What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-27 compared with 2021-04-27 · 70 added, 41 removed, 182 unchanged (38% of the section changed)

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We believe that we are a partner of choice for small- and mid-sized biopharmaceutical companies based on our ability to consistently utilize our full-service, disciplined operating model to deliver timely and high-quality results for our customers.

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

Our global platform includes approximately 3,900 employees across 40 countries as of March 31, 2021, 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 4,100 employees across 40 countries as of June 30, 2021, 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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These contracts are individually priced and negotiated based on the anticipated project scope, including the complexity of the project and the performance risks inherent in the project.

The majority of our contracts are structured with an upfront fee that is collected at the time of contract signing, and the balance of the fee is collected over the duration of the contract either through an arranged billing schedule or upon completion of certain performance targets or defined milestones.

The majority of our contracts are structured with an

upfront fee that is collected at the time of contract signing, and the balance of the fee is collected over the duration of the contract either through an arranged billing schedule or upon completion of certain performance targets or defined milestones.

Revenue, which is distinct from billing and cash receipt, is recognized based on the satisfaction of the individual performance obligations identified in each contract.

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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 $356.2 million and $246.9 million for the three months ended March 31, 2021 and 2020, respectively.

Net new business awards were $387.6 million and $743.7 million for the three and six months ended June 30, 2021, respectively.

Net new business awards were $254.1 million and $501.0 million for the three and six months ended June 30, 2020, 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 March 31, 2021, our backlog increased by $337.6 million, or 26.1%, to $1,631.8 million compared to $1,294.2 million as of March 31, 2020.

Included within backlog as of March 31, 2021 was approximately $850 million to $870 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 June 30, 2021, our backlog increased by $399.8 million, or 29.8%, to $1,742.6 million compared to $1,342.8 million as of June 30, 2020.

Included within backlog as of June 30, 2021 was approximately $915 million to $935 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 $3.7 million for the three months ended March 31, 2021 and unfavorable foreign currency adjustments of $3.9 million for the three months ended March 31, 2020.

favorable foreign currency adjustments of $3.3 million for the three months ended June 30, 2021;

unfavorable foreign currency adjustments of $0.4 million for six months ended June 30, 2021;

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

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

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.

These factors include, but are not limited to, changes in the scope of projects, cancellations, and duration and timing of services provided.

Coronavirus (COVID-19)

C oronavirus (COVID-19)

On March 11, 2020, the World Health Organization declared the coronavirus COVID-19 outbreak to be a pandemic.

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Dollars per Euro:

Results of Operations

Three Months Ended March 31, 2021 compared to Three Months Ended March 31, 2020

Three Months Ended June 30, 2021 compared to Three Months Ended June 30, 2020

Three Months Ended

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Miscellaneous income, net

Interest expense, net

Income before income taxes

Income tax provision

Six Months Ended June 30, 2021 compared to Six Months Ended June 30, 2020

Six Months Ended

(Amounts in thousands, except percentages)

Direct service costs, excluding depreciation and amortization

Reimbursed out-of-pocket expenses

Total direct costs

Selling, general and administrative

Total operating expenses

Income from operations

Miscellaneous income, net

Interest (expense) income, net

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Total revenue

Total revenue increased by $29.1 million to $260.0 million for the three months ended March 31, 2021, from $230.9 million for the three months ended March 31, 2020.

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

Total revenue increased by $73.3 million to $278.3 million for the three months ended June 30, 2021, from $205.0 million for the three months ended June 30, 2020.

Total revenue increased by $102.4 million to $538.3 million for the six months ended June 30, 2021, from $435.9 million for the six months ended June 30, 2020.

The increase for the three months ended June 30, 2021 was primarily driven by growth within the Oncology, Central Nervous System, Metabolic and other uncategorized therapeutic areas, compared to the same period in the prior year .

The increase for the six months ended June 30, 2021 was primarily driven by growth within the Oncology, Central Nervous System, AVAI and other uncategorized therapeutic areas, compared to the same period in the prior year .

Total direct costs

Total direct costs increased by $15.7 million, to $181.5 million for the three months ended March 31, 2021 from $165.8 million for the three months ended March 31, 2020.

Total direct costs increased by $55.3 million, to $203.6 million for the three months ended June 30, 2021 from $148.4 million for the three months ended June 30, 2020.

Total direct costs increased by $71.0 million, to $385.2 million for the six months ended June 30, 2021 from $314.2 million for the six months ended June 30, 2020.

The increase was primarily attributed to higher reimbursed out-of-pocket expenses and higher personnel costs to support the growth in service activities.

Reimbursed out-of-pocket expenses, which can fluctuate significantly from period to period based on the timing of program initiation and closeout, increased $3.1 million for the three months ended March 31, 2021, compared to the same period in the prior year.

The higher personnel costs portion increased by $8.7 million for the three months ended March 31, 2021, 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, increased $33.7 million and $36.8 million for the three and six month periods ended June 30, 2021, compared to the same periods in the prior year.

The higher personnel costs portion, including severance, increased by $16.7 million and $25.4 million for the three and six months ended June 30, 2021, compared to the same periods in the prior year.

Selling, general and administrative

Selling, general and administrative expenses increased by $0.6 million, to $25.7 million for the three months ended March 31, 2021 from $25.1 million for the three months ended March 31, 2020.

This increase was primarily driven by higher personnel costs.

The higher personnel costs portion increased by $0.8 million for the three months ended March 31, 2021, compared to the same period in the prior year.

Selling, general and administrative expenses increased by $5.1 million, to $27.0 million for the three months ended June 30, 2021 from $21.9 million for the three months ended June 30, 2020.

Selling, general and administrative expenses increased by $5.7 million, to $52.7 million for the six months ended June 30, 2021 from $47.0 million for the six months ended June 30, 2020.

The increase was primarily attributed to higher personnel costs to support the growth in service activities.

Personnel costs, including severance, increased by $3.6 million and $4.4 million for the three and six months ended June 30, 2021, compared to the same periods in the prior year.

Depreciation and Amortization

Depreciation and amortization expense increased by $0.6 million, to $5.1 million for the three months ended March 31, 2021 from $4.5 million for the three months ended March 31, 2020.

Depreciation and amortization expense increased by $0.6 million, to $5.2 million for the three months ended June 30, 2021 from $4.7 million for the three months ended June 30, 2020.

Depreciation and amortization expense increased by $1.2 million, to $10.3 million for the six months ended June 30, 2021 from $9.1 million for the six months ended June 30, 2020.

The increase in depreciation and amortization was primarily related to increased depreciation related to Property and equipment, net .

Miscellaneous income , net

Miscellaneous income, net increased by $0.3 million to $0.9 million of income for the three months ended March 31, 2021 from $0.6 million of income for the three months ended March 31, 2020.

Miscellaneous income, net increased by less than $0.1 million to $0.3 million for the three months ended June 30, 2021 from $0.2 million for the three months ended June 30, 2020.

Miscellaneous income, net increased by $0.3 million to $1.2 million for the six months ended June 30, 2021 from $0.9 million for the six months ended June 30, 2020.

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 decreased by $0.3 million to $0.0 million of expense for the three months ended March 31, 2021 from $0.4 million of income for the three months ended March 31, 2020.

Interest (expense) income, net increased by less than $0.1 million of expense to $0.0 million of expense for the three months ended June 30, 2021 from $0.0 million of expense for the three months ended June 30, 2020.

Interest (expense) income, net increased by $0.4 million of expense to $0.0 million of expense for the six months ended June 30, 2021 from $0.4 million of income for the six months ended June 30, 2020.

Income tax provision

Income tax provision decreased by $2.3 million, to $5.2 million for the three months ended March 31, 2021 from $7.5 million for the three months ended March 31, 2020.

The overall effective tax rate for the three months ended March 31, 2021 was 10.7%, compared to an overall effective tax rate of 20.6% for the three months ended March 31, 2020.

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

Income tax provision decreased by $3.5 million, to $2.8 million for the three months ended June 30, 2021 from $6.3 million for the three months ended June 30, 2020.

Income tax provision decreased by $5.8 million, to $8.0 million for the six months ended June 30, 2021 from $13.8 million for the six months ended June 30, 2020.

The overall effective tax rate for the three months ended June 30, 2021 was 6.4%, compared to an overall effective tax rate of 20.6% for the three months ended June 30, 2020.

The overall effective tax rate for the six months ended June 30, 2021 was 8.7%, compared to an overall effective tax rate of 20.6% for the six months ended June 30, 2020.

The decrease in the income tax provision and overall effective tax rate was primarily attributable to an increase in excess tax benefits recognized from share-based compensation and an increase in tax benefits related to Foreign Derived Intangible Income (FDII) compared to the same periods 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 March 31, 2021, we had cash and cash equivalents of $332.9 million.

Approximately $26.6 million of cash and cash equivalents, none of which was restricted, was held by our foreign subsidiaries as of March 31, 2021.

As of June 30, 2021, we had cash and cash equivalents of $339.0 million.

Approximately $28.1 million of cash and cash equivalents, none of which was restricted, was held by our foreign subsidiaries as of June 30, 2021.

On March 29, 2021, we extended the expiration date of the Credit Facility to March 31, 2022.

As of March 31, 2021, we had $49.8 million available for borrowing under the Credit Facility.

As of June 30, 2021, 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.

Three Months Ended

Six Months Ended

Cash Flows (Amounts in thousands)

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Net cash used in investing activities

Net cash provided by (used in) financing activities

Net cash used in financing activities

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

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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 $57.3 million for the three months ended March 31, 2021 beginning with net income of $43.3 million.

Net cash flows provided by operating activities was $120.1 million for the six months ended June 30, 2021 beginning with net income of $83.2 million.

Adjustments to reconcile net income to net cash provided by operating activities were $27.2 million, primarily related to noncash lease expense of $7.9 million, depreciation of $7.8 million, stock based compensation expense of $6.4 million and amortization of intangibles of $2.6 million.

Changes in operating assets and liabilities provided $0.9 million in operating cash flows and was primarily driven by increased advanced billings of $22.1 million, offset by decreased accrued expenses $10.0 million, increased prepaid expenses and other current assets of $6.1 and decreased lease liabilities of $3.2 million.

Net cash flows provided by operating activities was $49.1 million for the three months ended March 31, 2020 beginning with net income of $29.0 million.

Changes in operating assets and liabilities provided $9.7 million in operating cash flows and was primarily driven by increased advanced billings of $26.6 million and accrued expenses of $11.9 million, offset by increased prepaid expenses and other current assets of $14.9 million and decreased lease liabilities of $8.0 million.

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 stock based compensation expense of $8.1 million, noncash lease expense of $6.3 million, depreciation of $5.1 million and amortization of intangibles of $4.0 million.

Changes in operating assets and liabilities provided $6.5 million in operating cash flows and was primarily driven by decreased accounts receivable and unbilled, net of $19.3 million and a change in other assets and liabilities, net of $3.4 million, offset by decreased accounts payable of $6.8 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 .

Cash Flow from Investing Activities

Net cash used in investing activities was $9.7 million for the three months ended March 31, 2021 primarily consisting of $6.5 million in property and equipment expenditures.

Net cash used in investing activities was $5.5 million for the three months ended March 31, 2020 primarily consisting of property and equipment expenditures.

Net cash used in investing activities was $15.6 million for the six months ended June 30, 2021 primarily consisting of $12.5 million in property and equipment expenditures.

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.

Cash Flow from Financing Activities

Net cash provided by financing activities was $9.1 million for the three months ended March 31, 2021 primarily related to proceeds from stock option exercises.

Net cash used in financing activities was $40.4 million for the three months ended March 31, 2020 primarily related to $41.8 million in repurchases of common stock.

Net cash used in financing activities was $41.7 million for the six months ended June 30, 2021 primarily related to $55.9 million in repurchases of common stock, partially offset by $14.2 million in proceeds from stock option exercises.

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 on common stock.

Share Repurchases

In the first quarter of 2018, the Board of Directors approved a share repurchase program authorizing up to $50.0 million in share repurchases.

In the first quarter of 2020, the Board of Directors approved an increase in the stock repurchase authorization by $50.0 million.

In the fourth quarter of 2020, the Board approved the stock repurchase authorization up to $150.0 million.

During the quarter ended March 31, 2020, the Company repurchased 661,637 shares for $43.2 million.

As of March 31, 2021, we have remaining authorization of $102.6 million remaining under the repurchase program.

In the second quarter of 2021, the Board approved an increase of $150.0 million to the stock repurchase program bringing the total repurchase authorization up to $300.0 million.

During the three and six months ended June 30, 2021, the Company repurchased 343,159 shares for $56.1 million, respectively.

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, 2021, we have remaining authorization of $196.4 million under the repurchase program.

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

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

As of March 31, 2021, 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 June 30, 2021, 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