What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-04-23 compared with 2023-10-24 · 58 added, 84 removed, 152 unchanged (48% of the section changed)

24 unchanged sentences

and our objectives for future operations.

The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “target,” “likely,” and similar expressions are intended to identify forward-looking statements.

The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “target,” “likely,” “opportunity,” “may,” “could,” “outlook,” “can,” “trend,” “might,” “drives,” “hope,” “potential,” “project,” “predict,” and similar expressions are intended to identify forward-looking statements.

However, the absence of these words does not mean that a statement is not forward-looking.

Forward-looking statements are based largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs.

Any forward-looking statement speaks only as of the date it is made.

These forward-looking statements are subject to inherent uncertainties, risks, changes in circumstances and other important factors that are difficult to predict.

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In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed may not occur and our financial condition and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

In other words, these statements are not guarantees of future performance and inherently involve a wide range of risks and uncertainties that are difficult to predict.

We caution you therefore against relying on these forward-looking statements.

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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 5,800 employees across 41 countries as of September 30, 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 5,800 employees across 42 countries as of March 31, 2024, 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 $611.5 million and $1,742.1 million for the three and nine months ended September 30, 2023, respectively.

Net new business awards were $470.9 million and $1,344.4 million for the three and nine months ended September 30, 2022, respectively.

Net new business awards were $615.6 million and $555.8 million for the three months ended March 31, 2024 and 2023, 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 September 30, 2023, our backlog increased by $453.3 million, or 20.3%, to $2,689.5 million compared to $2,236.2 million as of September 30, 2022.

Included within backlog as of September 30, 2023 was approximately $1,450.0 million to $1,470.0 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 March 31, 2024, our backlog increased by $447.0 million, or 18.2%, to $2,907.1 million compared to $2,460.1 million as of March 31, 2023.

Included within backlog as of March 31, 2024 was approximately $1,550.0 million to $1,570.0 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 $1.3 million for the three months ended September 30, 2023;

favorable foreign currency adjustments of $5.3 million for the nine months ended September 30, 2023;

unfavorable foreign currency adjustments of $17.4 million for the three months ended September 30, 2022;

and unfavorable foreign currency adjustments of $33.2 million for the nine months ended September 30, 2022.

unfavorable foreign currency adjustments of $6.8 million for the three months ended March 31, 2024 and favorable foreign currency adjustments of $3.0 million for the three months ended March 31, 2023.

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 September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

Dollars per Euro:

1.09 1.01 1.08 1.07

Results of Operations

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

Three Months Ended September 30,

(Amounts in thousands, except percentages) 2023 2022 Change

Revenue, net $ 492,499 $ 383,744 $ 108,755 28.3 %

Direct service costs, excluding depreciation and amortization 164,364 136,648 27,716 20.3 %

Reimbursed out-of-pocket expenses 194,942 128,062 66,880 52.2 %

Total direct costs 359,306 264,710 94,596 35.7 %

Selling, general and administrative 41,407 35,418 5,989 16.9 %

Depreciation 6,329 4,951 1,378 27.8 %

Amortization 549 838 (289) (34.5) %

Total operating expenses 407,591 305,917 101,674 33.2 %

Income from operations 84,908 77,827 7,081

Miscellaneous (expense) income, net (1,602) 5,649 (7,251)

Interest expense, net (105) (1,584) 1,479

Income before income taxes 83,201 81,892 1,309

Income tax provision 12,651 15,865 (3,214)

Net income $ 70,550 $ 66,027 $ 4,523

Nine Months Ended September 30, 2023 compared to Nine Months Ended September 30, 2022

Nine Months Ended September 30,

Three Months Ended March 31, 2024 compared to Three Months Ended March 31, 2023

Three Months Ended March 31,

(Amounts in thousands, except percentages) 2024 2023 Change

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Income from operations 104,069 86,204 17,865

Miscellaneous (expense) income, net (2,198) 9,027 (11,225)

Interest expense, net (2,332) (2,078) (254)

Miscellaneous income, net 4,593 687 3,906

Interest income (expense), net 4,120 (861) 4,981

Income before income taxes 112,782 86,030 26,752

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Total revenue

Total revenue increased by $108.8 million to $492.5 million for the three months ended September 30, 2023, from $383.7 million for the three months ended September 30, 2022.

Total revenue increased by $321.5 million to $1,387.4 million for the nine months ended September 30, 2023, from $1,065.9 million for the nine months ended September 30, 2022.

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

Total revenue increased by $77.0 million to $511.0 million for the three months ended March 31, 2024, from $434.1 million for the three months ended March 31, 2023.

The increase for the three months ended March 31, 2024 was broad based, but primarily driven by growth within the Metabolic, Oncology, AVAI and Other uncategorized therapeutic areas, compared to the same period in the prior year.

Total direct costs

Total direct costs increased by $94.6 million, to $359.3 million for the three months ended September 30, 2023 from $264.7 million for the three months ended September 30, 2022.

Total direct costs increased by $250.6 million, to $999.7 million for the nine months ended September 30, 2023 from $749.2 million for the nine months ended September 30, 2022.

Total direct costs increased by $52.0 million, to $355.9 million for the three months ended March 31, 2024 from $303.9 million for the three months ended March 31, 2023.

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 $66.9 million and $170.8 million for the three and nine months ended September 30, 2023, compared to the same period in the prior year.

The higher personnel costs portion increased by $24.1 million and $65.0 million for the three and nine months ended September 30, 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 $31.6 million for the three months ended March 31, 2024, compared to the same period in the prior year.

The higher personnel costs portion increased by $20.2 million for the three months ended March 31, 2024, compared to the same periods in the prior year.

Selling, general and administrative

Selling, general and administrative expenses increased by $6.0 million, to $41.4 million for the three months ended September 30, 2023 from $35.4 million for the three months ended September 30, 2022.

Selling, general and administrative expenses increased by $20.8 million, to $118.8 million for the nine months ended September 30, 2023 from $98.0 million for the nine months ended September 30, 2022.

Selling, general and administrative expenses increased by $6.1 million, to $44.1 million for the three months ended March 31, 2024 from $38.0 million for the three months ended March 31, 2023.

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

The higher personnel costs portion increased by $5.2 million and $14.7 million for the three and nine months ended September 30, 2023, compared to the same periods in the prior year.

The higher personnel costs portion increased by $4.7 million for the three months ended March 31, 2024, compared to the same periods in the prior year.

Depreciation and Amortization

Depreciation and amortization expense increased by $1.1 million, to $6.9 million for the three months ended September 30, 2023 from $5.8 million for the three months ended September 30, 2022.

Depreciation and amortization expense increased by $2.9 million, to $19.4 million for the nine months ended September 30, 2023 from $16.4 million for the nine months ended September 30, 2022.

The increase was primarily related to increased depreciation related to Property and equipment, net, compared to the same periods in the prior year.

Miscellaneous (expense) income, net

Miscellaneous (expense) income, net changed by $7.3 million to $1.6 million of expense for the three months ended September 30, 2023 from $5.6 million of income for the three months ended September 30, 2022.

Miscellaneous (expense) income, net changed by $11.2 million to $2.2 million of expense for the nine months ended September 30, 2023 from $9.0 million of income for the nine months ended September 30, 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 and third-party investment losses.

Depreciation and amortization expense increased by $1.0 million to $7.0 million for the three months ended March 31, 2024 from $6.0 million for the three months ended March 31, 2023.

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 $3.9 million to $4.6 million for the three months ended March 31, 2024 from $0.7 million for the three months ended March 31, 2023.

Income tax provision

Income tax provision decreased by $3.2 million, to $12.7 million for the three months ended September 30, 2023 from $15.9 million for the three months ended September 30, 2022.

Income tax provision increased by $7.9 million, to $40.5 million for the nine months ended September 30, 2023 from $32.5 million for the nine months ended September 30, 2022.

The overall effective tax rate for the three months ended September 30, 2023 was 15.2%, compared to an overall effective tax rate of 19.4% for the three months ended September 30, 2022.

The overall effective tax rate for the nine months ended September 30, 2023 was 16.5% compared to an overall effective tax rate of 15.5% for the nine months ended September 30, 2022.

The decrease in the income tax provision and overall effective tax rate for the three months ended September 30, 2023 was primarily attributable to 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 period in the prior year.

The increase in the income tax provision and overall effective tax rate for the nine months ended September 30, 2023 was primarily attributable to an increase in pre-tax book income and a decrease in benefits from uncertain tax positions compared to the same period in the prior year.

Income tax provision decreased by $2.9 million, to $10.2 million for the three months ended March 31, 2024 from $13.1 million for the three months ended March 31, 2023.

The overall effective tax rate for the three months ended March 31, 2024 was 9.0%, compared to an overall effective tax rate of 15.3% for the three months ended March 31, 2023.

The decrease in the income tax provision was primarily attributable to an increase in excess tax benefits recognized from share-based compensation and tax benefits related to Foreign Derived Intangible Income (“FDII”) which was partially offset by an increase in pre-tax book income compared to the same period in the prior year.

The decrease in the overall effective tax rate for the three months ended March 31, 2024 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 period 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 $10.0 million revolving line of credit which we entered into on September 30, 2019 (the “Credit Facility”), and has subsequently been amended.

As of September 30, 2023, we had cash and cash equivalents of $95.2 million which increased from $28.3 million as of December 31, 2022.

Approximately $20.4 million of cash and cash equivalents, none of which was restricted, was held by our foreign subsidiaries as of September 30, 2023.

As of September 30, 2023, we had $150.0 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.

As of March 31, 2024, we had cash and cash equivalents of $407.0 million which increased from $245.4 million as of December 31, 2023.

Approximately $24.0 million of cash and cash equivalents, none of which was restricted, was held by our foreign subsidiaries as of March 31, 2024.

As of March 31, 2024, we had $10.0 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, including additional lease commitments, capital expenditures, share repurchases, selective strategic bolt-on acquisitions, other investments, and other general corporate needs.

We have historically funded our operations and growth with cash flow from operations and borrowings under our credit facilities.

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

As of September 30, 2023, cash commitments to support operating business needs include lease liabilities discussed in Note 8 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 67 basis points to 1.92% in the nine months ended September 30, 2023, compared to the same period in the prior year.

As of March 31, 2024, cash commitments to support operating business needs include lease liabilities discussed in Note 8 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 111 basis points to 1.08% in the three months ended March 31, 2024, 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.

Nine Months Ended September 30,

Three Months Ended March 31,

Cash Flows (Amounts in thousands) 2024 2023

Net cash provided by operating activities $ 152,677 $ 80,076

Net cash used in investing activities (26,632) (29,522)

Net cash used in financing activities (184,165) (644,654)

Net cash provided by (used in) investing activities 2,530 (9,503)

Net cash provided by (used in) financing activities 7,660 (52,683)

Effect of exchange rates on cash, cash equivalents and restricted cash (1,306) 767

Increase (decrease) in cash, cash equivalents and restricted cash $ 66,942 $ (430,297)

Increase in cash, cash equivalents and restricted cash $ 161,561 $ 18,657

Cash Flow from Operating Activities

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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 $277.0 million for the nine months ended September 30, 2023 beginning with net income of $204.5 million.

Adjustments to reconcile net income to net cash provided by operating activities were $38.8 million, primarily related to depreciation of $17.7 million, stock based compensation expense of $15.4 million and noncash lease expense of $14.6 million.

Changes in operating assets and liabilities provided $33.7 million in operating cash flows and was primarily driven by increased advanced billings of $56.0 million and increased accrued expenses of $54.9 million, offset by increased accounts receivable and unbilled, net of $39.3 million, decreased lease liabilities of $14.4 million and a change other assets and liabilities, net of $13.7 million.

Net cash flows provided by operating activities was $251.4 million for the nine months ended September 30, 2022 beginning with net income of $176.7 million.

Net cash flows provided by operating activities was $152.7 million for the three months ended March 31, 2024 beginning with net income of $102.6 million.

Adjustments to reconcile net income to net cash provided by operating activities were $11.9 million, primarily related to depreciation of $6.6 million, noncash lease expense of $5.7 million and stock based compensation expense of $4.3 million.

Changes in operating assets and liabilities provided $38.2 million in operating cash flows and was primarily driven by increased advanced billings of $56.8 million and decreased accounts receivable and unbilled, net of $19.1 million, partially offset by decreased accrued expenses of $21.1 million and increased prepaid expenses and other current assets of $9.2 million.

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.

Adjustments to reconcile net income to net cash provided by operating activities were $13.6 million, primarily related to stock based compensation expense of $5.4 million, depreciation of $5.4 million and noncash lease expense of $4.8 million.

Changes in operating assets and liabilities provided $31.4 million in operating cash flows and was primarily driven by increased advanced billings of $73.3 million and increased accrued expenses of $47.8 million, offset by increased accounts receivable and unbilled, net of $62.4 million and increased prepaid expenses and other current assets of $17.4 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.

Cash Flow from Investing Activities

Net cash used in investing activities was $26.6 million for the nine months ended September 30, 2023 primarily consisting of property and equipment expenditures.

Net cash used in investing activities was $29.5 million for the nine months ended September 30, 2022 primarily consisting of $27.6 million in property and equipment expenditures.

Net cash provided by investing activities was $2.5 million for the three months ended March 31, 2024 primarily consisting of $8.0 million in other investing activity, partially offset by $5.5 million of property and equipment expenditures.

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.

Cash Flow from Financing Activities

Net cash used in financing activities was $184.2 million for the nine months ended September 30, 2023 primarily related to $144.0 million in repurchases of common stock and $155.0 million in repayments of the Credit Facility, partially offset by $105.0 million in proceeds related to the Credit Facility and $9.9 million in proceeds from stock option exercises.

Net cash used in financing activities was $644.7 million for the nine months ended September 30, 2022 primarily related to $800.7 million in repurchases of common stock and $159.5 million in repayments of the Credit Facility, partially offset by $299.2 million in proceeds related to the Credit Facility and $16.3 million in proceeds from stock option exercises.

Net cash provided by financing activities was $7.7 million for the three months ended March 31, 2024 related to proceeds from stock option exercises.

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.

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 nine months ended September 30, 2022, the Company repurchased 5,463,244 shares for $800.5 million.

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

The Company did not execute any share repurchases during the three months ended September 30, 2023.

During the nine months ended September 30, 2023, the Company repurchased 781,068 shares for $144.0 million.

As of September 30, 2023, we have remaining authorization of $308.8 million under the new repurchase program.

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

The Company did not execute any share repurchases during the three months ended March 31, 2024.

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

As of March 31, 2024, the Company has remaining authorization of $308.8 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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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 September 30, 2023, we have no indebtedness and less than $0.1 million in letters of credit outstanding related to certain operating lease obligations, which are secured by the Credit Facility.

As of March 31, 2024, we had no indebtedness and less than $0.1 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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There have been no significant changes in the critical accounting policies and estimates as previously described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Effect of Recent Accounting Pronouncements

Refer to Note 1 of the Condensed Consolidated Financial Statements for management’s discussion of the effect of recent accounting pronouncements.

Quantitative and Qualitative Disclosures About Market Risk

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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