, or loans to enable us to pay any dividends on our stock or other obligations.
Any of the foregoing could materially and adversely affect our business, financial condition, results of
operations, and cash flows.
Risks Relating to the Merger
We may be unable to fully realize the competitive and operating synergies that are projected to be
achieved through the combination of INC Research’s and inVentiv Health’s offerings.
The success of the Merger will depend on, among other things, our ability to combine the business of INC
Research with the business of inVentiv Health and to achieve operating synergies. If we are not able to
successfully achieve this objective, the anticipated benefits of the Merger might not be realized fully, or at all,
or may take longer to realize than expected. The difficulties of combining the operations of the companies
include, among others:
•
difficulties in achieving anticipated cost savings, synergies, business opportunities and growth
prospects from the combination;
51
•
•
•
•
challenges in attracting, retaining and replacing key personnel;
challenges in creating a new culture for the combined company and maintaining employee morale
throughout the post-Merger period of integration and combining the operations of the two companies;
difficulties in managing the expanded operations of a significantly larger and more complex
company; and
potential unknown liabilities and unforeseen increased expenses or delays associated with the
Merger.
For example, we incurred and will incur substantial expenses in connection with consummation of the Merger
and combining the businesses, operations, networks, systems, technologies, policies and procedures of the
two companies. Many of the expenses incurred and to be incurred, by their nature, are difficult to estimate
accurately at the present time and as result may exceed the savings that the combined company expects to
achieve from the elimination of duplicative expenses and the realization of economies of scale and cost
savings related to the combination of the businesses following the Merger Date.
It is possible that the integration process or other factors could result in the disruption of our ongoing business
or inconsistencies in standards, controls, procedures and policies. These transition matters could have an
adverse effect on us for an undetermined amount of time after the Merger Date. In addition, events outside of
our control, including changes in regulations and laws, as well as economic trends, could adversely affect our
ability to realize the expected benefits from the Merger.
We may fail to realize all of the anticipated benefits of the Merger or those benefits may take longer to
realize than expected. We may also encounter significant difficulties in integrating the two
businesses.
Our ability to realize the anticipated benefits of the Merger will depend, to a large extent, on our ability to
integrate the two businesses. The combination of two independent businesses is a complex, costly and time-
consuming process. As a result, we are required to devote significant management attention and resources to
integrating business practices and operations. The integration process may disrupt the businesses and, if
implemented ineffectively, would restrict the realization of the full expected benefits. The failure to meet the
challenges involved in integrating the two businesses and to realize the anticipated benefits of the Merger
could cause an interruption of, or a loss of momentum in, our activities and could adversely affect our results
of operations.
In addition, the overall integration of the businesses may result in material unanticipated problems, expenses,
liabilities, competitive responses, loss of customer relationships, and diversion of management’s attention.
Further, we may not have identified a significant risk within the inVentiv business that existed at the time of the
Merger or that may develop in the future as a result of past practice of inVentiv. These unidentified risks may
result in material unanticipated problems, expenses, liabilities, competitive responses, loss of customer
relationships, and diversion of management’s attention. The difficulties of combining the operations of the
companies include, among others:
•
•
•
•
•
•
•
difficulties in achieving anticipated cost savings, synergies, business opportunities and growth
prospects from the combination;
difficulties in the integration of the companies’ businesses;
difficulties in managing the expanded operations of a significantly larger and more complex company;
difficulties in integrating employees from the two companies;
current and prospective employees may experience uncertainty regarding their future roles with our
company, which might adversely affect our ability to retain, recruit and motivate key employees;
lost customers and customer awards as a result of customers deciding not to do business with the
combined company;
difficulties in managing supplier relationships of both companies and resolving potential conflicts and
consolidation issues that may arise;
52
•
•
•
difficulties in systems integration, particularly information technology and finance systems, and
conforming standards, controls, procedures and policies, business cultures and compensation
structures between the entities;
difficulties in integrating and documenting processes and controls in conformance with the
requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which were not applicable to inVentiv
prior to the Merger; and
potential unknown liabilities and unforeseen increased expenses and delays associated with the
Merger.
Many of these factors will be outside of our control and any one of them could result in increased costs,
decreases in the amount of expected revenues and diversion of management’s time and energy, which could
materially impact our business, financial condition and results of operations. In addition, even if the operations
of the businesses of INC Research and inVentiv Health are integrated successfully, the full benefits of the
Merger might not be realized, including the synergies, cost savings or sales or growth opportunities that are
expected. These benefits might not be achieved within the anticipated time frame, or at all. Further, additional
unanticipated costs may be incurred in the integration of the businesses of INC Research and inVentiv Health.
All of these factors could negatively impact our earnings per share, decrease or delay the expected accretive
effect of the Merger and negatively impact the price of our shares. As a result, there is no assurance that the
combination of INC Research and inVentiv Health will result in the realization of the full benefits anticipated.
Our future results will suffer if we do not effectively manage our expanded operations following the
completion of the Merger.
Following the completion of the Merger, the size of our business increased significantly beyond the former
size of either INC Research’s or inVentiv Health’s businesses on a standalone basis. Our Company has no
prior experience integrating a business of the size and scale of inVentiv Health. Our future success depends,
in part, upon our ability to manage this expanded business, which poses substantial challenges for
management, including challenges related to the management and monitoring of new operations and
associated increased costs and complexity. If we are unsuccessful in managing our integrated operations, or
if we do not realize the expected operating efficiencies, cost savings and other benefits currently anticipated
from the Merger, our operations and financial condition could be adversely affected and we might not be able
to take advantage of business development opportunities.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
As of December 31, 2017, we had 146 facilities located in 47 countries. During the year ended December 31,
2017, we utilized approximately 78% of our available facility space; however, as we continue to expand in
new locations, the utilization of our facilities may decline in the short term. Most of our facilities consist solely
of office space. We lease all of our facilities, with the exception of office space owned in Madrid, Spain. Our
headquarters and principal executive offices are located in Raleigh, North Carolina, where we lease space in
two locations totaling approximately 187,700 square feet. The leases for both of our Raleigh locations expire
in February 2019.
In January 2017, we entered into a 12-year lease for our new corporate headquarters building in Morrisville,
North Carolina, where we intend to relocate all employees from our two existing locations in Raleigh, North
Carolina. In June 2017, this lease was amended to add additional office space and extend the term of the
lease to 13 years. We expect the construction of the new building to be completed in late 2018 and anticipate
completing our relocation efforts prior to the current leases expiring in early 2019. In February 2017, we
entered into an 11-year lease agreement for new office space in Farnborough, United Kingdom, which is near
our existing Camberley site. In January 2018, we replaced our lease agreement for the Farnborough location
with a new 10-year lease agreement. The new agreement provides for additional office space to
accommodate our operating plans following the Merger. We also anticipate completing our relocation efforts
to the Farnborough location prior to the Camberley lease expiring in 2018.
53
In addition, we lease substantial facilities in Columbus, Ohio; Camberley, United Kingdom; Gurgaon, India;
Hyderabad, India; Madrid, Spain; Maidenhead, United Kingdom; Mexico City, Mexico; Munich, Germany; New
York, New York; Newtown, Pennsylvania; Princeton, New Jersey; Pune, India; Quebec City, Canada;
Somerset, New Jersey; Tokyo, Japan; and Toronto, Canada. We also maintain offices in various other Asian-
Pacific, European, Latin American and North American locations, including Australia, the Middle East and
Africa. None of our leases is individually material to our business model and all either have options to renew
or are located in major markets where we believe there are adequate opportunities to continue business
operations at terms satisfactory to us.
Item 3. Legal Proceedings.
We are party to legal proceedings incidental to our business. While our management currently believes the
ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse
effect on our consolidated financial statements, litigation is subject to inherent uncertainties. Were an
unfavorable ruling to occur, there exists the possibility of a material adverse impact on our financial condition
and results of operations.
On December 1, 2017, the first of two virtually identical actions alleging federal securities law claims was filed
against us and certain of our officers on behalf of a putative class of our shareholders. The first action,
captioned Bermudez v. INC Research, Inc., et al, No. 17-09457 (S.D.N.Y.), names as defendants us, Michael
Bell, Alistair MacDonald, Michael Gilbertini and Gregory Rush, and the second action, Vaitkuvienë v. Syneos
Health, Inc., et al, No. 18-0029 (E.D.N.C.), names as defendants us, Alistair MacDonald, and Gregory S.
Rush. Both complaints allege similar claims under Section 10(b) and Section 20(a) of the Securities
Exchange Act of 1934 on behalf of a putative class of purchasers of our common stock between May 10,
2017 and November 8, 2017 (Vaitkuvienë action) and November 9, 2017 (Bermudez action). The complaints
allege that we published inaccurate or incomplete information regarding, among other things, the financial
performance and business outlook for inVentiv’s business prior to the Merger and with respect to the
combined company following the merger. On January 30, 2018, two alleged shareholders of ours filed
motions both seeking to be appointed lead plaintiff and approving the selection of lead counsel. These
motions remain pending. We and the other defendants deny the allegations in these complaints and intend to
defend vigorously against these claims.
Item 4. Mine Safety Disclosures.
Not applicable.
54
PART II
Item 5. Market for Registrants' Common Equity, Related Stockholder Matters, and Issuer Purchases of
Equity Securities.
Market Information for Common Stock
The following table sets forth the high and low sales prices per share of our common stock as reported by the
NASDAQ for the periods indicated:
Fiscal Year 2017:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fiscal Year 2016:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Holders of Record
High
Low
$
$
$
$
$
$
$
$
59.45
59.80
61.10
56.88
High
52.75
47.39
57.11
48.13
$
$
$
$
$
$
$
$
33.60
51.00
40.65
40.85
Low
41.10
37.27
36.70
34.19
On February 21, 2018, there were approximately 72 shareholders of record of our common stock. This
number does not include shareholders for whom shares are held in "nominee" or "street" name.
Dividend Policy
Since becoming a public company, we have not declared or paid cash dividends on our common stock, nor
do we intend to pay cash dividends on our common stock in the foreseeable future. However, in the future,
subject to the factors described below and our future liquidity and capitalization, we may change this policy
and choose to pay dividends.
We are a holding company that does not conduct any business operations of our own. As a result, our ability
to pay cash dividends on our common stock is dependent upon cash dividends, distributions, and other
transfers from our subsidiaries. Our ability to pay dividends is currently restricted by the terms of our 2017
Credit Agreement, and may be further restricted by any future indebtedness we or our subsidiaries incur. In
addition, under Delaware law, the Board may declare dividends only to the extent of our surplus (which is
defined as total assets at fair market value minus total liabilities, minus statutory capital) or, if there is no
surplus, out of our net profits for the then current and/or immediately preceding fiscal year.
Any future determination to pay dividends will be at the discretion of the Board and will take into account
restrictions in our debt instruments, including our 2017 Credit Agreement, general economic business
conditions, our financial condition, results of operations and cash flows, our capital requirements, our
business prospects, the ability of our operating subsidiaries to pay dividends and make distributions to us,
legal restrictions, and such other factors as the Board may deem relevant. For additional information on these
restrictive covenants, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" and "Note 4 - Long-Term Debt Obligations" to our
audited consolidated financial statements included in Part II, Item 8, "Financial Statements and
Supplementary Data" in this Annual Report on Form 10-K.
Recent Sales of Unregistered Securities
We did not have any sales of unregistered securities during 2017.
55
Purchases of Equity Securities by the Issuer
We did not purchase any equity securities during 2017.
Stock Performance Graph
The information included under the heading “Stock Performance Graph” is “furnished” and not “filed” for
purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it
be deemed to be “soliciting material” subject to Regulation 14A or incorporated by reference in any filing
under the Securities Act of 1933, as amended, or the Exchange Act of 1934, as amended.
In connection with our rebranding under the name Syneos Health, Inc., effective January 8, 2018, our
common stock is traded on the NASDAQ under the symbol “SYNH”. From November 7, 2014 through
January 7, 2018, our common stock was listed on the NASDAQ under the symbol "INCR". The Stock Price
Performance Graph set forth below compares the cumulative total shareholder return on our common stock
for the period from November 7, 2014 through December 31, 2017, with the cumulative total return of the
Nasdaq Composite Index and the Nasdaq Health Care Index over the same period. The comparison assumes
$100 was invested on November 7, 2014 in the common stock of Syneos Health, Inc., in the Nasdaq
Composite Index, and in the Nasdaq Health Care Index and assumes reinvestment of dividends, if any.
The stock price performance shown on the graph above is not necessarily indicative of future price
performance. Information used in the graph was obtained from the Nasdaq Stock Market, a source believed
to be reliable, but we are not responsible for any errors or omissions in such information.
56
Equity Compensation Plans
The information required by Part II, Item 5, "Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities" in this Annual Report on Form 10-K regarding equity
compensation plans is incorporated herein by reference to Part III, Item 12, "Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters” in this Annual Report on Form 10-K.
57
Item 6. Selected Financial Data.
The following tables set forth our selected consolidated financial data for the periods ending on and as of the
dates indicated. We derived the consolidated statements of operations data for the years ended December 31,
2017, 2016 and 2015 and the consolidated balance sheet data as of December 31, 2017 and 2016 from our
audited consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary
Data" in this Annual Report on Form 10-K. We derived the consolidated statements of operations data for the
years ended December 31, 2014 and 2013 and the consolidated balance sheet data as of December 31, 2015,
2014, and 2013 from our audited consolidated financial statements not included in this Annual Report on Form
10-K. You should read the consolidated financial data set forth below together with our consolidated financial
statements and the related notes thereto included in Part II, Item 8, "Financial Statements and Supplementary
Data" and Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of future
results of operations.
Statement of Operations Data:
Net service revenue
$ 1,852,843
$ 1,030,337
$
914,740
$ 809,728
$
652,418
Year Ended December 31,
2017(a)
2016
2015
2014
2013
(in thousands, except per share amounts)
Reimbursable out-of-pocket expenses
819,221
580,259
484,499
369,071
Total revenue
2,672,064
1,610,596
1,399,239
1,178,799
Costs and operating expenses:
Direct costs (exclusive of depreciation and
amortization)
1,232,023
Reimbursable out-of-pocket expenses
Selling, general, and administrative
Restructuring and other costs(b)
Transaction and integration-related
expenses(c)
Asset impairment charges(d)
Depreciation
Amortization
(Loss) income from operations
Other (expense) income, net:
Interest expense, net
Loss on extinguishment of debt
Other (expense) income, net
819,221
282,620
33,315
123,815
30,000
44,407
135,529
626,633
580,259
172,386
13,612
3,143
—
21,353
37,851
542,404
484,499
156,609
1,785
1,637
3,931
18,140
37,874
(28,866)
155,359
152,360
515,059
369,071
145,143
6,192
7,902
17,245
21,619
32,924
63,644
(62,543)
(11,800)
(15,448)
(622)
(19,846)
(439)
(9,002)
(9,795)
3,857
(52,787)
(46,750)
7,689
(Loss) income before provision for income taxes
(111,877)
134,118
130,974
(28,204)
Income tax (expense) benefit
(26,592)
(21,488)
(13,927)
4,734
Net (loss) income
(138,469)
112,630
117,047
(23,470)
Class C common stock dividends
Redemption of New Class C common stock
—
—
—
—
—
—
(375)
(3,375)
Net (loss) income attributable to common
shareholders
Earnings per share attributable to common
shareholders:
$
(138,469) $
112,630
$
117,047
$ (27,220) $
(42,029)
Basic
Diluted
$
$
(1.85) $
(1.85) $
2.08
2.03
$
$
2.02
1.95
$
$
(0.51) $
(0.51) $
(0.81)
(0.81)
Weighted average common shares outstanding:
Basic
Diluted
74,913
74,913
54,031
55,610
57,888
60,146
53,301
53,301
52,009
52,009
58
342,672
995,090
432,261
342,672
117,890
11,828
508
—
19,175
39,298
31,458
(60,489)
—
(1,649)
(30,680)
(10,849)
(41,529)
(500)
—
2017(a)
2016
As of December 31,
2015
(in thousands)
2014
2013
Balance Sheet Data:
Cash and cash equivalents
$
321,262
$
102,471
$
85,011
$
126,453
$
96,972
Total assets(e)
7,285,867
1,288,507
1,211,219
1,241,365
1,227,455
Total debt and capital leases(e)(f)
Total shareholders' equity
Other Financial Data:
Backlog(g)
Net new business awards(g)
Net Book-to-Bill ratio(h)
3,007,724
3,022,579
497,724
301,473
501,839
217,434
416,257
392,209
588,823
276,207
$ 3,796,444
$ 1,878,267
$ 1,701,587
$ 1,532,051
$ 1,433,024
1,819,348
1,216,871
1,114,065
1.25x
1.19x
1.23x
942,283
1.18x
851,234
1.32x
2017(a)
Year Ended December 31,
2015
2014
2016
2013
Statement of Cash Flow Data:
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Other Financial Data:
Capital expenditures
Dividends paid
Redemption of New Class C common stock
Non-GAAP Financial Measures(i):
(in thousands)
$
198,258
$
109,332
$
204,740
$
131,447
$
37,270
(1,722,907)
1,734,368
(31,353)
(53,316)
(21,111)
(211,399)
(27,853)
(67,698)
(17,714)
(6,841)
$
(43,896) $
(31,353) $
(21,111) $
(25,551) $
(17,714)
—
—
—
—
—
—
(375)
(3,375)
(500)
—
EBITDA
$
130,602
$
205,122
$
202,436
$
79,126
$
88,282
Adjusted Net Service Revenue
Adjusted EBITDA
Adjusted Net Income
1,885,533
1,030,337
391,899
195,955
244,506
139,007
914,740
221,360
120,174
800,728
145,276
44,647
652,418
105,521
16,290
Adjusted Diluted Earnings per share
$
2.57
$
2.50
$
2.00
$
0.83
$
0.31
(a) We completed our Merger with inVentiv on August 1, 2017. Our consolidated financial results include the financial
results of inVentiv as of and since the date of the Merger.
(b) Restructuring and other costs consist primarily of: (i) severance costs associated with merger related workforce
reductions; (ii) severance costs associated with a reduction/optimization of our workforce in line with our expectations of
future business operations; (iii) transition costs associated with the change in our Chief Executive Officer (2016 and
2017 only), (iv) termination costs in connection with abandonment and closure of redundant facilities and other lease-
related charges; and (v) consulting costs incurred for the continued consolidation of legal entities and restructuring of
our contract management process to meet the requirements of upcoming accounting regulation changes.
(c) Transaction and integration-related expenses were $123.8 million for the year ended December 31, 2017 and primarily
related legal and professional fees associated with the Merger. Included in transaction and integration-related expenses
for 2017 is a benefit of $12.3 million from the reduction in fair value of contingent tax-sharing obligations payable to the
former shareholders of inVentiv as a result of the enactment of the Tax Act of 2017. Transaction expenses for the year
ended December 31, 2016 were $3.1 million and represented fees associated with secondary stock offerings and the
August 2016 stock repurchase, debt refinancing costs and legal fees associated with other corporate transactions.
Transaction expenses for the year ended December 31, 2015 were $1.6 million and primarily consisted of fees
associated with our secondary stock offerings, debt placement and refinancing and other corporate transactions.
Transaction expenses for the year ended December 31, 2014 were $7.9 million and primarily consisted of debt
issuance costs and third-party fees associated with our debt refinancings, fees associated with the termination of the
Avista Capital Partners, L.P. consulting agreement, and legal fees associated with the MEK Consulting acquisition.
Transaction expenses of $0.5 million for the year ended December 31, 2013 related to third-party fees associated with
59
debt refinancing and the legal fees associated with our acquisition of MEK Consulting which was completed in March
2014.
(d) During the year ended December 31, 2017, we recorded an impairment charge of $30.0 million related to the
impairment of the Company's INC Research tradename in connection with the Company’s announced rebranding.
During the year ended December 31, 2015, we recorded a $3.9 million impairment charge related to goodwill and long-
lived assets associated with our Phase I Services reporting unit, a component of our Clinical Solutions segment. During
the year ended December 31, 2014, we recorded a $17.2 million impairment charge related to intangible assets and
goodwill associated with our Global Consulting reporting unit, a component of the Commercial Solutions segment, and
Phase I Services reporting unit, a component of our Clinical Solutions segment.
(e) Total assets, total debt and capital leases have been reduced by $20.7 million, $2.3 million, $3.2 million, $3.7
million, and $5.7 million of debt issuance costs associated with the Term Loans as of December 31, 2017, 2016, 2015,
2014, and 2013, respectively.
(f) Total debt and capital leases include $38.7 million of a premium related to our Senior Notes, net of original issue debt
discount for the Term Loan B as of December 31, 2017. Total debt and capital leases include $5.5 million and $4.6
million of unamortized discounts as of December 31, 2014 and 2013, respectively.
(g) Backlog consists of anticipated future net service revenue from contract and pre-contract commitments that are
supported by written communications. Net new business awards represent the value of future net service revenue
awarded during the period. In connection with the Merger, we re-evaluated our existing backlog policy for our Clinical
Solutions segment. As a result of this evaluation, effective during the third quarter of 2017, we changed our policy for
calculating and reporting the amounts of our net new business awards and backlog. Refer to Part II, Item 7,
"Management's Discussion and Analysis - New Business Awards and Backlog" in this Annual Report on Form 10-K for a
description of our current policy. The majority of our contracts can be terminated by our customers with 30 days notice.
These adjustments resulted in a reduction to our backlog of approximately $284.5 million as of September 30, 2017 and
prior periods have been retroactively adjusted for comparability purposes. We have recorded the backlog assumed in
the Merger consistent with our new backlog policy. We do not currently report new business awards or backlog data for
our Commercial Solutions segment.
(h) Net book-to-bill ratio represents "net new business awards" divided by Clinical Solutions net service revenue. We
believe net book-to-bill ratio is commonly used in our industry and represents a useful indicator of our potential future
revenue growth rate in that it measures the rate at which we are generating net new business awards compared to our
current revenues. We cannot assure you that the net book-to-bill ratio is predictive of future financial performance
because it will likely be impacted by a number of factors, including the size and duration of projects, which can be
performed over several years, project change orders resulting in increases or decreases in project scope, and
cancellations. As a result of the policy changes to backlog and net new business awards discussed above, we have
retroactively adjusted net book-to-bill ratio for prior periods for comparability purposes.
(i) We report our financial results in accordance with U.S. GAAP. To supplement this information, we also use the following
non-GAAP financial measures in this report: Adjusted Net Service Revenue, EBITDA, Adjusted EBITDA, Adjusted Net
Income and Adjusted Diluted Earnings per share. For a discussion of the non-GAAP financial measures in this Annual
Report on Form 10-K, see "Non-GAAP Financial Measures" below. Investors are encouraged to review the following
reconciliations of these non-GAAP measures to our closest reported GAAP measures.
60
Reconciliation of GAAP Measures to Non-GAAP Measures
Net Service Revenue (as reported)
$ 1,852,843
$ 1,030,337
$
914,740
$
809,728
$
652,418
Year Ended December 31,
2017(a)
2016
2015
2014
2013
(in thousands, except per share amounts)
Acquisition-related revenue adjustments(b)
Change order adjustment(c)
Adjusted Net Service Revenue
EBITDA and Adjusted EBITDA:
Net (loss) income
Interest expense, net
Income tax expense (benefit)
Depreciation
Amortization
EBITDA
Acquisition-related revenue adjustments(b)
Change order adjustment(c)
Restructuring and other costs(d)
Transaction and integration-related expenses(e)
Asset impairment charges(f)
Share-based compensation(g)
Contingent consideration and other expense(h)
Monitoring and advisory fees(i)
R&D tax credit adjustment(j)
Other expense (income)(k)
Loss on unconsolidated affiliates(l)
Loss on extinguishment of debt(m)
32,690
—
—
—
—
—
—
(9,000)
—
—
$ 1,885,533
$ 1,030,337
$
914,740
$
800,728
$
652,418
$ (138,469) $
112,630
$
117,047
$
(23,470) $
(41,529)
62,543
26,592
44,407
135,529
130,602
32,690
—
33,315
123,815
30,000
24,577
—
—
(3,568)
19,846
—
622
11,800
21,488
21,353
37,851
15,448
13,927
18,140
37,874
205,122
202,436
—
—
1,785
1,637
3,931
5,074
559
—
—
—
—
13,612
3,143
—
14,020
1,696
—
(2,528)
9,002
—
439
52,787
(4,734)
21,619
32,924
79,126
—
(9,000)
6,192
7,902
17,245
3,370
918
462
—
60,489
10,849
19,175
39,298
88,282
—
—
11,828
508
—
2,419
253
582
—
1,453
196
—
(3,857)
(7,689)
—
9,795
—
46,750
Adjusted EBITDA
$
391,899
$
244,506
$
221,360
$
145,276
$
105,521
61
Reconciliation of GAAP Measures to Non-GAAP Measures (continued)
Adjusted Net Income:
Net (loss) income
Amortization
Acquisition-related revenue adjustments(b)
Change order adjustment(c)
Restructuring and other costs(d)
Transaction and integration-related expenses(e)
Asset impairment charges(f)
Share-based compensation(g)
Contingent consideration and other expense(h)
Monitoring and advisory fees(i)
R&D tax credit adjustment(j)
Other expense (income)(k)
Loss on unconsolidated affiliates(l)
Loss on extinguishment of debt(m)
Bridge financing fee(n)
Year Ended December 31,
2017(a)
2016
2015
2014
2013
(in thousands, except per share amounts)
$ (138,469) $
112,630
$
117,047
$
(23,470) $
(41,529)
37,851
37,874
32,924
39,298
135,529
32,690
—
33,315
123,815
30,000
24,577
—
—
(3,568)
19,846
—
622
5,815
—
—
13,612
3,143
—
14,020
1,696
—
(2,528)
9,002
—
439
—
—
—
1,785
1,637
3,931
5,074
559
—
—
—
(9,000)
6,192
7,902
17,245
3,370
918
462
—
(3,857)
(7,689)
—
9,795
—
—
46,750
—
—
—
11,828
508
—
2,419
253
582
—
1,453
196
—
—
1,282
—
Adjust income tax to normalized rate(o)
(162,632)
(50,858)
(53,671)
(30,957)
Impact of Tax Cut and Jobs Act(p)
94,415
—
—
—
Adjusted Net Income
Adjusted Diluted Earnings Per Share:
Adjusted diluted earnings per share
$
$
Adjusted Diluted weighted average common shares
outstanding(q)
195,955
$
139,007
$
120,174
$
44,647
$
16,290
2.57
$
2.50
$
2.00
$
0.83
$
0.31
76,168
55,610
60,146
53,858
52,033
(a) We completed our Merger with inVentiv on August 1, 2017. Our consolidated financial results include the financial
results of inVentiv as of and since the date of the Merger.
(b) 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. As a result of the Merger,
we conformed inVentiv's revenue recognition accounting policies with ours, which resulted in recognition of
additional $6.0 million of revenue in the fourth quarter of 2017. Under revenue recognition accounting policies of
inVentiv, this revenue has historically been recognized in the first quarter of each fiscal year. We have eliminated
this one-time benefit from our non-GAAP financial measures.
(c) During the second and third quarters of 2014, we experienced higher-than-normal change order activity estimated
to be between $6 million and $12 million. Adjusted Net Service Revenue, Adjusted EBITDA, Adjusted Net Income,
and Adjusted Diluted Earnings per share for 2014 have been adjusted by $9.0 million to remove the impact of this
higher-than-normal change order activity.
(d) Restructuring and other costs consist of: (i) severance costs associated with merger related workforce reductions;
(ii) severance costs associated with a reduction/optimization of our workforce in line with our expectations of future
business operations; (iii) transition costs associated with the change in our Chief Executive Officer (2016 and 2017
only); (iv) termination costs in connection with abandonment and closure of redundant facilities and other lease-
related charges; and (v) consulting costs incurred for the continued consolidation of legal entities and restructuring
of our contract management process to meet the requirements of upcoming accounting regulation changes.
(e) Represents fees associated with business combinations, stock repurchases and secondary stock offerings, debt
placement and refinancings, IPO costs, and other corporate transactions costs.
(f) Represents impairment of goodwill, intangible assets, and long-lived assets.
(g) Represents share-based compensation expense related to awards granted under equity incentive plans.
62
(h) Consists of contingent consideration expense incurred as a result of acquisitions and other expenses accounted for
as compensation expense under U.S. GAAP.
(i) Represents monitoring and advisory fees paid to affiliates of Avista Capital Partners, L.P in the periods prior to the
initial public offering in November 2014, as well as reimbursements of expenses paid to affiliates of Avista Capital
Partners, L.P. and affiliates of Teachers' Private Capital pursuant to the Expense Reimbursement Agreement.
These arrangements were terminated upon completion of our initial public offering.
(j) Represents research and development tax credits in certain international locations for expenses incurred and
recorded as a reduction of direct costs.
(k) Represents other expense (income) comprised primarily of foreign exchange gains and losses.
(l) Represents losses (gains) associated with unconsolidated affiliates.
(m) Represents loss on extinguishment of debt associated with our debt modifications and refinancing activities.
(n) Represents bridge financing fees incurred in connection with the Merger related to an unused financing
commitment taken out prior to securing our 2017 Credit Agreement.
(o) Our effective tax rate has been adjusted to an overall effective rate of 32.6% in 2017, 34% in 2016, 36% in 2015
and 37% in 2014, and 2013. This rate has been adjusted to exclude tax impacts related to valuation allowances
recorded against deferred tax assets.
(p) Represents the direct and indirect net income tax expense recorded in the three months and year ended
December 31, 2017 as a result of the enactment of the Tax Act. For further details on the impact of the Tax Act refer
to "Note 12 - Income Taxes" to our consolidated financial statements included in Part II, Item 8, "Financial
Statements and Supplementary Data " in this Annual Report on Form 10-K.
(q) Diluted weighted average common shares outstanding has been adjusted to give effect to dilutive securities for
purposes of calculating adjusted diluted earnings per share by 1,255, 557, and 24 shares for the years ended
December 31, 2017, 2014, and 2013, respectively. These shares were excluded from the calculation of GAAP
earnings per share as we reported a net loss for the period.
Non-GAAP Financial Measures
We report our financial results in accordance with U.S. GAAP. To supplement this information, we also use the
following non-GAAP financial measures in this Annual Report on Form 10-K: Adjusted Net Service Revenue,
EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted Earnings per share. Management
believes that these non-GAAP measures provide useful supplemental information to management and
investors regarding the underlying performance of our business operations. We use these non-GAAP
measures to, among other things, evaluate our operating performance on a consistent basis, calculate
incentive compensation for our employees and assess compliance with various metrics associated with our
Credit Agreement.
Adjusted Net Service Revenue is the consolidated net service revenue adjusted to: (i) include revenue
eliminated under purchase accounting; (ii) exclude revenue due to conforming inVentiv revenue recognition
policies; and (iii) reduce revenue to adjust for higher-than-normal change order activity during the period.
EBITDA represents earnings before interest, taxes, depreciation, and amortization. Adjusted EBITDA
represents EBITDA, further adjusted to include revenue eliminated under purchase accounting and an
increase in revenue due to conforming the legacy inVentiv revenue recognition policy and to exclude the
impact of higher-than-normal revenue change order activity, and certain expenses and transactions that we
believe are not representative of our core operating results, including: management fees that terminated upon
our IPO; restructuring and other costs; transaction and integration-related expenses; non-cash share-based
compensation expense; contingent consideration and other expenses; asset impairment charges; loss on
extinguishment of debt; R&D tax credit adjustments; results of and gains or losses from the sale of
unconsolidated affiliates; and other income (expense).
Adjusted Net Income and Adjusted Diluted Earnings per share represent net income (loss) adjusted to include
revenue eliminated under purchase accounting and an increase in revenue due to conforming the legacy
63
inVentiv revenue recognition policy and to exclude the impact of higher-than-normal revenue change order
activity and certain expenses and transactions that we believe are not representative of our core operating
results, including: acquisition-related amortization; restructuring and other costs; transaction and integration-
related expenses; asset impairment charges: non-cash share-based compensation expense; contingent
consideration and other expenses; management fees that terminated upon our IPO; R&D tax credit
adjustments: other income (expense); results of and gains or losses from the sale of unconsolidated affiliates;
loss on extinguishment of debt: bridge financing fees related to unused financing commitments; adjustments
to our tax rate to reflect an expected long-term tax rate that excludes the impact of our valuation allowances
and historical NOLs; and adjustments related to the estimated of the enactment of the Tax Act.
We believe that EBITDA is a useful metric for investors as it is a common metric used by investors, analysts
and debt holders to measure our ability to service our debt obligations, fund capital expenditures and meet
working capital requirements.
Each of the non-GAAP measures are used by management and the Board to evaluate our core operating
results as it excludes certain items whose fluctuations from period-to-period do not necessarily correspond to
changes in the core operations of the business. Adjusted Net Income (including Adjusted Diluted Earnings per
Share) are used by management and the Board to assess our business, as well as by investors and analysts,
to measure our performance.
These non-GAAP measures are performance measures only and are not measures of our cash flows or
liquidity. Adjusted Net Service Revenue, EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted
Diluted Earnings per share are non-GAAP financial measures that are not in accordance with, or an
alternative for, measures of financial performance prepared in accordance with U.S. GAAP and may be
different from similarly titled non-GAAP measures used by other companies. Non-GAAP measures have
limitations in that they do not reflect all of the amounts associated with our results of operations as determined
in accordance with U.S. GAAP. Some of the limitations are:
• EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash
requirements necessary to service interest or principal payments, on our debt;
•
although depreciation and amortization are non-cash charges, the assets being depreciated and
amortized may have to be replaced in the future, and EBITDA, Adjusted EBITDA and Adjusted Net
Income do not reflect the cash requirements for such replacements; and
• EBITDA, Adjusted EBITDA, and Adjusted Net Income do not reflect our actual tax expense or, in the
case of EBITDA and Adjusted EBITDA, the cash requirements to pay our taxes.
See the consolidated financial statements included in Part II, Item 8, "Financial Statements and
Supplementary Data" in this Annual Report on Form 10-K for our GAAP results. Additionally, for
reconciliations of Adjusted Net Service Revenue, EBITDA, Adjusted EBITDA, Adjusted Net Income and
Adjusted Diluted Earnings per share to our closest reported GAAP measures see "Selected Financial Data -
Reconciliation of GAAP Measures to Non-GAAP Measures" above.
64
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read
together with Part II, Item 6, "Selected Financial Data" in this Annual Report on Form 10-K and the
consolidated financial statements and the related notes included in Part II, Item 8, "Financial Statements and
Supplementary Data" in this Annual Report on Form 10-K. This discussion contains forward-looking
statements related to future events and our future financial performance that are based on current
expectations and subject to risks and uncertainties. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of many factors, including those described in Part
I, Item 1A, "Risk Factors" and elsewhere in this Annual Report on Form 10-K.
Overview of Our Business and Services
Syneos Health, Inc. (the “Company,” “we,” “us,” and “our”) is a leading global biopharmaceutical services
organization comprised of an end-to-end clinical contract research organization (“CRO”) and contract
commercial organization (“CCO”). We offer both standalone and integrated biopharmaceutical development
and commercialization services ranging from Phase I to Phase IV clinical trial services to services associated
with the commercialization of biopharmaceutical products. Our customers include small, mid-sized, and large
companies in the pharmaceutical, biotechnology, and medical device industries, and our revenue is derived
through a broad suite of services designed to enhance our customers’ ability to successfully develop, launch,
and market their products. We consistently and predictably deliver our services in a complex environment and
offer a proprietary, operational approach to the delivery of our projects through our Trusted Process®
methodology.
On August 1, 2017, we completed a merger (the “Merger”) with Double Eagle Parent, Inc. (“inVentiv”), the
parent company of inVentiv Health, Inc. under the terms of the merger agreement, dated May 10, 2017 (the
“Merger Agreement”). Upon closing, inVentiv was merged with and into the Company, and the separate
corporate existence of inVentiv ceased. In conjunction with the Merger, we entered into the 2017 Credit
Agreement to: (i) repay the Company’s and inVentiv’s pre-Merger term loans; (ii) partially redeem inVentiv’s
Senior Unsecured Notes; and (iii) pay fees and expenses related to the Merger. See further discussion in
"Note 3 - Business Combinations" to our consolidated financial statements included in Part II, Item 8,
"Financial Statements and Supplementary Data" in this Annual Report on Form 10-K for additional details on
the Merger.
Following the Merger, we realigned our operating segments to reflect the current structure under which we
evaluate our performance, make strategic decisions and allocate resources. As a result of this realignment,
effective August 1, 2017, we began managing our business through two reportable segments: Clinical
Solutions and Commercial Solutions.
Our Clinical Solutions segment offers a variety of services spanning Phase I to Phase IV of clinical
development, including full-service global studies, as well as individual service offerings such as clinical
monitoring, investigator recruitment, patient recruitment, data management, and study startup to assist
customers with their drug development process. Our Commercial Solutions segment provides the
pharmaceutical, biotechnology, and healthcare industries commercialization services, which include
outsourced selling solutions, communication solutions (public relations and advertising), and consulting
services. Our management reviews segment performance and allocates resources based upon segment
revenue and segment operating income. Historical segment reporting has been revised to reflect these
changes to our segment structure. Prior to the Merger, our Commercial Solutions segment consisted solely of
a consulting offering. See further discussion in "Note 14 - Segment Information" to our consolidated financial
statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in this Annual Report
on Form 10-K.
For financial information regarding revenue and long-lived assets by geographic areas, see "Note 15 -
Operations by Geographic Location" to our consolidated financial statements included in Part II, Item 8,
"Financial Statements and Supplementary Data" in this Annual Report on Form 10-K.
65
New Business Awards and Backlog
In connection with the Merger, we re-evaluated our existing backlog policy for our Clinical Solutions segment.
As a result of this evaluation, effective during the third quarter of 2017, we changed our policy for calculating
and reporting the amounts of our net new business awards and backlog. Under the new backlog policy for our
Clinical Solutions segment, we add new business awards to backlog when we enter into a contract or when
we receive a written commitment from the customer selecting us as a service provider, provided that:
•
•
•
•
the customer has received appropriate internal funding approval and collection of the award value is
probable;
the project or projects are not contingent upon completion of another trial or event;
the project or projects are expected to commence within the next six months;
the customer has entered or intends to enter into a comprehensive contract as soon as practicable;
and
•
for awards related to our FSP offering, only a maximum of twelve months of services are included.
In addition, we continually evaluate our backlog to determine if any of the previously awarded work is no
longer expected to be performed, regardless of whether we have received formal cancellation notice from the
customer. If we determine that any previously awarded work is no longer probable of being performed, we
remove the value from our backlog based on risk. We recognize revenue from these awards as services are
performed, provided we have entered into a contractual commitment with the customer. We recorded the
backlog assumed in the Merger consistent with our new backlog policy.
We do not currently report new business awards or backlog data for our Commercial Solutions segment.
Accordingly, all disclosures related to net new service awards and backlog pertain solely to our Clinical
Solutions segment.
Backlog
Our Clinical Solutions backlog consists of anticipated future net service revenue from business awards that
either have not started but are anticipated to begin in the future (as noted above), or that are in process and
have not been completed. Our backlog also reflects any cancellation or adjustment activity related to these
contracts. The average duration of our contracts will fluctuate from period to period in the future based on the
contracts comprising our backlog at any given time. The majority of our Clinical Solutions segment contracts
can be terminated by the customer with a 30-day notice.
As of December 31, 2017 and 2016, our Clinical Solutions backlog was $3.80 billion and $1.88 billion,
respectively (inVentiv contributed approximately $1.51 billion of our December 31, 2017 Clinical Solutions
backlog). We expect approximately $1.88 billion of our Clinical Solutions backlog at December 31, 2017 will
be recognized as revenue during 2018, with the remainder expected to be translated into revenue beyond
2018. We adjust the amount of our backlog each quarter for the effects of fluctuations in foreign currency
exchange rates. During the year ended December 31, 2017, fluctuations in foreign currency exchange rates
resulted in a favorable impact on our December 31, 2017 backlog in the amount of $47.3 million, primarily due
to the strengthening of the Euro against the U.S. dollar.
We believe that our backlog and net new business awards might not be consistent indicators of future
revenue because they have been, and likely will be, affected by a number of factors, including the variable
size and duration of projects, many of which are performed over several years, and cancellations and
changes to the scope of work during the course of projects. Additionally, projects may be canceled or delayed
by the customer or regulatory authorities. Projects that have been delayed for less than six months generally
remain in backlog, but the anticipated timing of the recognition of revenue is uncertain. We generally do not
have a contractual right to the full amount of the awards reflected in our backlog. If a customer cancels an
award, we might be reimbursed for the costs we have incurred. As we increasingly compete for and enter into
large contracts that are more global in nature, we expect that the rate at which our backlog and net new
business awards convert into revenue is likely to decrease, and the duration of projects and the period over
66
which related revenue is recognized to lengthen. In addition, our adoption of the new revenue recognition
accounting standard on January 1, 2018 might affect our backlog. See "Note 1 - Basis of Presentation and
Summary of Principal Accounting Policies - Recently Issued Accounting Standards Not Yet Adopted -
Revenue from Contracts with Customers." For more information about risks related to our backlog see Part I,
Item 1A "Risk Factors—Risks Related to Our Business—Our backlog might not be indicative of our future
revenues, and we might not realize all of the anticipated future revenue reflected in our backlog" in this
Annual Report on Form 10-K.
Net New Business Awards
Our new business awards, net of award cancellations, for the years ended December 31,
2017, 2016, and 2015 were $1.82 billion, $1.22 billion, and $1.11 billion, respectively, representing a 49.5%
increase from 2016 to 2017 and a 9.2% increase from 2015 to 2016. Net new business awards were higher
for the year ended December 31, 2017, due to the Merger and an estimated organic increase in net awards of
$76.2 million, or 6.3%. New business awards have varied and may continue to vary significantly from quarter
to quarter. Fluctuations in our net new business award levels often result from the fact that we may receive a
small number of relatively large orders in any given reporting period. Because of these large orders, our
backlog and net new business awards in a reporting period may reach levels that are not sustainable in
subsequent reporting periods.
67
Results of Operations
Year Ended December 31, 2017 Compared to the Years Ended December 31, 2016 and 2015
The following table sets forth amounts from our consolidated financial statements along with the percentage
change for years ended December 31, 2017, 2016 and 2015 (dollars in thousands):
Years Ended December 31,
Change
2017
2016
2015
2017 to 2016
2016 to 2015
Net service revenue
$ 1,852,843
$1,030,337
$ 914,740
$ 822,506
79.8 % $ 115,597
12.6 %
Reimbursable out-of-pocket
expenses
819,221
580,259
484,499
238,962
41.2 %
95,760
Total revenue
2,672,064
1,610,596
1,399,239
1,061,468
65.9 % 211,357
19.8 %
15.1 %
Costs and operating
expenses:
Direct costs (exclusive of
depreciation and
amortization)
Reimbursable out-of-pocket
expenses
Selling, general, and
administrative
Restructuring and other
costs
Transaction and integration-
related expenses
Asset impairment charges
Depreciation and
amortization
Total operating
expenses
(Loss) income from
operations
1,232,023
626,633
542,404
605,390
96.6 %
84,229
15.5 %
819,221
580,259
484,499
238,962
41.2 %
95,760
19.8 %
282,620
172,386
156,609
110,234
63.9 %
15,777
10.1 %
33,315
13,612
1,785
19,703
144.7 %
11,827
662.6 %
123,815
30,000
3,143
—
1,637
3,931
120,672
30,000
n/m
n/m
1,506
92.0 %
(3,931)
(100.0)%
179,936
59,204
56,014
120,732
203.9 %
3,190
5.7 %
2,700,930
1,455,237
1,246,879
1,245,693
85.6 % 208,358
16.7 %
Total other expense, net
(83,011)
(21,241)
(21,386)
(61,770)
(290.8)%
(28,866)
155,359
152,360
(184,225)
(118.6)%
2,999
145
2.0 %
0.7 %
(Loss) income before
provision for income taxes
(111,877)
134,118
130,974
(245,995)
(183.4)%
3,144
2.4 %
Income tax benefit (expense)
(26,592)
(21,488)
(13,927)
(5,104)
(23.8)%
(7,561)
(54.3)%
Net (loss) income
$ (138,469) $ 112,630
$ 117,047
$ (251,099)
(222.9)% $
(4,417)
(3.8)%
Net Service Revenue
Net service revenue increased by $822.5 million, or 79.8%, to $1,852.8 million for the year ended
December 31, 2017 from $1,030.3 million for the year ended December 31, 2016. The increase in our total
net service revenue during 2017 was due solely to the Merger with inVentiv in August 2017, which resulted in
an increase in total net service revenue of $839.0 million. This increase was partially offset by a year-over-
year decline in organic revenues resulting from significant customer, regulatory, and other delays impacting
our awarded projects during 2017, and higher than normal levels of cancellations of previously awarded
projects. Our net service revenue for the year ended December 31, 2017 was negatively impacted by
fluctuations in foreign exchange rates and contractual currency adjustment provisions of $4.8 million, as the
U.S. dollar has strengthened compared to the prior year.
Net service revenue increased $115.6 million, or 12.6%, to $1,030.3 million for the year ended December
31, 2016 from $914.7 million for the year ended December 31, 2015. In 2016, our revenue grew across all
therapeutic areas and has been particularly strong in the central nervous system, oncology and other
complex therapeutic areas. The growth in revenue during 2016 was primarily due to our strong backlog at
the beginning of the year, the acceleration of a group of projects with one of our sponsors, revenue mix,
and the growth of our functional service provider business. Our net service revenue for the year ended
68
December 31, 2016 was negatively impacted by fluctuations in foreign exchange rates and contractual
currency adjustment provisions of $11.7 million, as the U.S. dollar has strengthened compared to the prior
year.
We will adopt the new revenue recognition standard on January 1, 2018 using the modified retrospective
approach. As a result of adopting the new standard, our future revenue recognition may be delayed at
certain phases of the customer contract life cycle, particularly during the first couple of years of the contract
as the inclusion of reimbursable costs in the measure of progress may result in a disproportionately lower
percentage of costs incurred until those contracts mature. Such deferral of revenue could differ materially
from that applied under the revenue recognition standard used in previous years. While we expect our
revenue to be deferred in the early stages of the contract, we do not expect any changes in the total
revenue or profitability recognized over the life of the contract. Further, any impact from delays in the early
stages of the contract may be partially mitigated on an aggregate basis because at any given time, our
portfolio consists of contracts in varying stages of completion.
Net service revenue from our top five customers accounted for approximately 22.3%, 33.3% and 33.5% of net
service revenue for the years ended December 31, 2017, 2016 and 2015, respectively. No single customer
accounted for greater than 10% of our total consolidated net service revenue for the years ended
December 31, 2017, 2016 or 2015.
Net service revenue for each of our segments was comprised of the following (in thousands, except
percentages):
Years Ended December 31,
Change
2017
2016
2015
2017 to 2016
2016 to 2015
Clinical Solutions
$ 1,459,968
$1,021,017
$ 906,528
$ 438,951
43.0% $ 114,489
12.6%
% of total
78.8%
Commercial Solutions
392,875
% of total
21.2%
99.1%
9,320
0.9%
99.1%
8,212
383,555
n/m
1,108
13.5%
0.9%
Total net service revenue
$ 1,852,843
$1,030,337
$ 914,740
$ 822,506
79.8% $ 115,597
12.6%
Clinical Solutions
Our Clinical Solutions segment is a leading global CRO that is therapeutically-focused and offers a variety of
clinical development services spanning Phase I to Phase IV, including full-service global studies, as well as
unbundled service offerings such as clinical monitoring, investigator recruitment, patient recruitment, data
management, and study startup to assist customers with their drug development process. For the years
ended December 31, 2017, 2016 and 2015, our Clinical Solutions segment generated net service revenue
of $1,460.0 million, $1,021.0 million, and $906.5 million, respectively, representing approximately 78.8%,
99.1% and 99.1%, respectively, of net service revenue for the periods.
For the year ended December 31, 2017, our net service revenue attributable to the Clinical Solutions
segment increased compared to the same period in 2016 solely due to the Merger with inVentiv in August
2017, which resulted in an increase in Clinical Solutions net service revenue of $456.7 million. This increase
was partially offset by a decline in organic revenue of $17.8 million as a result of higher than normal
customer and regulatory delays and cancellations, among other factors, which impacted our awarded
projects during 2017.
For the year ended December 31, 2016, our net service revenue attributable to the Clinical Solutions
segment increased compared to the same period in 2015 primarily due to our strong backlog at the
beginning of the year, the acceleration of a group of projects with one of our sponsors, and our revenue
mix.
69
Commercial Solutions
Our Commercial Solutions segment is a leading provider of a full suite of complementary commercialization
services including outsourced field selling solutions, medical adherence, communications (advertising and
public relations), and consulting services. For the years ended December 31, 2017, 2016 and 2015, our
Commercial Solutions segment generated net service revenue of $392.9 million, $9.3 million, and $8.2
million, respectively, representing approximately 21.2%, 0.9% and 0.9%, respectively, of net service
revenue.
For the year ended December 31, 2017, our net service revenue attributable to the Commercial Solutions
segment increased compared to the same period in 2016 primarily due to the Merger with inVentiv in
August 2017, which resulted in an increase in Commercial Solutions net service revenue of $382.2 million.
While our Commercial Solutions net service revenue increased on a comparative basis due to the Merger,
net service revenue associated with this segment declined compared to the amounts reported by inVentiv
in periods prior to the Merger as a result of project cancellations, particularly within our selling solutions
and communications service offerings, lower year-over-year business awards, and lower new drug
approval activity during 2016.
For the years ended December 31, 2016 and 2015, our net service revenue attributable to the Commercial
Solutions segment was not material and related to our legacy global consulting business.
Direct Costs
Our direct costs consist principally of compensation expense and benefits associated with our employees
and other employee-related costs. While we have some ability to manage the majority of these costs
relative to the amount of contracted services we have during any given period, direct costs as a percentage
of net service revenue can vary from period to period. Such fluctuations are due to a variety of factors,
including, among others: (i) the level of staff utilization created by our ability to effectively manage our
workforce; (ii) adjustments to the timing of work on specific customer contracts; (iii) the experience mix of
personnel assigned to projects; and (iv) the service mix and pricing of our contracts. In addition, as global
projects wind down or as delays and cancellations occur, staffing levels in certain countries or functional
areas can become misaligned with the current business volume.
Direct costs increased by $605.4 million, or 96.6%, to $1,232.0 million for the year ended December 31, 2017
from $626.6 million for the year ended December 31, 2016. These increases were driven by the Merger with
inVentiv, which increased our worldwide employee base by approximately 15,000 employees in August 2017
and resulted in an increase of $596.0 million in direct costs for the year. In addition to the increase in direct
costs associated with the Merger, we incurred higher organic compensation and benefits related expense as
a result of increased personnel resulting from: (i) new business awarded in the first half of 2017; (ii) our
investment in additional personnel to support the bidding process for new business opportunities; and (iii) an
increase in underutilized personnel that we retained in anticipation of work that was delayed or canceled.
These increases were partially offset by a reduction in direct costs from lower incentive based compensation
and a $1.5 million reduction related to foreign currency exchange rate fluctuations during the year ended
December 31, 2017 compared to the prior year.
Direct costs increased by $84.2 million, or 15.5%, to $626.6 million for the year ended December 31, 2016
from $542.4 million for the year ended December 31, 2015. These increases were primarily driven by: (i) the
growth in our revenues and the resulting need for additional resources; (ii) our need to utilize a higher
percentage of third party contractors during 2016 compared to 2015 as the result of our commitment to a
customer to accelerate work originally planned for 2017 into 2016; and (iii) one-time benefits received in 2015
related to a favorable resolution of several VAT and other tax items, a change in employee incentive
compensation, and favorable resolutions to disputed pass-through costs. The increases were partially offset
by a reduction in direct costs of $15.5 million related to fluctuations in foreign currency exchange rates during
the year ended December 31, 2016 compared to 2015.
70
Direct costs for each of our segments, excluding share-based compensation expense, were comprised of
the following (in thousands, except percentages):
Years Ended December 31,
Change
Clinical Solutions
$
930,176
$ 612,201
$
533,277
$ 317,975
51.9% $
78,924
14.8%
2017
2016
2015
2017 to 2016
2016 to 2015
% of related net
service revenue
Gross margin
63.7%
36.3%
60.0%
40.0%
58.8%
41.2%
Commercial Solutions
291,310
7,881
6,845
283,429
n/m
1,036
15.1%
% of related net
service revenue
Gross margin
74.1%
25.9%
84.6%
15.4%
83.4%
16.6%
Total direct costs
$ 1,221,486
$ 620,082
$
540,122
$ 601,404
97.0% $
79,960
14.8%
% of total net service
revenue
65.9%
60.2%
59.0%
Clinical Solutions
For the years ended December 31, 2017, 2016 and 2015, direct costs related to our Clinical Solutions
segment were $930.2 million, $612.2 million and $533.3 million, respectively, representing approximately
76.2%, 98.7% and 98.7%, respectively, of our total direct costs for the period. Clinical Solutions direct costs
as a percentage of related net service revenue for the years ended December 31, 2017, 2016 and 2015,
were 63.7%, 60.0% and 58.8%, respectively. The increase in direct costs associated with our Clinical
Solutions segment in 2017 compared to 2016 was primarily due to increased personnel costs for the
reasons discussed above, particularly increases resulting from the Merger and retention of underutilized
staff.
The increase in direct costs associated with our Clinical Solutions segment in 2016 compared to 2015 was
primarily due to increased growth in our revenues resulting in the need for additional resources, including
third party contractors, and one-time benefits received in 2015, as discussed previously.
Gross margin for the Clinical Solutions segment was 36.3%, 40.0% and 41.2% for the years ended
December 31, 2017, 2016 and 2015, respectively. Gross margin declined in 2017 compared to 2016
primarily due to: (i) the mix of customers and services obtained in the Merger having a lower gross margin
profile compared to our historical mix of customers and services; (ii) the elimination of $28.6 million of
revenue in purchase accounting that otherwise would have been recognized by inVentiv; and (iii) the impact
of carrying excess staff throughout 2017. Specifically, inVentiv’s legacy Clinical Solutions business has
historically had a higher mix of contracts from the top 20 biopharmaceutical companies and a higher mix of
FSP services revenue, both of which typically have a lower margin profile than our historical mix of
customers and services.
Commercial Solutions
For the years ended December 31, 2017, 2016 and 2015, direct costs related to our Commercial Solutions
segment were $291.3 million, $7.9 million and $6.8 million, respectively, representing approximately 23.8%,
1.3% and 1.3%, respectively, of our total direct costs for the period. Commercial Solutions direct costs as a
percentage of related net service revenue for the years ended December 31, 2017, 2016 and 2015, were
74.1%, 84.6% and 83.4%, respectively. The increase in direct costs associated with our Commercial
Solutions segment in 2017 compared to 2016 was due to increased personnel costs as a result of the
Merger. The increase in direct costs associated with our Commercial Solutions segment in 2016 compared
to 2015 was were not material.
Gross margin for the Commercial Solutions segment was 25.9%, 15.4% and 16.6% for the years ended
December 31, 2017, 2016 and 2015, respectively. The increase in gross margin in 2017 compared to 2016
71
was due to the Merger, where the services obtained in the Merger have historically had a higher margin
profile than our legacy consulting business.
Reimbursable Out-of-Pocket Expenses
Reimbursable out-of-pocket expenses represent expenses typically not associated with our services which
are passed through and reimbursed by our customers at actual cost. Such expenses are incurred within both
our clinical and commercial businesses and are generally comprised of (i) physician and investigator fees,
project management, data management and other site-facing study costs, (ii) travel-related expenses, (iii)
certain compensation and bonuses of sales representatives and other project team personnel, and (iv)
various vendor and third-party fees related to meetings, transportation, sales, marketing, communication,
training, storage and other miscellaneous project expenses incurred under contracts. These expenses
fluctuate significantly from period to period based on the timing of program initiation or closeout and the mix of
program complexity, and do not necessarily change in direct correlation to net service revenue.
Reimbursable out-of-pocket expenses increased 41.2%, or $239.0 million, to $819.2 million for the year
ended December 31, 2017 from $580.3 million for the year ended December 31, 2016. Reimbursable out-of-
pocket expenses increased 19.8%, or $95.8 million, to $580.3 million for the year ended December 31, 2016
from $484.5 million for the year ended December 31, 2015. These increases were principally due to the
Merger in 2017, overall increases in net service revenue during both periods, and an increase in the number
of studies in which we procured principal investigator services. The reimbursable out-of-pocket expenses
included in “Total revenue” are offset by an equal amount shown under the same caption in the “Costs and
operating expenses” section in our consolidated statements of operations and, accordingly, have no impact
on income from operations.
As a result of adopting the new revenue recognition standard, beginning in fiscal year 2018 we will no longer
present net service revenue and reimbursable out-of-pocket expenses separately in the statements of
operations as, under the new revenue recognition standard, they represent a single performance obligation
and such presentation is no longer permitted.
Selling, General and Administrative Expenses
For the years ended December 31, 2017, 2016 and 2015, selling, general and administrative expenses were
as follows (dollars in thousands):
Selling, general and
administrative
Percent of total net service
revenue
Years Ended December 31,
Change
2017
2016
2015
2017 to 2016
2016 to 2015
$ 282,620
$ 172,386
$ 156,609
$ 110,234
63.9% $
15,777
10.1%
15.3%
16.7%
17.1%
Selling, general and administrative expenses increased by $110.2 million, or 63.9%, to $282.6 million for the
year ended December 31, 2017 from $172.4 million for the year ended December 31, 2016, including a $0.4
million benefit from favorable fluctuations in foreign currency exchange rates compared to the prior year.
These increases were primarily due to the Merger with inVentiv, which increased our overall employee base
by approximately 15,000 employees in August 2017 and resulted in an increase of approximately $97.1
million in compensation related selling, general, and administrative expenses during 2017 compared to 2016.
Selling, general and administrative expenses increased by $15.8 million, or 10.1%, to $172.4 million for the
year ended December 31, 2016 from $156.6 million for the year ended December 31, 2015, including a $4.0
million benefit from favorable fluctuations in foreign currency exchange rates compared to the prior year. The
increase was primarily driven by: (i) an increase in salaries, benefits and incentive compensation, principally
as a result of the additions in personnel to support the growth of our business and the one-time benefit from
settlement of certain employee related liabilities in 2015; (ii) an increase in bad debt expense resulting from
an increase in billed and unbilled receivables exposure; and (iii) an increase in travel costs primarily driven by
increased headcount. These cost increases were offset by reductions in: (i) professional fees for legal and
72
accounting fees associated with implementing Sarbanes-Oxley and tax planning that occurred in 2015; and
(ii) facilities and IT related costs through improved utilization of our existing infrastructure. During the year
ended December 31, 2015, our selling, general and administrative expenses were positively impacted by
settlement of certain employee related liabilities totaling approximately $1.1 million.
Selling, general and administrative expense as a percentage of total net service revenue has declined to
15.3% from 16.7% and 17.1% for years ended December 31, 2017, 2016 and 2015, respectively. Fluctuations
in foreign currency exchange rates could significantly impact our selling, general and administrative expenses
as a percentage of revenue in the future.
Restructuring and Other Costs
Restructuring and other costs were $33.3 million for the year ended December 31, 2017. In connection with
the Merger, we established a restructuring plan to eliminate redundant positions and reduce our facility
footprint worldwide. Accordingly, during the year ended December 31, 2017, we recognized approximately
$11.3 million of employee severance and benefit costs, facility closure and lease termination costs of $2.2
million, and other costs of $2.0 million related to the Merger. We expect to incur significant additional costs
related to the restructuring of our operations in order to achieve the targeted synergies as a result of the
Merger over the next several years. The timing and the estimate of the amount of these costs depends on
various factors, including, but not limited to, the identification of synergy opportunities and the execution of the
integration of our combined operations.
In addition to costs incurred as a result of the Merger, during the year ended December 31, 2017, we
recognized approximately $9.4 million of employee severance costs and incurred $1.3 million of facility
closure and lease termination costs related to non-Merger restructuring activities. Included in restructuring
and other costs during 2017 are $5.0 million of consulting costs related to the continued consolidation of our
legal entities and restructuring of our contract management process to meet the requirements of upcoming
accounting regulation changes and $2.1 million of other costs.
Restructuring and other costs were $13.6 million for the year ended December 31, 2016. In March 2016,
management approved a global plan to eliminate certain positions worldwide in an effort to ensure that our
organizational focus and resources were properly aligned with our strategic goals and to continue
strengthening the delivery of our growing backlog to customers. Accordingly, we made changes to our
therapeutic unit structure designed to realign with management focus and optimize the efficiency of our
resourcing to achieve our strategic plan. As a result, we eliminated approximately 200 positions and
incurred $7.0 million related to employee severance costs during the year ended December 31, 2016. All
actions under this plan were completed by December 31, 2017. During the third quarter of 2016, we also
announced the closure of one of our facilities associated with this restructuring and we incurred facility
closure costs of $1.5 million, which were partially offset by unamortized deferred rent of $0.5 million during
the year ended December 31, 2016.
On July 27, 2016, we entered into a transition agreement with our former CEO related to the transition to
a new CEO as of October 1, 2016. The CEO transition agreement was effective through February 28,
2017. In addition, in mid-September 2016, we entered into retention agreements with certain key
employees for various dates through September 2017. For the year ended December 31, 2016, we
recognized $4.8 million of costs associated with the CEO transition and retention agreements, which will
be paid through August 2018.
Restructuring and other costs were $1.8 million for the year ended December 31, 2015, primarily consisting of
employee severance costs of $2.7 million, partially offset by a net reduction in facility closure costs of $0.9
million.
73
Transaction and Integration-Related Expenses
Transaction and integration-related expenses consisted of the following (in thousands):
Years Ended December 31,
2017
2016
2015
Investment banker, professional fees, and other
$
68,967
$
Share-based compensation expense
Debt modification and related expenses
Personnel integration and retention-related costs
Benefit from change in fair value of contingent tax-sharing
obligation
Other
31,327
5,255
28,616
(12,276)
1,926
Total transaction and integration-related expenses
$
123,815
$
2,975 $
—
168
—
—
—
3,143 $
1,637
—
—
—
—
—
1,637
During the year ended December 31, 2017, we incurred transaction and integration related expenses of
$123.8 million. We expect to incur additional expenses associated with the Merger; however, the timing and
the amount of these expenses depends on various factors such as, but not limited to, the execution of
integration activities and the aggregate amount of synergies we achieve from these activities.
The transaction and integration related costs incurred during 2017 consisted primarily of professional fees of
approximately $69.0 million associated with investment banking and other advisory fees incurred, along with
costs associated with the related financing of $5.3 million. In addition, the vesting of certain employee stock
compensation arrangements was accelerated in accordance with their terms, resulting in additional share-
based compensation expense of approximately $31.3 million.
During the year ended December 31, 2017, we also incurred personnel integration and retention-related
costs of $28.6 million, consisting primarily of $23.5 million of expenses associated with Merger-related
retention agreements with certain key employees. We expect to incur a minimum of $9.2 million of such
additional expenses which are expected to be paid in May 2018. Partially offsetting the above expenses is a
benefit of $12.3 million from the reduction in the fair value of our contingent tax-sharing obligations payable
to the former shareholders of inVentiv as a result of the enactment of the Tax Act of 2017.
During the year ended December 31, 2016, we incurred transaction expenses of $3.1 million, primarily
consisting of third-party fees associated with: (i) our secondary stock offerings in May and August 2016; (ii)
our stock repurchase and debt amendment in August 2016; and (iii) other corporate projects. During the year
ended December 31, 2015, we incurred transaction expenses of $1.6 million, primarily consisting of third-
party fees associated with our stock repurchases in May and December of 2015 and our secondary common
stock offerings in May, August and December of 2015.
Goodwill and Intangible Asset Impairment Charges
We evaluate goodwill for impairment annually, or more frequently if events or changes in circumstances
indicate that goodwill might be impaired. In connection with the Merger, we announced our intention to
relaunch our operations under a new brand name in January 2018. As a result, we determined that the useful
life of the intangible asset related to the INC Research trademark with a carrying value of $35.0 million was no
longer indefinite as of August 1, 2017. Based on this change in circumstances, we tested the asset for
impairment as an indefinite-lived intangible asset and recorded a $30.0 million impairment charge during the
year ended December 31, 2017. We also determined that the remaining useful life of this asset did not extend
beyond the anticipated date of Merger-related rebranding which, as of August 1, 2017, approximated five
months. In addition, the Company assigned a value of $8.8 million to the inVentiv Health trade name in
connection with the Merger, which was amortized over the same five month period. As of December 31, 2017,
these trademarks were fully amortized.
During the first quarter of 2015, we continued to observe deteriorating performance within our Phase I
Services reporting unit, a component of the Clinical Solutions segment, due to reduced revenue resulting from
74
cancellations and lower than expected new business awards. This resulted in a triggering event, requiring an
evaluation of both long-lived assets and goodwill for potential impairment. As a result of this evaluation, we
recorded a total asset impairment charge of $3.9 million, comprised of a long-lived assets impairment charge
of $1.0 million and a goodwill impairment charge of $2.9 million, which was the total remaining goodwill
balance of our Phase I Services reporting unit, a component of the Clinical Solutions segment, as of the
evaluation date. There were no asset impairment charges during 2016.
Depreciation and Amortization Expense
Total depreciation and amortization expense increased to $179.9 million for the year ended December 31,
2017 from $59.2 million for the year ended December 31, 2016. These increases were primarily due to: (i) an
increase in amortization expense of $97.7 million primarily related to the assumption of intangible assets as
part of the Merger; and (ii) an increase in depreciation expense due to assets obtained in the Merger and our
continued investment in information technology and facilities to support growth in our operational capabilities
and optimization of our infrastructure.
Total depreciation and amortization expense increased to $59.2 million for the year ended December 31,
2016 from $56.0 million for the year ended December 31, 2015. This increase was a result of an increase in
depreciation expense of $3.2 million for the year ended December 31, 2016 as compared to the year ended
December 31, 2015, principally due to higher capital expenditures in 2016.
Other Expense, Net
For the years ended December 31, 2017, 2016 and 2015, the components of total other (expense) income,
net were as follows (dollars in thousands):
Years Ended December 31,
Change
2017
2016
2015
2017 to 2016
2016 to 2015
Interest income
Interest expense
$
1,182
$
216
$
192
$
966
447.2 % $
(63,725)
(12,016)
(15,640)
(51,709)
(430.3)%
24
3,624
12.5 %
23.2 %
Loss on extinguishment of
debt
(622)
Other (expense) income, net
(19,846)
(439)
(9,002)
(9,795)
(183)
(41.7)%
9,356
95.5 %
3,857
(10,844)
(120.5)%
(12,859)
(333.4)%
Total other expense, net
$ (83,011) $ (21,241) $ (21,386) $ (61,770)
(290.8)% $
145
0.7 %
Total other expense, net was $83.0 million, $21.2 million and $21.4 million for the years ended
December 31, 2017, 2016 and 2015, respectively. The increase in 2017 compared to 2016 predominantly
relates to: (i) an increase in interest expense due to our increased debt that resulted from the Merger; and
(ii) foreign currency losses incurred due to exchange rate fluctuations related to monetary asset balances
denominated in currencies other than functional currency.
Interest expense increased by $51.7 million for 2017 compared to 2016, primarily due to our increased
leverage as a result of the Merger with inVentiv in August 2017. Interest expense decreased by $3.6 million
for 2016 compared to 2015, primarily due to the decreased interest rates as a result of our debt repayment
and refinancing activities during the second quarter of 2015 and third quarter of 2016.
The loss on extinguishment of debt was $0.6 million, $0.4 million and $9.8 million for the years ended
December 31, 2017, 2016 and 2015, respectively, incurred primarily as a result of our debt prepayments and
refinancing transactions.
Other (expense) income, net, increased expense by $10.8 million for 2017 compared to 2016 and by $12.9
million for 2016 compared to 2015. Other (expense) income, net is primarily comprised of foreign currency
gains and losses and the changes are principally driven by exchange rate fluctuations related to monetary
asset balances denominated in currencies other than functional currency. Strengthening of foreign currencies
against the U.S. dollar may create losses in future periods to the extent that our subsidiaries who use local
75
currency as their functional currency maintain net assets and liabilities balances not denominated in their
functional currency.
Income Tax Expense
Income tax expense was $26.6 million for the year ended December 31, 2017 on a pre-tax loss of $111.9
million, compared to an expense of $21.5 million for the year ended December 31, 2016, on a pre-tax income
of $134.1 million. For the year ended December 31, 2017, variances from the statutory rate of 35% were due
to: (i) the direct and indirect impacts of the December 2017 Tax Cuts and Jobs Act (the "Tax Act"), resulting in
income tax expense of $94.4 million; (ii) a benefit from the geographical split of pre-tax income from foreign
subsidiaries of $16.8 million; (iii) a $8.9 million benefit associated with stock-based compensation; and (iv)
research and development tax credits of $5.7 million. With regard to the impact of the Tax Act during the
fourth quarter of 2017 we recorded the following: (i) income tax expense of $63.1 million related to our
estimated transition tax; (ii) income tax expense of $37.5 million related to the rate change impact on our U.S.
deferred tax assets; (iii) income tax expense of $52.6 million related to the net valuation allowance increase
on our deferred tax assets; and (iv) income tax benefit of $58.7 million related to the net reversal of the
deferred tax liabilities previously accrued on our foreign earnings (consisting of a $112.1 million reversal, net
of $53.4 million of taxes accrued), all as described in, "Note 12 - Income Taxes" to our consolidated financial
statements included in Part II, Item 8, "Financial Statements and Supplementary Data " in this Annual Report
on Form 10-K.
Income tax expense was $21.5 million for the year ended December 31, 2016, compared to $13.9 million for
the year ended December 31, 2015, as we achieved our second consecutive year of profitability. For the year
ended December 31, 2016, variances from the statutory rate of 35% were due to: (i) an income tax benefit of
$12.9 million related to excess tax benefits for share-based compensation; (ii) the release of reserves for
uncertain tax positions and valuation allowances on net operating loss carryforwards related to certain
international jurisdictions in aggregate totaling $6.6 million; and (iii) the geographical split of pre-tax income,
net of deemed dividends from foreign subsidiaries.
Net (Loss) Income
Net loss was $138.5 million for the year ended December 31, 2017 compared to net income of $112.6 million
for the year ended December 31, 2016. This year-over-year change from an income to a loss position was
primarily due to a decrease in income from operations as a result of the Merger. Specifically, our operating
costs increased significantly during the year related to: (i) restructuring and other costs; (ii) transaction and
integration-related costs; (iii) depreciation and amortization expense; and (iv) asset impairment charges.
Additionally, other expense, net, increased predominantly as a result of higher debt balances, which
increased interest expense during 2017 compared to 2016.
Net income was $112.6 million for the year ended December 31, 2016 compared to $117.0 million for the year
ended December 31, 2015. The year-over-year decrease was primarily due to increases in: (i) our direct costs
as a percentage of net service revenue; (ii) restructuring and other costs; (iii) transaction and integration-
related costs; (iv) depreciation expense; (v) foreign exchange losses in 2016 compared to gains in 2015, and
(vi) income tax expense. These increases in expenses were offset by: (i) the impact of increased net service
revenue; (ii) a decrease in our selling, general and administrative costs as a percentage of net service
revenue; (iii) a decrease in asset impairment charges compared to the prior year; (iv) a decrease in loss on
extinguishment of debt; and (v) a decrease in interest expense as a result of our 2015 and 2016 debt
refinancing activities.
76
Liquidity and Capital Resources
Key measures of our liquidity are as follows (in thousands):
Balance sheet statistics:
Cash and cash equivalents (a)
Working capital (excluding restricted cash)
December 31, 2017
December 31, 2016
$
321,262
$
261,903
102,471
55,295
(a) As of December 31, 2017, cash and cash equivalents held by our foreign subsidiaries was $192.0 million. A portion of
these cash and cash equivalent balances may be subject to foreign withholding taxation, if repatriated.
As of December 31, 2017, we had $321.3 million of cash and cash equivalents, including $57.3 million of
cash acquired as part of the Merger with InVentiv. In addition, we had $481.4 million available for borrowing
under our $500.0 million revolving credit facility.
As disclosed in "Note 3 - Business Combinations" in our consolidated financial statements included in Part
II, Item 8, in this Annual Report on Form 10-K, in August 2017 we completed the Merger with inVentiv.
Concurrently with the completion of the Merger, we entered into the 2017 Credit Agreement for: (i) a $1.0
billion Term Loan A facility that matures on August 1, 2022; (ii) a $1.6 billion Term Loan B facility that
matures on August 1, 2024; and (iii) a five- year $500.0 million revolving credit facility. We used the
proceeds from the 2017 Credit Agreement to, among other things: (i) repay $445.0 million of outstanding
loans and obligations under our previously existing long-term credit facility; (ii) repay $1.7 billion of
outstanding obligations under inVentiv’s long-term credit facility, which was treated as Merger consideration;
(iii) pay approximately $290.3 million to partially redeem obligations under the Senior Notes assumed in the
Merger, which included an early redemption penalty of $20.3 million; and (iv) pay fees, premiums, and other
transaction expenses related to the Merger.
We have historically funded our operations and growth, including acquisitions, primarily with our working
capital, cash flow from operations and funds available through various borrowing arrangements. Our
principal liquidity requirements are to fund our debt service obligations, capital expenditures, expansion of
service offerings, possible acquisitions, integration and restructuring costs, geographic expansion, working
capital and other general corporate expenses. Based on past performance and current expectations, we
believe our cash and cash equivalents, cash generated from operations, and funds available under our
revolving credit facility will be sufficient to meet our working capital needs, capital expenditures, scheduled
debt and interest payments, income tax obligations and other currently anticipated liquidity requirements for
at least the next 12 months.
Indebtedness
As of December 31, 2017, we had approximately $2.99 billion of total principal indebtedness (including
$36.8 million of capital leases), comprised of $2.55 billion in term loan debt and $403.0 million in Senior
Notes, of which $2.43 billion was subject to variable interest rates. In addition, as of December 31, 2017 we
had $481.4 million (net of $18.6 million in outstanding letters of credit) of available borrowings for working
capital and other purposes under the Revolver. In addition, as of December 31, 2017, we had $1.2 million of
LOCs that were not secured by the Revolver.
Under the terms of the lease for our new corporate headquarters in Morrisville, North Carolina we are
required to issue a LOC to the landlord based on our debt rating issued by Moody’s Investors Service (or
other nationally-recognized debt rating agency). From June 14, 2017 through June 14, 2020, if our debt rating
is Ba3 or better, no LOC is required, or if our debt rating is B1 or lower, a LOC equal to 25% of the remaining
minimum annual rent and estimated operating expenses (or a LOC of approximately $24.2 million as of
December 31, 2017) is required to be issued to the landlord. This LOC would remain in effect until our debt
rating was increased to Ba3 or higher for a 12-month period. After June 14, 2020, if our debt rating is Ba2 or
better, no LOC is required; if our debt rating is Ba3 or lower, a LOC equal to 25% of the then remaining
minimum annual rent and estimated operating expenses is required to be issued to the landlord; or if our debt
rating is B1 or lower, a LOC equal to 100% of the then remaining minimum annual rent and estimated
77
operating expenses is required to be issued to the landlord. These letters of credit would remain in effect until
our debt rating is back above the required threshold for a 12-month period.
As of December 31, 2017 (and through the date of this filing), our debt rating was Ba3. As such, no LOC is
currently required. Any letters of credit issued in accordance with the aforementioned requirements would
be issued under our Revolver, and would reduce its available borrowing capacity by the same amount
accordingly.
Our ability to make payments on our indebtedness and to fund planned capital expenditures and necessary
working capital will depend on our ability to generate cash in the future. Our ability to meet our cash needs
through cash flows from operations will depend on the demand for our services, as well as general
economic, financial, competitive and other factors, many of which are beyond our control. Our business
might not generate cash flow in an amount sufficient to enable us to pay the principal of, or interest on, our
indebtedness, or to fund our other liquidity needs, including working capital, capital expenditures,
acquisitions, investments and other general corporate requirements. If we cannot fund our liquidity needs,
we will have to take actions such as reducing or delaying capital expenditures, acquisitions or investments,
selling assets, restructuring or refinancing our debt, reducing the scope of our operations and growth plans,
or seeking additional capital. We cannot assure you that any of these remedies could, if necessary, be
affected on commercially reasonable terms, or at all, or that they would permit us to meet our scheduled
debt service obligations. Our 2017 Credit Agreement contains covenants that limit our ability to direct the
use of proceeds from any disposition of assets and, as a result, we might not be allowed to use all of the
proceeds from any such dispositions to satisfy current debt service obligations.
Cash and Cash Equivalents
Our cash flows from operating, investing, and financing activities were as follows (in thousands, except
percentages):
Years Ended December 31,
Change
2017
2016
2015
2017 to 2016
2016 to 2015
Net cash provided by operating
activities
Net cash used in investing
activities
Net cash provided by (used in)
financing activities
$
198,258
$ 109,332
$204,740
$
88,926
81.3% $ (95,408)
(46.6)%
(1,722,907)
(31,353)
(21,111)
(1,691,554)
n/m
(10,242)
(48.5)%
1,734,368
(53,316)
(211,399)
1,787,684
n/m
158,083
74.8 %
Cash Flows from Operating Activities
For the year ended December 31, 2017, our operating activities provided $198.3 million of cash, consisting of
a net loss of $138.5 million, adjusted for net non-operating and non-cash items of $289.7 million primarily
related to depreciation and amortization, share-based compensation, asset impairment charges, fair value
adjustments related to our contingent tax sharing obligations, deferred income tax expense, and foreign
currency adjustments. Additionally, cash provided by changes in operating assets and liabilities was $47.0
million (excluding the effects of the Merger), consisting primarily of cash inflow as a result of a decrease in
billed and unbilled accounts receivable and an increase in deferred revenue, partially offset by a decrease in
accounts payable and accrued expenses. See further discussion in "Note 3 - Business Combinations" to our
consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data"
in this Annual Report on Form 10-K for additional details on the net assets acquired in the Merger.
For the year ended December 31, 2016, our operating activities provided $109.3 million in cash flow,
consisting of a net income of $112.6 million, adjusted for net non-operating and non-cash items of $75.9
million primarily related to depreciation and amortization of intangible assets, changes in deferred income
taxes, foreign currency adjustments, share-based compensation expense, and changes to the provision
for doubtful accounts. Offsetting these increases was $79.2 million of cash used by changes in operating
assets and liabilities, consisting primarily of an increase in billed and unbilled accounts receivable.
78
For the year ended December 31, 2015, our operating activities provided $204.7 million in cash flow,
consisting of a net income of $117.0 million, adjusted for net non-operating and non-cash items of $79.9
million primarily related to depreciation and amortization of intangible assets, loss on extinguishment of debt,
share-based compensation and related tax benefits, changes in deferred income taxes, asset impairment
charges, stock repurchase costs, amortization of capitalized loan fees, and foreign currency adjustments. In
addition, $7.8 million of cash was provided by changes in operating assets and liabilities, consisting primarily
of an increase in deferred revenue and accounts payables and accrued expenses, partially offset by the
increase in billed and unbilled accounts receivable and other assets and liabilities.
Cash flows from operations increased by $88.9 million during the year ended December 31, 2017 compared
to the year ended December 31, 2016, primarily due to an increase of $213.8 million in net non-operating and
non-cash items and an increase in cash received from working capital of $126.2 million, partially offset by the
decrease in net income of $251.1 million as we incurred a net loss of $138.5 million during 2017 compared to
net income of $112.6 million in 2016.
Cash flows from operations decreased by $95.4 million during the year ended December 31, 2016 compared
to the year ended December 31, 2015, primarily due to the decline in cash received from working capital of
$87.0 million and the decrease in net income of $4.4 million.
The changes in operating assets and liabilities result primarily from the net change in billed and unbilled
accounts receivable and deferred revenue, coupled with changes in accrued liabilities. Fluctuations in billed
and unbilled receivables and deferred revenue occur on a regular basis as we perform services, achieve
milestones or other billing criteria, send invoices to customers and collect outstanding accounts receivable.
This activity varies by individual customer and contract. We attempt to negotiate payment terms that provide
for payment of services prior to or soon after the provision of services, but the levels of unbilled services and
deferred revenue can vary significantly from period to period.
Impact of the Merger on Cash Flows from Operating Activities
As a result of the Merger with inVentiv, our operating cash might be significantly negatively affected in future
periods. In particular, we have incurred and continue to incur substantial expenses related to the
consummation of the Merger and subsequent integration activities that we anticipate will continue for the
next 12 to 18 months. For example, during the year ended December 31, 2017, we incurred $123.8 million
in transaction expenses related to the Merger of which $104.8 million has impacted our operating working
capital cash flows in 2017 or will impact operating cash flows in the future.
In addition, as a result of the Merger, our total indebtedness (including capital leases) increased by $2.49
billion to $2.99 billion as of December 31, 2017, of which $2.43 billion is subject to variable interest rates, as
compared to total indebtedness of $500.0 million as of December 31, 2016. As a result, we anticipate that
our interest expense and corresponding operating cash outflows will be significantly higher in future periods
on a comparative basis. This additional expense will place further demand on, and might significantly
reduce, our cash flows from operations in future periods. Our business might not continue to generate cash
from operations in the future sufficient to service and repay our increased debt obligations.
Please refer to the “Risks Related to the Merger” and “Risks Related to Our Indebtedness” sections of
Item 1A “Risk Factors” included in this Annual Report on Form 10-K for further information related to risks
associated with the Merger that might negatively affect our cash flows from operations.
Cash Flows from Investing Activities
For the years ended December 31, 2017, we used $1.72 billion in cash for investing activities. In
particular, as part of the Merger consideration and on behalf of inVentiv, we repaid $1.74 billion of
inVentiv’s outstanding long-term debt obligations and associated accrued interest. This cash outflow was
partially offset by $57.3 million of cash acquired as part of the Merger. In addition, our capital expenditures
related to purchases of property and equipment used $43.9 million of cash during the period.
79
For the years ended December 31, 2016 and 2015 we used $31.4 million, and $21.1 million, respectively,
in cash for investing activities, comprised of the purchases of property and equipment primarily related to
our ongoing headcount growth and investments to improve the efficiency of our operations and utilization
of our facilities.
We continue to closely monitor our capital expenditures while making strategic investments in the
development of our information technology infrastructure to meet the needs of our workforce. For 2018,
we expect our total capital expenditures to be between approximately $85.0 million to $95.0 million. This
estimate includes expenditures associated with planned consolidation of our corporate headquarters
facility in Morrisville, North Carolina (and providing for future expansion at this location), as well as
expenditures related to a new site in Farnborough, United Kingdom which will replace our Camberley,
United Kingdom location. These moves will coincide with the near-term expiration of our existing leases.
The new Morrisville location will be our corporate headquarters and the Farnborough office will remain a
key international location.
Cash Flows from Financing Activities
For the year ended December 31, 2017, financing activities provided $1.73 billion in cash, consisting primarily
of net proceeds of $2.10 billion from the issuance of long-term debt under our 2017 Credit Agreement and
proceeds of $19.3 million from the exercise of stock options. These cash inflows were partially offset by: (i)
payments of $292.4 million related to the partial redemption of the Senior Notes assumed in the Merger,
payments for our Senior Notes repurchased on the open market, and payments of early redemption penalties
associated with our Senior Notes; (ii) net repayments of $25.0 million under our Revolver; and (iii) principal
Term Loan B prepayments of $50.0 million.
For the year ended December 31, 2016, financing activities used $53.3 million in cash, primarily driven by
payments of $64.5 million related to the stock repurchase in August of 2016, net revolver repayments of
$5.0 million, debt refinancing costs of $0.9 million and $0.8 million related to payments for tax withholdings
related to employee stock option exercises. These cash outflows were partially offset by proceeds of $17.9
million from the exercise of stock options.
For the year ended December 31, 2015, financing activities used $211.4 million in cash, primarily driven by
payments of $285.0 million related to the stock repurchases in May and December of 2015, $3.2 million
related to payments for tax withholdings related to employee stock option activity, stock repurchase costs of
$1.4 million and payments of $1.0 million related to the 2014 MEK Consulting acquisition. These cash
outflows were partially offset by net inflows of $79.6 million, consisting primarily of: (i) the proceeds of $95.0
million from the 2015 debt refinancing and $30.0 million under our revolver; and (ii) proceeds of $3.7 million
from the exercise of stock options, partially offset by the June 2015 prepayment of $50.0 million of debt
principal under the 2017 Credit Agreement.
Inflation
Our long-term contracts, those in excess of one year, generally include inflation or cost of living adjustments
for the portion of the services to be performed beyond one year from the contract date. In the event actual
inflation rates are greater than our contractual inflation rates or cost of living adjustments, inflation could have
a material adverse effect on our operations or financial condition.
80
Contractual Obligations and Commitments
The following table summarizes our expected material contractual obligations as of December 31, 2017 (in
thousands):
Long-term debt
Interest on long-term debt
Noncancellable purchase commitments
Operating leases
Capital leases, including interest
Merger retention bonuses
Deferred compensation plan (a)
Contingent tax-sharing obligation
assumed in business combinations (b)
Total
Payment Due by Period
Total
2018
2019 to
2020
2021 to
2022
2023 and
thereafter
$ 2,953,000
$
25,000
$
125,000
$ 880,000
$ 1,923,000
714,749
97,493
342,312
38,761
20,666
15,900
50,480
119,990
235,796
215,008
143,955
50,570
60,671
17,526
20,666
—
22,345
39,856
97,356
19,335
—
—
—
7,067
72,173
1,900
—
—
—
—
112,112
—
—
—
28,135
$ 4,233,361
$
316,768
$
517,343
$1,176,148
$ 2,207,202
(a) The deferred compensation plan liability is recorded in the “Other long-term liabilities” line item on the consolidated
balance sheets. The obligations are payable upon retirement or termination of employment. We have established an
irrevocable trust to hold assets to partially fund benefit obligations under the deferred compensation plan, but cannot
reasonably estimate the amount or timing of payments, if any, which we will make related to this liability.
(b) Due to the uncertainties of our ability to realize certain pre-Merger transaction tax deductions, we are not able to
estimate the timing of the assumed contingent tax-sharing obligation payments beyond one year.
The interest payments on long-term debt in the above table are based on interest rates in effect as of
December 31, 2017. See "Note 4 - Long-Term Debt Obligations" to our consolidated financial statements
included in Part II, Item 8, "Financial Statements and Supplementary Data" in this Annual Report on Form 10-
K for further information on the terms and conditions of our 2017 Credit Agreement.
As of December 31, 2017, we have recorded a tax liability for unrecognized tax benefits for uncertain tax
positions of $43.7 million which has not been included in the above table due to the uncertainties in the timing
of the settlement of the income tax positions.
In January 2018, we replaced our lease agreement for the Farnborough location with a new ten-year lease
agreement. The new agreement provides for additional office space to accommodate our operating plans
following the Merger and increases our future lease obligations for this location by $11.8 million which has not
been reflected in the table above.
We are a party to supplier contracts related to clinical services that if canceled would require payment for
services performed and potentially additional services required to protect the safety of subjects. The value of
these potential wind-down provisions is not practical to estimate.
Off-balance Sheet Arrangements
We do not have any off-balance sheet arrangements except for operating leases entered into in the normal
course of business.
81
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make
estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, revenues
and expenses during the period, as well as disclosures of contingent assets and liabilities at the date of the
financial statements. We evaluate our estimates on an ongoing basis, including those related to revenue
recognition, share-based compensation, valuation of goodwill and identifiable intangibles, tax-related
contingencies and valuation allowances, allowance for doubtful accounts, and litigation contingencies, among
others. These estimates are based on the information available to management at the time these estimates,
judgments and assumptions are made. Actual results may differ materially from these estimates.
Business Combinations
We account for business combinations in accordance with ASC Topic 805, Business Combinations, using the
acquisition method of accounting. The purchase price, or total consideration transferred, is determined as the
fair value of assets exchanged, equity instruments issued, and liabilities assumed at the acquisition date. The
acquisition method of accounting requires that the identifiable assets acquired, the liabilities assumed, and
any non-controlling interest in the acquiree are measured and recorded at their fair values on the date of a
business combination. Goodwill represents the excess of the purchase price over the estimated fair value of
the net assets acquired, including the amount assigned to identifiable intangible assets. Acquisition-related
costs are expensed as incurred. The consolidated financial statements reflect the results of operations of the
acquiree from the date of the acquisition. For additional information, see Part II, Item 8, "Financial Statements
and Supplemental Data - Note 3 - Business Combinations."
Revenue Recognition
We recognize revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an
arrangement; (2) the service offering has been delivered to the customer; (3) the collection of the fees is
reasonably assured; and (4) the arrangement consideration is fixed or determinable. We record revenues net
of any tax assessments by governmental authorities, such as value added taxes, that are imposed on and
concurrent with specific revenue generating transactions. In some cases, contracts provide for consideration
that is contingent upon the occurrence of uncertain future events. We recognize contingent revenue when the
contingency has been resolved and all other criteria for revenue recognition have been met.
Our arrangements are primarily service contracts and historically, a majority of the net service revenue has
been earned under contracts which range in duration from several months to several years. Most of our
contracts can be terminated by the customer with a 30-day notice. In the event of termination, our contracts
often provide for fees for winding down the project, which include both fees incurred and actual expenses and
non-cancellable expenditures and may include a fee to cover a percentage of the remaining professional fees
on the project. We do not recognize revenue with respect to start-up activities including contract and scope
negotiation, feasibility analysis and conflict of interest review associated with contracts. The costs for these
activities are expensed as incurred.
We recognize revenue from our service contracts either using a fee-for-service method or proportional
performance method. The majority of our service contracts represent a single unit of accounting. For fee-for-
service contracts, we record revenue as contractual items (i.e., “units”) are delivered to the customer, or, in
the event the contract is time and materials based, when labor hours are incurred. We use the proportional
performance method when the fees for a service obligation are fixed pursuant to the contractual terms.
Revenue is recognized as services are performed and measured on a proportional performance basis,
generally using output measures specific to the services provided. We believe the best indicator of effort
expended to complete the performance requirement related to a contractual obligation are the actual units
delivered to the customer or the incurrence of labor hours when no other pattern of performance exists. In the
event we use labor hours as the basis for determining proportional performance, we estimate the number of
hours remaining to complete our service obligation. Actual hours incurred to complete the service requirement
may differ from our estimate, and any differences are accounted for prospectively. Examples of output
measures used by us are site or investigator recruitment, patient enrollment, data management, or other
deliverables common to our Clinical Solutions segment.
82
We enter into multiple element arrangements in which we are engaged to provide multiple services under one
agreement. In such arrangements, we record revenue as each separate service, or element, is delivered to
the customer. Such arrangements reside predominantly within our Commercial Solutions segment where we
are engaged to provide recruiting, deployment, and detailing services. These services may be sold
individually or in combination with contractual fees based on fixed fees for each element, variable fees for
each element, or a combination of both. For the arrangements that include multiple elements, arrangement
consideration is allocated at inception to units of accounting based on the relative selling price. The best
evidence of selling price of a unit of accounting is vendor-specific objective evidence (“VSOE”), which is the
price charged when the deliverable is sold separately. When VSOE is not available to determine selling price,
relevant third-party evidence (“TPE”) of selling price is used, if available. When neither VSOE nor TPE of
selling price exists, the best estimate of selling price is used, which generally consists of an expected margin
on the cost of services.
Changes in the scope of work are common, especially under long-term contracts, and generally result in a
renegotiation of future contract pricing terms and change in contract value. If the customer does not agree to
contract modification, we could bear the risk of cost overruns. Renegotiated amounts are not included in net
revenues until written authorization is received, the amount is earned and realization is assured.
We offer volume rebates to our large customers based on annual volume thresholds. We record an estimate
of the annual volume rebate as a reduction of revenue throughout the period based on the estimated total
rebate to be earned for the period.
Billed and Unbilled Accounts Receivable
Accounts receivable are recorded at net realizable value. Unbilled accounts receivable arise when services
have been rendered for which revenue has been recognized but the customers have not been billed. In
general, prerequisites for billings and payments are established by contractual provisions, including
predetermined payment schedules, which may or may not correspond to the timing of the performance of
services under the contract.
Deferred Revenue
Deferred revenue represents receipts of payments from customers in advance of services being provided and
the related revenue being earned or reimbursable expenses being incurred. As the contracted services are
subsequently performed and the associated revenue is recognized, the deferred revenue balance is reduced
by the amount of the revenue recognized during the period.
Under certain contracts, we are entitled to additional compensation if performance-based criteria are
achieved. Because there is substantive uncertainty regarding the ability to realize such amounts at the onset
of the arrangements, we do not recognize such revenues until it has met the performance-based criteria and
other revenue recognition criteria described above.
Allowance for Doubtful Accounts
We maintain a credit approval process and make judgments in connection with assessing our customers'
ability to pay throughout the contractual obligation. Despite this assessment, from time to time, customers are
unable to meet their payment obligations. We monitor customers' credit worthiness and apply 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
obligations.
Goodwill and Intangible Assets
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment, which eliminates the second step of the previous FASB
guidance for testing goodwill for impairment and is intended to reduce cost and complexity of goodwill
impairment testing. The amendments in this ASU modify the concept of impairment from the condition that
exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the
83
carrying amount of a reporting unit exceeds its fair value. After determining if the carrying amount of a
reporting unit exceeds its fair value, the entity should take an impairment charge of the same amount to the
goodwill for that reporting unit, not to exceed the total goodwill amount for that reporting unit. This eliminates
the second step of calculating the implied fair value of goodwill by assigning the fair value of a reporting unit
to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. ASU
2017-04 is effective for annual periods beginning after December 15, 2019, including interim periods within
those annual periods. Early adoption is permitted for interim or annual goodwill impairment tests performed on
testing dates after January 1, 2017. We have elected to early adopt this standard effective January 1, 2017.
Goodwill represents the excess of purchase price over the estimated fair value of net assets acquired,
including the amount assigned to identifiable intangible assets, in business combinations. In accordance with
ASC Topic 350, Intangibles - Goodwill and Other, goodwill is not subject to amortization but must be tested for
impairment annually or more frequently if events or changes in circumstances indicate that goodwill might be
impaired. Goodwill is tested for impairment at the reporting unit level, which is one level below the operating
segment level. This test requires us to determine if the implied fair value of the reporting unit's goodwill is less
than its carrying amount.
We completed our annual impairment test for potential impairment as of October 1, 2017 for all of its reporting
units, determining that there were no impairments. As of October 1, 2017 and December 31, 2017, we
assigned goodwill to five reporting units. Our goodwill is principally related to the Merger completed in August
2017.
Intangible assets consist of backlog, customer relationships, and trademarks. We amortize intangible assets
related to customer relationships and trademarks on a straight-line basis over the estimated useful life of the
asset. Intangible assets related to backlog are amortized based on our expectations of when revenue
associated with the backlog is expected to be earned.
We review intangible assets at the end of each reporting period to determine if facts and circumstances
indicate that the useful life is shorter than originally estimated or that the carrying amount of the assets might
not be recoverable. If such facts and circumstances exist, we assess the recoverability of identified assets by
comparing the projected undiscounted net cash flows associated with the related asset or group of assets
over their remaining lives to their respective carrying amounts. Impairments, if any, are based on the excess
of the carrying amount over the fair value of those assets and occur in the period in which the impairment
determination was made.
Share-Based Compensation
We measure and recognize compensation expense related to all share-based awards based on the estimated
fair value of the awards. The fair value of restricted stock and stock unit awards is measured on the grant date
based on the fair market value of our common stock. The fair value of stock option awards and Employee
Stock Purchase Plan ("ESPP") awards is estimated on the grant date using the Black-Scholes option-pricing
model and is affected by our stock price and a number of highly complex and subjective assumptions. These
assumptions include, but are not limited to, the following:
Expected Term - Given our limited history with employee share-based awards, we do not have
sufficient company-specific information related to the life of the awards. As permitted by the SEC Staff,
we estimate expected term using the "simplified" method which represents the average of the time-to-
vest and the contractual life of the options.
Expected Volatility - Beginning in 2017, expected volatility of our stock price is estimated based on (i)
the historical volatility of our stock for periods in which we have sufficient information, or (ii) the simple
average of the historical stock volatilities of several comparable publicly traded companies from the
CRO industry for periods for which we do not have sufficient information. Prior to 2017, due to the
limited trading history of our stock, the expected volatility estimate was based solely on the historical
stock volatilities of comparable publicly traded companies.
84
Risk-Free Interest Rate - The risk-free interest rate is based on the yield in effect at the time of grant
for United States Treasury zero-coupon notes with maturities approximating each grant's expected
term.
Expected Dividend Yield - We have not paid and do not anticipate paying cash dividends on our
common stock; therefore, the expected dividend yield is assumed to be zero.
Share-based compensation expense is recognized on a straight-line basis over the shorter of the requisite
service period or the vesting term. For awards with performance conditions, stock-based compensation
expense is recognized when the achievement of each individual performance target becomes probable, and
the number of shares expected to vest is adjusted for the weighted probability of attainment of the relevant
performance targets.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation: Improvements to
Employee Share-Based Payment Accounting. In accordance with the guidance, the Company elected to early
adopt this ASU effective in the first quarter of 2016. The following summarizes the changes made as a result
of this adoption:
•
Income taxes - All excess tax benefits and tax deficiencies (including tax benefits of dividends on
share-based payment awards) are recognized as income tax expense or benefit in the statement of
operations. The tax effects of exercised or vested awards are treated as discrete items in the
reporting period in which they occur. We also recognize excess tax benefits regardless of whether the
benefit reduces taxes payable in the current period.
• Forfeitures - Prior to adoption, share-based compensation expense was recognized on a straight line
basis, net of estimated forfeitures, such that expense was recognized only for share-based awards
that are expected to vest. A forfeiture rate was estimated annually and revised, if necessary, in
subsequent periods if actual forfeitures differed from initial estimates. Upon adoption, we no longer
apply a forfeiture rate and instead account for forfeitures as they occur.
• Statements of Cash Flows - We historically accounted for excess tax benefits on the consolidated
statement of cash flows as a financing activity. Upon adoption of this standard, excess tax benefits
are classified along with other income tax cash flows as an operating activity.
• Earnings Per Share - We use the treasury stock method to compute diluted earnings per share,
unless the effect would be anti-dilutive. Under this method, we are no longer required to estimate the
tax rate and apply it to the dilutive share calculation for determining the dilutive earnings per share.
See "Note 1 - Basis of Presentation and Summary of Significant Accounting Policies" to our consolidated
financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in this Annual
Report on Form 10-K for further information on the impact of this adoption.
Income Taxes
We and our U.S. subsidiaries file a consolidated U.S. federal income tax return. Our other subsidiaries file tax
returns in their local jurisdictions.
We provide for income taxes on all transactions that have been recognized in the consolidated financial
statements. Specifically, we estimate our tax liability based on current tax laws in the statutory jurisdictions in
which we operate. Accordingly, the impact of changes in income tax laws on deferred tax assets and deferred
tax liabilities are recognized in net earnings in the period during which such changes are enacted. We record
deferred tax assets and liabilities based on temporary differences between the financial statement and tax
bases of assets and liabilities and for tax benefit carryforwards using enacted tax rates in effect in the year in
which the differences are expected to reverse.
We provide valuation allowances against deferred tax assets for amounts that are not considered more likely
than not to be realized. The valuation of the deferred tax asset is dependent on, among other things, our
ability to generate a sufficient level of future taxable income. In estimating future taxable income, we have
considered both positive and negative evidence, such as historical and forecasted results of operations, and
85
have considered the implementation of prudent and feasible tax planning strategies. If the objectively
verifiable negative evidence outweighs any available positive evidence (or the only available positive is
subjective and cannot be verified), then a valuation allowance will likely be deemed necessary. If a valuation
allowance is deemed to be unnecessary, such allowance is released and any related benefit is recognized in
the period of the change.
We recognize a tax benefit from an uncertain tax position only if we believe it is more likely than not to be
sustained upon examination based on the technical merits of the position. Judgment is required in
determining what constitutes an individual tax position, as well as the assessment of the outcome of each tax
position. We consider many factors when evaluating and estimating tax positions and tax benefits. In addition,
the calculation of tax liabilities involves dealing with uncertainties in the application of complex tax regulations
in domestic and foreign jurisdictions. The amount of the accrual for which an exposure exists is measured as
the largest amount of benefit determined on a cumulative probability basis that we believe is more likely than
not to be realized upon ultimate settlement of the position. If the calculation of liability related to uncertain tax
positions proves to be more or less than the ultimate assessment, a tax expense or benefit, respectively,
would result. Unrecognized tax benefits, or a portion of unrecognized tax benefits, are presented as a
reduction to a deferred tax asset for a NOL carryforward, a similar tax loss, or a tax credit carryforward.
As a result of the tax reform and the new GILTI and BEAT provisions under the Tax Act, we believe there is a
reasonable possibility that within the next 12 to 24 months, sufficient positive evidence may become available
to allow the Company to reach a conclusion that a significant portion of the valuation allowance will no longer
be needed. Consequently, such release of the valuation allowance would result in the recognition of certain
deferred tax assets and a decrease to the income tax expense in the period that the release is recorded.
Recently Issued Accounting Standards
For a description of recently issued accounting pronouncements, including the expected dates of adoption
and the estimated effects, if any, on our consolidated financial statements, see "Note 1 - Basis of Presentation
and Changes in Significant Accounting Policies" to our consolidated financial statements in Part II, Item 8,
"Financial Statements and Supplementary Data" in this Annual Report on Form 10-K.
86
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign
currency exchange rates, interest rates and other relevant market rate or price changes. In the ordinary
course of business, we are exposed to various market risks, including changes in foreign currency exchange
rates and interest rates, and we regularly evaluate our exposure to such changes. Our overall risk
management strategy seeks to balance the magnitude of the exposure and the cost and availability of
appropriate financial instruments. From time to time, we have utilized forward exchange contracts to manage
our foreign currency exchange rate and interest rate risk.
Foreign Currency Exchange Rates
Approximately 17%, 21% and 25% of our net service revenues for the years ended December 31, 2017, 2016
and 2015, respectively, were denominated in currencies other than the U.S. dollar. Our financial statements
are reported in U.S. dollars and, accordingly, fluctuations in exchange rates will affect the translation of our
revenues and expenses denominated in foreign currencies into U.S. dollars for purposes of reporting our
consolidated financial results. During 2017, 2016 and 2015, the most significant currency exchange rate
exposures were the Euro, British Pound, Canadian Dollar, and Japanese Yen. A hypothetical change of 10%
in average exchange rates used to translate all foreign currencies to U.S. dollars would have impacted
income before income taxes for 2017 by approximately $22.5 million. The impact of this could be partially
offset by exchange rate fluctuation provisions stated in some of our contracts with customers designed to
mitigate our exposure to fluctuations in currency exchange rates over the life of the contract. For example
during the year ended December 31, 2017, our revenue was reduced by $8.0 million to reflect the reduced
operating costs required to fulfill the contracts as a result of the fluctuations in foreign currency exchange
rates. We do not have significant operations in countries in which the economy is considered to be highly
inflationary.
We are subject to foreign currency transaction risk for fluctuations in exchange rates during the period of time
between the consummation and cash settlement of a transaction. Accordingly, exchange rate fluctuations
during this period may affect our profitability with respect to such contracts. We are able to partially offset our
foreign currency transaction risk through exchange rate fluctuation adjustment provisions stated in our
contracts with customers, or we may hedge our transaction risk with foreign currency exchange contracts.
Interest Rates
We are subject to market risk associated with changes in interest rates. At December 31, 2017 and 2016, we
had $2.99 billion and $500.0 million, respectively, of total principal indebtedness (including $36.8 million of
capital leases), of which $2.43 billion and $241.7 million, was subject to variable interest rates. Each quarter-
point increase or decrease in the applicable interest rate at December 31, 2017 and 2016 would change our
annual interest expense by approximately $6.1 million and $0.6 million, respectively.
87
Item 8. Financial Statements and Supplementary Data.
Index to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015 . . . . . . . . . . . .
Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2017, 2016 and
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2017 and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015. . . . . . . . . . . .
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2017, 2016 and 2015 . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
89
92
93
94
95
97
98
88
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Syneos Health, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Syneos Health, Inc. (formerly INC
Research Holdings, Inc.) and subsidiaries (the "Company") as of December 31, 2017 and 2016, the related
consolidated statements of operations, comprehensive (loss) income, shareholders’ equity, and cash flows,
for each of the two years in the period ended December 31, 2017, and the related notes (collectively referred
to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects,
the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations
and its cash flows for the two years then ended, in conformity with accounting principles generally accepted in
the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017,
based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2018, expressed
an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on the Company's financial statements based on our audits. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud. Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our
opinion.
/s/ Deloitte & Touche LLP
Raleigh, North Carolina
February 28, 2018
We have served as the Company's auditor since 2016.
89
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Syneos Health, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Syneos Health, Inc. (formerly INC Research Holdings, Inc.)
and subsidiaries (the “Company”) as of December 31, 2017, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2017, of the
Company and our report dated February 28, 2018, expressed an unqualified opinion on those financial statements.
As described in Management’s Annual Report on Internal Control Over Financial Reporting, management excluded from
its assessment the internal control over financial reporting at Double Eagle Parent, Inc. (“inVentiv”), which was acquired
on August 1, 2017, and whose financial statements constitute 30% of total assets (excluding goodwill which was included
in management’s assessment of internal control over financial reporting as of December 31, 2017), and 41% of total
revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2017. Accordingly,
our audit did not include the internal control over financial reporting at inVentiv.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Deloitte & Touche LLP
Raleigh, North Carolina
February 28, 2018
90
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Syneos Health, Inc.
We have audited the accompanying consolidated statements of operations, comprehensive (loss) income,
shareholders' equity, and cash flows of Syneos Health Inc. (formerly INC Research Holdings, Inc.) for the year
ended December 31, 2015. These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
results of operations and cash flows of Syneos Health, Inc. for year ended December 31, 2015, in conformity
with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Raleigh, North Carolina
February 24, 2016
except for the effects of the operating segments changes discussed in Note 1 and Note 14 and the changes
to the net service revenues by geographic location as discussed in Note 15 as to which the date is
February 28, 2018
91
SYNEOS HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Net service revenue
Reimbursable out-of-pocket expenses
Total revenue
Costs and operating expenses:
Year Ended December 31,
2017
2016
2015
(in thousands, except per share data)
$
1,852,843
$
1,030,337
$
819,221
580,259
914,740
484,499
2,672,064
1,610,596
1,399,239
Direct costs (exclusive of depreciation and amortization)
1,232,023
Reimbursable out-of-pocket expenses
Selling, general, and administrative
Restructuring and other costs
Transaction and integration-related expenses
Asset impairment charges
Depreciation
Amortization
Total operating expenses
(Loss) income from operations
Other (expense) income, net:
Interest income
Interest expense
Loss on extinguishment of debt
Other (expense) income, net
Total other expense, net
(Loss) income before provision for income taxes
Income tax benefit (expense)
Net (loss) income
Earnings per share attributable to common shareholders:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
819,221
282,620
33,315
123,815
30,000
44,407
135,529
626,633
580,259
172,386
13,612
3,143
—
21,353
37,851
542,404
484,499
156,609
1,785
1,637
3,931
18,140
37,874
2,700,930
1,455,237
1,246,879
(28,866)
155,359
152,360
1,182
(63,725)
(622)
(19,846)
(83,011)
(111,877)
(26,592)
216
(12,016)
(439)
(9,002)
(21,241)
134,118
(21,488)
192
(15,640)
(9,795)
3,857
(21,386)
130,974
(13,927)
(138,469) $
112,630
$
117,047
(1.85) $
(1.85) $
2.08
2.03
$
$
74,913
74,913
54,031
55,610
2.02
1.95
57,888
60,146
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
92
SYNEOS HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
Year Ended December 31,
2017
2016
2015
(in thousands)
Net (loss) income
$
(138,469) $
112,630
$
117,047
Unrealized gain on derivative instruments, net of income tax benefit
(expense) of $10, $(707), and $0, respectively
Foreign currency translation adjustments, net of income tax
(expense) of $(9,005), $0, and $0, respectively
Comprehensive (loss) income
23
1,106
—
19,842
(1,813)
(15,343)
$
(118,604) $
111,923
$
101,704
The accompanying notes are an integral part of these consolidated financial statements.
93
SYNEOS HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Accounts receivable billed, net
Accounts receivable unbilled
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Goodwill
Intangible assets, net
Deferred income tax assets
Other long-term assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued liabilities
Deferred revenue
Current portion of capital lease obligations
Current portion of long-term debt
Total current liabilities
Capital lease obligations, non-current
Long-term debt, non-current
Deferred income tax liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 18)
Shareholders' equity:
December 31,
2017
2016
(in thousands, except share data)
$
321,262
$
102,471
714
642,985
373,003
84,215
1,422,179
180,412
4,292,571
1,286,050
20,159
84,496
607
211,476
173,873
34,202
522,629
58,306
552,502
114,486
14,726
25,858
$
7,285,867
$
1,288,507
$
58,575
$
500,303
559,270
16,414
25,000
1,159,562
20,376
2,945,934
37,807
99,609
23,693
153,559
277,600
—
11,875
466,727
—
485,849
8,295
26,163
$
4,263,288
$
987,034
Preferred stock, $0.01 par value; 30,000,000 shares authorized, 0 shares issued
and outstanding at December 31, 2017 and 2016, respectively
—
Common stock, $0.01 par value; 600,000,000 shares authorized, 104,435,501
and 53,762,786 shares issued and outstanding at December 31, 2017 and 2016,
respectively
Additional paid-in capital
Accumulated other comprehensive loss, net of tax
Accumulated deficit
Total shareholders' equity
1,044
3,414,389
(22,385)
(370,469)
3,022,579
—
538
573,176
(42,250)
(229,991)
301,473
Total liabilities and shareholders' equity
$
7,285,867
$
1,288,507
The accompanying notes are an integral part of these consolidated financial statements.
94
SYNEOS HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
2017
2016
2015
(in thousands)
$
(138,469) $
112,630
$
117,047
59,204
—
972
14,020
2,570
(22,260)
20,681
—
—
439
—
286
56,014
1,637
1,346
5,074
(144)
4,134
(795)
3,931
—
9,795
(975)
(82)
(103,748)
(54,073)
6,658
4,060
13,820
109,332
—
(31,353)
—
8,186
68,500
(14,855)
204,740
—
(21,111)
—
(21,111)
Cash flows from operating activities:
Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Depreciation and amortization
Stock repurchase costs
Amortization of capitalized loan fees and original issue discount, net
of Senior Notes premium
Share-based compensation
Provision for (recovery of) doubtful accounts
Provision for (benefit from) deferred income taxes
Foreign currency transaction losses
Asset impairment charges
Fair value adjustment of contingent tax-sharing obligation
Loss on extinguishment of debt
Excess income tax benefits from share-based awards
Other non-cash items
Changes in operating assets and liabilities, net of effect of business
combinations:
Billed and unbilled accounts receivable
Accounts payable and accrued expenses
Deferred revenue
Other assets and liabilities
Net cash provided by operating activities
179,936
—
500
59,696
4,167
14,431
7,912
30,000
(12,276)
622
—
4,712
31,656
(16,982)
28,967
3,386
198,258
Cash flows from investing activities:
Payments associated with business acquisitions, net of cash acquired
(1,678,814)
Purchases of property and equipment
Other, net
(43,896)
(197)
Net cash used in investing activities
$ (1,722,907) $
(31,353) $
The accompanying notes are an integral part of these consolidated financial statements.
95
SYNEOS HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Cash flows from financing activities:
Proceeds from issuance of long-term debt
Payments of debt financing costs
Repayments of long-term debt
Proceeds from revolving line of credit
Repayments of revolving line of credit
Redemption of Senior Notes and associated breakage fees
Payments of contingent consideration related to business combinations
Payments of capital leases
Payments of stock repurchase costs
Payments for repurchase of common stock
Proceeds from exercise of stock options
Payments related to tax withholding for share-based compensation
Excess income tax benefits from share-based awards
Year Ended December 31,
2017
2016
2015
(in thousands)
$
2,598,000
$
— $
525,000
(25,476)
(525,097)
15,000
(40,000)
(292,425)
—
(8,145)
—
—
19,335
(6,824)
—
(868)
—
100,000
(105,000)
—
—
—
—
(64,500)
17,891
(839)
—
(4,987)
(475,001)
45,000
(15,000)
—
(973)
(452)
(1,423)
(285,000)
3,656
(3,194)
975
Net cash provided by (used in) financing activities
1,734,368
(53,316)
(211,399)
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of period
9,072
218,791
102,471
(7,203)
17,460
85,011
Cash and cash equivalents, end of period
$
321,262
$
102,471
$
(13,672)
(41,442)
126,453
85,011
Supplemental disclosure of cash flow information
Cash paid for income taxes
Cash paid for interest
Supplemental disclosure of noncash investing and financing
activities
$
13,300
$
24,337
$
64,949
11,627
8,251
17,533
Fair value of shares issued and share-based awards assumed in
business combinations
$
2,769,471
$
— $
Purchases of property and equipment included in liabilities
Vehicles acquired through capital lease agreements
14,801
8,730
7,157
—
—
2,869
—
The accompanying notes are an integral part of these consolidated financial statements.
96
SYNEOS HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
(Loss) Income
(in thousands)
Accumulated
Deficit
Total
Shareholders'
Equity
Balance at December 31, 2014
61,234
$
612
$
634,946
$
(26,200) $
(217,149) $
392,209
Stock repurchase
(8,054)
(80)
(83,550)
(201,370)
(285,000)
Stock option exercises net of shares
for tax withholding
Stock option exercises
Share-based compensation
Income tax benefit from share-
based award activities
Net income
Foreign currency translation
adjustment
Balance at December 31, 2015
Impact to Retained Earnings from
adoption of ASU 2016-09
Balance at January 1, 2016
Stock repurchase
RSU distributions net of shares for
tax withholding
Stock option exercises
Share-based compensation
Net income
Unrealized gain on derivative
instruments, net of tax expense of
($707)
Foreign currency translation
adjustment
Balance at December 31, 2016
Impact to Retained Earnings from
adoption of ASU 2016-16
Balance at January 1, 2017
Issuance of common stock
associated with business
combinations
RSU distributions net of shares for
tax withholding
Stock option exercises
Share-based compensation
Net loss
Unrealized gain on derivative
instruments, net of tax benefit of $10
Foreign currency translation
adjustment, net of tax expense of
($9,005)
156
535
—
—
—
—
53,871
—
53,871
(1,500)
33
1,359
—
—
—
—
53,763
—
53,763
2
5
—
—
—
—
539
—
539
(15)
—
14
—
—
—
—
538
—
538
(3,196)
5,661
5,074
975
—
—
559,910
—
559,910
(15,782)
(839)
15,867
14,020
—
—
—
573,176
—
573,176
—
—
—
—
—
—
(15,343)
(41,543)
—
(41,543)
—
—
—
—
—
1,106
(1,813)
(42,250)
—
—
—
—
117,047
—
(301,472)
7,554
(293,918)
(48,703)
—
—
—
112,630
—
—
(229,991)
—
(2,009)
(42,250)
(232,000)
(3,194)
5,666
5,074
975
117,047
(15,343)
217,434
7,554
224,988
(64,500)
(839)
15,881
14,020
112,630
1,106
(1,813)
301,473
(2,009)
299,464
49,297
493
2,768,978
198
1,178
—
—
—
—
2
11
—
—
—
—
(6,826)
19,365
59,696
—
—
—
—
—
—
—
—
23
19,842
—
—
—
—
2,769,471
(6,824)
19,376
59,696
(138,469)
(138,469)
—
—
23
19,842
Balance at December 31, 2017
104,436
$ 1,044
$ 3,414,389
$
(22,385) $
(370,469) $
3,022,579
The accompanying notes are an integral part of these consolidated financial statements.
97
Syneos Health, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Basis of Presentation and Summary of Significant Accounting Policies
Principal Business
Syneos Health, Inc. (the “Company”) is a global end-to-end outsourcing biopharmaceutical solutions
organization. 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-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.
Organization
On August 13, 2010, the Company was incorporated in the State of Delaware for the purpose of acquiring the
outstanding equity of INC Research, Inc. through INC Research Intermediate, LLC, ("INC Intermediate") a
wholly-owned subsidiary of the Company. On November 7, 2014, in conjunction with the initial public offering
("IPO"), the Company effected a corporate reorganization, whereby INC Intermediate was merged with and
into the Company. On August 1, 2017, the Company completed the merger (the “Merger”) with Double Eagle
Parent, Inc. (“inVentiv”), the parent company of inVentiv Health, Inc. Upon closing, inVentiv was merged with
and into the Company, with the Company continuing as the surviving corporation. Following the Merger, the
Company amended and restated its certificate of incorporation to change its name from “INC Research
Holdings, Inc.” to “Syneos Health, Inc.” effective as of January 4, 2018. Beginning August 1, 2017, inVentiv’s
results of operations are included in the accompanying audited consolidated financial statements. For
additional information related to the Merger, see "Note 3 - Business Combinations."
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America ("U.S. GAAP"), and include the accounts and
results of operations of the Company and its controlled subsidiaries. All intercompany balances and
transactions have been eliminated.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management
to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets
and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements,
and the reported amounts of revenue and expenses for the periods presented in the financial statements.
Examples of estimates and assumptions include, but are not limited to, determining the fair value of goodwill
and intangible assets and their potential impairment, useful lives of tangible and intangible assets, useful lives
of assets subject to capital leases, allowances for doubtful accounts, potential future outcomes of events for
which income tax consequences have been recognized in the Company’s consolidated financial statements
or tax returns, valuation of allowances for deferred tax assets, fair value of share-based compensation and its
recognition period, claims and insurance accruals, loss contingencies, fair value of derivative instruments and
related hedge effectiveness, fair value of contingent tax sharing obligations, and judgments related to revenue
recognition, among others. In addition, estimates and assumptions are used in the accounting for the Merger
and other business combinations, including the fair value and useful lives of acquired tangible and intangible
assets and the fair value of assumed liabilities.
The Company evaluates its estimates and assumptions on an ongoing basis and bases its estimates on
historical experience, current and expected future conditions, third-party evaluations, and various other
assumptions that management believes are reasonable under the circumstances based on the information
available to management at the time these estimates and assumptions are made. Actual results and
outcomes may differ materially from these estimates and assumptions.
98
Business Combinations
The Company accounts for business combinations in accordance with ASC Topic 805, Business
Combinations, using the acquisition method of accounting. The purchase price, or total consideration
transferred, is determined as the fair value of assets exchanged, equity instruments issued, and liabilities
assumed at the acquisition date. The acquisition method of accounting requires that the identifiable assets
acquired, the liabilities assumed, and any non-controlling interest in the acquiree are measured and recorded
at their fair values on the date of a business combination. Goodwill represents the excess of the purchase
price over the estimated fair value of the net assets acquired, including the amount assigned to identifiable
intangible assets. Acquisition-related costs are expensed as incurred. The audited consolidated financial
statements reflect the results of operations of the acquiree from the date of the acquisition. For additional
information, see "Note 3 - Business Combinations."
Segment Information
The Company discloses financial information concerning its operating segments in accordance with ASC
Topic 280, Segment Reporting, which requires segmentation based on the Company's internal organization
and reporting of revenues and operating income based upon internal accounting methods commonly referred
to as the "management approach." Operating segments are defined as components of an enterprise about
which separate financial information is available. This information is evaluated regularly by the Chief
Operating Decision Maker (“CODM”) or decision-making group, in deciding how to allocate resources and in
assessing performance. The Company's CODM is its Chief Executive Officer (“CEO”).
During the third quarter of 2017, the Company realigned its operating segments as a result of the Merger with
inVentiv to reflect the current structure under which performance is evaluated, strategic decisions are made,
and resources are allocated. As a result of this realignment, effective August 1, 2017, the Company began
evaluating its financial performance based on two reportable segments, Clinical Solutions and Commercial
Solutions (see "Note 14 - Segment Information" for further information). The Company has reflected this
change to its segment information retrospectively to the earliest period presented. Amounts of net service
revenue, direct costs, and contribution margin transferred between segments as a result of this change were
immaterial. In addition, this change resulted in the reclassification of gross goodwill and accumulated goodwill
impairment losses between segments as discussed in "Note 2 - Financial Statement Details." These changes
had no impact on the Company's previously reported total consolidated net service revenue, income from
operations, net income, or earnings per share.
Foreign Currency Translation and Transactions
The majority of the Company's foreign subsidiaries maintain their accounting records in their local currency
which is determined to be their functional currency. All of the assets and liabilities of these subsidiaries are
converted to U.S. dollars at the exchange rate in effect at the balance sheet date, and equity accounts are
carried at historical exchange rates. Revenue and expenses are translated at average exchange rates in
effect during each reporting period. The net effect of foreign currency translation adjustments is included in
shareholder's equity as a component of "Accumulated other comprehensive loss" line item in the
accompanying consolidated balance sheets.
Foreign currency transaction gains and losses are the result of exchange rate changes during the period of
time between the consummation and cash settlement of transactions denominated in currencies other than
the functional currency. Foreign currency transaction gains and losses are recognized in current period
earnings as incurred and are included in "Other expense, net" line item in the accompanying consolidated
statements of operations.
Comprehensive (Loss) Income
The Company has elected to present comprehensive (loss) income and its components as a separate
financial statement. Other comprehensive (loss) income refers to revenue, expenses, gains, and losses that
under U.S. GAAP are recorded as an element of shareholders' equity but are excluded from net income
(loss). The Company's other comprehensive (loss) income consists of foreign currency translation
adjustments, net of applicable taxes, resulting from the translation of foreign subsidiaries with functional
99
currencies other than the U.S. dollar and the effective portions of the unrealized gains or losses associated
with derivative instruments designated and accounted for as hedging instruments.
Cash and Cash Equivalents
Cash and cash equivalents consist of demand deposits with banks and other financial institutions and highly
liquid investments with an original maturity of three months or less at the date of purchase. Cash and cash
equivalents are carried at cost, which approximates their fair value.
Certain of our subsidiaries participate in a notional cash pooling arrangement to manage global liquidity
requirements. The parties to the arrangement combine their cash balances in pooling accounts with the
ability to offset bank overdrafts of one subsidiary against positive cash account balances maintained in
another subsidiary’s bank account at the same financial institution. The net cash balance related to this
pooling arrangement is included in the “Cash and cash equivalents” line item in the audited consolidated
balance sheet. As of December 31, 2017, the net cash position in the pool was $107.2 million, consisting of
the gross cash balance of $195.4 million and gross bank overdraft balances of $88.2 million.
Restricted Cash
Restricted cash represents cash and term deposits held as security over bank deposits, lease guarantees,
and insurance obligations that are restricted as to withdrawal or use. Restricted cash is classified as a current
or long-term asset based on the timing and nature of when and how the cash is expected to be used or when
the restrictions are expected to lapse. The Company includes changes in restricted cash balances as part of
investing activities in the consolidated statements of cash flows.
Fair Value
The Company records certain assets and liabilities at fair value in accordance with ASC Topic 820, Fair Value
Measurement (see "Note 7 - Fair Value Measurements"). Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants at the measurement date. This
guidance also specifies a fair value hierarchy that distinguishes between valuation assumptions developed
based on market data obtained from independent external sources and the reporting entity's own
assumptions. In accordance with this guidance, fair value measurements are classified under the following
hierarchy:
Level 1 — Unadjusted quoted prices in active markets for identical instruments;
Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar
instruments in markets that are not active; and model-derived valuations in which all significant inputs
or significant value-drivers are observable in active markets; and
Level 3 — Model-derived valuations in which one or more significant inputs or significant value-drivers
are unobservable.
Fair value measurements are classified according to the lowest level input or value-driver that is significant to
the valuation. When available, the Company uses quoted market prices to determine fair value and classifies
such instruments within the Level 1 category. In cases where market prices are not available, the Company
estimates fair value using observable market inputs, in which case the measurements are classified within
Level 2. If quoted or observable market prices are not available, fair value estimates are based upon valuation
techniques in which one or more significant inputs are unobservable, including internally developed models.
These measurements are classified within the Level 3 category.
Derivative Financial Instruments
The Company uses interest rate swaps designated as cash flow hedges to manage exposure to variable
interest rates on its debt obligations. The Company designates its interest rate swaps as cash flow hedges
because they are executed to hedge the Company's exposure to the variability in expected future cash flows
that are attributable to changes in interest rates.
100
Derivative financial instruments are recognized on the accompanying balance sheets in the "Prepaid
expenses and other current assets" and "Other long-term assets" line items and are measured at fair value.
The fair value of interest rate swaps is determined using the market standard methodology of discounted
future variable cash receipts. The variable cash receipts are determined by discounting the future expected
cash receipts that would occur if variable interest rates rise above the fixed rate of the swaps. The variable
interest rates used in the calculation of projected receipts on the swap are based on an expectation of future
interest rates derived from observable market interest rate curves and volatilities. Changes in the fair value of
derivative instruments designated as hedging instruments are recorded each period according to the
determination of the derivative's effectiveness. The effective portion of changes in the fair value of derivatives
designated as cash flow hedges is recorded in accumulated other comprehensive loss and subsequently
reclassified into earnings in the period during which the hedged transaction is recognized in earnings. The
ineffective portion of the change in fair value of the derivatives is recognized as non-operating income or
expense immediately when incurred and included in the "Interest expense" line item in the accompanying
consolidated statements of operations.
Billed and Unbilled Accounts Receivable
Accounts receivable are recorded at net realizable value. Unbilled accounts receivable arise when services
have been rendered for which revenue has been recognized but the customers have not been billed. In
general, prerequisites for billings and payments are established by contractual provisions, including
predetermined payment schedules, which may or may not correspond to the timing of the performance of
services under the contract.
Deferred Revenue
Deferred revenue represents receipts of payments from customers in advance of services being provided and
the related revenue being earned or reimbursable expenses being incurred. As the contracted services are
subsequently performed and the associated revenue is recognized, the deferred revenue balance is reduced
by the amount of the revenue recognized during the period.
Under certain contracts, the Company is entitled to additional compensation if performance-based criteria are
achieved. Because there is substantive uncertainty regarding the ability to realize such amounts at the onset
of the arrangements, the Company does not recognize such revenues until it has met the performance-based
criteria and other revenue recognition criteria described above.
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. Despite this assessment, from time to
time, customers are unable to meet their payment obligations. The Company monitors 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.
Property and Equipment
Property and equipment is primarily comprised of furniture, vehicles, software, office equipment, computer
equipment, and lab equipment. Purchased and constructed property and equipment is initially recorded at
historical cost plus the estimated value of any associated legally or contractually required retirement
obligations. Property and equipment acquired in a business combination are recorded based on the estimated
fair value as of the acquisition date. The Company leases vehicles for certain sales representatives in the
Commercial Solutions segment. These leases are classified and accounted for as capital leases in
accordance with ASC Topic 840, Leases. For further information about lease arrangements, see "Note 5 -
Leases."
101
Property and equipment assets are depreciated using the straight-line method over the respective estimated
useful lives as follows:
Buildings
Furniture and fixtures
Equipment
Computer equipment and software
Vehicles
Leasehold improvements
Useful Life
39 years
7 years
5 to 10 years
3 years
Lesser of lease term or the estimated economic
life of the leased asset
Lesser of remaining life of lease or the useful
life of the asset
Expenditures for repairs and maintenance are expensed as incurred and expenditures for major
improvements that increase the functionality or extend the useful life of the asset are capitalized and
depreciated over the estimated useful life of the asset.
The Company capitalizes costs of computer software obtained for internal use and amortizes these costs on a
straight-line basis over the estimated useful life of the product, not to exceed three years. Software cloud
computing arrangements containing a software license are accounted for consistently with the acquisition of
other software licenses. In the event such an arrangement does not contain a software license, the Company
accounts for the arrangement as a service contract.
The Company reviews property and equipment for impairment whenever facts and circumstances indicate
that the carrying amounts of these assets might not be recoverable. For assessment purposes, property and
equipment are grouped with other assets and liabilities at the lowest level of which identifiable cash flows are
largely independent of the cash flows of other assets and liabilities. Recoverability of the carrying amount of
the asset group to be held is assessed by comparing the carrying amount of the asset group to the estimated
undiscounted future net cash flows expected to be generated by this asset group. If the carrying value of the
asset group is not recoverable and exceeds its fair value, an impairment charge is recognized for the amount
by which the carrying amount of the asset group exceeds its fair value.
Leases
The Company accounts for leased properties under the provisions of ASC Topic 840, Leases. The Company
evaluates each lease for classification as either a capital lease or an operating lease. The Company performs
this evaluation at the inception of the lease and when a modification is made to a lease. Under lease
arrangements that are classified as capital leases, the Company records property as part of its property and
equipment assets, and a capital lease obligation in an amount equal to the lesser of the present value of the
minimum lease payments to be made over the life of the lease at the beginning of the lease term, or the fair
value of the leased property. The property under capital lease is amortized on a straight-line basis as a
charge to depreciation expense over the lesser of the lease term, as defined, or the economic life of the
leased property. During the lease term, as defined, each minimum lease payment is allocated between a
reduction of the lease obligation and interest expense so as to produce a constant periodic rate of interest on
the remaining balance of the lease obligation. The Company’s capital lease assets consist primarily of
vehicles that the Company leases for certain sales representatives in the Commercial Solutions segment.
The majority of the Company's operations are conducted in premises occupied under lease agreements
containing predominantly reasonable and standard market terms. The Company, at its option, can renew a
substantial portion of the leases at defined terms or at the then fair rental rates for various periods. Office
facilities leases are classified and accounted for as operating leases. The Company records rent expense for
its operating leases with contractual rent increases on a straight-line basis from the "lease commencement
date" as specified in the lease agreement until the end of the lease term.
102
Goodwill and Intangible Assets
Goodwill represents the excess of purchase price over the estimated fair value of net assets acquired,
including the amount assigned to identifiable intangible assets, in business combinations. In accordance with
ASC Topic 350, Intangibles - Goodwill and Other, goodwill is not subject to amortization but must be tested for
impairment annually or more frequently if events or changes in circumstances indicate that goodwill might be
impaired. Goodwill is tested for impairment at the reporting unit level, which is one level below the operating
segment level. This test requires the Company to determine if the implied fair value of the reporting unit's
goodwill is less than its carrying amount.
The Company completed the annual impairment test for potential impairment as of October 1, 2017 for all of
its reporting units, determining that there were no impairments. As of October 1, 2017 and December 31,
2017, the Company had assigned goodwill to five reporting units. The Company's goodwill is principally
related to the Merger completed in August 2017.
The impairment analysis requires significant judgments, estimates and assumptions. There is no assurance
that the actual future earnings or cash flows of the reporting units will not decline significantly from the
projections used in the impairment analysis. Goodwill impairment charges may be recognized in future
periods in one or more of the reporting units to the extent changes in factors or circumstances occur, including
deterioration in the macroeconomic environment, industry, deterioration in the Company’s performance or its
future projections, or changes in plans for one or more of its reporting units.
Intangible assets consist primarily of backlog, customer relationships, and trademarks. The Company
amortizes intangible assets related to customer relationships and trademarks on a straight-line basis over the
estimated useful life of the asset. Intangible assets related to backlog are amortized based on the Company’s
expectations of when revenue associated with the backlog is expected to be earned.
The Company reviews intangible assets at the end of each reporting period to determine if facts and
circumstances indicate that the useful life is shorter than originally estimated or that the carrying amount of
the assets might not be recoverable. If such facts and circumstances exist, the Company assesses the
recoverability of identified assets by comparing the projected undiscounted net cash flows associated with the
related asset or group of assets over their remaining lives to their respective carrying amounts. Impairments,
if any, are based on the excess of the carrying amount over the fair value of those assets and occur in the
period in which the impairment determination was made.
As of December 31, 2017 and 2016, the weighted average estimated useful lives of the Company's intangible
assets were as follows:
Customer relationships
Acquired backlog
Trademarks
December 31, 2017
December 31, 2016
9.2 years
2.2 years
3.5 years
5.0 years
—
—
Due to the Company’s intention to relaunch its operations under a new brand name in January 2018, the
Company determined that the useful life of the intangible asset related to the INC Research trademark with a
carrying value of $35.0 million was no longer indefinite as of August 1, 2017. Based on this change in
circumstances, the Company tested the asset for impairment as an indefinite-lived intangible asset and
recorded a $30.0 million impairment charge during the third quarter of 2017. The Company also determined
that the remaining useful life of this asset did not extend beyond the anticipated date of the Merger-related
rebranding and, as of August 1, 2017, approximated five months. Therefore, the Company reclassified this
intangible asset from the indefinite-lived to the definite-lived category and began amortizing its remaining
value on a straight-line basis over its remaining estimated useful life of five months. In addition, the Company
assigned a value of $8.8 million to the inVentiv Health trade name in connection with the Merger, which was
amortized over the same five month period. As of December 31, 2017, these trademarks were fully amortized.
For additional information regarding the carrying values of intangible assets, see "Note 2 - Financial
Statement Details."
103
Contingencies
In the normal course of business, the Company periodically becomes involved in various proceedings and
claims, including investigations, disputes, litigations, and regulatory matters that are incidental to its business.
The Company evaluates the likelihood of an unfavorable outcome of all legal and regulatory matters to which
it is a party and records accruals for loss contingencies related to these matters when it is probable that a
liability has been incurred and the amount of the loss can be reasonably estimated. Gain contingencies are
not recognized until realized. Legal fees are expensed as incurred.
Because these matters are inherently unpredictable, and unfavorable developments or resolutions can occur,
assessing contingencies is highly subjective and requires judgments about future events. These judgments
and estimates are based, among other factors, on the status of the proceedings, the merits of the Company’s
defenses, and the consultation with in-house and external counsel. The Company regularly reviews
contingencies to determine whether its accruals and related disclosures are adequate. Although the Company
believes that it has substantial defenses in these matters, the amount of losses incurred as a result of actual
outcomes may differ significantly from the Company’s estimates.
Self-Insured and Other Insurance Risks Reserves
The Company carries insurance coverage for protection of its assets and operations from certain risks
including automobile liability, general liability, real property, workers’ compensation coverage, directors’ and
officers’ liability, employee healthcare benefits and other coverages the Company believes are customary to
the industry. The Company’s exposure to loss for insurance and benefit claims is generally limited to the per
incident deductible under the related insurance policy.
The Company retains the risk with respect to the self-insured portion of the above programs. For the self-
insured retention limits, the Company estimates and accrues the liability for unpaid claims and associated
expenses, including for losses incurred but not yet reported. The estimates are based on a number of factors,
including the number of asserted claims and reported incidents, estimates of losses for these claims based on
recent and historical settlement amounts, estimates of incurred but not yet reported claims based on historical
experience, and estimates of amounts recoverable under the commercial insurance policies. A significant
number of these claims typically take several years to develop and even longer to ultimately settle. Although
the Company continuously monitors and considers these factors, the ultimate liability for claims could change
materially from the current estimates due to inherent uncertainties and judgments involved in making these
estimates. The Company reviews and adjusts its self-insured reserves at each reporting period, with changes
recognized in current period earnings. For further information regarding self-insured reserve accruals and
balances, see "Note 18 - Commitments and Contingencies."
Revenue Recognition
The Company recognizes revenue when all of the following conditions are satisfied: (i) there is persuasive
evidence of an arrangement; (ii) the service offering has been delivered to the customer; (iii) the collection of
the fees is reasonably assured; and (iv) the arrangement consideration is fixed or determinable. The
Company records revenues net of any tax assessments by governmental authorities, such as value added
taxes, that are imposed on and concurrent with specific revenue generating transactions. In some cases,
contracts provide for consideration that is contingent upon the occurrence of uncertain future events. The
Company recognizes contingent revenue when the contingency has been resolved and all other criteria for
revenue recognition have been met.
The Company's arrangements are principally service contracts and historically, a majority of the net service
revenue has been earned under contracts that range in duration from a few months to several years. Most of
the Company's contracts can be terminated by the customer with a 30-day notice. In the event of termination,
the Company's contracts provide that the customer pay the Company for fees earned through the termination
date, as well as fees and expenses for winding down the project, which include both fees incurred and actual
expenses, as well as non-cancellable expenditures and in some cases may include a fee to cover a portion of
the remaining professional fees on the project. The Company does not recognize revenue with respect to
104
start-up activities including contract and scope negotiation, feasibility analysis and conflict of interest reviews.
The costs for these activities are expensed as incurred.
The Company recognizes revenue from its service contracts either using a fee-for-service method or
proportional performance method. The majority of the Company’s service contracts represent a single unit of
accounting. For fee-for-service contracts, the Company records revenue as contractual items (i.e., “units”) are
delivered to the customer, or, in the event the contract is time and materials based, when labor hours are
incurred. The Company uses the proportional performance method when its fees for a service obligation are
fixed pursuant to the contractual terms. Revenue is recognized as services are performed and measured on a
proportional performance basis, generally using output measures specific to the services provided. The
Company believes the best indicator of effort expended to complete its performance requirement related to its
contractual obligation are the actual units delivered to the customer or the incurrence of labor hours when no
other pattern of performance exists. In the event the Company uses labor hours as the basis for determining
proportional performance, the Company estimates the number of hours remaining to complete its service
obligation. Actual hours incurred to complete the service requirement may differ from the Company’s estimate,
and any differences are accounted for prospectively. Examples of output measures used by the Company are
site or investigator recruitment, patient enrollment, data management, or other deliverables common to its
Clinical Solutions segment.
The Company enters into multiple element arrangements in which the Company is engaged to provide
multiple services under one agreement. In such arrangements, the Company records revenue as each
separate service, or element, is delivered to the customer. Such arrangements reside predominantly within
the Company’s Commercial Solutions segment where the Company is engaged to provide recruiting,
deployment, and detailing services. These services may be sold individually or in combination with
contractual fees based on fixed fees for each element, variable fees for each element, or a combination of
both. For the arrangements that include multiple elements, arrangement consideration is allocated at
inception to units of accounting based on the relative selling price. The best evidence of selling price of a
unit of accounting is vendor-specific objective evidence (“VSOE”), which is the price the Company charges
when the deliverable is sold separately. When VSOE is not available to determine selling price, the
Company uses relevant third-party evidence (“TPE”) of selling price, if available. When neither VSOE nor
TPE of selling price exists, the Company uses its best estimate of selling price, which generally consists of
an expected margin on the cost of services.
Changes in the scope of work are common, especially under long-term contracts, and generally result in a
renegotiation of future contract pricing terms and change in contract value. If the customer does not agree to
contract modification, the Company could bear the risk of cost overruns. Renegotiated amounts are not
included in net revenues until written authorization is received, the amount is earned and realization is
assured.
The Company offers volume rebates to its large customers based on annual volume thresholds. The
Company records an estimate of the annual volume rebate as a reduction of revenue throughout the period
based on the estimated total rebate to be earned for the period.
Reimbursable Out-of-Pocket Expenses
In connection with management of multi-site clinical trials, the Company is reimbursed by its customers for
fees paid to principal investigators and for other out-of-pocket costs (such as travel expenses for the
Company's clinical monitors). The Company includes these costs in total operating expenses, and the related
reimbursements are reflected in total revenue, as the Company is deemed to be the primary obligor in the
applicable arrangements.
Share-Based Compensation
The Company measures and recognizes compensation expense related to all share-based awards based on
the estimated fair value of the awards. The fair value of restricted stock and stock unit awards is measured on
the grant date based on the fair market value of the Company's common stock. The fair value of stock option
awards and Employee Stock Purchase Plan ("ESPP") awards is estimated on the grant date using the Black-
Scholes option-pricing model and is affected by the Company's stock price and a number of highly complex
and subjective assumptions. These assumptions include, but are not limited to, the following:
105
Expected Term - Given the Company's limited history with employee share-based awards, the
Company does not have sufficient Company-specific information related to the life of the awards. As
permitted by the SEC Staff, the Company estimates expected term using the "simplified" method
which represents the average of the time-to-vest and the contractual life of the options.
Expected Volatility - Beginning in 2017, expected volatility of the Company's stock price is estimated
based on (i) the historical volatility of the Company's stock for periods in which the Company has
sufficient information, or (ii) the simple average of the historical stock volatilities of several comparable
publicly traded companies from the CRO industry for periods for which the Company does not have
sufficient information. Prior to 2017, due to the limited trading history of the Company's stock, the
expected volatility estimate was based solely on the historical stock volatilities of comparable publicly
traded companies.
Risk-Free Interest Rate - The risk-free interest rate is based on the yield in effect at the time of grant
for United States Treasury zero-coupon notes with maturities approximating each grant's expected
term.
Expected Dividend Yield - The Company has not paid and does not anticipate paying cash dividends
on its common stock; therefore, the expected dividend yield is assumed to be zero.
Share-based compensation expense is recognized on a straight-line basis over the shorter of the requisite
service period or the vesting term. For awards with performance conditions, stock-based compensation
expense is recognized when the achievement of each individual performance target becomes probable, and
the number of shares expected to vest is adjusted for the weighted probability of attainment of the relevant
performance targets.
In March 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-09, Compensation
- Stock Compensation: Improvements to Employee Share-Based Payment Accounting. In accordance with
the guidance, the Company elected to early adopt this ASU effective in the first quarter of 2016. The following
summarizes the effects of the adoption on the Company's consolidated financial statements:
Income taxes - Upon adoption of this standard, all excess tax benefits and tax deficiencies (including
tax benefits of dividends on share-based payment awards) are recognized as income tax expense or
benefit in the statement of operations. The tax effects of exercised or vested awards are treated as
discrete items in the reporting period in which they occur. The Company also recognizes excess tax
benefits regardless of whether the benefit reduces taxes payable in the current period. As a result, the
Company recognized discrete adjustments to income tax expense for the year ended December 31,
2016 of $12.9 million related to excess tax benefits. The Company applied the modified retrospective
adoption approach beginning in 2016 and recorded a cumulative-effect adjustment to retained
earnings and reduced its deferred tax liability by $7.6 million. This adjustment related to tax assets that
had previously arisen from tax deductions for equity compensation expenses that were greater than
the compensation recognized for financial reporting. These assets had been excluded from the
deferred tax assets and liabilities totals on the balance sheet as a result of realization requirements
previously included in ASC 718, Stock Compensation. Prior periods have not been adjusted.
Forfeitures - Prior to adoption, share-based compensation expense was recognized on a straight line
basis, net of estimated forfeitures, such that expense was recognized only for share-based awards
that were expected to vest. A forfeiture rate was estimated annually and revised, if necessary, in
subsequent periods if actual forfeitures differed from initial estimates. Upon adoption, the Company no
longer applies a forfeiture rate and instead accounts for forfeitures as they occur. The Company
applied the modified retrospective adoption approach beginning in 2016 and booked an immaterial
cumulative-effect adjustment to additional paid-in-capital and share-based compensation expense.
Prior periods have not been adjusted.
Statements of Cash Flows - The Company historically accounted for excess tax benefits on the
Statement of Cash Flows as a financing activity. Upon adoption of this standard, excess tax benefits
are classified along with other income tax cash flows as an operating activity. The Company elected to
106
adopt this portion of the standard on a prospective basis beginning in 2016. Prior periods have not
been adjusted.
Earnings Per Share - The Company uses the treasury stock method to compute diluted earnings per
share, unless the effect would be anti-dilutive. Under this method, the Company is no longer required
to estimate the tax rate and apply it to the dilutive share calculation for determining the dilutive
earnings per share. The Company utilized the modified retrospective adoption approach and applied
this methodology beginning in 2016. Prior periods have not been adjusted.
Income Taxes
The Company and its United States (U.S.) subsidiaries file a consolidated U.S. federal income tax return.
Other subsidiaries of the Company file tax returns in their local jurisdictions.
The Company estimates its tax liability based on current tax laws in the statutory jurisdictions in which it
operates. Accordingly, the impact of changes in income tax laws on deferred tax assets and deferred tax
liabilities are recognized in net earnings in the period during which such changes are enacted. The Company
records deferred tax assets and liabilities based on temporary differences between the financial statement
and tax bases of assets and liabilities and for tax benefit carryforwards using enacted tax rates in effect in the
year in which the differences are expected to reverse.
Valuation allowances are provided to reduce the related deferred income tax assets to an amount which will,
more likely than not, be realized. In estimating future taxable income, the Company has considered both
positive and negative evidence, such as historical and forecasted results of operations, and has considered
the implementation of prudent and feasible tax planning strategies. If the objectively verifiable negative
evidence outweighs any available positive evidence (or the only available positive is subjective and cannot be
verified), then a valuation allowance will likely be deemed necessary. If a valuation allowance is deemed to be
unnecessary, such allowance is released and any related benefit is recognized in the period of the change.
Judgment is required in determining what constitutes an uncertain tax position, as well as the assessment of
the outcome of each tax position. The Company considers many factors when evaluating and estimating tax
positions and tax benefits. In addition, the calculation of tax liabilities involves dealing with uncertainties in the
application of complex tax regulations in domestic and foreign jurisdictions. If the calculation of the liability
related to uncertain tax positions proves to be more or less than the ultimate assessment, a tax expense or
benefit to expense, respectively, would result. Unrecognized tax benefits, or a portion of unrecognized tax
benefits, are presented as a reduction to a deferred tax asset for a net operating loss ("NOL") carryforward, a
similar tax loss, or a tax credit carryforward.
Advertising Costs
Advertising costs include costs incurred to promote the Company's business and are expensed as incurred.
Advertising costs were $6.5 million, $5.0 million and $4.4 million for the years ended December 31, 2017,
2016 and 2015, respectively.
Restructuring and Other Costs
Restructuring and other costs primarily consist of one-time employee termination benefits, contract
termination costs, CEO transition costs, and other costs associated with an exit or disposal activity. The
Company accounts for restructuring costs in accordance with the authoritative guidance in ASC Topic 420,
Exit or Disposal Cost Obligations. This guidance requires that a liability for a cost associated with an exit or
disposal activity be recognized in the period in which the liability is incurred, as opposed to the period in which
management commits to a plan of action for termination. The guidance also requires that the liabilities
associated with an exit or disposal activity be measured at the fair value in the period in which the liability is
incurred, except for: (i) liabilities related to one-time employee termination benefits, which shall be measured
and recognized at the date the entity notifies employees of termination, unless employees are required to
render services beyond minimum retention period, in which case the liability is recognized ratably over the
future service period; and (ii) liabilities related to an operating lease contract, which shall be measured and
107
recognized when the contract does not have any future economic benefit to the entity (i.e., the entity ceases
to utilize the rights conveyed by the contract).
The guidance requires that the fair value of the restructuring liabilities is determined using best available
representation of fair value or using other appropriate technique. In determining the fair value of the liabilities
associated with contract terminations, the Company considers terms and conditions of the contractual
obligations to be terminated, including the type and amount of payments and their anticipated timing. In
determining the fair value of the liabilities associated with employee terminations, the Company considers
termination notification date and associated legal notification requirements and minimum retention period as
stipulated by the applicable laws and regulations, the type and amount of benefits employees will receive
upon involuntary termination, as well as the timing of employees' departure.
CEO transition costs consist of CEO separation benefits and retention bonuses granted to key employees.
The Company accounts for CEO transition costs in accordance with the authoritative guidance in ASC Topic
712, Compensation - Nonretirement Postemployment Benefits. This guidance requires that (i) a liability for
benefits offered as special termination benefits to an employee is recognized when the employee accepts the
offer and the amount can be reasonably estimated, (ii) a liability for other contractual termination benefits is
recognized when it is probable that employees will be entitled to benefits and the amount can be reasonably
estimated, and (iii) a liability for other postemployment benefits are recognized and accounted for in
accordance with guidance in ASC Topic 710, Compensation - General.
Restructuring liabilities are included in "Accrued liabilities" and "Other long-term liabilities" in the
accompanying consolidated balance sheets.
Earnings Per Share
The Company determines earnings per share in accordance with the authoritative guidance in ASC Topic 260,
Earnings Per Share. The Company has one class of common stock for purposes of the earnings per share
calculation and therefore computes basic earnings per share by dividing net income (loss) by the weighted
average number of common shares outstanding for the applicable period. Diluted earnings per share are
computed in the same manner as basic earnings per share, except that the number of shares is increased to
assume exercise of potentially dilutive stock options using the treasury stock method, unless the effect of
such increase would be anti-dilutive. Under the treasury stock method, the amount the employee must pay for
exercising stock options and the amount of compensation cost for future service that the Company has not
yet recognized are assumed to be used to repurchase shares.
Subsequent Events
The Company considers events or transactions that occur after the balance sheet date but before the
financial statements are issued to provide additional evidence relative to certain estimates or to identify
matters that require additional disclosure. The Company evaluated all events and transactions through the
date that these financial statements were issued.
Recently Adopted Accounting Standards
Income Taxes. Effective January 1, 2017, the Company elected to early adopt Accounting Standard Update
(“ASU”) No. 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory. Under the
updated accounting guidance the Company recognizes income tax consequences immediately when the
transfer of an inter-entity asset other than inventory occurs across jurisdictions rather than deferring the tax
effects of those transactions until a transfer is made to a third party. The Company adopted this standard
using the modified retrospective approach and recorded a cumulative-effect adjustment as of January 1,
2017. As a result, the Company recorded (i) a reduction in prepaid income taxes of $11.7 million, (ii) a net
increase in deferred income tax assets of $9.7 million, and (iii) a decrease in retained earnings of $2.0 million.
Prior periods have not been adjusted.
Goodwill. In January 2017, the Financial Accounting Standards board (“FASB”) issued ASU No.
2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which
eliminates the second step of the previous FASB guidance for testing goodwill for impairment and is intended
to reduce cost and complexity of goodwill impairment testing. The amendments in this ASU modify the
concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied
108
fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. After
determining if the carrying amount of a reporting unit exceeds its fair value, the entity should take an
impairment charge of the same amount to the goodwill for that reporting unit, not to exceed the total goodwill
amount for that reporting unit. This eliminates the second step of calculating the implied fair value of goodwill
by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been
acquired in a business combination. ASU 2017-04 is effective for annual periods beginning after December
15, 2019, including interim periods within those annual periods. Early adoption is permitted for interim or
annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company has
elected to early adopt this standard effective January 1, 2017.
Recently Issued Accounting Standards Not Yet Adopted
Income Statement - Reporting Comprehensive Income. In February 2018, the FASB issued ASU No.
2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax
Effects from Accumulated Other Comprehensive Income, which allows for the reclassification from
accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax
Cuts and Jobs Act. The amendments in this update also require entities to disclose their accounting policy for
releasing income tax effects from accumulated other comprehensive income. ASU No. 2018-02 is effective for
the reporting periods beginning after December 15, 2018, including interim periods within those annual
periods. Early adoption is permitted. The Company is currently assessing the potential impact of ASU No.
2018-02 on its consolidated financial statements.
Leases. In February 2016, the FASB issued ASU No. 2016-02, Leases. ASU 2016-02 requires organizations
to recognize lease assets and lease liabilities on the balance sheet, including leases that were previously
classified as operating leases. The ASU also requires additional disclosures about leasing arrangements
related to the amount, timing, and uncertainty of cash flows arising from leases. The amendments in this ASU
are effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim
periods within those fiscal years. Early adoption of the amendments is permitted and the new guidance will be
applied using a modified retrospective approach. The Company plans to adopt this standard on January 1,
2019.
Revenue from Contracts with Customers. In May 2014, FASB issued ASU No. 2014-09, Revenue from
Contracts with Customers. ASU 2014-09 eliminates transaction- and industry-specific revenue recognition
guidance under current U.S. GAAP and replaces it with a single principles based model for determining
revenue recognition. ASU 2014-09 requires that companies recognize revenue when a customer obtains
control of promised goods or services. Revenue will be recognized in the amount that reflects the
consideration that the entity expects to receive in exchange for those goods or services. The standard also
requires disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from
contracts with customers, including significant judgments and changes in judgments, as well as assets
recognized from costs incurred to obtain or fulfill a contract. The FASB issued several amendments to the
standard, including clarifications on principal versus agent considerations, identifying performance obligations,
disclosure of prior-period performance obligations and accounting for licenses of intellectual property.
For public entities, the standard is effective for reporting periods beginning after December 15, 2017. Earlier
adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including
interim reporting periods within that reporting period. Entities can adopt the standard either retrospectively to
each period presented (full retrospective approach), or retrospectively with the cumulative effect of initially
applying the guidance recognized as of the date of adoption (modified retrospective or cumulative effect
approach).
In preparation for adoption of the standard, the Company established a project management and
implementation team consisting of internal resources and external advisors. The Company reached
conclusions on certain key accounting assessments related to the standard and is finalizing its evaluation of
the impact of adopting this new standard on its financial reporting and disclosures, accounting policies,
business processes and internal controls. In particular, the Company has concluded that under the new
standard, the majority of its contracts will contain a single performance obligation. The Company expects to
account for the majority of revenue related to customer clinical trials in its Clinical Solutions segment under
109
single performance obligations over time using project costs as an input method to measure progress. The
Company anticipates that under the new standard the majority of arrangements in its Commercial Solutions
segment will consist of a single performance obligation as the pattern of services delivered are substantially
the same over the contract period. Additionally, net service revenue and reimbursable costs represent a single
performance obligation and separate presentation on the statement of operations is no longer permitted under
the standard.
The Company anticipates that, as a result of adopting the new standard, revenue recognition may be delayed
at certain phases of the customer contract life cycle, particularly during the first years of the contract as the
inclusion of reimbursable costs in the measure of progress may result in a disproportionately lower
percentage of costs incurred until those contracts mature. Such deferral of revenue recognition could differ
materially from that applied under the current revenue recognition standard. While the Company expects its
revenue to be deferred in the early stages of the contract, such impact may be partially mitigated on an
aggregate basis because at any given time, the Company’s portfolio of contracts consists of contracts in
varying stages of completion. On our consolidated balance sheet, long-term contracts will be reported in a net
contract asset or contract liability position on a contract-by-contract basis at the end of each reporting period.
The assessment of our consolidated balance sheet under the new standard will result in some
reclassifications among financial statement accounts. The Company continues to gather and track new
information to meet the expanded disclosure requirements, and is nearing completion of finalizing the
financial impact of adopting this standard on the opening balance of retained earnings. The Company will
adopt the new standard effective January 1, 2018 using the modified retrospective approach.
2. Financial Statement Details
Accounts Receivable Billed, net
Accounts receivable, net of allowance for doubtful accounts, consisted of the following (in thousands):
Accounts receivable billed
Allowance for doubtful accounts
Accounts receivable billed, net
December 31, 2017
December 31, 2016
$
$
652,061
$
(9,076)
642,985
$
217,360
(5,884)
211,476
The following table summarizes the changes in the allowance for doubtful accounts (in thousands):
Balance at the beginning of the period
Current year (provision) recovery
Write-offs, net of recoveries and the effects of foreign currency
exchange
Balance at the end of the period
Years Ended December 31,
2017
2016
2015
(5,884) $
(3,557) $
(3,727)
(4,167)
(2,570)
975
243
144
26
(9,076) $
(5,884) $
(3,557)
$
$
110
Property and Equipment, net
Property and equipment, net of accumulated depreciation, consisted of the following (in thousands):
Software
Vehicles
Computer equipment
Leasehold improvements
Office furniture, fixtures, and equipment
Buildings and land
Assets not yet placed in service
Property and equipment, gross
Less: accumulated depreciation
Property and equipment, net
December 31, 2017
December 31, 2016
$
65,102
$
38,938
61,659
58,975
19,317
4,552
29,215
277,758
(97,346)
$
180,412
$
52,531
—
26,311
14,814
10,894
4,004
13,396
121,950
(63,644)
58,306
As of December 31, 2017, the gross book value of vehicles under capital leases was $38.9 million and
accumulated depreciation was $7.6 million. Amortization charges related to these assets, net of rebates, were
$5.9 million for 2017 and are included in the “Depreciation” line item of the accompanying consolidated
statements of operations.
Goodwill and Intangible Assets
Effective August 1, 2017, the Company realigned its segment financial reporting to reflect changes in the
organizational structure following the Merger (see "Note 14 - Segment Information" for further information).
The Company has reflected this change to its segment information retrospectively to the earliest period
presented. The change resulted in the reclassification of gross goodwill and previously recognized
accumulated goodwill impairment losses of $8.1 million from the former Phase I Services segment to the
Clinical Solutions segment. In addition, gross goodwill and previously recognized accumulated goodwill
impairment losses of $8.0 million related to the Global Consulting business unit, which previously had been
included in the Clinical Solutions segment was reclassified into the Commercial Solutions segment as a result
of the Merger.
111
The changes in carrying amount of goodwill were as follows (in thousands):
Total
Clinical
Solutions
Commercial
Solutions
Balance at December 31, 2015:
Gross carrying amount
Accumulated impairment losses
Total goodwill and accumulated impairment losses
2016 Activity:
$
569,174
$
561,150
$
(16,166)
553,008
(8,142)
553,008
Impact of foreign currency translation and other
(506)
(506)
Balance at December 31, 2016:
Gross carrying amount
Accumulated impairment losses (a)
Goodwill net of accumulated impairment losses
568,668
(16,166)
552,502
560,644
(8,142)
552,502
8,024
(8,024)
—
—
8,024
(8,024)
—
2017 Activity:
Business combinations (b)
Impact of foreign currency translation
Balance at December 31, 2017:
Gross carrying amount
Accumulated impairment losses (a)
3,733,495
2,240,971
1,492,524
6,574
7,360
(786)
4,308,737
2,808,975
1,499,762
(16,166)
(8,142)
(8,024)
Goodwill net of accumulated impairment losses
$
4,292,571
$
2,800,833
$
1,491,738
(a) Accumulated impairment losses associated with the Clinical Solutions segment were recorded in fiscal periods prior to
2017 and related to the former Phase I Services segment, now a component of the Clinical Solutions segment.
Accumulated impairment losses associated with the Commercial Solutions segment were recorded in fiscal periods prior
to 2017 and related to the former Global Consulting segment, now a component of the Commercial Solutions segment.
No impairment of goodwill was recorded for the year ended December 31, 2017.
(b) The 2017 activity represents goodwill recognized in connection with the Merger and is subject to further adjustments
before the close of the measurement period. Goodwill associated with the Merger is not deductible for income tax
purposes. See "Note 3 - Business Combinations" for further information.
As discussed in "Note 3 - Business Combinations," in conjunction with the Merger, the Company acquired
certain intangible assets related to customer relationships, acquired backlog, and trademarks. Additionally,
due to the Company’s intention to relaunch its operations under a new brand name in January 2018, the
Company determined that the useful life of the intangible asset related to the INC Research trademark with a
carrying value of $35.0 million was no longer indefinite as of August 1, 2017. The Company tested the asset
for impairment as an indefinite-lived intangible asset and recorded a $30.0 million impairment charge during
the three months ended September 30, 2017. The Company also determined that the remaining useful life of
this asset did not extend beyond the anticipated date of the rebranding and, as of August 1, 2017,
approximated five months. Therefore, the Company reclassified the remaining value of the INC Research
trademark from an indefinite-lived intangible asset to a definite-lived intangible asset and began amortizing its
remaining value on a straight-line basis over its remaining estimated useful life of five months.
112
Intangible assets, net consisted of the following (in thousands):
December 31, 2017
December 31, 2016
Gross
Accumulated
Amortization
Net
Gross
Accumulated
Amortization
Net
Intangible assets with finite
lives:
Customer relationships
$ 1,440,178
$
(266,158) $ 1,174,020
$ 267,703
$
(188,217) $
79,486
Acquired backlog
Trademarks
137,442
32,428
(42,095)
(15,745)
95,347
16,683
—
—
—
—
Total finite-lived intangibles
1,610,048
(323,998)
1,286,050
267,703
(188,217)
Trademarks — indefinite-lived
—
—
—
35,000
—
—
—
79,486
35,000
Intangible assets, net
$ 1,610,048
$
(323,998) $ 1,286,050
$ 302,703
$
(188,217) $ 114,486
The identifiable intangible assets are amortized over their estimated useful lives. The future estimated
amortization expense for intangible assets is expected to be as follows (in thousands):
Fiscal Year Ending:
2018
2019
2020
2021
2022
2023 and thereafter
Total
Accrued Liabilities and Other Long-Term Liabilities
Accrued liabilities consisted of the following (in thousands):
Compensation, including bonuses, fringe benefits, and payroll taxes
Accrued professional, investigator fees, and pass-through costs
Accrued rebates to customers
Contingent tax-sharing obligations assumed through business
combinations, current portion
Accrued taxes
Accrued restructuring and other costs, current portion
Accrued interest
Facility-related obligations
Other liabilities
$
199,586
160,664
143,881
126,597
121,080
534,242
$
1,286,050
December 31, 2017
215,657
$
132,356
27,930
December 31, 2016
77,049
$
43,010
13,580
22,345
16,810
13,280
9,399
8,943
53,583
500,303
$
—
1,072
6,084
72
5,117
7,575
153,559
Total accrued liabilities
$
Other long-term liabilities consisted of the following (in thousands):
Uncertain tax positions
Accrued restructuring and other costs, non-current portion
Contingent tax-sharing obligations assumed through business
combinations, non-current portion
Deferred compensation, long-term
Other liabilities
Total other long-term liabilities
113
December 31, 2017
December 31, 2016
$
$
25,033
$
3,513
28,135
15,900
27,028
99,609
$
14,813
2,508
—
—
8,842
26,163
Accumulated other comprehensive loss, net of taxes
Accumulated other comprehensive loss, net of taxes consisted of the following (in thousands):
Foreign currency translation adjustments, net of tax
Unrealized gains on derivative instruments, net of tax
Accumulated other comprehensive loss, net of tax
December 31, 2017
December 31, 2016
$
$
(23,514) $
1,129
(22,385) $
(43,356)
1,106
(42,250)
Changes in accumulated other comprehensive loss, net of tax were as follows (in thousands):
Unrealized
gain on
derivative
instruments,
net of tax
Foreign
currency
translation
adjustments,
net of tax
Total
Balance at December 31, 2015
$
— $
(41,543) $
(41,543)
Other comprehensive gain before reclassifications
Amount of gain reclassified from accumulated other
comprehensive loss into statement of operations
Net current period other comprehensive gain (loss), net of tax
Balance at December 31, 2016
Other comprehensive gain before reclassifications
Amount of gain reclassified from accumulated other
comprehensive loss into statement of operations
Net current period other comprehensive gain, net of tax
901
205
1,106
1,106
443
(420)
23
Balance at December 31, 2017
$
1,129
$
(1,813)
—
(1,813)
(43,356)
19,842
$
— $
19,842
$
(23,514) $
(912)
205
(707)
(42,250)
20,285
(420)
19,865
(22,385)
Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest
expense as interest payments are made on the Company’s term loan. Amounts to be reclassified as an increase
to interest expense in the next 12 months are expected to be immaterial.
The tax effects allocated to each component of other comprehensive loss for the year ended December 31,
2017 were as follows (in thousands):
Foreign currency translation adjustments
Unrealized gain on derivative instruments:
Unrealized gains arising during period
Reclassification adjustment for gains realized in net income
Net unrealized gain
Other comprehensive income
Before-Tax
Amount
Tax (Expense)
or Benefit
Net-of-Tax
Amount
$
28,847
$
(9,005) $
19,842
694
(681)
13
(251)
261
10
443
(420)
23
$
28,860
$
(8,995) $
19,865
114
The tax effects allocated to each component of other comprehensive income for the year ended
December 31, 2016 were as follows (in thousands):
Foreign currency translation adjustments
Unrealized gain on derivative instruments:
Unrealized gains arising during period
Reclassification adjustment for gains realized in net income
Net unrealized gain
Other comprehensive income
Other (Expense) Income, Net
Before-Tax
Amount
Tax (Expense)
or Benefit
Net-of-Tax
Amount
(1,813) $
— $
(1,813)
1,477
336
1,813
— $
(576)
(131)
(707) $
(707) $
901
205
1,106
(707)
$
$
Other (expense) income, net consisted of the following (in thousands):
Net realized foreign currency (loss) gain
Net unrealized foreign currency (loss) gain
Other, net
Total other expense, net
3. Business Combinations
Transaction Overview
Years Ended December 31,
2017
2016
2015
$
$
(10,833) $
12,357
$
(7,912)
(1,101)
(20,681)
(678)
(19,846) $
(9,002) $
2,237
795
825
3,857
On August 1, 2017 (the “Merger Date”), the Company completed the Merger with inVentiv with the Company
surviving as the accounting and legal entity acquirer. The Merger was accounted for as a business
combination using the acquisition method of accounting in accordance with ASC Topic 805, Business
Combinations. The purchase price has been preliminarily allocated to the tangible assets and identifiable
intangible assets acquired and liabilities assumed based upon their fair values. The excess of the purchase
price over the tangible and intangible assets acquired and liabilities assumed has been recorded as goodwill.
The goodwill in connection with the Merger is primarily attributable to the assembled workforce of inVentiv and
the expected synergies of the Merger.
At the Merger Date, the shares of inVentiv’s outstanding common stock were converted into 49,297,022
shares of the Company’s common stock at an exchange ratio of 3.4928. In addition, inVentiv equity awards
held by current employees and certain members of the former inVentiv board of directors were converted into
Company equity awards using the exchange ratio. The value of the Merger consideration was approximately
$4.51 billion, as discussed below.
Concurrent with the completion of the Merger, on August 1, 2017, the Company entered into a Credit
Agreement (the “2017 Credit Agreement”) for: (i) a $1.0 billion Term Loan A facility that matures on August 1,
2022 (“Term Loan A”); (ii) a $1.6 billion Term Loan B facility that matures on August 1, 2024 (“Term Loan B”);
and (iii) a five-year $500.0 million revolving credit facility (the “Revolver”). The Company used available cash
and borrowings under the 2017 Credit Agreement to (among other things): (i) repay and extinguish
approximately $445.0 million of outstanding loans and obligations under the Company’s existing long-term
credit facility; (ii) repay approximately $1.74 billion of outstanding obligations under inVentiv’s long-term
borrowings and associated accrued interest, which was treated as Merger consideration; (iii) pay
approximately $290.3 million to partially redeem the principal balance of the 7.5% Senior Unsecured Notes
due 2024 (“Senior Notes”) assumed in the Merger, which included an early redemption penalty of $20.3
million; and (iv) pay certain fees and other transaction expenses related to the Merger. For additional
information related to the 2017 Credit Agreement, see "Note 4 - Long-Term Debt Obligations."
115
For the year ended December 31, 2017, the Company incurred $123.8 million of Merger-related expenses
which were accounted for separately from the business combination and expensed as incurred within the
“Transaction and integration related expenses” line item of the audited consolidated statements of operations.
These costs consisted primarily of investment banker fees, advisory fees, legal costs, accounting and
consulting fees, share-based compensation expense, and employee retention bonuses. The Company also
incurred approximately $5.8 million of bridge financing fees which are included in the “Interest expense” line
item in the audited consolidated statements of operations for the year ended December 31, 2017. The
Company deferred $25.5 million of financing costs incurred as a result of the 2017 Credit Agreement. These
costs will be amortized over the term of the related debt.
In connection with the Merger, the Company assumed certain contingent tax-sharing obligations of inVentiv.
The fair value of the assumed contingent tax-sharing obligation payable to the former shareholders of inVentiv
was estimated to be $62.8 million at the Merger Date. The assumed contingent tax-sharing obligation is
based on the future realization of certain transaction tax deductions that created net operating losses
acquired or generated by the Company in the Merger (the “Acquired NOLs”) which arose in connection with
inVentiv’s 2016 acquisition by Double Eagle Parent, Inc. As such transaction tax deductions are realized as a
result of reducing federal or state income taxes payable, the Company is obligated to make payments to the
former stockholders of inVentiv. The amount of Acquired NOLs are estimated to be approximately $187.8
million ($71.5 million of estimated net tax benefits). However, in no event are the Acquired NOLs permitted to
exceed $220.0 million, and the associated net tax benefits will be paid to the former shareholders of inVentiv if
and when such deductions reduce income taxes payable.
The tax sharing agreement was contingent consideration of inVentiv that was acquired in the Merger. The fair
value of the contingent tax-sharing liability is remeasured at the end of each reporting period, with changes in
the estimated fair value reflected in earnings until the liability is fully settled. During 2017, the Company
recorded adjustments reducing the fair value of the contingent tax-sharing obligations by $12.3 million, driven
primarily by the effect of enactment of the Tax Act which reduced the corporate income tax rate from 35% to
21% effective January 1, 2018. These adjustments have been included in the "Transaction and integration-
related expense" line item in the accompanying consolidated statement of operations for the year ended
December 31, 2017. As of December 31, 2017, the estimated fair value of the contingent tax-sharing
obligations liability was $50.5 million, which is included in the “Accrued liabilities” and “Other long-term
liabilities” line items of the accompanying audited consolidated balance sheet.
The results of inVentiv’s operations are included in the Company’s consolidated statements of operations
beginning on the Merger Date. For the year ended December 31, 2017, net service revenue attributable to
inVentiv was $839.0 million and reimbursable out-of-pocket revenue was $260.0 million. Following the closing
of the Merger, the Company began integrating inVentiv’s operations. As a result, computing a separate
measure of inVentiv’s stand-alone profitability for the period after the Merger Date is impracticable.
Fair Value of Consideration Transferred
The preliminary Merger Date fair value of the consideration transferred consisted of the following (in
thousands, except for share and per share amounts):
Fair value of common stock issued to acquiree stockholders (a)
Fair value of replacement share-based awards issued to acquiree employees (b)
Repayment of term loan obligations and accrued interest (c)
Total consideration transferred
$
$
2,753,239
16,232
1,736,152
4,505,623
(a) Represents the fair value of 49,297,022 shares of the Company’s common stock at $55.85 per share, the closing price
per share on the Merger closing date of August 1, 2017.
(b) Represents the fair value of replacement share-based awards attributable to pre-combination services. For further
information about the valuation of share-based awards, see "Note 10 - Share-Based Compensation."
(c) Represents repayment of inVentiv’s term loan obligations and related accrued interest as part of the Merger
consideration on the Merger Date. For further information, see "Note 4 - Long-Term Debt Obligations."
116
Allocation of Consideration Transferred
The following table summarizes the preliminary allocation of the consideration transferred based on
management’s estimates of Merger Date fair values of assets acquired and liabilities assumed, with the
excess of the purchase price over the estimated fair values of the identifiable net assets acquired recorded as
goodwill (in thousands):
Assets acquired:
Cash and cash equivalents
Restricted cash
Accounts receivable
Unbilled accounts receivable
Other current assets
Property and equipment
Intangible assets
Other assets
Total assets acquired
Liabilities assumed:
Accounts payable
Accrued liabilities
Deferred revenue
Capital leases
Long-term debt, current and non-current
Deferred income taxes, net
Other liabilities
Total liabilities assumed
Total identifiable assets acquired, net
Goodwill
$
$
57,338
433
363,137
261,585
95,506
113,674
1,334,200
50,052
2,275,925
38,871
306,649
247,474
40,928
737,872
11,382
120,621
1,503,797
772,128
3,733,495
The goodwill recognized in connection with the Merger was $3.73 billion, of which $2.24 billion was assigned
to the Clinical Solutions segment and $1.49 billion to the Commercial Solutions segment. Goodwill generated
in the Merger is not deductible for income tax purposes. The Company’s assessment of fair value and
purchase price allocation are preliminary and subject to change as discussed below. During the fourth quarter
of 2017, the Company made certain adjustments to the preliminary fair value of acquired assets and assumed
liabilities to reflect additional information obtained in connection with the Merger. The net effect of the
adjustments was an increase in goodwill by $25.1 million. Further adjustments may be necessary as
additional information related to the fair values of assets acquired and liabilities assumed is assessed during
the measurement period (up to one year from the Merger Date).
The following table summarizes the preliminary estimates of the fair value of identified intangible assets and
their respective useful lives as of the Merger Date (in thousands, except for estimated useful lives):
Customer relationships
Backlog
Trademarks subject to amortization
Total intangible assets
Estimated Fair Value
Estimated Useful Life
$
$
1,169,700
6 years - 11 years
137,100
5 months - 2 years
27,400
5 months - 6 years
1,334,200
117
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information was derived from the historical financial statements of
the Company and inVentiv, and presents the combined results of operations as if the Merger had occurred on
January 1, 2016. The pro forma financial information is presented for comparative purposes only and is not
necessarily indicative of the results that would have actually occurred had the Merger been completed on
January 1, 2016. In addition, the unaudited pro forma financial information does not give effect to any
anticipated cost savings, operating efficiencies or other synergies that may result from the Merger, or any
estimated costs that have been or will be incurred by the Company to integrate the assets and operations of
inVentiv. Consequently, actual future results of the Company will differ from the unaudited pro forma financial
information presented below (in thousands, except per share data).
Pro forma total revenue
Pro forma net loss
Pro forma loss per share:
Basic
Diluted
December 31, 2017
December 31, 2016
$
$
$
4,221,936
$
(58,545)
4,354,038
(208,013)
(0.64) $
(0.64) $
(2.01)
(2.01)
The unaudited pro forma adjustments primarily relate to the depreciation of acquired property and equipment,
amortization of acquired intangible assets and interest expense and amortization of deferred financing costs
related to the new financing arrangements. In addition, the unaudited pro forma net loss for the year ended
December 31, 2017 was adjusted to exclude certain merger-related nonrecurring adjustments; these
adjustments were included in the year ended December 31, 2016 giving effect to the Merger as if it had
occurred on January 1, 2016. The nonrecurring merger-related adjustments include transaction costs,
retention and severance payments, share-based compensation expense related to the acceleration of share-
based compensation awards and replacement share-based awards, and financing fees. These nonrecurring
adjustments to net loss in the aggregate, net of tax effects (where applicable), were $111.8 million and
$(111.8) million for the years ended December 31, 2017 and 2016, respectively.
4. Long-Term Debt Obligations
The Company’s debt obligations consisted of the following (in thousands):
December 31, 2017
December 31, 2016
Secured Debt
Term Loan A due August 2021
Revolving credit facility due August 2021
Term Loan A due August 2022
Term Loan B due August 2024
Revolving credit facility due August 2022
Total secured debt
Unsecured Debt
7.5% Senior Unsecured Notes due 2024
Total debt obligations
Add: unamortized Senior Notes premium, net of original issue debt
discount
Less: unamortized deferred issuance costs
Less: current portion of debt
$
— $
—
1,000,000
1,550,000
—
2,550,000
403,000
2,953,000
38,656
(20,722)
(25,000)
Total debt obligations, non-current portion
$
2,945,934
$
118
475,000
25,000
—
—
—
500,000
—
500,000
—
(2,276)
(11,875)
485,849
2017 Credit Agreement
Concurrent with the completion of the Merger on August 1, 2017, the Company entered into the 2017 Credit
Agreement for: (i) a $1.0 billion Term Loan A facility that matures on August 1, 2022; (ii) a $1.6 billion Term
Loan B facility that matures on August 1, 2024; and (iii) a five-year $500.0 million revolving credit facility (the
“Revolver”) that matures on August 1, 2022. The Company used available cash and the borrowings under the
2017 Credit Agreement to (among other things); (i) repay and extinguish approximately $445.0 million of
outstanding loans and obligations under the Company’s previously existing long-term credit facility; (ii) repay
approximately $1.74 billion of outstanding obligations under inVentiv’s long-term credit facility; (iii) pay
approximately $290.3 million to partially redeem the principal of the Senior Notes assumed in the Merger,
which included an early redemption penalty of $20.3 million; and (iv) pay fees, premiums, and other
transaction expenses related to the Merger.
All obligations under the 2017 Credit Agreement are guaranteed by the Company and certain of the
Company's direct and indirect wholly-owned domestic subsidiaries. The obligations under the 2017 Credit
Agreement are secured by substantially all of the assets of the Company and the guarantors, including 65%
of the capital stock of certain controlled foreign subsidiaries.
Beginning on January 31, 2018 through July 31, 2022, the Term Loan A has scheduled quarterly principal
payments of the initial principal borrowed of 0.625%, or $6.25 million per quarter in year 1; 1.25%, or $12.5
million per quarter in year 2; 1.875%, or $18.75 million per quarter in year 3; and 2.50%, or $25.0 million per
quarter thereafter; with the remaining outstanding principal due on August 1, 2022.
Under the 2017 Credit Agreement, the Company is required to make quarterly principal payments of the initial
principal borrowed under the Term Loan B of 0.25%, or $4.0 million per quarter; with the remaining
outstanding principal due on August 1, 2024. During 2017, the Company made voluntary prepayments
of $50.0 million on the Term Loan B, which was applied against the regularly-scheduled quarterly principal
payments. As a result of the prepayments, the Company is not required to make a mandatory principal
payment against the Term Loan B until January 31, 2021.
The term loans and the Revolver bear interest at a rate per annum equal to the adjusted Eurocurrency Rate
(“Eurocurrency Rate”) plus an applicable rate or an alternate base rate (“Base Rate”) plus an applicable rate.
The Company may select among the Eurocurrency Rate or the Base Rate, whichever is lower, except in
circumstances where the Company request a loan with less than a three-day notice. In such cases, the
Company must use the Base Rate. The Eurocurrency Rate is equal to LIBOR, subject to adjustment for
reserve requirements. The Base Rate is equal to the highest of: (i) the federal funds rate plus 0.50%; (ii) the
Eurocurrency Rate for an interest period of one month plus 1.00%; (iii) the rate of interest per annum publicly
announced from time to time by Credit Suisse as its prime rate; and (iv) 0.00%.
Eurocurrency Rate term loans are one-, two-, three-, or six-month loans (or, with permission, twelve-month
loans) and interest is due on the last day of each three-month period of the loans. Base Rate term loans have
interest due the last day of each three-month period beginning in January 2018. In advance of the last day of
the then-current type of loan, the Company may select a new type of loan, so long as it does not extend
beyond the term loan’s maturity date. Additionally, the 2017 Credit Agreement permits the Borrower to
increase its term loan or Revolver commitments under the term loan facilities and/or revolving credit facility
and/or to request the establishment of one or more new term loan facilities and/or revolving facilities in an
aggregate amount to be no less than $725.0 million, if certain net leverage requirements are met. The
availability of such additional capacity is subject to, among other things, receipt of commitments from existing
lenders or other financial institutions.
119
The applicable margins with respect to Base Rate and Eurocurrency Rate borrowings are determined
depending on the “First Lien Leverage Ratio” or the "Secured Net Leverage Ratio" (as defined in the 2017
Credit Agreement) and range as follows:
Term Loan A
Term Loan B
Revolver
Base Rate
Eurocurrency Rate
0.50% - 0.75%
1.50% - 1.75%
1.00% - 1.25%
2.00% - 2.25%
0.25% - 0.75%
1.25% - 1.75%
The Company also pays a quarterly commitment fee between 0.25% and 0.375% on the average daily
unused balance of the Revolver depending on the “First Lien Leverage Ratio” at the adjustment date. As of
December 31, 2017, the interest rate on the Term Loan A and the Revolver was 3.319% and the interest rate
on the Term Loan B was 3.819%.
Letters of Credit
The Revolver includes letters of credit ("LOCs") with a sublimit of $150.0 million. Fees are charged on all
outstanding LOCs at an annual rate equal to the margin in effect on Eurocurrency Rate revolving loans plus
fronting fees. The fee is payable quarterly in arrears on the last day of the calendar quarter after the issuance
date until the underlying LOC expires. As of December 31, 2017, there were no outstanding Revolver
borrowings and $18.6 million of LOCs outstanding, leaving $481.4 million in available borrowings under the
Revolver. In addition, as of December 31, 2017, the Company had $1.2 million of LOCs that were not secured
by the Revolver.
Additionally, the lease for the new corporate headquarters in Morrisville, North Carolina includes a provision
which requires the Company to issue a letter of credit ("LOC") in certain amounts to the landlord based on the
debt rating of the Company issued by Moody’s Investors Service (or other nationally-recognized debt rating
agency). From June 14, 2017 through June 14, 2020, if the debt rating of the Company is Ba3 or better, no
LOC is required, or if the debt rating of the Company is B1 or lower, a LOC equal to 25% of the remaining
minimum annual rent and estimated operating expenses (approximately $24.2 million as of December 31,
2017) is required to be issued to the landlord. This LOC would remain in effect until the Company’s debt rating
was increased to Ba3 and maintained for a twelve-month period. After June 14, 2020, if the debt rating of the
Company is Ba2 or better, no LOC is required; if the debt rating is Ba3, a LOC equal to 25% of the then
remaining minimum annual rent and estimated operating expenses is required to be issued to the landlord; or
if the debt rating of the Company is B1 or lower, a LOC equal to 100% of the then remaining minimum annual
rent and estimated operating expenses is required to be issued to the landlord. These LOCs would remain in
effect until the Company’s debt rating is Ba2 or better and maintained for a twelve-month period.
As of December 31, 2017 (and through the date of this filing), the Company’s debt rating was Ba3. As such,
no LOC is currently required. Any LOCs issued in accordance with the aforementioned requirements would be
issued under the Company’s Revolver, and would reduce its available borrowing capacity by the same
amount accordingly.
Debt Covenants
The 2017 Credit Agreement contains usual and customary restrictive covenants that, among other things,
place limitations on the Company's ability to pay dividends or make other restricted payments; prepay,
redeem or purchase debt; incur liens; make loans and investments; incur additional indebtedness; amend or
otherwise alter debt and other material arrangements; make acquisitions and dispose of assets; transact with
affiliates; and engage in transactions that are not related to the Company's existing business. Each of the
restrictive covenants is subject to important exceptions and qualifications that would allow the Company to
engage in these activities under certain conditions, including the Company’s ability to: (i) pay dividends each
year in an amount up to the greater of (a) 6% of the net cash proceeds received by the Company from any
public offering and (b) 5% of the Company’s market capitalization; and (ii) pay unlimited dividends if the
Company’s Secured Leverage Ratio is no greater than 3.0 to 1.0. As of December 31, 2017, the Company
was in compliance with all applicable debt covenants.
120
In addition, with respect to the Term Loan A and Revolver, the 2017 Credit Agreement requires the Company
to maintain a maximum First Lien Leverage Ratio of no more than 5.0 to 1.0 as of the last day of each fiscal
quarter ending on or before December 31, 2018 (beginning with the first full fiscal quarter ending after the
closing date of the 2017 Credit Agreement), and 4.5 to 1.0 from and after March 31, 2019.
7.5% Senior Unsecured Notes due 2024
As a result of the August 2017 Merger, the Company assumed $675.0 million of principal balance of Senior
Unsecured Notes. Upon closing of the Merger, the Company immediately redeemed $270.0 million of the
principal balance of Senior Notes and paid $20.3 million of the applicable early redemption penalty.
Interest on the remaining Senior Notes is payable semi-annually on the first day of April and October of each
year and are guaranteed by the Company and certain of the Company's direct and indirect wholly-owned
domestic subsidiaries. The Senior Notes are unsecured obligations and will (i) rank equal in right of payment
to all of the Company’s existing and future senior unsecured obligations, (ii) be effectively subordinated to the
Company’s secured indebtedness, including the 2017 Credit Agreement, to the extent of the value of the
assets securing such indebtedness, (iii) rank senior in right of payment to any of the Company’s future
indebtedness that is expressly subordinated in right of payment to the Senior Notes and the guarantees and
(iv) be structurally subordinated to any existing and future obligations of any subsidiaries of the Company that
do not guarantee the Senior Notes.
On or after October 1, 2019, the Company may redeem the Senior Notes in whole or in part, at a redemption
price equal to the percentage of principal amount set forth below, plus accrued and unpaid interest during the
twelve-month period beginning on the first of October of each of the years indicated below:
Year
2019
2020
2021 and thereafter
Percentage
103.750%
101.875%
100.000%
In December 2017, the Company acquired $2.0 million of principal amount of the Senior Notes through an
open market purchase for a cash payment of $2.2 million and immediately retired the principal amount.
Maturities of Debt Obligations
As of December 31, 2017, the contractual maturities of the Company’s debt obligations (excluding capital
leases which are presented in "Note 5 - Leases") were as follows (in thousands):
2018
2019
2020
2021
2022
2023 and thereafter
Less: deferred issuance costs
Senior Notes premium, net of original issue debt discount
Total long-term debt
Less: current portion of debt
Total debt obligations, non-current portion
121
$
$
25,000
50,000
75,000
114,000
766,000
1,923,000
(20,722)
38,656
2,970,934
(25,000)
2,945,934
Debt Extinguishment Costs and Senior Notes Redemption Penalty
On the Merger Date, the Company paid a contractual early redemption penalty of $20.3 million to redeem
40% of the Senior Notes that were assumed in the Merger. In accordance with ASC Topic 805, Business
Combinations, the carrying value of the Senior Notes assumed in the Merger was adjusted to estimated fair
value, which resulted in an increase of the amount of the Company’s consolidated debt and recognition of a
premium on the Senior Notes, of which $20.3 million was allocated to the redeemed portion of the Senior
Notes. This portion of the premium offset the early redemption penalty, resulting in no gain or loss on the
extinguishment of the Senior Notes. The remaining balance of the premium associated with the fair value
adjustment is being amortized as a component of interest expense using the effective interest rate method
over the term of the remaining Senior Notes.
In August 2016, the Company entered into the First Amendment to 2017 Credit Agreement and Increase
Revolving Joinder, which amended the 2015 Credit Agreement (as amended, the "2016 Credit Agreement").
The five-year $675.0 million 2016 Credit Agreement was comprised of a $475.0 million term loan and a
$200.0 million revolving line of credit. In conjunction with this amendment, the Company recognized a loss on
extinguishment of debt of $0.4 million. As of December 31, 2016, $475.0 million was outstanding on the term
loan, bearing interest at 2.11%, and $25.0 million was outstanding on the revolving line of credit, bearing
interest at 2.11%.
In May 2015, the Company entered into the 2015 Credit Agreement and used the proceeds to repay all of its
outstanding obligations under the 2014 Credit Agreement and to pay transaction costs associated with the
2017 Credit Agreement. As a result, the Company recognized a $9.4 million loss on extinguishment of debt
related to the 2014 Credit Agreement, which was comprised of $5.1 million of unamortized discount and $4.3
million of unamortized debt issuance costs. In addition, in June 2015 the Company made a prepayment
of $50.0 million under the 2015 Credit Agreement and as a result recognized an additional loss on
extinguishment of debt of $0.4 million. As of December 31, 2015, $475.0 million was outstanding on the Term
Loan, bearing interest at 2.16%, and $30.0 million was outstanding on the revolving line of credit, bearing
interest at 4.25%.
Debt Issuance Costs and Debt Discount
The Company recorded debt issuance costs related to its term loans of approximately $20.7 million and $2.3
million as of December 31, 2017 and 2016, respectively. These costs were recorded as a reduction of the
principal balance of the associated debt and are being amortized as a component of interest expense using
the effective interest method over the term of the term loans.
The Company recorded total debt issuance costs related to its revolving lines of credit of approximately $5.2
million and $1.0 million as of December 31, 2017 and 2016, respectively. Debt issuance costs associated with
the revolving line of credit are included in other assets in the consolidated balance sheets. The debt issuance
costs are amortized as a component of interest expense using the effective interest method over the term of
the Revolver.
Borrowings under the 2017 Credit Agreement were issued net of a discount. As of December 31, 2017, the
balance associated with this discount was $1.9 million, which is being accreted as a component of interest
expense using the effective interest rate method over the term of the 2017 Credit Agreement.
122
5. Leases
Operating Leases
The Company leases its office facilities, office equipment, and other assets under non-cancellable operating
lease agreements. Operating leases are expensed on a straight-line basis over the term of the lease and may
include certain renewal options and escalation clauses.
The Company has a lease agreement for its corporate headquarters in Raleigh, North Carolina, that extends
through February of 2019. In January 2017, the Company entered into a 12-year lease for a new corporate
headquarters building in Morrisville, North Carolina, where it intends to relocate all employees from its two
existing locations in Raleigh, North Carolina. In June 2017, this lease was amended to add office space and
to extend the term of the lease to 13 years. The Company expects the construction of the new building to be
completed in late-2018 and anticipates completing its relocation efforts prior to the current leases expiring in
early 2019.
In February 2017, the Company entered into an 11-year lease agreement for new office space in
Farnborough, United Kingdom, which is near its existing Camberley site. In January 2018, the Company
replaced its lease agreement for the Farnborough location with a new 10-year lease agreement. The new
agreement provides for additional office space to accommodate the Company's operating plans following the
Merger. Rent payments associated with the new lease agreements are scheduled to commence in May 2019.
The new lease agreement increases the Company's future lease obligations for this location by approximately
$11.8 million. This amount has not been included in the future minimum lease payments table presented in
"Future Minimum Lease Payments" section below. The Company anticipates completing its relocation efforts
to the Farnborough location prior to its Camberley lease expiring in 2018.
Rent expense under the operating lease agreements was $40.9 million, $20.7 million, and $18.3 million for
the years ended December 31, 2017, 2016, and 2015, respectively.
In connection with the Merger, the Company has established a restructuring plan to consolidate its facilities
worldwide. For additional information related to the restructuring activities associated with the Merger, see
"Note 8 - Restructuring and Other Costs."
Capital Leases
The Company leases vehicles for certain sales representatives in its Commercial Solutions segment. These
lease arrangements are classified and accounted for as capital leases. Certain vendors have the right to
declare the Company in default of its agreements if any such vendor, including the lessors under its vehicle
leases, determines that a change in the Company’s financial condition poses a substantially increased credit
risk.
As of December 31, 2017, the Company had total capital lease obligations related to vehicles under capital
leases of $36.8 million. The Company had no lease arrangements classified as capital leases and thus no
capital lease obligations as of December 31, 2016.
123
Future Minimum Lease Payments
As of December 31, 2017, future minimum rental payments under the Company’s non-cancellable operating
leases with terms in excess of one year, and maturities of the future minimum lease payments under capital
lease obligations are summarized as follows (in thousands):
Fiscal Year
2018
2019
2020
2021
2022
2023 and thereafter
Total future minimum lease payments (a) (b)
Less: amounts representing interest and fees (b)
Present value of capital lease obligations (c)
Less: current portion
Operating Leases
Capital Leases
$
$
60,671
$
52,485
44,871
39,710
32,463
112,112
342,312
17,526
13,293
6,042
1,900
—
—
38,761
(1,971)
36,790
(16,414)
20,376
Capital lease obligations, non-current portion
$
(a) Amounts related to leases that are included within our restructuring accrual as of December 31, 2017 have not been
included in the table above. For additional information related to the facility restructuring activities, see "Note 8 -
Restructuring and Other Costs."
(b) Future capital lease commitments include interest and management fees, which are not recorded on the consolidated
balance sheet as of December 31, 2017 and will be expensed as incurred.
(c) Capital lease obligations have a weighted average imputed interest rate of approximately 3.4% and mature in various
installments through December, 2022.
6. Derivatives
In May 2016, the Company entered into interest rate swaps with a combined notional value of $300.0 million in
an effort to limit its exposure to variable interest rates on its Term Loan. Interest began accruing on the swaps
on June 30, 2016 and the interest rate swaps will expire on June 30, 2018 and May 14, 2020. The material terms
of these derivatives are substantially the same as those contained within the 2017 Credit Agreement, including
monthly settlements with the swap counterparty.
The fair values of the Company’s interest rate swaps designated as hedging instruments and the line items on
the accompanying consolidated balance sheets to which they were recorded are as follows (in thousands):
Balance Sheet Classification
December 31, 2017
December 31, 2016
Interest rate swaps - current
Prepaid expenses and other
current assets
Interest rate swaps - non-current
Other long-term assets
$
$
916
1,263
$
$
461
1,717
The amounts of hedge ineffectiveness recorded in net income during the years ended December 31, 2017
and December 31, 2016 were immaterial and were attributable to the inconsistencies in certain terms
between the interest rate swaps and the 2017 Credit Agreement.
124
7. Fair Value Measurements
Assets and Liabilities Carried at Fair Value
As of December 31, 2017 and 2016, the Company’s financial assets and liabilities carried at fair value
included cash and cash equivalents, restricted cash, trading securities, billed and unbilled accounts
receivable, accounts payable, accrued liabilities, and interest rate derivative instruments. As of December 31,
2017, the assumed contingent tax-sharing obligations and capital leases were also included in the Company’s
financial assets and liabilities carried at fair value.
The fair value of cash and cash equivalents, restricted cash, billed and unbilled accounts receivable, accounts
payable, and accrued liabilities approximates their respective carrying amounts because of the liquidity and
short-term nature of these financial instruments.
Financial Instruments Subject to Recurring Fair Value Measurements
As of December 31, 2017, the fair values of the major classes of the Company’s assets and liabilities
measured at fair value on a recurring basis were as follows (in thousands):
Assets:
Trading securities (a)
Derivative instruments (b)
Total assets
Liabilities:
Level 1
Level 2
Level 3
Total
$
$
16,318
$
—
16,318
$
— $
2,179
2,179
$
— $
—
— $
16,318
2,179
18,497
Contingent tax-sharing obligation assumed
through business combinations (c)
Total liabilities
$
$
— $
— $
— $
— $
50,480
50,480
$
$
50,480
50,480
(a) Represents fair value of investments in mutual funds based on quoted market prices which are used to offset the
liability associated with the deferred compensation plan (see "Note 13 - Employee Benefit Plans" for further information).
(b) Represents fair value of interest rate swap arrangements.
(c) Represents fair value of contingent tax-sharing obligations assumed as a result of the Merger (see "Note 3 - Business
Combinations" for further information). The fair value of this liability is determined based on the Company’s
best estimate of the probable timing and amount of settlement.
As of December 31, 2016, the fair value of the interest rate swaps was as follows (in thousands):
Assets:
Derivative instruments
$
— $
2,178
$
— $
2,178
Level 1
Level 2
Level 3
Total
125
The following table presents a reconciliation of changes in the carrying amount of contingent tax-sharing
obligations classified as Level 3 category of fair value measurements for the year ended December 31, 2017
(in thousands):
Balance at December 31, 2016
Additions (a)
Changes in fair value recognized in earnings (b)
Payments
Balance at December 31, 2017
$
$
—
62,756
(12,276)
—
50,480
(a) Represents the fair value of the contingent tax-sharing obligations in connection with the Merger described in "Note 3 -
Business Combinations."
(b) The change in fair value of the contingent tax-sharing arrangement is primarily due to the Tax Act and the resulting US
corporate tax rate change from 35% to 21%.
During the years ended December 31, 2017 and 2016, there were no transfers of assets or liabilities between
Level 1, Level 2 or Level 3 fair value measurements.
Financial Instruments Subject to Non-Recurring Fair Value Measurements
Certain assets, including goodwill and identifiable intangible assets, are carried on the accompanying audited
consolidated balance sheets at cost and are not remeasured to fair value on a recurring basis. These assets
are classified as Level 3 fair value measurements within the fair value hierarchy. Goodwill and indefinite-lived
intangible assets are tested for impairment annually or more frequently if events or changes in circumstances
indicate a triggering event has occurred. The Company tests finite-lived intangible assets for impairment upon
the occurrence of certain triggering events. During 2017, the Company recognized approximately $30.0
million of impairment related to intangible assets, as discussed in "Note 2 - Financial Statement Details." As of
December 31, 2017 and December 31, 2016, assets carried on the balance sheet and not remeasured to fair
value on a recurring basis totaled $5,578.6 million and $667.0 million, respectively.
Fair Value Disclosures for Financial Instruments Not Carried at Fair Value
The Company’s financial instruments not recorded at fair value that are subject to fair value disclosure
requirements include long-term borrowings. The estimated fair value of the outstanding term loans and Senior
Unsecured Notes is determined based on the market prices for similar financial instruments or model-derived
valuations based on observable inputs. These liabilities were considered to be Level 2 fair value
measurements. The estimated fair values of the Company’s outstanding term loans, Revolver, and Senior
Unsecured Notes were as follows (in thousands):
December 31, 2017
December 31, 2016
Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
Term Loan A due August 2021
$
Revolving credit facility due August 2021
— $
—
— $
—
475,000
$
475,000
25,000
25,000
Term Loan A due August 2022
1,000,000
1,000,000
Term Loan B due August 2024 (net of original issue
debt discount)
7.5% Senior Unsecured Notes due 2024 (inclusive of
unamortized premium)
1,548,149
1,550,000
443,507
433,729
—
—
—
—
—
—
126
8. Restructuring and Other Costs
Merger Related Restructuring
In connection with the Merger, the Company has established a restructuring plan to eliminate redundant
positions and reduce its facility footprint worldwide. The Company expects to continue the ongoing
evaluations of its workforce and facilities infrastructure needs through 2020 in an effort to optimize its
resources worldwide. Additionally, in conjunction with the Merger, the Company assumed certain liabilities
related to employee severance and facility closure costs as a result of actions taken by inVentiv prior to the
Merger. During the year ended December 31, 2017, the Company recognized approximately $11.3 million of
employee severance and benefit costs, facility closure and lease termination costs of $2.2 million, and other
costs of $2.0 million related to the Merger. The Company expects to incur significant costs related to the
restructuring of its operations in order to achieve the targeted synergies as a result of the Merger over the
next several years. However, the timing and the estimate of the amount of these costs depends on various
factors, including, but not limited to, identifying and realizing synergy opportunities and executing the
integration of our combined operations.
2017 Restructuring
In addition to costs incurred as a result of the Merger, during the year ended December 31, 2017, the
Company recognized approximately $9.4 million of employee severance costs, including CEO transition
costs, and incurred $1.3 million of facility closure and lease termination costs related to the Company’s non-
Merger related restructuring activities. Included in restructuring and other costs during the year ended
December 31, 2017 are $5.0 million of consulting costs related to the restructuring of its contract
management process to meet the requirements of upcoming accounting regulation changes and $2.1 million
of other costs.
2016 Realignment Plan and CEO Transition
In March 2016, management approved a global plan to eliminate certain positions worldwide in an effort to
ensure that the Company's organizational focus and resources were properly aligned with its strategic goals
and to continue strengthening the delivery of its growing backlog to customers. Accordingly, the Company
made changes to its therapeutic unit structure designed to realign with management focus and optimize the
efficiency of its resourcing to achieve its strategic plan. As a result, the Company eliminated
approximately 200 positions and incurred $7.0 million related to employee severance costs during the year
ended December 31, 2016. All actions under this plan were completed by December 31, 2017.
During the third quarter of 2016, the Company also announced the closure of one of its facilities associated
with this restructuring and incurred facility closure costs of $1.5 million, which were partially offset by
unamortized deferred rent of $0.5 million during the year ended December 31, 2016.
In July 2016, the Company entered into a transition agreement with its former Chief Executive Officer ("CEO")
related to the transition to a new CEO as of October 1, 2016. The CEO transition agreement is effective
through February 28, 2017. In addition, in mid-September 2016, the Company entered into retention
agreements with certain key employees for various dates through September 2017. For the year
ended December 31, 2016, the Company recognized $4.8 million of costs associated with the CEO transition
and retention agreements, which will be paid through August 2018.
2015 Realignment Plan
During the second and fourth quarters of 2015, the Company initiated restructuring activities to better align its
resources worldwide. Specifically, the Company initiated a plan to reduce its workforce by approximately 70
employees, primarily in the United States and certain countries in Europe primarily within clinical operations,
principally within the Clinical Development Services operations group and several corporate administrative
functions. The Company completed the majority of these actions by December 31, 2015. Under this plan, the
Company incurred $2.7 million of severance costs related to these activities during 2015.
127
For the year ended December 31, 2015, the Company recorded a net reduction in facility closure expenses of
$0.9 million. During the year, the Company reversed previously accrued liabilities as a result of completing
negotiations with respect to exiting certain facilities and reduced its exit cost estimates related to certain lease
agreements as a result of subleasing a portion of facilities previously exited along with the return of a tenant
improvement allowance. These adjustments were partially offset by expenses related to early lease
termination fees and accruals for closure of smaller locations as the Company continues to optimize its
facilities portfolio.
Accrued Restructuring Liabilities
The following table summarizes activity related to the liabilities associated with restructuring and other costs
during the years ended December 31, 2017, 2016 and 2015 (in thousands):
Employee Severance
Costs, Including
Executive Transition
Costs
Facility
Closure
Charges
Other
Charges
Total
Balance at December 31, 2014
$
— $
6,144
$
— $
Expenses incurred
Payments made
Balance at December 31, 2015
Expenses incurred
Reclassification of deferred rent
Payments made
Balance at December 31, 2016
Restructuring liabilities assumed
through business combinations
Expenses incurred(a)
Payments made
2,666
(1,601)
1,065
11,765
—
(8,135)
4,695
3,362
16,878
(16,077)
(881)
(1,602)
3,661
987
507
(1,338)
3,817
7,449
1,749
(5,604)
—
—
—
860
—
(780)
80
—
5,801
(5,357)
Balance at December 31, 2017
$
8,858
$
7,411
$
524
$
6,144
1,785
(3,203)
4,726
13,612
507
(10,253)
8,592
10,811
24,428
(27,038)
16,793
(a) Total restructuring and other costs for the year ended December 31, 2017 include $8.9 million of other non-cash
expenses that were not recorded as a restructuring liability and are therefore excluded from the roll-forward above.
The Company expects the employee severance costs accrued as of December 31, 2017 will be paid within
the next twelve months. Certain facility costs will be paid over the remaining lease terms of the exited facilities
which range from 2018 through 2027. Liabilities associated with these costs are included in the “Accrued
liabilities” and “Other long-term liabilities” line items in the accompanying audited consolidated balance
sheets. Costs recognized in net income during the period related to these activities are included in the
“Restructuring and other costs” line item in the consolidated statements of operations. These costs are not
allocated to the Company’s reportable segments because they are not part of the segment performance
measures regularly reviewed by management.
9. Shareholders' Equity
Merger
On August 1, 2017, the Company completed its Merger with inVentiv. In accordance with the terms of the
Merger Agreement, the Company issued 49,297,022 fully diluted shares of the Company’s common stock
with a par value of $0.01 per share in exchange for all outstanding inVentiv shares of common stock.
128
Stock Repurchases and Secondary Offerings
In May 2016, the Company's former sponsors sold 8,000,000 shares of the Company's Class A common
stock in a registered secondary common stock offering.
In July 2016, the Company announced a stock repurchase program for shares of the Company’s common
stock pursuant to which the Company was authorized to repurchase up to $150.0 million of its outstanding
common stock in the open market, in block trades, or in privately negotiated transactions. The program
commenced on August 1, 2016 and was scheduled to end no later than December 31, 2017. Through this
program, in August 2016, the Company repurchased 4,500,000 shares of its common stock in a private
transaction for a total purchase price of approximately $64.5 million. The Company immediately retired all of
the repurchased common stock and charged the par value of the shares to common stock. The excess of the
repurchase price over par was applied on a pro rata basis against additional paid-in-capital, with the
remainder applied to accumulated deficit. On July 23, 2017, the Company terminated the repurchase
program.
The following is a summary of the Company's authorized, issued and outstanding shares:
Shares Authorized:
Class A common stock
Class B common stock
Preferred stock
Total shares authorized
Shares Issued and Outstanding:
Class A common stock
Class B common stock
Preferred stock
December 31, 2017
December 31, 2016
300,000,000
300,000,000
30,000,000
630,000,000
300,000,000
300,000,000
30,000,000
630,000,000
104,435,501
53,762,786
—
—
—
—
Total shares issued and outstanding
104,435,501
53,762,786
Voting Rights and Conversion Rights of the Common Stock
Each share of Class A common stock is entitled to one vote on all matters to be voted on by the shareholders
of the Company, including the election of directors. Each share of Class B common stock is entitled to one
vote on all matters to be voted on by the shareholders of the Company, except for the right to vote in the
election of directors. Additionally, each share of Class B common stock is convertible (on a one-for-one basis)
into Class A common stock at any time at the election of the holder.
Dividend Rights and Preferences of the Common Stock
The holders of Class A and Class B common stock are entitled to dividends on a pro rata basis at such time
and in such amounts as, if and when declared by Board of Directors (the “Board”). There were no dividends
paid during the years ended December 31, 2017, 2016, or 2015.
Liquidation Rights and Preferences of the Common Stock
The holders of Class A and Class B common stock are entitled to participate on a pro rata basis in all
distributions made in connection with a voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Company.
2018 Stock Repurchase Program
On February 26, 2018, the Board authorized the repurchase of up to an aggregate of $250.0 million of the
Company’s common stock, par value $0.01 per share, from time to time in open market transactions effected
through a broker at prevailing market prices, in block trades, or privately negotiated transactions. The stock
129
repurchase program will commence on March 1, 2018 and end no later than December 31, 2019. The
Company intends to use cash on hand and future free cash flow to fund the stock repurchase program. The
stock repurchase program does not obligate the Company to repurchase any particular amount of the
Company’s common stock, and may be modified, extended, suspended or discontinued at any time. The
timing and amount of repurchases will be determined by the Company’s management based on a variety of
factors such as the market price of the Company’s common stock, the Company’s corporate requirements,
and overall market conditions. The stock repurchase program will be subject to applicable legal requirements,
including federal and state securities laws. The Company may also repurchase shares of its common stock
pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of
1934, as amended, which would permit shares of the Company’s common stock to be repurchased when the
Company might otherwise be precluded from doing so by law.
10. Share-Based Compensation
Overview of Employee Share-Based Compensation Plans
The Company currently has two equity-based compensation plans, the INC Research Holdings, Inc. 2014
Equity Incentive Plan ("2014 Plan") and the INC Research Holdings, Inc. 2016 Employee Stock Purchase
Plan ("ESPP"), from which share-based awards are currently granted. In addition, the Company had the INC
Research Holdings, Inc. 2010 Equity Incentive Plan ("2010 Plan") that was terminated effective October 30,
2014, except as to outstanding awards. No further awards can be issued under the 2010 Plan. The 2014 Plan
was established on November 3, 2014 and permits granting of stock options, stock appreciation rights,
restricted stock awards, restricted stock units ("RSUs"), cash performance awards or stock awards to
employees, as well as non-employee directors and consultants. The terms of equity-based instruments
granted are determined at the time of grant and are typically subject to such conditions as continued
employment, passage of time and/or satisfaction of performance criteria. Stock options and RSUs typically
vest ratably over three-year to four-year periods from the grant date. The Board and the Compensation
Committee have the discretion to determine different vesting schedules. Stock options have a maximum term
of ten years. The exercise price per share of stock options may not be less than the fair market value of a
share of the Company's common stock on the date of grant. Upon the exercise of stock options or vesting of
RSUs, the Company issues new shares of common stock.
On August 1, 2017, the Company filed a Form S-8 Registration Statement for the Double Eagle Parent, Inc.
2016 Omnibus Equity Incentive Plan ("Double Eagle Plan"). The number of shares registered in that filing was
1,500,000. Under this plan, the Company issued replacement awards consisting of options and RSUs. No
further awards can be issued under the Double Eagle Plan.
As of December 31, 2017, the Company had equity grants outstanding under the 2010 Plan, 2014 Plan, and
the Double Eagle Plan. The maximum number of shares reserved for issuance under the Plans was
8,437,325, of which 2,455,372 shares were available for future grants as of December 31, 2017. In addition,
under the 2014 Plan outstanding stock award or stock option grants forfeited prior to vesting or exercise
become available for future grants.
Employee Stock Purchase Plan
In March 2016, the Board approved the ESPP, which was also approved by the Company’s shareholders in
May 2016. The ESPP allows eligible employees to authorize payroll deductions of up to 10% of their annual
base salary or wages to be applied toward the purchase of full shares of the Company’s common stock on the
last trading day of the offering period. Participating employees can purchase shares of the Company's
common stock at a 15% discount to the lesser of the closing price of the Company's common stock as quoted
on the NASDAQ Stock Exchange on (i) the first trading day of the offering period or (ii) the last trading day of
the offering period. Offering periods under the ESPP are six months in duration, and the first offering period
began on September 1, 2016. Under this plan, the Company recognized share-based compensation expense
of $1.7 million and $0.5 million for the years ended December 31, 2017 and 2016, respectively. As of
December 31, 2017, there were 125,974 shares issued and 874,026 shares reserved for future issuance
under the ESPP.
130
Share-Based Awards Exchanged in Business Combination
As a result of the Merger, the Company assumed the equity incentive plans formerly related to inVentiv. In
connection with the Merger, the vesting conditions of certain outstanding time- and performance-based stock
option awards and RSUs of inVentiv were modified at the discretion of its board of directors. These
modifications were treated as modifications of share-based awards and accounted for according to the
provisions of ASC Topic 718, Compensation - Stock Compensation. As provided by the merger agreement,
each vested option to purchase shares of inVentiv common stock outstanding immediately prior to the
effective date of the Merger was automatically converted into a vested option to acquire shares of the
Company’s common stock, on substantially the same terms and conditions, adjusted by the 3.4928 exchange
ratio; and each restricted stock unit of inVentiv outstanding immediately prior to the effective date of the
Merger was automatically converted into shares of the Company’s common stock at an exchange ratio of
3.4928. The fair value of these awards was allocated to the purchase consideration in the amount of $16.2
million and post-combination expense in the amount of $27.1 million, based on the portion of the vesting
period completed prior to the date of the Merger. The assumed awards related to the Merger have been
identified as applicable in the tables that follow.
Similarly, at the discretion of the Company’s board of directors, upon the Merger certain share-based awards
of the Company outstanding immediately prior to the effective date of the Merger vested, and certain
performance-based restricted stock units were converted into time-based restricted stock units at 100% of the
target. The outstanding awards of approximately 50 employees were impacted. The aggregate incremental
fair value of these awards was approximately $2.7 million, of which approximately $1.5 million was recognized
during the year ended December 31, 2017. The remainder of the incremental fair value will be recognized
over the remaining requisite service period of approximately 2.0 years.
Stock Option Awards
The following table sets forth the summary of option activity under our Plans for the year ended December 31,
2017:
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual Life
(in years)
Aggregate
Intrinsic Value
(in thousands)(b)
Number of
Options
Outstanding at December 31, 2016
2,170,235
$
Assumed through business combinations(a)
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2017
Vested and expected to vest at December 31,
2017
Exercisable at December 31, 2017
1,336,406
64,899
(991,894)
(55,484)
(6,657)
2,517,505
2,517,505
2,149,974
$
$
$
22.15
28.63
56.32
16.50
31.77
35.90
28.45
28.45
26.01
7.41
7.41
7.31
$
$
$
38,993
38,993
38,660
(a) Represents fully vested stock options issued as replacement awards in connection with the Merger.
(b) Represents the total pre-tax intrinsic value (i.e., the aggregate difference between the closing price of the Company’s
common stock on December 31, 2017 of $43.60 and the exercise price for in-the-money options) that would have been
received by the holders if all instruments had been exercised on December 31, 2017.
As of December 31, 2017, there was $3.8 million of unrecognized compensation expense related to non-
vested stock options, which is expected to be recognized over a weighted average period of 2.0 years.
131
Other information pertaining to the Company's stock option awards is as follows (in thousands, except per
share data):
Weighted average grant date fair value of options granted
Total intrinsic value of options exercised
Years Ended December 31,
2017
2016
2015
$
$
13.88
37,928
$
$
14.26
45,126
$
$
13.80
27,560
Fair Value Assumptions
The fair value of stock option awards and ESPP offerings was determined using the Black-Scholes valuation
model and the following assumptions:
Expected volatility:
Stock options
ESPP
Risk-free interest rate:
Stock options
ESPP
Expected term (in years):
Stock options
ESPP
Dividend yield:
Stock options
ESPP
Restricted Stock Units Awards
Years Ended December 31,
2017
2016
2015
24.5% - 24.6%
29.4% - 30.9%
30.5% - 32.8%
36.0% - 46.5%
31.4%
—
1.80%
1.17% - 1.88%
1.38% - 1.88%
0.79% - 1.08%
0.47%
4.75 - 5.0
0.5
—%
—%
6.25
0.5
—%
—%
—
6
—
—%
—%
The following table sets forth a summary of RSUs outstanding under the 2014 Plan as of December 31, 2017
and changes during the year then ended:
Non-vested at December 31, 2016
Assumed through business combinations(a)
Granted
Vested
Forfeited
Non-vested at December 31, 2017
Number of
Shares
Weighted Average
Grant Date Fair Value
708,695
$
35,752
628,794
(422,353)
(43,308)
907,580
$
42.76
55.85
52.62
45.19
47.84
49.30
(a) Represents fully vested RSUs issued as replacement awards and immediately converted into shares of the Company’s
common stock in connection with the Merger with inVentiv.
At December 31, 2017, there was $30.5 million of unrecognized compensation expense related to unvested
RSUs, which is expected to be recognized over a weighted average period of 2.2 years.
Merger-Related Performance-Based Awards
In August 2017, the Board of Directors and Compensation Committee granted certain executive officers a
total of 127,917 performance-based RSUs (“PRSUs”). These performance-based awards are subject to the
132
Company achieving a certain level of annual net income growth over the vesting period by reducing operating
costs through execution of the cost saving initiatives. These PRSUs will vest on January 1, 2021 provided the
performance criteria are met and will settle no later than March 15, 2021. These awards are included in the
table above. Compensation expense related to PRSUs is recorded based on the estimated quantity of awards
that are expected to vest. At each reporting period, management re-assesses the probability that the
performance conditions will be achieved and adjusts compensation expense to reflect any changes in the
estimated probability of vesting until the actual level of achievement of the performance targets is known.
Share-Based Compensation Expense
Total share-based compensation expense recognized was as follows (in thousands):
Direct costs
Selling, general, and administrative expenses
Restructuring and other costs
Transaction and integration-related expenses
Total share-based compensation expense
Years Ended December 31,
2017
2016
2015
$
10,537
$
6,551
$
14,041
3,791
31,327
7,469
—
—
2,282
2,792
—
—
$
59,696
$
14,020
$
5,074
The total income tax benefit recognized in the consolidated statements of operations for share-based
compensation arrangements was approximately $1.6 million, $4.7 million, and $1.6 million for the years
ended December 31, 2017, 2016 and 2015, respectively.
11. Earnings Per Share
The following table provides a reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations for the years ended December 31, 2017, 2016 and 2015 (in thousands,
except per share data):
Numerator:
Net (loss) income
Denominator:
Years Ended December 31,
2017
2016
2015
$
(138,469) $
112,630
$
117,047
Basic weighted average common shares outstanding
74,913
54,031
57,888
Effect of dilutive securities:
Stock options and other awards under deferred share-based
compensation programs
Diluted weighted average common shares outstanding
(Loss) earnings per share:
Basic
Diluted
—
74,913
1,579
55,610
2,258
60,146
$
$
(1.85) $
(1.85) $
2.08
2.03
$
$
2.02
1.95
Potential common shares outstanding that are considered anti-dilutive are excluded from the computation of
diluted earnings per share. Potential common shares related to stock options and other awards under
deferred share-based compensation programs may be determined to be anti-dilutive based on the application
of the treasury stock method. Potential common shares are also considered anti-dilutive in the event of net
loss from operations.
133
The number of potential shares outstanding that were considered anti-dilutive using the treasury stock
method and therefore excluded from the computation of diluted earnings per share, weighted for the portion of
the period they were outstanding are as follows (in thousands):
Anti-dilutive stock options and other awards
Anti-dilutive stock options and other awards under deferred share-based
compensation programs excluded based on reporting of net loss for the
period
Total common stock equivalents excluded from diluted earnings per share
computation
531
1,255
1,786
788
—
788
268
—
268
Years Ended December 31,
2017
2016
2015
12. Income Taxes
The components of income (loss) before provision for income taxes were as follows (in thousands):
Domestic
Foreign
(Loss) income before provision for income taxes
Years Ended December 31,
2017
2016
2015
$
$
(204,352) $
53,613
$
92,475
80,505
61,392
69,582
(111,877) $
134,118
$
130,974
The components of income tax (expense) benefit were as follows (in thousands):
Federal income taxes:
Current
Deferred
Foreign income taxes:
Current
Deferred
State income taxes:
Current
Deferred
Years Ended December 31,
2017
2016
2015
$
6,299
$
(30,247) $
(18,731)
16,936
(18,030)
312
(430)
3,988
(10,347)
5,178
(3,154)
146
(3,563)
(3,600)
(5,805)
(4,314)
(425)
3,780
Income tax benefit (expense)
$
(26,592) $
(21,488) $
(13,927)
Tax Cuts and Jobs Act of 2017
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as
the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax
code, including, but not limited to: (i) reducing the U.S. federal corporate tax rate from 35% to 21%; (ii)
requiring companies to pay a one-time transition tax on certain undistributed earnings of foreign subsidiaries;
(iii) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (iv) introducing a
new provision designed to tax global intangible low-taxed income ("GILTI"); (v) eliminating the corporate
alternative minimum tax ("AMT") and changing how existing AMT credits can be realized; (vi) creating the
base erosion anti-abuse tax ("BEAT"), a new minimum tax; (vii) creating a new limitation on deductible
interest expense; (viii) introducing limitations on the deductibility of certain executive compensation; and (ix)
changing rules related to uses and limitations of net operating loss carryforwards created in tax years
beginning after December 31, 2017.
134
U.S. GAAP requires companies to recognize the effect of tax law changes in the period of enactment. As a
result, for the year ended December 31, 2017, the Company recognized income tax expense of $94.4 million
comprised of (i) income tax expense of $37.5 million due to the re-measurement of net deferred tax assets;
(ii) income tax expense of $63.1 million related to the accrual of the transition tax; (iii) net income tax benefit
of $58.7 million from the reversal of previously accrued income taxes on the expected repatriation of foreign
earnings (comprised of a $112.1 million reversal, net of $53.4 million accrual); and (iv) income tax expense of
$52.6 million for the increase in the valuation allowance on the Company's net deferred tax assets. The
accrual of the transition tax and the remeasurement of the net deferred tax assets are provisional and may be
adjusted in future periods during 2018 when additional information is obtained. Additional information that may
affect these provisional amounts would include, among others: (i) further clarification and guidance regarding
how the IRS will implement the Tax Act, (ii) further clarifications and guidance regarding how state tax
authorities will implement the Tax Act and the related effect on the Company's state income tax returns, and
(iii) potential additional clarifications and guidance from the U.S. Securities and Exchange Commission or the
FASB.
In December 2017, the SEC staff issued Staff Accounting Bulletin 118 ("SAB 118"), which provides guidance
on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not
extend beyond one year from the Tax Act enactment date for companies to complete the accounting under
ASC Topic 740 - Income Taxes ("ASC 740"). In accordance with SAB 118, a company must reflect the income
tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent
that a company’s accounting for certain income tax effects of the Tax Act is incomplete but the Company is
able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a
company cannot determine a provisional estimate to be included in the financial statements, it should
continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before
the enactment of the Tax Act.
Reduction of U.S. Federal Corporate Income Tax Rate
The Tax Act lowered the federal corporate tax rate from 35% to 21%, effective January 1, 2018. As a result,
for the year ended December 31, 2017, the Company recorded a decrease in related net deferred tax assets,
with a corresponding increase in deferred income tax expense, of $37.5 million.
Deemed Repatriation Transition Tax
The Deemed Repatriation Transition Tax ("Transition Tax") is a tax on previously untaxed accumulated and
current earnings and profits of certain foreign subsidiaries. The Company has not yet completed its
accounting for the effects of the Transition Tax. However, the Company has made a reasonable estimate, and
in the three months and year ended December 31, 2017, recognized provisional income tax expense of $63.1
million. The Company computed this amount based on currently available information; however, there is still
uncertainty as to the application of the Tax Act, in particular as it relates to state income taxes. Furthermore,
the Company has not yet completed its analysis of the components of the computation, including the amount
of the foreign earnings subject to the U.S. income tax, and the portion of foreign earnings held in cash or
other specified assets. As a result of the accrual of the Transition Tax, the Company reversed deferred tax
liabilities previously accrued on foreign earnings and recognized a net tax benefit of $58.7 million in the fourth
quarter of 2017.
Global Intangible Low Taxed Income
The Tax Act created a new requirement related to global intangible low taxed income ("GILTI"). In particular,
GILTI earned by controlled foreign corporations ("CFCs") must be included currently in the gross income of
the CFC’s U.S. parent. GILTI is computed as the excess of the U.S. parent’s “net CFC tested income” over
the net deemed intangible income return, which is currently defined as the excess of (i) 10% of the aggregate
of the U.S. parent’s pro rata share of the qualified business asset investment of each CFC with respect to
which it is a U.S. parent over, and (ii) the amount of certain interest expense taken into account in the
determination of net CFC-tested income.
135
The Company's expectation for future U.S. taxable income inclusions of GILTI depends on (i) its current
structure, (ii) estimated future results of its global operations, and (iii) its ability to modify its structure and/or
business. The Company has not yet recorded any adjustments to its financial results relating to the potential
impacts of the GILTI tax and has elected to record future GILTI impacts in the period in which the costs are
incurred.
Actual income tax (expense) benefit differed from the amount computed by applying the U.S. federal tax rate
of 35% to pre-tax income (loss) as a result of the following (in thousands):
Expected income tax (expense) benefit at statutory rate
$
39,157
$
(46,941) $
(45,844)
Years Ended December 31,
2017
2016
2015
Increase (decrease) in income tax benefit (expense) resulting from:
Foreign income inclusion
Foreign earnings reinvestment assertion reversal (a)
Foreign earnings reinvestment assertion accrual (a)
Changes in income tax valuation allowance (a)
Change in fair value of contingent tax-sharing obligation
Share-based compensation
Research and general business tax credits
State and local taxes, net of federal benefit
Capitalized transaction costs
Foreign rate differential
Changes in reserve for uncertain tax positions
Provision to tax return and other deferred tax adjustments
Goodwill impairment
Federal rate change (a)
Transition tax (a)
Other, net
(780)
(8,868)
(7,056)
112,087
(53,421)
(52,563)
4,344
8,901
5,718
1,330
(6,486)
16,778
947
(536)
—
(37,468)
(63,050)
(1,550)
—
—
3,419
—
12,940
4,063
(745)
—
12,200
3,136
(1,524)
—
—
—
832
—
—
31,929
—
—
1,879
(4,184)
—
11,490
4,375
(5,322)
(1,023)
—
—
(171)
Income tax benefit (expense)
$
(26,592) $
(21,488) $
(13,927)
(a) As a result of enactment of the Tax Act, during the fourth quarter of 2017 the Company recorded direct and indirect
charges to income tax expense of $94.4 million which is comprised of the following line items noted in the table above: (i)
foreign earnings reinvestment assertion reversal; (ii) foreign earnings reinvestment assertion accrual; (iii) change in
income tax valuation allowance; (iv) federal rate change; and (v) transition tax.
Acquired Deferred Income Tax Assets and Liabilities
As a result of the Merger, the Company assumed a net deferred tax liability of approximately $11.4 million
which consisted primarily of (i) a deferred tax liability of approximately $455.3 million related to temporary
differences associated with amortization of intangible assets, (ii) a deferred tax liability of approximately $53.7
million related to unremitted foreign earnings, (iii) a deferred tax asset of approximately $444.0 million related
to net operating loss (“NOL”) carryforwards, and (iv) a deferred tax asset of $50.6 million for deferred
financing costs. The NOL carryforwards acquired in the Merger consisted of (i) $1.1 billion of U.S. federal NOL
carryforwards, (ii) $1.0 billion of domestic state and local NOL carryforwards, and (iii) $66.8 million of foreign
NOL carryforwards.
A portion of the NOL carryforwards acquired from inVentiv was generated prior to their acquisition by the
Company and therefore is subject to ownership change provisions under Section 382 of the Internal Revenue
Code (“Section 382”). Section 382 requires a corporation to limit the amount of its future periods taxable
income that can be offset by historic NOL carryforwards and tax credit carryforwards in the event of an
“ownership change”, as defined in Section 382. As a result of the Tax Act, the Company recorded a valuation
allowance in 2017 due to uncertainties related to the Company’s ability to utilize some of the U.S. deferred tax
assets associated with the NOL carryforwards discussed above. The valuation allowance is based on the
136
Company’s estimate of taxable income in the U.S. and various state jurisdictions and the period over which
the deferred income tax assets will be recoverable. Should the Company generate sufficient taxable income
in future periods, the Company does not expect that the Section 382 limitations will significantly impact the
Company’s ability to utilize its federal NOL carryforwards within the applicable expiration periods.
Furthermore, the Company has assumed a contingent tax-sharing obligation related to certain pre-Merger
transaction tax deductions. As the transaction tax deductions are realized through the utilization of certain
acquired NOLs, the Company is obligated to make payments to the former stockholders of inVentiv. The
amount of acquired NOLs subject to this contingent tax-sharing obligation is estimated to be approximately
$187.8 million.
As a result of the Merger and associated debt financing, the Company re-evaluated and changed its assertion
related to whether the Company would repatriate the majority of its undistributed foreign earnings. As a result
of concluding that earnings of certain foreign subsidiaries would be repatriated, the Company recorded a
corresponding deferred tax liability of $53.4 million. Furthermore, due to the accrual of the Transition Tax
required by the Tax Act, the Company reversed the full balance of the deferred tax liability (including the
deferred tax liability acquired as part of the Merger), resulting in a tax benefit of $112.1 million. As a result of
the Transition Tax, the Company has approximately $649.4 million of previously taxed foreign earnings in the
U.S., of which approximately $254.9 million will remain permanently reinvested in the foreign jurisdictions.
These earnings are expected to be used to support the growth and working capital needs of the Company's
foreign subsidiaries. The Company intends to repatriate its remaining foreign earnings of approximately
$394.5 million and, as of December 31, 2017, has accrued anticipated withholding taxes.
The changes in the valuation allowance for deferred tax assets were as follows (in thousands):
Years Ended December 31,
2017
2016
2015
Balance at the beginning of the period
$
5,238
$
16,731
$
48,660
Deferred tax assets assumed through business combinations
Charged (credited) to income tax expense (a)
Foreign tax credit conversion
Foreign currency exchange
Other adjustments (b)
Balance at the end of the period
101,527
52,563
—
—
318
—
(3,419)
(6,707)
(890)
(477)
—
(31,929)
—
—
—
$
159,646
$
5,238
$
16,731
(a) For the year ended December 31, 2017, charge to income tax expense was calculated at 21% federal income tax
rate as enacted by the Tax Act.
(b) Other adjustments denote the effects of write-offs and recoveries in various jurisdictions with no net tax impact.
As of December 31, 2017, the valuation allowance increased by $154.4 million, which primarily consisted of
(i) an increase of $52.6 million primarily as a result of recording a valuation allowance for U.S. federal and
state deferred tax assets, and (ii) an increase of $101.5 million related to a valuation allowance acquired as a
result of the Merger. Of this change to the valuation allowance, $52.6 million was charged to income tax
expense during the fourth quarter of 2017.
As of December 31, 2017, the Company assessed both positive and negative evidence in evaluating whether
it could support the recognition of its U.S. net deferred tax asset position or if a valuation allowance would be
required. A significant piece of objective negative evidence that the Company considered was the cumulative
loss over the three-year period ended December 31, 2017. This objective negative evidence was weighed
against the subjective positive evidence available to the Company and it was determined that the positive
evidence was not sufficient to overcome the substantial negative evidence. Therefore, the Company recorded
a charge to income tax expense in the amount of $52.6 million for the net increase in the valuation allowance.
As of December 31, 2016, the Company released a portion of the valuation allowance primarily related to
foreign deferred tax assets based on the Company's current and anticipated future earnings in certain foreign
operations. The release of the valuation allowance resulted in an income tax benefit of $3.4 million during the
year ended December 31, 2016.
137
As of December 31, 2015, the Company assessed both positive and negative evidence available to estimate
whether future taxable income would be available to permit the use of the existing deferred tax assets.
Accordingly, based on the Company achieving sustained profitability in 2015, the Company reevaluated its
ability to consider other subjective evidence, such as the reliability of the Company's projections for future
growth. The Company expected it would no longer need a significant portion of the valuation allowance
related to these deferred tax assets. As a result of this change in assertion, the valuation allowance was
released on the net deferred tax assets in the United States. The release of these valuation allowances
resulted in an income tax benefit of $31.9 million during the year ended December 31, 2015.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
liabilities are as follows (in thousands):
Deferred tax assets:
Net operating losses
Tax credits
Deferred revenue
Foreign exchange
Employee compensation and other benefits
Allowance for doubtful accounts
Deferred rent
Accrued liabilities
Other
Total deferred tax assets
Less: valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Undistributed foreign earnings
Foreign branch operations
Depreciation and amortization
Other
Total deferred tax liabilities
Net deferred tax assets (liabilities)
December 31,
2017
December 31,
2016
$
308,606
$
12,607
55,920
15,719
978
31,956
1,975
2,258
9,306
2,698
429,416
(159,646)
269,770
(7,346)
(1,652)
(276,502)
(1,918)
(287,418)
$
(17,648) $
4,690
4,630
10,430
18,382
1,660
729
5,280
68
58,476
(5,238)
53,238
—
(2,564)
(42,272)
(1,971)
(46,807)
6,431
As of December 31, 2017 and 2016, the Company had U.S. Federal NOL carryforwards, including those from
inVentiv discussed above, of approximately $1.0 billion and $5.4 million, respectively. A valuation allowance
has been established for jurisdictions where future benefit is uncertain. As of December 31, 2017, the
Company established a full valuation allowance against the federal NOL carryforward balance.
As of December 31, 2017 and 2016, the Company had state NOL carryforwards, including those from
inVentiv discussed above, of approximately $1.2 billion and $52.0 million, respectively, a portion of which will
expire annually beginning in 2018. The Company also had foreign NOL carryforwards, including those from
inVentiv discussed above, of $124.8 million and $54.3 million as of December 31, 2017 and 2016,
respectively. A valuation allowance has been established for jurisdictions where the future benefit of the NOL
carryforwards is uncertain.
The Company recognizes a tax benefit from any uncertain tax positions only if they are more likely than not to
be sustained upon examination based on the technical merits of the position. The amount of the accrual for
which an exposure exists is measured as the largest amount of benefit determined on a cumulative probability
basis that the Company believes is more likely than not to be realized upon ultimate settlement of the
position. Components of the reserve are classified as either a current or a long-term liability in the
accompanying consolidated balance sheets based on when the Company expects each of the items to be
settled.
138
The Company had gross unrecognized tax benefits, exclusive of associated interest and penalties, of
approximately $43.7 million and $15.7 million as of December 31, 2017 and 2016, respectively. The Company
recognizes accrued interest and penalties related to uncertain tax positions in income tax expense. As of
December 31, 2017 and 2016, the Company had accrued interest and penalties related to uncertain tax
positions of $5.0 million and $0.1 million, respectively. For the year ended December 31, 2017, the Company
recorded in the accompanying consolidated statements of operations a tax expense of $0.9 million related to
interest and penalties associated with uncertain tax positions. For the years ended December 31, 2016 and
2015, the Company recorded in the accompanying consolidated statements of operations a tax expense of
$2.0 million, and $0.3 million, respectively, related to interest and penalties associated with uncertain tax
positions. If recognized, the total amount of unrecognized tax benefits that would impact the effective tax rate
is $21.2 million.
The Company anticipates that during the next 12 months, the unrecognized tax benefits will decrease by
approximately $1.4 million. A reconciliation of the beginning and ending balances of unrecognized tax
benefits, excluding accrued interest and penalties, is as follows (in thousands):
Unrecognized tax benefits balance at December 31, 2014
$
21,566
Lapse of statute of limitations
Increases for tax positions of prior years
Decreases for tax positions of prior years
Impact of foreign currency translation
Unrecognized tax benefits balance at December 31, 2015
Lapse of statute of limitations
Increases for tax positions of prior years
Decreases for tax positions of prior years
Impact of foreign currency translation
Unrecognized tax benefits balance at December 31, 2016
Increases for tax positions in the current year
Increases for tax positions of prior years
Decreases for tax positions in prior year
Impact of foreign currency translation
(2,106)
2,001
(1,594)
(837)
19,030
(1,446)
308
(2,275)
121
15,738
191
27,974
(226)
1
Unrecognized tax benefits at December 31, 2017
$
43,678
Due to the geographic breadth of the Company's operations, numerous tax audits may be ongoing throughout
the world at any point in time. Income tax liabilities are recorded based on estimates of additional income
taxes which will be due upon the conclusion of these audits. Estimates of these income tax liabilities are
made based upon prior experience and are updated in light of changes in facts and circumstances. However,
due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of
audits may result in liabilities which could be materially different from these estimates. In such an event, the
Company will record additional income tax expense or benefit in the period in which such resolution occurs.
The Company remains subject to audit by the IRS and various state taxing jurisdictions back to 1998 due to
NOL carryforwards. The Company's tax filings are open to investigation from 2014 forward in the United
Kingdom, which is the jurisdiction of the Company's largest foreign operation.
inVentiv’s federal income tax return for tax year 2014 is currently under examination by the Internal Revenue
Service. In addition, inVentiv’s income tax returns for various tax years are currently under examination by the
respective tax authorities in Germany, India, and Japan. The Company believes that its reserve for uncertain
tax positions is adequate to cover existing risks or exposures related to all open tax years.
Recently Adopted Accounting Standards
Effective January 1, 2017, the Company adopted new guidance under ASU No. 2016-16, Income Taxes -
Intra-Entity Transfers of Assets Other Than Inventory. For additional discussion of the new guidance, see
"Note 1 - Basis of Presentation and Summary of Significant Accounting Policies" to the accompanying
consolidated financial statements.
139
13. Employee Benefit Plans
Defined Contribution Retirement Plans
The Company offers defined contribution retirement benefit plans that comply with Section 401(k) of the IRS
Code under which it matches employee deferrals at varying percentages and specified limits of the
employee’s salary.
The Company’s contributions related to its defined contribution retirement plans were as follows (in
thousands):
Years Ended December 31,
2017
2016
2015
Total defined contribution retirement plan contributions
$
15,429
$
9,604
$
5,546
The Company's contributions associated with these defined contribution benefit plans are recorded in the
"Direct costs" and "Selling, general and administrative" expense line items in the accompanying consolidated
statements of operations.
Deferred Compensation Plan
As a result of the Merger, the Company assumed inVentiv’s nonqualified Deferred Compensation Plan for
certain executives pursuant to Section 409A of the IRC (“NQDC Plan”). Under this plan, participants can
defer, on a pre-tax basis, from 1.0% up to a maximum of 100.0% of salary and performance and non-
performance based bonus. The Company does not make matching contributions into the NQDC Plan.
Distributions will be made to participants upon termination of employment or death in a lump sum, unless
installments are selected.
As of December 31, 2017, the NQDC Plan deferred compensation liabilities were $15.9 million and are
included in the “Other long-term liabilities” line item in the accompanying consolidated balance sheets. The
assets associated with the NQDC Plan are subject to the claims of the creditors and primarily consist of
investments in mutual funds maintained in a “rabbi trust”. These investments are classified as trading
securities and included in the “Other long-term assets” line item in the accompanying consolidated balance
sheets. During the year ended December 31, 2017, gains (losses) on these investments were immaterial and
were included in “Selling, general and administrative” expense line item of the accompanying consolidated
statement of operations.
14. Segment Information
During the third quarter of 2017, the Company realigned its operating segments as a result of the Merger to
reflect the current structure under which performance is evaluated, strategic decisions are made and
resources are allocated. As a result of this realignment, effective August 1, 2017, the Company began
evaluating its financial performance based on two reportable segments: Clinical Solutions and Commercial
Solutions. Historical segment reporting has been revised to reflect these changes to the Company’s segment
structure.
Each reportable business segment is comprised of multiple service offerings that, when combined, create a
fully integrated biopharmaceutical services organization. Clinical Solutions offers a variety of services
spanning Phase I to Phase IV of clinical development, including full-service global studies, as well as
individual service offerings such as clinical monitoring, investigator recruitment, patient recruitment, data
management, and study startup to assist customers with their drug development process. Commercial
Solutions provides commercialization services to the pharmaceutical, biotechnology, and healthcare
industries, which include outsourced selling solutions, communication solutions (public relations and
advertising), and consulting related services.
140
The Company’s CODM reviews segment performance and allocates resources based upon segment revenue
and income from operations. Revenue and costs for reimbursed out-of-pocket expenses are not allocated to
the Company’s segments. Inter-segment revenue is eliminated from the segment reporting provided to the
CODM and is not included in the segment revenue presented in the table below. Certain costs are not
allocated to the Company’s reportable segments and are reported as general corporate expenses. These
costs primarily consist of share-based compensation and general operational expenses associated with the
Company’s senior leadership, finance, human resources, information technology, facilities, and legal
functions. The Company does not allocate depreciation, amortization, asset impairment charges,
restructuring, or transaction and integration-related costs to its segments. Additionally, the CODM reviews the
Company’s assets on a consolidated basis and does not allocate assets to its reportable segments for
purposes of assessing segment performance or allocating resources.
Information about reportable segment operating results is as follows (in thousands):
Net service revenue:
Clinical Solutions
Commercial Solutions
Total segment net service revenue
Reimbursable out-of-pocket expenses not allocated to segments
Total consolidated net service revenue
Segment direct costs:
Clinical Solutions
Commercial Solutions
Total segment direct costs
Segment selling, general, and administrative expenses:
Clinical Solutions
Commercial Solutions
Total segment selling, general, and administrative expenses
Segment operating income:
Clinical Solutions
Commercial Solutions
Total segment operating income
Operating expenses not allocated to segments:
Reimbursable out-of-pocket expenses not allocated to segments
Share-based compensation not allocated to direct costs
Share-based compensation not allocated to selling, general, and
administrative expenses
Corporate selling, general, and administrative expenses not
allocated to segments
Restructuring and other costs
Transaction and integration-related expenses
Asset impairment charges
Depreciation and amortization
Total consolidated (loss) income from operations
Years Ended December 31,
2016
2017 (a)
2015
$
$
$
$
$
$
$
$
$
1,459,968
392,875
1,852,843
819,221
2,672,064
930,176
291,310
1,221,486
203,206
40,236
243,442
326,586
61,329
387,915
819,221
10,537
$
$
$
$
1,021,017
9,320
1,030,337
580,259
1,610,596
612,201
7,881
620,082
148,102
—
148,102
260,714
1,439
262,153
580,259
6,551
906,528
8,212
914,740
484,499
1,399,239
533,277
6,845
540,122
136,934
—
136,934
236,317
1,367
237,684
484,499
2,282
14,041
7,469
2,792
25,137
33,315
123,815
30,000
179,936
(28,866) $
16,815
13,612
3,143
—
59,204
155,359
$
16,883
1,785
1,637
3,931
56,014
152,360
(a) Following the Company’s Merger with inVentiv, beginning August 1, 2017, the Company’s consolidated results of
operations include results of operations of inVentiv.
141
15. Operations by Geographic Location
The Company conducts its global operations through wholly-owned subsidiaries and representative sales
offices. Prior to the Merger, net service revenue was attributed to geographical locations based upon the
location to which the Company invoiced the end customer. Following the Merger, the Company began to
attribute net service revenues to geographical locations based upon the location of where the work is
performed to reflect its expanded geographic presence and increases in scale of its operations. All prior
periods have been recast to reflect the effect of this change. The following table summarizes total revenue by
geographic area (in thousands and with all intercompany transactions eliminated):
Net service revenues:
North America (a)
Europe, Middle East and Africa
Asia-Pacific
Latin America
Total net service revenue
Reimbursable-out-of-pocket expenses
Years Ended December 31,
2017
2016
2015
$
1,174,462
$
602,133
$
458,264
174,345
45,772
1,852,843
819,221
319,189
74,268
34,747
1,030,337
580,259
536,526
288,221
57,871
32,122
914,740
484,499
Total revenue
$
2,672,064
$
1,610,596
$
1,399,239
(a) Net service revenue for the North America region include revenue attributable to the U.S. of $1,128.1 million, $577.3
million and $513.8 million, or 60.9%, 56.0% and 56.2% of net service revenues, for the years ended December 31, 2017,
2016 and 2015, respectively. No other countries represented more than 10% of net service revenue for any period.
The following table summarizes long-lived assets by geographic area (in thousands and all intercompany
transactions have been eliminated):
Property and equipment, net:
North America (a)
Europe, Middle East and Africa
Asia-Pacific
Latin America
Total property and equipment, net
December 31, 2017
December 31, 2016
$
$
136,101
$
25,517
14,700
4,094
180,412
$
41,057
11,235
5,101
913
58,306
(a) Long-lived assets for the North America region include property and equipment, net attributable to the U.S. of $128.5
million and $40.6 million as of December 31, 2017 and 2016, respectively.
16. Concentration of Credit Risk
Financial assets that subject the Company to credit risk primarily consist of cash and cash equivalents and
billed and unbilled accounts receivable. The Company's cash and cash equivalents consist principally of cash
and are maintained at several financial institutions with reputable credit ratings. The Company maintains cash
depository accounts with several financial institutions worldwide and is exposed to credit risk related to the
potential inability to access liquidity in financial institutions where its cash and cash equivalents are
concentrated. The Company has not historically incurred any losses with respect to these balances and
believes that they bear minimal credit risk.
As of December 31, 2017, the amount of cash and cash equivalents held outside the United States by the
Company’s foreign subsidiaries was $192.0 million, or 59.8% of the total consolidated cash and cash
equivalents balance. As of December 31, 2016, the amount of cash and cash equivalents held outside the
United States by the Company’s foreign subsidiaries was $86.4 million, or 84.3% of the total consolidated
cash and cash equivalents balance.
142
Substantially all of the Company's net service revenue is earned by performing services under contracts with
pharmaceutical and biotechnology companies. The concentration of credit risk is equal to the outstanding
billed and unbilled accounts receivable, less deferred revenue related thereto. The Company does not require
collateral or other securities to support customer receivables. The Company maintains a credit approval
process and makes significant judgments in connection with assessing customers' ability to pay throughout
the contractual obligation. Despite this assessment, from time to time, customers are unable to meet their
payment obligations. The Company continuously monitors customers' credit worthiness and applies judgment
in establishing a provision for estimated credit losses based on historical experience and any specific
customer collection issues that have been identified.
No single customer accounted for greater than 10% of the Company’s total consolidated net service revenue
for the years ended December 31, 2017, 2016 or 2015.
As of December 31, 2017, one customer accounted for 13.4% of the Company’s billed and unbilled trade
accounts receivable balances. As of December 31, 2016 and 2015, no single customer accounted for greater
than 10% of the Company’s billed and unbilled trade accounts receivable balance.
17. Related-Party Transactions
For the year ended December 31, 2017, the Company incurred reimbursable out-of-pocket expenses of $0.4
million for professional services obtained from a provider whose significant shareholder was also a significant
shareholder of the Company. There were no material related party expenses for the years ended
December 31, 2016 and 2015.
The Company recorded net service revenue of $0.5 million and $0.1 million during the years ended
December 31, 2016 and 2015, respectively, from a customer who has a significant shareholder who was also
a significant shareholder of the Company through August 2016. No related-party revenue was recorded for
the year ended December 31, 2017.
18. Commitments and Contingencies
Legal Proceedings
Through the Merger, the Company became a party to a lawsuit initiated and outstanding against inVentiv prior
to the Merger. On October 31, 2013, Cel-Sci Corporation ("Claimant") made a demand for arbitration under a
Master Services Agreement (the "MSA"), dated as of April 6, 2010 between Claimant and two of the
Company’s subsidiaries, inVentiv Health Clinical, LLC (formerly known as PharmaNet, LLC) and PharmaNet
GmbH (currently known as inVentiv Health Switzerland GmbH and formerly known as PharmaNet AG)
(collectively, "PharmaNet"). Under the MSA and related project agreement, which were terminated by
Claimant in April 2013, Claimant engaged PharmaNet in connection with a Phase III Clinical Trial of its
investigational drug. The arbitration claim alleges (i) breach of contract, (ii) fraud in the inducement, and (iii)
common law fraud on the part of PharmaNet, and seeks damages of at least $50.0 million. In December
2013, inVentiv Health Clinical, LLC filed a counterclaim against Claimant that alleges breach of contract and
seeks at least $2.0 million in damages. The matter proceeded to the discovery phase. In January 2015,
inVentiv Health Clinical, LLC filed additional counterclaims against Claimant that allege (i) breach of contract,
(ii) opportunistic breach, restitution and unjust enrichment, and (iii) defamation, and seek at least $2.0 million
in damages and $20.0 million in other equitable remedies. The arbitration is currently underway and it is
expected that the arbitrator will issue a decision in 2018. The Company continues to maintain and intends to
vigorously defend its position in this matter. In the Company’s opinion, the ultimate outcome of this matter, net
of liabilities accrued in the Company’s balance sheet, is not expected to have a material adverse effect on the
Company’s financial position or results of operations.
Self-Insurance Reserves
The Company is self-insured for certain losses relating to health insurance claims for the majority of its
employees located within the United States. Additionally, in connection with the Merger, the Company
143
assumed liabilities associated with certain self-insurance retention limits of inVentiv related to employee
medical, automobile, and workers’ compensation insurance. As of December 31, 2017 and 2016, the
Company had accrued self-insurance reserves of $16.6 million and $3.6 million.
Assumed Contingent Tax-Sharing Obligation
As a result of the Merger, the Company assumed contingent tax-sharing obligations arising from inVentiv’s
2016 merger with Double Eagle Parent, Inc. As of December 31, 2017, the estimated fair value of the
assumed contingent tax-sharing obligation was $50.5 million (see "Note 3 - Business Combinations" for
further information).
19. Quarterly Results of Operations — Unaudited
The following is a summary of the Company's consolidated quarterly results of operations for each of the
fiscal years ended December 31, 2017 and 2016 (in thousands, except per share data):
Net service revenue (a)
Income (loss) from operations (a)(b)(c)(d)
Net income (loss) (a)(e)(f)(g)
Basic earnings (loss) per share (a)
Diluted earnings (loss) per share (a)
Net service revenue
Income from operations (b)(c)
Net income (e)(f)(g)
Basic earnings per share
Diluted earnings per share
Three Months Ended
March 31,
2017
June 30,
2017
September 30,
2017
December 31,
2017
252,078
$
258,087
$
592,207
$
34,752
21,187
0.39
0.38
$
$
10,250
3,389
0.06
0.06
$
$
(88,888)
(147,998)
(1.70) $
(1.70) $
750,471
15,020
(15,047)
(0.14)
(0.14)
Three Months Ended
March 31,
2016
June 30,
2016
September 30,
2016
December 31,
2016
248,997
$
258,804
$
259,557
$
262,979
32,508
17,405
0.32
0.31
$
$
39,655
30,403
0.56
0.54
$
$
39,396
27,331
0.50
0.49
$
$
43,800
37,491
0.70
0.68
$
$
$
$
$
$
(a) Following the Company’s Merger with inVentiv, beginning August 1, 2017, the Company’s consolidated results of
operations include results of operations of inVentiv.
(b) Transaction and integration-related expenses for the three months ended June 30, 2017, September 30, 2017, and
December 31, 2017 were $23.7 million, $84.3 million and $15.7 million, respectively. There were no material
transaction and integration-related expenses for the three months ended March 31, 2017. Transaction expenses for
the three months ended March 31, 2016, June 30, 2016, September 30, 2016 and December 31, 2016 were $0.6
million, $1.2 million, $1.1 million and $0.3 million, respectively. Transaction expenses include legal fees associated
with (i) corporate transactions and integration-related activities which primarily related to the Merger in 2017 (ii) the
2017 and 2016 debt agreement amendments, (iii) fair value adjustments associated with the Company's assumed
contingent tax-sharing obligations; (iv) secondary stock offerings and stock repurchase activities during 2016, and (v)
other corporate projects.
(c) Restructuring and other costs for the three months ended March 31, 2017, June 30, 2017, September 30, 2017, and
December 31, 2017 were $1.9 million, $4.0 million, $6.7 million and $20.7 million, respectively. Restructuring and
other costs for the three months ended March 31, 2016, June 30, 2016, September 30, 2016 and December 31, 2016
were $6.0 million, $1.4 million, $2.9 million and $3.3 million, respectively.
(d) Asset impairment charges were $30.0 million for the three months ended September 30, 2017. Asset impairment
charges related to the impairment of the INC Research tradename in connection with the Company's merger-related
rebranding.
(e) During the three months ended September 30, 2017 and December 31, 2017, the Company recorded a loss on
extinguishment of debt of $0.1 million and $0.5 million, respectively, associated with the 2017 Credit Agreement
144
amendments and refinancing. During the three months ended September 30, 2016, the Company recorded a loss on
extinguishment of debt of $0.4 million associated with the 2016 Credit Agreement and debt refinancing.
(f) During the three months ended December 31, 2017, the Company's income tax expense included a charge of $94.4
million as a result of the Tax Act. During the three months ended December 2016, the Company determined that
certain valuation allowances were no longer required and recorded an income tax benefit related to the release of
valuation allowances totaling $3.4 million. See "Note 12 - Income Taxes" for additional information.
(g) During the three months ended December 31, 2017 and 2016, the Company determined that it qualified for additional
research and development tax credits in certain international locations for expenses incurred during 2017 and 2016
and as a result recorded a $3.6 million and $2.5 million reduction of direct costs, respectively.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation under the supervision
and with the participation of our management, including our CEO and CFO, of the effectiveness of the design
and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act). There are inherent limitations to the effectiveness of any system of disclosure controls and
procedures, including the possibility of human error and the circumvention or overriding of the controls and
procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable
assurance of achieving their control objectives. Based upon their evaluation, our CEO and CFO concluded
that our disclosure controls and procedures were effective to provide reasonable assurance that information
required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the applicable rules and forms, and
that it is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to
allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
During the quarter ended December 31, 2017, we implemented a plan that called for modifications and
additions to internal control over financial reporting related to the accounting for revenue as a result of the
new revenue recognition standard. The modified and new controls have been designed to address risks
associated with recognizing revenue under the new standard. We have therefore augmented our internal
control over financial reporting as follows:
• Enhanced the risk assessment process to take into account risks associated with the new revenue
standard.
• Added controls that address risks associated with the five-step model for recording revenue, including
the revision of our contract review controls.
There have been no other changes in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2017 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management's Annual Report on Internal Control Over Financial Reporting
The management of Syneos Health, Inc. (the “Company”) is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that pertain to the
145
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles in the United States of America, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting might not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2017. In making this assessment, management used the framework established in the Internal
Control-Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”). As a result of this assessment and based on the criteria in the COSO framework,
management has concluded that, as of December 31, 2017, the Company’s internal control over financial
reporting was effective.
As previously noted, we completed the Merger with inVentiv during the third quarter of 2017. Management
considers this transaction to be material to our consolidated financial statements and believes that the internal
controls and procedures of inVentiv have a material effect on our internal control over financial reporting. We
are currently in the process of incorporating the internal controls and procedures of inVentiv into our internal
controls over financial reporting and extending our Section 404 compliance program under the Sarbanes-
Oxley Act of 2002 and the applicable rules and regulations under such Act to include inVentiv. We will report
on our assessment of the consolidated operations within the time period provided by the Act and the
applicable SEC rules and regulations concerning business combinations, which is the annual management
report for the fiscal year ending December 31, 2018. inVentiv’s total assets (excluding goodwill which was
included in management’s assessment of internal control over financial reporting as of December 31, 2017),
and total revenues represented approximately 30% and 41%, respectively, of the related consolidated
financial statement amounts as of and for the year ended December 31, 2017.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2017 has
been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their
report which appears herein.
Item 9B. Other Information.
None.
146
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Pursuant to General Instruction G(3) on Form 10-K, information required by this Item concerning our directors
and corporate governance is incorporated by reference from the sections captioned “Election of Directors”
and “Corporate Governance Matters” contained in our 2018 Proxy Statement related to Our Annual Meeting
of Stockholders which we intend to file with the SEC within 120 days of the end of our fiscal year.
We have adopted a code of business conduct and ethics relating to the conduct of our business by all of our
employees, officers, and directors, as well as a code of ethics specifically for our principal executive officer
and senior financial officers. Each of these policies is posted on our website: www.syneoshealth.com.
The information required by this Item concerning our executive officers is set forth at the end of Part I, Item 1,
"Business" in this Annual Report on Form 10-K.
The information required by this Item concerning compliance with Section 16(a) of the United States
Securities Exchange Act of 1934, as amended, is incorporated by reference from the section of the 2018
Proxy Statement captioned “Section 16(a) Beneficial Ownership Reporting Compliance.”
Item 11. Executive Compensation.
The information required by this Item is incorporated by reference to the information under the sections
captioned “Executive Compensation and Other Matters” and “Director Compensation for Fiscal year 2017” in
the 2018 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The following table sets forth the indicated information as of December 31, 2017 with respect to our equity
compensation plans approved by security holders:
Plan Description
2016 Employee Stock Purchase Plan
2014 Equity Incentive Plan
2010 Equity Incentive Plan
2016 Omnibus Equity Incentive Plan
Total
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available
for future issuance
under equity
compensation plans
— $
586,217
601,880
1,329,408
2,517,505
$
$
$
—
12.29
41.57
29.98
874,026
2,455,372
—
—
3,329,398
Our equity compensation plans consist of the 2016 Employee Stock Purchase Plan, the 2014 Equity Incentive
Plan, the 2010 Equity Incentive Plan, and the 2016 Omnibus Equity Incentive Plan, which were approved by
our shareholders. We do not have any equity compensation plans or arrangements that have not been
approved by our shareholders.
Information regarding security ownership and securities authorized for issuance under equity compensation
plans required by this Item is incorporated by reference to the information under the section captioned
“Security Ownership of Certain Beneficial Owners and Management” in the 2018 Proxy Statement.
147
Item 13. Certain Relationships and Related Transactions and Director Independence.
The information required by this Item is incorporated by reference to the information under the section
captioned “Transactions With Related Persons” and “Corporate Governance Matters” in the 2018 Proxy
Statement.
Item 14. Principal Accounting Fees and Services.
The information required by this Item is incorporated by reference to the information under the section
captioned “Audit Committee Report” in the 2018 Proxy Statement.
148
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a)
The following documents are filed as part of this report:
(1) Financial Statements
The financial statements and report of the independent registered public accounting firm are filed as part of
this Annual Report (see "Index to Consolidated Financial Statements" at Item 8).
(2) Financial Statement Schedules
The financial statements schedules are omitted because they are not applicable or the required information is
shown in the consolidated financial statements or notes thereto.
149
(b) Exhibits
Exhibit
Number
Exhibit Description
2.1 Agreement and Plan of Merger, dated as of May 10,
2017, by and between Double Eagle Parent, Inc. and
INC Research Holdings, Inc.
Incorporated by Reference (Unless
Otherwise Indicated)
Form File No.
001-36730
8-K
Exhibit Filing Date
May 10, 2017
2.1
3.1 Certificate of Incorporation of INC Research Holdings,
8-K
001-36730
3.1
August 1, 2017
Inc.
3.2 Certificate of Amendment of Certificate of Incorporation
8-K
001-36730
3.1
of Syneos Health, Inc.
3.3 Amended and Restated Bylaws of Syneos Health, Inc.
8-K
001-36730
3.2
4.1 Specimen Certificate for Class A Common Stock.
S-1/A 333-199178
4.1
4.2 Second Amended and Restated Stockholders
8-K
001-36730
4.2
Agreement, dated as of November 6, 2014, among INC
Research Holdings, Inc. and certain stockholders
named therein.
January 8,
2018
January 8,
2018
October 27,
2014
November 13,
2014
4.3 Second Supplemental Indenture, dated as of August 7,
8-K
001-36730
10.1
August 9, 2017
2017, among INC Research Holdings, Inc., inVentiv
Health, Inc., inVentiv Health Clinical, Inc., the
guarantors party thereto and Wilmington Trust, National
Association, as trustee.
4.4
Indenture, dated as of October 14, 2016, among
Double Eagle Acquisition Sub, Inc., the guarantors
party thereto and Wilmington Trust, National
Association, as trustee.
8-K
001-36730
10.2
August 9, 2017
10.3.1#
Triangle Acquisition Holdings, Inc. 2010 Equity
Incentive Plan.
S-1
333-199178
10.3.1
10.3.2# Amendment No. 1 to INC Research Holdings, Inc. 2010
S-1
333-199178
10.3.2
Equity Incentive Plan.
10.3.3# Amendment No. 2 to INC Research Holdings, Inc. 2010
S-1
333-199178
10.3.3
Equity Incentive Plan.
10.4#
10.6#
Form of Nonqualified Stock Option Award Agreement
under INC Research Holdings, Inc. 2010 Equity
Incentive Plan.
Form of Stock Option Award Agreement for U.S.
Participants under INC Research Holdings, Inc. 2014
Equity Incentive Plan.
S-1
333-199178
10.4
S-1/A 333-199178
10.6
10.7#
2013 Management Incentive Plan.
S-1
333-199178
10.7
10.8#
Form of Management Incentive Plan.
S-1
333-199178
10.8
10.9.1
10.9.2
10.9.3
10.9.4
Lease, dated May 6, 2010, by and between Highwoods
Realty Limited Partnership and INC Research, Inc.
S-1
333-199178
10.9.1
Lease Amendment Number One, dated August 26,
2010, by and between Highwoods Realty Limited
Partnership and INC Research, Inc.
Lease Amendment Number Two, dated August 23,
2011, by and between Highwoods Realty Limited
Partnership and INC Research, LLC.
Lease Amendment Number Three, dated January 4,
2013, by and between Highwoods Realty Limited
Partnership and INC Research, LLC.
S-1
333-199178
10.9.2
S-1
333-199178
10.9.3
S-1
333-199178
10.9.4
10.10# Executive Employment Agreement, effective as of July
S-1
333-199178
10.10
31, 2014, by and between INC Research, LLC and
Duncan Jamie Macdonald.
October 6,
2014
October 6,
2014
October 6,
2014
October 6,
2014
October 17,
2014
October 6,
2014
October 6,
2014
October 6,
2014
October 6,
2014
October 6,
2014
October 6,
2014
October 6,
2014
150
10.11.1# Executive Employment Agreement, effective as of
S-1
333-199178
10.11
August 5, 2013, by and between INC Research, LLC
and Greg S. Rush.
10.11.2#
Letter Agreement, dated January 3, 2018, between
Syneos Health, Inc. and Gregory S. Rush
8-K
001-36730
10.1
10.12.1# Executive Service Agreement, dated July 31, 2014, by
S-1
333-199178
10.12
and between INC Research Holdings Limited and
Alistair Macdonald.
October 6,
2014
January 3,
2018
October 6,
2014
10.12.2# Amendment Two to the Executive Service Agreement,
10-Q 001-36730
10.1
April 27, 2015
effective as of January 1, 2015, by and between INC
Research Holdings Limited and Alistair Macdonald.
10.13# Executive Employment Agreement, effective as of July
S-1
333-199178
10.13
31, 2014, by and between INC Research, LLC and
Christopher L. Gaenzle.
10.14#
10.15#
10.16#
10.17#
10.18#
10.19#
10.20#
10.21#
10.22#
10.23#
Form of Restricted Stock Award Agreement under INC
Research Holdings, Inc. 2014 Equity Incentive Plan.
S-1/A 333-199178
10.14
Form of Stock Option Award Agreement for Non-U.S.
Participant under INC Research Holdings, Inc. 2014
Equity Incentive Plan.
Form of 2010 Equity Incentive Plan Stock Option
Adjustment Letter.
Form of 2010 Equity Incentive Plan Stock Option
Amendment Letter.
Form of Stock Option Award Agreement for U.S.
Participants under INC Research Holdings, Inc. 2014
Equity Incentive Plan.
Form of Stock Option Award Agreement for Non-U.S.
Participants under INC Research Holdings, Inc. 2014
Equity Incentive Plan.
Form of Stock Option Award Agreement for U.S.
Participants under INC Research Holdings, Inc. 2014
Equity Incentive Plan.
Form of Restricted Stock Unit Award Agreement for
U.S. Participants under INC Research Holdings, Inc.
2014 Equity Incentive Plan.
Form of Restricted Stock Unit Award Agreement for
Non-U.S. Participants under INC Research Holdings,
Inc. 2014 Equity Incentive Plan.
Form of Restricted Stock Unit Award Agreement for
U.S. Participants under INC Research Holdings, Inc.
2014 Equity Incentive Plan.
S-1/A 333-199178
10.15
S-1/A 333-199178
10.16
S-1/A 333-199178
10.17
10-Q 001-36730
10.1
10-Q 001-36730
10.2
10-Q 001-36730
10.3
10-Q 001-36730
10.4
10-Q 001-36730
10.5
10-Q 001-36730
10.6
10.24# Executive Employment Agreement, effective as of July
10-K
001-36730
10.29
October 6,
2014
October 17,
2014
October 17,
2014
October 27,
2014
October 17,
2014
October 29,
2015
October 29,
2015
October 29,
2015
October 29,
2015
October 29,
2015
October 29,
2015
February 25,
2016
10.25#
10.26#
31, 2014, by and between INC Research, LLC and
Michael Gibertini.
Form of Performance Restricted Stock Unit Award
Agreement for U.S. Participants under INC Research
Holdings, Inc. 2014 Equity Incentive Plan.
Form of Performance Restricted Stock Unit Award
Agreement for Non-U.S. Participants under INC
Research Holdings, Inc. 2014 Equity Incentive Plan.
10.27#
INC Research Holdings, Inc. 2016 Employee Stock
Purchase Plan.
10.28#
10.29#
INC Research Holdings, Inc. 2014 Equity Incentive
Plan, as Amended and Restated.
Transition Agreement, by and among Duncan Jamie
Macdonald, INC Research, LLC and INC Research
Holdings, Inc. entered into as of July 27, 2016.
10-Q 001-36730
10.1
May 2, 2016
10-Q 001-36730
10.2
May 2, 2016
S-8
333-212154
4.3
June 21, 2016
S-8
333-212154
4.4
June 21, 2016
8-K
001-36730
10.1
July 28, 2016
10.30# Executive Service Agreement, by and between INC
8-K
001-36730
10.2
July 28, 2016
Research Holding Limited and Alistair Macdonald,
dated July 27, 2016.
151
10.31#
10.32#
Letter Agreement, by and between INC Research
Holdings Limited and Alistair Macdonald, dated July 27,
2016.
Letter Agreement, by and between INC Research
Holdings, Inc. and Alistair Macdonald, dated July 27,
2016.
8-K
001-36730
10.3
July 28, 2016
8-K
001-36730
10.4
July 28, 2016
10.33 Stock Repurchase Agreement, dated August 12, 2016,
8-K
001-36730
10.1
10.34
by and between INC Research Holdings, Inc. and
certain stockholders named therein.
First Amendment to Credit Agreement and Increase
Revolving Joinder, dated August 31, 2016, among INC
Research, LLC, as the Borrower, INC Research
Holdings, Inc., Subsidiary Guarantors, lenders party to
the Credit Agreement, dated May 14, 2015, and Wells
Fargo Bank, National Association, as Administrative
Agent.
8-K
001-36730
10.1
10.35#
Form of Retention Agreement for Participants.
8-K
001-36730
10.1
10.36#
10.37#
INC Research Holdings, Inc. Executive Severance Plan
adopted September 15, 2016.
8-K
001-36730
10.2
Form of Restricted Stock Unit Award Agreement under
INC Research Holdings, Inc. 2014 Equity Incentive
Plan.
10-Q 001-36730
10.8
August 18,
2016
August 31,
2016
September 15,
2016
September 15,
2016
October 31,
2016
10.38# Amendment One to the Executive Service Agreement,
8-K
001-36730
10.1
April 6, 2017
10.39#
10.40#
10.41#
made as of April 1, 2017, between INC Research
Holdings Limited and Alistair Macdonald.
Form of Global Restricted Stock Unit Award Agreement
under INC Research Holdings, Inc. 2014 Equity
Incentive Plan, as Amended and Restated.
Form of Global Performance Restricted Stock Unit
Award Agreement under INC Research Holdings, Inc.
2014 Equity Incentive Plan, as Amended and Restated.
Form of Restricted Stock Unit Award Agreement for
Non-Employee Directors under INC Research Holdings,
Inc. 2014 Equity Incentive Plan, as Amended and
Restated.
10-Q 001-36730
10.1
May 10, 2017
10-Q 001-36730
10.2
May 10, 2017
10-Q 001-36730
10.3
May 10, 2017
10.42 Voting Agreement, dated as of May 10, 2017, by and
8-K
001-36730
10.1
May 10, 2017
among Double Eagle Parent, Inc., INC Research
Holdings, Inc. and Stockholders listed therein.
10.43 Voting Agreement, dated as of May 10, 2017, by and
8-K
001-36730
10.2
May 10, 2017
among Double Eagle Parent, Inc., INC Research
Holdings, Inc. and Stockholders listed therein.
10.44 Stockholders’ Agreement, dated as of May 10, 2017, by
and among INC Research Holdings, Inc. and the
stockholders party thereto.
10.45 Stockholders’ Agreement, dated as of May 10, 2017, by
and among INC Research Holdings, Inc. and the
stockholders party thereto.
8-K
001-36730
10.3
May 10, 2017
8-K
001-36730
10.4
May 10, 2017
10.46# Employment, Severance and Non-Competition
S-4/A 333-197719
10.18
February 10,
2015
Agreement, effective as of September 24, 2014,
between Michael Bell and inVentiv Health, Inc.
10.47#
10.48#
Letter Agreement, dated May 10, 2017, by and among
INC Research Holdings, Inc., inVentiv Health, Inc. and
Michael A. Bell.
Letter Agreement, dated December 5, 2017, by and
among INC Research Holdings, Inc. and Michael A.
Bell.
10.49 Credit Agreement, dated as of August 1, 2017, among
INC Research Holdings, Inc., the Administrative
Borrower, other Borrowers party thereto, the financial
institution party thereto as lenders party thereto, Credit
Suisse AG, as Administrative Agent, and each of the
other parties as Joint Lead Arrangers and Joint
Bookrunners party thereto.
152
8-K
001-36730
10.5
May 10, 2017
8-K
001-36730
10.1
December 7,
2017
8-K
001-36730
10.1
August 1, 2017
10.50#
Letter Agreement, dated November 13, 2017, by and
among INC Research Holdings, Inc. and Michael
Gibertini, Ph.D.
8-K
001-36730
10.1
November 17,
2017
10.51# Double Eagle Parent, Inc. 2016 Omnibus Equity
S-8
333-219607
4.3
August 1, 2017
Incentive Plan.
21.1
List of Significant Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Deloitte & Touche LLP.
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Executive Vice President and Interim
Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Executive Vice President and Interim
Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
101.INS XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation Linkbase
Document.
101.DEF XBRL Taxonomy Extension Definition Linkbase
Document.
—
—
—
—
—
—
—
—
—
—
—
101.LAB XBRL Taxonomy Extension Label Linkbase Document. —
101.PRE Taxonomy Extension Presentation Linkbase Document. —
—
—
—
—
—
—
—
—
—
—
—
—
—
# Denotes management contract or compensatory plan.
—
—
—
—
—
—
—
—
—
—
—
—
—
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Furnished
herewith
Furnished
herewith
Furnished
herewith
Furnished
herewith
Furnished
herewith
Furnished
herewith
Furnished
herewith
Furnished
herewith
153
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Syneos Health, Inc.
By:
/s/ Alistair Macdonald
Name:
Alistair Macdonald
Title:
Date:
Chief Executive Officer (Principal
Executive Officer) and Director
February 28, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Alistair Macdonald
Alistair Macdonald
/s/ Jason Meggs
Jason Meggs
/s/ Michael Bell
Michael Bell
/s/ Todd Abbrecht
Todd Abbrecht
/s/ Thomas Allen
Thomas Allen
/s/ Linda Harty
Linda Harty
/s/ William E. Klitgaard
William E. Klitgaard
/s/ John Maldonado
John Maldonado
/s/ Kenneth F. Meyers
Kenneth F. Meyers
/s/ Matthew E. Monaghan
Matthew E. Monaghan
/s/ Joshua M. Nelson
Joshua M. Nelson
Chief Executive Officer (Principal
Executive Officer) and Director
February 28, 2018
Executive Vice President and
Interim Chief Financial Officer
(Principal Financial and Accounting
Officer)
February 28, 2018
Chairman and Director
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
Director
Director
Director
Director
Director
Director
Director
Director
154
EXHIBIT INDEX
Exhibit
Number
Exhibit Description
2.1 Agreement and Plan of Merger, dated as of May 10,
2017, by and between Double Eagle Parent, Inc. and
INC Research Holdings, Inc.
Incorporated by Reference (Unless Otherwise
Indicated)
Form File No.
001-36730
8-K
Exhibit Filing Date
May 10, 2017
2.1
3.1 Certificate of Incorporation of INC Research Holdings,
8-K
001-36730
3.1
August 1, 2017
Inc.
3.2 Certificate of Amendment of Certificate of Incorporation
8-K
001-36730
3.1
January 8, 2018
of Syneos Health, Inc.
3.3 Amended and Restated Bylaws of Syneos Health, Inc.
8-K
001-36730
3.2
January 8, 2018
4.1 Specimen Certificate for Class A Common Stock.
S-1/A 333-199178
4.1
4.2 Second Amended and Restated Stockholders
8-K
001-36730
4.2
Agreement, dated as of November 6, 2014,
among INC Research Holdings, Inc. and certain
stockholders named therein.
October 27,
2014
November 13,
2014
4.3 Second Supplemental Indenture, dated as of August 7,
8-K
001-36730
10.1
August 9, 2017
2017, among INC Research Holdings, Inc., inVentiv
Health, Inc., inVentiv Health Clinical, Inc., the
guarantors party thereto and Wilmington Trust, National
Association, as trustee.
4.4
Indenture, dated as of October 14, 2016, among
Double Eagle Acquisition Sub, Inc., the guarantors
party thereto and Wilmington Trust, National
Association, as trustee.
8-K
001-36730
10.2
August 9, 2017
10.3.1# Triangle Acquisition Holdings, Inc. 2010 Equity
S-1
333-199178
10.3.1 October 6, 2014
Incentive Plan.
10.3.2# Amendment No. 1 to INC Research Holdings, Inc. 2010
S-1
333-199178
10.3.2 October 6, 2014
Equity Incentive Plan.
10.3.3# Amendment No. 2 to INC Research Holdings, Inc. 2010
S-1
333-199178
10.3.3 October 6, 2014
Equity Incentive Plan.
10.4# Form of Nonqualified Stock Option Award Agreement
S-1
333-199178
10.4
October 6, 2014
under INC Research Holdings, Inc. 2010 Equity
Incentive Plan.
10.6# Form of Stock Option Award Agreement for U.S.
S-1/A 333-199178
10.6
Participants under INC Research Holdings, Inc. 2014
Equity Incentive Plan.
October 17,
2014
10.7#
2013 Management Incentive Plan.
10.8# Form of Management Incentive Plan.
10.9.1
10.9.2
10.9.3
10.9.4
Lease, dated May 6, 2010, by and between Highwoods
Realty Limited Partnership and INC Research, Inc.
Lease Amendment Number One, dated August 26,
2010, by and between Highwoods Realty Limited
Partnership and INC Research, Inc.
Lease Amendment Number Two, dated August 23,
2011, by and between Highwoods Realty Limited
Partnership and INC Research, LLC.
Lease Amendment Number Three, dated January 4,
2013, by and between Highwoods Realty Limited
Partnership and INC Research, LLC.
S-1
S-1
S-1
333-199178
333-199178
10.7
10.8
October 6, 2014
October 6, 2014
333-199178
10.9.1 October 6, 2014
S-1
333-199178
10.9.2 October 6, 2014
S-1
333-199178
10.9.3 October 6, 2014
S-1
333-199178
10.9.4 October 6, 2014
10.10# Executive Employment Agreement, effective as of July
S-1
333-199178
10.10
October 6, 2014
31, 2014, by and between INC Research, LLC and
Duncan Jamie Macdonald.
10.11.1# Executive Employment Agreement, effective as of
S-1
333-199178
10.11
October 6, 2014
August 5, 2013, by and between INC Research, LLC
and Greg S. Rush.
155
10.11.2#
Letter Agreement, dated January 3, 2018, between
Syneos Health, Inc. and Gregory S. Rush
8-K
001-36730
10.1
January 3, 2018
10.12.1# Executive Service Agreement, dated July 31, 2014, by
S-1
333-199178
10.12
October 6, 2014
and between INC Research Holdings Limited and
Alistair Macdonald.
10.12.2# Amendment Two to the Executive Service Agreement,
10-Q 001-36730
10.1
April 27, 2015
effective as of January 1, 2015, by and between INC
Research Holdings Limited and Alistair Macdonald.
10.13# Executive Employment Agreement, effective as of July
S-1
333-199178
10.13
October 6, 2014
31, 2014, by and between INC Research, LLC and
Christopher L. Gaenzle.
10.14# Form of Restricted Stock Award Agreement under INC
S-1/A 333-199178
10.14
Research Holdings, Inc. 2014 Equity Incentive Plan.
10.15# Form of Stock Option Award Agreement for Non-U.S.
S-1/A 333-199178
10.15
Participant under INC Research Holdings, Inc. 2014
Equity Incentive Plan.
10.16# Form of 2010 Equity Incentive Plan Stock Option
S-1/A 333-199178
10.16
Adjustment Letter.
10.17# Form of 2010 Equity Incentive Plan Stock Option
S-1/A 333-199178
10.17
Amendment Letter.
10.18# Form of Stock Option Award Agreement for U.S.
10-Q 001-36730
10.1
Participants under INC Research Holdings, Inc. 2014
Equity Incentive Plan.
10.19# Form of Stock Option Award Agreement for Non-U.S.
Participants under INC Research Holdings, Inc. 2014
Equity Incentive Plan.
10-Q 001-36730
10.2
10.20# Form of Stock Option Award Agreement for U.S.
10-Q 001-36730
10.3
Participants under INC Research Holdings, Inc. 2014
Equity Incentive Plan.
10.21# Form of Restricted Stock Unit Award Agreement for
U.S. Participants under INC Research Holdings, Inc.
2014 Equity Incentive Plan.
10-Q 001-36730
10.4
10.22# Form of Restricted Stock Unit Award Agreement for
10-Q 001-36730
10.5
Non-U.S. Participants under INC Research Holdings,
Inc. 2014 Equity Incentive Plan.
10.23# Form of Restricted Stock Unit Award Agreement for
U.S. Participants under INC Research Holdings, Inc.
2014 Equity Incentive Plan.
10-Q 001-36730
10.6
10.24# Executive Employment Agreement, effective as of July
10-K
001-36730
10.29
31, 2014, by and between INC Research, LLC and
Michael Gibertini.
October 17,
2014
October 17,
2014
October 27,
2014
October 17,
2014
October 29,
2015
October 29,
2015
October 29,
2015
October 29,
2015
October 29,
2015
October 29,
2015
February 25,
2016
10.25# Form of Performance Restricted Stock Unit Award
10-Q 001-36730
10.1
May 2, 2016
Agreement for U.S. Participants under INC Research
Holdings, Inc. 2014 Equity Incentive Plan.
10.26# Form of Performance Restricted Stock Unit Award
10-Q 001-36730
10.2
May 2, 2016
Agreement for Non-U.S. Participants under INC
Research Holdings, Inc. 2014 Equity Incentive Plan.
10.27#
10.28#
INC Research Holdings, Inc. 2016 Employee Stock
Purchase Plan.
INC Research Holdings, Inc. 2014 Equity Incentive
Plan, as Amended and Restated.
10.29# Transition Agreement, by and among Duncan Jamie
Macdonald, INC Research, LLC and INC Research
Holdings, Inc. entered into as of July 27, 2016.
S-8
333-212154
4.3
June 21, 2016
S-8
333-212154
4.4
June 21, 2016
8-K
001-36730
10.1
July 28, 2016
10.30# Executive Service Agreement, by and between INC
8-K
001-36730
10.2
July 28, 2016
Research Holding Limited and Alistair Macdonald,
dated July 27, 2016.
10.31#
Letter Agreement, by and between INC Research
Holdings Limited and Alistair Macdonald, dated July 27,
2016.
8-K
001-36730
10.3
July 28, 2016
156
10.32#
Letter Agreement, by and between INC Research
Holdings, Inc. and Alistair Macdonald, dated July 27,
2016.
8-K
001-36730
10.4
July 28, 2016
10.33 Stock Repurchase Agreement, dated August 12, 2016,
8-K
001-36730
10.1
August 18, 2016
by and between INC Research Holdings, Inc. and
certain stockholders named therein.
10.34 First Amendment to Credit Agreement and Increase
8-K
001-36730
10.1
August 31, 2016
Revolving Joinder, dated August 31, 2016, among INC
Research, LLC, as the Borrower, INC Research
Holdings, Inc., Subsidiary Guarantors, lenders party to
the Credit Agreement, dated May 14, 2015, and Wells
Fargo Bank, National Association, as Administrative
Agent.
10.35# Form of Retention Agreement for Participants.
8-K
001-36730
10.1
10.36#
INC Research Holdings, Inc. Executive Severance Plan
adopted September 15, 2016.
8-K
001-36730
10.2
10.37# Form of Restricted Stock Unit Award Agreement under
10-Q 001-36730
10.8
INC Research Holdings, Inc. 2014 Equity Incentive
Plan.
September 15,
2016
September 15,
2016
October 31,
2016
10.38# Amendment One to the Executive Service Agreement,
8-K
001-36730
10.1
April 6, 2017
made as of April 1, 2017, between INC Research
Holdings Limited and Alistair Macdonald.
10.39# Form of Global Restricted Stock Unit Award Agreement
under INC Research Holdings, Inc. 2014 Equity
Incentive Plan, as Amended and Restated.
10-Q 001-36730
10.1
May 10, 2017
10.40# Form of Global Performance Restricted Stock Unit
10-Q 001-36730
10.2
May 10, 2017
Award Agreement under INC Research Holdings, Inc.
2014 Equity Incentive Plan, as Amended and Restated.
10.41# Form of Restricted Stock Unit Award Agreement for
10-Q 001-36730
10.3
May 10, 2017
Non-Employee Directors under INC Research
Holdings, Inc. 2014 Equity Incentive Plan, as Amended
and Restated.
10.42 Voting Agreement, dated as of May 10, 2017, by and
8-K
001-36730
10.1
May 10, 2017
among Double Eagle Parent, Inc., INC Research
Holdings, Inc. and Stockholders listed therein.
10.43 Voting Agreement, dated as of May 10, 2017, by and
8-K
001-36730
10.2
May 10, 2017
among Double Eagle Parent, Inc., INC Research
Holdings, Inc. and Stockholders listed therein.
10.44 Stockholders’ Agreement, dated as of May 10, 2017, by
and among INC Research Holdings, Inc. and the
stockholders party thereto.
10.45 Stockholders’ Agreement, dated as of May 10, 2017, by
and among INC Research Holdings, Inc. and the
stockholders party thereto.
8-K
001-36730
10.3
May 10, 2017
8-K
001-36730
10.4
May 10, 2017
10.46# Employment, Severance and Non-Competition
S-4/A 333-197719
10.18
February 10,
2015
Agreement, effective as of September 24, 2014,
between Michael Bell and inVentiv Health, Inc.
10.47#
10.48#
Letter Agreement, dated May 10, 2017, by and among
INC Research Holdings, Inc., inVentiv Health, Inc. and
Michael A. Bell.
Letter Agreement, dated December 5, 2017, by and
among INC Research Holdings, Inc. and Michael A.
Bell.
10.49 Credit Agreement, dated as of August 1, 2017, among
INC Research Holdings, Inc., the Administrative
Borrower, other Borrowers party thereto, the financial
institution party thereto as lenders party thereto, Credit
Suisse AG, as Administrative Agent, and each of the
other parties as Joint Lead Arrangers and Joint
Bookrunners party thereto.
10.50#
Letter Agreement, dated November 13, 2017, by and
among INC Research Holdings, Inc. and Michael
Gibertini, Ph.D.
8-K
001-36730
10.5
May 10, 2017
8-K
001-36730
10.1
December 7,
2017
8-K
001-36730
10.1
August 1, 2017
8-K
001-36730
10.1
November 17,
2017
10.51# Double Eagle Parent, Inc. 2016 Omnibus Equity
S-8
333-219607
4.3
August 1, 2017
Incentive Plan.
157
21.1
List of Significant Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Deloitte & Touche LLP.
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Executive Vice President and Interim
Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Executive Vice President and Interim
Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
101.INS XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation Linkbase
Document.
101.DEF XBRL Taxonomy Extension Definition Linkbase
Document.
—
—
—
—
—
—
—
—
—
—
—
101.LAB XBRL Taxonomy Extension Label Linkbase Document. —
101.PRE Taxonomy Extension Presentation Linkbase Document. —
—
—
—
—
—
—
—
—
—
—
—
—
—
# Denotes management contract or compensatory plan.
—
—
—
—
—
—
—
—
—
—
—
—
—
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Furnished
herewith
Furnished
herewith
Furnished
herewith
Furnished
herewith
Furnished
herewith
Furnished
herewith
Furnished
herewith
Furnished
herewith
158