What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-10-27 compared with 2020-07-28 · 64 added, 68 removed, 192 unchanged (41% of the section changed)

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We focus on conducting clinical trials across all major therapeutic areas, with particular strength in Cardiology, Metabolic Disease, Oncology, Central Nervous System (“CNS”), Antiviral and Anti-infective (“AVAI”), as well as therapeutic expertise in Medical Devices.

Our global platform includes approximately 3,400 employees across 38 countries as of June 30, 2020, providing our customers with broad access to diverse markets and patient populations as well as local regulatory expertise and market knowledge.

Our global platform includes approximately 3,400 employees across 39 countries as of September 30, 2020, providing our customers with broad access to diverse markets and patient populations as well as local regulatory expertise and market knowledge.

How We Generate Revenue

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Net new business awards represent gross new business awards received in a period offset by total cancellations in that period.

Net new business awards were $254.1 million and $501.0 million for the three and six months ended June 30, 2020, respectively.

Net new business awards were $279.2 million and $527.9 million for the three and six months ended June 30, 2019, respectively.

Net new business awards were $315.4 million and $816.4 million for the three and nine months ended September 30, 2020, respectively.

Net new business awards were $285.4 million and $813.3 million for the three and nine months ended September 30, 2019, respectively.

Backlog represents anticipated future net revenue from net new business awards that have not commenced or are currently in process but not complete.

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dollar denominated backlog.

As of June 30, 2020, our backlog increased by $171.1 million, or 14.6%, to $1,342.8 million compared to $1,171.7 million as of June 30, 2019.

Included within backlog as of June 30, 2020 was approximately $670 million to $690 million that we expect to convert to net revenue over the next twelve months, with the remainder expected to convert to net revenue thereafter.

As of September 30, 2020, our backlog increased by $205.7 million, or 16.7%, to $1,434.4 million compared to $1,228.7 million as of September 30, 2019.

Included within backlog as of September 30, 2020 was approximately $710 million to $730 million that we expect to convert to net revenue over the next twelve months, with the remainder expected to convert to net revenue thereafter.

The effect of foreign currency adjustments on backlog was as follows:

unfavorable foreign currency adjustments of $0.2 million for the three months ended June 30, 2020;

unfavorable foreign currency adjustments of $4.1 million for six months ended June 30, 2020;

unfavorable foreign currency adjustments of $0.8 million for the three months ended June 30, 2019;

and unfavorable foreign currency adjustments of $2.6 million for the six months ended June 30, 2019.

favorable foreign currency adjustments of $7.4 million for the three months ended September 30, 2020;

favorable foreign currency adjustments of $3.3 million for nine months ended September 30, 2020;

unfavorable foreign currency adjustments of $9.8 million for the three months ended September 30, 2019;

and unfavorable foreign currency adjustments of $12.4 million for the nine months ended September 30, 2019.

Backlog and net new business award metrics may not be reliable indicators of our future period revenue as they are subject to a variety of factors that may cause material fluctuations from period to period.

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Depending on the duration of the disruption, ongoing studies may be cancelled and some of our clients may lack the funding to complete trials which are extended due to slowed recruitment of patients.

We work with many smaller clients with limited financial resources and market disruptions may make raising additional funds difficult.

We work with many smaller clients with limited financial resources and market disruptions may make raising additional funds difficult for those clients.

Travel restrictions and business closures have also impacted study participants and clinical sites which affects our ability to efficiently provide clinical trial services.

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These include alternative assessment methods such as virtual monitoring visits.

The COVID-19 outbreak has already had a significant adverse effect on the first and second quarters of fiscal 2020 and we believe that the outbreak will have a continued adverse impact on our results of operations in the future.

The COVID-19 outbreak has already had a significant adverse effect on the first three quarters of fiscal 2020 and we believe that the outbreak will have a continued adverse impact on our results of operations in the future.

In connection with this expected adverse impact, we have also evaluated our headcount needs in a number of geographies and implemented some staff reductions where appropriate.

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dollars using the following average exchange rates based on data obtained from www.xe.com:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Dollars per Euro:

Results of Operations

Three Months Ended June 30, 2020 compared to Three Months Ended June 30, 2019

Three Months Ended September 30, 2020 compared to Three Months Ended September 30, 2019

Three Months Ended

September 30,

(Amounts in thousands, except percentages)

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Income tax provision

Six Months Ended June 30, 2020 compared to Six Months Ended June 30, 2019

Six Months Ended

Nine Months Ended September 30, 2020 compared to Nine Months Ended September 30, 2019

Nine Months Ended

September 30,

(Amounts in thousands, except percentages)

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Miscellaneous income (expense), net

Interest (expense) income, net

Interest income (expense), net

Income before income taxes

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Total revenue

Total revenue decreased by $9.1 million to $205.0 million for the three months ended June 30, 2020, from $214.1 million for the three months ended June 30, 2019.

The decrease was primarily driven by the impact of the coronavirus COVID-19 pandemic on the Company’s operations as the Company saw contraction in the quarter in projects across Cardiology, Central Nervous System, Metabolic and other uncategorized therapeutic areas.

Total revenue increased by $21.0 million to $435.9 million for the six months ended June 30, 2020, from $414.8 million for the six months ended June 30, 2019.

The increase was primarily driven by growth within the Oncology and AVAI therapeutic areas.

Total revenue increased by $14.1 million to $230.4 million for the three months ended September 30, 2020, from $216.2 million for the three months ended September 30, 2019.

Total revenue increased by $35.2 million to $666.2 million for the nine months ended September 30, 2020, from $631.1 million for the nine months ended September 30, 2019.

The increase was primarily driven by growth within the Oncology, Cardiology, AVAI and other uncategorized therapeutic areas.

Total direct costs

Total direct costs decreased by $2.0 million, to $148.4 million for the three months ended June 30, 2020 from $150.3 million for the three months ended June 30, 2019.

The decrease was primarily attributed to lower reimbursed out-of-pocket expenses, partially offset by higher personnel costs.

Reimbursed out-of-pocket expenses, which can fluctuate significantly from period to period based on the timing of program initiation and closeout, decreased $9.3 million for the three month period ended June 30, 2020, compared to the same period in the prior year.

The higher personnel costs portion, including severance, increased by $7.1 million for the three months ended June 30, 2020, compared to the same period in the prior year.

Total direct costs increased by $18.1 million, to $314.2 million for the six months ended June 30, 2020 from $296.0 million for the six months ended June 30, 2019.

Total direct costs increased by $4.1 million to $156.2 million for the three months ended September 30, 2020 from $152.1 million for the three months ended September 30, 2019.

Total direct costs increased by $22.3 million to $470.4 million for the nine months ended September 30, 2020 from $448.1 million for the nine months ended September 30, 2019.

The increase was primarily attributed to higher personnel costs to support the growth in service activities, partially offset by lower reimbursed out-of-pocket expenses.

The higher personnel costs portion, including severance, increased by $19.2 million for the six months ended June 30, 2020, compared to the same period in the prior year.

Reimbursed out-of-pocket expenses, which can fluctuate significantly from period to period based on the timing of program initiation and closeout, decreased $2.9 million for the six months ended June 30, 2020, compared to the same period in the prior year.

The higher personnel costs portion, including severance, increased by $6.4 million and $25.6 million for the three and nine months ended September 30, 2020, compared to the same period in the prior year.

Reimbursed out-of-pocket expenses, which can fluctuate significantly from period to period based on the timing of program initiation and closeout, decreased $2.3 million and $5.2 million for the three and nine months ended September 30, 2020, compared to the same period in the prior year.

Selling, general and administrative

Selling, general and administrative expenses decreased by $1.7 million, to $21.9 million for the three months ended June 30, 2020 from $23.6 million for the three months ended June 30, 2019.

Personnel costs, net of severance, decreased by $1.3 million for the three months ended June 30, 2020, compared to the same period in the prior year.

Selling, general and administrative expenses increased by $2.1 million, to $47.0 million for the six months ended June 30, 2020 from $44.9 million for the six months ended June 30, 2019.

This increase was primarily driven by higher personnel costs to support growth activities.

Personnel costs, including severance, increased by $2.7 million for the six months ended June 30, 2020, compared to the same period in the prior year.

Selling, general and administrative expenses decreased by $6.3 million to $22.8 million for the three months ended September 30, 2020 from $29.1 million for the three months ended September 30, 2019.

Selling, general and administrative expenses decreased by $4.2 million to $69.8 million for the nine months ended September 30, 2020 from $74.0 million for the nine months ended September 30, 2019.

Personnel costs, net of severance, decreased by $5.1 million and $2.4 million for the three and nine months ended September 30, 2020, compared to the same period in the prior year.

Depreciation and Amortization

Depreciation and amortization expense decreased by $0.3 million, to $4.7 million for the three months ended June 30, 2020 from $5.0 million for the three months ended June 30, 2019.

Depreciation and amortization expense decreased by $3.7 million, to $9.1 million

for the six months ended June 30, 2020 from $12.8 million for the six months ended June 30, 2019.

Depreciation and amortization expense decreased by $0.1 million to $4.9 million for the three months ended September 30, 2020 from $5.1 million for the three months ended September 30, 2019.

Depreciation and amortization expense decreased by $3.8 million to $14.0 million for the nine months ended September 30, 2020 from $17.9 million for the nine months ended September 30, 2019.

The decrease in depreciation and amortization was primarily related to the continued amortization of our definite lived intangible assets, which are amortized on an accelerated basis.

Miscellaneous income ( expense ) , net

Miscellaneous income (expense), net increased by $0.3 million to $0.2 million of income for the three months ended June 30, 2020 from $0.0 million of expense for the three months ended June 30, 2019.

Miscellaneous income (expense), net increased by $1.2 million to $0.9 million of income for the six months ended June 30, 2020 from $0.3 million of expense for the six months ended June 30, 2019.

Miscellaneous income (expense), net increased by $0.9 million to $0.6 million of income for the three months ended September 30, 2020 from $0.3 million of expense for the three months ended September 30, 2019.

Miscellaneous income (expense), net increased by $2.0 million to $1.4 million of income for the nine months ended September 30, 2020 from $0.6 million of expense for the nine months ended September 30, 2019.

These changes were mainly attributable to foreign exchange gains or losses that arise in connection with the revaluation of short-term intercompany balances between our domestic and international subsidiaries, gains or losses from foreign currency transactions, such as those resulting from the settlement of third-party accounts receivables and payables denominated in a currency other than the local currency of the entity making the payment.

Interest (expense) income, net

Interest (expense) income, net increased by $0.7 million of income to $0.0 million of expense for the three months ended June 30, 2020 from $0.7 million of expense for the three months ended June 30, 2019.

Interest (expense) income, net increased by $2.1 million of income to $0.4 million of income for the six months ended June 30, 2020 from $1.7 million of expense for the six months ended June 30, 2019.

The increase in interest (expense) income, net was related to a lower average outstanding balance under our credit facility.

Interest income (expense), net

Interest income (expense), net increased by $0.2 million of income to $0.0 million of expense for the three months ended September 30, 2020 from $0.3 million of expense for the three months ended September 30, 2019.

Interest income (expense), net increased by $2.3 million of income to $0.3 million of income for the nine months ended September 30, 2020 from $2.0 million of expense for the nine months ended September 30, 2019.

The increase in interest income (expense), net was related to a lower average outstanding balance under our credit facility.

Income tax provision

Income tax provision decreased by $0.8 million, to $6.3 million for the three months ended June 30, 2020 from $ 7.0 million for the three months ended June 30, 2019.

The overall effective tax rate for the three months ended June 30, 2020 was 20.6%, compared to an overall effective tax rate of 20.4% for the three months ended June 30, 2019.

The decrease in the income tax provision was primarily attributable to a decrease in pre-tax book income and an increase in tax benefits related to FDII which was partially offset by a decrease in excess tax benefits recognized from share-based compensation.

The increase in the effective tax rate was primarily attributable to a decrease in excess tax benefits recognized from share-based compensation compared to the same period in the prior year which was partially offset by an increase in tax benefits related to FDII.

Income tax provision increased by $1.3 million, to $13.8 million for the six months ended June 30, 2020 from $12.5 million for the six months ended June 30, 2019.

The overall effective tax rate for the six months ended June 30, 2020 was 20.6%, compared to an overall effective tax rate of 21.1% for the six months ended June 30, 2019.

The increase in the income tax provision was primarily attributable to an increase in pre-tax book income, which was partially offset by an increase in tax benefits related to FDII.

The decrease in the overall effective tax rate primarily relates to an increase in tax benefits related to FDII compared to the same period in the prior year.

Income tax provision was unchanged at $5.5 million for the three months ended September 30, 2020 and 2019, respectively.

The overall effective tax rate for the three months ended September 30, 2020 was 11.8%, compared to an overall effective tax rate of 18.6% for the three months ended September 30, 2019.

The decrease in the effective tax rate was primarily attributable to an increase in excess tax benefits recognized from share-based compensation compared to the same period in the prior year and an increase in tax benefits related to Foreign Derived Intangible Income (FDII).

Income tax provision increased by $1.3 million to $19.3 million for the nine months ended September 30, 2020 from $18.0 million for the nine months ended September 30, 2019.

The overall effective tax rate for the nine months ended September 30, 2020 was 17.0%, compared to an overall effective tax rate of 20.3% for the nine months ended September 30, 2019.

The increase in the income tax provision was primarily attributable to an increase in pre-tax book income, which was partially offset by an increase in excess tax benefits recognized from share-based compensation and an increase in tax benefits related to FDII.

The decrease in the overall effective tax rate primarily relates to an increase in excess tax benefits recognized from share-based compensation and an increase in tax benefits related to FDII compared to the same period in the prior year.

Liquidity and Capital Resources

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Our principal sources of liquidity are operating cash flows and funds available for borrowing under our unsecured credit facility consisting of up to a $50.0 million revolving line of credit which we entered into on September 30, 2019 (the “Credit Facility”).

As of June 30, 2020, we had cash and cash equivalents of $160.9 million.

Approximately $25.1 million of cash and cash equivalents, none of which was restricted, was held by our foreign subsidiaries as of June 30, 2020.

As of September 30, 2020, we had cash and cash equivalents of $219.2 million.

Approximately $26.9 million of cash and cash equivalents, none of which was restricted, was held by our foreign subsidiaries as of September 30, 2020.

On March 30, 2020, we extended the expiration date of the Credit Facility to March 31, 2021 and added provisions for alternative interest rates when certain interbank market offered rates are not available.

As of June 30, 2020, we had $49.8 million available for borrowing under the Credit Facility.

As of September 30, 2020, we had $49.8 million available for borrowing under the Credit Facility.

Our expected primary cash needs on both a short and long-term basis are for investment in operational growth, capital expenditures, share repurchases, selective strategic bolt-on acquisitions, other investments, and other general corporate needs.

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While we do not anticipate the need to repatriate these foreign earnings for liquidity purposes given our cash flows from operations and available borrowing under existing and future credit facilities, we would incur taxes on these earnings if the need for repatriation due to liquidity purposes arises.

Six Months Ended

Nine Months Ended

September 30,

Cash Flows (Amounts in thousands)

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Effect of exchange rates on cash, cash equivalents and restricted cash

Increase (decrease) in cash, cash equivalents and restricted cash

Increase in cash, cash equivalents and restricted cash

Cash Flow from Operating Activities

Cash flows from operations are driven mainly by net income, stock based compensation expense and net movement in accounts receivable and unbilled, net, and accounts payable.

Cash flows from operations are driven mainly by net income, net movement in accounts receivable and unbilled, net, and accounts payable.

Accounts receivable and unbilled, net and advanced billings fluctuate on a regular basis as we perform our services, bill our customers and ultimately collect on those receivables.

We attempt to negotiate payment terms in order to provide for payments prior to or soon after the provision of services, but this timing of collection can vary significantly on a period by period comparative basis.

Net cash flows provided by operating activities was $93.4 million for the six months ended June 30, 2020 beginning with net income of $53.1 million.

Adjustments to reconcile net income to net cash provided by operating activities were $25.2 million, primarily related to amortization of intangibles of $4.0 million, depreciation of $5.1 million, stock based compensation expense of $8.1 million and noncash lease expense of $6.3 million.

Changes in operating assets and liabilities provided $15.1 million in operating cash flows and was primarily driven by decreased accounts receivable and unbilled, net of $28.5 million, offset by decreased accounts payable of $7.2 million and decreased accrued expenses of $5.9 million.

Net cash flows provided by operating activities was $80.6 million for the six months ended June 30, 2019 beginning with net income of $46.7 million.

Net cash flows provided by operating activities was $153.2 million for the nine months ended September 30, 2020 beginning with net income of $94.5 million.

Adjustments to reconcile net income to net cash provided by operating activities were $41.1 million, primarily related to amortization of intangibles of $5.9 million, depreciation of $8.1 million, stock based compensation expense of $10.8 million, noncash lease expense of $10.0 million and deferred income tax provision of $6.9 million.

Changes in operating assets and liabilities provided $17.6 million in operating cash flows and was primarily driven by decreased accounts receivable and unbilled, net of $21.4 million and increased advanced billings of $10.4 million, offset by increased prepaid expenses and other current assets of $9.8 million.

Net cash flows provided by operating activities was $144.9 million for the nine months ended September 30, 2019 beginning with net income of $70.6 million.

Adjustments to reconcile net income to net cash provided by operating activities were $48.1 million, primarily related to amortization of intangibles of $11.8 million, depreciation of $6.0 million, stock based compensation expense of $18.0 million and noncash lease expense of $7.2 million.

Changes in operating assets and liabilities provided $5.4 million in operating cash flows and was primarily driven by increased advanced billings of $17.5 million, offset by increased accounts receivable and unbilled, net of $15.5 million .

Changes in operating assets and liabilities provided $26.2 million in operating cash flows and was primarily driven by increased advanced billings of $21.9 million and increased accrued expenses of $15.4 million, offset by increased prepaid expenses and other current assets of $9.0 million .

Cash Flow from Investing Activities

Net cash used in investing activities was $14.8 million for the six months ended June 30, 2020 primarily consisting of property and equipment expenditures.

Net cash used in investing activities was $7.3 million for the six months ended June 30, 2019 primarily consisting of property and equipment expenditures.

Net cash used in investing activities was $23.5 million for the nine months ended September 30, 2020 primarily consisting of property and equipment expenditures.

Net cash used in investing activities was $13.4 million for the nine months ended September 30, 2019 primarily consisting of property and equipment expenditures.

Cash Flow from Financing Activities

Net cash used in financing activities was $48.9 million for the six months ended June 30, 2020 primarily related to $50.8 million in repurchases of common stock.

Net cash used in financing activities was $76.5 million for the six months ended June 30, 2019 primarily related to $80.4 million in principal payments on our Senior Secured Term Loan Facility.

Net cash used in financing activities was $42.1 million for the nine months ended September 30, 2020 primarily related to $50.8 million in repurchases of common stock, offset by proceeds from stock options exercises of $8.8 million.

Net cash used in financing activities was $74.8 million for the nine months ended September 30, 2019 primarily related to $80.4 million in principal payments on our Senior Secured Term Loan Facility, offset by proceeds from stock options exercises of $5.7 million.

Share Repurchases

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In the first quarter of 2020, the Board of Directors approved an additional $50.0 million in share repurchases, bringing the total to $100.0 million authorized under the share repurchase program.

During the three and six months ended June 30, 2020, the Company repurchased 110,488 and 772,125 shares for $7.6 million and $50.8 million, respectively.

As of June 30, 2020, $49.2 million remained available under the repurchase program authorization.

There were no share repurchases during the three months ended September 30, 2020.

During the nine months ended September 30, 2020, the Company repurchased 772,125 shares for $50.8 million.

As of September 30, 2020, $49.2 million remained available under the repurchase program authorization.

Repurchases under the share repurchase program are executed in the open market or negotiated transactions under trading plans established pursuant to Rule 10b5-1.

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The repurchase program may be suspended or discontinued at any time without notice.

As of June 30, 2020, we had no indebtedness and $0.2 million in letters of credit outstanding related to certain operating lease obligations, which are secured by the Credit Facility.

As of September 30, 2020, we had no indebtedness and $0.2 million in letters of credit outstanding related to certain operating lease obligations, which are secured by the Credit Facility.

Refer to Note 7 of the Notes to Condensed Consolidated Financial Statements for details regarding our Credit Facility.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis