Syneos Health 10Q 2022 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

☐ 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)


Delaware	27-3403111
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1030 Sync Street, Morrisville, North Carolina 27560-5468

(Address of principal executive offices and Zip Code)

(919) 876-9300

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.01 par value per share	SYNH	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 27, 2022, there were approximately 102,653,017 shares of the registrant’s common stock outstanding.

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SYNEOS HEALTH, INC.

FORM 10-Q

TABLE OF CONTENTS


	PART I - FINANCIAL INFORMATION

		Page

Item 1.	Financial Statements	3

	Condensed Consolidated Statements of Income for the three and six months ended June 30, 2022 and 2021 (unaudited)	3

	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2022 and 2021 (unaudited)	4

	Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (unaudited)	6

	Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 2022 and 2021 (unaudited)	7

	Notes to Condensed Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures	36

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	37

Item 5.	Other Information	38

Item 6.	Exhibits	39

	Signature	41

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended June 30,					Six Months Ended June 30,
	2022			2021		2022			2021
	(in thousands, except per share data)
Revenue	$	1,360,739		$	1,282,611	$	2,696,992		$	2,491,356

Costs and operating expenses:
Direct costs (exclusive of depreciation and amortization)		1,034,897			992,581		2,079,329			1,937,831
Selling, general, and administrative expenses		139,040			144,669		279,206			281,983
Restructuring and other costs		8,983			3,966		24,540			11,194
Depreciation		21,241			18,158		41,820			36,605
Amortization		39,980			39,553		81,603			79,044
Total operating expenses		1,244,141			1,198,927		2,506,498			2,346,657
Income from operations		116,598			83,684		190,494			144,699

Total other expense, net:
Interest income		(36	)		—		(39	)		(71	)
Interest expense		18,102			22,619		33,867			45,947
Loss on extinguishment of debt		0			2,199		0			2,802
Other (income) expense, net		(5,152	)		7,827		(510	)		(2,029	)
Total other expense, net		12,914			32,645		33,318			46,649
Income before provision for income taxes		103,684			51,039		157,176			98,050
Income tax expense		25,940			9,134		33,256			17,421
Net income	$	77,744		$	41,905	$	123,920		$	80,629

Earnings per share:
Basic	$	0.76		$	0.40	$	1.20		$	0.77
Diluted	$	0.75		$	0.40	$	1.19		$	0.77
Weighted average common shares outstanding:
Basic		102,596			103,937		103,130			104,105
Diluted		103,072			105,019		103,741			105,238

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

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SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended June 30,					Six Months Ended June 30,
	2022			2021		2022			2021
	(in thousands)
Net income	$	77,744		$	41,905	$	123,920		$	80,629
Unrealized gain on derivative instruments, net of income tax expense of $1,607, $1,596, $5,027, $3,609, respectively		4,528			4,708		14,168			10,645
Foreign currency translation adjustments, net of income tax expense (benefit) of $1,745, $550, ($966), ($158), respectively		(69,826	)		8,825		(87,212	)		4,515
Comprehensive income	$	12,446		$	55,438	$	50,876		$	95,789

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

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SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30, 2022			December 31, 2021
	(in thousands, except par value)
ASSETS
Current assets:
Cash, cash equivalents, and restricted cash	$	105,988		$	106,475
Accounts receivable and unbilled services, net		1,606,951			1,524,890
Prepaid expenses and other current assets		168,932			135,091
Total current assets		1,881,871			1,766,456
Property and equipment, net		254,891			222,657
Operating lease right-of-use assets		185,031			209,408
Goodwill		4,898,050			4,956,015
Intangible assets, net		759,436			854,067
Deferred income tax assets		33,670			35,387
Other long-term assets		203,723			193,103
Total assets	$	8,216,672		$	8,237,093

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	99,319		$	107,535
Accrued expenses		656,874			614,441
Deferred revenue		887,180			868,455
Current portion of operating lease obligations		40,408			43,058
Current portion of finance lease obligations		23,678			20,627
Total current liabilities		1,707,459			1,654,116
Long-term debt		2,811,831			2,775,721
Operating lease long-term obligations		181,994			205,798
Finance lease long-term obligations		49,389			34,181
Deferred income tax liabilities		82,519			78,062
Other long-term liabilities		54,415			76,660
Total liabilities		4,887,607			4,824,538

Commitments and contingencies (Note 16)

Shareholders’ equity:
Preferred stock, $0.01 par value; 30,000 shares authorized, 0 shares issued and outstanding as of June 30, 2022 and December 31, 2021		0			0
Common stock, $0.01 par value; 600,000 shares authorized, 102,647 and 103,764 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively		1,026			1,038
Additional paid-in capital		3,425,584			3,474,088
Accumulated other comprehensive loss, net of taxes		(122,662	)		(49,618	)
Retained earnings (accumulated deficit)		25,117			(12,953	)
Total shareholders’ equity		3,329,065			3,412,555
Total liabilities and shareholders’ equity	$	8,216,672		$	8,237,093

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

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SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
	2022			2021
	(in thousands)
Cash flows from operating activities:
Net income	$	123,920		$	80,629
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		123,423			115,649
Share-based compensation		33,524			33,792
Recovery from doubtful accounts		(426	)		(473	)
Provision for (benefit from) deferred income taxes		4,206			(13,024	)
Foreign currency transaction adjustments		(9,069	)		(3,563	)
Fair value adjustment of contingent obligations		0			(597	)
Loss on extinguishment of debt		0			2,802
Other non-cash items		(5,636	)		5,007
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable, unbilled services, and deferred revenue		(77,602	)		(8,269	)
Accounts payable and accrued expenses		40,772			30,117
Other assets and liabilities		(62,323	)		(26,275	)
Net cash provided by operating activities		170,789			215,795
Cash flows from investing activities:
Payments related to acquisitions of businesses, net of cash acquired		(1,574	)		(14,635	)
Proceeds from notes receivable from divestiture		0			5,000
Purchases of property and equipment		(47,912	)		(22,337	)
(Investments in) proceeds from unconsolidated affiliates		(1,577	)		692
Net cash used in investing activities		(51,063	)		(31,280	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt, net of discount		0			494,505
Payments of debt financing costs		0			(544	)
Repayments of long-term debt		0			(602,277	)
Proceeds from accounts receivable financing agreement		0			65,000
Proceeds from revolving line of credit		130,000			0
Repayments of revolving line of credit		(95,000	)		0
Payments of contingent consideration related to acquisitions		0			(6,196	)
Payments of finance leases		(1,886	)		(8,380	)
Payments for repurchases of common stock		(149,961	)		(117,521	)
Proceeds from exercises of stock options		12,390			14,482
Payments related to tax withholdings for share-based compensation		(30,062	)		(29,892	)
Net cash used in financing activities		(134,519	)		(190,823	)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash		14,306			(4,730	)
Net change in cash, cash equivalents, and restricted cash		(487	)		(11,038	)
Cash, cash equivalents, and restricted cash - beginning of period		106,475			272,173
Cash, cash equivalents, and restricted cash - end of period	$	105,988		$	261,135

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

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SYNEOS HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
	(in thousands)
Shareholders’ equity, beginning balance	$	3,301,559		$	3,236,877		$	3,412,555		$	3,242,112

Common stock:
Beginning balance		1,026			1,042			1,038			1,039
Repurchases of common stock		—			(9	)		(19	)		(15	)
Issuances of common stock		—			2			7			11
Ending balance		1,026			1,035			1,026			1,035

Additional paid-in capital:
Beginning balance		3,410,524			3,440,840			3,474,088			3,461,747
Repurchases of common stock		—			(29,778	)		(64,092	)		(49,595	)
Issuances of common stock		(1,131	)		2,874			(17,936	)		(15,569	)
Share-based compensation		16,191			16,439			33,524			33,792
Ending balance		3,425,584			3,430,375			3,425,584			3,430,375

Accumulated other comprehensive loss:
Beginning balance		(57,364	)		(39,174	)		(49,618	)		(40,801	)
Unrealized gain on derivative instruments, net of taxes		4,528			4,708			14,168			10,645
Foreign currency translation adjustment, net of taxes		(69,826	)		8,825			(87,212	)		4,515
Ending balance		(122,662	)		(25,641	)		(122,662	)		(25,641	)

Retained earnings (accumulated deficit)
Beginning balance		(52,627	)		(165,831	)		(12,953	)		(179,873	)
Repurchases of common stock		—			(43,229	)		(85,850	)		(67,911	)
Net income		77,744			41,905			123,920			80,629
Ending balance		25,117			(167,155	)		25,117			(167,155	)

Shareholders’ equity, ending balance	$	3,329,065		$	3,238,614		$	3,329,065		$	3,238,614

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

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SYNEOS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

Nature of Operations

Syneos Health, Inc. (the “Company”) is a global provider of end-to-end biopharmaceutical outsourcing solutions. The Company operates under 2 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 to 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.

Unaudited Interim Financial Information

The Company prepared the accompanying unaudited condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. The significant accounting policies followed by the Company for interim financial reporting are consistent with the accounting policies followed for annual financial reporting.

The unaudited condensed consolidated financial statements, in management’s opinion, include all adjustments of a normal recurring nature necessary for a fair presentation. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Form 10-K”), filed with the Securities and Exchange Commission on February 17, 2022. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2022 or any other future period. The unaudited condensed consolidated balance sheet as of December 31, 2021 is derived from the amounts in the audited consolidated balance sheet included in the 2021 Form 10-K.

Reclassification

Certain previously reported amounts have been reclassified to conform to the current year presentation.

COVID-19 Pandemic

The ongoing COVID-19 pandemic and associated economic repercussions have significantly impacted, and are expected to continue to impact, the Company’s business and operations. The continued availability and effectiveness of vaccines may partially mitigate the risks around the continued spread of COVID-19, however, with the spread of COVID-19 variants, the ongoing impacts of the COVID-19 pandemic could adversely impact the Company’s business and results of operations. For further discussion of the potential impact of the pandemic on its business, refer to Part I, Item 1A, “Risk Factors” in the 2021 Form 10-K.

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2. Financial Statement Details

Cash, Cash Equivalents, and Restricted Cash

Certain of the Company’s subsidiaries participate in a notional cash pooling arrangement to manage global liquidity requirements. As part of a master netting arrangement, the participants combine their cash balances in pooling accounts at the same financial institution with the ability to offset bank overdrafts of one participant against positive cash account balances held by another participant. Under the terms of the master netting arrangement, the financial institution has the right, ability, and intent to offset a positive balance in one account against an overdrawn amount in another account. Amounts in each of the accounts are unencumbered and unrestricted with respect to use. As such, the net cash balance related to this pooling arrangement is included in cash, cash equivalents, and restricted cash in the condensed consolidated balance sheets.

The Company’s net cash pool position consisted of the following (in thousands):


	June 30, 2022			December 31, 2021
Gross cash position	$	145,866		$	179,160
Less: cash borrowings		(138,840	)		(167,507	)
Net cash position	$	7,026		$	11,653

Accounts Receivable and Unbilled Services, net

Accounts receivable and unbilled services (including contract assets), net of allowance for doubtful accounts, consisted of the following (in thousands):


	June 30, 2022			December 31, 2021
Accounts receivable billed	$	904,775		$	873,265
Accounts receivable unbilled		235,692			241,799
Contract assets		473,911			417,411
Less: Allowance for doubtful accounts		(7,427	)		(7,585	)
Accounts receivable and unbilled services, net	$	1,606,951		$	1,524,890

Accounts Receivable Factoring Arrangement

The Company has an accounts receivable factoring agreement to sell certain eligible unsecured trade accounts receivable, at its option, without recourse, to an unrelated third-party financial institution for cash. For the six months ended June 30, 2022 and 2021, the Company factored $66.8 million and $68.7 million, respectively, of trade accounts receivable on a non-recourse basis and received $66.5 million and $68.6 million, respectively, in cash proceeds from the sale. The fees associated with these transactions were insignificant.

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Goodwill

The changes in the carrying amount of goodwill by segment for the six months ended June 30, 2022 were as follows (in thousands):


	Clinical Solutions (a)			Commercial Solutions (a)			Total
Balance as of December 31, 2021	$	3,448,699		$	1,507,316		$	4,956,015
Acquisitions (b)		1,903			—			1,903
Impact of foreign currency translation		(40,441	)		(19,427	)		(59,868	)
Balance as of June 30, 2022	$	3,410,161		$	1,487,889		$	4,898,050

(a) NaN impairment of goodwill was recorded for the six months ended June 30, 2022.

(b) Amount represents goodwill recognized in connection with an insignificant acquisition and measurement period adjustments in connection with insignificant 2021 acquisitions during the six months ended June 30, 2022 within the Clinical Solutions segment.

Accumulated Other Comprehensive Loss, Net of Taxes

Accumulated other comprehensive loss, net of taxes, consisted of the following (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Beginning balance	$	(57,364	)	$	(39,174	)	$	(49,618	)	$	(40,801	)

Derivative instruments:
Beginning balance		7,019			(12,824	)		(2,621	)		(18,761	)
Other comprehensive income (loss) before reclassifications		4,827			(488	)		13,439			284
Reclassification adjustments		(299	)		5,196			729			10,361
Ending balance		11,547			(8,116	)		11,547			(8,116	)

Foreign currency translation:
Beginning balance		(64,383	)		(26,350	)		(46,997	)		(22,040	)
Other comprehensive (loss) income before reclassifications		(69,826	)		8,825			(87,212	)		4,515
Ending balance		(134,209	)		(17,525	)		(134,209	)		(17,525	)

Accumulated other comprehensive loss, net of taxes	$	(122,662	)	$	(25,641	)	$	(122,662	)	$	(25,641	)

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Changes in accumulated other comprehensive loss consisted of the following (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Unrealized gain on derivative instruments:
Unrealized gain (loss) during period, before taxes	$	6,540		$	(654	)	$	18,207		$	380
Income tax expense (benefit)		1,713			(166	)		4,768			96
Unrealized gain (loss) during period, net of taxes		4,827			(488	)		13,439			284
Reclassification adjustment, before taxes		(405	)		6,958			988			13,874
Income tax (benefit) expense		(106	)		1,762			259			3,513
Reclassification adjustment, net of taxes		(299	)		5,196			729			10,361
Total unrealized gain on derivative instruments, net of taxes		4,528			4,708			14,168			10,645

Foreign currency translation adjustment:
Foreign currency translation adjustment, before taxes		(68,081	)		9,375			(88,178	)		4,357
Income tax expense (benefit)		1,745			550			(966	)		(158	)
Foreign currency translation adjustment, net of taxes		(69,826	)		8,825			(87,212	)		4,515

Total other comprehensive (loss) income, net of taxes	$	(65,298	)	$	13,533		$	(73,044	)	$	15,160

Other (Income) Expense, Net

Other (income) expense, net consisted of the following (in thousands):


	Three Months Ended June 30,					Six Months Ended June 30,
	2022			2021		2022			2021
Net realized foreign currency loss	$	4,799		$	570	$	7,254		$	1,762
Net unrealized foreign currency (gain) loss		(9,503	)		5,959		(9,069	)		(3,563	)
Equity investment income		—			—		—			(1,100	)
Other, net		(448	)		1,298		1,305			872
Total other (income) expense, net	$	(5,152	)	$	7,827	$	(510	)	$	(2,029	)

3. Investments and Divestitures

Investments

During 2020, the Company made a non-cash investment of $27.3 million to acquire certain intellectual property rights from a customer in lieu of cash payment for services rendered. During the second quarter of 2021, the Company exchanged the intellectual property for an equity method investment in an unconsolidated variable interest entity. The Company provided the entity $3.8 million in cash, in the form of a loan, during the third quarter of 2021. Based on the hypothetical liquidation book value of its investment as of June 30, 2022, the Company recorded losses of $1.1 million and $2.3 million to other (income) expense, net in the accompanying condensed consolidated statements of income for the three and six months ended June 30, 2022, respectively. Based on the hypothetical liquidation book value of its investment as of June 30, 2021, the Company recorded a $2.8 million loss to other (income) expense, net in the accompanying condensed and consolidated statement of income for the three months ended June 30, 2021. As of June 30, 2022 and December 31, 2021, the book value of the Company’s investment was $12.2 million and $16.2 million, respectively, and was included in other long-term assets in the accompanying condensed consolidated balance sheets, with a maximum exposure to loss of approximately $15.9 million as of June 30, 2022, which includes funding of the loan.

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Divestitures

During the second quarter of 2020, the Company sold its contingent staffing business to a related party in exchange for potential future cash consideration not to exceed $4.0 million. Based on the financial results of the business through May 31, 2022 and 2021, the Company recognized $2.2 million and $1.8 million of contingent consideration in other (income) expense, net in the accompanying condensed consolidated statements of income for the three months ended June 30, 2022 and 2021, respectively, which reflects the maximum amount of future cash consideration. The contingent cash consideration related to financial results through May 31, 2022 had not been received as of June 30, 2022, and therefore was recorded as a receivable in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheet.

4. Long-Term Debt Obligations

The Company’s debt obligations consisted of the following (in thousands):


	June 30, 2022			December 31, 2021
Secured Debt
Term Loan A - tranche one due March 2024	$	149,195		$	149,195
Term Loan A - tranche two due August 2024		1,636,797			1,636,797
Revolving credit facility due August 2024		35,000			—
Accounts receivable financing agreement due October 2024		400,000			400,000
Total secured debt		2,220,992			2,185,992
Unsecured Debt
Senior notes due January 2029 (the “Notes”)		600,000			600,000
Total debt obligations		2,820,992			2,785,992
Less: Term loan original issuance discount		(1,809	)		(2,228	)
Less: Unamortized deferred issuance costs		(7,352	)		(8,043	)
Total long-term debt	$	2,811,831		$	2,775,721

Credit Agreement

The Company is party to a credit agreement (as amended, the “Credit Agreement”) that includes a Term Loan A facility (“Term Loan A”) that has two tranches (as detailed in the table above), and a $600.0 million revolving credit facility that matures on August 1, 2024 (the “Revolver”). As a result of previous voluntary prepayments, the Company is not required to make a mandatory payment against the principal balance of Term Loan A until October 2023. As of June 30, 2022, the interest rate on Term Loan A was 2.92%.

Revolver and Letters of Credit

The Revolver includes letters of credit (“LOCs”) with a sublimit of $150.0 million. As of June 30, 2022, there were $35.0 million of outstanding Revolver borrowings and $14.1 million of LOCs outstanding, leaving $550.9 million of available borrowings under the Revolver, including $135.9 million available for LOCs. As of June 30, 2022, the interest rate on the Revolver was 2.84%.

The Notes

The Notes bear interest at a rate of 3.625% per annum, payable semi-annually in arrears that began on July 15, 2021, and will mature on January 15, 2029.

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Accounts Receivable Financing Agreement

The Company has an accounts receivable financing agreement (as amended) with a termination date of October 2024, unless terminated earlier pursuant to its terms. As of June 30, 2022, the Company had $400.0 million of outstanding borrowings under this agreement, which are recorded in long-term debt on the accompanying condensed consolidated balance sheet. There was 0 remaining borrowing capacity available under this agreement as of June 30, 2022. As of June 30, 2022, the interest rate on the accounts receivable financing agreement was 2.58%.

Maturities of Debt Obligations

As of June 30, 2022, the contractual maturities of the Company’s debt obligations (excluding finance leases) were as follows (in thousands):


	Principal
Remainder of 2022	$	—
2023		21,732
2024		2,199,260
2025		—
2026		—
2027 and thereafter		600,000
Less: Term loan original issuance discount		(1,809	)
Less: Unamortized deferred issuance costs		(7,352	)
Total	$	2,811,831

5. Derivatives

Interest Rate Swaps

The Company has entered into various interest rate swaps to mitigate its exposure to changes in interest rates on its term loan. In March 2020, the Company entered into interest rate swaps with multiple counterparties. The interest rate swaps had an initial aggregate notional value of $549.2 million that increased to $1.42 billion on June 30, 2021, an effective date of March 31, 2020, and will expire on March 31, 2023. As of June 30, 2022, the notional value of these interest rate swaps was $1.07 billion.

Foreign Exchange Forward

On October 30, 2020, the Company entered into a foreign exchange forward in order to minimize monthly foreign currency remeasurement gains or losses on non-functional currency monetary balances. The foreign exchange forward notional value may be adjusted each month as the exposure balance changes. The Company did not designate the derivative as a hedge. All changes in the fair value of the foreign exchange forward are recorded in earnings every month to other (income) expense, net in the accompanying condensed consolidated statements of income. The Company recognized $5.6 million and $7.5 million of realized losses during the three and six months ended June 30, 2022, respectively, and $0.4 million and $1.5 million of realized gains during the three and six months ended June 30, 2021, respectively, related to this foreign exchange forward. As of June 30, 2022, the notional value of this foreign exchange forward was $75.0 million.

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Fair Values

The fair values of the Company’s derivative financial instruments and the line items on the accompanying condensed consolidated balance sheets to which they were recorded were as follows (in thousands):


	Balance Sheet Classification	June 30, 2022		December 31, 2021
Interest rate swaps - current	Prepaid expenses and other current assets	$	18,317	$	—
Interest rate swaps - non-current	Other long-term assets		—		948
Fair value of derivative assets		$	18,317	$	948

Interest rate swaps - current	Accrued expenses	$	—	$	1,827
Fair value of derivative liabilities		$	—	$	1,827

6. Fair Value Measurements

Assets and Liabilities Carried at Fair Value

As of June 30, 2022 and December 31, 2021, the Company’s financial assets and liabilities carried at fair value included cash and cash equivalents, restricted cash, trading securities, accounts receivable, unbilled services (including contract assets), accounts payable, accrued expenses, deferred revenue, contingent obligations, liabilities under the accounts receivable financing agreement, and derivative instruments.

The fair values of cash and cash equivalents, restricted cash, accounts receivable, unbilled services (including contract assets), accounts payable, accrued expenses, deferred revenue, and the liabilities under the accounts receivable financing agreement approximate 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 June 30, 2022, 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):


	Level 1		Level 2		Level 3		Investments Measured at Net Asset Value		Total
Assets:
Trading securities (a)	$	20,207	$	—	$	—	$	—	$	20,207
Partnership interests (b)		—		—		—		12,753		12,753
Derivative instruments (c)		—		18,317		—		—		18,317
Total assets	$	20,207	$	18,317	$	—	$	12,753	$	51,277

Liabilities:
Contingent obligations related to acquisitions (d)	$	—	$	—	$	17,747	$	—	$	17,747
Total liabilities	$	—	$	—	$	17,747	$	—	$	17,747

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As of December 31, 2021, 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):


	Level 1		Level 2		Level 3		Investments Measured at Net Asset Value		Total
Assets:
Trading securities (a)	$	24,775	$	—	$	—	$	—	$	24,775
Partnership interests (b)		—		—		—		11,176		11,176
Derivative instruments (c)		—		948		—		—		948
Total assets	$	24,775	$	948	$	—	$	11,176	$	36,899

Liabilities:
Derivative instruments (c)	$	—	$	1,827	$	—	$	—	$	1,827
Contingent obligations related to acquisitions (d)		—		—		17,997		—		17,997
Total liabilities	$	—	$	1,827	$	17,997	$	—	$	19,824

(a) Represents the fair value of investments in mutual funds based on quoted market prices that are used to fund the liability associated with the Company’s deferred compensation plan.

(b) The Company has committed to invest $21.5 million as a limited partner in 2 private equity funds. The private equity funds invest in opportunities in the healthcare and life sciences industry. As of June 30, 2022, the Company’s remaining unfunded commitment in the private equity funds was $11.2 million. The Company holds minor ownership interests (less than 3%) in each of the private equity funds and has determined that it does not exercise significant influence over the private equity funds’ operating and finance activities. As the private equity funds do not have readily determinable fair values, the Company has estimated the fair values using each fund’s Net Asset Value, the amount by which the value of all assets exceeds all debt and liabilities, in accordance with Accounting Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies.

(d) Represents the fair value of contingent consideration obligations related to acquisitions. The fair values of these liabilities are determined based on the Company’s best estimate of the probable timing and amount of settlement.

The following table presents a reconciliation of changes in the carrying amount of contingent obligations classified as Level 3 for the six months ended June 30, 2022 (in thousands):


Balance as of December 31, 2021	$	17,997
Additions		0
Changes in fair value recognized in earnings		(250	)
Payments		0
Balance as of June 30, 2022	$	17,747

During the six months ended June 30, 2022, there were 0 transfers of assets or liabilities between Level 1, Level 2, or Level 3 fair value measurements.

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Financial Instruments Subject to Non-Recurring Fair Value Measurements

Certain assets, including goodwill and identifiable intangible assets, are carried on the accompanying condensed consolidated balance sheets at cost and, subsequent to initial recognition, are measured at fair value on a non-recurring basis when certain identified events or changes in circumstances that may have a significant adverse effect on the carrying values of these assets occur. These assets are classified as Level 3 fair value measurements within the fair value hierarchy. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate a triggering event has occurred. Intangible assets are tested for impairment upon the occurrence of certain triggering events. As of June 30, 2022 and December 31, 2021, assets carried on the condensed consolidated balance sheets and not remeasured to fair value on a recurring basis totaled $5.67 billion and $5.83 billion, respectively.

Fair Value Disclosures for Financial Instruments Not Carried at Fair Value

The estimated fair values of the term loan (based on tranche) and the Notes are determined based on the price that the Company would have had to pay to settle the liabilities. As these liabilities are not actively traded, they are classified as Level 2 fair value measurements. The estimated fair values of the Company’s term loan (based on tranche) and the Notes were as follows (in thousands):


	June 30, 2022				December 31, 2021
	Carrying Value (a)		Estimated Fair Value		Carrying Value (a)		Estimated Fair Value
Term Loan A - tranche one due March 2024	$	149,043	$	146,957	$	149,008	$	148,945
Term Loan A - tranche two due August 2024		1,635,140		1,588,167		1,634,756		1,635,138
Senior notes due January 2029		600,000		513,000		600,000		595,500

(a) The carrying value of the term loan debt is shown net of original issue discounts.

7. Restructuring and Other Costs

During the three and six months ended June 30, 2022 and 2021, the Company incurred employee severance and benefit costs, facility and lease termination costs, and other costs related to its restructuring activities. These costs were primarily related to the Company’s ForwardBound margin enhancement initiative.

Restructuring and other costs consisted of the following (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Employee severance and benefit costs	$	2,368	$	2,084	$	17,188	$	8,377
Facility and lease termination costs		3,671		1,882		3,352		2,770
Other costs		2,944		—		4,000		47
Total restructuring and other costs	$	8,983	$	3,966	$	24,540	$	11,194

The Company expects to continue to incur costs related to restructuring of its operations in order to achieve cost savings and the targeted synergies related to its acquisitions. However, the timing and the amount of these costs depends on various factors, including, but not limited to, identifying and realizing synergy opportunities and executing the integration of its combined operations. The Company may also continue to incur additional restructuring and other costs during 2022 and beyond related to its ForwardBound margin enhancement initiative.

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Accrued Restructuring Liabilities

The following table summarizes activity related to employee severance and benefit costs within accrued restructuring liabilities for the six months ended June 30, 2022 (in thousands):


Balance as of December 31, 2021	$	6,657
Expenses incurred (a)		17,188
Payments		(13,376	)
Balance as of June 30, 2022	$	10,469

(a) The amount of expenses incurred for the six months ended June 30, 2022 excludes $4.0 million of other costs that are included in accounts payable and $3.4 million of facility lease closure and lease termination costs that are reflected as reductions of operating lease right-of-use assets, current portion of operating lease obligations, and operating lease long-term obligations under ASC Topic 842, Leases, on the accompanying condensed consolidated balance sheet.

The Company expects the employee severance and benefit costs accrued as of June 30, 2022 will be paid within the next twelve months and are included within accrued expenses on the accompanying condensed consolidated balance sheet.

8. Shareholders’ Equity

Shares Outstanding

Shares of common stock outstanding were as follows (in thousands):


	Three Months Ended June 30,					Six Months Ended June 30,
	2022		2021			2022			2021
Common stock shares, beginning balance		102,558		104,226			103,764			103,935
Repurchases of common stock		0		(900	)		(1,929	)		(1,500	)
Issuances of common stock		89		147			812			1,038
Common stock shares, ending balance		102,647		103,473			102,647			103,473

Stock Repurchase Programs

On November 17, 2020, the Company’s Board of Directors (the “Board”) authorized the repurchase of up to an aggregate of $300.0 million of the Company’s Class A common stock, par value $0.01 per share, to be executed from time to time in open market transactions effected through a broker at prevailing market prices, in block trades, or through privately negotiated transactions through December 31, 2022 (the “2021 Stock Repurchase Program”). The 2021 Stock Repurchase Program took effect on January 1, 2021.

On May 25, 2022, the Board approved a new stock repurchase program (the “2022 Stock Repurchase Program”) that took effect immediately and replaced the 2021 Stock Repurchase Program. The 2022 Stock Repurchase Program authorizes the Company to repurchase up to $350.0 million of the Company’s Class A common stock, par value $0.01, and will expire on December 31, 2024.

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The 2022 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 cash requirements, and overall market conditions. The 2022 Stock Repurchase Program is subject to applicable legal requirements, including federal and state securities laws and applicable Nasdaq rules. 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.

During the three months ended June 30, 2022, there were no repurchases under the 2021 Stock Repurchase Program or the 2022 Stock Repurchase Program.

The following table sets forth repurchase activity under the 2021 Stock Repurchase Program from inception through the program’s termination on May 25, 2022:


	Total number of shares purchased		Average price paid per share		Approximate dollar value of shares purchased (in thousands)
March 2021		600,000	$	74.18	$	44,505
May 2021		400,000		81.04		32,416
June 2021		500,000		81.20		40,600
February 2022		515,003		78.52		40,439
March 2022		1,413,920		77.46		109,522
Total		3,428,923			$	267,482

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 the par value was applied on a pro rata basis against additional paid-in capital, with the remainder applied to accumulated deficit.

As of June 30, 2022, the Company had remaining authorization to repurchase up to $350.0 million of shares of its common stock under the 2022 Stock Repurchase Program.

9. Earnings Per Share

The following table provides a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations (in thousands, except per share data):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Numerator:
Net income	$	77,744	$	41,905	$	123,920	$	80,629
Denominator:
Basic weighted average common shares outstanding		102,596		103,937		103,130		104,105
Effect of dilutive securities:
Stock options and other awards under deferred share-based compensation programs		476		1,082		611		1,133
Diluted weighted average common shares outstanding		103,072		105,019		103,741		105,238
Earnings per share:
Basic	$	0.76	$	0.40	$	1.20	$	0.77
Diluted	$	0.75	$	0.40	$	1.19	$	0.77

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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 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 periods when the Company incurs a net loss.

The number of potential shares outstanding that were anti-dilutive and therefore excluded from the computation of diluted earnings per share, weighted for the portion of the period they were outstanding, were 774,405, 143,958, 469,724, and 155,062 for the three and six months ended June 30, 2022 and 2021, respectively.

10. Income Taxes

Income Tax Expense

For the three and six months ended June 30, 2022, the Company recorded income tax expense of $25.9 million and $33.3 million, respectively, compared to pre-tax income of $103.7 million and $157.2 million, respectively. Income tax expense for the three and six months ended June 30, 2022 included discrete tax benefits of $0.3 million and $6.4 million, respectively, primarily related to excess tax benefits from share-based compensation. The effective tax rates for the three and six months ended June 30, 2022, excluding discrete items, varied from the United States (“U.S.”) federal statutory income tax rate of 21.0% primarily due to state and local taxes on U.S. income, foreign income inclusions such as the Global Intangible Low-Taxed Income (“GILTI”) provisions, and research and development credits.

For the three and six months ended June 30, 2021, the Company recorded income tax expense of $9.1 million and $17.4 million, respectively, compared to pre-tax income of $51.0 million and $98.1 million, respectively. Income tax expense for the three and six months ended June 30, 2021 included discrete tax benefits of $2.2 million and $5.8 million, respectively, primarily related to excess tax benefits from share-based compensation. The effective tax rates for the three and six months ended June 30, 2021, excluding discrete items, varied from the U.S. federal statutory income tax rate of 21.0% primarily due to foreign tax credits, foreign income inclusions such as the GILTI provisions, and state and local taxes on U.S. income.

Unrecognized Tax Benefits

The Company’s gross unrecognized tax benefits, exclusive of associated interest and penalties, were $11.7 million and $12.1 million as of June 30, 2022 and December 31, 2021, respectively. The decrease of $0.4 million was primarily due to lapses in statutes of limitations and changes in exchange rates. The Company believes it is reasonably possible that its unrecognized tax benefits may decrease by approximately $1.4 million within the next 12 months as a result of lapses in statutes of limitations.

Tax Returns under Audit

The Company is not currently under any U.S. federal income tax audits, however, income tax returns are under examination by tax authorities in several state and foreign jurisdictions. The Company’s federal and state tax filings are open to investigations in numerous years due to net operating loss carryforwards. Additionally, the Company currently has an ongoing examination for tax years 2014 to 2019 in the United Kingdom. The United Kingdom is the jurisdiction with the Company’s largest foreign operations. The Company believes that its reserve for uncertain tax positions is adequate to cover existing risks or exposures related to all open tax years and jurisdictions.

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11. Revenue from Contracts with Customers

Unsatisfied Performance Obligations

As of June 30, 2022, the total aggregate transaction price allocated to the unsatisfied performance obligations under contracts with contract terms greater than one year and that are not accounted for as a series pursuant to ASC Topic 606, Revenue from Contracts with Customers and all the related amendments was $6.57 billion. This amount includes revenue associated with reimbursable out-of-pocket expenses. The Company expects to recognize revenue over the remaining contract term of the individual projects, with contract terms generally ranging from one to five years. The amount of unsatisfied performance obligations is presented net of any constraints and, as a result, is lower than the potential contractual revenue. The contracts excluded due to constraints include contracts that do not commence within a certain period of time or that require the Company to undertake numerous activities to fulfill these performance obligations, including various activities that are outside of the Company’s control.

Timing of Billing and Performance

During the three and six months ended June 30, 2022, the Company recognized approximately $389.3 million and $547.8 million, respectively, of revenue that was included in the deferred revenue balance at the beginning of the respective periods. During the three and six months ended June 30, 2022, there were reductions of approximately $1.5 million and $2.4 million, respectively, in the Company’s revenue recognized related to performance obligations partially satisfied in previous periods. The gross and net amounts of revenue recognized solely from changes in estimates were not material.

12. Segment Information

The Company is managed through 2 reportable segments: Clinical Solutions and Commercial Solutions. Each reportable segment consists of multiple service offerings that, when combined, create a fully integrated biopharmaceutical services organization. Clinical Solutions offers comprehensive global services for the development of diagnostics, drugs, biologics, devices, and digital therapeutics that span Phases I to IV of clinical development. The segment is organized around clinical pharmacology and bioanalytical services, workforce deployment, full-service clinical studies, real world evidence, and consulting. This segment offers individual services including product development and regulatory consulting, project management, protocol development, investigational site recruitment, clinical monitoring, technology-enabled patient recruitment and engagement, clinical home health services, clinical trial diversity, biometrics, and regulatory affairs; all across a comprehensive range of therapeutic areas. Commercial Solutions provides the pharmaceutical, biotechnology, and healthcare industries with commercialization services, including deployment solutions, communication solutions (public relations, advertising, and medical communications), and consulting services.

The Company’s Chief Operating Decision Maker (the “CODM”) reviews segment performance and allocates resources based upon segment revenue and income from operations. 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, general operating expenses associated with the Board and the Company’s senior leadership, finance, investor relations, and internal audit functions, and transaction and integration-related expenses. The Company does not allocate depreciation, amortization, asset impairment charges, or restructuring and other costs to its segments. Prior period segment results have been recast to conform to insignificant changes to management reporting in 2022. 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.

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Information about reportable segment operating results was as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenue:
Clinical Solutions	$	1,025,715	$	992,936	$	2,044,085	$	1,932,503
Commercial Solutions		335,024		289,675		652,907		558,853
Total revenue		1,360,739		1,282,611		2,696,992		2,491,356
Segment direct costs:
Clinical Solutions		753,451		752,171		1,528,119		1,469,526
Commercial Solutions		273,578		232,283		534,543		451,083
Total segment direct costs		1,027,029		984,454		2,062,662		1,920,609
Segment selling, general, and administrative expenses:
Clinical Solutions		88,863		89,303		178,765		176,835
Commercial Solutions		21,094		20,318		42,829		41,289
Total segment selling, general, and administrative expenses		109,957		109,621		221,594		218,124
Segment operating income:
Clinical Solutions		183,401		151,462		337,201		286,142
Commercial Solutions		40,352		37,074		75,535		66,481
Total segment operating income		223,753		188,536		412,736		352,623
Direct costs and operating expenses not allocated to segments:
Share-based compensation included in direct costs		7,868		8,127		16,667		17,222
Share-based compensation included in selling, general, and administrative expenses		8,323		8,312		16,857		16,570
Corporate selling, general, and administrative expenses		20,760		26,736		40,755		47,289
Restructuring and other costs		8,983		3,966		24,540		11,194
Depreciation and amortization		61,221		57,711		123,423		115,649
Total income from operations	$	116,598	$	83,684	$	190,494	$	144,699

13. Operations by Geographic Location

The following table summarizes total revenue by geographic area (in thousands, all intercompany transactions have been eliminated):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenue:
North America (a)	$	806,640	$	774,228	$	1,588,294	$	1,513,229
Europe, Middle East, and Africa		340,384		328,895		695,977		645,071
Asia-Pacific		172,965		144,233		333,768		270,690
Latin America		40,750		35,255		78,953		62,366
Total revenue	$	1,360,739	$	1,282,611	$	2,696,992	$	2,491,356

(a) Revenue for the North America region includes revenue attributable to the U.S. of $754.7 million and $722.8 million, or 55.5% and 56.4% of total revenue, for the three months ended June 30, 2022 and 2021, respectively. Revenue for the North America region includes revenue attributable to the U.S. of $1,491.2 million and $1,416.7 million, or 55.3% and 56.9% of total revenue, for the six months ended June 30, 2022 and 2021, respectively. No other country represented more than 10% of total revenue for any period.

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The following table summarizes long-lived assets by geographic area (in thousands, all intercompany transactions have been eliminated):


	June 30, 2022		December 31, 2021
Property and equipment, net:
North America (a)	$	193,233	$	165,446
Europe, Middle East, and Africa		34,330		37,004
Asia-Pacific		19,639		13,615
Latin America		7,689		6,592
Total property and equipment, net	$	254,891	$	222,657

(a) Long-lived assets for the North America region include property and equipment, net attributable to the U.S. of $186.1 million and $160.0 million as of June 30, 2022 and December 31, 2021, respectively.

14. Concentration of Credit Risk

Financial assets that subject the Company to credit risk primarily consist of cash and cash equivalents, accounts receivable, and unbilled services (including contract assets). 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 June 30, 2022 and December 31, 2021, substantially all of the Company’s cash and cash equivalents were held within the U.S.

No single customer accounted for greater than 10% of the Company’s revenue for the three and six months ended June 30, 2022 or 2021.

As of June 30, 2022 and December 31, 2021, no single customer accounted for greater than 10% of the Company’s accounts receivable and unbilled services (including contract assets) balances.

15. Related-Party Transactions

For the three and six months ended June 30, 2022, the Company had combined revenue of $2.2 million and $3.6 million, respectively, from 4 customers whose board of directors each included a member who was also a member of the Company’s Board. As of June 30, 2022, the Company had combined receivables of $0.3 million from 2 customers whose board of directors included a member who was also a member of the Company’s Board.

On February 8, 2022, the Company completed an insignificant acquisition, which was associated with the 2021 acquisition of RxDataScience, Inc., through an arm’s-length transaction. A member of the Company’s management was a minority shareholder of the acquired company. For additional information, refer to “Note 2 – Financial Statements Details – Goodwill.”

For the three and six months ended June 30, 2021, the Company had combined revenue of $1.2 million and $1.9 million, respectively, and, as of June 30, 2021, combined receivables of $1.6 million from 2 customers whose board of directors each included a member who was also a member of the Company’s Board.

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16. Commitments and Contingencies

Legal Proceedings

In the opinion of management, the outcome of any existing claims and legal or regulatory proceedings, other than Vaitkuvienë v. Syneos Health, Inc., et al, No. 18-0029 (E.D.N.C.) (the “Vaitkuvienë action”), if decided adversely, is not expected to have a material adverse effect on the Company’s business, financial condition, results of operations, or cash flows. There have been no updates from the description of the Vaitkuvienë action included in “Note 17 – Commitments and Contingencies” to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” in the 2021 Form 10-K.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward Looking Statements

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (our “2021 Form 10-K”).

In addition to historical condensed consolidated financial information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that 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, including our business strategy, the future impact of the COVID-19 pandemic on our business, financial results, and financial condition, impacts from economic trends including inflation and increased interest rates, benefits of acquisitions, and planned capital expenditures. 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. 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.

We caution you that any such forward-looking statements are further qualified by important factors that could cause our actual operating results to differ materially from those in the forward-looking statements, including without limitation, regional, national, or global political, economic, business, competitive, market, and regulatory conditions and the following: risks associated with the COVID-19 pandemic; our potential failure to generate a large number of new business awards and the risk of delay, termination, reduction in scope, or failure to go to contract of our business awards; our potential failure to convert backlog to revenue; fluctuations in our operating results and effective income tax rate; the impact of potentially underpricing our contracts, overrunning our cost estimates, or failing to receive approval for or experiencing delays with documentation of change orders; cyber-security and other risks associated with our information systems infrastructure; changes and costs of compliance with regulations related to data privacy; concentration of our customers or therapeutic areas; the risks associated with doing business internationally, including risks related to the war in Ukraine; challenges by tax authorities of our intercompany transfer pricing policies; our potential failure to successfully increase our market share, grow our business, and execute our growth strategies; our ability to effectively upgrade our information systems; our failure to perform our services in accordance with contractual requirements, regulatory standards, and ethical considerations; risks related to the management of clinical trials; the need to hire, develop, and retain key personnel; the impact of unfavorable economic conditions, including the uncertain international economic environment and changes in foreign currency exchange rates; effective income tax rate fluctuations; our ability to protect our intellectual property; risks related to our acquisition strategy, including our ability to realize synergies; our relationships with customers who are in competition with each other; any failure to realize the full value of our goodwill and intangible assets; risks related to restructuring; our compliance with anti-corruption and anti-bribery laws; our dependence on third parties; potential employment liability; the increasing focus on environmental sustainability and social initiatives; our ability to utilize net operating loss carryforwards and other tax attributes; downgrades of our credit ratings; competition in the biopharmaceutical services industry; outsourcing trends and changes in aggregate spending and research and development budgets; the impact of, including changes in, government regulations and healthcare reform; intense competition faced by our customers from lower cost generic products and other competing products; our ability to keep pace with rapid technological

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change; the cost of and our ability to service our substantial indebtedness; and other risks related to ownership of our common stock. For a further discussion of the risks relating to our business, refer to Part I, Item 1A, “Risk Factors” in our 2021 Form 10-K.

Overview of Our Business and Services

We are the only fully integrated biopharmaceutical solutions organization purpose-built to accelerate customer success. We lead with a product development mindset, strategically blending clinical development, medical affairs, and commercial capabilities to address modern market realities for customers in the biopharmaceutical, biotechnology, and healthcare industries. We offer both stand-alone and integrated biopharmaceutical product development solutions ranging from early phase (Phase I) clinical trials to the full commercialization of biopharmaceutical products, with the goal of increasing the likelihood of regulatory approval and commercial success.

Our operations are divided into two reportable segments, Clinical Solutions and Commercial Solutions. Our Clinical Solutions segment offers comprehensive global services for the development of diagnostics, drugs, biologics, devices, and digital therapeutics that span Phases I to IV of clinical development. The segment is organized around clinical pharmacology and bioanalytical services, workforce deployment, full-service clinical studies, real world evidence, and consulting. Our Commercial Solutions segment provides commercialization services, including deployment solutions, communication solutions (public relations, advertising, and medical communications), and consulting services. We integrate our clinical and commercial capabilities into customized solutions by sharing knowledge, data, and insights. This collaboration across the development and commercialization continuum facilitates unique insights into patient populations, therapeutic environments, product timelines, and the competitive landscape. For a further discussion, refer to Part I, Item 1, “Business” in our 2021 Form 10-K.

The ongoing COVID-19 pandemic and associated economic repercussions have significantly impacted, and are expected to continue to impact, our business and our operations. Within Clinical Solutions, the pandemic has accelerated the adoption of virtual engagement with sites and patients, creating increased demand for decentralized solutions capabilities. As a result, we have continued to experience reduced travel and other reimbursable out-of-pocket expenses related to lower physical monitoring visits for Clinical Solutions relative to pre-pandemic levels. We have also experienced a reduction in the costs associated with investigational medicinal products, which has also resulted in lower reimbursable out-of-pocket expenses. Within Commercial Solutions, we have continued to experience fewer field team visits to healthcare providers and increased virtual investigator meetings. Therefore, we expect reimbursable out-of-pocket expenses as a percentage of revenue to remain lower relative to pre-pandemic levels. With the spread of COVID-19 variants, the ongoing impacts of the COVID-19 pandemic could adversely impact our business and results of operations. For a further discussion of this and other risks relating to our business, refer to Part I, Item 1A, “Risk Factors” in our 2021 Form 10-K.

Prior period segment results have been recast to conform to insignificant changes to management reporting in 2022.

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New Business Awards and Backlog

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:

•

collection of the award value is probable;

•

the project or projects are expected to commence within a certain period of time from the end of the quarter in which the award was granted;

•

project contingencies such as the outcome of other clinical trials, funding approvals, or other events, are not anticipated to prevent the project or projects from commencing in accordance with the expected timeline;

•

the customer has entered or intends to enter into a comprehensive contract as soon as practicable; and

•

for awards related to deployment solutions and functional service provider offerings, a maximum of twelve months of services are included in the award value.

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 the risk of cancellation. We recognize revenue from these awards as services are performed, provided we have received proper authorization from the customer.

We report new business awards for our Clinical Solutions and Commercial Solutions segments on a trailing twelve months (“TTM”) basis. Our total backlog represents backlog for our Clinical Solutions segment and the deployment solutions offering within our Commercial Solutions segment. We do not report backlog for the remaining service offerings in the Commercial Solutions segment.

Backlog

Our backlog consists of anticipated future revenue from business awards that either have not started, or that are in process and have not been completed. Our backlog also reflects any cancellation or adjustment activity related to these awards. The average duration of our contracts will fluctuate from period to period based on the contracts comprising our backlog at any given time. The majority of our contracts contain early termination provisions that typically require notice periods ranging from 30 to 90 days.

Our backlog as of June 30 was as follows (in millions):


	2022		2021		Change
Clinical Solutions	$	10,634.4	$	10,972.6	$	(338.2	)	(3.1	)%
Commercial Solutions - Deployment Solutions		821.6		718.4		103.2		14.4	%
Total backlog	$	11,456.0	$	11,691.0	$	(235.0	)	(2.0	)%

We expect approximately $2.45 billion of our backlog as of June 30, 2022 will be recognized as revenue during the remainder of 2022. We adjust the amount of our backlog each quarter for the effects of fluctuations in foreign currency exchange rates.

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Net New Business Awards

New business awards, net of cancellations, for the TTM periods ended June 30 were as follows (in millions):


	2022		2021
Clinical Solutions	$	3,901.5	$	4,983.2
Commercial Solutions		1,400.3		1,245.7
Total net new business awards	$	5,301.8	$	6,228.9

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.

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 continue to be, affected by a number of factors, including the variable size and duration of projects, many of which are performed over several years, 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. Net new business awards and backlog have been and we expect will continue to be affected by the broad effects of the COVID-19 pandemic on the global economy and major financial markets, as well as various other risks and uncertainties detailed in Part I, Item 1A, “Risk Factors” in our 2021 Form 10-K. 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 to lengthen. 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 our 2021 Form 10-K.

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Results of Operations

The following table sets forth amounts from our condensed consolidated statements of income along with dollar and percentage changes (in thousands, except percentages):


	Three Months Ended June 30,
	2022		2021		Change
Revenue	$	1,360,739	$	1,282,611	$	78,128		6.1	%
Costs and operating expenses:
Direct costs (exclusive of depreciation and amortization)		1,034,897		992,581		42,316		4.3	%
Selling, general, and administrative expenses		139,040		144,669		(5,629	)	(3.9	)%
Restructuring and other costs		8,983		3,966		5,017		126.5	%
Depreciation and amortization		61,221		57,711		3,510		6.1	%
Total operating expenses		1,244,141		1,198,927		45,214		3.8	%
Income from operations		116,598		83,684		32,914		39.3	%
Total other expense, net		12,914		32,645		(19,731	)	(60.4	)%
Income before provision for income taxes		103,684		51,039		52,645		103.1	%
Income tax expense		25,940		9,134		16,806		184.0	%
Net income	$	77,744	$	41,905	$	35,839		85.5	%

	Six Months Ended June 30,
	2022		2021		Change
Revenue	$	2,696,992	$	2,491,356	$	205,636		8.3	%
Costs and operating expenses:
Direct costs (exclusive of depreciation and amortization)		2,079,329		1,937,831		141,498		7.3	%
Selling, general, and administrative expenses		279,206		281,983		(2,777	)	(1.0	)%
Restructuring and other costs		24,540		11,194		13,346		119.2	%
Depreciation and amortization		123,423		115,649		7,774		6.7	%
Total operating expenses		2,506,498		2,346,657		159,841		6.8	%
Income from operations		190,494		144,699		45,795		31.6	%
Total other expense, net		33,318		46,649		(13,331	)	(28.6	)%
Income before provision for income taxes		157,176		98,050		59,126		60.3	%
Income tax expense		33,256		17,421		15,835		90.9	%
Net income	$	123,920	$	80,629	$	43,291		53.7	%

Revenue

For the three months ended June 30, 2022, our revenue increased by $78.1 million, or 6.1%, to $1,360.7 million from $1,282.6 million for the three months ended June 30, 2021. For the six months ended June 30, 2022, our revenue increased by $205.6 million, or 8.3%, to $2,697.0 million from $2,491.4 million for the six months ended June 30, 2021. The increases were primarily driven by growth in both our Clinical Solutions and Commercial Solutions segments as discussed below.

No single customer accounted for greater than 10% of our total consolidated revenue for the three and six months ended June 30, 2022 or 2021. Revenue from our top five customers accounted for approximately 23% of revenue for both the three and six months ended June 30, 2022, and 22% of revenue for both the three and six months ended June 30, 2021.

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Revenue for each of our segments was as follows (dollars in thousands):


	Three Months Ended June 30,
	2022		% of total			2021		% of total			Change
Clinical Solutions	$	1,025,715		75.4	%	$	992,936		77.4	%	$	32,779	3.3	%
Commercial Solutions		335,024		24.6	%		289,675		22.6	%		45,349	15.7	%
Total revenue	$	1,360,739				$	1,282,611				$	78,128	6.1	%

	Six Months Ended June 30,
	2022		% of total			2021		% of total			Change
Clinical Solutions	$	2,044,085		75.8	%	$	1,932,503		77.6	%	$	111,582	5.8	%
Commercial Solutions		652,907		24.2	%		558,853		22.4	%		94,054	16.8	%
Total revenue	$	2,696,992				$	2,491,356				$	205,636	8.3	%

Clinical Solutions

For the three and six months ended June 30, 2022, revenue attributable to our Clinical Solutions segment increased compared to the same periods in the prior year, primarily driven by increased project start-ups related to large pharmaceutical customers and, to a lesser extent, the acquisitions of StudyKIK Corporation and RxDataScience, Inc. in the second half of 2021. These increases were partially offset by decreases in revenue from projects related to COVID-19, which generally experience higher reimbursable out-of-pocket expenses. For the three and six months ended June 30, 2022, revenue was negatively impacted by $22.9 million and $34.7 million, respectively, from fluctuations in foreign currency exchange rates compared to the same periods in the prior year.

The impact from the COVID-19 pandemic on our Clinical Solutions revenue continues to decrease. We believe the primary ongoing impact to revenue from the COVID-19 pandemic relates to increased demand for decentralized solutions capabilities including remote monitoring, which results in lower reimbursable out-of-pocket expenses. Therefore, we expect reimbursable out-of-pocket expenses as a percentage of revenue to remain lower relative to pre-pandemic levels.

The war in Ukraine has not had a material impact on our revenue; however, that could change depending on the magnitude of the conflict and the imposition of additional sanctions by the United States (“U.S.”) and other countries. We continue to adapt our strategic approach as the crisis persists and we are continuing our risk assessments in neighboring countries to be proactive about potential future challenges. Banking and economic sanctions imposed on Russia continue to present challenges to clinical trials. We are monitoring these sanctions to ensure we are in compliance and we are adapting our operations to address both the sanctions and the increasing logistical challenges of conducting trials in Russia. At this time, we are continuing to service patients in Ukraine and Russia in existing trials where possible. We are generally no longer initiating new clinical trial activities in either Ukraine or Russia, though we may do so on a case-by-case basis. Any impacts to our revenue are expected to be temporary in nature as we work with customers to explore alternate sources of recruiting new patients, including potentially activating sites in other regions.

Commercial Solutions

For the three and six months ended June 30, 2022, revenue attributable to our Commercial Solutions segment increased compared to the same periods in the prior year, primarily driven by increased project start-ups, including new deployments of field teams. For the three and six months ended June 30, 2022, revenue was negatively impacted by $5.3 million and $7.5 million, respectively, from fluctuations in foreign currency exchange rates compared to the same periods in the prior year.

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The impact from the COVID-19 pandemic on our Commercial Solutions revenue continues to decrease. We believe the primary ongoing impacts to revenue relate to declines in field team visits to healthcare providers and increased virtual investigator meetings, which result in lower reimbursable out-of-pocket expenses. Therefore, we expect reimbursable out-of-pocket expenses as a percentage of revenue to remain lower relative to pre-pandemic levels.

Direct Costs

Direct costs consist principally of compensation expense and benefits associated with our employees and other employee-related costs, and reimbursable out-of-pocket expenses directly related to delivering on our projects. 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 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 on our projects; (ii) adjustments to the timing of work on specific customer contracts; (iii) the experience mix of personnel assigned to projects; (iv) the service mix and pricing of our contracts; and (v) the timing of the incurrence of reimbursable out-of-pocket expenses. Relative to pre-pandemic levels, we continue to experience reduced travel and other reimbursable out-of-pocket expenses related to lower physical monitoring visits for Clinical Solutions, as well as fewer field team visits to healthcare providers and investigator meetings for Commercial Solutions. As discussed above, we expect reimbursable out-of-pocket expenses to remain lower relative to pre-pandemic levels.

Direct costs were as follows (dollars in thousands):


	Three Months Ended June 30,
	2022			2021			Change
Direct costs (exclusive of depreciation and amortization)	$	1,034,897		$	992,581		$	42,316	4.3	%
% of revenue		76.1	%		77.4	%
Gross margin %		23.9	%		22.6	%

	Six Months Ended June 30,
	2022			2021			Change
Direct costs (exclusive of depreciation and amortization)	$	2,079,329		$	1,937,831		$	141,498	7.3	%
% of revenue		77.1	%		77.8	%
Gross margin %		22.9	%		22.2	%

For the three months ended June 30, 2022, our direct costs increased by $42.3 million, or 4.3%, compared to the three months ended June 30, 2021. For the six months ended June 30, 2022, our direct costs increased by $141.5 million, or 7.3%, compared to the six months ended June 30, 2021. The increases were primarily driven by increased billable headcount to support revenue growth.

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Clinical Solutions

Direct costs for our Clinical Solutions segment, excluding share-based compensation expense, were as follows (dollars in thousands):


	Three Months Ended June 30,
	2022			2021			Change
Direct costs	$	753,451		$	752,171		$	1,280	0.2	%
% of segment revenue		73.5	%		75.8	%
Segment gross margin %		26.5	%		24.2	%

	Six Months Ended June 30,
	2022			2021			Change
Direct costs	$	1,528,119		$	1,469,526		$	58,593	4.0	%
% of segment revenue		74.8	%		76.0	%
Segment gross margin %		25.2	%		24.0	%

For the three months ended June 30, 2022, our Clinical Solutions segment direct costs increased by $1.3 million, or 0.2%, compared to the three months ended June 30, 2021. For the six months ended June 30, 2022, our Clinical Solutions segment direct costs increased by $58.6 million, or 4.0%, compared to the six months ended June 30, 2021. The increases were primarily driven by increased billable headcount to support revenue growth. The increases were partially offset by positive impacts from fluctuations in foreign currency exchange rates, lower reimbursable out-of-pocket expenses related to COVID-19 projects, and our ForwardBound margin enhancement initiative.

Gross margins for our Clinical Solutions segment were 26.5% and 24.2% for the three months ended June 30, 2022 and 2021, respectively, and 25.2% and 24.0% for the six months ended June 30, 2022 and 2021, respectively. Gross margins were higher during the current year periods as compared to the same periods in the prior year primarily due to lower reimbursable out-of-pocket expenses and positive impacts from fluctuations in foreign exchange rates, partially offset by increased billable headcount costs and a larger proportion of contract labor.

Commercial Solutions

Direct costs for our Commercial Solutions segment, excluding share-based compensation expense, were as follows (dollars in thousands):


	Three Months Ended June 30,
	2022			2021			Change
Direct costs	$	273,578		$	232,283		$	41,295	17.8	%
% of segment revenue		81.7	%		80.2	%
Segment gross margin %		18.3	%		19.8	%

	Six Months Ended June 30,
	2022			2021			Change
Direct costs	$	534,543		$	451,083		$	83,460	18.5	%
% of segment revenue		81.9	%		80.7	%
Segment gross margin %		18.1	%		19.3	%

For the three months ended June 30, 2022, our Commercial Solutions segment direct costs increased by $41.3 million, or 17.8%, compared to the three months ended June 30, 2021. For the six months ended June 30, 2022, our Commercial Solutions segment direct costs increased by $83.5 million, or 18.5%, compared to the six months ended June 30, 2021. These increases were primarily driven by increased billable headcount to support revenue growth.

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Gross margins for our Commercial Solutions segment were 18.3% and 19.8% for the three months ended June 30, 2022 and 2021, respectively, and 18.1% and 19.3% for the six months ended June 30, 2022 and 2021, respectively. Gross margins were lower during the current year periods as compared to the same periods in the prior year due to a less favorable revenue mix.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses were as follows (dollars in thousands):


	Three Months Ended June 30,
	2022			2021			Change
Selling, general, and administrative expenses	$	139,040		$	144,669		$	(5,629	)	(3.9	)%
% of total revenue		10.2	%		11.3	%

	Six Months Ended June 30,
	2022			2021			Change
Selling, general, and administrative expenses	$	279,206		$	281,983		$	(2,777	)	(1.0	)%
% of total revenue		10.4	%		11.3	%

Selling, general, and administrative expenses for the three and six months ended June 30, 2022 decreased compared to the same periods in 2021 primarily due to lower transaction, integration-related, and other expenses. These decreases were partially offset by increased headcount. Selling, general, and administrative expenses for the three and six months ended June 30, 2022 included costs resulting from the war in Ukraine, including incremental costs related to impacted employees and ongoing assessment of imposed sanctions.

Restructuring and Other Costs

Restructuring and other costs were $9.0 million and $4.0 million for the three months ended June 30, 2022 and 2021, respectively, and $24.5 million and $11.2 million for the six months ended June 30, 2022 and 2021, respectively. The costs incurred during the three and six months ended June 30, 2022 and 2021 were primarily related to our ForwardBound margin enhancement initiative as we continue the ongoing evaluations of our workforce and facilities infrastructure needs in an effort to optimize our resources. ForwardBound includes optimization programs across our entire business. During the first half of 2022, these ForwardBound initiatives included specific actions focused on streamlining the operations of our Clinical Solutions segment to optimize efficiency and enhance the delivery of customer projects.

Restructuring and other costs consisted of the following (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Employee severance and benefit costs	$	2,368	$	2,084	$	17,188	$	8,377
Facility and lease termination costs		3,671		1,882		3,352		2,770
Other costs		2,944		—		4,000		47
Total restructuring and other costs	$	8,983	$	3,966	$	24,540	$	11,194

We expect to continue to incur costs related to the restructuring of our operations in order to achieve cost savings and the targeted synergies related to our acquisitions. However, the timing and 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. We may also continue to incur additional restructuring and other costs during 2022 and beyond related to our ForwardBound margin enhancement initiative.

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Depreciation and Amortization Expense

Total depreciation and amortization expense was $61.2 million and $57.7 million for the three months ended June 30, 2022 and 2021, respectively, and $123.4 million and $115.6 million for the six months ended June 30, 2022 and 2021, respectively. The increases in total depreciation and amortization expense in the current year compared to the prior year periods were primarily due to vehicle fleet leases, internal-use software, and intangible assets from acquisitions completed in the second half of 2021.

Total Other Expense, Net

Total other expense, net consisted of the following (dollars in thousands):


	Three Months Ended June 30,
	2022			2021			Change
Interest income	$	(36	)	$	—		$	(36	)	n/m
Interest expense		18,102			22,619			(4,517	)		(20.0	)%
Loss on extinguishment of debt		—			2,199			(2,199	)		(100.0	)%
Other (income) expense, net		(5,152	)		7,827			(12,979	)	n/m
Total other expense, net	$	12,914		$	32,645		$	(19,731	)		(60.4	)%

	Six Months Ended June 30,
	2022			2021			Change
Interest income	$	(39	)	$	(71	)	$	32			45.1	%
Interest expense		33,867			45,947			(12,080	)		(26.3	)%
Loss on extinguishment of debt		—			2,802			(2,802	)		(100.0	)%
Other income, net		(510	)		(2,029	)		1,519			74.9	%
Total other expense, net	$	33,318		$	46,649		$	(13,331	)		(28.6	)%

Total other expense, net was $12.9 million and $32.6 million for the three months ended June 30, 2022 and 2021, respectively, and $33.3 million and $46.6 million for the six months ended June 30, 2022 and 2021, respectively. The decreases in interest expense were primarily due to reductions in our higher interest rate debt as a result of debt prepayments and refinancing transactions. Due to market forecasts for the London Inter-bank Offered Rate (“LIBOR”), we believe we may experience higher interest expense during the remainder of the year relative to the first half. Other (income) expense, net primarily consists of foreign currency gains and losses that result from exchange rate fluctuations on our monetary asset balances denominated in currencies other than our functional currency, other gains and losses related to investments, and contingent consideration related to divested businesses.

Income Tax Expense

For the three and six months ended June 30, 2022, we recorded income tax expense of $25.9 million and $33.3 million, respectively, compared to pre-tax income of $103.7 million and $157.2 million, respectively. Income tax expense for the three and six months ended June 30, 2022 included discrete tax benefits of $0.3 million and $6.4 million, respectively, primarily related to excess tax benefits from share-based compensation. The effective tax rates for the three and six months ended June 30, 2022, excluding discrete items, varied from the U.S. federal statutory income tax rate of 21.0% primarily due to state and local taxes on U.S. income, foreign income inclusions such as the Global Intangible Low-Taxed Income (“GILTI”) provisions, and research and development credits.

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For the three and six months ended June 30, 2021, we recorded income tax expense of $9.1 million and $17.4 million, respectively, compared to pre-tax income of $51.0 million and $98.1 million, respectively. Income tax expense for the three and six months ended June 30, 2021 included discrete tax benefits of $2.2 million and $5.8 million, respectively, primarily related to excess tax benefits from share-based compensation. The effective tax rates for the three and six months ended June 30, 2021, excluding discrete items, varied from the U.S. federal statutory income tax rate of 21.0% primarily due to foreign tax credits, foreign income inclusions such as the GILTI provisions, and state and local taxes on U.S. income.

We currently maintain a valuation allowance against a portion of our state deferred tax assets and a portion of our foreign deferred tax assets as of June 30, 2022. We intend to continue to maintain a valuation allowance on these deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances.

Liquidity and Capital Resources

Key measures of our liquidity were as follows (in thousands):


	June 30, 2022		December 31, 2021
Balance sheet statistics:
Cash and cash equivalents	$	105,880	$	106,363
Restricted cash		108		112
Working capital (excluding restricted cash)		174,304		112,228

As of June 30, 2022, we had $106.0 million of cash, cash equivalents, and restricted cash. As of June 30, 2022, substantially all of our cash, cash equivalents, and restricted cash was held within the U.S. In addition, we had $550.9 million (net of $14.1 million in outstanding letters of credit (“LOCs”)) available for borrowing under our revolving credit facility (the “Revolver”), of which $135.9 million was available for LOCs.

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, stock repurchases, working capital, and other general corporate expenses. Cash flow from operations also could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic on the global economy and major financial markets, as well as other risks detailed in Part I, Item 1A, “Risk Factors” in our 2021 Form 10-K. Based on past performance and current expectations, we believe our cash and cash equivalents, cash generated from operations, and funds available under the Revolver 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 June 30, 2022, we had approximately $2.89 billion of total principal indebtedness (including $73.1 million in finance lease obligations), consisting of $1.79 billion in term loan debt, $35.0 million under our Revolver, $600.0 million of senior notes (the “Notes”), and $400.0 million in borrowings against our accounts receivable financing agreement. See “Note 4 – Long-Term Debt Obligations” of our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q as well as Part II, Item 7 of our 2021 Form 10-K for additional details regarding our long-term debt arrangements.

Our long-term debt arrangements contain customary restrictive covenants and, as of June 30, 2022, we were in compliance with all applicable debt covenants.

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Interest Rates

We have entered into various interest rate swaps to mitigate our exposure to changes in interest rates on our term loan. As of June 30, 2022, the percentage of our total principal debt (excluding finance leases) that is subject to fixed interest rates was approximately 59%. Each quarter-point increase or decrease in the applicable floating interest rate as of June 30, 2022 would change our annual interest expense by approximately $2.9 million.

Stock Repurchase Programs

During the three months ended June 30, 2022, there were no share repurchases under either the 2021 Stock Repurchase Program or the 2022 Stock Repurchase Program. See “Note 8 – Shareholders’ Equity” of our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details.

As of June 30, 2022, we had remaining authorization to repurchase up to $350.0 million of shares of our common stock under the 2022 Stock Repurchase Program.

Cash, Cash Equivalents and Restricted Cash

Our cash flows from operating, investing, and financing activities were as follows (in thousands):


	Six Months Ended June 30,
	2022			2021			Change
Net cash provided by operating activities	$	170,789		$	215,795		$	(45,006	)
Net cash used in investing activities		(51,063	)		(31,280	)		(19,783	)
Net cash used in financing activities		(134,519	)		(190,823	)		56,304

Cash Flows from Operating Activities

Cash flows provided by operating activities decreased by $45.0 million during the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The decrease is primarily due to negative changes in operating assets and liabilities relative to the prior year period, partially offset by higher cash-related net income. Fluctuations in accounts receivable, unbilled services (including contract assets), 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 accounts receivable, unbilled services (including contract assets), and deferred revenue can vary significantly from period to period.

Cash Flows from Investing Activities

For the six months ended June 30, 2022, we used $51.1 million in cash for investing activities, which included $47.9 million for purchases of property and equipment. 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, enable efficiencies, reduce business continuity risks, and conform to changes in governing rules and regulations.

For the six months ended June 30, 2021, we used $31.3 million in cash for investing activities, which consisted of $14.6 million of payments related to acquisitions and $22.3 million for purchases of property and equipment, partially offset by proceeds of $5.0 million from notes receivable from a divestiture and $0.7 million from unconsolidated affiliates.

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Cash Flows from Financing Activities

For the six months ended June 30, 2022, we used $134.5 million in cash for financing activities, which consisted primarily of repurchases of our common stock and payments related to tax withholdings for share-based compensation. These payments were partially offset by net proceeds from our Revolver.

For the six months ended June 30, 2021, we used $190.8 million in cash for financing activities, which consisted primarily of repurchases of our common stock, net repayments of long-term debt, and payments related to tax withholdings for share-based compensation. These payments were partially offset by proceeds from our accounts receivable financing agreement.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets, 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, valuation of goodwill and identifiable intangibles, and tax-related contingencies and valuation allowances. 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. There have been no significant changes to our critical accounting policies and estimates from those disclosed in our 2021 Form 10-K. For additional information on all of our critical accounting policies and estimates, refer to Part II – Item 7 – Management’s Discussion and Analysis included in our 2021 Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes to our quantitative and qualitative disclosures about market risk as compared to the quantitative and qualitative disclosures about market risk described in our 2021 Form 10-K.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our CEO and CFO have concluded that as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Changes in Internal Controls

There have been no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. 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.

Item 1A. Risk Factors.

There have been no material changes from the risk factors previously disclosed in our 2021 Form 10-K. For a detailed discussion of risk factors affecting us, refer to Part I, Item 1A, “Risk Factors” in that report.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities.

Recent Sales of Unregistered Securities

Not applicable.

Purchases of Equity Securities by the Issuer

On November 17, 2020, our Board authorized the repurchase of up to an aggregate of $300.0 million of our Class A common stock, par value $0.01 per share, to be executed from time to time in open market transactions effected through a broker at prevailing market prices, in block trades, or through privately negotiated transactions through December 31, 2022 (the “2021 Stock Repurchase Program”). The 2021 Stock Repurchase Program took effect on January 1, 2021.

On May 25, 2022, our Board approved a new stock repurchase program (the “2022 Stock Repurchase Program”) that took effect immediately and replaced the 2021 Stock Repurchase Program. The 2022 Stock Repurchase Program authorizes the repurchase of up to an aggregate of $350.0 million of our Class A common stock, par value $0.01, and will expire on December 31, 2024. Share repurchases are funded primarily with our working capital, cash flow from operations, and funds available through various borrowing arrangements.

The 2022 Stock Repurchase Program does not obligate us to repurchase any particular amount of our Class A common stock, and may be modified, extended, suspended, or discontinued at any time. The timing and amount of repurchases will be determined by our management based on a variety of factors such as the market price of our Class A common stock, our corporate cash requirements, and overall market conditions. The 2022 Stock Repurchase Program is subject to applicable legal requirements, including federal and state securities laws and applicable Nasdaq rules. We may also repurchase shares of our Class A 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 our Class A common stock to be repurchased when we might otherwise be precluded from doing so by law.

There were no share repurchases for the three months ended June 30, 2022, under either the 2021 Stock Repurchase Program or the 2022 Stock Repurchase Program. As of June 30, 2022, we have remaining authorization to repurchase up to $350.0 million of shares of our Class A common stock under the 2022 Stock Repurchase Program.

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Item 5. Other Information.

On August 1, 2022, Syneos Health, Inc. (the “Company”) and Paul Colvin agreed that Mr. Colvin would separate from his employment with the Company and its subsidiaries, effective September 30, 2022. In addition, Mr. Colvin stepped down from his role as Chief Business Officer and all other offices with the Company effective June 30, 2022 (which role was not considered an “executive officer” under Rule 3b-7 of the Securities Exchange Act of 1934, as amended). In connection with his separation, Mr. Colvin will be entitled to severance payments and benefits under the Company’s Executive Severance Plan, subject to his execution and non-revocation of a general release of claims.

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Item 6. Exhibits


		Incorporated by Reference (Unless Otherwise Indicated)
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date
3.1	Certificate of Incorporation of INC Research Holdings, Inc.	8-K	001-36730	3.1	August 1, 2017
3.2	Certificate of Amendment of Certificate of Incorporation of Syneos Health, Inc.	8-K	001-36730	3.1	January 8, 2018
3.3	Certificate of Amendment to the Certificate of Incorporation of Syneos Health, Inc.	8-K	001-36730	3.1	June 1, 2022
3.4	Third Amended and Restated Bylaws of Syneos Health, Inc.	8-K	001-36730	3.2	June 1, 2022
4.1	Fourth Supplemental Indenture, dated as of April 5, 2022, among the Guaranteeing Subsidiaries, the Company, the other Guarantors, and Wells Fargo Bank, National Association, as trustee.	10-Q	001-36730	4.1	April 28, 2022
10.1	Letter Agreement between Syneos Health, Inc. and Michelle Keefe, dated April 29, 2022.	8-K	001-36730	10.1	April 29, 2022
10.2	Letter Agreement between Syneos Health, Inc. and Michael Brooks, dated April 29, 2022.	8-K	001-36730	10.2	April 29, 2022
10.3	Consulting Agreement between Syneos Health, Inc. and Alistair Macdonald, dated April 29, 2022.	8-K	001-36730	10.4	April 29, 2022
10.4	Agreement between Syneos Health UK Limited and Alistair Macdonald, dated April 29, 2022 and July 8, 2022.	—	—	—	Filed herewith
10.5	Deed of Amendment related to the Consulting Agreement and Settlement Agreement between Syneos Health UK Limited, Syneos Health, Inc. and Alistair Macdonald, dated June 29, 2022.	—	—	—	Filed herewith
10.6	Form of Global Restricted Stock Unit Award Agreement under Syneos Health, Inc. 2018 Equity Incentive Plan (U.S. Participants) (2022).	—	—	—	Filed herewith
10.7	Form of Indemnification and Advancement Agreement.	—	—	—	Filed herewith
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	—	—	—	Filed herewith
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	—	—	—	Filed herewith
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	—	—	—	Furnished herewith
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	—	—	—	Furnished herewith
101.INS	Inline XBRL Instance Document - the Instance Document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.	—	—	—	Filed herewith
101.SCH	Inline XBRL Taxonomy Extension Schema Document.	—	—	—	Filed herewith

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101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.	—	—	—	Filed herewith
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.	—	—	—	Filed herewith
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.	—	—	—	Filed herewith
101.PRE	Inline Taxonomy Extension Presentation Linkbase Document.	—	—	—	Filed herewith
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).	—	—	—	Filed herewith

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SIGNATURE

Pursuant to the requirements 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.


		SYNEOS HEALTH, INC.


Date: August 1, 2022	BY:	/s/ Jason Meggs
		Jason Meggs
		Chief Financial Officer (Principal Financial Officer)

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Syneos Health (SYNH) 10-Q2022 Q2 Quarterly report

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