What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-25 compared with 2023-04-25 · 77 added, 46 removed, 158 unchanged (44% of the section changed)

41 unchanged sentences

We focus on conducting clinical trials across all major therapeutic areas, with particular strength in Oncology, Metabolic Disease, Cardiology, Central Nervous System, or CNS, and Antiviral and Anti-infective, or AVAI.

Our global platform includes approximately 5,400 employees across 40 countries as of March 31, 2023, 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 5,600 employees across 41 countries as of June 30, 2023, 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 $555.8 million and $423.0 million for the three months ended March 31, 2023 and 2022, respectively.

Net new business awards were $574.8 million and $1,130.6 million for the three and six months ended June 30, 2023, respectively.

Net new business awards were $450.6 million and $873.6 million for the three and six months ended June 30, 2022, 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, 2023, our backlog increased by $372.1 million, or 17.8%, to $2,460.1 million compared to $2,088.0 million as of March 31, 2022.

Included within backlog as of March 31, 2023 was approximately $1,320.0 million to $1,340.0 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, 2023, our backlog increased by $403.6 million, or 18.6%, to $2,571.9 million compared to $2,168.3 million as of June 30, 2022.

Included within backlog as of June 30, 2023 was approximately $1,410.0 million to $1,430.0 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:

favorable foreign currency adjustments of $3.0 million for the three months ended March 31, 2023 and favorable foreign currency adjustments of $1.2 million for the three months ended March 31, 2022.

favorable foreign currency adjustments of $0.9 million for the three months ended June 30, 2023;

favorable foreign currency adjustments of $3.9 million for the six months ended June 30, 2023;

unfavorable foreign currency adjustments of $17.0 million for the three months ended June 30, 2022;

and unfavorable foreign currency adjustments of $15.8 million for the six months ended June 30, 2022.

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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The Euro represents the largest foreign currency denomination of our contractual and operational exposure.

As a result, a portion of our revenue and

expenses are subject to exchange rate fluctuations.

As a result, a portion of our revenue and expenses are subject to exchange rate fluctuations.

We have translated the Euro into U.S.

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,

2023 2022 2023 2022

Dollars per Euro:

1.09 1.07 1.08 1.09

Results of Operations

Three Months Ended March 31, 2023 compared to Three Months Ended March 31, 2022

Three Months Ended March 31,

Three Months Ended June 30, 2023 compared to Three Months Ended June 30, 2022

Three Months Ended June 30,

(Amounts in thousands, except percentages) 2023 2022 Change

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Income from operations 78,393 60,236 18,157

Miscellaneous income, net 687 1,067 (380)

Interest (expense) income, net (861) 54 (915)

Miscellaneous (expense) income, net (1,283) 2,311 (3,594)

Interest expense, net (1,366) (548) (818)

Income before income taxes 75,744 61,999 13,745

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Net income $ 61,068 $ 49,360 $ 11,708

Six Months Ended June 30, 2023 compared to Six Months Ended June 30, 2022

Six Months Ended June 30,

(Amounts in thousands, except percentages) 2023 2022 Change

Revenue, net $ 894,942 $ 682,154 $ 212,788 31.2 %

Direct service costs, excluding depreciation and amortization 309,594 257,552 52,042 20.2 %

Reimbursed out-of-pocket expenses 330,842 226,929 103,913 45.8 %

Total direct costs 640,436 484,481 155,955 32.2 %

Selling, general and administrative 77,431 62,581 14,850 23.7 %

Depreciation 11,378 8,977 2,401 26.7 %

Amortization 1,100 1,676 (576) (34.4) %

Total operating expenses 730,345 557,715 172,630 31.0 %

Income from operations 164,597 124,439 40,158

Miscellaneous (expense) income, net (596) 3,378 (3,974)

Interest expense, net (2,227) (494) (1,733)

Income before income taxes 161,774 127,323 34,451

Income tax provision 27,812 16,652 11,160

Net income $ 133,962 $ 110,671 $ 23,291

Total revenue

Total revenue increased by $103.1 million to $434.1 million for the three months ended March 31, 2023, from $330.9 million for the three months ended March 31, 2022.

The increase for the three months ended March 31, 2023 was primarily driven by growth within the Oncology, Metabolic, Cardiology and other therapeutic areas, compared to the same period in the prior year.

Total revenue increased by $109.7 million to $460.9 million for the three months ended June 30, 2023, from $351.2 million for the three months ended June 30, 2022.

Total revenue increased by $212.8 million to $894.9 million for the six months ended June 30, 2023, from $682.2 million for the six months ended June 30, 2022.

The increase for the three months ended June 30, 2023 was primarily driven by growth within the Oncology, Metabolic, AVAI, Cardiology and other therapeutic areas, compared to the same period in the prior year.

The increase for the six months ended June 30, 2023 was primarily driven by growth within the Oncology, Metabolic, Cardiology and other therapeutic areas, compared to the same period in the prior year.

Total direct costs

Total direct costs increased by $71.6 million, to $303.9 million for the three months ended March 31, 2023 from $232.3 million for the three months ended March 31, 2022.

Total direct costs increased by $84.3 million, to $336.6 million for the three months ended June 30, 2023 from $252.2 million for the three months ended June 30, 2022.

Total direct costs increased by $156.0 million, to $640.4 million for the six months ended June 30, 2023 from $484.5 million for the six months ended June 30, 2022.

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 $46.0 million for the three months ended March 31, 2023, compared to the same period in the prior year.

The higher personnel costs portion increased by $19.5 million for the three months ended March 31, 2023, compared to the same periods 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 $57.9 million and $103.9 million for the three and six months ended June 30, 2023, compared to the same period in the prior year.

The higher personnel costs portion increased by $21.4 million and $40.9 million for the three and six months ended June 30, 2023, compared to the same periods in the prior year.

Selling, general and administrative

Selling, general and administrative expenses increased by $8.7 million, to $38.0 million for the three months ended March 31, 2023 from $29.4 million for the three months ended March 31, 2022.

Selling, general and administrative expenses increased by $6.2 million, to $39.4 million for the three months ended June 30, 2023 from $33.2 million for the three months ended June 30, 2022.

Selling, general and administrative expenses increased by $14.9 million, to $77.4 million for the six months ended June 30, 2023 from $62.6 million for the six months ended June 30, 2022.

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

The higher personnel costs portion increased by $4.9 million for the three months ended March 31, 2023, compared to the same periods in the prior year.

The higher personnel costs portion increased by $4.6 million and $9.5 million for the three and six months ended June 30, 2023, compared to the same periods in the prior year.

Depreciation and Amortization

Depreciation and amortization expense of $6.0 million for the three months ended March 31, 2023 remained relatively consistent with $5.1 million for the three months ended March 31, 2022.

Miscellaneous income, net

Miscellaneous income, net decreased by $0.4 million to $0.7 million for the three months ended March 31, 2023 from $1.1 million for the three months ended March 31, 2022.

These changes were mainly attributable to foreign exchange gains and losses that arise in connection with the revaluation of short-term intercompany balances between our domestic and international subsidiaries and 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.

Depreciation and amortization expense of $6.5 million and $12.5 million for the three and six months ended June 30, 2023 remained relatively consistent with $5.5 million and $10.7 million for the three and six months ended June 30, 2022.

Miscellaneous (expense) income, net

Miscellaneous (expense) income, net decreased by $3.6 million to $1.3 million of expense for the three months ended June 30, 2023 from $2.3 million of income for the three months ended June 30, 2022.

Miscellaneous (expense) income, net decreased by $4.0 million to $0.6 million of expense for the six months ended June 30, 2023 from $3.4 million of income for the six months ended June 30, 2022.

Income tax provision

Income tax provision increased by $9.1 million, to $13.1 million for the three months ended March 31, 2023 from $4.0 million for the three months ended March 31, 2022.

The overall effective tax rate for the three months ended March 31, 2023 was 15.3%, compared to an overall effective tax rate of 6.1% for the three months ended March 31, 2022.

The increase in the income tax provision and overall effective tax rate was primarily attributable to the increase in pre-tax book income and a decrease in excess tax benefits recognized from share based compensation and benefits from uncertain tax positions compared to the same periods in the prior year.

Income tax provision increased by $2.0 million, to $14.7 million for the three months ended June 30, 2023 from $12.6 million for the three months ended June 30, 2022.

Income tax provision increased by $11.2 million, to $27.8 million for the six months ended June 30, 2023 from $16.7 million for the six months ended June 30, 2022.

The overall effective tax rate for the three months ended June 30, 2023 was 19.4%, compared to an overall effective tax rate of 20.4% for the three months ended June 30, 2022.

The overall effective tax rate for the six months ended June 30, 2023 was 17.2% compared to an overall effective tax rate of 13.1% for the six months ended June 30, 2022.

The increase in the income tax provision for the three months ended June 30, 2023 was primarily attributable to the increase in pre-tax book income which was partially offset by an increase in excess tax benefits recognized from share-based compensation and tax benefits related to Foreign Derived Intangible Income (“FDII”) compared to the same periods in the prior year.

The decrease in the overall effective tax rate for the three months ended June 30, 2023 was primarily attributable to an increase in excess tax benefits recognized from share-based compensation and tax benefits related to FDII compared to the same periods in the prior year.

The increase in the income tax provision and overall effective tax rate for the six months ended June 30, 2023 was primarily attributable to the increase in pre-tax book income and a decrease in excess tax benefits recognized from share based compensation and benefits from uncertain tax positions 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 from borrowings under our unsecured credit facility consisting of up to a $150.0 million revolving line of credit which we entered into on September 30, 2019 (the “Credit Facility”), and has subsequently been amended.

As of March 31, 2023, we had cash and cash equivalents of $46.9 million which increased from $28.3 million as of December 31, 2022.

Approximately $15.6 million of cash and cash equivalents, none of which was restricted, was held by our foreign subsidiaries as of March 31, 2023.

As of March 31, 2023, we had $34.8 million available for borrowing under the Credit Facility.

As of June 30, 2023, we had cash and cash equivalents of $39.1 million which increased from $28.3 million as of December 31, 2022.

Approximately $14.5 million of cash and cash equivalents, none of which was restricted, was held by our foreign subsidiaries as of June 30, 2023.

As of June 30, 2023, we had $94.8 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, credit facility repayments, share repurchases, selective strategic bolt-on acquisitions, other investments, and other general corporate needs.

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We expect to continue expanding our operations through organic growth and potentially highly selective bolt-on acquisitions and investments.

As of March 31, 2023, cash commitments to support operating business needs include lease liabilities discussed in Note 8 of the Condensed Consolidated Financial Statements, short-term debt discussed in Note 7 of the Condensed Consolidated Financial Statements, purchase commitments discussed in Note 11 of the Condensed Consolidated Financial Statements and capital expenditures primarily related to infrastructure investments in our facilities, equipment and technology.

Capital spending as a percentage of revenue decreased by 61 basis points to 2.19% in the three months ended March 31, 2023, compared to the same period in the prior year.

As of June 30, 2023, cash commitments to support operating business needs include lease liabilities discussed in Note 8 of the Condensed Consolidated Financial Statements, short-term debt discussed in Note 7 of the Condensed Consolidated Financial Statements, purchase commitments discussed in Note 11 of the Condensed Consolidated Financial Statements and capital expenditures primarily related to infrastructure investments in our facilities, equipment and technology.

Capital spending as a percentage of revenue decreased by 99 basis points to 2.01% in the six months ended June 30, 2023, compared to the same period in the prior year.

We expect these activities will be funded from existing cash, cash flow from operations and, if necessary, borrowings under our existing or future credit facilities or other debt.

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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 borrowings 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 March 31,

Six Months Ended June 30,

Cash Flows (Amounts in thousands) 2023 2022

5 unchanged sentences

Cash Flow from Operating Activities

Cash flows from operations are driven mainly by net income, stock-based compensation expense, noncash lease expense, depreciation, and net movement in advanced billings, accrued expenses and accounts receivable and unbilled, net.

Cash flows from operations are driven mainly by net income, noncash lease expense, depreciation, stock based compensation expense, and net movement in advanced billings, accrued expenses, prepaid expenses and other current assets, and accounts receivable and unbilled, net.

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 $80.1 million for the three months ended March 31, 2023 beginning with net income of $72.9 million.

Net cash flows provided by operating activities was $162.6 million for the six months ended June 30, 2023 beginning with net income of $134.0 million.

Adjustments to reconcile net income to net cash provided by operating activities were $27.9 million, primarily related to depreciation of $11.4 million, stock based compensation expense of $10.3 million and noncash lease expense of $9.7 million.

Changes in operating assets and liabilities provided $0.7 million in operating cash flows and was primarily driven by increased advanced billings of $27.8 million and increased accrued expenses of $21.3 million, offset by increased accounts receivable and unbilled, net of $21.7 million and increased prepaid expenses and other current assets of $11.8 million.

Net cash flows provided by operating activities was $142.9 million for the six months ended June 30, 2022 beginning with net income of $110.7 million.

Adjustments to reconcile net income to net cash provided by operating activities were $27.6 million, primarily related to stock based compensation expense of $10.0 million, depreciation of $9.0 million and noncash lease expense of $9.0 million.

Changes in operating assets and liabilities used $6.5 million in operating cash flows and was primarily driven by increased prepaid expenses and other current assets of 10.2 million, decreased accrued expenses of 9.4 million and decreased lease liabilities of $5.3 million, offset by increased other assets and liabilities, net of $15.0 million and increased accounts payable of $4.5 million.

Net cash flows provided by operating activities was $46.3 million for the three months ended March 31, 2022 beginning with net income of $61.3 million.

Adjustments to reconcile net income to net cash provided by operating activities were $12.9 million, primarily related to noncash lease expense of $4.5 million, stock based compensation expense of $4.4 million and depreciation of $4.3 million.

Changes in operating assets and liabilities used $27.9 million in operating cash flows and was primarily driven by increased by increased accounts receivable and unbilled, net of $38.2 million and increased prepaid expenses and other current assets of $5.5 million, offset by increased advanced billings of $22.6 million.

Changes in operating assets and liabilities provided $4.6 million in operating cash flows and was primarily driven by increased advanced billings of $56.7 million and increased accrued expenses of $15.6, offset by increased accounts receivable and unbilled, net of $39.1 million and increased prepaid expenses and other current assets of $18.8 million.

Cash Flow from Investing Activities

Net cash used in investing activities was $9.5 million for the three months ended March 31, 2023 primarily consisting of property and equipment expenditures.

Net cash used in investing activities was $11.2 million for the three months ended March 31, 2022 primarily consisting of 9.3 million in property and equipment expenditures.

Net cash used in investing activities was $18.0 million for the six months ended June 30, 2023 primarily consisting of property and equipment expenditures.

Net cash used in investing activities was $22.3 million for the six months ended June 30, 2022 primarily consisting of $20.5 million in property and equipment expenditures.

Cash Flow from Financing Activities

Net cash used in financing activities was $52.7 million for the three months ended March 31, 2023 primarily related to $120.1 million in repurchases of common stock and $25.0 million in repayments of the Credit Facility, partially offset by 90.0 million in proceeds related to the Credit Facility and $2.5 million in proceeds from stock option exercises.

Net cash used in financing activities was $412.1 million for the three months ended March 31, 2022, primarily related to $426.0 million in repurchases of common stock, partially offset by $13.9 million in proceeds from stock option exercises.

Net cash used in financing activities was $134.9 million for the six months ended June 30, 2023 primarily related to $144.0 million in repurchases of common stock and $100.0 million in repayments of the Credit Facility, partially offset by $105.0 million in proceeds related to the Credit Facility and $4.1 million in proceeds from stock option exercises.

Net cash used in financing activities was $535.5 million for the six months ended June 30, 2022 primarily related to $800.7 million in repurchases of common stock and $49.5 million in repayments of the Credit Facility, partially offset by $299.2 million in proceeds related to the Credit Facility and $15.4 million in proceeds from stock option exercises.

Share Repurchases

In 2018, the Board of Directors approved a stock repurchase program which has been amended several times to increase the aggregate amount of the stock repurchase authorization.

During the three months ended March 31, 2022, the Company repurchased 2,745,865 shares for $425.9 million.

During the three and six months ended June 30, 2022, the Company repurchased 2,717,379 shares and 5,463,244 shares for $374.6 million and $800.5 million, respectively.

In the fourth quarter of 2022, the Board approved a new stock repurchase program of up to $500.0 million.

During the three months ended March 31, 2023, the Company repurchased 654,787 shares for $120.1 million.

As of March 31, 2023, we have remaining authorization of $332.7 million under the new repurchase program.

During the three and six months ended June 30, 2023, the Company repurchased 126,281 shares and 781,068 shares for $23.9 million and $144.0 million, respectively.

As of June 30, 2023, we have remaining authorization of $308.8 million under the new 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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Retired share repurchase amounts paid in excess of par value are reflected within Accumulated deficit/Retained earnings in the Company’s condensed consolidated balance sheets.

As of March 31, 2023, we had total indebtedness of 115.0 million 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, 2023, we had total indebtedness of $55.0 million 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.

9 unchanged sentences

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