0001610950-19-000036.txt : 20190806 0001610950-19-000036.hdr.sgml : 20190806 20190805174252 ACCESSION NUMBER: 0001610950-19-000036 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 136 CONFORMED PERIOD OF REPORT: 20190630 FILED AS OF DATE: 20190806 DATE AS OF CHANGE: 20190805 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Syneos Health, Inc. CENTRAL INDEX KEY: 0001610950 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 273403111 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-36730 FILM NUMBER: 19999781 BUSINESS ADDRESS: STREET 1: 1030 SYNC STREET CITY: MORRISVILLE STATE: NC ZIP: 27560 BUSINESS PHONE: 919-876-9300 MAIL ADDRESS: STREET 1: 1030 SYNC STREET CITY: MORRISVILLE STATE: NC ZIP: 27560 FORMER COMPANY: FORMER CONFORMED NAME: INC Research Holdings, Inc. DATE OF NAME CHANGE: 20140616 10-Q 1 q22019form10-qdocument.htm FORM 10-Q Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 

FORM 10-Q 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            .
Commission File Number: 001-36730
 
SYNEOS HEALTH, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
27-3403111
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
1030 Sync Street, Morrisville, North Carolina 27560-5468
(Address of principal executive offices and Zip Code)
(919876-9300
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common Stock, $0.01 par value per share
SYNH
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): 
Large accelerated filer
 
  
Accelerated filer
 
Non-accelerated filer
 
  
Smaller reporting company
 
 
 
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No  
As of July 31, 2019, there were approximately 103,485,261 shares of the registrant’s common stock outstanding.






SYNEOS HEALTH, INC.
FORM 10-Q


TABLE OF CONTENTS
 
 
 
 
 
 
 
Page
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 5.
Item 6.
 


2



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
SYNEOS HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
(In thousands, except per share data)
Revenue
$
1,166,827

 
$
1,072,530

 
$
2,285,833

 
$
2,129,726

 
 
 
 
 
 
 
 
Costs and operating expenses:
 
 
 
 
 
 
 
Direct costs (exclusive of depreciation and amortization)
917,529

 
847,465

 
1,804,331

 
1,688,288

Selling, general, and administrative expenses
110,879

 
100,218

 
223,996

 
199,477

Restructuring and other costs
11,882

 
8,591

 
26,295

 
22,298

Transaction and integration-related expenses
7,654

 
18,032

 
24,312

 
43,243

Depreciation
19,248

 
17,557

 
38,819

 
35,585

Amortization
41,501

 
49,945

 
83,130

 
99,938

Total operating expenses
1,108,693

 
1,041,808

 
2,200,883

 
2,088,829

Income from operations
58,134

 
30,722

 
84,950

 
40,897

 
 
 
 
 
 
 
 
Other expense, net:
 
 
 
 
 
 
 
Interest income
2,133

 
1,655

 
3,635

 
2,494

Interest expense
(34,263
)
 
(32,894
)
 
(68,893
)
 
(64,630
)
Loss on extinguishment of debt

 
(1,877
)
 
(4,355
)
 
(2,125
)
Other income (expense), net
7,573

 
32,001

 
(1,348
)
 
19,447

Total other expense, net
(24,557
)
 
(1,115
)
 
(70,961
)
 
(44,814
)
Income (loss) before provision for income taxes
33,577

 
29,607

 
13,989

 
(3,917
)
Income tax expense
(22,285
)
 
(16,047
)
 
(32,701
)
 
(7,075
)
Net income (loss)
$
11,292

 
$
13,560

 
$
(18,712
)
 
$
(10,992
)
 
 
 
 
 
 
 
 
Earnings (loss) per share:
 
 
 
 
 
 
 
Basic
$
0.11

 
$
0.13

 
$
(0.18
)
 
$
(0.11
)
Diluted
$
0.11

 
$
0.13

 
$
(0.18
)
 
$
(0.11
)
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
103,699

 
102,899

 
103,532

 
103,674

Diluted
104,818

 
104,005

 
103,532

 
103,674


The accompanying notes are an integral part of these condensed consolidated financial statements.

3



SYNEOS HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
(In thousands)
Net income (loss)
$
11,292

 
$
13,560

 
$
(18,712
)
 
$
(10,992
)
Unrealized loss on derivative instruments, net of income tax benefit of $237, $0, $332 and $0, respectively
(8,962
)
 
(1,717
)
 
(13,178
)
 
(1,283
)
Foreign currency translation adjustments, net of income tax benefit (expense) of $0, $0, $0 and $(2,868), respectively
(11,919
)
 
(69,169
)
 
8,685

 
(35,246
)
Comprehensive loss
$
(9,589
)
 
$
(57,326
)
 
$
(23,205
)
 
$
(47,521
)

The accompanying notes are an integral part of these condensed consolidated financial statements.



4



SYNEOS HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
June 30, 2019
 
December 31, 2018
 
(in thousands, except par value)
ASSETS
 
 
 
Current assets:
 
 
 
Cash, cash equivalents, and restricted cash
$
107,256

 
$
155,932

Accounts receivable and unbilled services, net
1,287,509

 
1,256,731

Prepaid expenses and other current assets
71,985

 
79,299

Total current assets
1,466,750

 
1,491,962

Property and equipment, net
187,747

 
183,486

Operating lease right-of-use assets
227,715

 

Goodwill
4,336,355

 
4,333,159

Intangible assets, net
1,051,065

 
1,133,612

Deferred income tax assets
9,111

 
9,317

Other long-term assets
118,238

 
103,373

Total assets
$
7,396,981

 
$
7,254,909

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
128,812

 
$
98,624

Accrued expenses
569,446

 
563,527

Deferred revenue
710,905

 
777,141

Current portion of operating lease obligations
29,760

 

Current portion of finance lease obligations
16,004

 
13,806

Current portion of long-term debt
199,575

 
50,100

Total current liabilities
1,654,502

 
1,503,198

Long-term debt
2,534,842

 
2,737,019

Operating lease long-term obligations
228,704

 

Finance lease long-term obligations
28,390

 
26,759

Deferred income tax liabilities
33,223

 
25,120

Other long-term liabilities
93,421

 
106,669

Total liabilities
4,573,082

 
4,398,765

 
 
 
 
Commitments and contingencies (Note 17)

 

 
 
 
 
Shareholders' equity:
 
 
 
Preferred stock, $0.01 par value; 30,000 shares authorized, 0 shares issued and outstanding at June 30, 2019 and December 31, 2018

 

Common stock, $0.01 par value; 600,000 shares authorized, 103,460 and 103,372 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively
1,035

 
1,034

Additional paid-in capital
3,404,389

 
3,402,638

Accumulated other comprehensive loss, net of tax
(92,688
)
 
(88,195
)
Accumulated deficit
(488,837
)
 
(459,333
)
Total shareholders' equity
2,823,899

 
2,856,144

Total liabilities and shareholders' equity
$
7,396,981

 
$
7,254,909


The accompanying notes are an integral part of these condensed consolidated financial statements.

5



SYNEOS HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six Months Ended June 30,
 
2019
 
2018
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net loss
$
(18,712
)
 
$
(10,992
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
121,949

 
135,523

Share-based compensation
28,061

 
16,254

Provision for doubtful accounts
783

 
(1,734
)
Provision for (benefit from) deferred income taxes
8,793

 
(7,682
)
Foreign currency transaction adjustments
(957
)
 
(19,633
)
Fair value adjustment of contingent obligations
(940
)
 
2,388

Loss on extinguishment of debt
4,355

 
2,125

Other non-cash items
1,147

 
4,024

Changes in operating assets and liabilities, net of effect of business combinations:
 
 
 
Accounts receivable, unbilled services, and deferred revenue
(89,535
)
 
(68,629
)
Accounts payable and accrued expenses
32,005

 
(3,269
)
Other assets and liabilities
(3,435
)
 
16,799

Net cash provided by operating activities
83,514

 
65,174

Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(28,066
)
 
(32,586
)
Investments in unconsolidated affiliates
(3,000
)
 

Net cash used in investing activities
(31,066
)
 
(32,586
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of long-term debt, net of discount
183,195

 

Payments of debt financing costs
(1,032
)
 
(3,421
)
Repayments of long-term debt
(256,136
)
 
(97,500
)
Proceeds from accounts receivable financing agreement
38,200

 

Repayments of accounts receivable financing agreement
(22,400
)
 

Payments of contingent consideration related to business combinations
(8
)
 

Payments of finance leases
(4,677
)
 
(8,863
)
Payments for repurchase of common stock
(49,671
)
 
(74,985
)
Proceeds from exercise of stock options
24,377

 
7,458

Payments related to tax withholding for share-based compensation
(11,763
)
 
(2,383
)
Net cash used in financing activities
(99,915
)
 
(179,694
)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(1,209
)
 
(1,151
)
Net change in cash, cash equivalents, and restricted cash
(48,676
)
 
(148,257
)
Cash, cash equivalents, and restricted cash - beginning of period
155,932

 
321,976

Cash, cash equivalents, and restricted cash - end of period
$
107,256

 
$
173,719


The accompanying notes are an integral part of these condensed consolidated financial statements.

6



SYNEOS HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30, 2019
 
June 30, 2018
 
June 30, 2019
 
June 30, 2018
 
(in thousands)
Shareholders' equity, beginning balance
$
2,838,370

 
$
2,907,259

 
$
2,856,144

 
$
3,022,579

Impact from adoption of ASU 2014-09

 

 

 
(98,815
)
Shareholders' equity, adjusted beginning balance
2,838,370

 
2,907,259

 
2,856,144

 
2,923,764

 
 
 
 
 
 
 
 
Common stock:
 
 
 
 
 
 
 
Beginning balance
1,038

 
1,038

 
1,034

 
1,044

Stock repurchase
(5
)
 
(10
)
 
(12
)
 
(19
)
RSU distributions net of shares for tax withholding

 

 
4

 
1

Stock option exercises
2

 
1

 
9

 
3

Ending balance
1,035

 
1,029

 
1,035

 
1,029

 
 
 
 
 
 
 
 
Additional paid-in capital:
 
 
 
 
 
 
 
Beginning balance
3,402,953

 
3,394,586

 
3,402,638

 
3,414,389

Stock repurchase
(16,735
)
 
(33,500
)
 
(38,867
)
 
(64,482
)
RSU distributions net of shares for tax withholding
(241
)
 
(60
)
 
(11,778
)
 
(2,384
)
Stock option exercises
4,618

 
1,915

 
24,335

 
7,539

Share-based compensation
13,794

 
8,375

 
28,061

 
16,254

Ending balance
3,404,389

 
3,371,316

 
3,404,389

 
3,371,316

 
 
 
 
 
 
 
 
Accumulated other comprehensive (loss) income:
 
 
 
 
 
 
 
Beginning balance
(71,807
)
 
15,822

 
(88,195
)
 
(22,385
)
Impact from adoption of ASU 2018-02

 

 

 
3,850

Adjusted beginning balance
(71,807
)
 
15,822

 
(88,195
)
 
(18,535
)
Unrealized loss on derivative instruments, net of taxes
(8,962
)
 
(1,717
)
 
(13,178
)
 
(1,283
)
Foreign currency translation adjustment, net of taxes
(11,919
)
 
(69,169
)
 
8,685

 
(35,246
)
Ending balance
(92,688
)
 
(55,064
)
 
(92,688
)
 
(55,064
)
 
 
 
 
 
 
 
 
Accumulated deficit:
 
 
 
 
 
 
 
Beginning balance
(493,814
)
 
(504,187
)
 
(459,333
)
 
(370,469
)
Impact from adoption of ASU 2014-09

 

 

 
(98,815
)
Impact from adoption of ASU 2018-02

 

 

 
(3,850
)
Adjusted beginning balance
(493,814
)
 
(504,187
)
 
(459,333
)
 
(473,134
)
Stock repurchase
(6,315
)
 
(3,982
)
 
(10,792
)
 
(10,483
)
Net income (loss)
11,292

 
13,560

 
(18,712
)
 
(10,992
)
Ending balance
(488,837
)
 
(494,609
)
 
(488,837
)
 
(494,609
)
 
 
 
 
 
 
 
 
Shareholders' equity, ending balance
$
2,823,899

 
$
2,822,672

 
$
2,823,899

 
$
2,822,672


The accompanying notes are an integral part of these condensed consolidated financial statements.



7



SYNEOS HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Basis of Presentation and Changes in Significant Accounting Policies
Nature of Operations
Syneos Health, Inc. (the “Company”) is a global provider of end-to-end biopharmaceutical outsourcing solutions. The Company operates under two reportable segments, Clinical Solutions and Commercial Solutions, and derives its revenue through a suite of services designed to enhance its customers’ ability to successfully develop, launch, and market their products. The Company offers its solutions on both a standalone and integrated basis with biopharmaceutical development and commercialization services ranging from Phase I to Phase IV clinical trial services to services associated with the commercialization of biopharmaceutical products. The Company’s customers include small, mid-sized, and large companies in the pharmaceutical, biotechnology, and medical device industries.
Unaudited Interim Financial Information
The Company prepared the accompanying unaudited condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. The significant accounting policies followed by the Company for interim financial reporting are consistent with the accounting policies followed for annual financial reporting.
The unaudited condensed consolidated financial statements, in management’s opinion, include all adjustments of a normal recurring nature necessary for a fair presentation. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on March 18, 2019. The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the full year ending December 31, 2019 or any other future period. The unaudited condensed consolidated balance sheet at December 31, 2018 is derived from the amounts in the audited consolidated balance sheet included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
Allowance for Doubtful Accounts
The Company maintains a credit approval process and makes judgments in connection with assessing its customers’ ability to pay throughout the contractual obligation period. Generally, the Company has the ability to limit credit exposure by discontinuing services in the event of non-payment. The Company has certain customers that may depend on the ability to continue to raise capital in order to complete the development or commercialization of their products. The Company monitors its customers’ credit worthiness and applies judgment in establishing a provision for estimated credit losses based on historical experience, current receivables aging, and identified customer-specific circumstances that would affect the customers’ ability to meet their obligation. Despite this assessment, from time to time, customers are unable to meet their payment obligations, which could impact the Company’s results of operations.
Recently Adopted Accounting Standards
Leases. In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-02 (“ASU 2016-02”), Leases (Topic 842), as further amended, to increase transparency and comparability among organizations by requiring the recognition of, at the lease commencement date, a lease liability for the obligation to make lease payments, and a right-of-use ("ROU") asset for the right to use the underlying asset, on the balance sheet. The Company adopted ASU 2016-02, and all related amendments, collectively “ASC 842”, as of January 1, 2019, using the modified retrospective approach.

8



Results for reporting periods beginning on January 1, 2019 are presented under ASC 842, while prior period amounts continue to be reported and disclosed in accordance with the Company’s historical accounting treatment under Accounting Standards Codification 840, Leases (“ASC 840”). In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, does not require the Company to reassess if a contract is or contains a lease and allows the Company to carry forward the historical lease classifications and historical initial direct costs. The Company made an accounting policy election under ASC 842 not to recognize ROU assets and lease liabilities for leases with a term of 12 months or less. Lease payments for these leases are recognized as lease costs on a straight-line basis over the lease term. The Company also elected to account for lease components and the associated non-lease components in the contracts as a single lease component for all classes of underlying assets.
Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities, mainly related to operating leases, of approximately $214.0 million, as of January 1, 2019. The Company’s accounting for finance leases (previously classified as capital leases under ASC 840) remained substantially unchanged.
2. Financial Statement Details
Cash, Cash Equivalents and Restricted Cash
Certain of the Company’s subsidiaries participate in a notional cash pooling arrangement to manage global liquidity requirements. The participants combine their cash balances in pooling accounts at the same financial institution with the ability to offset bank overdrafts of one participant against positive cash account balances held by another participant. The net cash balance related to this pooling arrangement is included in cash, cash equivalents, and restricted cash in the unaudited condensed consolidated balance sheets.
Accounts Receivable and Unbilled Services, net
Accounts receivable and unbilled services, net of allowance for doubtful accounts, consisted of the following (in thousands):
 
June 30, 2019
 
December 31, 2018
Accounts receivable billed
$
781,440

 
$
733,142

Less: Allowance for doubtful accounts
(5,296
)
 
(4,587
)
Accounts receivable billed, net
776,144

 
728,555

Accounts receivable unbilled
419,337

 
422,860

Contract assets
92,028

 
105,316

Accounts receivable and unbilled services, net
$
1,287,509

 
$
1,256,731


Accounts Receivable Factoring Arrangement
In May 2017, the Company entered into an accounts receivable factoring agreement to sell certain eligible unsecured trade accounts receivable, without recourse, to an unrelated third-party financial institution for cash. For the six months ended June 30, 2019 and 2018, the Company factored $113.7 million and $100.9 million, respectively, of trade accounts receivable on a non-recourse basis and received $112.8 million and $100.5 million, respectively, in cash proceeds from the sale. The fees associated with these transactions were insignificant.

9



Goodwill
The changes in the carrying amount of goodwill by segment for the six months ended June 30, 2019 were as follows (in thousands):
 
Total
 
Clinical
Solutions
 
Commercial
Solutions
Balance at December 31, 2018:
 
 
 
 
 
Gross carrying amount
$
4,349,325

 
$
2,780,945

 
$
1,568,380

Accumulated impairment losses (a)
(16,166
)
 
(8,142
)
 
(8,024
)
Goodwill, net of accumulated impairment losses
4,333,159

 
2,772,803

 
1,560,356

2019 Activity:
 
 
 
 
 
Business combinations (b)
(250
)
 

 
(250
)
Impact of foreign currency translation
3,446

 
1,209

 
2,237

Balance at June 30, 2019:
 
 
 
 
 
Gross carrying amount
4,352,521

 
2,782,154

 
1,570,367

Accumulated impairment losses (a)
(16,166
)
 
(8,142
)
 
(8,024
)
Goodwill, net of accumulated impairment losses
$
4,336,355

 
$
2,774,012

 
$
1,562,343


(a) Accumulated impairment losses associated with the Clinical Solutions segment were recorded prior to 2019 and related to the former Phase I Services segment, now a component of the Clinical Solutions segment. Accumulated impairment losses associated with the Commercial Solutions segment were recorded prior to 2019 and related to the former Global Consulting segment, now a component of the Commercial Solutions segment. No impairment of goodwill was recorded for the six months ended June 30, 2019.
(b) Amount represents measurement period adjustments to goodwill recognized in connection with the acquisition of Kinapse Topco Limited (“Kinapse”).
Transaction and Integration-Related Expenses
Transaction and integration-related expenses consisted of the following (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Professional fees
$
6,678

 
$
11,073

 
$
19,523

 
$
25,774

Debt modification and related expenses
1,732

 
1,317

 
3,973

 
1,317

Integration and personnel retention-related costs
909

 
4,448

 
1,756

 
13,741

Fair value adjustments to contingent obligations
(1,665
)
 
1,194

 
(940
)
 
2,388

Other

 

 

 
23

Total transaction and integration-related expenses
$
7,654

 
$
18,032

 
$
24,312

 
$
43,243


Accumulated Other Comprehensive Loss, Net of Tax
Accumulated other comprehensive loss, net of tax, consisted of the following (in thousands):
 
June 30, 2019
 
December 31, 2018
Foreign currency translation adjustments
$
(72,270
)
 
$
(80,955
)
Unrealized loss on derivative instruments
(20,418
)
 
(7,240
)
Accumulated other comprehensive loss
$
(92,688
)
 
$
(88,195
)


10




Changes in accumulated other comprehensive loss, net of tax, for the three months ended June 30, 2019 were as follows (in thousands):
 
Unrealized Loss on Derivative Instruments
 
Foreign Currency Translation Adjustments
 
Total
Balance at March 31, 2019
$
(11,456
)
 
$
(60,351
)
 
$
(71,807
)
Other comprehensive loss before reclassifications
(9,544
)
 
(11,919
)
 
(21,463
)
Amount of gain reclassified from accumulated other comprehensive loss into statement of operations
582

 

 
582

Net current period other comprehensive loss, net of tax
(8,962
)
 
(11,919
)
 
(20,881
)
Balance at June 30, 2019
$
(20,418
)
 
$
(72,270
)
 
$
(92,688
)
Changes in accumulated other comprehensive loss, net of tax, for the six months ended June 30, 2019 were as follows (in thousands):
 
Unrealized Loss on Derivative Instruments
 
Foreign Currency Translation Adjustments
 
Total
Balance at December 31, 2018
$
(7,240
)
 
$
(80,955
)
 
$
(88,195
)
Other comprehensive (loss) gain before reclassifications
(14,246
)
 
8,685

 
(5,561
)
Amount of gain reclassified from accumulated other comprehensive loss into the statement of operations
1,068

 

 
1,068

Net current period other comprehensive (loss) gain, net of tax
(13,178
)
 
8,685

 
(4,493
)
Balance at June 30, 2019
$
(20,418
)
 
$
(72,270
)
 
$
(92,688
)

The income tax effects allocated to each component of other comprehensive income (loss) for the three months ended June 30, 2019 were as follows (in thousands):
 
Before-Tax Amount
 
Tax Benefit
 
Net-of-Tax Amount
Foreign currency translation adjustments
$
(11,919
)
 
$

 
$
(11,919
)
Unrealized (loss) gain on derivative instruments:
 
 
 
 
 
Unrealized loss during period
(9,800
)
 
256

 
(9,544
)
Reclassification adjustment for gains realized in net income
601

 
(19
)
 
582

Net unrealized loss on derivative instruments
(9,199
)
 
237

 
(8,962
)
   Other comprehensive loss
$
(21,118
)
 
$
237

 
$
(20,881
)
The income tax effects allocated to each component of other comprehensive income (loss) for the six months ended June 30, 2019 were as follows (in thousands):
 
Before-Tax Amount
 
Tax Benefit
 
Net-of-Tax Amount
Foreign currency translation adjustments
$
8,685

 
$

 
$
8,685

Unrealized (loss) gain on derivative instruments:
 
 
 
 
 
Unrealized loss during period
(14,616
)
 
370

 
(14,246
)
Reclassification adjustment for gains realized in net loss
1,106

 
(38
)
 
1,068

Net unrealized loss on derivative instruments
(13,510
)
 
332

 
(13,178
)
   Other comprehensive loss
$
(4,825
)
 
$
332

 
$
(4,493
)


11



For the three months ended June 30, 2018, the income tax provision related to the components of other comprehensive loss was fully offset by the increase in the valuation allowance, resulting in no income tax impact for the period.
The income tax effects allocated to each component of other comprehensive loss for the six months ended June 30, 2018 were as follows (in thousands):
 
Before-Tax Amount
 
Tax Benefit
 
Net-of-Tax Amount
Foreign currency translation adjustments
$
(32,378
)
 
$
(2,868
)
 
$
(35,246
)
Unrealized loss on derivative instruments:
 
 
 
 
 
Unrealized loss during the period
(685
)
 

 
(685
)
Reclassification adjustment of realized gains to net loss
(598
)
 

 
(598
)
Net unrealized loss on derivative instruments
(1,283
)
 

 
(1,283
)
Other comprehensive loss
$
(33,661
)
 
$
(2,868
)
 
$
(36,529
)

Other Income (Expense), Net
Other income (expense), net consisted of the following (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Net realized foreign currency gain (loss)
$
7,275

 
$
5,685

 
$
(1,131
)
 
$
168

Net unrealized foreign currency gain
880

 
25,997

 
957

 
19,633

Other, net
(582
)
 
319

 
(1,174
)
 
(354
)
Total other income (expense), net
$
7,573

 
$
32,001

 
$
(1,348
)
 
$
19,447


3. Business Combinations
inVentiv Health Merger
On August 1, 2017, the Company completed a merger (the “Merger”) with Double Eagle Parent, Inc. (“inVentiv”), the parent company of inVentiv Health, Inc., with the Company surviving as the accounting and legal entity acquirer. The Merger was accounted for as a business combination using the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. The purchase price has been allocated to the tangible assets and identifiable intangible assets acquired and liabilities assumed based upon their fair values. The excess of the purchase price over the tangible and intangible assets acquired and liabilities assumed has been recorded as goodwill. The goodwill in connection with the Merger is primarily attributable to the assembled workforce of inVentiv and the expected synergies of the Merger.
In connection with the Merger, the Company assumed certain contingent tax-sharing obligations of inVentiv. The fair value of the contingent tax-sharing liability is remeasured at the end of each reporting period, with changes in the estimated fair value reflected in earnings until the liability is fully settled. The estimated fair value of the contingent tax-sharing obligations liability was $14.7 million and $15.7 million as of June 30, 2019 and December 31, 2018, respectively. The liability is included in accrued expenses and other long-term liabilities on the accompanying unaudited condensed consolidated balance sheets.

12



Kinapse Limited Acquisition
In August 2018, the Company completed its acquisition of Kinapse, a provider of advisory and operational solutions to the global life sciences industry. The total purchase consideration was $100.1 million plus assumed debt, and included cash acquired of $4.9 million. The Company recognized $74.5 million of goodwill and $57.3 million of intangible assets, principally customer relationships, as a result of the acquisition. The goodwill is not deductible for income tax purposes. The Company’s assessment of fair value and the purchase price allocation related to this acquisition is preliminary and further adjustments may be necessary as additional information related to the fair values of assets acquired and liabilities assumed is assessed during the measurement period (up to one year from the acquisition date). The operating results from the Kinapse acquisition have been included in the Company’s Commercial Solutions segment from the date of acquisition.
4. Long-Term Debt Obligations
The Company’s debt obligations consisted of the following (in thousands):
 
June 30, 2019
 
December 31, 2018
Secured Debt
 
 
 
Term Loan A due March 2024
$
1,150,000

 
$
975,000

Term Loan B due August 2024
977,364

 
1,221,000

Accounts receivable financing agreement due June 2020
185,200

 
169,400

Total secured debt
2,312,564

 
2,365,400

Unsecured Debt
 
 
 
7.5% Senior Unsecured Notes due 2024
403,000

 
403,000

Total debt obligations
2,715,564

 
2,768,400

Add: unamortized Senior Notes premium, net of term loan original issuance discount
28,250

 
32,303

Less: unamortized deferred issuance costs
(9,397
)
 
(13,584
)
Less: current portion of debt
(199,575
)
 
(50,100
)
Total debt obligations, non-current portion
$
2,534,842

 
$
2,737,019


Concurrent with the completion of the Merger on August 1, 2017, the Company entered into a credit agreement (as amended, the "Credit Agreement") for: (i) a $1.0 billion Term Loan A facility that would mature on August 1, 2022 (the “Term Loan A”); (ii) a $1.6 billion Term Loan B facility that would mature on August 1, 2024 (the “Term Loan B”); and (iii) a five-year $500.0 million revolving credit facility (the “Revolver”) that would mature on August 1, 2022.
On May 4, 2018, the Company entered into Amendment No. 1 to the Credit Agreement, which, among other things, modified the terms of the Credit Agreement to reduce by 0.25% overall the applicable margins for Alternate Base Rate (as defined in the Credit Agreement) loans and Adjusted Eurocurrency Rate (as defined in the Credit Agreement) loans with respect to both the Term Loan A and Term Loan B facilities.
During the six months ended June 30, 2019, the Company voluntarily prepaid $65.0 million towards reducing its outstanding Term Loan B balance, which was applied against the regularly-scheduled quarterly principal payments. As a result of these and previous voluntary prepayments, the Company is not required to make a mandatory principal payment against the Term Loan B principal balance until maturity in August 2024. Additionally, during the six months ended June 30, 2019, the Company made mandatory principal repayments of $12.5 million towards its Term Loan A.

13



Amendment No. 2 to the Credit Agreement
On March 26, 2019, the Company entered into Amendment No. 2 to the Credit Agreement (“the Second Amendment”). The Second Amendment, among other things, modifies the terms of the Credit Agreement to refinance the existing Term Loan A facility and the Revolver as follows:
(a) to increase the existing Term Loan A facility by $587.5 million to $1.55 billion. $187.5 million of such increase was applied at closing to repay a portion of the Company’s existing Term Loan B facility and the fees and expenses incurred in connection with the Second Amendment, and the remaining $400.0 million will be available to be funded in multiple draws within nine months of closing and applied to further prepay loans under the Term Loan B facility and/or redeem, repay, defease or discharge all or a portion of the Company’s 7.5% Senior Unsecured Notes due 2024 (the “Senior Notes”);
(b) to increase the existing Revolver commitments available by $100.0 million to $600.0 million, and reduce the margin spread by 0.25% overall, resulting in (i) for Adjusted Eurocurrency Rate loans, a margin spread of 1.50% and (ii) for Alternate Base Rate loans, a margin spread of 0.50%, with a single 0.25% step-down based on the achievement of certain leverage ratios; and
(c) to extend the maturity of the Term Loan A facility and the Revolver to March 26, 2024.
The Term Loan A facility and the Revolver will continue to be subject to the same affirmative covenants and negative covenants. The financial covenant will be set at a First Lien Leverage Ratio (as defined in the Credit Agreement) of 5.00:1.00 with a single step-down to 4.50:1.00 commencing with the fiscal quarter ending March 31, 2020. The Company was in compliance with all covenants of the Credit Agreement as of June 30, 2019.
In connection with the Second Amendment, during the three months ended March 31, 2019, the Company recorded a $4.4 million loss on extinguishment of debt, mainly due to the write-off of the deferred issuance costs and debt discount.
The funded amount of the Term Loan A facility was issued net of a discount and debt issuance costs totaling $2.8 million. These costs are being accreted as a component of interest expense using the effective interest rate method over the term of this facility.
The Company recorded debt issuance costs and related fees in connection with the Revolver and the unfunded amount of the Term Loan A facility of approximately $3.5 million, which are included in other long-term assets in the unaudited condensed consolidated balance sheet. These costs are amortized as a component of interest expense on a straight-line basis over the related terms.
Covenant Restrictions under our Lease Agreement
The lease agreement for the Company’s new corporate headquarters in Morrisville, North Carolina includes a provision that requires the Company to issue a letter of credit in certain amounts to the landlord based on the Company’s debt rating issued by Moody’s Investors Service (or other nationally-recognized debt rating agency). As of June 30, 2019 (and through the date of this filing), the Company’s credit rating was Ba3. As such, no letter of credit was required through the date of this filing. Any letters of credit issued in accordance with the aforementioned requirements would be issued under the Revolver, and would reduce its available borrowing capacity by the same amount.
As of June 30, 2019, the Company had $580.5 million (net of $19.5 million in outstanding letters of credit) of available borrowings for working capital and other purposes under the Revolver and $0.8 million of letters of credit that were not secured by the Revolver.

14



Accounts Receivable Financing Agreement
On June 29, 2018, the Company entered into an accounts receivable financing agreement (as amended) with a termination date of June 29, 2020, unless terminated earlier pursuant to its terms. Under this agreement, certain of the Company’s consolidated subsidiaries will sell accounts receivable and unbilled services (including contract assets) balances to a wholly-owned, bankruptcy-remote special purpose entity (“SPE”). The SPE can borrow up to $250.0 million from a third-party lender, secured by liens on certain receivables and other assets of the SPE. The Company has guaranteed the performance of the obligations of existing and future subsidiaries that sell and service the accounts receivable under this agreement. The available borrowing capacity varies monthly according to the levels of the Company’s eligible accounts receivable and unbilled receivables. Loans under this agreement will accrue interest at a reserve-adjusted LIBOR rate or a base rate equal to the higher of (i) the applicable lender’s prime rate and (ii) the federal funds rate plus 0.50%. The Company may prepay loans upon one business day’s prior notice and may terminate or reduce the facility limit of the accounts receivable financing agreement with 15 days’ prior notice.
As of June 30, 2019, the Company had $185.2 million of outstanding borrowings under the accounts receivable financing agreement, which are recorded in the current portion of long-term debt on the accompanying unaudited condensed consolidated balance sheet. The remaining maximum capacity available for borrowing under this agreement was $64.8 million as of June 30, 2019. The Company expects to renew this accounts receivable financing agreement prior to June 29, 2020.
Maturities of Debt Obligations
As of June 30, 2019, the contractual maturities of the Company’s debt obligations were as follows (in thousands):
 
Principal
 
Interest
2019
$

 
$
65,827

2020
228,325

 
126,766

2021
79,063

 
120,320

2022
107,813

 
116,384

2023
115,000

 
110,852

2024 and thereafter
2,185,363

 
56,376

Less: deferred issuance costs
(9,397
)
 
 
Unamortized Senior Notes premium, net of term loan original issuance discount
28,250

 
 
Total
$
2,734,417

 
$
596,525


5. Leases
The Company’s operating leases are primarily related to its office facilities. The Company’s finance leases are related to vehicles that the Company leases for certain sales representatives in its Commercial Solutions segment. These leases have remaining lease terms of less than one year to 13 years, some of which include options to extend the term or terminate the lease. These options to extend or terminate a lease are included in the lease terms when it is reasonably certain that the Company will exercise that option.
ROU assets and lease liabilities are recognized based on the present value of the fixed lease payments over the lease term at the commencement date. The ROU assets also include any initial direct costs incurred and lease payments made at or before the commencement date, and are reduced by lease incentives. The Company uses its incremental borrowing rate as the discount rate to determine the present value of the lease payments for leases that do not have a readily determinable implicit discount rate. The Company’s incremental borrowing rate is the rate of interest that it would have to borrow on a

15



collateralized basis over a similar term and amount in a similar economic environment. The Company determines the incremental borrowing rates for its leases by adjusting the local risk free interest rate with a credit risk premium corresponding to the Company’s credit rating.
The Company records rent expense for its operating leases on a straight-line basis from the lease commencement date until the end of the lease term. The Company records finance lease cost as a combination of the amortization expense for the ROU assets and interest expense for the outstanding lease liabilities using the discount rate discussed above. Variable lease payments for operating leases are related to the office facilities and include but are not limited to common area maintenance, parking, electricity, and management fees. The variable lease payments for finance leases are related to maintenance programs for leased vehicles. Variable lease payments are based on occurrence or based on usage; therefore, they are not included as part of the initial calculations of the ROU assets and liabilities.
The components of lease cost were as follows (in thousands):
 
 
Three Months Ended
 
Six Months Ended
 
Classification
June 30, 2019
 
June 30, 2019
Operating leases:
 

 
 
Fixed lease costs
Selling, general, and administrative expenses
$
16,965

 
$
34,105

Short-term lease costs
Selling, general, and administrative expenses
195

 
574

Variable lease costs
Selling, general, and administrative expenses
8,864

 
16,654

Total operating lease costs
 
$
26,024

 
$
51,333

Finance leases:
 
 
 
 
Amortization of right-of-use assets
Depreciation
$
3,991

 
$
8,310

Interest on lease liabilities
Interest expense
414

 
808

Variable lease costs
Selling, general, and administrative expenses
1,803

 
3,630

Total finance lease costs
 
$
6,208

 
$
12,748


Supplemental balance sheet information related to finance leases was as follows (in thousands):

 
June 30, 2019
Property and equipment, gross
$
59,344

Accumulated depreciation
(20,741
)
Property and equipment, net
$
38,603

 
 
Current portion of finance lease obligations
$
16,004

Finance lease long-term obligations
28,390

Total finance lease liabilities
$
44,394





16



Supplemental cash flow information related to leases was as follows (in thousands):
 
Six Months Ended
 
June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows for operating leases
$
(28,452
)
Operating cash flows for finance leases
(808
)
Financing cash flows for finance leases
(4,677
)
 
 
Right-of-use assets obtained in exchange for lease obligations:
 
Operating leases
$
41,286

Finance leases
12,286

 
 
Lease obligations closed out in exchange for right-of-use assets:
 
Operating leases
$
(573
)
Weighted average remaining lease term:
June 30, 2019
Operating leases
8 years
Finance leases
3 years
Weighted average discount rate:
June 30, 2019
Operating leases
4.9
%
Finance leases
3.3
%

As of June 30, 2019, maturities of lease liabilities were as follows (in thousands):
 
Operating Leases
 
Finance Leases
 
Total
2019 (remaining 6 months)
$
16,149

 
$
9,536

 
$
25,685

2020
50,811

 
15,825

 
66,636

2021
45,255

 
12,629

 
57,884

2022
39,394

 
8,254

 
47,648

2023
35,626

 
1,284

 
36,910

2024 and thereafter
131,401

 

 
131,401

Total lease payments
318,636

 
47,528

 
$
366,164

Less: management fee
 
 
(624
)
 
 
Less: imputed interest
(60,172
)
 
(2,510
)
 
 
Total lease liabilities
$
258,464

 
$
44,394

 
 

Under ASC 840, as of December 31, 2018, the Company had total capital lease assets of $55.3 million and accumulated depreciation of $17.6 million, which are included within property and equipment, net, on the unaudited condensed consolidated balance sheet. The related capital lease obligations totaled $40.6 million as of December 31, 2018. For the three and six months ended June 30, 2018, the Company recorded rent expense of $16.6 million and $33.3 million, respectively, for operating leases.

17



6. Derivatives
In May 2016, the Company entered into interest rate swaps with a combined notional value of $300.0 million in an effort to limit its exposure to variable interest rates on its term loans. The swaps became effective on June 30, 2016 and a portion of the interest rate swaps expired on June 30, 2018, with the remainder expiring on May 14, 2020. As of June 30, 2019, the remaining notional value of these interest rate swaps was $100.0 million. In June 2018, the Company entered into an interest rate swap with an aggregate notional value of $1.01 billion, that became effective on December 31, 2018 and will expire on June 30, 2021. The significant terms of these derivatives are substantially the same as those contained within the Credit Agreement, including monthly settlements with the swap counterparties. Interest rate swaps are designated as hedging instruments. During the three and six months ended June 30, 2019, the amount of loss recognized in other income (expense), net with respect to these contracts was inconsequential.
As a result of an acquisition that occurred during the third quarter of 2018, the Company became a party to certain foreign currency exchange rate forward contracts. These contracts expired on various dates through April 2019. During the three and six months ended June 30, 2019, the amount of loss recognized in other income (expense), net with respect to these contracts was inconsequential.
The fair values of the Company’s derivative financial instruments and the line items on the accompanying unaudited condensed consolidated balance sheets to which they were recorded were as follows (in thousands):
 
Balance Sheet Classification
 
June 30, 2019
 
December 31, 2018
Interest rate swaps - current
Prepaid expenses and other current assets
 
$
543

 
$
1,355

Interest rate swaps - non-current
Other long-term assets
 

 
441

Foreign currency exchange rate swaps - current
Accrued expenses
 

 
(138
)
Interest rate swaps - current
Accrued expenses
 
(9,172
)
 
(3,031
)
Interest rate swaps - non-current
Other long-term liabilities
 
(12,463
)
 
(6,201
)

7. Fair Value Measurements
Assets and Liabilities Carried at Fair Value
As of June 30, 2019 and December 31, 2018, the Company’s financial assets and liabilities carried at fair value included cash and cash equivalents, restricted cash, trading securities, billed and unbilled accounts receivable (including contract assets), accounts payable, accrued expenses, deferred revenue, assumed contingent obligations, finance leases, liabilities under the accounts receivable financing agreement, and derivative instruments.
The fair values of cash and cash equivalents, restricted cash, billed and unbilled accounts receivable (including contract assets), accounts payable, accrued expenses, deferred revenue, and the liabilities under the accounts receivable financing agreement approximate their respective carrying amounts because of the liquidity and short-term nature of these financial instruments.

18



Financial Instruments Subject to Recurring Fair Value Measurements

As of June 30, 2019, the fair values of the major classes of the Company’s assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Trading securities(a)
$
21,392

 
$

 
$

 
$
21,392

Derivative instruments(b)

 
543

 

 
543

Total assets
$
21,392

 
$
543

 
$

 
$
21,935

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Derivative instruments(b)
$

 
$
21,635

 
$

 
$
21,635

Contingent obligations related to business combinations(c)

 

 
19,152

 
19,152

Total liabilities
$

 
$
21,635

 
$
19,152

 
$
40,787

As of December 31, 2018, the fair values of the major classes of the Company’s assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Trading securities(a)
$
14,945

 
$

 
$

 
$
14,945

Derivative instruments(d)

 
1,796

 

 
1,796

Total assets
$
14,945

 
$
1,796

 
$

 
$
16,741

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Derivative instruments(d)
$


$
9,370


$


$
9,370

Contingent consideration obligations related to business combinations(c)




20,127


20,127

Total liabilities
$

 
$
9,370

 
$
20,127

 
$
29,497


(a) Represents fair value of investments in mutual funds based on quoted market prices that are used to fund the liability associated with the deferred compensation plan.
(b) Represents fair value of interest rate swap arrangements (see "Note 6 - Derivatives" for further information).
(c) Represents fair value of contingent consideration obligations related to business combinations (see "Note 3 - Business Combinations" for further information). The fair value of these liabilities are determined based on the Company’s best estimate of the probable timing and amount of settlement.
(d) Represents fair value of interest rate swap and foreign currency exchange rate forward contract arrangements (see "Note 6 - Derivatives" for further information).
The following table presents changes in the carrying amount of obligations classified as Level 3 category within the fair value hierarchy for the six months ended June 30, 2019 (in thousands):
Balance at December 31, 2018
$
20,127

Additions

Changes in fair value recognized in earnings
(975
)
Balance at June 30, 2019
$
19,152

During the six months ended June 30, 2019, there were no transfers of assets or liabilities between Level 1, Level 2 or Level 3 fair value measurements.

19



Financial Instruments Subject to Non-Recurring Fair Value Measurements
Certain assets, including goodwill and identifiable intangible assets, are carried on the balance sheets at cost and, subsequent to initial recognition, are measured at fair value on a non-recurring basis when certain identified events or changes in circumstances that may have a significant adverse effect on the carrying values of these assets occur. These assets are classified as Level 3 fair value measurements within the fair value hierarchy. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate a triggering event has occurred. Intangible assets are tested for impairment upon the occurrence of certain triggering events. As of June 30, 2019 and December 31, 2018, assets subject to non-recurring fair value measurements totaled $5.39 billion and $5.47 billion, respectively.
Fair Value Disclosures for Financial Instruments Not Carried at Fair Value
The estimated fair value of the outstanding term loans and the Senior Notes is determined based on the price that the Company would have to pay to settle the liabilities. As these liabilities are not actively traded, they are classified as Level 2 fair value measurements. The estimated fair values of the Company’s outstanding term loans and Senior Notes were as follows (in thousands):
 
June 30, 2019
 
December 31, 2018
 
Carrying Value(a)
 
Estimated Fair Value
 
Carrying Value(a)
 
Estimated Fair Value
Term Loan A due March 2024
$
1,146,458

 
$
1,150,000

 
$
973,218

 
$
975,000

Term Loan B due August 2024
976,421

 
977,364

 
1,219,755

 
1,221,000

7.5% Senior Unsecured Notes due 2024
435,735

 
423,130

 
438,330

 
423,150


(a) The carrying value of the term loan debt is shown net of original issue debt discounts. The carrying value of the Senior Notes is inclusive of unamortized premiums.
8. Restructuring and Other Costs
Merger-Related Restructuring
In connection with the Merger, the Company established a restructuring plan to eliminate redundant positions and reduce its facility footprint worldwide. The Company expects to continue the ongoing evaluations of its workforce and facilities infrastructure needs through 2020 in an effort to optimize its resources. During the six months ended June 30, 2019, the Company recognized approximately: (i) $12.2 million of employee severance and benefits related costs; and (ii) $8.4 million of facility closure and lease termination costs. Over the next 12 to 18 months, the Company expects to incur significant costs related to the restructuring of its operations in order to achieve targeted synergies as a result of the Merger. However, the timing and the amount of these costs depend on various factors, including, but not limited to, identifying and realizing synergy opportunities and executing the integration of the Company’s operations.
Non-Merger Restructuring and Other Costs
During the six months ended June 30, 2019, the Company incurred $0.3 million of facility closure and lease termination costs related to the Company’s pre-Merger activities aimed at optimizing its resources worldwide. Additionally, during the six months ended June 30, 2019, the Company recognized approximately $5.3 million of employee severance and benefits related costs.

20



Accrued Restructuring Liabilities
The following table summarizes activity related to the liabilities associated with restructuring and other costs during the six months ended June 30, 2019 (in thousands):
 
Employee
Severance Costs
 
Facility Closure and Lease Termination Costs
 
Other Costs
 
Total
Balance at December 31, 2018
$
7,474

 
$
16,761

 
$
52

 
$
24,287

Adoption of ASC 842 (a)


(16,761
)


 
(16,761
)
Expenses incurred (b)
17,522

 

 
40

 
17,562

Cash payments made
(20,059
)
 

 
(70
)
 
(20,129
)
Balance at June 30, 2019
$
4,937

 
$

 
$
22

 
$
4,959


(a) As a result of the adoption of ASC 842, accrued expenses related to facility closure and lease termination costs are now reflected within the current portion of operating lease obligations and operating lease long-term obligations on the unaudited condensed consolidated balance sheets as of June 30, 2019. These facility costs will be paid over the remaining terms of exited facilities, which range from 2019 through 2027.
(b) The amount of expenses incurred for the six months ended June 30, 2019 excludes $2.8 million of non-cash restructuring and other expenses, because these expenses were not subject to accrual prior to the period in which they were incurred, and $5.9 million of facility lease closure and lease termination costs. Under ASC 842, these costs are reflected as a reduction of operating lease right-of-use assets on the unaudited condensed consolidated balance sheets.
The Company expects that substantially all of the employee severance costs accrued as of June 30, 2019 will be paid within the next twelve months. Liabilities associated with these costs are included in accrued expenses on the accompanying unaudited condensed consolidated balance sheets. Restructuring and other costs included in net loss for the three and six months ended June 30, 2019 are presented in restructuring and other costs in the unaudited condensed consolidated statements of operations.
9. Shareholders' Equity
Shares Outstanding
Shares of common stock outstanding were as follows (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30, 2019
 
June 30, 2018
 
June 30, 2019
 
June 30, 2018
Common stock shares, beginning balance
103,753

 
103,804

 
103,372

 
104,436

   Stock repurchase
(509
)
 
(1,025
)
 
(1,182
)
 
(1,973
)
   RSU distributions net of shares for tax withholding
10

 
3

 
390

 
103

   Stock option exercises
206

 
89

 
880

 
305

Common stock shares, ending balance
103,460

 
102,871

 
103,460

 
102,871


2018 Stock Repurchase Program
On February 26, 2018, the Company’s Board of Directors authorized the repurchase of up to an aggregate of $250.0 million of the Company’s common stock, to be executed from time to time in open market transactions effected through a broker at prevailing market prices, in block trades, or through privately negotiated transactions (“2018 stock repurchase program”). The 2018 stock repurchase program commenced on March 1, 2018 and will end no later than December 31, 2019. The Company intends to use cash on hand and future operating cash flow to fund the 2018 stock repurchase program.

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The 2018 stock repurchase program does not obligate the Company to repurchase any particular amount of the Company’s common stock and may be modified, extended, suspended, or discontinued at any time. The timing and amount of repurchases will be determined by the Company’s management based on a variety of factors such as the market price of the Company’s common stock, the Company’s corporate requirements for cash, and overall market conditions. The 2018 stock repurchase program is subject to applicable legal requirements, including federal and state securities laws and the applicable Nasdaq rules. The Company may also repurchase shares of its common stock pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, which would permit shares of the Company’s common stock to be repurchased when the Company might otherwise be precluded from doing so by law.
In March 2018, the Company repurchased 948,100 shares of its common stock in open market transactions at an average price of $39.55 per share, resulting in a total purchase price of approximately $37.5 million. In April 2018, the Company repurchased 1,024,400 shares of its common stock in open market transactions at an average price of $36.60 per share, resulting in a total purchase price of approximately $37.5 million. In January 2019, the Company repurchased 552,100 shares of its common stock in open market transactions at an average price of $39.16 per share, resulting in a total purchase price of approximately $21.6 million. In February 2019, the Company repurchased 120,600 shares of its common stock in open market transactions at an average price of $41.40 per share, resulting in a total purchase price of approximately $5.0 million. In June 2019, the Company repurchased 509,100 shares of its common stock in open market transactions at an average price of $45.29 per share, resulting in a total purchase price of approximately $23.1 million. The Company immediately retired all of the repurchased common stock and charged the par value of the shares to common stock. The excess of the repurchase price over the par value was applied on a pro rata basis against additional paid-in capital, with the remainder applied to accumulated deficit.
As of June 30, 2019, the Company had remaining authorization to repurchase up to approximately $125.3 million of shares of its common stock under the 2018 stock repurchase program.

22



10. Earnings (Loss) Per Share
The following table provides a reconciliation of the numerators and denominators of the basic and diluted earnings (loss) per share computations (in thousands, except per share data):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Numerator:
 
 
 
 
 
 
 
Net income (loss)
$
11,292

 
$
13,560

 
$
(18,712
)
 
$
(10,992
)
Denominator:
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
103,699

 
102,899

 
103,532

 
103,674

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options and other awards under deferred share-based compensation programs
1,119

 
1,106

 

 

Diluted weighted average common shares outstanding
104,818

 
104,005

 
103,532

 
103,674

Earnings (loss) per share:
 
 
 
 
 
 
 
Basic
$
0.11

 
$
0.13

 
$
(0.18
)
 
$
(0.11
)
Diluted
$
0.11

 
$
0.13

 
$
(0.18
)
 
$
(0.11
)
Potential common shares outstanding that are considered anti-dilutive are excluded from the computation of diluted earnings (loss) per share. Potential common shares related to stock options and other awards under deferred share-based compensation programs may be determined to be anti-dilutive based on the application of the treasury stock method. Potential common shares are also considered anti-dilutive in the event of a net loss.
The number of potential shares outstanding that were considered anti-dilutive using the treasury stock method and therefore excluded from the computation of diluted earnings (loss) per share, weighted for the portion of the period they were outstanding were as follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Anti-dilutive stock options and other awards
373

 
1,017

 
333

 
1,057

Anti-dilutive stock options and other awards under share-based compensation programs excluded based on reporting a net loss for the period

 

 
1,279

 
1,002

Total common stock equivalents excluded from diluted loss per share
373

 
1,017

 
1,612

 
2,059


11. Income Taxes
Income Tax Expense
For the three and six months ended June 30, 2019, the Company recorded income tax expense of $22.3 million and $32.7 million, respectively, compared to pre-tax income of $33.6 million and $14.0 million, respectively. The effective tax rate for the three and six months ended June 30, 2019 varied from the U.S. federal statutory income tax rate of 21.0% primarily due to: (i) base erosion anti-abuse minimum tax, (ii) foreign income inclusions such as the Global Intangible Low-Taxed Income provisions (“GILTI”), and (iii) valuation allowance change on domestic deferred tax assets.
For the three and six months ended June 30, 2018, the Company recorded an income tax expense of $16.0 million and $7.1 million, respectively, compared to pre-tax income of $29.6 million and pre-tax loss of $3.9 million, respectively. The effective tax rate for the three and six months ended June 30,

23



2018 varied from the U.S. federal statutory income tax rate of 21.0% primarily due to: (i) research tax credits in foreign jurisdictions; (ii) a valuation allowance change on domestic deferred tax assets; and (iii) the geographical split of pre-tax income.
BEAT
The Tax Cuts and Jobs Act of 2017 introduced a new tax on U.S. corporations that derive tax benefits from deductible payments to non-U.S. affiliates called the base erosion and anti-abuse tax (“BEAT”). BEAT applies when base eroding payments are in excess of three percent of the Company’s total deductible payments and also where BEAT exceeds regular U.S. taxable income, similar to an alternate minimum tax. Changes to the Company’s contractual arrangements, operating structure, and/or final regulations that modify the application of this provision could have a material impact on the Company’s tax provision.
Unrecognized Tax Benefits
The Company's gross unrecognized tax benefits, exclusive of associated interest and penalties, were $20.0 million and $19.2 million as of June 30, 2019 and December 31, 2018, respectively. The increase of $0.8 million was primarily due to unrecognized tax benefits in foreign jurisdictions.
Tax Returns Under Audit
During the first quarter of 2019, the Company was notified by the Internal Revenue Service that the legacy inVentiv federal income tax return was under audit for the tax year beginning November 10, 2016 and ending December 31, 2016. The examination commenced on May 8, 2019.
12. Revenue from Contracts with Customers
Unsatisfied Performance Obligations
As of June 30, 2019, the total aggregate transaction price allocated to the unsatisfied performance obligations under contracts with contract terms greater than one year and which are not accounted for as a series pursuant to ASU No. 2014-09, Revenue from Contracts with Customers (“ASC 606”) was $5.52 billion. This amount includes revenue associated with reimbursable out-of-pocket expenses. The Company expects to recognize revenue over the remaining contract term of the individual projects, with contract terms generally ranging from one to five years. The amount of unsatisfied performance obligations is presented net of any constraints and as a result, is lower than the potential contractual revenue. Specifically, contracts that do not commence within a certain period of time require the Company to undertake numerous activities to fulfill these performance obligations, including various activities that are outside of the Company’s control. Accordingly, such contracts have been excluded from the unsatisfied performance obligations balance presented above.
Timing of Billing and Performance
During the three and six months ended June 30, 2019, the Company recognized approximately $367.0 million and $510.8 million, respectively, of revenue that was included in the deferred revenue balance at the beginning of the periods. During the three and six months ended June 30, 2019, approximately $34.8 million and $9.3 million, respectively, of the Company’s revenue recognized was allocated to performance obligations partially satisfied in previous periods and predominately related to changes in scope and estimates in full service clinical studies. Changes in the contract assets and deferred revenue balances during the three and six months ended June 30, 2019 were not materially impacted by any other factors.

24



13. Segment Information
The Company has two reportable segments: Clinical Solutions and Commercial Solutions. Each reportable business segment comprises multiple similar service offerings that, when combined, create a fully integrated biopharmaceutical outsourcing solutions organization. Clinical Solutions offers a variety of services spanning Phase I to Phase IV of clinical development, including full-service global studies, as well as individual service offerings such as clinical monitoring, investigator recruitment, patient recruitment, data management, and study startup to assist customers with their drug development process. Commercial Solutions provides commercialization services to the pharmaceutical, biotechnology, and healthcare industries, which include deployment solutions (formerly selling solutions), communication solutions (public relations and advertising), and consulting related services.

The Company’s Chief Operating Decision Maker (“CODM”) reviews segment performance and allocates resources based upon segment revenue and income from operations. Inter-segment revenue is eliminated from the segment reporting presented to the CODM and is not included in the segment revenue presented in the table below. Certain costs are not allocated to the Company’s reportable segments and are reported as general corporate expenses. These costs primarily consist of share-based compensation and general operating expenses associated with the Company’s senior leadership, finance, Board of Directors, investor relations, and internal audit functions. The Company does not allocate depreciation, amortization, restructuring, or transaction and integration-related costs to its segments. Additionally, the CODM reviews the Company’s assets on a consolidated basis and the Company does not allocate assets to its reportable segments as they are not included in the review performed by the CODM for purposes of assessing segment performance or allocating resources.


25



Information about reportable segment operating results was as follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenue:
 
 
 
 
 
 
 
Clinical Solutions
$
849,922

 
$
783,913

 
$
1,654,880

 
$
1,570,752

Commercial Solutions
316,905

 
288,617

 
630,953

 
558,974

Total consolidated revenue
1,166,827

 
1,072,530

 
2,285,833

 
2,129,726

Segment direct costs:
 
 
 
 
 
 
 
Clinical Solutions
654,403

 
608,994

 
1,280,170

 
1,224,365

Commercial Solutions
255,814

 
232,899

 
508,687

 
454,599

Total segment direct costs
910,217

 
841,893

 
1,788,857

 
1,678,964

Segment selling, general, and administrative expenses:
 
 
 
 
 
 
 
Clinical Solutions
67,625

 
68,110

 
137,327

 
134,056

Commercial Solutions
22,202

 
21,667

 
48,255

 
41,185

Total segment selling, general, and administrative expenses
89,827

 
89,777

 
185,582

 
175,241

Segment operating income:
 
 
 
 
 
 
 
Clinical Solutions
127,894

 
106,809

 
237,383

 
212,331

Commercial Solutions
38,889

 
34,051

 
74,011

 
63,190

Total segment operating income
166,783

 
140,860

 
311,394

 
275,521

Direct costs and operating expenses not allocated to segments:
 
 
 
 
 
 
 
Corporate selling, general, and administrative expenses
14,570

 
7,638

 
25,827

 
17,397

Share-based compensation included in direct costs
7,312

 
5,572

 
15,474

 
9,324

Share-based compensation included in selling, general, and administrative expenses
6,482

 
2,803

 
12,587

 
6,839

Restructuring and other costs
11,882

 
8,591

 
26,295

 
22,298

Transaction and integration-related expenses
7,654

 
18,032

 
24,312

 
43,243

Depreciation and amortization
60,749

 
67,502

 
121,949

 
135,523

Total consolidated income from operations
$
58,134

 
$
30,722

 
$
84,950

 
$
40,897


14. Operations by Geographic Location
The following table summarizes information about revenue by geographic area (in thousands and with all intercompany transactions eliminated):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenue:
 
 
 
 
 
 
 
North America (a)
$
791,281

 
$
726,546

 
$
1,518,979

 
$
1,458,311

Europe, Middle East, and Africa
258,787

 
232,120

 
517,134

 
460,958

Asia-Pacific
94,295

 
93,647

 
205,861

 
171,627

Latin America
22,464

 
20,217

 
43,859

 
38,830

Total revenue
$
1,166,827

 
$
1,072,530

 
$
2,285,833

 
$
2,129,726

(a)Revenue for the North America region includes revenue attributable to the United States of $741.2 million and $690.3 million, or 63.5% and 64.4% of total revenue, for the three months ended June 30, 2019 and 2018, respectively. Revenue for the North America region includes revenue attributable to the United States of $1,445.3 million and $1,386.8 million, or 63.2% and 65.1% of total revenue, for the six months ended June 30, 2019 and June 30, 2018, respectively. No other country represented more than 10% of revenue for any period.

26



Long-lived assets by geographic area for each period were as follows (in thousands and all intercompany transactions have been eliminated):
 
June 30, 2019
 
December 31, 2018
Property and equipment, net:
 
 
 
North America (a)
$
139,913

 
$
133,593

Europe, Middle East and Africa
30,288

 
33,053

Asia-Pacific
14,314

 
13,328

Latin America
3,232

 
3,512

  Total property and equipment, net
$
187,747

 
$
183,486

(a) Long-lived assets for the North America region include property and equipment, net attributable to the United States of $134.5 million and $128.3 million as of June 30, 2019 and December 31, 2018, respectively.
15. Concentration of Credit Risk
The Company maintains cash depository accounts with several financial institutions worldwide and is exposed to credit risk related to the potential inability to access liquidity in financial institutions where its cash and cash equivalents are concentrated. The Company has not historically incurred any losses with respect to these balances and believes that they bear minimal credit risk.
As of December 31, 2018, the amount of cash and cash equivalents held outside the United States by the Company’s foreign subsidiaries was $43.6 million, or approximately 28% of the total consolidated cash and cash equivalents balance. As of June 30, 2019, substantially all of the Company’s cash and cash equivalents were held within the United States.
During both the three and six months ended June 30, 2019, one customer accounted for approximately 10% of the Company’s revenue. During both the three and six months ended June 30, 2018, one customer accounted for 11% of the Company’s revenue. 
As of June 30, 2019 and December 31, 2018, one customer accounted for approximately 12% and 13%, respectively, of the Company’s billed accounts receivable, unbilled accounts receivable, and contract assets balances.
16. Related-Party Transactions
For the six months ended June 30, 2019, the Company incurred reimbursable out-of-pocket expenses of $1.1 million for professional services obtained from a provider whose member of the Board of Directors was also a member of the Company’s Board of Directors. No related party expenses were recorded for the three months ended June 30, 2019.
For the three and six months ended June 30, 2018, the Company incurred reimbursable out-of-pocket expenses of $1.0 million and $1.2 million, respectively, for professional services obtained from two providers, one whose significant shareholder was also a significant shareholder of the Company and the other whose member of the Board of Directors was also a member of the Company’s Board of Directors.
No material related-party revenue was recorded for the three and six months ended June 30, 2019 or 2018. 

27



17. Commitments and Contingencies
Legal Proceedings
The Company is involved in various claims and legal actions arising in the ordinary course of business. The Company accrues a liability when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, the Company does not record a liability, but instead discloses the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Legal fees are expensed as incurred. In the opinion of management, the outcome of any existing claims and legal or regulatory proceedings, other than the specific matters described below, if decided adversely, is not expected to have a material adverse effect on the Company's business, financial condition, results of operations, or cash flows.
On December 1, 2017, the first of two virtually identical actions alleging federal securities law claims was filed against the Company and certain of its officers on behalf of a putative class of its shareholders. The first action, captioned Bermudez v. INC Research, Inc., et al, No. 17-09457 (S.D.N.Y.), names as defendants the Company, Michael Bell, Alistair MacDonald, Michael Gilbertini, and Gregory S. Rush (the "Bermudez action"), and the second action, Vaitkuvienë v. Syneos Health, Inc., et al, No. 18-0029 (E.D.N.C.), filed on January 25, 2018 (the “Vaitkuvienë action"), names as defendants the Company, Alistair MacDonald, and Gregory S. Rush (the "Initial Defendants"). Both complaints allege similar claims under Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 on behalf of a putative class of purchasers of the Company's common stock between May 10, 2017 and November 8, 2017 and November 9, 2017. The complaints allege that the Company published inaccurate or incomplete information regarding, among other things, the financial performance and business outlook for inVentiv’s business prior to the Merger and with respect to the combined company following the Merger. On January 30, 2018, two alleged shareholders separately filed motions seeking to be appointed lead plaintiff and approving the selection of lead counsel. On March 30, 2018, Plaintiff Bermudez filed a notice of voluntary dismissal of the Bermudez action, without prejudice, and as to all defendants. On May 29, 2018, the Court in the Vaitkuvienë action appointed the San Antonio Fire & Police Pension Fund and El Paso Firemen & Policemen’s Pension Fund as Lead Plaintiffs and, on June 7, 2018, the Court entered a schedule providing for, among other things, Lead Plaintiffs to file an amended complaint by July 23, 2018 (later extended to July 30, 2018). Lead Plaintiffs filed their amended complaint on July 30, 2018, which also includes a claim against the Initial Defendants, as well as each member of the board of directors at the time of the INC Research - inVentiv Health merger vote in July 2017 (the “Defendants”), contending that the inVentiv merger proxy was misleading under Section 14(a) of the Act. Lead Plaintiffs seek, among other things, orders (i) declaring that the lawsuit is a proper class action and (ii) awarding compensatory damages in an amount to be proven at trial, including interest thereon, and reasonable costs and expenses incurred in this action, including attorneys’ fees and expert fees, to Lead Plaintiffs and other class members. Defendants filed a Motion to Dismiss Plaintiffs’ Amended Complaint on September 20, 2018. Lead Plaintiffs filed a Response in Opposition to such motion on November 21, 2018, and Defendants filed a Reply to such response on December 5, 2018. On May 23, 2019, Lead Plaintiffs filed a Notice of Filings in Related Case regarding the New Jersey shareholder action filed on March 1, 2019 described below, and Defendants filed their response on May 31, 2019. The Company and the other defendants deny the allegations in these complaints and intend to defend vigorously against these claims. In the Company's opinion, the ultimate outcome of this matter is not expected to have a material adverse effect on the Company's financial position, results of operations, or cash flows.
On September 24, 2018, the Court unsealed a civil complaint captioned United States, et. al vs. AstraZeneca PLC, et. al, No. 2:17-cv-01328-RSL (W.D. Wa.) against inVentiv Health, Inc. and other co-defendants. The complaint alleges that the Company and co-defendants violated the Federal False Claims Act (and various state analogues) and Anti-Kickback Statute through the provision of clinical education services. On December 17, 2018, the United States moved to dismiss this lawsuit, as well as other similar lawsuits supported by the relator in this action. The Company denies the allegations in the complaint and intends to defend vigorously against these claims. In the Company’s opinion, the ultimate outcome of this matter is not expected to have a material adverse effect on the Company’s financial position, results of operations, or cash flows. 

28



On February 21, 2019, the SEC notified the Company that it has commenced an investigation into the Company’s revenue accounting policies, internal controls and related matters, and requested that the Company retain certain documents for the periods beginning with January 1, 2017. On March 22, 2019, the SEC subpoenaed certain documents in connection with its investigation. The timing of the conclusion of the SEC’s review is unknown.
On March 1, 2019, a complaint was filed in the United States District Court for the District of New Jersey on behalf of a putative class of shareholders who purchased the Company's common stock during the period between May 10, 2017 and February 27, 2019. The complaint names the Company and certain of its executive officers as defendants and alleges violations of the Securities Exchange Act of 1934, as amended, based on allegedly false or misleading statements about its business, operations, and prospects. The plaintiffs seek awards of compensatory damages, among other relief, and their costs and attorneys’ and experts’ fees. On March 28, 2019, Lead Plaintiffs in the Vaitkuvienë action filed a motion to intervene, and the Company filed its response on April 22, 2019. On April 30, 2019, a shareholder filed a motion seeking to be appointed lead plaintiff and approving the selection of lead counsel. Both motions remain pending.
The Company is presently unable to predict the duration, scope or result of the SEC’s investigation, the related putative class action, or any other related lawsuit or investigation. As such, the Company is presently unable to develop a reasonable estimate of a possible loss or range of losses, if any, related to these matters. The SEC has a broad range of civil sanctions available should it commence an enforcement action, including injunctive relief, disgorgement, fines, penalties, or an order to take remedial action. The Company could incur additional expenses related to fines or to remedial measures. Furthermore, while the Company intends to defend the putative class action litigation vigorously, the outcome of such litigation or any other litigation is necessarily uncertain. The Company could be forced to expend significant resources in the defense of this lawsuit or future ones, and it may not prevail. As such, these matters could have a material adverse effect on the Company's business, annual or interim results of operations, cash flows, or its financial condition.
Self-Insurance Reserves
The Company is self-insured for certain losses relating to health insurance claims for the majority of its employees located within the United States. Additionally, the Company maintains certain self-insurance retention limits related to automobile and workers’ compensation insurance.
Assumed Contingent Tax-Sharing Obligations
As a result of the Merger, the Company assumed contingent tax-sharing obligations arising from inVentiv’s 2016 merger with Double Eagle Parent, Inc. As of June 30, 2019 and December 31, 2018, the estimated fair value of the assumed contingent tax-sharing obligations was $14.7 million and $15.7 million, respectively.
Contingent Earn-out Liability
In connection with the Kinapse acquisition, the Company recorded a contingent earn-out liability to be paid based on Kinapse meeting revenue targets as of March 31, 2021. The fair value of the earn-out liability is remeasured at the end of each reporting period, with changes in the estimated fair value reflected in earnings until the liability is settled. The estimated fair value of the contingent earn-out liability was $4.4 million as of June 30, 2019 and December 31, 2018, respectively, and is included in other long-term liabilities in the accompanying unaudited condensed consolidated balance sheets.

29



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward Looking Statements
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
In addition to historical condensed consolidated financial information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect, among other things, our current expectations and anticipated results of operations, all of which are subject to known and unknown risks, uncertainties, and other factors that may cause our actual results, performance or achievements, market trends, or industry results to differ materially from those expressed or implied by such forward-looking statements. Therefore, any statements contained herein that are not statements of historical fact may be forward-looking statements and should be evaluated as such, including statements regarding our anticipated results of operations, our business strategy and planned capital expenditures, and our expectations regarding the resolution of our material weaknesses. Without limiting the foregoing, the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “should,” “targets,” “will” and the negative thereof, and similar words and expressions are intended to identify forward-looking statements. Unless legally required, we assume no obligation to update any such forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information.
We caution you that any such forward-looking statements are further qualified by important factors that could cause our actual operating results to differ materially from those in the forward-looking statements, including without limitation, regional, national, or global political, economic, business, competitive, market, and regulatory conditions and the following: the need to hire, develop, and retain key personnel; the impact of unfavorable economic conditions, including the uncertain international economic environment, changes in exchange rates, and effective income tax rate fluctuations; the impact of potentially underpricing our contracts, overrunning our cost estimates, or failing to receive approval for or experiencing delays with documentation of change orders; any adverse effects from customer or therapeutic area concentration; our potential failure to generate a large number of new business awards and the risk of delay, termination, reduction in scope, or failure to go to contract of our business awards; our potential failure to convert backlog to revenue; fluctuations in our operating results and effective income tax rate; the cyber-security and other risks associated with our information systems infrastructure; risks associated with the integration of our business with the business of Double Eagle Parent, Inc. (“inVentiv”) and our operation of the combined business following the closing of the merger with inVentiv (the “Merger”); the risks associated with doing business internationally; risks related to the U.K.’s planned withdrawal from the European Union; impact of the Tax Cuts and Jobs Act; challenges by tax authorities of our intercompany transfer pricing policies; our potential failure to successfully increase our market share, grow our business, and execute our growth strategies; our ability to effectively upgrade our information systems; our failure to perform our services in accordance with contractual requirements, regulatory standards, and ethical considerations; the risk of litigation and personal injury claims; risks related to the management of clinical trials; failure of our insurance to cover our indemnification obligations and other liabilities; risks related to marketing drugs for biopharmaceutical companies; our ability to protect our intellectual property; the risks associated with potential future acquisitions or investments in our customers’ businesses or drugs; our relationships with customers who are in competition with each other; any failure to realize the full value of our goodwill and intangible assets; risks related to restructuring; our compliance with anti-corruption and anti-bribery laws; our dependence on third parties; potential employment liability; downgrades of our credit ratings; outsourcing trends and changes in aggregate spending and research and development budgets; the impact of, including changes in, government regulations and healthcare reform; our ability to keep pace with rapid technological change; the cost of and our ability to service our substantial indebtedness; and other risks related to ownership of our common stock. For a further discussion of the risks relating to our business, refer to

30



“Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
Overview of Our Business and Services
Syneos Health, Inc. (the “Company,” “we,” “us,” and “our”) is a leading global biopharmaceutical solutions organization providing a full suite of clinical and commercial services to customers in the biopharmaceutical, biotechnology, and medical device industries. We offer both standalone and integrated biopharmaceutical product development solutions through our Contract Research Organization (“CRO”) and Contract Commercial Organization (“CCO”), ranging from Early Phase (Phase I) clinical trials to the full commercialization of biopharmaceutical products, with the goal of increasing the likelihood of regulatory approval and commercial launch success for our customers.
Our operations are divided into two reportable segments, Clinical Solutions and Commercial Solutions. Our Clinical Solutions segment offers a variety of services spanning Phase I to Phase IV of clinical development, including full-service global studies, as well as individual service offerings such as clinical monitoring, investigator recruitment, patient recruitment, data management, and study startup to assist customers with their drug development process. Our Commercial Solutions segment provides the pharmaceutical, biotechnology, and healthcare industries with commercialization services, including deployment solutions (formerly selling solutions), communication solutions (public relations and advertising), and consulting services. For further discussion, refer to “Note 13 - Segment Information” to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
New Business Awards and Backlog
We add new business awards to backlog when we enter into a contract or when we receive a written commitment from the customer selecting us as a service provider, provided that:
the customer has received appropriate internal funding approval and collection of the award value is probable;
the project or projects are not contingent upon completion of another clinical trial or event that would place the project or projects at material risk of not commencing in accordance with the expected timeline;
the project or projects are expected to commence within a certain period of time from the end of the quarter in which the award was granted;
the customer has entered or intends to enter into a comprehensive contract as soon as practicable; and
for awards related to our deployment solutions and Functional Service Provider ("FSP") offerings, a maximum of twelve months of services are included in the award value.
In addition, we continually evaluate our backlog to determine if any of the previously awarded work is no longer expected to be performed, regardless of whether we have received formal cancellation notice from the customer. If we determine that any previously awarded work is no longer probable of being performed, we remove the value from our backlog based on the risk of cancellation. We recognize revenue from these awards as services are performed, provided we have entered into a contractual commitment with the customer.
Beginning in 2019, we now report new business awards for our Clinical Solutions and Commercial Solutions segments on a trailing twelve months (“TTM”) basis. Our total backlog represents backlog for our Clinical Solutions segment and the deployment solutions service offering within our Commercial Solutions segment (formerly selling solutions). We do not report backlog for the remaining service offerings in the Commercial Solutions segment. New business awards and backlog include reimbursable out-of-pocket expenses for all periods presented.

31



Backlog
Our backlog consists of anticipated future revenue from business awards that either have not started, or that are in process and have not been completed. Our backlog also reflects any cancellation or adjustment activity related to these awards. The average duration of our contracts will fluctuate from period to period based on the contracts comprising our backlog at any given time. The majority of our contracts can be terminated by the customer with a 30-day notice.
Our backlog was as follows as of June 30 (in millions):
 
2019
 
2018
 
Change
Clinical Solutions
$
7,834.0

 
$
7,183.8

 
$
650.2

9.1
%
Commercial Solutions - deployment solutions
621.3

 
550.2

 
71.1

12.9
%
Total backlog
$
8,455.3

 
$
7,734.0

 
$
721.3

9.3
%
We expect that approximately $2.07 billion of our backlog as of June 30, 2019 will be recognized as revenue during the remainder of 2019. We adjust the amount of our backlog each quarter for the effects of fluctuations in foreign currency exchange rates.
Net new business awards
New business awards, net of cancellations, were as follows for the TTM period ended June 30 (in millions):
 
2019
Clinical Solutions
$
3,967.0

Commercial Solutions - deployment solutions
1,298.2

    Total net new business awards
$
5,265.2

New business awards have varied and may continue to vary significantly from quarter to quarter. Fluctuations in our net new business award levels often result from the fact that we may receive a small number of relatively large orders in any given reporting period. Because of these large orders, our backlog and net new business awards in a reporting period may reach levels that are not sustainable in subsequent reporting periods.
We believe that our backlog and net new business awards might not be consistent indicators of future revenue because they have been, and likely will continue to be, affected by a number of factors, including the variable size and duration of projects, many of which are performed over several years, and cancellations and changes to the scope of work during the course of projects. Additionally, projects may be canceled or delayed by the customer or regulatory authorities. We generally do not have a contractual right to the full amount of the awards reflected in our backlog. If a customer cancels an award, we might be reimbursed for the costs we have incurred. As we increasingly compete for and enter into large contracts that are more global in nature, we expect that the rate at which our backlog and net new business awards convert into revenue is likely to decrease, and the duration of projects and the period over which related revenue is recognized to lengthen. For more information about risks related to our backlog see Part I, Item 1A "Risk Factors - Risks Related to Our Business - Our backlog might not be indicative of our future revenues, and we might not realize all of the anticipated future revenue reflected in our backlog" included in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

32



Results of Operations
The following table sets forth amounts from our unaudited condensed consolidated statements of operations along with dollar and percentage changes (in thousands, except percentages):
 
Three Months Ended 
 June 30,
 
 
 
 
 
2019
 
2018
 
Change
Revenue
$
1,166,827

 
$
1,072,530

 
$
94,297

 
8.8
 %
Costs and operating expenses:
 

 
 

 
 

 
 

Direct costs (exclusive of depreciation and amortization)
917,529

 
847,465

 
70,064

 
8.3
 %
Selling, general, and administrative expenses
110,879

 
100,218

 
10,661

 
10.6
 %
Restructuring and other costs
11,882

 
8,591

 
3,291

 
38.3
 %
Transaction and integration-related expenses
7,654

 
18,032

 
(10,378
)
 
(57.6
)%
Depreciation and amortization
60,749

 
67,502

 
(6,753
)
 
(10.0
)%
Total operating expenses
1,108,693

 
1,041,808

 
66,885

 
6.4
 %
Income from operations
58,134

 
30,722

 
27,412

 
89.2
 %
Total other expense, net
(24,557
)
 
(1,115
)
 
(23,442
)
 
n/m

Income (loss) before provision for income taxes
33,577

 
29,607

 
3,970

 
13.4
 %
Income tax expense
(22,285
)
 
(16,047
)
 
(6,238
)
 
(38.9
)%
Net income (loss)
$
11,292

 
$
13,560

 
$
(2,268
)
 
(16.7
)%
 
Six Months Ended 
 June 30,
 
 
 
 
 
2019
 
2018
 
Change
Revenue
$
2,285,833

 
$
2,129,726

 
$
156,107

 
7.3
 %
Costs and operating expenses:
 

 
 

 
 

 
 

Direct costs (exclusive of depreciation and amortization)
1,804,331

 
1,688,288

 
116,043

 
6.9
 %
Selling, general, and administrative expenses
223,996

 
199,477

 
24,519

 
12.3
 %
Restructuring and other costs
26,295

 
22,298

 
3,997

 
17.9
 %
Transaction and integration-related expenses
24,312

 
43,243

 
(18,931
)
 
(43.8
)%
Depreciation and amortization
121,949

 
135,523

 
(13,574
)
 
(10.0
)%
Total operating expenses
2,200,883

 
2,088,829

 
112,054

 
5.4
 %
Income from operations
84,950

 
40,897

 
44,053

 
107.7
 %
Total other expense, net
(70,961
)
 
(44,814
)
 
(26,147
)
 
(58.3
)%
Income (loss) before provision for income taxes
13,989

 
(3,917
)
 
17,906

 
n/m

Income tax expense
(32,701
)
 
(7,075
)
 
(25,626
)
 
n/m

Net income (loss)
$
(18,712
)
 
$
(10,992
)
 
$
(7,720
)
 
(70.2
)%
Revenue
For the three months ended June 30, 2019, our revenue increased by $94.3 million, or 8.8%, to $1.17 billion from $1.07 billion for the three months ended June 30, 2018. For the six months ended June 30, 2019, our revenue increased by $156.1 million, or 7.3%, to $2.29 billion from $2.13 billion for the six months ended June 30, 2018. The increases were primarily driven by growth in both our Clinical Solutions and Commercial Solutions segments as discussed below.

33



During both the three and six months ended June 30, 2019, one customer accounted for approximately 10% of our revenue. During both the three and six months ended June 30, 2018, one customer accounted for 11% of our revenue. Revenue from our top five customers accounted for approximately 24% and 26% of revenue for the three months ended June 30, 2019 and 2018, respectively, and 23% and 25% of revenue for the six months ended June 30, 2019 and 2018, respectively.
Revenue for each of our segments was as follows (dollars in thousands):
 
Three Months Ended June 30,
 
 
 
 
 
2019
 
% of total
 
2018
 
% of total
 
Change
Clinical Solutions
$
849,922

 
72.8
%
 
$
783,913

 
73.1
%
 
$
66,009

 
8.4
%
Commercial Solutions
316,905

 
27.2
%
 
288,617

 
26.9
%
 
28,288

 
9.8
%
Total revenue
$
1,166,827

 
 
 
$
1,072,530

 
 
 
$
94,297

 
8.8
%
 
Six Months Ended June 30,
 
 
 
 
 
2019
 
% of total
 
2018
 
% of total
 
Change
Clinical Solutions
$
1,654,880

 
72.4
%
 
$
1,570,752

 
73.8
%
 
$
84,128

 
5.4
%
Commercial Solutions
630,953

 
27.6
%
 
558,974

 
26.2
%
 
71,979

 
12.9
%
Total revenue
$
2,285,833

 
 
 
$
2,129,726

 
 
 
$
156,107

 
7.3
%
Clinical Solutions
For the three and six months ended June 30, 2019, revenue attributable to our Clinical Solutions segment increased compared to the same periods in the prior year primarily due to net new business growth resulting in higher backlog as we entered each period, the startup of new work in backlog, and growth in reimbursable out-of-pocket expenses, partially offset by fluctuations in foreign currency exchange rates of $9.8 million and $23.9 million for the respective periods.
Commercial Solutions
For the three and six months ended June 30, 2019, revenue attributable to our Commercial Solutions segment increased compared to the same periods in the prior year due to net new business growth that resulted in higher backlog as we entered each period, as well as revenue from the Company’s acquisition of Kinapse Topco Limited (“Kinapse”) during the third quarter of 2018. These increases were partially offset by fluctuations in foreign currency exchange rates of $1.9 million and $3.9 million for the respective periods. Revenue was also positively impacted by a favorable revenue mix during the six months ended June 30, 2019.
Direct Costs
Direct costs consist principally of compensation expense and benefits associated with our employees and other employee-related costs, and reimbursable out-of-pocket expenses directly related to delivering on our projects. While we have some ability to manage the majority of these costs relative to the amount of contracted services we have during any given period, direct costs as a percentage of revenue can vary from period to period. Such fluctuations are due to a variety of factors, including, among others: (i) the level of staff utilization on our projects; (ii) adjustments to the timing of work on specific customer contracts; (iii) the experience mix of personnel assigned to projects; (iv) the service mix and pricing of our contracts and (v) the timing of the incurrence of reimbursable out-of-pocket expenses, particularly on our Clinical Solutions projects. In addition, as global projects wind down or as delays and cancellations occur, staffing levels in certain countries or functional areas can become misaligned with the current business volume.

34



Direct costs consisted of the following (dollars in thousands):
 
Three Months Ended June 30,
 
 
 
 
 
2019
 
2018
 
Change
Direct costs (exclusive of depreciation and amortization)
$
917,529

 
$
847,465

 
$
70,064

 
8.3
%
% of revenue
78.6
%
 
79.0
%
 
 
 
 
Gross margin %
21.4
%
 
21.0
%
 
 
 
 
 
Six Months Ended June 30,
 
 
 
 
 
2019
 
2018
 
Change
Direct costs (exclusive of depreciation and amortization)
$
1,804,331

 
$
1,688,288

 
$
116,043

 
6.9
%
% of revenue
78.9
%
 
79.3
%
 
 
 
 
Gross margin %
21.1
%
 
20.7
%
 
 
 
 
For the three and six months ended June 30, 2019, our direct costs increased by $70.1 million and $116.0 million, or 8.3% and 6.9%, as compared to the three and six months ended June 30, 2018, respectively. The increases were primarily driven by an increase in compensation and related costs (including share-based compensation), reimbursable out-of-pocket expenses, as well as direct costs from Kinapse, which was acquired in the third quarter of 2018.
Clinical Solutions
Direct costs for our Clinical Solutions segment, excluding share-based compensation expense, were as follows (dollars in thousands):
 
Three Months Ended June 30,
 
 
 
2019
 
2018
 
Change
Direct costs
$
654,403

 
$
608,994

 
$
45,409

 
7.5
%
% of segment revenue
77.0
%
 
77.7
%
 
 
 
 
Segment gross margin %
23.0
%
 
22.3
%
 
 
 
 
 
Six Months Ended June 30,
 
 
 
2019
 
2018
 
Change
Direct costs
$
1,280,170


$
1,224,365

 
$
55,805

 
4.6
%
% of segment revenue
77.4
%
 
77.9
%
 
 
 
 
Segment gross margin %
22.6
%
 
22.1
%
 
 
 
 
For the three and six months ended June 30, 2019, our Clinical Solutions segment direct costs increased by $45.4 million and $55.8 million, or 7.5% and 4.6%, as compared to the three and six months ended June 30, 2018, respectively. These increases were primarily due to higher reimbursable out-of-pocket expenses and an increase in compensation and related costs due to higher billable headcount to support revenue growth.
Gross margins for our Clinical Solutions segment were 23.0% and 22.6% for the three and six months ended June 30, 2019, respectively, compared to 22.3% and 22.1% for the three and six months ended June 30, 2018, respectively. Gross margins were higher during the three and six months ended June 30, 2019 compared to the same periods in 2018 primarily due to revenue growth, net realized cost synergies and favorable impacts from foreign currency exchange rate fluctuations, partially offset by costs associated with certain new strategic relationships with large pharmaceutical customers.

35



Commercial Solutions
Direct costs for our Commercial Solutions segment, excluding share-based compensation expense, were as follows (dollars in thousands):
 
Three Months Ended June 30,
 
 
 
2019
 
2018
 
Change
Direct costs
$
255,814

 
$
232,899

 
$
22,915

 
9.8
%
% of segment revenue
80.7
%
 
80.7
%
 
 
 
 
Segment gross margin %
19.3
%
 
19.3
%
 
 
 
 
 
Six Months Ended June 30,
 
 
 
2019
 
2018
 
Change
Direct costs
$
508,687

 
$
454,599

 
$
54,088

 
11.9
%
% of segment revenue
80.6
%
 
81.3
%
 
 
 
 
Segment gross margin %
19.4
%
 
18.7
%
 
 
 
 
For the three and six months ended June 30, 2019, our Commercial Solutions segment direct costs increased by $22.9 million and $54.1 million, or 9.8% and 11.9%, as compared to the three and six months ended June 30, 2018, respectively. These increases were primarily related to an increase in compensation and related costs due to higher billable headcount to support revenue growth, as well as direct costs from Kinapse, which was acquired in the third quarter of 2018. Direct costs were also negatively impacted by higher reimbursable out-of-pocket expenses for the six months ended June 30, 2019.
Gross margins for our Commercial Solutions segment were 19.3% and 19.4% for the three and six months ended June 30, 2019, respectively, compared to 19.3% and 18.7% for the three and six months ended June 30, 2018, respectively. Gross margin was higher during the six months ended June 30, 2019 compared to the same period in 2018 primarily due to a favorable revenue mix.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses were as follows (dollars in thousands):
 
Three Months Ended June 30,
 
 
 
 
 
2019
 
2018
 
Change
Selling, general, and administrative expenses
$
110,879

 
$
100,218

 
$
10,661

 
10.6
%
% of total revenue
9.5
%
 
9.3
%
 
 
 
 
 
Six Months Ended June 30,
 
 
 
 
 
2019
 
2018
 
Change
Selling, general, and administrative expenses
$
223,996

 
$
199,477

 
$
24,519

 
12.3
%
% of total revenue
9.8
%
 
9.4
%
 
 
 
 
The increases in selling, general, and administrative expenses for the three and six months ended June 30, 2019 as compared to the same periods in 2018 were primarily caused by higher compensation-related expenses (including share-based compensation), incremental costs from Kinapse, which was acquired during the third quarter of 2018 and incremental costs from a strategic partnership agreement entered into during the fourth quarter of 2018.

36



Restructuring and Other Costs
Restructuring and other costs were $11.9 million and $8.6 million for the three months ended June 30, 2019 and June 30, 2018, respectively, and $26.3 million and $22.3 million for the six months ended June 30, 2019 and 2018, respectively. During 2017, in connection with the Merger, we established a restructuring plan to eliminate redundant positions and reduce our facility footprint worldwide. We expect to continue the ongoing evaluations of our workforce and facilities infrastructure needs through 2020 in an effort to optimize our resources. Additionally, for the three and six months ended June 30, 2019 and 2018, we incurred employee severance costs and facility closure costs for non-Merger related restructuring activities.
Restructuring and other costs consisted of the following (in thousands):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2019
 
2018
 
2019
 
2018
Merger-related restructuring and other costs:
 
 
 
 
 
 
 
Employee severance and benefit costs
$
2,227

 
$
2,893

 
$
12,249

 
$
11,293

Facility and lease termination costs
6,504

 
2,585

 
8,458

 
4,798

Other merger-related costs

 
215

 

 
515

Non-merger related restructuring and other costs:
 
 
 
 
 
 
 
Employee severance and benefit costs
3,063

 
777

 
5,273

 
977

Facility and lease termination costs
56

 
638

 
275

 
1,438

Consulting fees

 
787

 

 
2,481

Other costs
32

 
696

 
40

 
796

Total restructuring and other costs
$
11,882

 
$
8,591

 
$
26,295

 
$
22,298

We expect to incur significant costs related to the restructuring of our operations in order to achieve our targeted synergies as a result of the Merger over the next 12 to 18 months. However, the timing and the amount of these costs depends on various factors, including, but not limited to, identifying and realizing synergy opportunities and executing the integration of our combined operations.
Transaction and Integration-Related Expenses
Transaction and integration-related expenses consisted of the following (in thousands):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2019
 
2018
 
2019
 
2018
Professional fees
$
6,678

 
$
11,073

 
$
19,523

 
$
25,774

Debt modification and related expenses
1,732

 
1,317

 
3,973

 
1,317

Integration and personnel retention-related costs
909

 
4,448

 
1,756

 
13,741

Fair value adjustments to contingent obligations
(1,665
)
 
1,194

 
(940
)
 
2,388

Other

 

 

 
23

Total transaction and integration-related expenses
$
7,654

 
$
18,032

 
$
24,312

 
$
43,243

We expect to incur additional integration-related expenses associated with the Merger. The timing and amount of these expenses will depend on the identification of synergy opportunities and the timing and execution of our integration activities.

37



Depreciation and Amortization Expense
Total depreciation and amortization expense was $60.7 million and $67.5 million for the three months ended June 30, 2019 and 2018, respectively, and $121.9 million and $135.5 million for the six months ended June 30, 2019 and 2018, respectively. The decreases in total depreciation and amortization expense were primarily due to a decrease in amortization expense from intangible assets resulting from business combinations completed in prior periods, partially offset by an increase in depreciation expense from continued investment in information technology and facilities to support growth in our operational capabilities and optimization of our infrastructure.
Other Expense, Net
Other expense, net consisted of the following (dollars in thousands):
 
Three Months Ended June 30,
 
 
 
 
 
2019
 
2018
 
Change
Interest income
$
2,133

 
$
1,655

 
$
478

 
28.9
 %
Interest expense
(34,263
)
 
(32,894
)
 
(1,369
)
 
(4.2
)%
Loss on extinguishment of debt

 
(1,877
)
 
1,877

 
100.0
 %
Other income, net
7,573

 
32,001

 
(24,428
)
 
(76.3
)%
Total other expense, net
$
(24,557
)
 
$
(1,115
)
 
$
(23,442
)
 
n/m

 
Six Months Ended June 30,
 
 
 
 
 
2019
 
2018
 
Change
Interest income
$
3,635

 
$
2,494

 
$
1,141

 
45.7
 %
Interest expense
(68,893
)
 
(64,630
)
 
(4,263
)
 
(6.6
)%
Loss on extinguishment of debt
(4,355
)
 
(2,125
)
 
(2,230
)
 
(104.9
)%
Other (expense) income, net
(1,348
)
 
19,447

 
(20,795
)
 
(106.9
)%
Total other expense, net
$
(70,961
)
 
$
(44,814
)
 
$
(26,147
)
 
(58.3
)%
Total other expense, net was $24.6 million and $1.1 million for the three months ended June 30, 2019 and 2018, respectively, and $71.0 million and $44.8 million for the six months ended June 30, 2019 and 2018, respectively. These increases were primarily due to lower other income, net, in the current periods as compared to the prior periods, which primarily consists of foreign currency gains and losses that result from exchange rate fluctuations on our monetary asset balances denominated in currencies other than our functional currency.
Income Tax Expense
For the three and six months ended June 30, 2019, we recorded income tax expense of $22.3 million and $32.7 million, respectively, on a pre-tax income of $33.6 million and $14.0 million, respectively. Variances between the effective income tax rate and the statutory income tax rate of 21.0% for the three and six months ended June 30, 2019 were primarily due to: (i) base erosion anti-abuse minimum tax, (ii) foreign income inclusions such as GILTI, and (iii) a valuation allowance change on domestic deferred tax assets.
For the three and six months ended June 30, 2018, we recorded income tax expense of $16.0 million and $7.1 million, respectively, on a pre-tax income (loss) of $29.6 million and $(3.9) million, respectively. Variances between our effective income tax rate and the statutory income tax rate of 21.0% for the three and six months ended June 30, 2018 were primarily due to: (i) research tax credits in foreign jurisdictions; (ii) a valuation allowance change on certain domestic deferred tax assets; and (iii) the geographical split of pre-tax income.


38



Liquidity and Capital Resources
Key measures of our liquidity were as follows (in thousands):
 
June 30, 2019
 
December 31, 2018
Balance sheet statistics:
 
 
 
Cash and cash equivalents
$
105,163

 
$
153,863

Restricted cash
2,093

 
2,069

Working capital (excluding restricted cash)
(189,845
)
 
(13,305
)
As of June 30, 2019, we had $107.3 million of cash, cash equivalents and restricted cash. As of June 30, 2019, substantially all of our cash, cash equivalents and restricted cash was held within the United States. In addition, we had $580.5 million (net of $19.5 million in outstanding letters of credit) available for borrowing under our $600.0 million Revolver facility.
We have historically funded our operations and growth, including acquisitions, primarily with our working capital, cash flow from operations and funds available through various borrowing arrangements. Our principal liquidity requirements are to fund our debt service obligations, capital expenditures, expansion of service offerings, possible acquisitions, integration and restructuring costs, geographic expansion, stock repurchases, working capital and other general corporate expenses. Based on past performance and current expectations, we believe our cash and cash equivalents, cash generated from operations, and funds available under our revolving credit facility will be sufficient to meet our working capital needs, capital expenditures, scheduled debt and interest payments, income tax obligations and other currently anticipated liquidity requirements for at least the next 12 months.
Indebtedness
As of June 30, 2019, we had approximately $2.76 billion of total principal indebtedness, comprised of $2.13 billion in term loan debt, $403.0 million in Senior Unsecured Notes due 2024 (the “Senior Notes”), $185.2 million in borrowings against the accounts receivable financing agreement and $44.4 million in current and non-current finance lease obligations. In addition, as of June 30, 2019 we had $580.5 million (net of $19.5 million in outstanding letters of credit) of available borrowings for working capital and other purposes under the Revolver, and $0.8 million of letters of credit that were not secured by the Revolver. During the six months ended June 30, 2019, we made voluntary prepayments of $65.0 million, which were applied against the regularly-scheduled quarterly principal payments of the Term Loan B. As a result of these and previous voluntary prepayments, we are not required to make a mandatory payment against the Term Loan B principal balance until maturity in August 2024. Additionally, during the six months ended June 30, 2019, we made mandatory principal payments of $12.5 million towards our Term Loan A.
Amendment No. 2 to the Credit Agreement
On March 26, 2019, we entered into Amendment No. 2 to the Credit Agreement (“the Second Amendment”). The Second Amendment, among other things, modifies the terms of the Credit Agreement to refinance the existing Term Loan A facility and the Revolver as follows:
(a) to increase the existing Term Loan A facility by $587.5 million to $1.55 billion. $187.5 million of such increase was applied at closing to repay a portion of our existing Term Loan B facility and the fees and expenses incurred in connection with the Second Amendment, and the remaining $400.0 million will be available to be funded in multiple draws within nine months of closing and applied to further prepay loans under the Term Loan B facility and/or redeem, repay, defease or discharge all or a portion of our Senior Notes;
(b) to increase the existing Revolver commitments available by $100.0 million to $600.0 million, and reduce the margin spread by 0.25% overall, resulting in (i) for Adjusted Eurocurrency Rate (as defined in the Credit Agreement) loans, a margin spread of 1.50% and (ii) for Alternate Base

39



Rate (as defined in the Credit Agreement) loans, a margin spread of 0.50%, with a single 0.25% step-down based on the achievement of certain leverage ratios; and
(c) to extend the maturity of the Term Loan A facility and the Revolver to March 26, 2024.

The Term Loan A facility and the Revolver will continue to be subject to the same affirmative covenants and negative covenants. The financial covenant will be set at a First Lien Leverage Ratio (as defined in the Credit Agreement) of 5.00:1.00 with a single step-down to 4.50:1.00 commencing with the fiscal quarter ending March 31, 2020. We were in compliance with all covenants of the Credit Agreement as of June 30, 2019.

In connection with the Second Amendment, during the three months ended March 31, 2019, we recorded a $4.4 million loss on extinguishment of debt, mainly due to the write-off of the deferred issuance costs and debt discount.

The funded amount of the Term Loan A facility was issued net of a discount and debt issuance costs totaling $2.8 million. These costs are being accreted as a component of interest expense using the effective interest rate method over the term of this facility.

We recorded debt issuance costs and related fees in connection with the Revolver and the unfunded amount of the Term Loan A facility of approximately $3.5 million, which are included in other assets in the unaudited condensed consolidated balance sheet. These costs are amortized as a component of interest expense on a straight-line basis over the related terms.
Interest Rates
In June 2018, we entered into an interest rate swap that has an aggregate notional value of $1.01 billion, an effective date of December 31, 2018, and that expires on June 30, 2021. As a result, as of June 30, 2019, the percentage of our total principal debt (excluding leases) that is subject to fixed interest rates was approximately 53.2%. Each quarter-point increase or decrease in the applicable interest rate at June 30, 2019 would change our annual interest expense by approximately $3.2 million.
Covenant Restrictions under our Lease Agreement
The lease agreement for our new corporate headquarters in Morrisville, North Carolina includes a provision that requires us to issue a letter of credit in certain amounts to the landlord based on our debt rating issued by Moody’s Investors Service (or other nationally-recognized debt rating agency). As of June 30, 2019 (and through the date of this filing), our credit rating was Ba3. As such, no letter of credit was required through the date of this filing. Any letters of credit issued in accordance with the aforementioned requirements would be issued under our Revolver, and would reduce its available borrowing capacity by the same amount.
Our ability to make payments on our indebtedness and to fund planned capital expenditures and necessary working capital will depend on our ability to generate cash in the future. Our ability to meet our cash needs through cash flows from operations will depend on the demand for our services, as well as general economic, financial, competitive, and other factors, many of which are beyond our control. Our business may not generate cash flow in an amount sufficient to enable us to pay the principal of, or interest on, our indebtedness, or to fund our other liquidity needs, including working capital, capital expenditures, acquisitions, investments, and other general corporate requirements. If we cannot fund our liquidity needs, we will have to take actions such as reducing or delaying capital expenditures, acquisitions or investments, selling assets, restructuring or refinancing our debt, reducing the scope of our operations and growth plans, or seeking additional capital. We cannot assure you that any of these remedies could, if necessary, be affected on commercially reasonable terms, or at all, or that they would permit us to meet our scheduled debt service obligations. Our Credit Agreement contains covenant restrictions that limit our ability to direct the use of proceeds from any disposition of assets and, as a

40



result, we may not be allowed to use the proceeds from any such dispositions to satisfy all current debt service obligations.
Accounts Receivable Financing Agreement
On June 29, 2018 we entered into an accounts receivable financing agreement (as amended) with a termination date of June 29, 2020, unless terminated earlier pursuant to its terms. Under this agreement, we can borrow up to $250.0 million from a third-party lender, secured by liens on certain receivables and other assets. As of June 30, 2019, we had $185.2 million of outstanding borrowings under this agreement with a maximum remaining borrowing capacity available of $64.8 million, which is limited by a periodic calculation of our available borrowing base. The Company expects to renew this accounts receivable financing agreement prior to June 29, 2020.
2018 Stock Repurchase Program
On February 26, 2018, our Board of Directors authorized the repurchase of up to an aggregate of $250.0 million of our common stock, par value $0.01 per share, to be executed from time to time in open market transactions effected through a broker at prevailing market prices, in block trades, or privately negotiated transactions (“2018 stock repurchase program”). The 2018 stock repurchase program commenced on March 1, 2018 and will end no later than December 31, 2019. We intend to use cash on hand and future free cash flow to fund the 2018 stock repurchase program.
In January 2019, we repurchased 552,100 shares of our common stock in open market transactions at an average price of $39.16 per share, resulting in a total purchase price of approximately $21.6 million. In February 2019, we repurchased 120,600 shares of our common stock in open market transactions at an average price of $41.40 per share, resulting in a total purchase price of approximately $5.0 million. In June 2019, we repurchased 509,100 shares of our common stock in open market transactions at an average price of $45.29 per share, resulting in a total purchase price of approximately $23.1 million. We immediately retired all of the repurchased common stock and charged the par value of the shares to common stock. The excess of the repurchase price over the par value was applied on a pro rata basis against additional paid-in-capital, with the remainder applied to accumulated deficit. As of June 30, 2019, we had remaining authorization to repurchase up to approximately $125.3 million of shares of our common stock under the 2018 stock repurchase program.
We are not obligated to repurchase any particular amount of our common stock, and the 2018 stock repurchase program may be modified, extended, suspended or discontinued at any time. The timing and amount of repurchases is determined by our management based on a variety of factors such as our corporate requirements for cash, overall market conditions, and the market price of our common stock. The stock repurchase program is subject to applicable legal requirements, including federal and state securities laws and applicable Nasdaq rules.
Cash, Cash Equivalents and Restricted Cash
Our cash flows from operating, investing, and financing activities were as follows (in thousands):
 
Six Months Ended
 
 
 
June 30, 2019
 
June 30, 2018
 
Change
Net cash provided by operating activities
$
83,514

 
$
65,174

 
$
18,340

Net cash used in investing activities
(31,066
)
 
(32,586
)
 
1,520

Net cash used in financing activities
(99,915
)
 
(179,694
)
 
79,779

Cash Flows from Operating Activities
Cash flows provided by operating activities increased by $18.3 million during the six months ended June 30, 2019, compared to the six months ended June 30, 2018. The increase is primarily due to higher accounts payable and accrued expenses partially offset by an increase in accounts receivable, unbilled

41



services, and deferred revenue, Fluctuations in accounts receivable, unbilled services, and deferred revenue occur on a regular basis as we perform services, achieve milestones or other billing criteria, send invoices to customers and collect outstanding accounts receivable. This activity varies by individual customer and contract. We attempt to negotiate payment terms that provide for payment of services prior to or soon after the provision of services, but the levels of accounts receivable, unbilled services, and deferred revenue can vary significantly from period to period.
As a result of our integration activities associated with the Merger and our acquisition activity, we incurred substantial expenses that negatively impacted our cash flow from operating activities. For example, during the six months ended June 30, 2019, we incurred $25.3 million of expenses that impacted our operating cash flows in the current period or will impact operating cash flows in the future. We anticipate that we will continue to incur similar costs related to our integration efforts for the next 12 to 18 months.
Cash Flows from Investing Activities
For the six months ended June 30, 2019, we used $31.1 million in cash for investing activities, comprised of $28.1 million for purchases of property and equipment and $3.0 million for an investment in an unconsolidated affiliate.
For the six months ended June 30, 2018, we used $32.6 million in cash for investing activities primarily for the purchase of property and equipment.
Cash Flows from Financing Activities
For the six months ended June 30, 2019, we used $99.9 million in cash for financing activities, which consisted primarily of: (i) repayments of long-term debt of $256.1 million, including voluntary prepayments of $65.0 million against the principal balance of our Term Loan B, (ii) payments of $49.7 million for the repurchase of our common stock under the 2018 stock repurchase program; (iii) repayments of $22.4 million related to our accounts receivable financing agreement; and (iv) payments related to tax withholding for share-based compensation of $11.8 million. These payments were partially offset by proceeds from: (i) issuance of long-term debt, net of discount, of $183.2 million; (ii) $38.2 million from our accounts receivable financing agreement; and (iii) $24.4 million received from the exercise of stock options.
For the six months ended June 30, 2018, we used $179.7 million in cash for financing activities, which consisted primarily of: (i) payments of $75.0 million for the repurchase of our common stock under the 2018 stock repurchase program and (ii) repayments of long-term debt of $97.5 million.
Contractual Obligations and Commitments
There have been no material changes, outside of the ordinary course of business, to our contractual obligations as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, except as described below.
In March 2019, we entered into Amendment No. 2 to the Credit Agreement, which, among other things, modified the terms of the Credit Agreement to refinance the existing Term Loan A facility and the Revolver. Please refer to “Note 4 - Long-Term Debt Obligations” for information regarding changes in the maturities of our contractual obligation related to principal balances and interest on our long-term debt.

42



Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities, revenues, and expenses during the period, as well as disclosures of contingent assets and liabilities at the date of the financial statements. We evaluate our estimates on an ongoing basis, including those related to revenue recognition, share-based compensation, valuation of goodwill and identifiable intangibles, tax-related contingencies and valuation allowances, allowance for doubtful accounts, and litigation contingencies, among others. These estimates are based on the information available to management at the time these estimates, judgments and assumptions are made. Actual results may differ materially from these estimates. There have been no significant changes to our critical accounting policies and estimates. For additional information on all of our critical accounting policies and estimates, refer to Part II - Item 7 - Management’s Discussion and Analysis included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes to our quantitative and qualitative disclosures about market risk as compared to the quantitative and qualitative disclosures about market risk described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

43



Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our CEO and CFO have concluded that as of such date, our disclosure controls and procedures were not effective at the reasonable assurance level.
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Changes in Internal Controls
Other than the remediation efforts described below, there have been no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
In connection with management’s assessment of the Company’s internal control over financial reporting as of December 31, 2018, management concluded that material weaknesses existed in the design and operating effectiveness of internal controls within the Clinical Solutions segment in connection with the revenue recognition process under ASU 2014-09 “Revenue from Contracts with Customers” (ASC 606), which the Company adopted on January 1, 2018.
The following components of internal control over financial reporting were impacted: (i) control environment - the training process associated with ASC 606 was not sufficient in all cases to support the development of estimates of the costs necessary to complete the performance of contracts and related supporting documentation; (ii) risk assessment - the Company’s risk assessment process did not effectively evaluate risks resulting from changes in the external environment or business operations at a sufficient level of precision to identify errors; (iii) control activities - the Company did not have effective control activities related to the operation of process-level controls over revenue recognition; and (iv) monitoring - the Company did not have effective monitoring activities to assess the operation of internal controls, including the continued appropriateness of internal controls.
Remediation of the Material Weaknesses in Internal Control over Financial Reporting
Management is actively engaged in the implementation of remediation efforts to address the material weaknesses. The remediation plan includes: (i) the modification of certain internal controls designed to evaluate the appropriateness of revenue recognition in our Clinical Solutions segment; (ii) implementing new internal controls over recording revenue transactions; and (iii) additional training for staff involved in the related processes. During the six months ended June 30, 2019, management has substantially completed its remediation activities in all three areas described above. Testing of the design and operational effectiveness of modified and new controls is necessary to validate that the material weaknesses have been fully remediated.
As management continues to test and improve internal control over financial reporting, we may decide to take additional measures to address control deficiencies or determine to modify, or in appropriate circumstances not to complete, certain of the planned remediation measures.

44



PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
We are party to legal proceedings incidental to our business. While our management currently believes the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our consolidated financial statements, litigation is subject to inherent uncertainties. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on our financial condition and results of operations.
On December 1, 2017, the first of two virtually identical actions alleging federal securities law claims was filed against us and certain of our officers on behalf of a putative class of our shareholders. The first action, captioned Bermudez v. INC Research, Inc., et al, No. 17-09457 (S.D.N.Y.), names as defendants us, Michael Bell, Alistair MacDonald, Michael Gilbertini, and Gregory S. Rush (the "Bermudez action"), and the second action, Vaitkuvienë v. Syneos Health, Inc., et al, No. 18-0029 (E.D.N.C.), filed on January 25, 2018 (the "Vaitkuvienë action"), names as defendants us, Alistair MacDonald, and Gregory S. Rush (the "Initial Defendants"). Both complaints allege similar claims under Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 on behalf of a putative class of purchasers of our common stock between May 10, 2017 and November 8, 2017 and November 9, 2017. The complaints allege that we published inaccurate or incomplete information regarding, among other things, the financial performance and business outlook for inVentiv’s business prior to the Merger and with respect to the combined company following the Merger. On January 30, 2018, two alleged shareholders separately filed motions seeking to be appointed lead plaintiff and approving the selection of lead counsel. On March 30, 2018, Plaintiff Bermudez filed a notice of voluntary dismissal of the Bermudez action, without prejudice, and as to all defendants. On May 29, 2018, the Court in the Vaitkuvienë action appointed the San Antonio Fire & Police Pension Fund and El Paso Firemen & Policemen’s Pension Fund as Lead Plaintiffs and, on June 7, 2018, the Court entered a schedule providing for, among other things, Lead Plaintiffs to file an amended complaint by July 23, 2018 (later extended to July 30, 2018). Lead Plaintiffs filed their amended complaint on July 30, 2018, which also includes a claim against the Initial Defendants, as well as each member of the board of directors at the time of the INC Research - inVentiv Health merger vote in July 2017 (the “Defendants”), contending that the inVentiv merger proxy was misleading under Section 14(a) of the Act. Lead Plaintiffs seek, among other things, orders (i) declaring that the lawsuit is a proper class action and (ii) awarding compensatory damages in an amount to be proven at trial, including interest thereon, and reasonable costs and expenses incurred in this action, including attorneys’ fees and expert fees, to Lead Plaintiffs and other class members. Defendants filed a Motion to Dismiss Plaintiffs’ Amended Complaint on September 20, 2018. Lead Plaintiffs filed a Response in Opposition to such motion on November 21, 2018, and Defendants filed a Reply to such response on December 5, 2018. On May 23, 2019, Lead Plaintiffs filed a Notice of Filings in Related Case regarding the New Jersey shareholder action filed on March 1, 2019 described below, and Defendants filed their response on May 31, 2019. We and the other defendants deny the allegations in these complaints and intend to defend vigorously against these claims. In our opinion, the ultimate outcome of this matter is not expected to have a material adverse effect on our financial position, results of operations, or cash flows.
On September 24, 2018, the Court unsealed a civil complaint captioned United States, et. al vs. AstraZeneca PLC, et. al, No. 2:17-cv-01328-RSL (W.D. Wa.) against inVentiv Health, Inc. and other co-defendants. The complaint alleges that we and co-defendants violated the Federal False Claims Act (and various state analogues) and Anti-Kickback Statute through the provision of clinical education services. On December 17, 2018, the United States moved to dismiss this lawsuit, as well as other similar lawsuits supported by the relator in this action. We deny the allegations in the complaint and intend to defend vigorously against these claims. In our opinion, the ultimate outcome of this matter is not expected to have a material adverse effect on our financial position, results of operations, or cash flows. 
On February 21, 2019, the SEC notified us that it has commenced an investigation into our revenue accounting policies, internal controls and related matters, and requested that we retain certain documents for the periods beginning with January 1, 2017. The Audit Committee of our Board of Directors subsequently initiated an independent review of our revenue accounting policies, internal controls and

45



related matters with the assistance of outside counsel and accounting advisors, which is now complete. On March 22, 2019, the SEC subpoenaed certain documents in connection with its investigation. The timing of the conclusion of the SEC’s review is unknown.
On March 1, 2019, a complaint was filed in the United States District Court for the District of New Jersey on behalf of a putative class of shareholders who purchased our common stock during the period between May 10, 2017 and February 27, 2019. The complaint names us and certain of our executive officers as defendants and alleges violations of the Securities Exchange Act of 1934, as amended, based on allegedly false or misleading statements about our business, operations, and prospects. The plaintiffs seek awards of compensatory damages, among other relief, and their costs and attorneys’ and experts’ fees. On March 28, 2019, Lead Plaintiffs in the Vaitkuvienë action filed a motion to intervene, and we filed our response on April 22, 2019. On April 30, 2019, a shareholder filed a motion seeking to be appointed lead plaintiff and approving the selection of lead counsel. Both motions remain pending.
We are presently unable to predict the duration, scope or result of the SEC’s investigation, the related putative class action or any other related lawsuit or investigation.
Item 1A. Risk Factors.
There have been no significant changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018. Refer to “Risk Factors” in Part 1, Item 1A of that report for a detailed discussion of risk factors affecting the Company.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities.
Recent Sales of Unregistered Securities
Not applicable.
Purchases of Equity Securities by the Issuer
During the three months ended June 30, 2019, we repurchased 509,100 shares of our Class A common stock under our previously announced stock repurchase program described below, for a total of approximately $23.1 million. As of June 30, 2019, we have remaining authorization to repurchase up to approximately $125.3 million of shares of our Class A common stock under the stock repurchase program.
Period
 
Total number of shares purchased
 
Average price paid per share
 
Total number of shares purchased as part of publicly announced plans or programs (1)
 
Approximate dollar value of shares that may yet be purchased under the plans or programs (in thousands)
April 1, 2019 - April 30, 2019
 

 
$

 

 
$
148,402

May 1, 2019 - May 31, 2019
 

 
$

 

 
$
148,402

June 1, 2019 - June 30, 2019
 
509,100

 
$
45.29

 
509,100

 
$
125,344

Total
 
509,100

 
 
 
509,100

 
 

(1) On February 26, 2018, the Board authorized the repurchase of up to an aggregate of $250.0 million of our Class A common stock, par value $0.01 per share, from time to time in open market transactions effected through a broker at prevailing market prices, in block trades, or privately negotiated transactions. The stock repurchase program commenced on March 1, 2018 and will end no later than December 31, 2019. We intend to use cash on hand and future free cash flow to fund the stock repurchase program. The stock repurchase program does not obligate us to repurchase any particular amount of our Class A common stock, and may be modified, extended, suspended or

46



discontinued at any time. The timing and amount of repurchases is determined by our management based on a variety of factors such as the market price of our Class A common stock, our corporate requirements, and overall market conditions. The stock repurchase program is subject to applicable legal requirements, including federal and state securities laws. We may also repurchase shares of our Class A common stock pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, which would permit shares of our Class A common stock to be repurchased when we might otherwise be precluded from doing so by law.
The Company immediately retired all of the repurchased common stock and charged the par value of the shares to common stock. The excess of the repurchase price over the par value was applied on a pro rata basis against additional paid-in capital, with the remainder applied to accumulated deficit.
Item 5. Other Information.
Not applicable.

47



Item 6. Exhibits
 
 
 
Incorporated by Reference (Unless Otherwise Indicated)
Exhibit Number   
 
Exhibit Description
Form    
File No.    
Exhibit    
Filing Date    
10.1
 
 
 
 
Filed herewith
10.2
 
 
 
 
Filed herewith
31.1
 
Filed herewith
31.2
 
Filed herewith
32.1
 
Furnished herewith
32.2
 
Furnished herewith
101.INS
 
Inline XBRL Instance Document - the Instance Document does not appear in the interactive data file because its XBRL tags are embedded withint the Inline XBRL document.
Filed herewith
101.SCH
 
Inline XBRL Taxonomy Extension Schema Document.
Filed herewith
101.CAL
 
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
Filed herewith
101.DEF
 
Inline XBRL Taxonomy Extension Definition Linkbase Document.
Filed herewith
101.LAB
 
Inline XBRL Taxonomy Extension Label Linkbase Document.
Filed herewith
101.PRE
 
Inline Taxonomy Extension Presentation Linkbase Document.
Filed herewith
104
 
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
Filed herewith



48



SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
 
 
SYNEOS HEALTH, INC.
 
 
 
Date: August 5, 2019
BY:
/s/ Jason Meggs
 
 
Jason Meggs
 
 
Chief Financial Officer (Principal Financial Officer)



49

EX-10.1 2 exhibit101fourthamendmen.htm EXHIBIT 10.1 exhibit101fourthamendmen
EXECUTION VERSION FOURTH AMENDMENT TO THE RECEIVABLES FINANCING AGREEMENT This FOURTH AMENDMENT TO THE RECEIVABLES FINANCING AGREEMENT (this “Amendment”), dated as of January 2, 2019, is entered into by and among the following parties: (i) SYNEOS HEALTH RECEIVABLES LLC, as Borrower; (ii) SYNEOS HEALTH, LLC (f/k/a INC RESEARCH, LLC), as initial Servicer; and (iii) PNC BANK, NATIONAL ASSOCIATION (“PNC”), as Administrative Agent and as Lender. Capitalized terms used but not otherwise defined herein (including such terms used above) have the respective meanings assigned thereto in the Receivables Financing Agreement described below. BACKGROUND A. The parties hereto have entered into a Receivables Financing Agreement, dated as of June 29, 2018 (as amended, restated, supplemented or otherwise modified through the date hereof, the “Receivables Financing Agreement”). B. Concurrently herewith, the Borrower, as buyer, the Servicer, as servicer and as an originator, and inVentiv Health Clinical, LLC as an originator, are entering into that certain First Amendment to the Purchase and Sale Agreement, dated as of the date hereof (the “PSA Amendment”). C. On or prior to January 9, 2019, the Borrower, the Servicer, the Administrative Agent and Bank of America, N.A. are entering into that certain First Amendment to the Deposit Account Control Agreement (the “Bank of America DACA Amendment”). D. Concurrently herewith, the Borrower, the Servicer, the Administrative Agent and Wells Fargo Bank, National Association are entering into that certain First Amendment to the Deposit Account Control Agreement, dated as of the date hereof (the “Wells Fargo DACA Amendment”). E. Each of the Servicer and the Borrower is changing its notice address under the Transaction Documents (such change, the “Address Change”). F. Effective as of the date hereof, INC Research, LLC, a Delaware limited liability company, is changing its name from “INC Research, LLC” to “Syneos Health, LLC” (such change, the “INC Research Name Change”). G. The parties hereto desire to amend the Receivables Financing Agreement as set forth herein. 730860089 18569090


 
NOW THEREFORE, with the intention of being legally bound hereby, and in consideration of the mutual undertakings expressed herein, each party to this Amendment hereby agrees as follows: SECTION 1. Amendments to the Receivables Financing Agreement. The Receivables Financing Agreement is hereby amended to incorporate the changes shown on the marked pages of the Receivables Financing Agreement attached hereto as Exhibit A. SECTION 2. Notices; Consents. (a) Notice of the INC Research Name Change and Address Change. The Servicer hereby provides notice of the occurrence of the INC Research Name Change and the Address Change, effective as of the date hereof, and requests that each of the parties hereto hereby acknowledges and consents to the INC Research Name Change and the Address Change effective as of the date hereof. (b) INC Research Name Change and Address Change Consent. Subject to the terms and conditions of this Amendment, including the accuracy of each of the representations and warranties set forth herein, each of the parties hereto hereby: (i) acknowledges receipt of the notice set forth in clause (a) above, (ii) consents to the occurrence of the INC Research Name Change and the Address Change and (iii) waives any notice requirement with respect to the INC Research Name Change or the Address Change set forth in the Transaction Documents as a prerequisite or condition precedent to the effectiveness of the INC Research Name Change or the Address Change, including, the thirty (30) day prior written notice requirement set forth in Section 6.1(b)(v) of the Purchase and Sale Agreement. (c) Limited Consent re: November Information Package. Notwithstanding the requirements set forth in Sections 8.01(c)(ii) and 8.02(a)(ii) of the Receivables Financing Agreement that the Information Package for the month of November 2018 (the “Subject Information Package”) be delivered by the Borrower or the Servicer to the Administrative Agent and each Lender no later than December 26, 2018 (the “Subject Delivery Date”), each of the parties hereto hereby consent to the delivery of the Subject Information Package by the Borrower or the Servicer to the Administrative Agent and each Lender on or prior to December 31, 2018 rather than the Subject Delivery Date. (d) General Limitations. The limited consent set forth in clause (c) above shall be strictly limited to its terms. Consistent with the foregoing, nothing contained herein shall be deemed to be a consent to any party to the Transaction Documents failing to perform its obligations under the Transaction Documents other than solely to the extent set forth in clause (c) above. Notwithstanding anything to the contrary herein or in the Transaction Documents, by executing this Amendment, no party hereto is now waiving or consenting to, nor has it agreed to waive or consent to in the future (i) the modification or breach of any provision of the Transaction Documents, other than as expressly set forth in clauses (a), (b) and (c) above, (ii) any Event of Default or Unmatured Event of Default under the Receivables Financing Agreement or the other Transaction Documents (whether presently or subsequently existing or arising), other than as expressly set forth in clauses (a), (b) and (c) above or (iii) any rights, powers or remedies presently or subsequently available to any of the parties hereto or any other 730860089 18569090 2


 
Person against the Borrower or the Servicer under the Receivables Financing Agreement, any of the other Transaction Documents, applicable law or otherwise, relating to any matter other than solely to the extent expressly consented to herein, each of which rights, powers or remedies is hereby specifically and expressly reserved and continue. (e) No Waiver of Indemnification, Etc. Without limiting the generality of the foregoing and for the avoidance of doubt, the parties hereto are not hereby waiving or releasing, nor have they agreed to waive or release in the future, any right or claim to indemnification or reimbursement by, or damages from, the Borrower or the Servicer or any other Person under any Transaction Document, including without limitation, for any liability, obligation, loss, damage, penalty, judgment, settlement, cost, expense or disbursement resulting or arising directly or indirectly from (i) the failure of the Borrower and the Servicer to deliver the Subject Information Package to the Administrative Agent and the Lenders by the Subject Delivery Date, (ii) the INC Research Name Change or (iii) the Address Change. SECTION 3. Representations and Warranties of the Borrower and the Servicer. The Borrower and the Servicer hereby represent and warrant to each of the parties hereto as of the date hereof as follows: (a) Representations and Warranties. The representations and warranties made by it in the Receivables Financing Agreement and each of the other Transaction Documents to which it is a party are true and correct as of the date hereof. (b) Enforceability. The execution and delivery by it of this Amendment, and the performance of its obligations under this Amendment, the PSA Amendment, the DACA Amendment, the Receivables Financing Agreement (as amended hereby) and the other Transaction Documents to which it is a party are within its organizational powers and have been duly authorized by all necessary action on its part, and this Amendment, the PSA Amendment, the DACA Amendment, the Receivables Financing Agreement (as amended hereby) and the other Transaction Documents to which it is a party are (assuming due authorization and execution by the other parties thereto) its valid and legally binding obligations, enforceable in accordance with their terms, except (i) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and (ii) as such enforceability may be limited by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (c) No Event of Default. After giving effect to this Amendment, no Event of Default or Unmatured Event of Default has occurred and is continuing, or would occur as a result of this Amendment, the PSA Amendment, the DACA Amendment, or the transactions contemplated hereby or thereby. (d) Accuracy of Information. The Subject Information Package is complete and correct in all material respects on the date hereof and does not contain any material misstatement of fact or omit to state a material fact necessary to make the statements contained therein not misleading. 730860089 18569090 3


 
SECTION 4. Effect of Amendment; Ratification. All provisions of the Receivables Financing Agreement and the other Transaction Documents, as expressly amended and modified by this Amendment, shall remain in full force and effect. After this Amendment becomes effective, all references in the Receivables Financing Agreement (or in any other Transaction Document) to “this Receivables Financing Agreement”, “this Agreement”, “hereof”, “herein” or words of similar effect referring to the Receivables Financing Agreement shall be deemed to be references to the Receivables Financing Agreement as amended by this Amendment. This Amendment shall not be deemed, either expressly or impliedly, to waive, amend or supplement any provision of the Receivables Financing Agreement other than as set forth herein. The Receivables Financing Agreement, as amended by this Amendment, is hereby ratified and confirmed in all respects. SECTION 5. Effectiveness. This Amendment shall become effective as of the date hereof, subject to the conditions precedent that the Administrative Agent shall have received the following: (a) counterparts to this Amendment executed by each of the parties hereto; (b) counterparts to the PSA Amendment executed by each of the parties thereto; (c) counterparts to the Wells Fargo DACA Amendment executed by each of the parties thereto; (d) the Subject Information Package; (e) evidence of filing of the UCC-3 amendments described in Section 5 of the PSA Amendment; and (f) lien search reports with respect to Syneos Health, LLC, in its jurisdiction of organization. SECTION 6. Certain Covenants Regarding Post-Closing Conditions. (a) Secretary Certificate. On or within (5) Business Days following the date hereof, the Servicer shall deliver (or cause to be delivered) to the Administrative Agent such officer certificates as the Administrative Agent may reasonably request, including, without limitation, certified organizational documents. (b) Good Standing. On or within (5) Business Days following the date hereof, the Servicer shall deliver (or cause to be delivered) to the Administrative Agent a certificate of good standing (or similar) with respect to Syneos Health, LLC, in its jurisdiction of organization. (c) Bank of America DACA Amendment. On or within (5) Business Days following the date hereof, the Servicer shall deliver (or cause to be delivered) to the Administrative Agent counterparts to the Bank of America DACA Amendment executed by each of the parties thereto. 730860089 18569090 4


 
(d) Notwithstanding anything to the contrary set forth in this Amendment, the Agreements or any other Transaction Document, the failure of the Servicer to timely perform or cause to be performed any of the covenants under this Section 6 shall constitute an Event of Default with no grace period and revoke each of the consents provided for under Section 2 hereof. SECTION 7. Severability. Any provisions of this Amendment which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 8. Transaction Document. This Amendment shall be a Transaction Document for purposes of the Receivables Financing Agreement. SECTION 9. Counterparts. This Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery of an executed counterpart hereof by facsimile or other electronic means shall be equally effective as delivery of an originally executed counterpart. SECTION 10. GOVERNING LAW AND JURISDICTION. (a) THIS AMENDMENT, INCLUDING THE RIGHTS AND DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, BUT WITHOUT REGARD TO ANY OTHER CONFLICTS OF LAW PROVISIONS THEREOF). (b) EACH PARTY HERETO HEREBY IRREVOCABLY SUBMITS TO (I) WITH RESPECT TO THE BORROWER AND THE SERVICER, THE EXCLUSIVE JURISDICTION, AND (II) WITH RESPECT TO EACH OF THE OTHER PARTIES HERETO, THE NON-EXCLUSIVE JURISDICTION, IN EACH CASE, OF ANY NEW YORK STATE OR FEDERAL COURT SITTING IN NEW YORK CITY, NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT, AND EACH PARTY HERETO HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING (I) IF BROUGHT BY THE BORROWER, THE SERVICER OR ANY AFFILIATE THEREOF, SHALL BE HEARD AND DETERMINED, AND (II) IF BROUGHT BY ANY OTHER PARTY TO THIS AMENDMENT, MAY BE HEARD AND DETERMINED, IN EACH CASE, IN SUCH NEW YORK STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. NOTHING IN THIS SECTION 9 SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY OTHER CREDIT PARTY TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR THE SERVICER OR ANY OF THEIR RESPECTIVE PROPERTY IN THE COURTS OF OTHER JURISDICTIONS. EACH OF THE BORROWER AND THE SERVICER HEREBY IRREVOCABLY WAIVES, TO THE 730860089 18569090 5


 
FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING. THE PARTIES HERETO AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. SECTION 11. Section Headings. The various headings of this Amendment are included for convenience only and shall not affect the meaning or interpretation of this Amendment, the Receivables Financing Agreement or any provision hereof or thereof. SECTION 12. Performance Guaranty Ratification. After giving effect to this Amendment and the transactions contemplated by this Amendment, all of the provisions of the Performance Guaranty shall remain in full force and effect and the Performance Guarantor hereby ratifies and affirms the Performance Guaranty and acknowledges that the Performance Guaranty has continued and shall continue in full force and effect in accordance with its terms. [SIGNATURE PAGES FOLLOW] 730860089 18569090 6


 


 


 


 
EXHIBIT A (attached) 730860089 18569090


 
EXECUTION VERSION EXHIBIT A to FOURTH AMENDMENT, dated as of January 2, 2019 CONFORMED COPY INCLUDES FIRST AMENDMENT, dated as of August 1, 2018 SECOND AMENDMENT, dated as of August 29, 2018 THIRD AMENDMENT, dated as of October 25, 2018 EXECUTION VERSION RECEIVABLES FINANCING AGREEMENT Dated as of June 29, 2018 by and among SYNEOS HEALTH RECEIVABLES LLC, as Borrower, THE PERSONS FROM TIME TO TIME PARTY HERETO, as Lenders, PNC BANK, NATIONAL ASSOCIATION, as Administrative Agent, INC RESEARCHSYNEOS HEALTH, LLC, as initial Servicer, and PNC CAPITAL MARKETS LLC, as Structuring Agent 730866389 18569090


 
This RECEIVABLES FINANCING AGREEMENT (as amended, restated, supplemented or otherwise modified from time to time, this “Agreement”) is entered into as of June 29, 2018 by and among the following parties: (i) SYNEOS HEALTH RECEIVABLES LLC, a Delaware limited liability company, as Borrower (together with its successors and assigns, the “Borrower”); (ii) the Persons from time to time party hereto as Lenders; (iii) PNC BANK, NATIONAL ASSOCIATION (“PNC”), as Administrative Agent; (iv) INC RESEARCHSYNEOS HEALTH, LLC (f/k/a INC Research, LLC), a Delaware limited liability company, in its individual capacity (“INC ResearchSyneos Health”) and as initial Servicer (in such capacity, together with its successors and assigns in such capacity, the “Servicer”); and (v) PNC CAPITAL MARKETS LLC, a Pennsylvania limited liability company, as Structuring Agent. PRELIMINARY STATEMENTS The Borrower has acquired, and will acquire from time to time, Receivables from the Originator(s) pursuant to the Purchase and Sale Agreement. The Borrower has requested that the Lenders make Loans from time to time to the Borrower, on the terms, and subject to the conditions set forth herein, secured by, among other things, the Receivables. In consideration of the mutual agreements, provisions and covenants contained herein, the sufficiency of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): “Account Control Agreement” means each agreement, in form and substance satisfactory to the Administrative Agent, among the Borrower, the Servicer (if applicable), the Administrative Agent and a Collection Account Bank, governing the terms of the related Collection Accounts that (i) provides the Administrative Agent with control within the meaning of the UCC over the deposit accounts subject to such agreement and (ii) by its terms, may not be terminated or canceled by the related Collection Account Bank without the written consent of the Administrative Agent or upon no less than thirty (30) days prior written notice to the Administrative Agent, as the same may be amended, restated, supplemented or otherwise modified from time to time. 730866389 18569090


 
distribution and thereafter all or a portion of such distribution is rescinded or must otherwise be returned for any reason, such Capital shall be increased by the amount of such rescinded or returned distribution as though it had not been made. “Capital Stock” means, with respect to any Person, any and all common shares, preferred shares, interests, participations, rights in or other equivalents (however designated) of such Person’s capital stock, partnership interests, limited liability company interests, membership interests or other equivalent interests and any rights (other than debt securities convertible into or exchangeable for capital stock), warrants or options exchangeable for or convertible into such capital stock or other equity interests. “Change in Control” means the occurrence of any of the following: (a) INC ResearchSyneos Health ceases to own, directly, 100% of the issued and outstanding Capital Stock of the Borrower free and clear of all Adverse Claims; (b) Parent ceases to own, directly or indirectly, 100% of the issued and outstanding Capital Stock of any Originator or the Servicer; (c) any Adverse Claim should exist with respect to any Intercompany Loan Agreement or any Intercompany Loan; (d) the acquisition by any Person or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act), including any group acting for the purpose of acquiring, holding or disposing of Securities (within the meaning of Rule 13d-5(b)(1) under the Exchange Act, but excluding any employee benefit plan and/or Person acting as the trustee, agent or other fiduciary or administrator therefor), other than one or more Permitted Holders, of Capital Stock representing more than the greater of (x) 35% of the total voting power of all of the outstanding voting Capital Stock of Parent and (y) the percentage of the total voting power of all of the outstanding voting Capital Stock of Parent owned, directly or indirectly, beneficially by the Permitted Holders; or (e) the occurrence of a “change of control” (or similar event, however defined) under the Credit Agreement (or any refinancing thereof). “Change in Law” means the occurrence, after the Closing Date, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that notwithstanding anything herein to the contrary, (w) the final rule titled Risk-Based Capital Guidelines; Capital Adequacy Guidelines; Capital Maintenance: Regulatory Capital; Impact of Modifications to Generally Accepted Accounting Principles; Consolidation of Asset-Backed Commercial Paper Programs; and Other Related Issues, adopted by the United States bank regulatory agencies on December 15, 2009, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the 730866389 18569090 6


 
rating satisfies clauses (a) or (b) above; provided, further, that if the Subject Obligor Delinquency Trigger shall have occurred and be continuing and the Administrative Agent shall elect, in its sole discretion, by providing notice thereof to the Borrower, the Subject Obligor shall be deemed to be a Group D Obligor if it otherwise satisfies the definition of “Group C Obligor”. Notwithstanding the foregoing, any Obligor that is a Subsidiary of an Obligor that satisfies the definition of “Group C Obligor” shall be deemed to be a Group C Obligor and shall be aggregated with the Obligor that satisfies such definition for the purposes of determining the “Concentration Reserve Percentage”, the “Concentration Reserve” and clause (a) of the definition of “Excess Concentration” for such Obligors, unless such deemed Obligor separately satisfies the definition of “Group A Obligor”, “Group B Obligor”, or “Group C Obligor”, in which case such Obligor shall be separately treated as a Group A Obligor, a Group B Obligor or a Group C Obligor, as the case may be, and shall be aggregated and combined for such purposes with any of its Subsidiaries that are Obligors. “Group D Obligor” means any Obligor that is not a Group A Obligor, Group B Obligor or Group C Obligor; provided, that any Obligor (or its parent or majority owner, as applicable, if such Obligor is unrated) that is not rated by both Moody’s and S&P shall be a Group D Obligor. “Guaranty” means, with respect to any Person, any obligation of such Person guarantying or in effect guarantying any Debt, liability or obligation of any other Person in any manner, whether directly or indirectly, including any such liability arising by virtue of partnership agreements, including any agreement to indemnify or hold harmless any other Person, any performance bond or other suretyship arrangement and any other form of assurance against loss, except endorsement of negotiable or other instruments for deposit or collection in the ordinary course of business. “INC Research” has the meaning specified in the preamble to this Agreement. “Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of the Borrower or any of its Affiliates under any Transaction Document and (b) to the extent not otherwise described in clause (a) above, Other Taxes. “Independent Director” has the meaning set forth in Section 8.03(c). “Information Package” means a report, in substantially the form of Exhibit G. “Insolvency Proceeding” means (a) any case, action or proceeding before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors or (b) any general assignment for the benefit of creditors of a Person, composition, marshaling of assets for creditors of a Person, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors, in each of clauses (a) and (b) undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code. “Intercompany Loan” has the meaning set forth in the Purchase and Sale Agreement. 730866389 18569090 19


 
“Subsidiary” means, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock of each class or other interests having ordinary voting power (other than stock or other interests having such power only by reason of the happening of a contingency) to elect a majority of the Board of Directors or other managers of such entity are at the time owned, or management of which is otherwise controlled: (a) by such Person, (b) by one or more Subsidiaries of such Person or (c) by such Person and one or more Subsidiaries of such Person. “Syneos Health” has the meaning specified in the preamble to this Agreement. “Syneos Party” means the Borrower, the Servicer, the Performance Guarantor and each Originator. “Taxes” means any and all present or future taxes, levies, imposts, duties, deductions, charges, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority and all interest, penalties, additions to tax and any similar liabilities with respect thereto. “Termination Date” means the earliest to occur of (a) the Scheduled Termination Date, (b) the date on which the “Termination Date” is declared or deemed to have occurred under Section 10.01, (c) the occurrence of a Purchase and Sale Termination Event under the Purchase and Sale Agreement, (d) the date selected by the Borrower on which all Commitments have been reduced to zero pursuant to Section 2.02(e) or (e) the date (if any) on which the Borrower, the Servicer or any Originator delivers to the Administrative Agent a written notice that the Borrower is unable to pay the “Purchase Price” (as defined in the Purchase and Sale Agreement) for Receivables and Related Rights pursuant to Section 3.2 of the Purchase and Sale Agreement. “Third Amendment Closing Date” means October 25, 2018. “Third Amendment Commencement Date” means the date elected by the Borrower as the “Third Amendment Commencement Date” in a written notice provided by the Borrower (or the Servicer on its behalf) to the Administrative Agent; provided, that such date may not occur more than 180 days following the Third Amendment Closing Date and any election following such date shall be null and void; provided, further, that neither the Borrower nor the Servicer on its behalf shall provide any notice of the election of the “Third Amendment Commencement Date” until such time as the Borrower (or the Servicer on its behalf) has provided such historical Receivables performance data as may be reasonably requested by the Administrative Agent on or prior to the Third Amendment Closing Date. “THL” means Thomas H. Lee Partners, L.P. and its Affiliates. “Threshold Amount” means $150,000,000. “Total Reserves” means, at any time of determination, an amount equal to the product of (i) the sum of: (a) the Yield Reserve Percentage, plus (b) the greater of (I) the sum of the Concentration Reserve Percentage, plus the Minimum Dilution Reserve Percentage and (II) the sum of the Loss Reserve Percentage, plus the Dilution Reserve Percentage, times (ii) the Net Receivables Pool Balance at such time. 730866389 18569090 30


 
accounts to which the Servicer, the Parent, the Performance Guarantor, the Originators or any Affiliate thereof (other than the Servicer solely in its capacity as such) has independent access. The Borrower is not named, and has not entered into any agreement to be named, directly or indirectly, as a direct or contingent beneficiary or loss payee on any insurance policy with respect to any loss relating to the property of the Servicer, the Parent, the Performance Guarantor, the Originators or any Subsidiaries or other Affiliates thereof. The Borrower will pay to the appropriate Affiliate the marginal increase or, in the absence of such increase, the market amount of its portion of the premium payable with respect to any insurance policy that covers the Borrower and such Affiliate. (n) Arm’s-Length Relationships. The Borrower will maintain arm’s-length relationships with the Servicer, the Parent, the Performance Guarantor, the Originators and any Affiliates thereof. Any Person that renders or otherwise furnishes services to the Borrower will be compensated by the Borrower at market rates for such services it renders or otherwise furnishes to the Borrower. Neither the Borrower on the one hand, nor the Servicer, the Parent, the Performance Guarantor, any Originator or any Affiliate thereof, on the other hand, will be or will hold itself out to be responsible for the debts of the other or the decisions or actions respecting the daily business and affairs of the other. The Borrower, the Servicer, the Parent, the Performance Guarantor, the Originators and their respective Affiliates will promptly correct any known misrepresentation with respect to the foregoing, and they will not operate or purport to operate as an integrated single economic unit with respect to each other or in their dealing with any other entity. (o) Allocation of Overhead. To the extent that Borrower, on the one hand, and the Servicer, the Parent, the Performance Guarantor, any Originator or any Affiliate thereof, on the other hand, have offices in the same location, there shall be a fair and appropriate allocation of overhead costs between them, and the Borrower shall bear its fair share of such expenses, which may be paid through the Servicing Fee or otherwise. ARTICLE IX ADMINISTRATION AND COLLECTION OF RECEIVABLES SECTION 9.01. Appointment of the Servicer. (a) The servicing, administering and collection of the Pool Receivables shall be conducted by the Person so designated from time to time as the Servicer in accordance with this Section 9.01. Until the Administrative Agent gives notice to INC ResearchSyneos Health (in accordance with this Section 9.01) of the designation of a new Servicer, INC ResearchSyneos Health is hereby designated as, and hereby agrees to perform the duties and obligations of, the Servicer pursuant to the terms hereof. Upon the occurrence of an Event of Default, the Administrative Agent may (with the consent of the Majority Lenders) and shall (at the direction of the Majority Lenders) designate as Servicer any Person (including itself) to succeed INC ResearchSyneos Health or any successor Servicer, on the condition in each case that any such Person so designated shall agree to perform the duties and obligations of the Servicer pursuant to the terms hereof. 730866389 18569090 77


 
(b) Upon the designation of a successor Servicer as set forth in clause (a) above, INC ResearchSyneos Health agrees that it will terminate its activities as Servicer hereunder in a manner that the Administrative Agent reasonably determines will facilitate the transition of the performance of such activities to the new Servicer, and INC ResearchSyneos Health shall cooperate with and assist such new Servicer. Such cooperation shall include access to and transfer of records (including all Contracts) related to Pool Receivables and use by the new Servicer of all licenses (or the obtaining of new licenses), hardware or software necessary or reasonably desirable to collect the Pool Receivables and the Related Security. (c) INC ResearchSyneos Health acknowledges that, in making its decision to execute and deliver this Agreement, the Administrative Agent and each Lender have relied on Syneos’s agreement to act as Servicer hereunder. Accordingly, INC ResearchSyneos Health agrees that it will not voluntarily resign as Servicer without the prior written consent of the Administrative Agent and the Majority Lenders. (d) The Servicer may delegate its duties and obligations hereunder to any subservicer (each a “Sub-Servicer”); provided, that, in each such delegation: (i) such Sub-Servicer shall agree in writing to perform the delegated duties and obligations of the Servicer pursuant to the terms hereof, (ii) the Servicer shall remain liable for the performance of the duties and obligations so delegated, (iii) the Borrower, the Administrative Agent and each Lender shall have the right to look solely to the Servicer for performance, (iv) the terms of any agreement with any Sub-Servicer shall provide that the Administrative Agent may terminate such agreement upon the termination of the Servicer hereunder by giving notice of its desire to terminate such agreement to the Servicer (and the Servicer shall provide appropriate notice to each such Sub-Servicer) and (v) if such Sub-Servicer is not an Affiliate of the Parent, the Administrative Agent and the Majority Lenders shall have consented in writing in advance to such delegation. SECTION 9.02. Duties of the Servicer. (a) The Servicer shall take or cause to be taken all such action as may be necessary or reasonably advisable to service, administer and collect each Pool Receivable from time to time, all in accordance with this Agreement and all Applicable Laws, with reasonable care and diligence, and in accordance with the Credit and Collection Policy and consistent with the past practices of the Originators. The Servicer shall set aside, for the accounts of each Credit Party, the amount of Collections to which each such Credit Party is entitled in accordance with Article IV hereof. The Servicer may, in accordance with the Credit and Collection Policy and consistent with past practices of the Originators, take such action, including modifications, waivers or restructurings of Pool Receivables and related Contracts, as the Servicer may reasonably determine to be appropriate to maximize Collections thereof or reflect adjustments expressly permitted under the Credit and Collection Policy or as expressly required under Applicable Laws or the applicable Contract; provided, that for purposes of this Agreement: (i) such action shall not, and shall not be deemed to, change the number of days such Pool Receivable has remained unpaid from the date of the original due date related to such Pool Receivable, (ii) such action shall not alter the status of such Pool Receivable as a Delinquent Receivable or a Defaulted Receivable or limit the rights of any Secured Party under this Agreement or any other Transaction Document and (iii) if an Event of Default has occurred and 730866389 18569090 78


 
is continuing, the Servicer may take such action only upon the prior written consent of the Administrative Agent. The Borrower shall deliver to the Servicer and the Servicer shall hold for the benefit of the Administrative Agent (individually and for the benefit of each Credit Party), in accordance with their respective interests, all records and documents (including computer tapes or disks) with respect to each Pool Receivable. The Servicer shall, as soon as practicable following actual receipt of collected funds, turn over to the Borrower the collections of any indebtedness that is not a Pool Receivable, less, if INC ResearchSyneos Health or an Affiliate thereof is not the Servicer, all reasonable and appropriate out-of-pocket costs and expenses of such Servicer of servicing, collecting and administering such collections. The Servicer, if other than INC ResearchSyneos Health or an Affiliate thereof, shall, as soon as practicable upon demand, deliver to the Borrower all records in its possession that evidence or relate to any indebtedness that is not a Pool Receivable, and copies of records in its possession that evidence or relate to any indebtedness that is a Pool Receivable. Notwithstanding anything to the contrary contained herein, if an Event of Default has occurred and is continuing, the Administrative Agent may direct the Servicer to commence or settle any legal action to enforce collection of any Pool Receivable that is a Defaulted Receivable or to foreclose upon or repossess any Related Security with respect to any such Defaulted Receivable. (b) The Servicer’s obligations hereunder shall terminate on the Final Payout Date. Promptly following the Final Payout Date, the Servicer shall deliver to the Borrower all books, records and related materials that the Borrower previously provided to the Servicer, or that have been obtained by the Servicer, in connection with this Agreement. SECTION 9.03. Collection Account Arrangements. Prior to the Closing Date, the Borrower shall have entered into Account Control Agreements with all of the Collection Account Banks and delivered executed counterparts of each to the Administrative Agent. Upon the occurrence and during the continuance of an Unmatured Event of Default or an Event of Default, the Administrative Agent may (with the consent of the Majority Lenders) and shall (upon the direction of the Majority Lenders) at any time thereafter give notice to each Collection Account Bank that the Administrative Agent is exercising its rights under the Account Control Agreements to do any or all of the following: (a) to have the exclusive dominion and control of the Collection Accounts transferred to the Administrative Agent (for the benefit of the Secured Parties) and to exercise exclusive dominion and control over the funds deposited therein (for the benefit of the Secured Parties), (b) to have the proceeds that are sent to the respective Collection Accounts redirected pursuant to the Administrative Agent’s instructions rather than deposited in the applicable Collection Account and (c) to take any or all other actions permitted under the applicable Account Control Agreement. The Borrower hereby agrees that if the Administrative Agent at any time takes any action set forth in the preceding sentence, the Administrative Agent shall have exclusive control (for the benefit of the Secured Parties) of the proceeds (including Collections) of all Pool Receivables and the Borrower hereby further agrees to take any other action that the Administrative Agent may reasonably request to transfer such control. Any proceeds of Pool Receivables received by the Borrower or the Servicer thereafter shall be sent immediately to, or as otherwise instructed by, the Administrative Agent. 730866389 18569090 79


 
with full power of substitution and with full authority in the place and stead of the Borrower, which appointment is coupled with an interest, to take any and all steps in the name of the Borrower and on behalf of the Borrower necessary or desirable, in the reasonable determination of the Administrative Agent, after the occurrence and during the continuation of an Event of Default, to collect any and all amounts or portions thereof due under any and all Collateral, including endorsing the name of the Borrower on checks and other instruments representing Collections and enforcing such Collateral. Notwithstanding anything to the contrary contained in this subsection, none of the powers conferred upon such attorney-in-fact pursuant to the preceding sentence shall subject such attorney-in-fact to any liability if any action taken by it shall prove to be inadequate or invalid, nor shall they confer any obligations upon such attorney-in-fact in any manner whatsoever. (c) The Servicer hereby authorizes the Administrative Agent (on behalf of the Secured Parties), and irrevocably appoints the Administrative Agent as its attorney-in-fact with full power of substitution and with full authority in the place and stead of the Servicer, which appointment is coupled with an interest, to take any and all steps in the name of the Servicer and on behalf of the Servicer necessary or desirable, in the reasonable determination of the Administrative Agent, after the occurrence and during the continuation of an Event of Default, to collect any and all amounts or portions thereof due under any and all Collateral, including endorsing the name of the Servicer on checks and other instruments representing Collections and enforcing such Collateral. Notwithstanding anything to the contrary contained in this subsection, none of the powers conferred upon such attorney-in-fact pursuant to the preceding sentence shall subject such attorney-in-fact to any liability if any action taken by it shall prove to be inadequate or invalid, nor shall they confer any obligations upon such attorney-in-fact in any manner whatsoever. SECTION 9.05. Responsibilities of the Borrower. (a) Anything herein to the contrary notwithstanding, the Borrower shall: pay when due any taxes, including any sales taxes payable in connection with the Pool Receivables and their creation and satisfaction. None of the Credit Parties shall have any obligation or liability with respect to any Collateral, nor shall any of them be obligated to perform any of the obligations of the Borrower, the Servicer or any Originator thereunder. (b) INC ResearchSyneos Health hereby irrevocably agrees that if at any time it shall cease to be the Servicer hereunder, it shall act (if the then-current Servicer so requests) as the data-processing agent of the Servicer and, in such capacity, INC ResearchSyneos Health shall conduct the data-processing functions of the administration of the Receivables and the Collections thereon in substantially the same way that INC ResearchSyneos Health conducted such data-processing functions while it acted as the Servicer. In connection with any such processing functions, the Borrower shall pay to INC ResearchSyneos Health its reasonable out-of-pocket costs and expenses from the Borrower’s own funds (subject to the priority of payments set forth in Section 4.01). 730866389 18569090 81


 
SECTION 9.06. Servicing Fee. (a) Subject to clause (b) below, the Borrower shall pay the Servicer a fee (the “Servicing Fee”) equal to 1.00% per annum (the “Servicing Fee Rate”) of the daily average aggregate Outstanding Balance of the Pool Receivables. Accrued Servicing Fees shall be payable from Collections to the extent of available funds in accordance with Section 4.01. (b) If the Servicer ceases to be INC ResearchSyneos Health or an Affiliate thereof, the Servicing Fee shall be the greater of: (i) the amount calculated pursuant to clause (a) above and (ii) an alternative amount specified by the successor Servicer not to exceed 110% of the aggregate reasonable costs and expenses incurred by such successor Servicer in connection with the performance of its obligations as Servicer hereunder. ARTICLE X EVENTS OF DEFAULT SECTION 10.01. Events of Default. If any of the following events (each an “Event of Default”) shall occur: (a) (i) the Borrower, any Originator, the Performance Guarantor or the Servicer shall fail to perform or observe any term, covenant or agreement under this Agreement or any other Transaction Document (other than any such failure which would constitute an Event of Default under clause (ii) or (iii) of this paragraph (a)), and such failure, solely to the extent capable of cure, shall continue for ten (10) Business Days, (ii) the Borrower, any Originator, the Performance Guarantor or the Servicer shall fail to make when due (x) any payment or deposit to be made by it under this Agreement or any other Transaction Document and such failure shall continue unremedied for two (2) Business Days or (iii) INC ResearchSyneos Health shall resign as Servicer, and no successor Servicer reasonably satisfactory to the Administrative Agent shall have been appointed; (b) any representation or warranty made or deemed made by the Borrower, any Originator, the Performance Guarantor or the Servicer (or any of their respective officers) under or in connection with this Agreement or any other Transaction Document or any information or report delivered by the Borrower, any Originator, the Performance Guarantor or the Servicer pursuant to this Agreement or any other Transaction Document, shall prove to have been incorrect or untrue in any material respect when made or deemed made or delivered; (c) the Borrower or the Servicer shall fail to deliver an Information Package or Interim Report at the time required pursuant to this Agreement, and such failure shall remain unremedied for two (2) Business Days; (d) this Agreement or any security interest granted pursuant to this Agreement or any other Transaction Document shall for any reason cease to create, or for any reason cease to be, a valid and enforceable first priority perfected security interest in favor of the Administrative Agent with respect to the Collateral, free and clear of any Adverse Claim (other than a Permitted Adverse Claim); 730866389 18569090 82


 
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. SYNEOS HEALTH RECEIVABLES LLC By: Name: Title: INC RESEARCHSYNEOS HEALTH, LLC, as the Servicer By: Name: Title: 730866389 18569090 S- 1 Receivables Financing Agreement


 
EXHIBIT A Form of Loan Request [Letterhead of Borrower] [Date] [Administrative Agent] [Lenders] Re: Loan Request Ladies and Gentlemen: Reference is hereby made to that certain Receivables Financing Agreement, dated as of June 29, 2018 among Syneos Health Receivables LLC (the “Borrower”), INC ResearchSyneos Health, LLC, as Servicer (the “Servicer”), the Lenders party thereto, PNC Bank, National Association, as Administrative Agent (in such capacity, the “Administrative Agent”) and PNC Capital Markets LLC, as Structuring Agent (as amended, supplemented or otherwise modified from time to time, the “Agreement”). Capitalized terms used in this Loan Request and not otherwise defined herein shall have the meanings assigned thereto in the Agreement. This letter constitutes a Loan Request pursuant to Section 2.02(a) of the Agreement. The Borrower hereby request a Loan in the aggregate amount of [$_______] to be made on [_____, 20__] (of which $[___] will be funded by PNC and $[___] will be funded by [___]). [The Borrower hereby requests that such Loan bear interest initially at Adjusted LIBOR for a Tranche Period of [one, two, three, six] months.]1 The proceeds of such Loan should be deposited to [Account number], at [Name, Address and ABA Number of Bank]. After giving effect to such Loan, the Aggregate Capital will be [$_______]. The Borrower hereby represents and warrants as of the date hereof, and after giving effect to such Credit Extension, as follows: (i) the representations and warranties of the Borrower and the Servicer contained in Sections 7.01 and 7.02 of the Agreement are true and correct in all material respects on and as of the date of such Credit Extension as though made on and as of such date unless such representations and warranties by their terms refer to an earlier date, in which case they shall be true and correct in all material respects on and as of such earlier date; (ii) no Event of Default or Unmatured Event of Default has occurred and is continuing, and no Event of Default or Unmatured Event of Default would result from such Credit Extension; 1 Applicable solely to the extent that the Loan is made on a Monthly Settlement Date. 730866389 18569090 Exhibit A- 1


 
EXHIBIT B Form of Reduction Notice [LETTERHEAD OF BORROWER] [Date] [Administrative Agent] [Lenders] Re: Reduction Notice Ladies and Gentlemen: Reference is hereby made to that certain Receivables Financing Agreement, dated as of June 29, 2018 among Syneos Health Receivables LLC, as borrower (the “Borrower”), INC ResearchSyneos Health, LLC, as Servicer (the “Servicer”), the Lenders party thereto, PNC Bank, National Association, as Administrative Agent (in such capacity, the “Administrative Agent”) and PNC Capital Markets LLC, as Structuring Agent (as amended, supplemented or otherwise modified from time to time, the “Agreement”). Capitalized terms used in this Reduction Notice and not otherwise defined herein shall have the meanings assigned thereto in the Agreement. This letter constitutes a Reduction Notice pursuant to Section 2.02(d) of the Agreement. The Borrower hereby notifies the Administrative Agent and the Lenders that it shall prepay the outstanding Capital of the Lenders in the amount of [$_______] to be made on [_____, 201_]. After giving effect to such prepayment, the Aggregate Capital will be [$_______]. The Borrower hereby represents and warrants as of the date hereof, and after giving effect to such reduction, as follows: (i) the representations and warranties of the Borrower and the Servicer contained in Sections 7.01 and 7.02 of the Agreement are true and correct in all material respects on and as of the date of such prepayment as though made on and as of such date unless such representations and warranties by their terms refer to an earlier date, in which case they shall be true and correct in all material respects on and as of such earlier date; (ii) no Event of Default or Unmatured Event of Default has occurred and is continuing, and no Event of Default or Unmatured Event of Default would result from such prepayment; (iii) no Borrowing Base Deficit exists or would exist after giving effect to such prepayment; (iv) the Termination Date has not occurred; and Exhibit C- 1 730866389 18569090


 
EXHIBIT C [Form of Assignment and Acceptance Agreement] Dated as of ___________, 20__ Section 1. Commitment assigned: $[_____] Assignor’s remaining Commitment: $[_____] Capital allocable to Commitment assigned: $[_____] Assignor’s remaining Capital: $[_____] Interest (if any) allocable to Capital assigned: $[_____] Interest (if any) allocable to Assignor’s remaining Capital: $[_____] Section 2. Effective Date of this Assignment and Acceptance Agreement: [__________] Upon execution and delivery of this Assignment and Acceptance Agreement by the assignee and the assignor and the satisfaction of the other conditions to assignment specified in Section 14.03(a) of the Agreement (as defined below), from and after the effective date specified above, the assignee shall become a party to, and, to the extent of the rights and obligations thereunder being assigned to it pursuant to this Assignment and Acceptance Agreement, shall have the rights and obligations of a Lender under that certain Receivables Financing Agreement, dated as of June 29, 2018 among Syneos Health Receivables LLC, INC ResearchSyneos Health, LLC, as Servicer, the Lenders party thereto, PNC Bank, National Association, as Administrative Agent and PNC Capital Markets LLC, as Structuring Agent (as amended, supplemented or otherwise modified from time to time, the “Agreement”). (Signature Pages Follow) Exhibit C- 1 730866389 18569090


 
EXHIBIT H Form of Compliance Certificate To: PNC Bank, National Association, as Administrative Agent This Compliance Certificate is furnished pursuant to that certain Receivables Financing Agreement, dated as of June 29, 2018 among Syneos Health Receivables LLC (the “Borrower”), INC ResearchSyneos Health, LLC, as Servicer (the “Servicer”), the Lenders party thereto, PNC Bank, National Association, as Administrative Agent (in such capacity, the “Administrative Agent”) and PNC Capital Markets LLC, as Structuring Agent (as amended, supplemented or otherwise modified from time to time, the “Agreement”). Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Agreement. THE UNDERSIGNED HEREBY CERTIFIES THAT: 1. I am the duly elected ________________of the Servicer and am delivering this certificate in such capacity as ______________ of the Servicer and not in my individual capacity. 2. I have reviewed the terms of the Agreement and each of the other Transaction Documents and I have made, or have caused to be made under my supervision, a detailed review of the transactions and condition of the Borrower during the accounting period covered by the attached financial statements. 3. The examinations described in paragraph 2 above did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes an Event of Default or an Unmatured Event of Default, as each such term is defined under the Agreement, during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate[, except as set forth in paragraph 5 below]. 4. Schedule I attached hereto sets forth financial statements of Parent and its Subsidiaries for the period referenced on such Schedule I. [5. Described below are the exceptions, if any, to paragraph 3 above by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which Borrower has taken, is taking, or proposes to take with respect to each such condition or event:] Exhibit H- 1 730866389 18569090


 
SCHEDULE III Notice Addresses (A) in the case of the Borrower, at the following address: Syneos Health Receivables LLC c/o Syneos Health, Inc. 3201 Beechleaf Court, Suite 600 1030 Sync Street Raleigh, NC 27604Morrisville, NC 27560 Attention: General Counsel with a copy to: c/o Syneos Health, Inc. 3201 Beechleaf Court, Suite 600 1030 Sync Street Raleigh, NC 27604Morrisville, NC 27560 Attention: General Counsel (B) in the case of the Servicer, at the following address: INC ResearchSyneos Health, LLC c/o Syneos Health, Inc. 3201 Beechleaf Court, Suite 600 1030 Sync Street Raleigh, NC 27604Morrisville, NC 27560 Attention: General Counsel (C) in the case of the Administrative Agent, at the following address: PNC Bank, National Association 300 Fifth Avenue Pittsburgh, PA 15222 Telephone: (412) 768-3090 Facsimile: (412) 762-9184 Attention: Robyn Reeher (D) in the case of any other Person, at the address for such Person specified in the other Transaction Documents; in each case, or at such other address as shall be designated by such Person in a written notice to the other parties to this Agreement. Schedule III- 1 730866389 18569090


 
EX-10.2 3 fifthamendmenttotherecei.htm EXHIBIT 10.2 fifthamendmenttotherecei
EXECUTION VERSION FIFTH AMENDMENT TO THE RECEIVABLES FINANCING AGREEMENT This FIFTH AMENDMENT TO THE RECEIVABLES FINANCING AGREEMENT (this “Amendment”), dated as of July 25, 2019, is entered into by and among the following parties: (i) SYNEOS HEALTH RECEIVABLES LLC, as Borrower; (ii) SYNEOS HEALTH, LLC (f/k/a INC RESEARCH, LLC), as initial Servicer; and (iii) PNC BANK, NATIONAL ASSOCIATION (“PNC”), as Administrative Agent and as Lender. Capitalized terms used but not otherwise defined herein (including such terms used above) have the respective meanings assigned thereto in the Receivables Financing Agreement described below. BACKGROUND A. The parties hereto have entered into a Receivables Financing Agreement, dated as of June 29, 2018 (as amended, restated, supplemented or otherwise modified through the date hereof, the “Receivables Financing Agreement”). B. Concurrently herewith, the Borrower, as buyer, the Servicer, as servicer and as an originator, and inVentiv Health Clinical, LLC as an originator, are entering into that certain Second Amendment to the Purchase and Sale Agreement, dated as of the date hereof (the “PSA Amendment”). C. Concurrently herewith, the Borrower, the Servicer, the Administrative Agent and Bank of America, N.A. are entering into that certain Second Amendment to the Deposit Account Control Agreement, dated as of the date hereof (the “DACA Amendment” and, together with the PSA Amendment, the “Related Agreements”). D. The parties hereto desire to amend the Receivables Financing Agreement as set forth herein. NOW THEREFORE, with the intention of being legally bound hereby, and in consideration of the mutual undertakings expressed herein, each party to this Amendment hereby agrees as follows: SECTION 1. Amendment to the Receivables Financing Agreement. Schedule II to the Receivables Financing Agreement is hereby replaced in its entirety with Schedule II hereto. SECTION 2. Representations and Warranties of the Borrower and the Servicer. The Borrower and the Servicer hereby represent and warrant to each of the parties hereto as of the date hereof as follows: 732469369 18569090


 
(a) Representations and Warranties. The representations and warranties made by it in the Receivables Financing Agreement and each of the other Transaction Documents to which it is a party are true and correct as of the date hereof. (b) Enforceability. The execution and delivery by it of this Amendment, and the performance of its obligations under this Amendment, the Related Agreements, the Receivables Financing Agreement (as amended hereby) and the other Transaction Documents to which it is a party are within its organizational powers and have been duly authorized by all necessary action on its part, and this Amendment, the Related Agreements, the Receivables Financing Agreement (as amended hereby) and the other Transaction Documents to which it is a party are (assuming due authorization and execution by the other parties thereto) its valid and legally binding obligations, enforceable in accordance with their terms, except (i) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and (ii) as such enforceability may be limited by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (c) No Event of Default. After giving effect to this Amendment, no Event of Default or Unmatured Event of Default has occurred and is continuing, or would occur as a result of this Amendment, the Related Agreements, or the transactions contemplated hereby or thereby. SECTION 3. Effect of Amendment; Ratification. All provisions of the Receivables Financing Agreement and the other Transaction Documents, as expressly amended and modified by this Amendment, shall remain in full force and effect. After this Amendment becomes effective, all references in the Receivables Financing Agreement (or in any other Transaction Document) to “this Receivables Financing Agreement”, “this Agreement”, “hereof”, “herein” or words of similar effect referring to the Receivables Financing Agreement shall be deemed to be references to the Receivables Financing Agreement as amended by this Amendment. This Amendment shall not be deemed, either expressly or impliedly, to waive, amend or supplement any provision of the Receivables Financing Agreement other than as set forth herein. The Receivables Financing Agreement, as amended by this Amendment, is hereby ratified and confirmed in all respects. SECTION 4. Effectiveness. This Amendment shall become effective as of the date hereof, subject to the conditions precedent that the Administrative Agent shall have received the following: (a) counterparts to this Amendment executed by each of the parties hereto; and (b) such other agreements, documents, instruments, UCC financing statements, secretary certificates, lien searches and opinions listed on Annex A hereto or otherwise as the Administrative Agent may reasonably request prior to the date hereof. 732469369 18569090 2


 
SECTION 5. Severability. Any provisions of this Amendment which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 6. Transaction Document. This Amendment shall be a Transaction Document for purposes of the Receivables Financing Agreement. SECTION 7. Counterparts. This Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery of an executed counterpart hereof by facsimile or other electronic means shall be equally effective as delivery of an originally executed counterpart. SECTION 8. GOVERNING LAW AND JURISDICTION. (a) THIS AMENDMENT, INCLUDING THE RIGHTS AND DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, BUT WITHOUT REGARD TO ANY OTHER CONFLICTS OF LAW PROVISIONS THEREOF). (b) EACH PARTY HERETO HEREBY IRREVOCABLY SUBMITS TO (I) WITH RESPECT TO THE BORROWER AND THE SERVICER, THE EXCLUSIVE JURISDICTION, AND (II) WITH RESPECT TO EACH OF THE OTHER PARTIES HERETO, THE NON-EXCLUSIVE JURISDICTION, IN EACH CASE, OF ANY NEW YORK STATE OR FEDERAL COURT SITTING IN NEW YORK CITY, NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT, AND EACH PARTY HERETO HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING (I) IF BROUGHT BY THE BORROWER, THE SERVICER OR ANY AFFILIATE THEREOF, SHALL BE HEARD AND DETERMINED, AND (II) IF BROUGHT BY ANY OTHER PARTY TO THIS AMENDMENT, MAY BE HEARD AND DETERMINED, IN EACH CASE, IN SUCH NEW YORK STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. NOTHING IN THIS SECTION 9 SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY OTHER CREDIT PARTY TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR THE SERVICER OR ANY OF THEIR RESPECTIVE PROPERTY IN THE COURTS OF OTHER JURISDICTIONS. EACH OF THE BORROWER AND THE SERVICER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING. THE PARTIES HERETO AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. 732469369 18569090 3


 
SECTION 9. Section Headings. The various headings of this Amendment are included for convenience only and shall not affect the meaning or interpretation of this Amendment, the Receivables Financing Agreement or any provision hereof or thereof. SECTION 10. Performance Guaranty Ratification. After giving effect to this Amendment and the transactions contemplated by this Amendment, all of the provisions of the Performance Guaranty shall remain in full force and effect and the Performance Guarantor hereby ratifies and affirms the Performance Guaranty and acknowledges that the Performance Guaranty has continued and shall continue in full force and effect in accordance with its terms. [SIGNATURE PAGES FOLLOW] 732469369 18569090 4


 


 


 


 


 
SCHEDULE II Lock-Boxes, Collection Accounts and Collection Account Banks Collection Account Bank Collection Account Number Associated Lock-Box (if any) Bank of America, N.A. 381029027657 415914 Bank of America, N.A. 009429395130 N/A Wells Fargo Bank, National Association 2000032370308 N/A Wells Fargo Bank, National N/A Association 2000032370324 732469369 18569090


 
Annex A (attached) 732469369 18569090


 
SYNEOS HEALTH, LLC (f/k/a INC RESEARCH, LLC) PNC BANK, NATIONAL ASSOCIATION CLOSING MEMORANDUM FOR JOINDER OF ORIGINATOR TO TRADE RECEIVABLES SECURITIZATION PROGRAM For July 25, 2019 Closing Parties and Abbreviations: Administrative Agent PNC BofA Bank of America, N.A. Borrower Syneos Health Receivables LLC, a newly formed Delaware limited liability company structured as a typical bankruptcy-remote special purpose entity with at least one independent director Collection Account Banks Wells and BofA Existing Originators Syneos Health and InVentiv Independent Director Kristine E. Eppes inVentiv inVentiv Health Clinical, LLC, a Delaware limited liability company Lender PNC Joining Originator inVentiv Commercial Services, LLC, New Jersey limited liability company JPM JPMorgan Chase Bank, N.A. MB Mayer Brown LLP, special counsel to Administrative Agent Originators Existing Originators and Joining Originator Performance Guarantor Syneos PNC PNC Bank, National Association Servicer Syneos Health Syneos Syneos Health, Inc., a Delaware corporation Syneos Counsel Wyrick Robbins Yates & Ponton LLP, counsel to the Syneos Parties Syneos Health Syneos Health, LLC (f/k/a/ INC Research, LLC), a Delaware limited liability company Syneos Parties Each of the Servicer, the Originators, the Borrower and the Performance Guarantor Structuring Agent PNC Capital Markets LLC 733104979 18569090


 
A. BASIC DOCUMENTS 1. Fifth Amendment to Receivables Financing Agreement 2. Second Amendment to Purchase and Sale Agreement (“PSA”) 3. Amendment No. 2 to Deposit Account Control Agreement (note: collection accounts will be assigned to the Borrower on the books and records of the Collection Account Bank such that the Borrower will be the “owner” and “customer of the bank” with respect to those accounts) 4. Intercompany Loan Agreement for the Joining Originator B. UNIFORM COMMERCIAL CODE FILING DOCUMENTATION 5. UCC, tax, ERISA, bankruptcy and judgment lien searches against the Joining Originator in the State in which the Joining Originator is organized or incorporated (as well as tax, ERISA, bankruptcy and judgment searches at the Joining Originator’s chief executive office) 6. UCC-1 Financing Statements naming the Joining Originator as debtor/seller, Borrower as buyer/assignor, and the Administrative Agent as secured party/assignee, for filing with the Secretary of State of the State of New Jersey 7. Amended and Restated Lien Release Letter (JPM) 8. UCC-3 filing regarding UCC-1 filing by JPM against Joining Originator C. LEGAL OPINIONS 9. Opinion of counsel to the Joining Originator, Syneos Health and the Borrower re: general corporate matters, enforceability, no-conflicts with organizational documents, material agreements, New York and Federal law, ’40 Act, Volcker Rule and UCC security interest and perfection matters 10. Opinion of counsel to the Joining Originator and the Borrower re: true sale matters 11. Opinion of counsel to the Joining Originator and the Borrower re: substantive consolidation matters 12. Back-Up Officers’ Certificates as applicable to support the foregoing opinions, including Certificate regarding material agreements D. DOCUMENTATION AS TO AUTHORITY, INCUMBENCY AND OTHER MATTERS WITH RESPECT TO SYNEOS HEALTH, BORROWER AND THE JOINING ORIGINATOR 13. Officer’s Certificate of Syneos Health a. Authorizing Resolutions b. Certificate of Formation c. Limited Liability Company Agreement d. Incumbency and signatures 14. Officer’s Certificate of the Joining Originator a. Authorizing Resolutions b. Certificate of Formation c. Limited Liability Company Agreement d. Incumbency and signatures 2 733104979 18569090


 
15. Officer’s Certificate of Borrower a. Authorizing Resolutions b. Certificate of Formation c. Amended and Restated Limited Liability Company Agreement d. Incumbency and signatures 16. Good Standing Certificate of Syneos from the State of Delaware 17. Good Standing Certificate of Joining Originator from the State of New Jersey 18. Good Standing Certificate of Borrower from the State of Delaware C. MISCELLANEOUS 19. Pro Forma Information Package 20. IRS Form W-9 3 733104979 18569090


 
EX-31.1 4 exhibit311section302ce.htm EXHIBIT 31.1 Exhibit


Exhibit 31.1
CERTIFICATIONS
I, Alistair Macdonald, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Syneos Health, Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 5, 2019
 
 
/s/ Alistair Macdonald
Alistair Macdonald
Chief Executive Officer
(Principal Executive Officer)



EX-31.2 5 exhibit312section302cf.htm EXHIBIT 31.2 Exhibit


Exhibit 31.2
CERTIFICATIONS
I, Jason Meggs, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Syneos Health, Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 5, 2019
 
 
/s/ Jason Meggs
Jason Meggs
Chief Financial Officer
(Principal Financial Officer)



EX-32.1 6 exhibit321section906ce.htm EXHIBIT 32.1 Exhibit


Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Alistair Macdonald, Chief Executive Officer of Syneos Health, Inc. (the “registrant”), do hereby certify, that to the best of my knowledge:
1. The registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2019, (the “Report”), to which this Certification is attached as Exhibit 32.1, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.

Date: August 5, 2019
 
 
/s/ Alistair Macdonald
Alistair Macdonald
Chief Executive Officer
(Principal Executive Officer)

This certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be incorporated by reference into any filing of the registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of the Report, irrespective of any general incorporation language contained in such filing.

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.




EX-32.2 7 exhibit322section906cf.htm EXHIBIT 32.2 Exhibit


Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Jason Meggs, Chief Financial Officer of Syneos Health, Inc. (the “registrant”), do hereby certify, that to the best of my knowledge:
1. The registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2019 (the “Report”), to which this Certification is attached as Exhibit 32.1, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.
 
Date: August 5, 2019
 
 
/s/ Jason Meggs
Jason Meggs
Chief Financial Officer
(Principal Financial Officer)

This certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be incorporated by reference into any filing of the registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of the Report, irrespective of any general incorporation language contained in such filing.

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.




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Operating income (loss) Share-based compensation expense Share-based Payment Arrangement, Expense Transaction and integration-related expenses Depreciation and amortization Depreciation, Amortization and Accretion, Net Operating cash flows for operating leases Operating Lease, Payments Operating cash flows for finance leases Finance Lease, Interest Payment on Liability Financing cash flows for finance leases Right-of-Use Asset Obtained in Exchange for Operating leases Right-of-Use Asset Obtained in Exchange for Operating Lease Liability Right-of-Use Asset Obtained in Exchange for Finance leases Right-of-Use Asset Obtained in Exchange for Finance Lease Liability Lease obligations closed out in exchange for right-of-use assets, Operating leases Operating Lease Liability Closed Out In Exchange For Right-Of-Use Asset Operating Lease Liability Closed Out In Exchange For Right-Of-Use Asset Operating leases, Weighted Average Remaining Lease Term Operating Lease, Weighted Average Remaining 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Contingency, Number of Plaintiffs Accounts receivable financing agreement due June 29, 2020 Accounts Receivable Financing Agreement Due June 2020 [Member] Accounts Receivable Financing Agreement Due June 2020 [Member] Accounts Receivable Securitization Accounts Receivable Securitization [Member] Accounts Receivable Securitization [Member] Consolidated Entities [Axis] Consolidated Entities [Axis] Consolidated Entities [Domain] Consolidated Entities [Domain] Wholly-owned Special Purpose Entity Subsidiaries [Member] Federal Funds Rate Federal Funds Rate [Member] Federal Funds Rate [Member] Basis spread on variable rate Debt Instrument, Basis Spread on Variable Rate Prepay notice, term Receivables Financing Agreement, Prepayment Of Loan Facility, Notice Term Receivables Financing Agreement, Prepayment of Loan Facility, Notice Term Termination or reduction to limit notice, term Receivables Financing Agreement, Termination Or Reduction To Facility Limit Notice Term Receivables Financing Agreement, Termination Or Reduction To Facility Limit Notice Term Long-term debt Remaining capacity available under accounts receivable financing agreement Line of Credit Facility, Remaining Borrowing Capacity Cover page. Document Type Document Type Amendment Flag Amendment Flag Document Period End Date Document Period End Date Document Fiscal Year Focus Document Fiscal Year Focus Document Fiscal Period Focus Document Fiscal Period Focus Entity Registrant Name Entity Registrant Name Entity Central Index Key Entity Central Index Key Entity Current Reporting Status Entity Current Reporting Status Entity Interactive Data Current Entity Interactive Data Current Current Fiscal Year End Date Current Fiscal Year End Date Entity Filer Category Entity Filer Category Entity Common Stock, Shares Outstanding Entity Common Stock, Shares Outstanding Entity Shell Company Entity Shell Company Entity Small Business Entity Small Business Entity Emerging Growth Company Entity Emerging Growth Company Title of 12(b) Security Title of 12(b) Security Trading Symbol Trading Symbol Security Exchange Name Security Exchange Name Entity File Number Entity File Number Entity Incorporation, State or Country Code Entity 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