S-1 1 d108549ds1.htm FORM S-1 Form S-1
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As filed with the Securities and Exchange Commission on July 1, 2021

Registration No. 333-                

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

WCG Clinical, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   8731   84-3769177

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

212 Carnegie Center, Suite 301

Princeton, NJ 08540

(609) 945-0101

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Laurie L. Jackson

Chief Financial Officer and Chief Administration Officer

212 Carnegie Center, Suite 301

Princeton, NJ 08540

(609) 945-0101

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Howard A. Sobel

John Giouroukakis

Benjamin J. Cohen

Alison A. Haggerty

Latham & Watkins LLP

1271 Avenue of the Americas

New York, New York 10020

(212) 906-1200

 

Barbara J. Shander

Chief Legal Officer

212 Carnegie Center, Suite 301

Princeton, NJ 08540

(609) 945-0101

 

William B. Brentani

David W. Azarkh

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017

(212) 455-2000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

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 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

 

Proposed

maximum

aggregate
offering price(1)(2)

 

Amount of

registration fee

Common stock, par value $0.01 per share

  $100,000,000   $10,910

 

 

(1)

Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.

(2)

Includes the offering price of shares of common stock that may be sold if the underwriters fully exercise their option granted by the Registrant to purchase additional shares of common stock.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission  is  effective.  This  preliminary prospectus  is  not an  offer to sell nor does it seek an offer to buy  these  securities in any  jurisdiction where the offer or sale is not permitted.

 

Subject to Completion. Dated July 1, 2021.

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            Shares

WCG Clinical, Inc.

Common Stock

 

 

This is an initial public offering of shares of common stock of WCG Clinical, Inc. We are offering              shares of our common stock.

Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $                and $                . We have applied to list our common stock on The Nasdaq Global Select Market under the symbol “WCGC.”

After the completion of this offering, certain affiliates of our Principal Stockholders will together own         % of our outstanding common stock (or         % if the underwriters exercise their option to purchase additional shares in full) and will be parties to a voting agreement. As a result, we will be a “controlled company” within the meaning of the corporate governance rules of The Nasdaq Global Select Market and we will rely on certain exemptions from the corporate governance requirements of The Nasdaq Global Select Market. See “Management—Director Independence and Controlled Company Exception.”

We are an “emerging growth company” under the federal securities laws and, as such, may elect to comply with certain reduced public reporting requirements. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”

 

 

Investing in our common stock involves risk. See “Risk Factors” beginning on page 19 of this prospectus to read about factors you should consider before buying shares of our common stock.

 

 

Neither the Securities and Exchange Commission (the “SEC”), nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

     Per Share      Total  

Initial public offering price

   $                    $                

Underwriting discount(1)

   $        $    

Proceeds, before expenses, to us

   $        $    

 

(1)

See “Underwriting” for a description of the compensation payable to the underwriters.

The underwriters have the option to purchase up to an additional                 shares of our common stock from us at the initial price to public less the underwriting discount within 30 days of the date of this prospectus.

The underwriters expect to deliver the shares of common stock against payment in New York, New York on                , 2021.

 

 

 

Goldman Sachs & Co. LLC   Morgan Stanley   BofA Securities   Barclays
Jefferies   William Blair   BMO Capital Markets
UBS Investment Bank   SVB Leerink   HSBC

 

 

Prospectus dated                , 2021.


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Table of Contents

TABLE OF CONTENTS

 

About this Prospectus

     ii  

Market and Industry Data

     ii  

Basis of Presentation

     ii  

Certain Trademarks

     iv  

Non-GAAP Financial Measures

     iv  

A Letter from WCG Founder, Executive Chairman  & Chief Executive Officer, Donald A. Deieso

     1  

Prospectus Summary

     2  

Risk Factors

     19  

Use of Proceeds

     52  

Capitalization

     53  

Dividend Policy

     55  

Dilution

     56  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     58  

Business

     83  

Management

     102  

Executive and Director Compensation

     109  

Principal Stockholders

     118  

Certain Relationships and Related Party Transactions

     121  

Description of Capital Stock

     124  

Description of Certain Indebtedness

     130  

Shares Eligible for Future Sale

     134  

Material U.S. Federal Income Tax Consequences to Non-U.S. Holders

     136  

Certain ERISA Considerations

     140  

Underwriting

     141  

Legal Matters

     146  

Experts

     146  

Where You Can Find More Information

     146  

Index to Consolidated Financial Statements

     F-1  

 

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ABOUT THIS PROSPECTUS

You should rely only on the information included in this prospectus and any free writing prospectus prepared by or on behalf of us that we have referred to you. Neither we nor the underwriters have authorized anyone to provide you with additional information or information different from that included in this prospectus or in any free writing prospectus prepared by or on behalf of us that we have referred to you. If anyone provides you with additional, different or inconsistent information, you should not rely on it. Offers to sell, and solicitations of offers to buy, shares of our common stock are being made only in jurisdictions where offers and sales are permitted.

No action is being taken in any jurisdiction outside the United States to permit a public offering of common stock or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restriction as to this offering and the distribution of this prospectus applicable to those jurisdictions.

MARKET AND INDUSTRY DATA

This prospectus includes estimates regarding market and industry data that we prepared based on our management’s knowledge and experience in the markets in which we operate, together with information obtained from various sources, including publicly available information, industry reports and publications, surveys, our customers, distributors, suppliers, trade and business organizations and other contacts in the markets in which we operate. Management estimates are derived from publicly available information released by independent industry analysts and third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data and our knowledge of such industry and markets which we believe to be reasonable.

In presenting this information, we have made certain assumptions that we believe to be reasonable based on such data and other similar sources and on our knowledge of, and our experience to date in, the markets we serve. Market share data is subject to change and may be limited by the availability of raw data, the voluntary nature of the data gathering process and other limitations inherent in any statistical survey of market share. In addition, customer preferences are subject to change. Accordingly, you are cautioned not to place undue reliance on such market share data.

BASIS OF PRESENTATION

Our previous parent company, WCG HoldCo IV LLC (the “Seller”), entered into a Stock Purchase Agreement on November 6, 2019, with WCG Purchaser Corp. (formerly known as Da Vinci Purchaser Corp.) (the “Purchaser” or “Operating Company”), pursuant to which the Purchaser purchased all of the issued and outstanding equity interests in WCG Holding IV Inc. and WCG Market Intelligence & Insights Inc. (collectively, the “Acquiree”) from the Seller (the “Transaction”). In connection with the Transaction, a new parent entity, Da Vinci Purchaser Holdings LP (the “Parent”), was formed, together with two new entities, WCG Clinical, Inc. (formerly known as WCG Purchaser Holdings Corp.), the issuer in this offering, and WCG Purchaser Intermediate Corp., the direct subsidiary of the issuer, to act as intermediate holding companies between the Parent and the Operating Company. On January 8, 2020, the Transaction closed, resulting in a change to our corporate structure. Unless otherwise indicated or the context otherwise requires, references in this prospectus to the terms “WCG,” “we,” “us,” “our,” or the “Company” refer to the Seller and its consolidated subsidiaries prior to the Transaction, and WCG Clinical, Inc. and its consolidated subsidiaries following the completion of the Transaction.

The consolidated financial statements included in this prospectus reflect the consolidated historical results of operations of WCG and its subsidiaries. WCG’s consolidated financial statements prior to and including

 

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December 31, 2019 represent the financial information of the Acquiree and its consolidated subsidiaries prior to the Transaction, and such financial information is labeled as “Predecessor.” The Seller had no operations other than its ownership of the Acquiree and its consolidated subsidiaries, and, as a result, the same information has been presented as would be presented if the Acquiree were deemed to be the predecessor entities. The consolidated financial information for the periods beginning on and subsequent to January 1, 2020 represent the financial information of WCG Clinical Inc. and its consolidated subsidiaries subsequent to the Transaction, and such financial information is labeled as “Successor.” We determined that the operational activities from January 1, 2020 through the close of the Transaction on January 8, 2020 (the “effective date”) were immaterial to the financial statements for the year ended December 31, 2020, and do not result in material differences in the amounts recognized on the Balance Sheet, Statement of Operations, or Statement of Cash Flows. In light of the proximity of the effective date to the start of our January accounting period (i.e. only four business days from January 1, 2020 to the effective date, during which the Predecessor did not have material operations), we elected to present the activities from January 1, 2020 through January 7, 2020 in the Successor period (including the year ended December 31, 2020). See Note 1 to WCG’s audited consolidated financial statements included elsewhere in this prospectus.

Prior to the completion of this offering, the Parent will be liquidated and the unit holders of our Parent will receive shares of our common stock in exchange for their units of the Parent. See “Prospectus Summary—Distribution.”

Certain monetary amounts, percentages, and other figures included elsewhere in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables or charts may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

As used in this prospectus, unless the context otherwise requires, references to:

 

   

“Amended and Restated Registration Rights Agreement” means the registration rights agreement to be effective immediately prior to the effectiveness of the registration statement of which this prospectus is a part, by and between the Principal Stockholders, certain other existing stockholders and the Company;

 

   

“Arsenal” means investment funds affiliated with or advised by Arsenal Capital Partners;

 

   

“client retention ratio” means the ratio of clients retained by the Company over a specified period of time, and is calculated by dividing the number of retained clients in the current period that were also clients as of the end of the comparable prior year period by the total number of clients at the end of the comparable prior year period. The client retention ratio excludes clients with total annual revenue less than $20 thousand (and account for less than 1% of total revenues) to isolate the churn related to very small, one-time IRB customers that are not considered part of the Company’s normal customer base;

 

   

“Credit Facilities” means our First Lien Facilities and Second Lien Term Loan Facility;

 

   

“DGCL” means the Delaware General Corporation Law;

 

   

“Exchange Act” means the Securities Exchange Act of 1934, as amended;

 

   

“First Lien Facilities” means the First Lien Term Loan Facility and the Revolving Credit Facility;

 

   

“First Lien Term Loan Facility” means our senior secured first lien term loan facility in an initial principal amount of $920.0 million entered into on January 8, 2020, as amended by the incremental term loan facility in an initial amount of $150.0 million entered into on November 2, 2020;

 

   

“GAAP” means U.S. generally accepted accounting principles;

 

   

“GIC Investor” means Dein Investment Pte. Ltd;

 

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“LGP” means investment funds affiliated with or advised by Leonard Green & Partners, L.P.;

 

   

“Novo” means Novo Holdings A/S;

 

   

“Organic Revenue Growth” means internally-generated growth measured by comparable sales of products and services year over year, excluding the impact of acquisitions until they have been under our ownership for at least four full fiscal quarters at the start of a fiscal reporting period;

 

   

“Principal Stockholders” means LGP, Arsenal, Novo and the GIC Investor;

 

   

“Revolving Credit Facility” means our $125.0 million revolving credit facility entered into on January 8, 2020;

 

   

“Second Lien Term Loan Facility” means our senior secured second lien term loan facility in an initial principal amount of $345.0 million entered into on January 8, 2020; and

 

   

“Voting Agreement” means the voting agreement to be effective immediately prior to the effectiveness of the registration statement of which this prospectus is a part, by and among the Principal Stockholders and the Company.

CERTAIN TRADEMARKS

This prospectus includes trademarks and service marks owned by us, including AIMS, Avoca, Connexus 5.0, InvestigatorSpace, IRBNet, Pharmaseek, KMR, MCC, My-Patient.com, Safety Portal, The WCG Patient Experience, Velos, Virgil, WCG Clinical Trial Ecosystem, WCG Knowledge Base and WCG Predict. This prospectus also contains trademarks, trade names and service marks of other companies, which are the property of their respective owners. Solely for convenience, trademarks, trade names and service marks referred to in this prospectus may appear without the ®, or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

NON-GAAP FINANCIAL MEASURES

We report our financial results in accordance with GAAP. In addition to our GAAP financial results, we believe the non-GAAP financial measure, Adjusted EBITDA, is useful in evaluating our performance. Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for information about why we consider Adjusted EBITDA useful and a discussion of the material risks and limitations of this measure, as well as a reconciliation of Adjusted EBITDA to net (loss) income, the most directly comparable financial measure prepared in accordance with GAAP.

 

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A LETTER FROM WCG FOUNDER, EXECUTIVE CHAIRMAN & CHIEF EXECUTIVE OFFICER, DONALD A. DEIESO

WCG has embraced its role as a “Servant to Mankind”, with the ultimate aim of improving global public health. At the core of our mission, we apply leading scientific knowledge and proprietary technology to advance life-saving innovations. By helping to improve the clinical trial process, we allow valuable therapies to be delivered to patients sooner and at a lower cost. WCG is proud to serve the individuals on the frontlines of science and medicine, and the organizations that strive to develop new products and therapies to improve the quality of human health. We believe that it is our role to empower the scientific advancement of human health, while ensuring that the risks of progress never outweigh the value of human life.

As a mission-driven organization at heart with a strong commitment to the highest ethical standards, WCG is focused on safeguarding the interests of all stakeholders engaged with our Company, including clients, patients, employees and shareholders.

Strategically positioned at the very center of the clinical trial ecosystem, we act as the key point of connectivity among our various clients, who leverage our solutions to inform the critical decisions that save significant time and expense, enhance drug safety and efficacy, and ultimately improve millions of lives.

With 2.5 million patients enrolled in WCG-supported studies, our relationship with patients is also key to our mission, as demonstrated by our commitment to champion a new and improved paradigm for treating trial participants, The WCG Patient Experience. Beyond raising patient awareness for clinical studies, we are shifting the clinical trial framework from treating participants as “subjects” to placing a greater focus on the patient experience, one which should rely on empathy from start to finish.

Our employees bring their heads and hearts to the mission, acting as change agents to serve a greater societal purpose. We maintain a leading employee retention ratio of 92% by selectively recruiting individuals who align with our core mission, and by providing differentiated compensation and benefits packages. We are proud of our Diversity and Inclusion culture with its emphasis on ensuring that we maintain an environment of mutual respect and equal opportunity for all.

The COVID-19 pandemic highlighted our organization’s remarkable dedication to its mission. Despite facing the challenges of remote working and the personal impacts of the pandemic, our team supported and contributed to over 723 COVID-19 trials, including many of the most highly impactful vaccines and antivirals.

It is our role to empower our team to accelerate advancement. We firmly believe that we must have the clinical insight to develop, the courage to advance, and the persistence to transform a change-resistant industry, while never compromising the highest level of ethical standards.

I am grateful that you are considering an investment in WCG’s initial public offering, and excited that as a result, you are thinking of supporting our mission to accelerate the scientific advancement of human health.

 

 

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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all the information that may be important to you. You should read the entire prospectus carefully, especially “Risk Factors” beginning on page 17 of this prospectus, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 56 of this prospectus, and our consolidated financial statements and related notes included elsewhere in this prospectus, before deciding to invest in our common stock.

Overview

Our Mission

WCG’s mission is to provide clinical trial stakeholders with the highest-quality service, accelerate the scientific advancement of human health, and ensure that the risks of progress never outweigh the value of human life.

Our Company

We believe we are a leading provider of clinical trial solutions, focused on providing solutions that are designed to measurably improve the quality and efficiency of clinical research, stimulate growth and foster compliance. Our transformational solutions enable biopharmaceutical companies, contract research organizations (“CROs”), and institutions to accelerate the delivery of new treatments and therapies to patients, while maintaining the highest standards of human protection. We leverage our differentiated strategic position at the center of the clinical trial ecosystem to provide new types of technology-enabled solutions to all stakeholders involved, with the aim to address the key critical pain points throughout the clinical trial process.

Clinical trials are an essential part of the drug and device development process, but ineffective trial design and management continues to delay much-needed therapies from being made available to patients. Delayed patient enrollment, slow trial startup, burdensome administrative processes, use of disparate technologies, and under-representation of minority patients are a few of the key critical pain points our clients face in running clinical trials today. As a result, clinical trials are increasingly more expensive to conduct, are regularly delayed, and often face regulatory and data quality challenges.

WCG was founded in 2012, backed by Arsenal Capital Partners, with the goal of systematically transforming drug development by addressing the key critical pain points adversely affecting clinical trial performance. Our proprietary suite of technology-enabled solutions provides ethical review services as well as broader clinical trial solutions including study planning and optimization, patient engagement, and scientific and regulatory review services. We serve all stakeholders in the clinical trial ecosystem, including biopharmaceutical companies and CROs, trial sites, institutions and investigators, as well as patients and advocacy groups. Our solutions include software as well as technology-enabled clinical services that provide integrated, end-to-end support along the clinical trial process. Our clients leverage our solutions to inform the critical decisions that are key to saving significant time and expense, enhancing drug safety and efficacy, and ultimately allowing for the improvement of millions of lives.

Starting with our first and oldest business, Western IRB, we believe WCG has built a 50-year reputation for excellence in the performance of ethical reviews to become a partner of choice to some of the most sophisticated biopharmaceutical companies, regulators, and investigators. We have expanded our platform’s capabilities over the years and presently enjoy a differentiated strategic position at the center of the clinical trial ecosystem, enhancing efficiency and connectivity by uniting all stakeholders through our integrated technology platform. Since our founding, our end-to-end solutions have benefitted over 5,000 biopharmaceutical companies and


 

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CROs, of which 4,000 are small and mid-cap biopharmaceutical companies, 10,000 research sites, and several million patients. Our management estimates that over the last two years ended December 31, 2020, WCG supported approximately 90% of all global clinical trials, across a broad array of therapeutic areas and trial phases and, over the same period, our solutions have been leveraged by 87% of all new drugs and therapeutic biologics approved by the U.S. Food and Drug Administration (“FDA”). With a global workforce of over 4,000 individuals who are core to our mission and our platform, we have a presence in 71 countries. Our significant expertise is evidenced by our track record of supporting over 4,000 global clinical trials from March 2020 through February 2021. We expect to continue to expand our operations at home and abroad as needed to service our increasingly diverse and international client base. We believe our clinical professionals are industry thought-leaders who provide expert consultation on ethical standards, trial operations, and regulatory submissions for drugs and devices. We believe our strategic position at the center of the clinical trial ecosystem provides us with the breadth and depth of knowledge and insight to serve our mission, and confidently develop new products and services to enhance our value proposition and growth trajectory.

We believe we have a proven track record of consistent growth and strong financial performance. We serve a high-growth market, and have outperformed through organic expansion of our portfolio, cross-selling of our solutions into our large client base and the strategic acquisition of complementary capabilities.

 

   

From 2018 to 2020, our revenues increased by approximately 16% per year, from $345.6 million to $463.4 million, with an Adjusted EBITDA margin (defined as Adjusted EBITDA divided by revenue) reaching 47% in 2020. Our revenues increased by approximately 33%, from $103.5 million to $137.6 million, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, with Adjusted EBITDA margin reaching 43% in the first quarter of 2021.

 

   

For 2019 and 2020, 74% and 69% of the Company’s revenue growth, respectively, was Organic Revenue Growth.

 

   

We had a net loss of $2.6 million in 2018, net income of $18.2 million in 2019, and a net loss of $95.3 million in 2020 primarily due to the impact of the Transaction. In addition, we had a net loss of $20.6 million and $30.1 million in the three months ended March 31, 2021 and 2020, respectively. Our Adjusted EBITDA increased by approximately 50%, from approximately $146.0 million in 2018 to approximately $218.4 million in 2020. Our Adjusted EBITDA increased by approximately 24%, from $47.6 million to $59.1 million, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

 

   

From 2019 to 2020, our bookings increased by approximately 12%, from $555.2 million to $621.8 million. Our bookings increased by approximately 55%, from $171.8 million to $266.2 million, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

 

   

As of March 31, 2021, our top 25 clients each purchased on average more than four of our solutions, and each contributed revenues of over $2 million. We estimate the current opportunity from further cross selling our existing solutions to these clients to be over $1.6 billion.

 

   

WCG has a strong track record of acquiring and integrating leading technologies and solutions into our platform, having closed 30 acquisitions since 2012.

See “—Summary Consolidated Financial and Operating Data” below and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information regarding bookings and Adjusted EBITDA, including a reconciliation of Adjusted EBITDA to net (loss) income.

Our Differentiated Platform of Integrated Solutions

WCG’s Clinical Trial Ecosystem—A Key Differentiator

For decades, the biopharmaceutical industry has approached clinical trials on a trial-by-trial basis, with each new trial requiring a one-time assembly of research sites, patient participants, and supporting technologies. When


 

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a trial ends, the teams organized to carry it out are disbanded. Each trial becomes a one-time and episodic collaboration of the operational expertise, human capital, and specific technology used in the trial. This single-trial model has discouraged many organizations from making long-term investments in unifying the end-to-end trial process given the required investment horizon. Yet, many of the operational challenges affecting clinical trials today, including high costs, long duration, and poor patient enrollment, are the direct results of this lack of continuity and connectivity. WCG has created a more permanent alignment of interest across stakeholders and improved consistency of workflows through the WCG Clinical Trial Ecosystem, which leverages our expansive client relationships and deep data-driven insights to enhance the connectivity and efficiency throughout the clinical trial process. We believe our strategic position at the center of the clinical trial ecosystem provides us with differentiated breadth and depth of knowledge and insight to serve our clients, fulfill our mission, and confidently develop new products and services to enhance our value proposition and growth trajectory.

Positioned at the center of the clinical trial ecosystem, WCG acts as a single point of connectivity among all stakeholders involved, a large number of which are clients that we have relationships with and that we serve:

 

 

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*

Based on revenue.

**

Based on management estimates.

Each of these stakeholders benefits from WCG’s differentiated platform of end-to-end solutions:

 

   

patients benefit from the ability to access life-saving therapies sooner and may participate in clinical trials with increased safety through faster enrollment, improved engagement and increased awareness;

 

   

sites, institutions and investigators benefit by having access to a unified and interconnected network, allowing them to enhance their visibility to sponsors, more effectively recruit the appropriate group of patients, and therefore more efficiently conduct clinical trials; and


 

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sponsors and CROs benefit from the ability to select strong performing sites with greater precision and to more efficiently enroll patients, by leveraging unified workflows, interconnected sites, and integrated technology-enabled solutions. This in turn allows them to conduct clinical trials faster and at a lower overall cost.

WCG’s Knowledge Base—Comprehensive Real-Time Trial Data

Leveraging the WCG Knowledge Base, our management estimates that over the last two years ended December 31, 2020, WCG participated in over 90% of all global clinical trials, across a broad array of therapeutic areas and trial phases, which provides us with unique access to clinical trial data and deep insights in the industry. WCG’s Knowledge Base is a primary dataset which was purpose-built to aggregate a wide array of clinical trial performance data assembled over the years. WCG has strategically developed proprietary algorithms that query WCG Knowledge Base and provide authoritative insights into the matters that are central to effective clinical trial decisions. We leverage the WCG Knowledge Base across our businesses, from generating client insights to informing our new product innovation and broader business development.

A selection of direct applications of the WCG Knowledge Base are provided below.

 

 

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How We Serve Our Clients

In order to best serve our clients’ needs throughout the clinical trial continuum, WCG is organized into two segments:

Ethical Review segment. Our Ethical Review (“ER”) segment provides technology-enabled services that ensure clinical trials respect the rights and protect the welfare of patient participants. Over the last two decades,


 

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WCG has performed over 58,000 ethical reviews, developing specialized expertise and capabilities that we believe are differentiated in the industry. Federal regulations require clinical trial sponsors, including CROs and biopharmaceutical companies, to submit specific documentation related to the conduct of the clinical trial to a qualified IRB. The IRB is an independent committee established to review and approve research involving human participants, whose primary purpose is to protect the rights and welfare of the participating patients. The IRB has the authority to approve, require modifications in, or disapprove clinical trials. It is responsible for reviewing key aspects of the clinical trial, including trial protocols, investigators, and participant informed consent.

Clinical Trial Solutions segment. Our Clinical Trial Solutions (“CTS”) segment provides an integrated suite of over 40 technology-enabled solutions that support the conduct of effective clinical trials, including study planning and site optimization, patient engagement, and scientific and regulatory review. Study Planning and Site Optimization provides integrated, turnkey services to identify, activate, and benchmark sites. Patient Engagement improves patient-related activities in a clinical trial. Scientific & Regulatory Review ensures that the data recorded in a clinical trial can support effective regulatory submissions. These solutions include proprietary software and specialty clinical consulting services which provide integrated, end-to-end support of workflows along the clinical trial process and have been designed with the specific objective to optimize efficiency. Using the WCG Clinical Trial Ecosystem we are able to offer clients a fit-for-purpose suite of the solutions that match the specific needs of a project, optimizing cost and efficiency.

Our revenues consist of fees for the review of clinical research trial protocols and investigators, technology-enabled specialty clinical consulting services which support various steps of the clinical trial process that are designed to optimize efficiency, sale of software licenses and hosted SaaS software applications which support the conduct of effective clinical trials. Because many of our agreements with our customers contain performance obligations over a period of years, spanning the life of a clinical trial, our backlog provides us, at any point in time, with visibility into approximately 75% of our revenues for the next twelve months.

Our Market Opportunity

Traditional drug development has led to immeasurable public health benefits, but challenging diseases persist while many patients await life-saving medicines. Developing a new drug can take over 10 years and cost more than $2 billion to bring to market, according to Tufts Center for the Study of Drug Development (“CSDD”). While investments in research and development (“R&D”) have reached new highs, the returns on investment have steadily declined. In 2021, global biopharmaceutical R&D expenditures are expected to reach $195 billion according to EvaluatePharma. However, according to the Deloitte Center for Health Solutions, each of the 12 leading biopharmaceutical companies realized, on average, a return on R&D investment of approximately 2% in 2018, down from 10% in 2010.

This decreasing return on drug R&D is driving a transformation of the industry’s approach to drug development, especially as it relates to clinical trials, which represent the most costly and time-consuming stage of the R&D process and therefore bear the greatest investment risk. Tufts CSDD reports that, in 2020, there were 6,500 total active drugs in clinical trial phases each drug having less than 12% probability of receiving regulatory approval. Contributing to this unfavorable trend, the costs of clinical trials are escalating, trial timelines are being extended, and data quality issues result in undesirable delays in regulatory approvals. In addition, new therapeutic categories and scientific advances, including cell and gene therapy, and precision medicine, are emerging at a rapid pace and have stimulated new and innovative approaches for addressing oncology and rare diseases. These advances have the potential to bring significant benefits, but also result in greater trial complexity and related expenses. As of December 31, 2020, the average trial protocol requires 263 procedures per patient, up 44% since 2009, as reported by Tufts CSDD. This increasing complexity is fueling the demand for the new type of outsourced, data-driven and science-based trial solutions that we provide, therefore expanding the size of our market opportunity.


 

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The key critical pain points that contribute to this time and cost burden are ethical review, study planning and site optimization, patient engagement, scientific and regulatory review, amongst others. Leveraging our strategic position at the center of the clinical trial ecosystem, we have developed a suite of integrated and technology-enabled solutions that we believe have had a significant impact on these existing hurdles, and in turn have created value to all stakeholders, including:

 

   

increasing speed to market for treatments and reducing costs to healthcare systems by removing unnecessary delays;

 

   

increasing trial access for patients with rare diseases by utilizing our proprietary data and clinical insights solutions; and

 

   

providing thought leadership through publications and information services.

These key critical pain points in the clinical trial process impact both costs and timelines, which are key focus areas for industry participants, allowing for WCG’s addressable market to rapidly expand. Our integrated suite of solutions includes both proprietary technologies and services, including research compliance and quality management services, as well as specialty clinical expertise, all of which address the key requirements for effective end-to-end clinical trials. According to EvaluatePharma, the total global pharmaceutical research and development spend is expected to reach approximately $195 billion in 2021. Approximately half of that spend, or $89 billion, represents clinical trial spend across phases I through IV, of which approximately $48 billion is conducted by pharmaceutical companies and $41 billion is outsourced to CROs. As part of this clinical trial market, the specific segments which WCG addresses, including IRB, study planning and site optimization, patient engagement, and scientific and regulatory review, account for approximately $9 billion in 2021, which we estimate is projected to grow at 14% annually between 2021 and 2023.

WCG captures an increasing share of the drug development being conducted by small and mid-cap biopharmaceutical companies, which accounted for approximately 63% of all clinical trials in 2019. These earlier stage companies typically rely on fewer internal resources and are subject to shorter competitive timeframes. We believe WCG’s fit-for-purpose solutions have positioned us as a partner of choice for these emerging players in the clinical trial ecosystem. This growing client segment accounted for 20% of our annual bookings growth in 2020, and we believe will continue to drive increased activity, fueled by record levels of funding. U.S. listed biotechnology companies raised a record of over $63 billion in 2020, representing more than twice the funds raised a year earlier.

As clinical trials have become more complex and costly, clients rely increasingly on our expert clinical insights and proprietary technology-enabled applications, a trend which has increased the size of our market opportunity and which we expect to persist.

Our Contributions to Society

During our 50-year history through our predecessor companies, WCG has embraced its role as a “Servant to Mankind.” At the core of our mission, we apply leading scientific knowledge and proprietary technology to advance life-saving innovations. By helping to improve the clinical trial process, we allow valuable therapies to be delivered to patients sooner and at a lower cost. WCG is proud to serve the individuals on the frontlines of science and medicine, and the organizations that strive to develop new products and therapies to improve the quality of human health. We believe that it is our role to empower the scientific advancement of human health, while ensuring that the risks of progress never outweigh the value of human life.

As a mission-driven organization at heart with a strong commitment to the highest ethical standards, WCG is focused on safeguarding the interests of all stakeholders engaged with our Company, including clients, patients, employees and shareholders.


 

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In 2002, in partnership with the World Health Organization and the National Institutes of Health, WCG established the International Fellows Program to provide clinical professionals from both developed and emerging economies with the knowledge necessary to create, manage and administer Institutional Review Boards (“IRBs”) within their own countries. WCG sponsors these Fellows to travel to the United States and attend six-month IRB training programs provided twice a year. Since inception, 200 program graduates, representing over 26 countries across four continents, have returned to their home countries with the requisite knowledge to improve the quality of clinical research and to ensure patient protection in their clinical trials, demonstrating WCG’s continued commitment to a 50-year long legacy of protecting the interests of patients in clinical research.

The COVID-19 pandemic also highlighted our organization’s remarkable dedication to its mission. Despite facing the challenges of remote working and the personal impacts of the pandemic, our team supported and contributed to over 723 COVID-19 trials, including many of the most highly impactful vaccines and antivirals.

Our Competitive Strengths

We compete by offering a specialized and integrated suite of technology applications and expert clinical services across all stages of the clinical trial continuum. We differentiate ourselves through our competitive strengths, which include:

A Leading Position with a Long-standing Reputation: Through our predecessor companies, we have been serving the clinical trial community for over 50 years and have positioned ourselves as a leading provider of clinical trial solutions. Our strong reputation is evidenced by our client retention ratio of 99% as of December 31, 2020. The average tenure for our top 30 clients is more than 14 years. WCG has conducted over 58,000 ethical reviews over the past two decades, providing highly differentiated clinical trial services to stakeholders across the ecosystem.

Our Large, Growing and Diversified Client Base: Uniquely positioned at the center of the clinical trial ecosystem, we have provided our solutions and services to over 5,000 biopharmaceutical companies and CROs, 10,000 research sites, and several million patients over the past nine years. Addressing a broad array of therapeutic areas and trial phases, we serve a diversified base of clients, including all of the top 50 biopharmaceutical companies by revenue, all of the top eight CROs by revenue, and approximately 4,000 small and midcap biopharmaceutical companies. Additionally, WCG is contracted to provide services to 3,300 institutions, hospitals, and academic medical centers, representing virtually all participants in FDA-regulated research. Our top five clients represented less than 25% of our total revenues for the year ended December 31, 2020.

Our Differentiated and Integrated End-to-End Platform: We believe WCG has developed a powerful and differentiated platform, the WCG Clinical Trial Ecosystem, allowing for better connectivity among the three principal clinical trial stakeholders – sponsors and CROs, research sites, and patients. WCG has built on its unique position at the center of the clinical trial ecosystem, leveraging its long-term client relationships and a 50-year reputation.    

Our Proprietary Technology Applications: Our proprietary clinical technology applications have been built to address the key requirements of clinical trials, from start to end. These end-to-end applications have been designed by clinicians who have a deep understanding of the workflows involved at each stage of clinical trial execution. We offer 30 client-facing and purpose-built applications which are integrated into a single platform, with over 93% of WCG engagements delivered through our proprietary technology. Leveraging our technology, we maintain real-time connectivity to our clients and their clinical trial activity on a day-to-day basis and are strategically positioned to assemble large amounts of data which we believe provides us with differentiated insights.


 

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The Deep Expertise of Our People and Our Culture of Quality and Innovation: We are led by a diverse, global, and talented team of scientists, software engineers, and subject matter experts who not only advance our solutions but also seek to understand and tackle the industry’s greatest challenges. We believe that the extraordinary expertise of our teams and our high employee retention provide a powerful competitive advantage and remain focused on investing in individual employee development programs.

Our Growth Strategy

Our future growth strategy relies on four key drivers:

Capitalize on Our Large and High-Growth Markets: As clinical trials have become more complex and costly, clients rely increasingly on our expert clinical insights and proprietary technology-enabled applications, a trend which has increased the size of our market opportunity and which we expect to persist. WCG has demonstrated approximately 16% revenue growth per year between 2018 and 2020, representing a significantly faster rate than our total market, which we estimate is projected to grow at a rate of 7% from 2018 through 2023.

Grow Within Our Existing Client Base: Our strong growth is driven in large part by increasing penetration of our solutions within our existing client base. WCG has a proven track record of cross-selling its solutions, with our top 25 clients purchasing at least four of our solutions as of March 31, 2021. We believe that we have significant opportunity to expand our revenues with existing clients and estimate the additional market opportunity from expanding our existing solutions within our top 25 clients to surpass $1.6 billion.

Further Leverage the WCG Clinical Trial Ecosystem, the WCG Knowledge Base and Our Proprietary Technology Platform: The improvement and optimization of clinical trial processes is being realized through operational transparency, which is only made possible by real-time data-driven analysis. Positioned at the core of our clinical trial platform, the WCG Knowledge Base is a central repository of data, assembled by leveraging our role as the point of connectivity between all stakeholders of the clinical trial ecosystem. WCG Knowledge BaseTM includes 31 terabytes of real-time, regulatory-grade data. Our ubiquitous involvement in 90% of all global clinical trials over the last two years ended December 31, 2020, as estimated by our management, provides us with a unique access to data which, when combined with our clinical expertise, delivers actionable trial insights to our clients.

Continuously Expand Our Platform Through the Acquisition of New Capabilities: Since 2012, we have acquired and successfully integrated 30 companies, which have allowed us to further expand our suite of solutions and capabilities. Acquiring and integrating additional capabilities are part of our core competencies and will remain an important pillar of our growth strategy. We expect to continue to rely on strategic acquisitions to enhance our capabilities and will leverage our business development team to drive further cross-selling in with the aim to supplement our organic growth.

Summary Risk Factors

We are subject to a number of risks, including risks that may prevent us from achieving our business objectives or that may adversely affect our business, financial condition and results of operations. You should carefully consider the risks discussed in the section titled “Risk Factors,” including the following risks, before investing in our common stock:

 

   

our continued revenue growth depends on our ability to successfully increase our client base and expand our relationships and the products, technologies and services we provide to our existing clients;

 

   

we have experienced rapid growth, and if we fail to manage our growth effectively, we may be unable to execute our business plan and our recent growth may also not be sustainable or indicative of future growth;


 

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as our costs increase, we may not be able to sustain the level of profitability we have achieved in the past;

 

   

the markets in which we participate are highly competitive, and if we do not compete effectively, our business and operating results could be materially adversely affected;

 

   

as clients increase their utilization of our products and services, we may be subject to additional pricing pressures;

 

   

an inability to attract and retain highly skilled employees and contingent workers could materially adversely affect our business;

 

   

defects or disruptions in our solutions could result in diminished demand for our solutions, a reduction in our revenues, and subject us to substantial liability;

 

   

we may acquire other companies or technologies, which could divert on management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and adversely affect our operating results;

 

   

our business could be materially adversely affected if our clients are not satisfied with the professional services provided by us or our partners, or with our technical support services;

 

   

we are subject to laws and regulations related to compliance with economic sanctions that could impair our ability to compete in international markets in which our products may not be sold or subject us to liability if we violate these laws and regulations;

 

   

our estimate of the market size for our solutions we have provided publicly may prove to be inaccurate, and even if the market size is accurate, we cannot assure you our business will serve a significant portion of the market;

 

   

our bookings, backlog and client engagements might not accurately predict our future revenue, and we might not realize all or any part of the anticipated revenues reflected in our bookings, backlog and client engagements;

 

   

our business may be subject to risks arising from natural disasters and epidemic diseases, such as the recent COVID-19 pandemic;

 

   

nearly all of our revenues are generated by sales of our products and services to clients in, or connected to, the biopharmaceutical industry, and factors that adversely affect this industry, including mergers within the biopharmaceutical industry or regulatory changes, could also adversely affect us;

 

   

increasing competition within the biopharmaceutical industry, as well as delays in the drug discovery and development process, may reduce demand for our products and services and negatively impact our results of operations and financial condition;

 

   

our clients may delay or terminate contracts, or reduce the scope of work, for reasons beyond our control, potentially resulting in financial losses;

 

   

we may be sued by third parties for alleged infringement of their proprietary rights or misappropriation or other violation of intellectual property and we may suffer damages or other harm from such proceedings;

 

   

we are subject to complex and evolving laws and regulations related to privacy and data protection, our violation of which could result in penalties and other regulatory enforcement action, reputational damage or other negative impacts on our results of operations or financial condition; and

 

   

current and future litigation against us, which may arise in the ordinary course of our business, could be costly and time consuming to defend.


 

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Our business also faces a number of other challenges and risks discussed throughout this prospectus. You should read the entire prospectus carefully, including “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and our consolidated financial statements and related notes included elsewhere in this prospectus, before deciding to invest in our common stock.

Our Corporate Information

Our principal executive office is located at 212 Carnegie Center, Suite 301, Princeton, NJ 08540 and our telephone number at that address is (609) 945-0101. We maintain a website on the Internet at www.wcgclinical.com. We have included our website address in this prospectus as an inactive textual reference only. The information contained on, or that can be accessed through, our website is not a part of, and should not be considered as being incorporated by reference into, this prospectus.

Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include:

 

   

the option to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in this prospectus;

 

   

not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002;

 

   

reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and

 

   

exemptions from the requirements of holding nonbinding, advisory stockholder votes on executive compensation or on any golden parachute payments not previously approved.

We will remain an emerging growth company until the earliest to occur of: (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion; (ii) the date that we become a “large accelerated filer,” with at least $700.0 million of equity securities held by non-affiliates as of the end of the second quarter of that fiscal year; (iii) the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year ending after the fifth anniversary of the completion of this offering.

We have elected to take advantage of certain of the reduced disclosure obligations in the registration statement of which this prospectus is a part and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide may be different than the information you receive from other public companies in which you hold stock.

An emerging growth company can also take advantage of the extended transition period provided in Section 13(a) of the Exchange Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of this extended transition period and, as a result, our operating results and financial statements may not be comparable to the operating results and financial statements of companies who have adopted the new or revised accounting standards.


 

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As a result of these elections, some investors may find our common stock less attractive than they would have otherwise. The result may be a less active trading market for our common stock, and the price of our common stock may become more volatile.

Distribution

Prior to the closing of this offering, the Parent will be liquidated and its sole asset, the shares of our common stock it holds, will be distributed to its equity holders based on their relative rights under its limited partnership agreement. The equity holders of Parent will receive the number of shares of our common stock in the liquidation of Parent that they would have held had they held our common stock directly immediately before the distribution, with no issuance of additional shares by us. Each holder of vested units of Parent will receive shares of our common stock in the distribution. Each holder of unvested units of Parent that are subject to time-vesting conditions will receive unvested restricted shares of our common stock in the distribution.

We refer to these transactions collectively as the “Distribution.” Unless otherwise indicated, all information in this prospectus assumes the completion of the Distribution prior to the closing of this offering and a public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus. The Distribution will not affect our operations, which we will continue to conduct through our operating subsidiaries.

Recent Developments

Acquisition of Intrinsic Imaging LLC

On June 1, 2021, we completed the acquisition of Intrinsic Imaging LLC, a comprehensive medical imaging and cardiac safety core lab services firm. Intrinsic provides these services to customers in support of clinical trials across all therapeutic areas and device and software validation studies, including but not limited to advisory services, consulting services, data acquisition, data centralization and harmonization, data analysis, quality control, data processing, data review, data transfer, query management, and reader management and oversight. The total purchase price was $80 million and was funded entirely by the Company’s cash on hand, with the potential for earn-outs totaling $12.1 million in the aggregate.


 

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The Offering

 

Common stock offered by us

                 shares.

 

Common stock to be outstanding after this offering

                 shares (or                shares, if the underwriters exercise in full their option to purchase additional shares of common stock).

 

Option to purchase additional shares

The underwriters have an option to purchase up to an aggregate of                 additional shares of common stock from us. The underwriters can exercise this option at any time within                  days from the date of this prospectus.

 

Use of proceeds

We estimate that the net proceeds to us from the sale of shares of our common stock in this offering will be approximately $                 million, or approximately $                 million if the underwriters exercise their option to purchase additional shares in full, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

  We intend to use the net proceeds from this offering for general corporate purposes to support the growth of our business. We may also use a portion of the proceeds to repay indebtedness and/or for the acquisition of, or investment in, technologies, solutions and/or businesses that complement our business. However, we do not have binding agreements or commitments for any acquisitions or investments outside the ordinary course of business at this time. See “Use of Proceeds.”

 

Dividend policy

We do not expect to pay any dividends on our common stock for the foreseeable future. See “Dividend Policy.”

 

Symbol

“WCGC.”

 

Controlled company

Following this offering, we will be a “controlled company” within the meaning of the corporate governance rules of The Nasdaq Global Select Market. See “Management—Director Independence and Controlled Company Exception.”

 

Risk factors

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 17 of this prospectus for a discussion of factors you should carefully consider before investing in our common stock.

The number of shares of common stock to be outstanding after this offering is based on                shares of common stock outstanding as of March 31, 2021, and excludes:

 

   

                                  additional shares of common stock reserved for future issuance under our 2021 Incentive Award Plan (the “2021 Plan”).


 

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Unless otherwise indicated, all information contained in this prospectus:

 

   

assumes the completion of the Distribution prior to the closing of this offering, including the issuance of                shares of restricted common stock to be issued to certain current holders of unvested units of Parent in the Distribution;

 

   

assumes an initial public offering price of $                per share, which is the midpoint of the price range set forth on the cover page of this prospectus;

 

   

assumes the underwriters’ option to purchase additional shares will not be exercised;

 

   

gives effect to a                 -for-                 stock split effected on                , 2021; and

 

   

gives effect to our amended and restated certificate of incorporation and our amended and restated bylaws.


 

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Summary Consolidated Financial and Operating Data

The following tables summarize our consolidated financial and operating data for the periods and as of the dates indicated. We derived our summary consolidated statement of operations data and cash flows data for the years ended December 31, 2020 and 2019 from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated statement of operations data and cash flows data for the three months ended March 31, 2021 and 2020 and the summary consolidated balance sheet data as of March 31, 2021 have been derived from our unaudited interim consolidated financial statements included elsewhere in this prospectus.

The summary audited consolidated statement of operations data and cash flows data are presented for two periods, Successor and Predecessor, which relate to the period succeeding the Transaction and the period preceding the Transaction, respectively. See “Basis of Presentation” and Note 1 to our audited consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited interim consolidated financial statements on the same basis consistent with the presentation of our audited consolidated financial statements that are included elsewhere in this prospectus. We have included in our opinion, all adjustments necessary to state fairly our results of operations for these periods.

Our historical results are not necessarily indicative of the results to be expected in the future and our results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the full year or any other future period. You should read the following information in conjunction with the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the accompanying notes and other financial information included elsewhere in this prospectus.

 

    Successor     Predecessor               
    Year Ended
December 31,
           Three Months Ended
March 31,
 
            2020                     2019                            2021                     2020          
    (in thousands, except share/unit and per share/unit data)  

Consolidated Statement of Operations Data

            

Revenues

  $ 463,441     $ 412,846          $ 137,642     $ 103,499  

Cost of revenues (exclusive of depreciation and amortization)

    169,131       157,686            51,561       37,264  

Operating expenses

            

Selling, general and administrative expenses

    90,036       90,397            28,602       21,245  

Depreciation and amortization

    205,697       64,602            53,044       50,924  

Acquisition-related expenses

    38,469       26,789            9,062       17,463  
 

 

 

   

 

 

        

 

 

   

 

 

 

Total operating expenses

    334,202       181,788            90,708       89.632  

Operating (loss) income

    (39,892     73,372            (4,627     (23,397

Other expense

            

Interest expense

    91,310       55,415            21,735       22,794  

Other expense (income)

    2,976       43            25       (8
 

 

 

   

 

 

        

 

 

   

 

 

 

Total other expense

    94,286       55,458            21,760       22,786  

(Loss) income before income taxes

    (134,178     17,914            (26,387     (46,183

Income tax benefit

    (38,904     (279          (5,763     (16,091
 

 

 

   

 

 

        

 

 

   

 

 

 

Net (loss) income

  $ (95,274   $ 18,193          $ (20,624   $ (30,092
 

 

 

   

 

 

        

 

 

   

 

 

 

 

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    Successor     Predecessor                
    Year Ended
December 31,
            Three Months Ended
March 31,
 
            2020                     2019                             2021                     2020          
    (in thousands, except share/unit and per share/unit data)  

Net loss per common share:(6)

             

Basic and diluted

  $ (95,083.83           $ (20,419.80   $ (30,092.00

Weighted average common shares outstanding:(6)

             

Basic and diluted

    1,002               1,010       1,000  
 

 

 

           

 

 

   

 

 

 

Net income per common unit:

             

Basic and diluted

      12.59            
   

 

 

           

Weighted average common units outstanding:

             

Basic and diluted

      610,971            
   

 

 

           

 

     As of March 31, 2021  
     Actual     

 

     As Adjusted(1)  
     (in thousands)  

Consolidated Balance Sheet Data

        

Cash and cash equivalents

   $ 174,988         $                    

Total assets

     3,811,638        

Total debt

     1,366,034        

Total liabilities

     1,892,817        

Total stockholders’ equity

     1,918,821        

Total liabilities and stockholders’ equity

     3,811,638        

 

     Successor     Predecessor                     
     Year Ended December 31,      Three Months Ended March 31,  
     2020     2019                    2021                     2020          
     (in thousands)          

Consolidated Cash Flows Data

             

Net cash provided by (used in):

             

Operating activities

   $ 124,201     $ 61,390          $ 16,316     $ 651  

Investing activities

     (3,055,651     (101,864          (14,882     (2,905,898

Financing activities

     3,109,528       38,747            (4,532     3,098,713  

 

     Successor      Predecessor                       
     Year Ended
December 31,
            Three Months Ended March 31,  
     2020      2019                     2021                      2020          
     (dollars in thousands)  

Other Financial and Operating Data

                

Adjusted EBITDA(2)

   $ 218,363      $ 168,718           $ 59,124      $ 47,600  

Bookings(3)

   $ 621,823      $ 555,194           $ 266,190      $ 171,787  

Backlog(4)

   $
701,720
 
   $ 595,526             

Client engagements(5)

     12,706        10,782             13,441        11,075  

 

(1)

The as adjusted consolidated balance sheet data reflects the Distribution, the filing and effectiveness of our amended and restated certificate of incorporation and amended and restated bylaws and the sale and issuance by us of             shares of common stock in this offering at an assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses


 

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  payable by us. A $1.00 increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) each of cash and cash equivalents, total assets and total stockholders’ equity by $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The as adjusted data discussed above is illustrative only and will be adjusted based on the actual initial public offering price and other terms of our initial public offering determined at pricing.

 

(2)

We define Adjusted EBITDA, which is a non-GAAP measure, as net (loss) income excluding interest expense, income taxes, depreciation and amortization, equity-based compensation expense, integration costs, acquisition related adjustments, restructuring costs, litigation costs, change in value of contingent consideration, management fees, charitable contributions and other items not indicative of our ongoing operating performance. For information about why we consider Adjusted EBITDA useful and a discussion of the material risks and limitations of this measure, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures.”

The following table reconciles net (loss) income to Adjusted EBITDA.

 

     Successor     Predecessor                     
     Year Ended December 31,            Three Months Ended March 31,  
     2020     2019                    2021                     2020          
     (in thousands)        

Net (loss) income

   $ (95,274   $ 18,193          $ (20,624   $ (30,092

Interest expense

     91,310       55,415            21,735       22,794  

Income tax benefit

     (38,904     (279          (5,763     (16,091

Depreciation and amortization

     205,697       64,602            53,044       50,924  

Equity-based compensation expense

     4,594       —              1,284       —    

Integration cost(a)

     20,172       12,241            6,073       6,213  

Acquisition-related adjustments(b)

     21,242       14,913            (59     13,797  

Restructuring costs(c)

     5,169       (3          530       —    

Litigation(d)

     2,829       —              (22     —    

Change in value of contingent consideration(e)

     1,358       1,011            2,926    

Management fees(f)

     55       2,125            —         55  

Charitable contribution(g)

     —         500            —         —    

Other(h)

     115       —              —         —    
  

 

 

   

 

 

        

 

 

   

 

 

 

Adjusted EBITDA

   $ 218,363     $ 168,718          $ 59,124     $ 47,600  
  

 

 

   

 

 

        

 

 

   

 

 

 

 

  (a)

Includes certain integration costs in connection with mergers and acquisitions, including the Transaction, the acquisition of Trifecta Multimedia, LLC (“Trifecta”), and other acquisitions made by WCG. These costs include system integration costs, marketing and rebranding costs, and certain payroll and employee related expenses.

  (b)

Includes legal and professional costs related to the Company’s mergers and acquisitions. Costs related to the Transaction for the years ended December 31, 2020 and 2019, and the three months ended March 31, 2020, were $15.0 million, $10.2 million and $11.8 million, respectively. Costs related to the Trifecta acquisition were $0.9 million, which occurred during the year ended December 31, 2020. Costs related to other acquisitions made by WCG were $5.3 million for the year ended December 31, 2020 and $4.7 million for the year ended December 31, 2019.

  (c)

Includes costs related to restructuring initiatives and the closing of a product line, and impairment of related assets.


 

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  (d)

Includes litigation costs outside of the ordinary course of business related to settlement with certain employees.

  (e)

Includes valuation adjustments for acquisition-related contingent consideration, which is subject to remeasurement at each balance sheet date. Any change in the fair value of such acquisition-related contingent consideration is reflected in our condensed consolidated statements of operations as a change in fair value of the liability. We adjust the carrying value of the acquisition-related contingent consideration until the contingency is finally determined or final payment is made.

  (f)

Includes management fee paid to our prior sponsor in 2019 and 2020. Upon completion of the Transaction on January 8, 2020, this management fee was eliminated.

  (g)

Includes a contribution to the WCG Foundation, a charitable organization for developing grants and programs for education.

  (h)

Reflects one-time costs related to the preparation for this offering.

(3)

Bookings represents the dollar value of all new signed contracts, purchase orders, and site notifications of required ethical review services during a period.

(4)

Backlog represents the dollar value of all unsatisfied performance obligations at a point in time as well as revenue expected to be recognized in the next twelve months from IRB recurring services.

(5)

Client engagements represent the number of all active client contracts as of the periods ended shown above, between the Company and a CRO, clinical research site, partner organization or biopharmaceutical sponsor. Through these client engagements, the Company delivers value in exchange for direct remuneration or establishes or supports the contractual frameworks for the delivery of solutions to be provided by the Company.

(6)

We have made a correction to previously disclosed amounts to correct for an error related to the basic and diluted net (loss) per share for the year ended December 31, 2020 (Successor). The correction of this presentation error had no impact on the Successor’s previously reported consolidated net (loss) and comprehensive (loss) for the year ended December 31, 2020 (Successor). Refer to Note 9. Earnings (Loss) per Share/Unit to the audited Consolidated Financial Statements for additional information.


 

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RISK FACTORS

You should carefully consider the risks described below, together with all of the other information included in this prospectus, including our consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision. Our business, financial condition and results of operations could be materially and adversely affected by any of these risks or uncertainties. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. Furthermore, the potential impact of the COVID-19 pandemic on our business operations and financial results and on the world economy as a whole may heighten the risks described below.

Risks Related to Our Business

Our continued revenue growth depends on our ability to successfully increase our client base and expand our relationships and the products, technologies and services we provide to our existing clients.

Our products and services are used primarily by biopharmaceutical companies and CROs, trial sites, institutions and investigators, as well as patients and advocacy groups. We have relationships with many large companies in the clinical trial ecosystem, and part of our growth strategy entails deriving more revenues from these existing clients by expanding their use of our existing and new products, technology and services. Our ability to increase revenues with existing clients may be limited without significant investment in marketing our existing products, technologies and services or developing new offerings, which could be time-consuming and costly and may not be successful.

We are also focused on increasing the number of small biotechnology clients we serve. These relatively small companies are increasingly responsible for much of the discovery and development of new treatments, and their share of the total industry research and development discovery and development spending is rapidly growing. Attracting these smaller clients may require us to expend additional resources on targeted marketing, as they may not be as familiar with our Company or products. Although these small biotechnology companies tend to use third parties, such as WCG, for many of their development activities, these smaller companies also tend to be less financially secure. If their products are not successful or they have difficulty raising sufficient investment capital, they may not be able to timely or fully pay for our services, or they may terminate or decrease the scope of projects for which they use our products and services, which could adversely impact our revenues.

Our strategy also includes expanding into new solutions and new geographies, either organically or by acquiring other companies in these markets. For example, we recently acquired several leading clinical trial management service companies, including Trifecta, Statistics Collaborative, Inc. (“SCI”), and PharmaSeek, LLC (“PharmaSeek”). If our strategies are not executed successfully, or we cannot integrate acquired solutions into our platform, our products and services may not achieve market acceptance or penetration in targeted new categories within our existing clients or new clients. See “—We may acquire other companies or technologies, which could divert our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and materially affect our operating results.” We cannot guarantee that we will be able to identify new technologies of interest to our clients, or develop or acquire them in a timely fashion. We may also face pricing pressure as we expand geographically and our client profile evolves. For example, smaller biotechnology companies, or companies based in countries that have less developed economies, may not be able to afford our products and services at our customary rates. If we are unable to develop or acquire new services and products and/or create demand for those newly developed services and products, accelerate the development of products where there is a market demand, or maintain or increase our historic pricing levels, our future business, results of operations, financial condition and cash flows could be materially adversely affected.

We have experienced rapid growth, and if we fail to manage our growth effectively, we may be unable to execute our business plan. Our recent growth may also not be sustainable or indicative of future growth.

In recent years we have experienced rapid growth and expansion of our operations. Our revenues, client count, product and service offerings, countries of operation, facilities and computing infrastructure needs have all

 

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increased significantly, and we expect them to increase in the future. We have also experienced rapid growth in our employee base. As we continue to grow, both organically and through acquisitions, we must effectively integrate, develop, and motivate an increasing number of employees, while executing our growth plan and maintaining the beneficial aspects of our culture. Any failure to preserve our culture could materially adversely affect our future success, including our ability to attract and retain highly qualified employees and to achieve our business objectives.

Our rapid growth has placed, and will continue to place, a significant strain on our management capabilities, administrative and operational infrastructure, facilities and other resources. We anticipate that additional investments in our facilities and computing infrastructure will be required to maintain and grow our operations. To effectively manage growth, we must continue to: improve our key business applications, processes, and computing infrastructure; enhance information and communication systems; and ensure that our policies and procedures evolve to reflect our current operations. These enhancements and improvements will require additional investments and allocation of valuable management and employee time and resources. Failure to effectively manage growth could result in difficulty or delays in deploying our solutions, declines in quality or client satisfaction, increases in costs, difficulties in introducing new features or other operational difficulties, and any of these difficulties could materially adversely affect our business performance and results of operations.

Additionally, our historical rate of growth may not be sustainable or indicative of our future rate of growth. While we have experienced significant revenue growth in prior periods, it is not indicative of our future revenue growth. In our fiscal years ended December 31, 2019 and 2020, our revenues grew by 19% and 12%, respectively, as compared to total revenues from the prior fiscal year, and our revenues for the three months ended March 31, 2021 grew by 33% compared to our revenues from the same period in the prior fiscal year. Our revenue growth rate has declined in the past and we expect it to decline again in the future. You should not rely on our historical rate of revenue growth as an indication of our future performance. If we are unable to maintain consistent revenue growth, it may adversely impact our profitability and the value of our common stock.

We believe that our continued growth in revenue, as well as our ability to improve or maintain margins and profitability, will depend upon, among other factors, our ability to address the challenges, risks and difficulties described elsewhere in this “Risk Factors” section and the extent to which our various product offerings grow and contribute to our results of operations. We cannot provide assurance that we will be able to successfully manage any such challenges or risks to our future growth. In addition, our client base may not continue to grow or may decline due to a variety of possible risks, including increased competition, changes in the regulatory landscape and the maturation of our business. Any of these factors could cause our revenue growth to decline and may materially adversely affect our margins and profitability. Failure to continue our revenue growth or improve margins would have a material adverse effect on our business, results of operations and financial condition.

As our costs increase, we may not be able to sustain the level of profitability we have achieved in the past.

We expect our future expenses to increase as we continue to invest in and grow our business. We expect to incur significant future expenditures related to:

 

   

developing new solutions and enhancing our existing solutions;

 

   

improving the technology infrastructure, scalability, availability, security, and support for our solutions;

 

   

expanding and deepening our relationships with our existing client base, including expenditures related to increasing the adoption of our solutions by the R&D departments of biopharmaceutical companies;

 

   

sales and marketing, including expansion of our direct sales organization and global marketing programs;

 

   

expansion of our professional services organization;

 

   

employee compensation, including stock-based compensation;

 

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international expansion;

 

   

acquisitions and investments; and

 

   

general operations, IT systems, and administration, including legal and accounting expenses related to being a public company.

If our efforts to increase revenues and manage our expenses are not successful, or if we incur costs, damages, fines, settlements, or judgments as a result of other risks and uncertainties described in this report, we may not be able to sustain or increase our historical levels of profitability.

The markets in which we participate are highly competitive, and if we do not compete effectively, our business and operating results could be materially adversely affected.

The markets for our solutions and services are highly competitive. Examples of companies that provide point solutions that compete with one or a few of our products and services include: Advarra, Inc., eResearch Technology, Inc., Medidata Solutions, Inc., Signant Health and other providers. With the introduction of new technologies, we expect competition to intensify in the future, and we may face competition from new market entrants as well.

Some of our actual and potential competitors have advantages over us, such as longer operating histories, significantly greater financial, technical, marketing or other resources, stronger brand and business recognition, and agreements with a broader set of industry participants and other partners. If our competitors’ products, services or technologies become more accepted than our solutions, if they are successful in bringing their products or services to market earlier than we are, if their products or services are more technologically capable than ours, or if clients replace our solutions with custom-built software, then our revenues could be materially adversely affected. Pricing pressures and increased competition could result in reduced sales, reduced margins, losses or a failure to maintain or improve our competitive market position, any of which could materially adversely affect our business. For all of these reasons, we may not be able to compete favorably against our current and future competitors.

As clients increase their utilization of our products and services, we may be subject to additional pricing pressures.

One of our strategic goals is to increase the breadth and utilization of products and services we provide to our existing clients, such as increasing the number of user licenses for our software products, selling licenses for new software products and expanding the number and scope of services we provide to individual clients. As the total annual expenditure from a particular client increases, we may experience pricing pressure, often from the client’s procurement department, in the form of requests for discounts or rebates, price freezes and less favorable payment terms. This could have a material adverse effect on our profitability.

An inability to attract and retain highly skilled employees and contingent workers could materially adversely affect our business.

To execute our growth plan, we must attract and retain highly qualified employees and contingent workers. Competition for employees in the clinical trial ecosystem is intense. We have, from time to time, experienced, and we expect to continue to experience, difficulty in hiring and retaining employees and contingent workers with the appropriate level of qualifications. With respect to our employees, even if we are successful in attracting highly qualified personnel, it may take several months or longer before they are fully trained and productive. Many of the companies with which we compete for experienced employees and contingent workers have greater resources than we have and may offer compensation packages that are perceived to be better than ours. For example, we offer equity awards to executive and senior leadership hires and existing employees as part of their overall compensation package. If the perceived value of our equity awards declines, including as a result of

 

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declines in the market price of our common stock or changes in perception about our future prospects, it may adversely affect our ability to recruit and retain experienced and highly skilled executives. Additionally, changes in our compensation structure may be negatively received by employees and contingent workers and result in attrition or cause difficulty in the recruiting process. If we fail to attract new employees and contingent workers or fail to retain and motivate our current employees and contingent workers, our business and future growth prospects could be materially adversely affected.

Defects or disruptions in our solutions could result in diminished demand for our solutions, a reduction in our revenues, and subject us to substantial liability.

We have from time to time found defects in our solutions, and new defects may be detected in the future. In addition, we have experienced, and may in the future experience, service disruptions, degradations, outages and other performance problems. These types of problems may be caused by a variety of factors, including human or software errors, viruses, cyber-attacks, fraud, spikes in client usage, problems associated with our third-party computing infrastructure and network providers, infrastructure changes, and denial of service issues. Service disruptions may result from errors we make in delivering, configuring, or hosting our solutions, or designing, installing, expanding, or maintaining our computing infrastructure. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. It is also possible that such problems could result in losses of client data or our own sensitive or proprietary information.

Since our clients use our solutions for important aspects of their business, any errors, defects, disruptions, service degradations, or other performance problems with our solutions could hurt our reputation and may damage our clients’ businesses. If that occurs, our clients may delay or withhold payment to us, cancel their agreements with us, elect not to renew, or make service credit claims, warranty claims, or other claims against us, and we could lose future sales. The occurrence of any of these events could result in diminishing demand for our solutions, a reduction of our revenues, an increase in our bad debt expense or in collection cycles for accounts receivable, or could require us to incur the expense of litigation or substantial liability.

We may acquire other companies or technologies, which could divert our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and adversely affect our operating results.

We have in the past acquired and may in the future seek to acquire or invest in businesses, solutions or technologies that we believe could complement or expand our solutions, enhance our technical capabilities or otherwise offer growth opportunities. For example, in June 2021, we acquired Intrinsic, a medical imaging core lab, in April 2021, we acquired The Avoca Group, Inc., a life science consulting firm (“Avoca”), in 2020, we acquired Trifecta, a provider of clinical trial site communications platforms, and in 2019, we made four acquisitions, including our acquisition of Velos LLC, a provider of clinical trial management solutions. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not they are consummated.

We may not be able to successfully integrate the acquired personnel, operations, and technologies, or effectively manage the combined business following an acquisition. We also may not achieve the anticipated benefits from the acquired business due to a number of factors, including:

 

   

inability to integrate or benefit from acquired technologies or services in a profitable manner;

 

   

costs, liabilities, or accounting charges associated with the acquisition;

 

   

difficulty integrating the privacy, data security, and accounting systems, operations, and personnel of the acquired business;

 

   

difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of the acquired business;

 

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difficulty converting the clients of the acquired business onto our solutions and contract terms, including due to disparities in the revenues, licensing, support, or professional services model of the acquired company;

 

   

diversion of management’s attention from other business concerns;

 

   

problems arising from differences in applicable accounting standards or practices of the acquired business (for instance, non-U.S. businesses may not be accustomed to preparing their financial statements in accordance with GAAP) or difficulty identifying and correcting deficiencies in the internal controls over financial reporting of the acquired business;

 

   

material adverse effects to business relationships with our existing business partners and clients as a result of the acquisition;

 

   

difficulty in retaining key personnel of the acquired business;

 

   

use of substantial portions of our available cash to consummate the acquisition;

 

   

use of resources that are needed in other parts of our business; and

 

   

the possibility of investigation by, or the failure to obtain required approvals from, governmental authorities on a timely basis, if at all, under various regulatory schemes, including competition laws, which could, among other things, delay or prevent us from completing a transaction, subject the transaction to divestiture after the fact, or otherwise restrict our ability to realize the expected financial or strategic goals of the acquisition.

In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired intangible assets and goodwill, which we must assess for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process, which could adversely affect our results of operations. See “—Risks Related to Our Financial Performance, How We Contract with Customers, and the Financial Position of Our Business—Impairment of goodwill or other intangible assets may materially adversely affect future results of operations.” Acquisitions may also result in purchase accounting adjustments, write-offs or restructuring charges, which may materially adversely affect our results.

Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results. In addition, if an acquired business fails to meet our expectations, our business, results of operations and financial condition may be materially adversely affected.

Our business could be materially adversely affected if our clients are not satisfied with the professional services provided by us or our partners, or with our technical support services.

Our business depends on our ability to satisfy our clients, both with respect to our solutions and the professional services that are performed in connection with our solutions. If a client is not satisfied with the quality of work performed by us or with the solutions delivered or professional services performed, then we could incur additional costs to address the situation, we may be required to issue credits or refunds for pre-paid amounts related to unused services, the profitability of that work might be impaired and the client’s dissatisfaction with our services could damage our ability to expand the number of solutions subscribed to by that client. Moreover, negative publicity related to our client relationships, regardless of its accuracy, may further damage our business by affecting our ability to compete for new business with current and prospective clients.

Once our solutions are deployed, our clients depend on our support organization to resolve technical issues relating to our solutions. We may be unable to respond quickly enough to accommodate short-term increases in client demand for technical support services. Increased client demand for our services, without corresponding revenues, could increase costs and adversely affect our operating results. In addition, our sales process is highly

 

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dependent on the reputation of our solutions and business and on positive recommendations from our existing clients. Any failure to maintain high-quality technical support, or a market perception that we do not maintain high-quality support, could materially adversely affect our reputation, our ability to sell our solutions to existing and prospective clients, and our business, results of operations and financial condition.

We are subject to risks associated with the operation of a global business. Operating in international markets requires significant resources and management attention and subjects us to regulatory, economic and political risks that are different from those in the United States. We face risks in doing business internationally that could adversely affect our business, including:

 

   

the need and expense to localize and adapt our solutions for specific countries, including translation into foreign languages, and ensuring that our solutions enable our clients to comply with local biopharmaceutical industry laws and regulations;

 

   

data privacy laws which require that client data be stored and processed in a designated territory;

 

   

difficulties in staffing and managing foreign operations, including employee laws and regulations;

 

   

different pricing environments, longer sales cycles and longer accounts receivable payment cycles, and collections issues;

 

   

new and different sources of competition;

 

   

weaker protection for intellectual property and other legal rights than in the United States and practical difficulties in enforcing intellectual property and other rights outside of the United States;

 

   

laws and business practices favoring local competitors;

 

   

compliance challenges related to the complexity of multiple, conflicting and changing governmental laws and regulations, including employment, tax, privacy and data protection, and anti-bribery laws and regulations;

 

   

increased financial accounting and reporting burdens and complexities;

 

   

restrictions on the transfer of funds;

 

   

adverse tax consequences, including the potential for non-U.S. withholding tax obligations imposed on any repatriations of non-U.S. funds to the United States;

 

   

fluctuations in the exchange rates of foreign currency in which our foreign revenues or expenses may be denominated;

 

   

changes in trade relations and trade policy, including the status of trade relations between the United States and China, and the implementation of or changes to trade sanctions, tariffs, and embargoes;

 

   

public health crises, such as epidemics and pandemics, including COVID-19; and

 

   

unstable regional and economic political conditions in the markets in which we operate.

Some of our business partners also have international operations and are subject to the risks described above. Even if we are able to successfully manage the risks of international operations, our business may be materially adversely affected if our business partners are not able to successfully manage these risks, which could materially adversely affect our business.

We are subject to laws and regulations related to compliance with economic sanctions that could impair our ability to compete in international markets in which our products may not be sold or subject us to liability if we violate these laws and regulations.

Our business is subject to economic sanctions laws and regulations, including those administered and enforced by the U.S. Department of Treasury’s Office of Foreign Assets Control, the U.S. Department of State,

 

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the United Nations Security Council and other relevant government authorities. These laws and regulations generally prohibit the sale of products or provision of services to countries, governments, and persons targeted by sanctions. Under current sanctions laws and regulations, our products may not be sold in certain jurisdictions in which certain of our non-U.S. based clients have operations. As a result, such clients may choose to use solutions other than ours. While we take precautions to prevent our products and services from being sold in violation of these laws and regulations, we cannot guarantee that the precautions we take will prevent violations. Violations of sanctions laws or regulations may expose us to significant penalties, including criminal fines, imprisonment, civil fines, disgorgement of profits, injunctions and debarment from government contracts, as well as other remedial measures. Investigations of alleged violations can be expensive and disruptive. In the event of criminal knowing and willful violations of these laws, fines and possible incarceration for responsible employees and managers could be imposed. Any such violation could materially adversely affect our reputation, business, results of operations and financial condition.

We are subject to the FCPA, the Bribery Act and similar applicable anti-corruption laws and regulations in other countries. Violations of these laws and regulations could harm our reputation and business, or materially adversely affect our business, results of operations, financial condition and/or cash flows.

We operate in numerous countries around the world and are subject to the Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act 2010 (“Bribery Act”) and similar anti-corruption laws in the countries in which we operate. Our international business may bring us into direct and indirect interactions with officials and employees of government agencies or state-owned or affiliated entities, including physicians, health care professionals, and other state-owned or affiliated hospitals. The FCPA prohibits us and our officers, directors, employees and third parties acting on our behalf, including agents, from corruptly offering, promising, authorizing or providing anything of value to government officials, political parties, or political candidates for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The FCPA further requires us to make and keep books, records and accounts that accurately and fairly reflect transactions and dispositions of assets and to maintain a system of adequate internal accounting controls. The Bribery Act also extends beyond bribery of government officials and creates offenses in relation to “commercial” bribery and accepting bribes, including private sector recipients.

We have implemented an anti-corruption compliance program and policies, procedures and training designed to foster compliance with these laws, including the FCPA, and the Bribery Act. However, our directors, officers, employees, contractors, agents, and others acting on our behalf, may take actions in violation of our policies or applicable law. Any such violation could have a material adverse effect on our reputation, business, results of operations and prospects.

Any violation of the FCPA, Bribery Act, or other applicable anti-corruption laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, related stockholder lawsuits, severe criminal or civil sanctions and, in the case of the FCPA, suspension or debarment from U.S. government contracts, any of which could have a materially adverse effect on our reputation, business, results of operations, financial condition and prospects. In addition, responding to any enforcement action or internal investigation related to alleged misconduct may result in a significant diversion of management’s attention and resources and significant defense costs and other professional fees.

Our estimate of the market size for our solutions we have provided publicly may prove to be inaccurate, and even if the market size is accurate, we cannot assure you our business will serve a significant portion of the market.

Our estimate of the market size for our solutions that we have provided publicly, sometimes referred to as total addressable market (“TAM”), is subject to significant uncertainty and is based on assumptions and estimates, including our internal analysis and industry experience, which may not prove to be accurate. These estimates are, in part, based upon the size of the general application areas in which our solutions are targeted. Our

 

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ability to serve a significant portion of this estimated market is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. For example, in order to address the entire TAM we have identified, we must continue to enhance and add functionality to our existing solutions and introduce new solutions. Accordingly, even if our estimate of the market size is accurate, we cannot assure you that our business will serve a significant portion of this estimated market for our solutions.

Our bookings, backlog and client engagements might not accurately predict our future revenue, and we might not realize all or any part of the anticipated revenues reflected in our bookings, backlog and client engagements.

Our bookings represent the dollar value of all new signed contracts, purchase orders, and site notifications of required ethical review services during a period. Our backlog represents the dollar value of all unsatisfied performance obligations at a point in time as well as revenues expected to be recognized in the next twelve months from IRB recurring services. Our client engagements represent the number of all active client contracts as of a period end, between us and a CRO, clinical research site, partner organization or biopharmaceutical sponsor. Through these client engagements, we deliver value in exchange for direct remuneration or establish or support the contractual frameworks for the delivery of our solutions. Bookings, backlog and client engagements vary from period to period depending on numerous factors, including the overall health of the biopharmaceutical industry, regulatory developments, industry consolidation, and sales performance. Once work begins, we severally recognize revenues over the life of the contract based on our performance of services under the contract, which may occur in the same period where we recognize the related bookings. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Performance–Growing Bookings, Backlog and Client Engagements.” Contracts may be terminated or delayed by our clients for reasons beyond our control. To the extent projects are delayed, the anticipated timing of our revenues could be materially adversely affected.

In the event a client terminates a contract, we are generally entitled to be paid for services rendered through the termination date and for services provided in winding down the project. However, we are generally not entitled to receive the full amount of revenues reflected in our bookings in the event of a contract termination. A number of factors may affect bookings, backlog and client engagements and the revenues generated from our bookings and client engagements, including:

 

   

the size, complexity and duration of solutions;

 

   

changes in the scope of work during the course of a clinical trials; and

 

   

the cancellation or delay of a solution.

Our bookings for the year ended December 31, 2020 were $621.8 million compared to bookings of $555.2 million for the year ended December 31, 2019, and our bookings for the three months ended March 31, 2021 were $266.2 million compared to bookings of $171.8 million for the three months ended March 31, 2020. Our backlog for the year ended December 31, 2020 was $701.7 million compared to backlog of $595.5 million for the year ended December 31, 2019. Our client engagements as of March 31, 2021 were 13,441 compared to client engagements of 11,075 as of March 31, 2020. Our client engagements as of December 31, 2020 were 12,706 compared to client engagements of 10,782 as of December 31, 2019. Although we expect an increase in bookings, backlog and client engagements will generally result in an increase in future revenues to be recognized over time (depending on future contract modifications, contract cancellations and other adjustments), an increase in bookings, backlog and client engagements over a particular period in time does not necessarily correspond to an increase in revenues during a particular period. For example, cancelled or delayed projects remain in bookings when they are cancelled in a subsequent period from when they were first booked (even though backlog would be adjusted to reflect the loss of the value of the cancelled projects). The timing and extent to which bookings, backlog and client engagements will result in revenues depends on many factors, including the timing of commencement of work, the rate at which we perform services, scope changes, cancellations, delays, receipt of

 

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regulatory approvals and the nature, duration, size, complexity and phase of the studies. In addition, delayed projects remain in client engagements until they are canceled or completed. As a result of these factors, bookings, backlog and client engagements are not necessarily a reliable indicator of future revenues and we might not realize all or any part of the revenues from the authorizations in bookings, backlog and client engagements as of any point in time.

Our business may be subject to risks arising from natural disasters and epidemic diseases, such as the recent COVID-19 pandemic.

We may be subject to risks related to natural disasters and public health crises, such as the global pandemic associated with COVID-19. Since its initial outbreak in late 2019, SARS-CoV-2, and the resulting disease COVID-19, has rapidly spread throughout the world. During the pandemic, our clients, employees, contractors, vendors and other partners have been, and may continue to be, hindered or prevented from conducting customary business activities. Most countries and public health organizations have recommended or mandated restrictions on non-essential travel or entry into certain jurisdictions, which has, among other things, impacted our ability to meet face-to-face with our clients.

The COVID-19 pandemic has also had a significant and sustained negative impact on the global economy and a negative impact on many of our clients. Many of our clients have experienced or may in the future be adversely impacted by supply chain interruptions, disruptions to pipeline development and clinical trials, decreased product demand (including due to reduced elective healthcare consumption and as a result of increased unemployment), costs associated with the COVID-19 pandemic and interruptions or delays in regulatory approvals due to the impact of the COVID-19 pandemic on the operations of certain regulatory authorities. We may also see a reduction in total users of our solutions due to layoffs resulting from the COVID-19 pandemic in the biopharmaceutical industry. These and other material adverse effects on our clients and economic conditions related to the COVID-19 pandemic may cause our clients to significantly scale back their operations or research and development spending and limit the use of third parties, which could have a material adverse effect on our business.

We have undertaken several actions to mitigate and/or limit the spread of COVID-19 amongst our employees, including restricting employee travel, closing our offices in compliance with local guidelines and, when reopening offices, implementing a number of safety measures, such as requiring vaccinations and/or increasing sanitation, mandating social distancing or use of personal protective equipment, and limiting the number of employees at each location. Furthermore, even if we follow what we believe to be best practices, there can be no assurance that our measures will prevent the transmission of COVID-19 between employees. Any incidents of actual or perceived transmission may expose us to liability claims, adversely impact employee productivity and morale, and result in negative publicity and reputational harm.

Travel restrictions and the cancellation of industry conferences have significantly limited face-to-face interactions with existing and potential clients, which have traditionally been an effective avenue for developing new business. If our employees and contractors are not able to effectively communicate and interact with our existing and potential clients remotely, a prolonged period of limited direct contact with clients could translate into reduced contracts for our products and services, and could negatively impact our revenue generation.

The continued spread of COVID-19 could also materially adversely affect our business, financial condition or results of operations as a result of increased costs, negative impacts to our healthy workforce, or a sustained economic downturn. The extent to which the COVID-19 pandemic may impact our business in the future is highly uncertain and cannot be predicted. In addition, a recession or a prolonged period of depressed economic activity related to COVID-19 and measures taken to mitigate its spread could have a material adverse effect on our business, financial condition and results of operations.

In addition to the current COVID-19 pandemic, our business could be negatively impacted by other new disease epidemics, and such events may also exacerbate a number of the other risks discussed in this section, any

 

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of which could have a material effect on us. We are a global company with operations in many countries. Disruptions due to COVID-19 or similar epidemics or pandemics, either on a local or global scale, could adversely affect our ability to serve our clients.

Our internal control over financial reporting does not currently meet the standards required by Section 404 of the Sarbanes-Oxley Act and if we are unable to effectively implement or maintain a system of internal control over financial reporting, we may not be able to accurately or timely report our financial results and our stock price could be adversely affected.

We are in the process of evaluating our internal controls systems to allow management to report on, and our independent registered public accounting firm to audit, our internal controls over financial reporting. We will be performing the system and process evaluation and testing (and any necessary remediation) required to comply with the management certification and, if required, the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We will be required to comply with Section 404 in full (including an auditor attestation on management’s internal controls report) in our annual report on Form 10-K for the year following our first annual report required to be filed with the SEC (subject to any change in applicable SEC rules). Furthermore, upon completion of this process, we may identify control deficiencies of varying degrees of severity under applicable SEC and PCAOB rules and regulations that require remediation. As a public company, we will be required to report, among other things, control deficiencies that constitute a “material weakness” or changes in internal controls that, or that are reasonably likely to, materially affect internal controls over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A “significant deficiency” is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting.

To comply with the requirements of being a public company, we have undertaken various actions, and may need to take additional actions, such as implementing and enhancing our internal controls and procedures and hiring additional accounting or internal audit staff. Testing and maintaining internal controls can divert our management’s attention from other matters that are important to the operation of our business.

We identified a material weakness in our internal control over financial reporting as we had not designed or maintained an effective control environment and associated control activities to meet our accounting and reporting requirements. Specifically we did not have appropriately designed and implemented internal controls to ensure (i) appropriate segregation of duties by restricting user and privileged access to certain financial applications, including the approval of journal entries, and (ii) the review and approval of account balance reconciliations which did not allow for reliable financial reporting.

During 2021, we established a remediation plan to address our material weakness and we have been actively engaged in the implementation of remediation efforts to address the material weakness. As part of our commitment, we have established reviews over journal entries and account balance reconciliations and continue to evaluate the additional internal controls we have designed during 2020 and 2021. When we are satisfied these internal controls have operated in our business in an effective manner for a sufficient period of time we will determine if we have remediated our material weakness.

We have not been required to provide a management assessment of internal controls under section 404(a) of the Sarbanes-Oxley Act. It is possible that if we had a 404(a) assessment, additional material weaknesses may have been identified. Additionally, our registered independent public accounting firm has not been engaged to perform an audit of our internal controls over financial reporting.

In the future, it is possible that additional material weaknesses or significant deficiencies may be identified that we may be unable to remedy in time to meet the applicable deadline imposed upon us for compliance with

 

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the requirements of Section 404. Our ability to comply with the annual internal control reporting requirements will depend on the effectiveness of our financial reporting and data systems and controls across our Company. If we identify any additional material weaknesses in our internal control over financial reporting or are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, if we are required to make restatements of our financial statements, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy, completeness or reliability of our financial reports and the trading price of our common stock may be adversely affected, and we could become subject to sanctions or investigations by The Nasdaq Global Select Market, the SEC or other regulatory authorities, which could require additional financial and management resources. In addition, if we fail to remedy any material weakness, our financial statements could be inaccurate and we could face restricted access to the capital markets.

If our security measures or those of our vendors are breached or unauthorized access to IT systems or client data is otherwise obtained, our solutions may be perceived as not being secure, clients may reduce the use of or stop using our solutions, and we may incur significant liabilities.

The evolution of technology systems introduces ever more complex security risks that are difficult to predict and defend against. An increasing number of companies, including those with significant online operations, have recently disclosed breaches of their security and other similar incidents, some of which involved sophisticated tactics and techniques allegedly attributable to criminal enterprises or nation-state actors. While we believe that we have taken appropriate measures designed to prevent unintended access to, and use and disclosure of, the data we hold (including implementing security and privacy controls, training our workforce and implementing new technology) and we continue to improve and enhance our systems in this regard, our efforts may not always be successful, particularly as security threats evolve and become more difficult to detect and successfully defend against. In addition, we do not know whether our current practices will be deemed sufficient under applicable laws or whether new regulatory requirements might make our current practices insufficient.

Our solutions involve the collection, use, analysis, processing, transmission, storage and disclosure of our clients’ clinical trial data and personal data. Unauthorized access to, or use or disclosure of, this information or data, whether by third-party action or employee error, and whether deliberate or unintentional, could result in the loss of information, litigation, indemnity obligations, damage to our reputation and other liability. Our increased reliance on remote access to our information systems due to the COVID-19 pandemic has increased our exposure to potential cybersecurity breaches and the risk of loss or exposure of such information and data. Despite measures designed to prevent, detect, address, and mitigate cybersecurity incidents, such incidents may occur. Additionally, we rely on third parties and their security procedures for the secure storage, processing, maintenance, and transmission of information that is critical to our operations and such third-parties may also experience cybersecurity incidents. Depending on their nature and scope, this could potentially result in the misappropriation, destruction, corruption, unavailability, or unauthorized access or disclosure of critical data and confidential or proprietary information (our own or that of third parties, including information about our clients and employees) and the disruption of business operations.

Any or all of these issues could materially adversely affect our ability to attract new clients, cause existing clients to terminate their business or elect to not renew their subscriptions, result in reputational damage, or subject us to third-party lawsuits, regulatory fines, mandatory disclosures, or other action or liability, which could result in material costs or otherwise adversely affect our operating results. Our insurance may not be adequate to cover losses associated with such events, and in any case, such insurance may not cover all of the types of costs, expenses, and losses we could incur to respond to and remediate a security incident or breach.

 

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Risks Related to the Principal Industry We Serve

Nearly all of our revenues are generated by sales of our products and services to clients in, or connected to, the biopharmaceutical industry, and factors that adversely affect this industry, including mergers within the biopharmaceutical industry or regulatory changes, could also adversely affect us.

Nearly all sales of our products and services are to clients in, or connected to, the biopharmaceutical industry. Demand for our solutions could be affected by factors that adversely affect the biopharmaceutical industry, including:

 

   

The changing regulatory environment of the biopharmaceutical industry—Changes in regulations could materially adversely affect the business environment for our biopharmaceutical clients. Healthcare laws and regulations are rapidly evolving and may change significantly in the future. In particular, legislation or regulatory changes regarding the pricing of drugs and other healthcare treatments sold by biopharmaceutical companies has continued to be a topic of discussion by political leaders and regulators in the United States and elsewhere.

 

   

Consolidation of companies within the biopharmaceutical industry—Consolidation within the biopharmaceutical industry has accelerated in recent years, and this trend could continue. We have in the past and may in the future suffer reductions of client orders due to industry consolidation. We may not be able to expand sales of our solutions and services to new clients enough to counteract any negative impact of company consolidation on our business. In addition, new companies that result from such consolidation may decide that our solutions are no longer needed because of their own internal processes or alternative solutions. As these companies, IRBs and CROs consolidate, competition to provide solutions and services will become more intense and the importance of establishing relationships with large industry participants will become greater. These industry participants may also try to use their market power to negotiate price reductions for our solutions. If consolidation of our larger clients occurs, the combined company may represent a larger percentage of business for us and, as a result, we are likely to rely more significantly on the combined company’s revenues to continue to achieve growth. In addition, if large biopharmaceutical companies merge, it would have the potential to reduce per unit pricing for our solutions for the merged companies or to reduce demand for one or more of our solutions as a result of potential personnel reductions over time.

 

   

Decrease in biopharmaceutical funding and bankruptcy within the biopharmaceutical industry—Biopharmaceutical companies depend heavily on the availability of equity and debt financing to bring their products through the clinical trial process. If there is a substantial and prolonged decrease in equity and debt funding available for biopharmaceutical companies, it may decrease the market for our products and services. In addition, our earlier-stage clients with pre-commercial treatments in clinical trials may be unsuccessful and may subsequently declare bankruptcy, which would decrease the market for our products and services.

 

   

Changes in global economic conditions and changes in the global availability of healthcare treatments provided by the biopharmaceutical companies to which we sell—Our business depends on the overall economic health of our existing and prospective clients. The purchase of our solutions may involve a significant commitment of capital and other resources. If economic conditions, including the ability to market biopharmaceutical products in key markets or the demand for biopharmaceutical products globally deteriorates, many of our clients may delay or reduce their spending. This could result in reductions in sales of our solutions, longer sales cycles, reductions in subscription duration and value, slower adoption of new technologies and solutions, and increased price competition. Moreover, our business depends on clinical trials conducted or sponsored by biopharmaceutical companies and CROs, trial sites and institutions. Any changes in global economic conditions or the biopharmaceutical industry resulting in a downturn in spending on research and development and clinical trials and any COVID-19 measures or other changes that result in delays in initiating clinical trials, cancellations or difficulties in enrolling participants, may result in decreased demands for our ethical review services.

 

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Any decrease in research and development expenditures or in the size, scope, or frequency of clinical trials could materially adversely affect our business, results of operations and financial condition.

Accordingly, our operating results and our ability to efficiently provide our solutions and services to biopharmaceutical companies and to grow or maintain our client base could be adversely affected as a result of factors that affect the biopharmaceutical industry generally.

Increasing competition within the biopharmaceutical industry, as well as delays in the drug discovery and development process, may reduce demand for our products and services and negatively impact our results of operations and financial condition.

Our biopharmaceutical clients’ demand for our products and services is driven by continued demand for their products, and dependent upon our clients’ research and development needs and available funding. Demand for our clients’ products could decline, and prices charged by our clients for their products may decline, as a result of increasing competition. In addition, our clients’ expenses could continue to increase as a result of the higher costs of developing more complex drugs and biologics and complying with more onerous government regulations. Furthermore, delays in the biopharmaceutical development cycle, particularly related to clinical trials being delayed or canceled, such as those caused by the recent COVID-19 pandemic, could also impact the demand for our products and services. A decrease in demand for our clients’ products, and additional costs associated with product development could cause our clients to reduce or delay research and development expenditures.

Because our products and services depend on our clients’ research and development expenditures, our revenues may be materially negatively affected by the COVID-19 pandemic or any economic, competitive, demand, or other market impact that decreases our clients’ profitability or causes them to decrease or delay research and development spend. In such an event, our revenues may be reduced through reduction in the scope of projects and delays or cancellations of ongoing clinical trials. Any material decrease in demand for our technologies or services may have a material adverse effect on our business, results of operations and financial condition.

Changes in government regulation or in practices relating to the biopharmaceutical industry, including healthcare reform and cost-containment measures, could materially adversely affect our business.

There have been, and we expect there will continue to be, a number of executive, legislative and regulatory changes to the healthcare system designed to expand healthcare coverage while, at the same time, curtailing and better controlling the increasing costs of healthcare. By way of example, in March 2010, the U.S. Congress (the “Congress”) passed the Patient Protection and Affordable Care Act (as amended, the “ACA”), which substantially changed the way healthcare is financed by both governmental and private insurers. Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA. Various portions of the ACA are currently undergoing legal and constitutional challenges in the U.S. Supreme Court, and members of Congress have introduced several pieces of legislation aimed at significantly revising or repealing the ACA. The U.S. Supreme Court is expected to rule on a legal challenge to the constitutionality of the ACA in mid-2021. We expect there will be additional challenges and amendments to the ACA in the future, and the continuing implementation of this legislation may significantly impact the biopharmaceutical industry.

Healthcare reform measures have resulted in Congressional inquiries, proposed and enacted legislation and regulations, guidance documents, and executive orders and other actions designed, among other things, to bring more transparency to product pricing, reform government program reimbursement methodologies for drug products, and provide procedures for the importation of certain prescription drugs authorized for sale in a foreign country. Individual states in the United States have also become increasingly active in implementing laws and regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access such as prior authorization requirements or

 

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right-to-try laws, and marketing cost disclosure and transparency measures, and, in some cases, mechanisms to encourage importation from other countries and bulk purchasing. Furthermore, there has been increased interest by third-party payors and governmental authorities in reference-pricing systems and publication of discounts and list prices. Any of these legislative, regulatory or executive efforts could harm our clients’ businesses, which could cause them to reduce their spending on research and development, which, in turn, could materially adversely affect our business.

The U.S. government may also take other administrative, legislative, or regulatory action that could materially affect our business. For example, in November 2019, certain U.S. senators requested information about our IRB operations in connection with a review of commercial IRBs. In June 2020, these senators requested that the U.S. Government Accountability Office (“GAO”) investigate the operation of commercial IRBs and consider, among other things, how IRBs, the FDA, and the U.S. Department of Health and Human Services (“HHS”) can address any shortcomings in the current system to improve quality and patient outcomes. In their request, these members of Congress asked GAO to examine market consolidation, conflicts of interest, and pay-for-participation issues, among others. In August 2020, GAO accepted that request to review issues involving the operation of commercial IRBs and stated that it anticipated initiating an engagement in about six months. GAO may ultimately issue a report that makes recommendations for policy changes that could adversely impact our business. Any recommended policy changes would require changes to laws or regulations relating to commercial IRBs. HHS and GAO have conducted two previous investigations of the commercial IRB industry in 1998 and 2008, respectively. While neither of the prior investigations resulted in changes to laws or regulations, we cannot predict what actions Congress, the FDA, the HHS, or others may take in connection with the GAO report or its recommendations.

Our clients’ profitability could decline as a result of efforts by government and third-party payors to reduce the cost of healthcare. If cost-containment efforts or other measures limit our clients’ profitability, they may reduce their research and development expenditures, which could decrease the demand for our services and materially adversely affect our growth prospects and our business.

Trends in research and development spending, the use of third parties by biopharmaceutical companies and a shift toward more research and development occurring at smaller biotechnology companies could materially adversely affect our growth potential, business, results of operations, financial condition and/or cash flows.

We provide software platforms and services to biopharmaceutical companies and CROs, trial sites, institutions and investigators, as well as patients and advocacy groups, and our direct revenues, growth prospects and bookings are highly dependent on their research and development spending levels and use of third parties. Our clients determine the amounts that they will spend on research and development on the basis of, among other things, available resources and their need to develop new products, which, in turn, is dependent upon a number of factors, including their competitors’ research, development, and production initiatives. Our clients finance their research and development spending from both private and public sources, including the capital markets. As a result, our revenues and financial performance may be adversely impacted if our clients are unable to obtain sufficient capital on acceptable terms to finance their research and development spending. Government and university-based funding of scientific research can vary for a number of reasons, including general economic conditions, political priorities, changes in the number of students and other demographic changes. Smaller biotechnology companies increasingly represent a larger proportion of industry research and development expenditures, and these small companies may not be as familiar with our Company or products. If we are not successful in marketing to and establishing relationships with these smaller companies, our continued revenue growth could be materially adversely affected.

Industry trends, economic factors, regulatory developments, patent protection and political and other events and circumstances that affect the biopharmaceutical industry, such as volatility or declines in securities markets limiting capital and liquidity or decreased government funding of scientific research, or other circumstances that decrease our clients’ research and development spending also affect us. Furthermore, our financial success

 

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depends upon the creditworthiness and ultimate collection of amounts due from our clients. If we are not able to collect amounts due from our clients in a timely fashion due to funding or liquidity challenges or for any other reason, we may be required to write-off significant accounts receivable and recognize bad debt expenses, which could materially and adversely affect our operating results. All of these events could have a material adverse effect on our business, results of operations and financial condition.

Our solutions address heavily regulated functions within the biopharmaceutical industry, and failure to comply with applicable laws and regulations could lessen the demand for our solutions or subject us to significant claims and losses.

Our clients use our solutions for business activities that are subject to a complex regime of global laws and regulations, including requirements for maintenance of electronic records and electronic signatures, requirements governing the conduct and review of clinical trials, and other laws and regulations. Our solutions are expected to be capable of use by our clients in compliance with such laws and regulations. Our efforts to provide solutions that comply with such laws and regulations are time-consuming and costly and include validation procedures that may delay the release of new versions of our solutions. As these laws and regulations change over time, we may find it difficult to adjust our solutions to comply with such changes.

In addition, our current and prospective clients may be required to comply with foreign, federal, and state regulation of payments and transfers of value provided to healthcare professionals or entities. For example, the U.S. Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program, with specific exceptions, to report annually to the government information related to certain payments and other transfers of value to physicians and teaching hospitals, as well as ownership and investment interests held by such physicians and their immediate family members. Beginning in 2022, applicable manufacturers will also be required to report such information regarding payments and transfers of value provided during the previous year to physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, anesthesiology assistants and certified nurse-midwives. Our solutions and services targeted at biopharmaceutical companies are used by our clients to assist with their reporting obligations under the Sunshine Act and comparable state laws. If our solutions and services fail to assist our clients to meet such reporting obligations in a timely and accurate manner, demand for our solutions could decrease, which could materially adversely affect our business.

As we increase the number of products we offer and the number of countries in which we offer solutions, the complexity of adjusting our solutions to comply with legal and regulatory changes will increase. This complexity is exacerbated as emerging countries evolve and enhance their own regulations and regulatory regimens. If we are unable to effectively manage this increase or if we are not able to provide solutions that can be used in compliance with applicable laws and regulations, clients may be unwilling to use our solutions and any such non-compliance could result in the termination of our client agreements or claims arising from such agreements with our clients.

Additionally, any failure of our clients to comply with laws and regulations applicable to the functions for which our solutions are used could result in fines, penalties, or claims for substantial damages against our clients that may harm our business or reputation. If such failure were allegedly caused by our solutions or services, our clients may make a claim for damages against us, regardless of our responsibility for the failure. We may be subject to lawsuits that, even if unsuccessful, could divert our resources and our management’s attention and adversely affect our business and client relationships, and our insurance coverage may not be sufficient to cover such claims against us.

 

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If we fail to perform our services in accordance with contractual requirements, regulatory standards and ethical considerations, we could be liable for significant costs or penalties and our reputation could be harmed.

The services we provide to biopharmaceutical companies and other clients are complex and subject to contractual requirements, regulatory requirements and standards and ethical considerations. For example, some of our services must adhere to regulatory requirements of the FDA governing our activities relating to clinical trials, including Good Clinical Practices. Additionally, we are subject to compliance with FDA’s regulations set forth in part 11 of title 21 of the Code of Federal Regulations, which relates to the creation, modification, maintenance, storage, retrieval, or transmittal of electronic records submitted to the FDA.

We also operate an IRB, which is tasked with reviewing and approving human clinical research on behalf of our clients who are sponsors of or institutions conducting clinical trials. FDA regulations govern the composition, registration, operation, and responsibilities of IRBs that review certain clinical trials. If it is determined that any of our IRBs are not compliant with applicable regulatory requirements, we may be subject to audits, investigations, enforcement actions, legal claims, and/or adverse publicity, which may have a material, adverse effect on our business. Moreover, in the event of a repeated failure to comply with applicable regulations, the FDA may disqualify an IRB where the noncompliance adversely affects the rights or welfare of the human subjects in a clinical investigation. Unless and until the IRB is reinstated, the FDA may also refuse to consider data from a clinical trial reviewed by a disqualified IRB in support of a marketing authorization. If any of these events were to occur, our business could be materially and adversely harmed.

We may be subject to inspection by regulatory authorities in connection with our clients’ marketing applications and other regulatory submissions. If we fail to perform our services in accordance with regulatory requirements, regulatory authorities may take action against us or our clients for failure to comply with applicable regulations governing the development and testing of therapeutic products. Such actions may include sanctions, such as warning or untitled letters, injunctions or failure of such regulatory authorities to grant marketing approval of products, delay, suspension or withdrawal of approvals, license revocation, loss of accreditation, product seizures or recalls, operational restrictions, civil or criminal penalties or prosecutions, damages or fines. Further, although we structure our IRB to operate independently from our clinical trial solutions division, governmental or regulatory authorities may assert that the combination of these services for a client compromises the integrity of the IRB decisions or the data or analyses generated during any trials.

The performance of clinical development and testing services is complex. If we make mistakes in providing services, such mistakes could negatively impact or obviate the usefulness of the trial or the data generated from it or cause the results of the trial to be reported improperly. If the trial results are compromised, we could be subject to significant costs or liability, which could have a material adverse impact on our business, reputation, and ability to perform services, and result in the cancellation of current contracts by or failure to obtain future contracts from the affected client and other clients. Regulatory authorities may also disqualify certain data or analyses from consideration in connection with our clients’ applications for regulatory approvals, which would result in our clients not being able to rely on our services in connection with their regulatory submissions and may subject our clients to additional or repeat clinical trials and delays or failures in the development and regulatory approval process. Mistakes in providing services to our clients could also affect medical decisions for patients in clinical trials and create liability for personal injury. Customers may also bring claims against us for breach of our contractual obligations or errors in the outcomes of our products or services, may terminate their contracts with us and/or may choose not to award further work to us. Any such action could have a material adverse effect on our reputation, business, results of operations and financial condition.

 

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If we fail to comply with certain healthcare laws, including fraud and abuse laws, we could face substantial penalties and our business, results of operations, financial condition and prospects could be materially adversely affected.

Even though we do not order healthcare services or bill directly to Medicare, Medicaid or other third party payors, as a result of contractual, statutory or regulatory requirements, we may be subject to healthcare fraud and abuse laws of both the federal government and the states in which we conduct our business. In the United States, these laws include, among others, the False Claims Act, which prohibits submitting or causing the submission of false statements or improper claims for government healthcare program payments, and the Anti-Kickback statute, which prohibits paying, offering to pay or receiving payment with the intent to induce the referral of services or items that are covered under a federal healthcare program. Because of the breadth of these laws and the narrowness of available statutory and regulatory exceptions, it is possible that some of our business activities could be subject to challenge under one or more of such laws. If we or our operations are found to be in violation of any healthcare laws or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, imprisonment and the curtailment or restructuring of our operations, any of which could materially adversely affect our ability to operate our business and our results of operations.

Increasingly complex data protection and privacy regulations are burdensome, may reduce demand for our solutions, and non-compliance may impose significant liabilities.

Our clients use our solutions to collect, use, store, transfer and otherwise process personal data or personally identifiable or sensitive information regarding their employees and the medical professionals with whom our clients have contact, and, potentially, personal data (including potentially sensitive data such as health information) regarding patients maintained by our clients pursuant to clinical, regulatory, or quality processes. In many countries, national and local governmental bodies have adopted, are considering adopting, or may adopt laws and regulations regarding the collection, use, processing, security, storage, transfer and disclosure of personal information obtained from individuals, making compliance an increasingly complex and evolving task. Furthermore, our business has expanded into new product areas that now trigger the need to comply with additional regulations.

For example, in the United States, the U.S. Department of Health and Human Services promulgated certain data privacy, security and breach notification rules, under the Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”), including patient privacy rules that cover protected health information (“PHI”) by limiting use and disclosure, giving individuals the right to access, amend, and seek accounting of their PHI, and limiting most use and disclosures of their PHI to the minimum amount reasonably necessary to accomplish the intended purposes. HIPAA imposes obligations on “covered entities,” including certain healthcare providers, health plans, and healthcare clearinghouses, and their respective “business associates” that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity, as well as their covered subcontractors with respect to safeguarding the privacy, security and transmission of individually identifiable health information. Certain of our clients may be either business associates or covered entities under HIPAA, and, as a result, we may be a business associate or a subcontractor. For example, while HIPAA does not apply to pharmaceutical companies or adverse event reporting, some of our clients may be university hospitals that conduct research as well as provide medical care and do not segregate their IT systems, causing them to fall under the HIPAA regulatory regime. Therefore, we must comply with HIPAA as a business associate to the extent that PHI is introduced into our solutions by our clients and maintain a HIPAA compliance program. With respect to such data, we are required to comply with HIPAA de-identification standards. Certain states have signed into law or are intending to enact laws regarding requirements on de-identified information, and there is some uncertainty regarding those laws’ conformity with the HIPAA de-identification standards. Compliance with state laws could require additional investment and management attention and may subject us to significant liabilities if we do not comply appropriately with new and potentially conflicting regulations. Entities that are found to be in violation of HIPAA, whether as the result of a breach of unsecured PHI, a complaint about

 

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privacy practices, or an audit by HHS, may be subject to significant civil, criminal, and administrative fines and penalties and/or additional reporting and oversight obligations if required to enter into a resolution agreement and corrective action plan with HHS to settle allegations of HIPAA non-compliance.

In addition, California enacted the California Consumer Privacy Act of 2018 (“CCPA”), which took effect on January 1, 2020, and which broadly defines personal information, gives California residents expanded privacy rights and protections, and provides for civil penalties for violations. Furthermore, in November 2020, California voters passed the California Privacy Rights and Enforcement Act of 2020 (“CPRA”), which amends and expands CCPA with additional data privacy compliance requirements that may adversely impact our business, and establishes a regulatory agency dedicated to enforcing those requirements. We are a service provider and business under CCPA and CPRA for our software solutions and data products, respectively. The effects of this legislation are potentially far-reaching and may require us to further modify our data management practices and to incur substantial expense in an effort to comply.

Our operations abroad may also be subject to increased scrutiny or attention from data protection authorities. Many countries in these regions have established or are in the process of establishing privacy and data security legal frameworks with which we, our collaborators, service providers, including our CROs, and contractors must comply. For example, we are a data controller and data processor under the European Union’s General Data Protection Regulation (“GDPR”) and the UK GDPR, which incorporates the provisions of the EU GDPR into the United Kingdom’s own data protection laws and took effect on January 1, 2021 at the end of the Brexit transition. With respect to our software solutions, we act as a data processor. We collect and sell a database, via our WCG Knowledge Base, for which we are a data controller. Compliance with GDPR, the UK GDPR, CCPA and CPRA have and will continue to require valuable management and employee time and resources, and failure to comply with such laws and regulations could involve severe penalties and could reduce demand for our solutions.

In addition to imposing substantial data governance requirements on companies, giving individuals extensive rights to control how companies handle their personal data and imposing data breach notification requirements, the GDPR restricts the ability of companies to transfer personal data from the EU to the United States and other countries. One of the mechanisms on which we previously relied for such transfers, the EU-U.S. Privacy Shield Framework, was invalidated by the Court of Justice of the European Union, or CJEU, in a July 2020 decision (also known as “Schrems II”). The decision called into question whether companies can lawfully use the European Commission’s Standard Contractual Clauses, often also referred to as Model Clauses, which we routinely utilize to ensure that our European clients have the appropriate legal mechanisms in place for their personal data to be accessed within the United States. At present, there are few, if any, viable alternatives to the Model Clauses, and companies that use them are required to assess their appropriateness on a case-by-case basis, which can involve substantial expenditure and use of resources in an effort to comply. If we are unable to implement sufficient safeguards to ensure that our transfers of personal data from the EU are lawful, we may face increased exposure to regulatory actions, substantial fines and injunctions against processing personal data from the EU. Loss of our ability to lawfully transfer personal data out of the EU to the United States or any other jurisdiction may cause reluctance or refusal by current or prospective European clients to use our products, and we may be required to increase our data processing capabilities in the EU at significant expense.

There is also a trend toward countries enacting data localization requirements which are not particularly compatible with the cloud computing model. For example, Russia’s localization law (Federal Law No. 242-FZ) requires that the source of data for Russian nationals collected on Russian territory must be stored in Russia. We are also monitoring the impact of China’s Cybersecurity Law and its related implementation rules, as well as China’s draft Personal Information Protection Law, the latter of which proposes extraterritorial application to companies overseas that process the personal information of data subjects in China for certain purposes. Further, the Australian My Health Records Act 2012, which superseded the Personally Controlled Electronic Health Records Act 2012 (“My Health Records Act”), prohibits heath records that are maintained for purposes of the “My Health Record” system from being transferred or maintained outside of Australia, with certain limited

 

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exceptions for health records that do not include personal information or other identifying information of an individual or entity. The My Health Records Act establishes the Australian government’s digital health records system, and, among other things, establishes a privacy framework that imposes certain restrictions on how health information maintained in such records may be collected, used or disclosed. Unauthorized collection, use and disclosure of health information contained in such health records may result in civil and criminal penalties.

Customers expect that our solutions can be used in compliance with such laws and regulations, which are constantly evolving, may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another or other legal obligations with which we must comply. The functional and operational requirements and costs of compliance with such laws and regulations may adversely impact our business, and failure to enable our solutions to comply with such laws and regulations could lead to significant fines and penalties imposed by regulators, as well as claims by our clients or third parties. Additionally, all of these domestic and international legislative and regulatory initiatives could adversely affect our clients’ ability or desire to collect, use, process, and store personal or healthcare-related information using our solutions or to license data products from us, which could reduce demand for our solutions.

Risks Related to Our Reliance on Third Parties

We rely upon three internal hosting facilities and two cloud-based providers to deliver our solutions to our clients and any disruption of or interference with our hosting systems, operations, or use of the cloud-based providers could materially adversely affect our business and results of operations.

Substantially all of the computer hardware necessary to deliver our solutions is located at our internal hosting facilities in Valley Forge, PA, Puyallup, WA and Secaucus, NJ. In addition to our dedicated hosting facility, we utilize third-party cloud computing services from Amazon Web Services (“AWS”) and Microsoft Azure (“Azure”) to help us efficiently scale our cloud-based solutions and provide training. Because we cannot easily switch our AWS or Azure-serviced operations to another cloud provider, any disruption of or interference with our use of AWS or Azure could impact our operations, and our business could be adversely impacted. Our systems and operations or those of AWS or Azure could suffer damage or interruption from human error, fire, flood, power loss, telecommunications failure, break-ins, terrorist attacks, acts of war, and similar events. The occurrence of a natural disaster, an act of terrorism or other unanticipated problems at our AWS’ or Azure’s hosting facilities could result in lengthy interruptions in our service. Although we AWS and Azure maintain backup facilities and disaster recovery services in the event of a system failure, these may be insufficient or fail. Any system failure, including network, software, or hardware failure, that causes an interruption in our data centers or our use of AWS or Azure, or that causes a decrease in responsiveness of our cloud-based solutions, could damage our reputation and cause us to lose clients, which could materially adversely affect our business and results of operations. Our business may be harmed if our clients and potential clients believe our service is unreliable.

We employ third-party licensed software and software components for use in or with our solutions, and the inability to maintain these licenses or the presence of errors in the software we license could limit the functionality of our products and result in increased costs or reduced service levels, which could materially adversely affect our business.

Our solutions incorporate or utilize certain third-party software and software components obtained under licenses from other companies. Additionally, certain products and solutions utilize third-party development and tools, such as our partnership with Palantir Technologies Inc. We anticipate that we will continue to rely on such third-party software and development tools from third parties in the future. Although we believe that there are commercially reasonable alternatives to the third-party software we currently license, this may not always be the case, or it may be difficult or costly to replace. The unexpected bankruptcy or failure of one or more of our third-party software providers could require us to seek more costly alternatives or cause delays in our ability to render services to our clients. Our use of additional or alternative third-party software would require us to enter into

 

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license agreements with third parties. In addition, if the third-party software we utilize has errors or otherwise malfunctions, the functionality of our solutions may be negatively impacted and our business may be materially adversely affected.

Risks Related to Our Indebtedness

Our indebtedness could materially adversely affect our financial condition and our ability to operate our business, react to changes in the economy or industry or pay our debts and meet our obligations under our debt and could divert our cash flow from operations to debt payments.

We have a significant amount of indebtedness. As of March 31, 2021, we had (i) $1,062 million of indebtedness outstanding under our First Lien Term Loan Facility, (ii) no borrowings under our Revolving Credit Facility and (iii) $345 million of indebtedness outstanding under our Second Lien Term Loan Facility. We also had $125.0 million availability under our Revolving Credit Facility as of March 31, 2021. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Indebtedness—Credit Facilities.” In addition, subject to restrictions in the agreements governing our Credit Facilities, we may incur additional debt.

Our debt could have important consequences to you, including the following:

 

   

it may be difficult for us to satisfy our obligations, including debt service requirements under our outstanding debt, resulting in possible defaults on and acceleration of such indebtedness;

 

   

our ability to obtain additional financing for working capital, capital expenditures, debt service requirements or other general corporate purposes may be impaired;

 

   

a portion of cash flow from operations may be dedicated to the payment of principal and interest on our debt, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures, future business opportunities, acquisitions and other purposes;

 

   

we may be more vulnerable to economic downturns and adverse industry conditions and our flexibility to plan for, or react to, changes in our business or industry may be more limited;

 

   

our ability to capitalize on business opportunities and to react to competitive pressures, as compared to our competitors, may be compromised due to our level of debt; and

 

   

our ability to borrow additional funds or to refinance debt may be limited.

Furthermore, a majority of our debt under our Credit Facilities bears interest at variable rates. If these rates were to increase significantly, whether because of an increase in market interest rates or a decrease in our creditworthiness, our ability to borrow additional funds may be reduced and the risks related to our debt would intensify. For example, a hypothetical 100 basis point increase in interest rates would have increased our interest expense by $3.4 million for the three months ended March 31, 2021 and by $13.7 million for the year ended December 31, 2020.

Servicing our debt requires a significant amount of cash. For the years ended December 31, 2019 and December 31, 2020, we used cash of $56.4 million and $77.6 million (excluding the repayment and extinguishment of our old credit facility), respectively, to service our debt. Our ability to generate sufficient cash depends on numerous factors beyond our control, and we may be unable to generate sufficient cash flow to service our debt obligations.

Our business may not generate sufficient cash flow from operating activities to service our debt obligations. Our ability to make payments on and to refinance our debt and to fund planned capital expenditures depends on our ability to generate cash in the future. To some extent, this is subject to general economic, financial, competitive, legislative, regulatory and other factors, such as those described in this “Risk Factors” section, that are beyond our control.

 

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If we are unable to generate sufficient cash flow from operations to service our debt and meet our other commitments, we may need to refinance all or a portion of our debt, sell material assets or operations, delay capital expenditures or raise additional debt or equity capital. We may not be able to effect any of these actions on a timely basis, on commercially reasonable terms or at all, and these actions may not be sufficient to meet our capital requirements. In addition, the terms of our existing or future debt agreements may restrict us from pursuing any of these alternatives.

Restrictive covenants in the agreements governing our Credit Facilities and future indebtedness that we may incur may restrict our ability to pursue our business strategies, and failure to comply with any of these restrictions could result in acceleration of our debt.

The operating and financial restrictions and covenants in one or more of the agreements governing our Credit Facilities and future indebtedness that we may incur may materially adversely affect our ability to finance future operations or capital needs or to engage in other business activities. Such agreements limit our ability, among other things, to:

 

   

incur liens;

 

   

incur or assume additional indebtedness and guarantee indebtedness or amend our debt and other material agreements;

 

   

prepay, redeem or repurchase indebtedness;

 

   

declare or make dividends on or make distributions and redeem, repurchase or retire equity interests or make other restricted payments;

 

   

make certain acquisitions, investments, loans, guarantees and advances;

 

   

transfer or sell certain assets;

 

   

consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;

 

   

redeem, repay, repurchase or refinance other indebtedness;

 

   

enter into agreements restricting the ability to pay dividends or grant liens securing obligations under the credit agreements;

 

   

enter into certain transactions with our affiliates;

 

   

amend or modify governing documents or other debt agreements; and

 

   

alter the business conducted by us and our restricted subsidiaries.

In addition, the restrictive covenants in our Credit Facilities require us to maintain a specified first lien leverage ratio when a certain percentage of our credit facility commitments are borrowed and outstanding as of the end of each fiscal quarter. In certain circumstances, our ability to meet this financial covenant may be affected by events beyond our control.

A breach of any of these covenants could result in a default under one or more of our Credit Facilities. Upon the occurrence of an event of default under our Credit Facilities, the lenders could elect to declare all amounts outstanding under our Credit Facilities to be immediately due and payable and terminate any commitments to extend further credit. In the event of an acceleration of our debt upon a default, we may not have or be able to obtain sufficient funds to make any accelerated payments. If we were unable to repay those amounts, the lenders under our Credit Agreement could proceed against the collateral granted to them to secure that indebtedness. We have pledged substantially all of our assets as collateral to secure our Credit Facilities. The proceeds from the sale of such assets may not be sufficient to repay such indebtedness.

Furthermore, the terms of any future indebtedness we may incur could have further additional restrictive covenants. We may not be able to maintain compliance with these covenants in the future, and in the event that

 

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we are not able to maintain compliance, we cannot assure you that we will be able to obtain waivers from the lenders or amend the covenants.

We and our subsidiaries may incur substantially more debt. This could further exacerbate the risks associated with our leverage.

We and our subsidiaries may be able to incur substantial additional debt in the future. Although the agreements governing our Credit Facilities contain restrictions on the incurrence of additional debt, these restrictions are subject to a number of qualifications and exceptions, and the debt incurred in compliance with these restrictions could be substantial. Additionally, we may successfully obtain waivers of these restrictions. If we incur additional debt above the levels currently in effect, the risks associated with our leverage, including those described above, would increase.

We are a holding company with no operations of our own, and we depend on our subsidiaries for cash.

We are a holding company and do not have any material assets or operations other than ownership of equity interests of our subsidiaries. Our operations are conducted almost entirely through our subsidiaries, and our ability to generate cash to meet our obligations or to pay dividends, if any, is highly dependent on the earnings of, and receipt of funds from, our subsidiaries through dividends or intercompany loans. The ability of our subsidiaries to generate sufficient cash flow from operations to allow us and them to make scheduled payments on our debt obligations will depend on their future financial performance, which will be affected by a range of economic, competitive and business factors, many of which are outside of our control.

Risks Related to Our Financial Performance, How We Contract with Customers, and the Financial Position of Our Business

Our clients may delay or terminate contracts, or reduce the scope of work, for reasons beyond our control, potentially resulting in financial losses.

Many of our product or service contracts may be terminated by the client at its discretion immediately or after a short notice period without penalty. Customers terminate, delay or reduce the scope of these types of contracts for a variety of reasons, including but not limited to:

 

   

lack of available funding or financing;

 

   

mergers or acquisitions involving the client;

 

   

a change in client priorities;

 

   

delay or termination of a specific clinical trial or product candidate development program; and

 

   

the client decides to shift business to a competitor or to use internal resources.

As a result, contract terminations, delays and reductions in scope occur regularly in the normal course of our business. However, the delay, loss or reduction in scope of a large contract or multiple smaller contracts could result in under-utilization of our personnel, a decline in revenues and profitability and adjustments to our bookings, any or all of which could have a material adverse effect on our business, results of operations, financial condition and/or cash flows.

From time to time, we have also had to commit unanticipated resources to complete projects, resulting in lower margins and profitability on those projects. We might experience similar situations in the future, which could have a material adverse impact on our results of operations and cash flows.

 

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We have government clients, which potentially subject us to risks including early termination, audits, investigations, sanctions, or penalties.

We derive limited revenues from contracts with the U.S. government, we may enter into further contracts with the U.S. or foreign governments in the future, or accept grant funds. These government contracts and grants subject us to statutes and regulations applicable to companies doing business with the government. Government contracts and grants are generally subject to greater scrutiny by the government, which can unilaterally initiate reviews, audits and investigations regarding our compliance with government contract and grant requirements. In addition, if we fail to comply with government contract laws, regulations and contract or grant requirements, our contracts and grants may be subject to termination or suspension, and we may be subject to financial and/or other liability under our contracts or under criminal or civil provisions including the Federal Civil False Claims Act. The False Claims Act’s “whistleblower” provisions allow private individuals, including present and former employees, to sue on behalf of the U.S. government. The False Claims Act statute provides for treble damages and civil penalties and, if our operations are found to be in violation of the False Claims Act, we could face other adverse action, including suspension or prohibition from doing business with the U.S. government. Any penalties, damages, fines, suspension, or damages could materially adversely affect our ability to operate our business and our financial results.

Our revenues and gross margin from professional services fees are volatile and may not increase from quarter to quarter or at all.

We derive a significant portion of our revenues from professional services fees. Our professional services revenues fluctuate from quarter to quarter as a result of the requirements, complexity, and timing of our clients’ projects in our professional services arrangements. Our clients may also choose to use third parties rather than us for certain professional services related to our solutions or for their clinical trials. As a result of these and other factors, our professional services revenues may not increase on a quarterly basis in the future or at all. Additionally, the gross margin generated from professional services fees fluctuates based on a number of factors which may vary from period to period, including wages for professional services and utilization of our employees. As a result of these and other factors, the gross margin from our professional services may not increase on a quarterly basis in the future or at all.

Impairment of goodwill or other intangible assets may materially adversely affect future results of operations.

We have intangible assets, including goodwill, on our balance sheet due to our acquisitions of businesses. The initial identification and valuation of these intangible assets and the determination of the estimated useful lives at the time of acquisition involve use of management judgments and estimates. These estimates are based on, among other factors, input from accredited valuation consultants, reviews of projected future income cash flows and statutory regulations. The use of alternative estimates and assumptions might have increased or decreased the estimated fair value of our goodwill and other intangible assets that could potentially result in a different impact to our results of operations. If the future growth and operating results of our business are not as strong as anticipated and/or our market capitalization declines, this could impact the assumptions used in calculating the fair value of goodwill or other intangibles. For goodwill, an impairment loss is recognized in an amount equal to the excess of the carrying value of the reporting unit over the fair value of the reporting unit, limited to the total amount of goodwill allocated to that reporting unit. For intangibles, an impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset are less than its carrying amount. Such an impairment charge will be made to our income from continuing operations and could materially and adversely affect our operating results. As of December 31, 2019 and 2020, and the three months ended March 31, 2021, the carrying amount of goodwill was $467.3 million, $1.7 billion and $1.7 billion, respectively, on our consolidated balance sheet.

Adverse developments in applicable tax laws could have a material adverse effect on our business, results of operations and financial condition. Our effective tax rate could also change materially as a result of various evolving factors, including changes in income tax law resulting from the most recent U.S. presidential and congressional elections or changes in the scope of our operations.

We are subject to taxation in the United States at the federal level and by certain states and municipalities and various non-U.S. jurisdictions because of the scope of our operations and product offerings. In determining

 

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our income tax liability and tax compliance obligations for these jurisdictions, we must monitor changes to the applicable tax laws and related regulations. While our existing operations have been implemented in a manner we believe is in compliance with current prevailing laws, one or more taxing jurisdictions could seek to impose incremental or new taxes on us. In addition, as a result of the most recent presidential and congressional elections in the United States, there could be significant changes in tax law and regulations that could result in additional federal income taxes being imposed on us. For example, the U.S. government may enact significant changes to the taxation of business entities including, among others, a permanent increase in the corporate income tax rate, an increase in the tax rate applicable to the global low-taxed income and the imposition of minimum taxes or surtaxes on certain types of income. Any adverse developments in these laws or regulations, including legislative changes, judicial holdings or administrative interpretations, could have a material adverse effect on our business, results of operations and financial condition. Finally, changes in the scope of our operations, including expansion to new geographies, could increase the amount of taxes to which we are subject, and could increase our effective tax rate.

Currency exchange fluctuations may materially adversely affect our financial results.

Some of our international agreements provide for payment denominated in local currencies, and the majority of our local costs are denominated in local currencies. As we continue to expand our operations in countries outside the United States, an increasing proportion of our revenues and expenditures in the future may be denominated in foreign currencies. Fluctuations in the value of the U.S. dollar versus foreign currencies may impact our operating results when translated into U.S. dollars. Thus, our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro, Canadian Dollar, British Pound Sterling, Hong Kong Dollar, Singapore Dollar, Chinese Yuan and Japanese Yen, and may be materially adversely affected in the future due to changes in foreign currency exchange rates. Changes in exchange rates may negatively affect our revenues and other operating results as expressed in U.S. dollars in the future. Further, we have experienced and will continue to experience fluctuations in our net income as a result of transaction gains or losses related to revaluing certain current asset and current liability balances that are denominated in currencies other than the functional currency of the entities in which they are recorded.

We may, in the future, hedge selected significant transactions or net monetary exposure positions denominated in currencies other than the U.S. dollar. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. Moreover, the use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments.

Risks Related to Our Intellectual Property

We may be sued by third parties for alleged infringement of their proprietary rights or misappropriation or other violation of intellectual property and we may suffer damages or other harm from such proceedings.

There is considerable patent and other intellectual property development activity in our industry. Our competitors, as well as a number of other entities and individuals, including so-called non-practicing entities, or NPEs, may own or claim to own intellectual property relating to our solutions. From time to time, third parties may claim that we are infringing upon their intellectual property rights or that we have misappropriated or otherwise violated their intellectual property. As competition in our market grows, the possibility of patent infringement and other intellectual property claims against us increases. In the future, we expect others to claim that our solutions and underlying technology infringe or violate their intellectual property rights. We may be unaware of the intellectual property rights that others may claim cover some or all of our technology or services. Any claims or litigation have caused and in the future could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our services, or require that we comply with other unfavorable terms. We may also be obligated to indemnify our clients or business partners or pay substantial settlement costs, including royalty

 

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payments, in connection with any such claim or litigation and to obtain licenses (if available on reasonable terms, or at all), modify applications or refund fees, which could be costly and our insurance may not be adequate to cover losses associated with such outcomes. Any litigation regarding our intellectual property would be inherently uncertain, and could be costly and time-consuming and divert the attention of our management and key personnel from our business operations even if we were to ultimately prevail in such litigation.

Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand.

Our success and ability to compete depend in part upon our intellectual property, including patents, trademarks, copyrights and trade secrets. We rely on applicable laws as well as confidentiality, invention assignment or license agreements with our employees, clients, partners and others to protect our intellectual property rights. However, the steps we take to protect our intellectual property rights may be inadequate or unenforceable. We cannot guarantee that our applications for patent protection or trademark registrations will be successful. Nor can we guarantee that, if issued, our patents will provide meaningful protection. Third parties may challenge the validity or enforceability of, or infringe upon or otherwise violate, our intellectual property. Further, laws related to intellectual property are subject to change at any time and differ by jurisdiction, such that we cannot guarantee that our patents, trademarks, and other intellectual property will receive the same protection in foreign countries as they do in the United States.

In order to protect our intellectual property rights, we may be required to spend significant financial and managerial resources to monitor and protect these rights. Litigation brought to protect and enforce our intellectual property rights is inherently uncertain, could be costly, time-consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Negative publicity related to a decision by us to initiate such enforcement actions against a client or former client, regardless of its accuracy, may adversely impact our other client relationships or prospective client relationships, harm our brand and business and could cause the market price of our common stock to decline. Our inability to prevent the theft or unauthorized copying or use of our intellectual property, or our failure to otherwise secure, protect and enforce our intellectual property rights could adversely affect our brand and our business.

Our solutions utilize open source software, and any failure to comply with the terms of one or more of these open source licenses could materially adversely affect our business.

Our solutions include, and will include in the future, software covered by open source licenses. The terms of various open source licenses to which we are subject have not been interpreted by U.S. or foreign courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market, provide or distribute our solutions. By the terms of certain open source licenses, third parties could claim ownership, or demand that we release the source code of our proprietary software, and/or that we make our proprietary software available under open source licenses, if we combine our proprietary software with, or link our proprietary software to, open source software in a certain manner. These claims could also result in litigation, and in the event that portions of our proprietary software are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code, could be prohibited from charging fees for the use of our software, could be required to cease offering the implicated solutions unless and until we can re-engineer them to avoid infringement (which could require significant additional research and development resources) or could otherwise be limited in the licensing of our solutions, each of which could reduce or eliminate the value of our solutions and services. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of the software. Many of the risks associated with usage of open source software cannot be eliminated and could materially adversely affect our business.

 

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Risks Related to Our Common Stock and this Offering

There is no existing market for our common stock and we do not know if one will develop, be sustainable or provide you with adequate liquidity. If our stock price fluctuates after this offering, you could lose a significant part of your investment.

Prior to this offering, there has not been a public market for our common stock. We cannot predict the extent to which investor interest in us will lead to the development of a trading market on The Nasdaq Global Select Market, or otherwise or how active, sustainable and liquid that market may come to be. If an active trading market does not develop, you may have difficulty selling any of the common stock that you buy.

Negotiations between us and the underwriters will determine the initial public offering price for our common stock, which may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell our common stock at prices equal to or greater than the price you paid in this offering. The market price of our common stock may be influenced by many factors including:

 

   

variations in our operating results compared to market expectations or any guidance given by us, or changes in our guidance or guidance practices

 

   

changes in the preferences of our clients;

 

   

low revenue growth and gross margins compared to market expectations;

 

   

the failure of securities analysts to cover us after this offering or changes in financial estimates by the analysts who cover us, our competitors or the retail industry in general;

 

   

economic, legal and regulatory factors unrelated to our performance;

 

   

changes in the economy;

 

   

increased competition or stock price performance of our competitors;

 

   

announcements by us or our competitors of new strategic investments or acquisitions;

 

   

actual or anticipated variations in our or our competitors’ operating results, and our competitors’ growth rates;

 

   

future sales of our common stock or the perception that such sales may occur;

 

   

changes in senior management or key personnel;

 

   

changes in laws or regulations, or new interpretations or applications of laws and regulations that are applicable to our business;

 

   

lawsuits, enforcement actions and other claims by third parties or governmental authorities;

 

   

action by institutional stockholders or other large stockholders;

 

   

events beyond our control, such as war, terrorist attacks, transportation and fuel prices, natural disasters, severe weather and widespread illness or pandemics, including developments relating to the COVID-19 pandemic; and

 

   

the other factors listed in this “Risk Factors” section.

As a result of these factors, investors in our common stock may not be able to resell their shares at or above the initial offering price. In addition, our stock price may be volatile. The stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies like us. Accordingly, these broad market fluctuations, as well as general economic, political and market conditions, such as recessions or interest rate changes, may significantly reduce the market price of the common stock, regardless of our operating performance. In the past, following periods of market volatility, stockholders have instituted securities class action litigation. If we were to become involved in securities litigation, it could result in substantial costs and divert resources and our management’s attention from other business concerns, regardless of the outcome of such litigation.

 

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Because each of the Principal Stockholders own a significant percentage of our common stock, they may control all major corporate decisions and their interests may conflict with your interests as an owner of our common stock and our interests.

We are controlled by the Principal Stockholders. LGP currently owns approximately     % of our common stock and will own approximately     % after the consummation of this offering, Arsenal currently owns approximately     % of our common stock and will own approximately     % after the consummation of this offering, Novo currently owns approximately     % of our common stock and will own approximately     % after the consummation of this offering, and GIC Investor currently owns approximately     % of our common stock and will own approximately     % after the consummation of this offering. Accordingly, the Principal Stockholders currently control the election of our directors and could exercise a controlling interest over our business, affairs and policies, including the appointment of our management and the entering into of business combinations or dispositions and other corporate transactions. Pursuant to the Voting Agreement, LGP, Arenal and Novo will each be entitled to designate individuals to be included in the slate of nominees recommended by our board of directors for election to our board of directors and GIC Investor will be entitled to designate an individual to be a non-voting observer of our board of directors. Each of the Principal Stockholders will also agree to vote, or cause to vote, all of their outstanding shares of our common stock at any annual or special meeting of stockholders in which directors are elected, so as to cause the election of the LGP directors, the Arsenal directors and the Novo directors.

So long as LGP owns, in the aggregate, (i) greater than 50% of the total outstanding shares of our common stock owned by it immediately following the consummation of this offering, LGP will be entitled to nominate two directors, (ii) less than or equal to 50%, but greater than 30% of the total outstanding shares of our common stock owned by it immediately following the consummation of this offering, it will be entitled to nominate one director, and (iii) less than or equal to 30%, it will not be entitled to nominate a director.

So long as Arsenal owns, in the aggregate, (i) greater than 70% of the total outstanding shares of our common stock owned by it immediately following the consummation of this offering, Arsenal will be entitled to nominate two directors, (ii) less than or equal to 70%, but greater than 40% of the total outstanding shares of our common stock owned by it immediately following the consummation of this offering, it will be entitled to nominate one director, and (iii) less than or equal to 40%, it will not be entitled to nominate a director.

So long as Novo owns, in the aggregate, (i) greater than 60% of the total outstanding shares of our common stock owned by it immediately following the consummation of this offering, Novo will be entitled to nominate one director, and (ii) less than, or equal to 60%, it will not be entitled to nominate a director.

So long as GIC Investor owns, in the aggregate, (i) greater than 75% of the total outstanding shares of our common stock owned by it immediately following the consummation of this offering, GIC Investor will be entitled to designate one non-voting observer to our board of directors. See “Certain Relationships and Related Party Transactions—Voting Agreement.” The directors the Principal Stockholders elect have the authority to incur additional debt, issue or repurchase stock, declare dividends and make other decisions that could be detrimental to shareholders. Even if the Principal Stockholders were to own or control less than a majority of our total outstanding shares of common stock, they will be able to influence the outcome of corporate actions so long as they own a significant portion of our total outstanding shares of common stock.

The Principal Stockholders may have interests that are different from yours and may vote in a way with which you disagree and that may be adverse to your interests. In addition, the Principal Stockholders’ concentration of ownership could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which could cause the market price of our common stock to decline or prevent our stockholders from realizing a premium over the market price for their common stock.

Additionally, the Principal Stockholders are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us or supply us

 

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with goods and services. They may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. Shareholders should consider that the interests of the Principal Stockholders may differ from their interests in material respects.

We are a “controlled company” within the meaning of The Nasdaq Global Select Market’s rules and, as a result, will qualify for, and may rely on, exemptions from certain corporate governance requirements.

Following the consummation of this offering, the Principal Stockholders will together continue to control a majority of our outstanding common stock. As a result, we expect to be a “controlled company” within the meaning of The Nasdaq Global Select Market’s corporate governance standards. A company of which more than 50% of the voting power is held by an individual, a group or another company is a “controlled company” within the meaning of The Nasdaq Global Select Market’s rules and may elect not to comply with certain corporate governance requirements of The Nasdaq Global Select Market, including:

 

   

the requirement that a majority of our board of directors consist of independent directors;

 

   

the requirement that we have a nominating and corporate governance committee that is comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

 

   

the requirement that we have a compensation committee that is comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

   

the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees.

Following this offering, we intend to rely on all of the exemptions listed above. For at least a period following this offering, we intend to utilize all of these exemptions. As a result, we will not have a majority of independent directors and our nominating and corporate governance and compensation committees will not consist entirely of independent directors. As a result, our board of directors and those committees may have more directors who do not meet The Nasdaq Global Select Market’s independence standards than they would if those standards were to apply. The independence standards are intended to ensure that directors who meet those standards are free of any conflicting interest that could influence their actions as directors. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of The Nasdaq Global Select Market.

We are an “emerging growth company” and our compliance with the reduced reporting and disclosure requirements applicable to “emerging growth companies” may make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we have elected to take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” These provisions include being permitted to have only two years of audited financial statements and management’s discussion and analysis of financial condition and results of operations disclosures in this prospectus; being exempt from compliance with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act; being exempt from any rules that could be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditor’s report on financial statements; being subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and not being required to hold nonbinding advisory votes on executive compensation or on any golden parachute payments not previously approved.

We may remain an “emerging growth company” until as late as December 31, 2026, the fiscal year-end following the fifth anniversary of the completion of this offering, though we may cease to be an “emerging growth company” earlier under certain circumstances, including if (i) we have more than $1.07 billion in annual

 

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revenues in any fiscal year, (ii) we become a “large accelerated filer,” with at least $700.0 million of equity securities held by non-affiliates as of the end of the second quarter of that fiscal year or (iii) we issue more than $1.0 billion of non-convertible debt securities over a three-year period. If some investors find our common stock less attractive as a result of us utilizing some or all of these exemptions or forms of relief, there may be a less active trading market for our common stock and our stock price may decline or become more volatile.

Sales of a substantial number of shares of our common stock in the public market by our existing stockholders could cause our stock price to fall.

Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. Substantially all of our existing stockholders are subject to lock-up agreements with the underwriters of this offering that restrict the stockholders’ ability to transfer shares of our common stock for             days from the date of this prospectus, subject to certain exceptions. The lock-up agreements limit the number of shares of common stock that may be sold immediately following the public offering. After this offering, we will have outstanding shares of common stock based on the number of shares outstanding as of                 , 2021. Subject to limitations, shares will become eligible for sale upon expiration of the lock-up period, as calculated and described in more detail in the section entitled “Shares Eligible for Future Sale.” In addition,                 shares issued or issuable upon exercise of options vested as of the expiration of the lock-up period will be eligible for sale at that time. Further, the representatives of the underwriters may, in their sole discretion, release all or some portion of the shares subject to the lock-up agreements at any time and for any reason. See “Shares Eligible for Future Sale” for more information. Sales of a substantial number of such shares upon expiration of the lock-up agreements, the perception that such sales may occur, or early release of these agreements, could have a material and adverse effect on the trading price of our common stock.

Moreover, after this offering, holders of                  % of our outstanding common stock will have rights, subject to certain conditions such as the lock-up arrangement described above, to require us to file registration statements for the public sale of their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. Any sales of securities by these stockholders could have a material and adverse effect on the trading price of our common stock.

You will incur immediate dilution as a result of this offering.

If you purchase common stock in this offering, you will pay more for your shares than the amounts paid by existing stockholders for their shares. As a result, you will incur immediate dilution of $                 per share, representing the difference between the assumed initial public offering price of $                 per share (the midpoint of the estimated initial public offering price range set forth on the cover of this prospectus) and our as adjusted net tangible book value (deficit) per share after giving effect to this offering. See “Dilution.”

We may apply the net proceeds from this offering in ways that you and other stockholders may not approve.

Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in the section titled “Use of Proceeds.” Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. Our management might not apply our net proceeds in ways that ultimately increase the value of your investment, and the failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short- and intermediate-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government. These investments may not yield a favorable return to our stockholders. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected results, which could cause our stock price to decline.

 

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Because our executive officers hold or may hold restricted shares or option awards that will vest upon a change of control, these officers may have interests in us that conflict with yours.

Our executive officers hold or may hold restricted shares and options to purchase shares that would automatically vest upon a change of control. As a result, these officers may view certain change of control transactions more favorably than an investor due to the vesting opportunities available to them and, as a result, may have an economic incentive to support a transaction that may not be viewed as favorable by other stockholders.

We currently do not intend to declare dividends on our common stock in the foreseeable future and, as a result, your returns on your investment may depend solely on the appreciation of our common stock.

We currently do not expect to declare any dividends on our common stock in the foreseeable future. Instead, we anticipate that all of our earnings in the foreseeable future will be used to provide working capital, to support our operations and to finance the growth and development of our business. Any determination to declare or pay dividends in the future will be at the discretion of our board of directors, subject to applicable laws and dependent upon a number of factors, including our earnings, capital requirements and overall financial conditions. In addition, because we are a holding company and have no direct operations, we will only be able to pay dividends from funds we receive from our subsidiaries. Accordingly, our ability to pay dividends to our shareholders is dependent on the earnings and distributions of funds from our subsidiaries. In addition, the covenants in the agreements governing our existing indebtedness, including the Credit Facilities, significantly restrict, and the terms of any future debt or preferred securities may further restrict, the ability of our subsidiaries to pay dividends or otherwise transfer assets to us, which in turn limits our ability to pay dividends on our common stock. See “Dividend Policy.” Accordingly, your only opportunity to achieve a return on your investment in our Company may be if the market price of our common stock appreciates and you sell your shares at a profit. The market price for our common stock may never exceed, and may fall below, the price that you pay for such common stock. See “—There is no existing market for our common stock and we do not know if one will develop, be sustainable or to provide you with adequate liquidity. If our stock price fluctuates after this offering, you could lose a significant part of your investment.”

Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws, as well as provisions of the DGCL could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions include:

 

   

establishing a classified board of directors such that approximately one-third of the members of the board are elected at each annual meeting;

 

   

allowing the total number of directors to be determined exclusively (subject to the rights of holders of any series of preferred stock to elect additional directors) by resolution of our board of directors and granting to our board the sole power (subject to the rights of holders of any series of preferred stock or rights granted pursuant to the voting agreement) to fill any vacancy or newly created directorship on the board;

 

   

providing that our stockholders may remove members of our board of directors only for cause and only by the affirmative vote of the holders of at least two-thirds of the voting power of our then-outstanding stock, following such time as the Principal Stockholders cease to own, or no longer have the right to direct the vote of, at least 50% of the voting power of our common stock;

 

   

authorizing the issuance of “blank check” preferred stock by our board of directors, without further stockholder approval, to thwart a takeover attempt;

 

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prohibiting stockholder action by consent (and, thus, requiring that all stockholder actions be taken at a meeting of our stockholders), if the Principal Stockholders cease to own, or no longer have the right to direct the vote of, at least 50% of the voting power of our common stock;

 

   

providing that a special meeting of stockholders may only be called by the chairman of the board of directors or a resolution adopted by the affirmative vote of the majority of the then-serving members of the board of directors, except that the Secretary may also call a special meeting of stockholders at the request of any Principal Stockholder, so long as the Principal Stockholders own, or have the right to direct the vote of, at least 50% of the voting power of our common stock;

 

   

establishing advance notice requirements for nominations for election to the board of directors or for proposing other matters that can be acted upon at stockholder meetings; and

 

   

requiring the approval of the holders of at least two-thirds of the voting power of all outstanding stock entitled to vote thereon, voting together as a single class, to amend or repeal certain provisions of our amended and restated certificate of incorporation or the provisions of our amended and restated bylaws if the Principal Stockholders cease to own, or no longer have the right to direct the vote of, at least 50% of the voting power of our common stock.

In addition, while we have opted out of Section 203 of the DGCL, our amended and restated certificate of incorporation contains similar provisions providing that we may not engage in certain “business combinations” with any “interested stockholder” for a three-year period following the time that the stockholder became an interested stockholder, unless:

 

   

prior to such time, our board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

 

   

upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding certain shares; or

 

   

at or subsequent to that time, the business combination is approved by our board of directors and by the affirmative vote of holders of at least two-thirds of our outstanding voting stock that is not owned by the interested stockholder.

Generally, a “business combination” includes a merger, asset or stock sale or other transaction provided for or through us resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an “interested stockholder” is generally defined as a person who owns 15% or more of our outstanding voting stock and the affiliates and associates of such person. For purposes of this provision, “voting stock” means any class or series of stock entitled to vote generally in the election of directors. Our amended and restated certificate of incorporation will provide that the Principal Stockholders, their affiliates and any of their direct or indirect designated transferees and any group of which such persons are a party do not constitute “interested stockholders” for purposes of this provision.

Under certain circumstances, this provision will make it more difficult for a person who qualifies as an “interested stockholder” to effect certain business combinations with us for a three-year period. This provision may encourage companies interested in acquiring us to negotiate in advance with our board of directors in order to avoid the stockholder approval requirement if our board of directors approves either the business combination or the transaction that results in the stockholder becoming an interested stockholder. These provisions also may have the effect of preventing changes in our board of directors and may make it more difficult to accomplish transactions that our stockholders may otherwise deem to be in their best interests. See “Description of Capital Stock.”

These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take corporate actions other than those you desire.

 

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Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware or federal district courts of the United States will be the sole and exclusive forum for certain types of lawsuits, which could limit our stockholders’ abilities to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation will require, to the fullest extent permitted by law, that, unless we consent in writing to the selection of an alternative forum (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the DGCL or the amended and restated certificate of incorporation or the amended and restated bylaws (as either may be amended and/or restated from time to time) or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, or (iv) any action asserting a claim against us governed by the internal affairs doctrine will have to be brought only in the Court of Chancery in the State of Delaware (or the federal district court for the District of Delaware or other state courts of the State of Delaware if the Court of Chancery in the State of Delaware does not have jurisdiction). The amended and restated certificate of incorporation will also require that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act; however, there is uncertainty as to whether a court would enforce such provision, and investors cannot waive compliance with federal securities laws and the rules and regulations thereunder. Although we believe these provisions benefit us by providing increased consistency in the application of applicable law in the types of lawsuits to which they apply, the provisions may have the effect of discouraging lawsuits against our directors and officers. These provisions would not apply to any suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts of the United States have exclusive jurisdiction.

General Risks

Current and future litigation against us, which may arise in the ordinary course of our business, could be costly and time consuming to defend.

We are subject to claims that arise in the ordinary course of business, such as claims brought by our clients in connection with commercial disputes, employment claims made by our current or former employees, or claims brought by third-parties for failure to adequately protect their personal data. Third parties may in the future assert intellectual property rights to technologies that are important to our business and demand back royalties or demand that we license their technology. Litigation may result in substantial costs and may divert management’s attention and resources, which may seriously harm our business, overall financial condition and operating results. Insurance may not cover such claims, may not be sufficient for one or more of such claims and may not continue to be available on terms acceptable to us. A claim brought against us that is uninsured or underinsured could result in unanticipated costs, negatively affecting our business, financial condition and results of operations.

Our insurance coverage may not be sufficient to avoid material impact on our financial position resulting from claims or liabilities against us, and we may not be able to obtain insurance coverage in the future.

We maintain insurance coverage for protection against many risks of liability, including professional errors and omissions, breach of fiduciary duty, and cybersecurity risks. The extent of our insurance coverage is under continuous review and is modified as we deem it necessary. Despite this insurance, it is possible that claims or liabilities against us may not be fully insured, or our insurance carriers may contest coverage, which could have a material adverse impact on our financial position or results of operations. In addition, we may not be able to obtain any insurance coverage, or adequate insurance coverage, when our existing insurance coverage expires.

 

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If securities or industry analysts do not publish or cease publishing research or reports about us, or if they issue unfavorable commentary about us or our industry or downgrade our common stock, the price of our common stock could decline.

The trading market for our common stock will depend in part on the research and reports that third-party securities analysts publish about us and our industry. One or more analysts could downgrade our common stock or issue other negative commentary about us or our industry. In addition, we may be unable or slow to attract research coverage. Alternatively, if one or more of these analysts cease coverage of us, we could lose visibility in the market. As a result of one or more of these factors, the trading price of our common stock could decline.

Becoming a public company will increase our compliance costs significantly and require the expansion and enhancement of a variety of financial and management control systems and infrastructure and the hiring of significant additional qualified personnel.

Prior to this offering, we have not been subject to the reporting requirements of the Exchange Act, or the other rules and regulations of the SEC, or any securities exchange relating to public companies. We are working with our legal, independent accounting and financial advisors to identify those areas in which changes should be made to our financial and management control systems to manage our growth and our obligations as a public company. These areas include financial planning and analysis, tax, corporate governance, accounting policies and procedures, internal controls, internal audit, disclosure controls and procedures and financial reporting and accounting systems. We have made, and will continue to make, significant changes in these and other areas. However, the expenses that will be required in order to adequately prepare for being a public company could be material. Compliance with the various reporting and other requirements applicable to public companies will also require considerable time and attention of management and will also require us to successfully hire and integrate a significant number of additional qualified personnel into our existing finance, legal, human resources and operations departments.

If our estimates or judgments relating to our critical accounting policies prove to be incorrect or financial reporting standards or interpretations change, our results of operations could be adversely affected.

The preparation of financial statements in conformity with generally accepted accounting principles in GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances, as provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates.” The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Significant assumptions and estimates used in preparing our consolidated financial statements include the estimated variable consideration included in the transaction price in our contracts with clients and equity-based compensation. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our common stock.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from our sale of shares in this offering will be approximately $         million, based on the assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and estimated offering expenses payable by us. If the underwriters exercise their option to purchase additional shares in full, we estimate that the net proceeds to be received by us will be approximately $         million,              after              deducting underwriting discounts and estimated offering expenses payable by us.

Each $1.00 increase (decrease) in the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $        , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and estimated offering expenses payable by us. Each increase (decrease) of 1.0 million shares in the number of shares sold in this offering by us, as set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $        , assuming an initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and estimated offering expenses payable by us. The information discussed above is illustrative only and will adjust based on the actual initial public offering price and other terms of this offering determined at pricing.

We intend to use the net proceeds from this offering, including any net proceeds from the underwriters’ option to purchase additional shares from us, for general corporate purposes to support the growth of our business. We may also use a portion of the proceeds to repay indebtedness and/or for the acquisition of, or investment in, technologies, solutions and/or businesses that complement our business. However, we do not have binding agreements or commitments for any acquisitions or investments outside the ordinary course of business at this time. As of the date of this prospectus, we cannot specify with certainty the specific allocations or all of the particular uses for the net proceeds to be received upon completion of this offering.

We may find it necessary or advisable to use the net proceeds for other purposes, and we will have broad discretion in the application and specific allocations of the net proceeds of this offering. Pending the uses described above, we intend to invest the net proceeds from this offering in short- and intermediate-term, interest-bearing obligations, investment-grade instruments or other securities.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of March 31, 2021:

 

   

on an actual basis;

 

   

on an as adjusted basis, to give effect to the (i) Distribution, as described under “Prospectus Summary—Distribution”, (ii) filing and effectiveness of our amended and restated certificate of incorporation and amended and restated bylaws and (iii) the sale and issuance by us of              shares of our common stock in this offering at an assumed public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

The information below is illustrative only and our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at the pricing of this offering. You should read this information in conjunction with the sections titled “Use of Proceeds,” “Prospectus Summary—Summary Consolidated Financial and Operating Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the accompanying notes thereto included elsewhere in this prospectus.

 

     As of March 31, 2021  
     Actual     As Adjusted(2)  
     (dollars in thousands)  

Cash and cash equivalents

   $ 174,988     $                
  

 

 

   

 

 

 

Long-term debt, including current maturities:

    

First Lien Term Loan Facility

   $ 1,062,348     $    

Second Lien Term Loan Facility

     345,000    

Unamortized discount and issuance costs

     (41,314  

Revolving Credit Facility(1)

     —      
  

 

 

   

 

 

 

Total debt

     1,366,034    

Stockholders’ equity (deficit):

    

Common stock; $0.01 par value; 1,200 shares authorized, 1,010 shares issued and          shares outstanding, actual;          shares authorized,          shares issued and          shares outstanding, as adjusted

     —      

Additional paid-in capital

     2,034,973    

Retained (deficit) earnings

     (115,898  

Accumulated other comprehensive loss

     (254  

Treasury stock at cost;         shares outstanding, actual;         shares outstanding, as adjusted

     —      
  

 

 

   

 

 

 

Total stockholders’ (deficit) equity

     1,918,821    
  

 

 

   

 

 

 

Total capitalization

   $ 3,284,855     $    
  

 

 

   

 

 

 

 

(1)

As of March 31, 2021, we had no borrowings outstanding and $125.0 million of available borrowing capacity under our Revolving Credit Facility.

(2)

Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the as adjusted amount of each of cash and cash equivalents, additional paid-in-capital, total stockholders’ equity and total capitalization by $             million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million shares in the number of shares sold in this offering by us, as set forth on the cover page of this prospectus, would increase (decrease) the as adjusted amount of each of cash and cash equivalents, additional paid-in-capital, total stockholders’ equity and total capitalization by $             million, assuming the assumed initial public offering price of

 

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  $             per share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and estimated offering expenses payable by us.

The number of shares outstanding excludes:

 

   

             additional shares of common stock reserved for future issuance under our 2021 Plan.

 

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DIVIDEND POLICY

We have never declared or paid any cash dividends on our share capital. We currently intend to retain any future earnings to fund the development and expansion of our business, and, therefore, we do not anticipate paying cash dividends on our share capital in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our results of operations, financial condition, capital requirements, contractual restrictions and other factors deemed relevant by our board of directors. In addition, because we are a holding company and have no direct operations, we will only be able to pay dividends from funds we receive from our subsidiaries. Accordingly, our ability to pay dividends to our shareholders is dependent on the earnings and distributions of funds from our subsidiaries. In addition, the covenants in the agreements governing our existing indebtedness, including the Credit Facilities, significantly restrict, and the terms of any future debt or preferred securities may further restrict, the ability of our subsidiaries to pay dividends or otherwise transfer assets to us, which in turn limits our ability to pay dividends on our common stock. See “Description of Certain Indebtedness” and “Risk Factors—Risks Relating to Our Common Stock and this Offering—We currently do not intend to declare dividends on our common stock in the foreseeable future and, as a result, your returns on your investment may depend solely on the appreciation of our common stock.”

 

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DILUTION

If you invest in our common stock in this offering, your interest will be diluted to the extent of the difference between the amount per share paid by purchasers of shares of our common stock in this initial public offering and the as adjusted net tangible book value per share of our common stock immediately after this offering.

As of March 31, 2021, our historical net tangible book value (deficit) was $         million, or $         per share of common stock. Historical net tangible book value (deficit) per share represents our total tangible assets less total liabilities, divided by the number of shares of common stock outstanding as of March 31, 2021.

After giving effect to (i) the Distribution, (ii) the filing and effectiveness of our amended and restated certificate of incorporation and (iii) our sale of              shares of our common stock in this offering at an assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted net tangible book value as of March 31, 2021 would have been approximately $         million, or $         per share. This represents an immediate increase in as adjusted net tangible book value of $         per share to our existing stockholders and an immediate dilution in as adjusted net tangible book value of approximately $         per share to new investors purchasing shares of our common stock in this offering. Dilution in as adjusted net tangible book value (deficit) represents the difference between the price per share paid by investors in this offering and our net tangible book value per share of immediately after the offering.

The following table illustrates this dilution on a per share basis to investors in this offering:

 

Assumed initial public offering price per share of common stock

      $                

Historical net tangible book value (deficit) per share as of March 31, 2021

   $                   

Increase in net tangible book value per share attributable to the Distribution and new investors purchasing common stock in this offering

     

As adjusted net tangible book value per share

     
     

 

 

 

Dilution per share to new investors in this offering

      $    
     

 

 

 

Each $1.00 increase (decrease) in the assumed initial offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our as adjusted net tangible book value by $            , or $             per share, and the dilution per common share to new investors in this offering by $             per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and estimated offering expenses payable by us. An increase of 1.0 million shares in the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, would increase the as adjusted net tangible book value per share by $             and decrease the dilution per share to new investors by $            , assuming no change in the assumed initial public offering price and after deducting estimated underwriting discounts and estimated offering expenses payable by us. A decrease of 1.0 million shares in the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, would decrease the as adjusted net tangible book value per share by $             and increase the dilution per share to new investors by $            , assuming no change in the assumed initial public offering price and after deducting underwriting discounts and estimated offering expenses payable by us.

If the underwriters exercise their option to purchase additional shares in full, the as adjusted net tangible book value per share of our common stock after giving effect to this offering would be $         per share, and the dilution in net tangible book value per share to investors in this offering would be $         per share.

The following table summarizes, on an as adjusted basis as of March 31, 2021, after giving effect to the adjustments described above, the difference among existing stockholders and new investors purchasing shares of

 

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our common stock in this offering with respect to the number of shares purchased from us, the total consideration paid to us and the average price per share paid by our existing stockholders or to be paid by investors purchasing shares in this offering at the initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Shares Purchased     Total Consideration     Average Price
Per Share
 
     Number      Percent     Amount      Percent  

Existing stockholders

                                $                             $            

New investors

            
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

        100   $          100  
  

 

 

    

 

 

   

 

 

    

 

 

   

Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) total consideration paid by new investors by $             million and total consideration paid by all stockholders and average price per share paid by all stockholders by $             million and $             per share, respectively, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and estimated offering expenses payable by us. An increase (decrease) of 1.0 million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) total consideration paid by new investors by $             million and total consideration paid by all stockholders and average price per share paid by all stockholders by $             million and $             per share, respectively, assuming the assumed initial public offering price remains the same, and after deducting underwriting discounts and estimated offering expenses payable by us.

The above assumes the underwriters do not exercise their option to purchase additional shares in this offering. If the underwriters fully exercise their option to purchase              additional shares of our common stock in this offering, the as adjusted net tangible book value per share would be $             per share and the dilution to new investors in this offering would be $             per share. If the underwriters fully exercise their option to purchase additional shares, the number of shares held by new investors will increase to              shares of our common stock, or approximately     % of the total number of shares of our common stock outstanding after this offering.

The information presented in the tables and discussions above excludes:

 

   

             additional shares of common stock reserved for future issuance under our 2021 Plan.

To the extent any options are granted and exercised in the future, there may be additional economic dilution to new investors.

In addition, we may choose to raise additional capital due to market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion summarizes the significant factors affecting the operating results, financial condition, liquidity, and cash flows of our Company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with “Prospectus Summary—Summary Consolidated Financial and Operating Data,” and our consolidated financial statements and the related notes thereto and our unaudited condensed consolidated financial statements and the related notes thereto all included elsewhere in this prospectus. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity, and capital resources, and all other non-historical statements in this discussion are forward-looking statements and are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus.

The following discussion and analysis presents operations, cash flows and stockholders’ equity for two periods: Predecessor and Successor, which relate to the period preceding the Transaction and the period succeeding the Transaction, respectively. The Company refers to the operations of WCG Clinical, Inc. and subsidiaries for both the Predecessor and Successor periods. See “Basis of Presentation.”

Overview

We believe we are a leading provider of clinical trial solutions, focused on providing solutions that are designed to measurably improve the quality and efficiency of clinical research, stimulate growth and foster compliance. Our transformational solutions enable biopharmaceutical companies, CROs, and institutions to accelerate the delivery of new treatments and therapies to patients, while maintaining the highest standards of human protection. We leverage our differentiated strategic position at the center of the clinical trial ecosystem to provide new types of technology-enabled solutions to all stakeholders involved, with the aim to address the key critical pain points throughout the clinical trial process. We operate in two segments: the ER segment and the CTS segment. The ER segment accounted for 48% of our revenues and the CTS segment accounted for the remaining 52% of our revenues for the three months ended March 31, 2021. The ER segment accounted for 52% of our revenues and the CTS segment accounted for the remaining 48% of our revenues for the year ended December 31, 2020.

Ethical Review: The ER segment provides technology-enabled compliance services that assure the protection of the human participants who participate in clinical trials. Federal regulations mandate that clinical trial sponsors (e.g. biopharmaceutical companies) submit to a qualified IRB specific documents related to the conduct of the clinical trial. The IRB is an independent committee established to review and approve research involving human participants in the trial. The primary purpose of the IRB is to protect the rights and welfare of the human subjects. The IRB has the authority to approve, require modifications in (to secure approval), or disapprove clinical trials. The IRB is responsible for reviewing the following:

 

   

Trial Protocol—which describes the objectives and methods/procedures which must be followed in the conduct of the trial;

 

   

Investigators—licensed and qualified clinicians who will conduct the trial on behalf of the sponsor; and

 

   

Participant Informed Consent—the informed consent form consists of two parts: the information sheet which describes in lay terms the risks and benefits to the participant associated with participation in the trial, and the consent certificate which documents that understanding.

Clinical Trial Solutions: The CTS segment provides specialized services around the administration, conduct and optimization of clinical trials enabled by a variety of integrated technology-enabled solutions. These solutions include specialty clinical consulting services and proprietary software which provide integrated, end-to-end support of various steps of the clinical trial process that have been designed to optimize efficiency.

 

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The primary solutions within the CTS segment include:

 

   

WCG Study Planning & Site Optimization (SP&SO) solutions provide sites and sponsors with integrated, turnkey services to identify, activate, and benchmark sites through deep scientific and clinical expertise and proprietary insights;

 

   

WCG Patient Engagement solutions rely on data-driven tools and high-touch on-site Clinical research coordinators to precisely identify, recruit and retain the right patients, as well as rater training and eCOA solutions to enable trials that rely on subjective endpoints; and

 

   

WCG Scientific & Regulatory Review solutions provide services that offer an integrated solution based on scientific expertise and safety services and technology, supporting strong compliance and reporting.

During 2020, we supported a high volume of COVID-19 clinical trials, ultimately aiding in vaccine development. As such, despite the COVID-19 pandemic, we still experienced improved results in each of our segments.

Key Factors Affecting Performance

We believe that the growth of and future success of our business depends on many factors. While each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address to sustain our growth and improve results of operations.

Growing Bookings, Backlog and Client Engagements

Our future operating results depend, in part, on our ability to grow our client engagements through expanding our solution capabilities, cross-selling our existing clients additional solutions and contracting with new, emerging clients. We monitor three key performance indicators to evaluate our visibility into anticipated revenue: bookings, backlog and client engagements.

 

   

Bookings: Our bookings represent the dollar value of all new signed contracts, purchase orders, and site notifications of required ethical review services during a period. Bookings vary from period to period depending on numerous factors, including the overall health of the biopharmaceutical industry, regulatory developments, industry consolidation, and sales performance. See “Risk Factors—Risks Related to Our Business—Our bookings and client engagements might not accurately predict our future revenue, and we might not realize all or any part of the anticipated revenues reflected in our bookings and client engagements.”

 

    Predecessor     Successor        
    Quarter ended     Year ended
December 31,
2019
    Quarter ended     Year ended
December 31,
2020
    Quarter
ended
March 31,
2021
 
(in thousands)   March 31,
2019
    June 30,
2019
    September 30,
2019
    December 31,
2019
    March 31,
2020
    June 30,
2020
    September 30,
2020
    December 31,
2020
 
                     

Bookings

  $ 121,860     $ 145,728     $ 144,134     $ 143,472     $ 555,194     $ 171,787     $ 149,498     $ 148,501     $ 152,037     $ 621,823     $ 266,190  

Bookings performance in the first quarter of 2021 was positively impacted by strong results in all product lines with patient recruitment, scientific and regulatory services, solutions for clinical trial sites, and Ethical Review all posting strong growth over the first quarter of 2020. Bookings quarter-over-quarter reflected the strong results of operations from the expansion of our solution capabilities. Bookings were additionally catalyzed with our considerable investment in a high-level team of clinical experts who are engaged in executive solution selling with WCG’s key clients. Growth in bookings year-over-year for the second, third and fourth quarters of 2020 was both positively and negatively impacted by COVID-19, as we were engaged to support COVID-19 studies in each of our operating segments, while clinical trials for non-critical procedures were halted or delayed

 

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due to COVID-19 related lockdowns. As such, we saw growth in bookings year-over-year in these quarters, although at a lesser rate than the growth in the first quarter of 2020.

 

   

Backlog: Our backlog represents the dollar value of all unsatisfied performance obligations at a point in time as well as revenue expected to be recognized in the next twelve months from IRB recurring services. Bookings and revenue recognition vary from period to period depending on numerous factors and therefore ending backlog may vary from period to period. Our ending backlog might not accurately reflect our future revenue, and we might not realize all or any part of the anticipated revenue in our ending backlog.

 

     Successor     

 

     Predecessor  
     Year Ended December 31,  
(in thousands)    2020     

 

     2019  

Backlog

   $ 701,720           $ 595,526  

Backlog growth from 2019 and 2020 was predominantly driven by the strong bookings growth in 2020 along with the backlog that was acquired with the purchase of Trifecta.

 

   

Client engagements: Our client engagements represent the number of all active client contracts as of a period end, between WCG and a CRO, clinical research site, partner organization or biopharmaceutical sponsor, through which WCG delivered value in exchange for direct remuneration or established or supported the contractual frameworks for the delivery of WCG solutions . See “Risk Factors—Risks Related to Our Business—Our bookings, backlog and client engagements might not accurately predict our future revenue, and we might not realize all or any part of the anticipated revenue reflected in our bookings, backlog and client engagements.”

 

    Predecessor     Successor        
    As of        
    March 31,
2019
    June 30,
2019
    September 30,
2019
    December 31,
2019
    March 31,
2020
    June 30,
2020
    September 30,
2020
    December 31,
2020
    March 31,
2021
 

Client engagements

    9,432       9,872       10,370       10,782       11,075       11,674       12,246       12,706       13,441  

Because our level of client engagements is directly proportional to the interest level in WCG solutions, that interest has grown with the number of service offerings we provide. Moreover, our strategy over the past few years to more closely engage with clinical research sites (of which there are thousands in the United States) has also provided us more opportunity to expand the reach of WCG in the industry and, in turn, expand our client engagements.

Investments in Growth

We have invested and intend to continue to invest in expanding the breadth and depth of our solutions, including through acquisitions and global expansion. We expect to continue to invest (i) in specialized clinical talent to expand our ability to deliver solutions to continue to improve clinical trials; (ii) in sales and marketing to promote our solutions to new and existing customers and in existing and expanded geographies; (iii) in research and development to support existing solutions and innovate new technology; and (iv) in other operational and administrative functions to support our expected growth. We expect that our headcount will increase over time and also expect our total operating expenses will continue to increase over time, albeit, at a rate lower than expected revenue growth in the long term.

 

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Components of Results of Operations

Revenues

Our revenues consist of fees for the review of clinical research trial protocols, technology-enabled specialty clinical consulting services which support various steps of the clinical trial process, and fees for software licenses and hosted software applications which support the conduct of effective clinical trials. The following describes the nature of our primary types of revenues and the revenue recognition policies as they pertain to the types of transactions we enter into with our clients.

 

   

ER Segment: We recognize revenue under the ER segment through services satisfied at points in time associated with the review of clinical research trial protocols, including initial and continuing review of protocols, initial and continuing review of investigators, and other reviews associated with research trials. Our ER segment also separately provides a hosted software application to its clients on a subscription basis for research management and trial submissions.

 

   

Ethical Review Services: We recognize revenue associated with the review of research protocols when the client has taken control, and the performance obligation of review is satisfied, which is when delivery of the certificate of action has been issued and provided to the client.

 

   

Software Hosting: Revenues from software hosting or SaaS arrangements are recognized ratably over the contractual term of the contract as the client has the right to continuous use of software at any time throughout the term, simultaneously receiving and consuming the benefits of the SaaS arrangement as it is provided. Further, while the client has the right to continuous use of the software provided, the contractual right to take possession of the source code is not included within the contractual terms. The output method that accurately depicts the transfer of control was determined to be the ratable delivery of accessibility to the client.

 

   

CTS Segment: We recognize revenue under the CTS segment through specialized services provided for the administration, conduct and optimization of clinical trials enabled by a variety of integrated technology-enabled solutions. These solutions include specialty clinical consulting services and proprietary software which provide integrated, end-to-end support of various steps of the clinical trial process that have been designed to optimize efficiency.

 

   

Clinical Consulting Services: Our primary clinical consulting service offerings include study planning, site identification and activation, including contracting and budgeting, site optimization through benchmarking and analytics, patient enrollment and retention services, clinical rater and patient training and assessments, specialized biostatistical analysis and endpoint adjudication, research management and independent expert reviews of clinical endpoints and safety data.

Clinical consulting services are provided on a time-and-material basis, as a fixed-price contract or as a fixed-price per measure of output contract and the contract terms range from less than one year to over five years. The performance obligation of clinical consulting services is satisfied over time because the client simultaneously receives and consumes the benefits provided as the services are performed.

Some of these services are enabled by proprietary technology as discussed below.

 

   

Software Licenses and Hosting: Our software license offerings include clinical management and support software that contain many of our data analysis platform, learning modules and integration software for clients to track and maintain data for their clinical trials and to deliver trial safety documents. Many of these offerings can be delivered entirely or partially through SaaS or cloud delivery models, while others are delivered as on-premise software licenses.

Revenue from on-premise software licenses, whereby the client has the right to take contractual possession of the software, are recognized at the point in time when the software is delivered, and control has transferred to the client. Revenue from software hosting or SaaS arrangements is recognized ratably over the contractual term of the contract, as the client has the right to

 

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continuous use of the software at any time throughout the term, simultaneously receiving and consuming the benefits of the SaaS arrangement as it is provided. In software hosting arrangements, the rights provided to the client (e.g., license rights, contract termination provisions and the ability of the client to operate the software on its own in the case of an on-premise license agreement) are considered in determining whether the arrangement includes a license. In arrangements that include a software license, the associated license revenue is recognized at the point in time the software license has significant standalone value and the functionality of the license is not expected to substantively change due to ongoing activities.

We also separately provide software services that include configuration, maintenance and support, training and consulting. Revenue is recognized as services are performed, measured on a proportional-performance basis, using either input or output methods that are specific to the service provided.

 

   

Other Revenues: Other revenues include newsletter subscriptions, market research reports, and other professional education materials. Subscription revenue is recognized over the term of the subscription or contract period. The output method based on the passage of time or progress based on volume of activities accurately depicts the transfer of control. Revenue from products sold on a one-off basis is recognized at the point of sale, when the client obtains control of the product.

Cost of Revenues (exclusive of depreciation and amortization)

Cost of revenues, excluding depreciation and amortization (referred to as “cost of revenues”), consists primarily of payroll, employee related expenses, site services, client reimbursable expenses, rent, review board fees, equity-based compensation and overhead directly attributable to the delivery of services and goods. This amount includes the direct labor costs used to provide our services. Cost of revenues do not include indirect expenses such as advertising, sales commissions, and other expenses that cannot be directly attributed to the goods or services we provide. We expect to add or expand service providers, make additional investments or add resources to support growth.

Operating Expenses

 

   

Selling, general and administrative expenses: Selling, general and administrative expenses (“SG&A”) consist of non-revenue producing employee-related expenses, including payroll, sales commissions and equity-based compensation, associated with our executive, legal, finance, human resources, and other administrative functions. SG&A expense also includes professional fees for external legal, accounting and other consulting services, overhead costs, impairment of intangible assets, lease abandonment charges and other general operating expenses.

 

   

We expect to increase the size of our general and administrative staff to support the anticipated growth of our business. Following the completion of this offering, we expect to incur additional expenses as a result of operating as a public company. These costs include the costs of complying with the rules and regulations applicable to companies listed on a U.S. securities exchange and costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, including third party and internal resources related to accounting, auditing, SOX compliance, legal, and investor and public relations expenses. In addition, as a public company, we expect to incur increased expenses such as insurance and professional services. As a result, we expect the dollar amount of our SG&A expense to increase for the foreseeable future.

 

   

Depreciation and amortization: Depreciation and amortization consists of depreciation of property and equipment and amortization of leasehold improvements, intangible assets and internal-use software.

 

   

Acquisition-related expenses: Acquisition-related expenses consist of transaction costs such as third-party advisory fees, legal expenses, and related costs incurred with acquisitions; expenses related to contingent consideration related to acquisitions; synergy expenses; restructuring & integration costs; and seller transaction costs.

 

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Other Expense

 

   

Interest Expense: Interest expense consists primarily of interest expense associated with our term loans, including amortization of debt issuance costs and issuance discounts.

 

   

Other expenses: Other expenses consist of miscellaneous non-operating expenses primarily comprised of litigation settlements and foreign exchange transaction gains and losses.

Factors Affecting Results of Operations and Comparability

Acquisitions-related Activities

Change in Control Transaction:

On January 8, 2020, (the “effective date”), Da Vinci Purchaser Corp purchased all of the equity interests of WCG Holding IV Inc. and WCG Market Intelligence & Insights Inc. from WCG Holding IV LLC for total consideration of $3.2 billion (the “Transaction”). The Transaction was accounted for using the acquisition method of accounting, and the Successor financial statements reflect a new basis in the net assets acquired, measured at fair value on the effective date. See “Basis of Presentation.” As a result of the application of the acquisition method of accounting on the effective date, the financial statements for the Predecessor and Successor periods are presented on a different basis and are, therefore, not comparable. In connection with the Transaction, we recorded $1.6 billion of goodwill and $1.8 billion of intangible assets. As a result of the increase in intangible assets, amortization increased $132.9 million from the year ended December 31, 2019 to the year ended December 31, 2020. The goodwill recorded is not deductible for income tax purposes.

Concurrent with the closing of the Transaction, we issued $920.0 million of term loans under the First Lien Term Loan Facility and $345.0 million of term loans issued under the Second Lien Term Loan Facility. As part of the closing of the Transaction, all outstanding obligations under the Predecessor first lien credit facility and the Predecessor second lien credit facility were repaid.

We determined that the operational activities from January 1, 2020 through the close of the Transaction on January 8, 2020 were immaterial to the financial statements for the year ended December 31, 2020 and the three months ended March 31, 2020, and do not result in material differences in the amounts recognized on the consolidated balance sheet, consolidated statement of operations, or consolidated statement of cash flows. In light of the proximity of the effective date to the start of our January accounting period (i.e. only four business days from January 1, 2020 to the effective date, during which the Predecessor did not have material operations), we elected to present the activities from January 1, 2020 through January 7, 2020 in the Successor period (including the year ended December 31, 2020 and the three months ended March 31, 2020).

We expensed all transaction costs as incurred, which are included in acquisition-related expenses in the consolidated statements of operations, with the exception of certain expenses resulting from the change of control. For the Successor period, the Successor incurred $11.8 million of transaction costs. For the Predecessor period, the Predecessor incurred transaction costs of $10.2 million. See Note 1 to our consolidated financial statements appearing elsewhere in this prospectus.

Trifecta Acquisition: On November 1, 2020, we acquired Trifecta, which is a technology-enabled clinical trial solution company with its major asset being the comprehensive site communication platform. In connection with the Trifecta acquisition, we recorded $137.9 million of net assets acquired, $65.9 million of intangible assets subject to amortization, and $63.6 million of goodwill as of the acquisition date November 1, 2020. Net loss attributable to Trifecta from the acquisition date of November 1, 2020 to December 31, 2020 is $1.8 million. We incurred $0.9 million of transaction costs, primarily consisting of legal and advisory fees, associated with the Trifecta acquisition in the year ended December 31, 2020 and the costs were included in general and administrative expenses in the consolidated statements of operations. We also incurred costs for the issuance of

 

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debt, which were capitalized as debt issuance costs as of the acquisition date in the amount of $4.0 million. See Note 3 to our consolidated financial statements appearing elsewhere in this prospectus.

Avoca Acquisition: On April 1, 2021, we acquired Avoca, a life sciences solutions firm dedicated to improving quality and compliance in clinical trials. The Avoca Quality Consortium (AQC®) is comprised of leading pharma, biotech, CRO, site, and clinical service provider companies with the shared objective of elevating clinical trial quality and bringing key stakeholders in the clinical trials process into greater alignment. In connection with the Avoca acquisition, the total purchase price was $44.0 million, of which $36.0 million was paid in cash and $8.0 million of membership interests in the Parent were granted at fair value as equity consideration. In addition, the sellers and certain participating Avoca employees have the opportunity to earn an additional $12.0 million in the aggregate by achieving certain future EBITDA targets. The acquisition of Avoca does not constitute a material business combination. See Note 17 to our consolidated financial statements appearing elsewhere in this prospectus.

Intrinsic Acquisition: On June 1, 2021, we acquired Intrinsic, a comprehensive medical imaging and cardiac safety core lab services firm. Intrinsic provides these services to customers in support of clinical trials across all therapeutic areas and device and software validation studies, including but not limited to advisory services, consulting services, data acquisition, data centralization and harmonization, data analysis, quality control, data processing, data review, data transfer, query management and reader management and oversight. In connection with the Intrinsic transaction, the total purchase price was $80.0 million which was funded entirely by the Company’s cash on hand. In addition, certain participating Intrinsic management team members have the opportunity to earn an additional $12.1 million in the aggregate by achieving certain future EBITDA targets. The Company is in the process of determining the purchase price valuation, and the allocation of the purchase price has not yet been completed. The acquisition of Intrinsic does not constitute a material business combination. See Note 17 of our condensed consolidated financial statements appearing elsewhere in this prospectus.

Impact of COVID-19

The continued spread of COVID-19 may adversely impact our business, financial condition or results of operations as a result of increased costs, negative impacts to our workforce or a sustained economic downturn. The extent to which the COVID-19 pandemic may impact our business in the future is highly uncertain and cannot be predicted. For example, revenue and bookings growth in 2020 was both positively and negatively impacted by COVID-19, as we were engaged to support COVID-19 studies in each of our operating segments, while clinical trials for non-critical procedures were halted or delayed due to COVID-19 related lockdowns, as further described below. In the first quarter of 2021, several COVID-19 vaccines were distributed within the markets with which we operate domestically and internationally. Consistent with the prior year, the impact of COVID-19 on our revenues and bookings was both positive and negative. In addition, a recession or a prolonged period of depressed economic activity related to COVID-19 and measures taken to mitigate its spread could have a material adverse effect on our business, financial condition and results of operations. Therefore, while we expect that this matter may impact our financial condition, results of operations, or cash flows, the extent of the financial impact and duration cannot be reasonably estimated at this time. See “Risk Factors—Risks Related to Our Business—Our business may be subject to risks arising from natural disasters and epidemic diseases, such as the recent COVID-19 pandemic.”

 

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Results of Operations

Three Months ended March 31, 2021 Compared to Three Months ended March 31, 2020 (Unaudited)

The following table summarizes our unaudited statements of operations data for the three months ended March 31, 2021 and 2020:

 

In Thousands    Three Months Ended
March 31,
    Change  
     2021    

 

     2020     $     %  

Revenues

   $ 137,642          $ 103,499     $ 34,143       33

Cost of revenues (exclusive of depreciation and amortization)

     51,561            37,264       14,297       38
 

Operating expenses:

             

Selling, general and administrative expenses

     28,602            21,245       7,357       35

Depreciation and amortization

     53,044            50,924       2,120       4

Acquisition-related expenses

     9,062            17,463       (8,401     (48 )% 
  

 

 

        

 

 

   

 

 

   

Total operating expenses

     90,708            89,632       1,076       1
  

 

 

   

 

 

    

 

 

   

 

 

   

Operating (loss) income

     (4,627          (23,397     18,770       (80 )% 
 

Other expense:

             

Interest expense

     21,735            22,794       (1,059     (5 )% 

Other expense (income)

     25            (8     33       N/M  
  

 

 

        

 

 

   

 

 

   

Total other expense

     21,760            22,786       (1,026     (5 )% 

(Loss) income before income taxes

     (26,387          (46,183     19,796       (43 )% 

Income tax benefit

     (5,763          (16,091     10,328       (64 )% 
  

 

 

        

 

 

   

 

 

   

Net (loss) income

   $ (20,624        $ (30,092   $ 9,468       (31 )% 
  

 

 

        

 

 

   

 

 

   

N/M – not meaningful

Revenues

 

In Thousands    Three Months Ended
March 31,
     Change  
     2021             2020      $      %  

ER segment revenues

   $ 66,127           $ 53,770      $ 12,357        23

CTS segment revenues

     71,515             49,729        21,786        44
  

 

 

         

 

 

    

 

 

    

Total revenues

   $ 137,642           $ 103,499      $ 34,143        33
  

 

 

         

 

 

    

 

 

    

Revenues increased by $34.1 million, or 33% to $137.6 million for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. The increase in revenues was driven by both the continuation of COVID-19 studies that began in 2020 and an increase in volume of non-COVID-19 studies. Additionally, there was an increase of $9.6 million specifically related to the acquisition of Trifecta that occurred on November 1, 2020.

ER revenues increased by $12.4 million, or 23%, to $66.1 million for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. The increase was primarily driven by an increase in volume related to COVID-19 studies.

CTS revenues increased $21.8 million, or 44%, to $71.5 million for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. The increase was primarily driven by an increase in

 

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volume related to COVID-19 studies and COVID-19 vaccine support. The Company’s acquisition of Trifecta that occurred after March 31, 2020 also contributed to the increase in revenues between the disclosed periods.

Cost of Revenues (exclusive of depreciation and amortization)

 

In Thousands    Three Months Ended
March 31,
     Change  
     2021             2020      $      %  

ER segment cost of revenues

   $ 13,458           $ 10,180      $ 3,278        32

CTS segment cost of revenues

     38,103             27,084        11,019        41
  

 

 

         

 

 

    

 

 

    

Total cost of revenues

   $ 51,561           $ 37,264      $ 14,297        38
  

 

 

         

 

 

    

 

 

    

Cost of revenues increased by $14.3 million, or 38%, to $51.6 million for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. The increase in cost of revenues was driven primarily by an additional $5.0 million in wages and benefits costs and $5.7 million in additional site services costs to support the growth in revenue. Additionally, there was an increase in cost of revenues related to the Trifecta acquisition of $1.2 million.

Cost of revenues increased in the ER segment by $3.3 million, or 32%, to $13.5 million, primarily due to an additional $1.5 million in wages and benefits costs to support the growth in revenue in the segment.

Cost of revenues increased in the CTS segment by $11.0 million, or 41%, to $38.1 million, primarily due to a $2.9 million increase in wages and benefits costs to support the growth in revenues in the segment. Additionally, a $7.8 million increase in third-party contractors and a $0.4 million increase in various non-labor operating expenses and the additional cost of revenues from the 2020 acquisition of Trifecta also contributed to the overall increase in the segment’s cost of revenues.

Gross Profit (exclusive of depreciation and amortization)

 

In Thousands    Three Months Ended
March 31,
     Change  
     2021     

 

     2020      $      %  

ER gross profit

   $ 52,669           $ 43,590      $ 9,079        21

CTS gross profit

     33,412             22,645        10,767        48

The Company’s single measure of segment profit (loss) is gross profit, exclusive of depreciation and amortization.

Gross profit increased in the ER segment by $9.1 million, or 21%, to $52.7 million, primarily due to increases in revenues of $12.4 million driven by an increase in volume related to COVID-19 studies offset by an increase in cost of revenues, primarily relating to an additional $1.5 million in wages and benefits costs to support the growth in revenue in the segment.

Gross profit increased in the CTS segment by $10.8 million, or 48%, to $33.4 million, primarily due to a $21.8 million increase in sales primarily due an increase in volume related to COVID-19 studies, vaccines support and inclusion of revenues from the Company’s acquisition of Trifecta. The increase in revenues was offset by an increase in cost of revenues due to a $2.9 million increase in wages and benefits costs to support the growth in revenues in the segment, a $7.8 million increase in third-party contractors, and a $0.4 million increase in various non-labor operating expenses and the additional cost of revenues from the 2020 acquisition of Trifecta.

 

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Selling, General and Administrative expenses

 

In Thousands    Three Months Ended
March 31,
     Change  
     2021             2020      $      %  

Selling, general and administrative expenses

   $ 28,602           $ 21,245      $ 7,357        35

Selling, general and administrative expenses increased by $7.4 million, or 35%, to $28.6 million for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. The increase in selling, general and administrative expenses was driven primarily by an increase in wages and benefits for additional positions filled since the first quarter of 2020 to support overall growth of operations.

Depreciation and Amortization

 

In Thousands    Three Months Ended
March 31,
     Change  
     2021             2020      $      %  

Depreciation and amortization

   $ 53,044           $ 50,924      $ 2,120        4

Depreciation and amortization expenses increased by $2.1 million, or 4%, to $53.0 million for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. The increase in depreciation and amortization was driven by an increase of $2.6 million in amortization expense and offset by a $0.5 million decrease in depreciation expense. The increase in amortization included a $3.0 million increase as a result of the Trifecta acquisition, offset by a $0.4 million decrease due to the abandonment of certain assets.

Acquisition-Related Expenses

 

In Thousands    Three Months Ended
March 31,
     Change  
     2021             2020      $      %  

Acquisition-related expenses

   $ 9,062           $ 17,463      $ (8,401      (48 )% 

Acquisition-related expenses decreased by $8.4 million, or 48%, to $9.1 million for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. This decrease was primarily driven by transaction costs of $11.8 million incurred in the three months ended March 31, 2020 related to the Transaction. These decreases were partially offset by higher costs associated with acquisition related contingent consideration and incentives of $2.9 million.

Interest Expense

 

In Thousands    Three Months Ended
March 31,
     Change  
     2021             2020      $      %  

Interest Expense

   $ 21,735           $ 22,794      $ (1,059      (5 )% 

Interest expense decreased by $1.1 million, or 5%, to $21.7 million for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. The decrease in interest expense between the three months ended March 31, 2021 and the three months ended March 31, 2020 was largely driven by a 0.87% decline in the interest rate on our First Lien Credit Facility between the two periods.

 

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Other Expense (Income)

 

In Thousands    Three Months
Ended

March 31,
     Change  
     2021             2020      $      %  

Other Expense (Income)

   $ 25           $ (8    $ 33        N/M  

N/M – not meaningful

Other expenses increased by $0.03 million, from $0.01 million of other income to $0.03 million of Other expense for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

Income Tax Benefit

 

In Thousands    Three Months Ended
March 31,
     Change  
     2021             2020      $      %  

Income Tax Benefit

   $ (5,763         $ (16,091    $ (10,328      64

Income tax benefit decreased by $10.3 million, or 64% during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. This change in the income tax benefit was driven primarily by the change in pre-tax book loss which reduced the income tax benefit by $4.1 million and changes in tax-effected discrete items which reduced the income tax benefit by $5.4 million. The most notable of these tax-effected discrete items was a change in the tax rate for a net operating loss carryback that applied to 2020 but did not apply in 2021. The reduction in our effective tax rate reduced the income tax benefit by $0.8 million.

Year ended December 31, 2020 (Successor) Compared to Fiscal Year ended December 31, 2019 Period (Predecessor)

The following table summarizes our audited statements of operations data for the year ended December 31, 2020 and 2019:

 

In Thousands    Successor    

 

     Predecessor     Change  
For the Years Ended December 31,    2020            2019     $     %  

Revenues

   $ 463,441          $ 412,846     $ 50,595       12

Cost of Revenues (exclusive of depreciation and amortization)

     169,131            157,686       11,445       7
 

Operating Expenses:

             

Selling, general and administrative expenses

     90,036            90,397       (361     <1

Depreciation and amortization

     205,697            64,602       141,095       218

Acquisition-related expenses

     38,469            26,789       11,680       44
  

 

 

        

 

 

   

 

 

   

Total Operating Expenses

     334,202            181,788       152,414       84
  

 

 

   

 

 

    

 

 

   

 

 

   

Operating (Loss) Income

     (39,892          73,372       (113,264     (154 )% 
 

Other Expenses:

             

Interest expense

     91,310            55,415       35,895       65

Other expenses

     2,976            43       2,933       6,821
  

 

 

        

 

 

   

 

 

   

Total Other Expenses

     94,286            55,458       38,828       70

(Loss) Income Before Income Taxes

     (134,178          17,914       (152,092     (849 )% 

Income Tax Benefit

     (38,904          (279     (38,625     N/M  
  

 

 

        

 

 

   

 

 

   

Net (Loss) Income

   $ (95,274        $ 18,193     $ (113,467     (624 )% 
  

 

 

        

 

 

   

 

 

   

N/M – not meaningful

 

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Revenues

 

In Thousands    Successor     

 

     Predecessor      Change  
For the Years Ended December 31,    2020             2019      $      %  

ER segment revenues

   $ 239,381           $ 202,246      $ 37,135        18

CTS segment revenues

     224,060             210,600        13,460        6
  

 

 

         

 

 

    

 

 

    

Total revenues

   $ 463,441           $ 412,846      $ 50,595        12
  

 

 

         

 

 

    

 

 

    

Revenues increased by $50.6 million, or 12%, to $463.4 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019. Revenue growth in 2020 was both positively and negatively impacted by COVID-19, as we were engaged to support COVID-19 studies in each of our operating segments, while clinical trials for non-critical procedures were halted or delayed due to COVID-19 related lockdowns. Revenue increases related to acquisitions included $11.3 million from the acquisition of SCI on December 31, 2019, and $4.2 million from the acquisition of Trifecta on November 1, 2020. Additionally, our acquisitions of Analgesic Solutions, WCG CSO Consulting, and PharmaSeek, which were completed during 2019, contributed to an overall increase in revenue for 2020 of $8.6 million, as a result of the inclusion of a full year of results from these acquired businesses.

ER revenues increased by $37.1 million, or 18%, to $239.4 million for the year ended December 31, 2020, primarily driven by an increase in volume related to COVID-19 studies throughout 2020, partially offset by a slight reduction in non-COVID-19 study activity and submissions earlier in the year.

CTS revenues increased by $13.5 million, or 6%, to $224.1 million for the year ended December 31, 2020, primarily driven by an increase in volume of COVID-19 studies, as well as COVID-19 vaccine support, and revenue increases related to the inclusion of the Company’s 2019 and 2020 acquisitions, offset by the negative impact on clinical trials related to COVID-19 lockdowns.

Cost of Revenues (exclusive of depreciation and amortization)

 

In Thousands    Successor     

 

     Predecessor      Change  
For the Years Ended December 31,    2020             2019      $     %  

ER segment cost of revenues

   $ 45,135           $ 45,780      $ (645     (1 )% 

CTS segment cost of revenues

     123,996             111,906        12,090       11
  

 

 

         

 

 

    

 

 

   

Total cost of revenue

   $ 169,131           $ 157,686      $ 11,445       7
  

 

 

         

 

 

    

 

 

   

Cost of revenues increased by $11.4 million, or 7%, to $169.1 million for the year ended December 31, 2020 as compared to 2019. The increase was primarily due to the inclusion of a full year of expenses related to the 2019 acquisitions of Analgesic Solutions, PharmaSeek, and SCI and the 2020 acquisition of Trifecta, which contributed a combined incremental increase of $15.4 million, comprised of increases of $6.8 million in wages and benefits and $2.1 million in third-party contractor expenses. This increase was partially offset by reductions of $3.7 million in certain direct client reimbursable expenses due to varying client needs and $2.9 million of bonus expense, $1.8 million of travel and related expenses, and general hiring restrictions and other cost control initiatives due, in each case due to the COVID-19 pandemic.

Costs of revenues decreased in the ER segment by $0.7 million, or 1%, primarily due to cost savings achieved as a result of continued process harmonization and consolidation as well as general cost savings initiatives as a result of the COVID-19 pandemic.

Cost of revenues increased in the CTS segment by $12.1 million, or 11%, primarily due to $15.4 million related to the inclusion of the Company’s 2019 and 2020 acquisitions, comprised of increases of $4.8 million

 

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related to wages and benefits, and $2.1 million for third-party contractors and professional fees, partially offset by $4.1 million of reductions in client reimbursable expenses due to varying client needs and a $2.0 million decrease in bonus expense for senior management, a $1.5 million reduction in travel and related expenses, and general cost savings, in each case due to cost control initiatives surrounding the COVID-19 pandemic.

Gross profit (exclusive of depreciation and amortization)

 

In Thousands    Successor     

 

     Predecessor      Change  
For the Years Ended December 31,    2020     

 

     2019      $      %  

ER gross profit

   $ 194,246           $ 156,466      $ 37,780        24

CTS gross profit

     100,064             98,694        1,370        1

The Company’s single measure of segment profit (loss) is gross profit, exclusive of depreciation and amortization.

Gross profit increased in the ER segment by $37.8 million, or 24%, to $194.2 million, due to an increase in revenue of $37.1 million primarily driven by an increase in volume related to COVID-19 studies throughout 2020 offset by a slight reduction in non-COVID-19 study activity and submissions earlier in the year, coupled with cost savings achieved as a result of continued process harmonization and consolidation as well as general cost savings initiatives as a result of the COVID-19 pandemic.

Gross profit increased in the CTS segment by $1.4 million, or 1%, to $100.1 million, primarily due to an increase of $13.5 million in revenue driven by an increase in volume of COVID-19 studies, as well as COVID-19 vaccine support, and revenue increases related to the inclusion of the Company’s 2019 and 2020 acquisitions partially offset by a slight reduction in non-COVID-19 study activity and submissions earlier in the year. This was offset by increases in cost of revenues primarily driven by $15.4 million for the inclusion of the Company’s 2019 and 2020 acquisitions, and related increases in wages and benefits, and third-party contractors and professional fees, partially offset by reductions in client reimbursable expenses due to varying client needs, bonus expense for senior management, travel and related expenses, and general cost savings, in each case due to cost control initiatives surrounding the COVID-19 pandemic.

Selling, General and Administrative Expenses

 

In Thousands    Successor     

 

     Predecessor      Change  
For the Years Ended December 31,    2020             2019      $     %  

Selling, general and administrative expenses

   $ 90,036           $ 90,397      $ (361     <1

Selling, general and administrative expenses decreased by $0.4 million, or less than 1%, to $90.0 million compared to 2019, primarily due to containment of third-party contractor costs and professional fees, pausing non-essential hiring, the elimination of our prior sponsor’s management fee, eliminating bonus expense for senior management, and reducing travel-related costs, in each case as a result of the COVID-19 pandemic.

Depreciation and Amortization

 

In Thousands    Successor     

 

     Predecessor      Change  
For the Years Ended December 31,    2020             2019      $      %  

Depreciation and amortization

   $ 205,697           $ 64,602      $ 141,095        218

Depreciation and amortization expense increased by $141.1 million, or 218%, to $205.7 million compared to 2019, driven by the $1.8 billion increase in intangible assets due to the Transaction, as further described above under “—Factors Affecting Results of Operations and Comparability—Acquisitions-related Activities.”

 

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Acquisition-Related Expenses

 

In Thousands    Successor     

 

     Predecessor      Change  
For the Years Ended December 31,    2020             2019      $      %  

Acquisition-related expenses

   $ 38,469           $ 26,789      $ 11,680        44

Acquisition-related expenses increased by $11.7 million, or 44%, to $38.5 million compared to 2019. The increase was primarily driven by $8.1 million in restructuring and integration expenses, $4.8 million relating to incentive compensation targets for the Pharmaseek, Analgesic Solutions, and SCI acquisitions, and $0.8 million in buyer-related costs relating to the Transaction. These increases were partially offset by lower legal, financial diligence, and advisory fees related to acquisitions of additional capabilities in 2020, as we only completed one acquisition in 2020, as compared to four in 2019.

Interest Expense

 

In Thousands    Successor     

 

     Predecessor      Change  
For the Years Ended December 31,    2020             2019      $      %  

Interest expense

   $ 91,310           $ 55,415      $ 35,895        65

Interest expense increased by $35.9 million, or 65%, to $91.3 million as compared to 2019. The increase was primarily attributable to the incremental borrowing under the amended First Lien Credit Facilities, entered into on November 2, 2020, and related amortization costs. Additionally, agency fees and the Interest Rate Cap contributed to the increase.

Other Expenses

 

In Thousands    Successor     

 

     Predecessor      Change  
For the Years Ended December 31,    2020             2019      $      %  

Other Expenses

   $ 2,976           $ 43      $ 2,933        6,821

Other expenses increased by $2.9 million, from $0.04 million in fiscal year 2019, to $3.0 million in fiscal year 2020. The increase in other expenses was attributable to an increase of $2.8 million in legal fees and settlements incurred in 2020, as further described below under “—Indebtedness.”

Income Tax Benefit

 

In Thousands    Successor    

 

     Predecessor     Change
For the Years Ended December 31,    2020            2019     $         %    

Income tax benefit

   $ (38,904        $ (279   $ (38,625   N/M

N/M – not meaningful

The income tax benefit increased by $38.6 million from $0.3 million in 2019. The year over year change in the income tax benefit is driven largely by the change in pre-tax book income. Additionally, our 2020 tax benefit includes a beneficial tax rate change as a result of net operating losses which were carried back to a tax year with a higher tax rate than that currently enacted. The 2019 tax benefit included the benefit associated with a reduction to our valuation allowance recorded against the interest expense limitation. This reduction was driven by the existence of sufficient taxable income of the appropriate character within the carryback and carryforward period.

 

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Liquidity and Capital Resources

We assess our liquidity in terms of our ability to generate adequate amounts of cash to meet current and future needs. Our expected primary uses on a short-term and long-term basis are for repayment of debt, interest payments, working capital, capital expenditures, geographic or service offering expansion, acquisitions and other general corporate purposes. We have historically funded our operations primarily through cash generated from operations and borrowings under our long-term debt facilities. We have historically used long-term debt and cash on hand to fund acquisitions. As of March 31, 2021, we had $175.0 million of cash and cash equivalents. We also had $125.0 million availability under our Revolving Credit Facility as of March 31, 2021.

The following table summarizes our unaudited condensed consolidated statements of cash flows data for the three months ended March 31, 2021 and 2020.

 

In Thousands    Three Months Ended
March 31,
 
     2021      2020  

Net cash provided by operating activities

   $ 16,316      $ 651  

Net cash used in investing activities

     (14,882      (2,905,898

Net cash provided by financing activities

   $ (4,532    $ 3,098,713  

The following table summarizes our audited consolidated statements of cash flows data for the years ended December 31, 2020 and 2019:

 

In Thousands    Successor    

 

     Predecessor  
For the Years Ended December 31,    2020            2019  

Net cash provided by operating activities

   $ 124,201          $ 61,390  

Net cash used in investing activities

     (3,055,651          (101,864

Net cash provided by financing activities

   $ 3,109,528          $ 38,747  

Operating Activities

For the three months ended March 31, 2021, our operating activities provided $16.3 million in cash flow, consisting of a net loss of $20.6 million, adjusted for net non-cash items of $64.9 million primarily related to an increase in depreciation and amortization, driven by the increase in intangible assets due to the Transaction, amortization of debt financing costs, loss on disposal of assets, amortization of capitalized contract costs, equity compensation expense, deferred income taxes and change in fair value of earnout liabilities. In addition, $28.0 million of cash was used by changes in operating assets and liabilities consisting primarily of a $12.1 million increase in accounts receivable due to the overall increase in revenue over the prior period, a $5.9 million increase in net income taxes receivable/decrease in net income taxes payable due to a decrease in the cumulative tax provision, a $3.6 million decrease in lease liabilities primarily due to payments on office leases, an increase of $4.8 million in deferred commissions due to increased bookings, a decrease of $4.8 million in accrued expenses mainly due to the payment of our 2020 bonus accrual, and an increase of $2.1 million of prepaid expenses due to the timing and increase in expenses to support our growth, partially offset by an increase in accounts payable of $3.4 million driven by overall growth in the organization and corresponding expense to support it and $0.9 million of unbilled receivables due to the timing of billing and revenue recognition milestones.

For the three months ended March 31, 2020, our operating activities provided $0.7 million in cash flow, consisting of a net loss of $30.1 million, adjusted for noncash items of $51.7 million primarily related to depreciation and amortization, amortization of debt financing costs, provision for doubtful accounts, deferred tax benefit and change in fair value of earnout liabilities. In addition, $20.9 million of cash was used by changes in operating assets and liabilities consisting primarily of a decrease in accrued expenses of $14.8 million driven by

 

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our 2019 bonus payment, an increase of $12.9 million in accrued interest due to the timing of quarterly interest payments, and an increase of $7.2 million unbilled receivables due to the timing of revenue recognition and billing milestones, offset by a decrease of $12.7 million in income tax receivable.

For the year ended December 31, 2020, our operating activities provided $124.2 million in cash flow, consisting of a net loss of $95.3 million, adjusted for net non-cash items of $207.2 million primarily related to an increase in depreciation and amortization, driven by the increase in intangible assets due to the Transaction, amortization of debt financing costs, loss on disposal of assets, amortization of capitalized contract costs, equity compensation expense, deferred income taxes and change in fair value of earnout liabilities. In addition, $12.3 million of cash was provided by changes in operating assets and liabilities consisting primarily of an increase in accrued interest of $11.9 million, accrued expenses of $10.5 million largely due to a payment due to the Seller for tax benefits from net operating loss carrybacks as permitted by the CARES Act, deferred revenue of $10.7 million driven by the overall increase in sales and billings, and accounts payable of $5.7 million driven by overall growth in the organization and corresponding expense to support it, and a decrease in prepaid expenses of $9.0 million, offset by an increase in accounts receivable of $15.5 million, unbilled receivables of $4.2 million and deferred commissions of $9.5 million, all driven by the overall growth of the Company as well as a decrease in lease liabilities of $6.4 million.

For the year ended December 31, 2019, our operating activities provided $61.4 million in cash flow, consisting of net income of $18.2 million, adjusted for noncash items of $60.4 million primarily related to depreciation and amortization, amortization of debt financing costs, provision for doubtful accounts, deferred tax benefit and change in fair value of earnout liabilities. In addition, $17.2 million of cash was used by changes in operating assets and liabilities consisting primarily of an increase in accounts receivable of $7.5 million and an increase of $6.0 million unbilled receivables driven by the overall growth of the Company, $7.4 million of deferred contract costs driven by an increase in sales commissions and an increase of $2.4 million in prepaid expenses to support the growth of the organization, offset by an increase in accrued expenses of $11.9 million driven by overall increases in incentive compensation, payroll, and general expense accruals required to support the growth of the organization, and a decrease in accounts payable of $2.4 million and deferred revenue of $2.9 million.

Investing Activities

For the three months ended March 31, 2021, we used $14.9 million in cash for investing activities, comprised primarily of minority investments in TrialX Inc. and ClinicalHealth Inc. (“Inspire”) and the purchase of internal-use software, equipment and leasehold improvements.

For the three months ended March 31, 2020, we used $2.9 billion in cash for investing activities, comprised primarily of the $2.9 billion consideration for the Transaction, as well as $5.1 million for the purchase of internal-use software, equipment and leasehold improvements.

For the year ended December 31, 2020, we used $3.1 billion in cash for investing activities, comprised primarily of the $2.9 billion consideration for the Transaction and $127.6 million for the Trifecta acquisition (net of cash acquired) and the purchase of internal-use software, equipment and leasehold improvements.

For the year ended December 31, 2019, we used $101.9 million in cash for investing activities, comprised primarily of $78.3 million for acquisitions made (net of cash acquired) and $23.5 million for the purchase of internal-use software, equipment and leasehold improvements.

Financing Activities

For the three months ended March 31, 2021, our financing activities used $4.5 million primarily attributable to principal payments made on our long-term debt as well as earn out payments related to acquisitions in prior years.

 

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For the three months ended March 31, 2020, our financing activities provided $3.1 billion primarily attributable to $1.8 billion in net proceeds from a contribution from our Principal Stockholders and $1.4 billion of proceeds from issuance of long-term debt and our Revolving Credit Facility related to the Transaction. These proceeds were partially offset by payments related to debt issuance costs.

For the year ended December 31, 2020, our financing activities provided $3.1 billion primarily attributable to $1.8 billion in net proceeds from a contribution from our Principal Stockholders and $1.5 billion of proceeds from issuance of long-term debt and our Revolving Credit Facility related to the Transaction and the Trifecta acquisition. These proceeds were partially offset by payments on our long-term debt and Revolving Credit Facility of $180.3 million, as well as earn out payments of $5.4 million related to acquisitions in prior years.

For the year ended December 31, 2019, our financing activities provided $38.7 million primarily of $54.0 million in proceeds of our Revolving Credit Facility, offset by payments on our long-term debt and Revolving Credit Facility of $4.9 million, as well as earn out payments related to acquisitions in prior years of $10.3 million.

Funding Requirements

We believe that our existing cash and cash equivalents will be sufficient to fund our operations and capital expenditure requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including funding for potential acquisitions, investments, and other growth and strategic opportunities that might require use of existing cash, borrowings under our Revolving Credit Facility, or additional long-term financing. We may also use existing cash and cash flows from operations to pay down long-term debt from time to time. While we believe we have sufficient liquidity to fund our operations, our sources of liquidity could be affected by factors described under “Risk Factors” elsewhere in this prospectus. If necessary, we may borrow funds under our Revolving Credit Facility to finance our liquidity requirements, subject to customary borrowing conditions. To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds; however, such financing may not be available on favorable terms, or at all. In particular, the widespread COVID-19 pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital. If we are unable to raise additional funds when desired, our business, financial condition and results of operations could be adversely affected. See “Risk Factors—Risks Related to Our Indebtedness—Our indebtedness could materially adversely affect our financial condition and our ability to operate our business, react to changes in the economy or industry or pay our debts and meet our obligations under our debt and could divert our cash flow from operations to debt payments.”

Indebtedness

Credit Facilities

First Lien Credit Facilities

On January 8, 2020, we entered into the First Lien Credit Facilities with Barclays Bank PLC as administrative agent, collateral agent and lender, and various other lender parties, providing for: (1) the First Lien Term Loan Facility of $920.0 million; and (2) the Revolving Credit Facility of up to $125.0 million. The First Lien Credit Facilities may also be used for swing-line loans up to $30.0 million and letters of credit up to $20.0 million (both, together and with revolving credit loans, not to exceed total revolving commitments of $125.0 million). Amounts borrowed under the term loan accrues interest at LIBOR (with a floor of 1.0%) plus 4% or base rate (with a floor of 1.0%) plus 3.0%, dependent upon the type of borrowing requested by us. The term loan requires quarterly interest and principal payments of $2.3 million and matures on January 8, 2027. As of March 31, 2021 and December 31, 2020, $125.0 million is available for borrowing under the Revolving Credit Facility, subject to certain financial covenants. The maturity date of loans made under the Revolving Credit

 

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Facility is January 8, 2025. Interest on loans made under the Revolving Credit Facility accrues at LIBOR plus 4.0% or base rate plus 3.0%, dependent upon the type of borrowing requested by us. There is a commitment fee of 0.50% on unused portions of the Revolving Credit Facility. The commitment fee is subject to change in increments of 0.125% depending on our net leverage ratio.

Borrowings under the First Lien Term Loan Facilities may be prepaid, in whole or in part, without premium or penalty. We will be required to prepay outstanding amounts upon realizing (subject to exceptions and qualifications) excess cash flows from operations, proceeds from asset disposal or casualty events, incurring debt not otherwise permitted, and upon events of default or illegality. Further, the First Lien Credit Facilities include a financial covenant that requires us to maintain a specified consolidated ratio of total indebtedness to EBITDA in the event revolving credit loans, swing-line loans and letters of credit under the First Lien Credit Facilities exceed 35% of the outstanding revolving commitments. As of March 31, 2021, we were in compliance with this covenant.

On June 26, 2020, we purchased an interest rate cap (the “Interest Rate Cap”) to protect against increases in LIBOR above 1.0% on $917.7 million of notional. The Interest Rate Cap settles every 3 months if LIBOR exceeds 1.0%, receiving a payment equal to such rate differential with respect to the notional. The Interest Rate Cap terminates on October 8, 2023. We paid a premium of $1.3 million for the Interest Rate Cap.

On November 2, 2020, the Company entered into an amendment to the First Lien Credit Facility, which increased the borrowings under the First Lien Term Loan by $150.0 million (the “incremental loan facility”) to $1.1 billion.

Second Lien Term Loan Facility

On January 8, 2020, we entered into the Second Lien Credit Agreement with Wilmington Trust, National Association as administrative agent and collateral agent, and lender parties, providing for providing for the Second Lien Term Loan Facility of $345.0 million. The Second Lien Term Loan Facility bears an interest rate of 9% per annum paid quarterly and has a maturity date of January 8, 2028.

The Second Lien Term Loan Facility requires quarterly interest payments and does not require principal payment until maturity. We must pay a premium if prepaying amounts owed under the term loan prior to 2024, and no premium thereafter. We may prepay the term loan at 109% of par prior to January 8, 2022, at 104.5% of par prior to 2023 and at 102.25% of par prior to 2024. Further, if we prepay the term loan prior to January 8, 2022, we will also be required to pay any future scheduled interest on the term loans due from the prepayment date until January 8, 2022. We will be required to prepay outstanding amounts, including prepayment premiums in certain cases, upon realizing (subject to exceptions and qualifications) proceeds from asset disposal or casualty events, incurring debt not otherwise permitted, and upon events of default or illegality. We have assessed the likelihood of these events occurring to be remote as of March 31, 2021.

Off-Balance Sheet Arrangements

During the periods presented, we did not have, and currently we do not have, any off-balance sheet arrangements, as defined under the rules and regulations of the SEC.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis

 

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for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts, and experience. The effects of material revisions in estimates, if any, are reflected in the consolidated financial statements prospectively from the date of change in estimates.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this prospectus, we believe the following accounting policies used in the preparation of our consolidated financial statements require the most significant judgments and estimates.

Revenue Recognition

Our revenues result from contracts with clients that generally range from one to five years. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. Under typical payment terms for our contracts, the client pays based on the terms of the contract, generally net 30 to net 90 days. The payment terms are not considered a significant financing component due to the timing in which control transfers and we expect to receive payment in less than a year. As a practical expedient, we do not account for significant financing components if the period between when we transfer the promised product or service to the client and when the client pays for that product or service will be one year or less.

Revenue is based on the transaction price, which is defined as the amount of consideration we expect to receive in exchange for providing products and services to client. If the consideration promised in a contract includes a variable amount, we estimate the amount to which it expects to be entitled using either the expected value or most likely amount method. Examples of variable consideration in the Company’s contracts include volume discounts, service-level penalties, and performance bonuses, other forms of contingent revenue, or other variable consideration such as third-party pass-through and out-of-pocket costs incurred. We only include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates are based on all information (historical, current and forecasted) that is reasonably available to us, taking into consideration the type of client, the type of transaction and the specific facts and circumstances of each arrangement. We review and update these estimates regularly, and the impact of any adjustments are recognized in the period the adjustments are identified.

Amounts billed and due from clients are short term in nature and are classified as receivables since payments are unconditional and only the passage of time is required before payments are due. We determine an allowance for doubtful accounts by identifying troubled accounts and by using historical experience and knowledge applied to an aging of accounts, knowledge of our customers’ financial condition, credit history, and existing economic conditions.

Goodwill and Other Intangibles

We record goodwill as the excess purchase price over the fair value of net assets acquired in business combinations, which are accounted for under the acquisition method of accounting. Goodwill is not amortized, instead it is tested for impairment at the reporting unit level, which is one level below or the same as an operating segment. The fair value of the reporting unit is primarily based on an estimate of the discounted cash flows expected to result from that reporting unit. We also have the option to assess qualitative factors to determine if it is necessary to perform the goodwill impairment test. Qualitative factors considered in this assessment include industry and market considerations, overall financial performance and other relevant events and factors affecting each reporting unit. If, after assessing the totality of events or circumstances, we determine that it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, no further testing is necessary. If, however, we determine that it is more-likely-than-not that the fair value of a reporting unit is less

 

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than its carrying amount, then we must perform the quantitative test. The quantitative test requires a comparison of the fair value of the individual reporting unit to its carrying value, including goodwill. If the fair value of the reporting unit is in excess of the carrying value, the related goodwill is considered not impaired and no further analysis is necessary. If the carrying value of the reporting unit exceeds the fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The goodwill balance is subject to annual impairment testing, as well as interim assessments as necessary if circumstances exist or an event occurs resulting in a more-likely-than-not scenario that would reduce fair value.

Intangible assets consist of acquired customer relationships, contractual customer relationships, developed technology, patents and trade names. Contractual customer relationships represent existing contracts between us and our customers. All of the intangible assets are determined to have a finite life and are amortized over the estimated useful life using the straight-line method. We evaluate finite intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset might not be recoverable. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset are less than its carrying amount.

Common Stock Valuations

In the absence of a public trading market, the fair value of our common stock was determined by our board of directors, with input from management, taking into account our most recent valuations from an independent third-party valuation specialist. The valuations of our common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The assumptions we use in the valuation models were based on future expectations combined with management judgment, and considered numerous objective and subjective factors to determine the fair value of our common stock as of the date of each option grant, including the following factors:

 

   

relevant precedent transactions involving our capital stock;

 

   

contemporaneous valuations performed at periodic intervals by unrelated third-party specialists;

 

   

the liquidation preferences, rights, preferences, and privileges of our redeemable convertible preferred stock relative to the common stock;

 

   

our actual operating and financial performance;

 

   

current business conditions and projections;

 

   

our stage of development;

 

   

the likelihood and timing of achieving a liquidity event for the shares of common stock underlying the stock options, such as an initial public offering, given prevailing market conditions;

 

   

any adjustment necessary to recognize a lack of marketability of the common stock underlying the granted options;

 

   

recent secondary stock sales and tender offers;

 

   

the market performance of comparable publicly-traded companies; and

 

   

the U.S. and global capital market conditions.

Application of these approaches involves the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses, and future cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of possible future events. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impact our valuations as of each valuation date and may have a material impact on the valuation of our common stock.

 

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For valuations after the completion of this offering, our board of directors will determine the fair value of each share of underlying common stock based on the closing price of our common stock as reported on the date of grant. Future expense amounts for any particular period could be affected by changes in our assumptions or market conditions.

Equity-Based Compensation

In order to calculate equity-based compensation expense, we use the Black-Scholes option pricing model to arrive at the fair value of profits interest units, which is estimated at the date of grant. As such, the following assumptions are made based on historical and current data: expected volatility, risk-free interest rate, expected term of the profits interests, and dividend yield. Expected volatility is estimated using the historic volatility of public stock prices from peer entities. Risk-free interest rate is estimated based on rates used at grant date of five-year U.S. treasury security yields that have comparable terms to the expected terms of the units used in the model. The expected term assumption within the model refers to the amount of time that granted options are expected to be outstanding based on a liquidity event. Equity-based compensation expense is recognized over the vesting period of the award on a graded basis, and we elect to recognize any forfeitures as they arise.

Income Taxes

We use the asset and liability approach for measuring deferred tax assets and liabilities based on temporary differences existing at each balance sheet date using currently enacted tax rates. Temporary differences exist when there are differences between the reported amounts of assets and liabilities and the tax basis for such recorded amounts. Valuation allowances reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

We have adopted ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740), on accounting for uncertainty in income taxes. As such, under this guidance, we may recognize the tax benefit from an uncertain tax position only if the likelihood of it being sustained on an examination is more likely than not, based on the technical merits of the position. An individual tax position is evaluated as to whether it has a likelihood of greater than 50% of being sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation processes. For tax positions that are currently estimated to have less than a 50% likelihood of being sustained, no tax benefit is recorded. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized on ultimate settlement. The adopted guidance on accounting for uncertainty in income taxes also addresses the following topics: classification, accounting in interim periods, interest and penalties on income taxes, and derecognition, and we recognize interest accrued related to unrecognized tax benefits in interest expense and penalties as income tax expense.

Business Combinations

We account for acquisitions of entities that qualify as business combinations under the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under this method, the assets acquired and liabilities assumed, including amounts attributable to noncontrolling interest, are recorded at fair value once control is obtained of the acquired business. The fair value recorded is determined based on our best estimates and assumptions assumed on the acquisition date. During the time at which all information for determination of the values of assets acquired and liabilities assumed, and not exceeding one year from the acquisition date, we record any measurement period adjustments as they are identified. We record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed as they occur, with the corresponding offset to goodwill.

 

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JOBS Act Election

We qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include:

 

   

the option to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in this prospectus;

 

   

not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002;

 

   

reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and

 

   

exemptions from the requirements of holding nonbinding, advisory stockholder votes on executive compensation or on any golden parachute payments not previously approved.

We will remain an emerging growth company until the earliest to occur of: (i) the last day of the first fiscal year in which our annual gross revenue exceeds $1.07 billion; (ii) the date that we become a “large accelerated filer,” with at least $700.0 million of equity securities held by non-affiliates as of the end of the second quarter of that fiscal year; (iii) the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year ending after the fifth anniversary of the completion of this offering.

We have elected to take advantage of certain of the reduced disclosure obligations in the registration statement of which this prospectus is a part and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide may be different than the information you receive from other public companies in which you hold stock.

An emerging growth company can also take advantage of the extended transition period provided in Section 13(a) of the Exchange Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of this extended transition period and, as a result, our operating results and financial statements may not be comparable to the operating results and financial statements of companies who have adopted the new or revised accounting standards.

As a result of these elections, some investors may find our common stock less attractive than they would have otherwise. The result may be a less active trading market for our common stock, and the price of our common stock may become more volatile.

Recently Adopted and Issued Accounting Standards

We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 2 to our consolidated financial statements and unaudited condensed consolidated financial statements appearing elsewhere in this prospectus, such standards will not have a material impact on our consolidated financial statements and unaudited condensed consolidated financial statements or do not otherwise apply to our operations.

 

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Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

As part of the close of the Transaction on January 8, 2020, we issued $920.0 million of term loans under the First Lien Term Loan Facility and $345.0 million of term loans issued under the Second Lien Term Loan Facility.

We have borrowings under the First Lien Term Loan Facility that bear interest at a rate per year equal to the LIBOR rate (with a floor of 1.0%) plus 4.0% or base rate (with a floor of 1.0%) plus 3.0%, dependent upon the type of borrowing requested by the Company. To date, the Company has elected to calculate interest on the outstanding balance at LIBOR rate plus 4%. Interest on loans made under the Revolving Credit Facility accrues at an interest rate per year equal to the LIBOR rate plus 4.0% or base rate plus 3.0%, dependent upon the type of borrowing requested by the Company. There is no LIBOR floor associated with loans made under the Revolving Credit Facility. The interest rate for loans made under the Revolving Credit Facility is subject to change in increments of 0.25% depending on the Company’s net leverage ratio. There is a commitment fee of 0.50% on unused portions of the Revolving Credit Facility. The commitment fee is subject to change in increments of 0.125% depending on the Company’s net leverage ratio.

In June 26, 2020, we purchased an interest rate cap to protect against increases in LIBOR above 1.0% on $917.7 million of notional amount of debt. The interest rate cap settles every 3 months if LIBOR exceeds 1.0%, with the Company receiving a payment equal to such rate differential, if any, with respect to the notional. The interest rate cap terminates on October 8, 2023. We paid a premium of $1.3 million for the interest rate cap.

We have borrowings under the Second Lien Term Loan Facility with Wilmington Trust, National Association as administrative agent and collateral agent, and lender parties, providing for the Second Lien Term Loan Facility of $345.0 million. The Second Lien Term Loan Facility bears an interest rate of 9% per annum paid quarterly and has a maturity date of January 8, 2028.

As of March 31, 2021, we had no outstanding borrowings under the Revolving Credit Facility. A hypothetical 100 basis point increase in interest rates would have increased our interest expense by $3.4 million for the three months ended March 31, 2021 and by $13.7 million for the year ended December 31, 2020. Our exposure to interest rate risk is minimized by the aforementioned interest rate cap. As of March 31, 2021, we recorded the fair value of our interest rate cap in the amount of $1.7 million as an other current asset.

Non-GAAP Measures

We use certain metrics that are not required by, or presented in accordance with, GAAP, mainly Adjusted EBITDA, to measure and assess the performance of our business, to evaluate the effectiveness of our business strategies, to make budgeting decisions, to make certain compensation decisions, and to compare our performance against that of other peer companies using similar measures. We believe that presentation of Adjusted EBITDA and other metrics in this prospectus will aid investors in understanding our business.

We measure operating performance based on Adjusted EBITDA, defined for a particular period as net income (loss) excluding interest expense, provision (benefit) for income taxes, depreciation and amortization expense, equity-based compensation expense, integration costs, acquisition related adjustments, restructuring costs, litigation, change in value of contingent consideration, management fees, charitable contributions and other items not indicative of our ongoing operating performance.

You are encouraged to evaluate our calculation of Adjusted EBITDA and the reasons we consider these adjustments appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in our presentation of

 

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Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. There can be no assurance that we will not modify the presentation of Adjusted EBITDA following this offering, and any such modification may be material. Adjusted EBITDA has its limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations include that Adjusted EBITDA does not reflect:

 

   

our cash expenditure or future requirements for capital expenditures or contractual commitments;

 

   

changes in our cash requirements for our working capital needs;

 

   

the interest expense and the cash requirements necessary to service interest or principal payments on our debt;

 

   

cash requirements for replacement of assets that are being depreciated and amortized;

 

   

reflect non-cash compensation, which is a key element of our overall long-term compensation;

 

   

the impact of certain cash charges or cash receipts resulting from matters we do not find indicative of our ongoing operations; and

 

   

other companies in our industry may calculate Adjusted EBITDA differently than we do.

 

   

The following table reconciles net (loss) income to Adjusted EBITDA:

 

     Successor     

 

     Predecessor                
     Year Ended December 31,      Three Months Ended March 31,  
     2020     

 

     2019              2021                      2020          
     (in thousands)  

Net (loss) income

   $ (95,274         $ 18,193      $ (20,624    $ (30,092

Interest expense

     91,310             55,415        21,735        22,794  

Income tax benefit

     (38,904           (279      (5,763      (16,091

Depreciation and amortization

     205,697             64,602        53,044        50,924  

Equity-based compensation expense

     4,594             —          1,284        —    

Integration cost(a)

     20,172             12,241        6,073        6,213  

Acquisition-related adjustments(b)

     21,242             14,913        (59      13,797  

Restructuring costs(c)

     5,169             (3      530        —    

Litigation(d)

     2,829             —          (22      —    

Change in value of contingent consideration(e)

     1,358             1,011        2,926     

Management fees(f)

     55             2,125        —          55  

Charitable contribution(g)

     —               500        —          —    

Other(h)

     115             —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 218,363           $ 168,718      $ 59,124      $ 47,600  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a)

Includes certain integration costs in connection with mergers and acquisitions, including the Transaction, the Trifecta acquisition, and other acquisitions made by WCG. These costs include system integration costs, marketing and rebranding costs, and certain payroll and employee related expenses.

(b)

Includes legal and professional costs related to the Company’s mergers and acquisitions. Costs related to the Transaction for the years ended December 31, 2020 and 2019, and the three months ended March 31, 2020, were $15.0 million, $10.2 million and $11.8 million, respectively. Costs related to the Trifecta acquisition were $0.9 million, which occurred during the year ended December 31, 2020. Costs related to other acquisitions made by WCG were $5.3 million for the year ended December 31, 2020 and $4.7 million for the year ended December 31, 2019.

(c)

Includes costs related to restructuring initiatives and the closing of a product line, and impairment of related assets.

 

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(d)

Includes litigation costs outside of the ordinary course of business related to settlement with certain employees.

(e)

Includes valuation adjustments for acquisition-related contingent consideration, which is subject to remeasurement at each balance sheet date. Any change in the fair value of such acquisition-related contingent consideration is reflected in our condensed consolidated statements of operations as a change in fair value of the liability. We adjust the carrying value of the acquisition-related contingent consideration until the contingency is finally determined or final payment is made.

(f)

Includes management fee paid to our prior sponsor in 2019 and 2020. Upon completion of the Transaction on January 8, 2020, this management fee was eliminated.

(g)

Includes a contribution to the WCG Foundation, a charitable organization for developing grants and programs for education.

(h)

Reflects one-time costs related to the preparation for this offering.

 

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BUSINESS

Our Mission

WCG’s mission is to provide clinical trial stakeholders with the highest-quality service, accelerate the scientific advancement of human health, and ensure that the risks of progress never outweigh the value of human life.

Our Company

We believe we are a leading provider of clinical trial solutions, focused on providing solutions that are designed to measurably improve the quality and efficiency of clinical research, stimulate growth and foster compliance. Our transformational solutions enable biopharmaceutical companies, CROs, and institutions to accelerate the delivery of new treatments and therapies to patients, while maintaining the highest standards of human protection. We leverage our differentiated strategic position at the center of the clinical trial ecosystem to provide new types of technology-enabled solutions to all stakeholders involved, with the aim to address the key critical pain points throughout the clinical trial process.

Clinical trials are an essential part of the drug and device development process, but ineffective trial design and management continues to delay much-needed therapies from being made available to patients. Delayed patient enrollment, slow trial startup, burdensome administrative processes, use of disparate technologies, and under-representation of minority patients are a few of the key critical pain points our clients face in running clinical trials today. As a result, clinical trials are increasingly more expensive to conduct, are regularly delayed, and often face regulatory and data quality challenges. While investments in R&D have reached new highs, the returns on investment have steadily declined. According to the Deloitte Center for Health Solutions, each of the 12 leading biopharmaceutical companies realized, on average, a return on R&D investment of approximately 2% in 2018, down from 10% in 2010.

WCG was founded in 2012, backed by Arsenal Capital Partners, with the goal of systematically transforming drug development by addressing the key critical pain points adversely affecting clinical trial performance. Our proprietary suite of technology-enabled solutions provides ethical review services as well as broader clinical trial solutions including study planning and optimization, patient engagement, and scientific and regulatory review services. We serve all stakeholders in the clinical trial ecosystem, including biopharmaceutical companies and CROs, trial sites, institutions and investigators, as well as patients and advocacy groups. Our solutions include software as well as technology-enabled clinical services that provide integrated, end-to-end support along the clinical trial process. Our clients leverage our solutions to inform the critical decisions that are key to saving significant time and expense, enhancing drug safety and efficacy, and ultimately allowing for the improvement of millions of lives. The impact of WCG’s contributions was especially pronounced in 2020 with our support of over 580 COVID-19 clinical trials, including many of the most highly impactful and publicized vaccines and antivirals.

Starting with our first and oldest business, Western IRB, we believe WCG has built a 50-year reputation for excellence in the performance of ethical reviews to become a partner of choice to some of the most sophisticated biopharmaceutical companies, regulators, and investigators. We have expanded our platform’s capabilities over the years and presently enjoy a differentiated strategic position at the center of the clinical trial ecosystem, enhancing efficiency and connectivity by uniting all stakeholders through our integrated technology platform. Since our founding, our end-to-end solutions have benefitted over 5,000 biopharmaceutical companies and CROs, of which 4,000 are small and mid-cap biopharmaceutical companies, 10,000 research sites, and several million patients. Our management estimates that over the last two years ended December 31, 2020, WCG supported approximately 90% of all global clinical trials, across a broad array of therapeutic areas and trial phases and, over the same period, our solutions have been leveraged by 87% of all new drugs and therapeutic biologics approved by the FDA. With a global workforce of over 4,000 individuals who are core to our mission

 

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and our platform, we have a presence in 71 countries. Our significant expertise is evidenced by our track record of supporting over 4,000 global clinical trials from March 2020 through February 2021. We expect to continue to expand our operations at home and abroad as needed to service our increasingly diverse and international client base. We believe our clinical professionals are industry thought-leaders who provide expert consultation on ethical standards, trial operations, and regulatory submissions for drugs and devices. We believe our strategic position at the center of the clinical trial ecosystem provides us with the breadth and depth of knowledge and insight to serve our mission, and confidently develop new products and services to enhance our value proposition and growth trajectory.

Since WCG’s founding, we have focused on a strategic direction that includes long-term and sustained above-market and profitable growth. In order to achieve this, we have maintained a focus on four key elements of that strategy to guide our operations. Specifically, we:

 

   

capitalize on our large and high-growth markets;

 

   

grow within our existing client base;

 

   

further leverage the WCG Clinical Trial Ecosystem, the WCG Knowledge Base and our proprietary technology platform; and

 

   

expand our platform through the acquisition of new capabilities.

We believe we have a proven track record of consistent growth and strong financial performance. We serve a high-growth market, and have outperformed through organic expansion of our portfolio, cross-selling of our solutions into our large client base and the strategic acquisition of complementary capabilities.

 

   

From 2018 to 2020, our revenue increased by approximately 16% per year, from $345.6 million to $463.4 million, with an Adjusted EBITDA margin (defined as Adjusted EBITDA divided by revenue) reaching 47% in 2020. Our revenues increased by approximately 33%, from $103.5 million to $137.6 million, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, with Adjusted EBITDA margin reaching 43% in the first quarter of 2021.

 

   

For 2019 and 2020, 74% and 69% of the Company’s revenue growth, respectively, was Organic Revenue Growth.

 

   

We had a net loss of $2.6 million in 2018, net income of $18.2 million in 2019, and a net loss of $95.3 million in 2020 primarily due to the impact of the Transaction. In addition, we had a net loss of $20.6 million and $30.1 million in the three months ended March 31, 2021 and 2020, respectively. Our Adjusted EBITDA increased by approximately 50%, from approximately $146.0 million in 2018 to approximately $218.4 million in 2020. Our Adjusted EBITDA increased by approximately 24%, from $47.6 million to $59.1 million, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

 

   

From 2019 to 2020, our bookings increased by approximately 12%, from $555.2 million to $621.8 million. Our bookings increased by approximately 55%, from $171.8 million to $266.2 million, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

 

   

As of March 31, 2021, our top 25 clients each purchased on average more than four of our solutions, and each contributed revenues of over $2 million. We estimate the current opportunity from further cross selling our existing solutions to these clients to be over $1.6 billion.

 

   

WCG has a strong track record of acquiring and integrating leading technologies and solutions into our platform, having closed 30 acquisitions since 2012. These acquisitions have provided complementary solutions and incremental expertise to our growing portfolio, expanding the capabilities of our end-to-end platform.

See “Prospectus Summary—Summary Consolidated Financial and Operating Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information regarding bookings and Adjusted EBITDA, including a reconciliation of Adjusted EBITDA to net (loss) income.

 

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Our Differentiated Platform of Integrated Solutions

WCG’s Clinical Trial Ecosystem—A Key Differentiator

For decades, the biopharmaceutical industry has approached clinical trials on a trial-by-trial basis, with each new trial requiring a one-time assembly of research sites, patient participants, and supporting technologies. When a trial ends, the teams organized to carry it out are disbanded. Each trial becomes a one-time and episodic collaboration of the operational expertise, human capital, and specific technology used in the trial. This single-trial model has discouraged many organizations from making long-term investments in unifying the end-to-end trial process given the required investment horizon. Yet, many of the operational challenges affecting clinical trials today, including high costs, long duration, and poor patient enrollment, are the direct results of this lack of continuity and connectivity. WCG has created a more permanent alignment of interest across stakeholders and improved consistency of workflows through the WCG Clinical Trial Ecosystem , which leverages our expansive client relationships and deep data-driven insights to enhance the connectivity and efficiency throughout the clinical trial process. We believe our strategic position at the center of the clinical trial ecosystem provides us with differentiated breadth and depth of knowledge and insight to serve our clients, fulfill our mission, and confidently develop new products and services to enhance our value proposition and growth trajectory.

Positioned at the center of the clinical trial ecosystem, WCG acts as a single point of connectivity among all stakeholders involved, a large number of which are clients that we have relationships with and that we serve:

 

 

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*

Based on revenue.

**

Based on management estimates.

Each of these stakeholders benefits from WCG’s differentiated platform of end-to-end solutions:

 

   

patients benefit from the ability to access life-saving therapies sooner and may participate in clinical trials with increased safety through faster enrollment, improved engagement and increased awareness;

 

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sites, institutions and investigators benefit by having access to a unified and interconnected network, allowing them to enhance their visibility to sponsors, more effectively recruit the appropriate group of patients, and therefore more efficiently conduct clinical trials; and

 

   

sponsors and CROs benefit from the ability to select strong performing sites with greater precision and to more efficiently enroll patients, by leveraging unified workflows, interconnected sites, and integrated technology-enabled solutions. This in turn allows them to conduct clinical trials faster and at a lower overall cost.

We believe our ability to make an impact in the clinical trial ecosystem by leveraging our differentiated platform was demonstrated in the context of the COVID-19 pandemic, with WCG engaged across 580 COVID-19 studies during 2020, providing support and expertise in ethical review, institutional biosafety, site identification, site matching, site optimization, data monitoring and statistical consulting. Demonstrating our ability to be a central point of connectivity among stakeholders involved in the clinical trial process, from March 2020 through April 2021, we connected sponsors to over 3,000 sites within our network for purposes of COVID-19 clinical trials, and as of December 31, 2020 had over 400 clinical research coordinators engaged in providing site optimization and enrollment support for COVID-19 vaccine and therapeutic trials.

WCG’s Knowledge Base—Comprehensive Real-Time Trial Data

Leveraging the WCG Knowledge Base, our management estimates that over the last two years ended December 31, 2020, WCG participated in over 90% of all global clinical trials, across a broad array of therapeutic areas and trial phases, which provides us with unique access to clinical trial data and deep insights in the industry. WCG’s Knowledge Base is a primary dataset which was purpose-built to aggregate a wide array of clinical trial performance data assembled over the years. WCG has strategically developed proprietary algorithms that query WCG Knowledge Base and provide authoritative insights into the matters that are central to effective clinical trial decisions. We leverage the WCG Knowledge Base across our businesses, from generating client insights to informing our new product innovation and broader business development.

A selection of direct applications of the WCG Knowledge Base are provided below.

 

 

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How We Serve Our Clients

In order to best serve our clients’ needs throughout the clinical trial continuum, WCG is organized into two segments:

Ethical Review segment. Our ER segment provides technology-enabled services that ensure clinical trials respect the rights and protect the welfare of patient participants. Over the last two decades, WCG has performed over 58,000 ethical reviews, developing specialized expertise and capabilities that we believe are differentiated in the industry. Federal regulations require clinical trial sponsors, including CROs and biopharmaceutical companies, to submit specific documentation related to the conduct of the clinical trial to a qualified IRB. The IRB is an independent committee established to review and approve research involving human participants, whose primary purpose is to protect the rights and welfare of the participating patients. The IRB has the authority to approve, require modifications in, or disapprove clinical trials. It is responsible for reviewing key aspects of the clinical trial, including:

 

   

trial protocol, which describes the objectives, methods and procedures which must be followed in the conduct of the trial;

 

   

investigators, who are licensed and qualified clinicians responsible for conducting the trial on behalf of the sponsor; and

 

   

participant informed consent, including the information sheet which describes the risks and benefits to the participant associated with participation in the trial, and the consent certificate which documents that understanding.

Clinical Trial Solutions segment. Our CTS segment provides an integrated suite of over 40 technology-enabled solutions that support the conduct of effective clinical trials. These solutions include proprietary software and specialty clinical consulting services which provide integrated, end-to-end support of workflows along the clinical trial process and have been designed with the specific objective to optimize efficiency. Using the WCG

 

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Clinical Trial Ecosystem we are able to offer clients a fit-for-purpose suite of the solutions that match the specific needs of a project, optimizing cost and efficiency.

Our revenues consist of fees for the review of clinical research trial protocols and investigators, technology-enabled specialty clinical consulting services which support various steps of the clinical trial process that are designed to optimize efficiency, sale of software licenses and hosted SaaS software applications which support the conduct of effective clinical trials. Because many of our agreements with our customers contain performance obligations over a period of years, spanning the life of a clinical trial, our backlog provides us, at any point in time, with visibility into approximately 75% of our revenues for the next twelve months.

WCG’s Technology-Enabled Solutions Address Key Critical Pain Points Along the Clinical Trial Process

 

Key Critical Pain Points of
Clinical Trials

  

WCG Solutions Overview

 

Select WCG Technologies & Solutions*

 

  

Ethical Review segment

 

 

Ethical Review

   Performs the regulatory-mandated obligations of protecting the human trial participants by reviewing and approving the trial protocols, investigator sites, and informed consent materials.  

•  Connexus 5.0: Workflow application for managing trial submissions used in over 3,300 institutions, academic medical centers, and hospitals;

•  IRBNet: SaaS research management workflow platform used by approximately 2,000 research institutions to connect and manage clinical trial activities; and

•  IBC: Institutional Biosafety Committee Oversight—NIH Mandated

    

Biosafety reviews for research in recombinant DNA, and gene and cell therapy.

 

  

Clinical Trial Solutions segment

 

 

Study Planning & Site Optimization    Provides data-based insight to identify, activate, and benchmark the performance of the most effective sites selected for inclusion in a trial, site startup support, trial training, proprietary site-support technologies, and research administration solutions.  

•  WCG Predict: SaaS platform to provide data-driven insights for clients to analyze optimal sites and manage resources, timelines, and budgets;

•  Pharmaseek: Site optimization services, including contracting and budgeting;

•  KMR, MCC, and Avoca: Site benchmarking and analytics, and trial quality performance consulting;

    

•  Velos: Site CTMS—Clinical research management software used by over 100 organizations across over 2,000 research sites; and

•  InvestigatorSpace: Online trial personnel training.

 

*

Data as of April 28, 2021.

 

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Key Critical Pain Points of
Clinical Trials

  

WCG Solutions Overview

 

Select WCG Technologies & Solutions*

Patient Engagement

   Improves patient-related activities in a clinical trial, including identifying, enrolling, and retaining targeted patient populations. Ensures that each patient encounter is properly documented by expert clinicians and supported by technology (e.g. electronic clinical outcome assessment (“eCOA”), electronic patient-reported outcomes (“ePRO”)).  

•  My-Patient.com: Workflow software for patient enrollment and retention and services used to expedite and monitor all stages of patient enrollment; and

•  Virgil: eCOA and ePRO software supporting clinical rater and patient training, and assessments.

Scientific & Regulatory Review    Ensures that the data recorded in a clinical trial can support effective regulatory submissions, including specialized biostatistical analysis and endpoint adjudication expertise, and software that supports the regulatory requirements of pharmacovigilance reporting.  

•  Safety Portal: AI-based software for regulatory-mandated delivery of trial safety documents to global investigators and ethics committees—accommodating precision distribution in 113 countries;

•  AIMS: Software supporting the activities of the Drug Safety Monitoring Boards / Data Monitoring Committees in their evaluation of drug safety and efficacy; and

•  independent expert reviews of clinical endpoints and safety data to enhance regulatory approval submissions.

 

*

Data as of April 28, 2021.

Our Market Opportunity

Traditional drug development has led to immeasurable public health benefits, but challenging diseases persist while many patients await life-saving medicines. Developing a new drug can take over 10 years and cost more than $2 billion to bring to market, according to Tufts CSDD. While investments in research and development have reached new highs, the returns on investment have steadily declined. In 2021, global biopharmaceutical R&D expenditures are expected to reach $195 billion according to EvaluatePharma. However, according to the Deloitte Center for Health Solutions, each of the 12 leading biopharmaceutical companies realized, on average, a return on R&D investment of approximately 2% in 2018, down from 10% in 2010.

 

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*

Source: Deloitte Center for Health Solutions and EvaluatePharma.

This decreasing return on drug R&D is driving a transformation of the industry’s approach to drug development, especially as it relates to clinical trials, which represent the most costly and time-consuming stage of the R&D process and therefore bear the greatest investment risk. Tufts CSDD reports that, in 2020, there were 6,500 total active drugs in clinical trial phases each drug having less than 12% probability of receiving regulatory approval. Contributing to this unfavorable trend, the costs of clinical trials are escalating, trial timelines are being extended, and data quality issues result in undesirable delays in regulatory approvals. In addition, new therapeutic categories and scientific advances, including cell and gene therapy, and precision medicine, are emerging at a rapid pace and have stimulated new and innovative approaches for addressing oncology and rare diseases. These advances have the potential to bring significant benefits, but also result in greater trial complexity and related expenses. As of December 31, 2020, the average trial protocol requires 263 procedures per patient, up 44% since 2009, as reported by Tufts CSDD. This increasing complexity is fueling the demand for the new type of outsourced, data-driven and science-based trial solutions that we provide, therefore expanding the size of our market opportunity.

The key critical pain points that contribute to this time and cost burden are ethical review, study planning and site optimization, patient engagement, scientific and regulatory review, amongst others. Leveraging our strategic position at the center of the clinical trial ecosystem, we have developed a suite of integrated and technology-enabled solutions that we believe have had a significant impact on these existing hurdles, and in turn have created value to all stakeholders, including:

 

   

Increasing speed to market for treatments and reducing costs to healthcare systems by removing unnecessary delays: Before we introduced an innovative transformation of the IRB process, our management estimates that IRB multi-site reviews required a turnaround time of four to six months. Today, these reviews are completed in just eight days, demonstrating a 95% improvement in IRB review time. We estimate this improvement alone saved approximately $3.1 million per Phase III trial in improved productivity and resulted in total savings of approximately $1.2 billion for trials we supported in 2020. This was accomplished through WCG strategically aligning institutions and research sites with our single, integrated review model. The data-driven insights from our integrated

 

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review model have also contributed to a 50% reduction in trial startup time and a 37% improvement in time needed to negotiate contracts and budgets.

 

   

Increasing trial access for patients with rare diseases by utilizing our proprietary data and clinical insights solutions: While sponsors struggle to meet patient enrollment timelines in approximately 85% of clinical trials according to industry sources, one study demonstrated our ability to accelerate enrollment rates in trials by 33%. By increasing access to clinical trials, we were able to help one COVID-19 vaccine trial, sponsored by a large biopharmaceutical company, achieve 42% participant diversity.

 

   

Providing thought leadership through publications and information services: Our publications inform over 290,000 industry subscribers of the latest trends and insights in the clinical research landscape. Our conferences, events, and webinars are annually attended by over 80,000 industry participants, allowing for increased cooperation among sites, sponsors, patients, and regulators, and positioning WCG as a trusted brand in the clinical trial ecosystem.

These key critical pain points in the clinical trial process impact both costs and timelines, which are key focus areas for industry participants, allowing for WCG’s addressable market to rapidly expand. Our integrated suite of solutions includes both proprietary technologies and services, including research compliance and quality management services, as well as specialty clinical expertise, all of which address the key requirements for effective end-to-end clinical trials. According to EvaluatePharma, the total global pharmaceutical research and development spend is expected to reach approximately $195 billion in 2021. Approximately half of that spend, or $89 billion, represents clinical trial spend across phases I through IV, of which approximately $48 billion is conducted by pharmaceutical companies and $41 billion is outsourced to CROs. As part of this clinical trial market, the specific segments which WCG addresses, including IRB, study planning and site optimization, patient engagement, and scientific and regulatory review, account for approximately $9 billion in 2021, which we estimate is projected to grow at 14% annually between 2021 and 2023.

 

 

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Because of the strategic alignment of our solutions with key critical pain points of the clinical trial process, WCG has demonstrated approximately 16% revenue growth per year between 2018 and 2020, representing a significantly faster rate than our total market, which we estimate is projected to grow at a rate of 7% from 2018 through 2023.

WCG captures an increasing share of the drug development being conducted by small and mid-cap biopharmaceutical companies, which accounted for approximately 63% of all clinical trials in 2019. These earlier stage companies typically rely on fewer internal resources and are subject to shorter competitive timeframes. We believe WCG’s fit-for-purpose solutions have positioned us as a partner of choice for these emerging players in the clinical trial ecosystem. This growing client segment accounted for 20% of our annual bookings growth in 2020, and we believe will continue to drive increased activity, fueled by record levels of funding. U.S. listed biotechnology companies raised a record of over $63 billion in 2020, representing more than twice the funds raised a year earlier.

 

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As clinical trials have become more complex and costly, clients rely increasingly on our expert clinical insights and proprietary technology-enabled applications, a trend which has increased the size of our market opportunity and which we expect to persist.

 

 

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Our Contributions to Society

During our 50-year history through our predecessor companies, WCG has embraced its role as a “Servant to Mankind.” At the core of our mission, we apply leading scientific knowledge and proprietary technology to advance life-saving innovations. By helping to improve the clinical trial process, we allow valuable therapies to be delivered to patients sooner and at a lower cost. WCG is proud to serve the individuals on the frontlines of science and medicine, and the organizations that strive to develop new products and therapies to improve the quality of human health. We believe that it is our role to empower the scientific advancement of human health, while ensuring that the risks of progress never outweigh the value of human life.

As a mission-driven organization at heart with a strong commitment to the highest ethical standards, WCG is focused on safeguarding the interests of all stakeholders engaged with our Company, including clients, patients, employees and shareholders.

 

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Strategically positioned at the very center of the clinical trial ecosystem, we act as the key point of connectivity among our various clients, who leverage our solutions to inform the critical decisions that save significant time and expense, enhance drug safety and efficacy, and ultimately improve millions of lives.

With 2.5 million patients enrolled in WCG-supported studies, our relationship with patients is also key to our mission, as demonstrated by our commitment to champion a new and improved paradigm for treating trial participants, The WCG Patient Experience. Beyond raising patient awareness for clinical studies, we are shifting the clinical trial framework from treating participants as “subjects” to placing a greater focus on the patient experience, one which should rely on empathy from start to finish.

Our employees bring their heads and hearts to the mission, acting as change agents to serve a greater societal purpose. We maintain a leading employee retention ratio of 92% by selectively recruiting individuals who align with our core mission, and by providing differentiated compensation and benefits packages. We are proud of our Diversity and Inclusion culture with its emphasis on ensuring that we maintain an environment of mutual respect and equal opportunity for all.

In 2002, in partnership with the World Health Organization and the National Institutes of Health, WCG established the International Fellows Program to provide clinical professionals from both developed and emerging economies with the knowledge necessary to create, manage and administer IRBs within their own countries. WCG sponsors these Fellows to travel to the United States and attend six-month IRB training programs provided twice a year. Since inception, 200 program graduates, representing over 26 countries across four continents, have returned to their home countries with the requisite knowledge to improve the quality of clinical research and to ensure patient protection in their clinical trials, demonstrating WCG’s continued commitment to a 50-year long legacy of protecting the interests of patients in clinical research.

The COVID-19 pandemic also highlighted our organization’s remarkable dedication to its mission. Despite facing the challenges of remote working and the personal impacts of the pandemic, our team supported and contributed to over 723 COVID-19 trials, including many of the most highly impactful vaccines and antivirals.

WCG is proud to serve the individuals on the frontlines of science and medicine, and the organizations that strive to develop new products and therapies to improve the quality of human health. It is our role to empower them to accelerate advancement. We firmly believe that we must have the clinical insight to develop, the courage to advance, and the persistence to transform a change-resistant industry, while never compromising the highest level of ethical standards.

Our Competitive Strengths

We compete by offering a specialized and integrated suite of technology applications and expert clinical services across all stages of the clinical trial continuum. We differentiate ourselves through our competitive strengths, which include:

A Leading Position with a Long-standing Reputation: Through our predecessor companies, we have been serving the clinical trial community for over 50 years and have positioned ourselves as a leading provider of clinical trial solutions. Our strong reputation is evidenced by our client retention ratio of 99% as of December 31, 2020. The average tenure for our top 30 clients is more than 14 years. WCG has conducted over 58,000 ethical reviews over the past two decades, providing highly differentiated clinical trial services to stakeholders across the ecosystem. We believe our long-standing reputation, purpose-built mission and proven track record have positioned us as a partner of choice to some of most sophisticated biopharmaceutical companies, regulators, and investigators. We believe that the combination of our experience, track record of innovation, and expansive positioning within the industry will allow us to grow and capture increasing market share in our $9 billion total addressable market.

 

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Our Large, Growing and Diversified Client Base: Uniquely positioned at the center of the clinical trial ecosystem, we have provided our solutions and services to over 5,000 biopharmaceutical companies and CROs, 10,000 research sites, and several million patients over the past nine years. Addressing a broad array of therapeutic areas and trial phases, we serve a diversified base of clients, including all of the top 50 biopharmaceutical companies by revenue, all of the top eight CROs by revenue, and approximately 4,000 small and midcap biopharmaceutical companies. Additionally, WCG is contracted to provide services to 3,300 institutions, hospitals, and academic medical centers, up from approximately 215 such institutions in 2012, demonstrating that WCG has grown to represent virtually all institutions in FDA-regulated research. Along with these institutions, we support over 10,000 independent sites in their clinical trial activities and maintain close relationships with 100 patient advocacy groups. Further, we are proud to have our proprietary clinical technology installed and operating in over 100 Veterans Affairs hospitals, the largest health system in the United States, serving 9 million veterans. Our client base is diverse, with no client accounting for more than 10 % of our revenues in the years ended December 31, 2019 and 2020. Our top five clients represented less than 25% of our total revenues for the year ended December 31, 2020.

Our Differentiated and Integrated End-to-End Platform: We believe WCG has developed a powerful and differentiated platform, the WCG Clinical Trial Ecosystem, allowing for better connectivity among the three principal clinical trial stakeholders – sponsors and CROs, research sites, and patients. WCG has built on its unique position at the center of the clinical trial ecosystem, leveraging its long-term client relationships and a 50-year reputation. Stakeholders within the WCG Clinical Trial Ecosystem are digitally connected to WCG and to one another by more than 30 proprietary, client-facing applications, which remain in place with the client and are used repeatedly across multiple trials over time. We believe the WCG Clinical Trial Ecosystem has become a broad-based infrastructure for the industry at large, allowing for the startup and conduct of trials more cost-effectively and quickly. We believe that our platform is uniquely differentiated in the industry.

Our Proprietary Technology Applications: Our proprietary clinical technology applications have been built to address the key requirements of clinical trials, from start to end. These end-to-end applications have been designed by clinicians who have a deep understanding of the workflows involved at each stage of clinical trial execution. We offer 30 client-facing and purpose-built applications which are integrated into a single platform, with over 93% of WCG engagements delivered through our proprietary technology. Leveraging our technology, we maintain real-time connectivity to our clients and their clinical trial activity on a day-to-day basis and are strategically positioned to assemble large amounts of data which we believe provides us with differentiated insights. Each of our applications feeds real-time data to our WCG Knowledge Base, which in turn provides algorithm-supported clinical insights to optimize the conduct of each trial on a tailored basis. Combined and integrated into a single end-to-end platform, we believe that these technology assets differentiate us amongst our competitors and would present a challenge to replicate. We protect our proprietary technology through intellectual property rights, including copyrights, patents, trade secrets, know-how, and trademarks.

The Deep Expertise of Our People and Our Culture of Quality and Innovation: We are led by a diverse, global, and talented team of scientists, software engineers, and subject matter experts who not only advance our solutions but also seek to understand and tackle the industry’s greatest challenges. We believe that the extraordinary expertise of our teams and our high employee retention provide a powerful competitive advantage, and remain focused on investing in individual employee development programs. Sharing core values of dedication, ethics, quality, and respect, our executive management team is focused on transforming the clinical trial environment to ensure that much-needed therapies reach patients in need more quickly and effectively. We are driven by a strong spirit of innovation, with significant capital expenditures devoted to driving internal R&D activities. In addition to a strong financial track record demonstrated by our ability to meet or exceed our budget every year since our founding, our team has deep expertise in acquiring and integrating new capabilities, technologies and solutions, having closed 30 acquisitions since 2012. Finally, our management team benefits from the guidance and strategic counsel of two advisory boards in the fields of oncology and gene therapy, who consist of deeply experienced thought-leaders with insight into the changing landscape of research in these complex therapeutic areas.

 

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Our Growth Strategy

We serve large and high-growth markets, and we expect to continue to sustain our above-market growth trajectory by leveraging our differentiated platform and value proposition. There are significant competitive and regulatory barriers to entry that contribute to our leading market position. There is an increasing number of scientific, administrative, regulatory, and societal changes making clinical trials more challenging to conduct. Along with the ongoing shift of drug development towards small and midcap biopharmaceutical companies, a number of trends including increasing trial complexity and record levels of funding are fueling substantial organic growth and expanding the size of our market opportunity. We possess substantial opportunity to further cross-sell our solutions to our existing client base. We believe our unique position at the center of the clinical trial ecosystem combined with our proprietary WCG Knowledge Base provides us with insights to further develop capabilities and solutions that solve the key critical industry pain points. Additionally, we expect to continue to augment our organic growth through strategic acquisitions to complement our existing suite of solutions with new capabilities.

Our future growth strategy relies on four key drivers:

Capitalize on Our Large and High-Growth Markets: As clinical trials have become more complex and costly, clients rely increasingly on our expert clinical insights and proprietary technology-enabled applications, a trend which has increased the size of our market opportunity and which we expect to persist. WCG has demonstrated approximately 16% revenue growth per year between 2018 and 2020, representing a significantly faster rate than our total market, which we estimate is projected to grow at a rate of 7% from 2018 through 2023. WCG captures an increasing share of the drug development being conducted by small and mid-cap biopharmaceutical companies, which accounted for approximately 63% of all clinical trials conducted in 2019. These earlier stage companies typically rely on fewer internal resources and are subject to shorter competitive timeframes. We believe WCG’s fit-for-purpose solutions have positioned us as a partner of choice for these emerging players in the clinical trial ecosystem. This growing client base reflected 20% of our annual bookings growth in 2020, and is expected to continue to drive increased activity, fueled by record levels of funding. Through our end-to-end suite of offerings, we believe that we are well-positioned to capitalize on these continued tailwinds.

Grow Within Our Existing Client Base: Our strong growth is driven in large part by increasing penetration of our solutions within our existing client base. WCG has a proven track record of cross-selling its solutions, with our top 25 clients purchasing at least four of our solutions as of March 31, 2021. We believe that we have significant opportunity to expand our revenues with existing clients, and estimate the additional market opportunity from expanding our existing solutions within our top 25 clients to surpass $2 billion. Bookings within our top 25 clients grew by 42% between 2018 and 2020. Furthermore, given our position at the center of the clinical trial ecosystem, as we engage with additional clients and increase the penetration of our solutions among existing clients, the value of our insights and position in the industry further expand. To support this growth, we have executed master service agreements with 29 of our top 30 accounts. The bookings in our top 30 accounts have grown at a 30% compounded annual growth rate from 2018 to the first quarter of 2021 and we estimate that the current opportunity from further cross selling our existing solutions to these clients to be over $1.6 billion. Our bookings performance in these 30 accounts has been resilient through the pandemic, with an increase of 20% through 2020.

Further Leverage the WCG Clinical Trial Ecosystem, the WCG Knowledge Base and Our Proprietary Technology Platform: The improvement and optimization of clinical trial processes is being realized through operational transparency, which is only made possible by real-time data-driven analysis. Positioned at the core of our clinical trial platform, the WCG Knowledge Base is a central repository of data, assembled by leveraging our role as the point of connectivity between all stakeholders of the clinical trial ecosystem.WCG Knowledge Base includes 31 terabytes of real-time, regulatory-grade data. Our ubiquitous involvement in 90% of all global clinical trials, over the last two years ended December 31, 2020 as estimated by our management, provides us with a unique access to data which, when combined with our clinical expertise, delivers actionable trial insights to our clients. We have demonstrated our ability to successfully improve the trajectory of clinical trials across

 

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therapeutic areas based on insights gained from our industry-wide WCG Knowledge Base. In addition to direct client applications, the WCG Knowledge Base provides us with differentiated insight into the key critical pain points of the clinical trial ecosystem and informs our new product innovation and broader business development. We believe that our integrated platform is a key competitive advantage that allows us to deliver deep insights to our clients, further differentiating our suite of solutions and enhancing the attractiveness of our offering to prospective partners.

 

 

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Continuously Expand Our Platform Through the Acquisition of New Capabilities: Since 2012, we have acquired and successfully integrated 30 companies, which have allowed us to further expand our suite of solutions and capabilities. Acquiring and integrating additional capabilities are part of our core competencies and will remain an important pillar of our growth strategy. We believe there remains a significant opportunity to expand in our $9 billion total addressable market and beyond. We expect to continue to rely on strategic acquisitions to enhance our capabilities, and will leverage our business development team to drive further cross-selling in with the aim to supplement our organic growth.

Sales and Marketing

Our sales and marketing functions pursue a coordinated approach with a global commercial team of business development, product management, and marketing experts. Our global commercial team collaborates with our scientists, subject matter experts, and technologists to engage with customers and prospects to understand their needs and offer tailored solutions with our software and technology-enabled services. Our marketing campaigns include integrated, multi-channel campaigns designed to highlight the benefits and differentiated capabilities of our software and technology-enabled services to reach new audiences and generate and nurture leads. Furthermore, we invest significant time and resources on thought leadership. Our scientists and experts have authored thousands of scientific publications, posters, and articles to share knowledge and methods and advance adoption. We also partner with software distributors in global regions to expand our reach.

 

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Competition

No single company offers a suite of clinical trial solutions that compete with all of our services and solutions. Nevertheless, the market for our ethical review services and clinical trial solutions and related services for the biopharmaceutical industry is competitive and highly fragmented. In our ER segment, we compete with several commercial IRBs, notably Advarra, Inc. Our CTS segment competes with in-house teams at biopharmaceutical companies as well as several clinical trial businesses, which include eResearch Technology, Inc., Medidata Solutions, Inc. and Signant Health, among others. We generally compete in software and solutions on the basis of the quality and capabilities of our products, our scientific and technical expertise, our ability to innovate and develop solutions attractive to customers, our customer and regulatory agency partnerships, and price, amongst other factors. We believe that our competitive position is strong, and that we are able to effectively win new customers with our integrated services and solutions.

Intellectual Property

Our success and ability to compete depend in part upon our intellectual property. We rely on a combination of patent, trademark, copyright and trade secret laws, as well as contracts with our employees and third parties, to protect our technology, brands and other intellectual property. We have a portfolio of patents to protect certain of our methods, systems and designs. We cannot predict whether any patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient proprietary protection from competitors.

We also have applied for and/or obtained and maintain registration in the United States and other countries for numerous trademarks We pursue trademark registrations to the extent we believe doing so would be beneficial to our competitive position. We cannot predict whether any pending trademark applications will be granted. Third parties may also oppose our trademark applications, which could result in the rejection of those applications. Alternatively, in order to resolve an opposition, we have in the past, and may again in the future have to enter into a co-existence or settlement agreement with the third party opposing our trademark application, which could place limits on our use and/or display of the relevant trademark.

From time to time, we may be involved in intellectual property litigation. We may bring suits alleging that third parties are infringing or otherwise violating our intellectual property, and third parties may sue us, alleging that we are infringing or otherwise violating their intellectual property. We may also be involved in disputes challenging the validity, enforceability or ownership of intellectual property rights, or opposing applications for the registration or issuance of intellectual property.

Human Capital

At WCG, our people enable our business. Our global workforce strives towards our mission everyday: to accelerate scientific advancement of life-saving therapies by providing the highest quality services which reduce delays and costs and ensure that the risks of progress never outweigh the value of human life. Our workforce exhibits courage to drive positive change, serve a greater purpose, and bring their head and heart to our mission for the betterment of the world. WCG’s values and culture sit at the center of our commitment to all stakeholders in the clinical trial ecosystem and guide our recruitment, retention and development of our talent.

We are led by a diverse, global, and talented team of scientists, software developers, and subject matter experts who seek to understand our customers’ challenges and are dedicated to tackling these challenges. As of March 31, 2020, our workforce included a total of nearly 4,400 individuals, including 1,322 full-time employees, 26 part-time employees and over 3,000 contingent employees which are largely on-demand clinicians. Approximately 30% of our workforce held advanced degrees in their respective disciplines, including Ph.Ds, MDs, and other clinical science areas. We offer employees a myriad of professional development opportunities and encourage a performance-driven environment. Through WCG’s Diversity & Inclusion Council, we promote

 

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a diverse and inclusive work environment that honors the diversity and potential of our workforce. In response to COVID-19 in 2020 and 2021, we have implemented a flexible and proactive approach that adapted our work environment, policies and benefits to provide support for our workforce as they balanced their personal and professional lives. During this period, no employees were impacted through reductions in force, layoffs or furloughs and we were able to provide uninterrupted service to clients and take on new work in support of helping end COVID-19. None of our employees are represented by a labor union, and we have never experienced a work stoppage. We believe that our relations with our employees are positive.

Government Regulation

Regulation of Institutional Review Boards

A key element of our business is the offering of central IRB reviews and approvals for our customers’ clinical studies. IRB review is a key requirement for our customers’ conduct of clinical studies in support of the development of product candidates. IRBs are subject to regulation by the Office of Human Research Protections in the U.S. Department of Health and Human Services and the FDA related to the review and approval of clinical trials. FDA regulations govern the composition, operation, registration, and responsibilities of IRBs that review certain FDA-regulated clinical trials and clinical trials in support of research or marketing authorizations for certain FDA-regulated products. In conducting its initial review and continuing review required to be conducted at least annually, IRBs must adhere to written procedures and evaluate certain approval criteria, which, among other things, ensures that the risk to research subjects is minimized and reasonable in relation to the anticipated benefits of the trial. An IRB is expected to review all research documents and activities, including but not limited to, informed consents, protocols, and investigator brochures. Additionally, IRBs must meet various notice, documentation and recordkeeping requirements, as required by federal law. IRBs are routinely visited and examined by FDA inspectors in some instances, several times per year. In addition to complying with federal regulations, WCG IRB voluntarily conforms to the accreditation requirements of the Association for the Accreditation of Human Research Protection Programs (“AAHRPP”), an independent accreditation organization which has the sole mission of assuring IRBs perform to the highest standards of the industry. Every five years, the IRB must reapply for new accreditation which is awarded after successfully completing an on-site, multi-day audit conducted by third-party experts. WCG’s predecessor company, Western IRB was the first commercial IRB to be accredited by AAHRPP in 2003, and WCG IRB has maintained that accreditation since that time. Assuring that our IRB activities remain as the standard of the IRB industry, WCG has met the requirements for an ISO 9001 Certification in recognition of our continuous improvement processes. Beyond complying with federal regulatory standards, and conforming to AAHRPP accreditation requirements, WCG IRB is audited by our clients on an average 15 times per year.

The FDA may conduct inspections of IRBs to verify compliance with regulatory requirements. If nonconformities are observed, the FDA may issue a Warning Letter, untitled letter, or depending on the severity and repeat nature of the violation, may disqualify an IRB. Until the IRB takes appropriate corrective action, FDA may withhold approval of new studies that are conducted at the institution or reviewed by the IRB, direct that no new subjects be added to ongoing studies, terminate ongoing studies when doing so would not endanger the subjects, or notify relevant state and federal regulatory agencies and other parties with direct interest in the FDA’s action of the deficiencies in the operation of the IRB in instances when the apparent noncompliance creates a significant threat to the rights and welfare of human subjects. The FDA may also refuse to consider data from a clinical trial reviewed by a disqualified IRB in support of a marketing authorization.

Regulation of Biopharmaceutical and Medical Device Products

The development, testing, manufacturing, labeling, approval, promotion, distribution and post-approval monitoring and reporting of biopharmaceutical products are subject to regulation by numerous governmental authorities at both the national and local levels, including the FDA. Our customers’ products are subject to these regulations, and our customers expect and require that certain of our services and offerings comply. For example,

 

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our customers may require that documents or records we produce that may be used in support of the development and approval process be compliant with part 11 of Title 21 of the U.S. Code of Federal Regulations, which relates to the creation, modification, maintenance, storage, retrieval, or transmittal of electronic records submitted to the FDA. Further, certain portions of our business we conduct in connection with designing preclinical and clinical trials must comply with Good Clinical Practice requirements adopted by the FDA and similar regulatory authorities in other countries, which helps ensure the quality and integrity of the data. In certain circumstances, we have taken on legal and regulatory responsibility through a transfer of obligations to us from our clinical trial customers. Failure to comply with certain regulations may result in the termination of ongoing research and disqualification of data collected during the clinical trials. For example, violations could result, depending on the nature of the violation and the type of product involved, in the issuance of a warning letter, suspension or termination of a clinical trial, refusal of the FDA to authorize a clinical study for initiation, approve marketing applications or withdrawal of such applications, injunction, seizure of investigational products, civil penalties, criminal prosecutions or debarment.

Healthcare and Biopharmaceutical Industry Arrangements

The conduct of pre-clinical and clinical trials may be subject to laws and regulations that are intended to prevent the misuse of government healthcare program funding. In the United States, these laws include, among others, the False Claims Act, which prohibits submitting or causing the submission of false statements or improper claims for government healthcare program payments, and the Anti-Kickback statute, which prohibits paying, offering to pay or receiving payment with the intent to induce the referral of services or items that are covered under a federal healthcare program. Violations of these laws and regulations may result in administrative, civil, and criminal penalties, fines, imprisonment and possible exclusion from federal healthcare programs.

Healthcare Reform

In recent years, there have been a number of legislative and regulatory changes designed to reform the U.S. healthcare system. For example, ACA substantially changed the way healthcare is financed by both governmental and private insurers, and other government and Congressional inquiries, proposed and enacted legislation and regulations, guidance documents, and executive actions have intended to, among other things, ensure that IRBs are providing adequate patient protection, increase the transparency of product pricing, reform government program reimbursement methodologies for drug products, and provide procedures for the importation of certain prescription drugs authorized for sale in a foreign country. In addition, there has been increased legislative scrutiny of commercial IRBs, including their operations and conflicts of interest. Any healthcare reform and cost-containment measures may affect the healthcare and biopharmaceutical industry, including research and development initiatives, and could result in reduced demand for our services.

Bribery, Anti-Corruption and Other Laws

We are subject to compliance with the FCPA and similar anti-bribery laws, such as the Bribery Act, which generally prohibit companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or retaining business. In addition, in the United States, we may also be subject to certain state and federal fraud and abuse laws, including the federal Anti-Kickback Statute and False Claims Act, that are intended to reduce waste, fraud and abuse in the health care industry. Our employees, distributors, and agents are required to comply with these laws, and we have implemented policies, procedures, and training, to minimize the risk of violating these laws.

Properties

As of March 31, 2021, we had 26 offices in four countries, with our headquarters located in Princeton, New Jersey. We lease all of our offices. None of our facilities are used for anything other than general office use. We

 

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believe that our facilities are adequate for our operations and that suitable additional space will be available when needed. Because of the COVID-19 pandemic, in March 2020, we temporarily closed all of our offices. As of March 31, 2021, all of our offices remained closed, but we have instituted a protocol for assessing the need to re-open any facilities and determining what safety measures are required or recommended by local health authorities to re-open such facilities. We believe our employees have been able to maintain the same level of productivity in a remote working environment as they did prior to the pandemic. We expect that most of our offices will re-open in some capacity once the current pandemic has abated.

As of March 31, 2021, our significant operating leases were as follows:

 

Location

   Approximate Square
Footage
    Lease Expiration Date

Princeton, New Jersey

     44,500     December 16, 2022

Puyallup, Washington

     49,800     June 30, 2024

Cary, North Carolina

     49,500     February 29, 2028

Plymouth Meeting, Pennsylvania

     25,000     August 10, 2021

Eden Prairie, Minnesota

     41,900     December 31, 2029

Frankfurt am Main Hesse, Germany

     3,200     September 30, 2027

Hamilton, New Jersey

     35,000     December 31, 2027

München Bavaria, Germany

     2,900     Perpetual

Madison, Wisconsin

     13,100     August 31, 2021

Tokyo, Japan

     2,600     February 19, 2022

Legal Proceedings

From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. Management believes that we do not have any pending or threatened litigation which, individually or in the aggregate, would have a material adverse effect on our business, results of operations, financial condition and/or cash flows.

Indemnification and Insurance

Our business exposes us to potential liability including, but not limited to, potential liability for (i) breach of contract, negligence, and privacy and network security claims by our customers, (ii) non-compliance with applicable laws and regulations, and (iii) employment-related claims. In certain circumstances, we may also be liable for the acts or omissions of others, such as suppliers of goods or services.

We attempt to manage our potential liability to third-parties through contractual protection (such as indemnification and limitation of liability provisions) in our contracts with customers and others, and through insurance. The contractual indemnification provisions vary in scope and generally protect us from what we would consider the most likely potential liabilities, with common exceptions such as liability arising out of our gross negligence or willful misconduct. In addition, in the event that we seek to enforce such an indemnification provision, the indemnifying party may not have sufficient resources to fully satisfy its indemnification obligations or may otherwise not comply with its contractual obligations.

We generally require our customers and other counterparties to maintain adequate insurance, and we currently maintain errors and omissions, professional liability, and cyber liability insurance coverage with limits and terms we believe to be appropriate and customary. The coverage provided by such insurance is subject to all usual and customary terms and conditions, and accordingly may not be adequate for all claims made. Further, such claims may be contested by applicable insurance carriers.

 

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Data Privacy and Security

Numerous state, federal and foreign laws, including consumer protection laws and regulations, govern the collection use, processing, disclosure, transmission and protection of personal information, including personal health-related information. In the United States, numerous federal and state laws and regulations, including data breach notification laws, health information privacy and security laws, such as HIPAA, and federal and state consumer protection laws and regulations (for example Section 5 of the Federal Trade Commission Act), that govern the collection, use, processing, disclosure, transmission and protection of health-related and other personal information could apply to our operations or the operations of our partners. In addition, certain state and non-U.S. laws, such as the CCPA, the CPRA, the GDPR and the UK GDPR, govern the privacy and security of personal information, including personal health information in certain circumstances, some of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. We have implemented a security program using an Information Security Management System (“ISMS”) designed to preserve privacy and apply security controls to protect our information assets. The ISMS serves as a mechanism to continuously evaluate, improve, and maintain information security controls critical to our business. The WCG ISMS is certified in conformance with the international security standard ISO27001:2013, which is managed centrally and applied across the entire Company, providing the ability to reduce exposure and adapt to cybersecurity threats. Privacy and security laws, regulations, and other obligations are constantly evolving, may conflict with each other, complicating compliance efforts, and can result in investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data processing.

 

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MANAGEMENT

Executive Officers and Directors

The following table sets forth information about our executive officers and directors, including their ages as of the date of this prospectus.

 

Name

   Age     

Position

Executive Officers

     

Donald A. Deieso, Ph.D.

     71      Executive Chairman and Chief Executive Officer and Director

Nicholas Slack

     38      President and Chief Commercial Officer

Laurie L. Jackson

     56      Chief Financial Officer and Chief Administration Officer

Barbara J. Shander

     51      Chief Legal Officer and EVP of Corporate Development

Dawn Flitcraft

     55      President of Ethical Review Division

Non-Employee Directors

     

John Baumer

     53      Director

Eugene Gorbach

     43      Director

Henrik Kjær Hansen

     44      Director

Stephen McLean

     63      Director

Kavita Patel, MD

     47      Director

Richard Pilnik

     64      Director

James Rothman, Ph.D

     71      Director

Peter Zippelius

     42      Director

The following is a brief biography of each of our executive officers and directors:

Donald A. Deieso, Ph.D has served as our Chief Executive Officer since October 2013 and executive chairman of our board of directors since February 2012. Dr. Deieso also currently serves as a member of the board of directors of BioIVT since May 2016 and Inspire since 2018, and previously served as Chairman of the board of directors for Certara, Inc. from 2014 to 2018, former Chairman of TractManager, Inc. from 2013 to 2021, former Chairman of Breckenridge Financial Services from 2013 to 2015, and a director of iMDS from 2012 to 2013. Prior to joining the Company, Dr. Deieso served as an operating partner and co-head of the Healthcare Group at Arsenal Capital Partners from 2011 to 2019. Dr. Deieso served as Chief Executive Officer of a number of publicly-traded and privately-held companies in the healthcare, biopharmaceutical, technology, and engineering industries. Additionally, Dr. Deieso has held senior positions in federal and state regulatory agencies. Dr. Deieso received a B.S. in mechanical engineering from Manhattan College, and an M.S. and Ph.D. from Rutgers University. We believe Dr. Deieso brings to our board of directors extensive knowledge of the healthcare, biopharmaceutical and technology industries, which together with his experience leading the Company as our Chief Executive Officer, makes him well qualified to serve as one of our directors.

Nicholas Slack has served as our President and Chief Commercial Officer since November 2020. Mr. Slack previously served as our Executive Vice President and Chief Commercial Officer from January 2018 to November 2020, our Chief Growth Officer from January 2014 to January 2018, and SVP of Consulting and Strategic Partnerships from July 2012 to January 2014. Prior to joining the Company, Mr. Slack served as the Director of Consulting Services for HRP Consulting Group from October 2010 to July 2012, and the Associate Director of Accreditation for AAHRPP from August 2008 to October 2010. Mr. Slack received a B.A. in philosophy from the University of Akron in 2005 and an M.S. in bioethics from the University of Pennsylvania.

Laurie L. Jackson, MBA, CPA, has served as Chief Financial Officer of WCG since August 2017, adding Chief Administration Officer to her responsibilities in March 2021, including oversight of the Human Capital Management function and the Company’s entire real estate portfolio. Preceding her current role and upon joining the Company, Ms. Jackson held dual roles of President and Chief Financial Officer for Western IRB (WIRB),

 

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one of WCG’s largest operating units. Prior to joining WCG, Ms. Jackson was Chief Financial Officer for The Broadlane Group, Inc., a role she held from September 2000 to May 2011. Previous roles included Assistant Controller at DaVita; Director, Financial Reporting at Tenet Healthcare; and Director of Finance, Mountain Region for Hillhaven Corp. Ms. Jackson has over 30 years of global executive leadership experience in finance, accounting, and operations with rapidly-growing healthcare organizations. Ms. Jackson earned a B.A. in accounting from Western Washington University, and an M.B.A. from the City University of Seattle.

Barbara J. Shander has served as our Chief Legal Officer and EVP of Corporate Development since April 2021. Ms. Shander was previously an attorney with Morgan, Lewis & Bockius LLP’s corporate and business transactions group from October 1997 to April 2021, where she was partner from 2004 until 2021 and deputy practice area leader of the Private Equity practice. Ms. Shander received a B.S. in accounting from the University of Delaware, and a J.D. from Villanova University School of Law.

Dawn Flitcraft has served as the President of our Ethical Review Division since January 2019. Ms. Flitcraft joined the Company in 2016 as the Chief Merger and Acquisition (M&A) Integration Officer. Prior to joining the Company, from March 2016 to November 2016, Ms. Flitcraft was the Chief Operating Officer and General Manager for Keosys Medical Imaging, a medical imaging company, and from October 2003 to October 2015, Ms. Flitcraft served in a variety of executive management roles at BioClinica, a company that supports pharmaceutical and medical device innovation. Ms. Flitcraft received a B.S. in nuclear medicine and biology from Cedar Crest College and she holds a certification in M&A Integration.

John Baumer has served as a member of our board of directors since 2019. Mr. Baumer is a partner at Leonard Green & Partners, LP, where he has been employed since May 1999. Prior to joining Leonard Green & Partners, LP, he served as a Vice President in the Corporate Finance Division of Donaldson, Lufkin & Jenrette Securities Corporation, or DLJ, in Los Angeles. Prior to joining DLJ in 1995, Mr. Baumer worked at Fidelity Investments and Arthur Andersen LLP. Mr. Baumer served on the board of directors of Petco Animal Supplies, Inc., a pet care product company, from 2000 to 2016 and Leslie’s Poolmart, Inc., a specialty retailer of swimming pool supplies and related products, from 2001 to 2017. He earned a B.A. in Business Administration from the University of Notre Dame and an M.B.A. from the Wharton School at the University of Pennsylvania. We believe Mr. Baumer is qualified to serve on our board of directors due to his finance and capital markets experience as well as insight into the healthcare industry, gained from advising multiple healthcare companies.

Eugene Gorbach has served as a member of our board of directors since 2012. Mr. Gorbach is an Investment Partner of Arsenal, a private equity firm where he has been employed since 2008. Mr. Gorbach co-leads Arsenal’s healthcare investment franchise. During his tenure at Arsenal, Mr. Gorbach has led a number of investments to build prominent businesses in pharmaceutical services, life sciences and information technology, such as Certara, Inc., CellCarta Inc., BioIVT, Inc., and TractManager, Inc. He currently serves on the board of directors of Cello Health, a leading provider of pharmaceutical market access and scientific evidence communication solutions; CellCarta, a leading immunology research laboratory services business; and BioIVT, Inc. a biological product company specializing in control and disease state matrices. Mr. Gorbach earned a B.A. in Economics and Government from Dartmouth College, and an M.B.A. from the Wharton School at the University of Pennsylvania. We believe Mr. Gorbach is qualified to serve on our board of directors due to his experience in finance and in investing in pharmaceutical services companies.

Henrik Kjær Hansen has served as a member of our board of directors since 2020. Mr. Hansen is employed as a Senior Partner, Head of Principal Investments New Investments and Projects at Novo Holdings A/S, a role he has held since joining the firm in 2017. Prior to joining Novo Holdings A/S, Mr. Hansen was a Senior Vice President at Moelis & Co. in London from 2009 to 2016. Mr. Hansen currently serves on the board of directors of Orexo AB, a pharmaceutical company. He holds a BSc. in Business Administration and a MSc. in Applied Economics and Finance from Copenhagen Business School. We believe Mr. Hansen is qualified to serve on our board of directors due to his experience with healthcare buy-and sell-side M&A transactions.

 

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Stephen McLean has served as a member of our board of directors since 2012. Mr. McLean has served as a Senior Partner, Healthcare Group of Arsenal Capital Partners, a New York-based private equity firm, since 2010. Previously, he was a founder of Merrill Lynch Capital Partners and its successors as well as a founder of several life sciences businesses. Mr. McLean currently serves on the board of directors of a number of private companies and one public company, including BioIVT, LLP, a provider of biospecimens for drug discovery; CellCarta, Inc., a provider of specialized research services in the development of immunology and oncology focused drugs; Accumen, Inc., a provider of technology-enabled solutions to optimize clinical laboratories and imaging departments; Pharma Value Demonstration, Inc., a provider of services to analyze and communicate the value and effectiveness of drugs, a Florida-based primary care provider, and Certara Inc. drug development and software services company. He previously served as director of TractManager Inc., a provider of contract and spend optimization solutions for hospitals and payers. Mr. McLean is also a founder and Chairman of the International Biomedical Research Alliance, a non-profit organization dedicated to training biomedical researchers in collaboration with the Best Value Healthcare LLC, National Institutes of Health, Oxford and Cambridge Universities. He graduated from the Wharton School of the University of Pennsylvania with a B.S. in Economics, summa cum laude and an M.B.A., with Distinction. We believe Mr. McLean is qualified to serve on our board of directors due to his insight into the healthcare industry, gained from founding, investing in, and serving as a director of multiple healthcare companies as well as his knowledge of finance.

Kavita Patel, MD has served as a member of our board of directors since November 2020. Dr. Kavita Patel is a practicing physician in Washington, D.C., and a Nonresident Fellow at the Brookings Institution, where her research and reports focus on patient-centered care, payment and delivery systems and health reform. She previously served in the Obama Administration as Director of Policy for the Office of Intergovernmental Affairs and Public Engagement in the White House. She also served as a policy analyst and aide to the late Senator Edward Kennedy. As Deputy Staff Director on Health, she was part of the senior staff of the Health, Education, Labor and Pensions (HELP) Committee under Senator Kennedy’s leadership. Dr. Patel also served as the Managing Director of Clinical Transformation at the Center for Health Policy at the Brookings Institution and Vice President of Payer and Provider Strategy at Johns Hopkins Health System. Dr. Patel currently serves on the board of directors of SelectQuote, Inc. Dr. Patel serves on the board of several non-profit organizations, including Dignity Healthcare and SSM Healthcare. Dr. Patel holds a B.A. in Plan II Honors from the University of Texas at Austin, an M.D. from University of Texas Health Science Center, and a M.S. from the University of California, Los Angeles. We believe that Dr. Patel is qualified to serve on our board of directors based on her extensive experience as a medical practitioner.

Richard Pilnik has served as a member of our board of directors since April 2021, and following this offering will serve as our lead independent director. Mr. Pilnik has been President of RDP Consulting, Inc. since 2009. Mr. Pilnik was the President and member of the board of directors of Vigor Medical Services, Inc., a medical device company, since May 2017. From December 2015 to November 2017, Mr. Pilnik served as a member of the board of directors of Chiltern International Limited, a private leading mid-tier clinical research organization, and was Chairman of the Board from April 2016 to November 2017. Currently, Mr. Pilnik serves on the board of directors of DiaMedica Therapeutics Inc., a clinical-stage biopharmaceutical company that is developing innovating treatments with a focus on neurological and kidney diseases. Mr. Pilnik holds a Bachelor of Arts in Economics from Duke University and an MBA from the Kellogg School of Management at Northwestern University. We believe that Mr. Pilnik’s deep experience in the biopharmaceutical and healthcare services industry enables him to make valuable contributions to our Board of Directors.

James Rothman, Ph.D has served as a member of our board of directors since February 2012. Dr. Rothman has been a faculty member at Yale University since 2008, where he serves as the Sterling Professor of Cell Biology, Chairman of the Yale School of Medicine’s Department of Cell Biology and is the Director and founder of the Nanobiology Institute. Dr. Rothman served as Chief Scientific Officer of GE Healthcare, from 2004 to 2008. Previously, Dr. Rothman founded and chaired the Department of Cellular Biochemistry and Biophysics at Memorial Sloan-Kettering Cancer Center from 1991 until 2004, where he held the Paul A. Marks Chair and served as a Vice-Chairman of Sloan-Kettering Institute. Previously, Dr. Rothman was the Wu Professor of Chemical Biology in the Department of Physiology and Cellular Biophysics at Columbia University and Director of Columbia University’s Sulzberger Genome Center, from 2004 to 2008. Dr. Rothman was awarded the 2013

 

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Nobel Prize in Physiology or Medicine, for his discoveries in cellular biology. Dr. Rothman chairs Arsenal Capital Partners’ Healthcare Advisory Board and currently serves on the board of directors for various private biotechnology companies. Dr. Rothman holds a B.S. in Physics from Yale College, and a Ph.D. in Biological Chemistry from Harvard Medical School. We believe that Dr. Rothman is qualified to serve on our board of directors due to his educational background and extensive experience in biochemistry and cell biology, as well as his experience as an executive of healthcare and biotechnology companies.

Pete Zippelius has served as a member of our board of directors since 2019. Mr. Zippelius is a Partner at Leonard Green & Partners, L.P., which he joined in 2018. Previously, Mr. Zippelius was a Managing Director and Co-Head of North American Healthcare Investment Banking at J.P. Morgan Chase & Co. from 2015 to 2018. Prior to his time at J.P. Morgan, Mr. Zippelius was a Managing Director and Co-Head of Healthcare Services Investment Banking at Deutsche Bank Securities, and prior to that, he was a Managing Director in the Healthcare Investment Banking group at Morgan Stanley. He presently serves on the board of directors of Catalent, a provider of delivery technologies, development, drug manufacturing, biologics, gene therapies and consumer health products, Press Ganey, a company developing and distributing patient satisfaction surveys, and WellSky, a company offering healthcare software solutions. He holds a B.S. in Finance from Virginia Tech. We believe Mr. Zippelius is qualified to serve on our board of directors due to his business experience and financial acumen.

Composition of the Board of Directors after this Offering

Our business and affairs are managed under the direction of the board of directors. Our board of directors will consist of                directors.

Pursuant to the Voting Agreement, the Principal Stockholders will agree to vote, or cause to be voted, all of their outstanding shares of our common stock at any annual or special meeting of stockholders in which directors are elected, so as to cause the election of the LGP Directors, the Arsenal Directors and the Novo Director. Immediately following the consummation of this offering, LGP will own                shares of common stock of WCG, which represents approximately    % of the voting power of all of WCG’s common stock; Arsenal will own                shares of common stock of WCG, which represents approximately    % of the voting power of all of WCG’s common stock, Novo will own                shares of common stock of WCG, which represents approximately     % of the voting power of all of WCG’s common stock, and GIC Investor will own                shares of common stock of WCG, which represents approximately     % of the voting power of all of WCG’s common stock. LGP has designated John Baumer and Peter Zippelius as nominees for election to our board of directors, and Arsenal has designated Eugene Gorbach and Stephen McLean as nominees for election to our board of directors and Novo has designated Henrik Kjaer Hansen as a nominee for election to our board of directors. GIC Investor has designated Igor Baskin as a non-voting observer of our board of directors.

So long as LGP owns, in the aggregate, (i) greater than 50% of the total outstanding shares of our common stock owned by it immediately following the consummation of this offering, LGP will be entitled to nominate two directors, (ii) less than or equal to 50%, but greater than 30% of the total outstanding shares of our common stock owned by it immediately following the consummation of this offering, it will be entitled to nominate one director, and (iii) less than or equal to 30%, it will not be entitled to nominate a director.

So long as Arsenal owns, in the aggregate, (i) greater than 70% of the total outstanding shares of our common stock owned by it immediately following the consummation of this offering, Arsenal will be entitled to nominate two directors, (ii) less than or equal to 70%, but greater than 40% of the total outstanding shares of our common stock owned by it immediately following the consummation of this offering, it will be entitled to nominate one director, and (iii) less than or equal to 40% of the total outstanding shares of our common stock owned by it immediately following the consummation of this offering, it will not be entitled to nominate a director.

So long as Novo owns, in the aggregate, (i) greater than 60% of the total outstanding shares of our common stock owned by it immediately following the consummation of this offering, Novo will be entitled to nominate one director, and (ii) less than or equal to 60%, it will not be entitled to nominate a director.

 

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So long as GIC Investor owns, in the aggregate, (i) greater than 75% of the total outstanding shares of our common stock owned by it immediately following the consummation of this offering, GIC Investor will be entitled to designate one non-voting observer to our board of directors. See “Certain Relationships and Related Party Transactions—Voting Agreement.”

In accordance with our amended and restated certificate of incorporation, which will be in effect upon the closing of this offering, our board of directors will be divided into three classes with staggered three year terms. At each annual meeting of stockholders after the initial classification, the successors to the directors whose terms will then expire will be elected to serve from the time of election and qualification until the third annual meeting following their election and until their successors are duly elected and qualified. Our directors will be divided among three classes as follows:

 

   

the Class I directors will be                and                , and their terms will expire at the annual meeting of stockholders to be held in 2022;

 

   

the Class II directors will be                and                , and their terms will expire at the annual meeting of stockholders to be held in 2023; and

 

   

the Class III directors will be                and                , and their terms will expire at the annual meeting of stockholders to be held in 2024.

Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. This classification of our board of directors may have the effect of delaying or preventing changes in control of our Company.

From and after the first date on which the Principal Stockholders cease to beneficially own (directly or indirectly) more than 50% of the voting power of the outstanding shares of common stock, directors may only be removed for cause by the affirmative vote of the holders of at least a two-thirds in voting power of the outstanding shares of our common stock. Prior to such time, directors may be removed with or without cause by the affirmative vote of the holders of at least a majority in voting of the outstanding shares of our common stock.

Director Independence and Controlled Company Exception

Our board of directors has affirmatively determined that John Baumer, Eugene Gorbach, Henrik Kjaer Hansen, Stephen McLean, Kavita Patel, MD, Richard Pilnik, James Rothman, Ph.D and Peter Zippelius are independent directors under the rules of The Nasdaq Global Select Market.

After the consummation of this offering, the Principal Stockholders will continue to control a majority of the voting power of our outstanding common stock. As a result, we will be a “controlled company” within the meaning of The Nasdaq Global Select Market’s corporate governance standards. Under these rules, a “controlled company” may elect not to comply with certain corporate governance standards, including the requirements: