What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-23 compared with 2024-04-23 · 85 added, 50 removed, 160 unchanged (46% of the section changed)

44 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 5,800 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.

Our global platform includes approximately 5,800 employees across 42 countries as of June 30, 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 $615.6 million and $555.8 million for the three months ended March 31, 2024 and 2023, respectively.

Net new business awards were $551.0 million and $1,166.5 million for the three and six months ended June 30, 2024, 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.

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, 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.

As of June 30, 2024, our backlog increased by $353.0 million, or 13.7%, to $2,924.9 million compared to $2,571.9 million as of June 30, 2023.

Included within backlog as of June 30, 2024 was approximately $1,575.0 million to $1,595.0 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:

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.

unfavorable foreign currency adjustments of $1.2 million for the three months ended June 30, 2024;

unfavorable foreign currency adjustments of $8.0 million for the six months ended June 30, 2024;

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

and favorable foreign currency adjustments of $3.9 million for the six months ended June 30, 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 March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Dollars per Euro:

1.08 1.09 1.08 1.08

Results of Operations

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

Three Months Ended March 31,

Three Months Ended June 30, 2024 compared to Three Months Ended June 30, 2023

Three Months Ended June 30,

(Amounts in thousands, except percentages) 2024 2023 Change

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Income from operations 105,150 78,393 26,757

Miscellaneous income, net 4,593 687 3,906

Miscellaneous expense, net (133) (1,283) 1,150

Interest income (expense), net 5,465 (1,366) 6,831

2 unchanged sentences

Net income $ 88,351 $ 61,068 $ 27,283

Six Months Ended June 30, 2024 compared to Six Months Ended June 30, 2023

Six Months Ended June 30,

(Amounts in thousands, except percentages) 2024 2023 Change

Revenue, net $ 1,039,148 $ 894,942 $ 144,206 16.1 %

Direct service costs, excluding depreciation and amortization 343,033 309,594 33,439 10.8 %

Reimbursed out-of-pocket expenses 387,135 330,842 56,293 17.0 %

Total direct costs 730,168 640,436 89,732 14.0 %

Selling, general and administrative 85,534 77,431 8,103 10.5 %

Depreciation 13,505 11,378 2,127 18.7 %

Amortization 722 1,100 (378) (34.4) %

Total operating expenses 829,929 730,345 99,584 13.6 %

Income from operations 209,219 164,597 44,622

Miscellaneous income (expense), net 4,460 (596) 5,056

Interest income (expense), net 9,585 (2,227) 11,812

Income before income taxes 223,264 161,774 61,490

Income tax provision 32,322 27,812 4,510

Net income $ 190,942 $ 133,962 $ 56,980

Total revenue

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 revenue increased by $67.2 million to $528.1 million for the three months ended June 30, 2024, from $460.9 million for the three months ended June 30, 2023.

Total revenue increased by $144.2 million to $1,039.1 million for the six months ended June 30, 2024, from $894.9 million for the six months ended June 30, 2023.

The increase for the three and six months ended June 30, 2024 was broad based, but primarily driven by growth within the Metabolic, Oncology and Other uncategorized therapeutic areas, compared to the same period in the prior year.

Total direct costs

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.

Total direct costs increased by $37.7 million, to $374.3 million for the three months ended June 30, 2024 from $336.6 million for the three months ended June 30, 2023.

Total direct costs increased by $89.7 million, to $730.2 million for the six months ended June 30, 2024 from $640.4 million for the six months ended June 30, 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 $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.

Reimbursed out-of-pocket expenses, which can fluctuate significantly from period to period based on the timing of program initiation and closeout, increased $24.7 million and $56.3 million for the three and six months ended June 30, 2024, compared to the same period in the prior year.

The higher personnel costs portion increased by $12.0 million and $32.2 million for the three and six months ended June 30, 2024, compared to the same periods in the prior year.

Selling, general and administrative

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.

Selling, general and administrative expenses increased by $2.0 million, to $41.5 million for the three months ended June 30, 2024 from $39.4 million for the three months ended June 30, 2023.

Selling, general and administrative expenses increased by $8.1 million, to $85.5 million for the six months ended June 30, 2024 from $77.4 million for the six months ended June 30, 2023.

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

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.

The higher personnel costs portion increased by $2.7 million and $7.4 million for the three and six months ended June 30, 2024, compared to the same periods in the prior year.

Depreciation and Amortization

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.

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 proceeds from the recovery of a note receivable.

Depreciation and amortization expense increased by $0.7 million, to $7.2 million for the three months ended June 30, 2024 from $6.5 million for the three months ended June 30, 2023.

Depreciation and amortization expense increased by $1.7 million, to $14.2 million for the six months ended June 30, 2024 from $12.5 million for the six months ended June 30, 2023.

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

Miscellaneous income (expense), net

Miscellaneous income (expense), net changed by $1.2 million to $0.1 million of expense for the three months ended June 30, 2024 from $1.3 million of expense for the three months ended June 30, 2023.

Miscellaneous income (expense), net changed by $5.1 million to $4.5 million of income for the six months ended June 30, 2024 from $0.6 million of expense for the six months ended June 30, 2023.

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, third-party investment gains or losses and proceeds from the recovery of a note receivable.

Interest income (expense), net

Interest income (expense), net changed by $6.8 million to $5.5 million of income for the three months ended June 30, 2024 from $1.4 million of expense for the three months ended June 30, 2023.

Interest income (expense), net changed by $11.8 million to $9.6 million of income for the six months ended June 30, 2024 from $2.2 million of expense for the six months ended June 30, 2023.

These changes were mainly attributable to increased interest income on Cash and cash equivalents, including restricted cash and a reduction in short-term debt, compared to the same periods in the prior year.

Income tax provision

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.

Income tax provision increased by $7.5 million, to $22.1 million for the three months ended June 30, 2024 from $14.7 million for the three months ended June 30, 2023.

Income tax provision increased by $4.5 million, to $32.3 million for the six months ended June 30, 2024 from $27.8 million for the six months ended June 30, 2023.

The overall effective tax rate for the three months ended June 30, 2024 was 20.0%, compared to an overall effective tax rate of 19.4% for the three months ended June 30, 2023.

The overall effective tax rate for the six months ended June 30, 2024 was 14.5% compared to an overall effective tax rate of 17.2% for the six months ended June 30, 2023.

The increase in the income tax provision and overall effective tax rate for the three months ended June 30, 2024 was primarily attributable to an increase in pre-tax book income and a decrease in excess tax benefits recognized from share-based compensation, which was partially offset by an increase in 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 for the six months ended June 30, 2024 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 tax benefits related to FDII compared to the same period in the prior year.

The decrease in the overall effective tax rate for the six months ended June 30, 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 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.

As of June 30, 2024, we had cash and cash equivalents of $510.9 million which increased from $245.4 million as of December 31, 2023.

Approximately $20.6 million of cash and cash equivalents, none of which was restricted, was held by our foreign subsidiaries as of June 30, 2024.

As of June 30, 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.

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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, 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.

As of June 30, 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 24 basis points to 1.77% in the six months ended June 30, 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.

We have deemed that foreign earnings will be indefinitely reinvested and therefore we have not provided taxes on these earnings.

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,

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.

Six Months Ended June 30,

Cash Flows (Amounts in thousands) 2024 2023

Net cash provided by operating activities $ 269,074 $ 162,594

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

Net cash used in investing activities (10,260) (17,970)

Net cash provided by (used in) financing activities 8,326 (134,893)

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Cash Flow from Operating Activities

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

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

Advanced billings and accounts receivable and unbilled, net 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 $152.7 million for the three months ended March 31, 2024 beginning with net income of $102.6 million.

Net cash flows provided by operating activities was $269.1 million for the six months ended June 30, 2024 beginning with net income of $190.9 million.

Adjustments to reconcile net income to net cash provided by operating activities were $28.8 million, primarily related to depreciation of $13.5 million, noncash lease expense of 11.5 million and stock-based compensation expense of $7.9 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 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.

Changes in operating assets and liabilities provided $49.4 million in operating cash flows and was primarily driven by increased advanced billings of $78.6 million, partially offset by increased prepaid expenses and other current assets of $11.3 million and decreased lease liabilities of $11.0 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 deprecation 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, partially offset by increased accounts receivable and unbilled, net of $21.7 million and increased prepaid expenses and other current assets of $11.8 million.

Cash Flow from Investing Activities

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.

Net cash used in investing activities was $10.3 million for the six months ended June 30, 2024 primarily consisting of property and equipment expenditures of $18.4 million, partially offset by $8.1 million in other investing activity.

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.

Cash Flow from Financing Activities

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.

Net cash provided by financing activities was $8.3 million for the six months ended June 30, 2024 related to 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.

Share Repurchases

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.

The Company did not execute any share repurchases during the three and six months ended June 30, 2024.

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, 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.

1 unchanged sentence

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, 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.

As of June 30, 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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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