RALEIGH, N.C., Nov. 06, 2018 (GLOBE NEWSWIRE) -- Syneos Health (Nasdaq:SYNH), a leading biopharmaceutical solutions organization combining a CRO and a CCO, today reported financial results for the third quarter and nine months ended September 30, 2018. Following the merger with inVentiv Health in August 2017 and to aid investors and analysts with year-over-year comparability of results for the merged business, this press release includes certain "Combined Company" metrics that represent combined financial information of INC Research and inVentiv Health as if the Merger had taken place on January 1, 2017. Please refer to the "Use of Non-GAAP Financial Measures" and "Reconciliation of GAAP to Combined Company Non-GAAP Measures" included in this press release and accompanying tables for important disclosures about non-GAAP measures and a reconciliation of these measures to the nearest GAAP measure.
“We had a solid third quarter across the business, including the return of our Commercial Solutions Segment to year-over-year growth,” said Alistair Macdonald, Chief Executive Officer of Syneos Health. “Additionally, we continued to bolster our end-to-end offering with the recent Kinapse acquisition, a leading advisory and operational solutions provider, further enhancing our integrated model with differentiating capabilities. With our Merger integration efforts progressing ahead of schedule in all phases of operations and delivery, we believe we are well-positioned to create a strong foundation for 2019 and beyond."
Impact of the Adoption of ASC 606
The Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASC 606”) on January 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption. The prior periods were not revised under this guidance and remain as previously reported. As a result of adopting the standard, the Company is no longer permitted to present service revenue and revenue associated with reimbursable out-of-pocket expenses (reimbursable revenue) separately in the statements of operations. The adoption of ASC 606 lowered the Company’s total revenue and income from operations compared to the treatment under ASC 605, and such delayed revenue recognition is expected to continue until the portfolio of contracts mature.
The following schedule includes a comparison of the third quarter and year-to-date 2018 financial results as reported compared to results presented as if the previous accounting guidance (ASC 605) had been in effect. The adoption of ASC 606 lowered the Company's total revenue and income from operations, and had no impact on its cash flows from operations.
Third Quarter and Year-to-Date 2018 Results
GAAP service revenue for the three months ended September 30, 2018 was $1.11 billion, an increase of $522.7 million, or 88.3%, compared to $592.2 million in the same period of 2017. GAAP service revenue for the nine months ended September 30, 2018 was $3.24 billion, an increase of $2.14 billion, or 194.3%, compared to $1.10 billion in the same period of 2017. Excluding reimbursable revenue of $332.6 million and $940.9 million for the three and nine months ended September 30, 2018, respectively, the service revenue increase was primarily due to the Merger with inVentiv Health in August 2017.
Combined Company adjusted service revenue under ASC 605 increased during the three months ended September 30, 2018 by $21.1 million, or 2.8%, to $787.7 million from $766.6 million during the three months ended September 30, 2017. Combined Company adjusted service revenue under ASC 605 increased during the nine months ended September 30, 2018 by $15.2 million, or 0.7%, to $2.35 billion from $2.33 billion during the nine months ended September 30, 2017. The increase during three months ended September 30, 2018 was driven by revenue growth in both segments, as discussed below, partially offset by a foreign currency exchange loss of $3.1 million during the third quarter of 2018. The increase for the nine months ended September 30, 2018 was driven by revenue growth in the Clinical Solutions segment and a foreign currency exchange benefit of $13.9 million, which was largely offset by a revenue decline in the Commercial Solutions segment, as discussed below.
GAAP Clinical Solutions service revenue for the three and nine months ended September 30, 2018 was $819.2 million and $2.39 billion, respectively. Under ASC 605, the Combined Company Clinical Solutions segment generated $543.6 million of adjusted service revenue during the three months ended September 30, 2018, representing an increase of $10.2 million or 1.9%, compared to $533.4 million during the three months ended September 30, 2017. Under ASC 605, the Combined Company Clinical Solutions segment generated $1.63 billion of adjusted service revenue during the nine months ended September 30, 2018, representing an increase of $53.4 million, or 3.4%, compared to $1.58 billion during the nine months ended September 30, 2017. These increases were primarily due to revenue from strong net awards in the previous 12 months, partially offset by delays in the startup of awards, along with an unfavorable revenue mix during the third quarter of 2018.
GAAP Commercial Solutions service revenue for the three and nine months ended September 30, 2018 was $295.7 million and $854.7 million, respectively. Adjusted service revenue from the Company's Commercial Solutions segment increased for the second sequential quarter. The Combined Company Commercial Solutions segment generated $244.1 million of adjusted service revenue under ASC 605 during the three months ended September 30, 2018, an increase of $10.9 million, or 4.7%, compared to $233.2 million during the three months ended September 30, 2017. The Combined Company Commercial Solutions segment generated $714.6 million of adjusted service revenue under ASC 605 during the nine months ended September 30, 2018, a decrease of $38.3 million, or 5.1%, compared to $752.9 million during the nine months ended September 30, 2017. The year-over-year decrease was primarily due to project cancellations and customer downsizing during 2017 impacting revenue from the Company's selling solutions and communications service offerings, along with lower new business awards in 2017 that reduced 2018 revenue during the first half of 2018.
Combined Company adjusted EBITDA for the three and nine months ended September 30, 2018 under ASC 605 increased to $160.5 million and $450.2 million, or 20.4% and 19.2%, respectively, of adjusted service revenue, compared to $138.9 million and $424.5 million, or 18.1% and 18.2%, respectively, of adjusted service revenue during the three and nine months ended September 30, 2017. This resulted in growth in the Combined Company adjusted EBITDA of 15.6% and 6.1%, respectively, for the three and nine months ended September 30, 2018, compared to the same periods in prior year. These increases were a result of realized synergies, revenue growth, and other cost management initiatives during 2018, partially offset by the impact of unfavorable revenue mix in our Clinical Solutions segment during the three months ended September 30, 2018. Fluctuations in foreign exchange rates resulted in a positive impact on Combined Company adjusted EBITDA of $3.2 million during the three months ended September 30, 2018 and a negative impact of $5.8 million during the nine months ended September 30, 2018.
GAAP net loss for the three months ended September 30, 2018 was $10.4 million resulting in diluted loss per share of $0.10, compared to net loss of $148.0 million resulting in diluted loss per share of $1.70 for the three months ended September 30, 2017. GAAP net loss for the nine months ended September 30, 2018 was $21.4 million, or a $0.21 diluted loss per share, compared to net loss of $123.4 million, or a $1.90 diluted loss per share, for the nine months ended September 30, 2017. Combined Company adjusted net income under ASC 605 during the three and nine months ended September 30, 2018 was $80.3 million and $219.5 million resulting in diluted earnings per share of $0.77 and $2.10, respectively, compared to $56.5 million and $164.2 million resulting in diluted earnings per share of $0.54 and $1.56, respectively, during the three and nine months ended September 30, 2017. This resulted in growth of 42.6% and 34.6% in the Combined Company adjusted diluted earnings per share for the three and nine months ended September 30, 2018, respectively, compared to the same periods in prior year. These increases in the Combined Company adjusted net income were primarily due to growth in adjusted EBITDA, lower interest expense, the reduction of the Company's non-GAAP tax rate to 27.5%, and share repurchases during the first half of 2018.
Under ASC 605, net new business awards were $920.2 million and $2.85 billion for the three and nine months ended September 30, 2018, representing book-to-bill ratios of 1.17x and 1.21x, respectively. Clinical Solutions and Commercial Solutions net new business awards for the three months ended September 30, 2018 were $676.0 million and $244.2 million, representing book-to-bill ratios of 1.24x and 1.00x, respectively. Clinical Solutions and Commercial Solutions net new business awards for the nine months ended September 30, 2018 were $2.08 billion and $772.4 million, representing book-to-bill ratios of 1.27x and 1.08x, respectively. Clinical Solutions Combined Company net new business awards have maintained a trailing twelve-month book-to-bill ratio of 1.24x. As of September 30, 2018, ending backlog under ASC 605 for Clinical Solutions and the selling solutions offering within Commercial Solutions was $4.22 billion and $460.3 million, respectively.
Capital Management Update
During the three months ended September 30, 2018, the Company borrowed $183.6 million under its accounts receivable financing agreement and used the proceeds to reduce the principal balance on its Term Loan B as the borrowings under the financing agreement bear a lower interest rate than the term loans. The Company also repaid an additional $36.7 million to reduce its term loan debt balances during the three months ended September 30, 2018. Since the closing of the Merger, the Company has reduced its total outstanding debt by $186.2 million, resulting in expected annual interest expense savings of $9.7 million.
Full Year 2018 Business Outlook
The Company's guidance takes into account a number of factors, including existing backlog, current sales pipeline, trends in cancellations and delays, and estimated Merger synergies, net of reinvestments. Furthermore, the below guidance is based on current foreign currency exchange rates, current interest rates, and expected tax rate. The guidance is based upon the Company's estimated diluted share count, excluding any share repurchases subsequent to the third quarter of 2018.
The Company anticipates that its 2018 effective tax rate will be between 27.0% and 28.0%, which takes into account the effect of the enactment of the Tax Cuts and Jobs Act (the "Tax Act"). The Company continues to expect to pay minimal cash taxes in the United States for 2018 due to the utilization of its net operating loss carryforwards.
Important disclosures in this earnings release about and reconciliations of non-GAAP measures, including Combined Company non-GAAP measures related to adjusted service revenue, adjusted income from operations, adjusted operating margin, adjusted net income, adjusted diluted earnings per share, EBITDA, and adjusted EBITDA, to the nearest corresponding GAAP measures are provided below under "Use of Non-GAAP Financial Measures" and "Reconciliation of GAAP to Combined Company Non-GAAP Measures.”
About Syneos Health
Syneos Health™ (Nasdaq:SYNH) is the only fully integrated biopharmaceutical solutions organization. The Company, including a Contract Research Organization (CRO) and Contract Commercial Organization (CCO), is purpose-built to accelerate customer performance to address modern market realities. Created through the merger of two industry leading companies – INC Research and inVentiv Health – Syneos Health brings together more than 23,000 clinical and commercial minds with the ability to support customers in more than 110 countries. The Company shares insights, uses the latest technologies, and applies advanced business practices to speed its customers’ delivery of important therapies to patients. To learn more about how Syneos Health is shortening the distance from lab to life® visit syneoshealth.com.
