What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-22 compared with 2024-07-23 · 65 added, 62 removed, 183 unchanged (41% of the section changed)

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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.

Forward-looking statements are based largely on our current expectations and projections about future events and financial or other 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.

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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 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.

Our global platform includes approximately 5,900 employees across 43 countries as of September 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 $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.

Net new business awards were $533.7 million and $1,700.3 million for the three and nine months ended September 30, 2024, respectively.

Net new business awards were $611.5 million and $1,742.1 million for the three and nine months ended September 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 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.

As of September 30, 2024, our backlog increased by $237.9 million, or 8.8%, to $2,927.4 million compared to $2,689.5 million as of September 30, 2023.

Included within backlog as of September 30, 2024 was approximately $1,610.0 million to $1,630.0 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 $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.

favorable foreign currency adjustments of $5.8 million for the three months ended September 30, 2024;

unfavorable foreign currency adjustments of $2.2 million for the nine months ended September 30, 2024;

favorable foreign currency adjustments of $1.3 million for the three months ended September 30, 2023;

and favorable foreign currency adjustments of $5.3 million for the nine months ended September 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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dollars using the following average exchange rates based on data obtained from www.xe.com:

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

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

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Results of Operations

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

Three Months Ended June 30,

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

Three Months Ended September 30,

(Amounts in thousands, except percentages) 2024 2023 Change

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Net income $ 96,426 $ 70,550 $ 25,876

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

Six Months Ended June 30,

Nine Months Ended September 30, 2024 compared to Nine Months Ended September 30, 2023

Nine Months Ended September 30,

(Amounts in thousands, except percentages) 2024 2023 Change

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Total revenue

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 revenue increased by $40.8 million to $533.3 million for the three months ended September 30, 2024, from $492.5 million for the three months ended September 30, 2023.

Total revenue increased by $185.0 million to $1,572.5 million for the nine months ended September 30, 2024, from $1,387.4 million for the nine months ended September 30, 2023.

The increase for the three months ended September 30, 2024 was primarily driven by growth within the Metabolic, Oncology and Cardiology therapeutic areas, compared to the same period in the prior year.

The increase for the nine months ended September 30, 2024 was broad based, but was primarily driven by growth within the Metabolic, Oncology, Cardiology and other therapeutic areas, compared to the same period in the prior year.

Total direct costs

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 $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.

Total direct costs increased by $5.0 million, to $364.3 million for the three months ended September 30, 2024 from $359.3 million for the three months ended September 30, 2023.

Total direct costs increased by $94.7 million, to $1,094.5 million for the nine months ended September 30, 2024 from $999.7 million for the nine months ended September 30, 2023.

The increase for the three months ended September 30, 2024 was primarily attributed to higher personnel costs to support the growth in service activities, partially offset by lower reimbursed out-of-pocket expenses.

The increase for the nine months ended September 30, 2024 was primarily attributed to higher reimbursed out-of-pocket expenses and higher personnel costs to support the growth in service activities.

The higher personnel costs portion increased by $9.5 million and $41.7 million for the three and nine months ended September 30, 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, decreased by $2.2 million and increased by $54.1 million for the three and nine months ended September 30, 2024, compared to the same periods in the prior year.

Selling, general and administrative

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.

Selling, general and administrative expenses increased by $7.8 million, to $49.2 million for the three months ended September 30, 2024 from $41.4 million for the three months ended September 30, 2023.

Selling, general and administrative expenses increased by $15.9 million, to $134.8 million for the nine months ended September 30, 2024 from $118.8 million for the nine months ended September 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 $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.

The higher personnel costs portion increased by $9.5 million and $16.9 million for the three and nine months ended September 30, 2024, compared to the same periods in the prior year.

Depreciation and Amortization

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.

Depreciation and amortization expense increased by $0.6 million, to $7.5 million for the three months ended September 30, 2024 from $6.9 million for the three months ended September 30, 2023.

Depreciation and amortization expense increased by $2.4 million, to $21.7 million for the nine months ended September 30, 2024 from $19.4 million for the nine months ended September 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.

Miscellaneous income (expense), net changed by $0.6 million to $1.0 million of expense for the three months ended September 30, 2024 from $1.6 million of expense for the three months ended September 30, 2023.

Miscellaneous income (expense), net changed by $5.6 million to $3.4 million of income for the nine months ended September 30, 2024 from $2.2 million of expense for the nine months ended September 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.

Interest income (expense), net changed by $7.6 million to $7.5 million of income for the three months ended September 30, 2024 from $0.1 million of expense for the three months ended September 30, 2023.

Interest income (expense), net changed by $19.4 million to $17.1 million of income for the nine months ended September 30, 2024 from $2.3 million of expense for the nine months ended September 30, 2023.

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

Income tax provision

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.

Income tax provision increased by $9.7 million, to $22.4 million for the three months ended September 30, 2024 from $12.7 million for the three months ended September 30, 2023.

Income tax provision increased by $14.2 million, to $54.7 million for the nine months ended September 30, 2024 from $40.5 million for the nine months ended September 30, 2023.

The overall effective tax rate for the three months ended September 30, 2024 was 18.8%, compared to an overall effective tax rate of 15.2% for the three months ended September 30, 2023.

The overall effective tax rate for the nine months ended September 30, 2024 was 16.0% compared to an overall effective tax rate of 16.5% for the nine months ended September 30, 2023.

The increase in the income tax provision and overall effective tax rate for the three months ended September 30, 2024 was primarily attributable to an increase in pre-tax book income, 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 nine months ended September 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 nine months ended September 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 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.

As of September 30, 2024, we had cash and cash equivalents of $656.9 million which increased from $245.4 million as of December 31, 2023.

Approximately $24.8 million of cash and cash equivalents, none of which was restricted, was held by our foreign subsidiaries as of September 30, 2024.

As of September 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 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.

As of September 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 8 basis points to 1.84% in the nine months ended September 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.

Six Months Ended June 30,

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,

Cash Flows (Amounts in thousands) 2024 2023

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Cash Flow from Operating Activities

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.

Cash flows from operations are driven mainly by net income, depreciation, stock-based compensation expense, noncash lease 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 $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 $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.

Net cash flows provided by operating activities was $418.1 million for the nine months ended September 30, 2024 beginning with net income of $287.4 million.

Adjustments to reconcile net income to net cash provided by operating activities were $52.4 million, primarily related to depreciation of $20.7 million, stock-based compensation expense of $19.6 million and noncash lease expense of $17.3 million.

Changes in operating assets and liabilities provided $78.4 million in operating cash flows and was primarily driven by increased advanced billings of $111.1 million, partially offset by decreased lease liabilities of $15.4 million and increased accounts receivable and unbilled, net of $13.0 million.

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 deprecation 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 $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.

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, partially offset by increased accounts receivable and unbilled, net of $39.3 million, decreased lease liabilities of $14.4 million and a change in other assets and liabilities, net of $13.7 million.

Cash Flow from Investing Activities

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.

Net cash used in investing activities was $20.7 million for the nine months ended September 30, 2024 primarily consisting of property and equipment expenditures of $28.9 million, partially offset by $8.2 million in other investing activity.

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.

Cash Flow from Financing Activities

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.

Net cash provided by financing activities was $14.6 million for the nine months ended September 30, 2024 related to proceeds from stock option exercises.

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.

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 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.

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

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, 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 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.

As of September 30, 2024, we had no indebtedness.

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